AXTA CFA Final Version 1-20-2017

CFA Institute Research Challenge
Hosted in
Local Challenge CFA Philadelphia
(school name)

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School Name – Student Research
Sector: Process Industries & Industrial Specialties
Axalta Coating Systems Ltd.
Date: 01/20/2017 Headquarters: Philadelphia, PA Recommendations: Sell
Ticker: NYSE: AXTA Current Price: $28.75 (01/20/2017) Target Price: $18.38
Table 1: Market Data
52 Week Range $20.67- $30.45
Avg. Daily Vol. 2,210,110
Shares Outstanding (m) 240.5
Market Value ($m) $6,021
P/E (LTM) 56.9x
EnterpriseValue ($m) $9,093
EV/EBITDA 10.72x
Table 2: Financial Data
2013 2014 2015
Revenue Growth 1.35% 1.79% -6.33%
Gross Margin 28.49% 32.12% 34.89%
EBITDA Margin 8.91% 18.53% 21.22%
EPS -$1.55 $0.59 $0.74
ROE -16.52% 2.52% 8.85%
ROA -4.75% 0.42% 1.55%
Interest Coverage (TIE) 1.52x 3.92x 4.61x
Total Debt/EBITDA 10.21x 4.54x 3.94x
Table 3: Valuation Summary
Weight^ Estimates
FCFF DCF* 60% $ 13.62
Relative Multiples 40%
Enterprise Value/EBIT $ 24.37
Enterprise Value/EBITDA $ 43.61
Enterprise Value/Sales $ 30.83
Price/Sales $ 25.17
Price/Earnings $ 8.30
Price/BookValue $ 22.38
Price/Cash Flow $ 24.36
Price/Free Cash Flow $ 25.18
Target PriceEstimate $ 18.38
*A scenario analysis usingcombinations of different years
to terminal value andgrowthrate in the FCFF model
projecteda target price rangingfrom $13.43 to $13.79.
^A sensitivityanalysis on the weights produces similar
estimatedtarget price for AXTA.
Executive Summary
Headquartered in Philadelphia, PA,AXTA is a leading global supplier of paint for a
range of vehicles. AXTA manufactures, markets, and distributes liquid and powder
coatings for cars,trucks, OEMs,body shops and, other customers.
Investment Recommendations
We issue a Sell recommendation with a target price of $18.38. The investment
decision combines a Free Cash Flow to the Firm Model with Relative Multiples based
valuations using a weighted average. The sell recommendation is driven by our:
Investment Thesis and Outline
Supported by our quantitative financial model and qualitative analysis of AXTA’s
business operations, a Sell recommendation on AXTA is warranted as it is believed
to have a long-term growth of 2.49% y-o-y in five years. Determining factors include:
 Stable Industry Outlook,based on an analysis of the underlying industries and
countries’ economies in which AXTA operates.
 Competitive Positioning of AXTA as a leading company in their market
segment, determined through an overall company analysis.
 Investment Risks such as projected economic, market, currency, credit, and
business & operational risks.
 The Monte Carlo Simulationusing estimated mean growth rate,suggestsa mean
intrinsic value of $13.62 with a range from $8.80 to $18.70.
Latest News Updates and Implications
 Acquisition of Peinture Antico Diffusion SAS – 12/2016: AXTA agreed to
terms with P.A.D., acquiring the France-based company for an undisclosed
amount. P.A.D. is expected to expand market share in EMEA.
 Continued Expansion in China – 11/2016: AXTA continued their investments
into China by planning a new manufacturing facility in Nanjing, bringing their
total investments in China up to $100 million since 2013. The project is subject
to approval by AXTA’s board of directors and Chinese officials.
 Third Quarter Results and Updates – 10/2016: AXTA released their third
quarter results, showing 4.4% constant currency y-o-y same quarter net sales
increase.Third quarter operating cashflows were down by 9%,due to a large cash
expenditure for M&Apurposes. Yearly earnings call is scheduled on February 15,
2017. AXTA is expecting 0-2% growth in 2017.
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Figure 1: Historical Share Prices
AXTA S&P 500

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Figure 3: Company History
Table 4: 2015 Industry Competitors
Companies DOL DFL
Market
Cap
($B)
Net Debt/
EBITDA
Axalta -1.88x 1.5x $ 6.52 3.38x
PPG
Industries
-
166.3x
1.07x $26.21 1.17x
Sherwin-
Williams
13.31x 1.04x $25.17 0.96x
RPM Inc.
-
3.42x
1.2x $ 7.29 2.13x
Valspar -1.5x 1.15x $ 8.14 2.61x
Business Description
Originally founded in 1866, AXTA was formed in 2013 when DuPont carved out the
paint division to the Carlyle Group. In 2014, AXTA went public while the Carlyle
Group remained the major shareholder until August 2016. Headquartered in
Philadelphia, PA,AXTA is a global company with primary business segments in:
 Transportation Coatings: AXTA provides advanced coating technologies to
original equipment manufacturers (OEM) of light and commercial vehicles.
 Performance Coatings: AXTA provides liquid and powder coating solutions to
a fragmented and local non-OEM customer base, mainly auto and body shops.
Shareholder Base
Listed on the NYSE, AXTA has a single class share structure. Institutions hold
49.01% of shares with Berkshire Hathaway being the largest shareholder at 9.75%
(A4, A5) which were acquired directly from the Carlyle Group. Insiders holds 0.66%
of shares outstanding. On August 2, 2016 Carlyle ceased to have majority voting
rights on AXTA. Currently institutional owners play key roles in the growth and
stability of the company. Also, executive compensations are tied to their stock
performance.
Management & Governance
AXTA’s 19 top executives’ management team (A3) brings both domestic and
international experience in the petrochemical and performance materials industries to
add value to AXTA’s shareholders. CharlesShaver, CEO, with 35 yearsof experience
in the specialty chemicals industry was brought in by the Carlyle Group. Top
executives’ commitment has generated shareholder value by the following strategic
actions:
 Transitioned AXTA from a private equity controlled carve out unit into a publicly
traded company with broader ownership.
 Improved financial standing through refinancing and repayment of debt. This
strengthened AXTA’s financial position and led AXTA to potentially become a
dividend paying company in the future.
 Developed multiple systems related to reporting, cash management, and R&D,
which is to improve operation efficiencies, enhance customer experiences, and
reduce cost.
 Dedicated efforts in growing AXTA’s operations in established and emerging
markets. AXTA is focusing its growth in Asia-Pacific, especially China, and
expects their new manufacturing plant in Nanjing to be fully operational by the
end of 2020.
 Attained EPS CAGR of 32.1% from 2014-2016. Additionally, CEO Shaver
anticipates an increase in sales of 50% to $6 billion in the next 3-5 years through
continued market expansion via M&A, which is typical for this industry.
The Management and Governance Standards of AXTA is Given a Low Risk Metric
per “The Four Pillars of Quality Score” established by the Institutional Shareholder
Services Inc. (A2):
 Committees on the Board: Established executive, audit, compensation and,
nominating & corporate governance committees (A1).
 Audit and Risk Oversight: Complied with the Public Company Accounting
Oversight Board by designating an audit committee and being audited by an
external source.
 Executive Compensation: Justified the compensation committee oversight and
compensation programs requirements.
Carlyle Group’s exit in August 2016 provides higher independence to the Board of
Directors and a broader shared governance by shareholders.
Top 15
Holders,
49.01%
Insider Ownership,
0.66%
Other Institutional
Holders, 50.33%
Figure 4: Ownership Statistics
PerformanceCoatings,
58%
Transportation Coatings,
42%
Figure 5: 2015 Sales Breakdown

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Industry Overview and Demand Drivers
Industry Overview
The global paint and coating industry generated $128.23 billion in revenue in 2015,
which came mainly from the U.S. (53.4%), China (6.9%), and Germany (4.0%). As
shown in Figure 10, total industry market share measured by revenue indicates that
the top five industry leaders make up approximately one-third of the unsaturated
market, which suggests potential growth opportunities for companies in this
industry(F1).
Steady growth in the automotive industry provides all companies, including AXTA,
an opportunity to expand their refinishing business globally and generate higher sales.
On the other hand, AXTA’s top competitors have managed to diversify revenues
outside of refinishing industries, such asaviation/marine vehicles, polymer floors, and
weatherproofing to targetthe needsof diverse niches, which could be a potential threat
to AXTA’s effort in gaining market dominance.
The 2015 economic growth in the Asia-Pacific region, particularly China with its GDP
increases of 7.9%, along with its three year projected growth in the coating industry,
allowed a revenue increase of 18.3%. In addition, the growth in the industrial and
commercial vehicles industry, plus the growing population in China presents
opportunity for AXTA to grow in the industrial architecture and refinishing markets
for light and commercial vehicles. However,a forecasted 6.5% 2017 GDP growth in
China projects a declining increase in revenue (G1).
Overall, the industry’s Degree of Operating Leverage (DOL) is -32x (Figure 9); most
industry leaders have negative DOLs, which is consistent with the disproportionate
cost reduction paired with declining sales. In addition, Degree of Financial Leverage
(DFL) of the industry is 1.2x on average ranging from 1.04 to 1.50 for AXTA, which
suggests AXTA’s EPS is more sensitive to changes in EBIT (I1).
Demand Drivers
Demand drivers for each of AXTA’s four main product lines include industrial
production, the production of light vehicles worldwide, global commercial vehicle
production, and vehicle collisions (Figure 9) which all are fundamentally tied to
economic growth and population growth of a specific age group.
 Industrial Performance Coating is Tied to Industrial Production: Industrial
production indicators, such as trucking, has seen U.S growth around 2% for the
past five years, and are expected to continue to grow at a similar rate. However,
industrial productions are affected by the general macroeconomic conditions of a
country, and subsequently are subject to more market risks than any other driver.
 LightVehicle TransportationCoating is Tiedto ProductionofLightVehicles
Worldwide: The production of light vehicles worldwide has grown 3.3%
annually since 2012 and is projected to continue to grow at a rate of 3.9% y-o-y
until 2020, which is a positive sign for AXTA’s light vehicle coatings demand.
The U.S. is the largest market in the world in automobile sales, with an uptick in
car sales correlating directly with AXTA’s sales to OEMs. Furthermore, in
Europe, y-o-y car sales in 2015 were up approximately 9.5%; the upward trend is
projected to continue in the future. The automobile industry is projected to grow
3% y-o-y in the Middle East and Africa. Although in Latin America and China,
there has been a 30% slowdown in sales since 2012, car sales declined merely
2.7% in 2015. In addition, China has the largest sales in new cars in 2015 (D1).
 Commercial Vehicle Transportation Coating is Tied to Global Commercial
Vehicle Production: Commercial vehicle production has grown worldwide at an
average of 1.7% annually for the past 15 years which is inline mostly with long
term average global GDP growth. The historical growth trend of commercial
vehicle production indicates thatdemand for AXTA’scommercial vehicle coating
will remain stable with the macroeconomic growth in countries AXTA operates.
12%
9%
4%
3%
3%
69%
Figure 6: Industry Market Share
PPG Industries Sherwin-Williams
RPM Inc. Valspar
Axalta Other
10%
39%
29%
12%
11%
Figure 7: Competition Sales
Comparison
Axalta PPG Industries
Sherwin-Williams RPM Inc.
Valspar
$6,776
$8,538
$26,488 $25,428
$7,019
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Figure 8: Competition Market
Values Comparison ($M)
Refinsih
42%
Industrial
16%
Light
Vehicle
32%
Commercial Vehicle
10%
Figure 9: Breakdown of AXTA's
Products

