AAM - American Axle & Manufacturing Holdings Inc.
11/07/2025 | Press release | Distributed by Public on 11/07/2025 11:41
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
This management's discussion and analysis (MD&A) should be read in conjunction with the unaudited condensed consolidated financial statements and notes appearing elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2024.
Unless the context otherwise requires, references to "we," "our," "us" or "AAM" shall mean collectively (i) American Axle & Manufacturing Holdings, Inc. (Holdings), a Delaware corporation, (ii) American Axle & Manufacturing, Inc. (AAM, Inc.), a Delaware corporation, and its direct and indirect subsidiaries, and, (iii) Metaldyne Performance Group, Inc. (MPG) and its direct and indirect subsidiaries. AAM Inc. and MPG are wholly owned subsidiaries of Holdings.
COMPANY OVERVIEW
As a leading global tier 1 automotive and mobility supplier, AAM designs, engineers and manufactures Driveline and Metal Forming technologies to support electric, hybrid, and internal combustion vehicles. Headquartered in Detroit, Michigan, with nearly 75 facilities in 15 countries, AAM is bringing the future faster for a safer and more sustainable tomorrow.
Major Customers
We are a primary supplier of driveline components to General Motors Company (GM) for its full-size rear-wheel drive (RWD) light trucks, sport utility vehicles (SUVs), and crossover vehicles manufactured in North America, supplying a significant portion of GM's rear axle and four-wheel drive and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. We also supply GM with various products from our Metal Forming segment. Sales to GM were approximately 44% of our consolidated net sales for the first nine months of 2025, 41% for the first nine months of 2024 and 42% for the full year 2024.
We also supply driveline system products to Stellantis N.V. (Stellantis) for programs including the heavy-duty Ram full-size pickup truck and its derivatives. In addition, we sell various products to Stellantis from our Metal Forming segment. Sales to Stellantis were approximately 13% of our consolidated net sales for the first nine months of 2025, 14% for the first nine months of 2024 and 13% for the full year 2024.
We are also a supplier to Ford Motor Company (Ford) for driveline system products on certain vehicle programs including the Bronco Sport, Maverick, Edge, Escape and Lincoln Nautilus, and we also sell various products to Ford from our Metal Forming segment. Sales to Ford were approximately 15% of our consolidated net sales for the first nine months of 2025 and 13% for both the first nine months of 2024 and the full year 2024.
No other customer represented 10% or more of consolidated net sales during these periods.
Pending Business Combination with Dowlais Group plc
In the first quarter of 2025, AAM announced that we reached an agreement with the Board of Directors of Dowlais Group plc (Dowlais) on the terms of a recommended cash and share offer to be made by AAM to acquire the entire issued and to be issued ordinary share capital of Dowlais (the Business Combination). In connection with the Business Combination, on January 29, 2025, AAM and Dowlais entered into a Co-operation Agreement.
Pursuant to the Business Combination, Dowlais shareholders will be entitled to receive for each Dowlais ordinary share: 0.0881 shares of new AAM common stock and 43 pence per share in cash (approximately $0.58 per share as of September 30, 2025). The transaction has been unanimously approved by the Boards of Directors of AAM and Dowlais and has also been approved by both sets of shareholders. Following the close of the transaction, the combined company will be headquartered in Detroit, Michigan and will be led by AAM's Chairman and CEO. The transaction is expected to close in the first quarter of 2026, subject to receipt of regulatory approvals and satisfaction of customary closing conditions.
Disposition of AAM India Manufacturing Corporation Pvt., Ltd.
In October 2024, we entered into a definitive agreement to sell our commercial vehicle axle business and related assets in India (AAM India Manufacturing Corporation Pvt., Ltd.) to Bharat Forge Limited (BFL) for a sales price of $65 million (the India Sale Agreement). In July 2025, we completed the sale of AAM India Manufacturing Corporation Pvt., Ltd., and in October 2025, we reached agreement with BFL on the final settlement amount associated with the post-closing adjustments, including the final working capital true-up. As a result, total cash proceeds from the sale, net of cash divested, were approximately $64 million, of which we collected approximately $58 million in July 2025 and the remaining $6 million in the fourth quarter of 2025. For the nine months ended September 30, 2025 and 2024, we recorded impairment charges of $8 million and $12 million, respectively, to reduce the carrying value of this business to fair value less costs to sell.
Uncertainty Associated with Tariffs and Trade Relations
The U.S. government has announced the implementation of new tariffs, as well as increases in certain existing tariffs, on various products including assembled vehicles and automotive parts and components imported into the U.S., and there is considerable uncertainty around the extent, timing and duration of these tariffs. This has resulted in retaliatory tariffs against the U.S. by the governments of various countries, resulting in significant instability and uncertainty in U.S. trade relations with certain countries.
For the nine months ended September 30, 2025, the net impact on earnings related to the aforementioned tariffs was approximately $15 million and we expect a continuing impact from tariffs in future periods. We are implementing mitigation actions and pursuing recoveries from our customers for the cost increases resulting from the tariffs but have not reached final agreement with all customers and therefore the total amount and timing of such recoveries is unknown. For the full year 2025, we anticipate the impact on earnings of these tariffs to be approximately $10 million to $15 million after mitigation actions and estimated customer recoveries. However, due to uncertainty associated with the potential further implementation or expansion of tariffs, as well as the potential for additional retaliatory actions and other changes to existing trade agreements or changes in international trade relations, the actual impact on 2025 earnings could differ materially from this estimate.
