# Axalta Coating Systems Ltd.: Form 10-Q for the period ended Sep 30, 2017

- Company: [Axalta Coating Systems Ltd.](/companies/axta.md) (CIK 1616862)
- Form: 10-Q
- Filed: 2017-10-26
- Accepted by EDGAR: Oct 26, 2017, 17:02 ET
- Period: 2017-09-30
- Accession: 0001616862-17-000060
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1616862/000161686217000060/a201793010-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1616862/000161686217000060/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2017-07-01 to 2017-09-30 | $1.10bn | us-gaap:Revenues |
| Revenue | 9 months, 2017-01-01 to 2017-09-30 | $3.20bn | us-gaap:Revenues |
| Cost of revenue | 9 months, 2017-01-01 to 2017-09-30 | $2.03bn | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2017-07-01 to 2017-09-30 | $16.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2017-01-01 to 2017-09-30 | $48.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2017-07-01 to 2017-09-30 | $246.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2017-01-01 to 2017-09-30 | $717.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-07-01 to 2017-09-30 | $104.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2017-01-01 to 2017-09-30 | $261.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-07-01 to 2017-09-30 | $37.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2017-01-01 to 2017-09-30 | $109.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2017-07-01 to 2017-09-30 | $2.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2017-01-01 to 2017-09-30 | $21.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-07-01 to 2017-09-30 | $54.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2017-01-01 to 2017-09-30 | $98.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-07-01 to 2017-09-30 | $0.22 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2017-01-01 to 2017-09-30 | $0.40 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-07-01 to 2017-09-30 | $0.23 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2017-01-01 to 2017-09-30 | $0.41 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-07-01 to 2017-09-30 | 245,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2017-01-01 to 2017-09-30 | 246,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2017-01-01 to 2017-09-30 | $306.4m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2017-01-01 to 2017-09-30 | $87.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2017-01-01 to 2017-09-30 | $58.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2017-09-30 | $588.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-09-30 | $2.17bn | us-gaap:AssetsCurrent |
| Total assets | at 2017-09-30 | $6.81bn | us-gaap:Assets |
| Current liabilities | at 2017-09-30 | $1.03bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-09-30 | $5.38bn | us-gaap:Liabilities |
| Long-term debt | at 2017-09-30 | $3.94bn | us-gaap:LongTermDebt |
| Current portion of debt | at 2017-09-30 | $37.8m | us-gaap:DebtCurrent |
| Short-term borrowings | at 2017-09-30 | $13.1m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2017-09-30 | $1.31bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,498 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the interim unaudited condensed consolidated financial statements and the condensed notes thereto included elsewhere in this quarterly report, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.*

### FORWARD-LOOKING STATEMENTS

Many statements made in the following discussion and analysis of our financial condition and results of operations and elsewhere in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations, are "forward-looking statements" within the meaning of federal securities laws and should be evaluated as such. Forward-looking statements include information regarding industry outlook as well as possible or assumed future results of operations, including descriptions of our business plan, strategies and capital structure. These statements often include words such as "anticipate," "expect," "suggests," "plan," "believe," "intend," "estimates," "targets," "projects," "should," "could," "would," "may," "will," "forecast" and other similar expressions. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions, including, but not limited to, the risks and uncertainties described in "Non-GAAP Financial Measures" and "Forward-Looking Statements," as well as "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016, and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:

- adverse developments in economic conditions and, particularly, in conditions in the automotive and transportation industries;
- volatility in the capital, credit and commodities markets;
- our inability to successfully execute on our growth strategy;
- increased competition;
- weather conditions that may temporarily reduce the demand for some of our products;
- 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;
- price increases or interruptions in our supply of raw materials;
- failure to develop and market new products and manage product life cycles;
- business disruptions, security threats and security breaches, including cyber security risks;
- risks associated with our non-U.S. operations;
- currency-related risks;
- 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;
- failure to comply with anti-terrorism laws and regulations and applicable trade embargoes;
- 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;
- transporting certain materials that are inherently hazardous due to their toxic nature;
- litigation and other commitments and contingencies;
- our ability to recruit and retain the experienced and skilled personnel we need to compete;
- unexpected liabilities under any pension plans applicable to our employees;
- work stoppages, union negotiations, labor disputes and other matters associated with our labor force;
- our ability to protect and enforce intellectual property rights;
- intellectual property infringement suits against us by third parties;
- our ability to realize the anticipated benefits of any acquisitions and divestitures;
- our joint ventures’ ability to operate according to our business strategy should our joint venture partners fail to fulfill their obligations;
- risk that the insurance we maintain may not fully cover all potential exposures;
- the risk of impairment charges related to goodwill, identifiable intangible assets and fixed assets;
- our substantial indebtedness;
- 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;
- any statements of belief and any statements of assumptions underlying any of the foregoing;
- other factors disclosed in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2016 and our other filings with the Securities and Exchange Commission; and
- other factors beyond our control.

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

### OVERVIEW

We are a leading global manufacturer, marketer and distributor of high performance coatings systems. We have over a 150-year heritage in the coatings industry and are known for manufacturing high-quality products with well-recognized brands supported by market-leading technology and customer service. Our diverse global footprint of 49 manufacturing facilities, 4 technology centers, 48 customer training centers and over 13,300 employees allows us to meet the needs of customers in approximately 130 countries. We serve our customer base through an extensive sales force and technical support organization, as well as through approximately 4,000 independent, locally based distributors.

We operate our business in two operating segments, Performance Coatings and Transportation Coatings. Our segments are based on the type and concentration of customers served, service requirements, methods of distribution and major product lines.

Through our Performance Coatings segment we provide high-quality liquid and powder coatings solutions to a fragmented and local customer base. We are one of only a few suppliers with the technology to provide precise color matching and highly durable coatings systems. The end-markets within this segment are refinish and industrial.

