Axalta Coating Systems Ltd

Previous wording

This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for 2023 and 2022. For the comparison of 2022 and 2021, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2022 Annual Report on Form 10-K, filed with the SEC on February 16, 2023. During 2023, we replaced Adjusted EBIT with Adjusted EBITDA as the primary measure to evaluate financial performance of our operating segments and allocate resources. For more information, see Note 20 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Current wording

This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for 2024 and 2023. For the comparison of 2023 and 2022, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2023 Annual Report on Form 10-K, filed with the SEC on February 15, 2024.

Previous wording

Many statements made in the following discussion and analysis of our financial condition and results of operations and elsewhere in this Annual Report on Form 10-K 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," "intend," "estimates," "projections," "could," "should," "would," "may," "will," "future," "goals," "committing," "aim," "plans," "can," "predict," "assumptions," "future," "targets," "potential" 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 Annual Report on Form 10-K, 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 impacts from operational disruptions related to our ERP system implementation, 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 this "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as "Risk Factors" in this Annual Report on Form 10-K 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," 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 Annual Report on Form 10-K 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 “anticipate,” “anticipates,” “anticipated,” “expect,” “expected,” “believe,” “believes,” “intend,” “intended,” “estimate,” “estimated,” “projections,” “could,” “would,” “should,” “may,” “will,” “future,” “goals,” “targets,” “can,” “assumptions,” “plans,” “potential,” “possible,” “strategy,” “threatened,” “seek,” 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 Annual Report on Form 10-K, 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, including the tariffs recently imposed by the U.S. Government on Canada, Mexico and China and any retaliatory actions, geopolitical and technological factors outside of our control, as well as risks related to the execution of, and assumptions underlying, the 2024 Transformation Initiative and the 2026 A Plan, 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 this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as “Risk Factors” in this Annual Report on Form 10-K 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,” 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.

Previous wording

We intend to use our investor relations page at ir.axalta.com as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC’s Regulation Fair Disclosure (or Reg. FD). Investors should routinely monitor that site, in addition to our press releases, SEC filings and public conference calls and webcasts, as information posted on that page could be deemed to be material information.

Current wording

We use our investor relations page at ir.axalta.com as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC’s Regulation Fair Disclosure (or Reg. FD). Investors should routinely monitor that site, in addition to our press releases, SEC filings and public conference calls and webcasts, as information posted on that page could be deemed to be material information.

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 44 manufacturing facilities, four technology centers, 45 customer training centers and approximately 12,800 team members, inclusive of team members added from recent acquisitions, 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 5,000 independent, locally based distributors.

Previous wording

Our net sales increased 6.1%, including a 0.5% benefit from foreign currency translation, for the year ended December 31, 2023 compared with the year ended December 31, 2022. The increased net sales were driven by higher average selling price and product mix of 5.8%, and the absence of a $20.3 million reduction to net sales from the restructuring of a Performance Coatings commercial agreement in 2022, which is discussed in more detail in Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K ("Customer Contract Restructuring") creating a 0.4% benefit, partially offset by lower volumes of 0.6%. The following trends have impacted our segment net sales performance:

Current wording

Our net sales increased 1.8%, including a 0.4% headwind from foreign currency translation, for the year ended December 31, 2024 compared with the year ended December 31, 2023. The increased net sales were driven by higher volumes of 1.1%, including contributions from the André Koch acquisition completed in October 2023, contributions of 0.7% from the CoverFlexx acquisition completed in July 2024 and higher average selling price and product mix of 0.4%. The following trends have impacted our segment net sales performance:

Previous wording

•Mobility Coatings: Net sales increased 14.0% for the year ended December 31, 2023 compared with the year ended December 31, 2022. The increased net sales were driven by higher sales volumes of 10.6% and higher average selling price and product mix of 2.9%.

Current wording

•Performance Coatings: Net sales increased 1.4% for the year ended December 31, 2024 compared with the year ended December 31, 2023. The increased net sales were driven by contributions of 1.1% from the CoverFlexx acquisition and higher average selling price and product mix of 0.6%, partially offset by lower sales volumes of 0.2%, including contributions from the André Koch acquisition completed in October 2023, and impacts from foreign currency fluctuations.

