Axalta Coating Systems Ltd

Previous wording

Many statements made in the following discussion and analysis of our financial condition and results of operations and elsewhere in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations, are "forward-looking statements" within the meaning of federal securities laws and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan, strategies and capital structure. These statements often include words such as "anticipated," "expect," "believe," "intended," "estimated," "projections," "could," "would," "may," "will," "future," "can," "assumptions," "potential," "possible," and "forecasts" and the negative of these words or other comparable or similar terminology. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks and uncertainties, including, but not limited to, economic, competitive, governmental, geopolitical and technological factors outside of our control, as well as risks related to the execution of the 2024 Transformation Initiative, our acquisition of The CoverFlexx Group, and our previously-announced three-year 2024-2026 strategy, that may cause our business, industry, strategy, financing activities or actual results to differ materially. More information on potential factors that could affect our financial results is available in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 as well as "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and in other documents that we have filed with, or furnished to, the SEC, and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors, including, but not limited to, those described in "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections.

Current wording

Many statements made in the following discussion and analysis of our financial condition and results of operations and elsewhere in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations, are "forward-looking statements" within the meaning of federal securities laws and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan, strategies and capital structure. These statements often include words such as "anticipated," "expect," "believe," "intended," "estimated," "projections," "could," "would," "may," "will," "future," "can," "assumptions," "potential," "possible," "strategy," and "forecasts" and the negative of these words or other comparable or similar terminology. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks and uncertainties, including, but not limited to, economic, competitive, governmental, geopolitical and technological factors outside of our control, as well as risks related to the execution of, and assumptions underlying, the 2024 Transformation Initiative, our acquisition of CoverFlexx, and our previously-announced three-year 2024-2026 strategy, that may cause our business, industry, strategy, financing activities or actual results to differ materially. More information on potential factors that could affect our financial results is available in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 as well as "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and in other documents that we have filed with, or furnished to, the SEC, and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors, including, but not limited to, those described in "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projecti…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

We are a leading global manufacturer, marketer and distributor of high-performance coatings systems and products. We have over a 150-year heritage in the coatings industry and are known for manufacturing high-quality products with well-recognized brands supported by market-leading technology and customer service. Our diverse global footprint of 43 manufacturing facilities, four technology centers, 49 customer training centers and approximately 12,000 team members allows us to meet the needs of customers in over 140 countries. We serve our customer base through an extensive sales force and technical support organization, as well as through approximately 4,000 independent, locally based distributors.

Current wording

We are a leading global manufacturer, marketer and distributor of high-performance coatings systems and products. We have over a 150-year heritage in the coatings industry and are known for manufacturing high-quality products with well-recognized brands supported by market-leading technology and customer service. Our diverse global footprint of 45 manufacturing facilities, four technology centers, 46 customer training centers and approximately 12,700 team members allows us to meet the needs of customers in over 140 countries. We serve our customer base through an extensive sales force and technical support organization, as well as through approximately 4,000 independent, locally based distributors.

Previous wording

Through our Mobility Coatings segment, we provide coatings technologies for light vehicle and commercial vehicle OEMs. These global customers are faced with evolving megatrends in electrification, sustainability, personalization and autonomous driving that require a high level of technical 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.

Current wording

Through our Mobility Coatings segment, we provide coatings technologies for light vehicle and commercial vehicle OEMs. These global customers are faced with evolving megatrends in electrification, sustainability, personalization and autonomous driving that require a high level of technical expertise. These 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.

Previous wording

Our net sales increased 2.6% for the six months ended June 30, 2024 compared with the six months ended June 30, 2023. The increased net sales were driven by higher volumes of 2.4%, including the contribution from the André Koch acquisition completed in October 2023, and higher average selling price and product mix of 0.2%. There was an immaterial impact from foreign currency translation as favorable fluctuations from currencies such as the Mexican Peso offset unfavorable fluctuations from currencies such as the Chinese Yuan compared to the U.S. Dollar. The following trends impacted our segment net sales performance for the six months ended June 30, 2024:

Current wording

Our net sales increased 2.0%, including an offsetting impact from currency fluctuations, for the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023. The increased net sales were driven by higher volumes of 1.8%, including the contribution from the André Koch acquisition completed in October 2023, and contributions of 0.5% from CoverFlexx, partially offset by lower average selling price and product mix of 0.2%. The following trends impacted our segment net sales performance for the nine months ended September 30, 2024:

Previous wording

•Mobility Coatings: Net sales increased 4.0% for the six months ended June 30, 2024 compared with the six months ended June 30, 2023. The increased net sales were driven by higher sales volumes of 4.7%. This gain was partially offset by lower average selling price and product mix of 0.6% and a headwind from unfavorable foreign currency translation of 0.1% driven by fluctuations from currencies such as the Chinese Yuan largely offset by favorable fluctuations from currencies such as the Mexican Peso compared to the U.S. Dollar.

