Axalta Releases Fourth Quarter and Full Year 2019 Results

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|Jan 31|magazine83 min read

PHILADELPHIA, Jan. 30, 2020 /PRNewswire/ -- Axalta Coating Systems Ltd. (NYSE: AXTA) ("Axalta"), a leading global coatings company, announced its financial results for the fourth quarter and full year ended December 31, 2019.

Fourth Quarter Consolidated Financial Results

Net sales of $1,098.4 million for the fourth quarter decreased 5.8%, including 1.3% negative foreign currency translation impact and a 2.0% impact from the sale of a consolidated Joint Venture ("JV") interest in Q2 2019. Constant currency organic net sales decreased 2.5% in the period, with 2.5% higher average selling prices and product mix with contribution from both segments, offset by a 5.0% volume decrease. Net sales reflected volume weakness in both Performance and Transportation Coatings, although the Refinish end-market remained a stable offset, with net sales growth of 3.5% ex-FX.

Income from operations decreased to $108.7 million for the fourth quarter from $127.8 million in Q4 2018, driven principally by lower volume, headwind from incentive compensation expense, costs associated with our on-going strategic review as well as modest ongoing foreign exchange headwinds and charges of $17.7 million primarily related to the abandonment of engineering work for aspects of our China footprint project which has been adjusted due to evolving market conditions. This was partially offset primarily by improvement in overall price and product mix in the period, as well as by contribution from reduced variable costs.

Adjusted EBIT increased to $173.5 million for the fourth quarter from $170.8 million in Q4 2018, driven principally by improvement in overall price and product mix in the period, coupled with contribution from reduced variable costs and slightly lower operating expenditures, inclusive of a headwind from incentive compensation expense. This was offset in part by lower volume as well as modest ongoing foreign exchange headwinds. Adjusted EBIT margin increased 110 basis points for the quarter to 15.8% from the prior year period.

Regarding fourth quarter results, Robert W. Bryant, Axalta's Chief Executive Officer and President commented, "Axalta finished 2019 with strong operating execution and financial performance, capping a solid year overall despite a backdrop of uneven demand in many markets we serve. In the fourth quarter, we generated record free cash flow, expanded operating margins, and continued to strengthen our balance sheet. Despite some incremental volume headwinds during the fourth quarter, we mostly offset this with progress in price and mix enhancement as well as with aggressive cost control. Our solid quarterly results reflected our keen focus on execution and success in commercializing new products across multiple business lines."

Full Year Consolidated Financial Results

Net sales of $4,482.2 million for 2019 decreased 4.6%, including 3.0% negative foreign currency translation impact and a 1.1% impact from the sale of a JV interest in Q2 2019. Constant currency organic net sales decreased 0.5% in the period, driven by 3.7% lower volume from both segments, partially offset by 3.2% higher average selling prices and product mix with contribution from both segments. The Refinish end-market remained a stable offset with net sales growth of 3.3% ex-FX.

Income from operations increased 10.4% to $488.2 million for 2019 from $442.1 million in 2018, driven principally by an improvement in overall price and product mix in the period, lower year-over-year expense for employee-related severance, and lower step-up depreciation and amortization expense. This was partly offset by lower volume, increased variable costs and modest ongoing foreign exchange headwinds, as well as modestly increased operating expense inclusive of lower net stock-based and incentive compensation expense. Income from operations also includes costs associated with the ongoing strategic review and $17.7 million of charges primarily related to the China footprint project.

Adjusted EBIT increased 4.7% to $706.0 million for 2019 from $674.5 million in 2018, driven principally by improvement in overall price and product mix in the period and somewhat lower operating expenditures inclusive of lower net stock-based and incentive compensation expense. This was offset in part by lower volumes, increased variable costs as well as ongoing foreign exchange headwinds. Adjusted EBIT margin for the year increased 140 basis points to 15.8%.

Mr. Bryant continued, "In 2019, Axalta made great progress; we introduced over 250 new products, and we continued to offset substantial input cost inflation from the last several years with necessary pricing actions and ongoing productivity enhancement. This enabled us to hit many of our primary goals and targets for the year, including noticeably exceeding our free cash flow goal, posting expanded operating margins despite slightly lower volumes, and also meeting objectives for both Adjusted EBIT and Adjusted Diluted EPS. We also finished the year with notably lower balance sheet net leverage at 3.0x."

"We continue to see mixed demand across our end-markets for 2020, but still expect to produce ongoing earnings and cash flow growth, coupled with an opportunity for demand recovery if trade friction eases. Performance Coatings should benefit from the anchor of stable Refinish demand, and we target innovation-led growth in our Industrial end-market. Transportation Coatings faces some known headwinds in each end-market but we see the potential for stabilizing demand for global Light Vehicle as encouraging. We expect ongoing market outgrowth through product innovation and our differentiated services offerings, and remain focused on driving unique value for our customers every day," Mr. Bryant stated. "Our key goals for 2020 include continued new business wins in core markets, execution to ongoing margin recovery, and optimization of our financial returns through capital allocation discipline and strong free cash flow generation." Mr. Bryant continued, "Axalta's review of strategic alternatives is also ongoing. We do not have news on that front to share with you, but we will provide updates as warranted."

