AMERICAN AXLE & MANUFACTURING HOLDINGS INC - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
þ ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2009
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
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38-3161171
|
|
(State
or other jurisdiction of
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(I.R.S.
Employer
|
|
incorporation
or organization)
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Identification
No.)
|
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ONE
DAUCH DRIVE, DETROIT, MICHIGAN
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48211-1198
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|
(Address
of principal executive offices)
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(Zip
Code)
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313-758-2000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of Each Class
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Name
of Each Exchange on Which Registered
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COMMON
STOCK, PAR VALUE $0.01 PER SHARE
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NEW
YORK STOCK EXCHANGE
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PREFERRED
SHARE PURCHASE RIGHTS, PAR VALUE $0.01 PER SHARE
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NEW
YORK STOCK EXCHANGE
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Securities
registered pursuant to Section 12(g) of the
Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes
o No þ
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. þ
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).
Large
accelerated filer o Accelerated
filer þ Non-accelerated
filer o Smaller
reporting company o
(Do
not check if small reporting company)
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
The
closing price of the Common Stock on June 30, 2009 as reported on the New York
Stock Exchange was $3.44 per share and the aggregate market value of the
registrant’s Common Stock held by non-affiliates was approximately $160.4
million.
As of
February 17, 2010, the number of shares of the registrant’s Common Stock, $0.01
par value, outstanding was 71,567,175 shares.
Documents
Incorporated by Reference
Portions
of the registrant's Annual Report to Stockholders for the year ended December
31, 2009 and Proxy Statement for use in connection with its Annual
Meeting of Stockholders to be held on April 29, 2010, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120
days after December 31, 2009, are incorporated by reference in Part I (Items 1,
1A, 1B, 2, 3 and 4), Part II (Items 5, 6, 7, 7A, 8, 9, 9A and
9B), Part III (Items 10, 11, 12, 13 and 14) and Part IV (Item 15) of this
Report.
Year
Ended December 31, 2009
Page
Number
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Business
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1 | |||||
Risk
Factors
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6 | |||||
Unresolved
Staff Comments
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9 | |||||
Properties
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10 | |||||
Legal
Proceedings
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11 | |||||
Submission
of Matters to a Vote of Security Holders and Executive Officers of the
Registrant
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11 | |||||
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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14 | |||||
Selected
Financial Data
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15 | |||||
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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16 | |||||
Quantitative
and Qualitative Disclosures About Market Risk
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31 | |||||
Financial
Statements and Supplementary Data
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32 | |||||
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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69 | |||||
Controls
and Procedures
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69 | |||||
Other
Information
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69 | |||||
Directors,
Executive Officers and Corporate Governance
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70 | |||||
Executive
Compensation
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70 | |||||
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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70 | |||||
Certain
Relationships and Related Transactions, and Director
Independence
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70 | |||||
Principal
Accounting Fees and Services
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70 | |||||
Exhibits
and Financial Statement Schedules
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71 | |||||
Amended
and Restated Bylaws of American Axle & Manufacturing,
Inc.
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||||||
Computation
of Ratio of Earnings to Fixed Charges
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||||||
Subsidiaries
of the Registrant
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||||||
Consent
of Independent Registered Public Accounting Firm
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||||||
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act
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||||||
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act
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||||||
Certifications
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
Item 1. Business
As used
in this report, except as otherwise indicated in information incorporated by
reference, references to “our Company,” "we," "our," "us" or “AAM” mean American
Axle & Manufacturing Holdings, Inc. (Holdings) and its subsidiaries and
predecessors, collectively.
(a)
General Development of Business
Holdings, a Delaware corporation, is a successor to American Axle &
Manufacturing of Michigan, Inc., a Michigan corporation, pursuant to a migratory
merger between these entities in 1999.
In 2008, and continuing in 2009, the domestic automotive industry experienced a
severe downturn. The collapse of the U.S. housing market, the global
financial crisis, a lack of available consumer credit and financing options,
rising unemployment, exceptionally low consumer confidence and wildly
fluctuating fuel and commodity prices, among other factors, resulted in a sudden
and major drop in industry production and sales volumes. These
difficult market conditions exacerbated the financial pressure on the entire
domestic automotive industry, and especially the domestic original equipment
manufacturers (OEMs), resulting in the unprecedented bankruptcy filings by
General Motors and Chrysler. The U.S. seasonally adjusted
annual rate of sales (SAAR) declined from 16.1 million units in 2007 to 13.2
million in 2008 and 10.4 million in 2009 – the
lowest U.S. domestic auto industry selling rate in over 25
years.
As part of the restructuring activities by our largest customers, GM implemented
an extended summer production shutdown in the second and third quarters of 2009
for many of their facilities we support and Chrysler temporarily idled its
manufacturing operations through its exit from
bankruptcy.
On September 16, 2009, AAM and GM entered into a settlement and commercial
agreement (2009 Settlement and Commercial Agreement). As part of the
2009 Settlement and Commercial Agreement we received $110.0 million from GM
for cure costs associated with contracts assumed and/or terminated during GM’s
chapter 11 bankruptcy proceedings and resolved certain commercial and financial
obligations then outstanding between AAM and GM, which resulted in, among other
things, AAM retaining all but one program that had previously been sourced to us
and an adjustment of our installed capacity levels reserved for
existing and awarded GM programs to reflect new estimates of market
demand. Also, as part of this agreement, we entered into a $100.0
million second lien term loan facility with GM, issued 4.1 million warrants to
GM to purchase AAM common stock, and expedited the payment terms on our
receivables from GM from approximately 45 days to approximately 10 days in
exchange for a 1% early payment discount. See Item 8, “Financial
Statements and Supplementary Data – Note 2 – 2009 Settlement and Commercial
Agreement” for more detail.
In
December 2009, we issued $425 million of senior secured notes due 2017 to
refinance our senior secured term loan and a portion of our amended revolving
credit facility and sold 16.1 million shares of AAM common stock for net
proceeds of $109.7 million in order to further improve our
liquidity. In addition, we entered into a Revolving Credit
Amendment and Restatement Agreement which, among other things, extended the
maturity date of $243.2 million of our amended revolving credit facility to June
30, 2013. See Item 8, “Financial Statements and Supplementary Data –
Note 5 – Long-Term Debt and Lease Obligations” for more detail.
(b)
Financial Information About Segments
See
Item 8, “Financial Statements and Supplementary Data - Note 16 - Segment and
Geographic Information” included in this report.
(c) Narrative
Description of Business
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 light trucks, sport utility vehicles (SUVs), passenger cars,
crossover vehicles and commercial 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, driveheads, crankshafts,
transmission parts and metal-formed products.
We are
the principal supplier of driveline components to 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 78% of our total net sales in 2009, 74% in 2008 and 78%
in 2007.
1
We are the sole-source supplier to GM for certain axles and other driveline
products for the life of each GM vehicle program which was previously covered by
a Lifetime Program Contract (LPC). As part of the 2009 Settlement and
Commercial Agreement, GM terminated the existing LPCs and entered into new
LPCs. Substantially all of our sales to GM are made pursuant to the
new LPCs. The new 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 are
also the principal supplier of driveline system products for Chrysler’s
heavy-duty Dodge Ram full-size pickup trucks (Dodge Ram program) and its
derivatives. Sales to Chrysler were approximately 8% of our total net
sales in 2009, 10% in 2008 and 12% in 2007.
In
addition to GM and Chrysler, we supply driveline systems and other related
components to PACCAR Inc., Volkswagen, Harley-Davidson, Deere & Company,
Tata Motors, Mack Truck, Ford Motor Company and other OEMs and Tier I
supplier companies such as Hino Motors Ltd. and Jatco Ltd. Our net
sales to customers other than GM and Chrysler were approximately 14% of sales in
2009 as compared to 16% in 2008 and 10% in 2007.
Our
principal served market of $34 billion, as estimated based on information
available at the end of 2008, is the global driveline market, which consists of
driveline, drivetrain and related components and chassis modules for light
trucks, SUVs, passenger cars, crossover vehicles and commercial
vehicles.
The
following chart sets forth the percentage of total revenues attributable to our
products for the periods indicated:
Year
ended December 31,
|
||||||||||||
2009
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2008
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2007
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||||||||||
Axles
and driveshafts
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75.4 | % | 79.2 | % | 84.4 | % | ||||||
Chassis
components, forged products and other
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24.6 | % | 20.8 | % | 15.6 | % | ||||||
Total
|
100.0 | % | 100.0 | % | 100.0 | % |
Business
Strategy
We are focused on increasing our net sales, profitability and cash flow,
and strengthening our balance sheet by providing exceptional value to our
customers, capitalizing on our competitive strengths and continuing to diversify
our customer, product, and geographic sales mix. In 2006, we
initiated a Restructuring, Resizing, and Profit Recovery plan in order for us to
achieve a cost structure in line with current and projected levels of customer
demand and market requirements. The comprehensive, multi-year plan
has proven successful, yielding significant, permanent structural cost
reductions and driving our operating breakeven level down to a U.S. SAAR
equivalent of approximately 10 million vehicle units. These actions
position us to significantly improve profitability and free cash flow
performance as global economic conditions improve.
While continuing to emphasize our outstanding track record of operational
excellence, we are now focused on accelerating progress on two critical business
objectives: profitable growth and business diversification. These critical
business objectives include the following actions:
Advancing
the diversification and innovation of our product portfolio to increase our
total global served market.
·
|
We
have invested more than $830 million in research and development since
1994, resulting in the development of products with industry leading
technology for driveline and drivetrain systems and related components for
light trucks, SUVs, passenger cars, crossover vehicles, and commercial
vehicles.
|
·
|
We
have accelerated the development and launch of products for passenger cars
and crossover vehicles and the global light truck and commercial vehicle
markets. As of February 5, 2010, we had approximately $1.0 billion of new
and incremental business backlog launching from 2010 to 2014, of which
approximately 45% relates to AWD and RWD applications for passenger cars
and crossover vehicles and of which approximately 35% relates to driveline
applications for the global non-U.S. light truck and commercial vehicle
markets.
|
Growing
new customer relationships to continue the diversification of our customer base
and product portfolio.
·
|
We
have focused on generating profitable growth with new and existing global
OEM customers, as well as commercial vehicle, off-road, and emerging
market OEMs. As a result, new business launches in 2010 and 2011 include
business with Volkswagen, Audi, Nissan, Mack Truck, Tata Motors,
Brilliance China Automotive Co., Ltd., Chery Automobile Co., Ltd., and
Mahindra Navistar Automotives Ltd.
|
·
|
As
of February 5, 2010, we are quoting on approximately $600 million in new
business opportunities to continue the diversification and expansion of
our customer base, product portfolio and global
footprint.
|
2
Increasing
our exposure to global growth markets to support our customers’ global platforms
and establish regional cost competitiveness.
·
|
We
have more than doubled our global installed capacity to support current
and future opportunities. Specific actions include expanding facilities in
Mexico, Brazil, and Poland, increasing our investment in our China joint
venture, and constructing new facilities in India and
Thailand.
|
·
|
As
of February 5, 2010, approximately 70% of our $1.0 billion of new and
incremental business backlog launching from 2010 to 2014 is for end use
markets outside of North America and approximately 80% has been sourced to
our manufacturing facilities outside the
U.S.
|
Sustaining
our operational excellence and focus on cost management to deliver exceptional
value to our customers and enhance profitability.
·
|
Our
focus on cost management has led to annual structural labor cost
reductions in excess of $700 million due to our 2008 labor agreements at
our original U.S. locations, reductions in our salaried workforce, and
other labor, benefits, and selling, general and administrative spending
cuts.
|
Competition
and Strengths
We
compete with a variety of independent suppliers and distributors, as well as
with the in-house operations of certain OEMs. Our principal
competitors include Dana Holding Corporation (Dana), Magna International Inc.
(Magna), ZF Friedrichshafen AG (ZF Group) and the in-house operations of
Chrysler and Ford. The sector is also attracting new competitors from
Asia who are entering both of these product lines through acquisition of OEM
non-core operations.
With
a focus on engineering and manufacturing, we support our business strategy and
differentiate ourselves through the following strengths:
·
|
Outstanding
long-term daily track records on quality, reliability, delivery, and
launch performance - We reduced our discrepant parts per million (“PPM”)
performance, as measured by our largest customer, from 13,441 PPM in 1994
to 5 PPM as of December 2009. We also have a strong track
record of successfully supporting new product, process and facility
launches.
|
·
|
Demonstrated
ability to achieve cost savings - We reduced fixed operating costs by more
than 50% through our multi-year Restructuring, Resizing and Profit
Recovery plan. In total, annual cost cuts (fixed and variable)
exceeded $700 million. This has reduced our operating breakeven to a U.S.
SAAR equivalent of approximately 10 million vehicle units.
As a result of our 2008 labor agreements at our original
U.S. locations, we converted the former fixed legacy labor cost structure
to a highly flexible, competitive and variable cost structure.
We
continuously evaluate the need to rationalize excess capacity through
consolidation, divesture, idling or closing facilities to maximize
productivity and capacity utilization, and further minimize operating and
overhead costs.
|
·
|
Cost
competitive, operationally flexible global manufacturing, engineering and
sourcing footprint - We have re-aligned our global installed capacity to
increase exposure to global growth markets, support global product
development initiatives and establish regional cost competitiveness. This
includes having manufacturing facilities in the U.S., Mexico, Brazil,
China, India, Thailand and Poland.
All of our global facilities utilize the AAM Manufacturing
System, a business philosophy focused on lean manufacturing designed to
facilitate cost reductions, improve quality, reduce inventory and improve
our operating flexibility.
|
·
|
A
long-term commitment to develop highly engineered, innovative product,
process and systems technology - We have global engineering
capabilities with state of the art product and systems development and
analysis tools. Our advanced product technology reduces the
noise, vibration and harshness characteristics of our products while
providing enhancements to our customers’ packaging, performance and
handling, fuel efficiency and mass reduction
initiatives.
|
3
Industry
Trends
See Item
7, “Management’s Discussion and Analysis – Industry Trends.”
Productive
Materials
We
believe that we have adequate sources of supply of productive materials and
components for our manufacturing needs. Most raw materials (such as
steel) and semi-processed or finished items (such as castings) are available
within the geographical regions of our operating facilities from qualified
sources in quantities sufficient for our needs. As we expand our
global manufacturing footprint, we will need to rely on suppliers in local
markets that have not yet proven their ability to meet our
requirements. We currently have contracts with our steel suppliers
that ensure continuity of supply. We also have validations and
testing capabilities that enable us to strategically utilize steel sources on a
global basis.
Research
and Development (R&D)
Since
March 1, 1994, we have spent approximately $830 million in R&D focusing on
new product, process and system technology development. We plan to
continue to invest in the development of new products, processes and systems to
improve efficiency and flexibility in our operations and continue to deliver
innovative new products, chassis modules and integrated driveline systems to our
customers.
In 2009,
R&D spending was $67.0 million as compared to $85.0 million in 2008 and
$80.4 million in 2007. The focus of this investment continues to be
developing innovative driveline and drivetrain systems and related components
for light trucks, passenger cars, SUVs, crossover vehicles and commercial
vehicles in the global marketplace. Product development in this area
includes power transfer units, transfer cases, driveline and transmission
differentials, multi-piece driveshafts, constant velocity joints, torque
transfer devices, chassis modules and front and rear drive axles. We
continue to focus on electronic integration in our existing and future products
to advance their performance. We also continue to support the development
of hybrid and electric vehicle systems. Special focus is also placed
on the development of products and systems that provide our customers with
efficiency and fuel economy advancements. Our efforts in these areas
have resulted in the development of prototypes and various configurations of
these driveline systems for several OEMs throughout the world.
Backlog
We
typically enter into agreements with our customers to provide axles or other
driveline or drivetrain products for the life of our customers’ vehicle
programs. Our new and incremental business backlog includes formally
awarded programs and incremental content and volume including customer requested
engineering changes. Our backlog may be impacted by various
assumptions, many of which are provided by our customers based on their long
range production plans. These assumptions include future production
volume estimates, changes in program launch timing and fluctuation in foreign
currency exchange rates.
Our new
and incremental business backlog was approximately $1.0 billion at February 5,
2010. We expect to launch approximately $700 million of our new and
incremental business backlog in the 2010, 2011 and 2012 calendar
years. The balance of the backlog is planned to launch in 2013 and
2014. Approximately 45% of our new business backlog relates to RWD
and AWD applications for passenger cars and crossover
vehicles. Approximately 70% of our new business backlog will be for
end use markets outside of North America and approximately 80% of our new
business backlog has been sourced to our non-U.S. facilities. The
portion of our backlog associated with GM is approximately $700
million.
Patents
and Trademarks
We
maintain and have pending various U.S. and foreign patents, trademarks and other
rights to intellectual property relating to our business, which we believe are
appropriate to protect our interest in existing products, new inventions,
manufacturing processes and product developments. We do not believe
that any single patent or trademark is material to our business nor would
expiration or invalidity of any patent or trademark have a material adverse
effect on our business or our ability to compete.
Cyclicality
and Seasonality
Our
operations are cyclical because they are directly related to worldwide
automotive production, which is itself cyclical and dependent on general
economic conditions and other factors. Our business is also
moderately seasonal as our major OEM customers historically have a two-week
shutdown of operations in July and an approximate one-week shutdown in
December. In addition, our OEM customers have historically incurred
lower production rates in the third quarter as model changes enter
production. Accordingly, our third quarter and fourth quarter results
may reflect these trends.
The
automotive industry’s cyclicality was exacerbated in 2009 by GM’s extended
summer production shutdown and Chrysler’s temporary idling of its manufacturing
operations during its bankruptcy.
4
Environmental
Matters
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 closely monitor our environmental conditions to ensure
that we are in compliance with applicable laws, regulations and
ordinances. We have made, and will continue to make, capital and
other expenditures to comply with environmental requirements, including
recurring administrative costs. Such expenditures were not
significant in 2009, 2008 and 2007.
Associates
We employ
approximately 6,500 associates, approximately 2,700 of which are employed in the
U.S. Approximately 1,500 associates are represented by the United
Automobile, Aerospace and Agricultural Implement Workers of America
(UAW). Approximately 800 associates represented by the UAW at our
original facilities in Michigan and New York are subject to a collective
bargaining agreement that expires February 25, 2012. An additional
700 associates at our Colfor Manufacturing, Inc. and MSP Industries Corporation
subsidiaries are represented by the UAW under collective bargaining agreements
that expire June 2, 2010 and April 17, 2013, respectively. In
addition, approximately 100 associates at our Albion Automotive subsidiary in
Scotland, approximately 2,500 associates at our Guanajuato Manufacturing Complex
in Mexico and approximately 300 associates at our Araucaria Manufacturing
Facility in Brazil are represented by labor unions that are subject to
collective bargaining agreements. The collective bargaining agreement
at Albion may be modified upon agreement by the parties and
the agreements in Mexico and Brazil expire annually.
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(a) or 15(d) of the Securities Exchange Act of 1934 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 (SEC). The SEC 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.
(d) Financial
Information About Geographic Areas
International
operations are subject to certain additional risks inherent in conducting
business outside the U.S., such as changes in currency exchange rates, price and
currency exchange controls, import restrictions, nationalization, expropriation
and other governmental action. Financial information relating to our
operations by geographic area is presented in the following
table. Net sales are attributed to countries based upon location of
customer. Long-lived assets exclude deferred income
taxes.
December
31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
millions)
|
||||||||||||
Net
sales
|
||||||||||||
United
States
|
$ | 979.7 | $ | 1,306.5 | $ | 2,069.0 | ||||||
Canada
|
66.5 | 166.2 | 385.3 | |||||||||
Mexico
|
371.6 | 469.2 | 630.6 | |||||||||
Other
|
103.8 | 167.3 | 163.3 | |||||||||
Total
net sales
|
$ | 1,521.6 | $ | 2,109.2 | $ | 3,248.2 | ||||||
Long-lived
assets
|
||||||||||||
United
States
|
$ | 818.0 | $ | 939.1 | $ | 1,507.4 | ||||||
Mexico
|
410.3 | 432.3 | 442.0 | |||||||||
Other
|
214.2 | 160.4 | 164.5 | |||||||||
Total
long-lived assets
|
$ | 1,442.5 | $ | 1,531.8 | $ | 2,113.9 |
5
Item 1A. Risk Factors
The
following risk factors and other information included in this Annual Report on
Form 10-K should be considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. If any of the following
risks occur, our business, financial condition, operating results and cash flows
could be materially adversely affected.
General
economic conditions may have an adverse impact on our operating performance and
results of operations.
The
recent global financial crisis has impacted our business and our customers’
business in the U.S. and globally. The U.S. SAAR declined from 16.1
million units in 2007 to 13.2 million in 2008 and 10.4 million in
2009. During 2009, the automotive industry experienced its lowest
U.S. domestic selling rate in over 25 years. Continued weakness or
deteriorating conditions in the U.S. or global economy that results in further
reduction of automotive production and sales by our largest customers may
adversely affect our business, financial condition and results of
operations. Additionally, in a down-cycle economic environment, we may
experience the negative effects of increased competitive pricing pressure and
customer turnover.
Our
business is significantly dependent on sales to GM and Chrysler.
We
are the principal supplier of driveline components to GM for its RWD light
trucks and SUVs manufactured in North America, supplying substantially all of
GM’s RWD and 4WD/AWD axle requirements for these vehicle platforms. Sales to GM
were approximately 78% of our total net sales in 2009, 74% in 2008 and 78% in
2007. A reduction in our sales to GM or a reduction by GM of its
production of RWD light trucks or SUVs, as a result of market share losses of GM
or otherwise, could have a material adverse effect on our results of operations
and financial condition.
We
are also the principal supplier of driveline system products for Chrysler’s
Dodge Ram program and its derivatives. Sales to Chrysler accounted
for approximately 8% of our total net sales in 2009, 10% in 2008 and 12% in
2007. A reduction in our sales to Chrysler or a reduction by Chrysler
of its production of the Dodge Ram program, as a result of market share losses
of Chrysler or otherwise, could have a material adverse effect on our results of
operations and financial condition.
Our business and financial condition and results of operations could be
adversely affected if we fail to comply with the terms and conditions of the
various commercial and financing agreements with GM.
As
part of the 2009 Settlement and Commercial Agreement, we entered into a
Settlement and Commercial Agreement, an Access and Security Agreement, a Second
Lien Term Loan Facility and a Warrant Agreement with GM. These
agreements govern our commercial relationship with GM and provide AAM with
expedited payment terms of “net 10 days” at a 1% discount rate and a Second Lien
Term Loan Facility. Upon the occurrence of certain specified events,
which generally involve a material and imminent breach of our supply obligations
at any specified facility, the Access and Security Agreement provides GM with
the right of use and access to the operating assets and real estate used by AAM
at such facility to manufacture, process and ship GM component parts produced at
such AAM facility and to use certain of AAM’s intellectual property necessary to
manufacture such component parts on a royalty-free basis for up to 360 days, as
well as to resource component part production to alternative suppliers. The
invoking of its right of access by GM could have a material adverse impact on
our business and results of operations and financial condition. In addition,
should we become ineligible for the expedited payment terms or if default occurs
that results in acceleration of any of our indebtedness or the inability to draw
under our credit facilities, including the Second Lien Term Loan Facility, this
would have a material adverse impact on our financial condition.
Our business is dependent on the rear-wheel drive light truck and SUV market
segments in North America.
A substantial portion of our revenue is derived from products supporting RWD light truck and SUV platforms in North America. Sales and production levels of light trucks and SUVs are being affected by many factors, including changes in consumer demand; product mix shifts favoring other types of light vehicles, such as front-wheel drive based crossover vehicles and passenger cars; fuel prices; and government regulation, such as the Corporate Average Fuel Economy (CAFE) regulations and related emissions standards promulgated by federal and state regulators. In 2009, U.S. President Barack Obama announced new CAFE regulations that would increase the U.S. fuel-economy standard industry average to 35.5 miles per gallon by year 2016. Our customers are currently reacting to these regulations, including the potential impact on consumer preferences and demand for vehicles. A reduction in the market segment we currently supply could have a material adverse impact on our results of operations and financial condition.
6
Our
financial condition and operations may be adversely affected by a violation of
financial and other covenants.
Our
Amended Revolving Credit Facility and Second Lien Term Loan Facility contain
financial covenants related to secured indebtedness leverage and interest
coverage. The Amended Revolving Credit Facility, the Second Lien Term Loan
Facility and our 9.25% Senior Secured Notes due 2017 (9.25% Notes) impose
limitations on our ability to make certain investments, declare dividends or
distributions on capital stock, redeem or repurchase capital stock and certain
debt obligations, incur liens, incur indebtedness, merge, make acquisitions or
sell all or substantially all of our assets. The Amended Revolving Credit
Facility and the 9.25% Notes also significantly restrict our ability to incur
additional secured debt. The Amended Revolving Credit Facility, the Second
Lien Term Loan Facility, the 9.25% Notes and the indentures governing our senior
unsecured notes also include customary events of default. Obligations
under the Amended Revolving Credit Facility, the Second Lien Term Loan Facility
and the 9.25% Notes are guaranteed by our U.S. subsidiaries that hold domestic
assets. In addition, the Amended Revolving Credit Facility and the 9.25%
Notes are secured on a first priority basis (and the Second Lien Term Loan
Facility is on a second priority basis) by all or substantially all of our
assets, the assets of Holdings and each guarantor’s assets, including a pledge
of capital stock of our U.S. subsidiaries that hold domestic assets and a
portion of the capital stock of the first tier foreign subsidiaries of AAM and
each guarantor. A violation of any of these covenants or agreements could
result in a default under these contracts, which could permit the lenders or
note holders to accelerate repayment of any borrowings or notes outstanding at
that time and levy on the collateral granted in connection with these
contracts. A default or acceleration under the Amended Revolving Credit
Facility, the 9.25% Notes, the indentures governing our senior unsecured notes
or the Second Lien Term Loan Facility may result in increased capital costs and
defaults under our other debt agreements and may adversely affect our ability to
operate our business, our subsidiaries and guarantors’ ability to operate their
business and our results of operations and financial condition.
