UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
|
For
the quarterly period ended June 30, 2007
|
|
|
or
|
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
|
For
the transition period from _____________
to
_____________
|
|
|
Commission
File Number: 1-14303
_______________________________________________________________________________
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
36-3161171
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
One
Dauch Drive, Detroit, Michigan
|
48211-1198
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(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
July 23, 2007, the latest practicable date, the number of shares of the
registrant's Common Stock, par value $0.01 per share, outstanding
was 53,344,433
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 JUNE 30, 2007
|
|
|
|
Page
Number
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Part
I
|
|
|
|
2
|
|
|
|
|
|
|
Item
1 |
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
|
|
Item
2
|
|
|
16
|
|
|
|
|
|
|
Item
3
|
|
|
22
|
|
|
|
|
|
|
Item
4
|
|
|
22
|
|
|
|
|
|
Part
II |
|
|
|
23
|
|
|
|
|
|
|
Item
1A
|
|
|
23
|
|
|
|
|
|
|
Item
4 |
|
|
23
|
|
|
|
|
|
|
Item
6
|
|
|
23
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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;
|
·
|
reduced
demand for our customers’ products (particularly light trucks and SUVs
produced by GM and DaimlerChrysler);
|
·
|
our
ability and our suppliers’ ability to maintain satisfactory labor
relations and avoid work stoppages;
|
·
|
our
customers’ and their suppliers’ ability to maintain satisfactory labor
relations and avoid work stoppages;
|
·
|
our
ability to achieve cost reductions through ongoing restructuring
actions;
|
·
|
additional
restructuring actions that may occur;
|
·
|
our
ability to achieve the level of cost reductions required to sustain
global
cost competitiveness;
|
·
|
supply
shortages or price increases in raw materials, utilities or other
operating supplies;
|
·
|
our
ability and our customers’ and suppliers’ ability to successfully launch
new product programs on a timely basis;
|
·
|
our
ability to attract new customers and programs for new
products;
|
·
|
our
ability to develop and produce new products that reflect market
demand;
|
·
|
our
ability to respond to changes in technology or increased
competition;
|
·
|
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);
|
·
|
adverse
changes in the economic conditions or political stability of our
principal
markets (particularly North America, Europe, South America and
Asia);
|
·
|
liabilities
arising from legal proceedings to which we are or may become a
party or
claims against us or our products;
|
·
|
risks
of noncompliance with environmental regulations or risks of environmental
issues that could result in unforeseen costs at our
facilities;
|
·
|
availability
of financing for working capital, capital expenditures, R&D or other
general corporate purposes, including our ability to comply with
financial
covenants;
|
·
|
our
ability to attract and retain key associates;
|
·
|
other
unanticipated events and conditions that may hinder our ability
to
compete.
|
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)
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
916.5
|
|
|
$ |
874.6
|
|
|
$ |
1,718.7
|
|
|
$ |
1,709.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
803.4
|
|
|
|
784.7
|
|
|
|
1,520.8
|
|
|
|
1,556.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
113.1
|
|
|
|
89.9
|
|
|
|
197.9
|
|
|
|
153.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
54.2
|
|
|
|
49.4
|
|
|
|
103.1
|
|
|
|
97.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
58.9
|
|
|
|
40.5
|
|
|
|
94.8
|
|
|
|
55.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense
|
|
|
(15.3 |
) |
|
|
(7.9 |
) |
|
|
(29.3 |
) |
|
|
(15.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
refinancing and redemption costs
|
|
|
(5.5 |
) |
|
|
(2.4
|
) |
|
|
(5.5 |
) |
|
|
(2.4
|
) |
Other,
net
|
|
|
1.2
|
|
|
|
0.7 |
|
|
|
1.3
|
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
39.3
|
|
|
|
30.9
|
|
|
|
61.3
|
|
|
|
39.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
5.3
|
|
|
|
10.5
|
|
|
|
11.9
|
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
34.0
|
|
|
$ |
20.4
|
|
|
$ |
49.4
|
|
|
$ |
29.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.67
|
|
|
$ |
0.41
|
|
|
$ |
0.97
|
|
