n Contributions from companies acquired in 2021 | | In addition to the factors noted above, Adjusted EBIT increasedmargin decreased due to the following: | n Decrease in net sales of $20.3 million due to the Customer Contract Restructuring |
Mobility Coatings Segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | 2022 vs 2021 | | | 2022 | | 2021 | | $ Change | | % Change | Net sales | | $ | 1,557.7 | | | $ | 1,319.9 | | | $ | 237.8 | | | 18.0 | % | Volume effect | | | | | | | | 13.6 | % | | | | | | | | | | Price/Mix effect | | | | | | | | 8.1 | % | Exchange rate effect | | | | | | | | (3.7) | % | | | | | | | | | | Adjusted EBIT | | $ | 24.0 | | | $ | 38.7 | | | $ | (14.7) | | | (38.0) | % | Adjusted EBIT Margin | | 1.5 | % | | 2.9 | % | | | | |
| | | Net sales increased primarily due to the following: | n Higher average selling pricessales volumes across both end-markets and all regions, despite impacts from the Russia-Ukraine conflict and the China COVID-19 lockdowns | n Lower operating expensesHigher average selling prices and product mix across both end-markets resulting from operational efficiencies associated with our cost savings initiativesand all regions, primarily as well as lower costsa result of pricing actions taken to support net salesoffset input price inflation | Partially offset by: | n Lower organic volumes across both end-markets and all regions | n Higher raw materials costs across both end-markets
| n Unfavorable impacts of currency translation due primarily to the weakening of the Euro, Chinese Renminbi and Argentine Peso compared to the U.S. dollar
|
2018 Compared to 2017
| | Adjusted EBIT increased due to the following: | n Increases in sales volumes, including the impacts of acquisitions during 2018
| n Higher average selling prices across all regions and end-markets
| n Favorable currency translation primarily related to the strengthening of the EuroTurkish Lira and Chinese Renminbi compared to the U.S. Dollar
| Partially offset by: | n Higher raw material costs across all regions and end-markets
| n Increased amortization expense associated with definite-lived intangible assets from acquisitions within our industrial end-market during 2018
|
Transportation Coatings Segment
Net Sales
| | | | | | | | | | | | | | | | | | | Years Ended December 31, | | 2019 vs 2018 | | | 2019 | | 2018 | | $ Change | | % Change | Net sales | | $ | 1,558.8 |
| | $ | 1,662.9 |
| | $ | (104.1 | ) | | (6.3 | )% | Volume effect | | | | | | | | (4.9 | )% | Price/Mix effect | | | | | | | | 1.6 | % | Exchange rate effect | | | | | | | | (3.0 | )% |
| | | Net salesAdjusted EBIT and Adjusted EBIT margin decreased due to the following: | n Lower organic volumesHigher variable input costs across both end-markets and all regions within our light vehicle end-market, partially offset by an increase in volumes within our commercial vehicle end-market which saw lower selling prices due to adverse changes in product mixraw material, freight, logistics and energy inflation | n Unfavorable currency translation primarilyHigher operating expenses across all regions due to inflation, increased production activity and the lapsing of temporary COVID-19 related tocost savings initiatives during the weakeningfirst quarter of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar2021 | Partially offset by: | n Higher average selling prices and product mix across both end-markets and all regions, and within our light vehicle end-market, partiallyprimarily as a result of pricing actions taken to offset by lower prices within our commercial vehicle end-market |
Adjusted EBIT
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended December 31, | | 2019 vs 2018 | | Years Ended December 31, | | 2018 vs 2017 | | | 2019 | | 2018 | | $ Change | | % Change | | 2018 | | 2017 | | $ Change | | % Change | Adjusted EBIT | | $ | 137.4 |
| | $ | 134.9 |
| | $ | 2.5 |
| | 1.9 | % | | $ | 134.9 |
| | $ | 190.8 |
| | $ | (55.9 | ) | | (29.3 | )% | Adjusted EBIT Margin | | 8.8 | % | | 8.1 | % | | | | | | 8.1 | % | | 11.3 | % | | | | |
2019 Compared to 2018
| | Adjusted EBIT increased due to the following: | n Higher average selling prices within our light vehicle end-market, partially offset by lower prices within our commercial vehicle end-market which realized lower average selling prices due to adverse changes in product mixinput price inflation
| n Lower operating expensesHigher sales volumes across both end-markets resultingand all regions, despite impacts from operational efficiencies associated with our cost savings initiatives as well as lower costs to support net sales | Partially offset by: | n Lower sales volumes within our light vehicle end-market, partially offset by an increase in volumes within our commercial vehicle end-market
| n Slightly higher raw materials costs across both end-marketsthe Russia-Ukraine conflict and the China COVID-19 lockdowns
|
2018 Compared to 2017
| | Adjusted EBIT decreased due to the following: | n Higher raw materials costs
| n Lower average selling prices across both end-markets, primarily driven by the light vehicle end-market in China
| n Unfavorable impacts of currency exchange related to the weakening of certain currencies in Latin America compared to the U.S. Dollar
| Partially offset by: | n Increases in sales volumes in our North America and Latin America commercial vehicle end-markets
|
LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are cash on hand, net cash flow from operationsprovided by operating activities and available borrowing capacity under our Senior Secured Credit Facilities. At December 31, 2019,2022, availability under the Revolving Credit Facility was $361.2$529.3 million, net of $38.8$20.7 million inof letters of credit outstanding. All such availability may be utilized without violating any covenants under the credit agreement governing such facilityCredit Agreement or the indentures governing the Senior Notes. At December 31, 2019,2022, we had $16.9$13.5 million of outstanding borrowings under other lines of credit. Our remaining available borrowing capacity under other lines of credit in certain non-U.S. jurisdictions totaled $6.5$46.4 million. We, or our affiliates, at any time and from time to time, may purchase shares of our common stock or the Senior Notes, and may prepay our 2029 Dollar Term Loans or other indebtedness. Any such purchases of our common stock or Senior Notes may be made through the open market or privately negotiated transactions with third parties or pursuant to one or more redemption, tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we, or any of our affiliates, may determine. We have various supplier finance programs in place around the world. We partner with large banking institutions and utilize these programs to enhance our liquidity profile. Depending on the program, the liabilities under the program are classified either as accounts payable or current portion of borrowings on our consolidated balance sheets. Our supplier financing facility in China is more fully described in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Cash Flows Years ended December 31, 20192022 and 20182021 | | | | Year Ended December 31, | | Years Ended December 31, | (In millions) | | 2019 | | 2018 | (In millions) | | 2022 | | 2021 | Net cash provided by (used for): | | | | | Net cash provided by (used for): | | | | | Operating activities: | | | | | Operating activities: | | Net income | | $ | 252.6 |
| | $ | 213.3 |
| Net income | | $ | 192.2 | | | $ | 264.4 | | Depreciation and amortization | | 353.0 |
| | 369.1 |
| Depreciation and amortization | | 303.1 | | | 316.5 | | Amortization of deferred financing costs and original issue discount | | 8.8 |
| | 8.0 |
| Amortization of deferred financing costs and original issue discount | | 9.6 | | | 8.9 | | Debt extinguishment and refinancing related costs | | 0.2 |
| | 9.5 |
| | Debt extinguishment and refinancing-related costs | | Debt extinguishment and refinancing-related costs | | 14.7 | | | 0.2 | | Deferred income taxes | | 15.7 |
| | 6.1 |
| Deferred income taxes | | (3.4) | | | 15.0 | | Realized and unrealized foreign exchange losses, net | | 5.9 |
| | 17.3 |
| Realized and unrealized foreign exchange losses, net | | 15.5 | | | 10.1 | | Stock-based compensation | | 15.7 |
| | 37.3 |
| Stock-based compensation | | 22.2 | | | 14.9 | | Divestitures and impairments charges | | 21.1 |
| | — |
| | Gain on sales of facilities | | Gain on sales of facilities | | (1.5) | | | (19.7) | | Interest income on swaps designated as net investment hedges | | (14.7 | ) | | (9.4 | ) | Interest income on swaps designated as net investment hedges | | (19.9) | | | (18.0) | | Commercial agreement restructuring charge | | Commercial agreement restructuring charge | | 25.0 | | | — | | Other non-cash, net | | (0.1 | ) | | (0.9 | ) | Other non-cash, net | | 7.7 | | | 11.7 | | Net income adjusted for non-cash items | | 658.2 |
| | 650.3 |
| Net income adjusted for non-cash items | | 565.2 | | | 604.0 | | Changes in operating assets and liabilities | | (85.1 | ) | | (154.2 | ) | Changes in operating assets and liabilities | | (271.4) | | | (45.4) | | Operating activities | | 573.1 |
| | 496.1 |
| Operating activities | | 293.8 | | | 558.6 | | Investing activities | | (93.9 | ) | | (189.2 | ) | Investing activities | | (106.4) | | | (716.0) | | Financing activities | | (158.4 | ) | | (368.2 | ) | Financing activities | | (368.9) | | | (334.5) | | Effect of exchange rate changes on cash | | 3.3 |
| | (15.2 | ) | Effect of exchange rate changes on cash | | (14.8) | | | (20.9) | | Net increase (decrease) in cash | | $ | 324.1 |
| | $ | (76.5 | ) | | Net (decrease) increase in cash | | Net (decrease) increase in cash | | $ | (196.3) | | | $ | (512.8) | |
Year Ended December 31, 20192022 Net Cash Provided by Operating Activities Net cash provided by operating activities for the year ended December 31, 20192022 was $573.1$293.8 million. Net income adjusted for non-cash items (depreciation,before deducting depreciation, amortization and other non-cash items)items generated cash of $658.2$565.2 million. This was partially offset by changes in operating assets and liabilitiesnet uses of $85.1 million. Theworking capital of $271.4 million, for which the most significant drivers were increases in inventories, accounts and notes receivable, prepaid expenses and other assets of $118.9$195.4 million, due to business incentive payments$171.0 million and $80.5 million, respectively. These outflows were primarily driven by increased sales volumes and price-mix, increased inventory on hand caused by supply chain disruptions combined with inflation of raw material, freight, logistics and energy costs and payments for employee retention, as well as accounts receivables of $10.1 million due to timing of collections. Partially offsetting theseBusiness Incentive Plan assets. The outflows were partially offset by increases in accounts payable of $138.0 million primarily due to raw material cost inflation, as well as elevated freight, logistics and other liabilities of $18.2 million and $9.6 million, respectively, and a decrease in inventory of $10.8 million.energy costs. Net Cash Used for Investing Activities Net cash used for investing activities for the year ended December 31, 20192022 was $93.9$106.4 million. TheseThe primary uses wereuse was for purchases of property, plant and equipment of $112.5 million and business acquisitions of $3.3$150.9 million, partially offset by proceeds of $44.9 million from settlements and interest proceeds onfrom swaps designated as net investment hedges, of $14.7 million and net proceeds from the sale of our consolidated joint venture of $8.2 million aswhich are discussed further in Note 319 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Net Cash Used for Financing Activities Net cash used for financing activities for the year ended December 31, 20192022 was $158.4$368.9 million. This change was driven byThe primary uses were for purchases of our common stock totaling $105.3$200.1 million, payments, net of $67.1refinancing proceeds, of $153.0 million on short-termborrowings, which includes $64.6 million for our China supplier financing program, and long-term borrowings, investmentsoutflows of $15.1 million for fees associated with refinancing our 2024 Dollar Term Loans. Our China supplier financing program and our 2024 Dollar Term Loan refinancing are discussed further in noncontrolling interestsNote 18 to the condensed consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Other Impacts on Cash Currency exchange impacts on cash for the year ended December 31, 20192022 were favorableunfavorable by $3.3$14.8 million, which was driven primarily by weakening in the British Pound, Argentine Peso and Chinese Renminbi compared to the U.S. Dollar partially offset by the strengthening of the British pound and Mexican Peso compared to the U.S. Dollar. Peso.
Year Ended December 31, 20182021 Net Cash Provided by Operating Activities Net cash provided by operating activities for the year ended December 31, 20182021 was $496.1$558.6 million. Net income adjusted for non-cash items (depreciation,before deducting depreciation, amortization and other non-cash items)items generated cash of $650.3$604.0 million. This was partially offset by net uses of working capital of $154.2 million. The$45.4 million, for which the most significant drivers of the uses of working capital were increases in inventory, accounts and notes receivable, prepaid expenses and other assets of $157.3$111.6 million, inventory of $48.1$80.5 million and accounts receivables of $22.3$45.3 million, and a decrease in other accrued liabilities of $8.4 million.respectively. These outflows were primarily driven by customer incentive payments,inflation of raw material costs, increased inventory builds to support ongoing operational demands and incrementalaccounts receivable associated with net sales duringgrowth, insurance receivables related to an operational matter within the year ended December 31, 2018. Partially offsetting theseMobility Coatings segment, which is discussed further in Note 6 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and timing of business incentive payments. The outflows were partially offset by increases in other liabilities and accounts payable of $32.4$140.1 million due to inflation of raw material costs and $49.5management of accounts payable and other accruals of $66.2 million respectfully.primarily related to an operational matter within the Mobility Coatings segment, which is discussed further in Note 6 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Net Cash Used for Investing Activities Net cash used for investing activities for the year ended December 31, 20182021 was $189.2$716.0 million. This use was driven byThe primary uses were $649.0 million for business acquisitions and purchases of property, plant and equipment of $143.4 million and business acquisitions of $82.8 million (net of cash acquired). These$121.6 million. The outflows were partially offset by interestproceeds received from sales of assets of $37.8 million, driven primarily by the sales of facilities, and settlement$18.0 million of interest proceeds on swaps designated as net investment hedges of $9.4 million and $22.5 million, respectively, as well as $5.1 million of other investing activities, net.hedges. Net Cash Used for Financing Activities Net cash used for financing activities for the year ended December 31, 20182021 was $368.2$334.5 million. This outflow was driven by paymentsThe primary uses were for the purchase of $556.0 million on short-term and long-term borrowings inclusive of the repayment of the 2023 Euro Term Loans, the purchases of treasurycommon stock totaling $253.8 million, an investment in a non-controlling interest of $26.9$243.8 million and payments of $17.8$100.9 million consisting of financing-related costs, deferred acquisition-related consideration associated with historical acquisitions, and dividends to noncontrolling interests of consolidated joint ventures. These outflows were partially offset by net proceeds of $468.9on borrowings, which includes $63.8 million relatingfor our China supplier financing program discussed further in Note 18 to the refinancing of our 2024 Dollar Term Loans and proceeds from stock option exercises of $17.4 million.condensed consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Other Impacts on Cash Currency exchange impacts on cash for the year ended December 31, 20182021 were unfavorable by $15.2$20.9 million, which was driven primarily by fluctuations in the Euro compared to the U.S. Dollar partially offset by fluctuations in the Chinese Renminbi and certain currencies within Latin America.compared to the U.S. Dollar. Financial Condition We had cash and cash equivalents at December 31, 20192022 and 20182021 of $1,017.5$645.2 million and $693.6$840.6 million, respectively. Of these balances, $540.0$433.6 million and $417.1$471.9 million were maintained in non-U.S. jurisdictions as of December 31, 20192022 and 2018, respectively.2021, respectively, with $12.9 million and $11.3 million, respectively, within Russia. We believe at this time our organizational structure allows us the necessary flexibility to move funds throughout our subsidiaries to meet our operational working capital needs. Our business may not generate sufficient cash flow from operations and future borrowings may not be available under our Senior Secured Credit Facilities in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs, including planned capital expenditures. In such circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seekingselling additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Our primary sources of liquidity are cash on hand, cash flow from operations and available borrowing capacity under our Senior Secured Credit Facilities. Based on our forecasts, we believe that cash flow from operations, available cash on hand and available borrowing capacity under our Senior Secured Credit Facilities and existing lines of credit will be adequate to service debt, fund our cost saving initiatives, meet liquidity needs and fund necessary capital expenditures for the next twelve months. Our ability to make scheduled payments of principal or interest on, or to refinance, our indebtedness or to fund working capital requirements, capital expenditures and other current obligations will depend on our ability to generate cash from operations. Such cash generation is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.control, including the effects of COVID-19, inflationary pressures and Russia's conflict with Ukraine.
If required, our ability to raise additional financing and our borrowing costs may be impacted by short and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios. Our highly leveraged nature may limit our ability to procure additional financing in the future. future and elevated interest rates, as experienced during 2022, may increase our interest expense and weaken our financial condition.
The following table details our borrowings outstanding at the periodsdates indicated: | | | | December 31, | | December 31, | (In millions) | | 2019 | | 2018 | (In millions) | | 2022 | | 2021 | 2024 Dollar Term Loans | | $ | 2,387.5 |
| | $ | 2,411.8 |
| 2024 Dollar Term Loans | | $ | — | | | $ | 2,038.9 | | 2024 Dollar Senior Notes | | 500.0 |
| | 500.0 |
| | 2024 Euro Senior Notes | | 375.2 |
| | 383.3 |
| | 2029 Dollar Term Loans | | 2029 Dollar Term Loans | | 2,000.0 | | | — | | 2025 Euro Senior Notes | | 504.0 |
| | 514.9 |
| 2025 Euro Senior Notes | | 479.1 | | | 508.8 | | 2027 Dollar Senior Notes | | 2027 Dollar Senior Notes | | 500.0 | | | 500.0 | | 2029 Dollar Senior Notes | | 2029 Dollar Senior Notes | | 700.0 | | | 700.0 | | Short-term and other borrowings | | 109.0 |
| | 103.8 |
| Short-term and other borrowings | | 74.5 | | | 113.8 | | Unamortized original issue discount | | (10.5 | ) | | (12.6 | ) | Unamortized original issue discount | | (22.4) | | | (4.6) | | Deferred financing costs, net | | (31.1 | ) | | (37.2 | ) | | | | 3,834.1 |
| | 3,864.0 |
| | Unamortized deferred financing costs | | Unamortized deferred financing costs | | (26.9) | | | (27.3) | | Total borrowings, net | | Total borrowings, net | | 3,704.3 | | | 3,829.6 | | Less: | | | | | Less: | | Short term borrowings | | 19.6 |
| | 17.9 |
| | Short-term borrowings | | Short-term borrowings | | 16.0 | | | 55.4 | | Current portion of long-term borrowings | | 24.3 |
| | 24.3 |
| Current portion of long-term borrowings | | 15.0 | | | 24.3 | | Long-term debt | | $ | 3,790.2 |
| | $ | 3,821.8 |
| Long-term debt | | $ | 3,673.3 | | | $ | 3,749.9 | |
Our indebtedness, including the Senior Secured Credit Facilities, and Senior Notes and short-term borrowings, is more fully described in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We believe that we continue to maintain sufficient liquidity to meet our requirements, including our leverage and associated interest payments as well as our working capital needs. Availability under the Revolving Credit Facility was $361.2$529.3 million and $355.2$527.9 millionat at December 31, 20192022 and December 31, 2018,2021, respectively, all of which may be borrowed by us without violating any covenants under the credit agreement governing such facility or the indentures governing the Senior Notes. On June 28, 2019,During the year ended December 31, 2022, we executedentered into the eighth amendmentEleventh Amendment discussed within Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The Eleventh Amendment amended the Credit Agreement to, among other things, provide a new seven-year $2.0 billion term loan maturing in December 2029, the proceeds of which, impactedtogether with cash on hand, were used to refinance the Revolving Credit Facility by (i) extending the maturity date to the earlierBorrowers' existing $2.021 billion term loan due in June 2024. The interest rate payable on such new term loan is SOFR plus a margin of March 2, 2024, the date of termination in whole of the Revolving Credit Facility, or the date that is 91 days prior to the maturity of the term loans borrowed under the Credit Agreement, and (ii) reducing the applicable interest margins on any outstanding borrowings.300 basis points.
The following table details our borrowings outstanding, average effective interest rates and the associated interest expense for the years ended December 31, 2022 and 2021. Interest expense is inclusive of the amortization of debt issuance costs, debt discounts and the impact of derivative instruments for the years ended December 31, 20192022 and 2018,2021, respectively: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended December 31, | | | 2022 | | 2021 | (In millions) | | Principal | | Average Effective Interest Rate | | Interest Expense | | Principal | | Average Effective Interest Rate | | Interest Expense | Term Loans | | $ | 2,000.0 | | | 3.9% | | $ | 70.5 | | | $ | 2,038.9 | | | 2.2% | | $ | 62.2 | | Revolving Credit Facility | | — | | | N/A | | 2.7 | | | — | | | N/A | | 1.5 | | Senior Notes | | 1,679.1 | | | 4.1% | | 63.8 | | | 1,708.8 | | | 4.1% | | 65.9 | | Short-term and other borrowings | | 74.5 | | | Various | | 2.8 | | | 113.8 | | | Various | | 4.6 | | Total | | $ | 3,753.6 | | | | | $ | 139.8 | | | $ | 3,861.5 | | | | | $ | 134.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | (In millions) | | Principal | | Average Effective Interest Rate | | Interest Expense | | Principal | | Average Effective Interest Rate | | Interest Expense | Term Loans | | $ | 2,387.5 |
| | 3.9 | % | | $ | 92.7 |
| | $ | 2,411.8 |
| | 3.8 | % | | $ | 91.5 |
| Revolving Credit Facility | | — |
| | N/A |
| | 1.6 |
| | — |
| | N/A |
| | 1.9 |
| Senior Notes | | 1,379.2 |
| | 4.6 | % | | 62.9 |
| | 1,398.2 |
| | 4.5 | % | | 64.3 |
| Short-term and other borrowings | | 109.0 |
| | Various |
| | 5.4 |
| | 103.8 |
| | Various |
| | 1.9 |
| Total | | $ | 3,875.7 |
| | | | $ | 162.6 |
| | $ | 3,913.8 |
| | | | $ | 159.6 |
|
After giving effect to our cross-currency and interest rate hedges, our borrowings denominated in U.S. Dollars as of December 31, 2022 and 2021 were $2,434.0 million and $2,481.4 million, respectively, with weighted average interest rates of 5.4% and 3.4%, respectively. After giving effect to our cross-currency and interest rate hedges, borrowings denominated in Euros as of December 31, 2022 and 2021 were $1,319.6 million and $1,380.1 million, respectively, with weighted average interest rates of 2.5% and 2.5%, respectively. The cross-currency and interest rate hedges impacting our Euro denominated borrowings mature in March 2023 as discussed in Note 19 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Contractual Obligations The following table summarizesSee Note 7 and Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for disclosure of our material contractual obligations at December 31, 2019:obligations.
| | | | | | | | | | | | | | | | | | | | | | | | Contractual Obligations Due In: | (In millions) | | Total | | 2020 | | 2021-2022 | | 2023-2024 | | Thereafter | Debt, including current portion | | | | | | | | | | | Senior Secured Credit Facilities, consisting of the following: | | | | | | | | | | | 2024 Dollar Term Loans | | $ | 2,387.5 |
| | $ | 24.3 |
| | $ | 48.6 |
| | $ | 2,314.6 |
| | $ | — |
| Senior Notes, consisting of the following: | | | | | | | | | | | 2024 Dollar Senior Notes | | 500.0 |
| | — |
| | — |
| | 500.0 |
| | — |
| 2024 Euro Senior Notes | | 375.2 |
| | — |
| | — |
| | 375.2 |
| | — |
| 2025 Euro Senior Notes | | 504.0 |
| | — |
| | — |
| | — |
| | 504.0 |
| Other borrowings | | 43.9 |
| | 16.6 |
| | 27.3 |
| | — |
| | — |
| Interest payments (1) | | 719.7 |
| | 153.2 |
| | 303.0 |
| | 254.0 |
| | 9.5 |
| Finance leases (2) | | 100.8 |
| | 5.9 |
| | 11.4 |
| | 11.6 |
| | 71.9 |
| Operating leases | | 109.2 |
| | 31.1 |
| | 41.9 |
| | 19.0 |
| | 17.2 |
| Pension contributions (3) | | 5.8 |
| | 5.8 |
| | — |
| | — |
| | — |
| Purchase obligations (4) | | 165.0 |
| | 86.3 |
| | 67.3 |
| | 3.1 |
| | 8.3 |
| Uncertain tax positions, including interest and penalties (5) | | — |
| | — |
| | — |
| | — |
| | — |
| Employee retention award payments (6) | | 17.0 |
| | — |
| | 17.0 |
| | — |
| | — |
| Total | | $ | 4,928.1 |
| | $ | 323.2 |
| | $ | 516.5 |
| | $ | 3,477.5 |
| | $ | 610.9 |
|
| | (1) | Interest payments are based on principal amounts of our Senior Secured Credit Facilities and Senior Notes at December 31, 2019 including commitment fees on the unused portion of the Revolving Credit Facility. Future interest payments assume December 31, 2019 variable rates will prevail throughout all future periods and do not consider the effect of our derivative instruments. See Note 18 and Note 19 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for disclosures of our interest rates and derivatives, respectively. |
| | (2) | Finance lease payments, within the table above, represent total cash rental costs to be paid over the terms of these leases, which include principal and interest.
|
| | (3) | We expect to make contributions to our defined benefit pension plans beyond 2020; however, the amount of any contributions is dependent on the future economic environment and investment returns, and we are unable to reasonably estimate the pension contributions beyond 2020. |
| | (4) | Purchase obligations include various commitments at December 31, 2019 and reflect the minimum contractual obligations under legally enforceable contracts. |
| | (5) | At December 31, 2019, we had approximately $50.3 million of gross uncertain tax positions, including interest and penalties that could result in potential payments. Due to the high degree of uncertainty regarding future timing of cash flows associated with these liabilities, we are unable to estimate the years in which settlement will occur with the respective taxing authorities. |
| | (6) | Employee retention award payments for certain employees contingent upon service through this point to help ensure continuity of the Company’s business. |
Off Balance Sheet Arrangements See Note 6 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for disclosure of our guarantees of certain customers’customers' obligations to third parties. Recent Accounting Guidance See Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a summary of recent accounting guidance.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements. These financial statements have been prepared in accordance with U.S. GAAP unless otherwise noted. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements. We base our estimates and judgments on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis. Actual results could differ from our estimates under different assumptions or conditions. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the financial statements. Accounting for Business Combinations Determining the fair value of assets acquired and liabilities assumed in business combinations requires management’smanagement's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, royalty rates, customer attrition rates, technology migration rates, asset lives and market multiples, among other items. The fair values of intangible assets are estimated using an income approach, either the excess earnings method (customer relationships) or the relief from royalty method (technology and trademarks). Under the excess earnings method, an intangible asset’sasset's fair value is equal to the present value of the incremental after-tax cash flows attributable solely to the intangible asset over its remaining useful life. With respect to customer relationships, fair values are calculated using the excess earnings method and customer attrition is a key input used to determine the applicable after-tax cash flows. Under the relief from royalty method, fair value is measured by estimating future revenue associated with the intangible asset over its useful life and applying a royalty rate to the revenue estimate. These intangible assets enable us to secure markets for our products, develop new products to meet the evolving business needs and competitively produce our existing products. The fair values of real properties acquired are based on the consideration of their highest and best use in the market. The fair values of property, plant and equipment, other than real properties, are based on the consideration that unless otherwise identified, they will continue to be used "as is" and as part of the ongoing business. In contemplation of the in-use premise and the nature of the assets, the fair value is developed primarily using a cost approach. The fair value of noncontrolling interests, when applicable, are estimated by applying an income approach and is based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. Key assumptions in the valuation of noncontrolling interest included a discount rate, a terminal value based on a range of long-term sustainable growth rates and adjustments because of the lack of control that market participants would consider when measuring the fair value of the noncontrolling interests.
The fair value of the contingent consideration liabilities is estimated by applying an income approach using the Black-Scholes option pricing model. The fair value measurements are based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. Key assumptions in the valuation of contingent consideration liabilities includedinclude discount rates, expected terms, volatility rates and operating results as applicable based on the targets identified in the respective acquisition agreements. See NoteNotes 1 and 3 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Asset Impairments Factors that could result in future impairment charges or changes in useful lives, among others, include changes in worldwide economic conditions, changes in technology, changes in competitive conditions and customer preferences, and fluctuations in foreign currency exchange rates. These risk factors are discussed in Part I, Item 1A, "Risk Factors," included elsewhere in this Annual Report on Form 10-K.
Goodwill and indefinite-lived intangible assets The Company tests indefinite-lived intangible assets and goodwill for impairment annually by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair values of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. Fair values used under the quantitative impairment assessment are estimated using a combination of discounted projected future earnings or cash flow methods that are based on projections of the amounts and timing of future revenue and cash flows, and multiples of earnings in estimating fair value. In conjunction with our impairment assessments of indefinite-lived intangible assets, we also review the reasonableness of the indefinite useful lives associated with these assets, in which we evaluate whether indicators exist that future cash flows associated with these assets could be realized over a finite period. In 2022, as a result of the time lapsed since our last quantitative evaluation in 2019, we forwentbypassed the qualitative testevaluation and tested for impairment of the goodwill of our reporting units and our indefinite-lived intangible assets for impairment by performing a quantitative analysis.evaluation. The quantitative analysis determinedconcluded that all reporting units and indefinite-lived intangible assets had fair values substantially in significant excess of carrying values. The inputs utilized in a quantitative analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair"Fair Value Measurement.Measurement." The process of evaluating the potential impairment of goodwill and indefinite-lived intangible assets is subjective because it requires the use of estimates and assumptions as to our future cash flows, discount rates commensurate with the risks involved in the assets, future economic and market conditions, as well as other key assumptions. We believe that the amounts recorded in the financial statements related to goodwill and indefinite-lived intangible assets are based on the best estimates and judgments of the appropriate Axalta management, although actual outcomes could differ from our estimates. See Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Long-Lived Assets Long-lived assets, which includes property, plant and equipment, and definite-lived intangible assets, such as technology, trademarks, customer relationships and non-compete agreements, are continually assessed for impairment at the asset group level whenever events or changes in circumstances indicate the carrying amount of the asset group may not be recoverable. Such impairment assessments involve comparing the carrying amount of the asset group, determined at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets, to the forecasted undiscounted future cash flows generated by that asset group (i.e., a recoverability test). In the event the carrying amount of the asset group exceeds the undiscounted future cash flows generated by that asset group and the carrying amount is not considered recoverable, an impairment exists. An impairment loss is measured as the excess of the asset group’sgroup's carrying amount over its fair value. Stock-Based Compensation Compensation expense related to service-based, non-qualified stock options is equivalent to the grant-date fair value of the awards determined under the Black-Scholes option pricing model and is recognized as compensation expense over the service period utilizing the graded vesting attribution method. Compensation expense related to the restricted stock awards and restricted stock units is equal to the grant-date fair value of the awards determined by the closing share price on the date of the grant. The related expense is recognized as compensation expense over the service period utilizing the graded vesting attribution method.
Compensation expense related to performance stock awards and performance share units, which are determined to have a market condition, is determined at the grant-date of the awards using a valuation methodology (Monte Carlo simulation model) to account for the market conditions linked to these awards and are recognized as compensation expense over the service period utilizing the graded vesting attribution method. We recognize compensation expense net of forfeitures, which we have elected to record at the time of occurrence. Awards that are modified are evaluated for the type of modification and, if necessary, the fair value is adjusted and expense is recorded over any remaining service period. See Note 9 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail on stock-based compensation. Retirement Benefits The amounts recognized in the audited financial statements related to pension benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which liabilities could have been settled, rate of increase in future compensations levels, and mortality rates. These assumptions are updated annually and are disclosed in Note 8 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In accordance with U.S. GAAP, actual results that differed from the assumptions are accumulated and amortized over future periods and therefore affect expense recognized in future periods.
The estimated impact of either a 100 basis point increase or decrease of the discount rate to the net periodic benefit cost for 20202023 would result in a decrease of approximately $0.5 million or an increase of approximately $0.4 million or $0.2 million, respectively. The estimated impact of a 100 basis point increase or decrease of the expected return on assetassets assumption on the net periodic benefit cost for 20202023 would result in a decrease or increase of approximately $2.5$1.4 million, respectively. Derivative Instruments The fair market value recognized in the audited financial statements related to derivative instruments is determined by using valuation models whose inputs are derived using market observable inputs, including interest rate yield curves, as well as foreign exchange and commodity spot and forward rates, and reflects the asset or liability position as of the end of each reporting period. Income taxes The provision for income taxes was determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the period. Deferred taxes result from differences between the financial and tax basis of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the period that includes the enactment date. The Company records a valuation allowance if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company must generate approximately $279.7 million of taxable income to fully realize its consolidated net deferred tax assets as of December 31, 2019.
We evaluate the recoverability of deferred tax assets on a jurisdictional basis by assessing the adequacy of future expected taxable income from all sources, including the reversal of taxable temporary differences, forecasted core business earnings and available tax planning strategies. Of ourOur net deferred tax asset balance as of December 31, 2019, $101.32022 is $3.1 million, net of valuation allowances of $2.5 million, relates to our operations within$194.0 million. The Company records a valuation allowance if, based upon the U.S.weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In instances where we are in a three-year cumulative loss, we assess all positive and negative factors, including any potential aberrational items whichthat may be included within our taxable results. The aberrational items whichthat have impacted our results include transition-related costs associated with the separation from our predecessor coupled with significant taxable losses associated with the exercises of pre-IPO stock options that were deep in the money at the time they were exercised, as well as debt extinguishment, refinancing and acquisition relatedcertain global restructuring costs. We believe, and have assumed, these types of losses are not indicative of our core earnings for purposes of assessing the appropriateness of a valuation allowance. Assumptions around sources of taxable income inherently rely heavily on estimates. We use our historical experience and our short and long-range business forecasts to provide insight. While the Company believes that its judgments and estimations regarding deferred tax assets are appropriate, significant differences in actual experience may require the Company to adjust its valuation allowance and could materially affect the Company’sCompany's future financial results. We provide for income and foreign withholding taxes, where applicable, on unremitted earnings of all subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested and cannot be repatriated in a tax-free manner. At December 31, 20192022 and 2018,2021, deferred income taxes of approximately $6.0$10.8 million and $7.4$10.6 million, respectively, have been provided on such subsidiary earnings, respectively.earnings. At December 31, 2019,2022, and 2018,2021, we have not recorded a deferred tax liability related to withholding taxes of approximately $16.3$177.5 million and $4.0$124.7 million, respectively, on unremitted earnings of subsidiaries that are permanently invested.
The breadth of our operations and the global complexity of tax regulations require us to make assessments of uncertainties and judgments in estimating taxes we will ultimately pay.pay factoring in various uncertainties. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state and international tax audits in the normal course of business. A liability for unrecognized tax benefits is recorded when management concludes that the likelihood of sustaining such positions upon examination by taxing authorities is less than "more likely than not." Interest and penalties accrued related to unrecognized tax benefits are included in the provision for income taxes. At December 31, 20192022 and 2018,2021, the Company had gross unrecognized tax benefits, excluding interest and penalties, for both domestic and foreign operations of $45.3$98.2 million and $37.0$91.4 million, respectively. See Note 11 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail on our accounting for income taxes. Sales deductions In our refinish end-market, our product sales are typically supplied through a network of distributors. Control transfers and revenue is recognized when our products are delivered to our distribution customers. Variable consideration in the form of price, less discounts and rebates, are estimated and recorded, as a reduction to net sales, upon the sale of our products based on our ability to make a reasonable estimate of the amounts expected to be received or incurred.received. The estimates of variable consideration involve significant assumptions based on the best estimates of inventory held by distributors, applicable pricing, as well as the use of historical actuals for sales, discounts and rebates, which may result in changes into estimates in the future.
The timing of payments associated with the above arrangements may differ from the timing associated with the satisfaction of our performance obligations. The period between the satisfaction of the performance obligation and the receipt of payment is dependent on terms and conditions specific to the customers. For transactions in which we expect, at contract inception, the period between the transfer of our products or services to our customer and when the customer pays for that good or service to be greater than one year, we adjust the promised amount of consideration for the effects of any significant financing components.components that materially changes the amount of revenue under the contract. See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail on our revenue. Contingencies Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss. The most important contingencies impacting our financial statements are those related to environmental remediation, operational matters, pending or threatened litigation against the Company and the resolution of matters related to open tax years. Costs related to the operational matter described in Note 6 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. Estimates of probable liabilities for the operational matter require assumptions pertaining to costs incurred by our customers to repair the impacted products. Assumptions include the ultimate number of impacted products that are repaired, re-use of damaged materials, labor rates and efficiency of individuals performing the repairs. A 10% decrease in the total number of products repaired would result in an approximately $5.7 million reduction in the estimated liability. Insurance recoveries related to the operational matter are recorded when probable to the extent they cover incurred or probable liabilities, while recoveries in excess of incurred or probable liabilities are recorded when collection is realizable. Environmental remediation costs are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. Estimates of environmental reserves require evaluating government regulation,the nature and extent of contamination, the outcome of discussions with regulatory agencies, available technology, site-specific information, remediation alternatives and, remediation alternatives.at multi-party sites, other PRPs and the number and financial viability of the other PRPs. We accrue an amount equal to our best estimate of the costs to remediate based upon the available information. The extent of environmental impacts may not be fully known, and the processes and costs of remediation may change as new information is obtained or technology for remediation is improved. Our process for estimating the expected cost for remediation considers the information available, technology that can be utilized and estimates of the extent of environmental damage.improves. Adjustments to our estimates are made periodically as additional information is received and as remediation progresses. We do not believe that the amounts historically accrued for environmental remediation costs are material to our financial statements. We are subject to legal proceedings, claims and potential claims arising out of our business operations. We routinely assess the likelihood of any adverse outcomes toin these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known claim.matter. We have an active risk management program consisting of numerous insurance policies secured from many carriers. These policies often provide coverage that is intended to minimize the financial impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For more information on these matters, see Note 6 and Note 11 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through fixed and variable rate debt instruments and denominate our transactions in a variety of foreign currencies. We are also exposed to changes in the prices of certain commodities that we use in production. Changes in these rates and commodity prices may have an impact on future cash flows and earnings. We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes. By using derivative instruments, we are subject to credit and market risk. The fair market value of the derivative instruments is determined by using valuation models whose inputs are derived using market observable inputs, including interest rate yield curves, as well as foreign exchange and commodity spot and forward rates, and reflects the asset or liability position as of the end of each reporting period. When the fair value of a derivative contract is positive, the counterparty owes us, thus creating a receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterpartiescounter-parties to our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with major financial institutions of investment grade credit rating. Our exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market conditions on earnings or cash flow. Interest rate risk We are subject to interest rate market risk in connection with our borrowings. A one-eighth percent change in the applicable interest rate for borrowings under the Senior Secured Credit Facilities (assuming the Revolving Credit Facility is undrawn) would have an annual impact of approximately $1.5$2.4 million on cash interest expense considering the impact of our hedging positions currently in place. We selectively use derivative instruments to reduce market risk associated with changes in interest rates. The use of derivatives is intended for hedging purposes only and we do not enter into derivative instruments for speculative purposes. During the year ended December 31, 2017, we entered into four 1.5% interest rate caps with aggregate notional amounts totaling $850.0 million to hedge the variable interest rate exposuresFor further detail on our 2024 Dollar Term Loans. Threeuse of these interest rate caps, comprising $600.0 million ofderivative instruments, see Note 19 to the notional value, expired December 31, 2019 and had a deferred premium of $8.6 million at inception. The fourth interest rate cap, comprising the remaining $250.0 million of the notional value, expires December 31, 2021 and had a deferred premium of $8.1 million at inception. All deferred premiums are paid quarterly over the term of the respective interest rate caps. These interest rate caps are marked to market at each reporting date and any unrealized gains or losses areconsolidated financial statements included elsewhere in accumulated other comprehensive (loss) income ("AOCI") and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.
