Adient(ADNT) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Unaudited Financial Statements This section presents Adient's unaudited consolidated financial statements, including income, financial position, and cash flows, with detailed notes on accounting policies and segment information Consolidated Statements of Income (Loss) Consolidated Statements of Income (Loss) (unaudited) | (in millions, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Six Months Ended March 31, 2023 | Six Months Ended March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $3,912 | $3,506 | $7,611 | $6,986 | | Gross profit | $250 | $178 | $481 | $351 | | Earnings (loss) before interest and income taxes | $96 | $46 | $210 | $86 | | Net income (loss) | $10 | $(60) | $43 | $(90) | | Net income (loss) attributable to Adient | $(15) | $(81) | $(3) | $(135) | | Diluted Earnings (loss) per share | $(0.16) | $(0.85) | $(0.03) | $(1.43) | Consolidated Statements of Financial Position Consolidated Statements of Financial Position (unaudited) | (in millions) | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $826 | $947 | | Current assets | $4,269 | $4,163 | | Total assets | $9,479 | $9,158 | | Liabilities and Shareholders' Equity | | | | Current liabilities | $3,671 | $3,501 | | Long-term debt | $2,531 | $2,564 | | Total liabilities | $6,892 | $6,738 | | Total shareholders' equity | $2,532 | $2,375 | | Total liabilities and shareholders' equity | $9,479 | $9,158 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (unaudited) | (in millions) | Six Months Ended March 31, 2023 | Six Months Ended March 31, 2022 | | :--- | :--- | :--- | | Cash provided (used) by operating activities | $170 | $15 | | Cash provided (used) by investing activities | $(111) | $599 | | Cash provided (used) by financing activities | $(218) | $(1,017) | | Increase (decrease) in cash and cash equivalents | $(121) | $(403) | | Cash and cash equivalents at beginning of period | $947 | $1,521 | | Cash and cash equivalents at end of period | $826 | $1,118 | Note 8. Debt and Financing Arrangements - In Q2 2023, Adient issued $500 million of 7.000% senior secured notes due 2028 and $500 million of 8.250% senior unsecured notes due 2031[53] - Proceeds from the new notes, along with cash on hand, were used to prepay $350 million of the Term Loan B and repurchase €700 million ($743 million) of the 3.50% unsecured notes due 2024[53][55] Long-Term Debt Composition (in millions) | Debt Instrument | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | 8.250% Notes due 2031 | $500 | — | | 7.000% Secured Notes due 2028 | $500 | — | | Term Loan B due in 2026 | $635 | $988 | | 4.875% Notes due in 2026 | $795 | $795 | | 3.50% Notes due in 2024 | $134 | $809 | | Gross long-term debt | $2,532 | $2,575 | Note 11. Equity and Noncontrolling Interests - In November 2022, the board authorized a $600 million share repurchase program with no expiration date[91] - During the three months ended March 31, 2023, Adient repurchased 759,601 ordinary shares for an aggregate price of $30 million. As of March 31, 2023, $570 million remained available for repurchase under the program[91] Note 13. Restructuring and Impairment Costs - In fiscal 2023, Adient initiated a new restructuring plan ('2023 Plan') with expected costs of $24 million, primarily for workforce reductions in EMEA, to be completed by fiscal 2026[95] Restructuring Reserve Changes (Six Months Ended March 31, 2023) | (in millions) | Amount | | :--- | :--- | | Balance at September 30, 2022 | $60 | | 2023 Plan charges | $24 | | Utilized - cash | $(37) | | Noncash and other adjustments | $6 | | Balance at March 31, 2023 | $53 | Note 15. Segment Information Segment Net Sales (in millions) | Segment | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Americas | $1,761 | $1,596 | $3,485 | $3,094 | | EMEA | $1,401 | $1,218 | $2,583 | $2,448 | | Asia | $774 | $723 | $1,595 | $1,507 | | Total net sales | $3,912 | $3,506 | $7,611 | $6,986 | Segment Adjusted EBITDA (in millions) | Segment | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Americas | $72 | $46 | $141 | $55 | | EMEA | $53 | $30 | $81 | $73 | | Asia | $113 | $105 | $251 | $219 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 fiscal 2023 financial results, highlighting increased net sales driven by higher production volumes Factors Affecting Adient's Operating Environment - The operating environment is expected to remain challenging due to supply chain disruptions, inflationary pressures, volatile commodity pricing, higher interest rates, and volatile consumer demand[132] Light Vehicle Production (units in millions) | Region | Six Months Ended March 31, 2023 | Six Months Ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Global | 42.9 | 40.9 | 4.9% | | North America | 7.5 | 6.8 | 10.3% | | EMEA | 8.9 | 7.9 | 12.7% | | China | 13.0 | 13.9 | (6.5)% | Consolidated Results of Operations Q2 Fiscal 2023 vs Q2 Fiscal 2022 (in millions) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,912 | $3,506 | 12% | | Gross Profit | $250 | $178 | 40% | | Net Loss Attributable to