Through our Transportation Coatings segment we provide advanced coating technologies to OEMs of light and commercial vehicles. These increasingly global customers require a high level of technical support coupled with cost-effective, environmentally responsible, coatings systems that can be applied with a high degree of precision, consistency and speed. The end-markets within this segment are light vehicle and commercial vehicle.

### BUSINESS HIGHLIGHTS

#### General Business Highlights

Our net sales increased 4.8% for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, driven primarily by our Performance Coatings segment and the associated impacts of our acquisitions. Volume growth was flat as increases in our Transportation Coatings segment were offset entirely by decreases in our Performance Coatings segment. Slight declines in average selling prices across both segments resulted primarily from pricing pressures in select regions within our light vehicle end-market, which contributed to a decrease of 1.5%. Unfavorable currency translation contributed to a further decline of net sales of 0.6%. The following trends have impacted our segment and end-market sales performance:

- *Performance Coatings:* Net sales excluding currency translation increased 9.3% driven by stronger volumes in our industrial end-market, including the impacts of acquisitions combined with organic volume growth in Europe.
- *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.

Our business serves four end-markets globally with net sales for the three and nine months ended September 30, 2017 and 2016, as follows:

*(In millions)*

| Performance Coatings | Three Months Ended September 30, 2017 | 2016 | 2017 vs 2016 % change | Nine Months Ended September 30, 2017 | 2016 | 2017 vs 2016 % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Refinish | $395.3 | $431.7 | (8.4)% | $1,205.1 | $1,259.3 | (4.3)% |
| Industrial | 298.2 | 184.8 | 61.4% | 737.7 | 532.4 | 38.6% |
| Total Net sales Performance Coatings | 693.5 | 616.5 | 12.5% | 1,942.8 | 1,791.7 | 8.4% |
| **Transportation Coatings** |  |  |  |  |  |  |
| Light Vehicle | 309.7 | 321.1 | (3.6)% | 984.0 | 994.9 | (1.1)% |
| Commercial Vehicle | 88.6 | 83.0 | 6.7% | 261.3 | 254.8 | 2.6% |
| Total Net sales Transportation Coatings | 398.3 | 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% |

#### Acquisitions Highlights

During the nine months ended September 30, 2017, we successfully completed six strategic acquisitions within our Performance Coatings segment. Included in these acquisitions was the purchase of the Industrial Wood business in North America, which is discussed in further detail at Note 3 to the interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Our 2017 aggregate spending for these 2017 Acquisitions was $559.3 million. The impact of acquisitions contributed $211.1 million to net sales during the nine months ended September 30, 2017.

#### Capital and Liquidity Highlights

During the nine months ended September 30, 2017, we entered into the Fifth Amendment of our Senior Secured Credit Facilities, which increased the aggregate principal balance of our Dollar Term Loans to $2,000.0 million of which the net proceeds were used to fund the Industrial Wood Acquisition and certain other 2017 Acquisitions. In addition, this amendment extended the maturity date on our Dollar Term Loans and lowered interest rates. The benefits of this refinancing transaction are anticipated to save approximately $7.7 million in annual cash interest compared to the previous principal balances. For additional information, refer to Note 15 to the interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

#### Other Highlights

In March 2017, we announced that our Board of Directors authorized a common share repurchase program of up to $675.0 million. We expect the share repurchases to be made from time to time in the open market or through privately-negotiated transactions, or otherwise, subject to applicable laws, regulations and approvals. The pace of repurchase activity will be subject to our discretion, and will be based upon market conditions and other capital allocation decisions, while incorporating key factors including cash balances and needs of the business, cash flow from operations, stock price and acquisition opportunities. There is no expiration date on the share repurchase program. During the nine months ended September 30, 2017, repurchases totaled $58.4 million.

### FACTORS AFFECTING OUR OPERATING RESULTS

There have been no material changes in the factors affecting our operating results previously reported in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016.

### NON-GAAP FINANCIAL MEASURES

### Reconciliation of Net Income to EBITDA and Adjusted EBITDA

To supplement our financial information presented in accordance with U.S. GAAP, we use the following non-GAAP financial measures to clarify and enhance an understanding of past performance: EBITDA and Adjusted EBITDA. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance. We further believe that these financial measures are useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business. We define our core business as those operations relating to the Company's ongoing performance and the concept is used to make resource allocation and performance evaluation decisions. We use certain of these financial measures for business planning purposes and in measuring our performance relative to that of our competitors. We utilize Adjusted EBITDA as the primary measure of segment performance.

EBITDA consists of net income before interest, taxes, depreciation and amortization. Adjusted EBITDA consists of EBITDA adjusted for (i) non-cash items included within net income, (ii) items the Company does not believe are indicative of ongoing operating performance or (iii) non-recurring, unusual or infrequent items that the Company believes 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.

We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the terms EBITDA and Adjusted EBITDA may vary from that of others in our industry. These financial measures should not be considered as alternatives to income before income taxes, net income, earnings per share or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance.

EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

- EBITDA and Adjusted EBITDA:
- do not reflect the significant interest expense on our debt, including the Senior Secured Credit Facilities and the New Senior Notes (as defined herein); and
- eliminate the impact of income taxes on our results of operations;
- 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
- other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by using EBITDA and Adjusted EBITDA along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. Such U.S. GAAP measurements include income before income taxes, net income, earnings per share and other performance measures.

In evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the excluded items noted above.