During the year ended December 31, 2018, we entered into three interest rate swaps and three fixed for fixed cross-currency swaps, both with aggregate notional amounts totaling $475.0 million, to hedge interest rate exposures related to variable rate borrowings and variability of exchange rate impacts between the U.S. Dollar and Euro, under the Senior Secured Credit Facilities. Under the terms of the interest rate swap agreements, the Company is required to pay the counter-parties a stream of fixed interest payments at a rate of 2.72% and in turn, receives variable interest payments basedthis Annual Report on 3-month LIBOR from the counter-parties. Under the terms of the cross-currency swap agreements, the Company notionally exchanged $475.0 million at a weighted average interest rate of 4.47% for €416.6 million at a weighted average interest rate of 1.44%. The interest rate swaps and the cross-currency swaps are designated as cash flow and net investment hedges, respectively, and expire on March 31, 2023. The interest rate swaps are marked to market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings. The cross-currency swaps are marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments, within AOCI, while the accrued and settled interest is recorded as interest expense, net in the statement of operations.
During the year ended December 31, 2019, we entered into two interest rate swaps with aggregate notional amounts totaling $500.0 million, effective December 31, 2019, to hedge interest rate exposure associated with the 2024 Dollar Term Loans. Under the terms of the interest rate swap agreements, the Company is required to pay the counter-parties a stream of fixed interest payments at a rate of 2.59% and in turn, receives variable interest payments based on 3-month LIBOR from the counter-parties. The interest rate swaps are designated as cash flow hedges and expire on December 31, 2022. These interest rate swaps are marked to market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.
Form 10-K.
Foreign exchange rates risk We are exposed to foreign currency exchange risk by virtue of the translation of our international operations from local currencies into the U.S. Dollar. The majority of our net sales for the years ended December 31, 2019, 20182022, 2021 and 20172020 were from operations outside the United States. At December 31, 20192022 and 2018,2021, the accumulated other comprehensive loss account onin the consolidated balance sheets included a cumulative translation loss of $297.0$433.5 million and $299.4$331.3 million, respectively. A hypothetical 10% increase in the value of the U.S. Dollar relative to all foreign currencies would have increased the cumulative translation loss by $190.3$245.1 million. This sensitivity analysis is inherently limited as it assumes that rates of multiple foreign currencies are moving in the same direction relative to the value of the U.S. Dollar. Uncertainty in the global market conditions has resulted in, and may continue to cause, significant volatility in foreign currency exchange rates which could increase these risks. In the majority of our jurisdictions, we earn revenue and incur costs in the local currency of such jurisdiction. We earn significant revenues and incur significant costs in foreign currencies including the Euro, Mexican Peso, Brazilian Real, Chinese Renminbi, British Pound and the Chinese Yuan/Renminbi.Turkish Lira. As a result, movements in exchange rates could cause our revenues and expenses to materially fluctuate, impacting our future profitability and cash flows. Our purchases of raw materials in Latin America, EMEA and Asia Pacific and future business operations and opportunities, including the continued expansion of our business outside North America, may further increase the risk that cash flows resulting from these activities may be adversely affected by changes in currency exchange rates. If and when appropriate, we intend to manage these risks through foreign currency hedges and/or by utilizing local currency funding of these expansions. We do not intend to hold financial instruments for trading or speculative purposes. Additionally, in order to fund the purchase price for certain assets of DPC and the capital stock and other equity interests of certain non-U.S. entities, a combination of equity contributions and intercompany loans were utilized to capitalize certain non-U.S. subsidiaries. In certain instances, the intercompany loans are denominated in currencies other than the functional currency of the affected subsidiaries. Where intercompany loans are not a component of permanently invested capital of the affected subsidiaries, increases or decreases in the value of the subsidiaries’subsidiaries' functional currency against other currencies will affect our results of operations. We use these intercompany loans to offset the exposure to profitability and cash flows created by external loans denominated in currencies that are different from the functionfunctional currency of the issuing entities, including our 2024 and 2025 Euro Senior Notes (as defined in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K), which are denominated in Euros.
Commodity price risk WeWhile our raw material pricing fluctuates based on underlying feedstocks movements, we are also subject to supply and demand dynamics, or other macro-level factors, and also to changes in our cost of sales caused by movements in underlying commodity prices, (primarilysuch as oil and natural gas). Between 45%gas, among others, for energy spend and 55%certain purchased raw materials, including monomers, resins and solvents. We try to manage these risks by ensuring we have strategic contracts in place on critical materials along with a balance of pricing mechanisms across categories, competitive sourcing options including low cost country sources, and utilizing our supplier relationship management program. In addition, we attempt to mitigate raw material inflation by passing along price increases to our customers. During 2022, a significant portion of the raw material inflation was passed through to our customers through a series of price increases.
Since 2001, on average, our total raw material spend has represented between 40% and 50% of our cost of sales; however, during 2022, our total raw material spend represented approximately 53% of our cost of sales is representeddriven by continued raw materials. A substantial portion ofmaterial inflation experienced throughout the purchased raw materials include monomers, pigments, resins and solvents. Our price fluctuations generally follow industry indices. We historically have not entered into long-term purchase contracts related to the purchase of raw materials. If and when appropriate, we intend to manage these risks using purchase contracts with our suppliers.year. Treasury policy Our treasury policy seeks to ensure that adequate financial resources are available for the development of our businesses while managing our currency and interest rate risks. Our policy is to not engage in speculative transactions. Our policies with respect to the major areas of our treasury activity are set forth above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Axalta Coating Systems Ltd. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Axalta Coating Systems Ltd. and its subsidiaries(the (the “Company”) as of December 31, 20192022 and 2018,2021, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders’shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2019,2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 20192022 appearing under itemItem 15(a)(2) (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 20192022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO. Changes in Accounting Principle
As discussed in Notes 1 and 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.
Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s reportReport on internal controlInternal Control over financialFinancial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit MatterMatters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Measurement of Unrecognized Tax Benefits As described in Notes 1 and 11 to the consolidated financial statements, management has recorded unrecognized tax benefits of $50.3$104.5 million as of December 31, 2019.2022. As disclosed by management, the breadth of operations and the global complexity of tax regulations requires management to makerequire assessments of uncertainties and judgments in estimating taxes. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state and international tax audits in the normal course of business. A liability for unrecognized tax benefits is recorded when management determinesconcludes that the likelihood of sustaining such positions upon examination by taxing authorities is less than “more-likely- than“more-likely-than not.” The principal considerations for our determination that performing procedures relating to the measurement of unrecognized tax benefits is a critical audit matter are there wasthe significant judgmentjudgments by management when applying the more-likely-than-not recognition criteria to the Company’s tax positions, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence obtained related to the measurement of unrecognized tax benefits. Additionally, the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained.knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification and recognition of the liability for unrecognized tax benefits, including controls addressing completeness of the unrecognized tax benefits and controls over measurement of the liability. These procedures also included, among others, evaluating the significant judgment used by management in applying the more-likely-than-not recognition criteria and in measuring the Company’s unrecognized tax benefits. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of assumptions made by management, the technical merits of positions taken based upon application of the tax law and new information, and the measurement of unrecognized tax benefits.
/s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 19, 202016, 2023
We have served as the Company’sCompany's auditor since 2011.
AXALTA COATING SYSTEMS LTD. Consolidated Statements of Operations (In millions, except per share data) | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Net sales | | $ | 4,884.4 | | | $ | 4,416.2 | | | $ | 3,737.6 | | Cost of goods sold | | 3,465.6 | | | 2,987.3 | | | 2,457.9 | | Selling, general and administrative expenses | | 772.4 | | | 738.7 | | | 695.0 | | Other operating charges | | 31.5 | | | 44.0 | | | 110.8 | | Research and development expenses | | 66.4 | | | 62.4 | | | 55.2 | | Amortization of acquired intangibles | | 125.3 | | | 121.4 | | | 113.2 | | Income from operations | | 423.2 | | | 462.4 | | | 305.5 | | Interest expense, net | | 139.8 | | | 134.2 | | | 149.9 | | Other expense (income), net | | 26.1 | | | (12.3) | | | 33.4 | | Income before income taxes | | 257.3 | | | 340.5 | | | 122.2 | | Provision for income taxes | | 65.1 | | | 76.1 | | | 0.2 | | Net income | | 192.2 | | | 264.4 | | | 122.0 | | Less: Net income attributable to noncontrolling interests | | 0.6 | | | 0.5 | | | 0.4 | | Net income attributable to controlling interests | | $ | 191.6 | | | $ | 263.9 | | | $ | 121.6 | | Basic net income per share | | $ | 0.86 | | | $ | 1.14 | | | $ | 0.52 | | Diluted net income per share | | $ | 0.86 | | | $ | 1.14 | | | $ | 0.52 | |
| | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Net sales | | $ | 4,482.2 |
| | $ | 4,696.0 |
| | $ | 4,377.0 |
| Cost of goods sold | | 2,917.9 |
| | 3,106.3 |
| | 2,780.5 |
| Selling, general and administrative expenses | | 822.1 |
| | 876.4 |
| | 934.7 |
| Other operating charges | | 70.7 |
| | 82.7 |
| | 131.6 |
| Research and development expenses | | 70.2 |
| | 73.1 |
| | 65.3 |
| Amortization of acquired intangibles | | 113.1 |
| | 115.4 |
| | 101.2 |
| Income from operations | | 488.2 |
|
| 442.1 |
|
| 363.7 |
| Interest expense, net | | 162.6 |
| | 159.6 |
| | 147.0 |
| Other (income) expense, net | | (4.4 | ) | | 15.0 |
| | 27.1 |
| Income before income taxes | | 330.0 |
| | 267.5 |
| | 189.6 |
| Provision for income taxes | | 77.4 |
| | 54.2 |
| | 141.9 |
| Net income | | 252.6 |
| | 213.3 |
| | 47.7 |
| Less: Net income attributable to noncontrolling interests | | 3.6 |
| | 6.2 |
| | 11.0 |
| Net income attributable to controlling interests | | $ | 249.0 |
| | $ | 207.1 |
| | $ | 36.7 |
| Basic net income per share | | $ | 1.06 |
| | $ | 0.87 |
| | $ | 0.15 |
| Diluted net income per share | | $ | 1.06 |
| | $ | 0.85 |
| | $ | 0.15 |
|
The accompanying notes are an integral part of these consolidated financial statements.
AXALTA COATING SYSTEMS LTD. Consolidated Statements of Comprehensive Income (In millions) | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Net income | | $ | 192.2 | | | $ | 264.4 | | | $ | 122.0 | | Other comprehensive (loss) income, before tax: | | | | | | | Foreign currency translation adjustments | | (102.6) | | | (50.1) | | | 13.8 | | Unrealized gain (loss) on derivatives | | 28.8 | | | 36.6 | | | (30.0) | | Unrealized gain (loss) on pension and other benefit plan obligations | | 34.8 | | | 37.0 | | | (25.3) | | Other comprehensive (loss) income, before tax | | (39.0) | | | 23.5 | | | (41.5) | | Income tax expense (benefit) related to items of other comprehensive income | | 13.9 | | | 13.9 | | | (11.0) | | Other comprehensive (loss) income, net of tax | | (52.9) | | | 9.6 | | | (30.5) | | Comprehensive income | | 139.3 | | | 274.0 | | | 91.5 | | Less: Comprehensive income (loss) attributable to noncontrolling interests | | 0.2 | | | (0.3) | | | (0.8) | | Comprehensive income attributable to controlling interests | | $ | 139.1 | | | $ | 274.3 | | | $ | 92.3 | |
| | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Net income | | $ | 252.6 |
| | $ | 213.3 |
| | $ | 47.7 |
| Other comprehensive (loss) income, before tax: | | | | | | | Foreign currency translation adjustments | | 5.4 |
| | (94.1 | ) | | 85.6 |
| Unrealized gain on securities | | — |
| | — |
| | 0.4 |
| Unrealized (loss) gain on derivatives | | (33.1 | ) | | 2.4 |
| | 0.9 |
| Unrealized gain (loss) on pension and other benefit plan obligations | | (46.1 | ) | | (6.4 | ) | | 31.3 |
| Other comprehensive (loss) income, before tax | | (73.8 | ) | | (98.1 | ) | | 118.2 |
| Income tax (benefit) provision related to items of other comprehensive (loss) income | | (17.4 | ) | | (0.3 | ) | | 6.6 |
| Other comprehensive (loss) income, net of tax | | (56.4 | ) | | (97.8 | ) | | 111.6 |
| Comprehensive income | | 196.2 |
| | 115.5 |
| | 159.3 |
| Less: Comprehensive income attributable to noncontrolling interests | | 6.6 |
| | 2.7 |
| | 13.2 |
| Comprehensive income attributable to controlling interests | | $ | 189.6 |
| | $ | 112.8 |
| | $ | 146.1 |
|
The accompanying notes are an integral part of these consolidated financial statements.
AXALTA COATING SYSTEMS LTD. Consolidated Balance Sheets (In millions, except per share data) | | | | December 31, | | December 31, | | | 2019 | | 2018 | | 2022 | | 2021 | Assets | | | | | Assets | | | | | Current assets: | | | | | Current assets: | | Cash and cash equivalents | | $ | 1,017.5 |
| | $ | 693.6 |
| Cash and cash equivalents | | $ | 645.2 | | | $ | 840.6 | | Restricted cash | | 3.0 |
| | 2.8 |
| Restricted cash | | 9.7 | | | 10.6 | | Accounts and notes receivable, net | | 830.1 |
| | 860.8 |
| Accounts and notes receivable, net | | 1,067.4 | | | 937.5 | | Inventories | | 591.6 |
| | 613.0 |
| Inventories | | 829.6 | | | 669.7 | | Prepaid expenses and other current assets | | 131.2 |
| | 139.4 |
| Prepaid expenses and other current assets | | 140.8 | | | 117.2 | | Total current assets | | 2,573.4 |
| | 2,309.6 |
| Total current assets | | 2,692.7 | | | 2,575.6 | | Property, plant and equipment, net | | 1,223.0 |
| | 1,298.2 |
| Property, plant and equipment, net | | 1,190.2 | | | 1,186.2 | | Goodwill | | 1,208.9 |
| | 1,230.8 |
| Goodwill | | 1,498.0 | | | 1,592.7 | | Identifiable intangibles, net | | 1,223.9 |
| | 1,348.0 |
| Identifiable intangibles, net | | 1,112.3 | | | 1,278.2 | | Other assets | | 588.8 |
| | 489.1 |
| Other assets | | 566.0 | | | 584.5 | | Total assets | | $ | 6,818.0 |
| | $ | 6,675.7 |
| Total assets | | $ | 7,059.2 | | | $ | 7,217.2 | | Liabilities, Shareholders’ Equity | | | | | | Liabilities, Shareholders' Equity | | Liabilities, Shareholders' Equity | | | | | Current liabilities: | | | | | Current liabilities: | | Accounts payable | | $ | 483.7 |
| | $ | 522.8 |
| Accounts payable | | $ | 733.5 | | | $ | 657.4 | | Current portion of borrowings | | 43.9 |
| | 42.2 |
| Current portion of borrowings | | 31.0 | | | 79.7 | | Other accrued liabilities | | 545.3 |
| | 475.6 |
| Other accrued liabilities | | 620.2 | | | 597.8 | | Total current liabilities | | 1,072.9 |
| | 1,040.6 |
| Total current liabilities | | 1,384.7 | | | 1,334.9 | | Long-term borrowings | | 3,790.2 |
| | 3,821.8 |
| Long-term borrowings | | 3,673.3 | | | 3,749.9 | | Accrued pensions | | 285.2 |
| | 261.9 |
| Accrued pensions | | 205.1 | | | 269.3 | | Deferred income taxes | | 115.5 |
| | 140.8 |
| Deferred income taxes | | 162.1 | | | 174.7 | | Other liabilities | | 144.6 |
| | 100.1 |
| Other liabilities | | 134.5 | | | 149.7 | | Total liabilities | | 5,408.4 |
| | 5,365.2 |
| Total liabilities | | 5,559.7 | | | 5,678.5 | | Commitments and contingent liabilities (Note 6) | |
| |
| Commitments and contingent liabilities (Note 6) | | | | | Shareholders’ equity | | | | | | Common shares, $1.00 par, 1,000.0 shares authorized, 250.1 and 246.7 shares issued at December 31, 2019 and 2018, respectively | | 249.9 |
| | 245.3 |
| | Shareholders' equity | | Shareholders' equity | | Common shares, $1.00 par, 1,000.0 shares authorized, 252.4 and 251.8 shares issued at December 31, 2022 and 2021, respectively | | Common shares, $1.00 par, 1,000.0 shares authorized, 252.4 and 251.8 shares issued at December 31, 2022 and 2021, respectively | | 252.4 | | | 251.8 | | Capital in excess of par | | 1,474.1 |
| | 1,409.5 |
| Capital in excess of par | | 1,536.5 | | | 1,515.5 | | Retained earnings | | 443.2 |
| | 198.6 |
| Retained earnings | | 1,018.8 | | | 827.2 | | Treasury shares, at cost, 15.2 and 11.1 shares at December 31, 2019 and 2018, respectively | | (417.5 | ) | | (312.2 | ) | | Treasury shares, at cost, 31.8 and 24.4 shares at December 31, 2022 and 2021, respectively | | Treasury shares, at cost, 31.8 and 24.4 shares at December 31, 2022 and 2021, respectively | | (887.3) | | | (687.2) | | Accumulated other comprehensive loss | | (395.5 | ) | | (336.1 | ) | Accumulated other comprehensive loss | | (466.9) | | | (414.4) | | Total Axalta shareholders’ equity | | 1,354.2 |
| | 1,205.1 |
| | Total Axalta shareholders' equity | | Total Axalta shareholders' equity | | 1,453.5 | | | 1,492.9 | | Noncontrolling interests | | 55.4 |
| | 105.4 |
| Noncontrolling interests | | 46.0 | | | 45.8 | | Total shareholders’ equity | | 1,409.6 |
| | 1,310.5 |
| | Total liabilities and shareholders’ equity | | $ | 6,818.0 |
| | $ | 6,675.7 |
| | Total shareholders' equity | | Total shareholders' equity | | 1,499.5 | | | 1,538.7 | | Total liabilities and shareholders' equity | | Total liabilities and shareholders' equity | | $ | 7,059.2 | | | $ | 7,217.2 | |
The accompanying notes are an integral part of these consolidated financial statements.
AXALTA COATING SYSTEMS LTD. Consolidated StatementStatements of Changes in Shareholders’Shareholders' Equity | | | | | | | | | | | | | | | | | | | Common Stock | | | Common Stock | | | | | | | | | | | | | | Number of Shares | | Par/Stated Value | | Capital In Excess Of Par | | Retained Earnings | | Treasury Shares, at cost | | Accumulated Other Comprehensive Loss | | Non-controlling Interests | | Total | | Number of Shares | | Par/Stated Value | | Capital In Excess Of Par | | Retained earnings (Accumulated deficit) | | Treasury Shares, at cost | | Accumulated Other Comprehensive Loss | | Non-controlling Interests | | Total | | Balance December 31, 2016 | 240.5 |
| | $ | 239.3 |
| | $ | 1,294.3 |
| | $ | (58.1 | ) | | $ | — |
| | $ | (350.4 | ) | | $ | 121.5 |
| | $ | 1,246.6 |
| | Comprehensive income: | | | | | | | | | | | | | | | | | Net income | — |
| | — |
| | — |
| | 36.7 |
| | — |
| | — |
| | 11.0 |
| | 47.7 |
| | Net unrealized gain on securities, net of tax of $0.0 million | — |
| | — |
| | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
| | Net realized and unrealized gain on derivatives, net of tax of $0.5 million | — |
| | — |
| | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
| | Long-term employee benefit plans, net of tax of $6.1 million | — |
| | — |
| | — |
| | — |
| | — |
| | 25.2 |
| | — |
| | 25.2 |
| | Foreign currency translation, net of tax of $0.0 million | — |
| | — |
| | — |
| | — |
| | — |
| | 83.4 |
| | 2.2 |
| | 85.6 |
| | Total comprehensive income | — |
| | — |
| | — |
| | 36.7 |
| | — |
| | 109.4 |
| | 13.2 |
| | 159.3 |
| | Recognition of stock-based compensation | — |
| | — |
| | 38.5 |
| | — |
| | — |
| | — |
| | — |
| | 38.5 |
| | Shares issued under compensation plans | 3.4 |
| | 3.1 |
| | 21.7 |
| | — |
| | — |
| | — |
| | — |
| | 24.8 |
| | Common stock purchases | (2.0 | ) | | — |
| | — |
| | — |
| | (58.4 | ) | | — |
| | — |
| | (58.4 | ) | | Dividends declared to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3.0 | ) | | (3.0 | ) | | Balance December 31, 2017 | 241.9 |
| | $ | 242.4 |
| | $ | 1,354.5 |
| | $ | (21.4 | ) | | $ | (58.4 | ) | | $ | (241.0 | ) | | $ | 131.7 |
| | $ | 1,407.8 |
| | Balance December 31, 2019 | | Balance December 31, 2019 | 234.9 | | | $ | 249.9 | | | $ | 1,474.1 | | | $ | 443.2 | | | $ | (417.5) | | | $ | (395.5) | | | $ | 55.4 | | | $ | 1,409.6 | | Comprehensive income (loss): | | | | | | | | | | | | | | | | Comprehensive income (loss): | | Net income | — |
| | — |
| | — |
| | 207.1 |
| | — |
| | — |
| | 6.2 |
| | 213.3 |
| Net income | — | | | — | | | — | | | 121.6 | | | — | | | — | | | 0.4 | | | 122.0 | | Net realized and unrealized gain on derivatives, net of tax of $1.1 million | — |
| | — |
| | — |
| | — |
| | — |
| | 1.3 |
| | — |
| | 1.3 |
| | Long-term employee benefit plans, net of tax benefit of $1.4 million | — |
| | — |
| | — |
| | — |
| | — |
| | (5.0 | ) | | — |
| | (5.0 | ) | | | Net realized and unrealized loss on derivatives, net of tax benefit of $4.5 million | | Net realized and unrealized loss on derivatives, net of tax benefit of $4.5 million | — | | | — | | | — | | | — | | | — | | | (25.5) | | | — | | | (25.5) | | Long-term employee benefit plans, net of tax benefit of $6.5 million | | Long-term employee benefit plans, net of tax benefit of $6.5 million | — | | | — | | | — | | | — | | | — | | | (18.8) | | | — | | | (18.8) | | Foreign currency translation, net of tax of $0.0 million | — |
| | — |
| | — |
| | — |
| | — |
| | (90.6 | ) | | (3.5 | ) | | (94.1 | ) | Foreign currency translation, net of tax of $0.0 million | — | | | — | | | — | | | — | | | — | | | 15.0 | | | (1.2) | | | 13.8 | | Total comprehensive income | — |
| | — |
| | — |
| | 207.1 |
| | — |
| | (94.3 | ) | | 2.7 |
| | 115.5 |
| | Cumulative effect of an accounting change | — |
| | — |
| | — |
| | 12.9 |
| | — |
| | (0.8 | ) | | 0.1 |
| | 12.2 |
| | Recognition of stock-based compensation | — |
| | — |
| | 37.3 |
| | — |
| | — |
| | — |
| | — |
| | 37.3 |
| | Shares issued under compensation plans | 2.8 |
| | 2.9 |
| | 14.8 |
| | — |
| | — |
| | — |
| | — |
| | 17.7 |
| | Noncontrolling interests of acquired subsidiaries | — |
| | — |
| | 2.9 |
| | — |
| | — |
| | — |
| | (28.1 | ) | | (25.2 | ) | | Common stock purchases | (9.1 | ) | | — |
| | — |
| | — |
| | (253.8 | ) | | — |
| | — |
| | (253.8 | ) | | Dividends declared to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1.0 | ) | | (1.0 | ) | | Balance December 31, 2018 | 235.6 |
| | $ | 245.3 |
| | $ | 1,409.5 |
| | $ | 198.6 |
| | $ | (312.2 | ) | | $ | (336.1 | ) | | $ | 105.4 |
| | $ | 1,310.5 |
| | Comprehensive income (loss): | | | | | | | | | | | | | | | | | Net income | — |
| | — |
| | — |
| | 249.0 |
| | — |
| | — |
| | 3.6 |
| | 252.6 |
| | Net realized and unrealized gain on derivatives, net of tax benefit of $4.8 million | — |
| | — |
| | — |
| | — |
| | — |
| | (28.3 | ) | | — |
| | (28.3 | ) | | Long-term employee benefit plans, net of tax benefit of $12.6 million | — |
| | — |
| | — |
| | — |
| | — |
| | (33.5 | ) | | — |
| | (33.5 | ) | | Foreign currency translation, net of tax of $0 million | — |
| | — |
| | — |
| | — |
| | — |
| | 2.4 |
| | 3.0 |
| | 5.4 |
| | Total comprehensive income (loss) | — |
| | — |
| | — |
| | 249.0 |
| | — |
| | (59.4 | ) | | 6.6 |
| | 196.2 |
| Total comprehensive income (loss) | — | | | — | | | — | | | 121.6 | | | — | | | (29.3) | | | (0.8) | | | 91.5 | | Cumulative effect of an accounting change | — |
| | — |
| | — |
| | (0.7 | ) | | — |
| | — |
| | — |
| | (0.7 | ) | Cumulative effect of an accounting change | — | | | — | | | — | | | (1.5) | | | — | | | — | | | — | | | (1.5) | | Correction to previous cumulative effect upon adoption of ASU 2014-09 | — |
| | — |
| | — |
| | (3.7 | ) | | — |
| | — |
| | — |
| | (3.7 | ) | | | Recognition of stock-based compensation | — |
| | — |
| | 15.7 |
| | — |
| | — |
| | — |
| | — |
| | 15.7 |
| Recognition of stock-based compensation | — | | | — | | | 15.1 | | | — | | | — | | | — | | | — | | | 15.1 | | Shares issued under compensation plans | 3.4 |
| | 4.6 |
| | 44.9 |
| | — |
| | — |
| | — |
| | — |
| | 49.5 |
| | Net shares issued under compensation plans | | Net shares issued under compensation plans | 0.8 | | | 1.0 | | | 3.2 | | | — | | | — | | | — | | | — | | | 4.2 | | Changes in ownership of noncontrolling interests | — |
| | — |
| | 4.0 |
| | — |
| | — |
| | — |
| | (55.1 | ) | | (51.1 | ) | Changes in ownership of noncontrolling interests | — | | | — | | | (5.3) | | | — | | | — | | | — | | | (6.9) | | | (12.2) | | Common stock purchases | (4.1 | ) | | — |
| | — |
| | — |
| | (105.3 | ) | | — |
| | — |
| | (105.3 | ) | Common stock purchases | (0.9) | | | — | | | — | | | — | | | (26.0) | | | — | | | — | | | (26.0) | | Dividends declared to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1.5 | ) | | (1.5 | ) | Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (0.9) | | | (0.9) | | Balance December 31, 2019 | 234.9 |
| | $ | 249.9 |
| | $ | 1,474.1 |
| | $ | 443.2 |
| | $ | (417.5 | ) | | $ | (395.5 | ) | | $ | 55.4 |
| | $ | 1,409.6 |
| | Balance December 31, 2020 | | Balance December 31, 2020 | 234.8 | | | $ | 250.9 | | | $ | 1,487.1 | | | $ | 563.3 | | | $ | (443.5) | | | $ | (424.8) | | | $ | 46.8 | | | $ | 1,479.8 | | Comprehensive income (loss): | | Comprehensive income (loss): | | | | | | | | | | | | | | | | Net income | | Net income | — | | | — | | | — | | | 263.9 | | | — | | | — | | | 0.5 | | | 264.4 | | Net realized and unrealized gain on derivatives, net of tax of $5.2 million | | Net realized and unrealized gain on derivatives, net of tax of $5.2 million | — | | | — | | | — | | | — | | | — | | | 31.4 | | | — | | | 31.4 | | Long-term employee benefit plans, net of tax of $8.7 million | | Long-term employee benefit plans, net of tax of $8.7 million | — | | | — | | | — | | | — | | | — | | | 28.3 | | | — | | | 28.3 | | Foreign currency translation, net of tax of $0.0 million | | Foreign currency translation, net of tax of $0.0 million | — | | | — | | | — | | | — | | | — | | | (49.3) | | | (0.8) | | | (50.1) | | Total comprehensive income (loss) | | Total comprehensive income (loss) | — | | | — | | | — | | | 263.9 | | | — | | | 10.4 | | | (0.3) | | | 274.0 | | | Recognition of stock-based compensation | | Recognition of stock-based compensation | — | | | — | | | 14.9 | | | — | | | — | | | — | | | — | | | 14.9 | | Net shares issued under compensation plans | | Net shares issued under compensation plans | 0.8 | | | 0.9 | | | 13.5 | | | — | | | — | | | — | | | — | | | 14.4 | | | Common stock purchases | | Common stock purchases | (8.2) | | | — | | | — | | | — | | | (243.7) | | | — | | | — | | | (243.7) | | Dividends declared to noncontrolling interests | | Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (0.7) | | | (0.7) | | Balance December 31, 2021 | | Balance December 31, 2021 | 227.4 | | | $ | 251.8 | | | $ | 1,515.5 | | | $ | 827.2 | | | $ | (687.2) | | | $ | (414.4) | | | $ | 45.8 | | | $ | 1,538.7 | | Comprehensive income (loss): | | Comprehensive income (loss): | | | | | | | | | | | | | | | | Net income | | Net income | — | | | — | | | — | | | 191.6 | | | — | | | — | | | 0.6 | | | 192.2 | | | Net realized and unrealized gain on derivatives, net of tax of $3.2 million | | Net realized and unrealized gain on derivatives, net of tax of $3.2 million | — | | | — | | | — | | | — | | | — | | | 25.6 | | | — | | | 25.6 | | Long-term employee benefit plans, net of tax of $10.7 million | | Long-term employee benefit plans, net of tax of $10.7 million | — | | | — | | | — | | | — | | | — | | | 24.1 | | | — | | | 24.1 | | Foreign currency translation, net of tax of $0.0 million | | Foreign currency translation, net of tax of $0.0 million | — | | | — | | | — | | | — | | | — | | | (102.2) | | | (0.4) | | | (102.6) | | Total comprehensive income (loss) | | Total comprehensive income (loss) | — | | | — | | | — | | | 191.6 | | | — | | | (52.5) | | | 0.2 | | | 139.3 | | | Recognition of stock-based compensation | | Recognition of stock-based compensation | — | | | — | | | 22.2 | | | — | | | — | | | — | | | — | | | 22.2 | | Net shares issued under compensation plans | | Net shares issued under compensation plans | 0.6 | | | 0.6 | | | (0.9) | | | — | | | — | | | — | | | — | | | (0.3) | | Changes in ownership of noncontrolling interests | | Changes in ownership of noncontrolling interests | — | | | — | | | (0.3) | | | — | | | — | | | — | | | 0.1 | | | (0.2) | | Common stock purchases | | Common stock purchases | (7.4) | | | — | | | — | | | — | | | (200.1) | | | — | | | — | | | (200.1) | | Dividends declared to noncontrolling interests | | Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (0.1) | | | (0.1) | | Balance December 31, 2022 | | Balance December 31, 2022 | 220.6 | | | $ | 252.4 | | | $ | 1,536.5 | | | $ | 1,018.8 | | | $ | (887.3) | | | $ | (466.9) | | | $ | 46.0 | | | $ | 1,499.5 | |
The accompanying notes are an integral part of these consolidated financial statements.