Adient | $(15) | $(81) | 81% | - The increase in Q2 net sales was driven by higher production volumes ($504 million) and commercial settlements ($34 million), partially offset by unfavorable foreign currency impact ($113 million)[138] - Q2 gross profit improved due to higher volumes and commercial settlements, but was partially offset by increased utilities, labor, freight, and commodity costs[141] - Net financing charges decreased significantly in Q2 and H1 2023 compared to the prior year, primarily due to lower premiums paid on debt repurchases and lower write-offs of deferred financing costs in the current period[149] Segment Analysis Americas Segment Performance (in millions) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,761 | $1,596 | 10% | | Adjusted EBITDA | $72 | $46 | 57% | - Americas' Q2 Adjusted EBITDA increased by $26 million, driven by higher volumes ($15 million) and favorable commercial settlements ($22 million), partially offset by higher operational costs ($8 million)[169] EMEA Segment Performance (in millions) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,401 | $1,218 | 15% | | Adjusted EBITDA | $53 | $30 | 77% | - EMEA's Q2 Adjusted EBITDA increased by $23 million, primarily due to higher production volumes ($52 million) and favorable commercial settlements ($27 million), which were significantly offset by unfavorable material economics ($46 million) and higher input costs ($13 million)[172] Asia Segment Performance (in millions) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $774 | $723 | 7% | | Adjusted EBITDA | $113 | $105 | 8% | - Asia's Q2 Adjusted EBITDA increased by $8 million, driven by favorable volume/mix ($17 million) and commercial settlements ($7 million), partially offset by unfavorable foreign currency ($7 million) and lower equity income ($6 million)[175] Liquidity and Capital Resources - Primary liquidity sources are cash from operations, an asset-based revolving credit facility (ABL), and other debt. As of March 31, 2023, Adient had $973 million available under its $1.25 billion ABL Credit Facility[177][178] Cash Flow Summary (Six Months Ended March 31, in millions) | Cash Flow Source | 2023 | 2022 | | :--- | :--- | :--- | | Operating Activities | $170 | $15 | | Investing Activities | $(111) | $599 | | Financing Activities | $(218) | $(1,017) | - The decrease in cash from investing activities is primarily due to prior year proceeds from the Yanfeng Transaction ($651 million) and other asset sales[186] - The decrease in cash used for financing is due to significant prior year debt repayments ($744 million) and acquisition of noncontrolling interest ($153 million), partially offset by current year debt refinancing activities and share repurchases[187] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures were reported as of March 31, 2023, compared to the prior fiscal year's 10-K - Adient has not experienced any adverse changes in market risk exposures that would materially affect the quantitative and qualitative disclosures presented in its most recent Annual Report on Form 10-K[199] Controls and Procedures As of March 31, 2023, disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period[200] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[201] PART II - OTHER INFORMATION Legal Proceedings Adient is involved in routine legal proceedings, none of which are expected to materially affect its financial position or results - Management opines that none of the various lawsuits, claims, and proceedings incident to its business operations will have a material adverse effect on Adient's financial position, results of operations, or cash flows[203] Risk Factors No material changes were reported from the risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year 2022 - No material changes from the risk factors as previously disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2022[205] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales were reported; 759,601 shares were repurchased for $30 million, with $570 million remaining for future repurchases Repurchase of Equity Securities (Q2 FY2023) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining for Repurchase (in millions) | | :--- | :--- | :--- | :--- | | Jan 2023 | — | $— | $600 | | Feb 2023 | 96,350 | $42.67 | $596 | | Mar 2023 | 663,251 | $39.03 | $570 | | Total | 759,601 | $39.49 | $570 | Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[210] Mine Safety Disclosures This item is not applicable to Adient - Not applicable[210] Other Information The company reports no other information for this period - None[210] Exhibits This section lists exhibits filed with Form 10-Q, including indentures for new notes, credit agreement amendments, and CEO/CFO certifications - Key exhibits filed include: - Indenture for $500.0 million 7.000% senior secured notes due 2028 - Indenture for $500.0 million 8.250% senior unsecured notes due 2031 - Amendments to the Amended and Restated Revolving Credit Agreement and Term Loan Credit Agreement - CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[211]