Our
business could be adversely affected by the cyclical nature of the automotive
industry.
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, such as credit availability, interest
rates, fuel prices and consumer confidence. The current cyclical downturn has
been exacerbated by a rapid and severe economic decline in the U.S. and
globally. Our business may be further adversely affected by a
continued economic decline that results in a further reduction of automotive
production and sales by our largest customers. Our business may also be
adversely affected by reduced demand for the product programs we currently
support, or if we do not obtain sales orders for new or redesigned products that
replace our current product programs.
We
may undertake further restructuring actions.
We
have taken restructuring actions in recent years in order to realign and resize
our production capacity and cost structure to meet current and projected
operational and market requirements. If we are required to take
further restructuring actions, the charges related to these actions may have a
material adverse effect on our results of operations and financial
condition.
Our
company may not realize all of the revenue expected from our new and incremental
business backlog.
The
realization of incremental revenues from awarded business is inherently subject
to a number of risks and uncertainties, including the accuracy of customer
estimates relating to the number of vehicles to be produced in new and existing
product programs and the timing of such production. It is also
possible that our customers may choose to delay or cancel a product program for
which we have been awarded new business. Our revenues, operating results and
financial position could be adversely affected relative to our current financial
plans if we do not realize substantially all the revenue from our new and
incremental business backlog.
Our
business could be adversely affected by the volatility in the price of raw
materials.
Worldwide
commodity market conditions have resulted in volatility in the cost of steel and
other metallic materials in recent years. Furthermore, the cost of
such steel and metallic materials needed for our products may increase,
especially if general economic conditions and customer demand
increase. If we are unable to pass cost increases on to our
customers, this could have a material adverse effect on our results of
operations and financial condition.
Our
business could be adversely affected by disruptions in our supply
chain.
We
depend on a limited number of suppliers for certain key components and materials
needed for our products. We rely upon, and expect to continue to rely upon,
certain suppliers for critical components and materials that are not readily
available in sufficient volume from other sources. As we expand our
global manufacturing footprint, we will need to rely on suppliers in local
markets that have not yet proven their ability to meet our requirements. These
supply chain characteristics make us susceptible to supply shortages and price
increases. In addition, in recent years, several of our direct material
suppliers have filed for bankruptcy protection. There can be no assurance that
the suppliers of critical components and materials will be able or willing to
meet our future needs on a timely basis. A significant disruption in the supply
of these materials could have a material adverse effect on our results of
operations and financial condition.
7
Our business could be adversely affected if we fail to maintain satisfactory
labor relations.
Substantially
all of our hourly associates worldwide are members of industrial trade unions
employed under the terms of collective bargaining
agreements. Substantially all of our hourly associates in the U.S.
are represented by the International UAW. Approximately 800 of our
UAW represented associates are covered by labor agreements that expire on
February 25, 2012. In the process of negotiating these agreements,
the International UAW called a strike against AAM in February 2008 that lasted
87 days and significantly disrupted our operations and the operations of our
customers and suppliers. There can be no assurance that future
negotiations with our labor unions will be resolved favorably or that we will
not experience a work stoppage that could have a material adverse impact on our
results of operations and financial condition. In addition, there can
be no assurance that such future negotiations will not result in labor cost
increases or other terms and conditions that could adversely affect our results
of operations and financial condition or our ability to compete for future
business.
Our company or our customers may not be able to successfully launch new product
programs on a timely basis.
Certain of our customers are preparing to launch new product programs for
which we will supply newly developed driveline system products and related
components. Some of these new product program launches have required, and will
continue to require, substantial capital investment. We may not be able to
install and certify the equipment needed to produce products for these new
product programs in time for the start of production. There can be no assurance
that we will successfully complete the transition of our manufacturing
facilities and resources to support these new product programs or any other
future product programs. Accordingly, the launch of new product
programs may adversely affect production rates or other operational efficiency
and profitability measures at our facilities. In addition, our customers may
delay the launch or fail to successfully execute the launch of these product
programs, or any additional future product program for which we will supply
products.
We are under continuing pressure from our customers to reduce our
prices.
Annual price reductions are a common practice in the automotive industry. The
majority of our products are sold under long-term contracts with prices
scheduled at the time the contracts are established. Many of our
contracts require us to reduce our prices in subsequent years and most of our
contracts allow us to adjust prices for engineering changes. If we must
accommodate a customer’s demand for higher annual price reductions and are
unable to offset the impact of any such price reductions through continued
technology improvements, cost reductions and other productivity initiatives, our
results of operations and financial condition could be adversely
affected.
Our business faces substantial competition.
The automotive industry is highly competitive. Our competitors include the
driveline component manufacturing facilities controlled by certain existing
OEMs, as well as many other domestic and foreign companies possessing the
capability to produce some or all of the products we supply. Some of
our competitors are affiliated with OEMs and others have economic advantages as
compared to our business, such as patents, existing underutilized capacity and
lower wage and benefit costs. Certain competitors have recently
emerged from bankruptcy, which has allowed them to reduce their debt and could
adversely affect our ability to compete with them relative to cost and
pricing. Technology, design, quality, delivery and cost are the
primary elements of competition in our industry segment. As a result
of these competitive pressures and other industry trends, OEMs and suppliers are
developing strategies to reduce costs. These strategies include
supply base consolidation and global sourcing. Our business may be
adversely affected by increased competition from suppliers benefiting from OEM
affiliate relationships, bankruptcy reorganization or financial and other
resources that we do not possess. Our business may also be adversely
affected if we do not sustain our ability to meet customer requirements relative
to technology, design, quality, delivery and cost.
Our company’s global operations are subject to risks and
uncertainties.
We have business and technical offices and manufacturing facilities in many
countries, including Mexico, Brazil, the U.K., China, Poland, India and
Thailand. International operations are subject to certain risks
inherent in conducting business outside the U.S., such as changes in currency
exchange rates, tax laws, price and currency exchange controls, import
restrictions, nationalization, expropriation and other governmental action. Our
global operations may also be adversely affected by political events and
domestic or international terrorist events and hostilities. These uncertainties
could have a material adverse effect on the continuity of our business and our
results of operations and financial condition. As we continue to expand our
business globally, our success will depend, in part, on our ability to
anticipate and effectively manage these and other risks.
8
Our company faces rising costs for pension and other postretirement benefit
obligations.
We
have significant pension and other postretirement benefit obligations to certain
of our associates and retirees. Our ability to satisfy the funding requirements
associated with these obligations will depend on our cash flow from operations
and our ability to access credit and the capital markets. The funding
requirements of these benefit plans, and the related expense reflected in our
financial statements, are affected by several factors that are subject to an
inherent degree of uncertainty and volatility, including governmental
regulation. Key assumptions used to value these benefit obligations
and the cost of providing such benefits, funding requirements and expense
recognition include the discount rate, the expected long-term rate of return on
pension assets and the health care cost trend rate. If the actual
trends in these factors are less favorable than our assumptions, this could have
an adverse affect on our results of operations and financial
condition.
We
may incur material losses and costs as a result of product liability and
warranty claims, litigation and other disputes and claims.
We
are exposed to warranty and product liability claims in the event that our
products fail to perform as expected, and we may be required to participate in a
recall of such products. Our largest customers have recently extended
their warranty protection for their vehicles. Other OEMs have also similarly
extended their warranty programs. This trend will put additional
pressure on the supply base to improve quality, reliability and warranty
performance. This trend may also result in higher cost recovery
claims by OEMs to suppliers whose products incur a higher rate of warranty
claims. Historically, we have experienced negligible warranty charges from our
customers due to our contractual arrangements and the quality, warranty,
reliability and durability performance of our products. As part of
the 2009 Settlement and Commercial Agreement, AAM has agreed to increase its
warranty cost sharing with GM beginning in 2011. If our customers
demand higher warranty related cost recoveries, or if our products fail to
perform as expected, it could have a material adverse impact on our results of
operations or financial condition.
We
are also involved in various legal proceedings incidental to our business.
Although we believe that none of these matters is likely to have a material
adverse effect on our results of operations or financial condition, there can be
no assurance as to the ultimate outcome of any such legal proceeding or any
future legal proceedings.
Our
business is subject to costs associated with environmental, health and safety
regulations.
Our
operations are subject to various federal, state, local and foreign laws and
regulations governing, among other things, emissions to air, discharge to waters
and the generation, handling, storage, transportation, treatment and disposal of
waste and other materials. We believe that our operations and facilities have
been and are being operated in compliance, in all material respects, with such
laws and regulations, many of which provide for substantial fines and criminal
sanctions for violations. The operation of our manufacturing facilities entails
risks in these areas, however, and there can be no assurance that we will not
incur material costs or liabilities. In addition, potentially significant
expenditures could be required in order to comply with evolving environmental,
health and safety laws, regulations or other pertinent requirements that may be
adopted or imposed in the future by governmental authorities.
Our
company’s ability to operate effectively could be impaired if we lose key
personnel.
Our
success depends, in part, on the efforts of our executive officers and other key
associates. In addition, our future success will depend on, among
other factors, our ability to continue to attract and retain qualified
personnel. The loss of the services of our executive officers or other key
associates, or the failure to attract or retain associates, could have a
material adverse effect on our results of operations and financial
condition.
Item 1B. Unresolved Staff Comments
None
9
Item 2. Properties
We
operate in 13 countries and have 33 manufacturing, engineering and business
office facilities worldwide of which the principal facilities are:
Name
|
Type
of
Interest
|
Function
|
Detroit
Manufacturing Complex
Detroit,
MI
|
Owned
|
Rear
and front axles and steering linkages
|
Three
Rivers Manufacturing Facility
Three
Rivers, MI
|
Owned
|
Rear
axles and driveshafts, front auxiliary driveshafts, universal joints and
driveheads
|
Cheektowaga
Manufacturing Facility
Cheektowaga,
NY
|
Owned
|
Forged and machined products |
Colfor
Manufacturing, Inc.
Malvern,
OH
Minerva,
OH
Salem,
OH
|
Owned
Owned
Owned
|
Forged
products
Forged
and machined products
Forged
and machined products and rear axles
|
MSP
Industries
Oxford,
MI
|
Leased
|
Forged
and machined products
|
Oxford
Forge
Oxford,
MI
|
Owned
|
Forged
products
|
DieTronik
Auburn
Hills, MI
|
Owned
|
Tool
& die manufacturer
|
AccuGear,
Inc.
Fort
Wayne, IN
|
Owned
|
Forged
and machined products
|
Lancaster
Manufacturing Facility
Lancaster,
Pennsylvania
|
Leased
|
Assembly
of axles for commercial vehicles
|
Guanajuato
Manufacturing Complex
Guanajuato,
Mexico
|
Owned
|
Rear
axles and driveshafts, front axles, front auxiliary driveshafts, forging
products, rear differential modules and power transfer
units
|
Araucária
Manufacturing Facility
Araucária,
Brazil
|
Owned
|
Front
and rear axles, machining of forged and cast products, and constant
velocity joints
|
Albion
Automotive
Glasgow,
Scotland
Lancashire,
England
|
Leased
Leased
|
Front
and rear axles for medium and heavy-duty trucks and buses
Crankshafts
|
Swidnica
Manufacturing Facility
Swidnica,
Poland
|
Owned |
Transmission
differentials
|
Changshu
Manufacturing Facility
Changshu,
China
|
Owned
|
Rear
axles, gear sets and machined cases
|
AAM
Sona Manufacturing Facility
Pantnagar,
India
|
Owned
|
Rear
axles
|
Corporate
Headquarters
Detroit,
MI
|
Owned
|
Executive
and administrative offices
|
Technical
Center
Rochester
Hills, MI
|
Owned
|
R&D,
design engineering, metallurgy, testing and
validation
|
We
believe that our property and equipment is properly maintained and in good
operating condition. As a result of the distress in the automotive
industry and recent significant declines in production and sales volumes of our
major customers, there is significant excess production capacity in our
facilities. As part of our multi-year restructuring initiatives, we
have closed facilities, idled and consolidated a significant portion of our
Detroit Manufacturing Complex, and realigned our global capacity to meet global
production requirements and establish regional cost
competitiveness. We will continue to evaluate capacity requirements
in light of current and projected market conditions. We also intend
to continue redeploying assets in order to increase our capacity utilization and
reduce future capital expenditures to support program launches.
10
Item 3. Legal Proceedings
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 closely monitor our environmental conditions to ensure
that we are in compliance with applicable laws, regulations and
ordinances. We have made, and will continue to make, capital and
other expenditures to comply with environmental requirements, including
recurring administrative costs. Such expenditures were not
significant in 2009, 2008 and 2007.
Item 4. Submission of Matters to a Vote of Security
Holders
None
Executive
Officers of the Registrant
Name
|
Age
|
Position
|
|||
Richard
E. Dauch .………………….….
|
67 |
Co-Founder,
Chairman of the Board & Chief Executive Officer
|
|||
David
C. Dauch ………………………...
|
45 |
President
& Chief Operating Officer
|
|||
John
J. Bellanti…………………….……
|
55 |
Executive
Vice President – Worldwide Operations
|
|||
Patrick
S. Lancaster……………….……
|
62 |
Executive
Vice President, Chief Administrative Officer &
Secretary
|
|||
Michael
K. Simonte………………..…...
|
46 |
Executive
Vice President – Finance & Chief Financial Officer
|
|||
Mark
S. Barrett…………………………
|
49 |
Vice
President – Engineering & Product Development
|
|||
David
A. Culton………………………..
|
44 |
Vice
President – Commercial
|
|||
Curt
S. Howell……………………..……
|
47 |
Vice
President – AAM – Americas
|
|||
John
E. Jerge………………...………….
|
48 |
Vice
President – Materials, Logistics, Quality & Labor
Relations
|
|||
Steven
J. Proctor…………………….….
|
53 |
President
– AAM Asia, Vice President – AAM Corporate
|
|||
Alberto
L. Satine…………………..……
|
53 |
Vice
President – Strategic & Business Development
|
|||
John
S. Sofia………………………..…..
|
50 |
Vice
President – Commercial Vehicle Business Unit
|
|||
Norman
Willemse………………….…..
|
53 |
Vice
President – Global Metal Formed Product Business
Unit
|
11
Richard E. Dauch, age 67, is
Co-Founder, Chairman of the Board & Chief Executive Officer of AAM, and is
also Chairman of the Executive Committee of the Board of Directors. He has been
Chief Executive Officer and a member of the Board of Directors since the Company
began operations in March 1994. In October 1997, he was named Chairman of
the Board of Directors. He was also President of AAM from March 1994
through December 2000. Prior to March 1994, he spent 12 years at the
Chrysler Corporation, where he established the just-in-time materials management
system and the three-shift manufacturing vehicle assembly process. He is a
retired officer from the Chrysler Corporation. Mr. Dauch’s last position at
Chrysler, in 1991, was Executive Vice President of Worldwide
Manufacturing. Mr. Dauch also served as Group Vice President of
Volkswagen of America, where he established the manufacturing facilities and
organization for the successful launch of the first major automotive transplant
in the United States. Mr. Dauch has more than 45 years of experience in
the automotive industry. Mr. Dauch was named the 1996 Worldwide
Automotive Industry Leader of the Year by the Automotive Hall of Fame, the 1997
Manufacturer of the Year by the Michigan Manufacturers Association, and the 1999
Michiganian of the Year by The
Detroit News. In 2003, he received the Harvard Business School
of Michigan Business Statesman Award, the Ernst & Young Entrepreneur of the
Year Award, and the Northwood University Outstanding Business Leader Award.
In 2005, he received the CEO Legend Award from Automation Alley, and in
2006, he received the Shien-Ming Wu Foundation Manufacturing Leadership
Award. Mr. Dauch also served as Chairman of the National Association
of Manufacturers (N.A.M.), and currently serves on the Board of Directors of
that organization. He has lectured extensively on the subject of
manufacturing and authored the book, Passion for Manufacturing,
which is distributed in colleges and universities globally and in several
languages. Richard E. Dauch is the father of David C.
Dauch.
David C. Dauch, age 45, has
been President and Chief Operating Officer since June 2008. Prior to
that, he served as Executive Vice President & COO (since December 2007);
Executive Vice President – Commercial & Strategic Development (since January
2005); Senior Vice President, Commercial (since May 2004); Senior Vice
President, Sales, Marketing & Driveline Division (since September 2003);
Vice President, Manufacturing – Driveline Division (since January 2001); Vice
President, Sales and Marketing (since 1998) and Director of Sales, GM Full-Size
Truck Programs (since May 1996). Mr. Dauch joined our Company in July
1995 as Manager, Sales Administration. Prior to joining our Company,
Mr. Dauch held various positions at Collins & Aikman Products Company,
including Sales Manager. David C. Dauch is the son of Richard E.
Dauch.
John J. Bellanti, age 55, has
been Executive Vice President – Worldwide Operations since September
2008. Prior to that, he served as Group Vice President –
Manufacturing Services, Capital Planning & Cost Estimating (since December
2007); Vice President – Manufacturing Services, Capital Planning & Cost
Estimating (since July 2006); Vice President - Engineering & Chief
Technology Officer (since May 2004); Vice President, Engineering & Product
Development (since September 2003); Executive Director, Manufacturing Services
(since March 2000); Director, Manufacturing Engineering (since June 1998);
Director Advanced Programs (since May 1996) and Plant Manager, Detroit Forge
Plant (since joining our Company in March 1994). Prior to joining our
Company, Mr. Bellanti, worked 22 years at General Motors in various
manufacturing and engineering positions, most recently serving as Production
Manager. Mr. Bellanti was on the Board of Directors for the North
American Forging Industry Association from 1999 through 2003, serving as
President of that Association in 2002.
Patrick S. Lancaster, age 62,
has been Executive Vice President, Chief Administrative Officer & Secretary
since April 2009. Prior to that, he served as Vice President, Chief
Administrative Officer & Secretary (since September 2003); Group Vice
President, Chief Administrative Officer & Secretary (since January 2001);
Vice President & Secretary (since March 2000); Vice President, General
Counsel & Secretary (since November 1997) and General Counsel &
Secretary (since June 1994). Mr. Lancaster is a member of the State
Bar of Michigan.
Michael K. Simonte, age 46,
has been Executive Vice President – Finance & Chief Financial Officer since
February 2009. Simonte previously served as Group Vice President –
Finance & Chief Financial Officer (since December 2007); Vice President –
Finance & Chief Financial Officer (since January 2006); Vice President &
Treasurer (since May 2004); and Treasurer (since September 2002). Simonte joined
AAM in December 1998 as Director, Corporate Finance. In that role, he
coordinated all of the financial accounting, planning and reporting activities
of the company until he was appointed as Treasurer in September
2002. Prior to joining our Company, Mr. Simonte served as Senior
Manager at the Detroit office of Ernst & Young LLP. Mr. Simonte
is a certified public accountant.
Mark S. Barrett, age 49, has
been Vice President – Engineering & Product Development since October
2008. Prior to that, he served as Executive Director, Engineering &
Product Development (since January 2008); Executive Director, Axle &
Drivetrain (since November 2006); Executive Director, Powertrain, Driveshaft and
Halfshaft Engineering (since January 2006); Executive Director, Released and
Domestic Programs (since January 2004); Director, Mid Size Axle Programs (since
December 1998) and Staff Project Engineer (since joining our Company in March
1994). Prior to joining our Company, Mr. Barrett served at General Motors
for 9 years in a variety of manufacturing
and engineering positions.
12
David A. Culton, age 44, has
been Vice President – Commercial since September 2009. Prior to that, he
served as Vice President – Unibody Vehicle Business Unit (since October 2008);
Controller (since April 2007); Executive Director, Sales (since July
2006); Director, Commercial Analysis (since August 2004); Director, Finance
– Operations (Since June 2003); Finance Manager (since August 1999); and
Assistant Finance Manager (since joining our Company in September 1998).
Prior to joining our Company, Mr. Culton served at Chrysler Corporation for 10
years in a variety of management, finance, engineering and manufacturing
positions.
Curt S. Howell, age 47, has
been Vice President – AAM – Americas since September 2009. Prior to
that, he served as Vice President – Full Frame Vehicle Business Unit (since
October 2008); Vice President – Global Driveline Operations (since December
2007); General Manager, International Operations (since June 2007); General
Manager, Asia (since October 2005); General Manager, Latin/South America
Driveline Operations (since January 2004); Executive Director, Cost Estimating
(since January 2003); Executive Director, Worldwide Sales (since January 2001);
Managing Director, AAM De Mexico (since January 1998); Director, Worldwide
Programs (since joining our Company in April 1994). Prior to joining our
Company, Mr. Howell served at Chrysler Corporation for 7 years in a variety of
engineering, sales and service positions.
John E. Jerge, age 48, has
been Vice President – Materials, Logistics, Quality & Labor Relations since
September 2009. Prior to that, he served as Vice President –
Driveshaft & Halfshaft Business Unit (since October 2008); Vice President -
Human Resources (since September 2004); Executive Director, Labor Relations
(since April 2004); Director, Labor Relations (since January 2003); Plant
Manager, Detroit Gear & Axle Plant (since March 2000); Plant Manager,
Buffalo Gear Axle & Linkage (since November 1997); Manufacturing Manager,
Buffalo Gear Axle & Linkage (since March 1996); Area manager of Axles and
Area Manager of Linkage (since joining our Company in March
1994). Prior to joining our Company, Mr. Jerge served at Chrysler
Corporation for 10 years in a variety of manufacturing, engineering and plant
management positions.
Steven J. Proctor, age 53, has
been President – AAM Asia, Vice President – AAM Corporate since October
2008. Prior to that, he served as Vice President - Sales &
Marketing (since June 2004); Executive Director, Driveline Sales & Marketing
(since September 2003); President and Chief Operating Officer of AAM do Brasil
(since September 1999); Director, GMT-360, I-10/GMT-355 (since December 1998);
Director, Worldwide Programs (since February 1998); Director, Strategic Planning
(since July 1996) and Director, General Motors Programs (since joining our
Company in March 1994). Prior to joining our Company, Mr. Proctor
worked for General Motors for 20 years in the areas of product and industrial
engineering, production, material management and sales.
Alberto L. Satine, age 53, has
been Vice President – Strategic & Business Development since November 2005.
Prior to that, he served as Vice President - Procurement (since January 2005);
Executive Director, Global Procurement Direct Materials (since January 2004);
General Manager, Latin American Driveline Sales and Operations (since August
2003) and General Manager of International Operations (since joining our Company
in May 2001). Prior to joining our Company, Mr. Satine held several
management positions at Dana Corporation, including the position of President of
Dana’s Andean Operations in South America from 1997 to 2000 and General Manager
of the Spicer Transmission Division in Toledo, Ohio from 1994 to
1997.
John S. Sofia, age 50, has
been Vice President – Commercial Vehicle Business Unit since March
2008. Prior to that, he served as Vice President – Product
Engineering, Commercial Vehicle Operations & Chief Technology Officer (since
December 2007); Vice President – Engineering & Product Development (since
July 2006); Vice President - Quality Assurance & Customer Satisfaction
(since October 2004); Director, Advanced Quality Planning (since August 2002);
Plant Manager, Detroit Forge (since April 2001); Director, Product Engineering
(since June 2000); Manager of the Current Production & Process Engineering
Group (since September 1997) and Engineering Manager (since joining our Company
in May 1994). Prior to joining our Company, Mr. Sofia served at
Chrysler Corporation for 10 years in a variety of manufacturing and engineering
positions.
Norman Willemse, age 53, has
been Vice President – Global Metal Formed Product Business Unit since October
2008. Prior to that, he served as Vice President – Global Metal
Formed Product Operations (since December 2007); General Manager – Metal Formed
Products Division (since July 2006) and Managing Director – Albion Automotive
(since joining our Company in August 2001). Prior to joining our Company, Mr.
Willemse served at ATSAS for 7 years as Executive Director Engineering &
Commercial and John Deere for over 17 years in various engineering positions of
increasing responsibility. Mr. Willemse is a professional certified mechanical
engineer.
13
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
Market
Information
Our
common stock, par value $0.01 per share, is listed for trading on the New York
Stock Exchange (NYSE) under the symbol “AXL.”
On
February 27, 2009, we were notified by the NYSE that we have fallen
below their continued listing standard related to our total market
capitalization and stockholders’ equity. On June 1, 2009, we
were notified by the NYSE that we had regained compliance with NYSE’s
continued listing standards. We are currently in compliance with the
NYSE continued listing standards.
Stockholders
and High and Low Sales Prices
2009
|
1st
Quarter
|
2nd
Quarter
|
3rd
Quarter
|
4th
Quarter
|
Full
Year
|
|||||||||||||||
High
|
$ | 2.83 | $ | 4.50 | $ | 8.13 | $ | 8.41 | $ | 8.41 | ||||||||||
Low
|
$ | 0.29 | $ | 1.00 | $ | 1.13 | $ | 5.63 | $ | 0.29 | ||||||||||
2008
|
||||||||||||||||||||
High
|
$ | 23.08 | $ | 22.75 | $ | 8.74 | $ | 5.38 | $ | 23.08 | ||||||||||
Low
|
$ | 16.22 | $ | 7.99 | $ | 4.86 | $ | 1.03 | $ | 1.03 |
Prices are the quarterly high and low
closing sales prices for our common stock as reported by the NYSE. We
had approximately 403 stockholders of record as of February 17,
2010.
Dividends
We did not declare or pay any cash
dividends on our common stock in 2009. Our debt agreements limit
our ability to declare or pay dividends or distributions on capital
stock. We declared and paid quarterly cash dividends of $0.02 per
share in the last two quarters of 2008, and $0.15 per share in the first two
quarters of 2008 and the four quarters of 2007. We paid $18.3 million
and $31.8 million to stockholders of record under the quarterly cash dividend
program during 2008 and 2007, respectively.
