American Axle & Manufacturing Holdings, Inc. — Form 10-Q summary
Period and issuer: Quarter and nine months ended September 30, 2011; filed October 28, 2011. The filing is for American Axle & Manufacturing Holdings, Inc. (AAM), not an issuer identified as “Dauch Corp.” Financial statements are unaudited.
Business context and financial performance
AAM supplies driveline, drivetrain and related automotive components. General Motors accounted for approximately 73% of sales in the first nine months of 2011; Chrysler accounted for approximately 8%. AAM reported that sales to customers other than GM increased year over year.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net sales | $647.6 million | $618.2 million | $1,979.4 million | $1,699.7 million |
| Gross profit / margin | $103.5 million / 16.0% | $113.9 million / 18.4% | $349.4 million / 17.7% | $300.1 million / 17.7% |
| Operating income / margin | $44.5 million / 6.9% | $60.7 million / 9.8% | $174.9 million / 8.8% | $153.1 million / 9.0% |
| Net income attributable to AAM | $24.8 million | $38.8 million | $111.7 million | $80.5 million |
| Diluted EPS | $0.33 | $0.52 | $1.48 | $1.08 |
| Operating cash flow | Not presented separately | Not presented separately | $(65.4) million | $193.5 million |
| Capital expenditures | Not presented separately | Not presented separately | $111.0 million | $61.7 million |
Financial position and liquidity
- At September 30, 2011, cash and cash equivalents were $114.4 million, down from $244.6 million at year-end 2010. Current assets were $740.0 million and current liabilities were $614.4 million.
- Long-term debt was $1,050.6 million, up from $1,010.0 million at December 31, 2010. The weighted-average interest rate was 7.9% at quarter-end.
- AAM reported $275.0 million available under its amended revolving credit facility, after accounting for $30.0 million of standby letters of credit; a further $10.2 million was available under foreign credit facilities.
- Total stockholders’ deficit was $373.3 million. Nine-month operating cash flow was negative, while investing activities used $103.1 million and financing activities provided $39.4 million.
Material changes versus comparable periods
- Q3 sales rose 4.8% year over year, but gross profit fell $10.4 million and operating income fell $16.2 million. The filing attributes margin pressure in part to GM agreement provisions, including expanded warranty cost sharing and product price-downs, and to plant-closure costs; increased sales and productivity gains partly offset these effects.
- For the first nine months, sales increased 16.5%, while operating income increased to $174.9 million from $153.1 million. Net income attributable to AAM rose to $111.7 million from $80.5 million, including tax benefits and other period-specific items.
- Operating cash flow swung from $193.5 million provided in the first nine months of 2010 to $65.4 million used in 2011. AAM said ending expedited GM payment terms and moving to approximately 50-day terms reduced Q3 operating cash flow by approximately $190 million; receivables also increased materially.
- Capital expenditures increased to $111.0 million from $61.7 million. AAM linked increased investment to global program launches.
Outlook, management commentary, risks and unusual items
- Management said cash, operating cash flow and committed borrowing availability were expected to be sufficient for capital spending, debt service, pension obligations and working capital. AAM expected 2011 capital spending of 6.0%–6.5% of sales.
- AAM announced closures of its Detroit Manufacturing Complex and Cheektowaga facility, planned on or after February 26, 2012, subject to the labor agreement timing. It expected approximately $20 million of additional asset-redeployment and plant-closure costs and approximately $30 million of associated capital expenditures. Remaining restructuring accrual payments were expected to be approximately $7 million in the rest of 2011 and $1 million in 2012.
- In Q3, AAM recorded $8.7 million of impairment and indirect inventory obsolescence related to the Cheektowaga closure, plus $1.6 million of other closure-related operating costs. It also recorded a $1.6 million SG&A impairment after e-AAM partner Saab entered voluntary reorganization.
- Other notable items included a $6.1 million nine-month gain on sale of previously impaired equipment, $3.1 million of debt refinancing and redemption costs, and $2.8 million of nine-month net tax benefits from audit resolution and Michigan tax legislation.
- Key risks include automotive cyclicality, reliance on GM, changes in light-truck and SUV demand, customer and supplier disruptions, raw-material costs, launch execution, restructuring outcomes, foreign exchange, pension obligations, warranty and litigation exposure, and compliance with credit-facility covenants. The filing reported no material change to previously disclosed risk factors and stated that disclosure controls were effective.
Important facts for investors to verify
- Whether the issuer intended is AAM Holdings rather than “Dauch Corp,” as the supplied metadata and filing name differ.
- The timing and cash impact of the GM payment-term change, including whether receivables and operating cash flow normalize.
- Progress, total costs and expected savings from the Detroit and Cheektowaga closures, including the stated additional costs and capital expenditures.
- Revolver availability, covenant headroom and upcoming facility maturities; the filing describes commitments with different maturity dates and financial covenants.
- How GM-related product pricing and warranty-sharing provisions, elevated R&D spending, and the Saab/e-AAM situation affect future margins and cash needs.