# Axalta Coating Systems Ltd.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Axalta Coating Systems Ltd.](/companies/axta.md) (CIK 1616862)
- Form: 10-Q
- Filed: 2023-05-02
- Accepted by EDGAR: May 2, 2023, 16:21 ET
- Period: 2023-03-31
- Accession: 0001616862-23-000019
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1616862/000161686223000019/axta-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1616862/000161686223000019/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $1.28bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $901.9m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $19.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-03-31 | $206.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $125.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $48.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $15.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $60.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.27 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 222,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$51.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $41.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-01-01 to 2023-03-31 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-03-31 | $512.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $2.62bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $7.00bn | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $1.28bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $5.39bn | us-gaap:Liabilities |
| Current portion of debt | at 2023-03-31 | $41.6m | us-gaap:DebtCurrent |
| Short-term borrowings | at 2023-03-31 | $21.6m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-03-31 | $1.57bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,846 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, 2022.*

### 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 "anticipated," "assumed," "expect," "believe," "intended," "estimates," "projections," "plans," "could," "should," "would," "may," "will," "forecasts" and the negative of these words or other comparable or similar terminology. 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, and uncertainties, including, but not limited to, economic, competitive, governmental, geopolitical and technological factors outside of our control that may cause our business, industry, strategy, financing activities or actual results to differ materially. More information on potential factors that could affect our financial results is available in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 as well as "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and in other documents we have filed with, or furnished to, the Securities and Exchange Commission ("SEC"), 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, including, but not limited to, those described in "Risk Factors," in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, 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.

These forward-looking 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 of the forward-looking statements contained herein, whether as a result of new information, future events or otherwise.

We intend to use our investor relations page at ir.axalta.com as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC’s Regulation Fair Disclosure (or Reg. FD). Investors should routinely monitor that site, in addition to our press releases, SEC filings and public conference calls and webcasts, as information posted on that page could be deemed to be material information.

### OVERVIEW

We are a leading global manufacturer, marketer and distributor of high-performance coatings systems and products. 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 45 manufacturing facilities, four technology centers, 48 customer training centers and approximately 12,000 team members allows us to meet the needs of customers in over 140 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 Mobility 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 both large regional and global OEMs and to a fragmented and local customer base. These customers comprise independent or multi-shop operator body shops as well as a wide variety of industrial manufacturers. 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 Mobility Coatings segment, we provide coatings technologies for light vehicle and commercial vehicle OEMs. These global customers are faced with evolving megatrends in electrification, sustainability, personalization and autonomous driving that require a high level of technical expertise. The OEMs require efficient, environmentally responsible coatings systems that can be applied with a high degree of precision, consistency and speed. The end-markets within this segment are Light Vehicle and Commercial Vehicle.

### BUSINESS HIGHLIGHTS

#### General Business Highlights

Our net sales increased 9.4%, including a 2.7% headwind from foreign currency translation, for the three months ended March 31, 2023 compared with the three months ended March 31, 2022. The increased net sales were driven primarily by higher average selling price and product mix of 9.4% and higher volumes of 2.7%. The following trends impacted our segment net sales performance for the three months ended March 31, 2023:

- *Performance Coatings:* Net sales increased 4.0% for the three months ended March 31, 2023 compared with the three months ended March 31, 2022. The increased net sales were driven by higher average selling price and product mix of 10.3%, partially offset by lower sales volumes of 3.4% driven by the Industrial end-market, which was partially offset by slightly higher volumes in Refinish, and a 2.9% headwind from unfavorable foreign currency translation driven primarily by the fluctuations of the Euro, Chinese Yuan, British Pound and Turkish Lira, partially offset by Mexican Peso, compared to the U.S. Dollar.
- *Mobility Coatings:* Net sales increased 21.4% for the three months ended March 31, 2023 compared with the three months ended March 31, 2022. The increased net sales were driven by higher sales volumes of 16.5% and higher average selling price and product mix of 7.2%, partially offset by unfavorable currency impact of 2.3%, driven primarily by the fluctuations of the Chinese Yuan, Euro and Turkish Lira, partially offset by the Mexican Peso, compared to the U.S. Dollar.