Previous wording

During the year ended December 31, 2023, we repurchased 1.8 million shares of our common stock for total consideration of $50.0 million as we continued to execute against our previously-approved share repurchase program.

Current wording

During the year ended December 31, 2024, we repurchased 2.8 million shares of our common stock for total consideration of $100 million as we executed against the $700 million share repurchase program approved by the Board of Directors in April 2024.

Previous wording

During August 2023, we entered into the Thirteenth Amendment to the Credit Agreement (as defined in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K) to lower the interest rate spread applicable to the 2029 Dollar Term Loans (as defined in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K) from 3.00% to 2.50% when bearing interest at a rate based on the Secured Overnight Finance Rate ("SOFR"). The other material terms of the Credit Agreement, including the outstanding principal amount and maturity date of the 2029 Dollar Term Loans, remained unchanged.

Current wording

During March, June and November 2024, we entered into the Fourteenth, Fifteenth and Sixteenth Amendments, respectively, to the Credit Agreement (as defined in Note 19 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K). The Fourteenth and Sixteenth Amendments cumulatively reduced the interest rate spread applicable to the 2029 Dollar Term Loans from 2.50% to 1.75% when bearing interest at a rate based on SOFR. The Fifteenth Amendment increased commitments available pursuant to the Revolving Credit Facility from $550 million to $800 million, while extending the maturity of the Revolving Credit Facility from May 2026 to June 2029. See Note 19 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Previous wording

•changes in product sales prices (including volume discounts and cash discounts for prompt payment);

Current wording

•changes in product sales prices (including volume discounts, cash discounts for prompt payment and impacts from raw material indexing);

Previous wording

•changes in the price of raw materials;

Current wording

•changes in the price of raw materials, including as a result of tariffs;

Previous wording

Our SG&A expense consists of all expenditures incurred in connection with the sales and marketing of our products, as well as technical support for our customers and administrative overhead costs, including:

Current wording

Our SG&A expenses consist of all expenditures incurred in connection with the sales and marketing of our products, as well as technical support for our customers and administrative overhead costs, including:

Previous wording

Changes in SG&A expense as a percentage of net sales have historically been impacted by a number of factors, including:

Current wording

Changes in SG&A expenses as a percentage of net sales have historically been impacted by a number of factors, including:

Previous wording

Our other operating charges include termination benefits and other employee-related costs, strategic review and retention costs, acquisition and divestiture-related costs, impairment charges, an operational matter, which is discussed further in Note 5 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and gains of sales of facilities, details of which are included in our reconciliations of segment operating performance to income before income taxes.

Current wording

Our other operating charges include termination benefits and other employee-related costs, acquisition and divestiture-related costs, impairment charges, charges related to an operational matter, which is discussed further in Note 6 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, certain environmental charges, and gains or losses on sales of facilities, details of which are included in our reconciliations of segment operating performance to income before income taxes as shown in Note 21 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Previous wording

Other expense (income), net represents costs incurred on various non-operational items including costs incurred in conjunction with our debt refinancing and extinguishment transactions, interest income, as well as foreign exchange gains and losses and non-operational impairment losses unrelated to our core business.

Current wording

Other expense, net represents costs incurred on various non-operational items including costs incurred in conjunction with our debt refinancing and extinguishment transactions, interest income, as well as foreign exchange gains and losses and non-operational impairment losses unrelated to our core business.

Previous wording

n Lower variable input costs as a result of deflationary benefits and savings driven by the productivity programs launched during 2023

Current wording

n Lower variable input costs as a result of deflationary benefits

Previous wording

n Unfavorable currency translation impacts of approximately 0.5% due primarily to the strengthening of the Mexican Peso, Euro and Brazilian Real, partially offset by the weakening of the Chinese Yuan and South African Rand

Current wording

n Favorable currency translation impacts of approximately 0.5% due to the weakening of the Brazilian Real, Mexican Peso and Chinese Yuan, partially offset by the fluctuations of the British Pound, in each case compared to the U.S. Dollar

Previous wording

n Impairment charge of $8.2 million due to the decision to demolish assets at a previously closed manufacturing site

Current wording

n $8 million impairment charge in the prior year due to the decision to demolish assets at a previously closed manufacturing site