Commercial Matters
In April 2024, one of our largest customers notified AAM that production purchase orders related to a previously announced contract to supply e-Beam axles for a future vehicle program were terminated. We believe that the termination of these purchase orders reflects, in part, the significant uncertainty currently underlying the electric vehicle environment, including volatility in estimated volumes and the timing of production. We have submitted a cancellation claim to recover certain costs incurred in connection with the terminated purchase orders. As of September 30, 2025, we have approximately $70 million of assets in our Condensed Consolidated Balance Sheet associated with this program, consisting of capitalized engineering, design and development costs and other commercial amounts. As of the date of this filing, we believe we are entitled to claim and recover the full amount. However, due to the nature of the cancellation claim process, and the need to reach final resolution with the customer, the ultimate amount to be recovered is not determinable and could differ materially from the amount included in our Condensed Consolidated Balance Sheet.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 2025 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2024
Net Sales
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | Change | Percent Change | ||||||||||||||||||||||
| Net sales | $ | 1,505.3 | $ | 1,504.9 | $ | 0.4 | - | % | ||||||||||||||||||
The change in net sales in the third quarter of 2025, as compared to the third quarter of 2024, primarily reflects an increase of approximately $25 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments, offset by a reduction of approximately $30 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd., which was completed on July 1, 2025.
Cost of Goods Sold
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | Change | Percent Change | ||||||||||||||||||||||
| Cost of goods sold | $ | 1,316.3 | $ | 1,333.6 | $ | (17.3) | (1.3) | % | ||||||||||||||||||
The decrease in cost of goods sold in the third quarter of 2025, as compared to the third quarter of 2024, is primarily attributable to a reduction of approximately $28 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd, as well as the impact of improved operating performance. These decreases in cost of goods sold were partially offset by an increase of approximately $24 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments. For the three months ended September 30, 2025, material costs were approximately 54% of total costs of goods sold, as compared to approximately 56% for the three months ended September 30, 2024.
Gross Profit
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | Change | Percent Change | ||||||||||||||||||||||
| Gross profit | $ | 189.0 | $ | 171.3 | $ | 17.7 | 10.3 | % | ||||||||||||||||||
Gross margin was 12.6% in the third quarter of 2025, as compared to 11.4% in the third quarter of 2024. Gross profit and gross margin were impacted by the factors discussed in Net Sales and Cost of Goods Sold above.
Selling, General and Administrative Expenses (SG&A)
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | Change | Percent Change | ||||||||||||||||||||||
| Selling, general & administrative expenses | $ | 98.8 | $ | 94.6 | $ | 4.2 | 4.4 | % | ||||||||||||||||||
SG&A as a percentage of net sales was 6.6% in the third quarter of 2025, as compared to 6.3% in the third quarter of 2024. Research and development (R&D) expense, net of customer engineering, design and development (ED&D) recoveries, was approximately $37.4 million in the third quarter of 2025, as compared to $40.1 million in the third quarter of 2024. The change in SG&A in the third quarter of 2025, as compared to the third quarter of 2024, primarily reflects higher incentive compensation expense, partially offset by the reduction in net R&D expense.
Amortization of Intangible Assets Amortization expense related to intangible assets was $20.4 million for the three months ended September 30, 2025 and $20.8 million for the three months ended September 30, 2024.
Impairment Charge In connection with the India Sale Agreement, we recorded an impairment charge in the three months ended September 30, 2024 of $12.0 million to reduce the carrying value of this business to fair value less costs to sell and there was no such charge for the three months ended September 30, 2025. See Note 2 - Acquisitions and Dispositions for additional detail regarding the India Sale Agreement.
Restructuring and Acquisition-Related Costs Restructuring and acquisition-related costs were $21.4 million in the third quarter of 2025 and $2.2 million in the third quarter of 2024. The change in restructuring and acquisition-related costs was primarily related to acquisition-related costs incurred in connection with the Business Combination. Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional or consulting fees incurred. See Note 12 - Restructuring and Acquisition-Related Costs for additional detail regarding our restructuring, acquisition and integration activity.
Operating Income Operating income was $48.4 million in the third quarter of 2025, as compared to $41.7 million in the third quarter of 2024. Operating margin was 3.2% in the third quarter of 2025, as compared to 2.8% in the third quarter of 2024. The changes in operating income and operating margin were primarily due to factors discussed in Net Sales, Cost of Goods Sold, Impairment Charge and Restructuring and Acquisition-Related Costs above.
Interest Expense and Interest Income Interest expense was $42.7 million in the third quarter of 2025, as compared to $45.2 million in the third quarter of 2024. The weighted-average interest rate of our long-term debt outstanding was 6.7% in the third quarter of 2025 and 7.2% in the third quarter of 2024.
Interest income was $7.0 million in the third quarter of 2025 and $7.1 million in the third quarter of 2024.
Debt Refinancing and Redemption Costs In the third quarter of 2024, we voluntarily redeemed a portion of our then outstanding 6.25% Notes due 2026. This resulted in a principal payment of $50.0 million and $1.2 million in accrued interest. We also expensed approximately $0.2 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing.
Gain (Loss) on Business Combination Derivative In the third quarter of 2025, we recognized an unrealized loss on the Business Combination Derivative of $16.0 million. See Note 6 - Derivatives for additional detail on the Business Combination Derivative.
Other Income (Expense), Net Other income (expense), net includes the net effect of foreign exchange gains and losses, our proportionate share of earnings from equity in unconsolidated subsidiaries, and all components of net periodic pension and postretirement benefit costs other than service cost. Other income (expense), net was income of $1.6 million in the third quarter of 2025, as compared to expense of $5.5 million in the third quarter of 2024. The change in other income (expense), net was primarily driven by changes in foreign exchange gains and losses in the third quarter of 2025, as compared to the third quarter of 2024.
Income Tax Expense (Benefit) Income tax was a benefit of $10.9 million for the three months ended September 30, 2025, as compared to a benefit of $12.1 million for the three months ended September 30, 2024. Our effective income tax rate was 641.2% in the third quarter of 2025, as compared to 576.2% in the third quarter of 2024.
