form10-q.htm
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 September 30,
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
|
36-3161171
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(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 October 25, 2007, the latest practicable date, the number of shares of
the registrant's Common Stock, par value $0.01 per share, outstanding
was 53,514,588
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 SEPTEMBER 30, 2007
TABLE
OF CONTENTS
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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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2
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3
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4
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5
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Item
2
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17
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Item
3
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22
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Item
4
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22
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Part
II
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23
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Item
1A
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23
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Item
2
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23
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Item
6
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23
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24
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25
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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:
·
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reduced
purchases of our products by General Motors Corporation (GM), Chrysler
LLC
(Chrysler) or other customers;
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·
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reduced
demand for our customers’ products (particularly light trucks and SUVs
produced by GM and Chrysler);
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·
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our
ability and our suppliers’ ability to maintain satisfactory labor
relations and avoid work stoppages;
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·
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our
customers’ and their suppliers’ ability to maintain satisfactory labor
relations and avoid work stoppages;
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·
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our
ability to achieve cost reductions through ongoing restructuring
actions;
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·
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additional
restructuring actions that may occur;
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·
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our
ability to achieve the level of cost reductions required to sustain
global
cost competitiveness;
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·
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supply
shortages or price increases in raw materials, utilities or other
operating supplies;
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·
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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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·
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our
ability to attract new customers and programs for new
products;
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·
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our
ability to develop and produce new products that reflect market
demand;
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·
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our
ability to respond to changes in technology or increased
competition;
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·
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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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·
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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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·
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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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·
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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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·
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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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·
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our
ability to attract and retain key
associates;
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·
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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 OPERATIONS
(Unaudited)
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Three
months ended
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Nine months
ended
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September 30,
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September 30,
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2007
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2006
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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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$ |
774.3
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$ |
701.2
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$ |
2,493.0
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$ |
2,410.6
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Cost
of goods sold
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693.6
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763.2
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2,214.4
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2,319.2
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Gross
profit (loss)
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80.7
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(62.0)
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278.6
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91.4
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Selling,
general and administrative expenses
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52.0
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48.0
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155.1
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|
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|
145.9
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Operating
income (loss)
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28.7
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|
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(110.0
|
) |
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|
123.5
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(54.5
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) |
|
|
|
|
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Net
interest expense
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(11.5 |
) |
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|
(11.7 |
) |
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(40.8 |
) |
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(27.0 |
) |
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Other
income (expense)