Issuer
Purchases of Equity Securities
In the
fourth quarter of 2009, the Company withheld and repurchased shares to pay taxes
due upon the vesting of certain individuals’ restricted stock
grants. The following table provides information about our equity
security purchases during the quarter ended December 31, 2009:
Period
|
Total
Number of Shares (Or Units) Purchased
|
Average
Price Paid per Share (or Unit)
|
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced Plans
or Programs
|
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be
Purchased Under the Plans or Programs
|
||||||||||||
October
2009
|
- | $ | - | - | - | |||||||||||
November
2009
|
1,149 | $ | 20.89 | - | - | |||||||||||
December
2009
|
65,193 | $ | 8.02 | - | - |
Securities
Authorized for Issuance under Equity Compensation Plans
There are
no securities authorized for issuance under equity compensation plans since the
Restated 1999 American Axle & Manufacturing Holdings, Inc. Stock Incentive
Compensation Plan expired on January 8, 2009.
14
Item 6. Selected Financial Data
FIVE
YEAR FINANCIAL SUMMARY
Year
Ended December 31,
(in
millions, except per share data)
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Statement
of operations data
|
||||||||||||||||||||
Net
sales
|
$ | 1,521.6 | $ | 2,109.2 | $ | 3,248.2 | $ | 3,191.7 | $ | 3,387.3 | ||||||||||
Gross
profit (loss)
|
(31.1 | ) | (865.2 | ) | 278.4 | (129.4 | ) | 305.0 | ||||||||||||
Selling,
general and administrative expenses
|
172.7 | 185.4 | 202.8 | 197.4 | 199.6 | |||||||||||||||
Operating
income (loss)
|
(203.8 | ) | (1,050.6 | ) | 75.6 | (326.8 | ) | 105.4 | ||||||||||||
Net
interest expense
|
(82.5 | ) | (67.9 | ) | (52.3 | ) | (38.8 | ) | (27.2 | ) | ||||||||||
Net
income (loss) attributable to AAM
|
(253.1 | )(a)(b) | (1,224.3 | )(a) | 37.0 | (a)(b) | (223.0 | )(a)(b) | 56.2 | |||||||||||
Diluted
earnings (loss) per share
|
$ | (4.81 | ) | $ | (23.73 | ) | $ | 0.69 | * | $ | (4.43 | ) | $ | 1.09 | * | |||||
Diluted
shares outstanding
|
52.6 | 51.6 | 53.8 | * | 50.4 | 51.5 | * | |||||||||||||
Balance
sheet data
|
||||||||||||||||||||
Cash
and cash equivalents
|
$ | 178.1 | $ | 198.8 | $ | 343.6 | $ | 13.5 | $ | 3.7 | ||||||||||
Total
assets
|
1,986.8 | 2,247.7 | 3,135.9 | 2,793.6 | 2,948.7 | |||||||||||||||
Total
long-term debt
|
1,071.4 | 1,139.9 | 858.1 | 672.2 | 489.2 | |||||||||||||||
Total
AAM stockholders’ equity (deficit)
|
(560.2 | ) | (435.7 | ) | 899.4 | 822.5 | 1,003.9 | |||||||||||||
Dividends
declared per share
|
- | 0.34 | 0.60 | 0.60 | 0.60 | |||||||||||||||
Statement
of cash flows data
|
||||||||||||||||||||
Cash
provided by (used in) operating activities
|
$ | 15.9 | $ | (163.1 | ) | $ | 367.9 | $ | 185.7 | $ | 280.4 | |||||||||
Cash
used in investing activities
|
(74.6 | ) | (231.7 | ) | (186.5 | ) | (323.6 | ) | (305.7 | ) | ||||||||||
Cash
provided by financing activities
|
32.1 | 254.5 | 148.3 | 147.3 | 14.8 | |||||||||||||||
Dividends
paid
|
- | (18.3 | ) | (31.8 | ) | (31.0 | ) | (30.4 | ) | |||||||||||
Other
data
|
||||||||||||||||||||
Depreciation
and amortization
|
$ | 134.7 | $ | 199.5 | $ | 229.4 | $ | 206.0 | $ | 185.1 | ||||||||||
Capital
expenditures
|
141.5 | 140.2 | 186.5 | 286.6 | 305.7 | |||||||||||||||
Purchase
buyouts of leased equipment
|
- | - | - | 71.8 | - |
(a)
|
Includes
special charges, asset impairments, and other non-recurring costs and tax
refunds of $120.5 million in 2009, $985.4 million in 2008, $58.7 million
in 2007 and $248.2 million in 2006, net of tax, primarily related to
restructuring actions.
|
(b)
|
Includes
charges of $7.7 million in 2009, $3.5 million in 2007 and $1.8 million in
2006, net of tax, related to debt refinancing and redemption
costs.
|
* | These amounts have been adjusted to reflect the cumulative change in accounting described in Item 8, “Financial Statements and Supplementary Data - Note 1 - Organization and Summary of Significant Accounting Policies.” |
15
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
COMPANY
OVERVIEW
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 light trucks,
sport utility vehicles (SUVs), passenger cars, crossover vehicles and commercial
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, driveheads, crankshafts, transmission parts and
metal-formed products.
We are
the principal supplier of driveline components to General Motors LLC 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 78% of our total net sales
in 2009, 74% in 2008 and 78% in 2007.
We are the sole-source supplier to GM for certain axles and other driveline
products for the life of each GM vehicle program which was previously covered by
a Lifetime Program Contract (LPC). As part of a settlement and
commercial agreement, as described below, GM terminated the existing LPCs and
entered into new LPCs in 2009. Substantially all of our sales to GM
are made pursuant to the new LPCs. The new 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 are
also the principal supplier of driveline system products for the Chrysler LLC’s
heavy-duty Dodge Ram full-size pickup trucks (Dodge Ram program) and its
derivatives. Sales to Chrysler were 8% of our total net sales in
2009, 10% in 2008 and 12% in 2007.
In
addition to GM and Chrysler, we supply driveline systems and other related
components to PACCAR Inc., Volkswagen, Harley-Davidson, Deere & Company,
Tata Motors, Mack Truck, Ford Motor Company, and other original equipment
manufacturers (OEMs) and Tier I supplier companies such as Hino Motors Ltd. and
Jatco Ltd. Sales to customers other than GM and Chrysler accounted
for approximately 14% of our total net sales in 2009 as compared to 16% in 2008
and 10% in 2007.
RECENT
DEVELOPMENTS
In 2009, GM entered and exited bankruptcy with assistance from the U.S.
government. On September 16, 2009, AAM and GM entered into a
settlement and commercial agreement (2009 Settlement and Commercial
Agreement). As part of this agreement, we received
$110.0 million from GM for cure costs associated with contracts assumed
and/or terminated during GM’s chapter 11 bankruptcy proceedings and resolved
certain commercial and financial obligations then outstanding between AAM and
GM, which resulted in, among other things, AAM retaining all but one program
that had previously been sourced to us and an adjustment of our installed
capacity levels reserved for existing and awarded GM programs to reflect new
estimates of market demand. We recorded $79.7 million of deferred
revenue related to the 2009 Settlement and Commercial Agreement, which we will
recognize into revenue through 2019.
In
addition, GM confirmed its obligation to AAM under the GM postretirement cost
sharing agreement and AAM amended its terms and conditions to be more consistent
with the standard terms and conditions GM has with other Tier 1 suppliers
(including commercial revisions related to metal market, warranty cost sharing,
cost reductions programs, productivity commitments and payment
terms). We do not expect these commercial revisions to have an impact
on our results of operations until 2011.
Also,
as part of this agreement, we entered into a $100.0 million second lien term
loan facility with GM (Second Lien Term Loan Facility), issued 4.1 million
warrants to GM to purchase AAM common stock, and expedited the payment terms on
our receivables from GM from approximately 45 days to approximately 10 days in
exchange for a 1% early payment discount (Expedited Payment Terms).
In
2009, Chrysler also entered and exited bankruptcy with assistance from the U.S.
government. Chrysler has assumed our pre-bankruptcy
contracts.
GM
implemented an extended summer production shutdown for many of their facilities
we support during the second and third quarters of 2009. In
connection with its bankruptcy filing, Chrysler temporarily idled its
manufacturing operations through its exit from bankruptcy. We
estimate that the extended production shutdowns at GM and Chrysler in the second
and third quarters of 2009 adversely affected net sales by $304.3 million and
gross profit (loss) by $95.0 million.
16
In the
third quarter of 2009, and concurrent with the 2009 Settlement and Commercial
Agreement, we modified our existing debt agreements with our senior
lenders. In the fourth quarter of 2009, we strengthened our liquidity
position by issuing $425 million of new senior secured notes, selling 16.1
million shares of our common stock for net proceeds of $109.7 million and
amending and extending our existing revolving credit facility (Amended Revolving
Credit Facility).
Through
our comprehensive multi-year restructuring actions, we have made significant
adjustments to our business plan, global manufacturing footprint, and our cost
structure and operating breakeven level to adapt to lower industry production
volumes. In 2009, we took restructuring actions that resulted in
significant special charges. These special charges are discussed in
“RESULTS OF OPERATIONS.”
Risks and uncertainties continue to exist relative to general economic
conditions, the health of the global and domestic automotive industry and the
long-term viability of our major customers. However, we believe that
we have substantially completed the significant restructuring actions necessary
for us to align our global capacity with current and projected market demand and
establish regional cost competitiveness on a global basis. Although
we continuously evaluate the need to rationalize excess capacity and further
minimize operating costs, we do not currently expect to incur the level of
special charges that we have experienced in recent years.
As
we look beyond 2009, we are focused on increasing net sales while diversifying
our customer, product and geographic sales mix. We are also focused
on improving our profitability and cash flow in order to strengthen our balance
sheet. Based on the expected stabilization and possible improvement
of general economic and industry specific conditions, planned launch of
approximately $300 million of our new and incremental business backlog and the
favorable impact of the structural cost reductions resulting from our recent
restructuring actions, we believe that 2010 will allow us an opportunity to make
progress on these critical business objectives.
INDUSTRY
TRENDS
There
are a number of significant trends affecting the highly competitive automotive
industry. Most notable is the automotive industry’s severe downturn,
highlighted by an unprecedented drop in industry volumes that began in 2008 and
continued throughout 2009. The industry was significantly affected by
continued deteriorating global economic conditions, unstable credit markets,
sharply declining consumer confidence and volatile fuel prices. These
factors weakened the financial strength of many of the OEMs and suppliers,
several of which filed for bankruptcy protection in 2009. Although
the deterioration of the economy and credit markets impacted the U.S. most
significantly, this dynamic has affected the automotive industry
worldwide. Along with the general economic decline, the industry
continues to experience depressed U.S. production volumes, reduced U.S. domestic
OEM market share, intense global competition, volatile fuel, steel, metallic and
other commodity prices and significant pricing pressures. As a
result, OEMs and their suppliers have aggressively developed and implemented
strategies to reduce costs, which include a massive restructuring of U.S.
operations, shifting production to low cost regions and sourcing on a global
basis. At the same time, the industry is focused on investing in
future products that will incorporate the latest technology, meet customer
demands and comply with government regulations.
FINANCIAL DISTRESS OF U.S. DOMESTIC AUTOMOTIVE INDUSTRY The collapse of
the U.S. housing market, the global financial crisis, rising unemployment and
the lowest consumer confidence level in a quarter century have all contributed
to the fragile financial state of the U.S. domestic OEMs. Excess
installed capacity, fluctuating fuel prices, volatile steel, metallic and other
commodity prices, higher energy costs and high fixed cost structures have
exacerbated the financial pressure on the industry. Uncertain
industry conditions and the stringent credit markets have greatly reduced the
ability of companies to obtain essential financing. In 2009, both GM
and Chrysler entered and exited bankruptcy with assistance from the U.S.
government. We also continued to see numerous suppliers either file
for bankruptcy protection or liquidate. In response to the industry
conditions, the U.S. domestic OEMs and their suppliers, including AAM, have
undertaken wide-scale domestic capacity reduction initiatives, workforce
reductions and other restructuring actions to reduce costs. Despite
the significant restructuring actions taken and the domestic automotive industry
beginning to show signs of recovery towards the end of 2009, we are likely to
experience further consolidation among suppliers and could see additional
bankruptcies in the supply base.
U.S. AUTOMOTIVE
PRODUCTION LEVELS As a result of deteriorating global
economic conditions, restrictive credit markets and declining consumer
confidence, U.S. automotive production decreased dramatically in
2009. The U.S. Seasonally Adjusted Annual Rate (SAAR) of sales
declined from 16.1 million units in 2007 to 13.2 million in 2008 and 10.4
million in 2009 – the lowest U.S. domestic auto industry selling rate in over 25
years. Reduced U.S. automotive production levels is intensifying the
challenges the industry faces with regard to excess installed capacity, high
fixed cost structures and limited access to capital. In recent years,
and continuing in 2009, we have taken numerous restructuring actions to reduce
our fixed operating costs and increase the variability of our cost structure,
which better position us to manage through such adverse
conditions. Although we expect U.S. automotive production to increase
in 2010, it is likely that domestic production levels will remain at relatively
low levels until general economic conditions and consumer confidence
significantly improve.
17
CHANGE IN CONSUMER DEMAND AND PRODUCT MIX SHIFT In
the U.S., consumer demand for full-frame light trucks and SUV-type vehicles
continues to shift to smaller AWD passenger cars and crossover vehicles with
smaller displacement engines and higher fuel economy. The volatility
of fuel prices in recent years has caused a shift in market demand to passenger
cars and crossover vehicles, away from body on frame pickup trucks and
SUVs. A significant portion of our current revenue stream is tied to
full-size pickup trucks and SUVs. As demand has softened for these
products, our current revenue streams have been impacted. We are
responding to the change in vehicle mix in the North American market as well as
expected increases in corporate average fuel economy (CAFE) regulations, with
ongoing research and development (R&D) efforts that focus on fuel economy,
emission reduction and environmental improvements. These efforts
position us to compete as this product mix shift continues and have led to new
business awards for products that support AWD and RWD passenger cars and
crossover vehicles. Approximately 45% of AAM’s new and incremental
business backlog launching from 2010 to 2014, which is an estimated $1.0
billion, relates to AAM’s newest AWD systems for passenger cars and
crossover vehicles.
GLOBAL AUTOMOTIVE
PRODUCTION The trend toward the globalization of
automotive production continues to intensify in regions such as Asia
(particularly China, India, South Korea and Thailand), Eastern Europe and South
America. Although the growth rate has recently slowed in these
markets, automotive production in these regions is expected to continue to grow
while production in the traditional automotive production centers such as North
America, Western Europe and Japan struggles to recover from recent
declines. We have more than doubled our global installed capacity to
support current and future opportunities while significantly reducing our
installed capacity in the U.S. We have expanded our facilities in
Mexico, Brazil and Poland, invested in our China joint venture and are
constructing new facilities in India and Thailand. We also have
offices in India, China, South Korea, and Brazil to support these developing
markets. We expect our business activity in these markets to increase
significantly over the next several years. Approximately
70% of our new and incremental business backlog is for end use markets outside
of North America and approximately 80% has been sourced to our manufacturing
facilities outside the U.S.
DECLINING U.S. DOMESTIC OEM MARKET
SHARE
Intense competition from offshore and transplant OEMs has resulted in the
decline of U.S. market share for U.S. domestic OEMs from approximately 48% in
2008 to approximately 45% in 2009. Since 86% of our 2009 revenue
derived from net sales to GM and Chrysler, this continuing trend is significant
for us. We continue to aggressively pursue business with other
OEMs and
approximately 30% of our new business backlog is related to customers other than
GM and Chrysler.
INCREASING DEMAND FOR ALTERNATIVE
ENERGY SOURCES AND ELECTRONIC INTEGRATION With a
rapid shift towards aggressive, environmentally focused legislation in the U.S.,
we have observed an increased demand for technologies designed to help reduce
emissions, increase fuel economy and minimize the environmental impact of
vehicles. In 2009, U.S. President Barack Obama announced new CAFE
regulations that would increase the U.S. fuel-economy standard industry average
to 35.5 miles per gallon by year 2016. As a result, OEMs and
suppliers are competing intensely to develop and market new and alternative
technologies, such as electric vehicles, hybrid vehicles, fuel cells, diesel
engines and efficiency improvements of driveline systems to improve fuel economy
and emissions.
The
electronic content of vehicles continues to expand, largely driven by consumer
demand for greater vehicle performance, functionality, and affordable
convenience options. This demand is a result of increased
communication abilities in vehicles as well as increasingly stringent regulatory
standards for energy efficiency, emissions reduction and increased
safety. As these electronics continue to become more reliable and
affordable, we expect this trend to continue. The increased use of
electronics provides greater flexibility in vehicles and enables the OEMs to
better control vehicle stability, fuel efficiency, and safety while improving
the overall driving experience. Suppliers with enhanced capability in
electronic integration have greater sourcing opportunities with OEMs and may be
able to obtain more favorable pricing for these products.
We are
continuing to invest in the development of advanced products focused on fuel
economy, mass reductions, vehicle safety and performance leveraging electronics
and technology. We have increased our focus on alternative energy and
electronics by investing in product development that is consistent with the
expected shift in market demand.
PRICE
PRESSURE Year-over-year price reductions are a common
competitive practice in the automotive industry. As OEMs continue to
restructure and pursue cost cutting initiatives, we anticipate increased
pressure to reduce the cost of our own operations. The majority of
our products are sold under long-term contracts with prices scheduled at the
time the contracts are established. Many of our contracts require us
to reduce our prices in subsequent years and most of our contracts allow us to
adjust prices for engineering changes. We do not believe that the
price reductions we have committed to our customers will have a material adverse
impact on our future operating results because we intend to offset such price
reductions through continued cost reductions, efficiency improvements and other
productivity initiatives.
STEEL AND OTHER METALLIC
COMMODITIES Worldwide
commodity market conditions have resulted in volatile steel and other metallic
material prices. As general economic conditions improve and
production levels increase, demand for these commodities will grow and may cause
prices to rise. We have taken actions to mitigate the impact of this
trend through commercial agreements with our customers, strategic sourcing
arrangements with suppliers and technology advancements that result in using
less metallic content or less expensive metallic content in the manufacturing of
our products. The majority of our sales contracts with our largest
customers provide price adjustment provisions for metal market price
fluctuations. We do not have metal market price provisions with all
of our customers for all of the parts that we sell. We also have
agreed to share in the risk of metal market price fluctuations in certain
customer contracts. As a result, we may experience higher net costs
for raw materials. These cost increases would come in the form of
metal market adjustments and base price increases. We have contracts
with our steel suppliers that ensure continuity of supply. We also
have validations and testing capabilities that enable us to strategically
utilize steel sources on a global basis.
18
RESULTS
OF OPERATIONS
SPECIAL CHARGES AND OTHER
NONRECURRING ITEMS In 2009, 2008 and 2007, we recorded
special charges and nonrecurring operating costs that we do not consider
indicative of our ongoing operating activities. The following table
details these charges (in
millions):
2009
|
2008
|
2007
|
||||||||||
Asset
impairments, indirect inventory obsolescence and idled leased
assets
|
$ | 172.8 | $ | 603.7 | $ | 11.6 | ||||||
U.S.
hourly workforce and benefit reductions
|
(47.3 | ) | 195.1 | 64.0 | ||||||||
Acceleration
of buydown program expense
|
22.5 | 51.9 | - | |||||||||
Ratification
signing bonus
|
- | 19.5 | - | |||||||||
Supplemental
unemployment benefits
|
- | 18.0 | - | |||||||||
U.S.
salary workforce reductions
|
6.2 | 11.8 | 1.7 | |||||||||
Other
|
15.1 | 22.7 | 11.1 | |||||||||
Deferred
tax asset write-offs
|
- | 62.7 | - | |||||||||
Total
|
$ | 169.3 | $ | 985.4 | $ | 88.4 |
In
addition, in 2009, we recorded an income tax benefit of $48.8 million for a tax
refund claim related to newly enacted legislation providing for a special 5-year
net operating loss (NOL) carryback election.
These
special charges, nonrecurring operating costs and special NOL carrybacks are
described in further detail in the sections “GROSS PROFIT (LOSS)”, “SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)” and “INCOME TAX EXPENSE
(BENEFIT).”
NET SALES Net sales
were $1,521.6 million in 2009 as compared to $2,109.2 million in 2008 and
$3,248.2 million in 2007.
Our
sales in 2009, as compared to 2008, reflect a decrease of approximately 22% in
production volumes for the major full-size truck and SUV programs we currently
support for GM and Chrysler and a decrease of approximately 76% in products
supporting GM’s mid-size light truck and SUV programs. These
decreases in sales in 2009 reflect the adverse impact of extended production
shutdowns at GM and Chrysler, which is estimated at $304.3
million. The decrease in sales also reflects general adverse economic
conditions, the difficult market conditions in the automotive industry and the
cancellation of GM’s mid-size SUV program.
Our sales in 2008, as compared to 2007, 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 53% in
production volumes for the products supporting GM’s mid-size light truck and SUV
programs. These decreases reflected the general decline in consumer
spending as a result of the deteriorating global economic conditions and
uncertain credit markets, the reduction in consumer demand for the customer
programs we support and customer decisions to limit production and reduce
inventories of unsold vehicles. On February 25, 2008, the
International United Automobile, Aerospace and Agricultural Implement Workers of
America (UAW) called a strike at our original U.S. locations that lasted 87
days. Sales in 2008 reflect the adverse impact of the International
UAW strike, which was estimated at $414.0 million.
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 to $1,403 in 2009 as compared to
$1,391 in 2008 and $1,293 in 2007. The increase in 2009 as compared
to 2008 is primarily due to mix shifts favoring full-size trucks and SUV
programs and an increase in the recognition of deferred revenue related to
agreements with GM, partially offset by a reduction in metal market
adjustments. The increase in 2008 as compared to 2007 was due to
higher customer pricing pass throughs (including metal market adjustments),
increased content on the GM full-size programs and mix shifts favoring full-size
trucks and SUV programs.
Our 4WD/AWD penetration rate was 64.1%
in 2009 as compared to 64.8% in 2008 and 63.6% in 2007. We define
4WD/AWD penetration as the total number of front axles we produce divided by the
total number of rear axles we produce for the vehicle programs we
support.
GROSS PROFIT
(LOSS) Gross profit (loss) was a loss of $31.1 million in 2009
as compared to a loss of $865.2 million in 2008 and a profit of $278.4 million
in 2007. Gross margin was negative 2.0% in 2009 as compared to
negative 41.0% in 2008 and 8.6% in 2007. The changes in gross loss
and gross margin in 2009 as compared to 2008 reflects the impact of lower
special charges, structural cost reductions resulting from the 2008 labor
agreements with the International UAW and related capacity reduction
initiatives. The gross loss and gross margin in 2009 includes the
adverse impact of extended production shutdowns at GM and Chrysler, which is
estimated at $95.0 million.
The change in gross profit (loss) and gross margin in 2008 as compared to 2007
reflects the impact of lower sales and significant special charges and other
nonrecurring operating costs. In addition, the gross loss and gross
margin in 2008 includes the adverse impact of the International UAW strike,
which was estimated at $129.4 million.
The following special charges and other nonrecurring items impacted gross profit
(loss) in 2009, 2008 and 2007:
19
Asset
impairments, indirect inventory obsolescence and idled leased
assets In the second quarter of 2009, we identified the
following impairment indicators:
·
|
new
capacity rationalization actions taken by GM and Chrysler as a result of
their bankruptcy filings and subsequent reorganization plans, including
extended production shutdowns, for many of the programs we currently
support; and
|
·
|
changes
in our operating plans, including the idling and consolidation of a
significant portion of our Detroit Manufacturing Complex, made necessary
by extended production shutdowns and other program delays and sourcing
decisions taken by our customers in the second quarter of
2009.
|
We
recorded asset impairment charges of $147.8 million in 2009, associated with the
permanent idling of certain assets and the writedown of the carrying value of
certain assets that were “held for use” to their estimated fair
value.
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 and other indirect inventory were
determined to be obsolete. We recorded a charge of $3.9
million in 2009 related to the write down of the net book value of these assets
to their estimated net realizable value.
We
also recorded a special charge of $21.1 million for the estimated fair value of
obligations for leased assets that were permanently idled in 2009.
We
recorded asset impairment charges of $552.6 million in 2008 primarily associated
with the permanent idling of certain assets as a result of the significant
decline in market demand and customer production schedules. We
recorded asset impairment charges of $11.6 million in 2007 primarily associated
with idling a portion of our production capacity in the U.S. dedicated to the
mid-size light truck product range and other capacity reduction
initiatives. 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 and other indirect inventory were also determined
to be obsolete. We recorded special charges of $46.4 million in 2008
related to the write down of these assets to their estimated net realizable
value. We also recorded a special charge of $4.7 million for the fair
value of obligations for assets under operating leases that were idled during
2008.
U.S. hourly
workforce and benefit reductions We recorded a
net gain of $65.3 million for the curtailment of certain pension and other
postretirement benefits (OPEB) related to our hourly workforce in
2009. These curtailments primarily relate to UAW-represented
associates at our original U.S. locations who have elected to accelerate their
remaining buydown program payments and terminate employment with AAM in
2009. We also recorded $18.0 million in special charges related to
ongoing attrition programs and related statutory benefits.
In 2008, we recorded a
special charge of $195.1 million for the U.S. hourly workforce and benefit
reductions provided pursuant to attrition programs at our original U.S.
locations, including our Special Separation Program (SSP). This
charge includes $218.7 million related to estimated postemployment costs, $61.8
million of special and contractual termination pension and OPEB and a gain of
$85.4 million for the curtailment and settlement of certain pension and OPEB
liabilities.