AXALTA COATING SYSTEMS LTD. Consolidated Statements of Cash Flows | | | | Year Ended December 31, | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | | 2022 | | 2021 | | 2020 | Operating activities: | | | | | | | Operating activities: | | | | | | | Net income | | $ | 252.6 |
| | $ | 213.3 |
| | $ | 47.7 |
| Net income | | $ | 192.2 | | | $ | 264.4 | | | $ | 122.0 | | Adjustment to reconcile net income to cash provided by operating activities: | |
| |
| | | Adjustment to reconcile net income to cash provided by operating activities: | | Depreciation and amortization |
| 353.0 |
|
| 369.1 |
|
| 347.5 |
| Depreciation and amortization | | 303.1 | | | 316.5 | | | 320.3 | | Amortization of deferred financing costs and original issue discount |
| 8.8 |
|
| 8.0 |
|
| 8.0 |
| Amortization of deferred financing costs and original issue discount | | 9.6 | | | 8.9 | | | 9.0 | | Debt extinguishment and refinancing related costs |
| 0.2 |
|
| 9.5 |
|
| 13.4 |
| | Debt extinguishment and refinancing-related costs | | Debt extinguishment and refinancing-related costs | | 14.7 | | | 0.2 | | | 34.4 | | Deferred income taxes |
| 15.7 |
|
| 6.1 |
|
| 91.7 |
| Deferred income taxes | | (3.4) | | | 15.0 | | | (55.4) | | Realized and unrealized foreign exchange losses (gains), net |
| 5.9 |
|
| 17.3 |
|
| (3.6 | ) | | Realized and unrealized foreign exchange losses, net | | Realized and unrealized foreign exchange losses, net | | 15.5 | | | 10.1 | | | 3.9 | | Stock-based compensation |
| 15.7 |
|
| 37.3 |
|
| 38.5 |
| Stock-based compensation | | 22.2 | | | 14.9 | | | 15.1 | | Divestitures, impairment charges and loss on deconsolidation of Venezuela | | 21.1 |
| | — |
| | 78.5 |
| | | Gain on sales of facilities | | Gain on sales of facilities | | (1.5) | | | (19.7) | | | — | | Interest income on swaps designated as net investment hedges |
| (14.7 | ) |
| (9.4 | ) |
| — |
| Interest income on swaps designated as net investment hedges | | (19.9) | | | (18.0) | | | (14.5) | | Commercial agreement restructuring charge | | Commercial agreement restructuring charge | | 25.0 | | | — | | | — | | Other non-cash, net |
| (0.1 | ) |
| (0.9 | ) |
| 4.4 |
| Other non-cash, net | | 7.7 | | | 11.7 | | | 16.2 | | Changes in operating assets and liabilities: | |
| |
| | | Changes in operating assets and liabilities: | | Trade accounts and notes receivable | | (10.1 | ) | | (22.3 | ) | | (15.2 | ) | Trade accounts and notes receivable | | (171.0) | | | (80.5) | | | (26.0) | | Inventories | | 10.8 |
| | (48.1 | ) | | (19.9 | ) | Inventories | | (195.4) | | | (111.6) | | | 39.6 | | Prepaid expenses and other assets | | (118.9 | ) | | (157.3 | ) | | (84.9 | ) | Prepaid expenses and other assets | | (80.5) | | | (45.3) | | | (19.9) | | Accounts payable | | 18.2 |
| | 49.5 |
| | 39.8 |
| Accounts payable | | 138.0 | | | 140.1 | | | 103.0 | | Other accrued liabilities | | 5.3 |
| | (8.4 | ) | | 6.7 |
| Other accrued liabilities | | 44.7 | | | 66.2 | | | (70.1) | | Other liabilities | | 9.6 |
| | 32.4 |
| | (12.6 | ) | Other liabilities | | (7.2) | | | (14.3) | | | 31.7 | | Cash provided by operating activities | | 573.1 |
| | 496.1 |
| | 540.0 |
| Cash provided by operating activities | | 293.8 | | | 558.6 | | | 509.3 | | Investing activities: | |
| |
| | | Investing activities: | | | | | | | Acquisitions, net of cash acquired | | (3.3 | ) | | (82.8 | ) | | (564.4 | ) | Acquisitions, net of cash acquired | | (3.0) | | | (649.0) | | | (1.0) | | Purchase of property, plant and equipment | | (112.5 | ) | | (143.4 | ) | | (125.0 | ) | Purchase of property, plant and equipment | | (150.9) | | | (121.6) | | | (82.1) | | Proceeds from sale of consolidated joint venture, net of cash divested | | 8.2 |
| | — |
| | — |
| | | Proceeds from sales of assets | | Proceeds from sales of assets | | 3.7 | | | 37.8 | | | 0.2 | | Interest proceeds on swaps designated as net investment hedges | | 14.7 |
| | 9.4 |
| | — |
| Interest proceeds on swaps designated as net investment hedges | | 19.9 | | | 18.0 | | | 14.5 | | Proceeds from settlement of swaps designated as net investment hedges | | — |
| | 22.5 |
| | — |
| | Settlement proceeds on swaps designated as net investment hedges | | Settlement proceeds on swaps designated as net investment hedges | | 25.0 | | | — | | | — | | Other investing activities, net | | (1.0 | ) | | 5.1 |
| | (0.2 | ) | Other investing activities, net | | (1.1) | | | (1.2) | | | 6.9 | | Cash used for investing activities | | (93.9 | ) | | (189.2 | ) | | (689.6 | ) | Cash used for investing activities | | (106.4) | | | (716.0) | | | (61.5) | | Financing activities: | |
| |
| | | Financing activities: | | | | | | | | Proceeds from long-term borrowings | | — |
| | 468.9 |
| | 483.6 |
| Proceeds from long-term borrowings | | 1,980.0 | | | — | | | 1,200.0 | | Payments on short-term borrowings | | (39.5 | ) | | (44.7 | ) | | (14.1 | ) | Payments on short-term borrowings | | (91.1) | | | (74.0) | | | (38.8) | | Payments on long-term borrowings | | (27.6 | ) | | (511.3 | ) | | (50.0 | ) | Payments on long-term borrowings | | (2,041.9) | | | (26.9) | | | (1,223.3) | | | Financing-related costs | | (1.5 | ) | | (10.8 | ) | | (10.4 | ) | Financing-related costs | | (15.2) | | | (3.0) | | | (39.9) | | Proceeds from option exercises | | 50.3 |
| | 17.4 |
| | 24.8 |
| | Dividends paid to noncontrolling interests | | (1.5 | ) | | (1.0 | ) | | (3.0 | ) | | Investments in noncontrolling interests | | (31.1 | ) | | (26.9 | ) | | — |
| | Purchase of treasury stock | | (105.3 | ) | | (253.8 | ) | | (58.4 | ) | | Deferred acquisition-related consideration | | (2.2 | ) | | (6.0 | ) | | (5.2 | ) | | Cash (used for) provided by financing activities | | (158.4 | ) | | (368.2 | ) | | 367.3 |
| | Increase (decrease) in cash and cash equivalents | | 320.8 |
| | (61.3 | ) | | 217.7 |
| | Net cash flows associated with stock-based awards | | Net cash flows associated with stock-based awards | | (0.3) | | | 14.4 | | | 4.3 | | | Purchase of noncontrolling interests | | Purchase of noncontrolling interests | | (0.2) | | | — | | | (5.8) | | Purchases of common stock | | Purchases of common stock | | (200.1) | | | (243.8) | | | (26.0) | | | Other financing activities, net | | Other financing activities, net | | (0.1) | | | (1.2) | | | (1.4) | | Cash used for financing activities | | Cash used for financing activities | | (368.9) | | | (334.5) | | | (130.9) | | (Decrease) increase in cash and cash equivalents | | (Decrease) increase in cash and cash equivalents | | (181.5) | | | (491.9) | | | 316.9 | | Effect of exchange rate changes on cash | | 3.3 |
| | (15.2 | ) | | 17.1 |
| Effect of exchange rate changes on cash | | (14.8) | | | (20.9) | | | 26.6 | | Cash at beginning of period | | 696.4 |
| | 772.9 |
| | 538.1 |
| Cash at beginning of period | | 851.2 | | | 1,364.0 | | | 1,020.5 | | Cash at end of period | | $ | 1,020.5 |
| | $ | 696.4 |
| | $ | 772.9 |
| Cash at end of period | | $ | 654.9 | | | $ | 851.2 | | | $ | 1,364.0 | |
| |
| |
| | | | | | | | | Cash at end of period reconciliation: | |
| |
| | | Cash at end of period reconciliation: | | Cash and cash equivalents | | $ | 1,017.5 |
| | $ | 693.6 |
| | $ | 769.8 |
| Cash and cash equivalents | | $ | 645.2 | | | $ | 840.6 | | | $ | 1,360.9 | | Restricted cash | | 3.0 |
| | 2.8 |
| | 3.1 |
| Restricted cash | | 9.7 | | | 10.6 | | | 3.1 | | Cash at end of period | | $ | 1,020.5 |
| | $ | 696.4 |
| | $ | 772.9 |
| Cash at end of period | | $ | 654.9 | | | $ | 851.2 | | | $ | 1,364.0 | |
| |
| |
| | | | | | | | | Supplemental cash flow information: | |
| |
| | | Supplemental cash flow information: | | Cash paid during the year for: | |
| |
| | | Cash paid during the year for: | | Interest, net of amounts capitalized | | $ | 156.9 |
| | $ | 152.4 |
| | $ | 130.1 |
| Interest, net of amounts capitalized | | $ | 126.8 | | | $ | 118.1 | | | $ | 151.7 | | Income taxes, net of refunds | | 42.2 |
| | 57.4 |
| | 61.7 |
| Income taxes, net of refunds | | 63.0 | | | 57.9 | | | 25.9 | | Non-cash investing activities: | |
|
| |
|
| | | Non-cash investing activities: | | Accrued capital expenditures | | $ | 16.6 |
| | $ | 10.1 |
| | $ | 30.2 |
| Accrued capital expenditures | | $ | 32.4 | | | $ | 35.1 | | | $ | 35.1 | |
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Index
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated balance sheets of Axalta Coating Systems Ltd. (“("Axalta,”" the “Company,” “we,” “our”"Company," "we," "our" and “us”"us"), at December 31, 20192022 and 20182021 and the related consolidated statements of operations, consolidated statements of comprehensive income, (loss), consolidated statements of cash flows and consolidated statements of changes in shareholders' equity for the years ended December 31, 2019, 20182022, 2021 and 20172020 included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”("GAAP") and are audited. In the opinion of management, these statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair statement of the financial position of Axalta. Venezuela Deconsolidation
During the year ended December 31, 2017, we deconsolidated our Venezuelan subsidiary from our consolidated financial statements and began accounting for our investment in our 100% owned Venezuelan subsidiary using the cost method of accounting. See Note 22 for additional information.
Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Axalta and its subsidiaries, and entities in which a controlling interest is maintained. For those consolidated subsidiaries in which the Company’sCompany's ownership is less than 100%, the outside shareholders’shareholders' interests are shown as noncontrolling interests. Investments in companies in which Axalta directly or indirectly, owns 20% to 50% of the voting stock anddoes not maintain control, but has the ability to exercise significant influence over operating and financial policies of the investee, are accounted for using the equity method of accounting. As a result, Axalta’sAxalta's share of the earnings or losses of such equity affiliates is included in the accompanying consolidated statements of operations and our share of these companies’ stockholders’companies' stockholders' equity is included in the accompanying consolidated balance sheet.sheets. Certain of our joint ventures are accounted for on a one-month lag basis, the effect of which is not material. We eliminated all intercompany accounts and transactions in the preparation of the accompanying consolidated financial statements. Use of Estimates The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the period. The estimates and assumptions include, but are not limited to, receivable and inventory valuations, derivative instruments, fixed asset valuations, valuations of goodwill and identifiable intangible assets, including analysis of impairment, valuations of long-term employee benefit obligations, income taxes, environmental matters, contingencies, litigation, stock-based compensation, restructuring and allocations of costs. Our estimates are based on historical experience, facts and circumstances available at the time and various other assumptions that are believed to be reasonable. Actual results could differ materially from those estimates. Accounting for Business Combinations We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets, including separately identifiable intangible assets and assumed liabilities at their acquisition date fair values. The method records any excess purchase price over the fair value of acquired net assets as goodwill. Included in the determination of the purchase price is the fair value of contingent consideration, if applicable, based on the terms and applicable targets described within the acquisition agreements (e.g.(i.e., projected revenues or EBITDA). Subsequent to the acquisition date, the fair value of the contingent liability, if determined to be payable in cash, is revalued at each balance sheet date with adjustments recorded within earnings. The determination of the fair value of assets acquired, liabilities assumed and noncontrolling interests involves assessments of factors such as the expected future cash flows associated with individual assets and liabilities and appropriate discount rates at the closing date of the acquisition. When necessary, we consult with external advisors to help determine fair value. For non-observable market values determined using Level 3 assumptions, we determine fair value using acceptable valuation principles, including most commonly the excess earnings method for customer relationships, relief from royalty method for technology and trademarks, cost method for inventory and a combination of cost and market methods for property, plant and equipment, as applicable. We includedinclude the results of operations from the acquisition date in the financial statements for all businesses acquired.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Revenue Recognition See Note 2 for disclosure of our revenue recognition accounting policy.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Cash, Cash Equivalents and Restricted Cash Cash equivalents represent highly liquid investments considered readily convertible to known amounts of cash within three months or less from time of purchase. They are carried at cost plus accrued interest, which approximates fair value because of the short-term maturity of these instruments. Cash balances may exceed government insured limits in certain jurisdictions. Restricted cash on our consolidated balance sheets primarily represents cash held in escrow for pending contingent liabilities related to an acquisition made during the year ended December 31, 2021 and cash used to secure certain customer guarantees. Fair Value Measurements GAAP defines a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’sinstrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following valuation techniques are used to measure fair value for assets and liabilities: Level 1—Quoted market prices in active markets for identical assets or liabilities; Level 2—Significant other observable inputs (e.g.(i.e., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); and Level 3—Unobservable inputs for the asset or liability, which are valued based on management’smanagement's estimates of assumptions that market participants would use in pricing the asset or liability. Derivatives and Hedging The Company from time to time utilizes derivatives to manage exposures to currency exchange rates and interest rate risk. The fair values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these instruments are reported in income or AOCI,accumulated other comprehensive loss ("AOCI"), depending on the use of the derivative and whether it qualifies for hedge accounting treatment and is designated as such. Gains and losses on derivatives that qualify and are designated as cash flow hedging instruments are recorded in AOCI, to the extent the hedges are effective, until the underlying transactions are recognized in income. Gains and losses on derivatives that qualify and are designated asor net investment hedges are recorded in AOCI, to the extent the hedges are effective, until the underlying transactions are recognized in income.
Gains and losses on derivatives qualifying and designated as fair value hedging instruments, as well as the offsetting losses and gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging instruments are marked-to-market at the end of each accounting period with the results included in income. Cash flows from derivatives are recognizedpresented in the consolidated statements of cash flows in a manner consistent with the underlying transactions. Receivables and Allowance for Doubtful Accounts Receivables are carried at amounts that approximate fair value. Receivables are recognized net of an allowance for doubtful accounts receivable. The allowance for doubtful accounts receivable reflects the bestcurrent estimate of credit losses inherent inexpected to be incurred over the accounts receivable portfolio determinedlife of the financial asset, based on the basis of historical experience, specific allowances for known troubled accountscurrent conditions and other available evidence.reasonable forecasts of future economic conditions. Accounts receivable are written down or off when a portion or all of such account receivable is determined to be uncollectible. Inventories Inventories are valued at the lower of cost or net realizable value with cost being determined on the weighted average cost method. Elements of cost in inventories include: •raw materials, •direct labor, and •manufacturing and indirect overhead.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Stores and supplies are valued at the lower of cost or net realizable value; cost is generally determined by the weighted average cost method. Inventories deemed to have costs greater than their respective market values are reduced to net realizable value with a loss recorded in income in the period recognized.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Property, Plant and Equipment Property, plant and equipment acquired in an acquisition are recorded at fair value as of the acquisition date and are depreciated over the estimated useful life using the straight-line method. Subsequent additions to property,Property, plant and equipment including the fair value of any asset retirement obligations upon initial recognition of the liability,purchases are recorded at cost and are depreciated over the estimated useful life using the straight-line method.method starting on the date they are placed in service. See Note 15 for a range of estimated useful lives used for each property, plant and equipment class. Software included in property, plant and equipment represents the costs of software developed or obtained for internal use. Software costs are amortized on a straight-line basis over their estimated useful lives. Upgrades and enhancements are capitalized if they result in added functionality, which enables the software to perform tasks it was previously incapable of performing. Software maintenance and training costs are expensed in the period in which they are incurred. Leases See Note 7 for disclosure of our accounting policy overfor leases. Goodwill and Other Identifiable Intangible Assets Goodwill represents the excess of the purchase price over the fair values of the underlying net assets acquired in a business combination. Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis as of October 1st; however, these tests are performed more frequently if events or changes in circumstances indicate that the asset may be impaired. The fair value methodology is based on prices of similar assets or other valuation methodologies including discounted cash flow techniques.impaired.. When testing goodwill and indefinite-lived intangible assets for impairment, we first have an option to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that an impairment exists. Such qualitative factors may include the evaluation of the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specificasset-specific events. If based on this qualitative assessment we determine that an impairment is more likely than not, or if we elect not to perform a qualitative assessment, we would be required to perform a quantitative impairment test. Under the quantitative goodwill impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit, with respect to goodwill, and indefinite-lived intangible asset to its carrying value, including goodwill.value. If the fair value of the reporting unit or indefinite-lived intangible asset is less than the carrying value, the difference is recorded as an impairment loss not to exceed the amount of recorded goodwill.goodwill or carrying value of the respective indefinite-lived intangible asset. In 2022, as a result of the time lapsed since our last quantitative evaluation in 2019, we forwentbypassed the qualitative testevaluation and tested for impairment of the goodwill of our reporting units and our indefinite-lived intangible assets for impairment by performing a quantitative analysis.evaluation. The quantitative analysis determinedconcluded that all reporting units and indefinite-lived intangible assets had fair values in significant excess (greater than 40%) of carrying values. Definite-lived intangible assets, such as technology, trademarks, customer relationships, favorable contractual agreements and non-compete agreements are amortized over their estimated useful lives, generally for periods ranging from 23 to 25 years. Once these assets are fully amortized, they are removed from the balance sheet. We evaluate these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets might not be recoverable. The reasonableness of the useful lives of definite and indefinite-lived assets are regularly evaluated. Impairment of Long-Lived Assets The carrying value of long-lived assets to be held and used is evaluated when events or changes in circumstances indicate the carrying value may not be recoverable. Evaluation for impairment is done at the asset group level. The carrying value of a long-lived asset groupings is considered impaired when the total projected undiscounted cash flows from the asset group is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.asset group. The fair value methodology used is an estimate of fair market value and is based on prices of similar assetsasset groupings or other valuation methodologies, including present value techniques. Long-lived assetsasset groupings to be disposed of other than by sale are classified as held for use until their disposal. Long-lived assetsasset groupings to be disposed of by sale are classified as held for sale after all applicable attributes in the guidance are met and are reported at the lower of carrying amount or fair market value less cost to sell. Depreciation is discontinued for long-lived assetsasset groupings classified as held for sale.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Research and Development Research and development costs incurred in the normal course of business consist primarily of employee-related costs and are expensed as incurred. In processIn-process research and development projects acquired in a business combination are recorded as intangible assets at their fair value as of the acquisition date, using Level 3 assumptions. Subsequent costs related to acquired in processin-process research and development projects are expensed as incurred. In processIn-process research and development intangible assets are considered indefinite-lived until the abandonment or completion of the associated research and development efforts. These indefinite-lived intangible assets are tested for impairment consistent with the impairment testing performed on other indefinite-lived intangible assets discussed above. Upon completion of the research and development process, the carrying value of acquired in processin-process research and development projects is reclassified as a finite-lived asset and is amortized over its useful life. Once amortization commences, these assets are tested for impairment consistent with long-lived assets as discussed above. Environmental Liabilities and Expenditures Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued environmental liabilities are not discounted. Claims for recovery from third parties, if any, are reflected separately as an asset. We record recoveries at the earlier of when the gain is probable and reasonably estimable or realized. For the years ending December 31, 2019, 2018 and 2017, we have not recognized income associated with recoveries from third parties. Costs related to environmental remediation are charged to expense in the period incurred. Other environmental costs are also charged to expense in the period incurred, unless they increase the value of the property or reduce or prevent contamination from future operations, in which case, they are capitalized and depreciated. Contingencies and Litigation We accrue for liabilities related to contingencies, including the operational matter discussed in Note 6, and litigation matters when available information indicates that the liability is probable, and the amount can be reasonably estimated. Legal costs such as outside counsel fees and expenses are charged to expense in the period incurred. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for tax losses, interest and tax credit carryforwards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in net income in the period that includes the enactment date. Where we do not intend to indefinitely reinvest earnings of our subsidiaries, we provide for income taxes and withholding taxes, where applicable, on unremitted earnings. We do not provide for income taxes on unremitted earnings of our subsidiaries that are intended to be indefinitely reinvested. We recognize the benefit of an income tax position only if it is "more likely than not" that the tax position will be sustained. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized. Additionally, we recognize interest and penalties accrued related to unrecognized tax benefits as a component of provision for income taxes. The current portion of unrecognized tax benefits is included in "Otherother accrued liabilities"liabilities and the long-term portion is included in "Other liabilities"other liabilities in the accompanying consolidated balance sheets. Foreign Currency Translation TheOur reporting currency is the U.S. Dollar. In most cases, our non-U.S. based subsidiaries use their local currency as the functional currency for their respective business operations. Assets and liabilities of these operations are translated into U.S. Dollars at end-of-period exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Resulting cumulative translation adjustments are recorded as a component of shareholders’shareholders' equity in the accompanying consolidated balance sheets in AOCI.
Gains and losses from transactions denominated in currencies other than the functional currencies are included in the consolidated statements of operations in other expense (income) expense,, net. During the year ended December 31, 2018, our subsidiary in Argentina was determined to be U.S. Dollar functional currency. This determination was made upon conclusion that the Argentinian Peso was hyper-inflationary.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Employee Benefits Defined benefit plans specify an amount of pension benefit that an employee will receive upon retirement, usually dependent on factors such as age, years of service and compensation. The obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of the future benefits that employees earn in return for their service in the current and prior periods. These benefits are then discounted to determine the present value of the obligations and are then adjusted for the impact of any unamortized prior service costs. The discount rate used is based upon market indicators in the region (generally, the yield on bonds that are denominated in the currency in which the benefits will be paid)paid and that have maturity dates approximating the terms of the obligations.obligations). The calculations are performed by qualified actuaries using the projected unit credit method. The obligation of defined benefit plans recorded on our consolidated balance sheets is net of the current fair value of assets.assets within each respective plan. See Note 8 for further information. Stock-Based Compensation OurWe provide directors and certain employees stock-based compensation is comprised of Axaltacomprising stock options, restricted stock awards, restricted stock units, performance stock awards and performance share units andunits. The instruments are measured at fair value on the grant date or date of modification, as applicable. We recognize compensation expense on a graded-vesting attribution basis over the requisite service period, inclusive of impacts of any current period modifications of previously granted awards. Compensation expense is recorded net of forfeitures, which we have elected to record in the period they occur.
Earnings per Common Share Basic earnings per common share is computed by dividing net income attributable to Axalta’sAxalta's common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per common share is computed by dividing net income attributable to Axalta’sAxalta's common shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive securities; anti-dilutive securities are excluded from the calculation. These potentially dilutive securities are calculated under the treasury stock method and consist ofall outstanding stock options, restricted stock awards, restricted stock units, performance stock awards and performance share units. Reclassifications
During the year ended December 31, 2019, the consolidated statements of operations were updated to combine "Net sales" and "Other revenue" into "Net sales", as well as separately present Other operating charges, previously included in Selling, general and administrative expenses and Venezuela asset impairment and deconsolidation charge, as a separate line item within Income from operations. Other operating charges include termination benefits and other employee related costs, strategic review and retention costs, acquisition and divestiture-related costs, and deconsolidation and impairment charges, details of whichunits are included in our reconciliations of segment operating performance to income before income taxes in Note 20.
The 2018 and 2017 consolidated statements of operations have been updated for comparability with the current year presentation.
Correction of Immaterial Errors to Prior Period Financial Statements
During the year ended December 31, 2019, the Company identified and corrected an error that affected the previously-issued 2018 annual and interim financial statements. Specifically, the financial statements reflected an investment in noncontrolling interest payment of $26.9 million within investing activities as opposed to its appropriate classification within financing activities. The Company determined that this correction was immaterial to the previously-issued financial statements. However, given the significance of the error and for comparability purposes, we have revised the consolidated statements of cash flows for the year ended December 31, 2018. This revision has no impact on the consolidated statements of operations or balance sheets.
| | | | | | | | | | | | Year Ended December 31, 2018 | | | As Reported | | Revised | Cash used for investing activities | | $ | (216.1 | ) | | $ | (189.2 | ) | Cash used for financing activities | | $ | (341.3 | ) | | $ | (368.2 | ) |
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Recently Adopted Accounting Guidance
In January 1, 2019, we adopted Accounting Standards Update ("ASU") 2016-02, "Leases," which, together with amendments comprising ASC 842, requires lessees to identify arrangements that should be accounted for as leases and generally recognized, for operating and finance leases with terms exceeding twelve months, a right-of-use asset (or "ROU") and lease liability on the balance sheet. In addition to this main provision, this standard included a number of additional changes to lease accounting. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either the adoption date or the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We used the adoption date as our date of initial application. As a result, historical financial information was not updated, and the disclosures required under the new standard are not provided as of and for periods before January 1, 2019. See Note 7 for further information on the implementation of the standard.
The new standard provides a number of optional practical expedients in transition. We elected the package of practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also elected the practical expedient pertaining to land easements which permits entities to forgo the evaluation of existing land easement arrangements in transition to determine if they contain a lease. We did not elect the use-of-hindsight practical expedient. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short term lease recognition exemption and we will not recognize ROU assets or lease liabilities for qualifying leases (leases with a term of less than 12 months from lease commencement). We also elected the accounting policy election to not separate lease and non-lease components for all asset classes.
The Company implemented an outsourced software solution to support the ongoing accounting requirements that this standard will have on our consolidated financial statements. We have evaluated completeness and accuracy of lease data entered into the software solution and updated our processes, policies, and internal controls. Changes to our internal controls covered the identification, accounting and disclosure of leases both upon adoption and subsequent to adoption. Adoption of ASU 2016-02 at January 1, 2019 resulted in a one-time loss to retained earnings of $0.7 million on our consolidated balance sheet and consolidated statement of changes in shareholders' equity related to the net difference of derecognition of existing assets and debt obligations associated with our leases historically accounted for as sale-leaseback financings, for which the ASU requires accounting for as a lease at the date of initial application.
Of the accounting standards we have adopted in 2019, the below standard did not have a material impact:
| | | | | | ASU | | | | Effective Date | 2018-16 | | Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes | | January 1, 2019 |
considered.Accounting Guidance Issued But Not Yet Adopted In June 2016,September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-04, "Liabilities – Supplier Finance Programs." The ASU 2016-13, "Financial Instruments - Credit Losses". ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires considerations of a broader range of reasonable and supportable information to inform credit loss estimates.codifies disclosure requirements for supplier financing programs. The new standard is effective for fiscal years beginning after December 15, 2019. The provisions of this standard will primarily impact the allowance for doubtful accounts on our trade accounts receivables, in which we will apply historical loss percentages, combined with reasonable and supportable forecasts of future losses to the respective aging categories. The Company does not expect material impacts to our financial statements, related disclosures, key processes or changes to internal controls. In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes" as part of its initiative to reduce complexity in accounting standards. The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The new standard is effective for fiscal years beginning after December 15, 2020,2022, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of ASU 2019-122022-04 on our financial statements.statements but do not expect the guidance to have a material impact.
Risks and Uncertainties
After experiencing significant impacts to our results of operations, financial condition and cash flows in 2020 from the coronavirus ("COVID-19") pandemic, we have seen a return to more stable demand for our products and services during 2021 and 2022, though we continue to see impacts to our business given the continued significant presence, and actual or potential spread, of the virus globally, as well as preventative measures enacted in certain regions of the world. We are currently unable to fully determine the future impact of COVID-19 on our business, though we believe the pandemic may continue to have a negative effect on our business through 2023, and potentially longer. We continue to monitor the progression of the pandemic and its ongoing and potential effect on our financial position, results of operations, and cash flows, which effects could be materially adverse in a particular quarterly reporting period as well as on an annual basis. Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(2) REVENUE We recognize revenue at the point our contractual performance obligations with our customers are satisfied. This occurs at the point in time when control of our products transfers to the customer based on considerations of right to payment, transfer of legal title, physical possession, risks and rewards of ownership and customer acceptance. For the majority of our revenue, control transfers upon shipment of our products to our customers. Our remaining revenue is recorded upon delivery or consumption for our product sales or as incurred for services provided and royalties earned. Revenue is measured as the amount of consideration we expect to receive in exchange for our products or services. Our contracts, including those subject to standard terms and conditions under multi-year agreements, are largely short-term in nature and each customer purchase order typically represents a contract with the delivery of coatings representing the only separate performance obligation.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) For certain customer arrangements within our light vehicle, industrial and commercial vehicle end-markets, revenue is recognized upon shipment, as this is the point in time we have concluded that control of our product has transferred to our customer based on our considerations of the indicators of control in the contracts, including right of use and risk and reward of ownership. For consignment arrangements, revenue is recognized upon actual consumption by our customers, as this represents the point in time that control is determined to have transferred to the customer based on the contractual arrangement. In our refinish end-market, our product sales are typically supplied through a network of distributors. Control transfers and revenue is recognized when our products are deliveredshipped to our distribution customers. Variable consideration in the form of price, less discounts and rebates, are estimated and recorded as a reduction to net sales, upon the saleshipment of our products based on our ability to make a reasonable estimate of the amounts expected to be received or incurred.received. The estimates of variable consideration involve significant assumptions based on the best estimates of inventory held by distributors, applicable pricing, as well as the use of historical actuals for sales, discounts and rebates, which may result in changes in estimates in the future. The timing of payments associated with the above arrangements may differ from the timing associated with the satisfaction of our performance obligations. The period between the satisfaction of the performance obligation and the receipt of payment is dependent on terms and conditions specific to the customers. For transactions in which we expect, at contract inception, the period between the transfer of our products or services to our customer and when the customer pays for that good or service to be greater than one year, we adjust the promised amount of consideration for the effects of any significant financing components.components that materially change the amount of revenue under the contract. All costs incurred directly in satisfaction of our performance obligations associated with revenue are reported in cost of goods sold on the statements of operations. We also provide certain customers with incremental up-front consideration, subject to clawback provisions, including Business Incentive PaymentsPlan assets ("BIPs"), which areis capitalized as a component of other assets and amortized over the estimated life of the contractual arrangement as a reduction of net sales. We do not receive a distinct service or good in return for these BIPs, but rather receive volume commitments and/or sole supplier status from our customers over the life of the contractual arrangements, which approximates a five-year weighted average useful life. The termination clauses in these contractual arrangements include standard clawback provisions that enable us to collect monetary damages in the event of a customer’scustomer's failure to meet its commitments under the relevant contract. At December 31, 20192022 and 2018,2021, the total carrying value of BIPs were $191.2$152.3 million and $190.8$151.2 million, respectively, and are presented within other assets onin the consolidated balance sheets. For the years ended December 31, 2019, 20182022, 2021 and 2017 $66.92020, $58.6 million, $65.5$62.1 million and $65.0$64.1 million, respectively, was amortized and reflected as reductions of net sales in the consolidated statements of operations. The total carrying value of BIPs excludes other upfrontup-front incentives with repayment features made in conjunction with long-term customer commitments of $79.0$42.1 million and $56.0$72.7 million at December 31, 20192022 and 2018,2021, respectively, of which will be repaid$4.9 million and $12.6 million is included in future periods.prepaid expenses and other current assets in the consolidated balance sheets at December 31, 2022 and December 31, 2021, respectively, with the remainder included in other assets. These up-front incentives with repayment features are subject to the credit risk of our customers and, depending on the financial condition of our customers, it is possible that some or all of the amounts may become uncollectible. During the year ended December 31, 2022, we agreed to forgo collection of a portion of previously provided up-front incentives with a certain Performance Coatings customer, following this customer completing a recapitalization and restructuring of its indebtedness and executing a new long-term exclusive sales agreement with us. During the year ended December 31, 2022, a charge for this customer contract restructuring was recorded for $25.0 million in the consolidated statements of operations, of which $20.3 million was recorded as a reduction to net sales and the remaining amount recorded in other expense (income), net as discussed in Note 10. We accrue for sales returns and other allowances based on our historical experience, as well as expectations based on current information relevant to our customers. We include the amounts billed to customers for shipping and handling fees in net sales and include costs incurred for the delivery of goods as cost of goods sold in the consolidated statement of operations. Recognition of licensing and royalty income occurs at the point in time when agreed upon performance obligations are satisfied, the amount is fixed or determinable, and collectability is reasonably assured. Consideration for products in which control has transferred to our customers that is conditional on something other than the passage of time is recorded as a contract asset within prepaid expenses and other current assets onin the consolidated balance sheet.sheets. The contract asset balances at December 31, 20192022 and 20182021 were $37.5$40.6 million and $47.2$36.1 million, respectively.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
The arrangements discussed above that have changed under the new revenue standard have resulted in a difference in timing of revenue recognition and classification of associated costs compared with historical U.S. GAAP. In addition to the application of the modified retrospective method to open contracts at the date of adoption, we have applied certain other policy elections upon adoption of the new revenue standard beginning January 1, 2018, including accounting for shipping and handling costs as contract fulfillment costs, as well as excluding from the transaction price any taxes imposed on and collected from customers in revenue producing transactions. Other practical expedients associated with the new revenue standard were assessed by management and concluded to be not applicable, including the application of a portfolio approach, costs to obtain a contract, existence of significant financing components, contract modifications and right to invoice.
Revenue Streams Our revenue streams are disaggregated based on the types of products and services offered in contracts with our customers, which are depicted in each of our four end-markets. •Refinish - We develop, market and supply a complete portfolio of innovative coatings systems and color matching technologies to facilitate faster automotive collision repairs relative to competing technologies. Our refinish products and systems include a range of coatings layers required to match the vehicle’svehicle's color and appearance, producing a repair surface indistinguishable from the adjacent surface. •Industrial - The industrial end-market is comprised ofcomprises liquid and powder coatings used in a broad array of end-market applications. We are also a leading global developer, manufacturer and supplier of functional and decorative liquid and powder coatings for a large number of diversified applications in the industrial end-market. We provide a full portfolio of products for applications including architectural cladding and fittings, automotive coatings, general industrial, job coaters, electrical insulation coatings, HVAC, appliances, industrial wood, coil, rebar andtransportation, oil & gas pipelines.pipelines, coil, other general industrial, building products and energy solutions. •Light Vehicle - Light vehicle OEMsoriginal equipment manufacturers ("OEMs") select coatings providers based on the basis of their global ability to deliver core and advanced technological solutions that improve exterior appearance and durability and provide long-term corrosion protection. Customers also look for suppliers that offer sustainable solutions to aid in the customer portfolio transformation and can enhance process efficiency, to reduce overall manufacturing costsimprove productivity and provide on-site technical support. •Commercial Vehicle - Sales in the commercial vehicle end-market are generated from a variety of applications including non-automotive transportation (e.g., heavy dutyheavy-duty truck, medium-duty truck, bus and rail)rail, motorcycles, marine and Agricultural, Construction and Earthmoving,aviation, as well as related markets such as trailers, recreational vehicles and personal sport vehicles. This end-market is primarily driven by global commercial vehicle production, which is influenced by overall economic activity, government infrastructure spending, equipment replacement cycles and evolving environmental standards.standards for sustainability. Commercial vehicle OEMs select coatings providers on the basis of their ability to consistently deliver advanced technological solutions that improve exterior appearance, protection and durability and provide extensive color libraries and matching capabilities at the lowest total cost-in-use, while meeting stringent environmental requirements. We also have other revenue streams which include immaterial revenues relative to the net sales offrom our four end-markets, comprised ofcomprising sales offrom royalties and services, primarily within our light vehicle and refinish end-markets. See Note 20 for disaggregated net sales by end-market. (3) ACQUISITIONS AND DIVESTITURES
During the year ended December 31, 2019, we completed the sale of our 60% interest in a consolidated joint venture within our Performance Coatings segment in China for net proceeds of $8.2 million. On the divestiture, we recorded a pre-tax loss of $3.4 million in other operating charges within our consolidated statements of operations for the year ended December 31, 2019.
Other Activity
We purchased additional interests in certain previously consolidated joint ventures within our industrial end-market, increasing our total ownership to 100% for total consideration of $31.1 million. These included the remaining 40% interest in a joint venture in our Asia Pacific region and the remaining 24.5% interest pursuant to the stock purchase agreement for a joint venture acquired during the year ended December 31, 2016.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
(3) ACQUISITIONS
The pro-forma impacts on our results of operations, including the pro-forma effect of events that are directly attributable to the following acquisitions, were not significant. Acquisition of U-POL Holdings Limited On September 15, 2021, we completed the acquisition of U-POL Holdings Limited ("U-POL") for an aggregate cash purchase price of $619.8 million. The acquisition of U-POL, a leading supplier of paint, protective coatings and accessories primarily for the automotive aftermarket, strengthens Axalta's global refinish leadership position and supports its broader growth strategy. The results of the business are reported within our Performance Coatings segment. The U-POL acquisition was recorded as a business combination under ASC 805, "Business Combinations," with identifiable assets acquired and liabilities assumed recorded at their estimated fair values as of the acquisition date. During 2022, we finalized the purchase accounting related to the U-POL acquisition during the respective measurement period, which is one year following the closing date. After all required adjustments, the purchase price was allocated as follows: | | | | | | | | | | | | | | | | | | | | | | | September 15, 2021 (As initially reported) | | Measurement Period Adjustments | | September 15, 2021 (Adjusted) | Cash | | $ | 23.7 | | | $ | — | | | $ | 23.7 | | Accounts and notes receivable, net | | 22.5 | | | 1.8 | | | 24.3 | | Inventories | | 23.3 | | | — | | | 23.3 | | Prepaid expenses and other current assets, net | | 3.2 | | | — | | | 3.2 | | Property, plant and equipment, net | | 16.5 | | | (2.4) | | | 14.1 | | Identifiable intangible assets | | 273.0 | | | 1.0 | | | 274.0 | | Other assets | | 2.0 | | | 0.1 | | | 2.1 | | Accounts payable | | (20.9) | | | (1.8) | | | (22.7) | | Other accrued liabilities | | (3.9) | | | (0.3) | | | (4.2) | | Other liabilities | | (0.9) | | | — | | | (0.9) | | Deferred income taxes | | (68.4) | | | (0.7) | | | (69.1) | | Net assets before goodwill from acquisition | | 270.1 | | | (2.3) | | | 267.8 | | Goodwill from acquisition | | 349.7 | | | 2.3 | | | 352.0 | | Net assets acquired | | $ | 619.8 | | | $ | — | | | $ | 619.8 | |
Goodwill was recognized as the excess of the purchase price over the net identifiable assets recognized. The goodwill is primarily attributed to the assembled workforce and the anticipated future economic benefits and is allocated to our refinish reporting unit. The goodwill recognized was not deductible for income tax purposes. We incurred and expensed acquisition-related transaction costs for the U-POL acquisition of $8.8 million, which was included within other operating charges in the consolidated statements of operations for the year ended December 31, 2021. The fair value associated with definite-lived intangible assets was $274.0 million, comprising $29.0 million in developed technology, $35.0 million in trademarks and $210.0 million in customer relationships. The definite-lived intangible assets will be amortized over an average term of 17.4 years. Other Acquisition During November 2022, we completed an immaterial bolt-on acquisition that has since operated within our Performance Coatings segment and is based in Europe. The acquisition was accounted for as a business combination within our Refinish end-market. The overall impacts to our consolidated financial statements were not considered material as of and for the year ended December 31, 2022.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) (4) GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS Goodwill The following table shows changes in the carrying amount of goodwill from December 31, 20172020 to December 31, 20192022 by reportable segment: | | | | | | | | | | | | | | | | Performance Coatings | | Transportation Coatings | | Total | December 31, 2017 | | $ | 1,189.2 |
| | $ | 82.0 |
| | $ | 1,271.2 |
| Goodwill from acquisitions | | 2.9 |
| | — |
| | 2.9 |
| Purchase accounting adjustments | | (0.2 | ) | | — |
| | (0.2 | ) | Foreign currency translation | | (40.4 | ) | | (2.7 | ) | | (43.1 | ) | December 31, 2018 | | $ | 1,151.5 |
| | $ | 79.3 |
| | $ | 1,230.8 |
| Goodwill from acquisitions | | 0.5 |
| | — |
| | 0.5 |
| Purchase accounting adjustments | | 1.4 |
| | — |
| | 1.4 |
| Divestiture | | (5.6 | ) | | — |
| | (5.6 | ) | Foreign currency translation | | (16.9 | ) | | (1.3 | ) | | (18.2 | ) | December 31, 2019 | | $ | 1,130.9 |
| | $ | 78.0 |
| | $ | 1,208.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | Performance Coatings | | Mobility Coatings | | Total | December 31, 2020 | | $ | 1,211.3 | | | $ | 83.6 | | | $ | 1,294.9 | | Goodwill from acquisitions | | 372.8 | | | — | | | 372.8 | | Purchase accounting adjustments | | (0.4) | | | — | | | (0.4) | | | | | | | | | Foreign currency translation | | (70.3) | | | (4.3) | | | (74.6) | | December 31, 2021 | | $ | 1,513.4 | | | $ | 79.3 | | | $ | 1,592.7 | | Goodwill from acquisitions | | 1.4 | | | — | | | 1.4 | | Purchase accounting adjustments | | 2.5 | | | — | | | 2.5 | | | | | | | | | Foreign currency translation | | (94.8) | | | (3.8) | | | (98.6) | | December 31, 2022 | | $ | 1,422.5 | | | $ | 75.5 | | | $ | 1,498.0 | |
Identifiable Intangible Assets The following table summarizestables summarize the gross carrying amounts and accumulated amortization of identifiable intangible assets by major class: | | December 31, 2019 | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Weighted average amortization periods (years) | | December 31, 2022 | | December 31, 2022 | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Weighted average amortization periods (years) | Technology | | $ | 540.2 |
| | $ | (310.6 | ) | | $ | 229.6 |
| | 10.4 | Technology | | $ | 555.2 | | | $ | (462.3) | | | $ | 92.9 | | | 10.3 | Trademarks—indefinite-lived | | 264.9 |
| | — |
| | 264.9 |
| | Indefinite | Trademarks—indefinite-lived | | 255.6 | | | — | | | 255.6 | | | Indefinite | Trademarks—definite-lived | | 99.7 |
| | (30.1 | ) | | 69.6 |
| | 15.8 | Trademarks—definite-lived | | 126.7 | | | (50.8) | | | 75.9 | | | 14.5 | Customer relationships | | 923.8 |
| | (271.3 | ) | | 652.5 |
| | 19.1 | Customer relationships | | 1,106.7 | | | (418.8) | | | 687.9 | | | 19.2 | Other | | 15.2 |
| | (7.9 | ) | | 7.3 |
| | 5.0 | Other | | 0.6 | | | (0.6) | | | — | | | 5.0 | Total | | $ | 1,843.8 |
| | $ | (619.9 | ) | | $ | 1,223.9 |
| | Total | | $ | 2,044.8 | | | $ | (932.5) | | | $ | 1,112.3 | | |
| | | | | | | | | | | | | | | | December 31, 2018 | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Weighted average amortization periods (years) | Technology | | $ | 545.7 |
| | $ | (260.7 | ) | | $ | 285.0 |
| | 10.4 | Trademarks—indefinite-lived | | 269.0 |
| | — |
| | 269.0 |
| | Indefinite | Trademarks—definite-lived | | 100.6 |
| | (24.0 | ) | | 76.6 |
| | 15.8 | Customer relationships | | 929.9 |
| | (222.9 | ) | | 707.0 |
| | 19.1 | Other | | 15.7 |
| | (5.3 | ) | | 10.4 |
| | 5.1 | Total | | $ | 1,860.9 |
| | $ | (512.9 | ) | | $ | 1,348.0 |
| | |
In-process research and development projects not yet commercialized and classified within technology assets were $1.9 million and $2.3 million at December 31, 2019 and 2018, respectively.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2021 | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Weighted average amortization periods (years) | Technology | | $ | 575.3 | | | $ | (420.9) | | | $ | 154.4 | | | 10.2 | Trademarks—indefinite-lived | | 266.7 | | | — | | | 266.7 | | | Indefinite | Trademarks—definite-lived | | 134.5 | | | (43.8) | | | 90.7 | | | 14.4 | Customer relationships | | 1,131.8 | | | (366.6) | | | 765.2 | | | 19.2 | Other | | 14.5 | | | (13.3) | | | 1.2 | | | 5.0 | Total | | $ | 2,122.8 | | | $ | (844.6) | | | $ | 1,278.2 | | | |
The estimated amortization expense related to the fair value of acquired intangible assets for each of the succeeding five years is: | | | | | | | | | 2023 | | $ | 87.1 | | 2024 | | $ | 82.5 | | 2025 | | $ | 81.8 | | 2026 | | $ | 81.3 | | 2027 | | $ | 80.4 | |
| | | | | | 2020 | | $ | 113.0 |
| 2021 | | $ | 112.4 |
| 2022 | | $ | 110.3 |
| 2023 | | $ | 71.0 |
| 2024 | | $ | 66.2 |
|
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) (5) RESTRUCTURING In accordance with the applicable guidance for ASC 712, Nonretirement"Nonretirement Postemployment Benefits,," we accounted for termination benefits and recognized liabilities when the loss was considered probable that employees were entitled to benefits and the amounts could be reasonably estimated. We haveDuring the years ended December 31, 2022, 2021 and 2020, we incurred costs in connection withfor termination benefits of $23.9 million, $38.7 million, and $71.9 million, respectively. Pretax charges during the year ended December 31, 2022 primarily relate to our CEO transition and involuntary termination benefits associated with our corporate-related initiatives and cost-saving opportunities associated withopportunities. The majority of our Axalta Way initiatives. These amountstermination benefits are recorded within selling, general and administrative expensesother operating charges in the consolidated statements of operations. The remaining payments associated with these actions are expected to be substantially completed within 12 to 24 months from the balance sheet date.months.