|
$ |
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.64
|
|
|
$ |
0.40
|
|
|
$ |
0.94
|
|
|
$ |
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share |
|
$
|
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
See
accompanying notes to condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(in
millions)
|
|
Assets
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
331.3
|
|
|
$ |
13.5
|
|
Accounts
receivable, net
|
|
|
399.3
|
|
|
|
327.6
|
|
Inventories,
net
|
|
|
221.8
|
|
|
|
198.4
|
|
Prepaid
expenses and other
|
|
|
85.4
|
|
|
|
69.2
|
|
Deferred
income taxes
|
|
|
27.5
|
|
|
|
30.7
|
|
Total
current assets
|
|
|
1,065.3
|
|
|
|
639.4
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
1,696.6
|
|
|
|
1,731.7
|
|
Deferred
income taxes
|
|
|
46.8
|
|
|
|
35.7
|
|
Goodwill
|
|
|
147.8
|
|
|
|
147.8
|
|
Other
assets and deferred charges
|
|
|
49.2
|
|
|
|
42.9
|
|
Total
assets
|
|
$ |
3,005.7
|
|
|
$ |
2,597.5
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
430.4
|
|
|
$ |
316.4
|
|
Trade
payable program liability
|
|
|
-
|
|
|
|
12.5
|
|
Accrued
compensation and benefits
|
|
|
159.8
|
|
|
|
156.3
|
|
Other
accrued expenses
|
|
|
66.8
|
|
|
|
56.1
|
|
Total
current liabilities
|
|
|
657.0
|
|
|
|
541.3
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
846.3
|
|
|
|
672.2
|
|
Deferred
income taxes
|
|
|
6.1
|
|
|
|
6.8
|
|
Postretirement
benefits and other long-term liabilities
|
|
|
639.8
|
|
|
|
563.5
|
|
Total
liabilities
|
|
|
2,149.2
|
|
|
|
1,783.8
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01 per share
|
|
|
0.6
|
|
|
|
0.6
|
|
Paid-in
capital
|
|
|
401.4
|
|
|
|
381.7
|
|
Retained
earnings
|
|
|
611.7
|
|
|
|
590.0
|
|
Treasury
stock at cost, 5.1 million shares in 2007 and 2006
|
|
|
(171.8 |
) |
|
|
(171.8 |
) |
Accumulated
other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
Defined
benefit plans
|
|
|
(10.6 |
) |
|
|
(0.8 |
) |
Foreign currency translation adjustments
|
|
|
25.9
|
|
|
|
15.5
|
|
Unrecognized loss on derivatives
|
|
|
(0.7 |
) |
|
|
(1.5 |
) |
Total
stockholders' equity
|
|
|
856.5
|
|
|
|
813.7
|
|
Total
liabilities and stockholders' equity
|
|
$ |
3,005.7
|
|
|
$ |
2,597.5
|
|
See
accompanying notes to condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
49.4
|
|
|
$ |
29.1
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
113.4
|
|
|
|
100.4
|
|
Deferred
income taxes
|
|
|
3.9
|
|
|
|
(7.9 |
) |
Stock-based
compensation
|
|
|
12.0
|
|
|
|
5.2
|
|
Pensions
and other postretirement benefits, net of contributions
|
|
|
25.9 |
|
|
|
52.9 |
|
Loss
on retirement of equipment
|
|
|
2.9
|
|
|
|
4.8
|
|
Debt
refinancing and redemption costs
|
|
|
5.5
|
|
|
|
2.4
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(70.9 |
) |
|
|
(98.8 |
) |
Inventories
|
|
|
(22.4 |
) |
|
|
(18.0 |
) |
Accounts
payable and accrued expenses
|
|
|
104.1
|
|
|
|
56.2
|
|
Other
assets and liabilities
|
|
|
10.8
|
|
|
|
(26.6 |
) |
Net
cash provided by operating activities
|
|
|
234.6
|
|
|
|
99.7
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(75.5 |
) |
|
|
(156.0 |
) |
Purchase
buyouts of leased equipment
|
|
|
-
|
|
|
|
(19.5 |
) |
Net
cash used in investing activities
|
|
|
(75.5 |
) |
|
|
(175.5 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Net
borrowings (repayments) under revolving credit facilities
|
|
|
(127.6 |
) |
|
|
25.6
|
|
Proceeds
from the issuance of long-term debt
|
|
|
550.0
|
|
|
|
204.8
|
|
Payment
of Term Loan due 2010
|
|
|
(252.5 |
) |
|
|
-
|
|
Payments
of other long-term debt and capital lease obligations
|
|
|
(0.5 |
) |
|
|
(129.3 |
) |
Debt
issuance costs
|
|
|
(7.5 |
) |
|
|
(3.1 |
) |
Employee
stock option exercises
|
|
|
9.2
|
|
|
|
0.2
|
|
Tax
benefit on stock option exercises
|
|
|
2.1
|
|
|
|
-
|
|
Dividends
paid
|
|
|
(15.8 |
) |
|
|
(15.5 |
) |
Net
cash provided by financing activities
|
|
|
157.4
|
|
|
|
82.7
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
1.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
317.8
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
13.5
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
331.3
|
|
|
$ |
10.8
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
26.0
|
|
|
$ |
18.3
|
|
Income
taxes paid, net of refunds
|
|
$ |
14.7
|
|
|
$ |
34.7
|
|
See
accompanying notes to condensed consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(Unaudited)
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.
