MARCH 31, 2007 FORM 10-Q
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the quarterly period ended March 31, 2007
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the transition period from _____________
to
_____________
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Commission
File Number: 1-14303
_______________________________________________________________________________
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
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36-3161171
|
(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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One
Dauch Drive, Detroit, Michigan
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48211-1198
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(313)
758-2000
(Registrant's
Telephone Number, Including Area Code)
_______________________________________________________________________________
Indicate
by check mark whether the registrant: (1) has filed all reports required
to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer x
Accelerated
filer o
Non-accelerated filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
x
As
of
April 25, 2007, the latest practicable date, the number of shares of the
registrant's Common Stock, par value $0.01 per share, outstanding
was 53,010,058
shares.
Internet
Website Access to Reports
The
website for American Axle & Manufacturing Holdings, Inc. is www.aam.com.
Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13 or 15(d) of the Exchange Act are available free of charge through our
website
as soon as reasonably practicable after they are electronically filed with,
or
furnished to, the Securities and Exchange Commission. The Securities and
Exchange Commission also maintains a website at www.sec.gov
that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
FORM
10-Q
FOR
THE QUARTER ENDED MARCH 31, 2007
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Page
Number
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1
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Part
I
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2
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Item
1 |
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2
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4
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5
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Item
2
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13
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Item
3
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18
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Item
4
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18
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Part
II |
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19
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Item
1A
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19
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Item
6
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19
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20
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21
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Certain
statements in this Quarterly Report on Form 10-Q (Quarterly Report) are
forward-looking in nature and relate to trends and events that may affect our
future financial position and operating results. Such statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms “will,” “expect,” “anticipate,” “intend,”
“project” and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
Quarterly Report. The statements are based on our current expectations, are
inherently uncertain, are subject to risks and should be viewed with caution.
Actual results and experience may differ materially from the forward-looking
statements as a result of many factors, including, but not limited to:
· |
reduced
purchases of our products by General Motors Corporation (GM),
DaimlerChrysler Corporation (DaimlerChrysler) or other
customers;
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· |
reduced
demand for our customers’ products (particularly light trucks and SUVs
produced by GM and DaimlerChrysler);
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· |
our
ability and our suppliers’ ability to maintain satisfactory labor
relations and avoid work stoppages;
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· |
our
customers’ and their suppliers’ ability to maintain satisfactory labor
relations and avoid work stoppages;
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· |
our
ability to achieve cost reductions through ongoing restructuring
actions;
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· |
additional
restructuring actions that may occur;
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· |
our
ability to achieve the level of cost reductions required to sustain
global
cost competitiveness;
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· |
supply
shortages or price increases in raw materials, utilities or other
operating supplies;
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· |
our
ability and our customers’ and suppliers’ ability to successfully launch
new product programs on a timely basis;
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· |
our
ability to attract new customers and programs for new
products;
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· |
our
ability to develop and produce new products that reflect market
demand;
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· |
our
ability to respond to changes in technology or increased
competition;
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· |
adverse
changes in laws, government regulations or market conditions including
increases in fuel prices affecting our products or our customers’ products
(including the Corporate Average Fuel Economy regulations);
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· |
adverse
changes in the economic conditions or political stability of our
principal
markets (particularly North America, Europe, South America and
Asia);
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· |
liabilities
arising from legal proceedings to which we are or may become a party
or
claims against us or our products;
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· |
risks
of noncompliance with environmental regulations or risks of environmental
issues that could result in unforeseen costs at our
facilities;
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· |
availability
of financing for working capital, capital expenditures, R&D or other
general corporate purposes, including our ability to comply with
financial
covenants;
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· |
our
ability to attract and retain key associates;
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other
unanticipated events and conditions that may hinder our ability to
compete.
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It
is not
possible to foresee or identify all such factors and we make no commitment
to
update any forward-looking statement or to disclose any facts, events or
circumstances after the date hereof that may affect the accuracy of any
forward-looking statement.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three
months ended
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March
31,
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2007
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2006
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(in
millions, except per share data)
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Net
sales
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$
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802.2
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$
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834.8
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Cost
of goods sold
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717.4
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771.3
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Gross
profit
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84.8
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63.5
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Selling,
general and administrative expenses
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48.9
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48.4
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Operating
income
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35.9
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15.1
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Net
interest expense
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(14.0
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(7.4
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)
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Other
income, net
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0.1
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0.6
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Income
before income taxes
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22.0
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8.3
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Income
tax expense (benefit)
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6.6
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(0.3
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)
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Net
income
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$
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15.4
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$
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8.6
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Basic
earnings per share
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$
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0.30
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$
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0.17
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Diluted
earnings per share
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$
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0.30
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$
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0.17
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Dividends
declared per share
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$
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0.15
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$
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0.15
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See
accompanying notes to condensed consolidated financial statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
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March
31,
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December
31,
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2007
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2006
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(Unaudited)
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(in
millions)
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Assets
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Current
assets
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Cash
and cash equivalents
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$
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141.9
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$
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13.5
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Accounts
receivable, net
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422.1
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327.6
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Inventories,
net
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216.4
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198.4
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Prepaid
expenses and other
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79.7
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69.2
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Deferred
income taxes
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31.1
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30.7
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Total
current assets
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891.2
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639.4
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Property,
plant and equipment, net
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1,712.2
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1,731.7
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Deferred