Our business serves four end-markets globally with net sales for the three months ended March 31, 2023 and 2022, as follows:

*(In millions)*

| Performance Coatings | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 % change |
| --- | ---: | ---: | ---: |
| Refinish | $497.6 | $461.4 | 7.8% |
| Industrial | 349.5 | 353.0 | (1.0)% |
| Total Net sales Performance Coatings | 847.1 | 814.4 | 4.0% |
| **Mobility Coatings** |  |  |  |
| Light Vehicle | 328.5 | 275.6 | 19.2% |
| Commercial Vehicle | 108.3 | 84.1 | 28.8% |
| Total Net sales Mobility Coatings | 436.8 | 359.7 | 21.4% |
| Total Net sales | $1,283.9 | $1,174.1 | 9.4% |

#### Russia conflict with Ukraine

Russia's conflict with Ukraine and the sanctions and other measures imposed by various governments in response to this conflict have increased the level of economic and political uncertainty globally. While our operations in Russia and Ukraine historically constituted less than 1.5% of our net sales, a significant escalation or expansion of economic disruption or countries subject to sanctions or the conflict's scope could have a material adverse effect on our results of operations, financial condition and cash flows. We are actively monitoring the broader economic impact on commodities and currency exchange rates from the current conflict, especially on the price and supply of raw materials. We recorded benefits of $1.4 million related to changes in estimates of reserves for accounts receivable during the three months ended March 31, 2023. Net assets of our Russian subsidiaries at March 31, 2023 were approximately $10.7 million, with $11.1 million comprising cash and cash equivalents.

#### Capital and Liquidity Highlights

During the three months ended March 31, 2023, we voluntarily prepaid $75.0 million of the outstanding principal of the 2029 Dollar Term Loans, and during April 2023, we voluntarily prepaid an additional $25.0 million of outstanding principal amount of the 2029 Dollar Term Loans. See Note 15 to the condensed consolidated unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

#### Raw material inflation

During the three months ended March 31, 2023, we were negatively impacted by continued raw material inflation as compared to the three months ended March 31, 2022, although we have seen stabilization in raw material pricing sequentially and have continued to offset these increased costs through the realization of improved pricing on our products. We will continue to monitor inflation and take actions that we believe will help mitigate costs and other operational impacts.

### FACTORS AFFECTING OUR OPERATING RESULTS

There have been no changes in the factors affecting our operating results previously disclosed under such heading in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

### RESULTS OF OPERATIONS

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

### Net sales

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $1,283.9 | $1,174.1 | $109.8 | 9.4% |
| Price/Mix effect |  |  |  | 9.4% |
| Volume effect |  |  |  | 2.7% |
| Exchange rate effect |  |  |  | (2.7)% |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Net sales increased primarily due to the following:

n Higher average selling prices in both segments and all regions as a result of pricing actions taken to offset raw material and variable freight inflation

n Higher sales volumes in Mobility Coatings partially offset by lower sales volumes in Performance Coatings

Partially offset by:

n Unfavorable impacts of currency translation due primarily to the fluctuations of the Euro, Chinese Yuan, Turkish Lira and British Pound, partially offset by the Mexican Peso, compared to the U.S. Dollar

### Cost of sales

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of sales | $901.9 | $837.4 | $64.5 | 7.7% |
| % of net sales | 70.2% | 71.3% |  |  |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Cost of sales primarily increased due to the following:

n Higher variable input costs due to raw material inflation

n Higher operating expenses due primarily to inflation

n Costs associated with higher sales volumes within Mobility Coatings

n Increase of $2.6 million in inventory obsolescence charges compared to the prior period