Income
Tax Expense Income tax expense was $5.3 million in the
second quarter of 2007 as compared to $10.5 million in the second quarter
of
2006. Our effective income tax rate was 13.4% in the second quarter
of 2007 as compared to 33.9% in the second quarter of 2006. The
effective tax rate in the second quarter of 2006 included an unfavorable
tax
adjustment of $2.6 million related to the settlement of tax liabilities
from
prior years. The decrease in our effective income tax rate in
the second quarter of 2007 as compared to the second quarter of 2006 also
reflects an increase in income in jurisdictions which carry lower overall
effective tax rates.
Trade
Payable Program
Liability In the second quarter of 2007, we
terminated our supplier payment program. As of June 30, 2007, there
was no outstanding balance under this program.
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. As of the date of adoption, our
unrecognized tax benefits attributable to uncertain tax positions were
approximately $26 million. We remain subject to income tax
examinations in the U.S. for years after 2003 and in Mexico for years after
2001.
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)
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.
In
2007, we incurred charges for
one-time termination benefits related to ongoing restructuring
actions. In addition, we continue to make payments related to the
charges incurred in 2006. A summary of this activity for the six
months ended June 30, 2007 is shown below (in millions):
Accrual
as of December 31, 2006
|
Charges
|
Cash
Utilization
|
Non-Cash
Accrual Adjustments
|
Accrual
as of June 30, 2007
|
$36.4
|
$9.3
|
$(29.0)
|
$(1.2)
|
$15.5
|
In
the first half of 2007,
approximately 90 associates represented by the International Association
of
Machinists (IAM) at our Tonawanda, New York and Detroit, Michigan facilities
participated in a voluntary separation incentive program (VSIP) and elected
to
terminate employment with AAM. We recorded expense of $7.4 million
for the estimated postemployment costs of this VSIP in the first half of
2007
and we paid $5.1 million of these costs as of June 30, 2007. The
remaining one-time termination benefit charges recorded in the first half
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
restructuring accrual to be paid in 2007 and will continue to make payments
related to these restructuring actions through 2010.
In
addition to the one-time termination
benefits, we have also incurred charges related to the redeployment of assets
to
support new programs. In the first half of 2007, we have expensed
$1.4 million as a result of these restructuring actions.
3.
SUPPLEMENTAL
UNEMPLOYMENT BENEFITS
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, which requires us to pay eligible idled workers
certain benefits. As of December 31, 2006, the liability for SUB was
$13.2 million. In the first half of 2007, we paid $6.0 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 June 30, 2007, the accrual for SUB was $8.1
million.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4.
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:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
Raw
materials and work-in-progress
|
|
$ |
236.7
|
|
|
$ |
220.6
|
|
Finished
goods
|
|
|
42.0
|
|
|
|
26.3
|
|
Gross
inventories
|
|
|
278.7
|
|
|
|
246.9
|
|
LIFO
reserve
|
|
|
(14.9 |
) |
|
|
(13.8 |
) |
Other
inventory valuation reserves
|
|
|
(42.0 |
) |
|
|
(34.7 |
) |
Inventories,
net
|
|
$ |
221.8
|
|
|
$ |
198.4
|
|
5.
LONG-TERM DEBT
Long-term
debt consists of the following:
|
|
June
30,
|
|
|
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 due 2010
|
|
|
-
|
|
|
|
250.0
|
|
Term
Loan due 2012
|
|
|
250.0
|
|
|
|
-
|
|
Uncommitted
lines of credit
|
|
|
-
|
|
|
|
33.5
|
|
Foreign
credit facilities and other
|
|
|
41.4
|
|
|
|
33.7
|
|
Capital
lease obligations
|
|
|
2.4
|
|
|
|
2.5
|
|
Long-term
debt
|
|
$ |
846.3
|
|
|
$ |
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 June
30, 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.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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). Net proceeds from these notes were used for
general corporate purposes, including repaying amounts outstanding under
our
Revolving Credit Facility. We paid debt issuance costs of $5.2
million in the first half of 2007 related to the 7.875% Notes.
The
2.00%
Convertible Notes, as of the date of this filing, are convertible into cash
at
the option of the holder.