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Debt
refinancing and redemption costs
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- |
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(0.3
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) |
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(5.5 |
) |
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(2.7
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) |
Other,
net
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(1.2
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) |
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10.1 |
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|
0.1
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11.4 |
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Income
(loss) before income taxes
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16.0
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(111.9
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) |
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77.3
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(72.8
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) |
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Income
tax expense (benefit)
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2.9
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(49.0
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) |
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14.8
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(38.9
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) |
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Net
income (loss)
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$ |
13.1
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|
$ |
(62.9
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) |
|
$ |
62.5
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|
$ |
(33.9
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) |
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Basic
earnings (loss) per share
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$ |
0.26
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$ |
(1.25
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) |
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$ |
1.23
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$ |
(0.67
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) |
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Diluted
earnings (loss) per share
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$ |
0.25
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$ |
(1.25
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) |
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$ |
1.19
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|
$ |
(0.67
|
) |
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Dividends
declared per share |
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$
|
0.15 |
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$ |
0.15 |
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$ |
0.45 |
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$ |
0.45 |
|
See
accompanying notes to condensed consolidated financial statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
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(in
millions)
|
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Assets
|
|
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|
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Current
assets
|
|
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|
|
|
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Cash
and cash equivalents
|
|
$ |
362.1
|
|
|
$ |
13.5
|
|
Accounts
receivable, net
|
|
|
320.5
|
|
|
|
327.6
|
|
Inventories,
net
|
|
|
248.1
|
|
|
|
198.4
|
|
Prepaid
expenses and other
|
|
|
79.0
|
|
|
|
69.2
|
|
Deferred
income taxes
|
|
|
28.1
|
|
|
|
30.7
|
|
Total
current assets
|
|
|
1,037.8
|
|
|
|
639.4
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
1,715.4
|
|
|
|
1,731.7
|
|
Deferred
income taxes
|
|
|
49.8
|
|
|
|
35.7
|
|
Goodwill
|
|
|
147.8
|
|
|
|
147.8
|
|
Other
assets and deferred charges
|
|
|
60.9
|
|
|
|
42.9
|
|
Total
assets
|
|
$ |
3,011.7
|
|
|
$ |
2,597.5
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
396.4
|
|
|
$ |
316.4
|
|
Trade
payable program liability
|
|
|
-
|
|
|
|
12.5
|
|
Accrued
compensation and benefits
|
|
|
144.6
|
|
|
|
156.3
|
|
Other
accrued expenses
|
|
|
62.6
|
|
|
|
56.1
|
|
Total
current liabilities
|
|
|
603.6
|
|
|
|
541.3
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
845.6
|
|
|
|
672.2
|
|
Deferred
income taxes
|
|
|
6.3
|
|
|
|
6.8
|
|
Postretirement
benefits and other long-term liabilities
|
|
|
683.8
|
|
|
|
563.5
|
|
Total
liabilities
|
|
|
2,139.3
|
|
|
|
1,783.8
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01 per share
|
|
|
0.6
|
|
|
|
0.6
|
|
Paid-in
capital
|
|
|
409.6
|
|
|
|
381.7
|
|
Retained
earnings
|
|
|
616.8
|
|
|
|
590.0
|
|
Treasury
stock at cost, 5.2 million shares in 2007
and 5.1 million shares in 2006
|
|
|
(173.7 |
) |
|
|
(171.8 |
) |
Accumulated
other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
Defined
benefit plans
|
|
|
(10.4 |
) |
|
|
(0.8 |
) |
Foreign
currency translation adjustments
|
|
|
31.7
|
|
|
|
15.5
|
|
Unrecognized
loss on derivatives
|
|
|
(2.2 |
) |
|
|
(1.5 |
) |
Total
stockholders' equity
|
|
|
872.4
|
|
|
|
813.7
|
|
Total
liabilities and stockholders' equity
|
|
$ |
3,011.7
|
|
|
$ |
2,597.5
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
62.5
|
|
|
$ |
(33.9 |
) |
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
171.0
|
|
|
|
153.2
|
|
Deferred
income taxes
|
|
|
1.6
|
|
|
|
(78.7 |
) |
Stock-based
compensation
|
|
|
16.6
|
|
|
|
8.0
|
|
Pensions
and other postretirement benefits, net of contributions
|
|
|
42.1 |
|
|
|
82.1 |
|
Loss
on retirement of equipment
|
|
|
3.3
|
|
|
|
5.7
|
|
Debt
refinancing and redemption costs
|
|
|
5.5
|
|
|
|
2.7
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
8.4
|
|
|
|
(22.8 |
) |
Inventories
|
|
|
(48.0 |
) |
|
|
(28.4 |
) |
Accounts
payable and accrued expenses
|
|
|
58.7
|
|
|
|
114.1
|
|
Other
assets and liabilities
|
|
|
9.9
|
|
|
|
(40.3 |
) |
Net
cash provided by operating activities
|
|
|
331.6
|
|
|
|
161.7
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(132.9 |
) |
|
|
(243.5 |
) |
Purchase
buyouts of leased equipment
|
|
|
-
|
|
|
|
(19.5 |
) |
Net
cash used in investing activities
|
|
|
(132.9 |
) |
|
|
(263.0 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Net
borrowings (repayments) under revolving credit facilities
|
|
|
(132.8 |
) |
|
|
24.0
|
|
Proceeds
from the issuance of long-term debt
|
|
|
553.1
|
|
|
|
260.9
|
|
Payment
of Term Loan due 2010
|
|
|
(252.5 |
) |
|
|
-
|
|
Payments
of other long-term debt and capital lease obligations
|
|
|
(0.5 |
) |
|
|
(147.4 |
) |
Debt
issuance costs
|
|
|
(7.5 |
) |
|
|
(3.1 |
) |
Employee
stock option exercises
|
|
|
12.5
|
|
|
|
0.3
|
|
Tax
benefit on stock option exercises
|
|
|
2.7
|
|
|
|
-
|
|
Purchase
of treasury stock
|
|
|
(1.9 |
) |
|
|
-
|
|
Dividends
paid
|
|
|
(23.8 |
) |
|
|
(23.3 |
) |
Net
cash provided by financing activities
|
|
|
149.3
|
|
|
|
111.4
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
348.6
|
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
13.5
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
362.1
|
|
|
$ |
13.9
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
51.4
|
|
|
$ |
33.9
|
|
Income
taxes paid, net of refunds
|
|
$ |
17.4
|
|
|
$ |
47.7
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
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.) (Indiana, 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.
Trade
Payable Program Liability In 2007, we
terminated our supplier payment program. As of September 30, 2007,
there was no outstanding balance under this program.