We recorded a special charge of $56.2 million in 2007 as a result of
attrition programs offered to hourly associates at our Buffalo Gear, Axle &
Linkage facility. This charge includes $42.3 million related to the
estimated postemployment costs and $13.9 million for the curtailment of certain
pension and OPEB and related special termination benefits related to the Buffalo
Separation Program. In 2007,
we also recorded a special charge of $7.8 million as a result of a voluntary
separation incentive program offered to certain IAM represented
associates.
Acceleration of
buydown program expense In 2008, an
involuntary program (BDP) was initiated for 1,525 associates that did not elect
to participate in the SSP and continued employment with AAM. Under
the BDP, three annual lump-sum payments are made to associates in connection
with, among other things, a base wage decrease. We recorded a special
charge of $22.5 million in 2009 for the increase in estimate of the number
of UAW-represented associates at our original locations that are expected to be
permanently idled throughout the term of the 2008 labor agreements or
voluntarily elect to accelerate their remaining payments and terminate
employment.
In 2008,
we recorded a special charge of $51.9 million for the estimated amount of BDP
payments to be paid to permanently idled associates throughout the 2008 labor
agreements. This represented management’s best estimate of the
portion of the total BDP payments that would not result in a future benefit to
the Company.
20
Ratification
signing bonus As part of our
2008 labor agreements with the International UAW, we recorded special charges of
$19.5 million in 2008 for lump-sum ratification bonuses paid to UAW and
IAM-represented associates.
Supplemental
unemployment benefits In 2008, we recorded a
special charge of $18.0 million relating to supplemental unemployment benefits
(SUB) to be paid to current UAW represented associates during the 2008 labor
agreements that expire in February 2012. The 2008 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. Our
obligation for SUB payments is limited to $18.0 million and once this limit is
reached, the SUB program will be terminated.
Salaried workforce reductions In 2009, we recorded net
special charges in cost of goods sold of $3.8 million related to U.S. salaried
workforce reductions and a voluntary salaried retirement incentive program
(SRIP), which includes a charge for postemployment and special termination
benefits and a gain for the curtailment of certain pension and other
postretirement benefits. In 2008,
we recorded a special charge to cost of goods sold of $7.8 million in connection
with a SRIP and the estimated postemployment benefits related to salaried
workforce reductions. In 2007, we recorded $1.7 million of net
special charges which included a charge for postemployment benefits and a
gain related to the curtailment of certain pension and OPEB as a result of
salaried workforce reductions.
Other Other
special charges and nonrecurring operating costs recorded in cost of goods sold
were $14.9 million, $24.7 million and $11.1 million in 2009, 2008 and 2007,
respectively. This includes plant idling and closure costs, charges
related to the redeployment of assets to support capacity utilization
initiatives, estimated postemployment benefits to be paid to associates in our
European operations and restructuring accrual adjustments to update previous
estimates based on actual results.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
(SG&A) SG&A (including R&D) was $172.7
million in 2009 as compared to $185.4 million in 2008 and $202.8 million in
2007. SG&A as a percentage of net sales was 11.3% in 2009, 8.8%
in 2008 and 6.2% in 2007. SG&A in 2009 includes special charges
of $2.6 million, which primarily relate to salaried workforce
reductions. In addition, we incurred approximately $9.0 million of
professional fees related to restructuring actions. SG&A in 2008
includes a charge of $4.0 million for the estimated costs related to salaried
workforce reductions and a credit of $2.0 million that relates to other
restructuring accrual adjustments. Details of the salaried workforce
reductions are discussed in Gross Profit (Loss).
The
decrease in SG&A in 2009 as compared to 2008 is primarily a result of
structural cost reduction efforts. SG&A in 2008 as compared to
2007 reflects cost cutting initiatives, as well as lower profit sharing accruals
and stock-based compensation expense due to a net loss and stock price
depreciation in 2008.
R&D In
2009, R&D spending in product, process and systems was $67.0 million as
compared to $85.0 million in 2008 and $80.4 million in 2007. The
focus of this investment continues to be developing innovative driveline and
drivetrain systems and components for light trucks, SUVs, passenger cars,
crossover vehicles and commercial vehicles in the global
marketplace. Product development in this area includes power transfer
units, transfer cases, driveline and transmission differentials, multipiece
driveshafts, halfshafts, torque transfer devices, and front and rear drive
axles. We continue to focus on electronic integration in our existing
and future products to advance their performance. We also continue to
support the development of hybrid vehicle systems. Special focus is
also placed on the development of products and systems that provide our
customers with advancements in efficiency and fuel economy. Our
efforts in these areas have resulted in the development of prototypes and
various configurations of these driveline systems for several OEMs throughout
the world.
OPERATING INCOME (LOSS) Operating income
(loss) was a loss of $203.8 million in 2009 as compared to a loss of $1,050.6
million in 2008 and income of $75.6 million in 2007. Operating margin
was negative 13.4% in 2009 as compared to a margin of negative 49.8% in 2008 and
2.3% in 2007. The changes in operating income and operating margin in
2009, 2008 and 2007 were due to the factors discussed in Gross Profit (Loss) and
SG&A.
INTEREST
EXPENSE Interest expense was
$84.5 million in 2009, $70.4 million in 2008 and $61.6 million in
2007. The increase in interest expense in 2009 as compared to 2008
reflects an increase in interest rates and higher average outstanding
borrowings. Interest expense increased in 2008 as compared to
2007 primarily due to higher average outstanding borrowings.
The
weighted-average interest rate of our total debt outstanding was 7.3%, 7.2% and
8.1% during 2009, 2008 and 2007, respectively. We expect interest
expense in 2010 to be between approximately $90 million and $95
million.
21
INVESTMENT INCOME Investment
income was $2.0 million in 2009, $2.5 million in 2008 and $9.3 million in
2007. Investment income includes dividends earned on cash and cash
equivalents and short-term investments during the period. Investment
income includes a loss of $1.3 million and $5.5 million as a result of an other-than-temporary decline in the
fair value of our short-term investments in 2009 and 2008, respectively.
OTHER INCOME
(EXPENSE) Following are the components of Other Income
(Expense) for 2009, 2008 and 2007:
Debt refinancing and redemption
costs In 2009, we expensed $7.7 million of unamortized
debt issuance costs related to the voluntary prepayment of our term loan and a
portion of our Amended Revolving Credit Facility that was scheduled to become
due April 2010. In 2007, we expensed $5.5 million of unamortized debt
issuance costs and prepayment premiums related to the voluntary prepayment of
our $250.0 million Term Loan due 2010.
Other,
net Other, net, which includes the net effect of foreign
exchange gains and losses and our proportionate share of earnings from equity in
unconsolidated subsidiaries, was expense of $3.1 million in 2009, $2.8 million
in 2008 and $0.2 million in 2007.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) was a benefit of $43.8 million
in 2009 as compared to an expense of $103.3 million in 2008 and benefit of $19.4
million in 2007. Our effective income tax rate was 14.7% in 2009 as
compared to negative 9.2% in 2008 and negative 110.7% in 2007.
The
following is a reconciliation of our provision for income taxes to the expected
amounts using statutory rates:
2009
|
2008
|
2007
|
||||||||||
Federal
statutory
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Foreign
income taxes
|
11.6 | 2.2 | (129.6 | ) | ||||||||
State
and local
|
0.1 | - | 6.6 | |||||||||
Federal
tax credits
|
- | - | (29.8 | ) | ||||||||
Valuation
allowance
|
(10.2 | ) | (44.8 | ) | - | |||||||
U.S.
tax on unremitted foreign earnings
|
(33.2 | ) | - | - | ||||||||
NOL
carryback refund
|
16.4 | - | - | |||||||||
Other
|
(5.0 | ) | (1.6 | ) | 7.1 | |||||||
Effective
income tax rate
|
14.7 | % | (9.2 | )% | (110.7 | )% |
Our
income tax expense and effective tax rate for 2009 reflects the effect of
recording a tax benefit related to the extension of the carryback period of our
2008 NOL, recording a valuation allowance against income tax benefits on losses
in the U.S. and certain foreign subsidiaries and taxes on unremitted
foreign earnings. The income tax expense and effective tax rate for
2008 reflects the effect of the valuation allowance that was recorded in 2008 in
the U.S. and U.K. and the effect of not recording an income tax benefit on tax
losses in the U.S. The 2007 income tax benefit is primarily the
result of recognizing the deferred income tax benefit of current year losses in
the U.S. and the tax rate impact of an increase in foreign source income, which
carries a lower overall effective tax rate than U.S. income. In 2007, the
change in the effective tax rate also reflects the impact of tax
deductions on a smaller base of income (loss) before income
taxes.
In the
fourth quarter of 2009, the U.S. Congress passed the Worker, Homeownership and
Business Act of 2009, which, among other things, extended the carryback period
for most taxpayers from two years to up to five years for either 2008 or 2009
NOLs. This law permitted us to carryback our 2008 NOL to 2003. As a
result of this special carryback election, we recorded an income tax benefit of
$48.8 million in the fourth quarter 2009. In February 2010,
we collected the $48.8 million refund in full.
Accounting
guidance for income taxes requires a deferred tax liability be established for
the U.S. tax impact of undistributed earnings of foreign subsidiaries unless it
can be shown that these earnings will be permanently reinvested outside the
U.S. Prior to the fourth quarter of 2009, we did not provide for U.S.
taxes relating to undistributed earnings of our foreign subsidiaries because we
expected all accumulated and undistributed foreign earnings to be permanently
reinvested in jurisdictions outside of the U.S. In 2009, our U.S.
operations required significant cash funding. As a result, we believe
these accumulated foreign earnings in certain jurisdictions are likely to be
remitted to the U.S. as dividends or intercompany loans and have established a
deferred tax liability of $118.8 million representing the estimated tax impact
of the undistributed earnings of certain foreign subsidiaries. The remittance of
these undistributed earnings may subject us to U.S. income taxes and certain
foreign withholding taxes at the time of remittance.
In
2008, we reviewed the likelihood that we would be able to realize the benefit of
our U.S. deferred tax assets based on the revised near-term projected future
operating results of our U.S. operations. We concluded that it was no
longer “more likely than not” that we would realize our net deferred tax assets
in the U.S. and recorded a charge to income tax expense in 2008 of $54.4 million
to establish a full valuation allowance against these assets. We also
reviewed the likelihood that we would be able to realize the benefit of our U.K.
deferred tax assets based on the revised near-term projected future operating
results of our U.K. operations. We concluded that it was no longer
“more likely than not” that we would realize the benefit of our deferred tax
assets in the U.K. and recorded a charge to income tax expense in 2008 of $8.3
million to establish a full valuation allowance against these
assets.
22
NET INCOME (LOSS) ATTRIBUTABLE TO AAM
AND EARNINGS (LOSS) PER SHARE (EPS) Net income (loss)
attributable to AAM was a loss of $253.1 million in 2009 as compared to a loss
of $1,224.3 million in 2008 and income of $37.0 million in
2007. Diluted earnings (loss) were a loss of $4.81 per share in 2009
as compared to a loss of $23.73 per share in 2008 and earnings of $0.69 per
share in 2007. Net Income (Loss) and EPS were primarily impacted by
the factors discussed in Gross Profit (Loss), SG&A, Interest Expense, Debt
Refinancing and Redemption Costs and Income Tax Expense (Benefit).
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary liquidity needs are to fund debt service obligations, working capital
investments, capital expenditures and our pension plan
obligations. We also need to fund ongoing attrition programs and
buydown payments included in the 2008 labor agreements with the International
UAW. We believe that operating cash flow, available cash and cash
equivalent balances and available committed borrowing capacity under our Amended
Revolving Credit Facility will be sufficient to meet these
needs.
OPERATING
ACTIVITIES Net cash provided by operating activities was
$15.9 million in 2009 as compared to net cash used in operating activities of
$163.1 million in 2008 and net cash provided by operating activities of $367.9
million in 2007. See below for more detail on important factors
related to our cash flow from operations.
Lower
sales Cash flow from operations in 2009
and 2008 were adversely affected by significant reductions in
revenues. This includes the impact of extended production shutdowns
by our largest customers in 2009, estimated at $95 million and the impact of the
strike called by the International UAW in 2008, estimated at $129
million.
Cash paid for restructuring
charges We paid $60.1 million, $227.1 million and $80.9
million related to our ongoing restructuring actions in 2009, 2008 and 2007,
respectively. In addition, as part of our 2008 labor agreements, we
paid $19.5 million of lump-sum ratification bonuses to UAW and IAM represented
associates in 2008. We expect to make payments of approximately $15
million in 2010, $10 million in 2011 and $6 million in 2012 related to our
restructuring accrual as of December 31, 2009.
Buydown
program Under the BDP, three annual lump-sum payments
are made to associates in connection with, among other things, a base wage
decrease. We paid $19.6 million in 2009 for the second lump-sum BDP
payment and $51.0 million in 2008 for the first lump-sum buydown
payment. Associates who are indefinitely laid off for 30 days have
the option to accelerate their remaining BDP lump-sum payments and terminate
their employment with AAM. We made $49.6 million and $0.3 million of
accelerated BDP payments in 2009 and 2008, respectively. We estimate
the BDP payments to be approximately $25 million in 2010, which includes those
payments to be made to associates who may elect to accelerate their BDP payments
and terminate employment with AAM.
2009 Settlement and Commercial
Agreement In the third quarter of 2009, we entered into the
2009 Settlement and Commercial Agreement with GM. As part of this
agreement, we received $110.0 million in the third quarter of 2009, $79.7
million of which is classified as cash flow from operations.
As part of the 2009 Settlement and Commercial Agreement, we also agreed to
expedited payment terms of “net 10 days” from GM through June 30, 2011 (as
compared to previously existing terms of approximately 45 days) in exchange for
a 1% early payment discount. We estimate that the accelerated payment
terms favorably impacted cash flow from operations by approximately $62 million
in 2009. We may elect to extend the Expedited Payment Terms
through December 31, 2013. Upon expiration of the Expedited Payment Terms,
we will be paid on payment terms of approximately 50 days.
2008 AAM-GM
Agreement In 2008, we entered into an agreement with GM in
connection with the resolution of the strike called by the International UAW
(2008 AAM – GM Agreement) in which GM agreed to provide us with $175.0 million
to support the transition of our UAW represented legacy labor at our original
U.S. locations. We received $115.0 million in 2008 and collected the
remaining $60.0 million from GM in 2009.
Pension and OPEB We contributed $24.9
million to our pension trusts in 2009 as compared to $5.2 million in 2008 and
$19.9 million in 2007. This funding compares to our annual pension
expense, including special and contractual termination benefits, of $13.5
million in 2009, $65.0 million in 2008 and $35.0 million in 2007. We
expect our regulatory pension funding requirements in 2010 to be approximately
$25 million.
Our cash
outlay for OPEB, net of GM cost sharing, was $16.1 million in 2009, $11.8
million in 2008 and $9.0 million in 2007. This compares to our annual
postretirement benefit, including curtailments and settlements, of a credit of
$55.7 million in 2009, a credit of $44.4 million in 2008 and expense of $50.3
million in 2007. We expect our cash outlay for other postretirement
benefit obligations in 2010, net of GM cost sharing, to be approximately $15
million.
Accounts
receivable Accounts receivable at year-end 2009 were
$129.7 million as compared to $186.9 million at year-end 2008 and $264.0 million
at year-end 2007. The decrease in our year-end 2009 accounts
receivable balance primarily reflects the implementation of Expedited Payment
Terms for GM. The decrease in 2008 as compared to 2007 reflects a
decrease in sales in the fourth quarter of 2008 as compared to the fourth
quarter of 2007.
23
Inventories At
year-end 2009, inventories were $90.6 million as compared to $111.4 million at
year-end 2008 and $242.8 million at year-end 2007. The decrease in
inventory in 2009 as compared to 2008 reflects lower sales levels and the result
of initiatives to reduce the amount of inventory on hand. The
decrease in inventories in 2008 as compared to 2007 reflects lower sales levels,
indirect inventory obsolescence due to reduced projected usage and the result of
initiatives to reduce the amount of inventory on hand. The decrease
in 2008 also includes the classification of $28.0 million from inventory to
other noncurrent assets for indirect inventory that based on current sales
projections, we did not expect to use within a year.
Refundable income
taxes At year-end 2009, prepaid assets and other on our
Consolidated Balance Sheet included refundable income taxes of $52.7 million as
compared to $6.6 million at year-end 2008 and $8.1 million at year-end
2007. The increase in refundable income taxes in 2009 as compared to
2008 and 2007 is primarily due to the $48.8 million income tax benefit we
recorded as a result of a special carryback election which enabled us to
carryback our 2008 NOL to 2003. In February 2010, we collected the
$48.8 million refund in full.
Accounts payable At
year-end 2009, accounts payable were $200.9 million as compared to $250.9
million at year-end 2008 and $313.8 million and year-end 2007. The
reductions in accounts payable at year-end 2009 compared to year-end 2008 and at
year-end 2008 compared to year-end 2007 primarily reflect lower business
activity levels and reductions in capital expenditures.
INVESTING
ACTIVITIES Capital expenditures were $141.5 million in
2009, $140.2 million in 2008 and $186.5 million in 2007. In 2009, our
capital spending primarily supported the future launch of new vehicle programs
within our new business backlog and the expansion of our global manufacturing
footprint.
We expect
our capital spending in 2010 to be in the range of $80 million - $100 million,
which includes support for our significant global program launches in 2010 and
2011 within our new business backlog.
In
2008, redemptions were temporarily suspended for certain money-market and other
similar funds in which we invest. Accordingly,
we reclassified $117.2 million from cash and cash equivalents to short-term
investments on our Consolidated Balance Sheet. We received
$71.6 million and $40.1 million of redemptions in 2009 and 2008, respectively,
and the fair value of the remaining investment in these funds is $4.2 million as
of December 31, 2009. As of the date of this
filing, we have received $1.4 million of redemptions in
2010.
In the first quarter of 2009, we formed a joint venture (JV) with Hefei
Automobile Axle Co, Ltd., (HAAC), a subsidiary of the JAC Group (Anhui Jianghuai
Automobile Group Co, Ltd). We made an investment of $10.2 million
related to the formation of this JV. In 2008, we made a cash payment
to FormTech Industries LLC of $10.7 million related to an asset purchase
agreement.
FINANCING
ACTIVITIES Net cash provided by financing activities was
$32.1 million in 2009 as compared to $254.5 million in 2008 and $148.3 million
in 2007. Total debt outstanding was $1,071.4 million at year-end
2009, $1,139.9 million at year-end 2008 and $858.1 million at year-end
2007. Total debt outstanding decreased by $68.5 million at year-end
2009 as compared to year-end 2008 primarily due to lower borrowings under the
Amended Revolving Credit Facility. The increase in total debt
outstanding at year-end 2008 as compared to year-end 2007 was primarily due to
higher borrowings under our Revolving Credit Facility and the net cash outflow
for operating activities.
Issuance of Common
Stock In the fourth quarter of 2009, we sold 16.1
million shares of AAM’s common stock, par value $0.01 per share, in a public
offering at a price of $7.20 per share for total net proceeds of approximately
$109.7 million. We intend to use the net proceeds from the sale of
our common stock for general corporate purposes.
Amended Revolving Credit
Facility On December 18, 2009, we entered into a Revolving
Credit Amendment and Restatement Agreement under which the Credit Agreement
dated as of January 9, 2004 was amended and restated. The Amended
Revolving Credit Facility provides up to $296.3 million of revolving bank
financing commitments through December 2011 and $243.2 million of revolving bank
financing commitments through June 2013. At December 31, 2009, $60.0
million was outstanding and $198.5 million was available under the Revolving
Credit Facility, which reflected a reduction of $37.8 million for standby
letters of credit issued against the facility.
On
December 18, 2009, concurrent with the closing on the Amended Revolving Credit
Facility, we voluntarily prepaid and terminated $107.5 million of our Amended
Revolving Credit Facility which was scheduled to become due April
2010. Upon repayment, we expensed $0.3 million of unamortized debt
issuance costs. We had been amortizing the debt issuance costs over
the expected life of the borrowing. In 2009, we paid debt issuance costs
of $14.5 million associated with the amendments and restatements of our
Revolving Credit Facility.
Borrowings under the Amended Revolving Credit Facility will continue to
bear interest at rates based on adjusted LIBOR or an alternate base rate, plus
an applicable margin. The applicable margin for a LIBOR based loan for lenders
is currently 6.0%.
Under the Amended Revolving Credit Facility, we are required to comply with
financial covenants related to secured indebtedness leverage and cash interest
expense coverage. We will also be required to maintain an average
daily minimum liquidity of $85 million until June 30, 2010 and to comply
with a collateral coverage test thereafter. The Amended Revolving
Credit Facility limits our ability to make certain investments, declare or pay
dividends or distributions on capital stock, redeem or repurchase capital stock
and certain debt obligations, incur liens, incur indebtedness, or merge, make
acquisitions and sell assets.
The Amended Revolving Credit Facility is secured on a first priority basis by
substantially all of the assets of AAM Holdings, American Axle &
Manufacturing, Inc. (AAM, Inc.) and each guarantor, including a pledge of all
capital stock of the U.S. subsidiaries of AAM Holdings and each guarantor and a
portion of the capital stock of AAM Holdings and each guarantor’s first-tier
foreign subsidiaries. In addition, obligations under the Amended
Revolving Credit Facility are guaranteed by AAM Holdings and our U.S.
subsidiaries, all of which are directly owned by the borrower.
24
9.25% Notes In the
fourth quarter of 2009, we issued $425.0 million of 9.25% senior secured notes
due 2017 (9.25% Notes). The notes were issued at a discount of $5.5
million. Net proceeds from these notes were used for the repayment of
all amounts outstanding under our Amended Term Loan and to repay certain
outstanding amounts under the Amended Revolving Credit Facility. In
2009, we paid debt issuance costs of $12.6 million related to the 9.25%
Notes.
The 9.25%
Notes share the collateral package equally and ratably with the Amended
Revolving Credit Facility as described above. The indenture governing
the 9.25% Notes limits our ability to make certain investments, declare or pay
dividends or distributions on capital stock, redeem or repurchase capital stock
and certain debt obligations, incur liens, incur indebtedness, transact with
affiliates or merge, make acquisitions and sell assets.
If
the Second Lien Term Loan Facility with GM has not been refinanced in full (or
terminated and repaid without refinancing) on or prior to June 30, 2013, each
holder of the 9.25% Notes will have the right to require us to repurchase all or
any part of the 9.25% Notes in cash on September 30, 2013.
Amended Term
Loan On December 18, 2009, we voluntarily prepaid the amounts
outstanding under our $250.0 million Amended Term Loan. Upon
repayment, we expensed $6.1 million of unamortized debt issuance
costs. We had been amortizing the debt issuance costs over the
expected life of the borrowing. We paid $5.8 million of debt issuance
costs related to the amendment and restatement of our Term Loan in the third
quarter of 2009.
Second Lien Term Loan
Facility Under the 2009 Settlement and Commercial Agreement,
we entered into a $100.0 million Second Lien Term Loan Facility with
GM. Borrowings under this facility, if any, will bear interest at
LIBOR (with a 2% floor) plus 12%. The Second Lien Term Loan Facility
is not prepayable until June 30, 2011, unless the source of such prepayment
is cash generated in AAM’s ordinary course business operations and is
subject to an intercreditor agreement with existing senior lenders and cannot be
terminated prior to June 30, 2011. Until then, if we require additional
liquidity that cannot be satisfied by utilizing a combination of the Expedited
Payment Terms, proceeds from sales of common equity, proceeds from the issuance
of equity linked securities, cash generated from ordinary course business
operations, availability under existing credit facilities (including certain
permitted indebtedness), or a permitted refinancing (as set forth in the Second
Lien Term Loan Facility), we will be required to borrow under the Second Lien
Term Loan Facility. As of the date of this filing, we have not
borrowed under this facility.
As part of the 2009 Settlement and Commercial Agreement, we granted GM a
contingent right of access to certain of our facilities and a security interest
in certain operating assets, certain real estate and intellectual property used
in production of GM component parts. Upon the occurrence of certain
specified events, which generally involve a material and imminent breach of our
supply obligations at a particular facility, GM may elect to access and
use the operating assets and real estate used to manufacture, process and
ship GM component parts produced at specified AAM facilities for a period
of up to 360 days after invoking its right of access. GM would
also have the right to resource component part production to alternative
suppliers. The right of access would continue for ninety days following the
later of repayment and termination of the Second Lien Term Loan Facility and
termination of the Expedited Payment Terms. If we do not maintain
compliance with the Secured Debt Leverage Ratio under the Amended Revolving
Credit Facility as of March 31, 2011 (without regard to a waiver, amendment,
forbearance or modification of such covenant granted by the Amended Revolving
Credit Facility lenders), GM’s right of access will be extended through March
31, 2012.
7.875% Notes In
2007, we issued $300.0 million of 7.875% senior unsecured notes due 2017 (7.875%
Notes). Net proceeds from these notes were used for general corporate
purposes, including payment of amounts outstanding under our Revolving Credit
Facility. We paid debt issuance costs of $5.2 million related to the
7.875% Notes in 2007.
5.25%
Notes The 5.25% Notes are senior unsecured obligations
due February 2014.
2.00% Convertible
Notes In 2006, the 2.00% Senior Convertible Notes due 2024
became convertible into cash under terms of the indenture. A total of
$2.3 million of the notes were converted into cash in 2008 and $0.4 million of
the notes remain outstanding as of December 31, 2009.
Foreign credit
facilities We utilize local currency credit facilities to
finance the operations of certain foreign subsidiaries. At December
31, 2009, $34.1 million was outstanding under these facilities and an additional
$12.2 million was available.
Debt
covenants As of the date of this filing, we are in
compliance with all of our debt covenants.
25
Credit
ratings Our current credit ratings and outlook, as of the date
of this filing, are summarized in the table below.