On
June
14, 2007, we entered into a $250.0 million senior unsecured term loan that
matures in June 2012 (Term Loan due 2012). Borrowings under the Term
Loan due 2012 bear interest payable at rates based on LIBOR or an alternate
base
rate, plus an applicable margin. Proceeds from the Term Loan due 2012
were used for general corporate purposes, including the payment of amounts
outstanding under the senior unsecured term loan scheduled to mature in April
2010 (Term Loan due 2010). We paid $2.3 million in debt issuance
costs related to the Term Loan due 2012.
On
June
28, 2007, we voluntarily prepaid amounts outstanding under our Term Loan
due
2010. Upon repayment of the Term Loan due 2010, we expensed $3.0
million of unamortized debt issuance costs and $2.5 million of prepayment
premiums. We had been amortizing the debt issuance costs over the
expected life of the borrowing.
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 as of June 30,
2007. 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
second quarter of 2007, we had access to $60.0 million of uncommitted bank
lines
of credit, all of which was available at June 30, 2007.
We
utilize local currency credit facilities to finance the operations of certain
foreign subsidiaries. At June 30, 2007, $41.4 million was outstanding
under these facilities and an additional $83.3 million was
available.
The
weighted-average interest rate of our long-term debt outstanding at June
30,
2007 was 7.5% as compared to 8.0% at December 31, 2006.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6.
EMPLOYEE BENEFIT PLANS
The
components of net periodic benefit
cost consist of the following:
|
|
Pension
Benefits
|
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
4.6
|
|
|
$ |
8.4
|
|
|
$ |
10.7
|
|
|
$ |
16.8
|
|
Interest
cost
|
|
|
8.7
|
|
|
|
8.3
|
|
|
|
17.3
|
|
|
|
16.7
|
|
Expected
asset return
|
|
|
(9.5 |
) |
|
|
(7.8 |
) |
|
|
(19.0 |
) |
|
|
(15.7 |
) |
Amortized
loss
|
|
|
0.3
|
|
|
|
1.3
|
|
|
|
0.7
|
|
|
|
2.6
|
|
Amortized
prior service cost
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
1.2
|
|
|
|
1.6
|
|
Special
termination benefits
|
|
|
0.2
|
|
|
|
-
|
|
|
|
0.4
|
|
|
|
-
|
|
Net
periodic benefit cost
|
|
$ |
4.9
|
|
|
$ |
11.0
|
|
|
$ |
11.3
|
|
|
$ |
22.0
|
|
|
|
Other
Postretirement Benefits
|
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
6.5
|
|
|
$ |
10.3
|
|
|
$ |
12.9
|
|
|
$ |
20.6
|
|
Interest
cost
|
|
|
7.2
|
|
|
|
8.0
|
|
|
|
14.0
|
|
|
|
16.0
|
|
Amortized
loss
|
|
|
-
|
|
|
|
1.4
|
|
|
|
-
|
|
|
|
2.8
|
|
Amortized
prior service credit
|
|
|
(0.7 |
) |
|
|
(0.4 |
) |
|
|
(1.5 |
) |
|
|
(0.7 |
) |
Net
periodic benefit cost
|
|
$ |
13.0
|
|
|
$ |
19.3
|
|
|
$ |
25.4
|
|
|
$ |
38.7
|
|
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 in the first quarter of 2007 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
the
second quarter of 2007, we recorded an adjustment related to the completion
of
our valuation for pension and other postretirement benefit assets and
obligations as of January 1, 2007. This adjustment resulted in an
increase in postretirement benefits and other long-term liabilities of $15.7
million, a decrease in accumulated other comprehensive income of $10.2 million
and an increase in deferred income taxes of $5.5 million.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7.
COMPREHENSIVE INCOME
Comprehensive
income consists of the following:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
34.0
|
|
|
$ |
20.4
|
|
|
$ |
49.4
|
|
|
$ |
29.1
|
|
Defined
benefit plans, net of tax
|
|
|
(10.1 |
) |
|
|
-
|
|
|
|
(9.8 |
) |
|
|
-
|
|
Foreign
currency translation adjustments, net of tax
|
|
|
6.7
|
|
|
|
0.9
|
|
|
|
10.4
|
|
|
|
6.0
|
|
Gain
(loss) on derivatives, net
of tax
|
|
|
1.4
|
|
|
|
(0.9 |
) |
|
|
0.8
|
|
|
|
(1.2 |
) |
Comprehensive
income
|
|
$ |
32.0
|
|
|
$ |
20.4
|
|
|
$ |
50.8
|
|
|
$ |
33.9
|
|
8.