On July 4, 2025, H.R. 1 (the One Big Beautiful Bill or the Act) was enacted into law introducing a broad range of U.S. federal tax reform provisions, which included, among other items, extending and modifying certain key Tax Cuts & Jobs Act provisions and expanding certain Inflation Reduction Act incentives while accelerating the phase-out of other incentives. The most impactful provision of the Act for AAM is a permanent modification to the interest expense limitation rules under Internal Revenue Code (IRC) Section 163(j), including an amendment to the Adjusted Taxable Income (ATI) calculation required under IRC Section 163(j)(8)(A). Based on the provisions of the Act, ATI is now computed without regard to any deduction allowable for depreciation and amortization (based on EBITDA as the interest limitation base), which has reduced limitations on the deductibility of our business interest expense and resulted in the realization of additional deferred tax assets related to previously disallowed interest expense carryforwards. During the three months ended September 30, 2025 we recognized a discrete income tax benefit of $22.0 million as a result of the enactment of the One Big Beautiful Bill.
During the three months ended September 30, 2024, in computing our estimated annual effective tax rate, we recorded a valuation allowance against the deferred tax asset on the current year estimated disallowed interest expense in the U.S. Additionally, during the three months ended September 30, 2024, we recognized an income tax benefit of $7.9 million as the result of elections made as part of our 2023 income tax return.
Our effective income tax rate for the three months ended September 30, 2025 varies from our effective income tax rate for the three months ended September 30, 2024 primarily as a result of the mix of earnings on a jurisdictional basis and the impact of the discrete items noted above.
For the three months ended September 30, 2025, our effective income tax rate varies from the U.S. federal statutory rate primarily due to the impact of the Act, as well as the mix of earnings on a jurisdictional basis, and the impact of certain non-U.S. tax rates and non-U.S. withholding taxes. In addition, the impact of tax expense from valuation allowances in certain non-U.S. jurisdictions also impacted our effective tax rate, as compared to the U.S. federal statutory rate, for the three months ended September 30, 2025. These tax expenses were partially offset by the favorable impact of tax credits.
For the three months ended September 30, 2024, our effective income tax rate varied from the U.S. federal statutory rate primarily due to the unfavorable impact related to the disallowed interest expense deductions in the U.S. and tax expense related to global intangible low-taxed income, the impact of certain foreign tax rates and the impact of tax credits.
Net Income and Earnings Per Share (EPS)Net income was $9.2 million in the third quarter of 2025, as compared to $10.0 million in the third quarter of 2024. Diluted earnings per share was $0.07 per share in the third quarter of 2025, as compared to $0.08 in the third quarter of 2024. Net income and EPS for the third quarters of 2025 and 2024 were primarily impacted by the factors discussed above.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 2025 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2024
Net Sales
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | Change | Percent Change | ||||||||||||||||||||||
| Net sales | $ | 4,452.8 | $ | 4,744.1 | $ | (291.3) | (6.1) | % | ||||||||||||||||||
The change in net sales in the first nine months of 2025, as compared to the first nine months of 2024, primarily reflects lower production volumes on certain vehicle programs that we support and a reduction of approximately $30 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd., which was completed on July 1, 2025. These decreases were partially offset by an increase of approximately $8 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments.
Cost of Goods Sold
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | Change | Percent Change | ||||||||||||||||||||||
| Cost of goods sold | $ | 3,889.2 | $ | 4,157.0 | $ | (267.8) | (6.4) | % | ||||||||||||||||||
The decrease in cost of goods sold in the first nine months of 2025, as compared to the first nine months of 2024, primarily reflects lower production volumes on certain vehicle programs that we support, as well as a reduction of approximately $28 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd., and the impact of improved operating performance. For the nine months ended September 30, 2025, material costs were approximately 55% of total cost of goods sold as compared to approximately 57% for the nine months ended September 30, 2024.
Gross Profit
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | Change | Percent Change | ||||||||||||||||||||||
| Gross profit | $ | 563.6 | $ | 587.1 | $ | (23.5) | (4.0) | % | ||||||||||||||||||
Gross margin was 12.7% in the first nine months of 2025, as compared to 12.4% in the first nine months of 2024. Gross profit and gross margin were impacted by the factors discussed in Net Sales and Cost of Goods Sold above.
Selling, General and Administrative Expenses (SG&A)
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | Change | Percent Change | ||||||||||||||||||||||
| Selling, general & administrative expenses | $ | 290.5 | $ | 298.1 | $ | (7.6) | (2.5) | % | ||||||||||||||||||
SG&A as a percentage of net sales was 6.5% in the first nine months of 2025 as compared to 6.3% in the first nine months of 2024. R&D expense, net of customer ED&D recoveries, was approximately $109.8 million in the first nine months of 2025, as compared to $121.3 million in the first nine months of 2024, and was the primary driver of the change in SG&A.
Amortization of Intangible Assets Amortization expense related to intangible assets was $61.4 million for the nine months ended September 30, 2025, as compared to $62.1 million for the nine months ended September 30, 2024.
Impairment Charges In connection with the India Sale Agreement, we recorded impairment charges of $8.0 million and $12.0 million in the nine months ended September 30, 2025 and September 30, 2024, respectively, to reduce the carrying value of this business to fair value less costs to sell. See Note 2 - Acquisitions and Dispositions for additional detail regarding the India Sale Agreement.
Restructuring and Acquisition-Related Costs Restructuring and acquisition-related costs were $57.6 million for the nine months ended September 30, 2025, as compared to $9.7 million for the nine months ended September 30, 2024. The change in restructuring and acquisition-related costs was primarily related to acquisition-related costs incurred in connection with the Business Combination. Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional or consulting fees incurred.
In 2025, we expect to incur approximately $40 million to $50 million of total restructuring charges. In addition, we expect to incur $50 million to $60 million of acquisition-related costs in 2025 associated with the Business Combination. See Note 12 - Restructuring and Acquisition-Related Costs for additional detail regarding our restructuring, acquisition and integration activity.
Operating Income Operating income was $146.1 million in the first nine months of 2025 as compared to $205.2 million in the first nine months of 2024. Operating margin was 3.3% in the first nine months of 2025, as compared to 4.3% in the first nine months of 2024. The changes in operating income and operating margin were due primarily to the factors discussed in Net Sales, Cost of Goods Sold, SG&A and Restructuring and Acquisition-Related Costs above.
