American Axle & Manufacturing (US:AXL)2023-11-03 16:36Forward-Looking Statements This section contains standard cautionary language regarding forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ from expectations - This section outlines important factors that could cause actual results to differ from expectations, including global economic conditions (inflation, recession) and changes in technology78 - Key risk factors highlighted include reduced purchases from major customers like GM, Stellantis, and Ford, and reduced demand for light trucks and SUVs9 Part I: Financial Information Financial Statements This section presents the unaudited condensed consolidated financial statements for the period ended September 30, 2023, including statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed explanatory notes Condensed Consolidated Statements of Operations The company reported a net loss of $17.4 million for Q3 2023, a significant downturn from the $26.5 million net income in Q3 2022, driven by higher cost of goods sold and increased interest expenses Condensed Consolidated Statements of Operations (in millions) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,551.9 | $1,535.2 | $4,616.5 | $4,409.7 | | Gross profit | $130.6 | $177.4 | $469.4 | $537.7 | | Operating income | $23.9 | $62.3 | $117.8 | $190.3 | | Net income (loss) | $(17.4) | $26.5 | $(14.5) | $50.4 | | Diluted EPS | $(0.15) | $0.22 | $(0.12) | $0.42 | Condensed Consolidated Balance Sheets As of September 30, 2023, total assets were $5.475 billion, nearly flat compared to year-end 2022, with cash and cash equivalents increasing to $615.6 million Key Balance Sheet Items (in millions) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $615.6 | $511.5 | | Total current assets | $2,139.2 | $1,993.4 | | Total assets | $5,475.0 | $5,469.4 | | Long-term debt, net | $2,833.9 | $2,845.1 | | Total liabilities | $4,861.3 | $4,842.1 | | Total stockholders' equity | $613.7 | $627.3 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash provided by operating activities increased to $343.2 million, while net cash used in investing and financing activities decreased, resulting in a $104.1 million increase in cash and cash equivalents Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $343.2 | $300.4 | | Net cash used in investing activities | $(126.7) | $(197.4) | | Net cash used in financing activities | $(108.2) | $(147.8) | | Net increase (decrease) in cash | $104.1 | $(57.9) | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the financial statements, covering key accounting policies and specific events, including restructuring costs, a $13 million product warranty expense, an ongoing IRS tax dispute with potential exposure of $285-$335 million, and detailed segment performance data - Total restructuring and acquisition-related costs were $16.2 million for the first nine months of 2023, associated with the 2020 Program, Emporium facility closure, and Tekfor integration3233 - In Q3 2023, the company recorded a $13 million expense for a field action related to a die cast component, with potential additional expense up to approximately $15 million80 - The company is in a dispute with the IRS over the tax treatment of income from a Luxembourg subsidiary's Mexican branch, with potential additional income tax expense for years 2015-2022 estimated between $285 million and $335 million if unsuccessful89 Segment Net External Sales (Nine Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Driveline | $3,161.4 | $3,113.3 | | Metal Forming | $1,455.1 | $1,296.4 | | Total | $4,616.5 | $4,409.7 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The MD&A section details the company's financial performance, attributing the 1.1% Q3 sales increase to higher production volumes, offset by metal market pass-throughs, while gross margin declined from 11.6% to 8.4% due to a $13 million warranty charge and increased manufacturing costs, with liquidity remaining strong at nearly $1.6 billion Company Overview AAM is a global Tier 1 automotive supplier of Driveline and Metal Forming technologies, with high customer concentration in GM, Stellantis, and Ford, and the UAW work stoppage negatively impacted Q3 2023 sales by an estimated $15 million Customer Sales Concentration (First Nine Months 2023) | Customer | % of Consolidated Net Sales | | :--- | :--- | | General Motors (GM) | ~39% | | Stellantis N.V. | ~17% | | Ford Motor Company | ~12% | - The UAW work stoppages at its three largest customers in Q3 2023 resulted in an estimated negative impact of $15 million on sales and $4 million on pre-tax income151 - The total estimated impact of the UAW work stoppages across Q3 and Q4 is projected to be $70-$100 million on sales and $25-$40 million on pre-tax income152 Results of Operations For Q3 2023, net sales increased 1.1% year-over-year to $1.55 billion, while gross profit fell 26.4% to $130.6 million, primarily due to a $13 million warranty charge and higher manufacturing costs, significantly impacting the Metal Forming segment's adjusted EBITDA Q3 2023 vs Q3 2022 Performance (in millions) | Metric | Q3 2023 | Q3 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,551.9 | $1,535.2 | $16.7 | 1.1% | | Gross Profit | $130.6 | $177.4 | $(46.8) | (26.4)% | | Operating Income | $23.9 | $62.3 | $(38.4) | (61.6)% | - The decline in Q3 gross profit was driven by a $13 million field action charge, increased labor costs, and production inefficiencies due to labor shortages159 Segment Adjusted EBITDA (in millions) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Driveline | $137.3 | $137.0 | $403.5 | $392.2 | | Metal Forming | $19.5 | $61.4 | $120.3 | $197.4 | Liquidity and Capital Resources The company maintained a strong liquidity position of nearly $1.6 billion as of September 30, 2023, with net cash from operations increasing to $343.2 million for the first nine months of 2023, and no significant debt maturities before 2026 - Total liquidity as of September 30, 2023, was nearly $1.6 billion, consisting of $616 million in cash, $877 million available under the Revolving Credit Facility, and $83 million under foreign credit facilities203 - Net cash provided by operating activities increased to $343.2 million in the first nine months of 2023, compared to $300.4 million in the prior-year period, partly due to favorable timing of accounts receivable collections204205 - Capital expenditures for the first nine months of 2023 were $138.6 million, up from $117.9 million in the same period of 2022, with full-year 2023 capital spending projected to be 3.0% to 3.5% of sales210 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from currency exchange rates and interest rates, using foreign currency forward contracts and cross-currency swaps to hedge currency risk, and variable-to-fixed interest rate swaps to manage interest rate risk on its variable-rate debt - The company hedges foreign currency risk with forward contracts totaling a notional amount of $212.7 million and a cross-currency swap with a notional amount of €200.0 million as of September 30, 2023230231 - A one-percentage-point increase in interest rates would have an annualized pre-tax earnings and cash flow impact of approximately $4.7 million on the company's long-term debt234 Controls and Procedures Management, under the direction of the CEO and CFO, evaluated and concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter, and the integration of the acquired Tekfor Group's policies and processes is ongoing - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the quarter236 - No material changes were made to internal control over financial reporting in Q3 2023, and the integration of Tekfor Group's controls is ongoing and will be included in the year-end assessment237 Part II: Other Information Risk Factors This section states that there were no material changes from the risk factors that were previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors were reported compared to the 2022 Form 10-K239 Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2023, the company purchased a total of 1,306 shares of its own equity securities at an average price of $7.53 per share, which were not part of a publicly announced plan or program Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | July 2023 | 0 | N/A | | August 2023 | 1,306 | $7.53 | | September 2023 | 0 | N/A | | Total | 1,306 | $7.53 |