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Actionable news in AXTA: AXALTA COATING SYSTEMS Ltd.,

SECURITIES AND EXCHANGE COMMISSION

PART IFinancial Information
ITEM 1.Financial Statements (Unaudited)3
Condensed Consolidated Statements of Operations3
Condensed Consolidated Statements of Comprehensive Income4
Condensed Consolidated Balance Sheets5
Condensed Consolidated Statement of Cash Flows6
Notes to Condensed Consolidated Financial Statements7
ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations31
ITEM 3.Quantitative and Qualitative Disclosures About Market Risk50
ITEM 4.Controls and Procedures50
PART IIOther Information
ITEM 1.Legal Proceedings51
ITEM 1A.Risk Factors51
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds51
ITEM 3.Defaults Upon Senior Securities51
ITEM 4.Mine Safety Disclosures51
ITEM 5.Other Information51
ITEM 6.Exhibits52
Signatures53
Three Months Ended September 30,Nine Months Ended September 30,

2017201620172016
Net sales$1,091.8
$1,020.6
$3,188.1
$3,041.4
Other revenue4.5
5.7
16.5
18.7
Total revenue1,096.3
1,026.3
3,204.6
3,060.1
Cost of goods sold702.5
630.4
2,033.6
1,885.8
Selling, general and administrative expenses246.4
242.3
717.8
699.1
Venezuela deconsolidation charge

70.9

Research and development expenses16.6
14.9
48.6
41.6
Amortization of acquired intangibles26.8
21.3
72.3
61.8
Income from operations104.0
117.4
261.4
371.8
Interest expense, net37.7
42.9
109.1
140.8
Other expense, net7.9
87.4
27.5
128.2
Income (loss) before income taxes58.4
(12.9)124.8
102.8
Provision (benefit) for income taxes2.1
(7.5)21.5
23.1
Net income (loss)56.3
(5.4)103.3
79.7
Less: Net income attributable to noncontrolling interests1.4
1.2
5.1
3.7
Net income (loss) attributable to controlling interests$54.9
$(6.6)$98.2
$76.0
Basic net income (loss) per share$0.23
$(0.03)$0.41
$0.32
Diluted net income (loss) per share$0.22
$(0.03)$0.40
$0.31
Basic weighted average shares outstanding240.7
238.5
240.5
237.8
Diluted weighted average shares outstanding245.8
238.5
246.2
244.2
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Net income (loss)$56.3
$(5.4)$103.3
$79.7
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments21.5
14.6
89.3
16.7
Unrealized gain (loss) on securities0.2
0.6
(0.1)0.3
Unrealized gain (loss) on derivatives0.2
1.7
(1.1)
Unrealized gain (loss) on pension plan obligations(0.3)0.1
9.0
0.2
Other comprehensive income, before tax21.6
17.0
97.1
17.2
Income tax (benefit) related to items of other comprehensive income0.6

(2.0)
Other comprehensive income, net of tax22.2
17.0
95.1
17.2
Comprehensive income 78.5
11.6
198.4
96.9
Less: Comprehensive income attributable to noncontrolling interests1.4
2.2
6.1
4.5
Comprehensive income attributable to controlling interests$77.1
$9.4
$192.3
$92.4

September 30, 2017December 31, 2016
Assets

Current assets:

Cash and cash equivalents$588.9
$535.4
Restricted cash3.1
2.7
Accounts and notes receivable, net889.0
801.9
Inventories624.4
529.7
Prepaid expenses and other68.7
50.3
Total current assets2,174.1
1,920.0
Property, plant and equipment, net1,386.1
1,315.7
Goodwill1,258.3
964.1
Identifiable intangibles, net1,445.9
1,130.3
Other assets548.2
536.1
Total assets$6,812.6
$5,866.2
Liabilities, Shareholders’ Equity

Current liabilities:

Accounts payable$545.1
$474.2
Current portion of borrowings37.8
27.9
Other accrued liabilities447.5
440.0
Total current liabilities1,030.4
942.1
Long-term borrowings3,865.2
3,236.0
Accrued pensions288.1
249.1
Deferred income taxes162.1
160.2
Other liabilities32.5
32.2
Total liabilities5,378.3
4,619.6
Commitments and contingencies (Note 6)

Shareholders’ equity

Common shares, $1.00 par, 1,000.0 shares authorized, 243.6 and 240.5 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively242.1
239.3
Capital in excess of par1,341.9
1,294.3
Retained earnings (Accumulated deficit)40.1
(58.1)
Treasury shares, at cost(58.4)
Accumulated other comprehensive loss(256.3)(350.4)
Total Axalta shareholders’ equity1,309.4
1,125.1
Noncontrolling interests124.9
121.5
Total shareholders’ equity1,434.3
1,246.6
Total liabilities and shareholders’ equity$6,812.6
$5,866.2
Nine Months Ended September 30,