Partially offset by:

n Favorable currency translation impact of approximately 3%, due primarily to the fluctuations of the Euro, Chinese Yuan, Turkish Lira and British Pound, partially offset by the Mexican Peso, compared to the U.S. Dollar

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

n Higher average selling price in both segments and all regions as a result of pricing actions taken to offset input cost inflation

n More effective coverage of fixed costs as a result of higher sales volumes within Mobility Coatings

Partially offset by:

n Higher variable input costs due to raw material inflation

n Higher operating expenses due primarily to inflation

24

### Selling, general and administrative expenses

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| SG&A | $206.0 | $193.5 | $12.5 | 6.5% |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Selling, general and administrative expenses increased primarily due to the following:

n Higher operating expenses due primarily to inflation, including labor costs

n Increase of $4.6 million in year over year bad debt expense

n Increased commissions from higher sales volumes within Mobility Coatings

Partially offset by:

n Favorable currency translation impact of approximately 4%, due primarily to the fluctuations of the Euro and Chinese Yuan compared to the U.S. Dollar

### Other operating charges

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other operating charges | $7.1 | $7.7 | $(0.6) | (7.8)% |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Other operating charges decreased primarily due to the following:

n Decrease of $5.4 million from an expense of $4.1 million in the prior year period to a benefit of $1.3 million in the current period as a result of changes in estimates of reserves for accounts receivable related to Russia's conflict with Ukraine

n Decrease of $2.6 million in termination benefits and other employee-related costs associated with our cost saving initiatives in the prior period

Partially offset by:

n Impairment charges of $7.1 million related to the anticipated exit of a non-core business category in the Mobility Coatings segment

n Increase of $0.5 million of site closure costs

### Research and development expenses

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development expenses | $19.1 | $16.4 | $2.7 | 16.5% |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Research and development expenses increased primarily due to the following:

n Increased research and development activity

n Increased labor costs as a result of inflation

Partially offset by:

n Favorable currency translation impact of approximately 1%, due primarily to the fluctuations of the Euro compared to the U.S. Dollar

25

### Amortization of acquired intangibles

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Amortization of acquired intangibles | $24.5 | $32.8 | $(8.3) | (25.3)% |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Amortization of acquired intangibles decreased primarily due to the following:

n Reduced amortization from intangibles reaching the end of their useful lives

n Favorable currency translation impact of approximately 2%, due primarily to the fluctuations of the Euro compared to the U.S. Dollar

### Interest expense, net

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $48.2 | $32.6 | $15.6 | 47.9% |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Interest expense, net increased primarily due to the following:

- Unfavorable impact of approximately $28.0 million due to the interest rate on the 2029 Dollar Term Loans, which were issued in December 2022 to replace the 2024 Dollar Term Loans

Partially offset by:

n Favorable impact of $8.8 million from derivative instruments used to hedge the variable interest rate exposure on certain debt arrangements

n Favorable currency translation impact of approximately 1%, due to the fluctuations of the Euro compared to the U.S. Dollar

### Other expense, net

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other expense, net | $1.3 | $1.8 | $(0.5) | 27.8% |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Other expense, net decreased primarily due to the following:

n Increased miscellaneous income, net of $2.0 million

n Favorable impact of foreign exchange losses of $0.3 million when compared with the prior year period

Partially offset by:

n Increased debt extinguishment and refinancing related costs of $1.8 million associated with the refinancing of the 2024 Dollar Term Loans

26

### Provision for income taxes

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Income before income taxes | $75.8 | $51.9 |
| Provision for income taxes | 15.3 | 11.0 |
| Statutory U.S. Federal income tax rate | 21.0% | 21.0% |
| Effective tax rate | 20.2% | 21.2% |
| Effective tax rate vs. statutory U.S. Federal income tax rate | (0.8)% | 0.2% |

| Items impacting the effective tax rate vs. statutory U.S. federal income tax rate | (Favorable) Unfavorable Impact Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Earnings generated in jurisdictions where the statutory rate is different from the U.S. Federal rate (1) | $(6.5) | $(6.0) |
| Changes in valuation allowance | 7.8 | 1.1 |
| Foreign exchange losses, net | 0.4 | 2.3 |
| Non-deductible expenses and interest | 1.1 | 0.5 |
| Changes in unrecognized tax benefits | (2.2) | 0.2 |