Performance Coatings Fourth Quarter Results

Performance Coatings net sales were $729.7 million in Q4 2019, a decrease of 4.0% year-over-year including 1.2% unfavorable foreign currency impact and a 3.1% impact from the sale of a consolidated JV interest in Q2 2019. Constant currency organic net sales increased 0.3%, driven by 3.0% higher average selling price and mix benefits, offset in part by a volume decrease of 2.7%.

Net sales in our Refinish end-market increased 2.3% in Q4 2019 (increased 3.5% excluding foreign currency translation), driven by price and mix benefits from all regions and essentially flat volumes overall, though the North America region reported renewed volume growth. Industrial end-market net sales decreased 13.3% in the fourth quarter (decreased 12.2% excluding foreign currency translation), including a 7.7% impact from the consolidated JV interest sale. Industrial organic volume decreased in the mid-single digits due to macroeconomic demand softness primarily in EMEA and the Americas, offset by low single digit increases in average price and product mix.

The Performance Coatings segment generated Adjusted EBIT of $118.0 million in the fourth quarter, a 6.8% year-over-year increase, driven by positive price and mix contribution and slightly lower variable costs, offset partly by headwinds from lower volume and to a lesser extent by foreign exchange and operating cost impacts. Adjusted EBIT margin of 16.2% in Q4 2019 reflected a 170 basis point increase compared to the corresponding prior year quarter.

Transportation Coatings Fourth Quarter Results

The Transportation Coatings segment reported net sales of $368.7 million in Q4 2019, a decrease of 9.2% versus Q4 2018, including a 1.5% impact from foreign exchange translation. Constant currency net sales decreased 7.7% year-over-year, driven by a 9.2% decrease in volumes, offset partly by 1.5% higher average selling price and mix benefits.

Light Vehicle net sales decreased 8.3% year-over-year (decreased 6.7% excluding foreign currency translation), impacted by lower sales across all regions consistent with global automotive production trends and including an impact from a customer strike in North America in 2H 2019. Commercial Vehicle net sales decreased 12.3% versus Q4 2018 (decreased 11.2% excluding foreign currency translation), driven by lower production rates across all regions for trucks as well as certain non-truck product categories.

The Transportation Coatings segment generated Adjusted EBIT of $25.6 million in Q4 2019, a decrease of 1.5% compared to Q4 2018, with lower volume essentially offset by price and product mix benefit, coupled with moderate variable cost and operating expense tailwinds. Segment Adjusted EBIT margin expansion of 50 basis points to 6.9% was driven by price realization, partially offset by decreased volumes.

Balance Sheet and Cash Flow Highlights

We ended the year with cash and cash equivalents of $1,017.5 million. Our net debt was $2.8 billion as of year-end, compared to $3.2 billion as of December 31, 2018, driven by higher cash balances. Net debt to Adjusted EBITDA was 3.0x at year-end versus 3.4x as of December 31, 2018. There were no share repurchases during the fourth quarter. Subsequent to year-end, we prepaid $300 million of our Term Loan debt utilizing excess cash on our balance sheet.

Cash flow from operations was $283.3 million in Q4 2019 compared to $250.6 million in Q4 2018. Free cash flow totaled $248.4 million after capital expenditures of $38.6 million, an improvement versus $220.2 million after capital expenditures of $33.9 million in the prior year fourth quarter. The increase was driven primarily by improved working capital outcomes for the period compared to the prior year, and includes approximately $26 million in cash payments associated with employee retention as well as advisory fees associated with the ongoing review of strategic alternatives.

"In 2019, Axalta continued to execute well operationally, and we met key financial objectives for both earnings and cash flow targets, while also improving the balance sheet. This was all accomplished within a challenging backdrop for general industrial and automotive-related markets," said Sean M. Lannon, Axalta's Senior Vice President and Chief Financial Officer. "Strong cash flow generation, reflecting solid operating and working capital execution, enabled us to finish the year with considerably reduced net leverage despite share repurchases completed in the first half. We also increased profit margins for the year despite volume headwinds as we continued to prioritize price recapture in the face of input inflation from the past several years. For 2020, we expect to maintain this operating and financial discipline and target modest potential margin upside in a continued subdued volume environment. In conjunction with our productivity focus, this should enable an avenue for margin expansion in the coming year, as well as strong free cash flow."