Interest Expense and Interest Income Interest expense was $128.7 million in the first nine months of 2025 as compared to $142.1 million in the first nine months of 2024. The weighted-average interest rate of our long-term debt outstanding was 6.7% for the nine months ended September 30, 2025 and 7.1% for the nine months ended September 30, 2024. The reduction in interest expense in the first nine months of 2025, as compared to the first nine months of 2024, was attributable to lower outstanding indebtedness and the reduction in our weighted-average interest rate. We expect our interest expense for the full year 2025 to be approximately $205 million including interest expense to be incurred in connection with financing the Business Combination.
Interest income was $18.2 million in the first nine months of 2025 as compared to $21.5 million in the first nine months of 2024. In connection with the 6.375% senior secured notes due 2032 (the 6.375% Notes) and 7.75% senior unsecured notes due 2033 (the 7.75% Notes, and together with the 6.375% Notes, the Notes) issued by AAM, Inc. on October 3, 2025, we estimate approximately $16 million of interest income in the fourth quarter of 2025 on the proceeds from the Notes placed in segregated escrow accounts. See Note 5 - Long-Term Debt for further detail on the financing for the Business Combination and the funds in escrow.
Debt Refinancing and Redemption Costs In the first nine months of 2025, we expensed $3.3 million of fees and unamortized debt issuance costs in connection with the Second Amendment to the Amended and Restated Credit Facility. See Note 5 - Long-Term Debt for further detail on the Second Amendment to the Amended and Restated Credit Facility.
In the first nine months of 2024, we amended our existing Amended and Restated Credit Agreement and established a New Term Loan B Facility. As a result, we incurred approximately $0.2 million of debt refinancing and redemption costs during the first nine months of 2024. In addition, in the first nine months of 2024, we voluntarily redeemed a portion of our then outstanding 6.25% Notes due 2026. This resulted in a principal payments of $80.0 million and $1.6 million in accrued interest. We also expensed approximately $0.3 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing.
Gain (Loss) on Business Combination DerivativeIn the first nine months of 2025, we recognized an unrealized gain on the Business Combination Derivative of $52.2 million. See Note 6 - Derivatives for additional detail on the Business Combination Derivative.
Loss on Equity Securities We had previously invested in the equity securities of REE Automotive, which were measured at fair value each reporting period with changes in fair value reported as a gain or loss within Other income (expense) in our Condensed Consolidated Statement of Income. During the nine months ended September 30, 2024, we sold all of our remaining equity securities of REE Automotive, resulting in a loss of $0.1 million.
Other Income (Expense), Net Other income (expense), net includes the net effect of foreign exchange gains and losses, our proportionate share of earnings from equity in unconsolidated subsidiaries, and all components of net periodic pension and postretirement benefit costs other than service cost. Other income (expense), net was income of $2.3 million in the first nine months of 2025, as compared to expense of $14.3 million in the first nine months of 2024. The change in other income (expense), net was primarily driven by changes in foreign exchange gains and losses in the nine months ended September 30 2025, as compared to the nine months ended September 30, 2024.
Income Tax Expense (Benefit) Income tax expense was $31.2 million for the nine months ended September 30, 2025, as compared to expense of $21.0 million for the nine months ended September 30, 2024. Our effective income tax rate was 35.9% in the first nine months of 2025 as compared to 30.1% in the first nine months of 2024.
During the nine months ended September 30, 2025 we recognized a discrete income tax benefit of $22.0 million as a result of the enactment of the One Big Beautiful Bill. During the nine months ended September 30, 2024, in computing our estimated annual effective tax rate, we recorded a valuation allowance against the deferred tax asset on the current year estimated disallowed interest expense in the U.S. Additionally, during the nine months ended September 30, 2024, we recognized an income tax benefit of $7.9 million as the result of elections made as part of our 2023 income tax return.
Our effective income tax rate for the nine months ended September 30, 2025 varies from our effective income tax rate for the nine months ended September 30, 2024 primarily as a result of the mix of earnings on a jurisdictional basis and the impact of the discrete items noted above.
For the nine months ended September 30, 2025, our effective income tax rate varies from the U.S. federal statutory rate primarily due to the impact of the Act, as well as the mix of earnings on a jurisdictional basis, and the impact of certain non-U.S. tax rates and non-U.S. withholding taxes. In addition, the impact of tax expense from valuation allowances in certain non-U.S. jurisdictions also impacted our effective tax rate, as compared to the U.S. federal statutory rate, for the nine months ended September 30, 2025. These tax expenses were partially offset by the favorable impact of tax credits.
For the nine months ended September 30, 2024, our effective income tax rate varied from the U.S. federal statutory rate primarily due to the unfavorable impact related to the disallowed interest expense deductions in the U.S. and tax expense related to global intangible low-taxed income, the impact of certain foreign tax rates and the impact of tax credits.
Net Income and Earnings Per Share (EPS)Our net income was $55.6 million in the first nine months of 2025, as compared to $48.7 million in the first nine months of 2024. Diluted earnings per share was $0.45 in the first nine months of 2025, as compared to $0.40 per share in the first nine months of 2024. Net income and EPS for the first nine months of 2025 and 2024 were primarily impacted by the factors discussed above.
SEGMENT REPORTING
Our business is organized into Driveline and Metal Forming segments, with each representing a reportable segment under ASC 280 - Segment Reporting. The results of each segment are regularly reviewed by the chief operating decision maker to assess the performance of the segment and make decisions regarding the allocation of resources to the segments.
Our product offerings by segment are as follows:
•Driveline products consist primarily of front and rear axles, driveshafts, differential assemblies, clutch modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline products and systems for light trucks, SUVs, crossover vehicles, passenger cars and commercial vehicles; and
•Metal Forming products consist primarily of engine, transmission, driveline and safety-critical components for traditional internal combustion engine and electric vehicle architectures including light vehicles, commercial vehicles and off-highway vehicles, as well as products for industrial markets.
