# Axalta Coating Systems Ltd.: Form 10-Q for the period ended Sep 30, 2020

- Company: [Axalta Coating Systems Ltd.](/companies/axta.md) (CIK 1616862)
- Form: 10-Q
- Filed: 2020-10-26
- Accepted by EDGAR: Oct 26, 2020, 06:53 ET
- Period: 2020-09-30
- Accession: 0001616862-20-000080
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1616862/000161686220000080/axta-20200930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1616862/000161686220000080/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-07-01 to 2020-09-30 | $1.03bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2020-01-01 to 2020-09-30 | $2.66bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-07-01 to 2020-09-30 | $634.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2020-01-01 to 2020-09-30 | $1.78bn | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2020-07-01 to 2020-09-30 | $13.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2020-01-01 to 2020-09-30 | $41.2m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2020-07-01 to 2020-09-30 | $166.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2020-01-01 to 2020-09-30 | $516.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-07-01 to 2020-09-30 | $141.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2020-01-01 to 2020-09-30 | $142.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-07-01 to 2020-09-30 | $39.8m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2020-01-01 to 2020-09-30 | $112.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-07-01 to 2020-09-30 | $17.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2020-01-01 to 2020-09-30 | −$22.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-07-01 to 2020-09-30 | $82.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2020-01-01 to 2020-09-30 | $51.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-07-01 to 2020-09-30 | $0.35 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2020-01-01 to 2020-09-30 | $0.22 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-07-01 to 2020-09-30 | $0.35 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2020-01-01 to 2020-09-30 | $0.22 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-07-01 to 2020-09-30 | 236,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2020-01-01 to 2020-09-30 | 235,900,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2020-01-01 to 2020-09-30 | $230.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2020-01-01 to 2020-09-30 | $56.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2020-01-01 to 2020-09-30 | $900.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-09-30 | $1.34bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-09-30 | $2.85bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-09-30 | $7.04bn | us-gaap:Assets |
| Current liabilities | at 2020-09-30 | $1.07bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-09-30 | $5.65bn | us-gaap:Liabilities |
| Current portion of debt | at 2020-09-30 | $48.7m | us-gaap:DebtCurrent |
| Short-term borrowings | at 2020-09-30 | $24.4m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2020-09-30 | $1.34bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 54,428 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, 2019.*

### 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 as a result of global coronavirus pandemic ("COVID-19") or otherwise;
- the duration and spread of COVID-19 outbreak; its severity; actions taken to contain the virus, including government actions to mitigate the economic impact of the outbreak; how quickly and to what extent normal economic and operating conditions can resume; how quickly and to what extent our customers and counterparties can recover from the negative impacts of the outbreak; and the effects, and unpredictability resulting from, recurring containment and mitigation actions;
- volatility in the capital, credit and commodities markets;
- our inability to successfully execute on our growth strategy and our cost savings initiatives, including restructurings;
- 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, natural disasters, pandemics, and other health crises 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, laws or regulations, or the interpretation or application of tax laws and 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, 2019 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 46 manufacturing facilities, four technology centers, 53 customer training centers and approximately 13,000 people 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 21.3% for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019, primarily driven by a decrease in volumes of 19.6% as a result of decreased demand largely due to COVID-19 impacts. The decrease in volumes is inclusive of negative impacts of portfolio changes of 0.8% associated with the prior year sale of a consolidated joint venture. Further contributing to the decrease was mostly stable but slightly lower average selling price and product mix, as well as impacts of unfavorable currency translation of 1.6%. The following trends have impacted our segment and end-market net sales performance:

- *Performance Coatings:* Net sales decreased 17.4% driven primarily by a decrease in volumes of 15.4% as a result of decreased demand largely due to COVID-19 across both end-markets, inclusive of the negative net impacts of portfolio changes of 1.3% associated with the 2019 sale of our consolidated powder joint venture in China. Furthering the decrease during the period were the impacts of unfavorable foreign currency translation of 1.1%, as well as a 0.9% decrease from lower average selling prices and product mix resulting primarily from a change in product mix in the refinish end-market.
- *Transportation Coatings:* Net sales decreased 28.5% driven primarily by a decrease in volumes of 27.3% as a result of customer shutdowns caused by COVID-19, as well as the impacts of unfavorable foreign currency translation of 2.7%. Partially offsetting the decline in volumes and foreign currency headwinds during the period was an increase of 1.5% from increased average selling prices and product mix across both end-markets and all regions.