2020 Guidance

    --  Net sales growth of ~0-1%
    --  Net sales, ex-FX, ex-M&A growth of ~1-2%
    --  Adjusted EBIT of $710-750 million
    --  Adjusted diluted EPS range of $1.85-2.00
    --  Depreciation and amortization of ~$330 million, inclusive of ~$7 million
        accelerated depreciation from our Belgium site closure
    --  Income tax rate, as adjusted, of ~22%
    --  Diluted shares outstanding of ~237 million
    --  Capital expenditures of ~$160 million
    --  Free cash flow of $450-490 million

Conference Call Information

As previously announced, Axalta will hold a conference call to discuss its fourth quarter and full year 2019 financial results on January 30, 2020 at 8:00 a.m. ET. The U.S. dial-in phone number for the conference call is 877-407-0784 and the international dial-in number is +1-201-689-8560. A live webcast of the conference call will also be available online at www.axalta.com/investorcall. For those unable to participate in the conference call, a replay will be available through February 6, 2020. The U.S. replay dial-in phone number is 844-512-2921 and the international replay dial-in number is +1-412-317-6671. The replay passcode is 13698205.

Reclassifications and Revisions

During the year ended December 31, 2019, we revised the presentation of the unaudited Condensed Consolidated Statements of Operations to reclassify prior year Other revenue into Net sales, as well as separately present Other operating charges, previously embedded within Selling, general and administrative expenses, as a separate line item within Income from operations. Other operating charges include termination benefits and other employee related costs, strategic review and retention costs, acquisition and divestiture-related costs, and impairment charges, details of which are included in our reconciliations of Adjusted EBIT and Adjusted net income.

During the year ended December 31, 2019, Axalta identified and corrected an error related to the prior year classification of the purchase of an additional financial interest in a consolidated joint venture within our Condensed Consolidated Statements of Cash Flows. This correction increased cash used for investing activities and reduced cash used for financing activities by $26.9 million, respectively, for the year ended December 31, 2018.

Cautionary Statement Concerning Forward-Looking Statements

This release may contain certain forward-looking statements regarding Axalta and its subsidiaries including our 2020 full year guidance, which includes net sales growth, currency effects, acquisition or divestment impacts, Adjusted EBIT, Adjusted diluted EPS, Adjusted EBITDA, interest expense, income tax rate, as adjusted, free cash flow, capital expenditures, depreciation and amortization, and diluted shares outstanding. All of these statements are based on management's expectations as well as estimates and assumptions prepared by management that, although they believe to be reasonable, are inherently uncertain. These statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of Axalta's control, as well as the previously announced review of strategic alternatives, that may cause its business, industry, strategy, financing activities or actual results to differ materially. More information on potential factors that could affect Axalta's financial results is available in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" section within Axalta's most recent annual report on Form 10-K, and in other documents that we have filed with, or furnished to, the U.S. Securities and Exchange Commission. Axalta undertakes no obligation to update or revise any of the forward-looking statements contained herein, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

The historical financial information included in this presentation includes financial information that is not presented in accordance with generally accepted accounting principles in the United States ("GAAP"), including constant currency net sales growth, income tax rate, as adjusted, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, Adjusted diluted EPS, free cash flow, net debt and Adjusted net income. Management uses these non-GAAP financial measures in the analysis of our financial and operating performance because they assist in the evaluation of underlying trends in our business. Adjusted EBITDA, Adjusted EBIT and Adjusted diluted EPS consist of EBITDA, EBIT and Diluted EPS, respectively, adjusted for (i) certain non-cash items included within net income, (ii) certain items Axalta does not believe are indicative of ongoing operating performance or (iii) certain nonrecurring, unusual or infrequent items that have not occurred within the last two years or we believe are not reasonably likely to recur within the next two years. We believe that making such adjustments provides investors meaningful information to understand our operating results and ability to analyze financial and business trends on a period-to-period basis. Adjusted net income shows the adjusted value of net income (loss) attributable to controlling interests after removing the items that are determined by management to be items that we do not consider indicative of our ongoing operating performance or unusual or nonrecurring in nature. Our use of the terms constant currency net sales growth, income tax rate, as adjusted, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, Adjusted diluted EPS, free cash flow, net debt and Adjusted net income may differ from that of others in our industry. Constant currency net sales growth, income tax rate, as adjusted, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, Adjusted diluted EPS, free cash flow, net debt and Adjusted net income should not be considered as alternatives to net sales, net income (loss), income (loss) before operations or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Constant currency net sales growth, income tax rate, as adjusted, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, Adjusted diluted EPS, free cash flow, net debt and Adjusted net income have important limitations as analytical tools and should be considered in conjunction with, and not as substitutes for, our results as reported under GAAP. This presentation includes a reconciliation of certain non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP. Axalta does not provide a reconciliation for non-GAAP estimates for constant currency net sales growth, Adjusted EBIT, Adjusted EBITDA, Adjusted diluted EPS, income tax rate, as adjusted, or free cash flow on a forward-looking basis because the information necessary to calculate a meaningful or accurate estimation of reconciling items is not available without unreasonable effort. For example, such reconciling items include the impact of foreign currency exchange gains or losses, gains or losses that are unusual or nonrecurring in nature, as well as discrete taxable events. We cannot estimate or project these items and they may have a substantial and unpredictable impact on our US GAAP results.

