Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Axalta Coating Systems Ltd. (1616862) 10-Q published on Oct 25, 2018 at 5:16 pm
Reporting Period: Sep 29, 2018
The new standard provides a number of optional practical expedients in transition. We expect to elect the package of practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify, meaning we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases (leases with a term of less than 12 months from lease commencement) of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for certain leases, including our leases of vehicles and equipment.
Restructuring charges incurred during 2018 and 2017 included actions to reduce operational costs through activities to rationalize our manufacturing footprint, including the impacts from the anticipated closure of our Mechelen, Belgium manufacturing facility announced during the three months ended September 30, 2018. Severance costs specifically associated with the anticipated closure amounted to $70.6 million for the three and nine months ended September 30, 2018. Manufacturing assets were also assessed, including assessment of assets totaling $55.8 million (€47.7 million) at our Mechelen, Belgium manufacturing facility, and as a result, useful lives of the assets were truncated. The impacts to earnings from accelerated depreciation resulting from our manufacturing footprint assessments for the three and nine months ended September 30, 2018 and the three and nine months ended September 30, 2017, were $4.2 million, $4.2 million, zero and $4.3 million, respectively, and were recorded to cost of goods sold. During the three and nine months ended September 30, 2017, we also recorded impairment losses of $4.4 million and $7.6 million, respectively, associated with these manufacturing facilities based on market price estimates recorded within other expense, net.
Selling, general and administrative expenses increased $46.9 million, or 19.0%, to $293.4 million for the three months ended September 30, 2018 compared to $246.5 million for the three months ended September 30, 2017. The increase was primarily driven by increases in costs associated with our cost saving initiatives and acquisition-related costs, which were $83.4 million for the three months ended September 30, 2018, including the $70.6 million severance costs resulting from the anticipated closure of our Mechelen, Belgium manufacturing facility, as compared to $8.5 million for the three months ended September 30, 2017, resulting in a $74.9 million increase over the comparable period.
Partially offsetting the increase were favorable currency effects resulting from the impacts of the weakening Euro and certain currencies within Latin America and Asia compared to the U.S. Dollar, which contributed to a 2.0% decrease, the adoption of the new revenue standard which resulted in a decrease of $16.9 million, or 6.9%, as discussed in Note 3 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, and a reduction in costs due to operational efficiencies associated with our cost saving initiatives.
Selling, general and administrative expenses increased $28.7 million, or 4.0%, to $745.8 million for the nine months ended September 30, 2018 compared to $717.1 million for the nine months ended September 30, 2017. The increase is primarily driven by increases in costs associated with our cost saving initiatives and acquisition-related costs, which were $81.1 million for the nine months ended September 30, 2018, including the $70.6 million severance costs resulting from the anticipated closure of our Mechelen, Belgium manufacturing facility, as compared to $22.6 million for the nine months ended September 30, 2017, resulting in a $58.5 million increase over the comparable period. Further contributing to the increase was the impact from acquisitions which contributed $7.5 million over the comparable period, and unfavorable currency effects resulting from the impacts of the strengthening Euro and Chinese Renminbi compared to the U.S. Dollar, which contributed to a 2.4% increase.
Partially offsetting the increase were reductions in costs due to operational efficiencies associated with our cost saving initiatives, as well as the benefit resulting from the adoption of the new revenue standard which resulted in a decrease of $45.3 million, or 6.3%, as discussed in Note 3 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Appointment of Interim CEO and Interim CFO
On October 7, 2018, the Board appointed Mr. Bryant, Axalta's Executive Vice President and Chief Financial Officer, to serve in the additional role of interim Chief Executive Officer, and on October 12, 2018 the Board appointed Sean M. Lannon, Axalta's Vice President, Corporate Finance and Global Controller, to serve as interim Chief Financial Officer.