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

### SEGMENT RESULTS

The Company's products and operations are managed and reported in two operating segments: Performance Coatings and Mobility Coatings. See Note 17 to the unaudited 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, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $847.1 | $814.4 | $32.7 | 4.0% |
| Price/Mix effect |  |  |  | 10.3% |
| Volume effect |  |  |  | (3.4)% |
| Exchange rate effect |  |  |  | (2.9)% |
| Adjusted EBIT | $109.3 | $94.6 | $14.7 | 15.5% |
| Adjusted EBIT Margin | 12.9% | 11.6% |  |  |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Net sales increased primarily due to the following:

n Higher average selling prices and product mix across both end-markets and all regions, primarily as a result of pricing actions taken to offset input price inflation within both end-markets

Partially offset by:

n Lower sales volumes driven by the Industrial end-market

n Unfavorable impacts of currency translation due primarily to the fluctuations of the Euro, Chinese Yuan, British Pound and Turkish Lira, partially offset by Mexican Peso, compared to the U.S. Dollar

Adjusted EBIT and Adjusted EBIT margin increased due to the following:

n Higher average selling prices and product mix across both end-markets and all regions, which were in excess of variable input cost inflation

Partially offset by:

n Higher variable input costs across both end-markets and most regions due to raw material inflation

n Lower sales volumes driven by the Industrial end-market

n Higher operating expenses due to inflation

n Unfavorable impacts of currency translation due primarily to the fluctuations of the Euro compared to the U.S. Dollar

28

### Mobility Coatings Segment

|  | Three Months Ended March 31, 2023 | 2022 | 2023 vs 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $436.8 | $359.7 | $77.1 | 21.4% |
| Volume effect |  |  |  | 16.5% |
| Price/Mix effect |  |  |  | 7.2% |
| Exchange rate effect |  |  |  | (2.3)% |
| Adjusted EBIT | $23.5 | $0.5 | $23.0 | 4,600.0% |
| Adjusted EBIT Margin | 5.4% | 0.1% |  |  |

#### Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Net sales increased primarily due to the following:

n Higher sales volumes across both end-markets and all regions

n Higher average selling prices and product mix across both end-markets and all regions, primarily as a result of pricing actions taken to offset input price inflation

Partially offset by:

n Unfavorable impacts of currency translation due primarily to the fluctuations of the Chinese Yuan, Euro and Turkish Lira, partially offset by the Mexican Peso, compared to the U.S. Dollar

Adjusted EBIT and Adjusted EBIT margin increased due to the following:

n Higher average selling prices and product mix across both end-markets and all regions, primarily as a result of pricing actions taken to offset input price inflation

n Higher sales volumes across both end-markets and all regions

Partially offset by:

n Higher operating expenses across most regions due to inflation

n Higher variable input costs across both end-markets due to raw material inflation

### LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash on hand, net cash provided by operating activities and available borrowing capacity under our Senior Secured Credit Facilities.

At March 31, 2023, availability under the Revolving Credit Facility was $529.6 million, net of $20.4 million of letters of credit outstanding. All such availability may be utilized without violating any covenants under the Credit Agreement or the indentures governing our senior notes (the "Senior Notes"). At March 31, 2023, we had $10.1 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 $50.3 million.

We, or our affiliates, at any time and from time to time, may purchase shares of our common stock or the Senior Notes, and may prepay our 2029 Dollar 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 redemptions, 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.