Current wording

•Mobility Coatings: Net sales increased 1.9% for the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023. The increased net sales were driven by higher sales volumes of 3.8%, partially offset by lower average selling price and product mix of 1.4% and a headwind from unfavorable foreign currency translation of 0.5% driven by fluctuations of the Brazilian Real and Chinese Yuan, partially offset by fluctuations of the Euro, compared to the U.S. Dollar.

Previous wording

Our business serves four end-markets globally with net sales for the three and six months ended June 30, 2024 and 2023, as follows:

Current wording

Our business serves four end-markets globally with net sales for the three and nine months ended September 30, 2024 and 2023, as follows:

Previous wording

During February 2024, we announced the 2024 Transformation Initiative intended to simplify the Company’s organizational structure and enable us to be more proactive, responsive, and agile and to better serve our customers and to lower our cost base, improve financial performance and cash flow generation. See Liquidity and Capital Resources included elsewhere in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 4 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Current wording

During February 2024, we announced the 2024 Transformation Initiative intended to simplify the Company’s organizational structure and enable us to be more proactive, responsive, and agile and to better serve our customers and to lower our cost base, improve financial performance and cash flow generation. See Liquidity and Capital Resources, Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 5 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Previous wording

During the six months ended June 30, 2024, we prepaid $75 million of the outstanding principal amount of the 2029 Dollar Term Loans. See Note 15 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Current wording

During the nine months ended September 30, 2024, we prepaid $75 million of the outstanding principal amount of the 2029 Dollar Term Loans. See Note 16 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Previous wording

During the three months ended June 30, 2024, we repurchased 1.4 million shares of our common stock for total consideration of $50 million as we executed against the share repurchase program approved by the Board of Directors in April 2024. See Part II, Item 2 of this Quarterly report on Form 10-Q for additional information.

Current wording

During the nine months ended September 30, 2024, we repurchased 2.8 million shares of our common stock for total consideration of $100 million as we executed against the share repurchase program approved by the Board of Directors in April 2024. See Part II, Item 2 of this Quarterly Report on Form 10-Q for additional information.

Previous wording

n Unfavorable impacts of currency translation due primarily to the fluctuations of the Euro, Chinese Yuan and Brazilian Real, partially offset by the Mexican Peso, compared to the U.S. Dollar

Current wording

n Unfavorable impacts of currency translation driven by fluctuations of the Mexican Peso and Brazilian Real, partially offset by fluctuations of the Euro, Chinese Yuan and British Pound, compared to the U.S. Dollar

Previous wording

n Unfavorable impacts of currency translation due primarily to fluctuations of the Euro and Chinese Yuan compared to the U.S. Dollar

Current wording

n Favorable impacts of currency translation of 0.5% driven by fluctuations of the Mexican Peso and Brazilian Real, partially offset by fluctuations of the Euro and Chinese Yuan, compared to the U.S. Dollar

Previous wording

n Decrease of $6 million in commissions resulting from changes to contractual arrangements

Current wording

n Decrease of $5 million in commissions resulting from changes to certain contractual arrangements

Previous wording

n Decrease of $11 million in commissions resulting from changes to contractual arrangements

Current wording

n Decrease of $16 million in commissions resulting from changes to certain contractual arrangements

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n Increase of $54 million in termination benefits and other employee-related costs associated with the 2024 Transformation Initiative

Current wording

n Increase of $9 million in termination benefits and other employee-related costs associated with the 2024 Transformation Initiative

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n Increase of $3 million in acquisition-related costs

Current wording

n Increase of $2 million in acquisition-related costs

Previous wording

n Decrease of $1 million in termination benefits and other employee-related costs

Current wording

n Increase of $63 million in termination benefits and other employee-related costs associated with the 2024 Transformation Initiative

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n Increase of $4 million in acquisition-related costs

Current wording

n Increase of $6 million in acquisition-related costs

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n $7 million impairment charge recognized in the prior year period related to the then anticipated exit of a non-core business category in the Mobility Coatings segment

Current wording

n $7 million impairment charge recognized in the prior year period related to the exit of a non-core business category in the Mobility Coatings segment

Previous wording

n Increased amortization of $3 million associated with assets acquired in the prior year

Current wording

n Increased amortization of $3 million associated with assets acquired in the past 12 months

Previous wording

n Increased amortization of $2 million associated with assets acquired in the prior year

Current wording

n Increased amortization of $6 million associated with assets acquired in the past 12 months