income taxes
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41.0
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35.7
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Goodwill
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147.8
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147.8
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Other
assets and deferred charges
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45.7
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42.9
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Total
assets
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$
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2,837.9
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$
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2,597.5
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Liabilities
and Stockholders’ Equity
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Current
liabilities
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Accounts
payable
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$
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377.4
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$
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316.4
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Trade
payable program liability
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0.9
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12.5
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Accrued
compensation and benefits
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137.7
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156.3
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Other
accrued expenses
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47.0
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56.1
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Total
current liabilities
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563.0
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541.3
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Long-term
debt
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842.4
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672.2
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Deferred
income taxes
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8.9
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6.8
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Postretirement
benefits and other long-term liabilities
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603.2
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563.5
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Total
liabilities
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2,017.5
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1,783.8
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Stockholders'
equity
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Common
stock, par value $0.01 per share
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0.6
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0.6
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Paid-in
capital
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389.3
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381.7
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Retained
earnings
|
|
|
585.7
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590.0
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Treasury
stock at cost, 5.1 million shares in 2007 and 2006
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(171.8
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)
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|
(171.8
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)
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Accumulated
other comprehensive income (loss), net of tax
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Defined benefit plans
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(0.5
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)
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(0.8
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)
|
Foreign currency translation adjustments
|
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|
19.2
|
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|
15.5
|
|
Unrecognized loss on derivatives
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(2.1
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)
|
|
(1.5
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)
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Total
stockholders' equity
|
|
|
820.4
|
|
|
813.7
|
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Total
liabilities and stockholders' equity
|
|
$
|
2,837.9
|
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$
|
2,597.5
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See
accompanying notes to condensed consolidated financial statements.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
(Unaudited)
|
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Three
months ended
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|
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March
31,
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|
|
2007
|
|
2006
|
|
|
|
(in
millions)
|
|
Operating
activities
|
|
|
|
|
|
Net
income
|
|
$
|
15.4
|
|
$
|
8.6
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
56.4
|
|
|
49.4
|
|
Deferred
income taxes
|
|
|
3.7
|
|
|
(1.6
|
)
|
Stock-based
compensation
|
|
|
4.8
|
|
|
2.5
|
|
Pensions
and other postretirement benefits,
|
|
|
|
|
|
|
|
net
of contributions
|
|
|
14.8
|
|
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24.7
|
|
Loss
on retirement of equipment
|
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|
1.1
|
|
|
1.9
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
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Accounts
receivable
|
|
|
(94.3
|
)
|
|
(81.4
|
)
|
Inventories
|
|
|
(17.6
|
)
|
|
(14.7
|
)
|
Accounts
payable and accrued expenses
|
|
|
21.3
|
|
|
36.1
|
|
Other
assets and liabilities
|
|
|
4.2
|
|
|
(18.5
|
)
|
Net
cash provided by operating activities
|
|
|
9.8
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(42.5
|
)
|
|
(80.8
|
)
|
Net
cash used in investing activities
|
|
|
(42.5
|
)
|
|
(80.8
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Net
borrowings (repayments) under revolving credit facilities
|
|
|
(130.3
|
)
|
|
85.7
|
|
Payments
of long-term debt and capital lease obligations
|
|
|
(0.3
|
)
|
|
(0.9
|
)
|
Proceeds
from issuance of long-term debt
|
|
|
300.0
|
|
|
-
|
|
Debt
issuance costs
|
|
|
(5.2
|
)
|
|
-
|
|
Employee
stock option exercises
|
|
|
3.7
|
|
|
0.1
|
|
Tax
benefit on stock option exercises
|
|
|
0.7
|
|
|
-
|
|
Dividends
paid
|
|
|
(7.8
|
)
|
|
(7.7
|
)
|
Net
cash provided by financing activities
|
|
|
160.8
|
|
|
77.2
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
0.3
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
128.4
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
13.5
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
141.9
|
|
$
|
7.1
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
17.4
|
|
$
|
11.9
|
|
Income
taxes paid, net of refunds
|
|
$
|
6.7
|
|
$
|
8.7
|
|
See
accompanying notes to condensed consolidated financial statements.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
March
31, 2007
1. ORGANIZATION
AND BASIS OF PRESENTATION
Organization
American
Axle & Manufacturing Holdings, Inc. (Holdings) and its subsidiaries
(collectively, we, our, us or AAM) is a premier Tier
I
supplier to the automotive industry and a worldwide leader in the
manufacture,
engineering, design and validation of driveline and drivetrain
systems and
related components and chassis modules for light trucks, sport
utility vehicles
(SUVs), passenger cars and crossover vehicles.
Driveline and drivetrain systems include components that transfer
power from the
transmission and deliver it to the drive wheels. Our driveline,
drivetrain and
related products include axles, chassis modules, driveshafts, power
transfer
units, transfer cases, chassis and steering components, driving
heads,
crankshafts, transmission parts and metal-formed products. In addition
to
locations in the United States (U.S.) (Michigan, New York and Ohio),
we have
offices or facilities in Brazil, China, England, Germany, India,
Japan,
Luxembourg, Mexico, Poland, Scotland and South Korea.
Basis
of Presentation We
have
prepared the accompanying interim condensed consolidated financial
statements in
accordance with the instructions to Form 10-Q under the Securities
Exchange Act
of 1934. These condensed consolidated financial statements are
unaudited but
include all adjustments which we consider necessary for a fair
presentation of
the information set forth herein. Results of operations for the
periods
presented are not necessarily indicative of the results for the
full fiscal
year.
The
balance sheet at December 31, 2006 presented herein has been derived
from the
audited consolidated financial statements at that date but does
not include all
of the information and footnotes required by accounting principles
generally
accepted in the United States of America (GAAP) for complete consolidated
financial statements.
In
order
to prepare the accompanying interim condensed consolidated financial
statements,
we are required to make estimates and assumptions that affect the
reported
amounts and disclosures in our interim condensed consolidated financial
statements. Actual results could differ from those estimates.
For
further information, refer to the audited consolidated financial
statements and
notes included in our Annual Report on Form 10-K for the year ended
December 31,
2006.
Effect
of New Accounting Standards In
July
2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48
clarifies the criteria for recognition of income tax benefits in
accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for
Income Taxes.” We adopted FIN 48 on January 1, 2007 and the impact of
adoption was not material.
In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements” (SFAS 157). This statement clarifies the definition of fair
value and establishes a fair value hierarchy. SFAS 157 is effective
for us on
January 1, 2008 and we are currently assessing the impact of this
statement.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). This
statement permits
entities to measure many financial instruments and certain other
items at fair
value that are not currently required to be measured at fair value.
SFAS 159 is
effective for us on January 1, 2008 and we are currently assessing
the impact of
this statement.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. |
RESTRUCTURING
ACTIONS AND POSTEMPLOYMENT
BENEFITS
|
In
2006,
we took certain restructuring actions to realign and resize our production
capacity and cost structure. As part of these actions, we incurred charges
for
one-time termination benefits. At December 31, 2006, our liability related
to
these benefits was $36.4 million.
A
summary
of the restructuring related activity for the three months ended March
31, 2007
is shown below (in millions):
Accrual
as of December 31, 2006
|
Charges
|
Cash
Utilization
|
Non-Cash
Accrual Adjustments
|
Accrual
as of March 31, 2007
|
$
36.4
|
$
3.0
|
$
(19.5)
|
$
(0.4)
|
$
19.5
|
In
the
first quarter of 2007, 36 associates represented by the International
Association of Machinists (IAM) at our Tonawanda, New York facility participated
in a voluntary separation incentive program. We recorded expense of $2.4
million
for the estimated postemployment costs of this program and we paid $0.3
million
of these costs in the first quarter of 2007. The remaining restructuring
charges
recorded in the first quarter of 2007 related to service earned in the
period
for estimated future transition payments to certain salaried associates
who will
terminate employment on or around December 31, 2007. We expect a majority
of the
remaining accrual to be paid in 2007 and will continue to make payments
related
to these restructuring actions through 2010.
In
addition to these restructuring actions, we recorded a charge in 2006
related to
supplemental unemployment benefits (SUB) estimated to be payable to UAW
represented associates who are expected to be permanently idled through
the end
of the current collective bargaining agreement that expires in February
2008.
The collective bargaining agreement between AAM and the UAW contains
a SUB
provision, pursuant to which we are required to pay eligible idled workers
certain benefits. In the first quarter of 2007, we paid $3.1 million
of SUB to
workers deemed to be permanently idled and adjusted our accrual to reflect
our
current estimate of SUB costs to be paid to these workers through February
2008.
At March 31, 2007, the accrual for SUB was $11.3 million.