The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA measures discussed above for the periods presented:

|  | Three Months Ended September 30, 2017 | 2016 | Nine Months Ended September 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) | $56.3 | $(5.4) | $103.3 | $79.7 |
| Interest expense, net | 37.7 | 42.9 | 109.1 | 140.8 |
| Provision (benefit) for income taxes | 2.1 | (7.5) | 21.5 | 23.1 |
| Depreciation and amortization | 88.6 | 81.2 | 255.9 | 235.8 |
| EBITDA | 184.7 | 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.

(c) Eliminates the non-cash, non-service cost components of long-term employee benefits.

(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.

(f) Represents integration costs related to the acquisition of the Industrial Wood business that was a carve-out business from Valspar. These amounts 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.

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

(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.

### RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information contained in the accompanying unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Our historical results of operations set forth below may not necessarily reflect what will occur in the future.

### Three months ended September 30, 2017 compared to the three months ended September 30, 2016

The following table was derived from the interim unaudited condensed consolidated statements of operations for the three months ended September 30, 2017 and 2016 included elsewhere in this Quarterly Report on Form 10-Q.

*(In millions)*

|  | Three Months Ended September 30, 2017 | 2016 |
| --- | ---: | ---: |
| Net sales | $1,091.8 | $1,020.6 |
| Other revenue | 4.5 | 5.7 |
| Total revenue | 1,096.3 | 1,026.3 |
| Cost of goods sold | 702.5 | 630.4 |
| Selling, general and administrative expenses | 246.4 | 242.3 |
| Research and development expenses | 16.6 | 14.9 |
| Amortization of acquired intangibles | 26.8 | 21.3 |
| Income from operations | 104.0 | 117.4 |
| Interest expense, net | 37.7 | 42.9 |
| Other expense, net | 7.9 | 87.4 |
| Income (loss) before income taxes | 58.4 | (12.9) |
| Provision (benefit) for income taxes | 2.1 | (7.5) |
| Net income (loss) | 56.3 | (5.4) |
| Less: Net income attributable to noncontrolling interests | 1.4 | 1.2 |
| Net income (loss) attributable to controlling interests | $54.9 | $(6.6) |

### Net sales

Net sales increased $71.2 million, or 7.0%, to $1,091.8 million for the three months ended September 30, 2017, compared to net sales of $1,020.6 million for the three months ended September 30, 2016. Our net sales increase for the three months ended September 30, 2017 included the benefits of acquisitions which contributed to an increase of 9.7%. Acquisition volume was partially offset by declines in organic volumes of 3.9% primarily driven by our Performance Coatings segment in North America and Latin America. Further offsetting the increase were lower average selling prices of 0.7% primarily in our light vehicle and commercial vehicle end-markets. Favorable effects of currency translation resulting from the strengthening of the Euro and certain currencies in Latin America and Asia compared to the U.S. dollar also contributed to a 1.9% increase.

### Other revenue

Other revenue decreased $1.2 million, or 21.1%, to $4.5 million for the three months ended September 30, 2017 compared to $5.7 million for the three months ended September 30, 2016 as a result of decreases in service revenue within our European region. The impacts of currency exchange did not have a material impact on the comparable periods.

### Cost of sales

Cost of sales increased $72.1 million, or 11.4%, to $702.5 million for the three months ended September 30, 2017, compared to $630.4 million for the three months ended September 30, 2016. The increase for the three months ended September 30, 2017 resulted primarily from higher volumes of 5.8% driven by acquisitions. Further contributing to the increase were unfavorable effects of currency translation resulting from the impacts of the stronger Euro and certain currencies within Latin America and Asia compared to the U.S. dollar, which contributed to a 1.5% increase. Cost of sales as a percentage of net sales increased to 64.3% for the three months ended September 30, 2017 compared to 61.8% for the three months ended September 30, 2016, as a result of higher variable costs and lower average selling prices.

### Selling, general and administrative expenses

Selling, general and administrative expenses increased $4.1 million, or 1.7%, to $246.4 million for the three months ended September 30, 2017 compared to $242.3 million for the three months ended September 30, 2016. The increase for the three months ended September 30, 2017 resulted primarily from increases of $15.1 million resulting from acquisitions and our focus on opportunities to expand our market presence and invest in commercial capabilities. Selling, general and administrative expenses for the three months ended September 30, 2017 included $8.5 million related to our cost savings initiatives and acquisition-related costs as compared to $21.9 million of similar costs for the three months ended September 30, 2016, resulting in a decrease of $13.4 million over the comparable period.

Unfavorable impacts of currency exchange during the three months ended September 30, 2017 compared to the three months ended September 30, 2016 further contributed to a 2.0% increase in selling, general and administrative expenses and were primarily a result of the stronger Euro and certain currencies within Latin America and Asia compared to the U.S. dollar.

### Research and development expenses

Research and development expenses increased $1.7 million, or 11.4%, to $16.6 million for the three months ended September 30, 2017 compared to $14.9 million for the three months ended September 30, 2016. This increase was a result of additional spend as we focus on developing new and existing coatings products, sourcing of additional internal capabilities, as well as the impacts from acquisitions. Further contributing to the increase were the impacts of currency exchange, which contributed to an increase of 4.5% over the comparable period.

### Amortization of acquired intangibles

Amortization of acquired intangibles increased $5.5 million, or 25.8%, to $26.8 million for the three months ended September 30, 2017 compared to $21.3 million for the three months ended September 30, 2016. This increase for the three months ended September 30, 2017 was attributable to amortization of the definite-lived intangible assets from our acquisitions combined with impacts of the strengthening Euro and certain currencies within Latin America and Asia compared to the U.S. dollar.

### Interest expense, net

Interest expense, net decreased $5.2 million, or 12.1%, to $37.7 million for the three months ended September 30, 2017 compared to $42.9 million for the three months ended September 30, 2016. The decrease for the three months ended September 30, 2017 was driven by the refinancing of our indebtedness during 2016 and 2017 which reduced the overall interest rates of our debt portfolio, partially offset by increases resulting from the incremental indebtedness associated with the 2024 Dollar Term Loans used to finance the Industrial Wood Acquisition.