The following table summarizes the activity related to the restructuringtermination benefit reserves and expenses for the years ended December 31, 2019, 20182022, 2021 and 2017: | | | | | | Balance at January 1, 2017 | | $ | 66.1 |
| Expense recorded | | 36.2 |
| Payments made | | (36.1 | ) | Foreign currency translation | | 6.8 |
| Venezuela deconsolidation impact | | (1.5 | ) | Balance at December 31, 2017 | | $ | 71.5 |
| Expense recorded | | 79.8 |
| Payments made | | (46.4 | ) | Foreign currency translation | | (2.2 | ) | Balance at December 31, 2018 | | $ | 102.7 |
| Expense recorded | | 34.4 |
| Payments made | | (57.3 | ) | Foreign currency translation | | (1.8 | ) | Balance at December 31, 2019 | | $ | 78.0 |
|
2020: Restructuring charges incurred during the years ended December 31, 2019 and 2018 included actions to reduce operational costs through activities to rationalize our manufacturing footprint, including the impacts from the closure of our Mechelen, Belgium manufacturing facility announced during the year ended December 31, 2018. Axalta expects to incur aggregate pre-tax charges of approximately $135-140 million related to the shutdown of the Mechelen facility. Components of the aggregate pre-tax charges include approximately $90 million in severance costs, non-cash accelerated depreciation costs of approximately $40-45 million associated with the reduced useful lives of the impacted manufacturing assets and other shutdown related costs of approximately $5 million. Pre-tax charges incurred in fiscal years 2018 and 2019 were $80.9 million and $43.2 million, respectively, with the remainder to be incurred during 2020. Completion of the transfer and start-up of production at other Axalta manufacturing facilities is estimated to require capital expenditures of approximately $35-45 million, of which we have incurred approximately $8 million as of December 31, 2019. Axalta commenced the closure in the third quarter of 2018 and anticipates completion of the closure activities during the first half of 2020 with capital expenditures to be incurred into 2021. Axalta expects the charges to result in annual pre-tax savings of approximately $30 million, which are expected to begin realization during the second half of 2020. | | | | | | | | | Balance at January 1, 2020 | | $ | 78.0 | | Expense recorded | | 71.9 | | Payments made | | (99.8) | | Foreign currency translation | | 5.7 | | Balance at December 31, 2020 | | $ | 55.8 | | Expense recorded | | 38.7 | | Payments made | | (33.3) | | Foreign currency translation | | (3.7) | | Balance at December 31, 2021 | | $ | 57.5 | | Expense recorded | | 23.9 | | Payments made | | (30.0) | | Foreign currency translation | | (2.7) | | Balance at December 31, 2022 | | $ | 48.7 | |
During the year ended December 31, 2017, we recorded impairment losses of $7.6 million associated with manufacturing facilities based on market price estimates recorded within other (income) expense, net. See Note 10 for further information.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
We recognized impairments of $17.7 million, during the year ended December 31, 2019, primarily related to the abandonment of engineering work for aspects of our China footprint project which has been adjusted due to evolving market conditions. The impairments are included in the consolidated statements of operations in other operating charges.
(6) COMMITMENTS AND CONTINGENCIES Guarantees We guarantee certain of our customers’customers' obligations to third parties, whereby any default by our customers on their obligations could force us to make payments to the applicable creditors. At December 31, 20192022 and 2018,2021, we had outstanding bank guarantees of $11.6$7.1 million and $12.7$5.7 million, respectively, whichrespectively. Approximately one-third of our bank guarantees expire in 2020 or thereafter.between 2023 and 2036, while the remainder do not have specified expiration dates. We monitor the customer obligations and bank guarantees to evaluate whether we have a liability at the balance sheet date, for which 0ne existed as ofdate. We did not have any liabilities related to our outstanding bank guarantees recorded at either December 31, 20192022 or 2021. Operational Matter In January 2021, we became aware of an operational matter affecting certain North America Mobility Coatings customer manufacturing sites. The matter involves the use and 2018.application of certain of our products in combination with and incorporated within third-party products. The matter occurred over a discrete period during the fourth quarter of 2020. We concluded that losses from this matter were probable and that a majority of losses would be covered under our insurance policies, subject to deductible and policy limits as defined in our policies. For the years ended December 31, 2022 and 2021, we recorded expenses of $0.2 million and $4.4 million, respectively, within other operating charges in the consolidated statements of operations. At December 31, 2022 and 2021, we had $38.7 million and $52.7 million, respectively, recorded for estimated insurance receivables within accounts and notes receivable, net in the consolidated balance sheets. Liabilities of $42.3 million and $49.7 million are recorded as other accrued liabilities in the consolidated balance sheets at December 31, 2022 and 2021, respectively. The recorded probable losses remain an estimate, and actual costs arising from this matter could be materially lower or higher depending on the actual costs incurred to repair the impacted products as well as the availability of additional insurance coverage.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Other We are subject to various pending lawsuits, legal proceedings and other claims in the ordinary course of business, including civil, regulatory and environmental matters. These litigation matters may involve third-party indemnification obligations and/or insurance covering all or part of any potential damage againstincurred by us. All of these matters are subject to many uncertainties and, accordingly, we cannot determine the ultimate outcome of the proceedings and other claims at this time, although management does not believe that such proceedings, individually or in the aggregate, will have a material adverse effect on the consolidated financial statements of Axalta.time. The potential effects, if any, on suchour consolidated financial statements will be recorded in the period in which these matters are probable and estimable. We believe that any sum we may be required to pay in connection with proceedings or claims in excess of the amounts recorded would likely not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis but could have a material adverse impact in a particular quarterly reporting period. We are involved in environmental remediation and ongoing compliance activities at several sites. The timing and duration of remediation and ongoing compliance activities are determined on a site by site basis depending on local regulations. The amountsliabilities recorded represent our estimable future remediation costs and other anticipated environmental liabilities. We have not recorded liabilities at sites where a liability is probable but that a range of loss is not reasonably estimable. We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would likely not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis however,but could have a material adverse impact in a particular quarterly reporting period. (7) LEASES We have operating and finance leases for certain of our technology centers, warehouses, office spaces, land, and equipment. As described within Note 1, we adopted ASU 2016-02, "Leases," on January 1, 2019 requiring, among other changes, operating and finance leases with terms exceeding twelve months to be recognized as ROU assets and lease liabilities on the balance sheet. ROURight-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The lease term is determined to be the non-cancelable period including any lessee renewal options whichthat are considered to be reasonably certain of exercise. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company used judgment to determine an appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term in a similar economic environment. Lease expense for fixed lease payments on operating leases is recognized over the expected term on a straight-line basis, while lease expense for fixed lease payments on finance leases is recognized using the effective interest.interest method.
Certain of our lease agreements include rental payments based on an index or are adjusted periodically for inflation. The changesAt lease inception, we make assumptions for certain factors (i.e., inflation rates) through the lease term. Changes to the CPIlease payments resulting from these factors are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, variable lease expense also includes elements of a contract that is based on usage during the term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Supplemental balance sheet information related to leases is summarized as follows: | | | | | | | | | | | | | | | | | | | | | December 31, | | | | 2022 | | 2021 | Assets | Classification | | | | | Operating lease assets, net | Other assets (1) | | $ | 102.6 | | | $ | 104.2 | | Finance lease assets, net | Property, plant and equipment, net (2) | | 57.1 | | | 60.5 | | Total leased assets | | | $ | 159.7 | | | $ | 164.7 | | Liabilities | | | | | | Current | | | | | | Operating lease liabilities | Other accrued liabilities | | $ | 28.4 | | | $ | 27.2 | | Finance lease liabilities | Current portion of borrowings | | 2.5 | | | 4.1 | | Noncurrent | | | | | | Operating lease liabilities | Other liabilities | | 75.9 | | | 79.3 | | Finance lease liabilities | Long-term borrowings | | 58.5 | | | 58.4 | | Total lease liabilities | | | $ | 165.3 | | | $ | 169.0 | |
| | | | | | | | | | December 31, 2019 | Assets | Classification | | | Operating lease assets, net | Other assets (1) | | $ | 95.6 |
| Finance lease assets, net | Property, plant and equipment, net (2) | | 66.9 |
| Total leased assets | | | $ | 162.5 |
| Liabilities | | | | Current | | | | Operating lease liabilities | Other accrued liabilities | | $ | 29.3 |
| Finance lease liabilities | Current portion of borrowings | | 2.9 |
| Noncurrent | | | | Operating lease liabilities | Other liabilities | | 69.5 |
| Finance lease liabilities | Long-term borrowings | | 62.2 |
| Total lease liabilities | | | $ | 163.9 |
|
(1) Operating lease assets are recorded net of accumulated amortization of $57.4 million and $50.3 million for the years ended December 31, 2022 and 2021, respectively. | | (1) | Operating lease assets are recorded net of accumulated amortization of $18.4 million as of December 31, 2019. |
| | (2) | Finance lease assets are recorded net of accumulated amortization of $4.6 million as of December 31, 2019. |
(2) Finance lease assets are recorded net of accumulated amortization of $17.5 million and $13.3 million for the years ended December 31, 2022 and 2021, respectively. Components of lease expense are summarized as follows: | | | | | | Year Ended December 31, | | | December 31, 2019 | | 2022 | | 2021 | | 2020 | Finance lease cost | | | Finance lease cost | | | | | | | Amortization of right-of-use assets | | $ | 4.1 |
| Amortization of right-of-use assets | | $ | 4.5 | | | $ | 4.4 | | | $ | 4.2 | | Interest on lease liabilities | | 3.5 |
| Interest on lease liabilities | | 3.2 | | | 3.3 | | | 3.4 | | Operating lease cost | | 36.5 |
| Operating lease cost | | 33.4 | | | 35.6 | | | 35.7 | | Variable lease cost | | 2.9 |
| Variable lease cost | | 2.7 | | | 3.3 | | | 3.2 | | Short-term lease cost | | 1.2 |
| Short-term lease cost | | 0.3 | | | 0.5 | | | 0.4 | | Net lease cost | | $ | 48.2 |
| Net lease cost | | $ | 44.1 | | | $ | 47.1 | | | $ | 46.9 | |
Supplemental cash flow information related to leases is summarized as follows: | | | | | | | | December 31, 2019 | Cash paid for amounts included in the measurement of lease liabilities: | | | Operating cash flows from operating leases | | $ | 36.8 |
| Operating cash flows from finance leases | | $ | 3.5 |
| Financing cash flows from finance leases | | $ | 1.9 |
| Right-of-use assets obtained in exchange for lease obligations: | | | Operating leases | | $ | 23.3 |
| Finance leases | | $ | 0.5 |
|
Lease term and discount rate information is summarized as follows: | | | | | | | December 31, 2019 | Weighted-average remaining lease term (years) | | | Operating leases | | 4.9 |
| Finance leases | | 16.7 |
| Weighted-average discount rate | | | Operating leases | | 3.6 | % | Finance leases | | 5.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | Operating cash flows for operating leases | | $ | 34.0 | | | $ | 36.4 | | | $ | 36.0 | | Operating cash flows for finance leases | | $ | 3.2 | | | $ | 3.3 | | | $ | 3.4 | | Financing cash flows for finance leases | | $ | 3.0 | | | $ | 2.6 | | | $ | 2.2 | | Right-of-use assets obtained in exchange for lease obligations: | | | | | | | Operating leases | | $ | 27.7 | | | $ | 30.1 | | | $ | 21.0 | | Finance leases | | $ | 2.7 | | | $ | 0.7 | | | $ | 0.3 | |
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Lease term and discount rate information are summarized as follows:
| | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | Weighted average remaining lease term (years) | | | | | Operating leases | | 5.6 | | 6.2 | Finance leases | | 14.5 | | 15.5 | Weighted average discount rate | | | | | Operating leases | | 4.9 | % | | 3.7 | % | Finance leases | | 5.2 | % | | 5.2 | % |
Maturities of lease liabilities as of December 31, 2019 is2022 are as follows: | | | | | | | | | | | | Operating Leases | | Finance Leases | Year | | | | | 2020 | | $ | 31.1 |
| | $ | 5.9 |
| 2021 | | 24.8 |
| | 5.6 |
| 2022 | | 17.1 |
| | 5.8 |
| 2023 | | 12.6 |
| | 5.8 |
| 2024 | | 6.4 |
| | 5.8 |
| Thereafter | | 17.2 |
| | 71.9 |
| Total lease payments | | $ | 109.2 |
| | $ | 100.8 |
| Less: imputed interest | | 10.4 |
| | 35.7 |
| Present value of lease liabilities | | $ | 98.8 |
| | $ | 65.1 |
|
As discussed in Note 1, we have elected the transition methodology to apply the standard at the beginning of the period of adoption, January 1, 2019, through a cumulative-effect adjustment to retained earnings. Under this transition method, the application date of the new standard shall begin in the reporting period in which we have adopted the standard. For comparability purposes, the following table reflects the total remaining cash payments related to all transactions during the rental term at December 31, 2018 associated with three lease arrangements that were treated as sale-leaseback financing transactions under ASC 840 and disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018: | | | | | | | | Sale-leaseback Obligations | 2019 | | $ | 5.3 |
| 2020 | | 5.4 |
| 2021 | | 5.4 |
| 2022 | | 5.7 |
| 2023 | | 5.7 |
| Thereafter | | 77.1 |
| Total minimum payments | | $ | 104.6 |
|
| | | | | | | | | | | | | | | | | Operating Leases | | Finance Leases | Year | | | | | 2023 | | $ | 32.7 | | | $ | 5.8 | | 2024 | | 25.7 | | | 6.4 | | 2025 | | 17.4 | | | 6.2 | | 2026 | | 12.2 | | | 6.2 | | 2027 | | 9.1 | | | 6.3 | | Thereafter | | 20.8 | | | 65.1 | | Total lease payments | | 117.9 | | | 96.0 | | Less: imputed interest | | 13.6 | | | 35.0 | | Present value of lease liabilities | | $ | 104.3 | | | $ | 61.0 | |
At December 31, 2018, future minimum payments under non-cancelable operating leases under ASC 840 were as follows: | | | | | | | | Operating Leases | 2019 | | $ | 34.6 |
| 2020 | | 23.5 |
| 2021 | | 17.1 |
| 2022 | | 13.2 |
| 2023 | | 11.5 |
| Thereafter | | 16.6 |
| Total minimum payments | | $ | 116.5 |
|
(8) LONG-TERM EMPLOYEE BENEFITS Defined Benefit Pensions Axalta has defined benefit plans that cover certain employees worldwide, with overapproximately 85% of the projected benefit obligation within the European region as ofat December 31, 2019.2022.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Obligations and Funded Status The measurement date used to determine defined benefit obligations wasis December 31.31st each year. The following table sets forth the changes to the projected benefit obligations ("PBO") and plan assets for the years ended December 31, 20192022 and 20182021 and the funded status and amounts recognized in the accompanying consolidated balance sheets at December 31, 20192022 and 20182021 for our defined benefit pension plans:
| | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Change in benefit obligation: | | | | | Projected benefit obligation at beginning of year | | $ | 583.7 |
| | $ | 636.9 |
| Service cost | | 7.2 |
| | 8.8 |
| Interest cost | | 13.1 |
| | 13.1 |
| Participant contributions | | 1.2 |
| | 1.3 |
| Actuarial losses (gains), net | | 60.9 |
| | (3.3 | ) | Plan curtailments, settlements and special termination benefits | | (7.1 | ) | | (19.4 | ) | Benefits paid | | (22.5 | ) | | (25.6 | ) | Business combinations and other adjustments | | (0.1 | ) | | 0.7 |
| Foreign currency translation | | 4.3 |
| | (28.8 | ) | Projected benefit obligation at end of year | | 640.7 |
| | 583.7 |
| Change in plan assets: | | | | | Fair value of plan assets at beginning of year | | 332.3 |
| | 365.0 |
| Actual return on plan assets | | 28.3 |
| | (1.4 | ) | Employer contributions | | 16.9 |
| | 24.6 |
| Participant contributions | | 1.2 |
| | 1.3 |
| Benefits paid | | (22.5 | ) | | (25.6 | ) | Settlements | | (7.4 | ) | | (12.5 | ) | Business combinations and other adjustments | | (0.1 | ) | | (0.1 | ) | Foreign currency translation | | 8.2 |
| | (19.0 | ) | Fair value of plan assets at end of year | | 356.9 |
| | 332.3 |
| Funded status, net | | $ | (283.8 | ) | | $ | (251.4 | ) | Amounts recognized in the consolidated balance sheets consist of: | | | | | Other assets | | $ | 13.0 |
| | $ | 22.0 |
| Other accrued liabilities | | (11.6 | ) | | (11.5 | ) | Accrued pensions | | (285.2 | ) | | (261.9 | ) | Net amount recognized | | $ | (283.8 | ) | | $ | (251.4 | ) |
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted) | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | Change in benefit obligation: | | | | | Projected benefit obligation at beginning of year | | $ | 627.1 | | | $ | 704.0 | | Service cost | | 6.4 | | | 7.6 | | Interest cost | | 9.4 | | | 7.7 | | Participant contributions | | 1.2 | | | 1.1 | | Actuarial gain, net | | (120.7) | | | (27.5) | | Plan curtailments, settlements and special termination benefits | | (3.2) | | | (11.0) | | Benefits paid | | (27.4) | | | (23.9) | | Business combinations and other adjustments | | (0.3) | | | (0.2) | | Foreign currency translation | | (43.8) | | | (30.7) | | Projected benefit obligation at end of year | | 448.7 | | | 627.1 | | Change in plan assets: | | | | | Fair value of plan assets at beginning of year | | 380.9 | | | 386.7 | | Actual return on plan assets | | (76.4) | | | 17.7 | | Employer contributions | | 17.1 | | | 18.4 | | Participant contributions | | 1.2 | | | 1.1 | | Benefits paid | | (27.4) | | | (23.9) | | Settlements | | (3.5) | | | (11.3) | | Business combinations and other adjustments | | (0.1) | | | (0.1) | | Foreign currency translation | | (31.8) | | | (7.7) | | Fair value of plan assets at end of year | | 260.0 | | | 380.9 | | Funded status, net | | $ | (188.7) | | | $ | (246.2) | | Amounts recognized in the consolidated balance sheets consist of: | | | | | Other assets | | $ | 29.0 | | | $ | 34.9 | | Other accrued liabilities | | (12.6) | | | (11.8) | | Accrued pensions | | (205.1) | | | (269.3) | | Net amount recognized | | $ | (188.7) | | | $ | (246.2) | |
Net actuarial gains for 2022 and 2021 were due primarily to fluctuations in the discount rates between years across the plans relative to the rates used in the preceding year to determine benefit obligations (see assumptions table below), which were caused by market volatility during the periods. The PBO is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation ("ABO") is the actuarial present value of benefits attributable to employee service rendered to date but does not include the effects of estimated future pay increases.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table reflects the ABO for all defined benefit pension plans as ofat December 31, 20192022 and 2018.2021. Further, the table reflects the aggregate PBO, ABO and fair value of plan assets for pension plans with PBO in excess of plan assets and for pension plans with ABO in excess of plan assets. | | | | | | | | | | | | | | | | | December 31, | | | 2022 | | 2021 | ABO | | $ | 430.6 | | | $ | 604.5 | | Plans with PBO in excess of plan assets: | | | | | PBO | | $ | 273.3 | | | $ | 388.9 | | ABO | | $ | 257.4 | | | $ | 366.6 | | Fair value plan assets | | $ | 55.5 | | | $ | 107.8 | | Plans with ABO in excess of plan assets: | | | | | PBO | | $ | 272.1 | | | $ | 387.8 | | ABO | | $ | 256.6 | | | $ | 365.9 | | Fair value plan assets | | $ | 54.7 | | | $ | 106.8 | |
| | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | ABO | | $ | 613.5 |
| | $ | 559.9 |
| Plans with PBO in excess of plan assets: | | | | | PBO | | $ | 401.0 |
| | $ | 375.6 |
| ABO | | $ | 374.2 |
| | $ | 352.0 |
| Fair value plan assets | | $ | 104.2 |
| | $ | 102.2 |
| Plans with ABO in excess of plan assets: | | | | | PBO | | $ | 401.0 |
| | $ | 370.2 |
| ABO | | $ | 374.2 |
| | $ | 349.1 |
| Fair value plan assets | | $ | 104.2 |
| | $ | 99.3 |
|
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) The pre-tax amounts not yet reflected in net periodic benefit cost and included in AOCI include the following related to defined benefit plans: | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Accumulated net actuarial losses | | $ | (97.9 | ) | | $ | (51.8 | ) | Accumulated prior service credit | | 1.5 |
| | 1.6 |
| Total | | $ | (96.4 | ) | | $ | (50.2 | ) |
| | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | Accumulated net actuarial losses | | $ | (52.0) | | | $ | (86.7) | | Accumulated prior service credit | | 1.6 | | | 1.5 | | Total | | $ | (50.4) | | | $ | (85.2) | |
The accumulated net actuarial losses for pensions relate primarily to differences between the actual net periodic expense and the expected net periodic expense resulting from differences in the significant assumptions, including return on assets, discount rates and compensation trends, used in these estimates. For individual plans in which the accumulated net actuarial gains or losses exceed 10% of the higher of the fair value of plan assets or the PBO at the beginning of the year, amortization of such excess has been included in net periodic benefit costs. The amortization period is the average remaining service period of active employees expected to receive benefits unless a plan is mostly inactive, in which case the amortization period is the average remaining life expectancy of the plan participants. Accumulated prior service credit iscredits are amortized over the future service periods of those employees who are active at the dates of the plan amendments and who are expected to receive benefits. The estimated pre-tax amounts that are expected to be amortized from AOCI into the consolidated statements of operations as net periodic benefit cost during 2020 for the defined benefit plans is as follows: | | | | | | | | 2020 | Amortization of net actuarial losses, net | | $ | (3.5 | ) | Amortization of prior service credit, net | | 0.1 |
| Total | | $ | (3.4 | ) |
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Components of Net Periodic Benefit Cost The following table sets forth the pre-tax components of net periodic benefit costs for our defined benefit plans for the years ended December 31, 2019, 20182022, 2021 and 2017.2020. | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Components of net periodic benefit cost and amounts recognized in comprehensive income: | | | | | | | Net periodic benefit cost: | | | | | | | Service cost | | $ | 6.4 | | | $ | 7.6 | | | $ | 7.6 | | Interest cost | | 9.4 | | | 7.7 | | | 9.7 | | Expected return on plan assets | | (12.0) | | | (13.6) | | | (12.8) | | Amortization of actuarial loss, net | | 3.2 | | | 4.9 | | | 3.4 | | Amortization of prior service credit | | (0.1) | | | (0.1) | | | — | | Curtailment gain | | — | | | — | | | (4.2) | | Settlement (gain) loss | | (1.0) | | | — | | | 2.3 | | Special termination benefit loss | | 0.2 | | | 0.4 | | | 1.5 | | Net periodic benefit cost | | 6.1 | | | 6.9 | | | 7.5 | | Changes in plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | Net actuarial (gain) loss, net | | (32.5) | | | (32.1) | | | 28.4 | | Amortization of actuarial loss, net | | (3.2) | | | (4.9) | | | (3.4) | | Prior service credit | | (0.2) | | | — | | | (0.3) | | Amortization of prior service credit | | 0.1 | | | 0.1 | | | — | | Curtailment gain | | — | | | — | | | 4.2 | | Settlement gain (loss) | | 1.0 | | | — | | | (2.3) | | Other adjustments | | — | | | (0.1) | | | (1.3) | | Total (gain) loss recognized in other comprehensive income | | (34.8) | | | (37.0) | | | 25.3 | | Total recognized in net periodic benefit cost and comprehensive income | | $ | (28.7) | | | $ | (30.1) | | | $ | 32.8 | |
| | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Components of net periodic benefit cost and amounts recognized in comprehensive (income) loss: | | | | | | | Net periodic benefit cost: | | | | | | | Service cost | | $ | 7.2 |
| | $ | 8.8 |
| | $ | 9.0 |
| Interest cost | | 13.1 |
| | 13.1 |
| | 13.8 |
| Expected return on plan assets | | (13.9 | ) | | (16.1 | ) | | (15.0 | ) | Amortization of actuarial loss, net | | 1.9 |
| | 1.3 |
| | 1.4 |
| Amortization of prior service credit | | (0.1 | ) | | (0.1 | ) | | — |
| Curtailment gain | | (2.3 | ) | | (0.7 | ) | | — |
| Settlement loss | | 1.1 |
| | 0.6 |
| | 0.2 |
| Special termination benefit loss | | 0.3 |
| | — |
| | 1.0 |
| Net periodic benefit cost | | 7.3 |
| | 6.9 |
| | 10.4 |
| Changes in plan assets and benefit obligations recognized in other comprehensive loss (income): | | | | | | | Net actuarial loss (gain), net | | 46.7 |
| | 6.7 |
| | (20.6 | ) | Amortization of actuarial loss, net | | (1.9 | ) | | (1.3 | ) | | (1.4 | ) | Prior service cost (credit) | | — |
| | 0.8 |
| | (1.2 | ) | Amortization of prior service credit | | 0.1 |
| | 0.1 |
| | — |
| Curtailment gain | | 2.3 |
| | 0.7 |
| | — |
| Settlement loss | | (1.1 | ) | | (0.6 | ) | | (0.2 | ) | Other adjustments | | — |
| | — |
| | (7.9 | ) | Total loss (gain) recognized in other comprehensive loss (income) | | 46.1 |
| | 6.4 |
| | (31.3 | ) | Total recognized in comprehensive loss (income) | | $ | 53.4 |
| | $ | 13.3 |
| | $ | (20.9 | ) |
77
Included in the other adjustments recognized in other comprehensive (income) loss for the year ended December 31, 2017 was a pension plan adjustment relatedNotes to the deconsolidation of our Venezuelan subsidiary and the corresponding write-off of the accumulated actuarial loss on our Venezuela pension plan. This resulted in a decrease of $8.5 million in AOCI ($5.9 million, net of tax), as discussed further in Note 22.Consolidated Financial Statements
(In millions, unless otherwise noted) Assumptions We used the following assumptions in determining the benefit obligations and net periodic benefit cost of our defined benefit plans: | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | Weighted-average assumptions: | | | | | | | Discount rate to determine benefit obligation | | 1.58 | % | | 2.27 | % | | 2.13 | % | Discount rate to determine net cost | | 2.27 | % | | 2.13 | % | | 2.52 | % | Rate of future compensation increases to determine benefit obligation | | 2.73 | % | | 2.68 | % | | 2.69 | % | Rate of future compensation increases to determine net cost | | 2.68 | % | | 2.69 | % | | 3.07 | % | Rate of return on plan assets to determine net cost | | 4.21 | % | | 4.47 | % | | 4.73 | % |
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
| | | | | | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Weighted average assumptions: | | | | | | | Discount rate to determine benefit obligation | | 4.37 | % | | 1.65 | % | | 1.12 | % | Discount rate to determine net cost | | 1.65 | % | | 1.12 | % | | 1.58 | % | Rate of future compensation increases to determine benefit obligation | | 2.98 | % | | 2.84 | % | | 2.71 | % | Rate of future compensation increases to determine net cost | | 2.84 | % | | 2.71 | % | | 2.73 | % | Rate of return on plan assets to determine net cost | | 3.44 | % | | 3.55 | % | | 3.71 | % | Cash balance interest credit rate to determine benefit obligation | | 1.96 | % | | 0.44 | % | | 0.40 | % | Cash balance interest credit rate to determine net cost | | 0.44 | % | | 0.40 | % | | 0.49 | % |
The discount rates used reflect the expected future cash flow based on plan provisions, participant data and the currencies in which the expected future cash flows will occur. For the majority of our defined benefit pension obligations, we utilize prevailing long-term high quality corporate bond indices applicable to the respective country at the measurement date. In countries where established corporate bond markets do not exist, we utilize other index movement and duration analysis to determine discount rates. The long-term rate of return on plan assets assumptions reflect economic assumptions applicable to each country and assumptions related to the preliminary assessments regarding the type of investments to be held by the respective plans. Estimated future benefit payments The following reflects the total benefit payments expected to be paid for defined benefits: | | | | | | Year ended December 31, | | Benefits | 2020 | | $ | 32.6 |
| 2021 | | $ | 27.8 |
| 2022 | | $ | 29.3 |
| 2023 | | $ | 32.1 |
| 2024 | | $ | 36.2 |
| 2025—2029 | | $ | 181.7 |
|
| | | | | | | | | Year ended December 31, | | Benefits | 2023 | | $ | 28.9 | | 2024 | | $ | 32.1 | | 2025 | | $ | 34.7 | | 2026 | | $ | 33.6 | | 2027 | | $ | 37.9 | | 2028 - 2032 | | $ | 199.0 | |
Plan Assets The defined benefit pension plans for our subsidiaries represent single-employer plans and the related plan assets are invested within separate trusts. Each of the single-employer plans is managed in accordance with the requirements of local laws and regulations governing defined benefit pension plans for the exclusive purpose of providing pension benefits to participants and their beneficiaries. Pension plan assets are typically held in a trust by financial institutions. Our established asset allocation targets are intended to achieve the plan’splan's investment strategies. Equity securities include varying market capitalization levels. U.S. equity securities are primarily large-cap companies. Fixed income investments include corporate issued, government issued, and asset backedasset-backed securities. Corporate debt securities include a range of credit risk and industry diversification. Other investments include real estate and private market securities such as insurance contracts, interests in private equity, and venture capital partnerships. Pension trust liabilities relate to an over funding by DuPont, as defined in Item 1. Business included elsewhere in this Annual Report on Form 10-K, into a pension trust managed by Axalta in conjunction with the Acquisition, as defined in Item 1. Business included elsewhere in this Annual Report on Form 10-K. The assets continued to be invested and managed by Axalta until required regulatory approvals were received in 2019, at which time the over-funded assets were transferred back to the trust managed by DuPont. Assets measured using the net asset value ("NAV") per share practical expedient ("NAV") include debt assetdebt-asset backed securities, hedge funds, and real estate funds. Debt asset backedasset-backed securities primarily consist of collateralized debt obligations. The market values for these assets are based on the NAV multiplied by the number of shares owned. Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) The Company’sCompany's investment strategy in pension plan assets is to generate earnings over an extended time to help fund the cost of benefits while maintaining an adequate level of diversification for a prudent level of risk. The table below summarizes the weighted average actual and target pension plan asset allocations at December 31st for all funded Axalta defined benefit plans. | | | | | | | | Asset Category | | 2019 | | 2018 | | Target Allocation | Equity securities | | 20-25% | | 15-20% | | 20-25% | Debt securities | | 30-35% | | 25-30% | | 30-35% | Real estate | | 0-5% | | 0-5% | | 0-5% | Other | | 40-45% | | 45-50% | | 40-45% |
| | | | | | | | | | | | | | | | | | | | | Asset Category | | 2022 | | 2021 | | Target Allocation | Equity securities | | 5-10% | | 15-20% | | 10-15% | Debt securities | | 30-35% | | 30-35% | | 30-35% | Real estate | | 0-5% | | 0-5% | | 0-5% | Other (1) | | 50-55% | | 40-45% | | 50-55% |
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(1) Substantially all pension insurance contracts and cash and cash equivalents holdings.