EARNINGS PER SHARE (EPS)
The
following table sets forth the computation of our basic and diluted
EPS:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
34.0
|
|
|
$ |
20.4
|
|
|
$ |
49.4
|
|
|
$ |
29.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding
|
|
|
50.9
|
|
|
|
50.3
|
|
|
|
50.8
|
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
stock-based compensation
|
|
|
1.9
|
|
|
|
0.9
|
|
|
|
1.7
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted-average shares after assumed conversions
|
|
|
52.8
|
|
|
|
51.2
|
|
|
|
52.5
|
|
|
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
0.67
|
|
|
$ |
0.41
|
|
|
$ |
0.97
|
|
|
$ |
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
0.64
|
|
|
$ |
0.40
|
|
|
$ |
0.94
|
|
|
$ |
0.57
|
|
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 1.4 million at June 30,
2007
and 4.7 million at June 30, 2006. The ranges of exercise prices
related to the excluded exercisable stock options were $32.13 - $40.83 at
June
30, 2007 and $18.40 - $40.83 at June 30, 2006.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9.
SHARE-BASED COMPENSATION
On
March
14, 2007, we granted approximately 0.3 million stock options to executive
officers under our 1999 Stock Incentive Plan. 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 associated
with the PARS and RSUs are expensed over the expected vesting period of each
grant.
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 the 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, June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.2 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
(15.3 |
) |
Other
income (expense), net
|
|
|
|
|
|
|
(5.5 |
) |
|
|
|
|
|
|
|
|
|
|
(4.3 |
) |
Income
(loss) before income taxes
|
|
|
|
|
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from equity in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61.8 |
) |
|
|
|
|
Net
income before royalties and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.1 |
) |
|
|
|
|
|
|
-
|
|
Net
income after royalties and dividends
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(61.8 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33.3 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
89.9
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.5 |
) |
|
|
(5.4 |
) |
|
|
|
|
|
|
(7.9 |
) |
Other
income (expense), net
|
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
|
(1.7 |
) |
Income
(loss) before income taxes
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from equity in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32.4 |
) |
|
|
|
|
Net
income before royalties and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.1 |
) |
|
|
|
|
|
|
-
|
|
Net
income after royalties and dividends
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(32.4 |
) |
|
$ |
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Statements of Income
Six
months ended, June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
(26.6 |
) |
|
|
(2.7 |
) |
|
|
|
|
|
|
(29.3 |
) |
|
|
|
|
|
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
(4.2 |
) |
Income
(loss) before income taxes
|
|
|
|
|
|
|
(9.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from equity in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94.2 |
) |
|
|
|
|
Net
income before royalties and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.4 |
) |
|
|
|
|
|
|
-
|
|
Net
income after royalties and dividends
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(94.2 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67.0 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.5 |
) |
|
|
153.4
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
(8.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.6 |
) |
|
|
(10.7 |
) |
|
|
|
|
|
|
(15.3 |
) |
|
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
Income
(loss) before income taxes
|
|
|
|
|
|
|
(16.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from equity in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50.7 |
) |
|
|
|
|
Net
income before royalties and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.0 |
) |
|
|
|
|
|
|
-
|
|
Net
income after royalties and dividends
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(50.7 |
) |
|
$ |
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets and deferred charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,849.7 |
) |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,849.7 |
) |
|
$ |
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
payable (receivable)
|
|
|
|
|
|
|
(447.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,849.7 |
) |
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,849.7 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets and deferred charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,789.4 |
) |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,789.4 |
) |
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
payable (receivable)
|
|
|
|
|
|
|
(451.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,789.4 |
) |
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,789.4 |
) |
|
$ |
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Statements of Cash Flows
Six
months ended June 30,
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
|
|
|
|
(17.5 |
) |
|
|
(58.0 |
) |
|
|
-
|
|
|
|
(75.5 |
) |
Net
cash used in investing activities
|
|
|
|
|
|
|
(17.5 |
) |
|
|
(58.0 |
) |
|
|
-
|
|
|
|
(75.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
15.8
|
|
|
|
|
|
|
|
(48.5 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(7.5 |
) |
|
|
|
|
|
|
-
|
|
|
|
(7.5 |
) |
Employee
stock option exercises,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
(15.8 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(15.8 |
) |
Net
cash provided by (used in) financing activities
|
|
|
|
|
|
|
|
|
|
|
(43.1 |
) |
|
|
-
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Net
increase (decrease) in cash and cash
equivalents
|
|
|
-
|
|
|
|
|
|
|
|
(6.2 |
) |
|
|
-
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
|
|
|
|
(67.8 |
) |
|
|
(88.2 |
) |
|
|
-
|
|
|
|
(156.0 |
) |
Purchase
buyouts of leased equipment
|
|
|
|
|
|
|
(19.5 |
) |
|
|
|
|
|
|
-
|
|
|
|
(19.5 |
) |
Net
cash used in investing activities
|
|
|
|
|
|
|
(87.3 |
) |
|
|
(88.2 |
) |
|
|
-
|
|
|
|
(175.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128.4 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
143.9
|
|
|
|
(198.6 |
) |
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(3.1 |
) |
|
|
|
|
|
|
-
|
|
|
|
(3.1 |
) |
Employee
stock option exercises,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
(15.5 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(15.5 |
) |
Net
cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 78% of our total net sales
in the first half 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. Sales to DaimlerChrysler Corporation (DaimlerChrysler)
were approximately 12% of our total net sales in the first half 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 $375.9 million in the first half of 2007 as compared to
$408.1 million for the first half of 2006.