Corporate
Family Rating
|
Secured
Senior Notes Rating
|
Unsecured
Senior Notes Rating
|
Outlook
|
||||||||
Standard
& Poor's
|
B- | B |
CCC
|
Stable
|
|||||||
Moody's
Investors Services
|
Caa2
|
B2 |
Caa3
|
Stable
|
|||||||
Fitch
Ratings
|
B- | B+ |
CC
|
Stable
|
Stock
warrants Under the 2009 Settlement and Commercial Agreement,
we issued to GM five year warrants, which entitle GM to purchase 4.1 million
shares of AAM’s common stock at an exercise price of $2.76 per
share. If we borrow against the Second Lien Term Loan Facility, we
will issue GM additional warrants to purchase a pro rata portion, based upon the
amount drawn, of up to an additional 6.9 million shares of
AAM’s common stock at an exercise price of $2.76 per
share. These warrants will expire on September 16,
2014. We have classified $30.3 million of the payment received from
GM as part of the 2009 Settlement and Commercial Agreement as cash flow from
financing activities, which represents the grant date fair value of the warrants
issued to GM on September 16, 2009.
Dividend
program In 2009, the Company’s Board of Directors
decided to suspend the quarterly cash dividend. We paid $18.3 million
and $31.8 million to stockholders of record under the quarterly cash dividend
program during 2008 and 2007, respectively. The decrease in dividend
payments in 2008 relates to the reduction of the quarterly dividend from $0.15
per share to $0.02 per share beginning in the third quarter of
2008.
Off-balance sheet
arrangements Our off-balance sheet financing relates
principally to operating leases for certain facilities and manufacturing
machinery and equipment. We lease certain machinery and equipment
under operating leases with various expiration dates. Pursuant to these
operating leases, we have the option to purchase the underlying machinery and
equipment on specified dates. We have remaining lease repurchase
options of $4.0 million in 2010.
Contractual
obligations The following table summarizes payments due on our
contractual obligations as of December 31, 2009:
Payments
due by period
|
|||||||||||||||||||||
Total
|
<1yr |
|
1-3
yrs
|
3-5
yrs
|
>5 yrs | ||||||||||||||||
(in
millions)
|
|||||||||||||||||||||
Long-term
debt
|
$ | 1,064.0 | $ | 17.1 | $ | 12.8 | $ | 314.5 | $ | 719.6 | |||||||||||
Interest
obligations
|
530.8 | 65.7 | 158.1 | 147.5 | 159.5 | ||||||||||||||||
Capital
lease obligations
|
7.4 | 0.6 | 1.2 | 0.7 | 4.9 | ||||||||||||||||
Operating
leases (1)
|
42.1 | 17.0 | 24.1 | 0.9 | 0.1 | ||||||||||||||||
Purchase
obligations (2)
|
76.3 | 68.7 | 7.6 | - | - | ||||||||||||||||
Other
long-term liabilities (3)
|
699.1 | 59.8 | 142.2 | 143.1 | 354.0 | ||||||||||||||||
Total
|
$ | 2,419.7 | $ | 228.9 | $ | 346.0 | $ | 606.7 | $ | 1,238.1 |
(1)
|
Operating
leases include all lease payments through the end of the contractual lease
terms, including elections for repurchase options, and exclude any
non-exercised purchase options on such leased
equipment.
|
(2)
|
Purchase
obligations represent our obligated purchase commitments for capital
expenditures and related project
expense.
|
(3) |
Other
long-term liabilities represent our estimated pension and other
postretirement benefit obligations that were actuarially determined
through 2019, as well as our unrecognized income tax
benefits.
|
CYCLICALITY
AND SEASONALITY
Our
operations are cyclical because they are directly related to worldwide
automotive production, which is itself cyclical and dependent on general
economic conditions and other factors. Our business is also
moderately seasonal as our major OEM customers historically have a two-week
shutdown of operations in July and an approximate one-week shutdown in
December. In addition, our OEM customers have historically incurred
lower production rates in the third quarter as model changes enter
production. Accordingly, our third quarter and fourth quarter results
may reflect these trends.
The
automotive industry’s cyclicality was exacerbated in 2009 by GM’s extended
summer production shutdown and Chrysler’s temporary idling of its manufacturing
operations during its bankruptcy.
LEGAL
PROCEEDINGS
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 closely monitor our environmental conditions to ensure
that we are in compliance with applicable laws, regulations and
ordinances. We have made, and will continue to make, capital and
other expenditures to comply with environmental requirements, including
recurring administrative costs. Such expenditures were not
significant in 2009, 2008 and 2007.
26
EFFECT
OF NEW ACCOUNTING STANDARDS
In February 2008, the FASB issued new accounting guidance which defers the
effective date of a previously issued accounting standard for the fair value
measurement of 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. We
adopted the guidance on fair value measurements of nonfinancial assets and
nonfinancial liabilities on January 1, 2009 and it did not have a material
impact on our financial statements.
In December 2007, the FASB issued new accounting guidance on
noncontrolling interests in consolidated financial statements. This
new guidance establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. We adopted the new guidance on January 1, 2009 and have
retrospectively revised the financial statement presentation of our
noncontrolling interests accordingly.
In May 2008, the FASB issued new accounting guidance for the treatment of
convertible debt instruments that may be settled in cash upon conversion
(including partial cash settlement), which requires issuers of convertible debt
securities within its scope to separate these securities into a debt component
and an equity component, resulting in the debt component being recorded at fair
value without consideration given to the conversion feature. Issuance costs are
also allocated between the debt and equity components. This new
guidance was effective for us on January 1, 2009 and the impact was not
material.
In June 2008, the FASB issued new accounting guidance on determining whether
instruments granted in share-based payment transactions are participating
securities. This new guidance concludes that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are participating securities and shall be included in the
computation of EPS pursuant to the two-class method. The new guidance was
effective for us retrospectively on January 1, 2009. The adoption of
this new accounting guidance increased our basic and diluted shares outstanding
by 2.0 million and 1.1 million for 2007. Adoption of this new
guidance did not increase basic and diluted shares outstanding for 2009 and 2008
as we were in a loss position and the participating securities are not obligated
to fund losses.
CRITICAL
ACCOUNTING ESTIMATES
In order
to prepare consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP), we are
required to make estimates and assumptions that affect the reported amounts and
disclosures in our consolidated financial statements. These estimates
are subject to an inherent degree of uncertainty and actual results could differ
from our estimates.
Other
items in our consolidated financial statements require estimation. In
our judgment, they are not as critical as those disclosed below. We
have discussed and reviewed our critical accounting estimates disclosure with
the Audit Committee of our Board of Directors.
PENSION AND OTHER POSTRETIREMENT
BENEFITS In calculating our assets, liabilities and
expenses related to pension and OPEB, key assumptions include the discount rate,
expected long-term rates of return on plan assets and rates of increase in
health care costs.
The
discount rates used in the valuation of our U.S. pension and OPEB obligations
were based on an actuarial review of a hypothetical portfolio of long-term, high
quality corporate bonds matched against the expected payment stream for each of
our plans. In 2009, the discount rates determined on that basis
ranged from 5.75% to 6.35% for the valuation of our pension benefit obligations
and ranged from 5.95% to 6.05% for the valuation of our OPEB
obligations. The discount rate used in the valuation of our U.K.
pension obligation was based on a review of long-term bonds, including published
indices in the applicable market. In 2009, the discount rate
determined on that basis was 5.70%. The expected long-term rates of
return on our plan assets were 8.00% for our U.S. plans and 6.25% for our U.K.
plan in 2009. We developed these rates of return assumptions based on
future capital market expectations for the asset classes represented within our
portfolio and a review of long-term historical returns. The asset
allocation for our plans was developed in consideration of the demographics of
the plan participants and expected payment stream of the
liability. In consideration of the significant plan design changes to
our largest U.S. plan in 2009, we have adopted an investment policy with a
higher allocation to fixed income securities. Our investment policy
allocates 50-70% of the plans’ assets to equity securities, depending on the
plan, with the remainder invested in fixed income securities, hedge fund
investments and cash. The rates of increase in health care costs are
based on current market conditions, inflationary expectations and historical
information.
All of
our assumptions were developed in consultation with our actuarial service
providers. While we believe that we have selected reasonable
assumptions for the valuation of our pension and OPEB obligations at year-end
2009, actual trends could result in materially different
valuations.
27
The
effect on our pension plans of a 0.5% decrease in both the discount rate and
expected return on assets is shown below as of December 31, 2009, our valuation
date.
Expected
|
||||||||
Discount
|
Return
on
|
|||||||
Rate
|
Assets
|
|||||||
(in
millions)
|
||||||||
Decline
in funded status
|
$ | 46.4 | N/A | |||||
Increase
in 2009 expense
|
$ | 1.0 | $ | 2.0 |
No changes in benefit levels and no changes in the amortization of gains or
losses have been assumed.
For 2010,
we assumed a weighted average annual increase in the per-capita cost of covered
health care benefits of 8.00% for OPEB. The rate is assumed to
decrease gradually to 5% by 2016 and remain at that level
thereafter. A 0.5% decrease in the discount rate for our OPEB would
have increased total service and interest cost in 2009 and the postretirement
obligation at December 31, 2009 by $0.5 million and $18.0 million,
respectively. A 1.0% increase in the assumed health care trend rate
would have increased total service and interest cost in 2009 and the
postretirement obligation at December 31, 2009 by $2.0 million and $53.9 million,
respectively.
As part
of our 2009 Settlement and Commercial Agreement, GM confirmed its obligation to
share in the cost of OPEB for eligible retirees proportionally based on the
length of service an employee had with AAM and GM. We estimate the
future cost sharing payments and present it as an asset on our Consolidated
Balance Sheet. As of December 31, 2009, we estimated $229.3 million
in future GM cost sharing. If, in the future, GM was unable to
fulfill this financial obligation, our OPEB expenses may be different than
our current estimates.
ENVIRONMENTAL
OBLIGATIONS Due to the nature of our operations, we have
legal obligations to perform asset retirement activities related to federal,
state, local and foreign environmental requirements. The process of estimating
environmental liabilities is complex and significant uncertainty exists related
to the timing and method of the settlement of these
obligations. Therefore, these liabilities are not reasonably
estimable until a triggering event occurs that allows us to estimate a range and
possibilities of potential settlement dates, and the potential methods of
settlement.
As a
result of the plant closures, idling and consolidation of facilities in 2009 and
2008, the methods and timing of certain asset retirement obligations related to
these facilities 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 $1.0 million in both 2009 and in
2008. As of December 31, 2009, the accrual for this liability was
$1.3 million. In the future, we will update our estimated costs and
potential settlement dates and methods and their associated probabilities based
on current information. Any update may change our best estimate and
could result in a material adjustment to this liability.
GOODWILL We
review our goodwill for impairment annually during the fourth
quarter. In addition, we review goodwill for impairment whenever
adverse events or changes in circumstances indicate a possible
impairment. This review utilizes a two-step impairment test
required by the accounting guidance covering goodwill and other indefinite-lived
intangibles. The first step involves a comparison of the fair value
of a reporting unit with its carrying value. If the carrying value of
the reporting unit exceeds its fair value, the second step of the process
involves a comparison of the fair value of goodwill with its carrying
value. If the carrying value of the reporting unit's goodwill exceeds
the fair value of that goodwill, an impairment loss is recognized in an amount
equal to the excess.
The
determination of our reporting units, impairment indicators and the fair value
of those reporting units and corresponding goodwill require us to make
significant judgments and estimates, including the extent and timing of future
cash flows. As part of the determination of future cash flows, we
need to make assumptions on future general economic conditions, business
projections, growth rates and discount rates. These assumptions
require significant judgment and are subject to a considerable degree of
uncertainty. We believe that the assumptions and estimates in our
review of goodwill for impairment are reasonable. However, different
assumptions could materially effect our conclusions on this
matter. We performed our annual analysis in the fourth quarter and
determined there was no impairment to goodwill in 2009.
IMPAIRMENT OF LONG-LIVED
ASSETS Long-lived assets, excluding goodwill and other
indefinite-lived intangible assets, to be held and used are reviewed for
impairment whenever adverse events or changes in circumstances indicate a
possible impairment. Recoverability of each “held for use” asset group affected
by impairment indicators is determined by comparing the forecasted undiscounted
cash flows of the operations to which the assets relate to their carrying
amount. If the carrying amount of an asset group exceeds the
undiscounted cash flows and is therefore nonrecoverable, the assets in this
group are written down to their estimated fair value. We estimate
fair value based on market prices, when available, or on a discounted cash flow
analysis. Long-lived assets held for sale are recorded at the lower
of their carrying amount or fair value less cost to sell. Significant
judgments and estimates used by management when evaluating long-lived assets for
impairment include:
• An
assessment as to whether an adverse event or circumstance has triggered the need
for an impairment review;
• Determination
of asset groups, the primary asset within each group, and the primary asset’s
average estimated useful life;
• Undiscounted
future cash flows generated by the assets; and
• Determination
of fair value when an impairment is deemed to exist, which may require
assumptions related to future general economic conditions, future expected
production volumes, product pricing and cost estimates, working capital and
capital investment requirements, discount rates and estimated liquidation
values.
Refer to
the "Results of Operations – Gross Profit (Loss)" section for more information
on our asset impairments recorded in 2009, 2008 and 2007.
28
ESTIMATED USEFUL LIVES FOR
DEPRECIATION At December 31, 2009, approximately 80% of
our capitalized investment in property, plant and equipment was related to
productive machinery and equipment used in support of our manufacturing
operations. The selection of appropriate useful life estimates for
such machinery and equipment is a critical element of our ability to properly
match the cost of such assets with the operating profits and cash flow generated
by their use. We currently depreciate productive machinery and
equipment on the straight-line method using composite useful life estimates up
to 12 years.
While we
believe that the useful life estimates currently being used for depreciation
purposes reasonably approximate the period of time we will use such assets in
our operations, unforeseen changes in product design and technology standards or
cost, quality and delivery requirements may result in actual useful lives that
differ materially from the current estimates.
VALUATION OF
DEFERRED TAX ASSETS AND OTHER TAX LIABILITIES Because we
operate in many different geographic locations, including several foreign, state
and local tax jurisdictions, the evaluation of our ability to use all recognized
deferred tax assets is complex.
We
are required to 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 these estimates, we use historical results, projected future
operating results based upon approved business plans, eligible carryforward
periods, tax planning opportunities and other relevant considerations. This
includes the consideration of tax law changes, prior profitability performance
and the uncertainty of future projected profitability.
In the fourth quarter of 2009, the U.S. Congress passed the Worker,
Homeownership and Business Act of 2009 which, among other things, extended the
NOL carryback period for most taxpayers from two years to up to five years for
either 2008 or 2009 NOLs. This law enables us to carryback our 2008 NOL to
2003. As a result of this special carryback election, we recorded an
income tax benefit of $48.8 million in the fourth quarter 2009.
As of December 31, 2009 and 2008, we had valuation allowances of $559.7 million
and $581.8 million respectively. These valuation allowances mainly
related to the full valuation allowances on our U.S. net deferred tax
assets. In 2008, we concluded that it was no longer “more likely than
not” that we would realize our net deferred tax assets in the U.S. We
also have valuation allowances for net deferred tax assets related to certain
foreign jurisdictions.
If, in the future, we generate taxable income on a sustained basis in the
U.S. or in foreign jurisdictions for which we have recorded valuation
allowances, 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. While we believe we have made appropriate
valuations of our deferred tax assets, unforeseen changes in tax legislation,
regulatory activities, audit results, operating results, financing strategies,
organization structure and other related matters may result in material changes
in our deferred tax asset valuation allowances or our tax
liabilities.
To the extent our uncertain tax positions do not meet the “more likely than not”
threshold, we have derecognized such positions. To the extent our uncertain tax
positions meet the “more likely than not” threshold, we have measured and
recorded the highest probable benefit, and have established appropriate reserves
for benefits that exceed the amount likely to be defended upon
examination.
As of December 31, 2009 and 2008, we have recorded a liability for unrecognized
income tax benefits and related interest and penalties of $55.9 million and
$45.8 million, respectively. Our U.S. federal and certain
state income tax returns and certain non-U.S. income tax returns are
currently under various stages of audit by the relevant tax
authorities. We will continue to monitor the progress and
conclusions of all ongoing audits and will adjust our estimated liability as
necessary.
29
Forward-Looking
Statements
In this
MD&A and elsewhere in this Annual Report, we make certain 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 “will,” “may,” “could,”
“would,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “project” and
similar words or expressions 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 may 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:
·
|
global
economic conditions;
|
·
|
our
ability to comply with the definitive terms and conditions of various
commercial and financing arrangements with
GM;
|
·
|
reduced
purchases of our products by GM, 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
customers’ and suppliers’ availability of financing for working capital,
capital expenditures, R&D or other general corporate
purposes;
|
·
|
the
impact on us and our customers of requirements imposed on, or actions
taken by, our customers in response to the U.S. government’s ownership
interest, the Troubled Asset Relief Program or similar
programs;
|
·
|
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’, our customers’ and their suppliers’ ability to maintain
satisfactory labor relations and avoid work
stoppages;
|
·
|
our
ability to continue to implement improvements in our U.S. labor cost
structure;
|
·
|
supply
shortages or price increases in raw materials, utilities or other
operating supplies;
|
·
|
currency
rate fluctuations;
|
·
|
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;
|
·
|
price
volatility in, 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 (“CAFE”) regulations);
|
·
|
adverse
changes in the 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.
30
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk
MARKET
RISK
Our
business and financial results are affected by fluctuations in world financial
markets, including interest rates and currency exchange rates. Our
hedging policy has been developed to manage these risks to an acceptable level
based on management’s judgment of the appropriate trade-off between risk,
opportunity and cost. We do not hold financial instruments for
trading or speculative purposes.
CURRENCY EXCHANGE
RISK 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. In the fourth quarter of 2009, we settled our outstanding
foreign currency forward contracts and, as of December 31, 2009, there are no
foreign currency contracts outstanding. A 10% change in any of these
foreign currencies would not have had a material impact on our consolidated
financial statements in 2009.
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 agreements as
an adjustment to interest expense over the lives of the debt
agreements. In the fourth quarter of 2008, we terminated our interest
rate swap that converted variable rate financing based on 3-month LIBOR into
fixed interest rates. As of
December 31, 2009, there are no interest rate swaps in place. The pre-tax
earnings and cash flow impact of a one-percentage-point increase in interest
rates (approximately 12% of our weighted-average interest rate at December 31,
2009) on our long-term debt outstanding at December 31, 2009 would be
approximately $1 million on an annualized basis.