The table below presents the fair values of the defined benefit pension plan assets by level within the fair value hierarchy, as described in Note 1, at December 31, 20192022 and 2018,2021, respectively. Defined benefit pension plan assets measured using NAV have not been categorized in the fair value hierarchy. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value measurements at | | | December 31, 2022 | | | Total | | Level 1 | | Level 2 | | Level 3 | Asset Category: | | | | | | | | | Cash and cash equivalents | | $ | 7.0 | | | $ | 7.0 | | | $ | — | | | $ | — | | U.S. equity securities | | 9.4 | | | 9.2 | | | — | | | 0.2 | | Non-U.S. equity securities | | 12.7 | | | 9.9 | | | 0.2 | | | 2.6 | | Debt securities—government issued | | 64.7 | | | 44.4 | | | 16.3 | | | 4.0 | | Debt securities—corporate issued | | 25.2 | | | 17.4 | | | 5.9 | | | 1.9 | | Private market securities and other | | 102.2 | | | 0.1 | | | 0.3 | | | 101.8 | | | | | | | | | | | Total carried at fair value | | $ | 221.2 | | | $ | 88.0 | | | $ | 22.7 | | | $ | 110.5 | | Investments measured at NAV | | 38.8 | | | | | | | | | | | | | | | | | Total | | $ | 260.0 | | | | | | | |
| | | | Fair value measurements at | | Fair value measurements at | | | December 31, 2019 | | December 31, 2021 | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | Asset Category: | | | | | | | | | Asset Category: | | | | | | | | | Cash and cash equivalents | | $ | 4.0 |
| | $ | 4.0 |
| | $ | — |
| | $ | — |
| Cash and cash equivalents | | $ | 11.1 | | | $ | 11.1 | | | $ | — | | | $ | — | | U.S. equity securities | | 36.0 |
| | 35.7 |
| | — |
| | 0.3 |
| U.S. equity securities | | 29.8 | | | 29.6 | | | — | | | 0.2 | | Non-U.S. equity securities | | 45.8 |
| | 42.9 |
| | 0.4 |
| | 2.5 |
| Non-U.S. equity securities | | 39.6 | | | 36.0 | | | 0.4 | | | 3.2 | | Debt securities—government issued | | 69.6 |
| | 45.0 |
| | 19.9 |
| | 4.7 |
| Debt securities—government issued | | 79.6 | | | 53.1 | | | 22.2 | | | 4.3 | | Debt securities—corporate issued | | 40.2 |
| | 28.3 |
| | 9.4 |
| | 2.5 |
| Debt securities—corporate issued | | 55.3 | | | 44.9 | | | 8.2 | | | 2.2 | | Private market securities and other | | 125.8 |
| | 1.0 |
| | 0.7 |
| | 124.1 |
| Private market securities and other | | 120.8 | | | 0.1 | | | 0.2 | | | 120.5 | | | Total carried at fair value | | $ | 321.4 |
| | $ | 156.9 |
| | $ | 30.4 |
| | $ | 134.1 |
| Total carried at fair value | | $ | 336.2 | | | $ | 174.8 | | | $ | 31.0 | | | $ | 130.4 | | Investments measured at NAV | | 35.5 |
| | | | | | | Investments measured at NAV | | 44.7 | | | | | | | | | Total | | $ | 356.9 |
| | | | | | | Total | | $ | 380.9 | | | | |
| | | | | | | | | | | | | | | | | | | | Fair value measurements at | | | December 31, 2018 | | | Total | | Level 1 | | Level 2 | | Level 3 | Asset Category: | | | | | | | | | Cash and cash equivalents | | $ | 4.5 |
| | $ | 4.4 |
| | $ | 0.1 |
| | $ | — |
| U.S. equity securities | | 23.7 |
| | 23.4 |
| | — |
| | 0.3 |
| Non-U.S. equity securities | | 42.9 |
| | 39.9 |
| | 1.0 |
| | 2.0 |
| Debt—government issued | | 70.9 |
| | 41.1 |
| | 23.3 |
| | 6.5 |
| Debt—corporate issued | | 29.1 |
| | 19.7 |
| | 7.0 |
| | 2.4 |
| Private market securities and other | | 129.6 |
| | 1.2 |
| | 1.5 |
| | 126.9 |
| Real estate investments | | 13.6 |
| | — |
| | — |
| | 13.6 |
| Total carried at fair value | | $ | 314.3 |
| | $ | 129.7 |
| | $ | 32.9 |
| | $ | 151.7 |
| Investments measured at NAV | | 19.5 |
| | | | | | | Pension trust liability | | (1.5 | ) | | | | | | | Total | | $ | 332.3 |
| | | | | | |
79
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Level 3 assets are primarily insurance contracts pledged on behalf of employees with benefits in certain countries, ownership interests in investment partnerships, trusts that own private market securities and other debt and equity investments. The fair values of our insurance contracts are determined based on the cash surrender value or the present value of the expected future benefits to be paid under the contract, discounted at a rate consistent with the related benefit obligation. Debt and equity securities consist primarily of small investments in other investments that are valued at different frequencies based on the value of the underlying investments. The table below presents a roll forward of activity for these assets for the years ended December 31, 20192022 and 2018.2021.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
| | | | | | | | | | | | | | | | | | | | Level 3 assets | | | Total | | Private market securities | | Debt and equity | | Real estate investments | Ending balance at December 31, 2017 | | $ | 158.0 |
| | $ | 135.7 |
| | $ | 8.8 |
| | $ | 13.5 |
| Change in unrealized gain | | (4.2 | ) | | (4.4 | ) | | (0.2 | ) | | 0.4 |
| Purchases, sales, issues and settlements | | (2.1 | ) | | (4.4 | ) | | 2.6 |
| | (0.3 | ) | Ending balance at December 31, 2018 | | $ | 151.7 |
| | $ | 126.9 |
| | $ | 11.2 |
| | $ | 13.6 |
| Change in unrealized gain | | 2.5 |
| | 1.5 |
| | 0.7 |
| | 0.3 |
| Purchases, sales, issues and settlements | | (8.6 | ) | | (4.6 | ) | | (1.9 | ) | | (2.1 | ) | Transfers out of Level 3 | | (11.5 | ) | | — |
| | — |
| | (11.5 | ) | Ending balance at December 31, 2019 | | $ | 134.1 |
| | $ | 123.8 |
| | $ | 10.0 |
| | $ | 0.3 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 3 assets | | | Total | | Private market securities | | Debt and equity | | Real estate investments | Ending balance at December 31, 2020 | | $ | 143.5 | | | $ | 133.8 | | | $ | 9.4 | | | $ | 0.3 | | | | | | | | | | | Change in unrealized (loss) gain | | (9.7) | | | (10.1) | | | 0.4 | | | — | | Purchases, sales, issues and settlements | | (3.4) | | | (3.5) | | | 0.1 | | | — | | | | | | | | | | | Ending balance at December 31, 2021 | | $ | 130.4 | | | $ | 120.2 | | | $ | 9.9 | | | $ | 0.3 | | | | | | | | | | | Change in unrealized loss | | (18.7) | | | (18.0) | | | (0.7) | | | — | | Purchases, sales, issues and settlements | | (1.2) | | | (0.7) | | | (0.5) | | | — | | | | | | | | | | | Ending balance at December 31, 2022 | | $ | 110.5 | | | $ | 101.5 | | | $ | 8.7 | | | $ | 0.3 | |
Assumptions and Sensitivities The discount rate is determined as of each measurement date, based on a review of yield rates associated with long-term, high-quality corporate bonds. The calculation separately discounts benefit payments using the spot rates from a long-term, high-quality corporate bond yield curve. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested to provide for the benefits included in the benefit obligations. The long-term rate of return assumption is determined based on a number of factors, including historical market index returns, the anticipated long-term asset allocation of the plans, historical plan return data, plan expenses and the potential to outperform market index returns. For 2020,2023, the expected long-term rate of return is 3.71%4.27%. Anticipated Contributions to Defined Benefit PlanPlans For funded pension plans, our funding policy is to fund amounts for pension plans sufficient to meet minimum requirements set forth in applicable benefit laws and local tax laws. Based on the same assumptions used to measure our benefit obligations at December 31, 2019,2022, we expect to contribute $5.8$5.7 million to our defined benefit plans during 2020. No plan assets are expected to be returned to the Company in 2020.2023. Defined Contribution Plans The Company sponsors defined contribution plans in both its U.S. and non-U.S. subsidiaries, under which salaried and certain hourly employees may defer a portion of their compensation. Eligible participants may contribute to the plan up to the allowable amount as determined by the plan of their regular compensation before taxes. All contributions and Company matches are invested at the direction of the employee. Company matching contributions vest immediately and aggregated to $48.7$54.6 million, $43.8$50.4 million and $45.1$42.2 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. (9) STOCK-BASED COMPENSATION During the years ended December 31, 2019, 20182022, 2021 and 2017,2020, we recognized $15.7$22.2 million, $37.3$14.9 million and $38.5$15.1 million, respectively, in stock-based compensation expense, which was allocated between costs of goods sold and selling, general and administrative expenses onin the consolidated statements of operations. We recognized tax benefits on stock-based compensation of $0.3$3.0 million, $6.7$1.5 million and $12.1$2.4 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. Description of Equity Incentive Plan In 2013, Axalta’s Board of Directors approved the Axalta Coating Systems Ltd. 2013 Incentive Award Plan (the "2013 Plan") which reserved shares of common stock of the Company for issuance to employees, directors and consultants. The 2013 Plan provided for the issuance of stock options, restricted stock or other stock-based awards. No further awards may be granted pursuant to the 2013 Plan.
In 2014, Axalta's Board of Directors approved the Axalta Coating Systems Ltd. 2014 Incentive Award Plan, as amended and restated (the "2014 Plan"), which reserved additional shares of common stock of the Company for issuance to employees, directors and consultants. The 2014 Plan provides for the issuance of stock options, restricted stock or other stock-based awards. All awards granted pursuant to the 2014 Plan must be authorized by the Board of Directors of Axalta or a designated committee thereof. Our Board of Directors has generally delegated responsibility for administering the 2014 Plan to our Compensation Committee.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
The terms of the stock options may vary with each grant and are determined by the Compensation Committee within the guidelines of the 2013 and 2014 Plans.Plan. Option life cannot exceed ten years and the Company may settle option exercises by issuing new shares, treasury shares or shares purchased on the open market. During 2019,2022, we granted non-qualified service-based stock options, restricted stock units and performance share units to certain employees and directors. All awards were granted under the 2014 Plan. The performance share units are subject to certain performance and market conditions, in addition to the service-based vesting conditions. During 2022, the Company withheld shares and used cash to settle certain employees' tax obligation resulting from the vesting of awards in the amount of $2.2 million. Stock Options The Black-Scholes option pricing model was used to estimate the fair values of thefor options as of the date of the grant. The weighted average fair values oftheir grant date. There have been no options granted in 2019, 2018 and 2017 were $6.98, $6.78 and $7.69 per share, respectively. A majority of these awards vest ratably over three years. Principal weighted average assumptions used in applying the Black-Scholes model were as follows: | | | | | | | | | | | | | 2019 Grants | | 2018 Grants | | 2017 Grants | Expected Term | | 6.0 years |
| | 6.0 years |
| | 6.0 years |
| Volatility | | 20.25 | % | | 20.27 | % | | 21.75 | % | Dividend Yield | | — |
| | — |
| | — |
| Discount Rate | | 2.47 | % | | 2.66 | % | | 2.03 | % |
The expected term assumptions used for the grants mentioned in the above table were determined using the simplified method. We do not anticipate paying cash dividends in the foreseeable future and, therefore, use an expected dividend yield of 0. Volatility for outstanding grants was based upon our industry peer group since we have a limited history as a public company. The discount rate was derived from the U.S. Treasury yield curve.2019.
A summary of stock option award activity as of and for the year ended December 31, 20192022 is presented below: | | | | | | | | | | | | | | | | | Awards (in millions) | | Weighted- Average Exercise Price | | Aggregate Intrinsic Value (in millions) | | Weighted Average Remaining Contractual Life (years) | Outstanding at December 31, 2018 | | 7.2 |
| | $ | 19.32 |
| | | | | Granted | | 0.8 |
| | $ | 26.91 |
| | | | | Exercised | | (3.9 | ) | | $ | 12.92 |
| | | | | Forfeited | | (1.1 | ) | | $ | 29.41 |
| | | | | Outstanding at December 31, 2019 | | 3.0 |
| | $ | 25.92 |
| | | | | Vested and expected to vest at December 31, 2019 | | 3.0 |
| | $ | 25.92 |
| | $ | 15.1 |
| | 5.85 | Exercisable at December 31, 2019 | | 2.0 |
| | $ | 24.86 |
| | $ | 12.6 |
| | 4.49 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | Awards (in millions) | | Weighted Average Exercise Price | | Aggregate Intrinsic Value (in millions) | | Weighted Average Remaining Contractual Life (years) | Outstanding at January 1, 2022 | | 1.4 | | | $ | 26.30 | | | | | | Granted | | — | | | $ | — | | | | | | Exercised | | (0.1) | | | $ | 18.97 | | | | | | Forfeited | | (0.2) | | | $ | 29.13 | | | | | | Outstanding at December 31, 2022 | | 1.1 | | | $ | 26.56 | | | | | | Vested and expected to vest at December 31, 2022 | | 1.1 | | | $ | 26.56 | | | $ | 2.1 | | | 2.79 | Exercisable at December 31, 2022 | | 1.1 | | | $ | 26.56 | | | $ | 2.1 | | | 2.79 |
Cash received by the Company upon exercise of options in 20192022 was $50.3$1.9 million. Tax benefitsThere were no tax shortfall expenses on these exercises were $11.6 million.exercises. For the years ended December 31, 2019, 20182022, 2021 and 2017,2020, the intrinsic value of options exercised was $56.6$0.6 million, $33.6$2.5 million and $42.2$4.3 million, respectively. The fair value of sharesoptions vested during 2019, 20182022, 2021 and 20172020 was $5.4$1.1 million, $6.8$1.9 million and $5.2$3.2 million, respectively. At December 31, 2019, there was $2.8 million of unrecognized compensation cost relating to outstanding unvested stock options expected to be recognized over the weighted average period of 1.5 years.
Restricted Stock Awards and Restricted Stock Units
During the year ended December 31, 2019,2022, we issued 0.71.4 million shares of restricted stock units. A majority of these awards vest ratably over three years. The other awards granted cliff vest over a period of four years or less.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
A summary of restricted stock unit activity as of and for the year ended December 31, 2022 is presented below: | | | | | | | | | | | | | | | Restricted Stock Units | | Units (in millions) | | Weighted Average Fair Value | Outstanding at January 1, 2022 | | 1.1 | | | $ | 28.85 | | Granted | | 1.4 | | | $ | 26.88 | | Vested | | (0.6) | | | $ | 28.68 | | Forfeited | | (0.3) | | | $ | 28.02 | | Outstanding at December 31, 2022 | | 1.6 | | | $ | 27.38 | |
There are approximately 0.2 million restricted stock unit award activityunits that have vested, but are not yet released as of December 31, 2019 is presented below: | | | | | | | | | | | Awards (in millions) | | Weighted-Average Fair Value | Outstanding at December 31, 2018 | | 1.6 |
| | $ | 29.12 |
| Granted | | 0.7 |
| | $ | 26.99 |
| Vested | | (0.7 | ) | | $ | 28.43 |
| Forfeited | | (0.4 | ) | | $ | 28.51 |
| Outstanding at December 31, 2019 | | 1.2 |
| | $ | 28.45 |
|
2022 and therefore show as outstanding in the table above. At December 31, 2019,2022, there was $11.9$17.7 million of unamortized expense relating to unvested restricted stock awards and restricted stock units that is expected to be amortized over a weighted average period of 1.41.3 years. The intrinsic value of awards vested and released during 2019, 20182022, 2021 and 20172020 was $19.7$15.0 million, $36.2$13.5 million and $30.1$14.7 million, respectively. The total fair value of awards vested during 2019, 20182022, 2021 and 20172020 was $20.9$20.2 million, $35.3$13.6 million and $29.4$15.8 million, respectively. Tax shortfalls on these exercisesvested awards were $0.2 million. Performance Stock Awards and
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Performance Share Units During the yearyears ended December 31, 2019,2022, 2021 and 2020, the Company granted performance share units ("PSUs") to certain employees of the Company as part of their annual equity compensation award. During the years prior to December 31, 2019, the Company granted performance share awards and performance share units (collectively referred to as "PSAs"). PSAs granted prior to 2019 are tied to the Company’s total shareholder return ("TSR") relative to the TSR of a selected industry peer group or S&P 500. Each award vests over its applicable service period and covers a TSR performance cycle of three years starting at the beginning of the fiscal year in which the shares were granted. The actual number of shares awarded will be between 0 and 200% of the target award amount. TSR relative to peers is considered a market condition under applicable authoritative guidance.
PSUs granted in 20192022, 2021 and 2020 are subject to the same service conditions, but also include performance conditions related to internal profitability and return on invested capital metrics over a cumulative performance period of three years, as well as three individual one-year performance periods. At the end of the three-year performance period, the number of PSUs earned based on performance relative to the profitability and invested capital metrics are subject to a market condition in the form of a positive or negative TSRtotal shareholder return modifier relative to the S&P 500400 Materials Index for 2021 and 2020 grants, over the same three-year performance period. For 2022 grants, the number of PSUs earned based on performance relative to the profitability and invested capital metrics are subject to a market condition in the form of a positive or negative total shareholder return modifier relative to the S&P 400 Materials Index over the three-year vesting period. The actual number of shares awarded will be between 0zero and 200% of the target award amount. A summary of PSA and PSU activity as of and for the year ended December 31, 20192022 is presented below: | | | | | | | | | | | | | | | Performance Share Units | | Units (in millions) | | Weighted Average Fair Value | Outstanding at January 1, 2022 | | 0.8 | | | $ | 30.10 | | Granted | | 0.4 | | | $ | 30.61 | | Vested | | (0.1) | | | $ | 29.12 | | Forfeited | | (0.5) | | | $ | 30.18 | | Outstanding at December 31, 2022 | | 0.6 | | | $ | 30.44 | |
| | | | | | | | | | | Awards (in millions) | | Weighted-Average Fair Value | Outstanding at December 31, 2018 | | 0.8 |
| | $ | 31.82 |
| Granted | | 0.3 |
| | $ | 29.10 |
| Vested | | — |
| | $ | — |
| Forfeited | | (0.6 | ) | | $ | 30.38 |
| Outstanding at December 31, 2019 | | 0.5 |
| | $ | 32.11 |
|
Our PSUs allow for participants to vest in more or less than the targeted number of shares granted. At December 31, 2019,2022, there was $6.9$1.4 million of unamortized expense relating to unvested PSAsPSUs that areis expected to be amortized over a weighted average period of 1.9 years. The forfeitures include performance stock awards and performance share units granted in 2016PSUs that did not meet the performance target required for vesting.vested below threshold payout. (10) OTHER EXPENSE (INCOME) EXPENSE,, NET | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Foreign exchange losses, net | | $ | 8.3 |
| | $ | 9.2 |
| | $ | 7.4 |
| Non-operational asset impairment charges | | — |
| | — |
| | 7.6 |
| Debt extinguishment and refinancing related costs | | 0.2 |
| | 9.5 |
| | 13.4 |
| Other miscellaneous income, net | | (12.9 | ) | | (3.7 | ) | | (1.3 | ) | Total | | $ | (4.4 | ) | | $ | 15.0 |
| | $ | 27.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Foreign exchange losses, net | | $ | 15.2 | | | $ | 2.9 | | | $ | 7.2 | | | | | | | | | Debt extinguishment and refinancing-related costs (1) | | 14.7 | | | 0.2 | | | 34.4 | | Other miscellaneous income, net (2)(3) | | (3.8) | | | (15.4) | | | (8.2) | | Total | | $ | 26.1 | | | $ | (12.3) | | | $ | 33.4 | |
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Prior to deconsolidation, during the year ended December 31, 2017, our Venezuelan subsidiary, which was a U.S. dollar functional entity, contributed $1.8 million in foreign exchange losses. See Note 22 for further information on the deconsolidation of our Venezuelan subsidiary.
During the year ended December 31, 2017, we recorded non-operational impairment losses of $7.6 million. These impairment losses related to actions to reduce operational costs through activities to rationalize our manufacturing footprint resulting in write-downs of manufacturing facilities identified for closure, as well as a write-down of the carrying value of a real estate investment, which were based on market price estimates.
) Debt extinguishment and refinancing relatedrefinancing-related costs include third-party fees incurred, redemption premiums and the lossesloss on extinguishment associated with the write-off of unamortized deferred financing costs and original issue discounts previously capitalized in conjunction with the restructuring and refinancing of the Term Loans and Senior Notes during the years ended December 31, 2018 and 2017 and the Revolving Credit Facilityour long-term borrowings, as discussed further in Note 18. (2) Activity during the year ended December 31, 2019, as2022 includes expense of $4.7 million related to a charge for a customer concession discussed further in Note 18.2. (3) Activity during the year ended December 31, 2021 includes income of $8.3 million related to a law change with respect to certain Brazilian indirect taxes. (11) INCOME TAXES On December 22, 2017,January 1, 2020, we completed an intra-entity transfer of certain intellectual property rights (the "IP") to our Swiss subsidiary, where our EMEA regional headquarters is located. Consequently, this transaction resulted in the U.S. TCJA legislation, as defined herein, was enacted into law, which significantly revisedrecognition of a deferred tax asset at the Internal Revenue Code of 1986, as amended. The U.S. TCJA included, among other items, (1) permanent reduction of the corporateapplicable Swiss tax rate, from a top marginal rate of 35% to a flat rate of 21%; (2) limitations on the tax deduction for net interest expense to 30% of adjusted earnings; (3)resulting in a one-time transition tax on certain unrepatriated earningsbenefit of foreign subsidiaries; (4) a shift of$50.5 million. The Company expects to be able to realize the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base); and (5) modifying or repealing many other business deductions and credits (including modifications to annual foreign tax credit limitations). For the year-ended December 31, 2017 we recorded a provisional non-cash net tax charge of $107.8 million related to the impacts of the U.S. TCJA. This provisional tax charge included a one-time $81.1 million remeasurement of the net U.S. deferred tax assets resulting from these intra-entity asset transfers.
The Company's operations in Switzerland are subject to reduced tax rates through December 31, 2026, as long as certain conditions are met. The tax benefit attributable to this tax holiday was $1.9 million and $2.1 million for the lower enacted U.S. corporateyears ended December 31, 2022 and 2021, respectively. The tax effect of the holiday on diluted net income per common was $0.01 for the years ended December 31, 2022 and 2021. Due to a pre-tax loss and the step-up of tax-deductible IP noted above in our Swiss subsidiary, the reduced tax rate of 21%,holiday in Switzerland had an unfavorable impact in 2020. The tax expense and the establishment of a valuation allowance of $26.1tax effect on diluted net income per common share attributable to this tax holiday was $13.2 million on certain interest and foreign tax credit carryforwards and $0.6 million of withholding tax on unremitted earnings. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has completed the analysis based on legislative updates relating to the U.S. TCJA currently available and recorded an additional tax benefit of $12.5 million$0.06, respectively, for the year ended December 31, 2018. While we have completed our accounting of the income tax effects of the U.S. TCJA under SAB 118, the related tax impacts may differ, possibly materially, due to changes in interpretations and assumptions that we have made, additional guidance that may be issued by regulatory bodies, and actions and related accounting policy decisions we may take as a result of the new legislation. Domestic and Foreign Components of Income Before Income Taxes2020.
| | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Domestic | | $ | 223.4 |
| | $ | 194.8 |
| | $ | 41.8 |
| Foreign | | 106.6 |
| | 72.7 |
| | 147.8 |
| Total | | $ | 330.0 |
| | $ | 267.5 |
| | $ | 189.6 |
|
82
Provision (Benefit) for Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | | Current | | Deferred | | Total | | Current | | Deferred | | Total | | Current | | Deferred | | Total | U.S. federal | | $ | 8.3 |
| | $ | 27.1 |
| | $ | 35.4 |
| | $ | 7.2 |
| | $ | 6.8 |
| | $ | 14.0 |
| | $ | 4.6 |
| | $ | 102.8 |
| | $ | 107.4 |
| U.S. state and local | | 5.3 |
| | (9.2 | ) | | (3.9 | ) | | 2.7 |
| | 12.8 |
| | 15.5 |
| | 1.7 |
| | 0.4 |
| | 2.1 |
| Foreign | | 48.1 |
| | (2.2 | ) | | 45.9 |
| | 38.2 |
| | (13.5 | ) | | 24.7 |
| | 43.9 |
| | (11.5 | ) | | 32.4 |
| Total | | $ | 61.7 |
| | $ | 15.7 |
| | $ | 77.4 |
| | $ | 48.1 |
| | $ | 6.1 |
| | $ | 54.2 |
| | $ | 50.2 |
| | $ | 91.7 |
| | $ | 141.9 |
|
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Domestic and Foreign Components of Income Before Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Domestic | | $ | 137.9 | | | $ | 173.3 | | | $ | 85.4 | | Foreign | | 119.4 | | | 167.2 | | | 36.8 | | Total | | $ | 257.3 | | | $ | 340.5 | | | $ | 122.2 | |
Provision (Benefit) for Income Taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 | | | Current | | Deferred | | Total | | Current | | Deferred | | Total | | Current | | Deferred | | Total | U.S. federal | | $ | 20.9 | | | $ | 1.2 | | | $ | 22.1 | | | $ | 14.6 | | | $ | 18.1 | | | $ | 32.7 | | | $ | 1.8 | | | $ | 9.9 | | | $ | 11.7 | | U.S. state and local | | 7.0 | | | (0.7) | | | 6.3 | | | 4.3 | | | 1.4 | | | 5.7 | | | 6.0 | | | (1.9) | | | 4.1 | | Foreign | | 40.6 | | | (3.9) | | | 36.7 | | | 42.2 | | | (4.5) | | | 37.7 | | | 47.8 | | | (63.4) | | | (15.6) | | Total | | $ | 68.5 | | | $ | (3.4) | | | $ | 65.1 | | | $ | 61.1 | | | $ | 15.0 | | | $ | 76.1 | | | $ | 55.6 | | | $ | (55.4) | | | $ | 0.2 | |
Reconciliation to U.S. Statutory Rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Statutory U.S. federal income tax rate (1) | | $ | 54.0 | | | 21.0 | % | | $ | 71.5 | | | 21.0 | % | | $ | 25.7 | | | 21.0 | % | Foreign income taxed at rates other than U.S. statutory rate | | (22.4) | | | (8.7) | | | (16.9) | | | (5.0) | | | (13.9) | | | (11.3) | | Changes in valuation allowances | | 1.6 | | | 0.6 | | | 18.1 | | | 5.3 | | | 10.0 | | | 8.2 | | Foreign exchange (loss) gain, net | | (5.4) | | | (2.1) | | | 2.2 | | | 0.6 | | | 8.2 | | | 6.7 | | Unrecognized tax benefits (2) | | 6.2 | | | 2.4 | | | (4.9) | | | (1.4) | | | 54.9 | | | 44.9 | | Foreign taxes | | 6.9 | | | 2.7 | | | 8.7 | | | 2.5 | | | 7.0 | | | 5.7 | | Non-deductible expenses | | 5.7 | | | 2.2 | | | 5.7 | | | 1.7 | | | 4.6 | | | 3.7 | | Tax credits | | (8.7) | | | (3.4) | | | (6.7) | | | (2.0) | | | (5.3) | | | (4.3) | | U.S. state and local taxes, net | | 4.8 | | | 1.9 | | | 5.0 | | | 1.5 | | | 2.8 | | | 2.3 | | Intra-entity IP transfer step-up (3) | | — | | | — | | | — | | | — | | | (50.8) | | | (41.6) | | Other - net (4) | | 22.4 | | | 8.7 | | | (6.6) | | | (1.9) | | | (43.0) | | | (35.1) | | Total income tax provision / effective tax rate | | $ | 65.1 | | | 25.3 | % | | $ | 76.1 | | | 22.3 | % | | $ | 0.2 | | | 0.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Statutory U.S. federal income tax rate (1) | | $ | 69.3 |
| | 21.0 | % | | $ | 56.2 |
| | 21.0 | % | | $ | 66.4 |
| | 35.0 | % | Earnings generated in jurisdictions where the statutory rate is different from the U.S. Federal rate | | (16.3 | ) | | (4.9 | ) | | (26.8 | ) | | (10.0 | ) | | (80.3 | ) | | (42.4 | ) | Changes in valuation allowances | | 18.8 |
| | 5.7 |
| | (37.5 | ) | | (14.0 | ) | | 45.3 |
| | 23.9 |
| Foreign exchange gain (loss), net | | (2.8 | ) | | (0.8 | ) | | 26.7 |
| | 10.0 |
| | 6.4 |
| | 3.4 |
| Unrecognized tax benefits | | 11.2 |
| | 3.4 |
| | 18.9 |
| | 7.1 |
| | 3.1 |
| | 1.6 |
| Foreign taxes | | 21.4 |
| | 6.5 |
| | 6.7 |
| | 2.5 |
| | 4.1 |
| | 2.2 |
| Non-deductible interest | | 0.3 |
| | 0.1 |
| | 4.8 |
| | 1.8 |
| | 9.8 |
| | 5.2 |
| Non-deductible expenses | | 3.8 |
| | 1.2 |
| | 3.8 |
| | 1.4 |
| | 4.6 |
| | 2.4 |
| Tax credits | | (3.9 | ) | | (1.2 | ) | | (6.6 | ) | | (2.4 | ) | | (4.2 | ) | | (2.2 | ) | Excess tax benefits relating to stock-based compensation | | (11.4 | ) | | (3.5 | ) | | (6.6 | ) | | (2.4 | ) | | (13.1 | ) | | (6.9 | ) | U.S. tax reform (2) | | — |
| | — |
| | (12.5 | ) | | (4.7 | ) | | 107.8 |
| | 56.8 |
| Base erosion and anti-abuse tax | | 4.3 |
| | 1.3 |
| | 2.7 |
| | 1.0 |
| | — |
| | — |
| Venezuela deconsolidation and impairment | | — |
| | — |
| | — |
| | — |
| | (2.0 | ) | | (1.0 | ) | U.S. state and local taxes, net | | 6.6 |
| | 2.0 |
| | 1.8 |
| | 0.7 |
| | 1.3 |
| | 0.7 |
| Other - net (3) | | (23.9 | ) | | (7.3 | ) | | 22.6 |
| | 8.3 |
| | (7.3 | ) | | (4.0 | ) | Total income tax provision / effective tax rate | | $ | 77.4 |
| | 23.5 | % | | $ | 54.2 |
| | 20.3 | % | | $ | 141.9 |
| | 74.7 | % |
(1)The U.S. statutory rate has been used as management believes it is more meaningful to the Company. | | (1) | The U.S. statutory rate has been used as management believes it is more meaningful to the Company. |
| | (2) | Tax effect of the U.S. TCJA recorded under SAB 118. |
| | (3) | In 2019, the Company recorded a tax benefit of $24.9 million in Luxembourg related to a local statutory impairment, which is fully offset by a tax expense of $24.9 million for the increase to the valuation allowance. |
Deferred Tax Balances(2)In 2020, we recorded charges of $14.3 million in connection with the income tax audit in Germany and $27.3 million in the Netherlands related to realized exchange gain. The Netherlands item is fully offset by a tax benefit of $27.3 million recorded in 2020 to adjust to the prior year tax filing position.
(3)Related to the step-up of tax deductible basis upon transfer of certain intellectual property rights to our Swiss subsidiary. (4)In 2022, the Company recorded a tax expense of $23.0 million in the Netherlands related to a historical impairment charge, which is fully offset by a tax benefit of $23.0 million for the decrease to the valuation allowance. In 2021, the Company recorded a tax benefit of $2.9 million in the Netherlands, which is fully offset by a tax expense of $2.9 million for an increase to the valuation allowance. In 2020, the Company recorded a tax benefit of $41.8 million in the Netherlands, of which $27.3 million is related to a realized exchange gain and $14.5 million related to a rate change on deferred taxes, which are both fully offset by a tax expense of $27.3 million for the increase to unrecognized tax benefits and $14.5 million for an increase to the valuation allowance, respectively. | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Deferred tax asset | | | | | Tax loss, credit and interest carryforwards | | $ | 245.3 |
| | $ | 238.5 |
| Compensation and employee benefits | | 80.8 |
| | 80.1 |
| Accruals and other reserves | | 17.2 |
| | 25.5 |
| Research and development capitalization | | 6.5 |
| | 7.7 |
| Equity investment and other securities | | 28.3 |
| | 20.1 |
| Finance leases | | 19.1 |
| | — |
| Other | | 3.7 |
| | 3.0 |
| Total deferred tax assets | | 400.9 |
| | 374.9 |
| Less: valuation allowance | | (178.3 | ) | | (159.0 | ) | Total deferred tax assets, net of valuation allowance | | 222.6 |
| | 215.9 |
| Deferred tax liabilities | | | | | Goodwill and intangibles | | (20.8 | ) | | (17.4 | ) | Property, plant and equipment | | (147.7 | ) | | (144.7 | ) | Unremitted earnings | | (6.0 | ) | | (7.4 | ) | Long-term debt | | (1.3 | ) | | (2.4 | ) | Total deferred tax liabilities | | (175.8 | ) | | (171.9 | ) | Net deferred tax asset | | $ | 46.8 |
| | $ | 44.0 |
| | | | | | Non-current assets | | $ | 162.3 |
| | $ | 184.8 |
| Non-current liability | | (115.5 | ) | | (140.8 | ) | Net deferred tax asset | | $ | 46.8 |
| | $ | 44.0 |
|
83
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Deferred Tax Balances
Tax loss, | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | Deferred tax asset | | | | | Tax loss, credit and interest carryforwards | | $ | 263.9 | | | $ | 256.4 | | Compensation and employee benefits | | 58.1 | | | 65.0 | | Accruals and other reserves | | 41.9 | | | 42.2 | | Research and development capitalization | | 28.8 | | | 16.4 | | Equity investment and other securities | | 0.5 | | | 29.6 | | Leases | | 41.7 | | | 42.9 | | Other | | 7.8 | | | 1.8 | | Total deferred tax assets | | 442.7 | | | 454.3 | | Less: valuation allowance | | (194.0) | | | (210.9) | | Total deferred tax assets, net of valuation allowance | | 248.7 | | | 243.4 | | Deferred tax liabilities | | | | | Goodwill and intangibles | | (75.7) | | | (70.1) | | Property, plant and equipment | | (142.0) | | | (148.5) | | Unremitted earnings | | (10.8) | | | (10.6) | | Accounts receivable and other assets | | (17.1) | | | (7.4) | | Total deferred tax liabilities | | (245.6) | | | (236.6) | | Net deferred tax asset | | $ | 3.1 | | | $ | 6.8 | | | | | | | Non-current assets | | $ | 165.2 | | | $ | 181.5 | | Non-current liability | | (162.1) | | | (174.7) | | Net deferred tax asset | | $ | 3.1 | | | $ | 6.8 | |
At December 31, 2022 and 2021, deferred income taxes of approximately $10.8 million and $10.6 million, respectively, have been provided on unremitted earnings of all subsidiaries and related companies to the extent that such earnings are not deemed to be permanently reinvested and cannot be repatriated in a tax-free manner. At December 31, 2022, and 2021, we have not recorded a deferred tax creditliability related to withholding taxes of approximately $177.5 million and interest carryforwards$124.7 million, respectively, on unremitted earnings of subsidiaries that are permanently invested. | | | | | | | | | | | | | | | Tax loss, tax credit and interest carryforwards | | Year Ended December 31, | | | 2022 | | 2021 | Tax loss carryforwards (tax effected) (1) | | | | | Expire within 10 years | | $ | 18.7 | | | $ | 23.0 | | Expire after 10 years or indefinite carryforward | | 168.6 | | | 172.1 | | Tax credit carryforwards | | | | | Expire within 10 years | | 0.5 | | | 0.6 | | Expire after 10 years or indefinite carryforward | | 1.7 | | | 9.2 | | Interest carryforwards | | | | | Expire within 10 years | | 2.7 | | | 2.0 | | Expire after 10 years or indefinite carryforward | | 71.7 | | | 49.5 | | Total tax loss, tax credit and interest carryforwards | | $ | 263.9 | | | $ | 256.4 | |
| | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Tax loss carryforwards (tax effected) (1) | | | | | Expire within 10 years | | $ | 75.9 |
| | $ | 53.3 |
| Expire after 10 years or indefinite carryforward | | 106.7 |
| | 121.6 |
| Tax credit carryforwards | | | | | Expire within 10 years | | 1.9 |
| | 17.3 |
| Expire after 10 years or indefinite carryforward | | 24.4 |
| | 20.9 |
| Interest carryforwards (1) | | | | | Expire within 10 years | | 1.2 |
| | 2.2 |
| Expire after 10 years or indefinite carryforward | | 35.2 |
| | 23.2 |
| Total tax loss, tax credit and interest carryforwards | | $ | 245.3 |
| | $ | 238.5 |
|
(1)Net of unrecognized tax benefits | | (1) | Net of unrecognized tax benefits |
Utilization of our tax loss, tax credit and interest carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state and foreign provisions. Such annual limitations could result in the expiration of the tax loss, tax credit and interest carryforwards before their utilization.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Valuation allowance | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Non-U.S. | | $ | 175.8 |
| | $ | 133.8 |
| U.S. | | 2.5 |
| | 25.2 |
| Total valuation allowance | | $ | 178.3 |
| | $ | 159.0 |
|
| | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | Non-U.S. | | $ | 190.0 | | | $ | 207.4 | | U.S. | | 4.0 | | | 3.5 | | Total valuation allowance | | $ | 194.0 | | | $ | 210.9 | |
Valuation allowances relate primarily to the tax loss, and tax credit and interest carryforwards, as well as equity investment in foreign jurisdictions, where the Company does not believe the associated net deferred tax assets will be realized, due to expiration, limitation or insufficient future taxable income. The non-U.S. valuation allowance primarily relates to tax loss carryforwards from operations in Luxembourg and the Netherlands, of $151.5$150.0 million and $113.6$173.6 million at December 31, 20192022 and 2018,2021, respectively. The U.S. valuation allowance primarily relates to state net deferred tax assets. Total Gross Unrecognized Tax Benefits | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Total gross unrecognized tax benefits at January 1 | | $ | 37.0 |
| | $ | 17.2 |
| | $ | 12.3 |
| Increases related to positions taken on items from prior years | | 3.9 |
| | 3.4 |
| | 1.9 |
| Decreases related to positions taken on items from prior years | | (1.0 | ) | | (1.8 | ) | | — |
| Increases related to positions taken in the current year | | 5.5 |
| | 18.2 |
| | 3.0 |
| Settlement of uncertain tax positions with tax authorities | | (0.1 | ) | | — |
| | — |
| Total gross unrecognized tax benefits at December 31 | | 45.3 |
| | 37.0 |
| | 17.2 |
| Total accrual for interest and penalties associated with unrecognized tax benefits (1) | | 5.0 |
| | 3.1 |
| | 1.2 |
| Total gross unrecognized tax benefits at December 31, including interest and penalties | | $ | 50.3 |
| | $ | 40.1 |
| | $ | 18.4 |
| | | | | | | | Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | | $ | 31.7 |
| | $ | 25.2 |
| | $ | 9.7 |
| Interest and penalties included as components of the Provision (benefit) for income taxes | | $ | 1.9 |
| | $ | 1.9 |
| | $ | 0.1 |
|
| | (1) | Accrued interest and penalties are included within the related tax liability line in the balance sheet. |
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Total Gross Unrecognized Tax Benefits
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Total gross unrecognized tax benefits at January 1 | | $ | 91.4 | | | $ | 99.6 | | | $ | 45.3 | | Increases related to acquisitions | | — | | | 1.8 | | | — | | Increases related to positions taken on items from prior years | | 2.7 | | | 2.3 | | | 50.9 | | Decreases related to positions taken on items from prior years | | (2.5) | | | (16.5) | | | — | | Increases related to positions taken in the current year | | 9.6 | | | 3.9 | | | 3.7 | | Settlement of uncertain tax positions with tax authorities | | (1.4) | | | 0.4 | | | — | | Decrease due to expiration of statues of limitations | | (1.6) | | | (0.1) | | | (0.3) | | Total gross unrecognized tax benefits at December 31 | | 98.2 | | | 91.4 | | | 99.6 | | Total accrual for interest and penalties associated with unrecognized tax benefits (1) | | 6.3 | | | 8.7 | | | 10.9 | | Total gross unrecognized tax benefits at December 31, including interest and penalties | | $ | 104.5 | | | $ | 100.1 | | | $ | 110.5 | | | | | | | | | Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | | $ | 46.0 | | | $ | 44.5 | | | $ | 57.6 | | Interest and penalties included as components of the Provision for income taxes | | $ | (1.8) | | | $ | (3.4) | | | $ | 5.9 | |
(1)Accrued interest and penalties are included within Other accrued liabilities and Other liabilities in the consolidated balance sheets. The Company is subject to income tax in approximately 46 jurisdictions outside the U.S. The Company’sCompany's significant operations outside the U.S. are located in Belgium, Brazil, China, Germany, Mexico and Switzerland. The statute of limitations varies by jurisdiction with 20092011 being the oldest tax year still open in the material jurisdictions. Certain of our German subsidiaries are under tax examination for calendar years 20102014 to 2017.2020. The Company is also under audit in other jurisdictions outside of Germany for tax years under responsibility of the predecessor, as well as tax periods under the Company's ownership. Pursuant to the acquisition agreement, all tax liabilities related to tax years prior to 2013 will be indemnified by DuPont.Germany. The result of all open examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods that could be material. DueIn connection with the income tax audit in Germany for the tax period 2010-2013, the Germany Tax Authority ("GTA") indicated that it believed that certain positions taken on the 2010-2013 corporate income tax returns were not in compliance with German tax law. While the Company disagreed with the conclusions of the GTA based on the technical merits of our positions, after extensive discussions with the GTA and to avoid a potentially long and costly litigation process, in March 2020 the Company expressed a willingness to settle with the GTA on certain matters. As a result of these changes, the Company recorded a charge to income tax expense of $14.3 million in 2020. A final agreement with the GTA was signed in 2021 and the Company is awaiting final assessments, which are expected to be received and settled in 2023.