RESULTS
OF OPERATIONS –– THREE MONTHS ENDED JUNE 30, 2007 AS COMPARED TO THREE MONTHS
ENDED JUNE 30, 2006
Net
Sales Net sales were $916.5 million in the second quarter of
2007 as compared to $874.6 million in the second quarter of 2006. As
compared to the second quarter of 2006, our sales in the second quarter of
2007
reflect approximately flat production volumes for the major full-size truck
and
SUV programs we currently support for GM and DaimlerChrysler and a decrease
of
approximately 18% 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
8.4% to $1,318 in the second quarter of 2007 as compared to $1,216 in the
second
quarter of 2006. The increase is due primarily to the impact of new
AAM content appearing on GM’s full-size pickup trucks. The increase
in content-per-vehicle also reflects an increase of 4WD/AWD penetration rate
to
65.1% in the second quarter of 2007 as compared to 62.3% in the second quarter
of 2006.
Gross
Profit Gross profit was $113.1 million in the second quarter
of 2007 as compared to $89.9 million in the second quarter of
2006. Gross margin was 12.3% in the second quarter of 2007 as
compared to 10.3% in the second quarter of 2006. The increase in
gross profit in the second quarter of 2007 reflects the impact of higher
sales,
productivity gains and structural cost reductions resulting from the special
attrition program and other ongoing restructuring actions. In the
second quarter of 2007, we expensed $0.5 million of supplemental unemployment
benefits and other related benefit costs for associates on layoff as compared
to
$18.1 million in the second quarter of 2006. Gross profit in the
second quarter of 2007 includes approximately $7.0 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 $54.2 million or 5.9% of net
sales in the second quarter of 2007 as compared to $49.4 million or 5.6%
of net
sales in the second quarter of 2006. The increase in SG&A
in the second quarter of 2007 reflects higher profit sharing accruals and
stock
based compensation expense due to increased profitability and stock price
appreciation. R&D was $19.6 million in the second quarter of 2007
as compared to $20.8 million in the second quarter of 2006.
Operating
Income Operating income was $58.9 million in the second
quarter of 2007 as compared to $40.5 million in the second quarter of
2006. Operating margin was 6.4% in the second quarter of 2007 as
compared to 4.6% in the second 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 $15.3 million in
the second quarter of 2007 as compared to $7.9 million in the second quarter
of
2006. The increase in interest expense was principally due to higher
interest rates and higher average outstanding borrowings.
Debt
Refinancing and Redemption Costs We expensed $5.5 million of
unamortized debt issuance costs and premiums in the second quarter of 2007
related to the voluntary prepayment of our Term Loan due 2010. We had
been amortizing the debt issuance costs over the expected life of the
borrowing. This compares to $2.4 million of unamortized debt issuance
costs that we expensed in the second quarter of 2006, related to the cash
conversion of a portion our 2.00% Convertible Notes due 2024.
Income
Tax Expense Income tax expense was $5.3 million in the
second quarter of 2007 as compared to $10.5 million in the second quarter
of
2006. Our effective income tax rate was 13.4% in the second quarter
of 2007 as compared to 33.9% in the second quarter of 2006. The
effective tax rate in the second quarter of 2006 included an unfavorable
tax
adjustment of $2.6 million related to the settlement of tax liabilities from
prior years. The decrease in our effective income tax rate in
the second quarter of 2007 as compared to the second quarter of 2006 also
reflects an increase in income in jurisdictions which carry lower overall
effective tax rates.
