form10-q.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
For
the quarterly period ended June 30, 2008
|
|
|
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 þ
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer,” “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company 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 þ
As of
July 23, 2008, the latest practicable date, the number of shares of the
registrant's Common Stock, par value $0.01 per share, outstanding was 54,373,873
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,
2008
In this
Quarterly Report on Form 10-Q, we make statements concerning our expectations,
beliefs, plans, objectives, goals, strategies, and future events or
performance. Such statements are “forward-looking” statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and relate
to trends and events that may affect our future financial position and operating
results. The terms such as “will,” “may,” “could,” “would,” “plan,”
“believe,” “expect,” “anticipate,” “intend,” “project,” and similar words of
expressions, as well as statements in future tense, are intended to identify
forward-looking statements.
Forward-looking
statements should not be read as a guarantee of future performance or results,
and will not necessarily be accurate indications of the times at, or by, which
such performance or results will be achieved. Forward-looking
statements are based on information available at the time those statements are
made and/or management’s good faith belief as of that time with respect to
future events and are subject to risks and differ materially from those
expressed in or suggested by the forward-looking
statements. Important factors that could cause such differences
include, but are not limited to:
·
|
reduced
purchases of our products by General Motors Corporation (GM), Chrysler LLC
(Chrysler) or other customers;
|
·
|
reduced
demand for our customers’ products (particularly light trucks and SUVs
produced by GM and Chrysler);
|
·
|
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 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;
|
·
|
our
ability to maintain satisfactory labor relations and avoid future work
stoppages;
|
·
|
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 improve our U.S. labor cost
structure;
|
·
|
our
ability to consummate and integrate
acquisitions;
|
·
|
supply
shortages or price increases in raw materials, utilities or other
operating supplies;
|
·
|
our
ability or our customers’ and suppliers’ ability to successfully launch
new product programs on a timely
basis;
|
·
|
our
ability to realize the expected revenues from our new and incremental
business backlog;
|
·
|
our
ability to attract new customers and programs for new
products;
|
·
|
our
ability to develop and produce new products that reflect market
demand;
|
·
|
lower-than-anticipated
market acceptance of new or existing
products;
|
·
|
our
ability to respond to changes in technology, increased competition or
pricing pressures;
|
·
|
continued
or increased high prices for or reduced availability of
fuel;
|
·
|
adverse
changes in laws, government regulations or market conditions affecting our
products or our customers’ products (such as 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 warranty claims, product liability and legal proceedings to
which we are or may become a party;
|
·
|
changes
in liabilities arising from pension and other postretirement benefit
obligations;
|
·
|
risks
of noncompliance with environmental regulations or risks of environmental
issues that could result in unforeseen costs at our
facilities;
|
·
|
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.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
(Unaudited)
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30, |
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
490.5 |
|
|
$ |
916.5 |
|
|
$ |
1,078.1 |
|
|
$ |
1,718.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold |
|
|
1,018.4
|
|
|
|
802.8 |
|
|
|
1,593.3 |
|
|
|
1,519.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss) |
|
|
(527.9
|
) |
|
|
113.7 |
|
|
|
(515.2 |
) |
|
|
199.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
44.9
|
|
|
|
54.2 |
|
|
|
94.3 |
|
|
|
103.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
|
(572.8
|
) |
|
|
59.5 |
|
|
|
(609.5 |
) |
|
|
95.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense |
|
|
(13.5
|
) |
|
|
(15.3 |
) |
|
|
(26.2 |
) |
|
|
(29.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
|
|
1.1 |
|
|
|
(4.3 |
) |
|
|
1.6 |
|
|
|
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(585.2 |
) |
|
|
39.9 |
|
|
|
(634.1 |
) |
|
|
62.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
59.1 |
|
|
|
5.3 |
|
|
|
37.2 |
|
|
|
12.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(644.3 |
) |
|
$ |
34.6 |
|
|
$ |
(671.3 |
) |
|
$ |
50.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share
|
|
$ |
(12.49 |
) |
|
$ |
0.68 |
|
|
$ |
(13.01 |
) |
|
$ |
0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share
|
|
$ |
(12.49 |
) |
|
$ |
0.66 |
|
|
$ |
(13.01 |
) |
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
See
accompanying notes to condensed consolidated financial statements.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(in
millions)
|
|
Assets
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
196.1 |
|
|
$ |
343.6 |
|
Accounts
receivable, net
|
|
|
271.8 |
|
|
|
264.0 |
|
AAM
- GM Agreement receivable
|
|
|
175.0 |
|
|
|
- |
|
Inventories,
net
|
|
|
238.7 |
|
|
|
242.8 |
|
Prepaid
expenses and other
|
|
|
55.5 |
|
|
|
73.4 |
|
Deferred
income taxes
|
|
|
15.0 |
|
|
|
19.5 |
|
Total
current assets
|
|
|
952.1 |
|
|
|
943.3 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
1,368.7 |
|
|
|
1,696.2 |
|
Deferred
income taxes
|
|
|
4.4 |
|
|
|
78.7 |
|
Goodwill
|
|
|
147.8 |
|
|
|
147.8 |
|
Other
assets and deferred charges
|
|
|
53.3 |
|
|
|
57.4 |
|
Total
assets
|
|
$ |
2,526.3 |
|
|
$ |
2,923.4 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
299.4 |
|
|
$ |
313.8 |
|
Accrued compensation and benefits
|
|
|
244.2 |
|
|
|
126.6 |
|
Deferred
revenue
|
|
|
67.9 |
|
|
|
10.2 |
|
Other
accrued expenses
|
|
|
60.4 |
|
|
|
61.0 |
|
Total
current liabilities
|
|
|
671.9 |
|
|
|
511.6 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
869.2 |
|
|
|
858.1 |
|
Deferred
income taxes
|
|
|
4.0 |
|
|
|
6.6 |
|
Deferred
revenue
|
|
|
211.8 |
|
|
|
66.0 |
|
Postretirement
benefits and other long-term liabilities
|
|
|
454.1 |
|
|
|
581.7 |
|
Total
liabilities
|
|
|
2,211.0 |
|
|
|
2,024.0 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share
|
|
|
0.6 |
|
|
|
0.6 |
|
Paid-in
capital
|
|
|
423.7 |
|
|
|
416.3 |
|
Retained
earnings (accumulated deficit)
|
|
|
(95.6 |
) |
|
|
591.9 |
|
Treasury stock at cost, 5.1 million shares in 2008 and
2007
|
|
|
(173.9 |
) |
|
|
(173.8 |
) |
Accumulated other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
Defined benefit plans
|
|
|
114.6 |
|
|
|
33.5 |
|
Foreign currency translation adjustments
|
|
|
47.7 |
|
|
|
34.2 |
|
Unrecognized loss on derivatives
|
|
|
(1.8 |
) |
|
|
(3.3 |
) |
Total
stockholders' equity
|
|
|
315.3 |
|
|
|
899.4 |
|
Total
liabilities and stockholders' equity
|
|
$ |
2,526.3 |
|
|
$ |
2,923.4 |
|
See
accompanying notes to condensed consolidated financial
statements
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
(Unaudited)
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
millions)
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(671.3 |
) |
|
$ |
50.3 |
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
provided
by operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
112.6 |
|
|
|
113.4 |
|
Asset
impairments
|
|
|
294.8 |
|
|
|
- |
|
Deferred
income taxes
|
|
|
29.2 |
|
|
|
4.1 |
|
Stock-based
compensation
|
|
|
5.5 |
|
|
|
12.0 |
|
Pensions
and other postretirement benefits, net of contributions
|
|
|
38.0 |
|
|
|
25.9 |
|
Loss
(gain) on retirement of equipment
|
|
|
(1.5 |
) |
|
|
2.9 |
|
Debt
refinancing and redemption costs
|
|
|
- |
|
|
|
5.5 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5.7 |
) |
|
|
(70.9 |
) |
Inventories
|
|
|
5.6 |
|
|
|
(23.5 |
) |
Accounts payable and accrued expenses
|
|
|
95.1 |
|
|
|
104.1 |
|
Other assets and liabilities
|
|
|
21.8 |
|
|
|
10.8 |
|
Net
cash provided by (used in) operating activities
|
|
|
(75.9 |
) |
|
|
234.6 |
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(66.9 |
) |
|
|
(75.5 |
) |
Proceeds
from sale of equipment
|
|
|
2.3 |
|
|
|
- |
|
Net
cash used in investing activities
|
|
|
(64.6 |
) |
|
|
(75.5 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Net
borrowings (repayments) under revolving credit facilities
|
|
|
7.6 |
|
|
|
(127.6 |
) |
Payments
of long-term debt and capital lease obligations
|
|
|
(6.9 |
) |
|
|
(0.5 |
) |
Proceeds
from issuance of long-term debt
|
|
|
7.2 |
|
|
|
550.0 |
|
Debt
issuance costs
|
|
|
- |
|
|
|
(7.5 |
) |
Payment
of Term Loan due 2010
|
|
|
- |
|
|
|
(252.5 |
) |
Repurchase
of treasury stock
|
|
|
(0.1 |
) |
|
|
- |
|
Employee
stock option exercises
|
|
|
0.7 |
|
|
|
9.2 |
|
Tax
benefit on stock option exercises
|
|
|
0.2 |
|
|
|
2.1 |
|
Dividends
paid
|
|
|
(16.2 |
) |
|
|
(15.8 |
) |
Net
cash provided by (used in) financing activities
|
|
|
(7.5 |
) |
|
|
157.4 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
0.5 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(147.5 |
) |
|
|
317.8 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
343.6 |
|
|
|
13.5 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
196.1 |
|
|
$ |
331.3 |
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
31.8 |
|
|
$ |
26.0 |
|
Income taxes paid, net of refunds
|
|
$ |
2.1 |
|
|
$ |
14.7 |
|
See
See
accompanying notes to condensed consolidated financial statements
Table
of Contents
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(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 Tier I supplier to the automotive
industry. We manufacture, engineer, design and validate driveline and
drivetrain systems and related components and chassis modules for trucks, sport
utility vehicles (SUVs), passenger cars and crossover utility
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, Ohio and Indiana), we have offices or facilities in
Brazil, China, England, Germany, India, Japan, Luxembourg, Mexico, Poland,
Scotland, South Korea and Thailand.
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 normal recurring adjustments, which we consider necessary for a
fair presentation of the information set forth herein. Results of
operations for the periods presented are not necessarily indicative of the
results for the full fiscal year.
The
balance sheet at December 31, 2007 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,
2007.
Change in Accounting
Principle On January 1, 2008, we changed the method for
costing our U.S. inventories from the last-in, first-out (LIFO) method to the
first-in, first-out (FIFO) method. As of December 31, 2007, the U.S.
inventories for which the LIFO method of costing inventory was applied
represented approximately 25% of total gross inventories. This change
enhances the matching of inventory costs with revenues and better reflects the
current cost of inventory on our consolidated balance
sheet. Additionally, this change conforms all of our worldwide
inventories to a consistent inventory costing method and provides better
comparability to our industry peers, most of which use the FIFO method of
costing for inventory. In accordance with Statement of Financial
Accounting Standards No. 154, “Accounting Changes and Error
Corrections,” the change in accounting principle has been retrospectively
applied to all prior periods presented herein.