The Company anticipates that it is reasonably possible it will settle up to $13.7 million, exclusive of interest and penalties, of its current unrecognized tax benefits within 2023 mainly due to the high degreeconclusion of uncertainty regarding future timingthe 2010-2013 German income tax audit.
Notes to estimate the years in which settlement will occur with the respective taxing authorities.Consolidated Financial Statements (In millions, unless otherwise noted) (12) NET INCOME PER COMMON SHARE Basic net income per common share excludes the dilutive impact of potentially dilutive securities and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per common share includes the effect of potential dilution from the hypothetical exercise of outstanding stock options and vesting of restricted sharesstock awards, restricted stock units, performance stock awards and performance shares.share units. A reconciliation of our basic and diluted net income per common share is as follows: | | | | | | | | | | | | | | | | Year Ended December 31, | (In millions, except per share data) | | 2019 | | 2018 | | 2017 | Net income to common shareholders | | $ | 249.0 |
| | $ | 207.1 |
| | $ | 36.7 |
| Basic weighted average shares outstanding | | 233.9 |
| | 239.0 |
| | 240.4 |
| Diluted weighted average shares outstanding | | 235.8 |
| | 242.9 |
| | 246.1 |
| Net income per common share: | | | | | | | Basic net income per share | | $ | 1.06 |
| | $ | 0.87 |
| | $ | 0.15 |
| Diluted net income per share | | $ | 1.06 |
| | $ | 0.85 |
| | $ | 0.15 |
|
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (In millions, except per share data) | | 2022 | | 2021 | | 2020 | Net income to common shareholders | | $ | 191.6 | | | $ | 263.9 | | | $ | 121.6 | | Basic weighted average shares outstanding | | 221.7 | | | 231.0 | | | 235.2 | | Diluted weighted average shares outstanding | | 222.3 | | | 231.9 | | | 236.0 | | Net income per common share: | | | | | | | Basic net income per share | | $ | 0.86 | | | $ | 1.14 | | | $ | 0.52 | | Diluted net income per share | | $ | 0.86 | | | $ | 1.14 | | | $ | 0.52 | |
The number of anti-dilutive shares that have been excluded in the computation of diluted net income per share for the years ended December 31, 2019, 20182022, 2021 and 2017 were 2.62020 was 1.1 million, 2.60.7 million and 1.82.7 million, respectively. (13) ACCOUNTS AND NOTES RECEIVABLE, NET Trade accounts receivable are stated at the amount we expect to collect. We maintain allowances for doubtful accounts for estimated losses by applying historical loss percentages, combined with reasonable and supportable forecasts of future losses, to respective aging categories. Management considers the following factors in developing its current estimate of expected credit losses: customer credit-worthiness, past transaction history with the customer, current economic industry trends, changes in market or regulatory matters, changes in geopolitical matters, and changes in customer payment terms, as well as the ongoing impacts from COVID-19 and other macroeconomic factors. | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Accounts receivable—trade, net (1) | | $ | 718.4 |
| | $ | 739.9 |
| Notes receivable | | 24.7 |
| | 36.1 |
| Other | | 87.0 |
| | 84.8 |
| Total | | $ | 830.1 |
| | $ | 860.8 |
|
| | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | Accounts receivable—trade, net (1) | | $ | 909.3 | | | $ | 760.4 | | Notes receivable | | 23.1 | | | 24.7 | | Other (2) | | 135.0 | | | 152.4 | | Total | | $ | 1,067.4 | | | $ | 937.5 | |
(1)Allowance for doubtful accounts was $22.6 million and $22.0 million at December 31, 2022 and 2021, respectively.
| | (1) | Allowance for doubtful accounts was $16.0 million and $15.4 million at December 31, 2019 and 2018, respectively. |
(2)Includes $38.7 million and $52.7 million at December 31, 2022 and 2021, respectively, of insurance recoveries related to an operational matter discussed further in Note 6. Bad debt expense of $5.5$2.0 million, $2.3$1.7 million and $3.5$11.7 million was included within selling, general and administrative expenses for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively, and $3.5 million of expenses related to sanctions imposed on Russia in response to the conflict with Ukraine was included in other operating charges for the year ended December 31, 2022. (14) INVENTORIES | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | Finished products | | $ | 438.6 | | | $ | 355.9 | | Semi-finished products | | 130.8 | | | 109.7 | | Raw materials | | 233.7 | | | 180.8 | | Stores and supplies | | 26.5 | | | 23.3 | | Total | | $ | 829.6 | | | $ | 669.7 | |
Inventory reserves were $16.6 million and $15.6 million at December 31, 2022 and 2021, respectively.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
(14) INVENTORIES
| | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Finished products | | $ | 327.4 |
| | $ | 334.0 |
| Semi-finished products | | 109.9 |
| | 108.0 |
| Raw materials | | 133.7 |
| | 149.9 |
| Stores and supplies | | 20.6 |
| | 21.1 |
| Total | | $ | 591.6 |
| | $ | 613.0 |
|
(15) PROPERTY, PLANT AND EQUIPMENT, NET | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | Useful Lives (years) | | 2019 | | 2018 | Land | | | | | | $ | 84.5 |
| | $ | 85.7 |
| Buildings and improvements | | 5 | - | 25 | | 541.6 |
| | 522.4 |
| Machinery and equipment | | 5 | - | 25 | | 1,324.1 |
| | 1,333.2 |
| Software | | 5 | - | 7 | | 128.3 |
| | 159.5 |
| Other | | 3 | - | 20 | | 71.5 |
| | 45.7 |
| Construction in progress | | | | | | 81.9 |
| | 72.3 |
| Total | | | | | | 2,231.9 |
| | 2,218.8 |
| Accumulated depreciation | | | | | | (1,008.9 | ) | | (920.6 | ) | Property, plant and equipment, net | | | | | | $ | 1,223.0 |
| | $ | 1,298.2 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | Useful Lives (years) | | 2022 | | 2021 | Land | | | | | | $ | 75.3 | | | $ | 77.6 | | Buildings and improvements | | 5 | - | 25 | | 508.3 | | | 515.0 | | Machinery and equipment | | 3 | - | 25 | | 1,337.4 | | | 1,341.8 | | Software | | 5 | - | 15 | | 185.4 | | | 185.3 | | Other | | 3 | - | 20 | | 74.6 | | | 73.8 | | | | | | | | | | | Construction in progress | | | | | | 187.9 | | | 105.9 | | Total | | | | | | 2,368.9 | | | 2,299.4 | | Accumulated depreciation | | | | | | (1,178.7) | | | (1,113.2) | | Property, plant and equipment, net | | | | | | $ | 1,190.2 | | | $ | 1,186.2 | |
Depreciation expense amounted to $169.9$117.3 million, $183.4127.7 millionand $176.6$137.2 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. We capitalized interest of $2.0$2.8 million, $4.0$2.2 million and $3.7$2.0 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. During October 2022, we completed the sale of our manufacturing facility in West Bromwich, United Kingdom, which ceased operations during 2021, resulting in proceeds of $3.5 million and a net gain of $1.5 million, which is included in other operating charges in the consolidated statements of operations. (16) OTHER ASSETS | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | | | | | Deferred income taxes—non-current | | $ | 165.2 | | | $ | 181.5 | | Business incentive payment assets | | 152.3 | | | 151.2 | | Operating lease ROU assets | | 102.6 | | | 104.2 | | Other assets (1) | | 145.9 | | | 147.6 | | Total | | $ | 566.0 | | | $ | 584.5 | |
| | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Available for sale securities | | $ | 1.6 |
| | $ | 1.7 |
| Deferred income taxes—non-current | | 162.3 |
| | 184.8 |
| Business incentive payment assets | | 191.2 |
| | 190.8 |
| Operating lease ROU assets (1) | | 95.6 |
| | — |
| Other assets (2) | | 138.1 |
| | 111.8 |
| Total | | $ | 588.8 |
| | $ | 489.1 |
|
(1) | | (1) | As a result of adopting ASU 2016-02, operating lease ROU assets were recognized beginning January 1, 2019. See Note 7 for further information on the adoption of ASU 2016-02. |
| | (2) | Includes other upfront incentives made in conjunction with long-term customer commitments of $71.0 million and 49.8 million at December 31, 2019 and 2018, respectively, which will be repaid in future periods. |
Includes other upfront incentives made in conjunction with long-term customer commitments of $37.2 million and $60.1 million at December 31, 2022 and 2021, respectively, which will be repaid in future periods.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
(17) ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | Accounts Payable | | | | | Trade payables (1) | | $ | 681.1 | | | $ | 610.9 | | Non-income taxes | | 17.3 | | | 22.6 | | Other | | 35.1 | | | 23.9 | | Total | | $ | 733.5 | | | $ | 657.4 | | | | | | | Other Accrued Liabilities | | | | | Compensation and other employee-related costs | | $ | 181.4 | | | $ | 179.6 | | | | | | | Restructuring—current | | 42.5 | | | 39.8 | | Discounts, rebates, and warranties (2) | | 230.6 | | | 199.1 | | Operating lease liabilities | | 28.4 | | | 27.2 | | Income taxes payable | | 36.7 | | | 30.8 | | | | | | | Other | | 100.6 | | | 121.3 | | Total | | $ | 620.2 | | | $ | 597.8 | |
| | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | Accounts Payable | | | | | Trade payables | | $ | 442.0 |
| | $ | 477.8 |
| Non-income taxes | | 20.5 |
| | 21.4 |
| Other | | 21.2 |
| | 23.6 |
| Total | | $ | 483.7 |
| | $ | 522.8 |
| | | | | | Other Accrued Liabilities | | | | | Compensation and other employee-related costs | | $ | 188.2 |
| | $ | 163.2 |
| Restructuring—current | | 76.5 |
| | 60.3 |
| Discounts, rebates, and warranties | | 148.2 |
| | 157.8 |
| Operating lease liabilities (1) | | 29.3 |
| | — |
| Income taxes payable | | 16.4 |
| | 15.2 |
| Other | | 86.7 |
| | 79.1 |
| Total | | $ | 545.3 |
| | $ | 475.6 |
|
(1)Includes $36.6 million and $33.0 million at December 31, 2022 and 2021, respectively, payable to banking institutions as part of our supplier financing programs. | | (1) | As a result of adopting ASU 2016-02, operating lease liabilities were recognized beginning January 1, 2019. See Note 7 for further information on the adoption of ASU 2016-02. |
(2)Includes $42.3 million and $49.7 million at December 31, 2022 and 2021, respectively, of liabilities related to an operational matter discussed further in Note 6. (18) BORROWINGS Borrowings are summarized as follows:
| | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | 2024 Dollar Term Loans | | $ | 2,387.5 |
| | $ | 2,411.8 |
| 2024 Dollar Senior Notes | | 500.0 |
| | 500.0 |
| 2024 Euro Senior Notes | | 375.2 |
| | 383.3 |
| 2025 Euro Senior Notes | | 504.0 |
| | 514.9 |
| Short-term and other borrowings | | 109.0 |
| | 103.8 |
| Unamortized original issue discount | | (10.5 | ) | | (12.6 | ) | Unamortized deferred financing costs | | (31.1 | ) | | (37.2 | ) | Total borrowings | | 3,834.1 |
| | 3,864.0 |
| Less: | | | | | Short-term borrowings | | 19.6 |
| | 17.9 |
| Current portion of long-term borrowings | | 24.3 |
| | 24.3 |
| Long-term debt | | $ | 3,790.2 |
| | $ | 3,821.8 |
|
| | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | 2024 Dollar Term Loans | | $ | — | | | $ | 2,038.9 | | 2029 Dollar Term Loans | | 2,000.0 | | | — | | 2025 Euro Senior Notes | | 479.1 | | | 508.8 | | 2027 Dollar Senior Notes | | 500.0 | | | 500.0 | | 2029 Dollar Senior Notes | | 700.0 | | | 700.0 | | Short-term and other borrowings | | 74.5 | | | 113.8 | | Unamortized original issue discount | | (22.4) | | | (4.6) | | Unamortized deferred financing costs | | (26.9) | | | (27.3) | | Total borrowings, net | | 3,704.3 | | | 3,829.6 | | Less: | | | | | Short-term borrowings | | 16.0 | | | 55.4 | | Current portion of long-term borrowings | | 15.0 | | | 24.3 | | Long-term debt | | $ | 3,673.3 | | | $ | 3,749.9 | |
Senior Secured Credit Facilities, as amended On December 15, 2016, Axalta Coating Systems Dutch Holdings B B.V. ("Dutch B B.V.") and its indirect 100% owned subsidiary, Axalta Coating Systems U.S. Holdings, Inc. ("Axalta US Holdings") executed the fourth amendmentOur senior secured credit facilities (the "Fourth Amendment") to the credit agreement (the “Credit Agreement”) governing our Senior"Senior Secured Credit Facilities. The Fourth Amendment (i) converted allFacilities") consist of the outstanding U.S. Dollara term loans ($1,775.3 million) into a new tranche of term loans issued at par with principal of $1,545.0 millionloan due 2029 (the "2023"2029 Dollar Term Loans"), (ii) converted all of the outstanding Euroformerly a term loans (€199.0 million) into a new tranche of term loans issued at par with principal of €400.0 million (the "2023 Euro Term Loans" and, together with the 2023 Dollar Term Loans, the "2023 Term Loans").
On June 1, 2017, Dutch B B.V. and Axalta US Holdings executed the fifth amendment to the Credit Agreement (the "Fifth Amendment"). The Fifth Amendment converted all of the outstanding 2023 Dollar Term Loans ($1,541.1 million) into a new upsized tranche of term loans with principal of $2,000.0 millionloan due 2024 (the "2024 Dollar Term Loans"), and a revolving credit facility (the "Revolving Credit Facility") that is governed by a credit agreement (the "Credit Agreement"). The 2024 Dollar Term Loans were issued at 99.875%Credit Agreement has undergone several amendments, the most recent of par, or a $2.5 million discount.
which are detailed within the discussion below. For additional detail regarding earlier amendments, refer to our previous Annual Reports on Form 10-K filed with the SEC.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
On April 11, 2018, Dutch B B.V. and Axalta US Holdings executed the sixth amendment to the Credit Agreement (the "Sixth Amendment"). The Sixth Amendment repriced the 2024 Dollar Term Loans and increased the aggregate principal balance by $475.0 million to $2,430.0 million. The increased principal balance of the 2024 Dollar Term Loans under the Sixth Amendment was issued at 99.75% of par or a $6.0 million discount. Proceeds from the Sixth Amendment, along with cash on the balance sheet, were used to extinguish the existing 2023 Euro Term Loans. The 2024 Dollar Term Loans together with the Revolving Credit Facility, as defined herein, are referred to as the "Senior Secured Credit Facilities."
On October 31, 2018, Dutch B B.V. and Axalta US Holdings, the Company, and certain other subsidiaries of the Company as guarantors entered into the seventh amendment to the Credit Agreement (the "Seventh Amendment"). The Seventh Amendment amended the Credit Agreement to, among other things, (i) allow for the Company and certain wholly owned subsidiaries of the Company to be added as guarantors under the Credit Agreement, (ii) provide that (A) the covenants in the Credit Agreement generally apply to the Company and its restricted subsidiaries and (B) upon election at any time thereafter, a successor holdings guarantor may be designated and, upon the effectiveness of the guarantee of such successor parent guarantor, the covenants in the Credit Agreement will generally apply to such successor holdings guarantor and its restricted subsidiaries, (iii) otherwise amend the Credit Agreement in order to effect certain corporate transactions as part of a potential internal reorganization of certain of the Company's subsidiaries and certain potential future reorganizations involving the Company and (iv) update guarantee limitations for certain of the guarantors.
Interest was and is payable quarterly on both the 2023 Term Loans and the 2024 Dollar Term Loans.
The 2024 Dollar Term Loans are subject to a floor of 0 plus an applicable rate of 1.75% per annum for Eurocurrency Rate Loans as defined in the Credit Agreement and 0.75% per annum for Base Rate Loans as defined in the Credit Agreement.
Prior to the Sixth Amendment, interest on the 2024 Dollar Term Loans was subject to a floor of 0, plus an applicable rate. The applicable rate for such 2024 Dollar Term Loans was 2.00% per annum for Eurocurrency Rate Loans as defined in the Credit Agreement and 1.00% per annum for Base Rate Loans as defined in the Credit Agreement.
Any indebtedness under the Senior Secured Credit Facilities may be voluntarily prepaid in whole or in part, in minimum amounts, subject to the provisions set forth in the Credit Agreement.Agreement, including with respect to the 1.00% premium that would be payable in connection with any Repricing Event (as defined in the Credit Agreement) on the 2029 Dollar Term Loans that occurs within six months from December 20, 2022. Such indebtedness is subject to mandatory prepayments amounting to the proceeds of asset sales over $75.0 million, annually, proceeds from certain debt issuances not otherwise permitted under the Credit Agreement and 50% (subject to a step-down to 25.0% or 0% if the First Lien Leverage Ratio (as defined in the Credit Agreement) falls below 4.25:1.00 or 3.50:1.00, respectively) of Excess Cash Flow.Flow (as defined in the Credit Agreement). Under the circumstances and subject to the conditions described in the Credit Agreement, we may increase our capacity for revolving loans, increase commitments under our existing term loans, issue additional term loans or issue other indebtedness. The Senior Secured Credit Facilities are secured by substantially all assets of the Company and the other guarantors. The 2024 Dollar Term Loans mature on June 1, 2024. Principal is paid quarterly based on 1% per annum of the original principal amount outstanding on the most recent amendment date with the unpaid balance due at maturity. We are subject to customary negative covenants in addition to the First Lien Leverage Ratio financial covenant for purposes of determining any Excess Cash Flow mandatory payment. Further, the Senior Secured Credit Facilities, among other things, include customary restrictions (subject to certain exceptions) on the Company's ability to incur certain indebtedness, grant certain liens, make certain investments, declare or pay certain dividends, or repurchase shares of the Company's common stock.shares. As of December 31, 2019,2022, the Company is in compliance with all covenants under the Senior Secured Credit Facilities. Revolvingi) Term Loans
The 2024 Dollar Term Loans were issued at 99.875% of par, or a $2.5 million discount, and were scheduled to mature on June 1, 2024. Principal was paid quarterly based on 1% per annum of the original principal amount outstanding on the most recent amendment date with the unpaid balance due at maturity, and interest was payable quarterly. The 2024 Dollar Term Loans were subject to a floor of zero plus an applicable rate of 1.75% per annum for Eurocurrency Rate Loans as defined in the Credit FacilityAgreement and 0.75% per annum for Base Rate Loans as defined in the Credit Agreement. The 2024 Dollar Term Loans bore interest at variable rates, including LIBOR. On June 28, 2019, (the "EighthDecember 20, 2022, we entered into the Eleventh Amendment Effective Date"), Dutch B B.V. and Axalta US Holdings executed the eighth amendment to the Credit Agreement (the "Eighthand First Amendment to the Amended and Restated Guaranty Agreement ("Eleventh Amendment") which impactedto, among other things, refinance the 2024 Dollar Term Loans and replace them with the 2029 Dollar Term Loans. The 2029 Dollar Term Loans were issued at 99.000% of par, or a $20.0 million discount, and mature on December 20, 2029. Beginning in June 2023, principal is paid quarterly based on 1% per annum of the original principal amount at issuance with the unpaid balance due at maturity, and interest is payable quarterly. The 2029 Dollar Term Loans are subject to a floor of 0.5% and a margin of 3.00% when bearing interest at an interest rate based on SOFR and 2.00% per annum when bearing interest at an interest rate based on the Base Rate (as defined in the Credit Agreement). ii) Revolving Credit Facility The Revolving Credit Facility by (i) extending the maturity date tomatures on the earlier of March 2, 2024,May 11, 2026, the date of termination in whole of the Revolving Credit Facility, or the date that is 91 days prior to the maturity of the term loans borrowed under the Credit Agreement, and (ii) reducingwhich maturity date is currently December 20, 2029. The financial covenant applicable to the Revolving Credit Facility is only applicable interest margins on anywhen greater than 30% of the Revolving Credit Facility (including letters of credit not cash collateralized to at least 103%) is outstanding borrowings.at the end of an applicable fiscal quarter. If such conditions are met, the First Lien Net Leverage Ratio would be required to be less than or equal to 5.50:1.00. Under the Eighth Amendment, interestInterest on any outstanding borrowings under the Revolving Credit Facility is subject to an interest margin of 1.50% for loans based on the Adjusted Eurocurrency Rate (as defined in the Credit Agreement) and 0.50% for loans based on the Base Rate (as defined in the Credit Agreement) with, in each case, a 0.25% increase when its First Lien Net Leverage Ratio is greater than or equal to 1.25:1.00 but less than or equal to 2.25:1.00 and another 0.25% increase when its First Lien Net Leverage Ratio is greater than 2.25:1.00. At December 31, 2019, the financial covenant is not applicable as there were 0 borrowings.
Prior to the Eighth Amendment, interest on any outstanding borrowings under the Revolving Credit Facility was subject to a floor of 0 for Adjusted Eurocurrency Rate Loans plus an applicable rate of 2.75% (previously 3.50%) subject to an additional step-down to 2.50% or 2.25%, if the First Lien Net Leverage Ratio falls below 3.00:1.00 or 2.50:1.00, respectively. For Base Rate Loans, the interest was subject to a floor of the greater of the federal funds rate plus 0.50%, the Prime Lending Rate or an Adjusted Eurocurrency Rate plus 1%, plus an applicable rate of 1.75% (previously 2.50%), subject to an additional step-down to 1.50% or 1.25%, if the First Lien Net Leverage Ratio were to fall below 3.00:1.00 and 2.50:1.00, respectively.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
On August 1, 2016, Dutch B B.V. and Axalta US Holdings executed the third amendment to the Credit Agreement (the "Third Amendment"). The Third Amendment impacted the revolving credit facility under the Senior Secured Credit Facilities (the "Revolving Credit Facility") by (i) decreasing the applicable interest margins and (ii) amending the financial covenant applicable to the Revolving Credit Facility to be applicable only when greater than 30% (previously 25%) of the Revolving Credit Facility (including letters of credit not cash collateralized to at least 103%) is outstanding at the end of the fiscal quarter. If such conditions are met, the First Lien Net Leverage Ratio (as defined by the Credit Agreement) at the end of the quarter is required to be greater than 5.50:1.00.
Under circumstances described in the Credit Agreement, we may increase available revolving or term facility borrowings by up to $700.0 million plus an additional amount subject to the Company not exceeding a maximum first lien leverage ratio described in the Credit Agreement.
There have been 0no borrowings on the Revolving Credit Facility since the issuance of the Senior Secured Credit Facilities. At December 31, 20192022 and December 31, 2018,2021, letters of credit issued under the Revolving Credit Facility totaled $38.8$20.7 million and $44.8$22.1 million, respectively, which reduced the availability under the Revolving Credit Facility. Availability under the Revolving Credit Facility was $361.2$529.3 million and $355.2$527.9 million at December 31, 20192022 and December 31, 2018,2021, respectively. At December 31, 2022, the financial covenant is not applicable as there were no borrowings.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) 2022 Activities On December 20, 2022, we entered into the Eleventh Amendment to, among other things, provide a new seven-year $2.0 billion term loan maturing December 2029 (the "2029 Dollar Term Loans"), the proceeds of which, together with cash on hand, were used to refinance the Borrowers' existing $2.021 billion term loan due June 2024 (the "2024 Dollar Term Loans"). As a result of the refinancing, we recorded a $15.6 million loss on extinguishment of debt and other financing-related costs, of which $0.9 million was related to the 2024 Dollar Term Loans and $14.7 million was related to the 2029 Dollar Term Loans. The 2024 Dollar Term Loans loss comprised the write off of unamortized deferred financing costs and original issuance discount of $0.5 million and $0.4 million, respectively. In relation to the 2029 Dollar Term Loans, the loss comprised additional fees, of which $6.5 million and $20.0 million were capitalized as deferred financing costs and original issuance discounts, respectively, and $14.7 million was expensed. 2021 Activities During May 2021, we entered into the Tenth Amendment to the Credit Agreement (the "Tenth Amendment") to, among other things, increase commitments available pursuant to the Revolving Credit Facility from $400.0 million to $550.0 million and extend the maturity of the Revolving Credit Facility from 2024 to 2026, provided that such date would be accelerated in certain circumstances as set forth in the Credit Agreement. As a result, we recorded $1.4 million of incremental deferred financing costs in May 2021. 2020 Activities During November 2020, the Company entered into the Ninth Amendment to the Credit Facility Agreement (the "Ninth Amendment"). The Ninth Amendment amended the Credit Agreement to, among other things, permit any entity that is a successor by merger, conversion, legal continuation, continuation to a foreign jurisdiction or otherwise to the Parent Borrower (as defined in the Credit Agreement), to assume the obligations of the Parent Borrower under the Credit Agreement and certain related agreements under the Senior Secured Credit Facilities, subject to the terms and conditions of the Ninth Amendment as well as the Credit Agreement. In connection with the Ninth Amendment, we incurred $1.5 million in fees, of which $1.1 million was capitalized as deferred financing costs and $0.4 million was expensed. During January 2020, we voluntarily prepaid $300.0 million of the outstanding principal on the 2024 Dollar Term Loans. See Note 24 for further detail. During the year ended December 31, 2019, in connection with the Eighth Amendment discussed above, we recorded $1.8 million of incremental deferred financing costs directly associated with the modificationAs a result of the Revolving Credit Facility.
During the year ended December 31, 2018, in connection with the Sixth Amendment discussed above,prepayment, we recorded a loss on extinguishment and other financing-related costs of $8.4debt of $2.7 million of which $2.9 million related to the 2023 Euro Term Loan and $5.5 million related to the 2024 Dollar Term Loans. The loss was comprisedconsisting of the write off of unamortized deferred financing costs and original issue discounts of $3.1$1.5 million and $0.7$1.2 million, respectively,respectively.
Senior Notes Our senior notes (the "Senior Notes") presently consist of 3.750% senior notes due 2025 (the "2025 Euro Senior Notes"), 4.750% senior notes due 2027 (the "2027 Dollar Senior Notes") and other fees directly associated3.375% senior notes due 2029 (the "2029 Dollar Senior Notes") each of which is governed by an indenture. Since inception, we have held various senior notes that have been subject to several supplemental indentures, the most recent of which are detailed within the discussion below. For additional detail regarding earlier activities and terms, refer to our previous Annual Reports on Form 10-K filed with the Sixth Amendment of $4.6 million. In addition, in connection with the Seventh Amendment discussed above, we recorded a loss of $0.7 million. During the year ended December 31, 2017, in connection with the Fifth Amendment discussed above, we recorded a loss on extinguishment of $13.0 million. In addition, we voluntarily prepaid $30.0 million in principal of the outstanding 2024 Dollar Term Loans, resulting in a loss of $0.4 million, consisting of the write-off of unamortized deferred financing costs and original issue discounts.
Significant Terms of the Senior Notes
On August 16, 2016, Axalta Coating Systems, LLC ("U.S. Issuer"), issued $500.0 million in aggregate principal amount of 4.875% senior unsecured notes (the “2024 Dollar Senior Notes”) and €335.0 million in aggregate principal amount of 4.250% senior unsecured notes (the “2024 Euro Senior Notes”), each due August 2024 (collectively, the “2024 Senior Notes”).
On September 27, 2016, Dutch B B.V. ("the Dutch Issuer" and together with the U.S. Issuer, "the Issuers"), issued €450.0 million in aggregate principal amount of 3.750% Euro Senior Unsecured Notes due January 2025 (the “2025 Euro Senior Notes” and together with the 2024 Senior Notes, "the Senior Notes").
The indentures governing the Senior Notes contain covenants that restrict the ability of the Issuers and their subsidiaries to, among other things, incur additional debt, make certain payments including payment of dividends or repurchase equity interest of the Issuers, make loans or acquisitions or capital contributions and certain investments, incur certain liens, sell assets, merge or consolidate or liquidate other entities, and enter into transactions with affiliates.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
On October 26, 2018, the U.S. Issuer and the party thereto entered into a seventh supplemental indenture (the “2024 Seventh Supplemental Indenture”) to the 2024 Senior Notes. In addition, on October 26, 2018, the Dutch Issuer and the new guarantors party thereto entered into a seventh supplemental indenture (the “2025 Seventh Supplemental Indenture” and, together with the 2024 Seventh Supplemental Indenture, the “October 2018 Supplemental Indentures”) to the 2025 Euro Senior Notes. The October 2018 Supplemental Indentures permit the Company and its subsidiaries to effect certain corporate transactions as part of a potential internal reorganization of certain of the Company's subsidiaries (the "Proposed Restructuring") and certain potential future reorganizations involving the Company. Each of the October 2018 Supplemental Indentures amended the applicable indenture in order to, among other things, (i) add the Company and certain wholly owned subsidiaries of the Company as guarantors of the applicable New Senior Notes, (ii) provide that (A) the covenants of the applicable Indenture generally apply to the Company and its restricted subsidiaries and (B) upon an election by the relevant Issuer at any time thereafter, a successor parent guarantor may be designated and, upon the effectiveness of the guarantee of such successor parent guarantor, the covenants of the applicable Indenture will generally apply to such successor parent guarantor and its restricted subsidiaries, (iii) otherwise amend the applicable Indenture in order to effect the Proposed Restructuring (as defined below) and (iv) update guarantee limitations for certain of the guarantors.
In connection with the October 2018 Supplemental Indentures above, the Company became the parent guarantor of the Senior Notes. Additionally, we recorded a loss of $0.4 million comprised of fees directly associated with the indentures. NaN deferred financing costs or original issue discounts were written off as a result of the October 2018 Supplemental Indentures.SEC.
(i) 2024 Dollar Senior Notes
The 2024 Dollar Senior Notes were issued at 99.951% of par, or $2.0 million discount, and are due August 15, 2024. The 2024 Dollar Senior Notes bear interest at 4.875% which is payable semi-annually on February 15th and August 15th. We have the option to redeem all or part of the 2024 Dollar Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after August 15th of the years indicated:
| | | | | Period | | 2024 Dollar Senior Notes Percentage | 2019 | | 103.656 | % | 2020 | | 102.438 | % | 2021 | | 101.219 | % | 2022 and thereafter | | 100.000 | % |
Upon the occurrence of certain events constituting a change of control, holders of the 2024 Dollar Senior Notes have the right to require us to repurchase all or any part of the 2024 Dollar Senior Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date.
The 2024 Dollar Senior Notes, subject to local law limitations, are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its existing and future direct and indirect subsidiaries that is a borrower under or that guarantees the Senior Secured Credit Facilities. Under certain circumstances, the guarantors may be released from their guarantees without the consent of the holders of the applicable series of notes.
The indebtedness issued through the 2024 Dollar Senior Notes is senior unsecured indebtedness of the U.S. Issuer, is senior in right of payment to all future subordinated indebtedness of the U.S. Issuer and guarantors and is equal in right of payment to all existing and future senior indebtedness of the U.S. Issuer and guarantors. The 2024 Dollar Senior Notes are effectively subordinated to any secured indebtedness of the U.S. Issuer and guarantors (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(ii) 2024 Euro Senior Notes
The 2024 Euro Senior Notes were issued at par and are due August 15, 2024. The 2024 Euro Senior Notes bear interest at 4.250% which is payable semi-annually on February 15th and August 15th. We have the option to redeem all or part of the 2024 Euro Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after August 15th of the years indicated:
| | | | | Period | | 2024 Euro Senior Notes Percentage | 2019 | | 103.188 | % | 2020 | | 102.125 | % | 2021 | | 101.063 | % | 2022 and thereafter | | 100.000 | % |
Upon the occurrence of certain events constituting a change of control, holders of the 2024 Euro Senior Notes have the right to require us to repurchase all or any part of the 2024 Euro Senior Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date.
The 2024 Euro Senior Notes, subject to local law limitations, are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its existing and future direct and indirect subsidiaries that is a borrower under or that guarantees the Senior Secured Credit Facilities. Under certain circumstances, the guarantors may be released from their guarantees without the consent of the holders of the applicable series of notes.
The indebtedness issued through the 2024 Euro Senior Notes is senior unsecured indebtedness of the U.S. Issuer, is senior in right of payment to all future subordinated indebtedness of the U.S. Issuer and guarantors and is equal in right of payment to all existing and future senior indebtedness of the U.S. Issuer and guarantors. The 2024 Euro Senior Notes are effectively subordinated to any secured indebtedness of the U.S. Issuer and guarantors (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness.