20172016
Operating activities:

Net income$103.3
$79.7
Adjustment to reconcile net income to cash used for operating activities:

Depreciation and amortization255.9
235.8
Amortization of deferred financing costs and original issue discount6.1
14.6
Debt extinguishment and refinancing related costs13.0
84.2
Deferred income taxes(21.7)(15.0)
Realized and unrealized foreign exchange (gains) losses, net(1.4)30.6
Stock-based compensation30.5
31.6
Asset impairments7.6
10.5
Venezuela deconsolidation charge70.9

Other non-cash, net6.9
(10.4)
Changes in operating assets and liabilities:

Trade accounts and notes receivable(44.5)(103.8)
Inventories(37.6)0.1
Prepaid expenses and other(79.9)(31.2)
Accounts payable34.2
14.0
Other accrued liabilities(27.8)0.4
Other liabilities(9.1)(9.8)
Cash provided by operating activities306.4
331.3
Investing activities:

Business acquisitions (net of cash acquired)(559.3)(103.5)
Purchase of property, plant and equipment(87.2)(95.3)
Reduction of cash due to Venezuela deconsolidation(4.3)
Purchase of intangibles(0.5)(3.9)
Other investing activities4.6
(2.4)
Cash used for investing activities(646.7)(205.1)
Financing activities:



Proceeds from long term borrowings 456.4
1,377.6
Payments on short-term borrowings(7.0)(7.2)
Payments on long-term borrowings(12.4)(1,375.5)
Financing-related costs(9.9)(78.3)
Dividends paid to noncontrolling interests(2.7)(3.0)
Purchase of treasury stock (58.4)
Proceeds from option exercises 19.9
13.8
Deferred acquisition-related consideration(5.2)
Other financing activities
(0.2)
Cash provided by (used for) financing activities380.7
(72.8)
Increase in cash40.4
53.4
Effect of exchange rate changes on cash13.5
(10.0)
Cash at beginning of period538.1
487.7
Cash at end of period$592.0
$531.1





Cash at end of period reconciliation:



Cash and cash equivalents$588.9
$528.3
Restricted cash$3.1
$2.8
Cash at end of period$592.0
$531.1
June 1, 2017 (As Initially Reported)Measurement Period AdjustmentsJune 1, 2017 (As Adjusted)
Accounts and notes receivable—trade$23.3
$0.1
$23.4
Inventories24.9
(0.2)24.7
Prepaid expenses and other0.2

0.2
Property, plant and equipment23.0

23.0
Identifiable intangibles254.2
3.9
258.1
Accounts payable(22.4)0.2
(22.2)
Other accrued liabilities(5.1)(0.2)(5.3)
Net assets acquired before goodwill on acquisition298.1
3.8
301.9
Goodwill on acquisition132.6
(4.0)128.6
Net assets acquired$430.7
$(0.2)$430.5
For the nine months ended
(in millions, except per share data)September 30, 2017September 30, 2016
Net sales$3,289.4
$3,205.9
Net income$108.8
$78.4
Net income attributable to controlling interests$103.7
$74.7
Net income per share (Basic)$0.43
$0.31
Net income per share (Diluted)$0.42
$0.31
PerformanceCoatingsTransportationCoatingsTotal
December 31, 2016$889.4
$74.7
$964.1
Goodwill from acquisitions204.1

204.1
Purchase accounting adjustments(10.8)
(10.8)
Foreign currency translation94.2
6.7
100.9
September 30, 2017$1,176.9
$81.4
$1,258.3
September 30, 2017Gross CarryingAmountAccumulatedAmortizationNet BookValueWeighted averageamortization periods (years)
Technology$494.7
$(200.1)$294.6
10.5
Trademarks - indefinite-lived297.4

297.4
Indefinite
Trademarks - definite-lived77.1
(15.9)61.2
14.7
Customer relationships941.8
(164.0)777.8
19.0
Other16.6
(1.7)14.9
4.4
Total$1,827.6
$(381.7)$1,445.9
December 31, 2016Gross CarryingAmountAccumulatedAmortizationNet BookValueWeighted averageamortization periods (years)
Technology$417.1
$(153.6)$263.5
10.2
Trademarks—indefinite-lived273.2