Our business serves four end-markets globally with net sales for the three and nine months ended September 30, 2020 and 2019, as follows:

*(In millions)*

| Performance Coatings | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 % change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Refinish | $401.7 | $441.5 | (9.0)% | $1,031.4 | $1,294.3 | (20.3)% |
| Industrial | 281.0 | 282.2 | (0.4)% | 781.1 | 899.4 | (13.2)% |
| Total Net sales Performance Coatings | 682.7 | 723.7 | (5.7)% | 1,812.5 | 2,193.7 | (17.4)% |
| **Transportation Coatings** |  |  |  |  |  |  |
| Light Vehicle | 276.3 | 295.7 | (6.6)% | 662.7 | 917.7 | (27.8)% |
| Commercial Vehicle | 67.9 | 87.6 | (22.5)% | 187.9 | 272.4 | (31.0)% |
| Total Net sales Transportation Coatings | 344.2 | 383.3 | (10.2)% | 850.6 | 1,190.1 | (28.5)% |
| Total Net sales | $1,026.9 | $1,107.0 | (7.2)% | $2,663.1 | $3,383.8 | (21.3)% |

#### Coronavirus (COVID-19) Pandemic

During the nine months ended September 30, 2020, the COVID-19 pandemic had a significant adverse impact on the demand for our products and, thus, our income from operations. These impacts have been felt globally, however, we have seen improvements as countries began reopening. We have taken action to both plan for and address the near-term impact commensurate with the decline in demand in certain areas of our business. The focus has been on dynamically adjusting our cost structure as needed and our results already include benefits from actions taken to reduce discretionary spending across the organization which has been aided by our highly variable cost structure. We saw sequential improvements quarter over quarter; however, if the global pandemic continues or evolves into an even more prolonged health crisis, or there are new shutdowns or restrictions put in place, the effects could have a material adverse impact on our future results of operations, financial condition and cash flows.

Consistent with the actions taken or recommended by governmental authorities, we elected to shut down certain manufacturing operations in regions around the world for periods of time, but mostly focused in April and May 2020. All of our manufacturing sites are currently open, and the timing of re-opening was phased and in-line with the return of customer demand. At each of our sites, we have taken steps to enhance safety standards in place to protect workers. While the periods of reduced production levels did not create a significant adverse impact on our results of operations for the three months ended September 30, 2020, it did create a significant adverse impact on our results of operations for the nine months ended September 30, 2020. Any future disruption to our production levels could have a material adverse effect on our financial condition, liquidity, and results of operations.

We are actively monitoring and managing supply chain challenges, including logistics, but thus far, there have been no significant disruptions. Our supply chain team is coordinating with our suppliers to identify and mitigate potential areas of risk and manage inventories. Further, we are actively monitoring our customers' credit worthiness, and while there has been an increase in credit risk levels, at this point we are not aware of any material changes to our customers' ability to settle outstanding receivables.

A significant portion of our non-operations focused workforce continues to work remotely while we monitor COVID-19 and adhere to government guidelines for safe operation. We expect to continue to be able to meet our customers' needs while ensuring the safety of our employees, customers and communities.

We remain committed to our Axalta Way cost savings and the global restructuring initiatives announced in July 2020 and we expect to meet our full year 2020 savings goals. In addition, during the quarter, we were able to reduce operating costs by approximately $50 million and achieve incremental cash flows of approximately $60 million from COVID-19 related cost and cash flow actions.

From a liquidity standpoint, we have $1,341.3 million of cash and cash equivalents and $366.0 million of available borrowing capacity under our Senior Secured Credit Facilities. We have no outstanding borrowing on the Revolving Credit Facility and, therefore, are not currently subject to any financial covenants under the Senior Secured Credit Facility.

#### Capital and Liquidity Highlights

During January 2020, we voluntarily prepaid $300.0 million of the outstanding principal on the 2024 Dollar Term Loans.

During June 2020, we issued $500.0 million in aggregate principal amount of 4.750% Senior Notes due 2027, with the proceeds to be used for general corporate purposes and to pay related transaction costs and expenses.