We have presented the effects of the
change in accounting for inventory costing to the Condensed Consolidated Balance
Sheets as of June 30, 2008 and December 31, 2007, the Condensed Consolidated
Statements of Operations for the three months and six months ended June 30, 2008
and June 30, 2007, and the Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 2008 and June 30, 2007. We have
condensed the comparative financial statements for financial statement line
items that were not affected by the change in accounting principle.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Condensed
Consolidated Statement of Operations
Three
months ended June 30, 2007
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
As originally
reported |
|
|
Adjustments
to change from LIFO to FIFO
|
|
|
As
adjusted and reported under FIFO
|
|
|
|
|
|
Net
sales
|
|
$ |
916.5 |
|
|
$ |
- |
|
|
$ |
916.5 |
|
Cost
of goods sold
|
|
|
803.4 |
|
|
|
(0.6 |
) |
|
|
802.8 |
|
Gross
profit
|
|
|
113.1 |
|
|
|
0.6 |
|
|
|
113.7 |
|
Selling
general and administrative expenses
|
|
|
54.2 |
|
|
|
- |
|
|
|
54.2 |
|
Operating
income
|
|
|
58.9 |
|
|
|
0.6 |
|
|
|
59.5 |
|
Other
expense, net
|
|
|
(19.6 |
) |
|
|
- |
|
|
|
(19.6 |
) |
Income
before income taxes
|
|
|
39.3 |
|
|
|
0.6 |
|
|
|
39.9 |
|
Income
tax expense
|
|
|
5.3 |
|
|
|
- |
|
|
|
5.3 |
|
Net
income
|
|
$
|
34.0 |
|
|
$
|
0.6 |
|
|
$
|
34.6 |
|
Basic
earnings per share
|
|
$ |
0.67 |
|
|
$ |
0.01 |
|
|
$ |
0.68 |
|
Diluted
earnings per share
|
|
$ |
0.64 |
|
|
$ |
0.02 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Operations
Six
months ended June 30, 2007
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
As originally reported
|
|
|
Adjustments to change from LIFO to
FIFO |
|
|
As
adjusted and reported under FIFO |
|
|
|
|
|
Net
sales
|
|
$ |
1,718.7 |
|
|
$ |
- |
|
|
$ |
1,718.7 |
|
Cost
of goods sold
|
|
|
1,520.8 |
|
|
|
(1.1 |
) |
|
|
1,519.7 |
|
Gross
profit
|
|
|
197.9 |
|
|
|
1.1 |
|
|
|
199.0 |
|
Selling
general and administrative expenses
|
|
|
103.1 |
|
|
|
- |
|
|
|
103.1 |
|
Operating
income
|
|
|
94.8 |
|
|
|
1.1 |
|
|
|
95.9 |
|
Other
expense, net
|
|
|
(33.5 |
) |
|
|
- |
|
|
|
(33.5 |
) |
Income
before income taxes
|
|
|
61.3 |
|
|
|
1.1 |
|
|
|
62.4 |
|
Income
tax expense
|
|
|
11.9 |
|
|
|
0.2 |
|
|
|
12.1 |
|
Net
income
|
|
$ |
49.4 |
|
|
$ |
0.9 |
|
|
$ |
50.3 |
|
Basic
earnings per share
|
|
$ |
0.97 |
|
|
$ |
0.02 |
|
|
$ |
0.99 |
|
Diluted
earnings per share
|
|
$ |
0.94 |
|
|
$ |
0.02 |
|
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidated Balance Sheet
December
31, 2007
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
As
originally reported
|
|
|
Adjustments
to change from LIFO to FIFO
|
|
|
As
adjusted and reported under FIFO
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$ |
229.0 |
|
|
$ |
13.8 |
|
|
$ |
242.8 |
|
Deferred
income taxes
|
|
|
24.6 |
|
|
|
(5.1 |
) |
|
|
19.5 |
|
Other
current assets
|
|
|
681.0 |
|
|
|
- |
|
|
|
681.0 |
|
Total
current assets
|
|
|
934.6 |
|
|
|
8.7 |
|
|
|
943.3 |
|
Other
assets
|
|
|
1,980.1 |
|
|
|
- |
|
|
|
1,980.1 |
|
Total
assets
|
|
$ |
2,914.7 |
|
|
$ |
8.7 |
|
|
$ |
2,923.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$ |
2,024.0 |
|
|
$ |
- |
|
|
$ |
2,024.0 |
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
583.2 |
|
|
|
8.7 |
|
|
|
591.9 |
|
Other
stockholders’ equity
|
|
|
307.5 |
|
|
|
- |
|
|
|
307.5 |
|
Total
stockholders’ equity
|
|
|
890.7 |
|
|
|
8.7 |
|
|
|
899.4 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
2,914.7 |
|
|
$ |
8.7 |
|
|
$ |
2,923.4 |
|
Condensed
Consolidated Statement of Cash Flows
Six
months ended June 30, 2007
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
As
originally reported
|
|
|
Adjustments
to change from LIFO to FIFO
|
|
|
As
adjusted and reported under FIFO
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
49.4 |
|
|
$ |
0.9 |
|
|
$ |
50.3 |
|
Adjustments
to reconcile net income to net cash
provided
by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
3.9 |
|
|
|
0.2 |
|
|
|
4.1 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
(22.4 |
) |
|
|
(1.1 |
) |
|
|
(23.5 |
) |
Other
changes in operating assets and
liabilities
|
|
|
44.0 |
|
|
|
- |
|
|
|
44.0 |
|
Other
adjustments
|
|
|
159.7 |
|
|
|
- |
|
|
|
159.7 |
|
Net
cash provided by operating activities
|
|
|
234.6 |
|
|
|
- |
|
|
|
234.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(75.5 |
) |
|
|
- |
|
|
|
(75.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
157.4 |
|
|
|
- |
|
|
|
157.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
1.3 |
|
|
|
- |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
$ |
317.8 |
|
|
$ |
- |
|
|
$ |
317.8 |
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidated Statement of Operations
Three
months ended June 30, 2008
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
As
calculated using LIFO
for U.S. inventories |
|
|
Difference
between LIFO and FIFO |
|
|
As
reported using FIFO
|
|
|
|
|
|
Net
sales
|
|
$ |
490.5
|
|
|
$ |
-
|
|
|
$ |
490.5
|
|
Cost
of goods sold
|
|
|
1,018.9
|
|
|
|
(0.5
|
)
|
|
|
1,018.4
|
|
Gross
loss
|
|
|
(528.4
|
)
|
|
|
0.5
|
|
|
|
(527.9
|
)
|
Selling
general and administrative expenses
|
|
|
44.9
|
|
|
|
-
|
|
|
|
44.9
|
|
Operating
loss
|
|
|
(573.3
|
)
|
|
|
0.5
|
|
|
|
(572.8
|
)
|
Other
expense, net
|
|
|
(12.4 |
)
|
|
|
-
|
|
|
|
(12.4
|
)
|
Loss
before income taxes
|
|
|
(585.7
|
)
|
|
|
0.5
|
|
|
|
(585.2
|
)
|
Income
tax expense
|
|
|
64.2
|
|
|
|
5.1
|
|
|
|
59.1
|
|
Net
loss
|
|
$ |
(649.9
|
)
|
|
$ |
5.6
|
|
|
$ |
(644.3
|
)
|
Basic
loss per share
|
|
$ |
(12.60
|
)
|
|
$ |
0.11
|
|
|
$ |
(12.49
|
)
|
Diluted
loss per share
|
|
$ |
(12.60
|
)
|
|
$ |
0.11
|
|
|
$ |
(12.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Operations
Six
months ended June 30, 2008
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
As
calculated using LIFO for U.S. inventories
|
|
|
Difference
between LIFO and FIFO
|
|
|
As
reported using FIFO
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,078.1 |
|
|
$ |
- |
|
|
$ |
1,078.1 |
|
Cost
of goods sold
|
|
|
1,593.8 |
|
|
|
(0.5 |
) |
|
|
1,593.3 |
|
Gross
loss
|
|
|
(515.7 |
) |
|
|
0.5 |
|
|
|
(515.2 |
) |
Selling
general and administrative expenses
|
|
|
94.3 |
|
|
|
- |
|
|
|
94.3 |
|
Operating
loss
|
|
|
(610.0 |
) |
|
|
0.5 |
|
|
|
(609.5 |
) |
Other
expense, net
|
|
|
(24.6 |
) |
|
|
- |
|
|
|
(24.6 |
) |
Loss
before income taxes
|
|
|
(634.6 |
) |
|
|
0.5 |
|
|
|
(634.1 |
) |
Income
tax expense
|
|
|
42.3 |
|
|
|
5.1 |
|
|
|
37.2 |
|
Net
loss
|
|
$ |
(676.9 |
) |
|
$ |
5.6 |
|
|
$ |
(671.3 |
) |
Basic
loss per share
|
|
$ |
(13.11 |
) |
|
$ |
0.10 |
|
|
$ |
(13.01 |
) |
Diluted
loss per share
|
|
$ |
(13.11 |
) |
|
$ |
0.10 |
|
|
$ |
(13.01 |
) |
The Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 2008 as calculated using LIFO for U.S. inventories include an
adjustment to income tax expense of $5.1 million for additional valuation
allowances that would have been recorded against our U.S. deferred tax
assets. See Note 9 – Income Taxes for more detail on our valuation
allowance.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidated Balance Sheet
June
30, 2008
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
As
calculated using LIFO for U.S. inventories
|
|
|
Difference
between LIFO and FIFO
|
|
|
As
reported using FIFO
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$ |
224.4 |
|
|
$ |
14.3 |
|
|
$ |
238.7 |
|
Other
current assets
|
|
|
713.4 |
|
|
|
- |
|
|
|
713.4 |
|
Total
current assets
|
|
|
937.8 |
|
|
|
14.3 |
|
|
|
952.1 |
|
Other
assets
|
|
|
1,574.2 |
|
|
|
- |
|
|
|
1,574.2 |
|
Total
assets
|
|
$ |
2,512.0 |
|
|
$ |
14.3 |
|
|
$ |
2,526.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$ |
2,211.0 |
|
|
$ |
- |
|
|
$ |
2,211.0 |
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(109.9 |
) |
|
|
14.3 |
|
|
|
(95.6 |
) |
Other
stockholders’ equity
|
|
|
410.9 |
|
|
|
- |
|
|
|
410.9 |
|
Total
stockholders’ equity
|
|
|
301.0 |
|
|
|
14.3 |
|
|
|
315.3 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
2,512.0 |
|
|
$ |
14.3 |
|
|
$ |
2,526.3 |
|
Condensed
Consolidated Statement of Cash Flows
Six
months ended June 30, 2008
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
As
calculated using LIFO for U.S. inventories
|
|
|
Difference
between LIFO and FIFO
|
|
|
As
reported using FIFO
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(676.9 |
) |
|
$ |
5.6 |
|
|
$ |
(671.3 |
) |
Adjustments
to reconcile net income to net cash
provided
by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
34.3 |
|
|
|
(5.1 |
) |
|
|
29.2 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
6.1 |
|
|
|
(0.5 |
) |
|
|
5.6 |
|
Other
changes in operating assets and
liabilities
|
|
|
111.2 |
|
|
|
- |
|
|
|
111.2 |
|
Other
adjustments
|
|
|
449.4 |
|
|
|
- |
|
|
|
449.4 |
|
Net
cash used in operating activities
|
|
|
(75.9 |
) |
|
|
- |
|
|
|
(75.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(64.6 |
) |
|
|
- |
|
|
|
(64.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(7.5 |
) |
|
|
- |
|
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
0.5 |
|
|
|
- |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
$ |
(147.5 |
) |
|
$ |
- |
|
|
$ |
(147.5 |
) |
The application of this change in
accounting increased retained earnings by $8.7 million as of January 1,
2007.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effect of New Accounting Standards In September 2006, the FASB
issued Statement No. 157 (SFAS 157), “Fair Value
Measurements.” This statement clarifies the definition of fair
value and establishes a fair value hierarchy. SFAS 157, as originally
issued, was effective for us on January 1, 2008. In February 2008,
the FASB issued FASB Staff Position (FSP) FAS 157-2, which defers the effective
date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except
for items that are recognized or disclosed at fair value in an entity’s
financial statements on a recurring basis. The effective date for us
under this FSP is January 1, 2009. As allowed by FSP FAS 157-2, we
partially adopted SFAS 157 on January 1, 2008 and the impact of adoption was not
significant. We do not expect the impact of applying SFAS 157 to the
remaining assets and liabilities on January 1, 2009 to be material.