Constant Currency

Constant currency or ex-FX percentages are calculated by excluding the impact the change in average exchange rates between the current and comparable period by currency denomination exposure of the comparable period amount.

Organic Growth

Organic growth or ex-M&A percentages are calculated by excluding the impact of recent acquisitions and divestitures.

Segment Financial Measures

The primary measure of segment operating performance is Adjusted EBIT, which 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 Axalta's core operating performance. As we do not measure segment operating performance based on net income, a reconciliation of this non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP is not available.

About Axalta Coating Systems

Axalta is a global leader in the coatings industry, providing customers with innovative, colorful, beautiful and sustainable coatings solutions. From light vehicles, commercial vehicles and refinish applications to electric motors, building facades and other industrial applications, our coatings are designed to prevent corrosion, increase productivity and enhance durability. With more than 150 years of experience in the coatings industry, the 14,000 people of Axalta continue to find ways to serve our more than 100,000 customers in over 130 countries better every day with the finest coatings, application systems and technology. For more information visit axalta.com and follow us @axalta on Twitter.

                                                                    
            
              Financial Statement Tables


                                                                    
            
              AXALTA COATING SYSTEMS LTD.


                                                                
     Condensed Consolidated Statements of Operations (Unaudited)


                                                                     
            (In millions, except per share data)


                                                                                           Three Months Ended December 31,                     Years Ended December 31,


                                                                             2019                             2018             2019                        2018



     Net sales                                                                     $
            1,098.4                               $
        1,165.8                       $
        4,482.2  $
        4,696.0



     Cost of goods sold                                                    710.8                                        777.4                         2,917.9                 3,106.3



     Selling, general and administrative expenses                          204.9                                        211.7                           822.1                   876.4



     Other operating charges                                                29.3                                          1.6                            70.7                    82.7



     Research and development expenses                                      16.7                                         18.8                            70.2                    73.1



     Amortization of acquired intangibles                                   28.0                                         28.5                           113.1                   115.4




     Income from operations                                                108.7                                        127.8                           488.2                   442.1




     Interest expense, net                                                  40.1                                         41.1                           162.6                   159.6



     Other (income) expense, net                                           (0.6)                                         3.6                           (4.4)                   15.0




     Income before income taxes                                             69.2                                         83.1                           330.0                   267.5



     Provision for income taxes                                             27.0                                          6.3                            77.4                    54.2




     Net income                                                             42.2                                         76.8                           252.6                   213.3



     Less: Net income attributable to noncontrolling interests               0.5                                          1.4                             3.6                     6.2




     Net income attributable to controlling interests                                 $
            41.7                                  $
        75.4                         $
        249.0    $
        207.1



     Basic net income per share                                                       $
            0.18                                  $
        0.32                          $
        1.06     $
        0.87



     Diluted net income per share                                                     $
            0.18                                  $
        0.32                          $
        1.06     $
        0.85



     Basic weighted average shares outstanding                             234.5                                        236.0                           233.9                   239.0



     Diluted weighted average shares outstanding                           235.7                                        239.0                           235.8                   242.9

                                                                                            
            
                AXALTA COATING SYSTEMS LTD.


                                                                                          
         Condensed Consolidated Balance Sheets (Unaudited)


                                                                                              
            (In millions, except per share data)


                                                                                                                                                  December 31, 2019              December 31, 2018




           
                Assets



           Current assets:



           Cash and cash equivalents                                                                                                                               $
       1,017.5                              $
       693.6



           Restricted cash                                                                                                                                     3.0                                     2.8



           Accounts and notes receivable, net                                                                                                                830.1                                   860.8



           Inventories                                                                                                                                       591.6                                   613.0



           Prepaid expenses and other current assets                                                                                                         131.2                                   139.4




           Total current assets                                                                                                                            2,573.4                                 2,309.6




           Property, plant and equipment, net                                                                                                              1,223.0                                 1,298.2



           Goodwill                                                                                                                                        1,208.9                                 1,230.8



           Identifiable intangibles, net                                                                                                                   1,223.9                                 1,348.0



           Other assets                                                                                                                                      588.8                                   489.1




           Total assets                                                                                                                                            $
       6,818.0                            $
       6,675.7




           
                Liabilities, Shareholders' Equity



           Current liabilities:



           Accounts payable                                                                                                                                          $
       483.7                              $
       522.8



           Current portion of borrowings                                                                                                                      43.9                                    42.2