The following table represents sales by reportable segment for the three and nine months ended September 30, 2025 and 2024 (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Driveline | $ | 1,051.1 | $ | 1,042.8 | $ | 3,091.0 | $ | 3,273.7 | |||||||||||||||
| Metal Forming | 595.0 | 596.5 | 1,769.2 | 1,893.7 | |||||||||||||||||||
| Eliminations | (140.8) | (134.4) | (407.4) | (423.3) | |||||||||||||||||||
| Net sales | $ | 1,505.3 | $ | 1,504.9 | $ | 4,452.8 | $ | 4,744.1 | |||||||||||||||
The increase in Driveline sales for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily reflects an increase of approximately $15 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments, as well as the impact of certain commercial pricing and other recoveries from customers. These increases were partially offset by a reduction of approximately $30 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd., which was completed on July 1, 2025.
The change in Driveline sales for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily reflects lower production volumes on certain vehicle programs that we support, as well as a reduction of approximately $30 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd. These decreases were partially offset by the impact of certain commercial pricing and other recoveries from customers and an increase of approximately $7 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments.
The change in Metal Forming sales for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, reflects lower production volumes on certain vehicle programs that we support, partially offset by an increase of approximately $10 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments. The change in Metal Forming sales for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, reflects lower production volumes on certain vehicle programs that we support.
We use Segment Adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. The amounts for Segment Adjusted EBITDA for the three and nine months ended September 30, 2025 and 2024 are as follows (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Driveline | $ | 156.8 | $ | 135.7 | $ | 431.0 | $ | 444.9 | |||||||||||||||
| Metal Forming | 37.9 | 38.7 | 143.2 | 143.5 | |||||||||||||||||||
| Total segment adjusted EBITDA | $ | 194.7 | $ | 174.4 | $ | 574.2 | $ | 588.4 | |||||||||||||||
For the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, Segment Adjusted EBITDA for the Driveline segment reflects improved operating performance and the impact of certain commercial pricing and other recoveries from customers. Segment Adjusted EBITDA for the Driveline segment also reflects approximately $5 million of favorability in other segment income primarily related to the change in foreign exchange gains and losses during the third quarter of 2025, as compared to the third quarter of 2024.
For the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, Segment Adjusted EBITDA for the Driveline segment reflects the impact of lower production volumes on certain vehicle programs that we support, partially offset by a reduction of SG&A expense of approximately $11 million, which was primarily the result of lower R&D expense, as well as the impact of certain commercial pricing and other recoveries from customers. Segment Adjusted EBITDA for the Driveline segment also reflects approximately $5 million of favorability in other segment income primarily related to the change in foreign exchange gains and losses during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024.
For the three and nine months ended September 30, 2025, as compared to the three and nine months ended September 30, 2024, the change in Segment Adjusted EBITDA for the Metal Forming segment reflects the impact of lower production volumes on certain vehicle programs that we support, offset by improved operating performance.
Reconciliation of Non-GAAP and GAAP Information
In addition to results reported in accordance with accounting principles generally accepted in the United States of America (GAAP) in this MD&A, we have provided certain non-GAAP financial measures such as EBITDA and Total Segment Adjusted EBITDA. Such information is reconciled to its closest GAAP measure in accordance with Securities and Exchange Commission rules below.
We define EBITDA to be earnings before interest expense, income taxes, depreciation and amortization. Total Segment Adjusted EBITDA is defined as EBITDA for our reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gains or losses on the derivative associated with our Business Combination with Dowlais, gains or losses on equity securities, pension curtailment and settlement charges, impairment charges and non-recurring items. We believe that EBITDA and Total Segment Adjusted EBITDA are meaningful measures of performance as they are commonly utilized by management and investors to analyze operating performance and entity valuation. Our management, the investment community and banking institutions routinely use EBITDA and Total Segment Adjusted EBITDA, together with other measures, to measure our operating performance relative to other Tier 1 automotive suppliers and to assess the relative mix of Adjusted EBITDA by segment. We also believe that Total Segment Adjusted EBITDA is a meaningful measure as it is used for operational planning and decision-making purposes. EBITDA and Total Segment Adjusted EBITDA are also key metrics used in our calculation of incentive compensation. These non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures as presented by AAM may not be comparable to similarly titled measures reported by other companies.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Net income | $ | 9.2 | $ | 10.0 | $ | 55.6 | $ | 48.7 | ||||||||||||||||||
| Interest expense | 42.7 | 45.2 | 128.7 | 142.1 | ||||||||||||||||||||||
| Income tax expense (benefit) | (10.9) | (12.1) | 31.2 | 21.0 | ||||||||||||||||||||||
| Depreciation and amortization | 116.3 | 116.9 | 342.0 | 354.3 | ||||||||||||||||||||||
| EBITDA | $ | 157.3 | $ | 160.0 | $ | 557.5 | $ | 566.1 | ||||||||||||||||||
| Restructuring and acquisition-related costs | 21.4 | 2.2 | 57.6 | 9.7 | ||||||||||||||||||||||
| Debt refinancing and redemption costs | - | 0.2 | 3.3 | 0.5 | ||||||||||||||||||||||
| Loss (gain) on Business Combination Derivative | 16.0 | - | (52.2) | - | ||||||||||||||||||||||
| Loss on equity securities | - | - | - | 0.1 | ||||||||||||||||||||||
| Impairment charges (Note 2) | - | 12.0 | 8.0 | 12.0 | ||||||||||||||||||||||
| Total segment adjusted EBITDA | $ | 194.7 | $ | 174.4 | $ | 574.2 | $ | 588.4 | ||||||||||||||||||
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund debt service obligations, capital expenditures, R&D spending, and working capital requirements, in addition to advancing our strategic initiatives. We believe that operating cash flow, available cash and cash equivalent balances and available borrowing capacity under our Senior Secured Credit Facilities and non-U.S. credit facilities, as well as cash held in escrow and committed financing associated with the Business Combination, will be sufficient to meet these needs.