273.2
Indefinite
Trademarks—definite-lived55.0
(11.4)43.6
14.8
Customer relationships672.6
(123.3)549.3
18.7
Other2.4
(1.7)0.7
4.6
Total$1,420.3
$(290.0)$1,130.3
Remainder of 2017$27.9
2018$108.1
2019$107.8
2020$107.3
2021$105.4
2022$76.1
2017 Activity
Balance at December 31, 2016$66.1
Expense recorded7.6
Payments made(24.2)
Foreign currency impacts6.2
Venezuela deconsolidation impact(1.5)
Balance at September 30, 2017$54.2
Sale-leaseback obligations
Remainder of 2017$1.3
20185.4
20195.5
20205.6
20215.6
Thereafter91.9
Total minimum payments$115.3
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Components of net periodic benefit cost:
Net periodic benefit cost:
Service cost$2.2
$2.4
$6.4
$7.5
Interest cost3.3
3.7
10.0
11.5
Expected return on plan assets(3.7)(3.0)(10.7)(9.6)
Amortization of actuarial loss, net0.3
0.1
1.1
0.2
Net periodic benefit cost$2.1
$3.2
$6.8
$9.6
Stock OptionsAwards/Units (in millions)Weighted-AverageExercisePriceAggregateIntrinsicValue (in millions)WeightedAverageRemainingContractualLife (years)
Outstanding at January 1, 20179.6
$14.40
Granted0.9
$29.56
Exercised(1.9)$10.76
Forfeited(0.1)$25.61
Outstanding at September 30, 20178.5
$16.58
Vested and expected to vest at September 30, 20178.5
$16.58
$108.9
6.77
Exercisable at September 30, 20176.6
$13.33
$105.1
6.23
Restricted Stock Awards and Restricted Stock UnitsAwards(millions)Weighted-AverageFair Value
Outstanding at January 1, 20172.3
$29.18
Granted0.7
$30.21
Vested(0.9)$30.05
Forfeited(0.1)$26.77
Outstanding at September 30, 20172.0
$29.27
Performance Stock Awards and Performance Share UnitsAwards(millions)Weighted-AverageFair Value
Outstanding at January 1, 20170.3
$24.74
Granted0.3
$38.11
Vested
$
Forfeited
$
Outstanding at September 30, 20170.6
$31.16
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Foreign exchange losses, net$3.5
$4.5
$8.3
$30.0
Impairments of property4.4

7.6
10.5
Debt extinguishment and refinancing related costs0.6
81.9
13.0
84.2
Other miscellaneous (income) expense, net(0.6)1.0
(1.4)3.5
Total$7.9
$87.4
$27.5
$128.2
Three Months Ended September 30,Nine Months Ended September 30,
(In millions, except per share data)20172016(1)20172016(1)
Net income (loss) to common shareholders$54.9
$(6.6)$98.2
$76.0
Basic weighted average shares outstanding240.7
238.5
240.5
237.8
Diluted weighted average shares outstanding245.8
238.5
246.2
244.2
Net income (loss) per common share:

Basic net income (loss) per share$0.23
$(0.03)$0.41
$0.32
Diluted net income (loss) per share$0.22
$(0.03)$0.40
$0.31
September 30, 2017December 31, 2016
Accounts receivable - trade, net$766.6
$640.4
Notes receivable26.6
68.7
Other95.8
92.8
Total$889.0
$801.9
September 30, 2017December 31, 2016
Finished products$360.7
$315.2
Semi-finished products97.4
87.5
Raw materials and supplies166.3
127.0
Total$624.4
$529.7
September 30, 2017December 31, 2016
2024 Dollar Term Loans$1,995.0
$
2023 Dollar Term Loans
1,545.0
2023 Euro Term Loans467.1
417.6
2024 Dollar Senior Notes500.0
500.0
2024 Euro Senior Notes394.2
349.7
2025 Euro Senior Notes529.5
469.8
Short-term and other borrowings67.2
39.8
Unamortized original issue discount(9.6)(10.0)
Unamortized deferred financing costs(40.4)(48.0)

$3,903.0
$3,263.9
Less:

