# Axalta Coating Systems Ltd.: Form 10-Q for the period ended Mar 31, 2019

- Company: [Axalta Coating Systems Ltd.](/companies/axta.md) (CIK 1616862)
- Form: 10-Q
- Filed: 2019-04-25
- Accepted by EDGAR: Apr 25, 2019, 06:58 ET
- Period: 2019-03-31
- Accession: 0001616862-19-000032
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1616862/000161686219000032/a2019033110-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1616862/000161686219000032/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-01-01 to 2019-03-31 | $1.12bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-01-01 to 2019-03-31 | $751.3m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2019-01-01 to 2019-03-31 | $18.2m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2019-01-01 to 2019-03-31 | $217.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-01-01 to 2019-03-31 | $98.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-01-01 to 2019-03-31 | $41.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-01-01 to 2019-03-31 | $14.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-01-01 to 2019-03-31 | $43.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-01-01 to 2019-03-31 | $0.18 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-01-01 to 2019-03-31 | $0.19 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-01-01 to 2019-03-31 | 236,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 3 months, 2019-01-01 to 2019-03-31 | $20.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2019-01-01 to 2019-03-31 | $65.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-03-31 | $501.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-03-31 | $2.26bn | us-gaap:AssetsCurrent |
| Total assets | at 2019-03-31 | $6.67bn | us-gaap:Assets |
| Current liabilities | at 2019-03-31 | $1.02bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-03-31 | $5.39bn | us-gaap:Liabilities |
| Long-term debt | at 2019-03-31 | $3.90bn | us-gaap:LongTermDebt |
| Current portion of debt | at 2019-03-31 | $43.5m | us-gaap:DebtCurrent |
| Short-term borrowings | at 2019-03-31 | $19.2m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2019-03-31 | $1.21bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,523 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 on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.*

### 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 concerning possible or assumed future results of operations, including descriptions of our business plan, strategies and capital structure. These statements often include words such as "anticipate," "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 "Forward-Looking Statements," as well as "Risk Factors" 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;
- reduced demand for some of our products as a result of improved safety features on vehicles, insurance company influence, new business models or new methods of travel
- risks of the loss or change in purchasing levels 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;
- credit risk exposure from our customers;
- price increases or business 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 security risks to our information technology systems;
- risks associated with our outsourcing strategies;
- 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;
- risks associated with the United Kingdom’s withdrawal from the European Union;
- 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;
- risks associated with protecting data privacy;
- 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 our acquisition of DuPont Performance Coatings;
- transporting certain materials that are inherently hazardous due to their toxic nature;
- litigation and other commitments and contingencies;
- 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;
- risks associated with changes in tax rates or regulations, including unexpected impacts of the new U.S. TCJA legislation, which may differ with further regulatory guidance and changes in our current interpretations and assumptions;
- our substantial indebtedness;
- our ability to obtain additional capital on commercially reasonable terms may be limited;
- 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, 2018 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 50 manufacturing facilities, four technology centers, 47 customer training centers and approximately 14,000 employees allows us to meet the needs of customers in over 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 decreased 4.5% for the three months ended March 31, 2019 compared with the three months ended March 31, 2018, primarily driven by the impacts of unfavorable currency translation which contributed to a decrease in net sales of 4.8%. Further contributing to the decrease in net sales was a net decline in volumes of 1.8%, primarily within our Transportation Coatings segment, including the positive impacts of acquisitions which contributed 0.3% to volumes. Partially offsetting these declines were increases in average selling prices across both segments, resulting in an increase of 2.1%. The following trends have impacted our segment and end-market sales performance:

- *Performance Coatings:* Net sales decreased 2.4% driven primarily by the impacts of unfavorable foreign currency translation of 4.8%, as well as a decline in volumes across both end-markets of 0.9%, inclusive of the positive impacts of acquisitions of 0.5%. Partially offsetting these declines were increases in average selling prices across both end-markets of 3.3%.
- *Transportation Coatings:* Net sales decreased 7.9% driven primarily by the impacts of unfavorable foreign currency translation of 4.8%, as well as a decline in volumes of 3.3%. Partially offsetting these declines were higher average selling prices of 0.2%.