Income
Tax Expense (Benefit) Income tax expense (benefit) was
an expense of $2.9 million in the third quarter of 2007 and $14.8 million in
the
first nine months of 2007 as compared to a benefit of $49.0 million in the
third
quarter of 2006 and $38.9 million in the first nine months of
2006. Our effective income tax rate was 18.2% in the third quarter of
2007 and 19.1% in the first nine months of 2007 as compared to a benefit of
43.8% in the third quarter of 2006 and 53.4% in the first nine months of
2006. The change in our tax rate is primarily the result of
recognizing income tax expense for current income in 2007 as compared to
the recognition of the income tax benefit for losses in 2006. In
addition, the tax rate in 2007 reflects an increase in income in
jurisdictions which carry lower overall effective tax rates.
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.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
2. RESTRUCTURING
ACTIONS
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 nine
months ended September 30, 2007 is shown below (in millions):
Accrual
as of December 31, 2006
|
Charges
|
Cash
Utilization
|
Non-Cash
Accrual Adjustments
|
Accrual
as of September 30, 2007
|
$36.4
|
$12.3
|
$(31.9)
|
$(2.5)
|
$14.3
|
In
September 2007, we offered the
Buffalo Separation Program (BSP) to all hourly associates represented by the
United Automobile, Aerospace and Agricultural Implement Workers of America
(UAW)
at our Buffalo Gear, Axle & Linkage facility in Buffalo, New
York. This voluntary separation program offered retirement or buyout
incentives to approximately 650 eligible hourly associates. These
associates have until November 15, 2007 to decide whether to
participate. As of September 30, 2007, approximately 20 associates
have elected early participation in this program and have waived the requisite
consideration period. We recorded expense of $2.0 million for the
estimated postemployment costs of these associates in the third quarter of
2007. We will record the remaining liability for the BSP when the
final acceptance rates are known in the fourth quarter of 2007.
In
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 2007 and we paid $6.2 million of these
costs as of September 30, 2007. Of the remaining one-time termination
benefit charges recorded in the first nine months of 2007, $2.9 million 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 to make approximately $7
million in payments related to the remaining restructuring accrual in the fourth
quarter of 2007. We will continue to make payments related to this
accrual through 2010.
In
addition to the one-time termination
benefits, we have also incurred charges related to the redeployment of assets
to
support ongoing capacity utilization initiatives. For the three
and nine months ended September 30, 2007, we have expensed $5.7 million and
$7.2 million, respectively.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUPPLEMENTAL
UNEMPLOYMENT BENEFITS
In
the third quarter of 2006, we
recorded a $91.2 million charge to cost of sales relating to supplemental
unemployment benefits (SUB) estimated to be payable to the UAW represented
associates who are expected to be permanently idled through the end of the
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. As
of December 31, 2006, the liability for SUB was $13.2 million.
In
the first nine months of 2007, we
paid $8.1 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 September 30, 2007, the accrual for
SUB was $6.1 million.
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:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
Raw
materials and work-in-progress
|
|
$ |
244.7
|
|
|
$ |
220.6
|
|
Finished
goods
|
|
|
58.9
|
|
|
|
26.3
|
|
Gross
inventories
|
|
|
303.6
|
|
|
|
246.9
|
|
LIFO
reserve
|
|
|
(15.4 |
) |
|
|
(13.8 |
) |
Other
inventory valuation reserves
|
|
|
(40.1 |
) |
|
|
(34.7 |
) |
Inventories,
net
|
|
$ |
248.1
|
|
|
$ |
198.4
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM
DEBT
Long-term
debt consists of the following:
|
|
September
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
|
|
|
40.8
|
|
|
|
33.7
|
|
Capital
lease obligations
|
|
|
2.3
|
|
|
|
2.5
|
|
Long-term
debt
|
|
$ |
845.6
|
|
|
$ |
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
September 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.
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 $37.8 million of current
maturities 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 payment of amounts outstanding under
our
Revolving Credit Facility. We paid debt issuance costs of $5.2
million 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.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 September 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
third quarter of 2007, we had access to $60.0 million of uncommitted bank
lines of credit, all of which was available at September 30, 2007.
We
utilize local credit facilities to finance the operations of certain foreign
subsidiaries. At September 30, 2007, $40.8 million was outstanding
under these facilities and an additional $115.6 million was
available.
The
weighted-average interest rate of our long-term debt outstanding at September
30, 2007 was 7.8% as compared to 8.0% at December 31, 2006.