3. INVENTORIES
We
state
our inventories at the lower of cost or market. The cost of our U.S.
inventories
is determined principally using the last-in, first-out method (LIFO).
The cost
of our foreign and indirect inventories is determined principally using
the
first-in, first-out method (FIFO). We classify indirect inventories,
which
include perishable tooling, machine repair parts and other materials
consumed in
the manufacturing process but not incorporated into our finished products,
as
raw materials. When we determine that our gross inventories exceed usage
requirements, or if inventories become obsolete or otherwise not saleable,
we
record a provision for such loss as a component of our inventory accounts.
Inventories
consist of the following:
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
Raw
materials and work-in-progress
|
|
$
|
235.7
|
|
$
|
220.6
|
|
Finished
goods
|
|
|
33.6
|
|
|
26.3
|
|
Gross
inventories
|
|
|
269.3
|
|
|
246.9
|
|
LIFO
reserve
|
|
|
(14.4
|
)
|
|
(13.8
|
)
|
Other
inventory valuation reserves
|
|
|
(38.5
|
)
|
|
(34.7
|
)
|
Inventories,
net
|
|
$
|
216.4
|
|
$
|
198.4
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM
DEBT
Long-term
debt consists of the following:
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
Revolving
Credit Facility
|
|
$
|
-
|
|
$
|
100.0
|
|
7.875%
Notes
|
|
|
300.0
|
|
|
-
|
|
5.25%
Notes, net of discount
|
|
|
249.8
|
|
|
249.8
|
|
2.00%
Convertible Notes
|
|
|
2.7
|
|
|
2.7
|
|
Term
Loan
|
|
|
250.0
|
|
|
250.0
|
|
Uncommitted
lines of credit
|
|
|
-
|
|
|
33.5
|
|
Foreign
credit facilities and other
|
|
|
37.5
|
|
|
33.7
|
|
Capital
lease obligations
|
|
|
2.4
|
|
|
2.5
|
|
Long-term
debt
|
|
$
|
842.4
|
|
$
|
672.2
|
|
|
|
|
|
|
|
|
|
The
Revolving Credit Facility provides up to $600.0 million of revolving
bank
financing commitments through April 2010 and bears interest at rates
based on
LIBOR or an alternate base rate, plus an applicable margin. At March
31, 2007,
we had $570.2 million available under the Revolving Credit Facility.
This
availability reflects a reduction of $29.8 million for standby letters
of credit
issued against the facility.
The
Revolving Credit Facility provides back-up liquidity for our foreign
credit
facilities and uncommitted lines of credit. We intend to use the
availability of
long-term financing under the Revolving Credit Facility to refinance
any current
maturities related to such debt agreements that are not otherwise
refinanced on
a long-term basis in their respective markets. Accordingly, we have
classified
such amounts as long-term debt.
In
the
first quarter of 2007, we issued $300.0 million of 7.875% senior
unsecured notes
due 2017 (7.875% Notes). The 7.875% Notes are senior unsecured obligations
of
American Axle & Manufacturing, Inc. (AAM, Inc.) and are fully and
unconditionally guaranteed by Holdings. Net proceeds from these notes
will be
used for general purposes, including repaying amounts outstanding
under our
Revolving Credit Facility.
The
5.25%
Notes are senior unsecured obligations of AAM, Inc. and are fully
and
unconditionally guaranteed by Holdings.
The
2.00%
Convertible Notes are senior unsecured obligations of Holdings and
are fully and
unconditionally guaranteed by AAM, Inc. As of the date of this filing,
these
notes are convertible into cash at the option of the holder.
The
Term
Loan is an unsecured obligation that is guaranteed by Holdings. Borrowings
under
the Term Loan bear interest payable at rates based on LIBOR or an
alternate base
rate, plus an applicable margin. We have hedged a portion of the
interest rate
risk related to our Term Loan by entering into an interest rate swap
with a
notional amount of $200.0 million. The notional amount reduces to
$100.0 million
in 2008 and expires in April 2010. The interest rate swap converts
variable rate
financing based on 3-month LIBOR into fixed U.S. dollar rates.
In
the
first quarter of 2007, we had access to $60.0 million of uncommitted
bank lines
of credit, all of which was available at March 31, 2007.
We
utilize local currency credit facilities to finance the operations
of certain
foreign subsidiaries. At March 31, 2007, $37.5 million was outstanding
under
these facilities and an additional $80.2 million was available.
The
weighted-average interest rate of our long-term debt outstanding
at March 31,
2007 and December 31, 2006 was approximately 8.0%.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. EMPLOYEE
BENEFIT PLANS
The
components of net periodic benefit cost are as follows:
|
|
Pension
Benefits
|
|
Other
Postretirement Benefits
|
|
|
|
Three
months ended
|
|
Three
months ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
6.1
|
|
$
|
8.4
|
|
$
|
6.4
|
|
$
|
10.3
|
|
Interest
cost
|
|
|
8.6
|
|
|
8.4
|
|
|
6.8
|
|
|
8.0
|
|
Expected
asset return
|
|
|
(9.5
|
)
|
|
(7.9
|
)
|
|
-
|
|
|
-
|
|
Amortized
loss
|
|
|
0.4
|
|
|
1.3
|
|
|
-
|
|
|
1.4
|
|
Amortized
prior service cost
|
|
|
0.6
|
|
|
0.8
|
|
|
(0.8
|
)
|
|
(0.3
|
)
|
Special
termination benefits
|
|
|
0.2
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
periodic benefit cost
|
|
$
|
6.4
|
|
$
|
11.0
|
|
$
|
12.4
|
|
$
|
19.4
|
|
We
adopted the
measurement date provisions of FASB Statement No. 158, “Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans,”
as of
January 1, 2007,
which requires companies to measure a plan’s assets and obligations that
determine its funded status as of the end of the fiscal year. As
a result of
this adoption, we recorded a net transition adjustment of $12.0
million to the
opening retained earnings balance related to the net periodic benefit
cost for
the period between September 30, 2006 and January 1, 2007.
Our
regulatory pension funding requirements in 2007 are less than $5
million. We
expect our cash outlay for other postretirement benefit obligations
in 2007 to
be between $5 million and $10 million.
6. COMPREHENSIVE
INCOME
Comprehensive
income consists of the following:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
15.4
|
|
$
|
8.6
|
|
Defined
benefit plans, net of tax
|
|
|
0.3
|
|
|
-
|
|
Foreign
currency translation adjustments, net of tax
|
|
|
3.7
|
|
|
5.1
|
|
Unrecognized
loss on derivatives, net of tax
|
|
|
(0.6
|
)
|
|
(0.3
|
)
|
Comprehensive
income
|
|
$
|
18.8
|
|
$
|
13.4
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. EARNINGS
PER SHARE (EPS)
The
following table sets forth the computation of our basic and diluted
EPS:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
millions, except per share data)
|
|
Numerator
|
|
|
|
|
|
Net
income
|
|
$
|
15.4
|
|
$
|
8.6
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
Basic
shares outstanding -
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
50.7
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities -
|
|
|
|
|
|
|
|
Dilutive stock-based compensation
|
|
|
1.4
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
Diluted
shares outstanding -
|
|
|
|
|
|
|
|
Adjusted weighted-average shares after assumed conversions
|
|
|
52.1
|
|
|
51.1
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$
|
0.30
|
|
$
|
0.17
|
|
Diluted
EPS
|
|
$
|
0.30
|
|
$
|
0.17
|
|
Certain
exercisable stock options were excluded in the computations of
diluted EPS
because the exercise price of these options was greater than the
average period
market prices. The number of stock options outstanding, which were
not included
in the calculation of diluted EPS, was 4.6 million at March 31,
2007 and 4.7
million at March 31, 2006. The ranges of exercise prices related
to the excluded
exercisable stock options were $23.73 - $40.83 at March 31, 2007
and $18.40 -
$40.83 at March 31, 2006.