Previous wording

n Lower variable input costs as a result of deflationary benefits and savings driven by the productivity programs launched during 2023

Current wording

n Lower variable input costs as a result of deflationary benefits

Previous wording

n Impairment charge of $8.2 million due to the decision to demolish assets at a previously closed manufacturing site

Current wording

n $8 million impairment charge in the prior year due to the decision to demolish assets at a previously closed manufacturing site

Previous wording

n Increase of $5.3 million in bad debt expense

Current wording

n Increase of $3 million in bad debt expense

Previous wording

n Unfavorable currency translation impacts of approximately 0.6% due primarily to the strengthening of the Euro and Mexican Peso, partially offset by the weakening of the Chinese Yuan

Current wording

n Favorable currency translation impacts of approximately 0.4% due primarily to the weakening of the Chinese Yuan, Brazilian Real and Mexican Peso, partially offset by the fluctuations of the British Pound, in each case compared to the U.S. Dollar

Previous wording

n Decrease of $19.5 million in termination benefits and other employee-related costs associated with our cost saving initiatives

Current wording

n Increase of $61 million in termination benefits and other employee-related costs primarily associated with our 2024 Transformation Initiative

Previous wording

n Third-party consultant costs of $12.1 million related to productivity programs recorded during the current period of which there was no comparable activity in the prior year

Current wording

n $12 million of third-party consultant costs in the prior year related to productivity programs

Previous wording

n Impairment charges increased $7.5 million primarily related to the exit of a non-core business category in Mobility Coatings

Current wording

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

Previous wording

Amortization of acquired intangibles decreased primarily due to the following:

Current wording

Amortization of acquired intangibles increased primarily due to the following:

Previous wording

n Reduced amortization from intangibles relating to the DPC acquisition reaching the end of their useful lives

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

•Unfavorable impact of approximately $2.3 million due to the interest rate on the 2031 Dollar Senior Notes, which were issued in November 2023 to replace the 2025 Euro Senior Notes (as defined in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K)

Current wording

n Unfavorable impact of $32 million attributable to our 2031 Dollar Senior Notes which were issued in November 2023

Previous wording

n Unfavorable impact of foreign exchange losses of $7.5 million when compared with the prior year, including a devaluation of net monetary assets denominated in the Turkish Lira and Argentinian Peso due to hyperinflationary conditions

Current wording

n Favorable impact of foreign exchange gains and losses of $12 million when compared with the prior year, 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

Previous wording

n Decreased debt extinguishment and refinancing related costs of $4.8 million as the impact of refinancing the 2024 Dollar Term Loan in December 2022 exceeded the costs incurred during 2023 to reprice the 2029 Dollar Term Loans in August 2023, issue the 2031 Dollar Senior Notes in November 2023 and the write-offs related to $200.0 million of voluntary prepayments on the 2029 Dollar Term Loans

Current wording

n Decreased debt extinguishment and refinancing related costs of $5 million driven by $5 million in expenses for the prepayments and repricings of our 2029 Dollar Term Loans in the current year compared to the $10 million in expenses for prepayments, repricing of the 2029 Dollar Term Loans and issuance of the 2031 Dollar Senior Notes in the prior year

Previous wording

(1) Primarily related to earnings in Bermuda, Germany, Luxembourg and Switzerland.

Current wording

(1) Primarily related to earnings in Bermuda, Germany and Switzerland.

Previous wording

The Company's products and operations are managed and reported in two operating segments: Performance Coatings and Mobility Coatings. During the three months ended December 31, 2023, the Company replaced Adjusted EBIT with Adjusted EBITDA as the primary measure to evaluate financial performance of the operating segments and allocate resources. See Note 20 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Current wording

The Company's products and operations are managed and reported in two operating segments: Performance Coatings and Mobility Coatings. See Note 21 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Previous wording

n Decreased variable input costs across both end-markets and all regions due to deflationary benefits and savings driven by the productivity programs launched during 2023

Current wording

n Decreased variable input costs due to deflationary benefits

Previous wording

At December 31, 2023, availability under the Revolving Credit Facility was $527.7 million, net of $22.3 million of letters of credit outstanding. All such availability may be utilized without violating any covenants under the Credit Agreement or the indentures governing the Senior Notes. At December 31, 2023, we had $3.8 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 $55.4 million.