Our business serves four end-markets globally with net sales for the three months ended March 31, 2019 and 2018, as follows:

*(In millions)*

| Performance Coatings | Three Months Ended March 31, 2019 | 2018 | 2019 vs 2018 % change |
| --- | ---: | ---: | ---: |
| Refinish | $405.5 | $414.2 | (2.1)% |
| Industrial | 307.8 | 316.8 | (2.8)% |
| Total Net sales Performance Coatings | 713.3 | 731.0 | (2.4)% |
| **Transportation Coatings** |  |  |  |
| Light Vehicle | 315.9 | 353.2 | (10.6)% |
| Commercial Vehicle | 90.1 | 87.8 | 2.6% |
| Total Net sales Transportation Coatings | 406.0 | 441.0 | (7.9)% |
| Total Net sales | $1,119.3 | $1,172.0 | (4.5)% |

#### Acquisitions and Divestitures Highlights

During the three months ended March 31, 2019, pursuant to the stock purchase agreement for a consolidated joint venture acquisition during the year ended December 31, 2016, we were required to purchase an additional 24.5% interest for $26.9 million, increasing our total ownership percentage to 100.0%.

During the three months ended March 31, 2019, we entered into an agreement to sell our 60.0% interest in a consolidated joint venture within our Performance Coatings segment. The results of operations of the portion of the business to be sold is included in continuing operations within the condensed consolidated statements of operations. All assets and liabilities of the disposal group have been classified as held for sale on our condensed consolidated balance sheet and recorded at the lower of carrying value and fair value less cost to sell, which resulted in a loss of $5.2 million for the three months ended March 31, 2019. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

#### Capital and Liquidity Highlights

During the three months ended March 31, 2019, we repurchased 2.5 million shares for total consideration of $65.8 million as we continue to execute against our previously approved share repurchase program.

### FACTORS AFFECTING OUR OPERATING RESULTS

There have been no 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, 2018.

### RESULTS OF OPERATIONS

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

### Net sales

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $1,119.3 | $1,172.0 | $(52.7) | (4.5)% |
| Volume effect |  |  |  | (2.1)% |
| Impact of acquisitions |  |  |  | 0.3% |
| Price/product mix effect |  |  |  | 2.1% |
| Exchange rate effect |  |  |  | (4.8)% |

Net sales decreased due to the following:

n Unfavorable impacts of currency translation, due primarily to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

n Lower sales volumes across both segments, partially offset by an increase within our commercial vehicle end-market

Partially offset by:

n Higher average selling prices across both our segments, primarily within our Performance Coatings segment

n Impacts of acquisitions within our Performance Coatings segment

### Cost of sales

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of sales | $751.3 | $776.0 | $(24.7) | (3.2)% |
| % of net sales | 67.1% | 66.2% |  |  |

Cost of sales decreased due to the following:

n Favorable impacts of currency translation of 3.7%, due primarily to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

n Lower sales volumes across both segments

Partially offset by:

n Increased raw material costs across both segments

n Incremental accelerated depreciation expense of $6.1 million, for which there were no costs in the comparable period

Cost of sales as a percentage of net sales increased due to the following:

n Lower sales volume covering fixed costs and the incremental accelerated depreciation expense of $6.1 million, as well as increased raw material costs, partially offset by increase in price recapture in net sales

### Selling, general and administrative expenses

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| SG&A | $217.5 | $227.8 | $(10.3) | (4.5)% |

Selling, general and administrative expenses decreased due to the following:

n Favorable impacts of currency translation of 4.7% due primarily to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

Partially offset by:

n Axalta Way cost savings initiatives and acquisition-related costs of $1.9 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively, resulting in a $1.6 million increase over the comparable period

33

### Loss on assets held for sale

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Loss on assets held for sale | $5.2 | $— | $5.2 | 100.0% |

Loss on assets held for sale increased due to the following:

n During the three months ended March 31, 2019, we recorded a loss on the anticipated sale of our interest in a joint venture business determined to be held for sale as discussed above in "Business Highlights - Acquisitions and Divestitures"

### Research and development expenses

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development expenses | $18.2 | $19.3 | $(1.1) | (5.7)% |