           Other accrued liabilities                                                                                                                         545.3                                   475.6




           Total current liabilities                                                                                                                       1,072.9                                 1,040.6




           Long-term borrowings                                                                                                                            3,790.2                                 3,821.8



           Accrued pensions                                                                                                                                  285.2                                   261.9



           Deferred income taxes                                                                                                                             115.5                                   140.8



           Other liabilities                                                                                                                                 144.6                                   100.1




           Total liabilities                                                                                                                               5,408.4                                 5,365.2




           Shareholders' equity



           Common shares, $1.00 par, 1,000.0 shares authorized, 250.1 and 246.7 shares                                                                       249.9                                   245.3
      issued at December 31, 2019 and 2018, respectively



           Capital in excess of par                                                                                                                        1,474.1                                 1,409.5



           Retained earnings                                                                                                                                 443.2                                   198.6



           Treasury shares, at cost, 15.2 and 11.1 shares at December 31, 2019 and 2018,                                                                   (417.5)                                (312.2)
      respectively



           Accumulated other comprehensive loss                                                                                                            (395.5)                                (336.1)




           Total Axalta shareholders' equity                                                                                                               1,354.2                                 1,205.1



           Noncontrolling interests                                                                                                                           55.4                                   105.4




           Total shareholders' equity                                                                                                                      1,409.6                                 1,310.5




           Total liabilities and shareholders' equity                                                                                                              $
       6,818.0                            $
       6,675.7

                                                                                     
              
                AXALTA COATING SYSTEMS LTD.


                                                                                   
      Condensed Consolidated Statements of Cash Flows (Unaudited)


                                                                                                  
              (In millions)


                                                                                                                                                               Years Ended December 31,


                                                                                                                                                     2019                       2018




     Operating activities:



     Net income                                                                                                                                            $
        252.6                          $
     213.3



     Adjustment to reconcile net income to cash provided by operating activities:



     Depreciation and amortization                                                                                                                 353.0                                  369.1



     Amortization of deferred financing costs and original issue discount                                                                            8.8                                    8.0



     Debt extinguishment and refinancing related costs                                                                                               0.2                                    9.5



     Deferred income taxes                                                                                                                          15.7                                    6.1



     Realized and unrealized foreign exchange losses, net                                                                                            5.9                                   17.3



     Stock-based compensation                                                                                                                       15.7                                   37.3



     Divestitures and impairments charges                                                                                                           21.1



     Interest income on swaps designated as net investment hedges                                                                                 (14.7)                                 (9.4)



     Other non-cash, net                                                                                                                           (0.1)                                 (0.9)



     Changes in operating assets and liabilities:



     Trade accounts and notes receivable                                                                                                          (10.1)                                (22.3)



     Inventories                                                                                                                                    10.8                                 (48.1)



     Prepaid expenses and other assets                                                                                                           (118.9)                               (157.3)



     Accounts payable                                                                                                                               18.2                                   49.5



     Other accrued liabilities                                                                                                                       5.3                                  (8.4)



     Other liabilities                                                                                                                               9.6                                   32.4



     Cash provided by operating activities                                                                                                         573.1                                  496.1




     Investing activities:



     Acquisitions, net of cash acquired                                                                                                            (3.3)                                (82.8)



     Purchase of property, plant and equipment                                                                                                   (112.5)                               (143.4)



     Proceeds from sale of consolidated joint venture, net of cash divested                                                                          8.2



     Interest proceeds on swaps designated as net investment hedges                                                                                 14.7                                    9.4



     Proceeds from settlement of swaps designated as net investment hedges                                                                                                                22.5



     Other investing activities, net                                                                                                               (1.0)                                   5.1



     Cash used for investing activities                                                                                                           (93.9)                               (189.2)




     Financing activities:



     Proceeds from long-term borrowings                                                                                                                                                  468.9



     Payments on short-term borrowings                                                                                                            (39.5)                                (44.7)



     Payments on long-term borrowings                                                                                                             (27.6)                               (511.3)



     Financing-related costs                                                                                                                       (1.5)                                (10.8)



     Proceeds from option exercises                                                                                                                 50.3                                   17.4



     Dividends paid to noncontrolling interests                                                                                                    (1.5)                                 (1.0)



     Investments in noncontrolling interests                                                                                                      (31.1)                                (26.9)



     Purchase of treasury stock                                                                                                                  (105.3)                               (253.8)



     Deferred acquisition-related consideration                                                                                                    (2.2)                                 (6.0)



     Cash used for financing activities                                                                                                          (158.4)                               (368.2)




     Increase (decrease) in cash and cash equivalents                                                                                              320.8                                 (61.3)



     Effect of exchange rate changes on cash                                                                                                         3.3                                 (15.2)



     Cash at beginning of period                                                                                                                   696.4                                  772.9