Short term borrowings$13.1
$8.3
Current portion of long-term borrowings24.7
19.6
Long-term debt$3,865.2
$3,236.0
Period2024 Dollar Senior Notes Percentage
2019103.656%
2020102.438%
2021101.219%
2022 and thereafter100.000%
Period2024 Euro Senior Notes Percentage
2019103.188%
2020102.125%
2021101.063%
2022 and thereafter100.000%
Period2025 Euro Senior Notes Percentage
2019102.813%
2020101.875%
2021100.938%
2022 and thereafter100.000%
Remainder of 2017$19.3
201828.9
201925.5
202025.4
202125.4
Thereafter3,814.3
$3,938.8
September 30, 2017December 31, 2016
Prepaid and other assets:
Interest rate swaps$
$0.1
Total assets$
$0.1
Other accrued liabilities:
Interest rate swaps$
$0.8
Interest rate caps$3.0
$
Other liabilities
Interest rate caps$1.1
$
Total liabilities$4.1
$0.8
Amount of
(Gain) Loss Recognized
in OCI on Derivatives
(Effective Portion)
Location of (Gain) Loss Reclassified from
Accumulated OCI into Income (Effective Portion)
Amount of
(Gain) Loss Reclassified
from Accumulated OCI to Income (Effective Portion)
Location of
(Gains) Losses
Recognized in Income on
Derivatives (Ineffective Portion)
Amount of
(Gain) Loss Recognizedin Income on Derivatives
(Ineffective Portion)
Derivatives in Cash Flow HedgingRelationshipsThree Months Ended September 30, 2017Three Months Ended September 30, 2016Three Months Ended September 30, 2017Three Months Ended September 30, 2016Three Months Ended September 30, 2017Three Months Ended September 30, 2016
Interest rate contracts$
$(1.7)Interest expense, net$(0.5)$1.7
Interest expense, net$0.4
$(2.0)
Amount of
(Gain) Loss Recognized
in OCI on Derivatives
(Effective Portion)
Location of (Gain) Loss Reclassified from
Accumulated OCI into Income (Effective Portion)
Amount of
(Gain) Loss Reclassified
from Accumulated
OCI to Income
(Effective Portion)
Location of
(Gains) Losses
Recognized in Income on
Derivatives (Ineffective Portion)
Amount of
(Gain) Loss Recognized
in Income on Derivatives
(Ineffective Portion)
Derivatives in Cash Flow HedgingRelationshipsNine Months Ended September 30, 2017Nine Months Ended September 30, 2016Nine Months Ended September 30, 2017Nine Months Ended September 30, 2016Nine Months Ended September 30, 2017Nine Months Ended September 30, 2016
Interest rate contracts$3.7
$
Interest expense, net$0.2
$4.9
Interest expense, net$2.4
$1.3
September 30, 2017December 31, 2016
Prepaid and other assets:
Foreign currency contracts$
$0.1
Other assets
Interest rate caps$0.1
$
Total assets$0.1
$0.1
Other accrued liabilities:
Foreign currency contracts$
$0.5
Total liabilities$
$0.5
Three Months Ended September 30,Nine Months Ended September 30,
Derivatives Not Designated as Hedging Instruments under ASC 815Location of (Gain) Loss Recognized in Income on Derivatives2017201620172016
Interest rate capsInterest expense$0.2
$
$0.6
$
Foreign currency forward contractsOther expense, net$2.5
$0.4
$9.7
$4.4
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Performance Coatings
Refinish$395.3
$431.7
$1,205.1
$1,259.3
Industrial298.2
184.8
737.7
532.4
Total Net sales Performance Coatings693.5
616.5
1,942.8
1,791.7
Transportation Coatings
Light Vehicle309.7
321.1
984.0
994.9
Commercial Vehicle88.6
83.0
261.3
254.8
Total Net sales Transportation Coatings398.3
404.1
1,245.3
1,249.7
Total Net sales$1,091.8
$1,020.6
$3,188.1
$3,041.4
Three Months Ended September 30,
20172016
PerformanceCoatingsTransportationCoatingsTotalPerformanceCoatingsTransportationCoatingsTotal
Net sales (1)$693.5
$398.3
$1,091.8
$616.5
$404.1
$1,020.6
Equity in earnings (losses) in unconsolidated affiliates
0.1
0.1
(0.4)0.1
(0.3)
Adjusted EBITDA (2)135.1
74.4
209.5
145.7
84.7
230.4
Investment in unconsolidated affiliates3.1
12.3
15.4
3.3
11.5
14.8
Nine Months Ended September 30,
20172016
Performance
Coatings
Transportation
Coatings
TotalPerformance
Coatings
Transportation
Coatings
Total
Net sales (1)$1,942.8
$1,245.3
$3,188.1
$1,791.7
$1,249.7
$3,041.4
Equity in earnings (losses) in unconsolidated affiliates0.2
0.3
0.5
(0.2)0.2