### Other expense, net

Other expense, net decreased $79.5 million from $87.4 million for the three months ended September 30, 2016 to $7.9 million for the three months ended September 30, 2017. This decrease relates primarily to the absence of losses on debt extinguishment and refinancing related costs incurred during the three months ended September 30, 2016 which resulted in a $81.3 million decrease over the comparable period. In addition, there was a reduction in foreign exchange losses, net from $3.5 million during the three months ended September 30, 2017 as compared to $4.5 million for the three months ended September 30, 2016, resulting in a $1.0 million decrease over the comparable period. Partially offsetting the decrease was the impact of a $4.4 million impairment related to a manufacturing facility closure.

### Provision for income taxes

We recorded an income tax provision of $2.1 million for the three months ended September 30, 2017, which represents a 3.6% effective tax rate in relation to income before income taxes of $58.4 million. The effective tax rate for the three months ended September 30, 2017 differs from the U.S. Federal statutory rate by 31.4%, which is the result of various items that impacted the effective rate both favorably and unfavorably. We recorded adjustments for earnings in jurisdictions where the statutory rate is lower than the U.S. Federal rate, primarily related to Bermuda, China, Germany, Luxembourg, Netherlands and Switzerland, which had a net favorable impact of $34.6 million and current year excess tax benefits related to stock-based compensation of $2.7 million. Our net favorable adjustments were partially offset by the impact of pre-tax losses attributable to jurisdictions where a tax benefit is not expected to be realized of $0.5 million, non-deductible expenses and interest of $3.1 million and $17.1 million associated with currency exchange losses.

We recorded an income tax benefit of $7.5 million for the three months ended September 30, 2016, which represents a 58.1% effective tax rate in relation to the loss before income taxes of $12.9 million. The effective tax rate for the three months ended September 30, 2016 differs from the U.S. Federal statutory rate by 23.1%, which is the result of various items that impacted the effective rate both favorably and unfavorably. We recorded adjustments for earnings in jurisdictions where the statutory rate is lower than the U.S. Federal rate, primarily in China, Germany, Luxembourg, Netherlands and Switzerland, which had a net favorable impact of $15.8 million and we recognized a benefit of $0.9 million associated with currency exchange losses. These adjustments were partially offset by the impact of pre-tax losses attributable to jurisdictions where a tax benefit is not expected to be realized of $14.0 million and non-deductible expenses and interest of $4.3 million. The provision for income taxes for the three months ended September 30, 2016 has been revised to reflect the adoption of ASU 2016-09, resulting in a decrease of the provision of $6.4 million.

### Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016

The following table was derived from the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2017 and 2016 included elsewhere in this Quarterly Report on Form 10-Q.

*(In millions)*

|  | Nine Months Ended September 30, 2017 | 2016 |
| --- | ---: | ---: |
| Net sales | $3,188.1 | $3,041.4 |
| Other revenue | 16.5 | 18.7 |
| Total revenue | 3,204.6 | 3,060.1 |
| Cost of goods sold | 2,033.6 | 1,885.8 |
| Selling, general and administrative expenses | 717.8 | 699.1 |
| Venezuela deconsolidation charge | 70.9 | — |
| Research and development expenses | 48.6 | 41.6 |
| Amortization of acquired intangibles | 72.3 | 61.8 |
| Income from operations | 261.4 | 371.8 |
| Interest expense, net | 109.1 | 140.8 |
| Other expense, net | 27.5 | 128.2 |
| Income before income taxes | 124.8 | 102.8 |
| Provision for income taxes | 21.5 | 23.1 |
| Net income | 103.3 | 79.7 |
| Less: Net income attributable to noncontrolling interests | 5.1 | 3.7 |
| Net income attributable to controlling interests | $98.2 | $76.0 |

### Net sales

Net sales increased $146.7 million, or 4.8%, to $3,188.1 million for the nine months ended September 30, 2017, compared to net sales of $3,041.4 million for the nine months ended September 30, 2016. Our net sales increase for the nine months ended September 30, 2017 included the benefits of acquisitions which contributed to an increase in sales volumes of 6.9%. Further contributing to this sales growth was an increase in organic sales volumes within Europe and Asia, which were offset by declines in organic sales volumes in Latin America and North America, resulting in flat organic volumes over the comparable period. Lower average sales prices contributed to a 1.5% decrease driven primarily by the Transportation Coatings segment. Net sales were also negatively impacted from unfavorable impacts of currency translation, which reduced net sales by 0.6%, due primarily to the impacts of the weaker Euro and certain currencies within Latin America and Asia compared to the U.S. dollar.

### Other revenue

Other revenue decreased $2.2 million, or 11.8%, to $16.5 million for the nine months ended September 30, 2017, compared to $18.7 million for the nine months ended September 30, 2016 as a result of decreases in service revenue within our European region. The impacts of currency exchange did not have a material impact on the comparable periods.

### Cost of sales

Cost of sales increased $147.8 million, or 7.8%, to $2,033.6 million for the nine months ended September 30, 2017 compared to $1,885.8 million for the nine months ended September 30, 2016. The increase for the nine months ended September 30, 2017 resulted primarily from higher volumes of 6.9%. Cost of sales as a percentage of net sales increased to 63.8% for the nine months ended September 30, 2017 compared to 62.0% for the nine months ended September 30, 2016 as a result of lower average selling prices combined with the impact of fair value of inventory associated with recent acquisitions.