31
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
Item 8. Financial Statements and Supplementary
Data
Consolidated
Statements of Operations
Year
Ended December 31,
(in
millions, except per share data)
2009
|
2008
|
2007
|
||||||||||
Net
sales
|
$ | 1,521.6 | $ | 2,109.2 | $ | 3,248.2 | ||||||
Cost
of goods sold
|
1,552.7 | 2,974.4 | 2,969.8 | |||||||||
Gross
profit (loss)
|
(31.1 | ) | (865.2 | ) | 278.4 | |||||||
Selling,
general and administrative expenses
|
172.7 | 185.4 | 202.8 | |||||||||
Operating
income (loss)
|
(203.8 | ) | (1,050.6 | ) | 75.6 | |||||||
Interest
expense
|
(84.5 | ) | (70.4 | ) | (61.6 | ) | ||||||
Investment
income
|
2.0 | 2.5 | 9.3 | |||||||||
Other expense
|
||||||||||||
Debt
refinancing and redemption costs
|
(7.7 | ) | - | (5.5 | ) | |||||||
Other,
net
|
(3.1 | ) | (2.8 | ) | (0.2 | ) | ||||||
Income
(loss) before income taxes
|
(297.1 | ) | (1,121.3 | ) | 17.6 | |||||||
Income
tax expense (benefit)
|
(43.8 | ) | 103.3 | (19.4 | ) | |||||||
Net
income (loss)
|
$ | (253.3 | ) | $ | (1,224.6 | ) | $ | 37.0 | ||||
Net loss attributable to noncontrolling interests
|
0.2 | 0.3 | - | |||||||||
Net
income (loss) attributable to AAM
|
$ | (253.1 | ) | $ | (1,224.3 | ) | $ | 37.0 | ||||
Basic
earnings (loss) per share
|
$ | (4.81 | ) | $ | (23.73 | ) | $ | 0.70 | ||||
Diluted
earnings (loss) per share
|
$ | (4.81 | ) | $ | (23.73 | ) | $ | 0.69 | ||||
See
accompanying notes to consolidated financial statements
32
Consolidated
Balance Sheets
December
31,
(in
millions, except per share data)
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 178.1 | $ | 198.8 | ||||
Short-term
investments
|
4.2 | 77.1 | ||||||
Accounts
receivable, net of allowances of $8.3 million in 2009 and $3.3
million in 2008
|
129.7 | 186.9 | ||||||
2008
AAM-GM Agreement receivable
|
- | 60.0 | ||||||
Inventories,
net
|
90.6 | 111.4 | ||||||
Deferred
income taxes
|
5.9 | 5.5 | ||||||
Prepaid
expenses and other
|
108.1 | 55.6 | ||||||
Total
current assets
|
516.6 | 695.3 | ||||||
Property,
plant and equipment, net
|
946.7 | 1,064.2 | ||||||
Deferred
income taxes
|
27.7 | 20.7 | ||||||
Goodwill
|
147.8 | 147.8 | ||||||
GM
postretirement cost sharing asset
|
219.9 | 221.2 | ||||||
Other
assets and deferred charges
|
128.1 | 98.5 | ||||||
Total
assets
|
$ | 1,986.8 | $ | 2,247.7 | ||||
Liabilities
and Stockholders’ Deficit
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 200.9 | $ | 250.9 | ||||
Accrued
compensation and benefits
|
98.9 | 127.5 | ||||||
Deferred
revenue
|
76.1 | 66.7 | ||||||
Deferred
income taxes
|
4.4 | 13.1 | ||||||
Other
accrued expenses
|
65.2 | 59.5 | ||||||
Total
current liabilities
|
445.5 | 517.7 | ||||||
Long-term
debt
|
1,071.4 | 1,139.9 | ||||||
Deferred
income taxes
|
5.6 | 4.8 | ||||||
Deferred
revenue
|
189.7 | 178.2 | ||||||
Postretirement
benefits and other long-term liabilities
|
834.5 | 842.6 | ||||||
Total
liabilities
|
2,546.7 | 2,683.2 | ||||||
Stockholders’
deficit
|
||||||||
Series
A junior participating preferred stock, par value $0.01 per
share;
|
||||||||
0.1
million shares authorized; no shares outstanding in 2009 or
2008
|
- | - | ||||||
Preferred
stock, par value $0.01 per share; 10.0 million shares
|
||||||||
authorized;
no shares outstanding in 2009 or 2008
|
- | - | ||||||
Common
stock, par value $0.01 per share; 150.0 million shares
|
||||||||
authorized;
73.7 million and 56.9 million shares issued and outstanding in 2009 and
2008, respectively
|
0.8 | 0.6 | ||||||
Series
common stock, par value $0.01 per share; 40.0 million
|
||||||||
shares
authorized; no shares outstanding in 2009 or 2008
|
- | - | ||||||
Paid-in
capital
|
579.9 | 426.7 | ||||||
Accumulated
deficit
|
(901.7 | ) | (648.6 | ) | ||||
Treasury
stock at cost, 5.4 million shares in 2009 and 5.2 million shares in
2008
|
(174.8 | ) | (173.9 | ) | ||||
Accumulated
other comprehensive income (loss), net of tax
|
||||||||
Defined
benefit plans
|
(101.8 | ) | (29.3 | ) | ||||
Foreign
currency translation adjustments
|
37.4 | 0.2 | ||||||
Unrecognized
loss on derivatives
|
- | (11.4 | ) | |||||
Total
AAM stockholders’ deficit
|
(560.2 | ) | (435.7 | ) | ||||
Noncontrolling
interests in subsidiaries
|
0.3 | 0.2 | ||||||
Total
stockholders’ deficit
|
(559.9 | ) | (435.5 | ) | ||||
Total
liabilities and stockholders’ deficit
|
$ | 1,986.8 | $ | 2,247.7 |
See
accompanying notes to consolidated financial statements
33
Consolidated
Statements of Cash Flows
Year
Ended December 31,
(in
millions)
2009
|
2008
|
2007
|
||||||||||
Operating
Activities
|
||||||||||||
Net
income (loss)
|
$ | (253.3 | ) | $ | (1,224.6 | ) | $ | 37.0 | ||||
Adjustments
to reconcile net income (loss) to net cash
|
||||||||||||
provided by operating activities
|
||||||||||||
Asset
impairments and related indirect inventory obsolescence
|
151.7 | 599.0 | 11.6 | |||||||||
Depreciation
and amortization
|
134.7 | 199.5 | 229.4 | |||||||||
Deferred
income taxes
|
(18.9 | ) | 82.5 | (47.4 | ) | |||||||
Stock-based
compensation
|
13.6 | 9.9 | 18.4 | |||||||||
Pensions
and other postretirement benefits, net of contributions
|
(83.4 | ) | 3.6 | 53.3 | ||||||||
Loss
on retirement of property, plant and equipment
|
0.7 | 4.0 | 8.5 | |||||||||
Debt
refinancing and redemption costs
|
7.7 | - | 5.5 | |||||||||
Changes
in operating assets and liabilities
|
||||||||||||
Accounts receivable
|
118.9 | 71.9 | 64.9 | |||||||||
Inventories
|
19.6 | 52.6 | (28.4 | ) | ||||||||
Accounts payable and accrued expenses
|
(50.7 | ) | (77.1 | ) | (5.2 | ) | ||||||
Deferred revenue, net
|
20.9 | 69.9 | 41.2 | |||||||||
Other assets and liabilities
|
(45.6 | ) | 45.7 | (20.9 | ) | |||||||
Net
cash provided by (used in) operating activities
|
15.9 | (163.1 | ) | 367.9 | ||||||||
Investing
activities
|
||||||||||||
Purchases
of property, plant and equipment
|
(141.5 | ) | (140.2 | ) | (186.5 | ) | ||||||
Decrease
(increase) in deposits for acquisition of property and
equipment
|
3.8 | (7.1 | ) | - | ||||||||
Proceeds
from sale of property, plant and equipment
|
1.7 | 3.4 | - | |||||||||
Reclassification
of cash equivalents to short-term investments
|
- | (117.2 | ) | - | ||||||||
Redemption
of short-term investments
|
71.6 | 40.1 | - | |||||||||
Acquisition,
net
|
(10.2 | ) | (10.7 | ) | - | |||||||
Net
cash used in investing activities
|
(74.6 | ) | (231.7 | ) | (186.5 | ) | ||||||
Financing
activities
|
||||||||||||
Net
short-term borrowings (repayments) under revolving credit
facilities
|
(163.1 | ) | 290.3 | (130.8 | ) | |||||||
Proceeds
from issuance of long-term debt
|
854.8 | 8.9 | 556.1 | |||||||||
Conversion
of 2.00% Notes
|
- | (2.3 | ) | - | ||||||||
Payment
of Term Loan
|
(250.0 | ) | - | (252.5 | ) | |||||||
Payments
of other long-term debt and capital lease obligations
|
(516.8 | ) | (11.5 | ) | (0.5 | ) | ||||||
Debt
issuance costs
|
(32.9 | ) | (13.4 | ) | (7.5 | ) | ||||||
Proceeds
from issuance of common stock, net
|
109.7 | - | - | |||||||||
Proceeds
from issuance of warrants to GM
|
30.3 | - | - | |||||||||
Employee
stock option exercises
|
1.0 | 0.7 | 13.5 | |||||||||
Tax
benefit on stock option exercises
|
- | 0.2 | 3.8 | |||||||||
Dividends
paid
|
- | (18.3 | ) | (31.8 | ) | |||||||
Purchase
of treasury stock
|
(0.9 | ) | (0.1 | ) | (2.0 | ) | ||||||
Net
cash provided by financing activities
|
32.1 | 254.5 | 148.3 | |||||||||
Effect
of exchange rate changes on cash
|
5.9 | (4.5 | ) | 0.4 | ||||||||
Net
increase (decrease) in cash and cash equivalents
|
(20.7 | ) | (144.8 | ) | 330.1 | |||||||
Cash
and cash equivalents at beginning of year
|
198.8 | 343.6 | 13.5 | |||||||||
Cash
and cash equivalents at end of year
|
$ | 178.1 | $ | 198.8 | $ | 343.6 | ||||||
Supplemental cash flow information | ||||||||||||
Interest paid | $ | 80.0 | $ | 75.9 | $ | 58.1 | ||||||
Income taxes paid, net of refunds | $ | 3.8 | $ | 4.8 | $ | 20.6 |
See
accompanying notes to consolidated financial statements
34
Consolidated
Statement of Stockholders’ Equity (Deficit)
(in
millions)
Accumulated
|
||||||||||||||||||||||||||||
Other
|
||||||||||||||||||||||||||||
Comprehensive | ||||||||||||||||||||||||||||
Common
Stock
|
Noncontrolling
|
Income
(Loss)
|
||||||||||||||||||||||||||
Shares
|
Par
|
Paid-in
|
Retained
|
Treasury |
Interest
in
|
Attributable
to
|
||||||||||||||||||||||
Outstanding
|
Value
|
Capital
|
Earnings
|
Stock
|
Subsidiaries
|
AAM
|
||||||||||||||||||||||
Balance
at January 1, 2007
|
50.5 | $ | 0.6 | $ | 381.7 | $ | 598.7 | $ | (171.8 | ) | - | $ | 13.2 | |||||||||||||||
Net
income
|
37.0 | - | ||||||||||||||||||||||||||
Change
in derivatives, net
|
(1.8 | ) | ||||||||||||||||||||||||||
Foreign
currency translation, net
|
- | 18.7 | ||||||||||||||||||||||||||
Defined
benefit plans, net
|
34.3 | |||||||||||||||||||||||||||
Effect
of new accounting standard
|
(12.0 | ) | ||||||||||||||||||||||||||
Exercise
of stock options and
|
||||||||||||||||||||||||||||
vesting
of restricted stock,
|
||||||||||||||||||||||||||||
including
tax benefit
|
1.1 | 18.9 | ||||||||||||||||||||||||||
Dividends
paid
|
(31.8 | ) | ||||||||||||||||||||||||||
Stock-based
compensation
|
15.7 | |||||||||||||||||||||||||||
Purchase
of treasury stock
|
(2.0 | ) | ||||||||||||||||||||||||||
Balance
at December 31, 2007
|
51.6 | 0.6 | 416.3 | 591.9 | (173.8 | ) | - | 64.4 | ||||||||||||||||||||
Net
loss
|
(1,224.3 | ) | (0.3 | ) | ||||||||||||||||||||||||
Change
in derivatives, net
|
(8.1 | ) | ||||||||||||||||||||||||||
Foreign
currency translation, net
|
- | (34.0 | ) | |||||||||||||||||||||||||
Defined
benefit plans, net
|
(62.8 | ) | ||||||||||||||||||||||||||
Change
in noncontrolling interest ownership
|
0.5 | |||||||||||||||||||||||||||
Exercise
of stock options and
|
||||||||||||||||||||||||||||
vesting
of restricted stock,
|
||||||||||||||||||||||||||||
including
tax benefit
|
0.1 | 0.9 | ||||||||||||||||||||||||||
Dividends
paid
|
(2.1 | ) | (16.2 | ) | ||||||||||||||||||||||||
Stock-based
compensation
|
11.6 | |||||||||||||||||||||||||||
Purchase
of treasury stock
|
(0.1 | ) | ||||||||||||||||||||||||||
Balance
at December 31, 2008
|
51.7 | 0.6 | 426.7 | (648.6 | ) | (173.9 | ) | 0.2 | (40.5 | ) | ||||||||||||||||||
Net
loss
|
(253.1 | ) | (0.2 | ) | ||||||||||||||||||||||||
Change
in derivatives, net
|
11.4 | |||||||||||||||||||||||||||
Foreign
currency translation, net
|
0.4 | 37.2 | ||||||||||||||||||||||||||
Defined
benefit plans, net
|
(72.5 | ) | ||||||||||||||||||||||||||
Proceeds
from issuance of common stock, net
|
16.1 | 0.2 | 109.5 | |||||||||||||||||||||||||
Proceeds
from issuance of warrants to GM
|
30.3 | |||||||||||||||||||||||||||
Change
in noncontrolling interest ownership
|
(0.1 | ) | ||||||||||||||||||||||||||
Exercise
of stock options and
|
||||||||||||||||||||||||||||
vesting
of restricted stock,
|
||||||||||||||||||||||||||||
including
tax benefit
|
0.6 | 1.0 | ||||||||||||||||||||||||||
Stock-based
compensation
|
12.4 | |||||||||||||||||||||||||||
Purchase
of treasury stock
|
(0.9 | ) | ||||||||||||||||||||||||||
Balance
at December 31, 2009
|
68.4 | $ | 0.8 | $ | 579.9 | $ | (901.7 | ) | $ | (174.8 | ) | $ | 0.3 | $ | (64.4 | ) | ||||||||||||
See
accompanying notes to consolidated financial statements
35
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 light trucks, sport utility vehicles (SUVs), passenger cars,
crossover vehicles and commercial 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, driveheads, crankshafts,
transmission parts and metal-formed products. In addition to
locations in the United States (U.S.) (Michigan, New York, Ohio, Indiana and
Pennsylvania), we also have offices or facilities in Brazil, China, England,
Germany, India, Japan, Luxembourg, Mexico, Poland, Scotland, South Korea and
Thailand.
PRINCIPLES OF CONSOLIDATION We include the accounts of
Holdings and its subsidiaries in our consolidated financial
statements. We eliminate the effects of all intercompany
transactions, balances and profits in our consolidation.
REVENUE
RECOGNITION We recognize revenue when products are
shipped to our customers and title transfers under standard commercial terms or
when realizable in accordance with our commercial agreements. If we
are uncertain as to whether we will be successful collecting a balance in
accordance with our understanding of a commercial agreement, we do not recognize
the revenue or cost recovery until such time as the uncertainty is
removed.
On September 16, 2009, AAM and General Motors LLC (GM) entered into a settlement
and commercial agreement (2009 Settlement and Commercial
Agreement). As part of the 2009 Settlement and Commercial Agreement,
we received $110.0 million in cure costs from GM. See Note 2 –
2009 Settlement and Commercial Agreement for more detail on this
agreement. In the third quarter of 2009, we recorded $79.7 million of
deferred revenue related to the 2009 Settlement and Commercial
Agreement. This includes the $110.0 million of cash received pursuant
to the 2009 Settlement and Commercial Agreement net of $30.3 million, which
represents the fair value of warrants issued to GM as part of the 2009
Settlement and Commercial Agreement. As of December 31, 2009, our deferred
revenue related to the 2009 Settlement and Commercial Agreement is $77.4
million, $8.0 million of which is classified as a current liability and $69.4
million of which is recorded as a noncurrent liability on our Consolidated
Balance Sheet. We recognize this deferred revenue into revenue on a
straight-line basis over 120 months, which is the period that we expect GM to
benefit under the 2009 Settlement and Commercial Agreement. We
recognized revenue of $2.3 million in 2009 related to this
agreement.
In the
second quarter of 2008, we entered into an agreement with GM to provide
financial assistance to support the transition of our United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW) represented legacy
labor at our original U.S. locations upon the resolution of the strike called by
the International UAW (2008 AAM – GM Agreement). Pursuant to this
agreement, GM agreed to provide us with $175.0 million of cash payments through
April 2009. We received $115.0 million in 2008 and the remaining
$60 million in 2009. The 2008
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 transitioned associates with earned credited service
from AAM that have or will retire under plans operated by GM. The
value of this liability was estimated at $38.7 million. In total, we
recorded deferred revenue of $213.7 million as a result of the 2008 AAM – GM
Agreement. This represented both the expected cash payments and the
settlement of the postretirement healthcare and life insurance
liability. We recognize this deferred revenue into revenue on a
straight-line basis over a 45 month period. This recognition period
is consistent with the period that GM will benefit from the payments provided to
us under the 2008 AAM – GM Agreement. We recognized $57.0 million and
$33.2 million of revenue related to the 2008 AAM – GM Agreement in 2009 and
2008, respectively. As of December 31, 2009, our deferred revenue
related to the 2008 AAM – GM Agreement is $123.5 million, $57.0 million of which
is classified as a current liability and $66.5 million of which is classified as
a noncurrent liability on our Consolidated Balance
Sheet.
As of
December 31, 2009, the majority of the remaining deferred revenue primarily
relates to customer payments to implement capacity programs, which is generally
recognized into revenue over the life of these programs. We
recognized $11.1 million, $11.3 million and $4.2 million of revenue for these
programs in 2009, 2008 and 2007, respectively.
BUYDOWN
PROGRAM In 2008, an involuntary Buydown Program (BDP)
was initiated for associates that did not elect to participate in the
Special Separation Program (SSP) and continued employment with
AAM. Under the BDP, we agreed to make three annual lump-sum payments
to associates in connection with, among other things, a base wage
decrease.
We
recorded expense of $51.9 million in 2008 for the estimated amount of total BDP
payments related to permanently idled associates throughout the new labor
agreements. This represents management’s best estimate of the portion
of the total BDP payment that will not result in a future benefit to the
Company. Due to new capacity rationalization actions taken by GM and
Chrysler as a result of their bankruptcy filings and subsequent reorganization
plans and changes in our operating plans in the second quarter of 2009, we
increased the estimated number of UAW-represented associates at our original
U.S. locations that we expect to be permanently idled throughout the term of the
2008 labor agreements or to voluntarily elect to accelerate their remaining
buydown payments and terminate employment. As a result of this change
in estimate, we recorded expense of $22.5 million in 2009, which represents the
estimated additional BDP payments that will not result in a future benefit to
AAM. Associates who are laid off for a certain length of time have
the option to accelerate their remaining BDP lump-sum payments and terminate
their employment with AAM. Several associates elected this option and
we made $49.6 million and $0.3 million of accelerated BDP payments in 2009 and
2008, respectively.
As of
December 31, 2009, we have $13.9 million in prepaid expenses and other on our
Consolidated Balance Sheet for BDP payments that we estimate will provide a
benefit to the Company in the future. We recorded $21.2 million and
$14.4 million of expense in 2009 and 2008, respectively, for the amortization of
this asset.
36
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESEARCH AND
DEVELOPMENT (R&D) COSTS We expense R&D as
incurred. R&D spending was $67.0 million, $85.0 million and $80.4
million in 2009, 2008 and 2007, respectively.
CASH AND CASH
EQUIVALENTS Cash and cash equivalents include all cash
balances and highly liquid investments in money market funds with maturities of
90 days or less at the time of purchase.
ACCOUNTS RECEIVABLE The majority of our accounts receivable
are due from original equipment manufacturers (OEM’s) in the automotive
industry. As of December 31, 2009, trade accounts receivable are due
on average within 25 days from the date of shipment and are past due when
payment is not received within the stated terms, as compared to 50 days as of
December 31, 2008. This decrease is due to expedited payment terms of
“net 10 days” (Expedited Payment Terms) we agreed to with GM as part of the
2009 Settlement and Commercial Agreement, in exchange for a 1.0% early payment
discount. See Note 2 – 2009 Settlement and Commercial Agreement for
more detail on these Expedited Payment Terms.
Amounts
due from customers are stated net of allowances for doubtful
accounts. We determine our allowances by considering factors such as
the length of time accounts are past due, our previous loss history, the
customer’s ability to pay its obligation to us, and the condition of the general
economy and the industry as a whole. We write-off accounts receivable
when they become uncollectible.
CUSTOMER TOOLING AND PRE-PRODUCTION
COSTS RELATED TO LONG-TERM SUPPLY
AGREEMENTS Engineering, R&D, and other
pre-production design and development costs for products sold on long-term
supply arrangements are expensed as incurred unless we have a contractual
guarantee for reimbursement from the customer. Costs for tooling used
to make products sold on long-term supply arrangements for which we have either
title to the assets or the non-cancelable right to use the assets during the
term of the supply arrangement are capitalized in property, plant and
equipment. Capitalized items and customer receipts specifically
related to a supply arrangement are amortized over the shorter of the term of
the arrangement or over the estimated useful lives of the related
assets.
INVENTORIES We
state our inventories at the lower of cost or market. The cost of
worldwide inventories is determined using the FIFO method. 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:
December
31,
|
||||||||
2009
|
2008
|
|||||||
(in
millions)
|
||||||||
Raw
materials and work-in-progress
|
$ | 101.3 | $ | 116.9 | ||||
Finished
goods
|
23.0 | 22.8 | ||||||
Gross
inventories
|
124.3 | 139.7 | ||||||
Inventory
valuation reserves
|
(33.7 | ) | (28.3 | ) | ||||
Inventories,
net
|
$ | 90.6 | $ | 111.4 |
PROPERTY, PLANT AND
EQUIPMENT Property, plant and equipment consists of the
following:
Estimated
|
December
31,
|
|||||||||||
Useful
Lives
|
2009
|
2008
|
||||||||||
(years)
|
(in
millions)
|
|||||||||||
Land
|
- | $ | 28.3 | $ | 26.1 | |||||||
Land
improvements
|
10-15 | 16.6 | 14.1 | |||||||||
Buildings
and building improvements
|
15-40 | 257.0 | 279.6 | |||||||||
Machinery
and equipment
|
3-12 | 1,284.5 | 1,388.1 | |||||||||
Construction
in progress
|
- | 67.8 | 94.2 | |||||||||
1,654.2 | 1,802.1 | |||||||||||
Accumulated
depreciation and amortization
|
(707.5 | ) | (737.9 | ) | ||||||||
Property,
plant and equipment, net
|
$ | 946.7 | $ | 1,064.2 |
We state
property, plant and equipment, including amortizable tooling, at historical
cost, as adjusted for impairments. Construction in progress includes
costs incurred for the construction of buildings and building improvements, and
machinery and equipment in process. Repair and maintenance costs that
do not extend the useful life or otherwise improve the utility of the asset
beyond its existing useful state are expensed in the period
incurred.
We record
depreciation and tooling amortization on the straight-line method over the
estimated useful lives of the depreciable assets. Depreciation and
tooling amortization amounted to $126.6 million, $194.1 million and $220.6
million in 2009, 2008 and 2007, respectively.
Property,
plant and equipment decreased significantly in 2009 as compared to 2008,
primarily as a result of asset impairments. See Note 4 –
Restructuring Actions for more detail on these asset impairments.
37
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IMPAIRMENT OF LONG-LIVED
ASSETS In accordance with the accounting guidance for
the impairment or disposal of long-lived assets and when impairment indicators
exist, we evaluate the carrying value of long-lived assets for potential
impairment. We consider projected future undiscounted cash flows,
trends and other circumstances in making such estimates and
evaluations. If impairment is deemed to exist, the carrying amount of
the asset is adjusted based on its fair value. Recoverability of assets “held
for use” is determined by comparing the forecasted undiscounted cash flows of
the operations to which the assets relate to their carrying
amount. When the carrying value of an asset group exceeds its fair
value and is therefore nonrecoverable, those assets are written down to fair
value. Fair value is determined based on market prices, when
available, or a discounted cash flow analysis performed using management
estimates. See Note 4 - Restructuring Actions for detail on our 2009
and 2008 asset impairments.
GOODWILL We
record goodwill when the purchase price of acquired businesses exceeds the value
of their identifiable net tangible and intangible assets acquired. We
periodically evaluate goodwill for impairment in accordance with the accounting
guidance for goodwill and other indefinite-lived intangibles. We
completed impairment tests in 2009 and 2008 and concluded that there was no
impairment of our goodwill.
INTANGIBLE ASSETS
We recorded an intangible
asset of $9.6 million as of December 31, 2008 which represents the fair
value of the customer relationships acquired as part of an asset purchase agreement with
FormTech Industries LLC. We recorded $1.9
million of expense for the amortization of this intangible asset in 2009 and the
balance is $7.7 million as of
December 31, 2009. This intangible asset is classified as
other assets and deferred charges on our Consolidated Balance Sheet and is being
amortized on a straight-line basis over its estimated useful life of five
years.
DEBT ISSUANCE COSTS
The costs related to the issuance or modification of long-term debt are deferred
and amortized into interest expense over the life of each debt issue. As of
December 31, 2009 and December 31, 2008, we recorded unamortized debt issuance
costs of $41.3 million and $21.2 million, respectively. Deferred
amounts associated with the extinguishment of debt are expensed and classified
as debt refinancing and redemption costs on our Consolidated Statement of
Operations.
DERIVATIVES We
recognize all derivatives on the balance sheet at fair value. If a
derivative qualifies under the accounting guidance as a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative are either
offset against the change in fair value of the hedged assets, liabilities or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective
portion of a derivative’s change in fair value, and changes in the fair value of
derivatives that do not qualify as hedges, are immediately recognized in
earnings. See Note 6 – Derivatives and Risk Management, for more
detail on our derivatives.
CURRENCY
TRANSLATION We translate the assets and liabilities of
our foreign subsidiaries to U.S. dollars at end-of-period exchange
rates. We translate the income statement elements of our foreign
subsidiaries to U.S. dollars at average-period exchange rates. We
report the effect of translation for our foreign subsidiaries that use the local
currency as their functional currency as a separate component of stockholders'
equity. Gains and losses resulting from the remeasurement of assets
and liabilities in a currency other than the functional currency of a subsidiary
are reported in current period income. We also report any gains and
losses arising from transactions denominated in a currency other than the
functional currency of a subsidiary in current period income.
USE OF
ESTIMATES In order to prepare consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America (GAAP), we are required to make estimates and
assumptions that affect the reported amounts and disclosures in our consolidated
financial statements. Actual results could differ from those
estimates.
SUBSEQUENT EVENTS We have evaluated subsequent events
through February 22, 2010, our filing date.
38
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EFFECT OF NEW ACCOUNTING STANDARDS In June 2008, the FASB
issued new accounting guidance on determining whether instruments granted in
share-based payment transactions are participating securities. This
guidance concludes that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents are participating
securities and shall be included in the computation of EPS pursuant to the
two-class method. We adopted the new accounting guidance on January 1,
2009 and retrospectively applied it to all prior periods presented
herein.
We have presented the effects of the adoption of this new accounting guidance
for the inclusion of unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents in the computation of
EPS for the twelve months ended December 31, 2007. Adoption of this
guidance did not increase basic and diluted shares outstanding for the twelve
months ended December 31, 2009 and 2008 as we were in a loss position and the
participating securities are not obligated to fund losses.
Earnings
per share (EPS)
|
As
originally reported
|
Adjustments |
As
adjusted and reported
|
|||||||||
Year
Ended December 31, 2007
|
(in millions, except per share data) | |||||||||||
Numerator
|
||||||||||||
Net
income attributable to AAM
|
$ | 37.0 | $ | - | $ | 37.0 | ||||||
Denominators
|
||||||||||||
Basic
shares outstanding
|
51.1 | 2.0 | 53.1 | |||||||||
Diluted
shares outstanding
|
52.7 | 1.1 | 53.8 | |||||||||
Basic
EPS
|
$ | 0.72 | $ | (0.02 | ) | $ | 0.70 | |||||
Diluted
EPS
|
$ | 0.70 | $ | (0.01 | ) | $ | 0.69 |
In February 2008, the FASB issued new accounting guidance which defers the
effective date of a previously issued accounting standard for the fair value
measurement of 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. We adopted the guidance on fair value
measurements of nonfinancial assets and nonfinancial liabilities on January 1,
2009 and it did not have a material impact on our financial
statements.
In December 2007, the FASB issued new accounting guidance on
noncontrolling interests in consolidated financial statements. This
guidance establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. We adopted the new guidance on January 1, 2009 and have
retrospectively revised the financial statement presentation of our
noncontrolling interests accordingly.
In May
2008, the FASB issued new accounting guidance for the treatment of
convertible debt instruments that may be settled in cash upon conversion
(including partial cash settlement). This guidance requires issuers
of convertible debt securities within its scope to separate these securities
into a debt component and an equity component, resulting in the debt component
being recorded at fair value without consideration given to the conversion
feature. Issuance costs are also allocated between the debt and equity
components. This new accounting guidance was effective for us on
January 1, 2009 and the impact was not material.
2. 2009
SETTLEMENT AND COMMERCIAL AGREEMENT
|
On September 16,
2009, AAM and GM entered into a settlement and commercial agreement upon which
we received $110.0 million from GM for cure costs associated with
contracts assumed and/or terminated by Motors Liquidation Company in its chapter
11 bankruptcy cases; resolution of outstanding commercial obligations between
AAM and GM (including, but not limited to, AAM retaining all but one previously
sourced program, AAM amending its terms and conditions to be more consistent
with the standard terms and conditions GM has with other Tier 1 suppliers, GM’s
right to resource one previously awarded program, and GM’s acceptance of its
obligation to AAM under the GM postretirement cost sharing agreement); and
adjustment of installed capacity levels reserved for existing and awarded
programs to reflect new estimates of market demand as agreed between the
parties.
We
also agreed to Expedited Payment Terms of “net 10 days” through
June 30, 2011, in exchange for a 1.0% early payment discount to
GM. After June 30, 2011, we will have the right to elect to
continue to receive Expedited Payment Terms through December 31,
2013.
Under
the 2009 Settlement and Commercial Agreement, GM also made available to AAM a
Second Lien Term Loan Facility of up to $100.0 million. Borrowings under
this facility, if any, will bear interest at LIBOR (with a 2% floor) plus
12%. The Second Lien Term Loan Facility is not prepayable until
June 30, 2011, unless the source of such prepayment is cash generated in
AAM’s ordinary course business operations and is subject to an
intercreditor agreement with existing senior lenders and cannot be terminated
prior to June 30, 2011. Until then, if we require additional liquidity that
cannot be satisfied by utilizing a combination of the Expedited Payment Terms,
proceeds from sales of common equity, proceeds from the issuance of
equity-linked securities, cash generated from ordinary course business
operations, availability under existing credit facilities (including certain
permitted indebtedness), or a permitted refinancing (as set forth in the Second
Lien Term Loan Facility), we will be required to borrow under the Second Lien
Term Loan Facility. As of December 31, 2009, we have not borrowed
under this facility.
39
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Also, as part of the 2009 Settlement and Commercial Agreement, we granted GM
with a contingent right of access to certain of our facilities as collateral
under the agreement. In addition, we granted GM a security
interest in certain operating assets, certain real estate and intellectual
property used in production of GM component parts. Upon the
occurrence of certain specified events, which generally involve a material
and imminent breach of our supply obligations at a particular facility, GM may
elect to access and use the operating assets and real estate used to
manufacture, process and ship GM component parts produced at specified AAM
facilities for a period of up to 360 days after invoking its right of
access. GM would also have the right to resource component part
production to alternative suppliers. The right of access would continue for
ninety days following the later of repayment and termination of the Second Lien
Term Loan Facility and termination of the Expedited Payment Terms. If
we do not achieve compliance with the Secured Debt Leverage Ratio under the
Amended Revolving Credit Facility as of March 31, 2011 (without regard to a
waiver, amendment, forbearance or modification of such covenant granted by the
Amended Revolving Credit Facility lenders), GM’s right of access will be
extended through March 31, 2012.
We also issued to GM five year warrants, which entitle GM to purchase 4.1
million shares of AAM’s common stock at an exercise price of $2.76 per
share. If we borrow under the Second Lien Term Loan Facility, we will
issue GM additional warrants to purchase a pro rata portion of up to an
additional 6.9 million shares of AAM’s common stock at an exercise price of
$2.76 per share based upon the amount drawn under the Facility. These
warrants will expire on September 16, 2014.
