American Axle & Manufacturing Holdings, Inc. (AAM) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The filing is for American Axle & Manufacturing Holdings, Inc., not a company identified as Dauch Corp. AAM is an automotive Tier I supplier of driveline, drivetrain and related components.
Financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Net sales | $751.5 million | $645.6 million |
| Gross profit / margin | $139.2 million / 18.5% | $115.4 million / 17.9% |
| Operating income / margin | $77.4 million / 10.3% | $58.7 million / 9.1% |
| Net income attributable to AAM | $51.2 million | $37.7 million |
| Diluted EPS | $0.68 | $0.50 |
| Net cash from (used in) operating activities | $(71.5) million | $1.0 million |
| Capital expenditures | $44.5 million | $31.5 million |
Cash and cash equivalents were $112.8 million at quarter-end, down from $169.2 million at December 31, 2011. Long-term debt was $1,248.7 million, up from $1,180.2 million. The current ratio was approximately 1.4x based on reported current assets and liabilities. AAM reported a stockholders’ deficit of $376.4 million. The weighted-average interest rate on long-term debt was 7.9%.
Changes and drivers
- Sales increased about 16% year over year, reflecting roughly 14% higher production volumes on supported North American light-truck and SUV programs. GM represented approximately 74% of sales, compared with 72% a year earlier; Chrysler represented 9% in both periods.
- Higher sales and a $21.8 million other postretirement benefit (OPEB) curtailment gain helped lift gross profit and margins. These benefits were partly offset by higher steel and other metal costs and $16.0 million of special and other non-recurring operating costs, primarily related to facility closures.
- SG&A rose to $61.8 million from $56.7 million, chiefly due to increased R&D and staffing. R&D was $30.1 million versus $27.2 million.
- Operating cash flow turned negative, driven principally by a $166.3 million increase in accounts receivable and a $24.7 million increase in inventory, alongside cash payments for restructuring and other special charges.
Liquidity, outlook and risks
- Management said cash, operating cash flow and committed borrowing capacity should be sufficient for capital spending, debt service, benefits and working capital. At March 31, $233.6 million was available under the revolving credit facility, net of standby letters of credit; foreign facilities had a further $14.2 million available.
- Management expected 2012 capital spending of approximately $175 million, or about 6% of sales. It anticipated about $9 million in additional plant-closure and asset-redeployment costs and about $12 million of related capital expenditures in Q2 2012.
- A change in GM supplier-payment-term administration was expected to reduce operating cash flow by approximately $40 million in the first half of 2012; about $16 million of the impact occurred in Q1. Expected 2012 pension funding was approximately $35 million, and expected OPEB cash outlay net of GM cost sharing was approximately $16 million.
- AAM acquired Saab’s remaining 33% interest in e-AAM for $4.0 million, making it wholly owned. AAM also repurchased 512,841 shares for $5.9 million to satisfy employee tax withholding obligations; these were not purchases under a publicly announced program.
- The International UAW sued AAM in February 2012 over alleged collective-bargaining-agreement violations relating to pension and postretirement benefits. AAM disputes the claims; the actuaries’ estimated value of the benefits at issue was approximately $18.2 million. The company said the case was at an early stage and its outcome could not be predicted.
- Key risks cited include dependence on GM, automotive cyclicality, customer demand and vehicle production, launches and new-business conversion, cost competitiveness and metal prices, labor relations, foreign-exchange exposure, and pension, warranty and environmental obligations. AAM stated there were no material changes to the risk factors in its 2011 Form 10-K.
Important facts for investors to verify
- Whether reported margin improvement is sustainable after excluding the $21.8 million OPEB curtailment gain and considering the $16.0 million of special and non-recurring costs.
- Working-capital trends, especially receivables and the expected cash-flow effect of GM payment terms, and progress toward restoring positive operating cash flow.
- GM sales concentration, customer production levels, and the timing and returns of planned launches and capital spending.
- Debt maturities, revolving-credit availability and covenant compliance, as well as the cash needs for pension and OPEB obligations.
- Developments in the UAW litigation and the possible effect of the estimated $18.2 million benefit claim on liabilities or cash flows.
- The effect of tax valuation allowances: AAM reported a 4.3% effective tax rate and said sustained profitability could prompt reversal of most valuation allowances, potentially as early as the second half of 2012.