At September 30, 2025, we had approximately $1.7 billion of liquidity consisting of approximately $714 million of cash and cash equivalents, approximately $897 million of available borrowings under our Revolving Credit Facility and approximately $93 million of available borrowings under non-U.S. credit facilities. We have no significant debt maturities before 2028, after considering the November 2025 redemption of the 6.50% Notes due 2027 described in Note 5 - Long-Term Debt that occurred subsequent to the balance sheet date.
Operating ActivitiesIn the first nine months of 2025, net cash provided by operating activities was $291.1 million as compared to $304.2 million in the first nine months of 2024. The following factors impacted cash from operating activities in the first nine months of 2025, as compared to the first nine months of 2024:
Accounts receivable For the nine months ended September 30, 2025, we experienced a decrease in cash flow from operating activities of approximately $34 million related to the change in our accounts receivable balance from December 31, 2024 to September 30, 2025, as compared to the change in our accounts receivable balance from December 31, 2023 to September 30, 2024. This change was primarily the result of timing of sales to customers in the applicable periods, as well as the timing of collections on customer receivables due, in part, to our participation in an early payment program offered by our largest customer. This program allows us to sell certain of our North American receivables from this customer to a third party at our discretion, and we utilize this program from time to time.
Accounts payable and accrued expenses For the nine months ended September 30, 2025, we experienced an increase in cash flow from operating activities of approximately $89 million related to the change in our accounts payable and accrued expenses balance from December 31, 2024 to September 30, 2025, as compared to the change in our accounts payable and accrued expenses balance from December 31, 2023 to September 30, 2024. This change was primarily the result of the timing of payments to suppliers in the applicable periods. In addition, the change in accounts payable and accrued expenses for the nine months ended September 30, 2025 reflects the impact of accrued acquisition-related costs as of September 30, 2025 associated with the Business Combination.
Interest paidInterest paid was $117.6 million for the nine months ended September 30, 2025, as compared to $138.2 million for the nine months ended September 30, 2024. The decrease in interest paid was the result of lower interest rates on certain of our variable-rate debt, as well as lower outstanding indebtedness in the first nine months of 2025, as compared to the first nine months of 2024.
Income taxes paid, net Income taxes paid, net was $39.6 million for the nine months ended September 30, 2025, as compared to $31.7 million for the nine months ended September 30, 2024. For the full year 2025, we estimate income taxes paid, net to be in the range of $60 million to $75 million.
Restructuring and acquisition-related costsFor the full year 2025, we expect restructuring payments in cash flows from operating activities to be approximately $20 million and we expect the timing of cash payments to approximate the timing of charges incurred. In addition, we expect acquisition-related payments in cash flows from operating activities to be approximately $40 million to $50 million in connection with the Business Combination. The estimated range of acquisition-related payments in cash flows from operating activities for 2025 has been reduced from our original estimate of $60 million to $70 million as certain of these cash payments are expected to occur at or near closing of the transaction, which is now expected in the first quarter of 2026.
Pension and other postretirement benefits Due to the availability of our pre-funded pension balances (previous contributions in excess of prior required pension contributions), we expect our regulatory pension funding requirements in 2025 to be approximately $1.1 million. We expect our cash payments for other postretirement benefit obligations in 2025, net of GM cost sharing, to be approximately $11.6 million.
Investing ActivitiesIn the first nine months of 2025, net cash used in investing activities was $108.3 million as compared to $174.2 million for the nine months of 2024. Capital expenditures were $190.7 million in the first nine months of 2025 as compared to $170.0 million in the first nine months of 2024. We expect our capital spending in 2025 to be approximately 5% of sales.
In the first nine months of 2025, we exited our 50% ownership of both Hefei AAM Automotive Driveline & Chassis System Co., Ltd. and Liuzhou AAM Automotive Driveline System Co., Ltd. As a result, we collected approximately $30 million in cash, which approximated the carrying value of our investments in these joint ventures at the time of disposition. We accounted for these Chinese joint ventures as equity method investments and, as such, their results of operations, cash flows and account balances were not consolidated in our financial statements.
In October 2024, we entered into the India Sale Agreement. In July 2025, we completed the sale of AAM India Manufacturing Corporation Pvt., Ltd. and in October 2025, we reached agreement on the final settlement amount associated with the post-closing adjustments, including the final working capital true-up. As a result, total cash proceeds from the sale, net of cash divested, were approximately $64 million, of which we collected approximately $58 million in July 2025 and the remaining $6 million in the fourth quarter of 2025.
In connection with the Business Combination, Dowlais shareholders will be entitled to receive 43 pence per share for each Dowlais ordinary share, which translated to $0.58 per share at the September 30, 2025 exchange rate. At this exchange rate, the cash consideration associated with the Business Combination would be approximately $768 million. In January 2025, in connection with the Business Combination, we entered into a foreign currency forward contract (the Business Combination Derivative) that is non-designated and will be recognized at fair value each reporting period up to, and including, the closing of the Business Combination with changes in fair value recognized in Other income (expense) in our Condensed Consolidated Statement of Income. The Business Combination Derivative was in an asset position of approximately $52 million at September 30, 2025. This derivative will not impact the cash consideration payable to Dowlais shareholders associated with the Business Combination, however, it does reduce the cash flow variability resulting from fluctuations in the foreign currency exchange rate between the U.S. dollar and pound sterling for AAM on a net basis.
Financing ActivitiesIn the first nine months of 2025, net cash used in financing activities was $35.5 million, as compared to $106.0 million in the first nine months of 2024. The following factors impacted cash from financing activities in the first nine months of 2025, as compared to the first nine months of 2024:
Senior Secured Credit Facilities Holdings and AAM, Inc. are parties to an amended and restated credit agreement that was entered into on March 11, 2022 and has been subsequently amended (as so amended, the Amended and Restated Credit Agreement) which provides for a term loan A facility (the Term Loan A Facility), term loan B facility (the Term Loan B Facility), incremental tranche C term facility (the Tranche C Term Facility) and a multi-currency revolving credit facility (the Revolving Credit Facility and together with the Term Loan A Facility, the Term Loan B Facility and Tranche C Term Facility, the Senior Secured Credit Facilities).