6. EMPLOYEE
BENEFIT PLANS
The
components of net periodic benefit
cost consist of the following:
|
|
Pension
Benefits
|
|
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
5.4
|
|
|
$ |
8.4
|
|
|
$ |
16.1
|
|
|
$ |
25.2
|
|
Interest
cost
|
|
|
8.6
|
|
|
|
8.4
|
|
|
|
25.9
|
|
|
|
25.1
|
|
Expected
asset return
|
|
|
(9.5 |
) |
|
|
(7.9 |
) |
|
|
(28.5 |
) |
|
|
(23.6 |
) |
Amortized
loss
|
|
|
0.4
|
|
|
|
1.4
|
|
|
|
1.1
|
|
|
|
4.0
|
|
Amortized
prior service cost
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
1.8
|
|
|
|
2.3
|
|
Special
termination benefits
|
|
|
0.3
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
-
|
|
Net
periodic benefit cost
|
|
$ |
5.8
|
|
|
$ |
11.0
|
|
|
$ |
17.1
|
|
|
$ |
33.0
|
|
|
|
Other
Postretirement Benefits (OPEB)
|
|
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
6.5
|
|
|
$ |
10.3
|
|
|
$ |
19.4
|
|
|
$ |
30.9
|
|
Interest
cost
|
|
|
7.0
|
|
|
|
8.1
|
|
|
|
21.0
|
|
|
|
24.1
|
|
Amortized
loss
|
|
|
-
|
|
|
|
1.4
|
|
|
|
-
|
|
|
|
4.2
|
|
Amortized
prior service credit
|
|
|
(0.8 |
) |
|
|
(0.4 |
) |
|
|
(2.3 |
) |
|
|
(1.1 |
) |
Special
termination benefits
|
|
|
0.4
|
|
|
|
-
|
|
|
|
0.4
|
|
|
|
- |
|
Net
periodic benefit cost
|
|
$ |
13.1
|
|
|
$ |
19.4
|
|
|
$ |
38.5
|
|
|
$ |
58.1
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
In
the
first nine months of 2007, we recorded $1.1 million of expense for special
termination benefits related to ongoing restructuring activities. In
the third quarter of 2007, we offered the Buffalo Separation Program to all
hourly associates represented by the UAW at our Buffalo Gear, Axle & Linkage
facility in Buffalo, New York. Depending on the acceptance rate of
this program, we expect to record special termination benefits and a
curtailment of certain benefits under our U.S. hourly defined benefit pension
and OPEB plans in the fourth quarter of 2007.
7. COMPREHENSIVE
INCOME (LOSS)
Comprehensive
income consists of the following:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
13.1
|
|
|
$ |
(62.9 |
) |
|
$ |
62.5
|
|
|
$ |
(33.9 |
) |
Defined
benefit plans, net of tax
|
|
|
0.2
|
|
|
|
-
|
|
|
|
(9.6 |
) |
|
|
-
|
|
Foreign
currency translation adjustments, net
of tax
|
|
|
5.8
|
|
|
|
2.2
|
|
|
|
16.2
|
|
|
|
8.2
|
|
Loss
on derivatives, net of tax
|
|
|
(1.5 |
) |
|
|
(1.2 |
) |
|
|
(0.7 |
) |
|
|
(2.4 |
) |
Comprehensive
income (loss)
|
|
$ |
17.6
|
|
|
$ |
(61.9 |
) |
|
$ |
68.4
|
|
|
$ |
(28.1 |
) |
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EARNINGS
(LOSS) PER SHARE (EPS)
The
following table sets forth the computation of our basic and diluted
EPS:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
13.1
|
|
|
$ |
(62.9 |
) |
|
$ |
62.5
|
|
|
$ |
(33.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding
|
|
|
51.3
|
|
|
|
50.3
|
|
|
|
51.0
|
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
stock-based compensation
|
|
|
1.7
|
|
|
|
-
|
|
|
|
1.6
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted-average shares after assumed conversions
|
|
|
53.0
|
|
|
|
50.3
|
|
|
|
52.6
|
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
0.26
|
|
|
$ |
(1.25 |
) |
|
$ |
1.23
|
|
|
$ |
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
0.25
|
|
|
$ |
(1.25 |
) |
|
$ |
1.19
|
|
|
$ |
(0.67 |
) |
Basic
and
diluted loss per share in the three and nine months ended September 30, 2006
are
the same because the effect of potential dilutive securities would have been
antidilutive. This effect would have been 1.0 million and 0.9 million
shares for the three and nine months ended September 30, 2006,
respectively.
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 1.9 million at September
30,
2007 and 4.7 million at September 30, 2006. The ranges of exercise
prices related to the excluded exercisable stock options were $26.02 - $40.83
at
September 30, 2007 and $18.40 - $40.83 at September 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 options |
|
|
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 is expensed over the expected vesting period of each
grant.