Current wording

At December 31, 2024, availability under the Revolving Credit Facility was $778 million, net of $22 million of letters of credit outstanding. All such availability may be utilized without violating any covenants under the Credit Agreement or the indentures governing the Senior Notes. At December 31, 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 $102 million at December 31, 2024.

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 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.

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 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

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 17 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Current wording

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 programs are more fully described in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Previous wording

Net cash provided by operating activities for the year ended December 31, 2022 was $293.8 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $565.2 million. This was offset by net uses of working 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 $195.4 million, $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 of BIPS. 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 energy costs.

Current wording

Net cash provided by operating activities for the year ended December 31, 2024 was $576 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $699 million. This was partially offset by net uses of working capital of $123 million, for which the most significant drivers were increases in prepaid expenses and other assets of $130 million and decreases in accounts payable of $49 million. These outflows were driven primarily by the timing of payments of Business Incentive Plan assets (“BIPs”), timing of purchasing and payments to vendors. These outflows were partially offset by increases in other accrued liabilities of $36 million largely driven by accruals related to the 2024 Transformation Initiative and customer rebates.

Previous wording

Net cash used for investing activities for the year ended December 31, 2022 was $106.4 million. The primary use was for purchases of property, plant and equipment of $150.9 million, partially offset by proceeds of $44.9 million from settlements and interest from swaps designated as net investment hedges, which are discussed further in Note 19 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Current wording

Net cash used for investing activities for the year ended December 31, 2024 was $440 million. The primary uses were $301 million for the acquisitions discussed in Note 3 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K net of cash acquired, $140 million for purchases of property, plant and equipment and $22 million for the disbursements to customers for loans which primarily have a repayment period of five years, partially offset by proceeds of $15 million from settlements and interest proceeds from swaps designated as net investment hedges, which are discussed further in Note 20 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Previous wording

Currency exchange impacts on cash for the year ended December 31, 2022 were unfavorable by $14.8 million, which was driven primarily by weakening in the British Pound, Argentine Peso and Chinese Yuan compared to the U.S. Dollar partially offset by the strengthening of the Mexican Peso.

Current wording

Currency exchange impacts on cash for the year ended December 31, 2024 were unfavorable by $42 million, which was driven primarily by the fluctuations of the Euro, Mexican Peso and Brazilian Real, in each case compared to the U.S. Dollar.

Previous wording

Net cash provided by operating activities for the year ended December 31, 2023 was $575.3 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $628.8 million. This was partially offset by net uses of working capital of $53.5 million, for which the most significant drivers were increases in accounts and notes receivable and prepaid expenses and other assets of $119.0 million and $70.7 million, respectively, driven primarily by increased price-mix, the timing of collections and payments of Business Incentive Plan assets (“BIPs”). These outflows were partially offset by decreases in inventories of $103.1 million as a result of management of inventory levels and increases in other accrued liabilities of $29.3 million.

Current wording

Net cash provided by operating activities for the year ended December 31, 2023 was $575 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $630 million. This was partially offset by net uses of working capital of $55 million, for which the most significant drivers were increases in accounts and notes receivable and prepaid expenses and other assets of $119 million and $71 million, respectively, driven primarily by increased price-mix, the timing of collections and payments of BIPs. These outflows were partially offset by decreases in inventories of $103 million as a result of management of inventory levels and increases in other accrued liabilities of $29 million.

Previous wording

Net cash used for investing activities for the year ended December 31, 2023 was $205.7 million. The primary uses were for purchases of property, plant and equipment of $137.9 million and for business acquisitions of $106.3 million discussed further in Note 3 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, partially offset by proceeds of $39.0 million from settlements and interest proceeds from swaps designated as net investment hedges, which are discussed further in Note 19 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Current wording

Net cash used for investing activities for the year ended December 31, 2023 was $206 million. The primary uses were for purchases of property, plant and equipment of $138 million, and for business acquisitions of $106 million discussed further in Note 3 to the consolidated financial statements included in the 2023 Annual Report on Form 10-K, partially offset by proceeds of $39 million from settlements and interest proceeds from swaps designated as net investment hedges, which are discussed further in Note 20 to the consolidated financial statements included elsewhere in the 2023 Annual Report on Form 10-K.