Partially offsetting this increase were favorable effects of currency translation resulting from the impacts of the weaker Euro and certain currencies within Latin America and Asia compared to the U.S. dollar, which contributed to a 0.3% decrease.

### Selling, general and administrative expenses

Selling, general and administrative expenses increased $18.7 million, or 2.7%, to $717.8 million for the nine months ended September 30, 2017 compared to $699.1 million for the nine months ended September 30, 2016. The increase resulted primarily from the impacts of acquisitions of $37.0 million as well as our focus on opportunities to expand our market presence and invest in commercial capabilities.

This increase was partially offset by a decrease in costs associated with cost savings initiatives and acquisition-related costs which were $22.6 million for the nine months ended September 30, 2017 as compared to $38.1 million of costs for the nine months ended September 30, 2016, resulting in a $15.5 million decrease over the comparable period.

Further offsetting the increase was the favorable impact of currency exchange during the nine months ended September 30, 2017 which contributed to a 0.5% reduction in selling, general and administrative expenses due to the impact of the weakening Euro and certain currencies within Latin America and Asia compared to the U.S. dollar.

### Venezuela deconsolidation charge

During the nine months ended September 30, 2017 we recorded a loss of $70.9 million in conjunction with the deconsolidation of our Venezuelan subsidiary, for which there were no corresponding losses recorded during nine months ended September 30, 2016. See further discussion in Note 21 to the interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

### Research and development expenses

Research and development expenses increased $7.0 million, or 16.8%, to $48.6 million for the nine months ended September 30, 2017 compared to $41.6 million for the nine months ended September 30, 2016. This increase was a result of additional spend as we focus on developing new and existing coatings products, sourcing of additional internal capabilities, as well as the impacts from acquisitions. The impacts of currency exchange did not have a material impact on the comparable periods.

### Amortization of acquired intangibles

Amortization of acquired intangibles increased $10.5 million, or 17.0%, to $72.3 million for the nine months ended September 30, 2017 compared to $61.8 million for the nine months ended September 30, 2016. This increase was attributable to amortization of the definite-lived intangible assets from our acquisitions. The impacts of currency exchange did not have a material impact on the comparable periods.

### Interest expense, net

Interest expense, net decreased $31.7 million, or 22.5%, to $109.1 million for the nine months ended September 30, 2017 compared to $140.8 million for the nine months ended September 30, 2016. The decrease was driven by the refinancing of our indebtedness during 2016 and 2017 which reduced the overall interest rates of our debt portfolio, partially offset by increases resulting from the incremental indebtedness associated with the 2024 Dollar Term Loans used to finance the Industrial Wood Acquisition.

### Other expense, net

Other expense, net decreased $100.7 million to $27.5 million for the nine months ended September 30, 2017 compared to $128.2 million for the nine months ended September 30, 2016. This decrease relates primarily to losses on debt extinguishment and refinancing related costs incurred during the nine months ended September 30, 2016 which aggregated to $84.2 million. Comparable costs incurred during the nine months ended September 30, 2017 aggregated to $13.0 million resulting in a decrease of $71.2 million.

In addition, there was a $21.7 million reduction of foreign exchange losses, net from $30.0 million recorded during the nine months ended September 30, 2016 to $8.3 million during the nine months ended September 30, 2017.

Furthering this decrease was a $2.9 million decrease in impairments to $7.6 million during the nine months ended September 30, 2017 associated with impairments related to the manufacturing facilities closures, compared to the impairment of $10.5 million related to our real estate investment in Venezuela incurred during the nine months ended September 30, 2016.

### Provision for income taxes

We recorded an income tax provision of $21.5 million for the nine months ended September 30, 2017, which represents a 17.2% effective tax rate in relation to the income before income taxes of $124.8 million. The effective tax rate for the nine months ended September 30, 2017 differs from the U.S. Federal statutory rate by 17.8%, which is the result of various items that impacted the effective rate both favorably and unfavorably. We recorded adjustments for earnings in jurisdictions where the statutory rate is lower than the U.S. Federal rate, primarily related to Bermuda, China, Germany, Luxembourg, Netherlands and Switzerland, which had a net favorable impact of $62.6 million and current year excess tax benefits related to stock-based compensation of $11.6 million. Furthermore, we recorded a deferred tax asset of $26.4 million related to the tax basis in our deconsolidated Venezuelan subsidiary, which was fully offset by a valuation allowance as we do not expect to realize the benefits. Our net favorable adjustments were partially offset by the impact of pre-tax losses attributable to jurisdictions where a tax benefit is not expected to be realized of $8.5 million, non-deductible expenses and interest of $10.9 million and $9.4 million associated with currency exchange losses. In addition, the pre-tax charge of $70.9 million related to the deconsolidation of our Venezuelan subsidiary resulted in an unfavorable impact of $24.8 million on the effective rate.

We recorded an income tax provision of $23.1 million for the nine months ended September 30, 2016, which represents a 22.5% effective tax rate in relation to the income before income taxes of $102.8 million. The effective tax rate for the nine months ended September 30, 2016 differs from the U.S. Federal statutory rate by 12.5%, which is the result of various items that impacted the effective rate both favorably and unfavorably. We recorded adjustments for earnings in jurisdictions where the statutory rate is lower than the U.S. Federal rate, primarily in China, Germany, Luxembourg, Netherlands and Switzerland, which had a net favorable impact of $31.9 million and we recognized a benefit of $9.5 million associated with currency exchange losses. These adjustments were partially offset by the impact of pre-tax losses attributable to jurisdictions where a tax benefit is not expected to be realized of $23.3 million and non-deductible expenses and interest of $8.0 million. In addition, our pre-tax impairment charge in Venezuela of $10.5 million had an unfavorable $3.7 million impact on the effective rate as it was non-deductible. The provision for income taxes for the nine months ended September 30, 2016 has been amended to reflect the adoption of ASU 2016-09, resulting in a decrease of the provision of $10.8 million.