     Cash at end of period                                                                                                                               $
        1,020.5                          $
     696.4






     Cash at end of period reconciliation:



     Cash and cash equivalents                                                                                                                           $
        1,017.5                          $
     693.6



     Restricted cash                                                                                                                                 3.0                                    2.8



     Cash at end of period                                                                                                                               $
        1,020.5                          $
     696.4

The following table reconciles income from operations to adjusted EBIT and segment adjusted EBIT for the periods presented (in millions):

                                                                         Three Months Ended December 31,               Years Ended December 31,


                                                                 2019                   2018             2019              2018




     Income from operations                                          $
      108.7                               $
     127.8                          $
     488.2  $
     442.1



     Other (income) expense, net                               (0.6)                               3.6                 (4.4)                      15.0




     EBIT                                                      109.3                              124.2                 492.6                      427.1



     Debt extinguishment and refinancing related costs (a)                                         1.1                   0.2                        9.5



     Termination benefits and other employee related costs (b)   1.9                                1.5                  35.2                       81.7



     Strategic review and retention costs (c)                    9.6                                                    13.4



     Offering and transactional costs (d)                        0.1                                0.1                   1.0                        1.0



     Divestiture and impairment charges (e)                     17.7                                                    21.1



     Pension special events (f)                                (0.9)                                                  (0.9)



     Accelerated depreciation (g)                                6.1                                6.1                  24.3                       10.3



     Indemnity (income) losses (h)                             (0.2)                               3.4                 (0.4)                       4.3



     Change in fair value of equity investments (i)                                                0.1                                             0.5



     Step-up depreciation and amortization (j)                  29.9                               34.3                 119.5                      140.1



     Adjusted EBIT                                                   $
      173.5                               $
     170.8                          $
     706.0  $
     674.5






     Segment Adjusted EBIT:



     Performance Coatings                                            $
      118.0                               $
     110.5                          $
     449.1  $
     399.5



     Transportation Coatings                                    25.6                               26.0                 137.4                      134.9




     Total                                                     143.6                              136.5                 586.5                      534.4



     Step-up depreciation and amortization (j)                  29.9                               34.3                 119.5                      140.1



     Adjusted EBIT                                                   $
      173.5                               $
     170.8                          $
     706.0  $
     674.5


               (a)               Represents expenses related to the
                                  restructuring and refinancing of our
                                  indebtedness, which are not
                                  considered indicative of our ongoing
                                  operating performance.




               (b)               Represents expenses and associated
                                  changes to estimates related to
                                  employee termination benefits and
                                  other employee-related costs.
                                  Employee termination benefits are
                                  associated with Axalta Way
                                  initiatives. These amounts are not
                                  considered indicative of our ongoing
                                  operating performance.




               (c)               Represents costs for legal, tax and
                                  other advisory fees pertaining to
                                  our previously announced
                                  comprehensive review of strategic
                                  alternatives, as well as retention
                                  awards for certain employees. These
                                  amounts are not considered
                                  indicative of our ongoing
                                  performance.




               (d)               Represents acquisition and
                                  divestiture-related expenses, all
                                  of which are not considered
                                  indicative of our ongoing operating
                                  performance.




               (e)               Represents the loss recognized on the
                                  sale of our interest in a joint
                                  venture business and the charges
                                  resulting from the abandonment of
                                  certain in progress capital projects
                                  which are not considered indicative
                                  of our ongoing operating
                                  performance.




               (f)               Represents certain defined benefit
                                  pension costs associated with
                                  special events, including pension
                                  curtailments, settlements and
                                  special termination benefits, which
                                  we do not consider indicative of our
                                  ongoing operating performance.




               (g)               Represents incremental depreciation
                                  expense resulting from truncated
                                  useful lives of the assets impacted
                                  by our manufacturing footprint
                                  assessments, which we do not
                                  consider indicative of our ongoing
                                  operating performance.




               (h)               Represents indemnity (income) losses
                                  associated with the acquisition by
                                  Axalta of the DuPont Performance
                                  Coatings business, which we do not
                                  consider indicative of our ongoing
                                  operating performance.




               (i)               Represents mark to market impacts of
                                  our equity investments, which we do
                                  not consider to be indicative of our
                                  ongoing operating performance.




               (j)               Represents the incremental step-up
                                  depreciation and amortization
                                  expense associated with the
                                  acquisition of DuPont Performance
                                  Coatings by Axalta. We believe this
                                  will assist investors in performing
                                  meaningful comparisons of past,
                                  present and future operating results
                                  and better highlight the results of
                                  our ongoing operating performance.