Research and development expenses decreased due to the following:

n Favorable impacts of currency translation, which reduced expenses by 1.0% due primarily to the weakening of the Euro and Chinese Renminbi compared to the U.S. dollar

### Amortization of acquired intangibles

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Amortization of acquired intangibles | $28.5 | $28.9 | $(0.4) | (1.4)% |

Amortization of acquired intangibles decreased due to the following:

n Favorable impacts of foreign currency of 1.9%, primarily related to the weakening of the Euro and Chinese Renminbi compared to the U.S. dollar

### Interest expense, net

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $41.3 | $39.4 | $1.9 | 4.8% |

Interest expense, net increased due to the following:

n Increases in average interest rates due to LIBOR increases on our variable rate debt over the comparable period, mostly offset by impacts of our derivative instruments

n Increases in interest costs associated with finance leases under the new standard, of which certain leases were historically treated as sale-leaseback financing transactions

### Other income, net

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other income, net | $(1.0) | $(2.2) | $1.2 | (54.5)% |

Other income, net decreased due to the following:

n Increase in miscellaneous expenses, including increased net foreign exchange losses

34

### Provision for income taxes

|  | Three months ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Income before income taxes | $58.3 | $82.8 |
| Provision for income taxes | 14.2 | 11.8 |
| Statutory U.S. Federal income tax rate | 21.0% | 21.0% |
| Effective tax rate | 24.3% | 14.3% |
| Effective tax rate vs. statutory U.S. Federal income tax rate | 3.3% | (6.7)% |

| Items impacting the effective tax rate vs. statutory U.S. federal income tax rate | (Favorable) Unfavorable Impact 2019 | 2018 |
| --- | ---: | ---: |
| Earnings generated in jurisdictions where the statutory rate is lower than the U.S. Federal rate (1) | $(9.2) | $(4.3) |
| Changes in valuation allowance | 2.6 | 1.3 |
| Foreign exchange gain (loss), net | 5.9 | (4.0) |
| Stock-based compensation net excess tax benefits | (3.6) | (2.4) |
| Non-deductible expenses and interest | 1.6 | 3.1 |
| Increase in unrecognized tax benefits (2) | 0.8 | 6.4 |
| U.S. tax reform (3) | — | (12.4) |

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

(2) The 2018 unrecognized tax benefit is primarily associated with the financial impacts surrounding the announced closure of our manufacturing facility at our Mechelen, Belgium site.

(3) Primarily related to the realizability of certain tax attributes.

### SEGMENT RESULTS

The Company's products and operations are managed and reported in two operating segments: Performance Coatings and Transportation Coatings. During the three months ended March 31, 2019, the primary measure of performance used to review the operating segments was transitioned to Adjusted EBIT from Adjusted EBITDA. See Note 18 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

### Performance Coatings Segment

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $713.3 | $731.0 | $(17.7) | (2.4)% |
| Volume effect |  |  |  | (1.4)% |
| Impact of acquisitions |  |  |  | 0.5% |
| Price/product mix effect |  |  |  | 3.3% |
| Exchange rate effect |  |  |  | (4.8)% |
| Adjusted EBIT | $78.6 | $76.0 | $2.6 | 3.4% |
| Adjusted EBIT Margin | 11.0% | 10.4% |  |  |

Net sales decreased due to the following:

n Unfavorable currency translation primarily related to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

n Decreases in organic volumes across both end-markets

Partially offset by:

n Higher average selling prices across both end-markets and all regions

n Benefits from acquisitions in the refinish end-market

Adjusted EBIT increased due to the following:

n Higher average selling prices across both segments and all regions

Partially offset by:

n Unfavorable currency translation primarily related to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

n Higher raw material costs across both end-markets

n Lower organic volumes, offset partially by the impacts of our recent acquisitions

36

### Transportation Coatings Segment

|  | Three months ended March 31, 2019 | 2018 | 2019 vs 2018 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $406.0 | $441.0 | $(35.0) | (7.9)% |
| Volume effect |  |  |  | (3.3)% |
| Price/product mix effect |  |  |  | 0.2% |
| Exchange rate effect |  |  |  | (4.8)% |
| Adjusted EBIT | $34.2 | $45.0 | $(10.8) | (24.0)% |
| Adjusted EBIT Margin | 8.4% | 10.2% |  |  |