8. SHARE-BASED
COMPENSATION
On
March
14, 2007, we granted approximately 0.3 million stock options under
our 1999
Stock Incentive Plan to our executive officers. These options will
be expensed
over the expected vesting period, which is three years.
We
estimated the fair value of our employee stock options on the date
of grant
using the Black-Scholes option-pricing model with the following
assumptions:
|
|
2007
|
|
2006
|
|
Expected
volatility
|
|
|
44.26
|
%
|
|
41.31
|
%
|
Risk-free
interest rate
|
|
|
4.46
|
%
|
|
4.78
|
%
|
Dividend
yield
|
|
|
2.30
|
%
|
|
3.70
|
%
|
Expected
life of option
|
|
|
8 years
|
|
|
7
years
|
|
Weighted
average grant-date fair value
|
|
$
|
11.13
|
|
$
|
5.33
|
|
We
also award performance
accelerated restricted stock and restricted stock units (PARS and
RSUs,
respectively) under our 1999 Stock Incentive Plan. We granted approximately
0.8
million PARS and 0.1 million RSUs on March 14, 2007 with a grant-date
fair value
of $26.02. The PARS and RSUs vest over three to five years contingent
upon the
satisfaction of future financial performance targets specified
by the awards.
The unearned compensation will be expensed over the expected vesting
period.
In
the first quarter of
2007, we offered a voluntary separation program to IAM represented
hourly
associates at our Detroit, Michigan facilities. We expect to record
an
estimated pre-tax charge ranging between $5 million to $6 million related
to the participation in this program in the second quarter of 2007.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10.
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS
Holdings
has no significant assets other than its 100% ownership in AAM,
Inc. and no
direct subsidiaries other than AAM, Inc. Holdings fully and unconditionally
guarantees the 5.25% Notes and 7.875% Notes, which are senior
unsecured
obligations of AAM, Inc. The 2.00% Convertible Notes are senior
unsecured
obligations of Holdings and are fully and unconditionally guaranteed
by AAM,
Inc.
The
following Condensed Consolidating Financial Statements are included
in lieu of
providing separate financial statements for Holdings and AAM,
Inc. These
Condensed Consolidating Financial Statements are prepared under
the equity
method of accounting whereby the investments in subsidiaries
are recorded at
cost and adjusted for the parent’s share of the subsidiaries’ cumulative results
of operations, capital contributions and distributions, and other
equity
changes.
Condensed
Consolidating Statements of Income
Three
months ended March 31,
(in
millions)
|
|
Holdings
|
|
AAM
Inc.
|
|
All
Others
|
|
Elims
|
|
Consolidated
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
$
|
-
|
|
$
|
565.1
|
|
$
|
237.1
|
|
$
|
-
|
|
$
|
802.2
|
|
Intercompany
|
|
|
-
|
|
|
9.8
|
|
|
28.0
|
|
|
(37.8
|
)
|
|
-
|
|
Total
net sales
|
|
|
-
|
|
|
574.9
|
|
|
265.1
|
|
|
(37.8
|
)
|
|
802.2
|
|
Cost
of goods sold
|
|
|
-
|
|
|
521.6
|
|
|
232.0
|
|
|
(36.2
|
)
|
|
717.4
|
|
Gross
profit
|
|
|
-
|
|
|
53.3
|
|
|
33.1
|
|
|
(1.6
|
)
|
|
84.8
|
|
Selling,
general and administrative expenses
|
|
|
-
|
|
|
47.1
|
|
|
3.4
|
|
|
(1.6
|
)
|
|
48.9
|
|
Operating
income
|
|
|
-
|
|
|
6.2
|
|
|
29.7
|
|
|
-
|
|
|
35.9
|
|
Net
interest expense
|
|
|
-
|
|
|
(12.3
|
)
|
|
(1.7
|
)
|
|
-
|
|
|
(14.0
|
)
|
Other
income, net
|
|
|
-
|
|
|
0.1
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
Income
(loss) before income taxes
|
|
|
-
|
|
|
(6.0
|
)
|
|
28.0
|
|
|
-
|
|
|
22.0
|
|
Income
tax expense
|
|
|
-
|
|
|
4.8
|
|
|
1.8
|
|
|
-
|
|
|
6.6
|
|
Earnings
from equity in subsidiaries
|
|
|
15.4
|
|
|
17.0
|
|
|
-
|
|
|
(32.4
|
)
|
|
-
|
|
Net
income before royalties and dividends
|
|
|
15.4
|
|
|
6.2
|
|
|
26.2
|
|
|
(32.4
|
)
|
|
15.4
|
|
Royalties
and dividends
|
|
|
-
|
|
|
9.2
|
|
|
(9.2
|
)
|
|
-
|
|
|
-
|
|
Net
income after royalties and dividends
|
|
$
|
15.4
|
|
$
|
15.4
|
|
$
|
17.0
|
|
$
|
(32.4
|
)
|
$
|
15.4
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
$
|
-
|
|
$
|
584.5
|
|
$
|
250.3
|
|
$
|
-
|
|
$
|
834.8
|
|
Intercompany
|
|
|
-
|
|
|
10.3
|
|
|
23.5
|
|
|
(33.8
|
)
|
|
-
|
|
Total
net sales
|
|
|
-
|
|
|
594.8
|
|
|
273.8
|
|
|
(33.8
|
)
|
|
834.8
|
|
Cost
of goods sold
|
|
|
-
|
|
|
560.4
|
|
|
243.4
|
|
|
(32.5
|
)
|
|
771.3
|
|
Gross
profit
|
|
|
-
|
|
|
34.4
|
|
|
30.4
|
|
|
(1.3
|
)
|
|
63.5
|
|
Selling,
general and administrative expenses
|
|
|
-
|
|
|
47.1
|
|
|
2.6
|
|
|
(1.3
|
)
|
|
48.4
|
|
Operating
income (loss)
|
|
|
-
|
|
|
(12.7
|
)
|
|
27.8
|
|
|
-
|
|
|
15.1
|
|
Net
interest expense
|
|
|
-
|
|
|
(2.0
|
)
|
|
(5.4
|
)
|
|
-
|
|
|
(7.4
|
)
|
Other
income, net
|
|
|
-
|
|
|
-
|
|
|
0.6
|
|
|
-
|
|
|
0.6
|
|
Income
(loss) before income taxes
|
|
|
-
|
|
|
(14.7
|
)
|
|
23.0
|
|
|
-
|
|
|
8.3
|
|
Income
tax expense (benefit)
|
|
|
-
|
|
|
(3.9
|
) |
|
3.6
|
|
|
-
|
|
|
(0.3
|
)
|
Earnings
from equity in subsidiaries
|
|
|
8.6
|
|
|
9.5
|
|
|
-
|
|
|
(18.1
|
)
|
|
-
|
|
Net
income (loss) before royalties and dividends
|
|
|
8.6
|
|
|
(1.3
|
)
|
|
19.4
|
|
|
(18.1
|
)
|
|
8.6
|
|
Royalties
and dividends
|
|
|
-
|
|
|
9.9
|
|
|
(9.9
|
)
|
|
-
|
|
|
-
|
|
Net
income after royalties and dividends
|
|
$
|
8.6
|
|
$
|
8.6
|
|
$
|
9.5
|
|
$
|
(18.1
|
)
|
$
|
8.6
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Condensed
Consolidating Balance Sheets
(in
millions)
|
|
Holdings
|
|
AAM
Inc.