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 Refinish Performance is Tied to Vehicle Collisions: Car accidents have
increased at a rate of 1-2% a year for the last severalyears,which correlates with
an increase in traffic accidents (bumper-to-bumper). In 2013, costs related to car
accidents totaled $518 billion dollars for countries and car owners combined.
Specifically, in the U.S., car accidents cost $230.6 billion per year. The European
market is also expected to see a surge in collision costs, due to their aging car
fleet. The projected increase in collision will strengthen and continue to bring in
a dependable stream of revenue from AXTA’s refinish products market (D1, H1).
Regulations
Due to an increase in regulations, coating companies have eliminated some
components in their existing products. Between1980-1990s discussions regarding the
Volatile Organic Compounds (VOC) emission, led to a decrease in VOC. AXTA has
developed an environmentally friendly waterborne coating solution that is used in
both the U.S. and Canada. AXTA’s strategic move helps the company to tap further
into Canadian market which requires the use of waterborne solutions for coating
application systems. While AXTA positions itself for regulation changes, the
company is able to maintain a solid bottom line.
Economic Growth – AXTA’s Future Growth Opportunities (Figure 14)
 EMEA Regional GDP Growth - GDP in the European Union has fluctuated
within the past 6 years, showing just 1.19% average growth compared to a 1.87%
projected GDP growth until 2020. GDP growth for North Africa and the Middle
East has been 2.49% since 2013 and is projected to be 3.33% until 2018. AXTA’s
future geographic sales growth is expected to follow the positive trend of GDP
growth in the EMEA region.
 North America GDP Growth - The North American economy has grown at an
average of 3.33% for the past 5 years, and is expected to grow at an average of
3.90% until 2020. AXTA’s future sales are believed to follow the positive trend
of GDP growth in North America.
 Asia-Pacific GDP Growth - Since 2013, the Asia-Pacific market has had GDP
growth of 6.7%, and is projected to have a 6.1% GDP growth rate until 2018.
Despite this deceleration, the growth in the Asia-Pacific market is sufficient and
will help AXTA grow its AP regional sales.
 Latin America GDP Growth - Latin America has a 5-year average of -0.16%
GDP growth largely driven by two negative years of growth in 2014 and 2015.
GDP is expected to grow 1.3% until 2020, which includes a -13% projected
decline for 2017. Due to its high growth volatility, Latin America is a potential
threat for AXTA as it could hurt their future sales and slow down the overall
growth of AXTA (E1).
Competitive Positioning
Size and Industry Position - With a market value of $6.16 billion, AXTA is the fifth
largest player in the coating industry. In addition, AXTA is a leader in their segments,
earning 90% of their 2015 revenue from refinish and light vehicle coating markets
where they have either the #1 or #2 global market share (D1). In 2015, AXTA
generated net sales of $4.1 billion while catering to consumers’ needs in both
developed and emerging markets.
Products and Customer Service - On the refinishing product line, AXTA has
developed a unique production method that they can provide to local shop specialists.
The company also assists the local shops by providing the necessary training and
equipment to apply AXTA’s products. Additionally, on the transportation coating
productline,AXTA strategically positions themselves in the OEMindustry by having
their trained specialists work in the daily operations at OEM factories.
North
America
34%
Latin
America
13%
EMEA
35%
Asia
Pacific
18%
Figure 10: Sales from Global
Markets
North America Latin America
EMEA Asia Pacific
0
2
4
6
8
10
1800000
1850000
1900000
1950000
2000000
2050000
2100000
2150000
Growth(%)
Sales(M)
Year
Figure 11: World Motor Vehicles
Sales Outlook
Sales (M) Growth y-o-y (%)
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
2013 2014 2015 2016 2017 2018
Sales(M)
Year
Figure 12: Sales Outlook
North America APAC Europe
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
2013 2014 2015 2016 2017 2018
YoY%Growth
Year
Figure 13: Sales Outlook y-o-y %
Growth
APAC North America Europe

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Figure 15:Europe Automotive Collision Repair Market
Size by Product (USD Billion), 2012 – 2022
Source: Global Market Insights
Sales Growth from Emerging Economies - AXTA has been expanding in emerging
economies to increase future sales. Since 2005, vehicle sales in the BRIC countries
have grown atan 11.56% CAGR. Partof AXTA’s future sales growth is tied to growth
in these countries. Automotive sales are highly correlated with increases in GDP; the
BRIC countries GDP is expected to grow an average of 5.05% per year until 2020,
boding well for AXTA’s growth in these markets.
Maintain Margins via Variable Cost Structure and Cost Consolidations:
 AXTA has taken steps towards increasing their productivity with the
implementation of their new “Axalta Way” structural cost reduction initiative.
The company has also implemented a more effective IT system and created a
global procurement system to consolidate their procurement costs. These
endeavors will lead to increasing AXTA’s productivity and reduction of costs.
 By lowering both their fixed and variable costs,AXTA is able to maintain and/or
raise their gross margin even though their sales may decline, a 5-year trend that
can be seen on Figure 18.
 While AXTA’s margins have grown, sales have remained stable. As a result,
AXTA has been showing growth in profitability margins without actual sales
growth, which hasbeen beneficial to AXTA in the short run. However,to increase
their future cash flows and stay competitive, AXTA will have to focus on
increasing actual sales instead of margins which can be improved simply by
slashing costs (J1).
Other competitive advantages of AXTA include:
 A globally recognized company that has been able to maintain their operations for
the last 150 years.
 A range of facilities acrossthe world to support the future successofthe company,
consisting of 35 manufacturing facilities, 45 customer training centers, and 7
technology centers,which indicates ease of distribution.
 12,800 employees located in over 130 countries, illustrating AXTA’s strong
global position, adding to the strength of their market presence and the size of the
company.
Investment Summary
We issue a Sell recommendation on AXTA with a target price of $18.38 using a
Discounted Free Cash Flow to the Firm Model and a Relative Multiples Valuation
method. The valuation is supported by factoring in multiple valuation metrics,
assumptions, and parameters.
Investment Drivers
Improving Financial Position and Potential Dividends
As a result of the carve out in 2013, AXTA remains heavily leveraged with total debt
of $3,356 million. With AXTA’s goal of 2.5-3.0x in leverage, AXTA has been
restructuring their debt, resulting in a current net leverage of 3.3x which is still twice
the industry’s average level. AXTA does not currently pay dividends to its
shareholders due to management’s M&A growth strategy,but the company has stated
that they could start as early as Q2 2017 when they hit their leverage target.
Positive Outlook in Related Industries
There is a three-year positive outlook for motor vehicles sold worldwide (Figure 12,
13). A positive outlook is directly correlated to AXTA’s growth, asOEMswill require
more of AXTA’s coating products for their own purposes. Likewise, AXTA will be
able to take advantage of the positive sales outlook for industrial trucks and
commercial machinery (Figure 14), further strengthening their position in the global
market.
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
$-
$200,000
$400,000
$600,000
$800,000
Growth(%)
Sales($M)
Year
Figure 14: World
Trucks/Construction/Farm
Machinery Sales Outlook
Sales (M) Growth (YoY%)
-20.0%
-10.0%
0.0%
10.0%
2013 2014 2015 2016 2017 2018
Figure 16: World Region's GDP
Growth Rates
North America
Latin America
European Union
East Asia/ Pacific
Middle East/ North Africa
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
Figure 17: BRIC Vehicle Sales 2005-
2015
Russia India Brazil
China Total