10. LEGAL
PROCEEDINGS
In
the
third quarter of 2006, we recognized a favorable outcome of $9.1 million,
associated with the resolution of various legal proceedings and claims, net
of
costs incurred to resolve these matters. A benefit of $9.8 million
resulting from this outcome was recorded to Other Income; other costs incurred
to resolve these matters were recognized in cost of sales and selling, general
and administrative expenses.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. 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 Operations
Three
months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0 |
) |
|
|
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
(6.7 |
) |
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.6 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
(11.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
(1.2 |
) |
Income
(loss) before income taxes
|
|
|
|
|
|
|
(17.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from equity in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32.0 |
) |
|
|
|
|
Net
income before royalties and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.9 |
) |
|
|
|
|
|
|
-
|
|
Net
income after royalties and dividends
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(32.0 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.4 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
(83.1 |
) |
|
|
|
|
|
|
(1.4 |
) |
|
|
(62.0 |
) |
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
(129.1 |
) |
|
|
|
|
|
|
|
|
|
|
(110.0 |
) |
|
|
|
|
|
|
|
(8.4 |
) |
|
|
(3.3 |
) |
|
|
|
|
|
|
(11.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
|
|
|
|
(128.4 |
) |
|
|
|
|
|
|
|
|
|
|
(111.9 |
) |
|
|
|
|
|
|
|
(40.2 |
) |
|
|
(8.8 |
) |
|
|
|
|
|
|
(49.0 |
) |
Earnings
(loss) from equity in subsidiaries
|
|
|
(62.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before royalties and dividends
|
|
|
(62.9 |
) |
|
|
(71.2 |
) |
|
|
|
|
|
|
|
|
|
|
(62.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
(8.3 |
) |
|
|
|
|
|
|
-
|
|
Net
income (loss) after royalties and dividends
|
|
$ |
(62.9 |
) |
|
$ |
(62.9 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(62.9 |
) |
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Statements of Operations
Nine
months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(112.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.3 |
) |
|
|
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
(37.1 |
) |
|
|
(3.7 |
) |
|
|
|
|
|
|
(40.8 |
) |
|
|
|
|
|
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
(5.4 |
) |
Income
(loss) before income taxes
|
|
|
|
|
|
|
(27.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from equity in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126.2 |
) |
|
|
|
|
Net
income before royalties and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33.3 |
) |
|
|
|
|
|
|
-
|
|
Net
income after royalties and dividends
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(126.2 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92.8 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.0 |
) |
|
|
91.4
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
(138.1 |
) |
|
|
|
|
|
|
|
|
|
|
(54.5 |
) |
|
|
|
|
|
|
|
(13.0 |
) |
|
|
(14.0 |
) |
|
|
|
|
|
|
(27.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
|
|
|
|
(144.6 |
) |
|
|
|
|
|
|
|
|
|
|
(72.8 |
) |
Income
tax expense (benefit)
|
|
|
|
|
|
|
(42.8 |
) |
|
|
|
|
|
|
|
|
|
|
(38.9 |
) |
Earnings
(loss) from equity in subsidiaries
|
|
|
(33.9 |
) |
|
|
|
|
|
|
|
|
|
|
(4.7 |
) |
|
|
|
|
Net
income (loss) before royalties and dividends
|
|
|
(33.9 |
) |
|
|
(63.2 |
) |
|
|
|
|
|
|
(4.7 |
) |
|
|
(33.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
(29.3 |
) |
|
|
|
|
|
|
-
|
|
Net
income (loss) after royalties and dividends
|
|
$ |
(33.9 |
) |
|
$ |
(33.9 |
) |
|
$ |
|
|
|
$ |
(4.7 |
) |
|
$ |
(33.9 |
) |
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,906.6 |
) |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,906.6 |
) |
|
$ |
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
payable (receivable)
|
|
|
|
|
|
|
(509.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,906.6 |
) |
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,906.6 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Nine
months ended September 30,
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
|
|
|
|
(37.6 |
) |
|
|
(95.3 |
) |
|
|
-
|
|
|
|
(132.9 |
) |
Net
cash used in investing activities
|
|
|
|
|
|
|
(37.6 |
) |
|
|
(95.3 |
) |
|
|
-
|
|
|
|
(132.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
25.7
|
|
|
|
(29.7 |
) |
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(7.5 |
) |
|
|
|
|
|
|
-
|
|
|
|
(7.5 |
) |
Employee
stock option exercises, including tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
(23.8 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(23.8 |
) |
Purchase
of treasury stock
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(1.9 |
) |
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
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
$ |
|
|
|
$ |
(197.2 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
|
|
|
|
(99.3 |
) |
|
|
(144.2 |
) |
|
|
-
|
|
|
|
(243.5 |
) |
Purchase
buyouts of leased equipment
|
|
|
|
|
|
|
(19.5 |
) |
|
|
|
|
|
|
-
|
|
|
|
(19.5 |
) |
Net
cash used in investing activities
|
|
|
|
|
|
|
(118.8 |
) |
|
|
(144.2 |
) |
|
|
-
|
|
|
|
(263.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(147.1 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
170.4
|
|
|
|
|
|
|
|
(220.7 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(3.1 |
) |
|
|
|
|
|
|
-
|
|
|
|
(3.1 |
) |
Employee
stock option exercises, including tax
benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
(23.3 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(23.3 |
) |
Net
cash provided by (used in) financing activities
|
|
|
-
|
|
|
|
|
|
|
|
(204.6 |
) |
|
|
-
|
|
|
|
|
|
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
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Item
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 77% of our total net sales
in the first nine months 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 Chrysler LLC (Chrysler) were approximately 12%
of our total net sales in the first nine months of 2007 as compared to 14%
for
the full-year 2006.