|
|
All
Others
|
|
Elims
|
|
Consolidated
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
$
|
135.8
|
|
$
|
6.1
|
|
$
|
-
|
|
$
|
141.9
|
|
Accounts receivable, net
|
|
|
-
|
|
|
260.8
|
|
|
161.3
|
|
|
-
|
|
|
422.1
|
|
Inventories, net
|
|
|
-
|
|
|
117.0
|
|
|
99.4
|
|
|
-
|
|
|
216.4
|
|
Other current assets
|
|
|
-
|
|
|
67.7
|
|
|
43.1
|
|
|
-
|
|
|
110.8
|
|
Total
current assets
|
|
|
-
|
|
|
581.3
|
|
|
309.9
|
|
|
-
|
|
|
891.2
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
1,047.0
|
|
|
665.2
|
|
|
-
|
|
|
1,712.2
|
|
Goodwill
|
|
|
-
|
|
|
-
|
|
|
147.8
|
|
|
-
|
|
|
147.8
|
|
Other
assets and deferred charges
|
|
|
-
|
|
|
25.5
|
|
|
61.2
|
|
|
-
|
|
|
86.7
|
|
Investment
in subsidiaries
|
|
|
1,055.9
|
|
|
692.8
|
|
|
84.7
|
|
|
(1,833.4
|
)
|
|
-
|
|
Total
assets
|
|
$
|
1,055.9
|
|
$
|
2,346.6
|
|
$
|
1,268.8
|
|
$
|
(1,833.4
|
)
|
$
|
2,837.9
|
|
Liabilities
and Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
$
|
234.0
|
|
$
|
144.3
|
|
$
|
-
|
|
$
|
378.3
|
|
Other accrued expenses
|
|
|
-
|
|
|
147.2
|
|
|
37.5
|
|
|
-
|
|
|
184.7
|
|
Total
current liabilities
|
|
|
-
|
|
|
381.2
|
|
|
181.8
|
|
|
-
|
|
|
563.0
|
|
Intercompany
payable (receivable)
|
|
|
265.3
|
|
|
(471.7
|
)
|
|
206.4
|
|
|
-
|
|
|
-
|
|
Long-term
debt
|
|
|
2.7
|
|
|
799.8
|
|
|
39.9
|
|
|
-
|
|
|
842.4
|
|
Other
long-term liabilities
|
|
|
-
|
|
|
551.1
|
|
|
61.0
|
|
|
-
|
|
|
612.1
|
|
Total
liabilities
|
|
|
268.0
|
|
|
1,260.4
|
|
|
489.1
|
|
|
-
|
|
|
2,017.5
|
|
Stockholders’
equity
|
|
|
787.9
|
|
|
1,086.2
|
|
|
779.7
|
|
|
(1,833.4
|
)
|
|
820.4
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,055.9
|
|
$
|
2,346.6
|
|
$
|
1,268.8
|
|
$
|
(1,833.4
|
)
|
$
|
2,837.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
$
|
0.5
|
|
$
|
13.0
|
|
$
|
-
|
|
$
|
13.5
|
|
Accounts receivable, net
|
|
|
-
|
|
|
181.0
|
|
|
146.6
|
|
|
-
|
|
|
327.6
|
|
Inventories, net
|
|
|
-
|
|
|
110.4
|
|
|
88.0
|
|
|
-
|
|
|
198.4
|
|
Other current assets
|
|
|
-
|
|
|
62.9
|
|
|
37.0
|
|
|
-
|
|
|
99.9
|
|
Total
current assets
|
|
|
-
|
|
|
354.8
|
|
|
284.6
|
|
|
-
|
|
|
639.4
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
1,075.2
|
|
|
656.5
|
|
|
-
|
|
|
1,731.7
|
|
Goodwill
|
|
|
-
|
|
|
0.0
|
|
|
147.8
|
|
|
-
|
|
|
147.8
|
|
Other
assets and deferred charges
|
|
|
-
|
|
|
17.2
|
|
|
61.4
|
|
|
-
|
|
|
78.6
|
|
Investment
in subsidiaries
|
|
|
1,043.4
|
|
|
676.1
|
|
|
69.9
|
|
|
(1,789.4
|
)
|
|
-
|
|
Total
assets
|
|
$
|
1,043.4
|
|
$
|
2,123.3
|
|
$
|
1,220.2
|
|
$
|
(1,789.4
|
)
|
|
2,597.5
|
|
Liabilities
and Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
$
|
201.6
|
|
$
|
127.3
|
|
$
|
-
|
|
$
|
328.9
|
|
Other accrued expenses
|
|
|
-
|
|
|
173.6
|
|
|
38.8
|
|
|
-
|
|
|
212.4
|
|
Total
current liabilities
|
|
|
-
|
|
|
375.2
|
|
|
166.1
|
|
|
-
|
|
|
541.3
|
|
Intercompany
payable (receivable)
|
|
|
240.2
|
|
|
(451.0
|
)
|
|
210.8
|
|
|
-
|
|
|
-
|
|
Long-term
debt
|
|
|
2.7
|
|
|
633.2
|
|
|
36.3
|
|
|
-
|
|
|
672.2
|
|
Other
long-term liabilities
|
|
|
-
|
|
|
508.0
|
|
|
62.3
|
|
|
-
|
|
|
570.3
|
|
Total
liabilities
|
|
|
242.9
|
|
|
1,065.4
|
|
|
475.5
|
|
|
-
|
|
|
1,783.8
|
|
Stockholders’
equity
|
|
|
800.5
|
|
|
1,057.9
|
|
|
744.7
|
|
|
(1,789.4
|
)
|
|
813.7
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,043.4
|
|
$
|
2,123.3
|
|
$
|
1,220.2
|
|
$
|
(1,789.4
|
)
|
$
|
2,597.5
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Condensed
Consolidating Statements of Cash Flows
Three
months ended March 31,
(in
millions)
|
|
Holdings
|
|
AAM
Inc.