On February 24, 2025, Holdings and AAM, Inc. entered into the Second Amendment to the Amended and Restated Credit Facility and the Incremental Facility Agreement (the Second Amendment). The Second Amendment, among other things, a) increased the maximum under the Revolving Credit Facility from $925.0 million to $1,495.0 million, effective upon closing of the Business Combination, b) provided for an incremental $843.0 million Tranche C Term Facility in connection with the Business Combination, which was subsequently decreased by AAM, Inc. to $835.0 million and c) extended the maturity of the Revolving Credit Facility and Term Loan A Facility for five years from the date of the Second Amendment, resetting for another five years upon the closing of the Business Combination. In connection with the Second Amendment, we paid $11.6 million of debt issuance costs, and expensed $3.3 million of fees and a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of these borrowings. The maturity date of the Term Loan B Facility in the fourth quarter of 2029 was not changed by the Second Amendment.
At September 30, 2025, we had $897.1 million available under the Revolving Credit Facility. This availability reflects a reduction of $27.9 million primarily for standby letters of credit issued against the facility.
As of September 30, 2025, we have prepaid $8.4 million of the outstanding principal on our Term Loan B Facility. These payments satisfy our obligation for principal payments under the Term Loan B Facility through the end of 2026.
Financing Related to the Pending Business Combination, Redemption of the 6.50% Notes due 2027 and Partial Redemption of the 6.875% Notes due 2028 On October 3, 2025, AAM, Inc. issued $850 million of the 6.375% Notes and $1,250 million of the 7.75% Notes. The 6.375% Notes are governed by an indenture that contains covenants, that, among other things, restrict with certain exceptions, our ability to incur additional debt, make restricted payments, incur debt secured by liens, dispose of assets and engage in consolidations and mergers or sell or transfer all or substantially all of our assets. The 7.75% Notes are governed by an indenture that contains covenants that, among other things, restrict, with certain exceptions, our ability to engage in consolidations and mergers or sell or transfer all or substantially all of our assets, incur debt secured by liens and engage in certain sale and leaseback transactions. We intend to use the net proceeds from the issuance of the 6.375% Notes and 7.75% Notes, together with borrowings under our existing credit agreement and cash on hand to (a) pay the cash consideration payable in connection with the pending Business Combination and related fees and expenses, (b) repay in full all outstanding borrowings under the existing credit facilities of Dowlais and to pay related fees, expenses and premiums, after which all the existing credit facilities of Dowlais will be terminated, (c) to fund a change in control offer for certain outstanding notes of Dowlais, (d) to fund the redemption of all $500 million aggregate principal amount outstanding of 6.50% Notes due 2027 and the partial redemption of $150 million principal amount of 6.875% Notes due 2028, and to pay accrued and unpaid interest on the notes and (e) the remainder, if any, for general corporate purposes. We expect to pay approximately $17 million of debt issuance costs in the fourth quarter of 2025 related to the Notes and the Tranche C Term Facility.
In October 2025, we completed the partial redemption of the 6.875% Notes due 2028 and in November 2025, we completed the redemption of the 6.50% Notes due 2027, which resulted in payment of $5.5 million in accrued interest and expense of $3.0 million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of these borrowings.
Upon the issuance of the Notes on October 3, 2025, we deposited into segregated escrow accounts the gross proceeds from the 6.375% Notes and the gross proceeds from $600 million of the 7.75% Notes, together with certain amounts of prefunded interest. If certain escrow release conditions are not satisfied on or prior to the later of June 29, 2026, or such later date as AAM and Dowlais may agree to extend in accordance with the Co-operation Agreement, dated January 29, 2025, between AAM and Dowlais, or such earlier date as determined by AAM, AAM will be required to redeem all of the 6.375% Notes and $600 million of the 7.75% Notes, together with accrued and unpaid interest. The Notes are secured by a first priority security interest in its respective escrow account and all funds deposited therein.
On January 29, 2025, in connection with the announcement of the Business Combination, Holdings and AAM, Inc. entered into a credit agreement (the Backstop Credit Agreement), the First Lien Bridge Credit Agreement (the First Lien Bridge Facility), and the Second Lien Bridge Credit Agreement (the Second Lien Bridge Facility and together with the First Lien Bridge Facility, the Bridge Facilities). Following Holdings and AAM, Inc.'s entry into the Second Amendment, the Backstop Credit Agreement was terminated. Additionally, in connection with entry into the Second Amendment on February 24, 2025, Holdings and AAM, Inc. entered into the Amended and Restated First Lien Bridge Credit Agreement (the Amended and Restated First Lien Bridge Facility), and the Amended and Restated Second Lien Bridge Credit Agreement (the Amended and Restated Second Lien Bridge Facility, and together with the Amended and Restated First Lien Bridge Facility, the Amended and Restated Bridge Facilities). Following the issuance of the Notes on October 3, 2025, the Amended and Restated Bridge Facilities were terminated.
Repurchase of 6.25% Notes Due 2026In the second quarter of 2024, we voluntarily redeemed a portion of our then outstanding 6.25% Notes due 2026. This resulted in a principal payment of $30.0 million and $0.4 million in accrued interest. We also expensed approximately $0.1 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing.
In the third quarter of 2024, we voluntarily redeemed an additional portion of our then outstanding 6.25% Notes due 2026. This resulted in a principal payment of $50.0 million and $1.2 million in accrued interest. We also expensed approximately $0.2 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing. Additionally, in the nine months ended September 30, 2024, we also completed an open market repurchase of our 6.25% Notes due 2026 of $1.7 million.