Adjusted EBITDA (2)398.8
241.0
639.8
413.2
264.7
677.9
Investment in unconsolidated affiliates3.1
12.3
15.4
3.3
11.5
14.8
(2)The primary measure of segment operating performance is Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization 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 the Company believes are not reasonably likely to recur within the next two years. Adjusted EBITDA 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’s core operating performance, which represents EBITDA adjusted for the select items referred to above. Reconciliation of Adjusted EBITDA to income before income taxes follows:
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Income (loss) before income taxes$58.4
$(12.9)$124.8
$102.8
Interest expense, net37.7
42.9
109.1
140.8
Depreciation and amortization88.6
81.2
255.9
235.8
EBITDA184.7
111.2
489.8
479.4
Debt extinguishment and refinancing related costs (a)0.6
81.9
13.0
84.2
Foreign exchange remeasurement losses (b)3.5
4.5
8.3
30.0
Long-term employee benefit plan adjustments (c)(0.1)0.8
0.4
2.1
Termination benefits and other employee related costs (d)5.8
16.3
6.6
25.2
Consulting and advisory fees (e)
2.7
(0.1)8.3
Transition-related costs (f)1.9

5.8

Offering and transactional costs (g)0.5
3.0
6.1
4.4
Stock-based compensation (h)9.2
10.0
30.5
31.6
Other adjustments (i)0.8
1.5
3.6
5.2
Dividends in respect of noncontrolling interest (j)(1.8)(1.5)(2.7)(3.0)
Deconsolidation impacts and impairments (k)4.4

78.5
10.5
Adjusted EBITDA$209.5
$230.4
$639.8
$677.9
(a)During the three and nine months ended September 30, 2016, we prepaid outstanding principal on our term loans, resulting in non-cash pre-tax losses on extinguishment of $4.3 million and $6.6 million, respectively. In addition, during the three and nine months ended September 30, 2016, we amended our Credit Agreement and refinanced our indebtedness, resulting in additional losses of $77.6 million. In connection with the refinancing of our Dollar Term Loans during the nine months ended September 30, 2017, we recorded losses of $13.0 million, including changes to estimates of $0.6 million for the three months ended September 30, 2017. We do not consider these to be indicative of our ongoing operating performance.
(b)Eliminates foreign exchange gains and losses resulting from the remeasurement of assets and liabilities denominated in foreign currencies, net of impacts associated with our foreign currency instruments used to hedge our balance sheet exposures. Exchange effects attributable to the remeasurement of our Venezuelan subsidiary represented losses of $1.8 million for the nine months ended September 30, 2017 and losses of $1.2 million and $23.9 million for the three and nine months ended September 30, 2016, respectively.
(d)Represents expenses primarily related to employee termination benefits and other employee-related costs associated with our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.
(e)Represents fees paid to consultants for professional services primarily related to our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.
(g)Represents acquisition-related expenses, including changes in the fair value of contingent consideration, as well as costs associated with the 2016 secondary offerings of our common shares by Carlyle, both of which are not considered indicative of our ongoing operating performance.
(i)Represents costs for certain non-operational or non-cash (gains) and losses unrelated to our core business and which we do not consider indicative of ongoing operations, including equity investee dividends, indemnity losses (gains) associated with the Acquisition, losses (gains) on sale and disposal of property, plant and equipment, losses (gains) on the remaining foreign currency derivative instruments and non-cash fair value inventory adjustments associated with our business combinations.
(j)Represents the payment of dividends to our joint venture partners by our consolidated entities that are not 100% owned, which are reflected to show the cash operating performance of the entities on Axalta's financial statements.
(k)During the nine months ended September 30, 2017 and 2016, we recorded a loss in conjunction with the deconsolidation of our Venezuelan subsidiary and a non-cash impairment charge related to a real estate investment of $70.9 million and $10.5 million, respectively. During the three and nine months ended September 30, 2017, we recorded non-cash impairment charges related to certain manufacturing facilities previously announced for closure of $4.4 million and $7.6 million, respectively. We do not consider these to be indicative of our ongoing operating performance.
Total AxaltaNoncontrolling
Interests
Total
Balance at December 31, 2016$1,125.1
$121.5
$1,246.6
Net income98.2
5.1
103.3
Other comprehensive income, net of tax94.1
1.0
95.1
Recognition of stock-based compensation30.5

30.5
Exercise of stock options19.9

19.9
Treasury share repurchase(58.4)
(58.4)
Dividends paid to noncontrolling interests
(2.7)(2.7)
Balance September 30, 2017$1,309.4
$124.9
$1,434.3
Total AxaltaNoncontrollingInterestsTotal
Balance at December 31, 2015 $1,065.7
$67.5
$1,133.2
Cumulative effect of an accounting change (1)43.9

43.9
Balance at January 1, 20161,109.6
67.5
1,177.1
Net income76.0
3.7
79.7
Other comprehensive income, net of tax16.4
0.8
17.2
Recognition of stock-based compensation31.6