|
|
All
Others
|
|
Elims
|
|
Consolidated
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
$
|
-
|
|
$
|
(19.6
|
)
|
$
|
29.4
|
|
$
|
-
|
|
$
|
9.8
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
-
|
|
|
(11.1
|
)
|
|
(31.4
|
)
|
|
-
|
|
|
(42.5
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
(11.1
|
)
|
|
(31.4
|
)
|
|
-
|
|
|
(42.5
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
debt activity
|
|
|
-
|
|
|
166.5
|
|
|
2.9
|
|
|
-
|
|
|
169.4
|
|
Intercompany
activity
|
|
|
7.8
|
|
|
0.3
|
|
|
(8.1
|
)
|
|
-
|
|
|
-
|
|
Debt
issuance costs
|
|
|
-
|
|
|
(5.2
|
)
|
|
-
|
|
|
-
|
|
|
(5.2
|
)
|
Employee
stock option exercises, including
tax benefit
|
|
|
-
|
|
|
4.4
|
|
|
-
|
|
|
-
|
|
|
4.4
|
|
Dividends
paid
|
|
|
(7.8
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7.8
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
-
|
|
|
166.0
|
|
|
(5.2
|
)
|
|
-
|
|
|
160.8
|
|
Effect
of exchange rate changes on cash
|
|
|
-
|
|
|
-
|
|
|
0.3
|
|
|
-
|
|
|
0.3
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
-
|
|
|
135.3
|
|
|
(6.9
|
)
|
|
-
|
|
|
128.4
|
|
Cash
and cash equivalents at beginning of period
|
|
|
-
|
|
|
0.5
|
|
|
13.0
|
|
|
-
|
|
|
13.5
|
|
Cash
and cash equivalents at end of period
|
|
$
|
-
|
|
$
|
135.8
|
|
$
|
6.1
|
|
$
|
-
|
|
$
|
141.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
$
|
-
|
|
$
|
(15.0
|
)
|
$
|
22.0
|
|
$
|
-
|
|
$
|
7.0
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
-
|
|
|
(24.5
|
)
|
|
(56.3
|
)
|
|
-
|
|
|
(80.8
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
(24.5
|
)
|
|
(56.3
|
)
|
|
-
|
|
|
(80.8
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
debt activity
|
|
|
-
|
|
|
83.0
|
|
|
1.8
|
|
|
-
|
|
|
84.8
|
|
Intercompany
activity
|
|
|
7.7
|
|
|
(43.5
|
)
|
|
35.8
|
|
|
-
|
|
|
-
|
|
Employee
stock option exercises, including
tax benefit
|
|
|
-
|
|
|
0.1
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
Dividends
paid
|
|
|
(7.7
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7.7
|
)
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
39.6
|
|
|
37.6
|
|
|
-
|
|
|
77.2
|
|
Effect
of exchange rate changes on cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
increase in cash and cash equivalents
|
|
|
-
|
|
|
0.1
|
|
|
3.3
|
|
|
-
|
|
|
3.4
|
|
Cash
and cash equivalents at beginning of period
|
|
|
-
|
|
|
0.2
|
|
|
3.5
|
|
|
-
|
|
|
3.7
|
|
Cash
and cash equivalents at end of period
|
|
$
|
-
|
|
$
|
0.3
|
|
$
|
6.8
|
|
$
|
-
|
|
$
|
7.1
|
|
This
management’s discussion
and analysis (MD&A) should be read in conjunction with the unaudited
condensed consolidated financial statements and notes appearing elsewhere in
this Quarterly Report and our Annual Report on Form 10-K for the year ended
December 31, 2006.
Unless
the context otherwise requires, references to "we," "our," "us" or "AAM" shall
mean collectively (i) American Axle & Manufacturing Holdings, Inc.
(Holdings), a Delaware corporation, and (ii) American Axle & Manufacturing,
Inc. (AAM, Inc.), a Delaware corporation, and its direct and indirect
subsidiaries. Holdings has no subsidiaries other than AAM, Inc.
COMPANY
OVERVIEW
We
are a
premier Tier I supplier to the automotive industry and a worldwide leader in
the
manufacture, engineering, design and validation of driveline and drivetrain
systems and related components and chassis modules for light trucks, sport
utility vehicles (SUVs), passenger cars and crossover vehicles. Driveline and
drivetrain systems include components that transfer power from the transmission
and deliver it to the drive wheels. Our driveline, drivetrain and related
products include axles, chassis modules, driveshafts, power transfer units,
transfer cases, chassis and steering components, driving heads, crankshafts,
transmission parts and metal-formed products.
We
are
the principal supplier of driveline components to General Motors Corporation
(GM) for its rear-wheel drive (RWD) light trucks and SUVs manufactured in North
America, supplying substantially all of GM’s rear axle and front four-wheel
drive/all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms.
Sales to GM were approximately 80% of our total net sales in the first quarter
of 2007 as compared to 76% for the full-year 2006.
We
are
the sole-source supplier to GM for certain axles and other driveline products
for the life of each GM vehicle program covered by a Lifetime Program Contract
(LPC). Substantially all of our sales to GM are made pursuant to the LPCs.
The
LPCs have terms equal to the lives of the relevant vehicle programs or their
respective derivatives, which typically run 6 to 12 years, and require us to
remain competitive with respect to technology, design and quality. We have
been
successful in competing, and we will continue to compete for future GM business
upon the expiration of the LPCs.
We
are
also the principal supplier of driveline system products for the Chrysler
Group’s heavy-duty Dodge Ram full-size pickup trucks (Dodge Ram program) and its
derivatives. As part of this program, we supply a fully integrated
computer-controlled chassis system for the Dodge Ram Power Wagon. Sales to
DaimlerChrysler Corporation (DaimlerChrysler) were approximately 10% of our
total net sales in the first quarter of 2007 as compared to 14% for the
full-year 2006.
In
addition to GM and DaimlerChrysler, we supply driveline systems and other
related components to PACCAR Inc., Ford Motor Company, SsangYong Motor Company,
Harley-Davidson and other original equipment manufacturers (OEMs) and Tier
I
supplier companies such as The Timken Company, Jatco Ltd., Koyo Machine
Industries Co., Ltd. and Hino Motors, Ltd. Our net sales to customers other
than
GM were $160.0 million in the first quarter of 2007 as compared to $203.6
million for the first quarter of 2006.
RESULTS
OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 2007 AS COMPARED TO THREE MONTHS
ENDED MARCH 31, 2006
Net
Sales
Net
sales were $802.2 million in the first quarter of 2007 as compared to $834.8
million in the first quarter of 2006. As
compared to the first quarter of 2006, our sales in the first quarter of 2007
reflect a decrease of approximately 2% in production volumes for the major
full-size truck and SUV programs we currently support for GM and DaimlerChrysler
and a decrease of approximately 32% in products supporting GM’s mid-size light
truck and SUV programs.