Net sales decreased due to the following:

n Unfavorable currency translation primarily related to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

n Volume decreases primarily in our light vehicle end-market

Partially offset by:

n Increases in average selling price in our light vehicle end-market, primarily in our North America and EMEA regions

Adjusted EBIT decreased due to the following:

n Higher raw materials costs across both end-markets and all regions

n Decreases in sales volumes across all regions in our light vehicle end-market

n Unfavorable currency translation primarily related to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

Partially offset by:

n Increases in average selling price in our light vehicle end-market, primarily in our North America and EMEA regions

n Reductions in costs due to operational efficiencies associated with our cost savings initiatives

### LIQUIDITY AND CAPITAL RESOURCES

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

At March 31, 2019, availability under the Revolving Credit Facility was $356.1 million, net of $43.9 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 Senior Notes. At March 31, 2019, we had $16.7 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 $3.8 million.

We or our affiliates, at any time and from time to time, may purchase shares of our common stock, the 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

### Three months ended March 31, 2019 and 2018

*(In millions)*

| Net cash provided by (used for): Operating activities: | Three months ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Net income | $44.1 | $71.0 |
| Depreciation and amortization | 91.6 | 91.9 |
| Amortization of deferred financing costs and original issue discount | 2.2 | 1.9 |
| Deferred income taxes | 0.4 | (4.9) |
| Realized and unrealized foreign exchange (gains) losses, net | 0.9 | (1.3) |
| Stock-based compensation | 6.7 | 8.4 |
| Loss on assets held for sale | 5.2 | — |
| Interest income on swaps designated as net investment hedges | (3.5) | — |
| Other non-cash, net | (0.3) | (5.3) |
| Net income adjusted for non-cash items | 147.3 | 161.7 |
| Changes in operating assets and liabilities | (205.2) | (182.7) |
| Operating activities | (57.9) | (21.0) |
| Investing activities | (18.8) | (117.7) |
| Financing activities | (101.8) | (41.2) |
| Effect of exchange rate changes on cash | 0.8 | 10.3 |
| Net decrease in cash and cash equivalents | $(177.7) | $(169.6) |

### Three months ended March 31, 2019

#### Net Cash Used for Operating Activities

Net cash used for operating activities for the three months ended March 31, 2019 was $57.9 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $147.3 million. This was more than offset by net uses of working capital of $205.2 million. The most significant drivers of the uses of working capital were increases in accounts receivable of $90.4 million, prepaid expenses and other assets of $60.5 million and inventories of $22.2 million during the three months ended March 31, 2019, as well as a decrease in other accrued liabilities of $69.2 million. These outflows were primarily driven by customer incentive payments and payments of normal seasonal operating activities, including interest payments on our long-term indebtedness and timing of cash payments for annual employee performance related benefits. Partially offsetting these outflows were increases in accounts payable of $35.4 million.

#### Net Cash Used for Investing Activities

Net cash used for investing activities for the three months ended March 31, 2019 was $18.8 million. The primary uses were for business acquisitions of $1.7 million and purchases of property, plant and equipment of $20.5 million.

#### Net Cash Used for Financing Activities

Net cash used for financing activities for the three months ended March 31, 2019 was $101.8 million. This change was driven by payments of $18.6 million on short-term and long-term borrowings, purchases of treasury stock totaling $65.7 million, an investment in a non-controlling interest of $26.9 million and dividends to noncontrolling interests. These payments were partially offset by cash received from stock option exercises of $11.4 million.

#### Other Impacts on Cash

Currency exchange impacts on cash for the three months ended March 31, 2019 were favorable by $0.8 million, which was driven primarily by the Chinese Renminbi.

### Three months ended March 31, 2018

See Note 1 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information related to the revisions of net cash used for investing and financing activities for the three months ended March 31, 2018.

#### Net Cash Used for Operating Activities

Net cash used for operating activities for the three months ended March 31, 2018 was $21.0 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $161.7 million. This was partially offset by net increases in working capital of $182.7 million. The most significant drivers in working capital were increases in accounts receivable of $52.3 million related to the seasonal timing of sales, and decreases in other accrued liabilities of $87.0 million related to payments of normal seasonal operating activities, including interest payments on our long-term indebtedness and timing of cash payments for annual employee performance related benefits. In addition, there were increases in inventory of $42.9 million to support ongoing operational demands.