We
estimated the weighted average grant date fair value of the
initial warrants issued to GM on September 16, 2009 to be $7.40 using the
Black-Scholes option-pricing model with the following assumptions:
2009
|
||||
Stock
price
|
$
|
8.13
|
||
Expected
volatility
|
120.12
|
%
|
||
Risk-free
interest rate
|
3.47
|
%
|
||
Expected
life of options
|
5
years
|
|||
Dividend
yield
|
0.00
|
%
|
We are also subject to certain limitations on executive compensation and “golden
parachute” agreements until ninety days following the later of repayment and
termination of the Second Lien Term Loan Facility and termination of the
Expedited Payment Terms. Other terms and conditions of the 2009
Settlement and Commercial Agreement modified the supply relationship
between AAM and GM to be more consistent with GM’s relationship with other
suppliers. These terms and conditions include commercial revisions to
the metal market program, warranty cost sharing, cost reduction programs,
productivity commitments and payment terms.
3. INDUSTRY
RISKS AND UNCERTAINTIES
In 2008,
and continuing in 2009, the domestic automotive industry experienced a severe
downturn. The collapse of the U.S. housing market, the global
financial crisis, a lack of available consumer credit and financing options,
rising unemployment, exceptionally low consumer confidence and wildly
fluctuating fuel and commodity prices, among other factors, resulted in a
sudden and major drop in industry production and sales volumes. These
difficult market conditions exacerbated the financial pressure on the entire
domestic automotive industry, and especially the domestic OEMs.
In 2009, both GM and Chrysler entered and exited bankruptcy with assistance from
the U.S. government. Our sales to GM and Chrysler were
approximately 86% of our total net sales in 2009. We collected our
pre-bankruptcy receivables from GM and Chrysler in 2009. See Note 2 –
2009 Commercial and Settlement Agreement for more detail on GM’s acceptance of
certain contracts and definitive contract terms. Chrysler has
assumed our pre-bankruptcy contracts.
In the
second quarter of 2009, GM began an extended summer production shutdown of many
of the facilities we support. Chrysler also temporarily idled their
manufacturing operations for a significant portion of the second quarter through
its exit from bankruptcy. The extended production shutdowns at GM and
Chrysler significantly reduced production volumes, revenues and gross profit in
the second and third quarters of 2009.
As previously described in Note 2 – 2009 Settlement and Commercial Agreement,
and as further discussed in Note 5 – Long-term Debt and Lease Obligations
(related to our debt amendments and refinancing), we took actions in the third
and fourth quarters of 2009 that strengthened our liquidity
position. However, risks and uncertainties continue to exist
regarding general economic conditions, the health of the global and domestic
automotive industry and the viability of our major customers. We have
made adjustments to our business plan, global manufacturing footprint, and our
cost structure and operating breakeven level to adapt to lower industry
production volumes. We will continue to monitor these risks and
uncertainties and will react appropriately.
40
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4.
RESTRUCTURING ACTIONS
In 2009,
we incurred restructuring charges related to one-time termination benefits,
asset impairments, indirect inventory obsolescence, contract related costs and
other ongoing restructuring actions. In addition, we continue to make
payments related to charges incurred for restructuring actions taken in prior
years. A summary of this activity for 2009 and 2008 is shown below
(in
millions):
One-time
Termination Benefits
|
Asset
Impairment Charges
|
Indirect
Inventory Obsolescence
|
Asset
Retirement Obligations
|
Contract
Related Costs
|
Other
Restructuring Actions
|
Total
|
||||||||||||||||||||||
Accrual
as of January 1, 2008
|
$ | 20.3 | $ | - | $ | - | $ | 2.2 | $ | - | $ | - | $ | 22.5 | ||||||||||||||
Charges
|
233.4 | 552.6 | 46.4 | 1.0 | 10.7 | 19.6 | 863.7 | |||||||||||||||||||||
Cash
utilization
|
(202.5 | ) | - | - | (1.4 | ) | (3.6 | ) | (19.6 | ) | (227.1 | ) | ||||||||||||||||
Non-cash
utilization
|
(552.6 | ) | (46.4 | ) | - | (0.8 | ) | - | (599.8 | ) | ||||||||||||||||||
Accrual
adjustments
|
(9.1 | ) | - | - | (1.4 | ) | (1.0 | ) | - | (11.5 | ) | |||||||||||||||||
Accrual
as of December 31, 2008
|
$ | 42.1 | $ | - | $ | - | $ | 0.4 | $ | 5.3 | $ | - | $ | 47.8 | ||||||||||||||
Charges
|
8.9 | 147.8 | 3.9 | 1.0 | 21.1 | 10.3 | 193.0 | |||||||||||||||||||||
Cash
utilization
|
(44.3 | ) | - | - | (0.1 | ) | (5.1 | ) | (10.3 | ) | (59.8 | ) | ||||||||||||||||
Non-cash
utilization
|
- | (147.8 | ) | (3.9 | ) | - | - | - | (151.7 | ) | ||||||||||||||||||
Accrual
adjustments
|
1.3 | - | - | - | - | - | 1.3 | |||||||||||||||||||||
Accrual
as of December 31, 2009
|
$ | 8.0 | $ | - | $ | - | $ | 1.3 | $ | 21.3 | $ | - | $ | 30.6 |
ONE-TIME TERMINATION
BENEFITS In 2009, we reduced our worldwide salaried
workforce by over 600 positions through salaried workforce reductions and a
voluntary salaried retirement incentive program (SRIP). We recorded
expense of $5.4 million in 2009 in connection with the estimated postemployment
benefits provided to certain associates. We paid $4.6 million related
to this salaried workforce reduction in 2009.
In the
second quarter of 2008, we recorded expense of $215.7 million in 2008 for the
postemployment benefits related to the SSP and we paid $27.9 million and $184.7
million of these costs in 2009 and 2008, respectively.
We
recorded expense of $4.2 million in 2008 for the estimated postemployment costs
for associates represented by the International Association of Machinists
(IAM). We paid $2.2 million in 2009 and $1.2 million in 2008 related
to these costs.
In 2008,
we approved a plan to reduce our salaried workforce by approximately 350
associates in the U.S and agreed to provide future transition payments to
certain associates who would remain active through the operation of facilities
under plant closure agreements. We recorded expense of $10.4 million
in connection with the estimated postemployment benefits related to these
salaried workforce reductions. We paid $2.9 million and $1.8 million
related to these programs in 2009 and 2008, respectively.
We paid
$2.8 million in 2009 and $14.8 million in 2008 related to one-time termination
benefits which were initiated and expensed prior to 2008.
We
recorded a charge of $3.5 million and $3.1 million related to postemployment
benefits payable to associates in our European operations in 2009 and 2008,
respectively. We made payments of $3.9 million related to these
charges in 2009.
We
recorded $1.3 million in accrual adjustments related to changes in previous
estimates in order to record our best estimate of our remaining one-time
termination benefit payments as of December 31, 2009 and currency translation
adjustments. We recorded accrual adjustments of $9.1 million
primarily related to the one-time termination benefits in 2008. The
adjustments in 2008 primarily relate to the reclassification of certain
termination benefits from the restructuring accrual to the pension liability for
associates who were paid under our pension plans.
ASSET
IMPAIRMENTS In the second quarter of 2009, we identified
the following impairment indicators:
·
|
new
capacity rationalization actions taken by GM and Chrysler as a result of
their bankruptcy filings and subsequent reorganization plans, including
extended production shutdowns, for many of the programs we currently
support; and
|
·
|
changes
in our operating plans, including the idling and consolidation of a
significant portion of our Detroit Manufacturing Complex, made necessary
by extended production shutdowns and other program delays and sourcing
decisions taken by our customers in the second quarter of
2009.
|
We
recorded asset impairment charges of $147.8 million in 2009 associated with the
permanent idling of certain assets and the writedown of the carrying value of
certain assets that were “held for use” to their estimated fair
value.
We
recorded asset impairment charges of $552.6 million in 2008 associated with the
permanent idling of certain assets and an impairment analysis of certain assets
that were “held for use.” The charges in 2008 were primarily due to a
significant decline in current and future market demand and future customer
production schedules for the major North American light truck programs we
currently support.
41
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and other indirect inventory were determined to be
obsolete. We recorded a charge of $3.9 million in 2009 and $46.4
million in 2008 related to the write down of the net book value of these assets
to their estimated net realizable value.
ASSET RETIREMENT
OBLIGATIONS As a result of recent closures, idling and
consolidation of facilities, the methods and timing of certain asset retirement
obligations, including environmental liabilities, related to these facilities
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 $1.0 million in both 2009 and 2008. As of
December 31, 2009, the accrual for this liability was $1.3 million.
CONTRACT RELATED
COSTS Contract related costs recorded in 2009 of $21.1
million related to the estimated fair value of obligations for leased assets
that were permanently idled in the second quarter of 2009. Contract
related costs recorded in 2008 of $10.7 million primarily include the estimated
fair value of obligations for leased assets that were idled in the second
quarter of 2008 and cancellation costs for long-term purchase commitments
related to certain facilities under our plant closure agreements.
OTHER RESTRUCTURING
ACTIONS We incurred charges
related to the redeployment of assets to support capacity utilization
initiatives and other related activities. We expensed and paid $10.3
million in 2009 and $19.6 million in 2008 related to these actions.
We expect
to make payments of approximately $15 million in 2010, $10 million in 2011 and
$6 million in 2012 related to the remaining restructuring accrual.
5.
LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt consists of the following:
December
31,
|
|||||||||
2009
|
2008
|
||||||||
(in
millions)
|
|||||||||
Revolving
credit facility
|
$ | 60.0 | $ | 295.0 | |||||
9.25%
Notes, net of discount
|
419.6 | - | |||||||
7.875%
Notes
|
300.0 | 300.0 | |||||||
5.25%
Notes, net of discount
|
249.9 | 249.8 | |||||||
2.00%
Convertible Notes
|
0.4 | 0.4 | |||||||
Term
loan
|
- | 250.0 | |||||||
Foreign
credit facilities
|
34.1 | 36.9 | |||||||
Capital
lease obligations
|
7.4 | 7.8 | |||||||
Long-term
debt
|
$ | 1,071.4 | $ | 1,139.9 |
REVOLVING CREDIT
FACILITY As of December 31, 2009, the Revolving Credit
Facility provides up to $296.3 million of revolving bank financing commitments
through December 2011 and $243.2 million of such revolving bank financing
commitments through June 2013. At December 31, 2009, $198.5 million
was available under the Revolving Credit Facility, which reflected a reduction
of $37.8 million for standby letters of credit issued against the
facility.
On
December 18, 2009, we amended and restated the Credit Agreement dated as of
January 9, 2004 (as amended and restated, the “Amended and Restated
Revolving Credit Agreement” and the facility thereunder, the “Amended Revolving
Credit Facility”). The Amended and Restated Revolving Credit
Agreement extended the maturity date of $243.2 million of the aggregate
commitments and revolving loans held by consenting lenders that agreed to extend
their respective commitments under the Revolving Credit Restatement Agreement to
June 30, 2013.
On
December 18, 2009, we voluntarily prepaid and terminated $107.5 million of our
Amended Revolving Credit Facility which was scheduled to become due in April
2010. Upon repayment, we expensed $0.3 million of unamortized debt
issuance costs. We had been amortizing the debt issuance costs over
the expected life of the borrowing. We paid debt issuance costs of $14.5
million in 2009 associated with the amendments and restatements of our
Revolving Credit Facility.
Under the
Amended Revolving Credit Facility, we are required to comply with revised
financial covenants related to secured indebtedness leverage and cash interest
expense coverage. We are also required to maintain an average daily
minimum liquidity of $85 million until June 30, 2010 and to comply with a
collateral coverage test thereafter. The Amended Revolving Credit
Facility limits our ability to make certain investments, declare or pay
dividends or distributions on capital stock, redeem or repurchase capital stock
and certain debt obligations, incur liens, incur indebtedness, or merge, make
acquisitions and sell assets.
42
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Borrowings under the Amended Revolving Credit Facility will continue to
bear interest at rates based on adjusted LIBOR or an alternate base rate, plus
an applicable margin. The applicable margin for a LIBOR based loan
for lenders is currently 6.0%.
The Amended Revolving Credit Facility is secured on a first priority basis by
substantially all of the assets of AAM Holdings, American Axle &
Manufacturing, Inc. (AAM, Inc.) and each guarantor, including a pledge of all
capital stock of the U.S. subsidiaries of AAM Holdings and each guarantor and a
portion of the capital stock of AAM Holdings and each guarantor’s first-tier
foreign subsidiaries. In addition, obligations under the Amended
Revolving Credit Facility are guaranteed by AAM Holdings and our U.S.
subsidiaries, all of which are directly owned by the borrower.
The Amended Revolving Credit Facility provides back-up liquidity for our other
credit facilities. We intend to use the availability of long-term
financing under the Amended 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 local markets.
9.25% NOTES In the fourth quarter of 2009, we issued $425.0
million of 9.25% senior secured notes due 2017 (9.25% Notes). The notes were issued at a discount of
$5.5 million. Net proceeds from these notes were used for the repayment of all amounts
outstanding under our Amended Term Loan and to repay certain outstanding amounts
under the Amended Revolving Credit Facility. In 2009, we paid
debt issuance costs of $12.6 million related to the 9.25% Notes.
The 9.25%
Notes share the collateral package equally and ratably with the Amended
Revolving Credit Facility as described above. The indenture governing
the 9.25% Notes limits our ability to make certain investments, declare or pay
dividends or distributions on capital stock, redeem or repurchase capital stock
and certain debt obligations, incur liens, incur indebtedness, transact with
affiliates or merge, make acquisitions and sell assets.
If the
Second Lien Term Loan Facility with GM has not been refinanced in full (or
terminated and repaid without refinancing) on or prior to June 30, 2013, each
holder of the 9.25% Notes will have the right to require us to repurchase all or
any part of the 9.25% Notes in cash on September 30, 2013.
7.875%
NOTES In 2007, we issued $300.0 million of 7.875% senior
unsecured notes due 2017 (7.875% Notes). Net proceeds from these
notes were used for general corporate purposes, including payment of amounts
outstanding under our Revolving Credit Facility. In 2007, we paid
debt issuance costs of $5.2 million related to the 7.875% Notes.
5.25% NOTES The 5.25% Notes are
senior unsecured obligations due February 2014.
2.00% CONVERTIBLE
NOTES The 2.00% Senior Convertible Notes due 2024 are
convertible into cash under terms of the indenture. A total of $2.3
million of the notes were converted into cash in 2008 and $0.4 million of the
notes remain outstanding as of December 31, 2009.
TERM
LOAN On December 18, 2009, we voluntarily prepaid the amounts
outstanding under our $250.0 million Amended Term Loan which was previously
amended on September 16, 2009. Upon repayment, we expensed $6.1
million of unamortized debt issuance costs. We had been amortizing
the debt issuance costs over the expected life of the borrowing. We
paid $5.8 million of debt issuance costs related to this amendment.
LEASES We lease
certain facilities, machinery and equipment under capital leases expiring at
various dates. The gross asset cost of our capital leases was $16.1
million at December 31, 2009 and December 31, 2008. The net book
value included in property, plant and equipment, net on the balance sheet was
$7.2 million and $8.2 million at December 31, 2009 and 2008,
respectively. The weighted-average interest rate on these capital
lease obligations at December 31, 2009 was 8.4%.
We
also lease certain facilities, machinery and equipment under operating leases
expiring at various dates. Pursuant to these operating leases, we
have the option to purchase the underlying machinery and equipment on specified
dates. Existing lease repurchase options are $4.0 million in
2010. Future minimum payments under noncancelable operating leases
are as follows: $17.0 million in 2010, $14.3 million in 2011, $9.8 million in
2012, $0.8 million in 2013 and $0.1 million in 2014. Our total
expense relating to operating leases was $33.4 million, $22.4 million and $18.8
million in 2009, 2008 and 2007, respectively. This includes $21.1
million and in 2009 and $4.7 million in 2008 of expense related to the permanent
idling of leased assets. See Note 4 – Restructuring Actions for more
detail on these charges.
43
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CREDIT
FACILITIES We utilize local currency credit facilities
to finance the operations of certain foreign subsidiaries. These
credit facilities, some of which are guaranteed by Holdings and/or AAM, Inc.,
expire at various dates through December 2011. At December 31, 2009,
$34.1 million was outstanding under these facilities and an additional $12.2
million was available.
SECOND LIEN TERM LOAN
FACILITY On September 16, 2009, we entered into a $100.0
million Second Lien Term Loan Facility with GM. Borrowings under this
facility, if any, will bear interest at LIBOR (with a 2% floor) plus
12%. The Second Lien Term Loan Facility is not prepayable until
June 30, 2011, unless the source of such prepayment is cash generated in
AAM’s ordinary course business operations and is subject to an
intercreditor agreement with existing senior lenders and cannot be terminated
prior to June 30, 2011. As of December 31, 2009, we have not
borrowed under this facility. See Note 2 – 2009 Settlement and
Commercial Agreement, for more detail on the Second Lien Term Loan
Facility.
DEBT
MATURITIES Aggregate maturities of long-term debt are as
follows (in
millions):
2010
|
$ | 17.7 | ||
2011
|
10.0 | |||
2012
|
4.0 | |||
2013
|
63.3 | |||
2014
|
251.9 | |||
Thereafter
|
724.5 | |||
Total
|
$ | 1,071.4 |
INTEREST EXPENSE AND INVESTMENT INCOME Interest
expense was $84.5 million in 2009, $70.4 million in 2008 and $61.1 million in
2007. Interest expense increased in 2009 as compared to 2008 as a
result of higher interest rates and higher average outstanding
borrowings. Interest expense increased in 2008 as compared to 2007
primarily due to higher average outstanding borrowings. We
capitalized interest of $7.1 million in 2009, $5.9 million in 2008 and $6.4
million in 2007. The weighted-average interest rate of our long-term
debt outstanding at December 31, 2009 was 8.3% as compared to 7.0% and 7.8% at
December 31, 2008 and 2007, respectively.
Investment
income was $2.0 million in 2009, $2.5 million in 2008 and $9.3 million in
2007. Investment income includes dividends earned on cash and cash
equivalents and short-term investments during the period. Investment
income reflects an other-than-temporary impairment of $1.3 million and $5.5
million related to the decline in fair value of our short-term investments in
2009 and 2008, respectively.
6.
DERIVATIVES AND RISK MANAGEMENT
DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of
business, we are exposed to market risk associated with changes in foreign
currency exchange rates and interest rates. To manage a portion of
these inherent risks, we may purchase certain types of derivative financial
instruments based on management’s judgment of the trade-off between risk,
opportunity and cost. We do not hold or issue derivative financial
instruments for trading or speculative purposes. The ineffective
portion of any hedge is included in current earnings. The impact of
hedge ineffectiveness was not significant in any of the periods
presented.
CURRENCY FORWARD
CONTRACTS 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. There were no currency forward contracts in place as of
December 31, 2009. We had currency forward contracts with a notional
amount of $36.9 million outstanding at December 31, 2008. The fair
value of our foreign currency forward contracts was a liability of $9.8 million
as of December 31, 2008.
INTEREST RATE
SWAPS 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. In the
fourth quarter of 2008, we terminated our interest rate swap with a notional
amount of $200.0 million that converted variable rate financing based on 3-month
LIBOR into fixed interest rates. As of December 31, 2009, no interest rate
swaps were in place.
The
following table summarizes the reclassification of pre-tax derivative losses
into net loss from accumulated other comprehensive income (loss):
Location
of Gain (Loss) Reclassified into Net Income (Loss)
|
Loss
Reclassified During the Twelve Months Ended December 31,
2009
|
Loss
Expected to be Reclassified During the Next 12 Months
|
|||||||
(in
millions)
|
|||||||||
Currency
forward contracts
|
Cost
of Goods Sold
|
$ | (7.5 | ) | $ | - | |||
Interest
rate hedges
|
Interest
Expense
|
(4.1 | ) | - |
In
the fourth quarter of 2009, as a result of our prepayment of the Amended Term
Loan, we reclassified the remaining $1.3 million loss in accumulated other
comprehensive income (loss) (AOCI) related to the interest rate
swap. This loss is included in debt refinancing and redemption costs
on our Consolidated Statement of Operations.
44
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATIONS OF CREDIT
RISK In the normal course of business, we provide credit to
customers. We periodically evaluate the creditworthiness of our
customers and we maintain reserves for potential credit losses.
Sales
to GM were approximately 78%, 74% and 78% of our total net sales in 2009, 2008
and 2007, respectively. Accounts and other receivables due from GM
were $60.5 million at year-end 2009 and $175.4 million at year-end
2008. Sales to Chrysler LLC were approximately 8% of our total net
sales in 2009, 10% in 2008 and 12% in 2007. Accounts receivable due
from Chrysler were $28.0 million at year-end 2009 and $23.4 million at year-end
2008. No other single customer accounted for more than 10% of our
consolidated net sales in any year presented.
In
addition, our GM postretirement cost sharing asset was $229.3 million as of
December 31, 2009 and $221.2 million as of December 31, 2008. See
Note 10 – Employee Benefit Plans for more detail on this cost sharing
asset.
We
also diversify the concentration of invested cash, cash equivalents and
short-term investments among different financial institutions and we monitor the
selection of counterparties to other financial instruments to avoid unnecessary
concentrations of credit risk.
7.
FAIR VALUE
The
fair value accounting guidance 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. This guidance
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.
|
FINANCIAL
INSTRUMENTS The
estimated fair values of our financial assets and liabilities that are
recognized at fair value on a recurring basis, using available market
information and other observable data, as of December 31, 2009, are as follows
(in
millions):
Balance
Sheet Classification
|
Carrying
Amount
|
Fair
Value
|
Input
|
||||||
Cash
equivalents
|
$ | 77.0 | $ | 77.0 |
Level
1
|
||||
Short-term
investments
|
4.2 | 4.2 |
Level
2
|
Prior to September
2008, we had previously classified our investments in the Reserve Funds, which
are a series of money-market and other similar fund investments, as cash and
cash equivalents on our Consolidated Balance Sheet because the funds were
readily convertible into known amounts of cash. In September of
2008, redemptions were temporarily suspended from the Reserve
Funds. Accordingly, we reclassified the fair value of our investments
in these funds of $117.2 million from cash and cash equivalents to
short-term investments on our Consolidated Balance Sheet. Since
this suspension, we have received $71.6 million and $40.1 million in redemptions
from the Reserve Funds in 2009 and 2008, respectively. As of December
31, 2009, we have classified the fair value of the remaining investments of $4.2
million as short-term investments on our Consolidated Balance
Sheet. The Reserve Funds are currently invested in securities with
daily maturities. We expect to receive the remaining balance of our
current holdings in the Reserve Funds in 2010.
In
2009, we recorded an other-than-temporary impairment of $1.3 million based on
the estimated fair value of our remaining investments in the Reserve
Funds. In 2008,
we recorded a loss of $5.5 million as a result of an other-than-temporary
decline in the fair value of our investments in the Reserve Funds.
The
carrying values of our cash, accounts receivable, accounts payable and accrued
liabilities approximates their fair values due to the short-term maturities of
these instruments. The carrying value of our borrowings under the
foreign credit facilities approximates their fair value due to the frequent
resetting of the interest rates. We estimated the fair value of the
amounts outstanding on our debt as of December 31, 2009, using available market
information and other observable data, to be as follows (in millions):
Carrying
Amount
|
Fair
Value
|
Input
|
|||||||
Amended
Revolving Credit Facility
|
$ | 60.0 | $ | 57.0 |
Level
2
|
||||
9.25%
Notes
|
419.6 | 433.5 |
Level
2
|
||||||
7.875%
Notes
|
300.0 | 258.0 |
Level
2
|
||||||
5.25%
Notes
|
249.9 | 212.5 |
Level
2
|
Investments
in our defined benefit plans are stated at fair value. See Note 10 –
Employee Benefit Plans for additional fair value disclosures of our pension plan
assets as of December 31, 2009.
45
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-LIVED ASSETS In
the second quarter of 2009, as part of our impairment analysis, we were required
to measure the fair value of certain long-lived assets. In this
analysis we utilized the income approach, which determines fair value through a
discounted cash flow analysis based on the assumptions a market participant
would use in pricing these assets. Significant inputs used by
management when determining the fair value of long-lived assets for impairment
include general economic conditions, future expected production volumes, product
pricing and cost estimates, working capital and capital investment requirements,
discount rates and estimated liquidation values.
The
following table summarizes impairments of long-lived assets measured at fair
value on a nonrecurring basis subsequent to initial recognition (in millions):
Balance
Sheet Classification
|
Fair
value measurements using level 3 inputs
|
Asset
impairment recorded in twelve months ended December 31,
2009
|
||||||
Property,
plant and equipment, net
|
$ | 34.1 | $ | 72.6 | ||||
Other
assets and deferred charges
|
1.5 | 3.3 |
We were
also required to measure the fair value of obligations for leased assets that
were permanently idled in the second quarter of 2009. Using level 3
inputs, we determined the fair value of these obligations by calculating the
present value of future lease payments, adjusted for the effects of any prepaid
or deferred items recognized under the lease, using a credit adjusted risk-free
rate. We recorded $5.9 million of these obligations as accrued
expenses and other current liabilities and $15.2 million of these obligations as
postretirement benefits and other long-term liabilities on our Consolidated
Balance Sheet as of June 30, 2009.
8.
INVESTMENT IN JOINT VENTURE
In the
first quarter of 2009, we formed a joint venture with Hefei Automobile Axle Co,
Ltd., a subsidiary of Anhui Jianghuai Automobile Group Co, Ltd.