SFAS 157
defines fair value as “the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date.” The definition is based on an exit price
rather than an entry price, regardless of whether the entity plans to hold or
sell the asset. SFAS 157 also establishes a fair value hierarchy
to prioritize inputs used in measuring fair value as follows:
|
·
|
Level 1: Observable
inputs such as quoted prices in active
markets;
|
|
·
|
Level 2: Inputs,
other than quoted prices in active markets, that are observable either
directly or
indirectly; and
|
|
·
|
Level 3: Unobservable
inputs in which there is little or no market data, which require the
reporting entity to develop its own
assumptions.
|
On a recurring basis, we measure our
derivatives at fair value, which was a net liability of $3.4 million as of June
30, 2008. The fair value of these derivatives was determined using
Level 2 inputs, as described above.
As
allowed by FSP FAS 157-2, we did not apply SFAS 157 to fair value measurements
of certain assets and liabilities included in property, plant and equipment,
net, accrued compensation and benefits, other accrued expenses, and
postretirement benefits and other long-term liabilities on our Condensed
Consolidated Balance Sheets.
In February 2007, the FASB issued
Statement No. 159 (SFAS 159), “The Fair Value Option for Financial
Assets and Financial Liabilities.” 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 was
effective for us on January 1, 2008 and we did not elect to measure any
additional assets or liabilities at fair value.
In
December 2007, the FASB issued Statement No. 160 (SFAS 160), “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB
No. 51.” SFAS 160
establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary. SFAS 160 is effective for us on
January 1, 2009. We are currently assessing the impact of adopting
this statement.
In
December 2007, the FASB issued Statement No. 141 (Revised) (SFAS
141R), “Business
Combinations.” This statement replaces FASB Statement No. 141 and
establishes principles and requirements for how the acquirer:
a.
Recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree
b.
Recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase
c.
Determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.
SFAS
141R is effective for us prospectively for any acquisitions made on or after
January 1, 2009.
In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging
Activities -
an amendment of FASB Statement No. 133.” This statement
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS 161 is effective
for us prospectively on January 1, 2009.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On February 25, 2008, the four-year
master labor agreement between AAM and the International United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW) covering
approximately 3,650 associates at our original five facilities in Michigan and
New York expired. The International UAW called a strike at these
facilities upon expiration of this agreement. On May 23, 2008, UAW
represented associates at these locations ratified new labor agreements
with AAM. The new labor agreements establish a new wage and benefit
package for eligible current and newly hired UAW represented associates at these
locations.
As part of these new agreements, we
paid a lump-sum ratification bonus to each eligible associate at these locations
in the second quarter of 2008. We expensed and paid $19.1 million for
these signing bonuses.
In
addition, as part of the new labor agreements, we offered the Special Separation
Program (SSP) to all UAW represented associates at our original U.S.
locations. This voluntary separation program offered a range of
retirement or buyout incentives to eligible associates. We also
announced the closing of our Buffalo Gear, Axle & Linkage facility (Buffalo)
and Tonawanda and Detroit forging facilities within the next six to twelve
months. The costs recorded in the second quarter of 2008 for
the SSP and related plant closures are discussed in more detail in Note 3 –
Restructuring Actions.
The new labor agreements also have a significant impact on our pension and other
postretirement employee benefit (OPEB) obligations, including the freezing,
reducing or eliminating of current and future benefits for certain
associates. See Note 7 – Employee Benefit Plans for more detail on
the impact of the new agreements on our pension and OPEB liabilities and
expense.
An involuntary Buydown Program (BDP)
will be applicable for associates that do not elect to participate in the
SSP. Under the BDP, we will make three annual lump-sum payments to
associates in exchange for, among other things, a base wage
decrease. The total buydown payments are expected to average between
$90,000 and $95,000 per associate and will not exceed $105,000 per
associate. The transition to a lower base wage and the first payment
under the BDP will occur in the third quarter of 2008.
In the second quarter of 2008, we
expensed $18.0 million relating to supplemental unemployment benefits (SUB) to
be payable to current UAW represented associates during the new labor agreements
that expire in February 2012. The new labor agreements between AAM
and the International UAW contain a SUB provision, pursuant to which we are
required to pay eligible idled workers certain benefits. Under the
new agreement, our obligation for SUB payments is limited to $18.0
million. Once this limit is reached, the SUB program will be
terminated. As
of June 30, 2008, it was probable and estimable that we will pay the full amount
during the contract period. In the second quarter of 2008, we paid
$2.1 million of this amount and our remaining liability was $15.9 million as of
June 30, 2008.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 2008,
we incurred restructuring charges related to the SSP, asset impairments, plant
closure agreements and other ongoing restructuring actions. In
addition, we continue to make payments related to charges incurred in 2007 and
2006.
A summary
of the restructuring related activity for the six months ended June 30, 2008 is
shown below (in millions):
|
|
One-time
|
|
|
|
|
|
Indirect
|
|
|
|
|
|
Contract
|
|
|
Redeployment
|
|
|
|
|
|
Termination
|
|
|
Asset
|
|
|
Inventory
|
|
|
Environmental
|
|
|
Related
|
|
|
of
|
|
|
|
|
|
Benefits
|
|
|
Impairments
|
|
|
Obsolescence
|
|
|
Obligations
|
|
|
Costs
|
|
|
Assets
|
|
|
Total
|
|
|
Accrual
as of December 31, 2007
|
|
$ |
20.3 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2.2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
22.5 |
|
Charges
|
|
|
129.4 |
|
|
|
294.8 |
|
|
|
30.4 |
|
|
|
0.8 |
|
|
|
9.7 |
|
|
|
5.3 |
|
|
|
470.4 |
|
Cash
utilization
|
|
|
(12.2 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
(5.3 |
) |
|
|
(17.6 |
) |
Non-cash
utilization and accrual adjustments
|
|
|
(0.2 |
) |
|
|
(294.8 |
) |
|
|
(30.4 |
) |
|
|
- |
|
|
|
(0.8 |
) |
|
|
- |
|
|
|
(326.2 |
) |
Accrual
as of June 30, 2008
|
|
$ |
137.3 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2.9 |
|
|
$ |
8.9 |
|
|
$ |
- |
|
|
$ |
149.1 |
|
One-time
Termination Benefits We offered the SSP to
all UAW represented associates at the original U.S. locations in the second
quarter of 2008. Under this voluntary separation program, we offered
retirement and buyout incentives to approximately 3,650 eligible hourly
associates. These associates have until July 25, 2008 to decide
whether to participate in the SSP. We recorded expense of $76.5
million for the estimated postemployment costs of those associates at the
facilities operating under our plant closure agreements. In addition,
as of June 30, 2008, approximately 400 associates voluntarily elected early
participation in this program. We recorded expense of $39.6 million
for the estimated postemployment costs of these
associates.
We will
record the remaining liability for the SSP when the final acceptances are known
in the third quarter of 2008. We estimate the remaining liability to be
between $115 million and $135 million, which includes special termination
benefits that will be classified and disclosed as postretirement benefit
obligations.
In
addition, we recorded expense of $4.2 million for the estimated postemployment
costs for associates represented by the International Association of Machinists
(IAM) at our Tonawanda forging facility.
In the second quarter of 2008, we approved a plan to reduce our salaried
workforce by approximately 350 associates in the U.S. As part of this
plan, we offered a voluntary salaried retirement incentive program (SRIP) to
eligible salaried associates in the U.S. Based on the approval of a salaried
workforce reduction, the terms of our Layoff Severance Program (LSP), which
provide postemployment benefits based on current salary and prior service level,
and the preliminary acceptances of the SRIP, a liability for our salaried
workforce reduction is probable and estimable as of June 30, 2008. We
recorded expense of $8.7 million for the acceptances of the SRIP and the
estimated postemployment benefits related to the LSP for the three and six
months ended June 30, 2008.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the
second quarter of 2008, we approved and communicated a plan to provide future
transition payments to certain associates who will remain active through
December 31, 2008. We recorded expense of $0.4 million for the
proportional amount of expense for service related to these future payments for
the three and six months ended June 30, 2008.
Asset
Impairments In the second quarter of
2008, we identified the following impairment indicators:
·
|
a
significant decline in current and projected market demand and future
customer production schedules for the major North American light truck
programs we currently support and
|
·
|
changes
in the extent to which assets at our original U.S. locations will be used
as a result of management’s long-term plant loading decisions made
subsequent to the new labor agreements with the International
UAW.
|
We recorded asset impairment charges of
$294.8 million in the second quarter of 2008 associated with the permanent
idling of certain assets and an impairment analysis of certain assets that were
“held for use” as of June 30, 2008. Recoverability of each “held for
use” asset group affected by these impairment indicators was determined by
comparing the forecasted undiscounted cash flows of the operations to which the
assets relate to their carrying amount. When the carrying amount of
an asset group exceeded the undiscounted cash flows and was therefore
nonrecoverable, the assets in this group were written down to their
estimated fair value. We estimated fair value based on a discounted
cash flow analysis. We also reduced the remaining useful lives of
certain “held for use” assets as part of this analysis.
Based on the impairment indicators described above, we also performed an
impairment analysis on our goodwill as of June 30, 2008. This
analysis did not result in an impairment of goodwill.
Indirect
Inventory Obsolescence As a result of the reduction in the
projected usage of machinery and equipment due to the impairment indicators
discussed above, certain machine repair parts classified as indirect inventory
were determined to be in excess. We recorded a charge of $30.4 million related
to the write down of the net book value of these assets to their estimated net
realizable value at June 30, 2008.
Environmental
Obligations In the second quarter of 2008, as a result of the
announced closure of our Tonawanda forging facility, the methods and timing of
environmental liabilities related to this facility became reasonably
estimable. Based on management’s best estimate of the costs, methods
and timing of the settlement of these obligations, we recorded a charge of $0.8
million.
Contract Related Costs Contract related costs recorded in the
second quarter of 2008 of $9.7 million primarily include the fair value of
obligations related to assets under operating leases that were idled in the
second quarter of 2008 and long-term purchase commitments at certain
facilities operating under our plant closure agreements.
Redeployment of
Assets In the first six months of 2008, we incurred $5.3 million of
charges related to the redeployment of assets to support capacity utilization
initiatives.
We expect a majority of the remaining
restructuring accrual to be paid in 2008 and the remainder to be paid through
2012.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We state
our inventories at the lower of cost or market. In the first quarter
of 2008, we changed the method of accounting for our U.S. inventories from the
LIFO method to the FIFO method as discussed in Note 1 – Organization and Basis
of Presentation. The cost of worldwide inventories is determined
using the FIFO method. 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
Raw
materials and work-in-progress
|
|
$ |
248.5 |
|
|
$ |
230.5 |
|
Finished
goods
|
|
|
62.6 |
|
|
|
52.6 |
|
Gross
inventories
|
|
|
311.1 |
|
|
|
283.1 |
|
Other
inventory valuation reserves
|
|
|
(72.4 |
) |
|
|
(40.3 |
) |
Inventories,
net
|
|
$ |
238.7 |
|
|
$ |
242.8 |
|
Long-term
debt consists of the following:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
Revolving
Credit Facility
|
|
$ |
- |
|
|
$ |
- |
|
7.875%
Notes
|
|
|
300.0 |
|
|
|
300.0 |
|
5.25%
Notes, net of discount
|
|
|
249.8 |
|
|
|
249.8 |
|
2.00%
Convertible Notes
|
|
|
2.7 |
|
|
|
2.7 |
|
Term
Loan due 2012
|
|
|
250.0 |
|
|
|
250.0 |
|
Foreign
credit facilities
|
|
|
58.2 |
|
|
|
46.7 |
|
Capital
lease obligations
|
|
|
8.5 |
|
|
|
8.9 |
|
Long-term
debt
|
|
$ |
869.2 |
|
|
$ |
858.1 |
|
|
|
|
|
|
|
|
|
|
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, 2008, we had $572.3 million available under the Revolving Credit
Facility. This availability reflects a reduction of $27.7 million for
standby letters of credit issued against the facility.