See Note 14 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

#### Strategic Review

On March 31, 2020, we announced that our Board of Directors concluded that the previously announced review of strategic alternatives was complete and that the ongoing execution of our strategic plan is the best alternative to maximize value for Axalta’s shareholders.

### FACTORS AFFECTING OUR OPERATING RESULTS

Except as described in "Risk Factors" below, 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, 2019 other than the impact of COVID-19 as discussed herein.

### 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 September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $1,026.9 | $1,107.0 | $(80.1) | (7.2)% | $2,663.1 | $3,383.8 | $(720.7) | (21.3)% |
| Volume effect |  |  |  | (6.0)% |  |  |  | (18.8)% |
| Impact of portfolio changes |  |  |  | 0.1% |  |  |  | (0.8)% |
| Price/product mix effect |  |  |  | (1.4)% |  |  |  | (0.1)% |
| Exchange rate effect |  |  |  | 0.1% |  |  |  | (1.6)% |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Net sales decreased due to the following:

n Lower sales volumes across both segments and all regions driven by significantly reduced global automotive production, lower vehicle miles driven and accelerated industrial slowdown primarily as a result of COVID-19 impacts, as well as previously anticipated muted industrial trends and declines in light and commercial vehicle builds

n Lower average selling prices and product mix resulting primarily from a change in product mix in refinish, partially offset by an increase in commercial vehicle

Partially offset by:

n Favorable impacts of currency translation, due primarily to the strengthening of the Euro and Chinese Renminbi compared to the U.S. dollar

27

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Net sales decreased due to the following:

n Lower sales volumes across both segments and all regions driven by significantly reduced global automotive production, lower vehicle miles driven and accelerated industrial slowdown primarily as a result of COVID-19 impacts, as well as previously anticipated muted industrial trends and declines in light and commercial vehicle builds

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

n Negative impacts as a result of portfolio changes resulting from the sale of our consolidated joint venture interests within our Performance Coatings segment during the second quarter of 2019

n Lower average selling prices and product mix resulting primarily from a change in product mix in refinish, mostly offset by an increase across both end-markets and all regions within the Transportation Coatings segment, primarily within light vehicle

### Cost of sales

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of sales | $634.1 | $707.4 | $(73.3) | (10.4)% | $1,780.1 | $2,207.1 | $(427.0) | (19.3)% |
| % of net sales | 61.7% | 63.9% |  |  | 66.8% | 65.2% |  |  |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Cost of sales decreased due to the following:

n Lower sales volumes across both segments and all regions

n Decline in depreciation expense for operating equipment

n Decreased variable input costs across both segments

n Reduction in costs due to operational efficiencies associated with our cost savings initiatives, including decreased compensation related expenses associated with COVID-19 related cost reduction actions

Partially offset by:

n Unfavorable impacts of currency translation of 0.5%, due primarily to the strengthening of the Euro and Chinese Renminbi compared to the U.S. dollar

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

n Decreases associated with lower variable input costs and operational efficiencies associated with cost savings initiatives, including decreased compensation related expenses associated with COVID-19 related cost reduction actions

Partially offset by:

n Decreased net sales from price and product mix, primarily resulting from impacts of product mix sold in refinish

28

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Cost of sales decreased due to the following:

n Lower sales volumes across both segments and all regions

n Lower costs as a result of portfolio changes resulting from the sale of our consolidated joint venture interests within our Performance Coatings segment during the second quarter of 2019

n Decline in depreciation expense for operating equipment

n Decreased variable input costs across both segments and all regions

n Reduction in costs due to operational efficiencies associated with our cost savings initiatives, including decreased compensation related expenses associated with COVID-19 related cost reduction actions

Partially offset by:

n Increased expenses associated with reduced utilization at certain manufacturing sites and increased inventory reserves

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

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

n Lower sales volume covering fixed costs, including impacts of reduced utilization at certain manufacturing sites and increased inventory reserves

Partially offset by:

n Decreases associated with variable cost savings and operational efficiencies associated with cost savings initiatives, including decreased compensation related expenses associated with COVID-19 related cost reduction actions