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0
5
10
15
20
Strengths
Weaknesses
Opportunities
Threats
Figure 20: SWOT Analysis (C1)
0
1
2
3
4
5
Bargaining
Power of
Buyers
Threat of
New Entry
Threat of
Substitutions
Bargaining
Power of
Suppliers
Intensity of
Competitive
Rivalry
Figure 21: Porter's Five Forces (B1)
Figure 19: Revenue Exposure by Country
Source: FactSet
Highly Variable Cost Structure
AXTA has developed a highly variable cost structure that requires low capital
intensity through small batch production. As a direct result of this variable cost
structure, AXTA was able to avoid major losses due to current turmoil in Latin
America. Instead, AXTA lowered their costs and prices to maintain or improve their
margins. The result of this strategy was an increase in operating margin up to 8.81%
(Table 11).
Customizability of Products
Possessing over 800 patents and being able to produce 4+ million color variations,
AXTA is able to cater to costumers’ needs. This is in part due to their variable cost
structure, producing only small-batches and thereby keeping inventories low.
Growing Demand for Waterborne Solutions
AXTA is a leader in waterborne solutions in Latin America. As more environmental
regulations are written into law across the world, the demand for AXTA’s waterborne
coating solution increases.
Potential Future Growth
AXTA competes in a highly competitive market where switching costs between
companies are low but customer loyalty is high, resulting in a high number of repeat
customers. Additionally, AXTA has sought growth through M&A previously, but
with the company indicating a first dividend payout in Q2 2017, their growth strategy
may change. A dividend may help AXTA’s stock price, however, it may not be
beneficial to the future growth of the company due to a large amount of debt that may
need repayments.
Valuation
The intrinsic value of AXTA is calculated as a weighted average of values estimated
using several equity valuation models. The final valuation target relies heavily on a
Free Cash Flow to the Firm Discounted Cash Flow (FCFF DCF) model, as it returns
the fair value of all future earnings and cash flows. Furthermore, the final valuation
combines several relative valuations with the FCFF DCF, to incorporate the market
valuation not covered by the DCF model.
5 Year FCFF DCF
Using the FCFF DCF Model, we came up with a final valuation of $13.62. The FCFF
DCF Model is based on the most recent annual data from the Company’s 10-K,
completed with guidance from the industry outlook, investor outlook, and general
company guidance on future actions. The model estimates cash flows generated by
the firm after expenses, taxes, and changes in net working capital and investments
have been deducted. These cash flows indicate AXTA’s ability to pay out future
dividends, repurchase stock, or repay debt (L1-6).
The FCFF DCF Model is most sensitive to the following factors:
Weighted Average Cost of Capital (WACC)
The cost of debt and cost of equity were calculated with AXTA’s global operations in
mind. Cost of debt was calculated using a weighted average of risk free rates from the
regions in which AXTA is present (Table 6). Similarly, cost of equity was calculated
using region equity risk premium proportionate to the percentage of sales in each
region (Table 8). As a multi-segment company, AXTA’s revenue was split
proportionally into their two major segments in order to come up with an accurate
unlevered beta (Table 7). These extra steps help to improve the accuracy of the
intrinsic value calculation.
$-
$1,000
$2,000
$3,000
$4,000
$5,000
Dec '11 Dec '12 Dec '13 Dec '14 Dec '15
Figure 18: COGS and Sales for
2011-2015 ($M)
Sales COGS excluding D&A

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*The average ofMultiple basedmodel is the meanof all six
Multiple basedmodel includingEV/EBIT,EV/EBITDA,
EV/Sales, Price/Sales, Price/Earnings, Price/BV, Price/CF,
andPrice/FCF.
Table 5: Valuation
Weight Average*
DCF Target 60% $ 13.62
Multiples Target Value 40% $ 25.53
Intrinsic Value usingWeightedAverage $ 18.38
Table 6: Risk Free Rate
Region Rate
Americas 2.50%
Europe 1.50%
Asia-Pacific 3.34%
Africa/Middle East 4.36%
Weighted Average 2.49%
Table 7: Unlevered Beta
Business Weighted
Performance Coating 0.9269
Transportation Coating 0.9727
Company 0.9492
Table 8: Equity Risk Premium
Region WeightedERP
Asia-Pacific 1.13%
Central/SouthAmerica 0.43%
Middle East 0.42%
North America 2.13%
Europe 1.77%
ERP 5.89%
Table 9: DCF Assumptions
Risk Free Rate 2.49%
Risk Premium 5.89%
Tax Rate 39.27%
Cost of Debt 4.25%
High Growth Beta 1.51
Terminal Beta 0.90
Reinvestment Rate 100%
Debt Ratio 34.56%
Beta
Beta is part of the cost of equity calculation used to estimate the weighted average
cost of capital. Since the FCFF model has a high growth and a long term terminal
growth period, a unique beta was used for each of the periods. During the high growth
period, AXTA’s beta is expected to be the same as its currentbeta of 1.51. This higher
beta is a result of higher volatility than the industry, consistent with AXTA as a recent
carve-out and subsequent public offering by the Carlyle Group. Additionally, due to
AXTA’s growth strategy through M&A,price per share is expected to fluctuate more
than its industry competitors. For the terminal period, AXTA is expected to reach the
industry average beta of 0.90 as their sales growth stabilize.
Cost of Debt
Due to a lack of market value of debt (L1), cost of debt was estimated, for WACC
calculations, using AXTA’s current credit rating, BB, equivalent to 4.25% risk
premium. To this, a 2.50% long term risk free rate based on a 30 year US Treasury’s
yield was added. The market value of debt estimations are shown in Table 10.
Revenue Growth
Revenue growth was split into a high growth period and a long term terminal growth
period. The initial high growth is calculated using our estimated return on equity times
the reinvestment rate. As AXTA currently does not pay out any dividends, our
reinvestment rate is set to 100%. The high growth is expected to last five years as
AXTA undertakes more M&A and introduces new products as described by
Christopher Mecray, VP Investor Relations. This high growth is expected to slow
down between years 3-5 as AXTA nears their sustainable growth rate used for
calculating the terminal value.
As modeled in Table 6 we have projected a terminal growth rate of 2.49% (L2) using
risk-free rates from the different regions in which AXTA is present, representing the
economic growth in these regions.
Terminal Value
The terminal value wascalculated by discounting all future cashflows back to today’s
dollar using the above calculated growth rates and estimated betas. We believe it is
reasonable for AXTA to mature within the 5-year time period, thereby slowing their
growth rate to a sustainable rate similar to the economies in which they are present.
The final estimated intrinsic value was a market value/share of $13.62.
Relative Multiples Valuation
While the DCF analysis provides the intrinsic value of a company based on internally
generated cash flows, it does not take the current market’s investor sentiment into
account. Therefore, relative multiples based valuations also merit a place in the final
estimate of the target price for AXTA.
As a firms’ value should be independent of capital structure, the enterprise value
multiples gives us a more accurate valuation of AXTA than would price to book
numbers based multiples which can be biased estimates due to variations in
accounting practices. The valuations have been calculated using corresponding
industry multiples as a comparison to gauge objectively how the company is
performing relative to the industry’s valuation in the current equity market. Relative
price valuations are considered here as it relates to stock valuation, explaining why
we decided to use some of these to come up with our final valuation target.

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Table 10: MV of Debt
YTM 6.75%
Loan
Principal Amount
($M)
Present Value
($M)
Euro Term $547.70 $433.37
Dollar Term $2,282.80 $1,774.52
Euro Note $394.90 $373.43
Dollar Note $750.00 $778.61
Total $3,975.40 $3,359.94
Table 11: Price Multiples
As of Dec '15
AXTA Industry Valuation
Enterprise
Value/EBIT 16.56 16.31 $ 24.37
Enterprise
Value/EBITDA 10.72 12.01 $ 43.61
Enterprise
Value/Sales 2.28 1.80 $ 30.83
Price/Sales 1.55 1.47 $ 25.17
Price/Earnings 68.33 21.30 $ 8.30
Price/BookValue 5.90 5.01 $ 22.38
Price/Cash Flow 15.99 14.66 $ 24.36
Price/Free Cash
Flow 24.43 23.15 $ 25.18
Financial Analysis
Table 12: Selected Key Financial ($M)
2013 2014 2015
Revenue $4,314.10 $4,391.50 $ 4,113.30
Revenue Growth(%) 1.35% 1.79% -6.33%
Gross Income $1,229.20 $1,410.50 $ 1,435.30
Gross Income Growth (%) -7.17% 14.75% 1.76%
Gross Margin (%) 28.49% 32.12% 34.89%
EBIT $ 73.60 $ 505.10 $ 565.20
EBIT Growth (%) -82.02% 586.28% 11.90%
EBIT Margin (%) 1.71% 11.50% 13.74%
EBITDA $ 384.20 $ 813.80 $ 872.90
EBITDA Growth (%) -26.12% 111.82% 7.26%
EBITDA Margin(%) 8.91% 18.53% 21.22%
Net Income $ (228.50) $ 27.40 $ 93.70
Net Income Growth(%) -206.63% 933.94% 241.97%
Net Margin (%) -5.30% 0.62% 2.28%
Net OperatingCash Flow $ 339.10 $ 251.40 $ 399.60
Net Operating Cash Flow Growth (%) -13.58% -25.86% 58.95%
Capital Expenditures $ (116.00) $ (188.60) $ (138.10)
Capital Expenditures Growth(%) -22.36% -62.59% 26.78%
Free Cash Flow $ 229.40 $ 63.00 $ 261.50
Free Cash Flow Growth (%) -28.13% -72.54% 315.08%
Table 13: Ratio Analysis
2013 2014 2015
Liquidity Analysis
Current Ratio 1.95 1.98 2.17
Quick Ratio 1.40 1.41 1.57
Profitability Analysis
Operating Margin 1.71% 11.50% 8.81%
Return on Assets -4.75% 0.42% 1.55%
Return on Equity -16.52% 2.52% 8.85%
Coverage Ratios
Net Debt/EBITDA 9.02x 4.07x 3.38x
EBITDA/Interest Expense 1.52x 3.92x 4.61x
FCF/Total Debt 0.06x 0.02x 0.08x
Stable Sales with Increasing Key Margins
While AXTA’s sales have been steady over the previous three-year period as in Table
12, the company has managed to improve its key margins through cost reduction.
AXTA has seen growth in EBIT and EBITDA, as well as Net Income while
maintaining sales of around $4.1 billion, indicating a strong cost control. Management
has heavily focused on their variable cost structure and ability to maintain margins in
Latin America, ensuring AXTA’s profitability in that region. Overall, the company
has been increasing its profitability over the period, although this can be attributed to
AXTA’s cost reduction effort as opposed to an increase in sales.
Strong EBITDA Growth
Whereas sales have been stable over the past three years,AXTA’s EBITDA has more
than doubled to $872.90 million. The growth in EBITDA provides us with a clearer
picture of AXTA’s operating profitability.
Improving Credit Profile
As part of the carve out, AXTA was levied with $3.7 billion of debt, resulting in a
9.02x Net Debt/EBITDA ratio in 2013. Over the past three years, through repayment
of debt, as well as refinancing of current debt through their U.S. headquarters and
Dutch subsidiary, AXTA has been able to considerably reduce their Net
Debt/EBITDA ratio and are well on their way to hit their target of 2.5x-3x. As Table
4 shows, this would still be the highest ratio among AXTA and their competitors.
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
2013 2014 2015
Figure 22: Capital Expenditures
($M)
0
1
2
3
4
5
6
7
8
9
10
2013 2014 2015
Figure 23: Net Debt/EBITDA (X)