31.6
Exercise of stock options13.8

13.8
Noncontrolling interests of acquired subsidiaries
51.3
51.3
Dividends paid to noncontrolling interests
(3.0)(3.0)
Balance September 30, 2016$1,247.4
$120.3
$1,367.7
UnrealizedCurrencyTranslationAdjustmentsPensionAdjustmentsUnrealizedGain (Loss) onSecuritiesUnrealizedGain (Losses) onDerivativesAccumulatedOtherComprehensiveIncome (Loss)
December 31, 2016$(292.2)$(56.6)$0.4
$(2.0)$(350.4)
Current year deferrals to AOCI88.3
(0.3)(0.1)1.7
89.6
Reclassifications from AOCI to Net income
6.2

(1.7)4.5
Net Change88.3
5.9
(0.1)
94.1
September 30, 2017$(203.9)$(50.7)$0.3
$(2.0)$(256.3)
UnrealizedCurrencyTranslationAdjustmentsPensionAdjustmentsUnrealized
Gain (Loss) on
Securities
UnrealizedGain (Loss) onDerivativesAccumulated
Other
Comprehensive
Income (Loss)
December 31, 2015$(232.8)$(33.4)$0.1
$(3.2)$(269.3)
Current year deferrals to AOCI15.9

0.3
(3.1)13.1
Reclassifications from AOCI to Net income
0.2

3.1
3.3
Net Change15.9
0.2
0.3

16.4
September 30, 2016$(216.9)$(33.2)$0.4
$(3.2)$(252.9)
adverse developments in economic conditions and, particularly, in conditions in the automotive and transportation industries;
reduced demand for some of our products as a result of improved safety features on vehicles and insurance company influence;
risks of the loss of any of our significant customers or the consolidation of MSOs, distributors and/or body shops;
our reliance on our distributor network and third-party delivery services for the distribution and export of certain of our products;
terrorist acts, conflicts, wars and natural disasters that may materially adversely affect our business, financial condition and results of operations;
failure to comply with the anti-corruption laws of the United States and various international jurisdictions;
significant environmental liabilities and costs as a result of our current and past operations or products, including operations or products related to our business prior to the Acquisition;
work stoppages, union negotiations, labor disputes and other matters associated with our labor force;
our joint ventures’ ability to operate according to our business strategy should our joint venture partners fail to fulfill their obligations;
the risk of impairment charges related to goodwill, identifiable intangible assets and fixed assets;
our ability to obtain additional capital on commercially reasonable terms may be limited;
the amount of the costs, fees, expenses and charges related to being a public company;
Transportation Coatings: Net sales excluding currency translation remained relatively consistent with the comparable period with offsetting impacts from stronger volumes in both our light vehicle and commercial vehicle end-markets and lower average selling prices primarily in our North America light vehicle end-market.
(In millions)Three Months Ended September 30,2017 vs 2016Nine Months Ended September 30,2017 vs 2016
20172016% change20172016% change
Performance Coatings
Refinish$395.3
$431.7
(8.4)%$1,205.1
$1,259.3
(4.3)%
Industrial298.2
184.8
61.4 %737.7
532.4
38.6 %
Total Net sales Performance Coatings693.5
616.5
12.5 %1,942.8
1,791.7
8.4 %
Transportation Coatings
Light Vehicle309.7
321.1
(3.6)%984.0
994.9
(1.1)%
Commercial Vehicle88.6
83.0
6.7 %261.3
254.8
2.6 %
Total Net sales Transportation Coatings398.3
404.1
(1.4)%1,245.3
1,249.7
(0.4)%
Total Net sales$1,091.8
$1,020.6
7.0 %$3,188.1
$3,041.4
4.8 %
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any expenditures for such replacements; and
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Net income (loss)$56.3
$(5.4)$103.3
$79.7
Interest expense, net37.7
42.9
109.1
140.8
Provision (benefit) for income taxes2.1
(7.5)21.5
23.1
Depreciation and amortization88.6
81.2
255.9
235.8
EBITDA184.7
111.2
489.8
479.4
Debt extinguishment and refinancing related costs (a)0.6
81.9
13.0
84.2
Foreign exchange remeasurement losses (b)3.5
4.5
8.3
30.0
Long-term employee benefit plan adjustments (c)(0.1)0.8
0.4
2.1
Termination benefits and other employee related costs (d)5.8
16.3
6.6
25.2
Consulting and advisory fees (e)
2.7
(0.1)8.3
Transition-related costs (f)1.9

5.8

Offering and transactional costs (g)0.5
3.0
6.1
4.4
Stock-based compensation (h)9.2
10.0
30.5
31.6
Other adjustments (i)0.8
1.5
3.6
5.2
Dividends in respect of noncontrolling interest (j)(1.8)(1.5)(2.7)(3.0)
Deconsolidation impacts and impairments (k)4.4