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n Reduced amortization of $4 million from certain intangible assets reaching the end of their useful lives during February 2023, primarily relating to intangibles from the 2013 DuPont Performance Coatings acquisition

Current wording

n Reduced amortization of $5 million from certain intangible assets reaching the end of their useful lives during 2023 and 2024, primarily relating to intangibles from the 2013 DuPont Performance Coatings acquisition

Previous wording

n Favorable impact of $7 million attributable to lower principal on our 2029 Dollar Term Loans, primarily as a result of $125 million of prepayments during the twelve months ended June 30, 2024, partially offset by the increased variable interest rate

Current wording

n Favorable impact of $6 million attributable to lower principal on our 2029 Dollar Term Loans, primarily as a result of $125 million of prepayments during the twelve months ended September 30, 2024, partially offset by the increased variable interest rate

Previous wording

•Unfavorable impact of $10 million attributable to our 2031 Dollar Senior Notes which were issued in November 2023

Current wording

•Unfavorable impact of $9 million attributable to our 2031 Dollar Senior Notes which were issued in November 2023

Previous wording

n Favorable impact of $9 million attributable to lower principal on our 2029 Dollar Term Loans, primarily as a result of $125 million of prepayments during the twelve months ended June 30, 2024, partially offset by the increased variable interest rate

Current wording

n Favorable impact of $15 million attributable to lower principal on our 2029 Dollar Term Loans, primarily as a result of $125 million of prepayments during the twelve months ended September 30, 2024, partially offset by the increased variable interest rate

Previous wording

•Favorable impact of $10 million attributable to the redemption in November 2023 of our Euro-denominated Senior Notes due in 2025

Current wording

•Favorable impact of $15 million attributable to the redemption in November 2023 of our Euro-denominated Senior Notes due in 2025

Previous wording

•Unfavorable impact of $19 million attributable to our 2031 Dollar Senior Notes which were issued in November 2023

Current wording

•Unfavorable impact of $28 million attributable to our 2031 Dollar Senior Notes which were issued in November 2023

Previous wording

Other (income) expense, net decreased due to the following:

Current wording

Other (income) expense, net changed due to the following:

Previous wording

n Favorable impact of foreign exchange gains and losses of $7 million when compared with the prior year period, primarily driven by expenses from the remeasurement of net monetary assets denominated in the Argentinian Peso due to a significant devaluation in the prior year period

Current wording

n Favorable impact of foreign exchange gains and losses of $7 million when compared with the prior year period, including expenses from the remeasurement of net monetary assets denominated in the Argentinian Peso and Turkish Lira due to a significant devaluation in the prior year period

Previous wording

n $1 million debt extinguishment and refinancing-related costs recognized in the prior year period as part of the write-offs related to $75 million of prepayments on our 2029 Dollar Term Loans

Current wording

n $4 million debt extinguishment and refinancing-related costs recognized in the prior year period as part of the repricing of our 2029 Dollar Term Loans

Previous wording

n Increased miscellaneous income, net of $2 million

Current wording

n Decreased miscellaneous income, net of $3 million

Previous wording

n Favorable impact of foreign exchange gains and losses of $4 million when compared with the prior year period, primarily driven by expenses from the remeasurement of net monetary assets denominated in the Argentinian Peso due to a significant devaluation in the prior year period.

Current wording

n Favorable impact of foreign exchange gains and losses of $11 million when compared with the prior year period, including expenses from the remeasurement of net monetary assets denominated in the Argentinian Peso and Turkish Lira due to a significant devaluation in the prior year period.

Previous wording

n Decreased costs of $4 million related to our multi-year ERP system implementation and productivity programs

Current wording

n Decreased debt extinguishment and refinancing-related costs of $4 million driven by $3 million in expenses for prepayments and repricing of our 2029 Dollar Term Loans in the current year compared to the $7 million in expenses for prepayments and repricing on our 2029 Dollar Term Loans in the prior year period

Previous wording

(2) Changes in valuation allowance primarily relates to operations in Luxembourg, the Netherlands, and the United Kingdom, including tax impacts of foreign exchange losses.

Current wording

(2) Changes in valuation allowance primarily relates to operations in Luxembourg, the Netherlands, and the United Kingdom, including tax impacts of foreign exchange losses. The activity during the three and nine months ended September 30, 2024 includes a $26 million favorable impact related to the write off of an expired Netherlands net operating loss carryforward.