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Table 14: DuPont Analysis
2013 2014 2015
Asset Turnover 0.90x 0.68x 0.68x
x PretaxMargin -6.06% 0.84% 3.92%
= PretaxReturn onAssets -5.44% 0.57% 2.66%
x (1-TaxRate) -- 94.29 60.73
= Return on Assets -4.75% 0.42% 1.55%
x (Assets/Equity) 3.48x 5.97x 5.72x
= Return on Equity -16.52% 2.52% 8.85%
Table 15: Monte Carlo Parameters
Number of Iterations 10,000
Growth Rate 6.19%
Std. Dev. 2.51%
Time toTerminal 5
Maximum $18.70
Minimum $8.80
Mean $13.62
Through the refinancing and overall growth in EBITDA, AXTA has increased their
EBITDA interest coverage ratio, demonstrating their ability to repay their debt.
LowCash Flow to Debt Ratio
Although AXTA has been able to reduce and refinance their debt, as well as increase
their key margins, they have still yet to generate any significant free cash flow in
comparison to their total debt. AXTA has a 0.08x FCF/Total Debt for 2015, up .02x
for the three-year period, which indicates AXTA is improving, however, their
continued growth could still be hampered due to the significant amount of leverage
added in 2013. The low FCF is partially due to high repayment and high capital
expenditures on M&A.
DuPont Analysis
Using the DuPont Analysis (Table 14), AXTA has shown a varying ROE since
becoming a stand-alone entity in 2013. From 2013 to 2014, the main driving factors
for the improvement were the additional debt AXTA was leveraged with due to the
carve out, as well as improving profit margins. From 2014 to 2015, AXTA managed
to improve their ROE to 8.85% by improving their profit margins, mainly attributed
to their ability to lower costs through a variable cost structure.
Sensitivity Analysis – Monte Carlo
A Monte Carlo Simulation was performed to simulate the impact of revenue growth
on the DCF intrinsic value estimate using the following variables:
 An average 6.19% and a standard deviation 2.51% of 5-year annual growth rate.
 A 5-year time to terminal period similar to our 5-year period in our original DCF
intrinsic value (IV) calculation.
Based on a 10,000 iteration simulation, AXTA is a Sell as none of the simulated IV is
above AXTA’s current market price.
Investment Risks
Market Risk
(M1)Potential Domestic Regulatory Policy Changes (LowImpact,LowLikelihood).
With the new political administration just taking office, AXTA and its industry may
see a change in regulatory policies. However, this is not expected to impact AXTA as
the new administration is expected to loosen business regulations.
(M2) Global Market Exposure (High Impact, Medium Likelihood)
As a global business, AXTA is subject to risks both domestically and internationally.
Approximately 70% of their sales occurred outside the U.S. in 2015, potentially
adding risk to their sales. This can currently be seen in the Latin American market.
The company anticipates future sales growth because of their presence in emerging
markets. Changes in economic conditions globally are the main threats to AXTA’s
non-U.S. operations (K1).
(M3) Global, Decentralized Business Approach (Medium Impact, Low Likelihood)
AXTA’s decentralized business approach in which each country has its own
subsidiary, reporting back to AXTA U.S., has its benefits but presents itself with
additional risk. In this business structure, headquarters do not always have the most
up to date information. Additional potential risks include individual subsidiaries
agency problems between divisions and AXTA as a whole.
(M4) Highly Competitive Market (High Impact, Low Likelihood)
AXTA competesagainst other major companies in a highly competitive market where
switching costs between companies are low. While AXTA is a major player in their
segments, they compete against much larger firms, who potentially could stealaway
customers due to having a more diversified portfolio of products than what AXTA
can currently offer.
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
2013 2014 2015
Figure 24: FCF/Total Debt (X)

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Figure 26: Risk Matrix
Impact
High M4/B2/C1 M2/C2/E1
Medium M3/B1/C1 E2
Low M1/FX1
Low Medium High
Likelihood
Figure 27: Investment Score Card
Category Weight Recommend
Valuation 50% Strong Sell
Industry Growth 15% Strong Sell
Overall Economic
Outlook 10% Buy
Demand Driver
Outlook 10% Buy
Competition 8% Sell
Related Industries
Outlook 4% Strong Buy
Management 3% Neutral
Overall
Recommendation 100% Sell
Business and Operational Risk
(B1) Data Security Breaches(Medium Impact, Low Likelihood)
Due to use of third party platforms to perform specific business and administrative
functions, AXTA opens themselves up to security breaches they cannot control. This
could lead to damaged reputations and/or monetary damages, result in financial losses
to the company.
(B2) Risks Related to Outsourcing (High Impact,Low Likelihood)
A failure to correctly implement current outsourcing strategies combined with new
strategies proving to be inefficient could potentially harm the company. If said
strategies do not perform expected cost savings, AXTA would have unintentionally
harmed their financial standing and potentially their reputation (K1).
Credit Risk
(C1) Default on Payments (High/Medium Impact, Low Likelihood)
AXTA offers their customers a variety of financial tools to help finance their
purchases. Payment plans can be an incentive for sales. With these payment plans,
AXTA exposes themselves to default risk through their captive finance operations.
The risk of customer default may be somewhat offset by the potential increase in
customer loyalty and sales.
(C2) Derivative Instruments (High Impact, Medium Likelihood)
AXTA uses derivative instruments, subjecting themselves to credit and market risk,
which canlead to increased receivables,conversely, it canlead to losses. Additionally,
AXTA faces default risk/risk of non-performance by counterparties in derivative
agreements. As of year-end in 2013, AXTA has negotiated five interest rate swaps
that totaled $1,173 million to hedge against interest rate exposure, which will be in
place until September of 2017 (K1).
Economic Risk
(E1) Sale of AXTA’s Products (High Impact, Medium Likelihood)
The condition of the overall economy has an impact on the sale of automobiles, which
directly correlates to AXTA’s light vehicle OEM coatings. Similarly, a weaker
economy in regions such as Latin America that is expected to have a GDP growth of
-13% in 2017 will lead to a decrease in industrial production, and as a result, a decline
in AXTA’s sales. Lastly, a downturn in the economy would cause consumers to be
less inclined to do cosmetic repairs to their current vehicles, further driving down sales
of AXTA, particularly in the performance coating segment.
(E2) Slowing Growth Through M&A (Medium Impact, Medium Likelihood)
AXTA has previously engaged in inorganic growth through M&A, acquiring six
companies since the carve out in 2013. With AXTA indicating they could start paying
out dividends in Q2 2017, this likely means AXTA sees the current M&A market as
unattractive, leading them to seek growth elsewhere (K1).
Currency Risk
(FX1) Transaction Exposure Risk (Low Impact, Low Likelihood)
AXTA is less exposed to currency risk due to the structure of their business. They are
not exposed to much transaction exposure as each global AXTA office operates
independently, thereby only subjecting AXTA U.S. to translation exposure as an
accounting measure. In December of 2014 and 2015, AXTA was exposed to a
cumulative translation loss of $164.2 million and $101.1 million, respectively.
Essentially, this only affects AXTA on a U.S. reporting scale. The high sensitivity of
translation exposure could result in an additional loss of $30 million if the U.S. dollar
appreciates 10% relative to other foreign currencies (K1).
Additional Risk Factors
Carlyle Group No Longer Controlling
Shareholder
DuPont was paid $4.9 billion in 2013 for their
paint division by the Carlyle Group, $1.35
billion of this being cash, while the rest being
debt leveraged on AXTA. The Carlyle Group,
a private equity firm, specializes in carving
out companies, turning them around, and
selling them to make a profit. It is, however,
noteworthy that they no longer own a stake in
AXTA at all.
As of August 2, 2016, they had sold 100% of
their shares to other investors for an average
of $28 per share. This could indicate their
view on AXTA and their short term future.
Additionally, the market is valuing
competitors higher than AXTA, indicating
uncertainty and risk. For example, Sherwin -
Williams is valued at 10x the market price of
AXTA as of writing.