The
Revolving Credit Facility provides back-up liquidity for our foreign credit
facilities. 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 $46.9
million of such amounts as long-term debt.
We
utilize local currency credit facilities to finance the operations of certain
foreign subsidiaries. At June 30, 2008, $58.2 million was outstanding
under these facilities and an additional $105.4 million was
available.
The
weighted-average interest rate of our long-term debt outstanding at June 30,
2008 was 7.6% and 7.8% as of December 31, 2007.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the
second quarter of 2008, we entered into an agreement with GM in connection with
the resolution of the strike called by the International UAW (AAM – GM
Agreement). Pursuant to this agreement, GM will provide us with
$175.0 million of cash payments through April 2009. As of June 30,
2008, we have recorded a receivable for $175.0 million, which is disclosed as
AAM – GM Agreement receivable on our Condensed Consolidated Balance
Sheet.
The AAM –
GM agreement also amended the Asset Purchase Agreement, dated February 18, 1994,
between GM and AAM. The amendment provides that we shall have no
liability to GM for postretirement healthcare and life insurance coverage
provided to UAW represented transition associates with earned credited service
from AAM who retire under plans administered by GM. As of June
30, 2008, the value of this liability was estimated at $38.7
million. See Footnote 7 – Employee Benefits Plans for more detail on
the settlement of this liability.
As of
June 30, 2008, we recorded deferred revenue of $209.0 million related to the AAM
– GM Agreement, $57.7 million of which is classified as current and $151.3
million of which is recorded as noncurrent on our Condensed Consolidated Balance
Sheet. We will amortize this deferred revenue into income over future
periods. We recorded revenue of $4.7 million for the three month and
six months ended June 30, 2008 related to this agreement.
7.
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
3.9 |
|
|
$ |
4.6 |
|
|
$ |
8.1 |
|
|
$ |
10.7 |
|
Interest
cost
|
|
|
9.5 |
|
|
|
8.7 |
|
|
|
18.9 |
|
|
|
17.3 |
|
Expected
asset return
|
|
|
(10.2 |
) |
|
|
(9.5 |
) |
|
|
(20.4 |
) |
|
|
(19.0 |
) |
Amortized
loss
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.7 |
|
Amortized
prior service cost
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.8 |
|
|
|
1.2 |
|
Curtailment
|
|
|
6.0 |
|
|
|
- |
|
|
|
6.0 |
|
|
|
- |
|
Special
and contractual termination benefits
|
|
|
27.1 |
|
|
|
0.2 |
|
|
|
27.1 |
|
|
|
0.4 |
|
Net
periodic benefit cost
|
|
$ |
36.9 |
|
|
$ |
4.9 |
|
|
$ |
41.0 |
|
|
$ |
11.3 |
|
|
|
|
|
|
|
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
|
|
Other
Postretirement Benefits
|
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
3.5 |
|
|
$ |
6.5 |
|
|
$ |
8.0 |
|
|
$ |
12.9 |
|
Interest
cost
|
|
|
6.4 |
|
|
|
7.2 |
|
|
|
13.8 |
|
|
|
14.0 |
|
Amortized
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortized
prior service credit
|
|
|
(1.6 |
) |
|
|
(0.7 |
) |
|
|
(2.4 |
) |
|
|
(1.5 |
) |
Settlement
|
|
|
(9.4 |
) |
|
|
- |
|
|
|
(9.4 |
) |
|
|
- |
|
Curtailment
|
|
|
(16.1 |
) |
|
|
- |
|
|
|
(16.1 |
) |
|
|
- |
|
Special
and contractual termination benefits
|
|
|
9.8 |
|
|
|
- |
|
|
|
9.8 |
|
|
|
- |
|
Net
periodic benefit cost (credit)
|
|
$ |
(7.4 |
) |
|
$ |
13.0 |
|
|
$ |
3.7 |
|
|
$ |
25.4 |
|
In the second quarter of 2008, we
completed multiple valuations of the assets and liabilities of our U.S. hourly
pension and other postretirement benefit (OPEB) plans. This was
required due to plan amendments, attrition programs and plant closure agreements
which resulted from the new labor agreements ratified with UAW represented
associates at our original U.S. locations on May 23, 2008. We
recorded an adjustment associated with the completion of these
valuations in the second quarter of 2008. The components of this
adjustment are discussed below.
Certain changes in the new labor
agreements reduced the postretirement benefit obligation attributed to employee
services already rendered. These changes are classified as
negative plan amendments and reduced postretirement and other long-term
liabilities by approximately $93.2 million. In addition, we reduced
postretirement and other long-term liabilities by $8.0 million for changes in
actuarial assumptions since the U.S. hourly pension and OPEB plan valuation on
January 1, 2008. These adjustments were recorded to accumulated other
comprehensive income (AOCI) and will be amortized over
future periods.
We also reduced postretirement and
other long-term liabilities and recorded a net gain to cost of sales of $10.1
million for the curtailment of certain pension and OPEB. This
resulted primarily from the reduction in the expected future OPEB related to
early acceptances of the SSP as well as the estimated pension curtailment losses
related to those associates who will terminate employment at the facilities
operating under our plant closure agreements. In addition, we reduced
postretirement and other long-term liabilities and recorded an estimated
curtailment gain to AOCI of $23.4 million related to the expected curtailment of
OPEB for those associates at the facilities operating under our plant closure
agreements who have not yet terminated employment. This gain will be
recognized in cost of sales as these associates terminate employment throughout
the remaining operation of these facilities.
In addition, we increased
postretirement and other long-term liabilities and recorded expense of $36.9
million for special and contractual termination benefits. This charge
includes $34.6 million related to the SSP, which is made up of benefits to
be paid under our pension plans, contractual pension and OPEB to be
provided to certain eligible associates at the facilities operating under our
plant closure agreements and future postretirement benefits to be provided to
certain eligible associates who have accepted the SSP as of June 30,
2008. This charge also includes $1.9 million of contractual pension
and OPEB benefits related to certain eligible IAM associates at our Detroit
forging facilities and $0.4 million of SRIP benefits to be paid under
our pension plans.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As part of the AAM – GM agreement, we will no longer have a
liability to GM for postretirement healthcare and life insurance coverage
provided to UAW represented transition associates with earned credited service
from AAM who retire under the plans administered by GM. We recorded a
reduction of our OPEB liability of $38.7 million to reflect the settlement of
this portion of the liability. We will record this transaction as
deferred revenue and amortize it over future periods. See Note 6 –
Deferred Revenue for more detail on this agreement with GM. The
forgiveness of this obligation has been accounted for as a
settlement. Accordingly, the related amount of unamortized gain
previously recorded to AOCI has been recorded as a credit of $9.4 million to
cost of sales.
In the first quarter of 2008, we recorded an adjustment related to the
completion of our valuation for pension and OPEB assets and obligations as
of January 1, 2008. This adjustment resulted in a decrease in
postretirement benefits and other long-term liabilities of $11.8 million, an
increase in AOCI of $7.4 million and a decrease in deferred income taxes of $4.4
million.
We adopted the measurement date
provisions of FASB Statement No. 158, “Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans,” as of January 1, 2007,
which requires companies to measure a plan’s assets and obligations that
determine its funded status as of the end of the fiscal year. As a
result of this adoption, we recorded a net transition adjustment of $12.0
million to the opening retained earnings balance related to the net periodic
benefit cost for the period between September 30, 2006 and January 1,
2007.
Our regulatory pension funding
requirements in 2008 are less than $5 million. We expect our cash
outlay for OPEB obligations in 2008 to be between $5 million and $10
million.
8.
PRODUCT WARRANTIES
The
following table provides a reconciliation of changes in product warranty
liabilities as of June 30, 2008 (in millions):
Beginning
balance as of January 1, 2008
|
|
$
|
6.8
|
|
|
|
|
0.3
|
|
Settlements
|
|
|
(0.3
|
)
|
Adjustment to prior period accruals
|
|
|
(0.4
|
)
|
Ending
balance as of June 30, 2008
|
|
$
|
6.4
|
|
We estimate whether
recoverability of our deferred tax assets is “more likely than not” based on
forecasts of taxable income in the related tax jurisdictions. In this
estimate, we use historical results, projected future operating results based
upon approved business plans, eligible carry forward periods, tax planning
opportunities and other relevant considerations. We review the
likelihood that we will be able to realize the benefit of our deferred tax
assets on a quarterly basis or whenever events indicate that a review is
required.
In the
second quarter of 2008, several events occurred that led us to significantly
revise the near-term projected future operating results of our U.S.
operations. These events include:
·
|
a
significant decline in current and projected market demand and future
customer production schedules for the major North American light truck
programs we currently support;
|
·
|
management’s
long-term plant loading decisions made subsequent to the new labor
agreements with the International UAW;
and
|
·
|
the
impact of significant charges resulting from our restructuring actions in
the second quarter of 2008.
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We
reviewed the likelihood that we would be able to realize the benefit of our U.S.
deferred tax assets as of June 30, 2008, based on the revised near-term
projected future operating results of our U.S. operations. We
concluded that it is no longer “more likely than not” that we will realize our
net deferred assets in the U.S. and recorded a charge to income tax expense in
the second quarter of 2008 of $54.4 million to establish a full valuation
allowance against these assets. We recorded an additional valuation
allowance in the second quarter of 2008 of $213.5 million by not recognizing a
tax benefit on losses incurred in the three months ended June 30,
2008.
If,
in the future, we generate taxable income in the U.S. on a sustained basis, our
current estimate of the recoverability of our deferred tax assets could change
and result in the future reversal of some or all of the valuation
allowance.
Income
tax expense was $59.1 million in the second quarter of 2008 as compared to $5.3
million in the second quarter of 2007. Our effective income tax rate
was negative 10.1% in the second quarter of 2008 as compared to 13.3% in the
second quarter of 2007. Income tax expense was $37.2 million in the
first six months of 2008 as compared to $12.1 million in the first six months of
2007. Our effective income tax rate was negative 5.9% in the first
six months of 2008 as compared to 19.4% in the first six months of
2007. The effective tax rate in the second quarter and first six
months of 2008 include the unfavorable tax adjustment related to the
establishment of the full valuation allowance against the net U.S. deferred tax
assets and reflects the impact of not recording an income tax benefit for
current tax losses in the U.S.
|
A
reconciliation of the beginning and ending amounts of unrecognized tax
benefits is as follows (in
millions):
|
|
Balance
at January 1, 2008
|
$ |
33.0
|
|
|
Increase
in prior year tax positions
|
|
7.1
|
|
|
Decrease
in prior year tax positions
|
|
(6.2
|
)
|
|
Increase
in current year tax positions
|
|
1.7
|
|
|
Settlement
|
|
(1.2
|
)
|
|
Balance
at June 30, 2008
|
$ |
34.4
|
|
|
10. STOCK-BASED
COMPENSATION
On June
25, 2008, we granted approximately 0.3 million stock options under our 1999
Stock Incentive Plan. These options will be expensed over
the vesting period, which is approximately 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:
|
|
2008
|
|
|
2007
|
|
Expected
volatility
|
|
|
46.10
|
% |
|
|
44.26
|
% |
Risk-free
interest rate
|
|
|
3.78
|
% |
|
|
4.46
|
% |
Dividend
yield
|
|
|
6.20
|
% |
|
|
2.30
|
% |
Expected
life of options
|
|
8
years
|
|
|
8
years
|
|
Weighted-average
grant-date fair value
|
|
$ |
2.67 |
|
|
$ |
11.13 |
|
On June 25, 2008, we granted
0.2 million shares of restricted stock with a grant-date fair value of
$10.08. The unearned compensation related to this grant will be
expensed over the vesting period of approximately three years.
On March
14, 2008, we granted 0.7 million shares of restricted stock with a grant-date
fair value of $21.37. The unearned compensation related to this grant
will be expensed over the vesting period of three years.