### Selling, general and administrative expenses

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| SG&A | $166.5 | $199.2 | $(32.7) | (16.4)% | $516.1 | $617.2 | $(101.1) | (16.4)% |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

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

n Reduction in costs due to operational efficiencies associated with our cost savings initiatives, including decreased compensation-related expenses associated with COVID-19 related cost reduction actions

n Decline in commissions and sales incentive compensation driven by decrease in net sales

Partially offset by:

n Unfavorable impacts of currency translation of 1.0%, due primarily to the strengthening of the Euro and Chinese Renminbi compared to the U.S. dollar

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

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

n Reduction in costs due to operational efficiencies associated with our cost savings initiatives, including decreased compensation-related expenses associated with COVID-19 related cost reduction actions

n Decline in commissions and sales incentive compensation driven by decrease in net sales

n Lower costs as a result of portfolio changes resulting from the sale of our consolidated joint venture interests within our Performance Coatings segment during the second quarter of 2019

n Favorable impacts of currency translation of 2.1%, due primarily to the weakening of the Euro, Chinese Renminbi, and Brazilian Real compared to the U.S. dollar

Partially offset by:

n Increased reserves for trade receivables of $9.1 million to $12.8 million from $3.7 million in the prior year

n Increased stock-based compensation expenses of $6.4 million, primarily due to forfeitures in the prior year

29

### Other operating charges

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Other operating charges | $42.6 | $31.8 | $10.8 | 34.0% | $98.9 | $41.4 | $57.5 | 138.9% |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Other operating charges increased due to the following:

n Increase in termination benefits and other employee related costs associated with our cost savings initiatives of $6.5 million from $29.2 million in the prior year to $35.7 million in the current year

n Increased expenses of $3.9 million associated with the review of strategic alternatives that was concluded in March 2020 as discussed above within "Business Highlights - Strategic Review" and retention costs from $3.0 million in the prior year to $6.9 million in the current year

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Other operating charges increased due to the following:

n Increase in termination benefits and other employee related costs associated with our cost saving initiatives of $37.1 million from $33.3 million in the prior year to $70.4 million in the current year

n Increased expenses of $21.3 million associated with the review of strategic alternatives that was concluded in March 2020 as discussed above within "Business Highlights - Strategic Review" and retention costs from $3.8 million in the prior year to $25.1 million in the current year

### Research and development expenses

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development expenses | $13.4 | $17.4 | $(4.0) | (23.0)% | $41.2 | $53.5 | $(12.3) | (23.0)% |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Research and development expenses decreased due to the following:

n Decrease in operating expenses as a result of operational efficiencies associated with cost savings initiatives, as well as decreased compensation-related expenses associated with COVID-19 related cost reduction actions

Partially offset by:

n Unfavorable impacts of currency translation, which increased expenses by 0.3%, due primarily to the strengthening of the Euro and Chinese Renminbi compared to the U.S. dollar

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Research and development expenses decreased due to the following:

n Decrease in operating expenses as a result of operational efficiencies associated with cost savings initiatives, including decreased compensation-related expenses associated with COVID-19 related cost reduction actions

n Favorable impacts of currency translation, which reduced expenses by 0.5%, due primarily to the weakening of the Euro compared to the U.S. dollar

### Amortization of acquired intangibles

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Amortization of acquired intangibles | $28.6 | $28.2 | $0.4 | 1.4% | $84.5 | $85.1 | $(0.6) | (0.7)% |

30

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Amortization of acquired intangibles increased due to the following:

n Unfavorable impacts of foreign currency translation, primarily related to the strengthening of the Euro compared to the U.S. dollar

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Amortization of acquired intangibles decreased due to the following:

n Favorable impacts of foreign currency translation, primarily related to the weakening of the Euro compared to the U.S. dollar

### Interest expense, net

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest expense, net | $39.8 | $40.2 | $(0.4) | (1.0)% | $112.4 | $122.5 | $(10.1) | (8.2)% |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Interest expense, net decreased primarily due to the following:

n Decrease in principal base due to the voluntary prepayment of $300.0 million on our 2024 Dollar Term Loans in January 2020

n Decrease in average interest rates due to LIBOR decreases on our variable rate debt over the comparable period