Our
content-per-vehicle (as measured by the dollar value of our products supporting
GM’s North American light truck platforms and the Dodge Ram program) increased
3.9% to $1,252 in the first quarter of 2007 as compared to $1,205 in the first
quarter of 2006. The increase is due primarily to the impact of new AAM content
appearing on GM’s full-size pickup trucks. Our
4WD/AWD penetration rate was 63.9%
in
the first quarter of 2007 as compared to 62.6% in the first quarter of 2006.
Gross
Profit
Gross
profit was $84.8 million in the first quarter of 2007 as compared to $63.5
million in the first quarter of 2006. Gross margin was 10.6% in the first
quarter of 2007 as compared to 7.6% in the first quarter of 2006. The increase
in gross profit in the first quarter of 2007 reflects the impact of productivity
gains, purchased material cost savings and structural cost reductions resulting
from the special attrition program and other restructuring actions initiated
in
2006. In the first quarter of 2007, we expensed $5.4 million of supplemental
unemployment benefits and other related benefit costs for associates on layoff
as compared to $17.8 million in the first quarter of 2006. Gross profit in
the
first quarter of 2007 includes approximately $2.9 million in special charges,
primarily related to incremental attrition program activity. In addition, the
increase in gross profit was partially offset by an increase in non-cash
expenses related to depreciation and stock-based compensation.
Selling,
General and Administrative Expenses (SG&A)
SG&A
(including research and development (R&D)) was $48.9 million or 6.1% of net
sales in the first quarter of 2007 as compared to $48.4 million or 5.8% of
net
sales in the first quarter of 2006. R&D increased 4.1%
to
$20.1 million in the first quarter of 2007 as compared to $19.3 million in
the
first quarter of 2006.
Operating
Income
Operating income was $35.9 million in the first quarter of 2007 as compared
to
$15.1 million in the first quarter of 2006. Operating margin was 4.5% in the
first quarter of 2007 as compared to 1.8% in the first quarter of 2006. The
increases in operating income and operating margin were due to the factors
discussed in Gross Profit and SG&A.
Net
Interest Expense
Net
interest expense was $14.0 million in the first quarter of 2007 as compared
to
$7.4 million in the first quarter of 2006. The increase in interest expense
was
principally due to higher interest rates and higher average outstanding
borrowings.
Income
Tax Expense
Income
tax expense (benefit) was an expense of $6.6 million in the first quarter of
2007 as compared to a benefit of $0.3 million in the first quarter of 2006.
Our
effective income tax rate was an expense of 30.0% in the first quarter of 2007
as compared to a benefit of 3.6% in the first quarter of 2006. The effective
tax
rate in the first quarter of 2006 included a favorable tax adjustment of $3.1
million related to the settlement of federal and state tax liabilities from
prior years.
Net
Income and Earnings Per Share (EPS)
Net
income was $15.4 million in the first quarter of 2007 as compared to $8.6
million in the first quarter of 2006. Diluted earnings per share were $0.30
in
the first quarter of 2007 as compared to $0.17 in the first quarter of 2006.
Net
income and EPS for the first quarters of 2007 and 2006 were primarily impacted
by the factors discussed in Gross Profit, SG&A and Net Interest Expense.
Earnings
Before Interest Expense, Income Taxes, Depreciation and Amortization
(EBITDA)
EBITDA
was $93.0 million in the first quarter of 2007 as compared to $65.1 million
in
the first quarter of 2006. EBITDA for the first quarters of 2007 and 2006
was
primarily impacted by the factors discussed in Gross Profit and
SG&A.
For
an
explanation and reconciliation of EBITDA, refer to the section entitled
“Supplemental Financial Data.”
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary liquidity needs are to fund capital expenditures, debt service
obligations, working capital investments and our quarterly cash dividend
program. We believe that operating cash flow, available cash balances and
borrowings under our Revolving Credit Facility will be sufficient to meet
these
needs.
Operating
Activities
Net cash
provided by operating activities was $9.8 million in the first quarter of
2007
as compared to $7.0 million in the first quarter of 2006. This increase reflects
higher net income, receipt of customer payments to implement customer capacity
programs and lower tax payments, partially offset by $19.5 million of cash
payments related to attrition programs initiated in 2006 and 2007.
Investing
Activities
Capital
expenditures were $42.5 million in the first quarter of 2007 as compared
to
$80.8 million in the first quarter of 2006. We
expect
our capital spending in 2007 to be in the range of $225
million
to $230 million. These expenditures will support our realignment and resizing
initiatives, the future launch of passenger car and crossover vehicle programs
within our new business backlog and the continued development of our
facilities in China and Poland.
Net
Operating Cash Flow and Free Cash Flow
For an
explanation and reconciliation of net operating cash flow and free cash flow,
refer to the section entitled “Supplemental Financial Data.”
Financing
Activities
Net cash
provided by financing activities was $160.8 million in the first quarter
of 2007
as compared to $77.2 million in the first quarter of 2006. Total long-term
debt
outstanding increased $170.2
million
in the first quarter of 2007 to $842.4
million
as compared to $672.2 million at year-end 2006. Our long-term debt normally
increases in the first quarter of any given year to fund increased working
capital requirements resulting from our customers’ seasonal production
requirements.
In
the
first quarter of 2007, we issued $300.0 million of 7.875% senior unsecured
notes
due 2017 (7.875% Notes). The 7.875% Notes are senior unsecured obligations
of
AAM, Inc. and are fully and unconditionally guaranteed by Holdings. Net proceeds
from these notes will be used for general purposes, including repaying amounts
outstanding under our Revolving Credit Facility. We
paid
debt issuance costs of $5.2 million in the first quarter of 2007 related
to the
7.875% Notes.
At
March
31, 2007, we had $570.2
million
available under the Revolving Credit Facility. This availability reflects
a
reduction of $29.8 million for standby letters of credit issued against
the
facility. We also utilize foreign credit facilities and uncommitted lines
of
credit to finance working capital needs. At March 31, 2007, $37.5 million
was
outstanding and $140.2 million was available under such agreements.
The
weighted-average interest rate of our long-term debt outstanding in the
first
quarter of 2007 was 8.2%
as
compared to 6.8% for the year ended December 31, 2006.
CYCLICALITY
AND SEASONALITY
Our
operations are cyclical because they are directly related to worldwide
automotive production, which is itself cyclical and dependent on general
economic conditions and other factors. Our business is also moderately seasonal
as our major OEM customers historically have a two-week shutdown of operations
in July and an approximate one-week shutdown in December. In addition, our
OEM
customers have historically incurred lower production rates in the third quarter
as model changes enter production. Accordingly, our third quarter and fourth
quarter results may reflect these trends.
LITIGATION
AND ENVIRONMENTAL MATTERS
We
are
involved in various legal proceedings incidental to our business. Although
the
outcome of these matters cannot be predicted with certainty, we do not believe
that any of these matters, individually or in the aggregate, will have a
material adverse effect on our financial condition, results of operations or
cash flows.