In the
first quarter of 2008, we made cash payments of $2.0 million related to vested
restricted stock units.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMPREHENSIVE
INCOME (LOSS)
Comprehensive
income (loss) consists of the following:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(644.3 |
) |
|
$ |
34.6 |
|
|
$ |
(671.3 |
) |
|
$ |
50.3 |
|
Defined
benefit plans, net of tax
|
|
|
73.7 |
|
|
|
(10.1 |
) |
|
|
81.1 |
|
|
|
(9.8 |
) |
Foreign
currency translation adjustments, net
of tax
|
|
|
9.9 |
|
|
|
6.7 |
|
|
|
13.4 |
|
|
|
10.4 |
|
Gain on
derivatives, net
of tax
|
|
|
2.9 |
|
|
|
1.4 |
|
|
|
1.5 |
|
|
|
0.8 |
|
Comprehensive
income (loss)
|
|
$ |
(557.8 |
) |
|
$ |
32.6 |
|
|
$ |
(575.3 |
) |
|
$ |
51.7 |
|
12. EARNINGS
(LOSS) 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
millions, except per share data)
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income(loss)
|
|
$ |
(644.3 |
) |
|
$ |
34.6 |
|
|
$ |
(671.3 |
) |
|
$ |
50.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding
|
|
|
51.6 |
|
|
|
50.9 |
|
|
|
51.6 |
|
|
|
50.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
stock-based compensation
|
|
|
- |
|
|
|
1.9 |
|
|
|
- |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted-average shares after assumed conversions
|
|
|
51.6 |
|
|
|
52.8 |
|
|
|
51.6 |
|
|
|
52.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
(12.49 |
) |
|
$ |
0.68 |
|
|
$ |
(13.01 |
) |
|
$ |
0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
(12.49 |
) |
|
$ |
0.66 |
|
|
$ |
(13.01 |
) |
|
$ |
0.96 |
|
Basic and
diluted loss per share for the three and six months ended June 30, 2008 are the
same because the effect of 1.6 million potentially dilutive shares would have
been antidilutive.
Certain
exercisable stock options were excluded in the computations of diluted EPS
because the exercise price of these options was greater than the average period
market prices. The number of stock options outstanding, which were
not included in the calculation of diluted EPS, was 4.4 million at June 30, 2008
and 1.4 million at June 30, 2007. The ranges of exercise prices
related to the excluded exercisable stock options were $19.54 - $40.83 at June
30, 2008 and $32.13 - $40.83 at June 30, 2007.
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUPPLEMENTAL
GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Holdings
has no significant assets other than its 100% ownership in AAM, Inc. and no
direct subsidiaries other than AAM, Inc. Holdings fully and
unconditionally guarantees the 5.25% Notes and 7.875% Notes, which are senior
unsecured obligations of AAM, Inc. The 2.00% Convertible Notes are
senior unsecured obligations of Holdings and are fully and unconditionally
guaranteed by AAM, Inc.
The
following Condensed Consolidating Financial Statements are included in lieu of
providing separate financial statements for Holdings and AAM, Inc. These
Condensed Consolidating Financial Statements are prepared under the equity
method of accounting whereby the investments in subsidiaries are recorded at
cost and adjusted for the parent’s share of the subsidiaries’ cumulative results
of operations, capital contributions and distributions, and other equity
changes.
Condensed
Consolidating Statements of Operations
Three
months ended, June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
133.7 |
|
|
$ |
356.8 |
|
|
$ |
- |
|
|
$ |
490.5 |
|
|
|
|
- |
|
|
|
10.0 |
|
|
|
15.3 |
|
|
|
(25.3 |
) |
|
|
- |
|
|
|
|
- |
|
|
|
143.7 |
|
|
|
372.1 |
|
|
|
(25.3 |
) |
|
|
490.5 |
|
|
|
|
- |
|
|
|
708.1 |
|
|
|
335.6 |
|
|
|
(25.3 |
) |
|
|
1,018.4 |
|
|
|
|
- |
|
|
|
(564.4 |
) |
|
|
36.5 |
|
|
|
- |
|
|
|
(527.9 |
) |
Selling,
general and administrative expenses
|
|
|
- |
|
|
|
44.2 |
|
|
|
0.7 |
|
|
|
- |
|
|
|
44.9 |
|
|
|
|
- |
|
|
|
(608.6 |
) |
|
|
35.8 |
|
|
|
- |
|
|
|
(572.8 |
) |
|
|
|
- |
|
|
|
(12.8 |
) |
|
|
(0.7 |
) |
|
|
- |
|
|
|
(13.5 |
) |
|
|
|
- |
|
|
|
- |
|
|
|
1.1 |
|
|
|
- |
|
|
|
1.1 |
|
Income
(loss) before income taxes
|
|
|
- |
|
|
|
(621.4 |
) |
|
|
36.2 |
|
|
|
- |
|
|
|
(585.2 |
) |
|
|
|
- |
|
|
|
57.2 |
|
|
|
1.9 |
|
|
|
- |
|
|
|
59.1 |
|
Earnings
(loss) from equity in subsidiaries
|
|
|
(644.3 |
) |
|
|
17.8 |
|
|
|
- |
|
|
|
626.5 |
|
|
|
- |
|
Net
income (loss) before royalties and dividends
|
|
|
(644.3 |
) |
|
|
(660.8 |
) |
|
|
34.3 |
|
|
|
626.5 |
|
|
|
(644.3 |
) |
|
|
|
- |
|
|
|
16.5 |
|
|
|
(16.5 |
) |
|
|
- |
|
|
|
- |
|
Net
income (loss) after royalties and dividends
|
|
$ |
(644.3 |
) |
|
$ |
(644.3 |
) |
|
$ |
17.8 |
|
|
$ |
626.5 |
|
|
$ |
(644.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
609.5 |
|
|
$ |
307.0 |
|
|
$ |
- |
|
|
$ |
916.5 |
|
|
|
|
- |
|
|
|
15.5 |
|
|
|
32.4 |
|
|
|
(47.9 |
) |
|
|
- |
|
|
|
|
- |
|
|
|
625.0 |
|
|
|
339.4 |
|
|
|
(47.9 |
) |
|
|
916.5 |
|
|
|
|
- |
|
|
|
556.5 |
|
|
|
292.5 |
|
|
|
(46.2 |
) |
|
|
802.8 |
|
|
|
|
- |
|
|
|
68.5 |
|
|
|
46.9 |
|
|
|
(1.7 |
) |
|
|
113.7 |
|
Selling,
general and administrative expenses
|
|
|
- |
|
|
|
52.0 |
|
|
|
3.9 |
|
|
|
(1.7 |
) |
|
|
54.2 |
|
|
|
|
- |
|
|
|
16.5 |
|
|
|
43.0 |
|
|
|
- |
|
|
|
59.5 |
|
|
|
|
- |
|
|
|
(14.2 |
) |
|
|
(1.1 |
) |
|
|
- |
|
|
|
(15.3 |
) |
Other
income (expense), net
|
|
|
- |
|
|
|
(5.5 |
) |
|
|
1.2 |
|
|
|
- |
|
|
|
(4.3 |
) |
Income
(loss) before income taxes
|
|
|
- |
|
|
|
(3.2 |
) |
|
|
43.1 |
|
|
|
- |
|
|
|
39.9 |
|
|
|
|
- |
|
|
|
3.1 |
|
|
|
2.2 |
|
|
|
- |
|
|
|
5.3 |
|
Earnings
from equity in subsidiaries
|
|
|
34.6 |
|
|
|
27.8 |
|
|
|
- |
|
|
|
(62.4 |
) |
|
|
- |
|
Net
income before royalties and dividends
|
|
|
34.6 |
|
|
|
21.5 |
|
|
|
40.9 |
|
|
|
(62.4 |
) |
|
|
34.6 |
|
|
|
|
- |
|
|
|
13.1 |
|
|
|
(13.1 |
) |
|
|
- |
|
|
|
- |
|
Net
income after royalties and dividends
|
|
$ |
34.6 |
|
|
$ |
34.6 |
|
|
$ |
27.8 |
|
|
$ |
(62.4 |
) |
|
$ |
34.6 |
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Statements of Operations
Six
months ended, June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
423.3 |
|
|
$ |
654.8 |
|
|
$ |
- |
|
|
$ |
1,078.1 |
|
|
|
|
- |
|
|
|
24.0 |
|
|
|
31.3 |
|
|
|
(55.3 |
) |
|
|
- |
|
|
|
|
- |
|
|
|
447.3 |
|
|
|
686.1 |
|
|
|
(55.3 |
) |
|
|
1,078.1 |
|
|
|
|
- |
|
|
|
1,040.0 |
|
|
|
608.6 |
|
|
|
(55.3 |
) |
|
|
1,593.3 |
|
|
|
|
- |
|
|
|
(592.7 |
) |
|
|
77.5 |
|
|
|
- |
|
|
|
(515.2 |
) |
Selling,
general and administrative expenses
|
|
|
- |
|
|
|
93.2 |
|
|
|
1.1 |
|
|
|
- |
|
|
|
94.3 |
|
|
|
|
- |
|
|
|
(685.9 |
) |
|
|
76.4 |
|
|
|
- |
|
|
|
(609.5 |
) |
|
|
|
- |
|
|
|
(25.2 |
) |
|
|
(1.0 |
) |
|
|
- |
|
|
|
(26.2 |
) |
Other
income (expense), net
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
1.7 |
|
|
|
- |
|
|
|
1.6 |
|
Income
(loss) before income taxes
|
|
|
- |
|
|
|
(711.2 |
) |
|
|
77.1 |
|
|
|
- |
|
|
|
(634.1 |
) |
|
|
|
- |
|
|
|
32.7 |
|
|
|
4.5 |
|
|
|
- |
|
|
|
37.2 |
|
Earnings
(loss) from equity in subsidiaries
|
|
|
(671.3 |
) |
|
|
43.3 |
|
|
|
- |
|
|
|
628.0 |
|
|
|
- |
|
Net
income (loss) before royalties and dividends
|
|
|
(671.3 |
) |
|
|
(700.6 |
) |
|
|
72.6 |
|
|
|
628.0 |
|
|
|
(671.3 |
) |
|
|
|
- |
|
|
|
29.3 |
|
|
|
(29.3 |
) |
|
|
- |
|
|
|
- |
|
Net
income (loss) after royalties and dividends
|
|
$ |
(671.3 |
) |
|
$ |
(671.3 |
) |
|
$ |
43.3 |
|
|
$ |
628.0 |
|
|
$ |
(671.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
1,174.6 |
|
|
$ |
544.1 |
|
|
$ |
- |
|
|
$ |
1,718.7 |
|
|
|
|
- |
|
|
|
25.3 |
|
|
|
60.4 |
|
|
|
(85.7 |
) |
|
|
- |
|
|
|
|
- |
|
|
|
1,199.9 |
|
|
|
604.5 |
|
|
|
(85.7 |
) |
|
|
1,718.7 |
|
|
|
|
- |
|
|
|
1,077.7 |
|
|
|
524.5 |
|
|
|
(82.5 |
) |
|
|
1,519.7 |
|
|
|
|
- |
|
|
|
122.2 |
|
|
|
80.0 |
|
|
|
(3.2 |
) |
|
|
199.0 |
|
Selling,
general and administrative expenses
|
|
|
- |
|
|
|
99.0 |
|
|
|
7.3 |
|
|
|
(3.2 |
) |
|
|
103.1 |
|
|
|
|
- |
|
|
|
23.2 |
|
|
|
72.7 |
|
|
|
- |
|
|
|
95.9 |
|
|
|
|
- |
|
|
|
(26.6 |
) |
|
|
(2.7 |
) |
|
|
- |
|
|
|
(29.3 |
) |
|
|
|
- |
|
|
|
(5.4 |
) |
|
|
1.2 |
|
|
|
- |
|
|
|
(4.2 |
) |
Income
(loss) before income taxes
|
|
|
- |
|
|
|
(8.8 |
) |
|
|
71.2 |
|
|
|
- |
|
|
|
62.4 |
|
|
|
|
- |
|
|
|
8.1 |
|
|
|
4.0 |
|
|
|
- |
|
|
|
12.1 |