Partially offset by:

n Increase in expense associated with the issuance of $500.0 million aggregate principal amount of 2027 Senior Notes

n Unfavorable impacts of our derivative instruments

n Strengthening of the Euro compared to the U.S. dollar

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Interest expense, net decreased primarily due to the following:

n Decrease in principal base due to the voluntary prepayment of $300.0 million on our 2024 Dollar Term Loans in January 2020

n Decrease in average interest rates due to LIBOR decreases on our variable rate debt over the comparable period

Partially offset by:

n Increase from expense associated with the issuance of $500.0 million aggregate principal amount of 2027 Senior Notes

n Unfavorable impacts of our derivative instruments

### Other expense (income), net

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Other expense (income), net | $2.3 | $(1.9) | $4.2 | 221.1% | $0.9 | $(3.8) | $4.7 | 123.7% |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Other expense (income), net increased due to the following:

n Increased impact of foreign exchange losses of $4.8 million from $0.7 million during the prior period to $5.5 million during the current period due to strengthening of Euro

Partially offset by:

n Net benefits of $0.7 million resulting from pension curtailments and settlements released from accumulated other comprehensive loss, partially offset by special termination benefits

n Increase in miscellaneous income

31

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Other expense (income), net increased due to the following:

n Debt extinguishment and refinancing related costs of $2.4 million, driven primarily by the write off of unamortized deferred financing costs and original issue discounts in relation with the voluntary prepayment of $300.0 million of outstanding principal on our 2024 Dollar Term Loans in January 2020

n Increased impact of foreign exchange losses of $2.2 million from $5.3 million during the prior period to $7.5 million during the current period due to Euro exposure

n Decrease in miscellaneous income

Partially offset by:

n Net benefits of $2.5 million during the current period resulting from pension curtailments and settlements released from accumulated other comprehensive loss, partially offset by special termination benefits

### Provision (benefit) for income taxes

|  | Three Months Ended September 30, 2020 | 2019 | Nine Months Ended September 30, 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: |
| Income before income taxes | $99.6 | $84.7 | $29.0 | $260.8 |
| Provision (benefit) for income taxes | 17.1 | 18.3 | (22.7) | 50.4 |
| Statutory U.S. Federal income tax rate | 21.0% | 21.0% | 21.0% | 21.0% |
| Effective tax rate | 17.2% | 21.6% | (78.3)% | 19.3% |
| Effective tax rate vs. statutory U.S. Federal income tax rate | (3.8)% | 0.6% | (99.3)% | (1.7)% |

| Items impacting the effective tax rate vs. statutory U.S. federal income tax rate | (Favorable) Unfavorable Impact Three Months Ended September 30, 2020 | 2019 | Nine Months Ended September 30, 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: |
| Earnings generated in jurisdictions where the statutory rate is different from the U.S. Federal rate (1) | $(7.0) | $(5.5) | $(12.9) | $(16.5) |
| Changes in valuation allowance | (1.4) | 5.6 | 6.0 | (13.6) |
| Foreign exchange gain (loss), net | 2.4 | (1.3) | 1.1 | (0.4) |
| Stock-based compensation excess tax benefits, net | — | (4.2) | — | (11.0) |
| Non-deductible expenses and interest | 0.9 | 1.1 | 4.0 | 3.3 |
| Increase in unrecognized tax benefits(2) | 1.8 | 2.0 | 21.1 | 9.2 |
| Intra-entity asset transfer (3) | — | — | (50.5) | — |
| Foreign taxes (4) | 0.9 | 0.3 | 4.4 | 18.7 |

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

(2) Primarily related to charges recorded in connection with the income tax audit in Germany.

(3) Related to the step-up of tax-deductible basis upon transfer of certain intellectual property rights to our Swiss subsidiary.

(4) For the nine months ended September 30, 2019, the unfavorable impact is primarily related to an adjustment for certain tax attributes for which the Company determined are no longer realizable. This was mostly offset by a tax benefit for the decrease to the valuation allowance on the tax attributes previously recorded as a result of changes under U.S. tax reform.

### SEGMENT RESULTS

The Company's products and operations are managed and reported in two operating segments: Performance Coatings and Transportation Coatings.