(iii)i) 2025 Euro Senior Notes
The 2025 Euro Senior Notes were issued at par and are due January 15, 2025. The 2025 Euro Senior Notes bear interest at 3.750% which is payable semi-annually on January 15th and July 15th. We have the option to redeem all or part of the 2025 Euro Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after January 15th of the years indicated: | | | | | Period | | 2025 Euro Senior Notes Percentage | 2020 | | 102.813 | % | 2021 | | 101.875 | % | 2022 | | 100.938 | % | 2023 and thereafter | | 100.000 | % |
Notwithstanding the foregoing, at any time and from time to time prior to January 15, 2020, we may at our option redeem in the aggregate up to 40% of the original aggregate principal amount of the 2025 Euro Senior Notes with the net cash proceeds of one or more Equity Offerings (as defined in the indenture governing the 2025 Euro Senior Notes) at a redemption price of 103.750% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original aggregate principal of the notes must remain outstanding after each such redemption. We have not exercised this option. | | | | | | | | | Period | | 2025 Euro Senior Notes Percentage | 2022 | | 100.938 | % | 2023 and thereafter | | 100.000 | % |
Upon the occurrence of certain events constituting a change of control, holders of the 2025 Euro Senior Notes have the right to require us to repurchase all or any part of the 2025 Euro Senior Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date. The 2025 Euro Senior Notes, subject to local law limitations, are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its existing and future direct and indirect subsidiaries that is a borrower under or that guarantees the Senior Secured Credit Facilities, (otherother than theAxalta Coating Systems Dutch Issuer)Holdings B.B.V. (the "Dutch Issuer"). Under certain circumstances, the guarantors may be released from their guarantees without the consent of the holders of the applicable series of notes.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
The indebtedness issued through the 2025 Euro Senior Notes is senior unsecured indebtedness of the Dutch Issuer, is senior in right of payment to all future subordinated indebtedness of the Dutch Issuer and guarantors and is equal in right of payment to all existing and future senior indebtedness of the Dutch Issuer and guarantors. The 2025 Euro Senior Notes are effectively subordinated to any secured indebtedness of the Dutch Issuer and guarantors (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness. ii) 2027 Dollar Senior Notes The 2027 Dollar Senior Notes were issued at par and are due June 15, 2027. The 2027 Dollar Senior Notes bear interest at 4.750% which is payable semi-annually on June 15th and December 15th. We have the option to redeem all or part of the 2027 Dollar Senior Notes at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest, if any, on or after June 15th of the years indicated: | | | | | | | | | Period | | 2027 Dollar Senior Notes Percentage | 2023 | | 102.375 | % | 2024 | | 101.188 | % | 2025 and thereafter | | 100.000 | % |
Notwithstanding the foregoing, at any time and from time to time prior to June 15, 2023, we may at our option redeem in the aggregate up to 40% of the original aggregate principal amount of the 2027 Dollar Senior Notes with the net cash proceeds of one or more Equity Offerings (as defined in the indenture governing the 2027 Dollar Senior Notes) at a redemption price of 104.75% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original aggregate principal of the notes must remain outstanding after each such redemption. Upon the occurrence of certain events constituting a change of control, holders of the 2027 Dollar Senior Notes have the right to require us to repurchase all or any part of the 2027 Dollar Senior Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date. The indebtedness through the 2027 Dollar Senior Notes is senior unsecured indebtedness of the Axalta Coatings Systems, LLC (the "U.S. Issuer"), is senior in right of payment to all future subordinated indebtedness of the U.S. Issuer and guarantors and is equal in right of payment to all existing and future senior indebtedness of the U.S. Issuer and guarantors. The 2027 Dollar Senior Notes are effectively subordinated to any secured indebtedness of the U.S. Issuer and guarantors (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness. The 2027 Dollar Senior Notes are fully and unconditionally guaranteed by the Company and each of the Company's existing restricted subsidiaries, subject to certain exceptions. The indenture governing the 2027 Dollar Senior Notes contains covenants that limit the Company's (and its subsidiaries') ability to, among other things: (i) incur additional debt or issue certain preferred stock; (ii) pay dividends, redeem stock or make other distributions; (iii) make other restricted payments or investments; (iv) create liens on assets; (v) transfer or sell assets; (vi) create restrictions on payment of dividends or other amounts by the Company to the Company's restricted subsidiaries; (vii) engage in mergers or consolidations; (viii) engage in certain transactions with affiliates; and (ix) designate the Company's subsidiaries as unrestricted subsidiaries. iii) 2029 Dollar Senior Notes The 2029 Dollar Senior Notes were issued at par and are due February 15, 2029. The 2029 Dollar Senior Notes bear interest at 3.375% which is payable semi-annually on February 15th and August 15th. We have the option to redeem all or part of the 2029 Dollar Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after February 15th of the years indicated: | | | | | | | | | Period | | 2029 Dollar Senior Notes Percentage | 2024 | | 101.688 | % | 2025 | | 100.844 | % | 2026 and thereafter | | 100.000 | % |
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Notwithstanding the foregoing, at any time prior to February 15, 2024, we may at our option redeem in the aggregate up to 40% of the original aggregate principal amount of the 2029 Dollar Senior Notes with the net cash proceeds of one or more Equity Offerings (as defined in the indenture governing the 2029 Dollar Senior Notes) at a redemption price of 103.375% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original aggregate principal of the notes must remain outstanding after each such redemption. Upon the occurrence of certain events constituting a change of control, holders of the 2029 Dollar Senior Notes have the right to require us to repurchase all or any part of the 2029 Dollar Senior Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date. The 2029 Dollar Senior Notes, subject to local law limitations, are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its existing and future direct and indirect subsidiaries that is a borrower under or that guarantees the Senior Secured Credit Facilities. Under certain circumstances, the guarantors may be released from their guarantees without the consent of the holders of the applicable series of notes. The indebtedness through the 2029 Dollar Senior Notes is senior unsecured indebtedness of the U.S. Issuer, is senior in right of payment to all future subordinated indebtedness of the U.S. Issuer and guarantors and is equal in right of payment to all existing and future senior indebtedness of the U.S. Issuer and guarantors. The 2029 Dollar Senior Notes are effectively subordinated to any secured indebtedness of the U.S. Issuer and guarantors (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness. 2022 and 2021 Activities None. 2020 Activities During June 2020, we issued $500.0 million in aggregate principal amount the 2027 Dollar Senior Notes. In November 2020, we issued $700.0 million in aggregate principal amount of the 2029 Dollar Senior Notes. The net proceeds from the 2029 Dollar Senior Notes, together with cash on hand were used to redeem the $500.0 million aggregate principal amount of 4.875% senior notes due 2024 and the €335.0 million aggregate principal amount of 4.25% senior notes due 2024 (collectively, the "Redeemed Notes") and pay related transaction costs and expenses ("November 2020 Restructuring"). In connection with the November 2020 Restructuring, we recorded a $31.4 million loss on extinguishment and other financing-related costs for the year ended December 31, 2020. The loss comprised the redemption premium of $20.6 million, write off of unamortized deferred financing costs attributable to the Redeemed Notes of $9.8 million and other fees directly associated with the transaction of $1.0 million.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Supplier financing arrangements We have a financing program in China which is utilized to finance the purchases of goods and services from our suppliers through local banking institutions. The payment terms under the financing program vary, but the program has a weighted average maturity date that is approximately 90 days from each respective financing inception. These financing arrangements are included in current portion of borrowings within the consolidated balance sheets and at the time of issuance each transaction is treated as a non-cash financing activity within the consolidated statements of cash flows. Upon settlement of the financing, the cash outflow is classified as a financing activity within the consolidated statements of cash flows. Amounts outstanding under this program were $13.5 million, $24.0 million and $16.5 million at December 31, 2022, 2021 and 2020, respectively, including $3.5 million, $3.8 million and $4.7 million, respectively, related to purchases of property, plant and equipment. Cash outflows under this program were $64.6 million, $63.8 million and $33.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. Future repayments Below is a schedule of required future repayments of all borrowings outstanding at December 31, 2019.2022. | | | | | | 2020 | | $ | 43.9 |
| 2021 | | 26.7 |
| 2022 | | 54.2 |
| 2023 | | 27.1 |
| 2024 | | 3,168.5 |
| Thereafter | | 555.3 |
| Total | | $ | 3,875.7 |
|
| | | | | | | | | 2023 | | $ | 31.0 | | 2024 | | 23.5 | | 2025 | | 502.6 | | 2026 | | 23.7 | | 2027 | | 524.0 | | Thereafter | | 2,648.8 | | Total borrowings | | $ | 3,753.6 | | Unamortized original issue discount | | (22.4) | | Unamortized deferred financing costs | | (26.9) | | Total borrowings, net | | $ | 3,704.3 | |
(19) FINANCIAL INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS Fair value of financial instruments Equity securities with readily determinable fair values - Balances of equity securities are recorded within other assets, with any changes in fair value recorded within other expense (income) expense,, net. The fair values of equity securities are based upon quoted market prices, which are considered Level 1 inputs. Long-term borrowings - The estimated fair values of these borrowings are based on recent trades, as reported by a third-party pricing service. Due to the infrequency of trades, these inputs are considered to be Level 2 inputs. Derivative instruments - The Company’sCompany's interest rate caps, interest rate swaps, and cross-currency swaps and foreign currency forward contracts are valued using broker quotations, or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are included in the Level 2 hierarchy.
Fair value of contingent consideration
The fair value of contingent consideration associated with an acquisition completed in 2021 is valued at each balance sheet date, until amounts become payable, with adjustments recorded within other expense (income), net in the consolidated statements of operations. During April 2021, in conjunction with an acquisition in China, we recorded fair value of contingent consideration of $7.3 million. As of December 31, 2022, the contingent consideration has decreased to $7.2 million as a result of accretion for the passage of time and currency translation. The contingent consideration was valued using a probability-weighted expected payment method. The analysis considered the timing of expected future cash flows and the probability of whether key elements of the contingent event are completed. Due to the significant unobservable inputs used in the valuations, these liabilities are categorized within Level 3 of the fair value hierarchy.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
The table below presents the fair values of our financial instruments measured on a recurring basis by level within the fair value hierarchy at December 31, 20192022 and December 31, 2018.2021. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | December 31, 2021 | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | Assets | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets: | | | | | | | | | | | | | | | | | Interest rate swaps (1) | | $ | — | | | $ | 2.3 | | | $ | — | | | $ | 2.3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Cross-currency swaps (2) | | — | | | 35.0 | | | — | | | 35.0 | | | — | | | 17.7 | | | — | | | 17.7 | | | | | | | | | | | | | | | | | | | Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cross-currency swaps (2) | | — | | | 14.0 | | | — | | | 14.0 | | | — | | | 8.3 | | | — | | | 8.3 | | Investments in equity securities | | 1.0 | | | — | | | — | | | 1.0 | | | 0.7 | | | — | | | — | | | 0.7 | | Liabilities | | | | | | | | | | | | | | | | | Other accrued liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps (1) | | — | | | — | | | — | | | — | | | — | | | 24.3 | | | — | | | 24.3 | | | | | | | | | | | | | | | | | | | Contingent consideration | | — | | | — | | | 7.2 | | | 7.2 | | | — | | | — | | | 7.8 | | | 7.8 | | Other liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps (1) | | — | | | — | | | — | | | — | | | — | | | 1.9 | | | — | | | 1.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term borrowings: | | | | | | | | | | | | | | | | | 2024 Dollar Term Loans | | — | | | — | | | — | | | — | | | — | | | 2,038.5 | | | — | | | 2,038.5 | | 2029 Dollar Term Loans | | — | | | 1,976.3 | | | — | | | 1,976.3 | | | — | | | — | | | — | | | — | | 2025 Euro Senior Notes | | — | | | 460.8 | | | — | | | 460.8 | | | — | | | 513.7 | | | — | | | 513.7 | | 2027 Dollar Senior Notes | | — | | | 462.8 | | | — | | | 462.8 | | | — | | | 522.9 | | | — | | | 522.9 | | 2029 Dollar Senior Notes | | — | | | 581.1 | | | — | | | 581.1 | | | — | | | 679.5 | | | — | | | 679.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | December 31, 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | Assets | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets: | | | | | | | | | | | | | | | | | Interest rate caps (1) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4.5 |
| | $ | — |
| | $ | 4.5 |
| Cross-currency swaps (2) | | — |
| | 14.4 |
| | — |
| | 14.4 |
| | — |
| | 14.1 |
| | — |
| | 14.1 |
| Other assets: | | | | | | | | | | | | | | | | | Interest rate caps (1) | | — |
| | — |
| | — |
| | — |
| | — |
| | 1.4 |
| | — |
| | 1.4 |
| Cross-currency swaps (2) | | — |
| | 8.0 |
| | — |
| | 8.0 |
| | — |
| | — |
| | — |
| | — |
| Investments in equity securities | | 0.6 |
| | — |
| | — |
| | 0.6 |
| | 0.7 |
| | — |
| | — |
| | 0.7 |
| Liabilities | | | | | | | | | | | | | | | | | Other accrued liabilities: | | | | | | | | | | | | | | | | | Interest rate caps (1) | | — |
| | 1.3 |
| | — |
| | 1.3 |
| | — |
| | — |
| | — |
| | — |
| Interest rate swaps (1) | | — |
| | 8.9 |
| | — |
| | 8.9 |
| | — |
| | — |
| | — |
| | — |
| Other liabilities: | | | | | | | | | | | | | | | | | Interest rate caps (1) | | — |
| | 1.2 |
| | — |
| | 1.2 |
| | — |
| | — |
| | — |
| | — |
| Interest rate swaps (1) | | — |
| | 20.5 |
| | — |
| | 20.5 |
| | — |
| | 2.9 |
| | — |
| | 2.9 |
| Cross-currency swaps (2) | | — |
| | — |
| | — |
| | — |
| | — |
| | 8.8 |
| | — |
| | 8.8 |
| Long-term borrowings: | | | | | | | | | | | | | | | | | 2024 Dollar Senior Notes | | — |
| | 520.2 |
| | — |
| | 520.2 |
| | — |
| | 474.9 |
| | — |
| | 474.9 |
| 2024 Euro Senior Notes | | — |
| | 388.2 |
| | — |
| | 388.2 |
| | — |
| | 381.1 |
| | — |
| | 381.1 |
| 2025 Euro Senior Notes | | — |
| | 520.7 |
| | — |
| | 520.7 |
| | — |
| | 497.5 |
| | — |
| | 497.5 |
| 2024 Dollar Term Loans | | — |
| | 2,396.5 |
| | — |
| | 2,396.5 |
| | — |
| | 2,276.1 |
| | — |
| | 2,276.1 |
|
(1) Cash flow hedge(2) Net investment hedge The table below presents a roll forward of activity for the Level 3 liabilities for the year ended December 31, 2022. | | | | | | | | | (1) | Cash flow hedge | Fair Value Using Significant Unobservable Inputs (Level 3) |
Beginning balance January 1, 2022 | | $ | 7.8 | | | | | (2) | Net investment hedge | | | | | | | | | | | | | | Business acquisition | | — | | | | | Change in fair value | | (0.6) | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance at December 31, 2022 | | $ | 7.2 | |
Derivative Financial Instruments We selectively use derivative instruments to reduce market risk associated with changes in foreign currency exchange rates and interest rates. The use of derivatives is intended for hedging purposes only, and we do not enter into derivative instruments for speculative purposes. A description of each type of derivative used to manage risk is included in the following paragraphs. Certain derivative instruments in use are contingent upon changes in LIBOR, which is the subject of recent reform and will cease being published in June 2023. The derivative instruments under LIBOR terms that we are currently party to will mature before June 2023.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) Derivative Instruments Qualifying and Designated as Cash Flow and Net Investment Hedges Interest Rate Caps Designated as Cash Flow Hedges During the year ended December 31, 2017, we entered into 4four 1.5% interest rate caps with aggregate notional amounts totaling $850.0 million to hedge the variable interest rate exposures on our 2024 Dollar Term Loans. Three of these interest rate caps, comprising $600.0 million of the notional value, expired December 31, 2019 and had a deferred premium of $8.6 million at inception. The fourthfinal interest rate cap entered into during 2017, comprising the remaining $250.0 million of the notional value, expiresexpired December 31, 2021 and had a deferred premium of $8.1 million at inception. All deferred premiums arewere paid quarterly over the term of the respective interest rate caps. These interest rate caps arewere marked to market at each reporting date and any unrealized gains or losses arewere included in accumulated other comprehensive loss ("AOCI")AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affectaffected earnings.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Interest Rate Swaps Designated as Cash Flow Hedges During the three months ended June 30, 2018, we entered into 3three interest rate swaps with aggregate notional amounts totaling $475.0 million to hedge interest rate exposures related to variable rate borrowings under the 2024 Dollar Term Loans.Loans (which were subsequently replaced with the 2029 Dollar Term Loans). Under the terms of the interest rate swap agreements, the Company is required to pay the counter-parties a stream of fixed interest payments at a rate of 2.72% and in turn, receives variable interest payments based on 3-month LIBOR from the counter-parties. The interest rate swaps are designated as cash flow hedges and expire on March 31, 2023. These interest rate swaps are marked to market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings. We refinanced our 2024 Dollar Term Loans in December 2022 and as a result transitioned the variable interest rate benchmark from LIBOR to SOFR. Despite the differing interest rate benchmarks between the interest rate swaps and the 2029 Dollar Term Loans, the interest rate swaps continue to qualify as cash flow hedges in accordance FASB's Topic 848, "Reference Rate Reform." During the three months ended March 31, 2019, we entered into 2two interest rate swaps with aggregate notional amounts totaling $500.0 million, effective December 31, 2019, to hedge interest rate exposure associated with the 2024 Dollar Term Loans. Under the terms of the interest rate swap agreements, the Company iswas required to pay the counter-parties a stream of fixed interest payments at a rate of 2.59% and in turn, receivesreceived variable interest payments based on 3-month LIBOR from the counter-parties. The interest rate swaps arewere designated as cash flow hedges and expireexpired on December 31, 2022. These interest rate swaps arewere marked to market at each reporting date and any unrealized gains or losses arewere included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affectaffected earnings. In JanuaryDuring the three months ended March 31, 2020, we executed anentered into two interest rate swaps with aggregate notional amounts totaling $400.0 million to hedge interest rate exposures associated with the 2024 Dollar Term Loans. Under the terms of the interest rate swap agreements, the Company was required to hedgepay the counter-parties a stream of fixed interest payments at rates of 1.61% and 1.18% on $200.0 million of notional value for each instrument, and in turn, received variable interest payments based on our variable 2024 Dollar Term Loan. See Note 24 for further detail.3-month LIBOR from the counter-parties. The interest rate swaps were designated as cash flow hedges and expired on December 31, 2022. These interest rate swaps were marked to market at each reporting date and any unrealized gains or losses were included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affected earnings.
Cross-Currency Swaps Designated as Net Investment Hedges During the three months ended June 30, 2018, we entered into 3 fixed-for-fixed cross-currency swaps with aggregate notional amounts totaling $475.0 million to hedge the variability of exchange rate impacts between the U.S. Dollar and Euro. Under the terms of the cross-currency swap agreements, the Company has notionally exchanged $475.0 million at a weighted average interest rate of 4.47% for €387.2 million at a weighted average interest rate of 1.95%. The cross-currency swaps are designated as net investment hedges and expire on March 31, 2023. These cross-currency swaps are marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments, within AOCI. During the three months ended December 31, 2018, we settled 3 fixed-for-fixed cross-currency swaps previously executed in 2018 resulting in cash proceeds of $22.5 million. Concurrently, we notionally exchanged $475.0 million at a weighted average interest rate of 4.47% for €416.6 million at a weighted average interest rate of 1.44%. The cross-currency swaps are designated as net investment hedges and expire on March 31, 2023. These cross-currency swaps are marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments, within AOCI.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) During the three months ended December 31, 2020, in connection with the issuance of the 2029 Dollar Senior Notes, we entered into two fixed-for-fixed cross-currency swaps with aggregate notional amounts totaling €335.0 million to hedge the variability of exchange rate impacts between the U.S. Dollar and Euro. Under the terms of the cross-currency swap agreements, the Company notionally exchanged $396.3 million at a weighted average interest rate of 3.375% for €335.0 million at a weighted average interest rate of 2.15%. The cross-currency swaps were designated as net investment hedges and were set to expire on February 15, 2029. During March 2022, these were settled resulting in cash proceeds of $25.0 million. Concurrently, we entered into two fixed-for-fixed cross-currency swaps with an aggregate notional amount totaling €335.0 million to hedge the variability of exchange rate impacts between the U.S. Dollar and Euro. Under the terms of the new cross-currency swap agreements, the Company notionally exchanged $365.5 million at a weighted average interest rate of 3.375% for €335.0 million at a weighted average interest rate of 2.04%. The cross-currency swaps are designated as net investment hedges and expire on February 15, 2029. These cross-currency swaps are marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments, within AOCI. Foreign Currency Forward Contracts Designated as Cash Flow Hedges During the year ended December 31, 2020, we designated foreign currency forward contracts with a notional value of $8.3 million as cash flow hedges of the Company's exposure to variability in exchange rates on forecasted purchases of inventory denominated in foreign currencies. These forward currency contracts were marked to market at each reporting date and any unrealized gains or losses were included in AOCI and reclassified to cost of goods sold in the same period or periods during which the hedged transactions affect earnings. These foreign currency forward contracts expired during the year ended December 31, 2021. During the three months ended March 31, 2022, we designated foreign currency forward contracts with a notional value of $3.0 million as cash flow hedges of the Company’s exposure to variability in exchange rates on forecasted purchases of inventory denominated in foreign currencies. These forward currency contracts are marked to market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to cost of goods sold in the same period or periods during which the hedged transactions affect earnings. As of December 31, 2022, each forward currency contract has matured, and therefore, will no longer be marked to market, but will reclassify to cost of goods sold in the same period or periods during which the hedged transactions affect earnings. The following table presents the fair values of derivative instruments that qualify and have been designated as cash flow and net investment hedges included in AOCI: | | | | | | | | | | | | December 31, | | | 2019 | | 2018 | AOCI: | | | | | Interest rate caps (cash flow hedges) | | $ | 3.5 |
| | $ | (3.4 | ) | Interest rate swaps (cash flow hedges) | | 29.4 |
| | 3.0 |
| Cross-currency swaps (net investment hedges) | | (22.4 | ) | | (27.7 | ) | Total | | $ | 10.5 |
| | $ | (28.1 | ) |
| | | | | | | | | | | | | | | | | December 31, | | | 2022 | | 2021 | AOCI: | | | | | | | | | | Interest rate swaps (cash flow hedges) | | $ | (2.3) | | | $ | 26.3 | | Foreign currency forward contracts (cash flow hedges) | | (0.2) | | | — | | Cross-currency swaps (net investment hedges) | | (73.6) | | | (26.0) | | Total AOCI | | $ | (76.1) | | | $ | 0.3 | |
Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis.
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
The following tables set forth the locations and amounts recognized during the year ended December 31, 2019, 20182022, 2021 and 20172020 for these cash flow and net investment hedges. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | | 2019 | | 2018 | | 2017 | Derivatives in Cash Flow and Net Investment Hedges | | Location of (Gain) Loss Recognized in Income on Derivatives | | Net Amount of (Gain) Loss Recognized in OCI on Derivatives | | Amount of (Gain) Loss Recognized in Income | | Net Amount of (Gain) Loss Recognized in OCI on Derivatives | | Amount of (Gain) Loss Recognized in Income | | Net Amount of (Gain) Loss Recognized in OCI on Derivatives | | Amount of (Gain) Loss Recognized in Income | Interest rate caps | | Interest expense, net | | $ | 6.2 |
| | $ | (0.7 | ) | | $ | (7.3 | ) | | $ | (1.9 | ) | | $ | 1.8 |
| | $ | (2.7 | ) | Interest rate swaps | | Interest expense, net | | 27.7 |
| | 1.3 |
| | 4.3 |
| | 1.3 |
| | — |
| | — |
| Cross-currency swaps | | Interest expense, net | | (31.9 | ) | | (14.7 | ) | | (37.1 | ) | | (9.4 | ) | | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | | 2022 | | 2021 | | 2020 | Derivatives in Cash Flow and Net Investment Hedges | | Location of Loss (Gain) Recognized in Income on Derivatives | | Net Amount of Gain Recognized in OCI on Derivatives | | Amount of Loss (Gain) Recognized in Income | | Net Amount of Gain Recognized in OCI on Derivatives | | Amount of Loss (Gain) Recognized in Income | | Net Amount of Loss Recognized in OCI on Derivatives | | Amount of Loss (Gain) Recognized in Income | Interest rate caps | | Interest expense, net | | $ | — | | | $ | — | | | $ | — | | | $ | 2.6 | | | $ | 1.2 | | | $ | 2.1 | | Interest rate swaps | | Interest expense, net | | (21.8) | | | 6.8 | | | (4.4) | | | 29.3 | | | 49.4 | | | 18.8 | | Foreign currency forward contracts | | Cost of goods sold | | (0.2) | | | — | | | — | | | 0.3 | | | 0.3 | | | — | | Cross-currency swaps | | Interest expense, net | | (67.9) | | | (20.3) | | | (80.7) | | | (19.5) | | | 42.6 | | | (15.0) | |
Over the next 12 months, we expect lossesa gain of $10.6$2.6 million pertaining to cash flow hedges to be reclassified from AOCI into earnings, related to our interest rate caps and interest rate swaps. Derivative Instruments Not Designated as Cash Flow Hedges We periodically enter into foreign currency forward and option contracts to reduce market risk and hedge our balance sheet exposures and cash flows for subsidiaries with exposures denominated in currencies different from the functional currency of the relevant subsidiary. These contracts have not been designated as hedges and all gains and losses are marked to market through other expense (income) expense,, net in the consolidated statement of operations. During the year ended December 31, 2017,July 2021, we purchased a 1.25% interest rate capentered into two foreign currency forward contracts with a total notional amountvalue of €388.0£259.1 million to hedge the variable interest rate exposures on our 2023 Euro Term Loans. We paidvariability in exchange rates between the execution date of the agreement to purchase U-POL and the closing of the transaction. The contracts were settled in September 2021, and we realized a premium equal toloss of $0.6 million for the interest rate cap which was effective through December 31, 2019. Changeswithin other expense (income), net in the fair valueconsolidated statement of the derivative instrument are recorded in current period earnings and are included in interest expense.operations. Fair value gains and losses of derivative contracts, as determined using Level 2 inputs, that have not been designated for hedge accounting treatment are recorded in earnings as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives Not Designated as Hedging Instruments under ASC 815 | | Location of (Gain) Loss Recognized in Income on Derivatives | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Foreign currency forward contracts | | Other expense (income), net | | $ | (0.3) | | | $ | (7.3) | | | $ | 3.3 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Derivatives Not Designated as Hedging Instruments under ASC 815 | | Location of (Gain) Loss Recognized in Income on Derivatives | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Foreign currency forward contracts | | Other (income) expense, net | | $ | 2.8 |
| | $ | (7.9 | ) | | $ | 11.2 |
| Interest rate cap | | Interest expense, net | | — |
| | — |
| | 0.6 |
| Total | | | | $ | 2.8 |
| | $ | (7.9 | ) | | $ | 11.8 |
|
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) (20) SEGMENTS The Company identifies an operating segment as a component: (i) that engages in business activities from which it may earn revenues and incur expenses; (ii) whose operating results are regularly reviewed by the Chief Operating Decision Maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance; and (iii) that has available discrete financial information. We have 2two operating segments, which are also our reportable segments: Performance Coatings and TransportationMobility Coatings. The CODM reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. Our CODM iswas identified as the Interim Chief Executive Officer at December 31, 2022 because he hashad final authority over performance assessment and resource allocation decisions. Our segments are based on the type and concentration of customers served, service requirements, methods of distribution and major product lines. Through our Performance Coatings segment, we provide high-quality liquid and powder coatings solutions to both large regional and global OEMs and to a fragmented and local customer base. We are one of only a few suppliers with the technology to provide precise color matching and highly durable coatings systems. The end-markets within this segment are refinish and industrial. Through our TransportationMobility Coatings segment, we provide advanced coatingcoatings technologies to OEMs offor light vehicle and commercial vehicles.vehicle OEMs. These increasingly global customers are faced with evolving megatrends in electrification, sustainability, personalization and autonomous driving that require a high level of technical support coupled with cost-effective,expertise. The OEMs require efficient, environmentally responsible coatings systems that can be applied with a high degree of precision, consistency and speed. The end-markets within this segment are light vehicle and commercial vehicle.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
During the year ended December 31, 2019, Axalta transitioned to using Adjusted EBIT asis the primary measure used by our CODM to evaluate financial performance of the operating segments and allocate resources.resources and is therefore our measure of segment profitability in accordance with GAAP under ASC 280, "Segment Reporting." Asset information is not reviewed or included with our internal management reporting. Therefore, the Company haswe have not disclosed asset information for each reportable segment. The following table presents relevant information of our reportable segments.
| | | | | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 (2) | | 2017 (2) | Net sales (1): | | | | | | | Refinish | | $ | 1,760.4 |
| | $ | 1,759.6 |
| | $ | 1,651.6 |
| Industrial | | 1,163.0 |
| | 1,273.5 |
| | 1,031.7 |
| Total Net sales Performance Coatings | | 2,923.4 |
| | 3,033.1 |
| | 2,683.3 |
| Light Vehicle | | 1,208.4 |
| | 1,307.2 |
| | 1,337.1 |
| Commercial Vehicle | | 350.4 |
| | 355.7 |
| | 356.6 |
| Total Net sales Transportation Coatings | | 1,558.8 |
| | 1,662.9 |
| | 1,693.7 |
| Total Net sales | | $ | 4,482.2 |
| | $ | 4,696.0 |
| | $ | 4,377.0 |
| Equity in earnings in unconsolidated affiliates: | | | | | | | Performance Coatings | | $ | 0.4 |
| | $ | 0.4 |
| | $ | 0.3 |
| Transportation Coatings | | (0.1 | ) | | (0.1 | ) | | 0.7 |
| Total | | $ | 0.3 |
| | $ | 0.3 |
| | $ | 1.0 |
| | | | | | | | | | December 31, 2019 | | December 31, 2018 | | December 31, 2017 | Investment in unconsolidated affiliates: | | | | | | | Performance Coatings | | $ | 2.4 |
| | $ | 2.7 |
| | $ | 2.9 |
| Transportation Coatings | | 12.7 |
| | 12.7 |
| | 12.6 |
| Total | | $ | 15.1 |
| | $ | 15.4 |
| | $ | 15.5 |
|
| | (1) | The Company has 0 intercompany sales between segments. |
| | (2) | Net sales by segment for the years ended December 31, 2018 and 2017 were recast to include amounts previously classified as other revenue. See Note 1 for further information on the reclassification. |
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Net sales (1): | | | | | | | Refinish | | $ | 1,943.4 | | | $ | 1,776.4 | | | $ | 1,449.0 | | Industrial | | 1,383.3 | | | 1,319.9 | | | 1,067.4 | | Total Net sales Performance Coatings | | 3,326.7 | | | 3,096.3 | | | 2,516.4 | | Light Vehicle | | 1,181.1 | | | 1,013.1 | | | 960.5 | | Commercial Vehicle | | 376.6 | | | 306.8 | | | 260.7 | | Total Net sales Mobility Coatings | | 1,557.7 | | | 1,319.9 | | | 1,221.2 | | Total Net sales | | $ | 4,884.4 | | | $ | 4,416.2 | | | $ | 3,737.6 | | Depreciation and amortization expense (2): | | | | | | | Performance Coatings | | 226.3 | | | 228.6 | | | 228.7 | | Mobility Coatings | | 76.8 | | | 87.9 | | | 91.6 | | Total Depreciation and amortization expense | | $ | 303.1 | | | $ | 316.5 | | | $ | 320.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | Investment in unconsolidated affiliates: | | | | | | | Performance Coatings | | $ | 2.1 | | | $ | 2.1 | | | $ | 2.0 | | Mobility Coatings | | 8.2 | | | 7.8 | | | 8.7 | | Total | | $ | 10.3 | | | $ | 9.9 | | | $ | 10.7 | |
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) (1)The Company has no intercompany sales between segments. (2)Depreciation and amortization expenses relating to assets used within the operations of a specifically identifiable segment are recorded to the appropriate segment, while depreciation and amortization expenses relating to assets shared in our integrated supply chain are allocated to the appropriate segments on a consistent basis reflecting their use.
The following table reconciles our segment operating performance to income before income taxes for the periods presented: | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | | 2020 | Segment Adjusted EBIT (1): | | | | | | | Performance Coatings | | $ | 448.3 | | | $ | 479.4 | | | $ | 344.3 | | Mobility Coatings | | 24.0 | | | 38.7 | | | 82.9 | | Total (2) | | 472.3 | | | 518.1 | | | 427.2 | | Interest expense, net | | 139.8 | | | 134.2 | | | 149.9 | | Debt extinguishment and refinancing-related costs (a) | | 14.7 | | | 0.2 | | | 34.4 | | Termination benefits and other employee-related costs (b) | | 24.9 | | | 36.9 | | | 74.9 | | Strategic review and retention costs (c) | | — | | | 9.7 | | | 30.7 | | Acquisition and divestiture-related costs (d) | | 2.9 | | | 16.3 | | | — | | Impairment charges (e) | | (0.4) | | | 0.8 | | | 5.7 | | | | | | | | | Accelerated depreciation and site closure costs (f) | | 4.3 | | | 3.1 | | | 9.5 | | | | | | | | | Operational matter (g) | | 0.2 | | | 4.4 | | | — | | Brazil indirect tax (h) | | — | | | (8.3) | | | — | | Gains on sales of facilities (i) | | (1.5) | | | (19.7) | | | — | | Russia sanction-related impacts (j) | | 5.0 | | | — | | | — | | Commercial agreement restructuring impacts (k) | | 25.0 | | | — | | | — | | Other adjustments (l) | | 0.1 | | | — | | | (0.1) | | Income before income taxes | | $ | 257.3 | | | $ | 340.5 | | | $ | 122.2 | |
| | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 | Segment Adjusted EBIT (1): | | | | | | | Performance Coatings | | $ | 449.1 |
| | $ | 399.5 |
| | $ | 309.3 |
| Transportation Coatings | | 137.4 |
| | 134.9 |
| | 190.8 |
| Total (2) | | 586.5 |
| | 534.4 |
| | 500.1 |
| Interest expense, net | | 162.6 |
| | 159.6 |
| | 147.0 |
| Debt extinguishment and refinancing related costs (a) | | 0.2 |
| | 9.5 |
| | 13.4 |
| Termination benefits and other employee related costs (b) | | 35.2 |
| | 81.7 |
| | 35.2 |
| Strategic review and retention costs (c) | | 13.4 |
| | — |
| | — |
| Offering and transactional costs (d) | | 1.0 |
| | 1.0 |
| | 26.1 |
| Loss on divestiture, impairment and deconsolidation (e) | | 21.1 |
| | — |
| | 77.9 |
| Pension special events (f) | | (0.9 | ) | | — |
| | 1.2 |
| Accelerated depreciation (g) | | 24.3 |
| | 10.3 |
| | 6.0 |
| Indemnity (income) losses (h) | | (0.4 | ) | | 4.3 |
| | (0.1 | ) | Change in fair value of equity investments (i) | | — |
| | 0.5 |
| | — |
| Step-up inventory (j) | | — |
| | — |
| | 3.8 |
| Income before income taxes | | $ | 330.0 |
| | $ | 267.5 |
| | $ | 189.6 |
|
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) | | | | | | (1) | The primary measure of segment operating performance is Adjusted EBIT, which is defined as net income before interest, taxes and select other items impacting operating results. These other items impacting operating results are items that management has concluded are (1) non-cash items included within net income, (2) items the Company does not believe are indicative of ongoing operating performance or (3) non-recurring, unusual or infrequent items that have not occurred within the last two years or we believe are not reasonably likely to recur within the next two years. Adjusted EBIT is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts and prior year financial results, providing a measure that management believes reflects the Company’sCompany's core operating performance, which represents Adjusted EBIT adjusted for the select items referred to above. | | | (2) | Does not represent Axalta’s Adjusted EBIT referenced elsewhere by the Company.Company as there are additional adjustments that are not allocated to the segments. | | | (a) | Represents expenses and associated changes to estimates related to the prepayment, restructuring and refinancing of our indebtedness, which are not considered indicative of our ongoing operating performance. | | | (b) | Represents expenses and associated changes to estimates related to employee termination benefits and other employee-related costs.costs, which includes costs related to the transition of our CEO. Employee termination benefits are primarily associated with Axalta Way initiatives. These amounts are not considered indicative of our ongoing operating performance. | | | (c) | Represents costs for legal, tax and other advisory fees pertaining to our previously announced comprehensive review of strategic alternatives that was concluded in March 2020, as well as retention awards for certain employees.employees that were earned over a period of 18-24 months, which ended in September 2021. These amounts are not considered indicative of our ongoing performance. | | | (d) | Represents acquisition and divestiture-related expenses and integration activities associated with our business combinations, all of which are not considered indicative of our ongoing operating performance. For The amounts for the yearyears ended December 31, 2017, the amount includes $7.72022 and 2021 include $1.9 million and $1.0 million, respectively, of integrationdue diligence and other related costs associated with unconsummated merger and associated changes to estimates related to the 2017 acquisition of the Industrial Wood business that was a carve-out business from Valspar.transactions. | | | (e) | Represents the impacts recognized on the sale of our interest in a joint venture business, deconsolidation of a subsidiary, and the impairments of certain manufacturing facilities (see Note 5 for further information)impairment charges, which are not considered indicative of our ongoing operating performance. The amountamounts for the yearyears ended December 31, 2017 includes $7.6 million of impairments recorded to other (income) expense, net in the consolidated statements of operations. See Note 10 for further information.2022 and 2021 include recovered gains on previously impaired assets. | | | (f) | Represents pension charges incurred from our manufacturing footprint assessments, which we do not consider indicative of our ongoing operating performance. | | | (g)(f) | Represents incremental depreciation expense resulting from truncated useful lives of the assets impacted by our manufacturing footprint assessments and costs related to the closure of certain manufacturing sites, which we do not consider indicative of our ongoing operating performance. | | | (h) | | | | (g) | Represents indemnity (income) losses associated withexpenses, changes in estimates and insurance recoveries for probable liabilities related to an operational matter in the acquisition by Axalta of the DuPont PerformanceMobility Coatings business,segment discussed further in Note 6, which we do not consider indicative of our ongoing operating performance. | | | (i)(h) | Represents marknon-recurring income related to market impactsa law change with respect to certain Brazilian indirect taxes which was recorded within other expense (income), net. | | | (i) | Represents non-recurring income related to the sale of our equity investments,previously closed manufacturing facilities. | | | (j) | Represents expenses related to sanctions imposed on Russia in response to the conflict with Ukraine as a result of incremental reserves for accounts receivable, inventory obsolescence and business incentive payments, inclusive of changes in estimates, which we do not consider indicative of our ongoing operating performance. | | | (k) | Represents a charge related to a customer concession discussed further in Note 2. This amount is not considered to be indicative of our ongoing operating performance. | | | (j)(l) | Represents costs for certain non-operational or non-cash fair value inventory adjustments associated withlosses and (gains) unrelated to our core business combinations,and which we do not consider indicative of ongoing operating performance.operations. |
Notes to Consolidated Financial Statements (In millions, unless otherwise noted)
Geographic Area Information: The information within the following tables provides disaggregated information related to our net sales and long-lived assets. Net sales by region were as follows: | | | | Year Ended December 31, | | Year Ended December 31, | | | 2019 | | 2018 (1) | | 2017 (1) | | 2022 | | 2021 | | 2020 | North America | | $ | 1,795.1 |
| | $ | 1,787.0 |
| | $ | 1,610.5 |
| North America | | $ | 2,022.0 | | | $ | 1,722.9 | | | $ | 1,480.5 | | EMEA | | 1,577.2 |
| | 1,677.5 |
| | 1,555.1 |
| EMEA | | 1,604.1 | | | 1,618.7 | | | 1,375.7 | | Asia Pacific | | 653.5 |
| | 759.6 |
| | 750.4 |
| Asia Pacific | | 735.0 | | | 671.1 | | | 546.3 | | Latin America (2) | | 456.4 |
| | 471.9 |
| | 461.0 |
| | Latin America (1) | | Latin America (1) | | 523.3 | | | 403.5 | | | 335.1 | | | Total (3)(2) | | $ | 4,482.2 |
| | $ | 4,696.0 |
| | $ | 4,377.0 |
| | $ | 4,884.4 | | | $ | 4,416.2 | | | $ | 3,737.6 | |
Net long-lived assets by region were as follows: | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2022 | | 2021 | North America | | $ | 531.3 | | | $ | 498.2 | | EMEA | | 350.8 | | | 376.6 | | Asia Pacific | | 213.0 | | | 220.9 | | Latin America (1) | | 95.1 | | | 90.5 | | Total (3) | | $ | 1,190.2 | | | $ | 1,186.2 | |
(1)Includes Mexico. (2)Net Sales are attributed to countries based on the customer's location. Sales to customers in China represented approximately 10%, 10% and 9% of the total for the years ended December 31, 2022, 2021 and 2020, respectively. Sales to customers in Germany represented approximately 7%, 7%, and 8% of the total for the years ended December 31, 2022, 2021 and 2020, respectively. Mexico represented 6%, 5%, and 5% of the total for the years ended December 31, 2022, 2021 and 2020, respectively. Canada, which is included in the North America region, represented approximately 4%, 3%, and 4% of total net sales for the years ended December 31, 2022, 2021 and 2020, respectively. (3)Long-lived assets consist of property, plant and equipment, net. Germany long-lived assets amounted to approximately $198.7 million and $214.9 million at December 31, 2022 and 2021, respectively. China long-lived assets amounted to approximately $182.2 million and $188.4 million at December 31, 2022 and 2021, respectively. Brazil long-lived assets amounted to approximately $30.8 million and $30.7 million at December 31, 2022 and 2021, respectively. Canada long-lived assets, which are included in the North America region, amounted to approximately $14.6 million and $17.9 million at December 31, 2022 and 2021, respectively. | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | North America | | $ | 480.8 |
| | $ | 477.4 |
| EMEA | | 403.1 |
| | 439.1 |
| Asia Pacific | | 209.2 |
| | 246.1 |
| Latin America (2) | | 129.9 |
| | 135.6 |
| Total (4) | | $ | 1,223.0 |
| | $ | 1,298.2 |
|
| | (1) | Net sales by region for the years ended December 31, 2018 and 2017 were recast to include amounts previously classified as other revenue. See Note 1 for further information on the reclassification. |
| | (3) | Net Sales are attributed to countries based on location of the customer. Sales to external customers in China represented approximately 9%, 11% and 12% of the total for the years ended December 31, 2019, 2018 and 2017, respectively. Sales to external customers in Germany represented approximately 8% of the total for the years ended December 31, 2019, 2018 and 2017, respectively. Mexico represented 6% of the total for the years ended December 31, 2019, 2018 and 2017. Canada, which is included in the North America region, represents approximately 4% of total net sales for the years ended December 31, 2019, 2018 and 2017, respectively. |
| | (4) | Long-lived assets consist of property, plant and equipment, net. Germany long-lived assets amounted to approximately $233.6 million and $243.6 million in the years ended December 31, 2019 and 2018, respectively. China long-lived assets amounted to $171.0 million and $203.8 million in the years ended December 31, 2019 and 2018, respectively. Brazil long-lived assets amounted to approximately $51.9 million and $58.0 million in the years ended December 31, 2019 and 2018, respectively. Canada long-lived assets, which are included in the North America region, amounted to approximately $25.0 million and $25.1 million in the years ended December 31, 2019 and 2018, respectively. |
Notes to Consolidated Financial Statements (In millions, unless otherwise noted) (21) ACCUMULATED OTHER COMPREHENSIVE LOSS | | | | | | | | | | | | | | | | | | | | | | | | Unrealized Currency Translation Adjustments | | Pension Plan Adjustments | | Unrealized Gain on Securities | | Unrealized Gain (Loss) on Derivatives | | Accumulated Other Comprehensive Loss | Balance, December 31, 2018 | | $ | (299.4 | ) | | $ | (36.4 | ) | | $ | — |
| | $ | (0.3 | ) | | $ | (336.1 | ) | Current year deferrals to AOCI | | (0.2 | ) | | (33.2 | ) | | — |
| | (28.8 | ) | | (62.2 | ) | Reclassifications from AOCI to Net income | | 2.6 |
| | (0.3 | ) | | — |
| | 0.5 |
| | 2.8 |
| Net Change | | 2.4 |
| | (33.5 | ) | | — |
| | (28.3 | ) | | (59.4 | ) | Balance, December 31, 2019 | | $ | (297.0 | ) | | $ | (69.9 | ) | | $ | — |
| | $ | (28.6 | ) | | $ | (395.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized Currency Translation Adjustments | | Pension Plan Adjustments | | | | Unrealized Gain (Loss) on Derivatives | | Accumulated Other Comprehensive Loss | Balance, December 31, 2021 | | $ | (331.3) | | | $ | (60.4) | | | | | $ | (22.7) | | | $ | (414.4) | | Current year deferrals to AOCI | | (81.9) | | | 22.5 | | | | | 19.5 | | | (39.9) | | Reclassifications from AOCI to Net income | | (20.3) | | | 1.6 | | | | | 6.1 | | | (12.6) | | Net Change | | (102.2) | | | 24.1 | | | | | 25.6 | | | (52.5) | | Balance, December 31, 2022 | | $ | (433.5) | | | $ | (36.3) | | | | | $ | 2.9 | | | $ | (466.9) | |
The cumulative income tax benefit related to the adjustments for pension benefits at December 31, 20192022 was $27.0$14.1 million. The cumulative income tax benefit related to the adjustments for unrealized gain on derivatives at December 31, 20192022 was $4.3$0.4 million. See Note 19 for classification within the consolidated statements of operations of the gains and losses on derivatives reclassified from AOCI.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
| | | | | | | | | | | | | | | | | | | | | | | | Unrealized Currency Translation Adjustments | | Pension Plan Adjustments | | Unrealized Gain on Securities | | Unrealized Gain (Loss) on Derivatives | | Accumulated Other Comprehensive Loss | Balance, December 31, 2017 | | $ | (208.8 | ) |
| $ | (31.4 | ) |
| $ | 0.8 |
|
| $ | (1.6 | ) |
| $ | (241.0 | ) | Cumulative effect of an accounting change | | — |
|
| — |
|
| (0.8 | ) |
| — |
|
| (0.8 | ) | Balance at January 1, 2018 | | (208.8 | ) | | (31.4 | ) | | — |
| | (1.6 | ) | | (241.8 | ) | Current year deferrals to AOCI | | (90.6 | ) |
| (5.8 | ) |
| — |
|
| 1.7 |
|
| (94.7 | ) | Reclassifications from AOCI to Net income | | — |
|
| 0.8 |
|
| — |
|
| (0.4 | ) |
| 0.4 |
| Net Change | | (90.6 | ) | | (5.0 | ) | | — |
| | 1.3 |
| | (94.3 | ) | Balance, December 31, 2018 | | $ | (299.4 | ) | | $ | (36.4 | ) | | $ | — |
| | $ | (0.3 | ) | | $ | (336.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized Currency Translation Adjustments | | Pension Plan Adjustments | | | | Unrealized Gain (Loss) on Derivatives | | Accumulated Other Comprehensive Loss | Balance, December 31, 2020 | | $ | (282.0) | | | $ | (88.7) | | | | | $ | (54.1) | | | $ | (424.8) | | Current year deferrals to AOCI | | (29.8) | | | 24.5 | | | | | 3.8 | | | (1.5) | | Reclassifications from AOCI to Net income | | (19.5) | | | 3.8 | | | | | 27.6 | | | 11.9 | | Net Change | | (49.3) | | | 28.3 | | | | | 31.4 | | | 10.4 | | Balance, December 31, 2021 | | $ | (331.3) | | | $ | (60.4) | | | | | $ | (22.7) | | | $ | (414.4) | |
The cumulative income tax benefit related to the adjustments for pension benefits at December 31, 20182021 was $14.4 million. The cumulative income tax expense related to the adjustments for unrealized gain on derivatives at December 31, 2018 was $0.5 million. | | | | | | | | | | | | | | | | | | | | | | | | Unrealized Currency Translation Adjustments | | Pension Plan Adjustments | | Unrealized Gain on Securities | | Unrealized Gain (Loss) on Derivatives | | Accumulated Other Comprehensive Loss | Balance, December 31, 2016 | | $ | (292.2 | ) | | $ | (56.6 | ) | | $ | 0.4 |
| | $ | (2.0 | ) | | $ | (350.4 | ) | Current year deferrals to AOCI | | 83.4 |
| | 17.1 |
| | 0.4 |
| | (1.6 | ) | | 99.3 |
| Reclassifications from AOCI to Net income | | — |
| | 8.1 |
| | — |
| | 2.0 |
| | 10.1 |
| Net Change | | 83.4 |
| | 25.2 |
| | 0.4 |
| | 0.4 |
| | 109.4 |
| Balance, December 31, 2017 | | $ | (208.8 | ) | | $ | (31.4 | ) | | $ | 0.8 |
| | $ | (1.6 | ) | | $ | (241.0 | ) |
Included in the reclassification from AOCI to net income was a pension plan adjustment related to the deconsolidation of our Venezuelan subsidiary and the corresponding write-off of the accumulated actuarial loss on our Venezuela pension plan. This resulted in a decrease of $5.9 million in AOCI, inclusive of $2.6 million of tax benefits, and is discussed further in Note 22.