In
addition to GM and Chrysler, 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 $562.1 million in the first nine months of 2007 as compared
to $561.4 million for the first nine months of 2006.
RESULTS
OF OPERATIONS –– THREE MONTHS ENDED SEPTEMBER 30, 2007 AS COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 2006
Net
Sales Net sales were $774.3 million in the third quarter of
2007 as compared to $701.2 million in the third quarter of 2006.
As
compared to the third quarter of 2006, our sales in the third quarter of 2007
reflect approximately flat production volumes for the major full-size truck
and
SUV programs we currently support for GM and Chrysler and an increase of
approximately 25% 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
8.2% to $1,303 in the third quarter of 2007 as compared to $1,204 in the third
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
62.8% in the third quarter of 2007 as compared to 58.0% in the third quarter
of
2006.
Gross
Profit (Loss) Gross profit (loss) was a profit
of $80.7 million in the third quarter of 2007 as compared to a loss of $62.0
million in the third quarter of 2006. Gross margin was 10.4% in the
third quarter of 2007 as compared to a negative 8.8% in the third quarter of
2006. The increase in gross profit and gross margin in the third
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 third quarter of 2007, we
expensed $1.0 million of supplemental unemployment benefits and other related
benefit costs for associates on layoff as compared to $113.9 million in the
third quarter of 2006. The charges in the third quarter of
2006 included a special charge of $91.2 million relating to supplemental
unemployment benefits estimated to be payable to UAW represented associates
who
were expected to be permanently idled through the end of the current collective
bargaining agreement that expires in February 2008.
Gross
profit in the third quarter of 2007 reflects approximately $7.8 million in
special charges, which includes $5.7 million of costs related to the
redeployment of assets to support ongoing capacity utilization
initiatives and $2.1 million of costs related to incremental attrition
program activity, net of accrual adjustments. The increase in gross
profit was partially offset by an increase in non-cash expenses related to
depreciation and stock-based compensation. The gross profit in the
third quarter of 2007 also reflects an estimated $2.8 million impact of lost
sales and other costs and expenses related to the work stoppage experienced
by
GM during the last week of the quarter. Gross profit in the third
quarter of 2006 includes a
special charge of $1.9 million related to estimated postemployment
costs
for associates at our European
operations.
Selling,
General and Administrative Expenses (SG&A) SG&A
(including research and development (R&D)) was $52.0 million or 6.7% of net
sales in the third quarter of 2007 as compared to $48.0 million or 6.8% of
net
sales in the third quarter of 2006. The increase in SG&A in the
third quarter of 2007 reflects higher profit sharing accruals and stock-based
compensation expense due to increased profitability and stock price
appreciation. R&D spending was $22.2 million in the third quarter
of 2007 as compared to $20.5 million in the third quarter of 2006.
Operating
Income (Loss) Operating income (loss) was
income of $28.7 million in the third quarter of 2007 as compared to a loss
of
$110.0 million in the third quarter of 2006. Operating margin was
3.7% in the third quarter of 2007 as compared to negative 15.7% in the third
quarter of 2006. The increases in operating income and operating
margin were due to the factors discussed in Gross Profit (Loss) and
SG&A.
Net
Interest Expense Net interest expense was $11.5 million in
the third quarter of 2007 as compared to $11.7 million in the third quarter
of
2006.