### Performance Coatings Segment

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $682.7 | $723.7 | $(41.0) | (5.7)% | $1,812.5 | $2,193.7 | $(381.2) | (17.4)% |
| Volume effect |  |  |  | (4.5)% |  |  |  | (14.1)% |
| Impact of portfolio changes |  |  |  | 0.1% |  |  |  | (1.3)% |
| Price/product mix effect |  |  |  | (2.4)% |  |  |  | (0.9)% |
| Exchange rate effect |  |  |  | 1.1% |  |  |  | (1.1)% |
| Adjusted EBIT | $133.9 | $124.9 | $9.0 | 7.2% | $214.8 | $331.1 | $(116.3) | (35.1)% |
| Adjusted EBIT Margin | 19.6% | 17.3% |  |  | 11.9% | 15.1% |  |  |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Net sales decreased due to the following:

n Lower organic refinish volumes across all regions due to decreased demand primarily as a result of lower vehicle miles driven due to COVID-19

n Lower average selling prices and product mix across both end-markets, primarily driven by a change in product mix sold in refinish

Partially offset by:

n Favorable impacts of currency translation, due primarily to the strengthening of the Euro compared to the U.S. dollar

Adjusted EBIT increased due to the following:

n Lower operating expenses across both end-markets resulting from operational efficiencies associated with our cost savings initiatives including lower compensation expense associated with COVID-19 related cost reduction actions and decreased costs to support net sales

n Lower variable input costs across both end-markets

Partially offset by:

n Lower organic volumes across all regions driven by refinish, due to decreased demand primarily as a result of lower vehicle miles driven due to COVID-19

n Lower average selling prices and product mix across both end-markets

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

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Net sales decreased due to the following:

n Lower organic volumes across both end-markets and all regions due to decreased demand primarily as a result of lower vehicle miles driven and industrial production due to COVID-19

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

n Negative impacts as a result of portfolio changes within our industrial end-market, which included the sale of our consolidated joint venture interests during the second quarter of 2019

n Lower average selling prices and product mix across both end-markets, primarily driven by a change in product mix sold in refinish

33

Adjusted EBIT decreased due to the following:

n Lower organic volumes across both end-markets and all regions due to decreased demand primarily as a result of lower vehicle miles driven due to COVID-19

n Lower average selling prices and product mix across both end-markets

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

n Lower sales volume covering fixed costs, including impacts of reduced utilization at certain manufacturing sites and increased inventory reserves

Partially offset by:

n Lower operating expenses across both end-markets and most regions, resulting from operational efficiencies associated with our cost savings initiatives including lower compensation expense associated with COVID-19 related cost reduction actions and decreased costs to support net sales

n Lower variable input costs across both end-markets and all regions

### Transportation Coatings Segment

|  | Three Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change | Nine Months Ended September 30, 2020 | 2019 | 2020 vs 2019 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $344.2 | $383.3 | $(39.1) | (10.2)% | $850.6 | $1,190.1 | $(339.5) | (28.5)% |
| Volume effect |  |  |  | (9.0)% |  |  |  | (27.3)% |
| Price/product mix effect |  |  |  | 0.4% |  |  |  | 1.5% |
| Exchange rate effect |  |  |  | (1.6)% |  |  |  | (2.7)% |
| Adjusted EBIT | $48.5 | $37.2 | $11.3 | 30.4% | $35.0 | $111.8 | $(76.8) | (68.7)% |
| Adjusted EBIT Margin | 14.1% | 9.7% |  |  | 4.1% | 9.4% |  |  |

#### Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Net sales decreased due to the following:

n Lower organic volumes across both end-markets and all regions due to decreased demand primarily as a result of significantly reduced global automotive production due to COVID-19 as well as a previously anticipated decrease in vehicle builds

n Unfavorable impacts of currency translation, due primarily to the weakening of the Brazilian Real and South African Rand compared to the U.S. dollar

Partially offset by:

n Higher average selling prices across most regions driven by commercial vehicle

Adjusted EBIT increased due to the following:

n Lower operating expenses across both end-markets and all regions, primarily in light vehicle resulting from operational efficiencies associated with our cost savings initiatives including lower compensation expense associated with COVID-19 related cost reduction actions and decreased costs to support net sales

n Lower variable input costs across both end-markets and all regions

n Higher average selling prices across most regions driven by commercial vehicle

Partially offset by:

n Lower organic volumes across both end-markets and all regions due to decreased demand primarily as a result of significantly reduced global automotive production due to COVID-19 as well as a previously anticipated decrease in vehicle builds

n Unfavorable impacts of currency translation, due primarily to the weakening of the Brazilian Real and South African Rand compared to the U.S. dollar