#### Net Cash Used for Investing Activities

Net cash used for investing activities for the three months ended March 31, 2018 was $117.7 million. This use was primarily comprised of acquisitions of $78.2 million and purchases of property, plant and equipment of $39.5 million.

#### Net Cash Used for Financing Activities

Net cash used for financing activities for the three months ended March 31, 2018 was $41.2 million. This change was driven by repayments of short-term borrowings and quarterly principal payments on our term loans of $9.3 million and $6.9 million, respectively. Other payments include purchases of treasury stock of $3.3 million, an investment in a non-controlling interest of $26.9 million and dividends to non-controlling interests of $1.0 million. Offsetting these payments was cash received from stock option exercises for $6.2 million.

#### Other Impacts on Cash

Currency exchange impacts on cash for the three months ended March 31, 2018 were $10.3 million, which was driven by favorable exchange impacts primarily from the Euro and Chinese Renminbi.

### Financial Condition

We had cash and cash equivalents at March 31, 2019 and December 31, 2018 of $501.1 million and $693.6 million, respectively. Of these balances, $365.1 million and $417.1 million were maintained in non-U.S. jurisdictions as of March 31, 2019 and December 31, 2018, respectively, which excludes cash in assets held for sale of $7.3 million at March 31, 2019. 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 Senior Secured Credit Facilities. 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 saving 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)*

|  | March 31, 2019 | December 31, 2018 |
| --- | ---: | ---: |
| 2024 Dollar Term Loans | $2,405.7 | $2,411.8 |
| 2024 Dollar Senior Notes | 500.0 | 500.0 |
| 2024 Euro Senior Notes | 376.9 | 383.3 |
| 2025 Euro Senior Notes | 506.3 | 514.9 |
| Short-term and other borrowings | 111.4 | 103.8 |
| Unamortized original issue discount | (12.1) | (12.6) |
| Unamortized deferred financing costs | (35.7) | (37.2) |
|  | $3,852.5 | $3,864.0 |
| Less: |  |  |
| Short-term borrowings | $19.2 | $17.9 |
| Current portion of long-term borrowings | 24.3 | 24.3 |
| Long-term debt | $3,809.0 | $3,821.8 |

Our indebtedness, including the Senior Secured Credit Facilities and Senior Notes, is more fully described in Note 16 to the 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 leverage and associated interest as well as our working capital needs. Availability under the Revolving Credit Facility was $356.1 million and $355.2 million at March 31, 2019 and December 31, 2018, 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 Senior Notes.

In April 2018, we entered into the Sixth Amendment, which repriced the 2024 Dollar Term Loans and increased the aggregate principal balance of our 2024 Dollar Term Loans by $475.0 million to $2,430.0 million.

Concurrent with the refinancing, we executed interest rate and cross-currency swaps to convert $475.0 million of the 2024 Dollar Term Loans principal into Euro fixed-rate debt at an interest rate of 1.44%, which matures in 2023. The combined effect of the refinancing and the swaps are expected to result in annual cash interest savings of approximately $14.0 million.

### Contractual Obligations

Information related to our contractual obligations can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes in the Company's contractual obligations since December 31, 2018.

### Off-Balance Sheet Arrangements

See Note 6 "Commitments and Contingencies" to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for disclosure of our guarantees of certain customers’ obligations to third parties.

### Recent Accounting Guidance

See Note 1 "Basis of Presentation and Summary of Significant Accounting Policies" to the 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, 2018. 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 1 - Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

## 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, 2018.

## Controls and procedures

As filed, 1,316 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 March 31, 2019.

### Changes in internal control over financial reporting

There were no other changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except with regard to the implementation of ASU 2016-02 "Leases" (See Note 1 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information).

## 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, 2018.

Filed Apr 25, 2019.
Source: SEC EDGAR, the filing index for accession 0001616862-19-000032. Last ingested by Listed: Nov 12, 2026, 22:39 ET. No prices; not investment advice.