We have various supplier finance programs in place around the world. We partner with large banking institutions and utilize these programs to enhance our liquidity profile. Depending on the program, the liabilities under the program are classified either as accounts payable or current portion of borrowings on our unaudited condensed consolidated balance sheets. Our supplier financing programs are more fully described in Note 14 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

### Cash Flows

*(In millions)*

| Net cash provided by (used for): Operating activities: | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income | $60.5 | $40.9 |
| Depreciation and amortization | 69.5 | 77.7 |
| Amortization of deferred financing costs and original issue discount | 2.0 | 2.4 |
| Debt extinguishment and refinancing related costs | 1.8 | — |
| Deferred income taxes | 2.4 | (2.7) |
| Realized and unrealized foreign exchange losses, net | 5.2 | 2.4 |
| Stock-based compensation | 6.3 | 5.3 |
| Divestiture and impairment charges | 7.1 | 0.3 |
| Interest income on swaps designated as net investment hedges | (5.6) | (6.2) |
| Other non-cash, net | 4.0 | (1.9) |
| Net income adjusted for non-cash items | 153.2 | 118.2 |
| Changes in operating assets and liabilities | (205.0) | (162.1) |
| Operating activities | (51.8) | (43.9) |
| Investing activities | (5.5) | (10.3) |
| Financing activities | (88.4) | (208.1) |
| Effect of exchange rate changes on cash | 5.5 | (2.1) |
| Net decrease in cash | $(140.2) | $(264.4) |

### Three months ended March 31, 2023

#### Net Cash Used for Operating Activities

Net cash used for operating activities for the three months ended March 31, 2023 was $51.8 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $153.2 million. This was offset by net uses of working capital of $205.0 million, for which the most significant drivers were increases in accounts and notes receivable and prepaid expenses and other assets of $92.3 million and $30.0 million, respectively, as well as decreases in other accrued liabilities and accounts payable of $96.3 million and $21.7 million, respectively. These outflows were driven primarily by timing of collections and payments, payments of Business Incentive Plan assets and largely seasonal cash payments for employee-related benefits and were partially offset by decreases in inventories of $38.6 million as a result of lower production levels as we intentionally managed inventory levels.

#### Net Cash Used for Investing Activities

Net cash used for investing activities for the three months ended March 31, 2023 was $5.5 million. The primary use was for purchases of property, plant and equipment of $41.4 million, partially offset by proceeds of $35.0 million from settlements and interest from swaps designated as net investment hedges, which are discussed further in Note 16 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

#### Net Cash Used for Financing Activities

Net cash used for financing activities for the three months ended March 31, 2023 was $88.4 million. This change was primarily driven by voluntary prepayments of $75.0 million of outstanding principal of the 2029 Dollar Term Loans, routine repayments of $14.4 million on borrowings, payments totaling $7.4 million for acquisition-related consideration and payments of $5.8 million for fees associated with refinancing our 2024 Dollar Term Loans, partially offset by proceeds of $8.8 million from a short-term borrowing and $5.4 million net cash received from our stock-based compensation program.

#### Other Impacts on Cash

Currency exchange impacts on cash for the three months ended March 31, 2023 were favorable by $5.5 million, which was driven primarily by the fluctuations of the Mexican Peso and Euro compared to the U.S. Dollar.

### Three months ended March 31, 2022

#### Net Cash Used for Operating Activities

Net cash used for operating activities for the three months ended March 31, 2022 was $43.9 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $118.2 million. This was offset by net uses of working capital of $162.1 million, for which the most significant drivers were increases in inventories, accounts and notes receivable, other accruals and prepaid expenses and other assets of $91.5 million, $86.2 million, $66.7 million and $32.9 million, respectively. These outflows were primarily driven by inflation of raw material, logistics and energy costs, timing of collections and largely seasonal cash payments for employee-related benefits. The outflows were partially offset by increases in accounts payable of $120.4 million primarily due to raw material cost inflation, as well as elevated logistics and energy costs.