|
Earnings
from equity in subsidiaries
|
|
|
50.3 |
|
|
|
44.8 |
|
|
|
- |
|
|
|
(95.1 |
) |
|
|
- |
|
Net
income before royalties and dividends
|
|
|
50.3 |
|
|
|
27.9 |
|
|
|
67.2 |
|
|
|
(95.1 |
) |
|
|
50.3 |
|
|
|
|
- |
|
|
|
22.4 |
|
|
|
(22.4 |
) |
|
|
- |
|
|
|
- |
|
Net
income after royalties and dividends
|
|
$ |
50.3 |
|
|
$ |
50.3 |
|
|
$ |
44.8 |
|
|
$ |
(95.1 |
) |
|
$ |
50.3 |
|
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
- |
|
|
$ |
15.7 |
|
|
$ |
180.4 |
|
|
$ |
- |
|
|
$ |
196.1 |
|
|
|
|
- |
|
|
|
128.1 |
|
|
|
143.7 |
|
|
|
- |
|
|
|
271.8 |
|
AAM – GM agreement receivable
|
|
|
- |
|
|
|
175.0 |
|
|
|
- |
|
|
|
- |
|
|
|
175.0 |
|
|
|
|
- |
|
|
|
97.5 |
|
|
|
141.2 |
|
|
|
- |
|
|
|
238.7 |
|
|
|
|
- |
|
|
|
25.3 |
|
|
|
45.2 |
|
|
|
- |
|
|
|
70.5 |
|
|
|
|
- |
|
|
|
441.6 |
|
|
|
510.5 |
|
|
|
- |
|
|
|
952.1 |
|
Property,
plant and equipment, net
|
|
|
- |
|
|
|
620.2 |
|
|
|
748.5 |
|
|
|
- |
|
|
|
1,368.7 |
|
|
|
|
- |
|
|
|
- |
|
|
|
147.8 |
|
|
|
- |
|
|
|
147.8 |
|
Other
assets and deferred charges
|
|
|
- |
|
|
|
31.9 |
|
|
|
25.8 |
|
|
|
- |
|
|
|
57.7 |
|
Investment
in subsidiaries
|
|
|
621.7 |
|
|
|
832.2 |
|
|
|
- |
|
|
|
(1,453.9 |
) |
|
|
- |
|
|
|
$ |
621.7 |
|
|
$ |
1,925.9 |
|
|
$ |
1,432.6 |
|
|
$ |
(1,453.9 |
) |
|
$ |
2,526.3 |
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
128.6 |
|
|
$ |
170.8 |
|
|
$ |
- |
|
|
$ |
299.4 |
|
|
|
|
- |
|
|
|
320.5 |
|
|
|
52.0 |
|
|
|
- |
|
|
|
372.5 |
|
Total
current liabilities
|
|
|
- |
|
|
|
449.1 |
|
|
|
222.8 |
|
|
|
- |
|
|
|
671.9 |
|
Intercompany
payable (receivable)
|
|
|
303.7 |
|
|
|
(541.3 |
) |
|
|
237.6 |
|
|
|
- |
|
|
|
- |
|
|
|
|
2.7 |
|
|
|
799.8 |
|
|
|
66.7 |
|
|
|
- |
|
|
|
869.2 |
|
Other
long-term liabilities
|
|
|
- |
|
|
|
596.6 |
|
|
|
73.3 |
|
|
|
- |
|
|
|
669.9 |
|
|
|
|
306.4 |
|
|
|
1,304.2 |
|
|
|
600.4 |
|
|
|
- |
|
|
|
2,211.0 |
|
|
|
|
315.3 |
|
|
|
621.7 |
|
|
|
832.2 |
|
|
|
(1,453.9 |
) |
|
|
315.3 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
621.7 |
|
|
$ |
1,925.9 |
|
|
$ |
1,432.6 |
|
|
$ |
(1,453.9 |
) |
|
$ |
2,526.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
- |
|
|
$ |
223.5 |
|
|
$ |
120.1 |
|
|
$ |
- |
|
|
$ |
343.6 |
|
|
|
|
- |
|
|
|
141.3 |
|
|
|
122.7 |
|
|
|
- |
|
|
|
264.0 |
|
|
|
|
- |
|
|
|
123.4 |
|
|
|
119.4 |
|
|
|
- |
|
|
|
242.8 |
|
|
|
|
- |
|
|
|
23.3 |
|
|
|
69.6 |
|
|
|
- |
|
|
|
92.9 |
|
|
|
|
- |
|
|
|
511.5 |
|
|
|
431.8 |
|
|
|
- |
|
|
|
943.3 |
|
Property,
plant and equipment, net
|
|
|
- |
|
|
|
959.8 |
|
|
|
736.4 |
|
|
|
- |
|
|
|
1,696.2 |
|
|
|
|
- |
|
|
|
- |
|
|
|
147.8 |
|
|
|
- |
|
|
|
147.8 |
|
Other
assets and deferred charges
|
|
|
- |
|
|
|
121.8 |
|
|
|
14.3 |
|
|
|
- |
|
|
|
136.1 |
|
Investment
in subsidiaries
|
|
|
1,190.5 |
|
|
|
763.7 |
|
|
|
- |
|
|
|
(1,954.2 |
) |
|
|
- |
|
|
|
$ |
1,190.5 |
|
|
$ |
2,356.8 |
|
|
$ |
1,330.3 |
|
|
$ |
(1,954.2 |
) |
|
$ |
2,923.4 |
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
174.9 |
|
|
$ |
138.9 |
|
|
$ |
- |
|
|
$ |
313.8 |
|
|
|
|
- |
|
|
|
144.3 |
|
|
|
53.5 |
|
|
|
- |
|
|
|
197.8 |
|
Total
current liabilities
|
|
|
- |
|
|
|
319.2 |
|
|
|
192.4 |
|
|
|
- |
|
|
|
511.6 |
|
Intercompany
payable (receivable)
|
|
|
288.4 |
|
|
|
(516.0 |
) |
|
|
227.6 |
|
|
|
- |
|
|
|
- |
|
|
|
|
2.7 |
|
|
|
799.8 |
|
|
|
55.6 |
|
|
|
- |
|
|
|
858.1 |
|
Other
long-term liabilities
|
|
|
- |
|
|
|
563.3 |
|
|
|
91.0 |
|
|
|
- |
|
|
|
654.3 |
|
|
|
|
291.1 |
|
|
|
1,166.3 |
|
|
|
566.6 |
|
|
|
- |
|
|
|
2,024.0 |
|
|
|
|
899.4 |
|
|
|
1,190.5 |
|
|
|
763.7 |
|
|
|
(1,954.2 |
) |
|
|
899.4 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
1,190.5 |
|
|
$ |
2,356.8 |
|
|
$ |
1,330.3 |
|
|
$ |
(1,954.2 |
) |
|
$ |
2,923.4 |
|
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 (used in) operating activities
|
|
$ |
- |
|
|
$ |
(185.8 |
) |
|
$ |
109.9 |
|
|
$ |
- |
|
|
$ |
(75.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
- |
|
|
|
(24.7 |
) |
|
|
(42.2 |
) |
|
|
- |
|
|
|
(66.9 |
) |
Proceeds
from sale of equipment
|
|
|
- |
|
|
|
1.0 |
|
|
|
1.3 |
|
|
|
- |
|
|
|
2.3 |
|
Net
cash used in investing activities
|
|
|
- |
|
|
|
(23.7 |
) |
|
|
(40.9 |
) |
|
|
- |
|
|
|
(64.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
7.9 |
|
|
|
- |
|
|
|
7.9 |
|
|
|
|
16.3 |
|
|
|
0.8 |
|
|
|
(17.1 |
) |
|
|
- |
|
|
|
- |
|
Purchase
of treasury stock
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(0.1 |
) |
Employee
stock option exercises,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
0.9 |
|
|
|
- |
|
|
|
- |
|
|
|
0.9 |
|
|
|
|
(16.2 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(16.2 |
) |
Net
cash provided by (used in) financing activities
|
|
|
- |
|
|
|
1.7 |
|
|
|
(9.2 |
) |
|
|
- |
|
|
|
(7.5 |
) |
Effect
of exchange rate changes on cash
|
|
|
- |
|
|
|
- |
|
|
|
0.5 |
|
|
|
- |
|
|
|
0.5 |
|
Net
increase (decrease) in cash and cash
equivalents
|
|
|
- |
|
|
|
(207.8 |
) |
|
|
60.3 |
|
|
|
- |
|
|
|
(147.5 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
- |
|
|
|
223.5 |
|
|
|
120.1 |
|
|
|
- |
|
|
|
343.6 |
|
Cash
and cash equivalents at end of period
|
|
$ |
- |
|
|
$ |
15.7 |
|
|
$ |
180.4 |
|
|
$ |
- |
|
|
$ |
196.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$ |
- |
|
|
$ |
141.0 |
|
|
$ |
93.6 |
|
|
$ |
- |
|
|
$ |
234.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
- |
|
|
|
(17.5 |
) |
|
|
(58.0 |
) |
|
|
- |
|
|
|
(75.5 |
) |
Net
cash used in investing activities
|
|
|
- |
|
|
|
(17.5 |
) |
|
|
(58.0 |
) |
|
|
- |
|
|
|
(75.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
164.0 |
|
|
|
5.4 |
|
|
|
- |
|
|
|
169.4 |
|
|
|
|
15.8 |
|
|
|
32.7 |
|
|
|
(48.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
(7.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
(7.5 |
) |
Employee
stock option exercises,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
11.3 |
|
|
|
- |
|
|
|
- |
|
|
|
11.3 |
|
|
|
|
(15.8 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15.8 |
) |
Net
cash provided by (used in) financing activities
|
|
|
- |
|
|
|
200.5 |
|
|
|
(43.1 |
) |
|
|
- |
|
|
|
157.4 |
|
Effect
of exchange rate changes on cash
|
|
|
- |
|
|
|
- |
|
|
|
1.3 |
|
|
|
- |
|
|
|
1.3 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
- |
|
|
|
324.0 |
|
|
|
(6.2 |
) |
|
|
- |
|
|
|
317.8 |
|
Cash
and cash equivalents at beginning of period
|
|
|
- |
|
|
|
0.5 |
|
|
|
13.0 |
|
|
|
- |
|
|
|
13.5 |
|
Cash
and cash equivalents at end of period
|
|
$ |
- |
|
|
$ |
324.5 |
|
|
$ |
6.8 |
|
|
$ |
- |
|
|
$ |
331.3 |
|
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, 2007.
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
Tier I supplier to the automotive industry. We manufacture, engineer,
design and validate driveline and drivetrain systems and related components and
chassis modules for trucks, sport utility vehicles (SUVs), passenger cars and
crossover utility 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 and all-wheel drive (4WD/AWD) axle requirements for these vehicle
platforms. Sales to GM were approximately 73% of our total net sales
in the first six months of 2008 as compared to 78% for the first six months and
full-year 2007.
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 10 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 six months of 2008, the first six months of
2007 and the full-year 2007.
In
addition to GM and Chrysler, we supply driveline systems and other related
components to PACCAR Inc., Ford Motor Company (Ford), 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 $295.4 million in the first six months of 2008 as compared to
$375.9 million for the first six months of 2007.
In
the second quarter of 2008, we resolved an 87 day strike called by the
International UAW at our original U.S. locations in Michigan and New York. The
new labor agreements negotiated for these locations substantially improved our
operating flexibility and U.S. labor cost structure from the previous
agreements. The details of these new agreements are further described in the
section entitled “Company Overview – Impact and Resolution of International UAW
Strike.”