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Disclosures:
Ownership and material conflicts ofinterest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that
might bias the content or publication of this report.
Receipt ofcompensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as an officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject
company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the
author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or
completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This
information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This
report should not be considered to be a recommendation by any individual affiliated with CFA Society of Philadelphia, CFA
Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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APPENDIXA1: AXTA Committees
Executive Committee Title
Greg Ledford Member
Charlie Shaver Chair
Audit Committee Title
Mark Garrett Member
Lori Ryerkerk Member
Robert McLaughlin Chair
Compensation Committee Title
Andreas Kramvis Chair
Greg Ledford Member
Martin Sumner Member
Nominating & Corporate Governance Title
Greg Ledford Member
Martin Sumner Chair
Source: ISS Governance
APPENDIXA2: Governance Rating
AXTA corporate governance position is analyzed according to the standards of United States Securities and Exchange
Commissions and the Institutional Shareholder Service (ISS) Rating Methodology. AXTA ratings is illustrated below:
Executive Management-3
Successful transition of AXTA from the carve out to a single entity; however, there are still some threats on the company’s debt
and its direction to pay out dividends.
Board of Directors-2
With The Carlyle Group selling its remaining stake on AXTA, the Board of Directors is no longer under Carlyle’s influence and
control of to appoint new management or the direction of the company
Ratings on threat to Shareholders:
1 Insignificant threat
2 Low threat
3 Moderate threat
4 Significant threat
5 High threat

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Shareholder Rights-3
Under the laws of Bermuda, shareholders have limited rights to take action against the directors or officers, except for fraud or
dishonesty. Thereby, making it difficult to protect shareholder’s interest.
Audit and Risk Transparency-2
Audits its financial reports according to the standards of the Public Company Accounting Oversight Board. AXTA provides
audited reports and unaudited pro forma information for investors to evaluate the company’s position.
Takeover Defenses-2
The Bermuda Law created anti-takeover provisions, which makes control from third party difficult without the permission from
the Board of Directors. The anti-takeover provisions result to a delay from change in control and places restrictions on the time
and reason to remove directors
Average score: 2.6
Our rating is based on the Institutional Shareholder Service (ISS) Rating Methodology
Four Pillars Governance Risk
Board Structure Low
Compensation Low
Shareholder Rights Medium
Audit and Risk Oversight Low
AXTA Rating Low
Source: ISS Governance
APPENDIXA3: Top Management Executives
Executive Title History at Axalta
Charles W.
Shaver
Chairman & CEO Starting in 2013, Mr. Shaver became
the Chairman of the Board and CEO of
Axalta. He has over 35 years of
experience in the global petrochemical,
oil, and gas industry. Prior to Axalta, he
was the Vice President and General
Manager of General Manager from
2001 to 2004. With a wide range in
experience, he also on the American
Chemistry Council Board of Directors
and Finance Committee and the
National Petrochemical and Refiners
Association Board and Executive
Committee
Robert Bryant Executive Vice President & Chief Financial Officer Before joining Axalta, Mr. Bryant was
the Chief Financial Officer and Senior
Vice President of Roll Global LLC. He
was also with Grupo Industrial Saltillo
in 2004, where he was the Executive
Vice President of Strategy, New
Business Development, and
Information Technology department.

of 35
Nigel Budden Vice President, North America Region Mr. Budden holds a diverse leadership
position in his career from the Country
President of DuPont Korea, Regional
Business Director of Corian in
Singapore, and Regional Marketing
leader in China. Prior to Axalta, he was
with E.I. du Pont de Nemours and
Company in 1980.
Michael Carr Vice President and President, North America Mr. Carr’s early career was with Exide
Technologies, Armstrong World
Industries and General Battery
Corporation. Before Axalta, he was the
Vice President and General Manager
for the United States and Canada at
Johnson Controls Power Solutions
division.
Michael A. Cash Senior Vice President and President, Industrial
Coatings
Mr. Cash was the Managing Director
for the Asia-Pacific Region at
AkzoNobel Coatings and was
responsible for powder business in the
Americas. Mr. Cash’s experience at
The Sherwin-Williams Company in the
Automotive International and
Automotive Marketing provides a
competitive advantage to Axalta.
Jorge Cossio President, Latin America Region Mr. Cossio has over 30 years of
experience in the pharmaceuticals,
titanium dioxide, fibers and coatings
industries. He also has extensive
experience in the Pharmaceuticals
business in areas such R&D,
Production, SHEA, Planning and Sales.
Mr. Cossio has also been in the HR
division in positions such as Manager
of Compensation and Benefits and HR
Manager for the TiO2 business.

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Michael F. Finn Senior Vice President & General Counsel Mr. Finn was previously the Vice
President and General Counsel of
General Dynamics’ Advanced
Information Systems subsidiary before
joining Axalta. He has held various
counseling positions in companies such
as General Dynamics Corporation and
Teligent Inc.
Martin Horneck Senior Vice President & Chief Procurement and
Logistics Officer
With experiences in the automotive
industry, he was recently at TRW
Automotive as the Vice President of
Global Purchasing, Supplier
Development, and Logistics. He has
also been the Executive Vice President
of Global Purchasing at GETRAG
Group.
Dan Key Senior Vice President Operations and Supply Chain Mr. Key has his expertise in the supply
chain area of the business. He was with
Sigma Aldrich, serving as the Vice
President and Chief Supply Chain
Officer. At Sigma Aldrich, he was
responsible for 53 operating sits that
combines more than 5,000 employees.
Luke Lu Vice President and President, China Mr. Lu has had a wide range of
responsibilities in his area from
business development, marketing and
sales. From 2007 to 2013, he was the
President of the Asia-Pacific region at
Exide Technologies where he led the
company in the industrial transportation
and energy sector. Most recently, he
was the Vice President in the Power
Solutions Asia-Pacific region at
Johnson Controls.
Steven R.
Markevich
Executive Vice President and President, Transportation
Coatings and Greater China
Mr. Markevich has been with
companies such as GJN Driveline and
Siegel Robert Automotive. He was
responsible for providing solutions in
the commercial strategy, sales, account
and program management initiatives at
Siegel Robert Automotive. He holds
various leadership roles that affiliates
with senior level customers.

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Joe McDougall Senior Vice President, Global Branding, Corporate
Affairs, and Chief Human Resources Officer
Before being part of Axalta, Mr.
McDougall was the Vice President, HR,
and Communications and Six Sigma at
Honeywell Performance Materials and
Technologies. At Honeywell, he was
also the Vice President, Human
Resources for the Air Transport
Division.
Chris Mecray Vice President, Investor Relations Prior to Axalta, Mr. Mecray was at
Blackrock Inc. as the Vice President
Senior Analyst focusing in areas of the
global industrial, basic materials, and
coatings. He also at Deutsche Bank
between 1995 to 2004, specializing in
analyzing industrial companies.
Rajeev Rao Vice President, Strategy and Business Development Mr. Rao has extensive experience in the
industry by providing consulting in the
chemical sector. In 2012, he was at
Halliburton Company as the Senior
Director, Strategy and Marketing for
the company’s Drilling and Evaluation
Division. He was also with McKinsey
& Company for six years, where he led
the North America Chemicals Practice.
Matthias
Schonberg
Vice President and President, Europe, Middle East &
Africa
Mr. Schonberg’s most recent position
was the CEO of ContiTech Fluid
Technology business and Executive
Vice President of Continental AG. He
has had an abundant of senior level
positions. In addition, his past roles at
Continental were CEO and Business
Head of the Unit Replacement unit in
the Americas.

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Sobers Sethi Vice President, South and East Asia Region Mr. Sethi attains 12 years of experience
in the coatings industry and 20 years in
the automotive industry. He career is
dominated in the Asia-Pacific region
where he was the held positions such as
DPC Sales Director Asia-Pacific and
Business Director Asia-Pacific,
Business Manager Industrial Coatings
Asia-Pacific, and Strategic Planning
Manager for DPC Asia-Pacific.
Barry Snyder Senior Vice President & Chief Technology Officer Mr. Synder’s previous position was
with Orion Engineered Carbons,
serving as the Senior Vice President
and was responsible for global R&D
and quality assurance. His experience
varies from the manufacture of paints
and coatings, plastics, printing inks,
adhesives, sealants, and tires.
Aaron Weis Vice President, Chief Information Officer Mr. Weis started his career at Siemens,
where he was responsible for managing
information technology. His previous
position before Axalta was at Sensata
Technologies, where he was the Vice
President & General Manager in the
Magnetic Speed and Position business.
Matthew N.
Winokur
Vice President, Corporate Affairs Mr. Winokur is specialized in the roles
of government regulations and public
affair. His recent position was at Ogilvy
Public Relations as the Executive Vice
President in which he was responsible
for developing global reputation
campaigns for government and
corporate clients.
Source: Axalta Coating Systems

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APPENDIXA4: Board Members
Member Independent Career Background
Charles W. Shaver, 57 No Refer to Executive Appendix
Mark Garrett Yes Mr. Garrett, with 30 years of experience in the chemical
sector, is the Chief Executive of Borealis AG, a provider of
solution in areas such as polyolefin, base chemicals, and
fertilizers. Before his position at Borealis, Mr. Garett was
an Executive Vice President Water and Paper Treatment at
Ciba Specialty Chemicals.
Andreas Kramvis Yes Mr. Kramvis is the Vice Chairman of Honeywell Inc., a
Fortune 100 company in the diversified technology and
manufacturing. Before his position at Honeywell Inc., Mr.
Kramis has served as the President and Chief Executive
Officer of Honeywell Performance Materials and
Technologies, and the President of Honeywell’s
Environmental and Combustion Controls business. In
addition to Axalta, Mr. Kramvis served on the board of the
AptarGroup Inc.
Gregory S. Ledford Yes Mr. Ledford joined Carlyle Group in 1988 and is currently
the Managing Direction and head of the Industrial &
Transportation team. From 1991 to 1997, Mr. Ledford was
the Chairman and CEO of Reilly Corporation. He is also a
member of board at Allison Transmission, Genesee &
Wyoming, Greater China Industrial, HD Supply, and
Veyance Technologies.
Robert M. McLaughlin Yes Mr. McLaughlin has a plethora of experiences in the
financial sector. He started his career at Ernst & Young in
1979 and have transitioned in 1992 to Unisource
Worldwide as Vice President of Finance. Currently, Mr.
McLaughlin is the Senior Vice President and Chief
Financial Officer at Airgas, a company that is a supplier of
industrial, medical and specialty gases and hardgoods
product.
Lori J. Ryerkerk Yes Ms. Ryerkerk, an Executive Vice President in the Global
Manufacturing department at Royal Dutch Shell. In the
department, she is responsible for Shell Refining and
Chemical assets globally. Before her career at Shell, she
was with ExxonMobil Corporation and Hess Corporation