#### Net Cash Used for Investing Activities

Net cash used for investing activities for the three months ended March 31, 2022 was $10.3 million. The primary use was for purchases of property, plant and equipment of $42.5 million, partially offset by $25.0 million of proceeds from settlements of swaps designated as net investment hedges, which are discussed further in Note 16 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

#### Net Cash Used for Financing Activities

Net cash used for financing activities for the three months ended March 31, 2022 was $208.1 million. The primary uses were for the purchase of our common stock totaling $175.1 million and payments of $30.9 million on borrowings.

#### Other Impacts on Cash

Currency exchange impact on cash for the three months ended March 31, 2022 were unfavorable by $2.1 million, which was driven primarily by fluctuations in the Euro, Russian Ruble and British Pound compared to the U.S. Dollar, partially offset by fluctuations in the Brazilian Real and Mexican Peso compared to the U.S. Dollar.

### Financial Condition

We had cash and cash equivalents at March 31, 2023 and December 31, 2022 of $512.1 million and $645.2 million, respectively. Of these balances, $383.4 million and $433.6 million were maintained in non-U.S. jurisdictions as of March 31, 2023 and December 31, 2022, respectively, with $11.1 million and $12.9 million, respectively, within Russia. We believe at this time our organizational structure allows us the necessary flexibility to move funds throughout our subsidiaries to meet our operational and working capital needs.

Our business may not generate sufficient net cash provided by operating activities 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, selling additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Our primary sources of liquidity are cash on hand, net cash provided by operating activities 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 inflationary pressures and Russia's conflict with Ukraine.

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 and elevated interest rates, as experienced during 2022 and continuing in 2023, may increase our interest expense and weaken our financial condition.

The following table details our borrowings outstanding at the dates indicated:

*(In millions)*

|  | March 31, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| 2029 Dollar Term Loans | $1,925.0 | $2,000.0 |
| 2025 Euro Senior Notes | 489.3 | 479.1 |
| 2027 Dollar Senior Notes | 500.0 | 500.0 |
| 2029 Dollar Senior Notes | 700.0 | 700.0 |
| Short-term and other borrowings | 79.4 | 74.5 |
| Unamortized original issue discount | (21.0) | (22.4) |
| Unamortized deferred financing costs | (25.6) | (26.9) |
| Total borrowings, net | 3,647.1 | 3,704.3 |
| Less: |  |  |
| Short-term borrowings | 21.6 | 16.0 |
| Current portion of long-term borrowings | 20.0 | 15.0 |
| Long-term debt | $3,605.5 | $3,673.3 |

Our indebtedness, including the Senior Secured Credit Facilities, Senior Notes and short-term borrowings, is more fully described in Note 18 to the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

We believe that we continue to maintain sufficient liquidity to meet our cash requirements, including our debt service obligations as well as our working capital needs. Availability under the Revolving Credit Facility was $529.6 million and $529.3 million at March 31, 2023 and December 31, 2022, 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 material contractual obligations and cash requirements can be found in Note 7 and Note 18 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes in the Company's contractual obligations and cash requirements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Off-Balance Sheet Arrangements

See Note 5 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 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

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. The preparation of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q requires us to make estimates and judgments that affect the amounts reported in the financial statements. We base our estimates and judgments on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis. Actual results could differ from our estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates previously disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

## Market risk

As filed, 178 characters.

There have been no material changes in the market risks previously disclosed in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

## Controls and procedures

As filed, 1,384 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. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. No matter how well designed and operated, disclosure controls and procedures can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives. 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, 2023.

### 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 March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 178 characters.

There have been no material changes in our risk factors from those previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed May 2, 2023.
Source: SEC EDGAR, the filing index for accession 0001616862-23-000019. Last ingested by Listed: Nov 12, 2026, 22:39 ET. No prices; not investment advice.