Other
Income (Expense) Other income (expense) was an expense of
$1.2 million in the third quarter of 2007 compared to income of $10.1
million in the third quarter of 2006. Other income (expense) in the
third quarter of 2006 includes $9.8 million associated with the resolution
of
legal proceedings and claims during the third quarter of 2006, net of costs
incurred to resolve these matters.
Income
Tax Expense (Benefit) Income tax expense
(benefit) was an expense of $2.9 million in the third quarter of 2007 as
compared to a benefit of $49.0 million in the third quarter of
2006. Our effective income tax rate was 18.2% in the third quarter of
2007 as compared to a benefit of 43.8% in the third quarter of
2006. The change in our tax rate is primarily the result of
recognizing income tax expense for current income in the third quarter of 2007
as compared to the recognition of the income tax benefit for losses in the
third
quarter of 2006. In addition, the tax rate in the third quarter of
2007 reflects an increase in income in jurisdictions which carry lower overall
effective tax rates.
Net
Income (Loss) and Earnings
(Loss) Per
Share (EPS) Net
income (loss) was income of $13.1 million in the third quarter of 2007 as
compared to a loss of $62.9 million in the third quarter of
2006. Diluted earnings (loss) per share were earnings of $0.25 in the
third quarter of 2007 as compared to a loss of $1.25 in the third quarter of
2006. Net income (loss) and EPS for the third quarters of 2007
and 2006 were primarily impacted by the factors discussed in Gross Profit
(Loss), SG&A and Other Income (Expense).
RESULTS
OF OPERATIONS –– NINE MONTHS ENDED SEPTEMBER 30, 2007 AS COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2006
Net
Sales Net sales were $2,493.0 million in the first nine
months of 2007 as compared to $2,410.6 million in the first nine months of
2006.
As
compared to the first nine months of 2006, our sales in the first nine months
of
2007 reflect approximately flat production volumes for the major full-size
truck
and SUV programs we currently support for GM and Chrysler and a decrease of
approximately 14% 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
6.7% to $1,291 in the first nine months of 2007 as compared to $1,210 in
the first nine months 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 63.5% in the first nine months of 2007 as
compared to 60.9% in the first nine months of 2006.
Gross
Profit Gross profit was $278.6 million in the first nine
months of 2007 as compared to $91.4 million in the first nine months of
2006. Gross margin was 11.2% in the first nine months of 2007 as
compared to 3.8% in the first nine months of 2006. The increase in
gross profit and gross margin in the first nine months 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 first nine months of 2007, we expensed $6.9 million of supplemental
unemployment benefits and other related benefit costs for associates on layoff
as compared to $149.8 million in the first nine months of 2006. The
charges in the first nine months of 2006 included a special charge of $91.2
million relating to supplemental unemployment benefits estimated to be payable
to UAW represented associates who were expected to be permanently idled through
the end of the current collective bargaining agreement that expires in February
2008.
Gross
profit in the first nine months of 2007 also includes approximately $17.7
million in special charges, which includes $7.2 million of costs related to
the
redeployment of assets to support ongoing capacity utilization
initiatives and $10.5 million of costs related to incremental attrition
program activity, net of accrual adjustments. The increase in gross
profit was partially offset by an increase in non-cash expenses related to
depreciation and stock-based compensation. Gross profit in the first
nine months of 2006 includes a special charge of $1.9 million
related
to estimated postemployment costs
for associates at our European
operations.
Selling,
General and Administrative Expenses (SG&A) SG&A
(including research and development (R&D)) was $155.1 million or 6.2%
of net sales in the first nine months of 2007 as compared to $145.9 million
or
6.1% of net sales in the first nine months of 2006. The increase in
SG&A in the first nine months of 2007 reflects higher profit sharing
accruals and stock-based compensation expense due to increased
profitability and stock price appreciation. R&D was $61.9 million
in the first nine months of 2007 as compared to $60.6 million in the first
nine
months of 2006.
Operating
Income (Loss) Operating income (loss) was
income of $123.5 million in the first nine months of 2007 as compared to a
loss
of $54.5 million in the first nine months of 2006. Operating margin
was 5.0% in the first nine months of 2007 as compared to negative 2.3% in the
first nine months 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 $40.8 million in
the first nine months of 2007 as compared to $27.0 million in the first nine
months of 2006. The increase in net 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 nine months
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 $2.7 million of
unamortized debt issuance costs that we expensed in the first nine months of
2006, related to the cash conversion of a portion of our 2.00% Convertible
Notes
due 2024.
Other
Income Other income in the first nine months of
2007 was $0.1 million compared to income of $11.4 million in the first nine
months of 2006. Other income in the first nine months of 2006
includes a $9.8 million benefit associated with the resolution of legal
proceedings and claims during the third quarter of 2006, net of costs incurred
to resolve these matters.