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Sam Smolik Yes Mr. Smolik has various experiences in the chemical and
refining industry. He is currently the Senior Vice President
at LyondellBasell Industries. Prior to LyondellBasell
Industries, he was the Vice President at Royal Dutch Shell
where was part of the Global Downstream Health, Safety,
Security and Environment department.
Martin Sumner Yes Mr. Sumner is current the Managing Director of the Carlyle
Group, where he was responsible for seeking US buyout
opportunities in sectors such as industrial and
transportation. He was also involved in Carlyle’s
investments with Allison Transmission and Veyance
Technologies.
Source: Axalta Coating Systems
APPENDIXA5: Top 15 Institutional Owners
According to FactSet,AXTA’s top 15 institutional holders are the following:
Source: FactSet
9.75%
6.78%
6.15%
3.19%
3.08%
2.96%
2.51%
2.34%
2.21%
1.93%
1.85%
1.84%
1.80%
1.75% 1.67%
Top 15 Institutional Owners (% S/O)
Berkshire Hathaway
The Vanguard Group
Iridian Asset Management
Diamond Hill Capital Management
Franklin Advisers
BlackRock Fund Advisors
BlackRock Advisors
Deccan Calue Investors
SQ Advisors
William Blair Investment Management
Goldman Sachs Asset Management
Jennison Associates
Massachusetts Financial Services
Gates Capital Management
Millennium Management

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0
1
2
3
4
5
Bargaining Power
of Buyers
Threat of New
Entry
Threat of
Substitutions
Bargaining Power
of Suppliers
Intensity of
Competitive Rivalry
Porter's Five Forces
APPENDIXB1: Porter’s Five Forces
Bargaining Power of Buyers – Moderate:Switching costs in terms of dollar value are low for AXTA’s products. OEMs and
local shops can switch AXTA’s coating equipment out fairly cheaply which would indicate a high threat. However,costs of re-
training are high and most OEMs and local shops are not willing to go through this. Relatively speaking, there are few customers
who purchase in large quantities. Industry products are diversified, however, company specific equipment is not compatible with
competitor products. There is low excess supply as many companies, and AXTA, create their products in small batches to avoid
high inventory costs. Lastly, buyers do not have a credible threat as it relates to backward integration into the industry.
Intensity of Competitive Rivalry – Moderate: This industry is dominated by few, large-scale producers of roughly the same
size in the industry. It is not a growth industry, and while costs can be somewhat high, most of AXTA’s costs are variable due to
small batch production and keeping inventories low.
Bargaining Power ofSuppliers – Moderate: The supplier industry is more concentrated than the general coating industry. This
indicates the powerof suppliers is high and could have the ability to drive prices up, asAXTA and relatedcompanies are dependent
on them. However,supplier products are undifferentiated giving the buying firms more power to switch between suppliers.
ThreatofSubstitutions – Minimal: In terms of product substitutions, there are no realalternatives to the products offered.OEMs
and local shops, as well as end costumers, are dependent on actualcar paint to put on their cars. Thus far, no real alternative has
emerged, illustrating no real substitute for the products provided by the firms in the industry.
Threat ofNewEntry – Minimal: The performance and industrial coating industry is a highly capital intensive industry requiring
expertise and equipment not easily accessible for low costs. As such,this industry is protected against new entrants. Additionally,
this is not considered a growth industry, further protecting AXTA, and its competitors, from the threat of new entry.
Legend
0 No Threat to AXTA
1 Minimal Threat to AXTA
2 Low Threat to AXTA
3 Moderate Threat to AXTA
4 Significant Threat to AXTA
5 High Threat to AXTA

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0
5
10
15
20
Strengths
Weaknesses
Opportunities
Threats
0
1
2
Competiveness
Cyclical Trends
Technological
Advancements
Product
Standards
Industry
Stagnation
Pricing
Threats Rating
APPENDIXC1: SWOT Analysis
AXTA’s SWOT Analysis was created to assess the company’s competitive position relative to other competitors in the coating
industry. The radar charts below are based on subjective values, ranking each category on a 3-point scale in terms on AXTA’s
strengths and weaknesses compared with their competitors. The totals for each of the SWOT category were summarized in the
final SWOT chart.
0
1
2
3
Financial
Resources
Reputation
Competive
Advantage i.e
Technology
Management &
Governance
Cost Structure
Strengths Rating
0
1
2
Strategies
Management &
Governance
Internal Operations
Product
Brand Image
Profitability
Weaknesses Rating
0
1
2
3
M&A
Product Line
Expansion
Facilities Expansion
Regulatory
Overhead
Rival Complacency
Continued
International
Expansion
Opportunities Rating
Strengths Weaknesses
 Global presence
 Large market share
within their industry
 Technology
competitive advantage
 Highly variable cost
structure
 Large outstanding debt
due to recentcarve out.
 Recent decline in sales
 Relatively
inexperienced as
standalone entity
Opportunities Threats
 Increasing demand in
emerging markets, as
well as expansion into
these markets.
 Expansion into other
coating industries
 Growth through M&A
 Highly competitive
environment.
 Product sales highly
dependent on external
factors.
 Technological
advancements
 Increasing regulation

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APPENDIXD1: Worldwide Vehicle Sales and Production
The following tables were used to calculate all statistics in the demand driver section not separately cited. Any growth calculations
were calculated by finding the geometric mean of year over year growth rates as stated in the paper.
The commercial vehicle production table consists of worldwide commercial vehicle production and the data and projections
within it are based off of OICA models. Taking a geometric mean of the data from 2000- 2017 produces a CAGR of 1.7%.
Commercial vehicle production drives AXTA’s commercial vehicle paint sales, as commercial vehicles are the end market of
this product (2015 10-K).
Commercial Vehicle Production (in millions)
Year Commercial vehicles
2000 17.17
2001 16.48
2002 17.64
2003 18.69
2004 19.94
2005 19.67
2006 19.3
2007 20.06
2008 17.89
2009 13.99
2010 19.34
2011 19.92
2012 21.17
2013 21.86
2014 22.22
2015 22.12
Source: OICA
The US freight trucking industry growth table consists of total revenue growth in the US freight trucking industry and is based
off of data acquired by IBIS World. Taking a geometric mean of the data from 2011-2015 shows a CAGR of 1.9%. We used
trucking industry growth as an indicator of the overall health of the economy and industrial production, both of which drive
demand for AXTA’s industrial coating product. (2015 10-K).
U.S Freight Trucking Industry Revenue Growth (% )
Year Revenue Growth
2004 7.30%
2005 7.10%
2006 7.20%
2007 3.10%
2008 -2.00%
2009 -6.00%
2010 1.00%
2011 1.10%
2012 1.20%
2013 2.70%
2014 1.80%
2015 2.90%
2016 2.40%
2017 2.30%
Source: IBIS World

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The worldwide light vehicle production table contains data and projections from PwC. Taking a geometric mean of the
data from 2012-2015 produces a CAGR of 3.3% and taking a CAGR from 2016-2020 shows a projected CAGR of 3.9%.
Light vehicle production drives the demand for AXTA’s light vehicle coating sales because,assuming AXTA maintains
their current market share,as the light vehicle production increases so will the need for light vehicle coating system
(2015 10-K).
World Wide Light Vehicle Production (in millions)
Year Light Vehicle Sales
2012 80.30
2013 83.90
2014 86.30
2015 88.60
2016 93.20
2017 98.00
2018 102.10
2019 105.60
2020 107.40
Source: PwC
The Bric Vehicle Sales (in units) table contains the number of vehicle sales in the four largest emerging economies Brazil,
Russia, India, and China from 2005-2015. Taking a geometric mean of the total vehicle sales from 2005-2015 provides a CAGR
of 11.56%. Because vehicle sales is correlated with AXTA’s sales 11.56% demonstrates that AXTA’s presence in emerging
economies will help grow their future sales.
Bric Vehicle Sales (in units)
Year Russia India Brazil China Total
2005 1,806,625 1,440,455 1,714,644 5,758,189 10,719,913
2006 2,244,840 1,750,892 1,927,738 7,215,972 13,139,442
2007 2,898,032 1,993,721 2,462,728 8,791,528 16,146,009
2008 3,222,346 1,983,071 2,820,350 9,380,502 17,406,269
2009 1,597,457 2,266,269 3,141,240 13,644,794 20,649,760
2010 2,107,135 3,040,390 3,515,064 18,061,936 26,724,525
2011 2,901,612 3,287,737 3,633,248 18,505,114 28,327,711
2012 3,141,551 3,595,508 3,802,071 19,306,435 29,845,565
2013 2,998,650 3,241,302 3,767,370 21,984,079 31,991,401
2014 2,592,396 3,177,005 3,498,012 23,499,001 32,766,414
2015 1,437,930 3,425,336 2,568,976 24,597,583 32,029,825
Source: OICA

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APPENDIX E1: Worldwide Economic Growth
The following tables were used to calculate all statistics in the economic growth and improved sales growth section not that are
not separately cited. Any growth calculations were calculated by finding the geometric mean of year over year growth rates as
stated in the paper.
The GDP Growth Rate (%) table shows the GDP growth rate of the Asia Pacific and Middle East/North Africa world regions.
The data contained within the table as well as any projections are based off of OECD models. Taking a geometric mean for the
Asia Pacific region for 2013-2015 provides a CAGR of 6.7% and for 2016-2018 provides a forecasted CAGR of 6.1%. Taking a
geometric mean from the Middle East/ North Africa region for 2013-2015 shows a CAGR of 2.5% and for 2016-2018 shows a
forecasted CAGR of 3.3%.
GDP Growth Rate (% )
Year Asia-Pacific Middle East/ North Africa
2013 7% 2%
2014 6.8% 2.9%
2015 6.5% 2.6%
2016* 6.3% 2.9%
2017* 6.2% 3.5%
2018* 6.1% 3.6%
Source: OECD
The European Union GDP Growth Rate (%) table shows GDP growth for the European union from 2010 and contains
projections going out to 2020. The data and projections are numbers based off of IMF numbers. Taking a geometric from 2010-
2015 shows a CAGR of 1.19% and a geometric mean for 2016-2020 projects a CAGR of 1.87%.
European Union GDP Growth Rate (% )
Year European Union
2010 2.02%
2011 1.83%
2012 -0.40%
2013 0.28%
2014 1.45%
2015 1.99%
2016* 1.84%
2017* 1.95%
2018* 1.87%
2019* 1.87%
2020* 1.83%
Source: IMF

