Business context and reporting period
This is American Axle & Manufacturing Holdings, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2019. The filing is not for an entity identified as “Dauch Corp.” AAM is a global automotive supplier of driveline, metal-forming and casting products. GM accounted for approximately 38% of nine-month sales and FCA approximately 16%.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $1,677.4 million | $1,817.0 million | $5,100.9 million | $5,576.3 million |
| Gross profit / margin | $248.7 million / 14.8% | $267.4 million / 14.7% | $719.2 million / 14.1% | $915.1 million / 16.4% |
| Operating income (loss) / margin | $(104.4) million / (6.2)% | $134.6 million / 7.4% | $109.9 million / 2.2% | $500.7 million / 9.0% |
| Net income (loss) attributable to AAM | $(124.2) million | $63.8 million | $(30.1) million | $304.3 million |
| Diluted EPS | $(1.10) | $0.55 | $(0.27) | $2.63 |
| Total Segment Adjusted EBITDA | $265.8 million | $275.0 million | $776.8 million | $939.9 million |
For the first nine months, operating cash flow was $378.6 million versus $513.2 million; capital expenditures were $335.3 million versus $391.8 million. Operating cash flow less capital expenditures was approximately $43.3 million. Cash and cash equivalents were $375.1 million at September 30, down from $476.4 million at year-end 2018. Total debt was $3,751.8 million, compared with $3,875.5 million at year-end; long-term debt, net, was $3,673.3 million. AAM reported $890.8 million available on its revolving credit facility, net of letters of credit, and $93.7 million available on foreign credit facilities.
Material changes versus prior comparable periods
- Q3 sales declined approximately 7.7%; nine-month sales declined approximately 8.5%. Nine-month operating income fell to $109.9 million from $500.7 million, and AAM moved from profit to loss.
- Management attributed weaker sales to lower automotive volumes, reduced full-size truck sales after a customer insourced part of a replacement program, program-changeover downtime, metal-market pass-throughs, foreign exchange and the GM work stoppage. New program launches partly offset these effects.
- The GM work stoppage reduced Q3 sales by approximately $57 million. AAM estimated a full-year 2019 sales impact of approximately $250 million; the stoppage continued into Q4.
- Q3 segment adjusted EBITDA was lower year over year in Driveline ($171.6 million versus $176.9 million), Metal Forming ($80.4 million versus $83.6 million) and Casting ($13.8 million versus $14.5 million). Nine-month segment EBITDA also declined in each segment.
- Q3 gross margin edged up to 14.8% from 14.7%, but nine-month gross margin declined to 14.1% from 16.4%.
Outlook, commentary, risks and unusual items
- AAM agreed to sell its U.S. Casting operations for $245 million, subject to customary adjustments: $185 million cash and a $60 million deferred payment obligation accruing 6% interest annually from January 1, 2020 over 12 years. Closing was expected in Q4 2019. The sale was not classified as discontinued operations.
- The sale triggered a $225 million pre-tax impairment charge in Q3 to reduce the business to fair value less cost to sell. AAM also recognized a $47.2 million tax benefit related to the impairment.
- Management expected 2019 restructuring charges of approximately $30–$35 million; restructuring and acquisition-related cash payments of $55–$65 million; integration charges of approximately $15–$20 million; interest expense of approximately $215–$225 million; and capital spending of approximately 7% of sales.
- In July, AAM refinanced its Term Loan A with $340 million of incremental commitments, extended the revolving facility maturity to July 2024, and used the proceeds to repay existing Term Loan A and part of Term Loan B borrowings, with no additional indebtedness. It also redeemed the remaining $100 million of 7.75% notes in May.
- Risks highlighted include dependence on major customers and automotive production cycles, work stoppages, pricing and competitive pressures, launches and integration execution, tariffs and foreign exchange, supply disruptions, debt and financing needs, and potential impairment. Metal Forming reporting-unit fair value exceeded carrying value by approximately 11%, leaving sensitivity to projected cash flows and valuation assumptions.
- AAM reported that disclosure controls were effective as of September 30, 2019 and that there were no material changes to previously disclosed risk factors. It noted ongoing ERP implementation and related control changes.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for American Axle & Manufacturing Holdings, Inc. (NYSE: AXL), not “Dauch Corp.”
- Verify completion and final proceeds and adjustments for the U.S. Casting sale, including collection terms and credit risk on the deferred payment.
- Track the GM work-stoppage impact and the disclosed $250 million full-year sales estimate, as well as customer volumes and insourcing trends.
- Assess whether cash generation, liquidity and debt service remain adequate amid lower sales, capital spending and restructuring payments.
- Monitor Metal Forming valuation headroom and assumptions, and whether further impairment charges arise.