34

#### Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Net sales decreased due to the following:

n Lower organic volumes across both end-markets and all regions due to decreased demand primarily as a result of significantly reduced global automotive production due to COVID-19 as well as a previously anticipated decrease in vehicle builds

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

Partially offset by:

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

Adjusted EBIT decreased due to the following:

n Lower organic volumes across both end-markets and all regions due to decreased demand primarily as a result of significantly reduced global automotive production due to COVID-19 as well as a previously anticipated decrease in vehicle builds

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

n Lower sales volume covering fixed costs, including impacts of reduced utilization at certain manufacturing sites and increased inventory reserves

Partially offset by:

n Lower operating expenses across both end-markets and most regions, resulting from operational efficiencies associated with our cost savings initiatives including lower compensation expense associated with COVID-19 related cost reduction actions and costs to decreased support net sales

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

n Lower variable input costs across both end-markets and all regions

### 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, 2020, availability under the Revolving Credit Facility was $366.0 million, net of $34.0 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 September 30, 2020, we had $11.2 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 $6.6 million.

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

### Cash Flows

*(In millions)*

| Net cash provided by (used for): Operating activities: | Nine Months Ended September 30, 2020 | 2019 |
| --- | ---: | ---: |
| Net income | $51.7 | $210.4 |
| Depreciation and amortization | 243.6 | 267.3 |
| Amortization of deferred financing costs and original issue discount | 6.8 | 6.7 |
| Debt extinguishment and refinancing related costs | 2.4 | 0.2 |
| Deferred income taxes | (57.2) | (5.6) |
| Realized and unrealized foreign exchange losses, net | 12.7 | 1.5 |
| Stock-based compensation | 15.9 | 9.5 |
| Divestitures and impairment charges | 3.5 | 3.4 |
| Interest income on swaps designated as net investment hedges | (11.0) | (11.0) |
| Other non-cash, net | 2.7 | (3.5) |
| Net income adjusted for non-cash items | 271.1 | 478.9 |
| Changes in operating assets and liabilities | (40.2) | (189.1) |
| Operating activities | 230.9 | 289.8 |
| Investing activities | (39.3) | (59.0) |
| Financing activities | 136.8 | (145.0) |
| Effect of exchange rate changes on cash | (4.7) | (12.1) |
| Net increase in cash, cash equivalents and restricted cash | $323.7 | $73.7 |

### Nine months ended September 30, 2020

#### Net Cash Provided by Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2020 was $230.9 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $271.1 million. This was offset by net uses of working capital of $40.2 million, for which the most significant drivers were increases in prepaid expenses and other assets of $60.8 million and other accrued liabilities of $40.9 million, partially offset by decreases in inventory of $43.2 million during the nine months ended September 30, 2020. These outflows were primarily related to the timing of cash payments for employee related benefits, customer incentive payments, payments of normal seasonal operating activities and decreased business activity associated with the COVID-19 downturn.

#### Net Cash Used for Investing Activities

Net cash used for investing activities for the nine months ended September 30, 2020 was $39.3 million. The primary use was for purchases of property, plant and equipment of $56.2 million, partially offset by interest proceeds on swaps designated as net investment hedges of $11.0 million.

#### Net Cash Provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2020 was $136.8 million. This change was driven primarily by cash proceeds of $500.0 million from the issuance of our 2027 Senior Notes, partially offset by the voluntary prepayment of $300.0 million on the outstanding principal on the 2024 Dollar Term Loans. Also offsetting the net inflows were routine repayments of $48.5 million on short-term and long-term borrowings, payments for financing-related costs of $8.4 million and purchases of noncontrolling interests of $5.8 million.

#### Other Impacts on Cash

Currency exchange impacts on cash for the nine months ended September 30, 2020 were unfavorable by $4.7 million, which was driven primarily by weakening of the Mexican Peso, South African Rand, Brazilian Real and Russian Ruble compared to the U.S. Dollar.