### SEGMENT RESULTS

### Three months ended September 30, 2017 compared to the three months ended September 30, 2016

The following table presents net sales and Adjusted EBITDA, by segment, for the periods presented:

*(In millions)*

| Net Sales | Three Months Ended September 30, 2017 | 2016 |
| --- | ---: | ---: |
| Performance Coatings | $693.5 | $616.5 |
| Transportation Coatings | 398.3 | 404.1 |
| Total | $1,091.8 | $1,020.6 |
| Adjusted EBITDA |  |  |
| Performance Coatings | $135.1 | $145.7 |
| Transportation Coatings | 74.4 | 84.7 |
| Total | $209.5 | $230.4 |

### Performance Coatings Segment

Net sales increased $77.0 million, or 12.5%, to $693.5 million for the three months ended September 30, 2017 compared to net sales of $616.5 million for the three months ended September 30, 2016. The increase in net sales for the three months ended September 30, 2017 was driven by increased volumes of 9.5%. This included a 16.1% benefit from acquisitions and organic volume increases in our industrial end-market of 3.0%, partially offset by a decline in our refinish end-market driven by distributor working capital adjustments and recent natural disasters in North America, as well as the Venezuela deconsolidation impact in Latin America. Higher average selling prices contributed to an increase of 0.9%, as well as favorable impacts of currency exchange related to strengthening of the Euro and certain currencies in Latin America and Asia compared to the U.S. dollar which contributed to a 2.1% increase.

Adjusted EBITDA decreased $10.6 million, or 7.3%, to $135.1 million for the three months ended September 30, 2017 compared to Adjusted EBITDA of $145.7 million for the three months ended September 30, 2016. The decrease in Adjusted EBITDA for the three months ended September 30, 2017 was driven by lower sales volumes in North America and Latin America and the unfavorable impacts of higher variable costs across all regions and end-markets. Partially offsetting these decreases were the impacts of acquisitions and higher average selling prices across all regions, as well as favorable impacts of the stronger Euro and certain currencies within Latin America and Asia compared to the U.S. dollar.

### Transportation Coatings Segment

Net sales decreased $5.8 million, or 1.4%, to $398.3 million for the three months ended September 30, 2017 compared to net sales of $404.1 million for the three months ended September 30, 2016. The decrease in net sales for the three months ended September 30, 2017 was driven by lower than average selling prices of 3.0% primarily resulting from our light vehicle end-market. These declines were offset through an increase in sales volumes which contributed to growth of 0.2%, and favorable impacts of currency exchange related to strengthening of the Euro and certain currencies in Latin America and Asia compared to the U.S. dollar which contributed to a 1.4% increase in net sales.

Adjusted EBITDA decreased $10.3 million, or 12.2%, to $74.4 million for the three months ended September 30, 2017 compared to Adjusted EBITDA of $84.7 million for the three months ended September 30, 2016. The decrease in Adjusted EBITDA for the three months ended September 30, 2017 was primarily driven by lower than average selling prices in our light vehicle end-market and higher variable costs across all regions and end-markets. These decreases were partially offset by the impacts of lower operating costs across all regions and end-markets.

### Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016

The following table presents net sales and Adjusted EBITDA, by segment, for the periods presented:

*(In millions)*

| Net Sales | Nine Months Ended September 30, 2017 | 2016 |
| --- | ---: | ---: |
| Performance Coatings | $1,942.8 | $1,791.7 |
| Transportation Coatings | 1,245.3 | 1,249.7 |
| Total | $3,188.1 | $3,041.4 |
| Adjusted EBITDA |  |  |
| Performance Coatings | $398.8 | $413.2 |
| Transportation Coatings | 241.0 | 264.7 |
| Total | $639.8 | $677.9 |

### Performance Coatings Segment

Net sales increased $151.1 million, or 8.4%, to $1,942.8 million for the nine months ended September 30, 2017 compared to net sales of $1,791.7 million for the nine months ended September 30, 2016. The increase in net sales for the nine months ended September 30, 2017 was driven by increased volumes of 9.5%. This included an 11.1% benefit from acquisitions and organic volume increases in our industrial end-market of 2.2%, partially offset by a decline in our refinish end-market driven by distributor working capital adjustments and recent natural disasters in North America, as well as the Venezuela deconsolidation impact in Latin America. This volume growth was partially offset by lower average selling prices which decreased net sales by 0.2% as well as unfavorable impacts of currency exchange related to the weakening of the Euro and certain currencies within Latin America and Asia, which contributed to a 0.9% reduction in net sales.

Adjusted EBITDA decreased $14.4 million, or 3.5%, to $398.8 million for the nine months ended September 30, 2017 compared to Adjusted EBITDA of $413.2 million for the nine months ended September 30, 2016. The decrease in Adjusted EBITDA in the nine months ended September 30, 2017 was primarily driven by a decline in sales volumes in Latin America combined with lower than average selling prices in North America. Furthering these decreases were unfavorable impacts of the weaker Euro and certain currencies within Latin America and Asia compared to the U.S. dollar, as well as higher variable costs. Offsetting these decreases was volume growth in North America and Europe due to acquisitions.

### Transportation Coatings Segment

Net sales decreased $4.4 million, or 0.4%, to $1,245.3 million for the nine months ended September 30, 2017 compared to net sales of $1,249.7 million for the nine months ended September 30, 2016. The decrease in net sales for the nine months ended September 30, 2017 was driven by lower average selling prices across both end-markets which resulted in declines in net sales of 3.4%. Further contributing to the decline were the unfavorable impacts of currency exchange related to the weakening of the Euro and certain currencies within Asia compared to the U.S. dollar further contributed to a 0.3% reduction in net sales. Partially offsetting these declines was a 3.3% increase in sales volumes across both end-markets, including the impact of acquisitions.

