SEGMENTS

The Company identifies an operating segment as a component: (i) that engages in business activities from which it may earn revenues and incur expenses; (ii) whose operating results are regularly reviewed by the Chief Operating Decision Maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance; and (iii) that has available discrete financial information.

We have two operating segments, which are also our reportable segments: Performance Coatings and Transportation Coatings. The CODM reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. Our CODM is identified as the Chief Executive Officer because he has final authority over performance assessment and resource allocation decisions. Our segments are based on the type and concentration of customers served, service requirements, methods of distribution and major product lines.

Through our Performance Coatings segment, we provide high-quality liquid and powder coatings solutions to a fragmented and local customer base. We are one of only a few suppliers with the technology to provide precise color matching and highly durable coatings systems. The end-markets within this segment are refinish and industrial.

Through our Transportation Coatings segment, we provide advanced coating technologies to OEMs of light and commercial vehicles. These increasingly global customers require a high level of technical support coupled with cost-effective, environmentally responsible coatings systems that can be applied with a high degree of precision, consistency and speed. The end-markets within this segment are light vehicle and commercial vehicle.

Our business serves four end-markets globally as follows:



	Three Months Ended March 31,
	2018		2017
Performance Coatings
Refinish	$	412.6	$	388.6
Industrial	316.1		197.8
Total Net sales Performance Coatings	728.7		586.4
Transportation Coatings
Light Vehicle	349.5		340.0
Commercial Vehicle	87.6		81.4
Total Net sales Transportation Coatings	437.1		421.4
Total Net sales	$	1,165.8	$	1,007.8

Asset information is not reviewed or included with our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.



	Performance Coatings		Transportation Coatings			Total
For the Three Months Ended March 31, 2018
Net sales ⁽¹⁾	$	728.7	$	437.1		$	1,165.8
Equity in earnings in unconsolidated affiliates	0.1		(0.1		)	—
Adjusted EBITDA ⁽²⁾	143.2		76.8			220.0
Investment in unconsolidated affiliates	3.3		12.7			16.0



	Performance Coatings		Transportation Coatings		Total
For the Three Months Ended March 31, 2017
Net sales⁽¹⁾	$	586.4	$	421.4	$	1,007.8
Equity in earnings in unconsolidated affiliates	0.1		0.1		0.2
Adjusted EBITDA ⁽²⁾	116.9		86.2		203.1
Investment in unconsolidated affiliates	2.9		11.3		14.2


(1)	The Company has no intercompany sales between segments.

(2)

The primary measure of segment operating performance is Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization and select other items impacting operating results. These other items impacting operating results are items that management has concluded are (1) non-cash items included within net income, (2) items the Company does not believe are indicative of ongoing operating performance or (3) non-recurring, unusual or infrequent items that have not occurred within the last two years or we believe are not reasonably likely to recur within the next two years. Adjusted EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts and prior year financial results, providing a measure that management believes reflects the Company’s core operating performance, which represents EBITDA adjusted for the select items referred to above. Reconciliation of Adjusted EBITDA to income before income taxes follows:



	Three Months Ended March 31,
	2018			2017
Income before income taxes	$	82.8		$	75.8
Interest expense, net	39.4			35.8
Depreciation and amortization	91.9			82.4
EBITDA	214.1			194.0
Foreign exchange remeasurement gains ^(a)	—			(1.2		)
Long-term employee benefit plan adjustments^(b)	(0.5		)	0.4
Termination benefits and other employee related costs ^(c)	(1.3		)	0.8
Consulting and advisory fees ^(d)	—			(0.1		)
Transition-related costs ^(e)	(0.2		)	—
Offering and transactional costs^(f)	0.2			(1.0		)
Stock-based compensation ^(g)	8.4			10.4
Other adjustments^(h)	0.3			0.2
Dividends in respect of noncontrolling interest ⁽ⁱ⁾	(1.0		)	(0.4		)
Adjusted EBITDA	$	220.0		$	203.1


(a)	Eliminates foreign exchange gains resulting from the remeasurement of assets and liabilities denominated in foreign currencies, net of the impacts of our foreign currency instruments used to hedge our balance sheet exposures.


(b)	Eliminates the non-cash, non-service cost components of long-term employee benefit costs.


(c)	Represents expenses and associated adjustments to estimates primarily related to employee termination benefits and other employee-related costs associated with our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.


(d)	Represents expenses and associated adjustments to estimates for professional services primarily related to our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.


(e)	Represents integration costs and associated adjustments to estimates related to the 2017 acquisition of the Industrial Wood business that was a carve-out business from Valspar. We do not consider these items to be indicative of our ongoing operating performance.


(f)	Represents acquisition-related expenses, including changes in the fair value of contingent consideration, which are not considered indicative of our ongoing operating performance.


(g)	Represents non-cash costs associated with stock-based compensation.


(h)	Represents certain non-operational or non-cash gains and losses unrelated to our core business and which we do not consider indicative of ongoing operations, including gains and losses from the sale and disposal of property, plant and equipment, from the remaining foreign currency derivative instruments and from non-cash fair value inventory adjustments associated with business combinations.


(i)	Represents the payment of dividends to our joint venture partners by our consolidated entities that are not 100% owned, which are reflected to show the cash operating performance of these entities on Axalta's financial statements.