We
are
subject to various federal, state, local and foreign environmental and
occupational safety and health laws, regulations and ordinances, including
those
regulating air emissions, water discharge, waste management and environmental
cleanup. We will continue to closely monitor our environmental conditions to
ensure that we are in compliance with all laws, regulations and ordinances.
GM
has agreed to indemnify and hold us harmless against certain environmental
conditions existing prior to our purchase of the assets from GM on March 1,
1994. GM’s indemnification obligations terminated on March 1, 2004 with respect
to any new claims that we may have against GM. We have made, and will continue
to make, capital and other expenditures (including recurring administrative
costs) to comply with environmental requirements. Such expenditures were not
significant in the first quarter of 2007, and we do not expect such expenditures
to be significant for the remainder of 2007.
EFFECT
OF NEW ACCOUNTING STANDARDS
In
July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48
clarifies the criteria for recognition of income tax benefits in accordance
with
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes.” We adopted FIN 48 on January 1, 2007 and the impact of adoption was
not significant.
In
September 2006, the FASB issued Statement No. 158, “Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans” (SFAS 158). This
statement amends FASB Statement Nos. 87, 88, 106 and 132R. We adopted the
balance sheet recognition provisions of SFAS 158 on December 31, 2006. The
effective date for plan assets and benefit obligations to be measured as of
the
date of the fiscal year-end statement of financial position is January 1, 2008.
We elected to early adopt the measurement date provisions on January 1, 2007.
As
a result, we recorded a transition adjustment of $12.0 million to the opening
retained earnings balance related to the net periodic benefit cost for the
period between September 30, 2006 and January 1, 2007.
In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements” (SFAS 157). This statement clarifies the definition of fair
value and establishes a fair value hierarchy. SFAS 157 is effective for us
on
January 1, 2008 and we are currently assessing the impact of this
statement.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). This
statement permits
entities to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS 159
is
effective for us on January 1, 2008 and we are currently assessing the impact
of
this statement.
SUPPLEMENTAL
FINANCIAL DATA
The
following supplemental financial data presented for the three months ended
March
31, 2007
and
2006 are reconciliations of non-GAAP financial measures, which are intended
to
facilitate analysis of our business and operating performance. This information
is not and should not be viewed as a substitute for financial measures
determined under GAAP. Other companies may calculate these non-GAAP financial
measures differently.
Earnings
Before Interest Expense, Income Taxes, Depreciation and Amortization
(EBITDA)
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
15.4
|
|
$
|
8.6
|
|
Interest
expense
|
|
|
14.6
|
|
|
7.4
|
|
Income
taxes
|
|
|
6.6
|
|
|
(0.3
|
)
|
Depreciation
and amortization
|
|
|
56.4
|
|
|
49.4
|
|
EBITDA
|
|
$
|
93.0
|
|
$
|
65.1
|
|
We
believe EBITDA is a meaningful measure of performance as it is commonly utilized
by management and investors to analyze operating performance and entity
valuation. Our management, the investment community and the banking institutions
routinely use EBITDA, together with other measures, to measure our operating
performance relative to other Tier I automotive suppliers. EBITDA should not
be
construed as income from operations, net income or cash flow from operating
activities as determined under GAAP.
Net
Operating Cash Flow and Free Cash Flow
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$
|
9.8
|
|
$
|
7.0
|
|
Less:
Purchases of property, plant and equipment
|
|
|
42.5
|
|
|
80.8
|
|
Net
operating cash flow
|
|
|
(32.7
|
)
|
|
(73.8
|
)
|
Less:
Dividends paid
|
|
|
7.8
|
|
|
7.7
|
|
Free
cash flow
|
|
$
|
(40.5
|
)
|
$
|
(81.5
|
)
|
We
believe net operating cash flow and free cash flow are meaningful measures
as
they are commonly utilized by management and investors to assess our ability
to
generate cash flow from business operations to repay debt and return capital
to
our stockholders. Net operating cash flow is also a key metric used in our
calculation of incentive compensation.
MARKET
RISK
Our
business and financial results are affected by fluctuations in world financial
markets, including interest rates and currency exchange rates. Our hedging
policy has been developed to manage these risks to an acceptable level based
on
management’s judgment of the appropriate trade-off between risk, opportunity and
cost. We do not hold financial instruments for trading or speculative
purposes.
Currency
Exchange Risk Because
a
majority of our business is denominated in U.S. dollars, we currently do not
have significant exposures relating to currency exchange risk. From time to
time, we use foreign currency forward contracts to reduce the effects of
fluctuations in exchange rates, primarily relating to the Mexican Peso, Euro,
Pound Sterling, Brazilian Real and Canadian Dollar. At March 31, 2007, we had
currency forward contracts with a notional amount of $34.2 million outstanding.
Future
business operations and opportunities, including the expansion of our business
outside North America, may further increase the risk that cash flows resulting
from these activities may be adversely affected by changes in currency exchange
rates. If and when appropriate, we intend to manage these risks by utilizing
local currency funding of these expansions and various types of foreign exchange
contracts.
Interest
Rate Risk We
are
exposed to variable interest rates on certain credit facilities. From time
to
time, we use interest rate hedging to reduce the effects of fluctuations in
market interest rates. Generally, we designate interest rate swaps as effective
cash flow hedges of the related debt and reflect the net cost of such agreement
as an adjustment to interest expense over the lives of the debt agreements.
We
have hedged a portion of our interest rate risk by entering into an interest
rate swap with a notional amount of $200.0 million. This notional amount reduces
to $100.0 million in December 2008 and expires in April 2010. The interest
rate
swap converts variable rate financing based on 3-month LIBOR into fixed U.S.
dollar rates. The pre-tax earnings and cash flow impact of a
one-percentage-point increase in interest rates (approximately 12% of our
weighted-average interest rate at March 31, 2007) on our long-term debt
outstanding at March 31, 2007 would be approximately $0.9
million
on an annualized basis.
Under
the
direction of our Chief Executive Officer and Chief Financial Officer, we
evaluated our disclosure controls and procedures and internal control over
financial reporting and concluded that (1) our disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”)) were effective as of March 31, 2007,
and (2) no change in internal control over financial reporting occurred during
the quarter ended March 31, 2007 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
There
were no material changes from the risk factors previously disclosed in our
December 31, 2006 Form 10-K.
|
Exhibits
required by Item 601 of Regulation S-K are listed in the Exhibit
Index.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
(Registrant)
|
By:
/s/
Michael K. Simonte
|
|
Vice
President - Finance &
|
Chief
Financial Officer
(also
in
the capacity of Chief Accounting Officer)
April
27,
2007
Number
|
Description
of Exhibit
|
|
|
*31.1
|
Certification
of Richard E. Dauch, Co-Founder, Chairman of the Board & Chief
Executive Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange
Act
|
|
|
*31.2
|
Certification
of Michael K. Simonte, Vice President - Finance & Chief
Financial Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange
Act
|
|
|
*32
|
Certifications
of Richard E. Dauch, Co-Founder, Chairman of the Board & Chief
Executive Officer and Michael K. Simonte, Vice President - Finance
&
Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
(All
other exhibits are not applicable.)
* Filed
herewith