In addition, we continued our ongoing restructuring efforts to realign and
resize our production capacity and cost structure to meet current and projected
operational and market demands. As a result of these restructuring actions, we
incurred significant special charges and non-recurring operating costs in the
second quarter of 2008. The impact of these charges is explained in the section
entitled “Results of Operations.”
Our
largest customers continue to react to current market conditions such as lower
projected U.S. industry volumes and rapid shifts in consumer preferences away
from products that we support. GM recently announced plans to significantly
reduce production capacity for several of AAM’s major light truck product
programs in response to the market changes described above. AAM will continue to
evaluate market conditions and our underutilized U.S. capacity and may take
further restructuring actions. These actions could result in future special
charges, including additional asset impairments.
IMPACT
AND RESOLUTION OF INTERNATIONAL UAW STRIKE
On February 25, 2008, the four-year
master labor agreement between AAM and the International United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW) covering
approximately 3,650 associates at our original five facilities in Michigan and
New York expired. The International UAW called a strike at these
facilities upon expiration of this agreement. On May 23, 2008, UAW represented
associates at these locations ratified the master and local labor agreements.
The strike had a significant adverse impact on the results of operations for the
six months ended June 30, 2008, as shown below (in millions):
|
|
|
|
Loss
of net sales
|
|
$ |
414.0 |
|
Increase
in gross loss
|
|
|
129.4 |
|
Increase
in net loss
|
|
|
132.5 |
|
The new labor
agreements:
·
|
established
a new wage and benefit package for eligible current and newly hired UAW
represented associates;
|
·
|
included
a Special Separation Program (SSP) to all UAW represented
associates at our original U.S. locations. This
voluntary separation program offered a range of retirement or buyout
incentives to eligible
associates;
|
·
|
created
an involuntary Buydown Program (BDP), which will be applicable for
associates that do not elect to participate in the SSP. Under
the BDP, we will make three annual lump-sum payments to associates in
exchange for, among other things, a base wage
decrease. The total buydown payments are expected to average
between $90,000 and $95,000 per associate and will not exceed $105,000 per
associate;
|
·
|
included
the closure of our Buffalo Gear, Axle & Linkage facility (Buffalo) and
Tonawanda and Detroit forging facilities within the next six to twelve
months; and
|
·
|
provided
improved operating flexibility through Innovative Operating
Agreements.
|
We will incur significant special charges and other operating costs related to
the SSP and BDP, including pension and OPEB curtailments and special and
contractual termination benefits. We currently expect the total cost of the SSP
and BDP to range from $400 million to $450 million.
These new labor agreements will
structurally and permanently reduce our U.S. labor cost structure. We
expect to achieve total annual structural cost reductions of up to $300 million
resulting from these agreements.
RESULTS
OF OPERATIONS –– THREE MONTHS ENDED JUNE 30, 2008 AS COMPARED TO THREE MONTHS
ENDED JUNE 30, 2007
Net Sales Net sales
were $490.5 million in the second quarter of 2008 as compared to $916.5 million
in the second quarter of 2007. We estimate the adverse impact of the
International UAW strike on net sales in the second quarter of 2008 was $274.9
million.
As
compared to the second quarter of 2007, our sales in the second quarter of 2008
reflect a decrease of approximately 50% in production volumes for the major
full-size truck and SUV programs we currently support for GM and Chrysler and a
decrease of approximately 54% in products supporting GM’s mid-size light truck
and SUV programs. These decreases reflect the result of the strike as
well as a reduction in consumer demand for these 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) was $1,312 in the second
quarter of 2008 as compared to $1,318 in the second quarter of
2007. Our 4WD/AWD penetration rate was 64.8 % in the second quarter
of 2008 as compared to 65.1% in the second quarter of 2007.
Gross Profit (Loss) Gross
profit (loss) was a loss of $527.9 million in the second quarter of 2008 as
compared to profit of $113.7 million in the second quarter of
2007. Gross margin was negative 107.6% in the second quarter of 2008
as compared to 12.4% in the second quarter of 2007. The decrease in
gross profit and gross margin in the second quarter of 2008 reflects the impact
of the International UAW strike, which is estimated at $86.6 million, lower
sales, and special charges and other non-recurring operating costs, as shown
below (in millions):
Hourly workforce and
benefit
reductions |
$ |
137.3 |
|
Asset impairments,
indirect inventory obsolescence and idled leased
assets |
|
329.9 |
|
Signing
bonus |
|
19.1 |
|
Supplemental
Unemployment Benefits (SUB) |
|
18.0 |
|
Salaried workforce
reductions |
|
6.1 |
|
Other |
|
7.4 |
|
Total special
charges and non-recurring operating costs |
$ |
517.8 |
|
Hourly workforce and benefit
reductions We offered the SSP to UAW represented associates at
the original U.S. locations in the second quarter of 2008. Under this
voluntary separation program, we offered retirement and buyout incentives to
approximately 3,650 eligible hourly associates. We recorded a special
charge of $131.2 million for this program in the second quarter of
2008. This charge includes $116.1 million related to estimated
postemployment costs and $15.1 million for the curtailment and settlement of
certain pension and other postretirement benefits and related special and
contractual termination benefits. These charges relate to associates
who have accepted the SSP early as well as associates at facilities
operating under our plant closure agreements. We will record the
remaining liability for the SSP when the final acceptances are known in the
third quarter of 2008. The remaining charge of $6.1 million relates
to termination benefits for associates represented by the International
Association of Machinists (IAM).
Asset impairments, indirect
inventory obsolescence and idled leased assets In the second quarter of
2008, we identified the following impairment indicators:
·
|
a
significant decline in current and projected market demand and future
customer production schedules for the major North American light truck
programs we currently support and
|
·
|
changes
in the extent to which assets at our original U.S. locations will be used
as a result of management’s long-term plant loading decisions made
subsequent to the new labor agreements with the International
UAW.
|
We recorded asset impairment charges of
$294.8 million in the second quarter of 2008 associated with the permanent
idling of certain assets and an impairment analysis of certain assets that were
“held for use” as of June 30, 2008. We have also reduced the
remaining useful lives of certain “held for use” assets as part of this
analysis.
As a result of the reduction in the
projected usage of machinery and equipment due to the impairment indicators
discussed above, certain machine repair parts classified as indirect inventory
was determined to be obsolete. We recorded a charge of $30.4 million related to
the write down of the net book value of these assets to their estimated net
realizable value at June 30, 2008.
We also recorded a special charge of
$4.7 million for the fair value of obligations for assets under operating leases
that were idled in the second quarter of 2008.
Signing Bonus As
part of these new agreements, we paid a lump-sum ratification bonus to each
eligible associate at our original U.S locations in the second quarter of
2008. We expensed and paid $19.1 million for these signing
bonuses.
SUB In the second quarter of
2008, we expensed $18.0 million relating to supplemental unemployment benefits
(SUB) to be payable to current UAW represented associates during the new labor
agreements that expire in February 2012. The new labor agreements
between AAM and the International UAW contain a SUB provision, pursuant to which
we are required to pay eligible idled workers certain benefits. Under
the new agreement, our obligation for SUB payments is limited to $18.0 million
upon which. Once this limit is reached, the SUB program will be
terminated. As
of June 30, 2008, it was probable and estimable that we will pay the full amount
during the contract period.
Salaried workforce
reductions In the second quarter of 2008, we also approved a
plan to reduce the salaried workforce by approximately 350 associates in the
U.S. We recorded a special charge to cost of sales of $6.1 million
for this reduction. This charge includes $5.7 million related to
estimated postemployment costs and $0.4 million for special termination
benefits.
Other Other charges of $7.4
million primarily includes plant closure costs and charges related to the
redeployment of assets to support capacity utilization initiatives.
Gross
profit in the second quarter of 2007 includes $7.0 million in special charges,
primarily related to attrition program activity.
Selling,
General and Administrative Expenses (SG&A) SG&A
(including research and development (R&D)) was $44.9 million or 9.1% of
net sales in the second quarter of 2008 as compared to $54.2 million or 5.9% of
net sales in the second quarter of 2007. The decrease in
SG&A in the second quarter of 2008 reflects lower profit sharing accruals
and stock based compensation expense. SG&A in the second quarter
of 2008 includes $3.4 million of special charges for the estimated
postemployment costs related to salaried workforce
reductions. R&D was $21.9 million in the second quarter of
2008 as compared to $19.6 million in the second quarter of 2007.
Operating Income
(Loss) Operating income (loss) was a loss of
$572.8 million in the second quarter of 2008 as compared to income of $59.5
million in the second quarter of 2007. Operating margin was negative
116.8% in the second quarter of 2008 as compared to 6.5% in the second quarter
of 2007. The decreases in operating income and operating margin were
due to the factors discussed in Gross Profit (Loss).
Net Interest
Expense Net interest expense was $13.5 million in the second
quarter of 2008 as compared to $15.3 million in the second quarter of
2007. The decrease in net interest expense reflects lower average
interest rates and higher average cash balances in the second quarter of 2008 as
compared to the second quarter of 2007. Partially offsetting the
impact of these items on net interest expense was higher average outstanding
borrowings in the second quarter of 2008 compared to the second quarter of
2007.
Income Tax Expense In the
second quarter of 2008, several events occurred that led us to significantly
revise the near-term projected future operating results of our U.S.
operations. These events include:
·
|
the
significant decline in current customer volumes and future customer
production schedules as a result of a shift in consumer preferences away
from the major North American light truck programs we
support;
|
·
|
changes
in management’s long-term plant loading decisions made subsequent to the
new labor agreements with the International UAW;
and
|
·
|
the
impact of significant charges resulting from our restructuring actions in
the second quarter of 2008.
|
We
reviewed the likelihood that we would be able to realize the benefit of our U.S.
deferred tax assets as of June 30, 2008, based on the revised near-term
projected future operating results of our U.S. operations. We
concluded that it is no longer “more likely than not” that we will realize our
net deferred assets in the U.S. and recorded a charge to income tax expense in
the second quarter of 2008 of $54.4 million to establish a full valuation
allowance against these assets. We recorded an additional valuation
allowance in the second quarter of 2008 of $213.5 million by not recognizing a
tax benefit on losses incurred in the three months ended June 30,
2008.
If, in
the future, we generate taxable income in the U.S. on a sustained basis, our
current estimate of the recoverability of our deferred tax assets could change
and result in the future reversal of some or all of the valuation
allowance.
Income
tax expense was $59.1 million in the second quarter of 2008 as compared to $5.3
million in the second quarter of 2007. Our effective income tax rate
was negative 10.1% in the second quarter of 2008 as compared to 13.3% in the
second quarter of 2007. The effective tax rate in the second quarter
of 2008 includes the unfavorable tax adjustment related to the establishment of
the full valuation allowance against the net U.S. deferred tax assets and
reflects the impact of not recording an income tax benefit for current tax
losses in the U.S.
Net Income (Loss) and Earnings (Loss)
Per Share (EPS) Net income (loss) was a loss of
$644.3 million in the second quarter of 2008 as compared to income of $34.6
million in the second quarter of 2007. Diluted earnings (loss) per
share was a loss of $12.49 in the second quarter of 2008 as compared to earnings
of $0.66 in the second quarter of 2007. Net income (loss) and EPS for
the second quarters of 2008 and 2007 were primarily impacted by the factors
discussed in Sales, Gross Profit (Loss) and Income Tax Expense.
RESULTS
OF OPERATIONS –– SIX MONTHS ENDED JUNE 30, 2008 AS COMPARED TO SIX MONTHS ENDED
JUNE 30, 2007
Net Sales Net sales
were $1,078.1 million in the first six months of 2008 as compared to $1,718.7
million in the first six months of 2007. We estimate the adverse
impact of the International UAW strike on net sales in the first six months of
2008 was $414.0 million.