The cumulative income tax benefit related to pension plan adjustments at December 31, 2017 was $13.0$24.8 million. The cumulative income tax benefit related to the adjustments for unrealized gainloss on derivatives at December 31, 2017 were $0.62021 was $3.6 million. See Note 19 for classification within the consolidated statements of operations of the gains and losses on derivatives reclassified from AOCI.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized Currency Translation Adjustments | | Pension Plan Adjustments | | | | Unrealized Gain (Loss) on Derivatives | | Accumulated Other Comprehensive Loss | Balance, December 31, 2019 | | $ | (297.0) | | | $ | (69.9) | | | | | $ | (28.6) | | | $ | (395.5) | | Current year deferrals to AOCI | | 30.0 | | | (20.5) | | | | | (43.4) | | | (33.9) | | Reclassifications from AOCI to Net income | | (15.0) | | | 1.7 | | | | | 17.9 | | | 4.6 | | Net Change | | 15.0 | | | (18.8) | | | | | (25.5) | | | (29.3) | | Balance, December 31, 2020 | | $ | (282.0) | | | $ | (88.7) | | | | | $ | (54.1) | | | $ | (424.8) | |
(22) VENEZUELA
DueThe cumulative income tax benefit related to the challenging economic conditions and political unrest in Venezuela, which have resulted in increasingly restrictive foreign exchange control regulations and reduced access to U.S. dollars through official currency exchange markets, during the year endedadjustments for pension benefits at December 31, 2017, we concluded there2020 was an other-than-temporary lack of exchangeability between$33.5 million. The cumulative income tax benefit related to the Venezuelan bolivar andadjustments for unrealized loss on derivatives at December 31, 2020 was $8.8 million. See Note 19 for classification within the U.S. dollar. This lack of exchangeability restricted our Venezuelan subsidiary's ability to pay dividends or settle intercompany obligations, which severely limited our ability to realize the benefits from earnings of our Venezuelan operations and access the resulting liquidity provided by those earnings.
Based on this lack of exchangeability, the continued political unrest, the recent drop in demand for our business and the losses incurred, we concluded that we no longer met the accounting criteria of control in order to continue consolidating our Venezuelan operations and accounted for our investments in our Venezuelan subsidiary under the cost method of accounting. As a result of this change, we recorded a loss of $70.9 million on our consolidated statementstatements of operations within other operating charges during the year ended December 31, 2017. This loss was comprised of the subsidiary's net assets for $30.0 million, counterparty intercompany receivables with our Venezuela subsidiary for $35.0 milliongains and unrealized actuarial losses associated with pension plans in accumulated other comprehensive income of $5.9 million. The value of the cost investment and all previous intercompany balances were recorded at 0 as of December 31, 2017 and remain as such as of December 31, 2019. Further, our consolidated balance sheet and statement of operations excludes the results of our Venezuelan operations. We will recognize income only to the extent that we are paid for inventory we sell or receive cash dividendson derivatives reclassified from our Venezuelan legal entity.AOCI.
Prior to deconsolidation, for the year ended December 31, 2017, our Venezuelan subsidiary's net sales represented $2.5 million of our consolidated net sales, represented a loss of $2.8 million of our consolidated income from operations, and represented net losses of $5.8 million of our consolidated net income.
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(23) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended December 31, 2019 and 2018, respectively:
| | | | | | | | | | | | | | | | | | | | | | (In millions, except per share data) | | | | | | | | | | | 2019 | | March 31 | | June 30 | | September 30 | | December 31 | | Full Year | Net sales | | $ | 1,119.3 |
| | $ | 1,157.5 |
| | $ | 1,107.0 |
| | $ | 1,098.4 |
| | $ | 4,482.2 |
| Cost of goods sold | | 751.3 |
| | 748.4 |
| | 707.4 |
| | 710.8 |
| | 2,917.9 |
| Income from operations | | 98.6 |
| | 157.9 |
| | 123.0 |
| | 108.7 |
| | 488.2 |
| Net income | | 44.1 |
| | 99.9 |
| | 66.4 |
| | 42.2 |
| | 252.6 |
| Net income attributable to controlling interests | | 43.4 |
| | 98.4 |
| | 65.5 |
| | 41.7 |
| | 249.0 |
| Basic net income per share | | $ | 0.19 |
| | $ | 0.42 |
| | $ | 0.28 |
| | $ | 0.18 |
| | $ | 1.06 |
| Diluted net income per share | | $ | 0.18 |
| | $ | 0.42 |
| | $ | 0.28 |
| | $ | 0.18 |
| | $ | 1.06 |
| | | | | | | | | | | | 2018 | | March 31 | | June 30 | | September 30(1) | | December 31 | | Full Year | Net sales | | $ | 1,172.0 |
| | $ | 1,212.2 |
| | $ | 1,146.0 |
| | $ | 1,165.8 |
| | $ | 4,696.0 |
| Cost of goods sold | | 776.0 |
| | 793.8 |
| | 759.1 |
| | 777.4 |
| | 3,106.3 |
| Income from operations | | 120.0 |
| | 146.5 |
| | 47.8 |
| | 127.8 |
| | 442.1 |
| Net income (loss) | | 71.0 |
| | 77.1 |
| | (11.6 | ) | | 76.8 |
| | 213.3 |
| Net income (loss) attributable to controlling interests | | 69.9 |
| | 74.9 |
| | (13.1 | ) | | 75.4 |
| | 207.1 |
| Basic net income (loss) per share | | $ | 0.29 |
| | $ | 0.31 |
| | $ | (0.05 | ) | | $ | 0.32 |
| | $ | 0.87 |
| Diluted net income (loss) per share | | $ | 0.28 |
| | $ | 0.31 |
| | $ | (0.05 | ) | | $ | 0.32 |
| | $ | 0.85 |
|
| | (1) | During the three months ended September 30, 2018, the Company announced the closure of the Mechelen, Belgium manufacturing facility and recorded severance costs of $70.6 million. See further discussion in Note 5. |
(24) SUBSEQUENT EVENTS
2024 Dollar Term Loans Prepayment and Interest Rate Swap
In January 2020, we voluntarily prepaid $300.0 million of the outstanding principal on our 2024 Dollar Term Loans. As a result of the prepayment, we will record a loss on extinguishment of debt of $2.7 million. Concurrent with the prepayment, we executed an interest rate swap to hedge $200.0 million of notional on our variable 2024 Dollar Term Loans at a fixed interest rate of 1.61%, which matures in December 2022.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures As required by Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. No matter how well designed and operated, disclosure controls and procedures can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2019.2022. Management's report on internal control over financial reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Management assessed the effectiveness of the Company’sCompany's internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”("COSO") in Internal Control—Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2019,2022, the Company's internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which is included herein. Changes in internal control over financial reporting There were no changes in the Company’sCompany's internal control over financial reporting that occurred during the quarter ended December 31, 20192022 that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting. ITEM 9B. OTHER INFORMATION None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None.
PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information about the Company’sCompany's directors required by Item 10 and not otherwise set forth below is contained under the caption "Proposal No. 1: Election of Directors" in Axalta’sAxalta's definitive Proxy Statement for the 20202023 Annual General Meeting of Members (the "Proxy Statement") which the Company anticipates filing with the Securities and Exchange Commission,SEC, pursuant to Regulation 14A, not later than 120 days after the end of the Company’sCompany's fiscal year, and is incorporated herein by reference. The executive officers of the Company are elected by the Board. The information required by this item concerning the Company's executive officers is incorporated by reference herein from Part I of this report under the caption "Information About Our Executive Officers." Information regarding the Company’sCompany's Audit Committee, code of ethics, and compliance with Section 16(a) of the Exchange Act is included in the Proxy Statement under the captions "Corporate Governance Matters and Committees of the Board of Directors",Directors," and "Delinquent Section 16(a) Reports",Reports," respectively, and is incorporated herein by reference. The executive officers of the Company are appointed by the Board of Directors. The information required by this item is set forth below.
The following table provides information regarding our executive officers:
| | | | | | Name | | Age* | | Position | Robert W. Bryant | | 51 | | Chief Executive Officer and President | Steven R. Markevich | | 60 | | Executive Vice President and President, Transportation Coatings and Greater China | Sean M. Lannon | | 41 | | Senior Vice President and Chief Financial Officer | Brian A. Berube | | 57 | | Senior Vice President, General Counsel and Corporate Secretary |
*As of February 19, 2020
Robert W. Bryant
Mr. Bryant has served as our Chief Executive Officer and President since October 7, 2018. Prior to that Mr. Bryant served as our Executive Vice President and Chief Financial Officer from February 2013 until October 2018. Previously, Mr. Bryant served as the Senior Vice President and Chief Financial Officer of Roll Global LLC. Before joining Roll Global in 2007, he was the Executive Vice President of Strategy, New Business Development, and Information Technology at Grupo Industrial Saltillo, S.A.B. de C.V. Prior to joining Grupo Industrial Saltillo in 2004, Mr. Bryant was President of Bryant & Company, which he founded in 2001. Prior positions included serving as Managing Principal with Texas Pacific Group’s Newbridge Latin America, L.P., a Senior Associate with Booz Allen & Hamilton Inc. and an Assistant Investment Officer with the International Finance Corporation (IFC). Mr. Bryant began his career at Credit Suisse First Boston in the Mergers & Acquisitions Group. Mr. Bryant graduated summa cum laude and Phi Beta Kappa with a B.A. in Economics from the University of Florida and received his M.B.A. from the Harvard Business School.
Steven R. Markevich
Mr. Markevich has served as our Executive Vice President and President, Transportation Coatings and Greater China since September 30, 2015. Prior to that Mr. Markevich served as our Senior Vice President and President, Transportation from July 2015 until September 30, 2015, and Senior Vice President and President, OEM from June 2013 until July 2015. Previously, Mr. Markevich was Chief Executive Officer of GKN Driveline from October 2012 to June 2013. Prior to that role, from July 2010 to October 2012, he was President, GKN Sinter Metals, responsible for global operations. From October 2007 to July 2010, Mr. Markevich was President, North American Operations for GKN Sinter Metals, and began his tenure with GKN in 2007 as Vice President, Sales & Marketing. At Siegel-Robert Automotive, he led the company’s commercial strategy, sales, account and program management initiatives. While at Guardian Automotive, Mr. Markevich served in numerous leadership roles and was responsible for all senior level customer relationships. His career began at Deloitte & Touche consulting and the National Steel Corporation. Mr. Markevich holds a finance degree from the University of Michigan’s Ross School of Business and is a Certified Public Accountant as well as being certified in Production & Inventory Management (CPIM). He has completed the Global Senior Leadership Program at UCLA and holds memberships in the Society of Automotive Engineers (SAE), Original Equipment Suppliers Association (OESA) and American Powder Metallurgy Institute International (APMI).
Sean M. Lannon
Mr. Lannon has served as our Senior Vice President and Chief Financial Officer since October 12, 2018. Prior to that Mr. Lannon served as Vice President, Corporate Finance and Global Controller of Axalta since 2016, and was Vice President and Global Controller from 2013 until that promotion. Previously, Mr. Lannon served as the Vice President, Global Controller of Trinseo. Prior to joining Trinseo in 2011, he was the Senior Manager, Financial Reporting at Endo Pharmaceuticals. Mr. Lannon began his career at PricewaterhouseCoopers where he spent more than nine years within the organization’s Assurance Practice. Mr. Lannon graduated summa cum laude with a B.A. in Accounting from Philadelphia University.
Brian A. Berube
Brian A. Berube, age 57, has served as our Senior Vice President, General Counsel and Corporate Secretary since June 2019. Previously, Mr. Berube was Senior Vice President and General Counsel of Cabot Corporation, a position he held from March 2003 until June 2019. Prior to this appointment, Mr. Berube held various roles at Cabot, which he joined in 1994. Prior to joining Cabot, Mr. Berube was a corporate attorney at Choate, Hall & Stewart, a Boston law firm, and a law clerk with the New Hampshire Supreme Court. He earned his B.A. in Political Science from the College of the Holy Cross and a J.D. from Boston College Law School.
Information regarding the Company’s Audit Committee, code of ethics, and compliance with Section 16(a) of the Exchange Act is included in the Proxy Statement under the captions "Corporate Governance Matters and Committees of the Board of Directors", and "Delinquent Section 16(a) Reports", respectively and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is contained in the Proxy Statement under the captions "Compensation Discussion and Analysis", "Executive Compensation" and "Compensation Committee Report" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The information required by Item 12 is contained in the Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required by Item 13 is contained in the Proxy Statement under the captions "Director Independence" and "Certain Relationships and Related Person Transactions" and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 is contained in the Proxy Statement under the caption "Proposal No. 2: Appointment of PricewaterhouseCoopers LLP as the Company's Independent Registered Public Accounting Firm and Auditor" and is incorporated herein by reference.
PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) The Company's 20192022 Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firm are included in Part II, Item 8 of this Annual Report on Form 10-K. (a)(2) The following Consolidated Financial Statement Schedule for the years ended December 31, 2019, 20182022, 2021 and 20172020 should be read in conjunction with the previously referenced financial statements: SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Allowance for Doubtful Accounts for the years ended December 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | | Balance at Beginning of Year | | Additions | | Deductions (1) | | Balance at End of Year | 2022 | | $ | 22.0 | | | 5.5 | | | (4.9) | | | $ | 22.6 | | 2021 | | $ | 26.5 | | | 1.7 | | | (6.2) | | | $ | 22.0 | | 2020 | | $ | 16.0 | | | 11.7 | | | (1.2) | | | $ | 26.5 | |
(1)Deductions include uncollectible accounts written off and foreign currency translation impact. | | | | | | | | | | | | | | | | (in millions) | | Balance at Beginning of Year | | Additions | | Deductions (1) | | Balance at End of Year | 2019 | | $ | 15.4 |
| | 5.5 |
| | (4.9 | ) | | $ | 16.0 |
| 2018 | | $ | 15.9 |
| | 2.3 |
| | (2.8 | ) | | $ | 15.4 |
| 2017 | | $ | 13.7 |
| | 3.5 |
| | (1.3 | ) | | $ | 15.9 |
|
| | (1) | Deductions include uncollectible accounts written off and foreign currency translation impact. |
Deferred tax asset valuation allowances for the years ended December 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | | Balance at Beginning of Year | | Additions (1) | | Deductions (1) | | Balance at End of Year | 2022 | | $ | 210.9 | | | 30.7 | | | (47.6) | | | $ | 194.0 | | 2021 | | $ | 208.1 | | | 21.9 | | | (19.1) | | | $ | 210.9 | | 2020 | | $ | 178.3 | | | 30.0 | | | (0.2) | | | $ | 208.1 | |
| | | | | | | | | | | | | | | | (in millions) | | Balance at Beginning of Year | | Additions (1) | | Deductions (1) | | Balance at End of Year | 2019 | | $ | 159.0 |
| | 44.9 |
| | (25.6 | ) | | $ | 178.3 |
| 2018 | | $ | 214.2 |
| | 11.9 |
| | (67.1 | ) | | $ | 159.0 |
| 2017 | | $ | 135.4 |
| | 78.8 |
| | — |
| | $ | 214.2 |
|
(1)Additions and deductions include charges to foreign currency translation impact. | | (1) | Additions and deductions include charges to goodwill and foreign currency translation impact. |
(a)(3) The following exhibits are filed as a part of, or incorporated by reference into, this Annual Report on Form 10-K. | | | | | | EXHIBIT NO. | DESCRIPTION OF EXHIBITS | | | 2.1* | | | | 2.2* | | | | 3.1*2.3* | | | | 2.4* | | | | 3.1* | | | | 3.2* | | | | 4.1* | | | |
| | | | | | 4.2* | Indenture, dated as of August 16, 2016, by and among Axalta Coating Systems, LLC, as the issuer, the guarantors named therein, Wilmington Trust, National Association, as trustee, Citigroup Global Markets Deutschland AG, as euro notes registrar, and Citibank N.A., London Branch, as euro notes paying agent and euro notes authenticating agent (including form of Dollar Note and form of Euro Note) (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on August 17, 2016) | | |
| | | 4.3* | Indenture, dated as of September 27, 2016, by and among Axalta Coating Systems Dutch Holding B B.V., as the issuer, the guarantors named therein, Wilmington Trust, National Association, as trustee, Citigroup Global Markets Deutschland AG, as registrar, and Citibank N.A., London Branch, as paying agent and authenticating agent (including form of Note) (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), originally filed with the SEC on September 27, 2016) | | | 4.4* | Seventh Supplemental Indenture, dated as of October 26, 2018, by and among Axalta Coating Systems, LLC, as issuer, the new guarantors party thereto and Wilmington Trust, National Association, as trustee, to the Indenture, dated as of August 16, 2016, by and among the Axalta Coating Systems, LLC, as issuer, the guarantors party thereto, Wilmington Trust National Association, as trustee, Citigroup Global Markets Deutschland AG, as registrar, and Citibank N.A., London Branch, as paying agent and authenticating agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36733), filed with the SEC on November 1, 2018) | | | 4.5* | Seventh Supplemental Indenture, dated as of October 26, 2018, by and among Axalta Coating Systems Dutch Holding B B.V., as issuer, the new guarantors party thereto and Wilmington Trust, National Association, as trustee, to the Indenture, dated as of September 27, 2016, by and among the Axalta Coating Systems Dutch Holding B B.V., as issuer, the guarantors party thereto, Wilmington Trust National Association, as trustee, Citigroup Global Markets Deutschland AG, as registrar, and Citibank N.A., London Branch, as paying agent and authenticating agent (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36733), filed with the SEC on November 1, 2018)
| | | 4.64.6* | | | | 10.1*4.7* | Indenture, dated as of June 15, 2020, by and among Axalta Coating Systems, LLC and Axalta Coating Systems Dutch Holding B.B.V., as issuers, the guarantors named therein and Wilmington Trust, National Association, as trustee (including the form of Note) (incorporated by reference to exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on June 15, 2020) | | | 4.8* | Indenture, dated as of November 24, 2020, by and among Axalta Coating Systems, LLC, as issuer, the guarantors named therein and Wilmington Trust, National Association, as trustee (including the form of Note) (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on November 24, 2020) | | | | | | | 10.1* | Credit Agreement, dated as of February 1, 2013, among Flash Dutch 2 B.V. (n/k/a Axalta Coating Systems Dutch Holding B B.V.) and U.S. Coatings Acquisition Inc. (n/k/a Axalta Coating Systems U.S. Holdings, Inc.), as borrowers, Flash Dutch 1 B.V. (n/k/a Axalta Coating Systems Dutch Holding A B.V.), Coatings Co. U.S. Inc. (n/k/a Axalta Coating Systems U.S., Inc.), Barclays Bank PLC, as administrative agent, collateral agent, swing line lender and L/C issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.2* | Amendment No. 1 Agreement to the Credit Agreement, dated as of May 24, 2013, among Flash Dutch 2 B.V. (n/k/a Axalta Coating Systems Dutch Holding B B.V.), as Dutch borrower, Axalta Coating Systems U.S. Holdings, Inc., as U.S. borrower, and Barclays Bank PLC, as administrative agent (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.3* | Second Amendment to Credit Agreement, dated as of February 3, 2014, by and among Axalta Coating Systems Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating Systems U.S., Inc. (f/k/a Coatings Co. U.S. Inc.), Axalta Coating Systems Dutch Holding A B.V., and Barclays Bank PLC, as administrative agent, collateral agent and designated 2014 Specified Refinancing Term Lender (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.4*10.3* | Amendment No. 3 to the Credit Agreement, dated as of August 1, 2016, among Axalta Coating Systems Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative agent and collateral agent, and the other agents and arrangers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on August 2, 2016) | | | 10.5* | Amendment No. 4 to the Credit Agreement, dated as of December 15, 2016, among Axalta Coating Systems Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative agent and collateral agent, and the other agents and arrangers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on December 15, 2016) | | | 10.6*10.4* | Amendment No. 5 to the Credit Agreement, dated as of June 1, 2017, among Axalta Coating Systems Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative agent and collateral agent, and the other agents and arrangers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36733), filed with the SEC on June 1, 2017) | | |
10.7* | | | | | | 10.5* | Amendment No. 6 to the Credit Agreement, dated as of April 11, 2018, among Axalta Coating Systems Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative agent and collateral agent, and the other agents and arrangers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on April 11, 2018)
| | | 10.8*10.6* | Amendment No. 7 to the Credit Agreement, dated as of October 31, 2018, among Axalta Coating Systems Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative agent and collateral agent, and the other agents and arrangers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on November 1, 2018)
| | | 10.9*10.7* | Tenth Amendment to Credit Agreement, dated as of May 11, 2021, among Axalta Coating Systems Ltd., Axalta Coating Systems Dutch Holding B B.V., Axalta Coating Systems U.S. Holdings, Inc., Axalta Coating Systems U.S., Inc., certain lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36733) filed with the SEC on May 12, 2021) | | | 10.8* | Eleventh Amendment to Credit Agreement and First Amendment to Amended and Restated Guaranty Agreement, dated as of December 20, 2022, among Axalta Coating Systems Ltd., Axalta Coating Systems Dutch Holding B B.V., Axalta Coating Systems U.S. Holdings, Inc., Axalta Coating Systems U.S., Inc., certain subsidiary guarantors party thereto, certain lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36733) filed with the SEC on December 20, 2022) (the conformed Credit Agreement attached as Annex A to the Eleventh Amendment reflects the inclusion of the amendment provisions of all eleven amendments to the Credit Agreement) | | | 10.9* | | | | 10.10* | | | | 10.11** | | | | 10.12* | | | | 10.13* | First Lien Intercreditor Agreement, dated as of February 1, 2013, among Barclays Bank PLC as bank collateral agent under the Credit Agreement, and as notes foreign collateral agent under the Indenture, Wilmington Trust, National Association, as notes collateral agent under the Indenture, each Grantor party thereto and each Additional Agent from time to time party thereto (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.14*10.13* | | | | 10.15*10.14* | Bank Accounts Pledge Agreement, entered into September 17, 2013, among Axalta Coating Systems Brasil Ltda., Wilmington Trust, National Association, as Notes Collateral Agent, and Barclays Bank PLC, as collateral agent (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.16* | | | | 10.15* | Quota Pledge Agreement, entered into September 17, 2013, among Brazil Coatings Co. Participações Ltda., Axalta Coating Systems Dutch Holding 2 B.V., Barclays Bank PLC, as collateral agent, and Wilmington Trust, National Association, as notes collateral agent (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | |
| | | 10.18*10.17* | | | | 10.19*10.18* | | | | 10.20*10.19* | | | | 10.21*10.20* | Account Pledge Agreement, made on 29 July 2013, between Axalta Coating Systems Verwaltungs GmbH (f/k/a Flash German Co. GmbH), Axalta Coating Systems Deutschland Holding GmbH & Co. KG (f/k/a Germany Coatings GmbH & Co. KG), Axalta Coating Systems Beteiligungs GmbH (f/k/a Germany Coatings Co GmbH), Standox GmbH, Spies Hecker GmbH, Axalta Coating Systems Germany GmbH (f/k/a DuPont Performance Coatings GmbH), Barclays Bank PLC, as collateral agent under the Credit Agreement, and Wilmington Trust, National Association, as notes collateral agent under the EUR Notes Indenture (incorporated by reference to Exhibit 10.20 to the Registrant’sRegistrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.22*10.21* | | | | 10.23*10.22* | | | | 10.24*10.23* | | | | 10.25*10.24* | | | | 10.26*10.25* | Partnership Interest Pledge Agreement, made on 29 July 2013, between Axalta Coating Systems Luxembourg Holding 2 S.à r.l. (f/k/a Luxembourg Coatings S.à r.l.), Axalta Coating Systems Verwaltungs GmbH (f/k/a Flash German Co. GmbH), Barclays Bank PLC, as collateral agent under the Credit Agreement, and Wilmington Trust, National Association, as notes collateral agent under the EUR Notes Indenture (incorporated by reference to Exhibit 10.26 to the Registrant’sRegistrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.27*10.26* | | | |
| | | | | 10.30*10.29* | | | | 10.31*10.30* | | | | 10.32*10.31* | | | | 10.33*10.32* | | | | 10.34*10.33* | | | | 10.35*10.34* | Equity Interest Pledge Agreement, dated September 18, 2013, among Axalta Coating Systems LA Holding II B.V. (f/k/a DuPont Performance Coatings LA Holding II B.V.), Axalta Coating Systems México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings México, S. de R.L. de C.V.), Axalta Coating Systems Servicios México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings Servicios México, S. de R.L. de C.V.) and Barclays Bank PLC, as collateral agent (incorporated by reference to Exhibit 10.36 to the Registrant’sRegistrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.36*10.35* | Equity Interest Pledge Agreement, dated September 18, 2013, among Axalta Coating Systems LA Holding II B.V. (f/k/a DuPont Performance Coatings LA Holding II B.V.), Axalta Coating Systems Servicios México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings Servicios México, S. de R.L. de C.V.), Axalta Coating Systems México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings México, S. de R.L. de C.V.) and Barclays Bank PLC, as collateral agent (incorporated by reference to Exhibit 10.37 to the Registrant’sRegistrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.37*10.36* | Share Pledge Agreement, dated September 18, 2013, between Axalta Powder Coating Systems USA, Inc. (f/k/a DuPont Powder Coatings USA, Inc.), Axalta Powder Coating Systems México, S.A. de C.V. (f/k/a DuPont Powder Coatings de México, S.A. de C.V.) and Barclays Bank PLC, as collateral agent (incorporated by reference to Exhibit 10.38 to the Registrant’sRegistrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014) | | | 10.38*10.37* | | | |
| | | 10.41*10.40* | | | | 10.42*10.41* | | | | 10.43*10.42* | | | | 10.44*10.43* | | | | 10.45*10.44* | | | | 10.46*10.45* | | | | 10.47*10.46* | | | | 10.48* | | | | 10.49* | | | | 10.50*10.47* | | | | 10.51*10.48* | | | | 10.52* | | | | 10.53* | | | | 10.54* | | | | 10.55* | | | | 10.56*10.49* | | | | 10.57* | Asset Purchase Agreement by and between The Valspar Corporation, Axalta Coating Systems Ltd. and, solely for purposes of Section 5.1(a), 5.1(b), 5.3, 5.8, 5.13 and 10.13, The Sherwin-Williams Company, dated as of April 11, 2017 (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733) filed with the SEC on April 12, 2017) | | |
| | | 10.58*10.50* | Amendment to Asset Purchase Agreement, dated as of May 31, 2017, by and between The Valspar Corporation, Axalta Coating Systems Ltd. and, solely for purposes of Section 5.1(a), 5.1(b), 5.3, 5.8, 5.13 and 10.13, The Sherwin-Williams Company (incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-36733) filed with the SEC on August 3, 2017) | | | 10.59* |
| | | 10.60*10.51* |
| | | 10.61*10.52* |
| | | 10.62* |
| | | 10.63* |
| | | 10.64* |
| | | 10.65* |
| | | 10.66* |
| | | 10.67* |
| | | 10.68* |
| | | 10.69* | | | | 10.70* |
| | | 10.71* |
| | | 10.72* |
|
| | | | | | 10.76*10.54* | | | | 10.77*10.55* | | | | 10.56* | | | | 10.57* | | | | 10.58* | | | | 10.59* | | | | 10.60* | Separation and Release Agreement, dated as of June 28, 2019, amongJuly 25, 2022, between Axalta Coating Systems Dutch Holding B B.V.Ltd. and Axalta Coating Systems U.S. Holdings, Inc., as Borrowers, Axalta Coating Systems U.S., Inc., Axalta Coating Systems Ltd., the several banks and other financial institutions or entities from time to time parties thereto as Lenders, Barclays Bank PLC, as Administrative Agent and Collateral Agent, and the other agents and arrangers party thereto.Robert Bryant (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733) filed with the SEC on June 28, 2019)July 26, 2022) | | | 10.78*10.61* | | | | 21.110.62* | | | | 10.63* | | | | 10.64* | | | | 10.65* | | | | 21.1 | | | | 23.1 | | | | 31.1 | | | | 31.2 | | | | 32.1† | | | | 32.2† | | | | 101 | INS - Inline XBRL Instance Document. The document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document | | | 101 | SCH - Inline XBRL Taxonomy Extension Schema Document | | | 101 | CAL - Inline XBRL Taxonomy Extension Calculation Linkbase Document | | |
| | | | | | 101 | DEF - Inline XBRL Taxonomy Extension Definition Linkbase Document | | | 101 | LAB - Inline XBRL Taxonomy Extension Label Linkbase Document | | | 101 | PRE - Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | | * | Previously filed. | | | † | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and will not be deemed "filed" for purposes of section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. | ** | The exhibit and schedule to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. |
ITEM 16. FORM 10-K SUMMARY None.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on February 19, 202016, 2023. | | | | | | | | | AXALTA COATING SYSTEMS LTD. | | | By: | | /s/ Robert W. BryantChris Villavarayan | | | Robert W. BryantChris Villavarayan | | | Chief Executive Officer and President |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned duly authorized. | | | | | | | | | | | | | | | Signature | | Title | | Date | | | | | | /s/ Chris Villavarayan | | Chief Executive Officer and President | | February 16, 2023 | Chris Villavarayan | | (Principal Executive Officer) | | | | | | | | Signature | | Title | | Date | | | | | | /s/ Robert W. Bryant | | Chief Executive Officer and President | | February 19, 2020 | Robert W. Bryant | | (Principal Executive Officer) | | | | | | | | /s/ Sean M. Lannon | | Senior Vice President and Chief Financial Officer | | February 19, 202016, 2023 | Sean M. Lannon | | (Principal Financial Officer) | | | | | | | | /s/ Anthony Massey | | Vice President and Global Controller | | February 19, 202016, 2023 | Anthony Massey | | (Principal Accounting Officer) | | | | | | | | /s/ Mark GarrettRakesh Sachdev | | ChairmanChair of the Board and Director | | February 19, 202016, 2023 | Mark GarrettRakesh Sachdev | | | | | | | | | | /s/ Jan Bertsch | | Director | | February 16, 2023 | Jan Bertsch | | | | | | | | | | /s/ William M. Cook | | Director | | February 19, 202016, 2023 | William M. Cook | | | | | | | | | | /s/ Steven M. Chapman | | Director | | February 16, 2023 | Steven M. Chapman | | | | | | | | | | /s/ Tyrone M. Jordan | | Director | | February 16, 2023 | Tyrone M. Jordan | | | | | | | | | | /s/ Deborah J. Kissire | | Director | | February 19, 202016, 2023 | Deborah J. Kissire | | | | | | | | | | /s/ Elizabeth C. Lempres | | Director | | February 19, 2020 | Elizabeth C. Lempres | | | | | | | | | | /s/ Robert M. McLaughlin | | Director | | February 19, 202016, 2023 | Robert M. McLaughlin | | | | | | | | | | /s/ Samuel L. Smolik | | Director | | February 19, 202016, 2023 | Samuel L. Smolik | | | | |
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