78.5
10.5
Adjusted EBITDA$209.5
$230.4
$639.8
$677.9
(a)During the three and nine months ended September 30, 2016, we prepaid outstanding principal on our term loans, resulting in non-cash pre-tax losses on extinguishment of $4.3 million and $6.6 million, respectively. In addition, during the three and nine months ended September 30, 2016, we amended our Credit Agreement and refinanced our indebtedness, resulting in additional losses of $77.6 million. In connection with the refinancing of our Dollar Term Loans during the nine months ended September 30, 2017, we recorded losses of $13.0 million, including changes to estimates of $0.6 million for the three months ended September 30, 2017. We do not consider these to be indicative of our ongoing operating performance.
(b)Eliminates foreign exchange gains and losses resulting from the remeasurement of assets and liabilities denominated in foreign currencies, net of impacts associated with our foreign currency instruments used to hedge our balance sheet exposures. Exchange effects attributable to the remeasurement of our Venezuelan subsidiary represented losses of $1.8 million for the nine months ended September 30, 2017 and losses of $1.2 million and $23.9 million for the three and nine months ended September 30, 2016, respectively.
(d)Represents expenses primarily related to employee termination benefits and other employee-related costs associated with our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.
(e)Represents fees paid to consultants for professional services primarily related to our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.
(g)Represents acquisition-related expenses, including changes in the fair value of contingent consideration, as well as costs associated with the 2016 secondary offerings of our common shares by Carlyle, both of which are not considered indicative of our ongoing operating performance.
(i)Represents costs for certain non-operational or non-cash (gains) and losses unrelated to our core business and which we do not consider indicative of ongoing operations, including equity investee dividends, indemnity losses (gains) associated with the Acquisition, losses (gains) on sale and disposal of property, plant and equipment, losses (gains) on the remaining foreign currency derivative instruments and non-cash fair value inventory adjustments associated with our business combinations.
(j)Represents the payment of dividends to our joint venture partners by our consolidated entities that are not 100% owned, which are reflected to show the cash operating performance of the entities on Axalta's financial statements.
(k)During the nine months ended September 30, 2017 and 2016, we recorded a loss in conjunction with the deconsolidation of our Venezuelan subsidiary and a non-cash impairment charge related to a real estate investment of $70.9 million and $10.5 million, respectively. During the three and nine months ended September 30, 2017, we recorded non-cash impairment charges related to certain manufacturing facilities previously announced for closure of $4.4 million and $7.6 million, respectively. We do not consider these to be indicative of our ongoing operating performance.
Three Months Ended September 30,
(In millions)20172016
Net sales$1,091.8
$1,020.6
Other revenue4.5
5.7
Total revenue1,096.3
1,026.3
Cost of goods sold702.5
630.4
Selling, general and administrative expenses246.4
242.3
Research and development expenses16.6
14.9
Amortization of acquired intangibles26.8
21.3
Income from operations104.0
117.4
Interest expense, net37.7
42.9
Other expense, net7.9
87.4
Income (loss) before income taxes58.4
(12.9)
Provision (benefit) for income taxes2.1
(7.5)
Net income (loss)56.3
(5.4)
Less: Net income attributable to noncontrolling interests1.4
1.2
Net income (loss) attributable to controlling interests$54.9
$(6.6)
Nine Months Ended September 30,
(In millions)20172016
Net sales$3,188.1
$3,041.4
Other revenue16.5
18.7
Total revenue3,204.6
3,060.1
Cost of goods sold2,033.6
1,885.8
Selling, general and administrative expenses717.8
699.1
Venezuela deconsolidation charge70.9

Research and development expenses48.6
41.6
Amortization of acquired intangibles72.3
61.8
Income from operations261.4
371.8
Interest expense, net109.1
140.8
Other expense, net27.5
128.2
Income before income taxes124.8
102.8
Provision for income taxes21.5
23.1
Net income103.3
79.7
Less: Net income attributable to noncontrolling interests5.1
3.7
Net income attributable to controlling interests$98.2
$76.0
Three Months Ended September 30,
(In millions)20172016
Net Sales
Performance Coatings$693.5
$616.5
Transportation Coatings398.3
404.1
Total$1,091.8
$1,020.6
Adjusted EBITDA
Performance Coatings$135.1
$145.7
Transportation Coatings74.4
84.7
Total$209.5
$230.4
Nine Months Ended September 30,
(In millions)20172016
Net Sales
Performance Coatings$1,942.8
$1,791.7
Transportation Coatings1,245.3
1,249.7
Total$3,188.1
$3,041.4
Adjusted EBITDA
Performance Coatings$398.8
$413.2
Transportation Coatings241.0
264.7
Total$639.8
$677.9
Nine Months Ended September 30,
(In millions)20172016
Net cash provided by (used for):
Operating activities:
Net income$103.3
$79.7
Depreciation and amortization255.9
235.8
Amortization of deferred financing costs and original issue discount6.1
14.6
Debt extinguishment and refinancing related costs13.0
84.2
Deferred income taxes(21.7)(15.0)
Realized and unrealized foreign exchange (gains) losses, net(1.4)30.6
Stock-based compensation30.5
31.6
Asset impairment7.6
10.5
Venezuela deconsolidation charge70.9