Previous wording

n Favorable impacts of currency translation of 0.2% due primarily to fluctuations of the Chinese Yuan, partially offset by the Mexican Peso, compared to the U.S. Dollar

Current wording

n Unfavorable impacts of currency translation driven by fluctuations of the Brazilian Real and Chinese Yuan, partially offset by fluctuations of the Euro, compared to the U.S. Dollar

Previous wording

n Decreased costs of $3 million driven by our multi-year ERP system implementation and productivity programs

Current wording

n Decreased costs of $8 million driven by our multi-year ERP system implementation and productivity programs

Previous wording

At June 30, 2024, availability under the Revolving Credit Facility was $593 million, net of $22 million of letters of credit outstanding and $185 million of loans outstanding. All such availability may be utilized without violating any covenants under the Credit Agreement or the indentures governing our senior notes (the "Senior Notes"). At June 30, 2024, we had no outstanding borrowings under other lines of credit. Our remaining available borrowing capacity under other lines of credit in certain non-U.S. jurisdictions totaled $58 million.

Current wording

At September 30, 2024, availability under the Revolving Credit Facility was $673 million, net of $22 million of letters of credit outstanding and $105 million of loans outstanding. All such availability may be utilized without violating any covenants under the Credit Agreement or the indentures governing our senior notes (the "Senior Notes"). At September 30, 2024, we had no outstanding borrowings under other lines of credit. Our remaining available borrowing capacity under other lines of credit in certain non-U.S. jurisdictions totaled $60 million.

Previous wording

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 redemptions, 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.

Current wording

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, any loans outstanding on our Revolving Credit Facility, 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 redemptions, 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.

Previous wording

During February 2024, we announced a global transformation initiative intended to simplify the Company’s organizational structure and enable us to be more proactive, responsive, and agile and to better serve our customers and to lower our cost base, improve financial performance and cash flow generation. Future cash expenditures related to the 2024 Transformation Initiative are expected to be approximately $95-135 million. We estimate that, once fully executed, the 2024 Transformation Initiative will yield net savings, inclusive of non-labor savings and costs for backfilling certain roles, of approximately $75 million on an annualized basis. We expect $10 million of the run-rate savings from the 2024 Transformation Initiative to be realized in 2024 with the full run-rate expected to be realized during 2026. See Note 4 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Current wording

During February 2024, we announced a global transformation initiative intended to simplify the Company’s organizational structure and enable us to be more proactive, responsive, and agile and to better serve our customers and to lower our cost base and improve financial performance and cash flow generation. Future cash expenditures related to the 2024 Transformation Initiative are expected to be approximately $95-135 million. We estimate that, once fully executed, the 2024 Transformation Initiative will yield net savings, inclusive of non-labor savings and costs for backfilling certain roles, of approximately $75 million on an annualized basis. We expect $10 million of the run-rate savings from the 2024 Transformation Initiative to be realized in 2024 and an incremental $30-$40 million to be realized in 2025 with the full run-rate expected to be realized during 2026. See Note 5 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Previous wording

Net cash provided by operating activities for the six months ended June 30, 2024 was $148 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $327 million. This was partially offset by net uses of working capital of $179 million, for which the most significant drivers were increases in prepaid expenses and other assets, accounts and notes receivable and inventories of $91 million, $35 million and $22 million, respectively, as well as decreases in other accrued liabilities of $62 million. These outflows were driven primarily by payments of BIPs, timing of collections from and payments to customers and vendors, increased production and seasonal cash payments for employee-related benefits. These outflows were partially offset by increases in other liabilities of $24 million largely driven by accruals related to the 2024 Transformation Initiative and timing of payments and accounts payable of $7 million.

Current wording

Net cash provided by operating activities for the nine months ended September 30, 2024 was $342 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $508 million. This was partially offset by net uses of working capital of $166 million, for which the most significant drivers were increases in prepaid expenses and other assets, inventories and accounts and notes receivable of $106 million, $54 million and $16 million, respectively, as well as decreases in accounts payable of $18 million. These outflows were driven primarily by payments of BIPs, increased production and timing of collections from and payments to customers and vendors. These outflows were partially offset by increases in other liabilities of $30 million largely driven by accruals related to the 2024 Transformation Initiative.

Previous wording

Net cash used for investing activities for the six months ended June 30, 2024 was $36 million. The primary use was for purchases of property, plant and equipment of $45 million, partially offset by proceeds of $7 million from interest proceeds from swaps designated as net investment hedges, which are discussed further in Note 16 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

Net cash used for investing activities for the nine months ended September 30, 2024 was $374 million. The primary uses were $290 million for the acquisition discussed in Note 3 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, purchases of property, plant and equipment of $78 million and $21 million for the disbursements to customers for loans which primarily have a repayment period of five years, partially offset by proceeds of $10 million from interest proceeds from swaps designated as net investment hedges, which are discussed further in Note 17 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.