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The GDP in world regions (in billions) table shows the GDP of North America and Latin America from 2010 and includes
projections out till 2020. Taking a geometric mean for Latin America from 2010-2015 shows a CAGR of -.16% and for 2016-
2020 projects a CAGR of 1.38%. Taking a geometric mean for North America from 2010-2015 provides a 3.39% CAGR and
for 2016-2020 provides a 3.96% CAGR.
GDP in World Regions (in billions)
GDP Latin America North America
2010 $ 5,094.18 $ 16,577.86
2011 $ 5,918.17 $ 17,306.58
2012 $ 5,929.78 $ 17,979.54
2013 $ 5,994.43 $ 18,528.94
2014 $ 5,928.51 $ 19,176.88
2015 $ 5,052.49 $ 19,587.19
2016* $ 5,403.96 $ 20,094.27
2017* $ 4,653.56 $ 21,004.50
2018* $ 4,846.50 $ 21,951.31
2019* $ 5,115.78 $ 22,881.59
2020* $ 5,409.78 $ 23,782.21
Source: IMF
The table GDP Bric Countries ($B) shows GDP data from 2010 and includes GDP projections until 2020, put forth by the IMF.
Taking a geometric mean of the totaled IMF’s projections shows a forecasted CAGR of 5.05%. AXTA is present in major
emerging economies, so we chose to pull data from the four largest Brazil, Russia, India and China and concluded it will help
AXTA grow their future sales.
GDP Bric Countries ($B)
Year Brazil Russia India China
2010 $ 2,208.71 $ 1,626.57 $ 1,708.46 $ 6,005.25
2011 $ 2,612.40 $ 2,031.77 $ 1,822.99 $ 7,442.03
2012 $ 2,459.53 $ 2,171.74 $ 1,828.98 $ 8,471.36
2013 $ 2,464.69 $ 2,231.84 $ 1,863.21 $ 9,518.58
2014 $ 2,417.16 $ 2,029.62 $ 2,042.56 $ 10,430.71
2015* $ 1,772.59 $ 1,324.73 $ 2,090.71 $ 10,982.83
2016* $ 1,534.78 $ 1,132.74 $ 2,288.72 $ 11,383.03
2017* $ 1,556.44 $ 1,267.55 $ 2,487.94 $ 12,263.43
2018* $ 1,608.74 $ 1,355.36 $ 2,724.76 $ 13,338.23
2019* $ 1,677.46 $ 1,447.13 $ 3,006.95 $ 14,605.29
2020* $ 1,749.35 $ 1,530.61 $ 3,315.36 $ 16,144.04
Source: IMF
APPENDIXF1: Industry and Competitors
Total Industry Market Share In Revenue Dollars (billions) Percentage
PPG Industries $ 15.30 12%
RPM Inc $ 4.60 4%
Axalta $ 4.10 3%
Sherwin-Williams $ 11.40 9%
Valspar $ 4.40 3%
Other $ 88.50 69%
Source: FactSet
Top Competitors Sales Comparison Dollars (billions) Percentage
PPG Industries $ 15.30 39%
RPM Inc $ 4.60 12%
Axalta $ 4.10 10%
Sherwin-Williams $ 11.40 29%
Valspar $ 4.40 10%

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Source: FactSet
Competition Market Values Comparison Dollars (millions)
PPG Industries $ 25,336.00
RPM Inc $ 7,019.00
Axalta $ 6,776.00
Sherwin-Williams $ 26,419.00
Valspar $ 8,518.00
Source: FactSet
APPENDIXG1: Chinese Growth Forecast
Bloomberg: The International Monetary Fund upgraded its growth forecast for China’s economy in 2017 to 6.5 percent, 0.3
percentage points higher than their October forecast, on the back of expectations for continued government stimulus.
The most important market news of the day.
Source: Bloomberg
As of 2015, China had a GDP increase of 7.9% a year, by having a lower projected growth rate,it indicates that China will not
record as high of revenue in 2017. Bloomberg stated “The International Monetary Fund upgraded its growth forecast for China’s
economy in 2017 to 6.5 percent,0.3 percentage points higher than their October forecast, on the back of expectations for
continued government stimulus.” With a lower projected GDP, China will expect to have reduce capital spending, hurting the
sales and development of many industries such as; automotive and industrial industries, which directly hurts the growth of
AXTA. According to Factset (Figure 19), AXTA has over 29% of their annual revenue from all market industries coming from
emerging markets. With China being the largest country in the Asia Pacific region (6.9% total global industry revenue) this
represents a major threat to the paint and coating industry. The industry might see some decreases in growth in those regions by
2017.
Eulerhermes Economic outlook: the global automotive market
China remains the largest car market in the world, producing selling almost 21 million new cars in 2015. This accounts for 27%
of global sales. Even with such a high volume in car sales,China’s automotive industry growth was only 8% in comparison with
the 10% growth in 2014. In order to maintain the stable growth with previous years, China had to reduce prices to increase
volume. Other markets are also reporting decreases over the economic difficulties that countries had been facing over last
severalyears. The US and some other markets have been reducing their workforces by 20% to maintain the same levels of
profitability due to the big movements in exchange rates. Europe is expected to produce over 12.9 million new cars sales,giving
the market a growth of 5%. Despite this growth, sales are still down 15% in comparison with sales before the 2009 financial
crisis.
The countries that will be important to watch for are Brazil, Russia, and India. India will be projecting small growth of 3%.
Despite the small growth, the profitability of sales should be high due to the ultra-low cost vehicles becoming widely popular.
The biggest concern for the industry lies in Brazil as well as the other Latin American markets. With the Brazil and other
countries recently being in recession in 2013, the annual vehicle registrations were down 10%. These markets provide AXTA
both with plenty of opportunities as well as threats to their global markets. With light vehicles and refinishing the largest
industries for AXTA, they must depend on the future of the global automotive industry.Bottom of Form

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APPENDIXH1: Refinish Performance
Looking at the statistics of car crashes from the US Highway and roads division, on an annual basis over the last 5 years there
has been a constant increase of about 1.5-2% per year. With the number of people killed on an annual basis, this indicates that
most crashes come from bumper to bumpers. These type of crashes tend to require repairs from body shops. The five-year
projection for jobs in the repair industry are estimated to be greater than 180,000. With auto repair body shops being the largest
customer of AXTA in their refinished business, it is fair to project that this will continue to expand as a market.
APPENDIXI1: DOL/DFL
With a diminishing market in South America, projected decrease in GDP growth in China, and mature market in the US, the
paint and coating industry is going to have to develop their cost structure to strength profit margins. As of now the leaders in the
industry are using the decrease in sales as way to restructure their operations costs,hence why we are seeing negative DOLs
from 4 of the top industries. With stables/reduction in industry average sales over the last couple of years,it is crucial for the
industry to cut costs to maintain profitability. The DFL establishes how volatile earnings per share are in comparison with
EBIT. With 1.0 being the stable (benchmark) the industry average is 1.2x, slightly higher due to the nature of the industry.
APPENDIXJ1: Improving Sales Growth
AXTA’s cost reduction and consolidation efforts have succeeded in raising or maintaining their EBITDA. However,any
increase in EBITDA should not be viewed as real growth as cost reductions are not a sustainable way to grow their business.
Instead, sales growth is a more telling metric, which, for AXTA, has remained relatively constant over the last couple of years.
APPENDIXK1: Investment Risks
Market Risk
AXTA is exposed to market risks as identified by AXTA in their 10-K. AXTA is considered to be operating on a global basis,
having approximately 70% of their net sales coming from outside of the U.S. market. The company explained in their 10-K that
in order to expand their operations in the future they will have to rely on demands for their products from customers in emerging
markets. Also, changes in the economic conditions could play a role in the demand for products in the future, which includes the
Venezuelan operations.
Business and Operational Risk
AXTA’s business risk could impact the company’s data and information technology infrastructure, which in the long run can
affect its reputation with customers and suppliers. In addition, the degradation in reputation affects material liabilities, which
results to delay in product delivery and raw materials. AXTA has also implemented infrastructure to limit cyber-attack,theft and
security breaches.
As for AXTA’s operational risk, it is dependent on the ability of the company to develop new products and services that would
be able to meet the demands in the market. The company has developed operating and marketing solutions to improve the
importance of business productivity. Furthermore, AXTA has strategic plans to face challenges such as delay in product
development, regulatory approvals, manufacturing process,intellectual property protection, and market entry of new products and
services. AXTA’s inability to develop new product and processes could adversely impact financial results. On the other hand,
AXTA is aware that the production and sales of new products could cannibalize existing products and sales.
is aware that the production and sales of new products could cannibalize existing products and sales.
Credit Risk
To protect the company from potential credit risk, AXTA has implemented payment options for customers such as pre-bates and
loans. In addition, AXTA also limits credit risk by guaranteeing payments to a third party. Customers’ inability to pay adversely
impacts AXTA’s financial results as well as the business and operations. Furthermore, customers who purchase a significant
portion of AXTA’s product could immensely impact AXTA’s financial standing. For instance, in 2015, one of AXTA’s largest
customers and distributor accounted for 7.6% and 3.3% of net sales, respectively. The default on AXTA’s largest customer and
distributor changes AXTA’s business conditions, product requirements, and marketing strategies.

