Axalta Coating Systems Ltd.AXTA
Axalta Coating Systems Ltd. Fair Value Disclosure
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 from business acquisitions 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 expense, net in the 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 December 31, 2025 and 2024.
| December 31, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid expenses and other current assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cross-currency swaps (1) | — | 5 | — | 5 | — | 12 | — | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Other assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cross-currency swaps (1) | — | — | — | — | — | 5 | — | 5 | ||||||||||||||||||||||||||||||||||||||||||
Investments in equity securities | 1 | — | — | 1 | 1 | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other accrued liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps (2) | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||||||||||||||||||||
Cross-currency swaps (1) | — | 51 | — | 51 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration | — | — | 6 | 6 | — | — | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||
| Other liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cross-currency swaps (1) | — | 50 | — | 50 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Long-term borrowings: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2029 Dollar Term Loans | — | 1,481 | — | 1,481 | — | 1,709 | — | 1,709 | ||||||||||||||||||||||||||||||||||||||||||
| 2027 Dollar Senior Notes | — | 501 | — | 501 | — | 490 | — | 490 | ||||||||||||||||||||||||||||||||||||||||||
| 2029 Dollar Senior Notes | — | 674 | — | 674 | — | 637 | — | 637 | ||||||||||||||||||||||||||||||||||||||||||
| 2031 Dollar Senior Notes | — | 527 | — | 527 | — | 519 | — | 519 | ||||||||||||||||||||||||||||||||||||||||||
(1)Net investment hedge
(2)Cash flow hedge
The table below presents a roll forward of activity for the Level 3 liabilities for the year ended December 31, 2025.
| Fair Value Using Significant Unobservable Inputs (Level 3) | ||||||||
| Beginning balance at January 1, 2025 | $ | 2 | ||||||
| Contingent consideration from business acquisitions | 6 | |||||||
| Change in fair value | (1) | |||||||
| Foreign currency translation | (1) | |||||||
| Ending balance at December 31, 2025 | $ | 6 | ||||||
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. A description of each type of derivative used to manage risk is included in the following paragraphs and our policies regarding accounting treatments of derivative movements are detailed in Note 1.
Derivative Instruments Qualifying and Designated as Cash Flow and Net Investment Hedges
Interest Rate Swaps Designated as Cash Flow Hedges
During the year ended December 31, 2025, an interest rate swap associated with the 2029 Dollar Term Loans, which was previously executed in 2024, was set to expire on September 30, 2025, was effectively terminated on September 25, 2025, and a new interest rate swap was simultaneously issued as is set forth in the below table. This interest rate swap is marked to market at each reporting date and any unrealized gains or losses are included in unrealized (gain) loss on derivatives within AOCI.
| Former | Current | |||||||||||||||||||||||||
| Notional amount | $ | 475 | $ | 150 | $ | 150 | $ | 175 | ||||||||||||||||||
| Interest rate pay | 2.720 | % | 0.5% - 4.256% | 4.692 | % | 3.303 | % | |||||||||||||||||||
| Interest rate receive | 3-month SOFR | 3-month SOFR | 3-month SOFR | 3-month SOFR | ||||||||||||||||||||||
| Initial effective date | 4/10/2018 | 3/31/2023 | 3/27/2024 | 9/25/2025 | ||||||||||||||||||||||
| Maximum expiration date | 3/31/2023 | 3/31/2024 (1) | 9/30/2025 (2) | 6/30/2028 | ||||||||||||||||||||||
(1) The interest rate swap was terminated early on March 27, 2024.
(2) The interest rate swap was effectively terminated on September 25, 2025.
Cross-Currency Swaps Designated as Net Investment Hedges
During the year ended December 31, 2025, a fixed-for-fixed cross-currency swap, which was previously executed in 2024 and was set to expire on September 30, 2025, was effectively amended to extend the maturity to June 30, 2028, reset the terms, and increase the notional value as is set forth in the below table. This cross-currency swap is marked to market at each reporting date, and any unrealized gains or losses subject to the assessment of the hedge’s effectiveness are included in unrealized currency translation adjustments within AOCI. Gains and losses for hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis.
| Former | Current | |||||||||||||||||||||||||||||||||||||
| Notional exchanged | $ | 475 | $ | 150 | $ | 150 | $ | 500 | $ | 175 | $ | 365 | ||||||||||||||||||||||||||
| Interest rate receive | 4.470 | % | 7.256 | % | 6.692 | % | 7.250 | % | 5.053 | % | 3.375 | % | ||||||||||||||||||||||||||
| Notional received | € | 417 | € | 142 | € | 142 | € | 467 | € | 166 | € | 335 | ||||||||||||||||||||||||||
| Interest rate pay | 1.440 | % | 5.697 | % | 4.899 | % | 5.623 | % | 3.295 | % | 2.040 | % | ||||||||||||||||||||||||||
| Initial effective date | 11/07/2018 | 3/31/2023 | 3/27/2024 | 11/17/2023 | 9/25/2025 | 11/24/2018 | ||||||||||||||||||||||||||||||||
| Maximum expiration date | 3/31/2023 | 3/31/2024 (1) | 9/30/2025 (2) | 11/15/2026 | 6/30/2028 | 2/15/2029 | ||||||||||||||||||||||||||||||||
(1) The cross-currency swap was terminated early on March 27, 2024.
(2) The cross-currency swap was effectively amended on September 25, 2025.
The following tables set forth the locations and amounts recognized during the year ended December 31, 2025, 2024 and 2023 for these cash flow and net investment hedges.
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||
| Derivatives in Cash Flow and Net Investment Hedges | Location of (Gain) Loss Recognized in Income on Derivatives | Net Amount of (Gain) Loss Recognized in OCI on Derivatives | Amount of Gain Recognized in Income | Net Amount of Loss (Gain) Recognized in OCI on Derivatives | Amount of Gain Recognized in Income | Net Amount of (Gain) Loss Recognized in OCI on Derivatives | Amount of Gain Recognized in Income | |||||||||||||||||||||||||||||||||||||
Interest rate swaps | Interest expense, net | (1) | — | 1 | — | (2) | (4) | |||||||||||||||||||||||||||||||||||||
Cross-currency swaps | Interest expense, net | 101 | (17) | (70) | (16) | 47 | (10) | |||||||||||||||||||||||||||||||||||||
Over the next 12 months, we expect no gain or loss pertaining to cash flow hedges to be reclassified from AOCI into earnings.
Derivative Instruments Not Designated as Cash Flow 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 consolidated statement 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 (Gain) Loss Recognized in Income on Derivatives | Year Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
Foreign currency forward contracts | Other expense, net | $ | (16) | $ | (1) | $ | 1 | |||||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.