Axalta Coating Systems Ltd.
For the period ended Mar 31, 2026. Filed Apr 30, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2026 · Filed Apr 30, 2026
Extracted filing text, with the paragraph anchors used by the comparison.
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(16) FINANCIAL INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS
Fair value of financial instruments
Equity securities with readily determinable fair values - Balances of equity securities are recorded within other assets, with any changes in fair value recorded within other expense, net. The fair values of equity securities are based upon quoted market prices, which are considered Level 1 inputs.
Long-term borrowings - The estimated fair values of these borrowings are based on recent trades, as reported by a third-party pricing service. Due to the infrequency of trades, these inputs are considered to be Level 2 inputs.
Derivative instruments - The Company’s interest rate swaps, cross-currency swaps and foreign currency forward contracts are valued using broker quotations or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are included in the Level 2 hierarchy.
Fair value of contingent consideration
Contingent consideration is valued using a probability-weighted expected payment method that considers the timing of expected future cash flows and the probability of whether key elements of the contingent event are completed. The fair value of contingent consideration is valued at each balance sheet date, until amounts become payable, with adjustments recorded within other operating charges in the condensed consolidated statements of operations. Due to the significant unobservable inputs used in the valuations, these liabilities are categorized within Level 3 of the fair value hierarchy.
The table below presents the fair values of our financial instruments measured on a recurring basis by level within the fair value hierarchy at March 31, 2026 and December 31, 2025.
| March 31, 2026 | December 31, 2025 | |||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Assets: | ||||||||
| Prepaid expenses and other current assets: | ||||||||
| Interest rate swaps (1) | $— | $1 | $— | $1 | $— | $— | $— | $— |
| Cross-currency swaps (2) | — | 6 | — | 6 | — | 5 | — | 5 |
| Other assets: | ||||||||
| Investments in equity securities | 1 | — | — | 1 | 1 | — | — | 1 |
| Liabilities: | ||||||||
| Other accrued liabilities: | ||||||||
| Cross-currency swaps (2) | — | 36 | — | 36 | — | 51 | — | 51 |
| Contingent consideration | — | — | 8 | 8 | — | — | 6 | 6 |
| Other liabilities: | ||||||||
| Cross-currency swaps (2) | — | 35 | — | 35 | — | 50 | — | 50 |
| Long-term borrowings: | ||||||||
| 2029 Dollar Term Loans | — | 1,424 | — | 1,424 | — | 1,481 | — | 1,481 |
| 2027 Dollar Senior Notes | — | 497 | — | 497 | — | 501 | — | 501 |
| 2029 Dollar Senior Notes | — | 664 | — | 664 | — | 674 | — | 674 |
| 2031 Dollar Senior Notes | — | 524 | — | 524 | — | 527 | — | 527 |
(1) Cash flow hedge
(2) Net investment hedge
The table below presents a roll forward of activity for the Level 3 liabilities for the three months ended March 31, 2026.
| Fair Value Using Significant Unobservable Inputs (Level 3) | |
|---|---|
| Beginning balance at December 31, 2025 | $6 |
| Contingent consideration from business acquisitions | 2 |
| Ending balance at March 31, 2026 | $8 |
Derivative Financial Instruments
We selectively use derivative instruments to reduce market risk associated with changes in foreign currency exchange rates and interest rates. The use of derivatives is intended for hedging purposes only, and we do not enter into derivative instruments for speculative purposes.
Derivative Instruments Qualifying and Designated as Cash Flow and Net Investment Hedges
The following table sets forth the locations and amounts recognized during the three months ended March 31, 2026 and 2025 for the Company's cash flow and net investment hedges.
| Three Months Ended March 31, | |||||
|---|---|---|---|---|---|
| 2026 · 2025 | |||||
| Derivatives in Cash Flow and Net Investment Hedges | Location of (Gain) Loss Recognized in Income on Derivatives | Net Amount of Gain Recognized in OCI on Derivatives | Amount of Gain Recognized in Income | Net Amount of Loss Recognized in OCI on Derivatives | Amount of Gain Recognized in Income |
| Interest rate swaps | Interest expense, net | $(1) | $— | $— | $— |
| Cross-currency swaps | Interest expense, net | (34) | (4) | 20 | (5) |
Over the next 12 months, we expect a gain of $1 million pertaining to cash flow hedges to be reclassified from AOCI into earnings, related to our interest rate swaps.
Derivative Instruments Not Designated as Cash Flow or Net Investment Hedges
We periodically enter into foreign currency forward and option contracts to reduce market risk and hedge our balance sheet exposures and cash flows for subsidiaries with exposures denominated in currencies different from the functional currency of the relevant subsidiary. These contracts have not been designated as hedges and all gains and losses are marked to market through other expense, net in the condensed consolidated statements of operations.
Fair value gains and losses of derivative contracts, as determined using Level 2 inputs, that have not been designated for hedge accounting treatment are recorded in earnings as follows:
| Derivatives Not Designated as Hedging Instruments under ASC 815 · Location of Loss (Gain) Recognized in Income on Derivatives · Three Months Ended March 31, | |||
|---|---|---|---|
| 2026 · 2025 | |||
| Foreign currency forward contracts | Other expense, net | $6 | $(5) |
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.