The following table reconciles net income to adjusted net income for the periods presented (in millions, except per share data):

                                                                         Three Months Ended December 31,                 Years Ended December 31,


                                                                 2019                  2018              2019               2018



     Net income                                                      $
      42.2                                 $
      76.8                           $
      252.6  $
      213.3



     Less: Net income attributable to noncontrolling interests   0.5                               1.4                     3.6                          6.2




     Net income attributable to controlling interests           41.7                              75.4                   249.0                        207.1



     Debt extinguishment and refinancing related costs (a)                                        1.1                     0.2                          9.5



     Termination benefits and other employee related costs (b)   1.9                               1.5                    35.2                         81.7



     Strategic review and retention costs (c)                    9.6                                                     13.4



     Offering and transactional costs (d)                        0.1                               0.1                     1.0                          1.0



     Divestiture and impairment charges (e)                     17.7                                                     21.1



     Pension special events (f)                                (0.9)                                                   (0.9)



     Accelerated depreciation (g)                                6.1                               6.1                    24.3                         10.3



     Indemnity (income) losses (h)                             (0.2)                              3.4                   (0.4)                         4.3



     Change in fair value of equity investments (i)                                               0.1                                                 0.5



     Step-up depreciation and amortization (j)                  29.9                              34.3                   119.5                        140.1




     Total adjustments                                          64.2                              46.6                   213.4                        247.4




     Income tax provision (benefit) impacts (k)                  7.9                              16.3                    38.0                         42.0




     Adjusted net income                                             $
      98.0                                $
      105.7                           $
      424.4  $
      412.5




     Adjusted diluted net income per share                           $
      0.42                                 $
      0.44                            $
      1.80   $
      1.70



     Diluted weighted average shares outstanding               235.7                             239.0                   235.8                        242.9


               (a)               Represents expenses related to the
                                  restructuring and refinancing of our
                                  indebtedness, which are not
                                  considered indicative of our ongoing
                                  operating performance.




               (b)               Represents expenses and associated
                                  changes to estimates related to
                                  employee termination benefits and
                                  other employee-related costs.
                                  Employee termination benefits are
                                  associated with Axalta Way
                                  initiatives. These amounts are not
                                  considered indicative of our ongoing
                                  operating performance.




               (c)               Represents costs for legal, tax and
                                  other advisory fees pertaining to
                                  our previously announced
                                  comprehensive review of strategic
                                  alternatives, as well as retention
                                  awards for certain employees. These
                                  amounts are not considered
                                  indicative of our ongoing
                                  performance.




               (d)               Represents acquisition and
                                  divestiture-related expenses, all
                                  of which are not considered
                                  indicative of our ongoing operating
                                  performance.




               (e)               Represents the loss recognized on the
                                  sale of our interest in a joint
                                  venture business and the charges
                                  resulting from the abandonment of
                                  certain in progress capital projects
                                  which are not considered indicative
                                  of our ongoing operating
                                  performance.




               (f)               Represents certain defined benefit
                                  pension costs associated with
                                  special events, including pension
                                  curtailments, settlements and
                                  special termination benefits, which
                                  we do not consider indicative of our
                                  ongoing operating performance.




               (g)               Represents incremental depreciation
                                  expense resulting from truncated
                                  useful lives of the assets impacted
                                  by our manufacturing footprint
                                  assessments, which we do not
                                  consider indicative of our ongoing
                                  operating performance.




               (h)               Represents indemnity (income) losses
                                  associated with the acquisition by
                                  Axalta of the DuPont Performance
                                  Coatings business, which we do not
                                  consider indicative of our ongoing
                                  operating performance.




               (i)               Represents mark to market impacts of
                                  our equity investments, which we do
                                  not consider to be indicative of our
                                  ongoing operating performance.




               (j)               Represents the incremental step-up
                                  depreciation and amortization
                                  expense associated with the
                                  acquisition of DuPont Performance
                                  Coatings by Axalta. We believe this
                                  will assist investors in performing
                                  meaningful comparisons of past,
                                  present and future operating results
                                  and better highlight the results of
                                  our ongoing operating performance.




               (k)               The income tax impacts are determined
                                  using the applicable rates in the
                                  taxing jurisdictions in which
                                  expense or income occurred and
                                  includes both current and deferred
                                  income tax expense (benefit) based
                                  on the nature of the non-GAAP
                                  performance measure. The income tax
                                  impact includes the removal of
                                  discrete items for the three months
                                  and years ended December 31, 2019
                                  and 2018 which were expense of $0.5
                                  million and benefit of $4.6 million,
                                  and benefits of $9.7 million and
                                  $2.0 million, respectively. Of the
                                  $2.0 million of discrete income tax
                                  benefits removed for the year ended
                                  December 31, 2018, $12.5 million is
                                  related to the impact of the U.S.
                                  Tax Cuts and Jobs Act legislation.

