Filing Summary
Entity and period: The supplied filing is American Axle & Manufacturing Holdings, Inc. (AAM), not a filing identified as Dauch Corp. It is an unaudited Form 10-Q for the quarter and nine months ended September 30, 2012; confirm the issuer identity before relying on this summary.
Business Context
AAM is a global automotive Tier I supplier of driveline, drivetrain and related components. General Motors accounted for approximately 73% of sales in the first nine months of 2012, and Chrysler approximately 9%.
Financial Results
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net sales | $702.9 million | $647.6 million | $2,194.2 million | $1,979.4 million |
| Gross profit / margin | $90.7 million / 12.9% | $103.5 million / 16.0% | $315.7 million / 14.4% | $349.4 million / 17.7% |
| Operating income / margin | $30.1 million / 4.3% | $44.5 million / 6.9% | $137.8 million / 6.3% | $174.9 million / 8.8% |
| Net income (loss) attributable to AAM | $(8.1) million | $24.8 million | $47.8 million | $111.7 million |
| Diluted EPS | $(0.11) | $0.33 | $0.63 | $1.48 |
| Operating cash flow | Not separately provided | Not separately provided | $(196.6) million | $(65.4) million |
For the first nine months, capital expenditures were $143.7 million, leaving approximate free cash flow of $(340.3) million before other investing items. Cash was $209.0 million at September 30, 2012, versus $169.2 million at year-end 2011. Long-term debt was $1,579.9 million, up from $1,180.2 million; debt less cash was approximately $1,370.9 million. Current assets of $1,022.1 million exceeded current liabilities of $649.8 million. Stockholders’ deficit was $497.7 million.
Changes and Drivers
- Sales rose approximately 8.5% in Q3 and 10.8% for the nine-month period, supported by improved automotive conditions and higher production volumes on major North American truck and SUV programs.
- Despite sales growth, gross profit and operating income fell. Management cited restructuring and plant-closure costs, launch activity, lower capacity utilization, and higher material and freight costs. Nine-month results also included $28.7 million of incremental UAW pension and postretirement benefits, $26.4 million of restructuring costs, a $21.8 million OPEB curtailment gain, and a $5.2 million plan settlement gain.
- Q3 net loss also reflected $10.1 million in debt refinancing and redemption costs and higher interest expense. Nine-month interest expense was $72.7 million, compared with $61.5 million.
- Nine-month operating cash use increased substantially, reflecting $225.0 million of pension contributions, higher receivables and inventories, and approximately $29.8 million of negative cash-flow impact from a change in GM supplier payment-term administration.
- Other comprehensive loss attributable to AAM was $69.1 million for the nine months, largely reflecting defined-benefit plan remeasurement and other benefit-related changes.
Liquidity, Debt, Outlook and Risks
- AAM issued $550 million of 6.625% senior unsecured notes due 2022 and used proceeds, among other purposes, to repurchase and redeem 5.25% notes and fund pension obligations. The remaining 5.25% notes were redeemed October 3, 2012; $42.5 million of 9.25% notes was redeemed October 5, 2012. The filing records the latter transactions as subsequent events.
- An amended revolving credit facility provided $412.9 million of availability at September 30, 2012, net of standby letters of credit. AAM said cash, operating cash flow and committed borrowing capacity should be sufficient for working capital, capital expenditures and debt service. The facility is secured by substantially all assets of AAM and guarantors.
- Management expected 2012 capital spending of 6.0%–6.5% of sales to support global program launches in 2012 and 2013. It expected approximately $16 million of 2012 OPEB cash outlay, net of GM cost sharing.
- Management said sustained profitability could permit reversal of most deferred-tax valuation allowances, potentially as early as Q4 2012; this was an expectation, not a guarantee.
- Key risks include automotive cyclicality and seasonality, heavy dependence on GM, customer demand and production, launch execution, cost competitiveness, labor relations, pension obligations, financing and covenant compliance, foreign exchange, and warranty, product-liability and environmental exposures. AAM reported no material change to previously disclosed risk factors and said it did not expect the UAW litigation resolution to significantly affect future-period results.
Most Important Facts to Verify
- Confirm that American Axle & Manufacturing Holdings, Inc.—rather than Dauch Corp—is the intended issuer.
- Review the debt maturities, refinancing premiums, revolver availability and applicable covenants, including the post-quarter redemptions.
- Assess the sustainability of margins and earnings given the substantial year-over-year declines despite revenue growth.
- Examine pension funding, actuarial assumptions, the PBGC agreement and the UAW litigation-related benefit obligations.
- Track operating cash flow and working-capital needs, particularly receivables, inventory, customer payment terms and planned capital expenditures.
- Evaluate customer concentration, especially GM’s approximately 73% share of nine-month sales, and the assumptions behind launch and tax-allowance expectations.