Net
Income and Earnings Per Share (EPS) Net income was $34.0
million in the second quarter of 2007 as compared to $20.4 million in the
second
quarter of 2006. Diluted earnings per share were $0.64 in the second
quarter of 2007 as compared to $0.40 in the second quarter of
2006. Net income and EPS for the second 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 $114.0 million in the second quarter of
2007 as compared to $89.9 million in the second quarter of
2006. EBITDA for the second 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.”
RESULTS
OF OPERATIONS –– SIX MONTHS ENDED JUNE 30, 2007 AS COMPARED TO SIX MONTHS ENDED
JUNE 30, 2006
Net
Sales Net sales were $1,718.7 million in the first half of
2007 as compared to $1,709.4 million in the first half of 2006. As
compared to the first half of 2006, our sales in the first half of 2007 reflects
approximately flat production volumes for the major full-size truck and SUV
programs we currently support for GM and DaimlerChrysler and a decrease of
approximately 26% 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
6.4% to $1,287 in the first half of 2007 as compared to $1,210 in the first
half
of 2006. The increase is due primarily to the impact of new AAM
content appearing on GM’s full-size pickup trucks. The increase in
content-per-vehicle also reflects an increase in the 4WD/AWD penetration
rate to
64.5% in the first half of 2007 as compared to 62.4% in the first half of
2006.
Gross
Profit Gross profit was $197.9 million in the first half of
2007 as compared to $153.4 million in the first half of 2006. Gross
margin was 11.5% in the first half of 2007 as compared to 9.0% in the first
half of 2006. The increase in gross profit in the first half of 2007
reflects the impact of productivity gains and structural cost reductions
resulting from the special attrition program and other ongoing restructuring
actions. In the first half of 2007, we expensed $5.9 million of
supplemental unemployment benefits and other related benefit costs for
associates on layoff as compared to $35.9 million in the first half of
2006. Gross profit in the first half of 2007 includes approximately
$9.9 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 $103.1 million or 6.0% of net
sales in the first half of 2007 as compared to $97.9 million or 5.7% of net
sales in the first half of 2006. The increase in SG&A in
the first half of 2007 reflects higher profit sharing accruals and stock
based
compensation expense due to increased profitability and stock price
appreciation. R&D was $39.7 million in the first half of 2007 as
compared to $40.1 million in the first half of 2006.
Operating
Income Operating income was $94.8 million in the first half
of 2007 as compared to $55.5 million in the first half of
2006. Operating margin was 5.5% in the first half of 2007 as compared
to 3.2% in the first half 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 $29.3 million in
the first half of 2007 as compared to $15.3 million in the first half of
2006. The increase in interest expense was principally due to higher
interest rates and higher average outstanding borrowings.
Debt
Refinancing and Redemption Costs We expensed $5.5 million of
unamortized debt issuance costs and premiums in the first half of 2007 related
to the voluntary prepayment of our Term Loan due 2010. We had been
amortizing the debt issuance costs over the expected life of the
borrowing. This compares to $2.4 million of unamortized debt issuance
costs that we expensed in the first half of 2006, related to the cash conversion
of a portion our 2.00% Convertible Notes due 2024.
Income
Tax Expense Income tax expense was $11.9 million in the
first half of 2007 as compared to $10.1 million in the first half of
2006. Our effective income tax rate was 19.4% in the first half of
2007 as compared to 25.9% in the first half of 2006. The decrease in
our effective income tax rate in the first half of 2007 as compared to the
first
half of 2006 was primarily due to an increase in income in jurisdictions
which
carry lower overall effective tax rates.
Net
Income and Earnings Per Share (EPS) Net income was $49.4
million in the first half of 2007 as compared to $29.1 million in the first
half
of 2006. Diluted earnings per share were $0.94 in the first half of
2007 as compared to $0.57 in the first half of 2006. Net income and
EPS for the first half 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 $207.0 million in the first half of 2007
as compared to $155.0 million in the first half of 2006. EBITDA for
the first half 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 also need to fund ongoing attrition programs
and may need to fund additional restructuring actions. 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
$234.6 million in the first half of 2007 as compared to $99.7 million in
the
first half of 2006. The primary factors impacting cash flow in the
first half of 2007 as compared to the first half of 2006 were:
·
|
increased
customer collections;
|
·
|
cash
payments related to attrition
programs;
|
·
|
lower
operating lease payments;
|
·
|
receipt
of customer payments to implement customer capacity programs;
and
|
Our
regulatory pension funding requirements in 2007 are less than $5
million. At our discretion, we may contribute amounts in excess of
these requirements. We expect our cash outlay for other
postretirement benefit obligations in 2007 to be between $5 million and $10
million.
Investing
Activities Capital expenditures were $75.5 million in the
first half of 2007 as compared to $156.0 million in the first half 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
$157.4 million in the first half of 2007 as compared to $82.7 million in
the
first half of 2006. Total long-term debt outstanding increased
$174.1 million in the first half of 2007 to $846.3 million as compared
to $672.2 million at year-end 2006.