As
compared to the first six months of 2007, our sales in the first six months of
2008 reflect a decrease of approximately 41% in production volumes for the major
full-size truck and SUV programs we currently support for GM and Chrysler and a
decrease of approximately 49% in products supporting GM’s mid-size light truck
and SUV programs. These decreases reflect the result of the strike as
well as a reduction in consumer demand for these 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 2.6% to $1,320 in the first six
months of 2008 as compared to $1,287 in the first six months of
2007. The increase is due primarily to mix shifts favoring full-size
trucks and SUV programs. Our 4WD/AWD penetration rate was 65.4% in the
first six months of 2008 as compared to 64.5% in the first six months of
2007.
Gross Profit (Loss) Gross
profit (loss) was a loss of $515.2 million in the first six months of 2008 as
compared to profit of $199.0 million in the first six months of
2007. Gross margin was negative 47.8% in the first six months of
2008 as compared to 11.6% in the first six months of 2007. The
decrease in gross profit and gross margin in the first six months of 2008
reflects the impact of the International UAW strike, which is estimated at
$129.4 million, lower sales, special charges and other non-recurring operating
costs, as shown below (in millions):
Hourly workforce and
benefit reductions |
|
$ |
137.3 |
|
Asset impairments,
indirect inventory obsolescence and idled leased
assets |
|
|
329.9 |
|
Signing
bonus |
|
|
19.1 |
|
Supplemental
Unemployment Benefits (SUB) |
|
|
18.0 |
|
Salaried workforce
reductions |
|
|
6.1 |
|
Other |
|
|
10.9
|
|
Total special
charges and non-recurring operating costs |
|
$ |
521.3 |
|
See
RESULTS OF OPERATIONS –– THREE MONTHS ENDED JUNE 30, 2008 AS COMPARED TO THREE
MONTHS ENDED JUNE 30, 2007 for further discussion
on these special charges and other non-recurring operating costs.
Gross
profit in the first six months of 2007 includes $9.9 million in special charges,
primarily related to attrition program activity.
Selling, General and Administrative
Expenses (SG&A) SG&A (including research and
development (R&D)) was $94.3 million or 8.7% of net sales in the first
six months of 2008 as compared to $103.1 million or 6.0% of net sales in the
first six months of 2007. The decrease in SG&A in the first six
months of 2008 reflects lower profit sharing accruals and stock based
compensation expense. SG&A in the first six months of 2008
includes $3.4 million of special charges for the estimated postemployment costs
related to salaried workforce reductions. R&D was $42.1 million
in the first six months of 2008 as compared to $39.7 million in the first six
months of 2007.
Operating Income (Loss) Operating income (loss) was a loss of
$609.5 million in the first six months of 2008 as compared to income of $95.9
million in the first six months of 2007. Operating margin was
negative 56.5% in the first six months of 2008 as compared to 5.6% in the first
six months of 2007. The decreases in operating income and operating
margin were due to the factors discussed in Gross Profit
(Loss).
Net Interest
Expense Net interest expense was $26.2 million in the first
six months of 2008 as compared to $29.3 million in the first six months of
2007. The decrease in net interest expense reflects lower average
interest rates and higher average cash balances in the first six months of 2008
as compared to the first six months of 2007. Partially offsetting the
impact of these items on net interest expense was higher average outstanding
borrowings in the first six months of 2008 compared to the first six months of
2007.
Income Tax Expense Income tax expense
was $37.2 million in the first six months of 2008 as compared to $12.1 million
in the first six months of 2007. Our effective income tax rate was
negative 5.9% in the first six months of 2008 as compared to 19.4% in the first
six months of 2007. The effective tax rate in the first six months of
2008 includes the unfavorable tax adjustment related to the establishment of the
full valuation allowance against the net U.S. deferred tax assets and reflects
the impact of not recording an income tax benefit for current tax losses in the
U.S. See RESULTS OF OPERATIONS –– THREE MONTHS ENDED JUNE 30, 2008 AS
COMPARED TO THREE MONTHS ENDED JUNE 30, 2007 for further discussion on the
valuation allowance.
Net Income (Loss) and Earnings (Loss) Per Share (EPS) Net
income (loss) was a loss of $671.3 million in the first six months of 2008 as
compared to income of $50.3 million in the first six months of
2007. Diluted earnings (loss) per share was a loss of $13.01 in the
first six months of 2008 as compared to earnings of $0.96 in the first six
months of 2007. Net income (loss) and EPS for the first six months of
2008 and 2007 were primarily impacted by the factors discussed in Net Sales,
Gross Profit (Loss) and Income Tax Expense.
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary liquidity needs are to fund capital expenditures, debt service
obligations and working capital investments. We also need to fund
ongoing attrition programs as well as restructuring programs included in the new
labor agreements with the International UAW. 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 used in operating activities was $75.9
million in the first six months of 2008 as compared to net cash provided by
operating activities of $234.6 million in the first six months of
2007. This was mainly a result of lower sales and the impact of
the strike called by the International UAW, which had an adverse effect on
working capital in the first six months of 2008. In addition, we paid
$19.1 million of signing bonus to UAW represented associates in the first six
months of 2008.
In the
first six months of 2008, we made cash payments of $17.6 million related to
restructuring actions as compared to $29.0 million in the first six months of
2007.
We expect to fund approximately $200
million to $250 million in 2008 related to SSP and BDP
obligations. The remainder of these payments will be made between
2009 and 2012.
Investing Activities Net
cash used in investing activities was $64.6 million in the first six months of
2008 as compared to $75.5 million in the first six months of
2007. Capital expenditures were $66.9 million in the first six months
of 2008 as compared to $75.5 million in the first six months of
2007. We expect our capital spending in 2008 to be in the range of
$170 million to $180 million. These expenditures include support
for the future launch of new vehicle programs within our business backlog and
the expansion of our global manufacturing footprint.
Financing
Activities Net cash used in financing activities was $7.5
million in the first six months of 2008 as compared to net cash provided by
financing activities of $157.4 million in the first six months of
2007. Total long-term debt outstanding increased $11.1 million
in the first six months of 2008 to $869.2 million as compared to $858.1
million at year-end 2007.
In the
first six months of 2007, we issued $300.0 million of 7.875% senior unsecured
notes due 2017. 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 in 2007.
At June
30, 2008, we had $572.3 million available under the Revolving Credit
Facility. This availability reflects a reduction of $27.7 million for
standby letters of credit issued against the facility. We also
utilize foreign credit facilities to finance working capital
needs. At June 30, 2008, $58.2 million was outstanding and $105.4
million was available under such agreements.
The
weighted-average interest rate of our long-term debt outstanding in the first
six months of 2008 was 7.7% as compared to 8.2% for the year ended December 31,
2007.
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 quarterly 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 six months of 2008, and we do not expect such expenditures to be
significant for the remainder of 2008.
EFFECT
OF NEW ACCOUNTING STANDARDS
On January 1, 2007, we adopted the
provisions of FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in
Income Taxes.” FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements in accordance
with FASB Statement No. 109, “Accounting for Income
Taxes.” This interpretation prescribes a “more likely than
not” recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. We adopted FIN 48 on January 1,
2007 and the impact of adoption was not significant.
In September 2006, the FASB issued
Statement No. 158 (SFAS 158), “Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans.” This
statement amended 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 (SFAS 157), “Fair Value
Measurements.” This statement clarifies the definition of fair
value and establishes a fair value hierarchy. SFAS 157, as originally
issued, was effective for us on January 1, 2008. In February 2008,
the FASB issued FASB Staff Position (FSP) FAS 157-2, which defers the effective
date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except
for items that are recognized or disclosed at fair value in an entity’s
financial statements on a recurring basis. The effective date for us
under this FSP is January 1, 2009. As allowed by FSP FAS 157-2, we
partially adopted SFAS 157 on January 1, 2008 and the impact of adoption was not
significant. We do not expect the impact of applying SFAS 157 to the
remaining assets and liabilities on January 1, 2009 to be material.
In
February 2007, the FASB issued Statement No. 159 (SFAS 159), “The Fair Value Option for Financial
Assets and Financial Liabilities.” 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 was
effective for us on January 1, 2008 and we did not elect to measure any
additional assets or liabilities at fair value.
In
December 2007, the FASB issued Statement No. 160 (SFAS 160), “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB
No. 51.” SFAS 160 establishes new accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. SFAS 160 is effective for us on
January 1, 2009. We are currently assessing the impact of adopting this
statement.
In
December 2007, the FASB issued Statement No. 141 (Revised) (SFAS
141R), “Business
Combinations.” This statement replaces FASB Statement No. 141 and
establishes principles and requirements for how the acquirer:
a.
Recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree
b.
Recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase
c.
Determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.
SFAS
141R is effective for us prospectively for any acquisitions made on or after
January 1, 2009.
In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging
Activities -
an amendment of FASB Statement No. 133.” This statement
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS 161 is effective
for us prospectively on January 1, 2009.
Item 3. Quantitative and Qualitative Disclosures About
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 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, 2008, we had currency forward contracts with a
notional amount of $43.2 million outstanding.
Future
business operations and opportunities, including the expansion of our business
outside North America, may further increase the risk that cash flows resulting
from these activities may be adversely affected by changes in currency exchange
rates. If and when appropriate, we intend to manage these risks by
utilizing local currency funding of these expansions and various types of
foreign exchange contracts.
Interest Rate
Risk We are exposed to variable interest rates on certain
credit facilities. From time to time, we use interest rate hedging to
reduce the effects of fluctuations in market interest
rates. Generally, we designate interest rate swaps as effective cash
flow hedges of the related debt and reflect the net cost of such agreement as an
adjustment to interest expense over the lives of the debt
agreements. We have hedged a portion of our interest rate risk by
entering into an interest rate swap with a notional amount of $200.0
million. This notional amount reduces to $100.0 million in December
2008 and expires in April 2010. The interest rate swap converts
variable rate financing based on 3-month LIBOR into fixed U.S. dollar rates. The
pre-tax earnings and cash flow impact of a one-percentage-point increase in
interest rates (approximately 13% of our weighted-average interest rate at June
30, 2008) on our long-term debt outstanding at June 30, 2008 would be
approximately $1.1 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, 2008,
and (2) no change in internal control over financial reporting occurred during
the quarter ended June 30, 2008 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, 2007 Form 10-K.
Our
annual meeting of stockholders was held on April 24, 2008. 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 2011 annual meeting of
stockholders:
|
|
Number
of Votes |
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Withheld
|
|
Directors: |
|
|
|
|
|
|
Richard
E. Dauch
|
|
|
48,731,431 |
|
|
|
738,979 |
|
William
P. Miller II |
|
|
48,739,123 |
|
|
|
713,287 |
|
Larry
K. Switzer |
|
|
48,742,228 |
|
|
|
710,182 |
|
Directors
whose term of office continued after the meeting are Forest J. Farmer, Richard
C. Lappin, Thomas K. Walker, John A. Casesa, Elizabeth A. Chappell and Dr. Henry
T. Yang.
Proposal Two: The approval of
AAM 2008 long-term incentive plan:
|
|
Number
of Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
No
Vote
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Long-Term Incentive Plan
|
|
|
14,019,797 |
|
|
|
33,728,015 |
|
|
|
27,559 |
|
|
|
1,677,039 |
|
Proposal Three: The
ratification of appointment of independent registered public accounting
firm:
|
|
Number
of Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
|
|
|
|
|
|
|
Deloitte
& Touche LLP
|
|
|
48,609,801 |
|
|
|
830,035 |
|
|
|
12,574 |
|
|
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)
Date: July 25, 2008
Group
Vice President - Finance & Chief Financial
Officer
|
(also in
the capacity of Chief Accounting Officer)
Number
|
Description of Exhibit |
|
|
|
|
*++10.47
|
Amendment
# 6 dated May 3, 2008 to Letter Agreement dated February 26, 2004 by and
between GM and AAM, Inc.
|
|
|
|
|
*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, Group 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, Group 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
|
|
|
|
|
|
|
|
* Filed
herewith
++ Confidentiality Request to the SEC is
pending