Business context and reporting period
The supplied filing is American Axle & Manufacturing Holdings, Inc. (AAM), not a filing under the name Dauch Corp. It is a Form 10-K for the fiscal year ended December 31, 2011; quarterly figures below include the quarter ended December 31, 2011. AAM is a global automotive supplier of driveline, drivetrain and related components. General Motors represented 73% of 2011 sales and Chrysler 8%, leaving the business substantially exposed to two customers and North American truck and SUV production.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Net sales | $2,585.0 million | $2,283.0 million |
| Gross profit / margin | $455.1 million / 17.6% | $401.7 million / 17.6% |
| Operating income / margin | $223.4 million / 8.6% | $204.1 million / 8.9% |
| Net income attributable to AAM | $142.8 million | $115.4 million |
| Diluted EPS | $1.89 | $1.55 |
| Cash from operations | $(56.3) million | $240.3 million |
| Capital expenditures | $163.1 million | $108.3 million |
| Cash and cash equivalents at year-end | $169.2 million | $244.6 million |
| Long-term debt at year-end | $1,180.2 million | $1,010.0 million |
| AAM stockholders’ deficit | $(425.5) million | $(479.5) million |
Fourth-quarter 2011 sales were $605.6 million, gross profit was $105.7 million, net income attributable to AAM was $31.1 million and diluted EPS was $0.41. In fourth-quarter 2010, the corresponding figures were $583.3 million, $101.6 million, $34.9 million and $0.47.
Year-end current assets were $763.1 million against current liabilities of $576.1 million. AAM reported $293.3 million available under its revolving credit facility, net of standby letters of credit. Operating cash flow less capital expenditures was approximately negative $219.4 million in 2011.
Material changes versus the prior comparable period
- Annual sales increased 13%, with higher supported-program production, improved market conditions and growth in business outside GM. Sales to customers other than GM rose to $710.0 million from $563.0 million.
- Operating income and attributable net income increased, while operating margin declined slightly. Gross margin remained 17.6%.
- Operating cash flow fell from $240.3 million to negative $56.3 million. The termination of GM’s expedited payment terms and move to approximately 50-day standard terms reduced 2011 cash flow by about $190 million in the third quarter; year-end receivables increased to $333.3 million from $146.6 million.
- Debt increased by $170.2 million, primarily following issuance of $200 million of 7.75% senior unsecured notes due 2019, partly offset by redemption of $42.5 million principal of 9.25% notes.
Outlook, commentary, risks and unusual items
- Management expected 2012 capital spending of approximately $175 million, or 6.0%–6.5% of sales, to support program launches. The filing provides no specific earnings or revenue guidance.
- Management cited an operating breakeven equivalent of approximately 10 million U.S. SAAR units and reported a new-business backlog of about $1.1 billion for programs launching in 2012–2014. Backlog depends on customer production estimates, launch timing and program continuation.
- AAM planned to close its Detroit Manufacturing Complex and Cheektowaga facility on or after February 26, 2012. It expected about $20 million of additional asset redeployment and closure costs and $25 million–$30 million of related capital expenditures in 2012, excluding any costs from labor negotiations.
- Saab, AAM’s 33% partner in the e-AAM joint venture, entered bankruptcy and liquidation. AAM was negotiating to acquire Saab’s interest; the filing does not establish the outcome. AAM recorded a $1.6 million impairment related to Saab in 2011.
- Key risks include reliance on GM and Chrysler, vehicle-market cyclicality and mix shifts, customer price reductions, raw-material volatility, labor negotiations, supply-chain disruption, product warranty exposure, foreign exchange and compliance with debt covenants. Expanded GM warranty cost sharing began in 2011; the year-end warranty accrual was $13.4 million, versus $2.3 million a year earlier.
- AAM maintained a $426.9 million deferred-tax valuation allowance and said a reversal could occur as early as the second half of 2012 if sustained profitability supported it; any release could materially benefit reported earnings. This was a possibility, not a commitment.
- Management and the independent auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Confirm the issuer: the filing is for American Axle & Manufacturing Holdings, Inc., rather than Dauch Corp.
- Assess whether operating cash flow recovers after the change in GM payment terms and whether receivables and inventory normalize.
- Track customer concentration, supported vehicle production, and conversion of the $1.1 billion backlog into launches and sales.
- Review debt maturities, interest burden, revolver availability and covenant headroom; debt agreements restrict dividends and other actions.
- Monitor closure costs, labor outcomes, Saab/e-AAM developments, warranty costs and the assumptions underlying any deferred-tax valuation-allowance release.