In
the
first half of 2007, we issued $300.0 million of 7.875% senior unsecured notes
due 2017 (7.875% Notes). Net proceeds from these notes were used for
general corporate purposes, including repaying amounts outstanding under
our
Revolving Credit Facility. We paid debt issuance costs of $5.2
million in the first half of 2007 related to the 7.875% Notes.
On
June
14, 2007, we entered into a $250.0 million senior unsecured term loan that
matures in June 2012 (Term Loan due 2012). Borrowings under the Term
Loan due 2012 bear interest payable at rates based on LIBOR or an alternate
base
rate, plus an applicable margin. Proceeds from the Term Loan due 2012
were used for general corporate purposes, including the payment of amounts
outstanding under the unsecured term loan schedule to mature in April 2010
(Term
Loan due 2010). We paid $2.3 million in debt issuance costs related
to the Term Loan due 2012.
On
June
28, 2007, we voluntarily prepaid amounts outstanding under our Term Loan
due
2010. Upon repayment of the Term Loan due 2010, we expensed $3.0
million of unamortized debt issuance costs and $2.5 million of prepayment
premiums. We had been amortizing the debt issuance costs over the
expected life of the borrowing.
At
June
30, 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 June 30, 2007, $41.4 million was
outstanding and $143.3 million was available under such agreements.
The
weighted-average interest rate of our long-term debt outstanding in the first
half of 2007 was 8.3% 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 half 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. As of the date of adoption, our
unrecognized tax benefits attributable to uncertain tax positions were
approximately $26 million. We remain subject to income tax
examinations in the U.S. for years after 2003 and in Mexico for years after
2001.
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 in the first quarter of 2007 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 and six months
ended June 30, 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
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
34.0
|
|
|
$ |
20.4
|
|
|
$ |
49.4
|
|
|
$ |
29.1
|
|
Interest
expense
|
|
|
17.7
|
|
|
|
7.9
|
|
|
|
32.3
|
|
|
|
15.4
|
|
Income
taxes
|
|
|
5.3
|
|
|
|
10.5
|
|
|
|
11.9
|
|
|
|
10.1
|
|
Depreciation
and amortization
|
|
|
57.0
|
|
|
|
51.1
|
|
|
|
113.4
|
|
|
|
100.4
|
|
EBITDA
|
|
$ |
114.0
|
|
|
$ |
89.9
|
|
|
$ |
207.0
|
|
|
$ |
155.0
|
|
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
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$ |
234.6
|
|
|
$ |
99.7
|
|
Less:
Purchases of property, plant and equipment
|
|
|
75.5
|
|
|
|
156.0
|
|
Net
operating cash flow
|
|
|
159.1
|
|
|
|
(56.3 |
) |
Less:
Dividends paid
|
|
|
15.8
|
|
|
|
15.5
|
|
Free
cash flow
|
|
$ |
143.3
|
|
|
$ |
(71.8 |
) |
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 June 30, 2007, we had currency forward
contracts with a notional amount of $33.2 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
as
of June 30, 2007. 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 13% of our weighted-average interest
rate at June 30, 2007) on our long-term debt outstanding at June 30, 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 June 30, 2007,
and (2) no change in internal control over financial reporting occurred during
the quarter ended June 30, 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.
Our
annual meeting of stockholders was held on April 26, 2007. At the
meeting, the following matters were submitted to a vote of the
stockholders.
Proposal
One: The election of directors to hold office until the 2010 annual meeting
of stockholders:
|
|
Number
of Votes
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Withheld
|
|
Directors:
|
|
|
|
|
|
|
John
A. Casesa
|
|
|
48,136,848
|
|
|
|
1,154,824
|
|
Elizabeth
A. Chappell
|
|
|
45,982,681
|
|
|
|
3,308,991
|
|
Dr.
Henry T. Yang
|
|
|
48,123,715
|
|
|
|
1,167,957
|
|
Directors
whose term of office continued after the meeting are Richard E. Dauch, Forest
J.
Farmer, Richard C. Lappin, William P. Miller II, Larry K. Switzer and Thomas
K.
Walker.
Proposal
Two: The ratification of selection of independent registered public
accounting firm:
|
|
Number
of Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
|
|
|
|
|
|
|
Deloitte
& Touche LLP
|
|
|
48,753,716
|
|
|
|
521,774
|
|
|
|
16,182
|
|
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 |
|
Michael
K. Simonte |
|
Vice
President - Finance & |
|
Chief
Financial Officer |
|
(also
in the capacity of Chief Accounting Officer) |
|
July
27, 2007 |