Adient plc — Form 10-Q summary
Reporting period: Third quarter and first nine months of fiscal 2021, ended June 30, 2021. Adient supplies automotive seating systems and components, operating across the Americas, EMEA, and Asia. The year-ago quarter was heavily affected by COVID-19 production shutdowns, so the sharp year-over-year recovery is measured against a depressed comparison.
Financial results and liquidity
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Net sales | $3.242 billion, up 99% from $1.626 billion | $10.909 billion, up 20% from $9.073 billion |
| Gross profit (margin) | $150 million (4.6%); prior year loss of $153 million (-9.4%) | $789 million (7.2%); prior year $347 million (3.8%) |
| Income (loss) before interest and taxes | $44 million; prior year loss of $269 million | $556 million; prior year loss of $245 million |
| Net income (loss) attributable to Adient | Loss of $71 million, or $0.75 per diluted share; prior-year loss of $325 million | Income of $148 million, or $1.55 per diluted share; prior-year loss of $511 million |
| Operating cash flow | Quarterly amount not separately provided in the filing text | $362 million provided, versus $272 million used |
| Capital expenditures | Quarterly amount not separately provided in the filing text | $186 million, versus $258 million |
- Quarterly net financing charges were $87 million, up from $58 million; nine-month charges were $256 million, up from $156 million. The current-year amounts included debt repurchase premiums and a $24 million loss on foreign-exchange contracts related to the Yanfeng transaction.
- At June 30, cash was $1.000 billion, current assets were $4.114 billion, and current liabilities were $3.631 billion, leaving working capital of $483 million. The current ratio was approximately 1.13.
- Reported short-term debt, current long-term debt, and long-term debt totaled approximately $3.757 billion, compared with $4.307 billion at September 30, 2020. Cash declined by $692 million over that period. Adient had $853 million available under its ABL facility, net of letters of credit, and had not drawn on it.
- Cash flows for the nine months included $347 million used in investing and $718 million used in financing. Financing outflows included $890 million of long-term debt repayments; investing included a $271 million deposit for the Yanfeng joint-venture acquisition.
Material changes and management commentary
- Sales and profitability improved substantially against the COVID-affected prior-year period, primarily due to higher production volumes and operational improvements. Growth was partly offset by semiconductor-related stoppages, premium freight and other inefficiencies, higher commodity costs, unfavorable commercial settlements, and prior-year business divestitures.
- All three segments reported higher third-quarter sales and Adjusted EBITDA: Americas sales of $1.440 billion and Adjusted EBITDA of $23 million; EMEA sales of $1.328 billion and Adjusted EBITDA of $22 million; Asia sales of $516 million and Adjusted EBITDA of $92 million. Segment results include a non-GAAP measure defined by the company.
- One-time items contributed to reported results, including a $30 million third-quarter gain from retrospective Brazilian indirect-tax credit recoveries ($38 million for the nine-month period) and a $33 million gain on the SJA joint-venture sale in the second quarter. The filing also reports a $24 million third-quarter derivative loss related to the Yanfeng transaction.
- Adient amended its Term Loan B in April: maturity was extended to April 2028, the Eurodollar margin was reduced to 3.50%, and $214 million of incremental borrowing brought the facility to $1.0 billion. It also repurchased the remaining $160 million of 7% notes during the quarter, following a $640 million repurchase in the prior quarter.
Outlook, risks, and contingencies
- Management said current financial resources should fund liquidity needs for at least the next 12 months, based on its assumptions about COVID-19 and business conditions. This is not a guarantee; pandemic effects and liquidity requirements remain uncertain.
- The 2021 Yanfeng transaction was expected to close in the second half of calendar 2021, subject to regulatory and other conditions. Adient agreed to sell its 49.99% YFAS interest for approximately $1.210 billion, with payment timing partly dependent on closing. YFAS paid an aggregate dividend of $436 million during the quarter. Adient also agreed to acquire interests in two YFAS joint ventures for $271 million; the purchase price had been deposited in escrow at quarter-end.
- Key operating risks include semiconductor and other supply-chain disruptions, elevated steel and petrochemical costs that may not be fully recovered from customers, COVID-19 resurgence, vehicle-production levels, and the risk that transaction approvals or closing conditions delay or prevent the China transactions. A failed or delayed transaction could reduce expected cash available for debt repayment and other purposes.
- Restructuring actions were expected to be substantially completed by fiscal 2022. Management estimated annual operating-cost reductions of approximately $16 million for the 2021 plan and $180 million for the 2020 plan; estimated net savings were 20%–30% and 35%–40%, respectively. Across plans, approximately 14,000 of 18,000 targeted employee separations and 19 of 25 plant closures were complete at June 30.
- Adient reported $489 million of gross tax-effected unrecognized tax benefits, of which $137 million would affect the effective tax rate if recognized. It reported $10 million of environmental reserves. Management stated that pending legal matters were not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
Most important facts for investors to verify
- Whether the Yanfeng sale and related China transactions closed on the expected terms and schedule, and how proceeds and transaction-related payments affected cash and debt.
- Whether semiconductor shortages, commodity inflation, and production inefficiencies persist or materially pressure margins beyond this quarter’s recovery.
- Whether operating cash flow remains positive after working-capital movements, restructuring payments, and capital expenditures.
- How much of the nine-month improvement reflects sustainable operating performance versus the depressed COVID comparison and one-time gains, and why Adient still recorded a third-quarter attributable loss.
- Debt maturities, interest costs, covenant compliance, and liquidity availability, including the timing of the 2024 unsecured notes and related maturity provisions.