Adjusted EBITDA decreased $23.7 million, or 9.0%, to $241.0 million for the nine months ended September 30, 2017 compared to Adjusted EBITDA of $264.7 million for the nine months ended September 30, 2016. The decrease in Adjusted EBITDA for the nine months ended September 30, 2017 was driven by lower average selling prices primarily within our light vehicle end-market combined with higher operating costs and unfavorable impacts of the weakening of certain currencies within Europe and Asia compared to the U.S. dollar. These decreases were partially offset by increases in sales volumes across both end-markets, inclusive of positive acquisition impacts.

### LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash on hand, cash flow from operations and available borrowing capacity under our Senior Secured Credit Facilities.

At September 30, 2017, availability under the Revolving Credit Facility was $378.2 million, net of $21.8 million of letters of credit outstanding. All such availability may be utilized without violating any covenants under the credit agreement governing such facility or the indentures governing the New Senior Notes. At September 30, 2017, we had $12.0 million of outstanding borrowings under other lines of credit. Our remaining available borrowing capacity under other lines of credit in certain non-U.S. jurisdictions totaled $1.0 million.

We or our affiliates, at any time and from time to time, may purchase shares of our common stock, the New Senior Notes or other indebtedness. Any such purchases may be made through the open market or privately negotiated transactions with third parties or pursuant to one or more redemption, tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we, or any of our affiliates, may determine.

### Cash Flows

*(In millions)*

| Net cash provided by (used for): Operating activities: | Nine Months Ended September 30, 2017 | 2016 |
| --- | ---: | ---: |
| Net income | $103.3 | $79.7 |
| Depreciation and amortization | 255.9 | 235.8 |
| Amortization of deferred financing costs and original issue discount | 6.1 | 14.6 |
| Debt extinguishment and refinancing related costs | 13.0 | 84.2 |
| Deferred income taxes | (21.7) | (15.0) |
| Realized and unrealized foreign exchange (gains) losses, net | (1.4) | 30.6 |
| Stock-based compensation | 30.5 | 31.6 |
| Asset impairment | 7.6 | 10.5 |
| Venezuela deconsolidation charge | 70.9 | — |
| Other non-cash items | 6.9 | (10.4) |
| Net income adjusted for non-cash items | 471.1 | 461.6 |
| Changes in operating assets and liabilities | (164.7) | (130.3) |
| Operating activities | 306.4 | 331.3 |
| Investing activities | (646.7) | (205.1) |
| Financing activities | 380.7 | (72.8) |
| Effect of exchange rate changes on cash | 13.5 | (10.0) |
| Net decrease in cash and cash equivalents | $53.9 | $43.4 |

### Nine months ended September 30, 2017

#### Net Cash Provided by Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2017 was $306.4 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $471.1 million. This was partially offset by net increases in uses of working capital of $164.7 million. The most significant drivers in working capital were increases in accounts receivables of $44.5 million, inventory of $37.6 million and other assets of $79.9 million, due to the seasonal increase in net sales, increased inventory builds to support ongoing operational demands and upfront customer incentive payments during the nine months ended September 30, 2017. Other uses were due to reductions in other accrued liabilities of $27.8 million and other liabilities of $9.1 million related to payments of normal operating activities, including interest payments on our long-term indebtedness and timing of cash payments for annual employee performance related benefits, offset by increases in accounts payable of $34.2 million.

#### Net Cash Used for Investing Activities

Net cash used for investing activities for the nine months ended September 30, 2017 was $646.7 million. This use was comprised of business acquisitions of $559.3 million (net of cash acquired), purchases of property, plant and equipment of $87.2 million, reduction of cash due to Venezuela deconsolidation of $4.3 million, and net cash used for other investing activities of $4.6 million.

#### Net Cash Provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2017 was $380.7 million. This change was driven by net proceeds of $456.4 million relating to the refinancing of our Dollar Term Loans and cash received from stock option exercises of $19.9 million. These proceeds were offset by purchases of treasury stock for $58.4 million and other payments of $37.2 million consisting of financing-related costs, pay-down of short-term and long-term borrowings, deferred acquisition-related considerations, including payments for deferred purchase price consideration and contingent consideration on historical acquisitions, and dividends to noncontrolling interests.

#### Other Impacts on Cash

Currency exchange impacts on cash for the nine months ended September 30, 2017 were $13.5 million, which was driven primarily by favorable exchange impacts from the strengthening of the Euro compared to the U.S. dollar.

### Nine months ended September 30, 2016

#### Net Cash Provided by Operating Activities

Net cash provided by operating activities was $331.3 million for the nine months ended September 30, 2016. Net income before deducting depreciation, amortization and other non-cash items generated cash of $461.6 million. This was partially offset by net increases in working capital of $130.3 million. The most significant drivers in working capital were increases in accounts receivables and other assets of $135.0 million primarily due to the seasonal timing of net sales.

#### Net Cash Used for Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2016 was $205.1 million. This use was substantially driven by business acquisitions of $103.5 million (net of cash acquired), purchases of property, plant and equipment of $95.3 million, and intangible asset acquisitions of $3.9 million.

#### Net Cash Used for Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2016 was $72.8 million. This use was driven by the redemption of our 2021 Dollar and Euro Senior Notes of $1,375.5 million, which also required us to pay a premium for early redemption of $56.6 million. These payments were offset by proceeds from the issuance of our new 2024 Senior Notes and 2025 Euro Senior Notes of $1,377.6 million, which also required us to pay financing costs of $21.7 million in relation to the issuance of our new debt. In addition, we had cash received from stock options exercised for $13.8 million, which is offset by repayments of short-term borrowings of $7.2 million and dividends paid to noncontrolling interests of

$3.0 million.