Repayment of Tekfor Group Indebtedness In the nine months ended September 30, 2024, we repaid $6.6 million of outstanding indebtedness that we assumed upon our acquisition of Tekfor in June 2022.
Non-U.S. Credit Facilities and Other We utilize local currency credit facilities to finance the operations of certain non-U.S. subsidiaries. At September 30, 2025, $22.7 million was outstanding under our non-U.S. credit facilities, as compared to $27.6 million at December 31, 2024. At September 30, 2025, an additional $93.1 million was available under our non-U.S. credit facilities.
Treasury stock Treasury stock increased by $2.7 million in the first nine months of 2025 to $238.4 million as compared to $235.7 million at year-end 2024, due to the withholding and repurchase of shares of AAM stock to satisfy employee tax withholding obligations due upon the vesting of stock-based compensation.
Subsidiary Guarantees of Registered Debt SecuritiesOur 6.875% Notes, 6.50% Notes and 5.00% Notes (collectively, the Notes) are senior unsecured obligations of AAM, Inc. (Issuer); all of which are fully and unconditionally guaranteed, on a joint and several basis, by Holdings and substantially all domestic subsidiaries of AAM, Inc. and MPG Inc (Subsidiary Guarantors). Holdings has no significant assets other than its 100% ownership in AAM, Inc. and MPG Inc., and no direct subsidiaries other than AAM, Inc. and MPG Inc.
Each guarantee by Holdings and/or any of the Subsidiary Guarantors is:
•a senior obligation of the relevant Subsidiary Guarantors;
•the unsecured and unsubordinated obligation of the relevant Subsidiary Guarantors; and
•of equal rank with all other existing and future unsubordinated and unsecured indebtedness of the relevant Subsidiary Guarantors.
Each guarantee by a Subsidiary Guarantor provides by its terms that it will be automatically, fully and unconditionally released and discharged upon:
•any sale, exchange or transfer (by merger or otherwise) of the capital stock of such Subsidiary Guarantor, or the sale or disposition of all the assets of such Subsidiary Guarantor, which sale, exchange, transfer or disposition is made in compliance with the applicable provisions of the indentures;
•the exercise by the issuer of its legal defeasance option or covenant defeasance option or the discharge of the issuer's obligations under the indentures in accordance with the terms of the indentures; or
•the election of the issuer to affect such a release following the date that such guaranteed Notes have an investment grade rating from both Standard & Poor's Ratings Group, Inc, and Moody's Investors Service, Inc.
The following represents summarized financial information of Holdings, AAM Inc. and the Subsidiary Guarantors (collectively, the Combined Entities). The information has been prepared on a combined basis and excludes any investments of Holdings, AAM Inc., or the Subsidiary Guarantors in non-guarantor subsidiaries. Intercompany transactions and amounts between Combined Entities have been eliminated.
| Statement of Operations Information | (in millions) | ||||||||||
| Nine Months Ended September 30, 2025 |
Year Ended December 31, 2024
|
||||||||||
| Net sales | $ | 3,180.1 | $ | 4,268.4 | |||||||
| Gross profit | 419.1 | 537.9 | |||||||||
| Income from operations | 38.6 | 73.9 | |||||||||
| Net income (loss) | 15.7 | (27.2) | |||||||||
| Balance Sheet Information | (in millions) | ||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||
| Current assets | $ | 1,466.7 | $ | 1,038.5 | |||||||
| Noncurrent assets | 2,454.9 | 2,480.8 | |||||||||
| Current liabilities | 572.1 | 497.7 | |||||||||
| Noncurrent liabilities | 3,142.9 | 3,098.0 | |||||||||
| Redeemable preferred stock | - | - | |||||||||
| Noncontrolling interest | - | - | |||||||||
At September 30, 2025 and December 31, 2024, amounts owed by the Combined Entities to non-guarantor entities totaled approximately $20 million and $15 million, respectively, and amounts owed to the Combined Entities from non-guarantor entities totaled approximately $405 million and $380 million, respectively.
CYCLICALITY AND SEASONALITY
Our operations are cyclical because they are directly related to worldwide automotive production, which is itself cyclical and dependent on general economic conditions and other factors. Typically, our business is also moderately seasonal as our major OEM customers historically have an extended shutdown of operations (normally 1-2 weeks) in conjunction with their model year changeover and an approximate one-week shutdown in the month of December. Our major OEM customers also occasionally have longer shutdowns of operations for program changeovers. Accordingly, our quarterly results may reflect these trends.
LITIGATION AND ENVIRONMENTAL MATTERS
We are involved in, or potentially subject to, various legal proceedings or claims incidental to our business. These include, but are not limited to, matters arising out of product warranties, contractual matters, and environmental obligations. Although the outcome of these matters cannot be predicted with certainty, at this time we do not believe that any of these matters, individually or in the aggregate, will have a material adverse effect on our results of operations, financial condition or cash flows.
We file U.S. federal, state and local income tax returns, as well as non-U.S. income tax returns in jurisdictions throughout the world. We are also subject to examinations of these tax returns by the relevant tax authorities. Negative or unexpected outcomes of these examinations and audits, and any related litigation, could have a material adverse impact on our results of operations, financial condition and cash flows. See Note 13 - Income Taxes for additional discussion regarding examinations and audits of our tax returns and pending litigation.
We are subject to various federal, state, local and non-U.S. environmental and occupational safety and health laws, regulations and ordinances, including those regulating air emissions, water discharge, waste management and environmental cleanup. We will continue to closely monitor our environmental conditions to ensure that we are in compliance with all laws, regulations and ordinances. We have made, and anticipate continuing to make, capital and other expenditures (including recurring administrative costs) to comply with environmental requirements at our current and former facilities. Such expenditures were not significant in the third quarter of 2025.
We are subject to risks of environmental issues, including impacts of climate-related events, that could result in unforeseen disruptions or costs to our operations. We did not experience any climate-related events in the third quarter of 2025 that we believe could have a material adverse impact on our results of operations, financial condition and cash flows.
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