### Nine months ended September 30, 2019

#### Net Cash Provided by Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2019 was $289.8 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $478.9 million. This was partially offset by net uses of working capital of $189.1 million. The most significant drivers of the uses of working capital were increases in accounts receivable of $128.9 million and prepaid expenses and other assets of $95.0 million due to the seasonal increase in net sales, timing of collections, and upfront customer incentive payments during the nine months ended September 30, 2019. Partially offsetting these outflows were increases in accounts payable of $29.9 million and other liabilities of $8.9 million.

#### Net Cash Used for Investing Activities

Net cash used for investing activities for the nine months ended September 30, 2019 was $59.0 million. The primary uses were for purchases of property, plant and equipment of $73.9 million and business acquisitions of $2.1 million, partially offset by interest proceeds on swaps designated as net investment hedges of $11.0 million and net proceeds from the sale of our noncontrolling interest subsidiary of $8.2 million.

#### Net Cash Used for Financing Activities

Net cash used for financing activities for the nine months ended September 30, 2019 was $145.0 million. This change was driven by purchases of common stock totaling $105.3 million, payments of $49.5 million on short-term and long-term borrowings, investments in noncontrolling interests of $31.1 million and dividends to noncontrolling interests of $1.5 million. These payments were partially offset by cash received from stock option exercises of $46.0 million.

#### Other Impacts on Cash

Currency exchange impacts on cash for the nine months ended September 30, 2019 were unfavorable by $12.1 million, which was driven primarily by weakening of the Euro compared to the U.S. Dollar.

### Financial Condition

We had cash and cash equivalents at September 30, 2020 and December 31, 2019 of $1,341.3 million and $1,017.5 million, respectively. Of these balances, $634.7 million and $540.0 million were maintained in non-U.S. jurisdictions as of September 30, 2020 and December 31, 2019, 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 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, including the effects of COVID-19.

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, 2020 | December 31, 2019 |
| --- | ---: | ---: |
| 2024 Dollar Term Loans | $2,069.3 | $2,387.5 |
| 2024 Dollar Senior Notes | 500.0 | 500.0 |
| 2024 Euro Senior Notes | 391.4 | 375.2 |
| 2025 Euro Senior Notes | 525.8 | 504.0 |
| 2027 Dollar Senior Notes | 500.0 | — |
| Short-term and other borrowings | 114.2 | 109.0 |
| Unamortized original issue discount | (7.9) | (10.5) |
| Unamortized deferred financing costs | (33.2) | (31.1) |
| Total borrowings, net | 4,059.6 | 3,834.1 |
| Less: |  |  |
| Short-term borrowings | 24.4 | 19.6 |
| Current portion of long-term borrowings | 24.3 | 24.3 |
| Long-term debt | $4,010.9 | $3,790.2 |

Our indebtedness, including the Senior Secured Credit Facilities and Senior Notes, is more fully described in Note 14 to unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and Note 18 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019.

We believe that 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 $366.0 million and $361.2 million at September 30, 2020 and December 31, 2019, 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.

### 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, 2019. There have been no material changes in the Company's contractual obligations since December 31, 2019.

### Off-Balance Sheet Arrangements

See Note 5 "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, 2019. 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, 2019.

## 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, 2019.

## 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, 2020.

### 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, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 2,677 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, 2019, other than as set forth below.

***Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by pandemics, epidemics or other public health emergencies, such as the recent outbreak of COVID-19.***

The impact of the coronavirus (COVID-19) has created significant volatility in the global economy and led to declining near-term, and uncertain longer-term, economic activity and conditions. There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

Although we have continued to operate our facilities to date consistent with applicable governmental orders, the outbreak of COVID-19 and any preventive, protective or other actions taken by governmental authorities may have a material adverse effect on our operations, supply chain, customers and logistics networks, including business shutdowns and other disruptions. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depending upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effects, including any ongoing actions in response to changing health conditions over time. Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition and cash flows. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in our Annual Report on Form 10-K for the year ended December 31, 2019, such as those relating to our products and financial performance.

Filed Oct 26, 2020.
Source: SEC EDGAR, the filing index for accession 0001616862-20-000080. Last ingested by Listed: Nov 12, 2026, 22:39 ET. No prices; not investment advice.