Income
Tax Expense (Benefit) Income tax expense
(benefit) was an expense of $14.8 million in the first nine months of 2007
as
compared to a benefit of $38.9 million in the first nine months of
2006. Our effective income tax rate was 19.1% in the first nine
months of 2007 as compared to a benefit of 53.4% in the first nine months of
2006. The change in our tax rate is primarily the result of
recognizing income tax expense for current income in the first nine months
of
2007 as compared to the recognition of the income tax benefit for losses in
the
first nine months of 2006. In addition, the tax rate for the first
nine months of 2007 reflects an increase in income in jurisdictions which carry
lower overall effective tax rates.
Net
Income (Loss) and Earnings
(Loss) Per
Share (EPS) Net
income (loss) was income of $62.5 million in the first nine months of 2007
as
compared to a loss of $33.9 million in the first nine months of
2006. Diluted earnings (loss) per share were earnings of $1.19 in the
first nine months of 2007 as compared to a loss of $0.67 in the first nine
months of 2006. Net income (loss) and EPS for the first nine months
of 2007 and 2006 were primarily impacted by the factors discussed in Gross
Profit, SG&A, Net Interest Expense and Other Income.
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
$331.6 million in the first nine months of 2007 as compared to $161.7 million
in
the first nine months of 2006. The primary factors impacting cash
flow in the first nine months of 2007 as compared to the first nine months
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.
Buffalo
Separation Program In September 2007, we offered the
Buffalo Separation Program (BSP) to all hourly associates represented by the
United Automobile, Aerospace and Agricultural Implement Workers of America
(UAW)
at our Buffalo Gear, Axle & Linkage facility in Buffalo, New
York. This voluntary separation program offered retirement or buyout
incentives to approximately 650 eligible hourly associates. These
associates have until November 15, 2007 to decide whether to
participate. As of September 30, 2007, approximately 20 associates
have elected early participation in this program and have waived the requisite
consideration period. We recorded expense of $2.0 million for the
estimated postemployment costs and $0.7 million for special termination benefits
related to these associates in the third quarter of 2007. We will
record the remaining liability for the BSP when the final acceptance rates
are
known in the fourth quarter of 2007.
We
could
incur special charges of as much as $85 million for the BSP, including
pension and other postretirement benefit curtailments and special termination
benefits. We could make as much as $45 million of payments related to
this program in the fourth quarter of 2007 and intend to utilize current cash
balances to fund this program.
Investing
Activities Capital expenditures were $132.9 million in the
first nine months of 2007 as compared to $243.5 million in the first nine months
of 2006. We expect our capital spending in 2007 to be in the range of
$200 million to $210 million. These expenditures support our
realignment and resizing initiatives, customer capacity programs, 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.
Financing
Activities Net cash provided by financing activities was
$149.3 million in the first nine months of 2007 as compared to $111.4 million
in
the first nine months of 2006. Total long-term debt outstanding increased
$173.4 million in the first nine months of 2007 to $845.6 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 payment of amounts outstanding under
our
Revolving Credit Facility. We paid debt issuance costs of $5.2
million 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 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.
At
September 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 September 30, 2007, $40.8 million
was outstanding and $175.6 million was available under such
agreements.
The
weighted-average interest rate of our long-term debt outstanding in the first
nine months of 2007 was 8.1% 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 nine months 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.
Item
3. Quantitative and Qualitative Disclosures
About Market Risk
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 September 30, 2007, we had currency
forward contracts with a notional amount of $58.9 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 September 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 12.9% of our weighted-average interest
rate at September 30, 2007) on our long-term debt outstanding at September
30,
2007 would be approximately $0.9 million on an annualized basis.
Item
4. Controls and
Procedures
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 September 30,
2007, and (2) no change in internal control over financial reporting occurred
during the quarter ended September 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.
Item
2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities
In
the
third quarter of 2007, the Company withheld and repurchased shares to pay taxes
due upon the vesting of certain individuals’ restricted
stock. The following table provides information about our
equity security purchases during the quarter ended September 30,
2007:
ISSUER
PURCHASES OF EQUITY SECURITIES
Period
|
Total
Number of Shares (Or Units) Purchased
|
Average
Price Paid per Share (or Unit)
|
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced
Plans
or Programs
|
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that May
Yet Be
Purchased Under the Plans or Programs
|
July
2007
|
66,666
|
$28.72
|
-
|
-
|
August
2007
|
937
|
$19.45
|
-
|
-
|
September
2007
|
-
|
-
|
-
|
-
|
|
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) |
|
|
October
30, 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
|
|
|
|
|