The following table reconciles cash (used in) provided by operating activities to free cash flow for the periods presented (in millions):

                                                   Three Months Ended                       Three Months Ended                    Three Months Ended                      Three Months Ended             
             
          Years Ended
                                           March 31,                               June 30,                         September 30,                         December 31,                                December 31,


                                   2019                            2018        2019                            2018      2019                        2018            2019                    2018                    2019                        2018




              Cash (used in)           $
              (57.9)                          $
            (21.0)                        $
           126.7                             $
         142.0                                   $
         221.0                    $
          124.5                $
     283.3             $
     250.6 $
     573.1 $
     496.1
      provided by
      operating
      activities



              Purchase of       (20.5)                                 (39.5)                            (26.7)                    (35.1)                   (26.7)                             (34.9)                                (38.6)              (33.9)      (112.5)               (143.4)
      property, plant
      and equipment



              Interest proceeds    3.5                                                                       3.7                                                 3.8                                 5.9                                    3.7                  3.5         14.7                  9.4
      on swaps
      designated as net
      investment hedges



              Free cash flow           $
              (74.9)                          $
            (60.5)                        $
           103.7                             $
         106.9                                   $
         198.1                     $
          95.5                $
     248.4             $
     220.2 $
     475.3 $
     362.1

The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods presented (in millions):

                                                                          Three Months Ended December 31,                Years Ended December 31,


                                                                 2019                    2018             2019               2018



     Net income                                                       $
       42.2                                $
      76.8                          $
       252.6  $
     213.3



     Interest expense, net                                      40.1                                41.1                  162.6                        159.6



     Provision for income taxes                                 27.0                                 6.3                   77.4                         54.2



     Depreciation and amortization                              85.7                                94.2                  353.0                        369.1




     EBITDA                                                    195.0                               218.4                  845.6                        796.2



     Debt extinguishment and refinancing related costs (a)                                          1.1                    0.2                          9.5



     Termination benefits and other employee related costs (b)   1.9                                 1.5                   35.2                         81.7



     Strategic review and retention costs (c)                    9.6                                                      13.4



     Offering and transactional costs (d)                        0.1                                 0.1                    1.0                          1.0



     Divestiture and impairment charges (e)                     17.7                                                      21.1



     Foreign exchange remeasurement losses (f)                   3.0                                 0.5                    8.3                          9.2



     Long-term employee benefit plan adjustments (g)           (0.7)                              (0.5)                   0.1                        (1.9)



     Stock-based compensation (h)                                6.2                                 9.8                   15.7                         37.3



     Dividends in respect of noncontrolling interest (i)                                                                (1.5)                       (1.0)



     Other adjustments (j)                                     (0.3)                                4.0                  (0.2)                         5.2




     Adjusted EBITDA                                                 $
       232.5                               $
      234.9                          $
       938.9  $
     937.2


               (a)               Represents expenses related to the
                                  restructuring and refinancing of our
                                  indebtedness, which are not
                                  considered indicative of our ongoing
                                  operating performance.




               (b)               Represents expenses and associated
                                  changes to estimates related to
                                  employee termination benefits and
                                  other employee-related costs.
                                  Employee termination benefits are
                                  associated with Axalta Way
                                  initiatives. These amounts are not
                                  considered indicative of our ongoing
                                  operating performance.




               (c)               Represents costs for legal, tax and
                                  other advisory fees pertaining to our
                                  previously announced comprehensive
                                  review of strategic alternatives, as
                                  well as retention awards for certain
                                  employees. These amounts are not
                                  considered indicative of our ongoing
                                  performance.




               (d)               Represents acquisition and
                                  divestiture-related expenses, all of
                                  which are not considered indicative
                                  of our ongoing operating performance.




               (e)               Represents the loss recognized on the
                                  sale of our interest in a joint
                                  venture business and the charges
                                  resulting from the abandonment of
                                  certain in progress capital projects
                                  which are not considered indicative
                                  of our ongoing operating performance.




               (f)               Eliminates foreign exchange losses
                                  resulting from the remeasurement of
                                  assets and liabilities denominated in
                                  foreign currencies, net of the
                                  impacts of our foreign currency
                                  instruments used to hedge our balance
                                  sheet exposures.




               (g)               Eliminates the non-cash, non-service
                                  cost components of long-term
                                  employee benefit costs.




               (h)               Represents non-cash impacts
                                  associated with stock-based
                                  compensation.




               (i)               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 these entities on Axalta's
                                  financial statements.




               (j)               Represents 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 indemnity
                                  (income) losses associated with the
                                  acquisition by Axalta of the DuPont
                                  Performance Coatings business, gains
                                  and losses from the sale and disposal
                                  of property, plant and equipment,
                                  gains and losses from the remaining
                                  foreign currency derivative
                                  instruments and from non-cash fair
                                  value inventory adjustments
                                  associated with our business
                                  combinations.

Contact
Christopher Mecray
D +1 215 255 7970
[email protected]

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Axalta Coating Systems Ltd.