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Economic Risk
AXTA’s domestic and global financial results are strongly tied to the growth and economic conditions. The company’s non-US
operations are subject to the change in trade, monetary and fiscal policies, and laws and regulations, which can impact AXTA’s
growth. In addition, AXTA’s international operations are dependent on a country’s stability and risks in regards to terrorism,
political hostilities, war, and civil disturbances. AXTA’s domestic operations are subject to different culture and business
practices. Therefore, AXTA has created employment policies and compensation programs that implies with the law in order to
mitigate volatility in its operations.
Currency Risk
According to the 2015 10-K AXTA’s translation lost for 2014 and 2015 was $164.2 million and $101.1 million, respectively.
And if the U.S dollar were to appreciate 10% relative to foreign currencies it would expose AXTA to a loss of $30 million.
(2015 10-K)
Source: AXTA 10-K

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APPENDIXL1: MVofDebt
The MV of Debt was estimated using AXTA’s YTM and finding the present value of their current outstanding bonds. According to our estimations, AXTA still has around
$3.3 billion in debt outstanding.
MV of Debt
Yield to Maturity 6.75% (2.50% Risk free + 4.25% BB rating)
Loan Principal Amount ($M) Coupon Rate Coupon Payment Payment Frequency Length (Years) Present Value
Euro Term $547.70 3.000% $16.43 Monthly 7 $433.37
Dollar Term $2,282.80 2.750% $62.78 Monthly 7 $1,774.52
Euro Note $394.90 5.750% $22.71 Annual 7 $373.43
Dollar Note $750.00 7.375% $55.31 Semi-Annual 8 $778.61
$ 3,975.40 $3,359.94
APPENDIXL2: Estimated Stable Growth Rate
The stable growth rate was estimated using long-term risk free rates from all regions in which AXTA is present. These growth rates were weighted according to AXTA
sales in each region to come up with an estimated 2.49% stable growth rate.
Estimated stable growth rate
Super-Region Tool Growth Rate Weight Weighted Growth Rate
Americas 30-Year Treasury 2.50% 47.60% 1.1900%
Europe 30-Year government bonds 1.50% 28.20% 0.4230%
Asia-Pacific CGBI 20 Year index 3.34% 17.30% 0.5778%
Africa/Middle East CITI Gov't Index 4.36% 6.90% 0.3008%
100.00% 2.49%
APPENDIXL3: Company Options Estimations
The AXTA management options were estimated using numbers found in the 2015 10-K. These calculations became a part of the final valuation model seen below.
2013 & 2014 options
Price # shares (M) Years Total Value Weight Average price Weight*years
2013 $ 5.94 2.8 6.5 $ 16.63 14.58% $0.87 0.95
2013 $ 8.88 5.4 8.25 $ 47.95 28.13% $2.50 2.32
2013 $ 11.94 6.4 8.25 $ 76.42 33.33% $3.98 2.75
2014 $ 7.21 1.6 6.5 $ 11.54 8.33% $0.60 0.54
2015 (See Below) $ 30.07 3 6.5 $ 90.21 15.63% $4.70 1.02
19.2 100.00% $12.64 7.58

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2015 Options
# shares (M) Price low Price high Vested in Max life Weight
Service Based 1.3 $ 25.34 $ 34.80 3 10 43.33% $ 13.03
Stock Awards 0.9 $ 25.34 $ 34.80 3 10 30.00% $ 9.02
Stock Units 0.8 $ 25.34 $ 34.80 3 10 26.67% $ 8.02
3 average price = $ 30.07 Average life 6.5 100.00% $ 30.07
APPENDIXL4: Stock Price Volatility
Stock price volatility was found in the 2015 AXTA 10-K. The weighted volatility was found using number of shares left in each of the separate management options
AXTA has outstanding.
Stock Price Volatility
Volatility # Shares (M) Weight Weighted volatility
2013 28.61% 14.6 76.04% 21.76%
2014 28.28% 1.6 8.33% 2.36%
2015 22.91% 3 15.63% 3.58%
19.2 27.69%
APPENDIXL5: Financial Model Master Inputs
The following shows our FCFF DCF model. Appendix L5 contains the master inputs.
MasterInput Sheet
Do you want to capitalize R&D expenses? No
Do you want to convert operating leases to debt? Yes
Do you want to normalize operating income? No
Inputs
From Current Financials
Current EBIT = $565.20
Current Interest Expense = $189.50
Current Capital Spending $138.10
Current Depreciation & Amort'n = $307.70
Effective tax rate (for use on operating income) 39.27%
Marginal tax rate (for use on cost of debt) 35.00%
Current Revenues = $4,113.30 $4,391.50
Current Non-cash Working Capital = $1,296.50
Chg. Working Capital = ($191.10)
Previous year-
end
Book Value of Debt = $3,391.40 $3,656.30
Book Value of Equity = $1,073.70 $1,044.70

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Cash & Marketable Securities = $487.70 $386.80
Value of Non-operating Assets = $4.20 $4.50
Minority interests $67.50 $67.30
Market Data for your firm
Is your stockcurrently traded? Yes
If yes, enter the following:
Current Stock Price = $28.75
Number of shares outstanding = 240.46
Market Value of Debt = $3,359.94
If no, enter the following
Would you like to use the book value debt ratio? No
If no, enter the debt ratio to use in valuation 32.71%
General Market Data
Long Term Risk free rate= 2.50%
Risk premium for equity = 5.89%
Ratings
Do you want to estimate the firm's synthetic rating = No
If yes, choose the type of firm
If not, what is the current rating of the firm? BB
Enter the cost of debt associated with the rating = 4.25%
Options
Do you have equity options (management options,warrants) outstanding? Yes
If yes, enter the number of options 19.20
Average strike price $12.64
Average maturity 7.58
Standard Deviation in stock price 27.69%
Do you want to use the stockprice to value the option or yourestimated
value?
Current
Price

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Valuation Inputs
High Growth Period
Length of high growth period = 5
Beta to use for high growth period for your firm= 1.51
Do you want to keep the debt ratio computed from your inputs? Yes
If yes, the debt ratio that will be used to compute the cost of capital is 32.63%
If no, enter the debt ratio that you would like to use in the high growth period
Do you want to keep the existing ratio of working capital to revenue? Yes
If yes, the working capital as a percent of revenues will be 31.52%
If no, enter the ratio of working capital to revenues to use in analysis
Do you want to compute your growth rate from fundamentals? Yes
If no, enter the expected growth rate in operating income for high growth period
If yes, the inputs to the fundamental growth calculation (based upon your inputs)are
Return on Capital = 8.28%
Reinvestment Rate = -76.65%
Do you want to change these inputs? Yes
Return on Capital = 8.28%
Reinvestment Rate = 100.00%
Do you want me to gradually adjust yourhigh growth inputs in the second half? Yes
Stable Growth Period
Growth rate during stable growth period = 2.49%
Beta to use in stable growth period = 0.90
Risk premium for equity in stable growth period = 5.89%
Debt Ratio to use in stable growth period = 35.01%
Pre-tax cost of debt in stable growth period = 4.25%
Tax Rate to use in stable growth period = 39.27%
To compute the reinvestment rate in stable growth,you have two options
Do you want to compute reinvestment needs in stable growth based on
fundamentals? Yes
If yes, enter the return on capital that the firm will have in stable growth 8.28%
If no, enter capital expenditure as % of depreciation in stable growth

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APPENDIXL6: Valuation Model Results
Appendix A6 shows our models input summary and final valuation.
Input Summary
Normalized EBIT (before adjustments) $565.20
Adjusted EBIT = $561.23
Adjusted Interest Expense = $196.05
Adjusted Capital Spending $150.30
Adjusted Depreciation & Amort'n = $323.87
Tax Rate on Income = 35.00%
Current Revenues = $4,113.30
Current Non-cash Working Capital = $1,296.50
Chg. Working Capital = ($87.69)
Adjusted Book Value of Debt = $3,753.35
Adjusted Book Value of Equity = $1,044.70
Length of High Growth Period = 5 Forever
Growth Rate = 8.28% 2.49%
Debt Ratio used in Cost of Capital
Calculation= 32.63% 35.01%
Beta used for stock = 1.51 0.90
Risk free rate = 2.50% 2.50%
Risk Premium = 5.89% 5.89%
Cost of Debt = 4.25% 4.25%
Effective Tax rate (for cash flow) = 39.27% 39.27%
Marginal tax rate (for cost of debt) = 35.00% 39.27%
Return on Capital = 8.28% 8.28%
Reinvestment Rate = 100.00% 30.10%

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Output from the program
Cost of Equity = 11.39%
Equity/(Debt+Equity ) = 67.37%
After-tax Cost of debt = 2.76%
Debt/(Debt +Equity) = 32.63%
Cost of Capital = 8.57%
Intermediate Output
Expected Growth Rate 8.28%
Working Capital as percent of revenues
= 31.52% (in percent)
The FCFF for the high growth phase are shown below (up to 10 years)
Current 1 2 3 4 5
Terminal
Year
Expected Growth Rate 8.28% 8.28% 7.12% 4.81% 2.49%
Cumulated Growth 108.28% 117.24% 125.59% 131.63% 134.91%
Reinvestment Rate 100.00% 100.00% 86.02% 58.06% 30.10%
EBIT $561 $608 $658 $705 $739 $757
Tax rate (for cash flow) 39.27% 39.27% 39.27% 39.27% 39.27% 39.27% 39.27%
EBIT * (1 - tax rate) $341 $369 $400 $428 $449 $460 $440.33
- (CapEx-Depreciation) ($174) $262 $283 $260 $182 $96 $84.46
-Chg. Working Capital ($88) $107 $116 $108 $78 $43 $48.08
Free Cash flow to Firm $602 ($0) $0 $60 $188 $321 $307.79
Cost of Capital 8.57% 8.57% 8.05% 7.01% 5.97%
Cumulated Cost of Capital 1.0857 1.1788 1.2737 1.3631 1.4444
Present Value ($0) $0 $47 $138 $223

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Growth Rate in Stable Phase = 2.49%
Reinvestment Rate in Stable
Phase = 30.10%
FCFF in Stable Phase = $307.79
Cost of Equity in Stable Phase = 7.80%
Equity/ (Equity + Debt) = 64.99%
AT Cost of Debt in Stable Phase
= 2.58%
Debt/ (Equity + Debt) = 35.01%
Cost of Capital in Stable Phase = 5.97%
Value at the end of growth
phase = $8,847.21
Valuation
Present Value of FCFF in high growth phase = $407.55
Present Value of Terminal Value of Firm = $6,125.04
Value of operating assets of the firm = $6,532.59
Value of Cash, Marketable Securities & Non-operating assets = $491.90
Value of Firm = $7,024.49
Market Value of outstanding debt = $3,456.99
Minority Interests $67.50
Market Value of Equity = $3,500.00
Value of Equity in Options = $225.59
Value of Equity in Common Stock = $3,274.41
Market Value of Equity/share = $13.62

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