#### Other Impacts on Cash

Currency exchange impacts on cash for the nine months ended September 30, 2016 were $10.0 million, primarily driven by the impacts on cash resulting from the change in our translation rates for our Venezuelan subsidiary, which contributed $13.9 million.

### Financial Condition

We had cash and cash equivalents at September 30, 2017 and December 31, 2016 of $588.9 million and $535.4 million, respectively. Of these balances, $318.7 million and $366.7 million were maintained in non-U.S. jurisdictions as of September 30, 2017 and December 31, 2016, respectively. We believe our organizational structure allows us the necessary flexibility to move funds throughout our subsidiaries to meet our operational working capital needs.

Our business may not generate sufficient cash flow from operations and future borrowings may not be available under our Senior Secured Credit Facilities in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs, including planned capital expenditures. In such circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Our primary sources of liquidity are cash on hand, cash flow from operations and available borrowing capacity under our Revolving Credit Facility. Based on our forecasts, we believe that cash flow from operations, available cash on hand and available borrowing capacity under our Senior Secured Credit Facilities and existing lines of credit will be adequate to service debt, fund our cost-savings initiatives, meet liquidity needs and fund necessary capital expenditures for the next twelve months.

Our ability to make scheduled payments of principal or interest on, or to refinance, our indebtedness or to fund working capital requirements, capital expenditures and other current obligations will depend on our ability to generate cash from operations. Such cash generation is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

If required, our ability to raise additional financing and our borrowing costs may be impacted by short and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios. Our highly leveraged nature may limit our ability to procure additional financing in the future.

The following table details our borrowings outstanding at the end of the periods indicated:

*(In millions)*

|  | September 30, 2017 | December 31, 2016 |
| --- | ---: | ---: |
| 2024 Dollar Term Loans | $1,995.0 | $— |
| 2023 Dollar Term Loans | — | 1,545.0 |
| 2023 Euro Term Loans | 467.1 | 417.6 |
| 2024 Dollar Senior Notes | 500.0 | 500.0 |
| 2024 Euro Senior Notes | 394.2 | 349.7 |
| 2025 Euro Senior Notes | 529.5 | 469.8 |
| Short-term and other borrowings | 67.2 | 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 borrowings | 24.7 | 19.6 |
| Long-term debt | $3,865.2 | $3,236.0 |

Our indebtedness, including the Senior Secured Credit Facilities and New Senior Notes, is more fully described in Note 15 to the interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We continue to maintain sufficient liquidity to meet our requirements, including our principal payments and associated interest as well as our working capital needs. Availability under the Revolving Credit Facility was $378.2 million and $378.7 million at September 30, 2017 and December 31, 2016, respectively, all of which may be borrowed by us without violating any covenants under the credit agreement governing such facility or the indentures governing the New Senior Notes.

### Contractual Obligations

The following table summarizes our contractual obligations at September 30, 2017:

*(In millions)*

| Debt, including current portion (1) Senior Secured Credit Facilities, consisting of the following: Term Loan Facilities: | Contractual Obligations Due In: Total | Remainder of 2017 | 2018-2019 | 2020-2021 | Thereafter |
| --- | ---: | ---: | ---: | ---: | ---: |
| 2024 Dollar Term Loans | $1,995.0 | $5.0 | $40.0 | $40.0 | $1,910.0 |
| 2023 Euro Term Loans | 467.1 | 1.2 | 9.4 | 9.4 | 447.1 |
| Senior Notes, consisting of the following: |  |  |  |  |  |
| 2024 Dollar Senior Notes | 500.0 | — | — | — | 500.0 |
| 2024 Euro Senior Notes | 394.2 | — | — | — | 394.2 |
| 2025 Euro Senior Notes | 529.5 | — | — | — | 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 leases | 129.3 | 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.

(2) Other borrowings excludes debt associated with two of our leases treated as indebtedness, discussed within end-note 4.

(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.

### Scheduled Maturities

Below is a schedule of required future repayments of all borrowings outstanding at September 30, 2017.

*(In millions)*

|  |  |
| --- | ---: |
| Remainder of 2017 | $19.3 |
| 2018 | 28.9 |
| 2019 | 25.5 |
| 2020 | 25.4 |
| 2021 | 25.4 |
| Thereafter | 3,814.3 |
| Total | $3,938.8 |

The table above excludes $14.2 million of debt associated with our sale-leaseback financings that will not be settled with cash.

### Off-Balance Sheet Arrangements

We directly guarantee certain obligations under agreements with third parties. At September 30, 2017 and December 31, 2016 these off-balance sheet arrangements were not material to our interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

### Recent Accounting Guidance

See Note 2 "Recent Accounting Guidance" to the interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recent accounting guidance.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations, and that require the use of complex and subjective estimates based upon past experience and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ materially from these estimates. The policies applied in preparing our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q are those that management believes are the most dependent on estimates and assumptions. There have been no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. For a description of our critical accounting policies and estimates as well as a listing of our significant accounting policies, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” and “Note 3 - Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

## Market risk

As filed, 205 characters.

There have been no material changes in the market risks previously disclosed in our financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

## Controls and procedures

As filed, 1,104 characters.

### Evaluation of disclosure controls and procedures

As required by Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2017.

### Changes in internal control over financial reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 181 characters.

There have been no material changes in our risk factors from the risks previously reported in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.

Filed Oct 26, 2017.
Source: SEC EDGAR, the filing index for accession 0001616862-17-000060. Last ingested by Listed: Nov 12, 2026, 22:39 ET. No prices; not investment advice.