Other non-cash items6.9
(10.4)
Net income adjusted for non-cash items471.1
461.6
Changes in operating assets and liabilities(164.7)(130.3)
Operating activities306.4
331.3
Investing activities(646.7)(205.1)
Financing activities380.7
(72.8)
Effect of exchange rate changes on cash13.5
(10.0)
Net decrease in cash and cash equivalents$53.9
$43.4
(In millions)September 30, 2017December 31, 2016
2024 Dollar Term Loans$1,995.0
$
2023 Dollar Term Loans
1,545.0
2023 Euro Term Loans467.1
417.6
2024 Dollar Senior Notes500.0
500.0
2024 Euro Senior Notes394.2
349.7
2025 Euro Senior Notes529.5
469.8
Short-term and other borrowings67.2
39.8
Unamortized original issue discount(9.6)(10.0)
Unamortized deferred financing costs(40.4)(48.0)

$3,903.0
$3,263.9
Less:
Short term borrowings$13.1
$8.3
Current portion of long-term borrowings24.7
19.6
Long-term debt$3,865.2
$3,236.0
Contractual Obligations Due In:
(In millions)TotalRemainder of 20172018-20192020-2021Thereafter
Debt, including current portion (1)
Senior Secured Credit Facilities, consisting of the following:
Term Loan Facilities:
2024 Dollar Term Loans$1,995.0
$5.0
$40.0
$40.0
$1,910.0
2023 Euro Term Loans467.1
1.2
9.4
9.4
447.1
Senior Notes, consisting of the following:
2024 Dollar Senior Notes500.0



500.0
2024 Euro Senior Notes394.2



394.2
2025 Euro Senior Notes529.5



529.5
Other borrowings (2)15.2
13.1
1.4
0.5
0.2
Interest payments (3)945.4
36.2
286.1
282.3
340.8
Sale-leaseback financings (4)115.3
1.3
10.9
11.2
91.9
Operating leases129.3
11.6
59.6
31.2
26.9
Pension contributions (5)3.2
3.2



Purchase obligations (6)167.5
15.4
131.6
7.7
12.8
Uncertain tax positions, including interest and penalties (7)




Total$5,261.7
$87.0
$539.0
$382.3
$4,253.4
(1)During the nine months ended September 30, 2017 we refinanced our 2023 Dollar Term Loans with our 2024 Dollar Term Loans (see Note 15 to the interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). This resulted in a significant increase in our obligations for the years after 2021. Amounts assume that the Senior Secured Credit Facilities and New Senior Notes are repaid upon maturity, and the Revolving Credit Facility remains undrawn, which may or may not reflect future events.
(3)Future interest payments include commitment fees on the unused portion of the Revolving Credit Facility, and reflect the interest payments on our Current Term Loans and New Senior Notes. Future interest payments assume September 30, 2017 variable interest rates will prevail throughout all future periods. Amounts represent the timing of interest accruals. Actual interest payments and repayment amounts may change depending on impact of interest rates on variable rate indebtedness.
(4)During the three months ended September 30, 2017 we began treating one of our leases as a sale-leaseback financing obligation, which was previously treated as a build-to-suit lease. During the year ended December 31, 2016 we also recognized one of our leases as a sale-leaseback financing. The cash rental costs to be paid over the terms of these leases are reflected within the table above.
(5)We expect to make contributions to our defined benefit pension plans beyond 2017; however, the amount of any contributions are dependent on the future economic environment and investment returns, and we are unable to reasonably estimate the pension contributions beyond 2017.
(6)During 2016 and 2017, we completed business acquisitions which require certain commitments, including to acquire remaining interests and pay contingent consideration. At September 30, 2017 we are committed to pay $0.2 million during the remainder of 2017 and $70.5 million during the years ended December 31, 2018 and 2019. Commitments related to contingent consideration arrangements are subject to change based on future performance.
(7)At September 30, 2017, we had approximately $17.1 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.

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