(JV). Each party owns 50 percent of the JV, and we will account for
the JV using the equity method. We recorded the initial investment in
the JV of $10.2 million at cost, and adjusted the carrying amount of the
investment to recognize our proportionate share of the earnings of the
JV. Our investment is classified as other assets and deferred charges
on our Consolidated Balance Sheet.
9. STOCKHOLDER
RIGHTS PLAN
In
September 2003, our Board of Directors adopted a Stockholder Rights Plan (the
Rights Plan) and declared a dividend of one preferred share purchase right for
each outstanding share of common stock for stockholders of record on September
25, 2003. The Rights Plan provides a reasonable means of safeguarding
the interests of all stockholders against unsolicited takeover attempts at a
price not reflective of the Company’s fair value. The Rights Plan is
designed to give the Board of Directors sufficient time to evaluate and respond
to an unsolicited takeover attempt and to encourage anyone or group considering
such action to negotiate first with the Board of Directors.
On October 30, 2009, we entered into an Amended and Restated Rights
Agreement between AAM and Computershare Trust Company, N.A., as rights agent
(the Rights Agreement), in order to preserve the long-term value and
availability of our net operating loss (NOL) carryforwards and related tax
benefits.
The Rights Agreement, as amended, reduces the beneficial ownership
threshold at which a person or group becomes an “Acquiring Person” under the
Rights Agreement from 15% of our then-outstanding shares of common stock to
4.99% of our then-outstanding shares of common stock. The Rights
Agreement also, among other things, expands the scope of the definition of
“Acquiring Person” to include persons or groups that would be considered
“5-percent shareholders” under Section 382 of the Internal Revenue Code of 1986,
as amended, and the treasury regulations promulgated
thereunder. Additionally, the Rights Agreement exempts stockholders
who currently beneficially own 5% or more of our outstanding shares of common
stock so long as their ownership continuously equals or exceeds 5% and provided
that they do not acquire an additional 0.5% or more of our outstanding shares of
common stock.
The Rights Agreement will automatically expire on September 15,
2013. In addition, beginning in 2011, our Board of Directors will
review the Rights Agreement annually in the first fiscal quarter to determine
whether any of its provisions are, or the Rights Agreement itself is, no longer
in the best interests of AAM, its stockholders and any other relevant
constituencies.
10.
EMPLOYEE BENEFIT PLANS
PENSION AND OTHER
POSTRETIREMENT DEFINED BENEFIT PLANS We sponsor various
qualified and non-qualified defined benefit pension plans for our eligible
associates. We also maintain hourly and salaried benefit plans that
provide postretirement medical, dental, vision, legal and life insurance
benefits (OPEB) to our eligible retirees and their dependents in the
U.S.
As
part of the 2009 Settlement and Commercial Agreement, GM confirmed its
obligation to share proportionally in the cost of OPEB for eligible retirees
based on the length of service an employee had with AAM and GM. We have
included in our OPEB obligation the amounts expected to be received pursuant to
this agreement of $229.3 million and $221.2 million at December 31, 2009 and
December 31, 2008, respectively. We have also recorded a
corresponding asset for these amounts on our Consolidated Balance Sheet, $9.4
million that is classified as a current asset and $219.9 million that is
classified as a noncurrent asset as of December 31, 2009.
46
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Actuarial
valuations of our benefit plans were made as of December 31, 2009 and
2008. The principal weighted-average assumptions used in the year-end
valuation of our U.S. and U.K. plans appear in the following
table. The U.S. discount rates are based on an actuarial review of a
hypothetical portfolio of long-term, high quality corporate bonds matched
against the expected payment stream for each of our plans. The U.K.
discount rate is based on a review of long-term bonds, in consideration of the
average duration of plan liabilities. The assumptions for expected
return on plan assets are based on future capital market expectations for the
asset classes represented within our portfolios and a review of long-term
historical returns. The rates of increase in compensation and health
care costs are based on current market conditions, inflationary expectations and
historical information.
Pension
Benefits
|
OPEB
|
|||||||||||||||||||||||||||||||||||
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||||||||||||||
U.S.
|
U.K
|
U.S.
|
U.K
|
U.S.
|
U.K.
|
|||||||||||||||||||||||||||||||
Discount
rate
|
6.10 | % | 5.70 | % | 6.50 | % | 5.90 | % | 6.45 | % | 5.70 | % | 6.00 | % | 6.50 | % | 6.55 | % | ||||||||||||||||||
Expected
return on plan assets
|
8.00 | % | 6.25 | % | 8.00 | % | 5.90 | % | 8.50 | % | 6.50 | % | N/A | N/A | N/A | |||||||||||||||||||||
Rate
of compensation increase
|
3.75 | % | 3.75 | % | 3.75 | % | 3.30 | % | 3.75 | % | 3.80 | % | 3.75 | % | 3.75 | % | 3.75 | % |
The
accumulated benefit obligation for all defined benefit pension plans was $613.7
million and $560.2 million at December 31, 2009 and December 31, 2008,
respectively. The following table summarizes the changes in projected
benefit obligations and plan assets and reconciles the funded status of the
benefit plans, which is the net benefit plan liability:
Pension
Benefits
|
OPEB | |||||||||||||||
December
31,
|
December 31, | |||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(in
millions)
|
(in
millions)
|
|||||||||||||||
Change
in benefit obligation
|
||||||||||||||||
Benefit
obligation at beginning of year
|
$ | 565.2 | $ | 596.0 | $ | 514.9 | $ | 657.4 | ||||||||
Service
cost
|
5.2 | 13.0 | 2.3 | 14.4 | ||||||||||||
Interest
cost
|
36.1 | 37.2 | 17.8 | 22.9 | ||||||||||||
Plan
amendments
|
- | - | (6.6 | ) | (96.8 | ) | ||||||||||
Actuarial
(gain) loss
|
42.2 | (31.8 | ) | 8.6 | (15.7 | ) | ||||||||||
Change
in GM portion of OPEB obligation
|
- | - | 8.2 | 8.7 | ||||||||||||
Participant
contributions
|
0.7 | 1.2 | - | - | ||||||||||||
Special
and contractual termination benefits
|
2.5 | 53.4 | (0.7 | ) | 11.0 | |||||||||||
Curtailments
|
(0.6 | ) | (17.9 | ) | (21.3 | ) | (36.5 | ) | ||||||||
2008
AAM-GM Agreement settlement
|
- | - | - | (38.7 | ) | |||||||||||
Benefit
payments
|
(39.3 | ) | (57.3 | ) | (16.1 | ) | (11.8 | ) | ||||||||
Currency
fluctuations
|
7.6 | (28.6 | ) | - | - | |||||||||||
Net
change
|
54.4 | (30.8 | ) | (7.8 | ) | (142.5 | ) | |||||||||
Benefit
obligation at end of year
|
$ | 619.6 | $ | 565.2 | $ | 507.1 | $ | 514.9 | ||||||||
Change
in plan assets
|
||||||||||||||||
Fair
value of plan assets at beginning of year
|
$ | 310.7 | $ | 516.5 | $ | - | $ | - | ||||||||
Actual
return on plan assets
|
55.5 | (130.8 | ) | - | - | |||||||||||
Employer
contributions
|
24.9 | 5.2 | 16.1 | 11.8 | ||||||||||||
Participant
contributions
|
0.7 | 1.2 | - | - | ||||||||||||
Benefit
payments
|
(39.3 | ) | (57.3 | ) | (16.1 | ) | (11.8 | ) | ||||||||
Currency
fluctuations
|
6.2 | (24.1 | ) | - | - | |||||||||||
Net
change
|
48.0 | (205.8 | ) | - | - | |||||||||||
Fair
value of plan assets at end of year
|
$ | 358.7 | $ | 310.7 | $ | - | $ | - |
Amounts
recognized in our balance sheets are as follows:
Pension
Benefits
|
OPEB
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(in
millions)
|
(in
millions)
|
|||||||||||||||
Current
liabilities
|
$ | (0.8 | ) | $ | (0.8 | ) | $ | (26.9 | ) | $ | (14.4 | ) | ||||
Noncurrent
liabilities
|
(260.1 | ) | (253.7 | ) | (480.2 | ) | (500.5 | ) | ||||||||
Net
liability
|
$ | (260.9 | ) | $ | (254.5 | ) | $ | (507.1 | ) | $ | (514.9 | ) |
47
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pre-tax amounts recorded in AOCI, not yet recognized in net periodic (benefit)
cost as of December 31, 2009 and 2008, consists of:
Pension
Benefits
|
OPEB | ||||||||||||||||
December
31,
|
December 31, | ||||||||||||||||
2009 |
2008
|
2009
|
2008
|
||||||||||||||
(in millions) | (in millions) | ||||||||||||||||
Net
actuarial gain (loss)
|
$ | (152.1 | ) | $ | (133.5 | ) | $ | 35.9 | $ | 46.5 | |||||||
Net
prior service credit
|
1.0 | 0.7 | 31.9 | 77.2 | |||||||||||||
Total
amounts recorded
|
$ | (151.1 | ) | $ | (132.8 | ) | $ | 67.8 | $ | 123.7 |
The components of net periodic benefit cost (credit) are as
follows:
Pension
Benefits
|
OPEB | ||||||||||||||||||||||||
2009
|
2008
|
2007
|
2009
|
2008 |
2007
|
||||||||||||||||||||
(in
millions)
|
(in millions) | ||||||||||||||||||||||||
Service
cost
|
$ | 5.2 | $ | 13.0 | $ | 21.4 | $ | 2.3 | $ | 14.4 | $ | 25.3 | |||||||||||||
Interest
cost
|
36.1 | 37.2 | 34.9 | 17.8 | 22.9 | 28.5 | |||||||||||||||||||
Expected
asset return
|
(30.4 | ) | (38.6 | ) | (38.3 | ) | - | - | - | ||||||||||||||||
Amortized
actuarial loss (gain)
|
1.3 | 0.2 | 1.5 | (1.7 | ) | - | - | ||||||||||||||||||
Amortized
prior service cost (credit)
|
(0.1 | ) | 0.8 | 2.3 | (5.4 | ) | (8.3 | ) | (3.0 | ) | |||||||||||||||
Special
and contractual termination benefits
|
2.5 | 53.4 | 16.1 | (0.7 | ) | 11.0 | 16.9 | ||||||||||||||||||
Curtailments
|
(1.5 | ) | (1.0 | ) | (2.9 | ) | (68.0 | ) | (75.0 | ) | (17.4 | ) | |||||||||||||
Settlement
|
0.4 | - | - | - | (9.4 | ) | - | ||||||||||||||||||
Net
periodic benefit cost (credit)
|
$ | 13.5 | $ | 65.0 | $ | 35.0 | $ | (55.7 | ) | $ | (44.4 | ) | $ | 50.3 |
Our postretirement cost sharing asset from GM is measured on the same basis as
the portion of the obligation to which it relates. The actuarial
gains and losses related to the GM portion of the OPEB obligation are recognized
immediately to the Consolidated Statement of Operations as an offset against the
gains and losses related to the change in the corresponding GM postretirement
cost sharing asset. These items are presented net in the change in
benefit obligation and net periodic benefit cost components disclosed
above. Remaining actuarial gains and losses are deferred and
amortized over the expected future service periods of the active
participants.
The
estimated net actuarial loss and prior service credit for the defined benefit
pension plans that is expected to be amortized from AOCI into net periodic
benefit cost in 2010 are $2.6 million and $0.1 million,
respectively. The estimated net actuarial gain and prior service
credit for the other defined benefit postretirement plans that is expected to be
amortized from AOCI into net periodic benefit cost in 2010 is $0.9 million and
$3.1 million, respectively.
For measurement
purposes, a weighted average annual increase in the per-capita cost of covered
health care benefits of 8.0% was assumed for 2010. The rate was
assumed to decrease gradually to 5.0% by 2016 and to remain at that level
thereafter. Health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A 1.0% increase in
the assumed health care cost trend rate would have increased total service and
interest cost in 2009 and the postretirement obligation at December 31, 2009 by
$2.0 million and $53.9 million, respectively. A 1.0% decrease in the
assumed health care cost trend rate would have decreased total service and
interest cost in 2009 and the postretirement obligation at December 31, 2009 by
$1.6 million and $45.3 million, respectively.
The
expected future pension and other postretirement benefits to be paid, net of GM
cost sharing, for each of the next five years and in the aggregate for the
succeeding five years thereafter are as follows: $47.2 million in 2010; $49.3
million in 2011; $50.8 million in 2012; $51.5 million in 2013; $52.1 million in
2014 and $274.8 million in 2015 through 2019. These amounts were
estimated using the same assumptions to measure our 2009 year-end pension and
OPEB obligations and include an estimate of future employee
service.
Contributions We
currently estimate our regulatory pension funding requirements in 2010 to be
approximately $25 million. We expect our cash outlay, net of GM cost
sharing, for OPEB to be approximately $15 million.
Attrition and separation
programs In 2009, we completed multiple valuations of the
assets and liabilities of our pension and OPEB plans. We recorded a
net gain $69.5 million for the curtailment of certain pension and other
postretirement benefits in 2009. These curtailments relate primarily
to UAW-represented associates who participated in attrition programs in 2008 but
did not terminate employment with AAM until 2009, UAW-represented associates who
terminated employment in 2009 by electing to accelerate their remaining buydown
payments and a reduction in our salaried workforce.
In addition, we recorded expense of $1.8 million for special termination
benefits in 2009. This charge primarily relates to the SRIP benefits
paid under our pension plans, net of an adjustment resulting from the
closing agreement we signed with the IAM in the second quarter of
2009.
In
2008, we completed multiple valuations of the assets and liabilities of our U.S.
pension and OPEB plans. This was required due to plan amendments,
attrition programs and plant closure agreements, most of which resulted from the
new labor agreements ratified by the UAW represented associates at our original
U.S. locations on May 23, 2008. We recorded a net gain of $76.0
million for the curtailment of certain pension and OPEB in 2008. This
resulted primarily from the reduction in the expected future pension and OPEB
related to those hourly associates who have accepted the SSP and terminated
employment from AAM.
48
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In
addition, we recorded expense of $64.4 million for special and contractual
termination benefits in 2008. This charge includes lump-sum SSP
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. This charge also includes special and contractual pension and
OPEB related to certain eligible IAM associates at our forging facilities and
lump-sum SRIP benefits to be paid under our pension plans.
See
Note 4 -- Restructuring Actions for more detail on these attrition and
separation programs.
Amendments to pension and OPEB
plans In 2009, we recorded a decrease in our OPEB
liability of $6.6 million for negative plan amendments. These
primarily related to amendments of the salaried OPEB plans that reduced the
benefits to be paid attributed to associate services already rendered as well as
changes to labor agreements at our Cheektowaga Machining
Facility. Certain changes in the 2008 labor agreements reduced
the OPEB attributed to employee services already rendered. These
changes are classified as negative plan amendments and reduced our OPEB
obligation by $96.8 million in 2008.
These
adjustments were recorded to AOCI and will be amortized over future
periods.
2008 AAM –
GM Agreement As part of the 2008 AAM – GM Agreement, we
no longer have a liability to GM for OPEB provided to UAW represented transition
associates with earned credited service from AAM who retire under the plans
administered by GM. In 2008, we reduced our OPEB obligation $38.7
million to reflect the settlement of this portion of the
liability. See Note 1 – Organization and Summary of Significant
Accounting Policies for more detail on the accounting for this agreement with
GM. The forgiveness of this obligation was accounted for as a
settlement. Accordingly, the related amount of unamortized gain
previously recorded to AOCI was recorded as a credit of $9.4 million to cost of
sales in 2008.
Pension plan assets The weighted-average asset allocations of
our pension plan assets at December 31, 2009 and 2008 appear in the following
table. The asset allocation for our plans is developed in
consideration of the demographics of the plan participants and expected payment
stream of the benefit obligation.
U.S.
|
U.K.
|
|||||||||||||||||||||||
Target
|
Target
|
|||||||||||||||||||||||
2009
|
2008
|
Allocation
|
2009
|
2008
|
Allocation
|
|||||||||||||||||||
Equity
securities
|
50.5 | % | 62.5 | % | 50% – 70 | % | 51.7 | % | 47.0 | % | 45% – 55 | % | ||||||||||||
Fixed
income securities
|
33.7 | % | 32.0 | % | 30% – 35 | % | 47.1 | % | 52.0 | % | 45% – 55 | % | ||||||||||||
Hedge
funds
|
12.4 | % | 5.4 | % | 0% – 15 | % | 0.0 | % | 0.0 | % | 0 | % | ||||||||||||
Cash
|
3.4 | % | 0.1 | % | 0% – 5 | % | 1.2 | % | 1.0 | % | 0% – 5 | % | ||||||||||||
Total
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
The
primary objective of our pension plan assets is to provide a source of
retirement income for participants and beneficiaries. Our primary
financial objectives for the pension plan assets have been established in
conjunction with a comprehensive review of our current and projected financial
requirements. These objectives include having the ability to pay all
future benefits and expenses when due, maintaining flexibility and minimizing
volatility. These objectives are based on a long-term investment
horizon.
Investments
in our defined benefit plans are stated at fair value. Level 1
assets are valued using quoted market prices that represent the asset value of
the shares held by the trusts. The level 2 assets are
investments in pooled funds, which are valued using a model to reflect the
valuation of their underlying assets that are publicly traded with observable
values. The fair value of our level 3 postretirement benefit plan
assets are measured by compiling the portfolio holdings and independently
valuing the securities in those portfolios. The fair values of our
pension plan assets as of December 31, 2009, are as follows (in millions):
Asset
Categories
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
Cash
& Cash Equivalents
|
$ | 10.8 | $ | - | $ | - | $ | 10.8 | ||||||||
Equity
|
||||||||||||||||
U.S.
Large Cap
|
85.6 | 2.8 | - | 88.4 | ||||||||||||
U.S.
Small/Mid Cap
|
23.5 | 3.5 | - | 27.0 | ||||||||||||
World
Equity
|
34.0 | 32.5 | - | 66.5 | ||||||||||||
Fixed
Income Securities
|
||||||||||||||||
Government
& Agencies
|
40.7 | - | - | 40.7 | ||||||||||||
Corporate
Bonds – Investment Grade
|
52.2 | - | - | 52.2 | ||||||||||||
Corporate
Bonds – Non-investment Grade
|
18.7 | - | - | 18.7 | ||||||||||||
Emerging
Market Debt
|
17.3 | - | - | 17.3 | ||||||||||||
Other
|
1.8 | - | - | 1.8 | ||||||||||||
Hedge
Funds
|
||||||||||||||||
Multi
Strategy Hedge Fund
|
- | - | 35.3 | 35.3 | ||||||||||||
Total
Plan Assets
|
$ | 284.6 | $ | 38.8 | $ | 35.3 | $ | 358.7 |
49
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
change in the fair value of our level 3 assets in 2009 is as follows (in millions):
Multi
Strategy Hedge Fund
|
||||
Beginning
balance at December 31, 2008
|
$ | 13.5 | ||
Actual
return on plan assets:
|
||||
Relating
to assets still held at the reporting date
|
1.4 | |||
Purchases,
sales and settlements
|
20.4 | |||
Ending
balance at December 31, 2009
|
$ | 35.3 |
DEFINED CONTRIBUTION
PLANS Most of our salaried U.S. associates are eligible to
participate in voluntary savings plans. Our maximum match is 50% of
eligible salaried associates’ contribution up to 10% of their eligible
salary. Matching contributions amounted to $3.3 million in 2009, $3.8
million in 2008 and $3.7 million in 2007. U.S. salaried associates
are eligible to receive an additional annual retirement contribution (ARC)
benefit between 3% to 5% of eligible salary, depending on years of
service. We made contributions of $2.9 million, $3.4 million and $3.2
million in 2009, 2008 and 2007, respectively, for the ARC.
As
part of the 2008 labor agreements, certain UAW represented associates at our
original U.S. locations are eligible for a Company match on associate
contributions made to the voluntary savings plans beginning in
2009. Our maximum match will be 25% of hourly associates’
contribution up to the first 6% of their contributions. Matching
contributions amounted to $0.4 million in 2009. Certain UAW
represented associates are also eligible to receive an ARC benefit of 5% of
eligible wages beginning in 2009. We made contributions of $1.8
million in 2009 for the ARC related to these associates.
DEFERRED
COMPENSATION PLAN Certain U.S. associates are
eligible to participate in a non-qualified deferred compensation
plan. Payments of $1.4 million, $1.7 million and $1.9 million have
been made in 2009, 2008 and 2007, respectively, to eligible associates that have
elected distributions. At December 31, 2009 and 2008, our deferred
compensation liability was $11.7 million and $10.9 million,
respectively. Due to the changes in the value of this deferred
compensation plan we increased our liability by $2.0 million in 2009, reduced
our liability by $2.3 million in 2008 and increased our liability by $1.4
million in 2007.
11.
STOCK-BASED COMPENSATION
At
December 31, 2009, we have grants outstanding under stock incentive compensation
plans approved by our stockholders. Under these plans, a total of
19.1 million shares have been authorized for issuance to our directors, officers
and certain other associates in the form of options, unvested restricted stock
or other awards that are based on the value of our common stock. The
1999 stock incentive compensation plan expired in January 2009. The
Company has no shares available for future grants at December 31,
2009.
STOCK
OPTIONS Under the terms of the plans, stock options are
granted at the market price of the stock on the grant date. The
contractual term of outstanding stock options ranges from 10 to 12
years. We issue new shares to satisfy stock-based
awards.
Stock
option awards become exercisable in three approximately equal annual
installments beginning one year from the date of grant.
The
following table summarizes activity relating to our stock options:
Weighted-
|
||||||||
Number
of
|
Average
Exercise
|
|||||||
Shares
|
Price
Per Share
|
|||||||
(in
millions, except per share data)
|
||||||||
Outstanding
at January 1, 2007
|
6.8 | $ | 23.10 | |||||
Options
granted
|
0.3 | 26.02 | ||||||
Options
exercised
|
(0.9 | ) | 15.25 | |||||
Options canceled
|
(0.1 | ) | 32.76 | |||||
Outstanding
at December 31, 2007
|
6.1 | $ | 24.16 | |||||
Options
granted
|
0.3 | 10.08 | ||||||
Options
exercised
|
(0.1 | ) | 11.47 | |||||
Options canceled
|
(0.3 | ) | 23.45 | |||||
Outstanding
at December 31, 2008
|
6.0 | $ | 23.57 | |||||
Options
granted
|
0.1 | 2.81 | ||||||
Options
exercised
|
(0.2 | ) | 4.26 | |||||
Options canceled
|
(0.3 | ) | 22.84 | |||||
Outstanding
at December 31, 2009
|
5.6 | $ | 23.96 | |||||
Exercisable
at December 31, 2007
|
5.5 | $ | 24.40 | |||||
Exercisable
at December 31, 2008
|
5.4 | $ | 24.42 | |||||
Exercisable
at December 31, 2009
|
5.1 | $ | 25.05 |
As
of December 31, 2009, unrecognized compensation cost related to unvested stock
options totaled $0.6 million. The weighted average period over which
this cost is expected to be recognized is approximately one year. The
total intrinsic value of options outstanding as of December 31, 2009 was $0.8
million. There was no intrinsic value of options exercisable as of
December 31, 2009. The total intrinsic value of stock options
exercised in 2009 and 2008 was $0.8 million and $0.5 million,
respectively.
50
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
following is a summary of the range of exercise prices for stock options that
are outstanding and exercisable at December 31, 2009:
Weighted-
|
Weighted-
|
Number
of
|
Weighted-
|
|||||||||||||||||||
Range
of
|
Outstanding
|
Average
Exercise
|
Average
|
Stock
Options
|
Average
Exercise
|
|||||||||||||||||
Exercise
Prices
|
Stock
Options
|
Price
Per Share
|
Contractual
Life
|
Exercisable
|
Price
Per Share
|
|||||||||||||||||
(in
millions, except per share data)
|
(in
years)
|
(in
millions, except per share data)
|
||||||||||||||||||||
$ | 2.81 | 0.1 | $ | 2.81 | 9.0 | - | $ | - | ||||||||||||||
$ | 8.85 | 0.4 | 8.85 | 1.3 | 0.4 | 8.85 | ||||||||||||||||
$ | 10.08 - $15.58 | 1.1 | 13.92 | 4.5 | 0.8 | 14.79 | ||||||||||||||||
$ | 19.54 - $23.73 | 1.1 | 23.66 | 3.1 | 1.1 | 23.66 | ||||||||||||||||
$ | 24.15 - $27.00 | 1.6 | 25.00 | 3.7 | 1.5 | 24.94 | ||||||||||||||||
$ | 32.13 - $40.83 | 1.3 | 38.56 | 4.1 | 1.3 | 38.56 | ||||||||||||||||
5.6 | $ | 23.96 | 3.8 | 5.1 | $ | 25.05 |
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:
2009
|
2008
|
2007
|
||||||||||
Expected
volatility
|
64.32 | % | 46.10 | % | 44.26 | % | ||||||
Risk-free
interest rate
|
2.07 | % | 3.78 | % | 4.46 | % | ||||||
Dividend
yield
|
2.85 | % | 6.20 | % | 2.30 | % | ||||||
Expected
life of options
|
8
years
|
8
years
|
8
years
|
|||||||||
Weighted-average
grant-date fair value
|
$ | 1.40 | $ | 2.67 | $ | 11.13 |
Expected
volatility was based on the daily changes in our historical common stock prices
over a period equal to the expected life of the award. The risk-free
rate is based on the U.S. Treasury yield curve in effect at the time of the
grant corresponding to the expected life of the options. Our dividend
yield is based on the dividend at the time of grant. The expected
life of options is based on historical stock option exercise patterns and the
terms of the options.
OTHER STOCK-BASED
COMPENSATION We awarded performance accelerated
restricted stock, restricted stock and restricted stock units (PARS, RS and
RSUs, respectively). The total amount of compensation expense
associated with the RSUs is recorded as an accrued liability when incurred while
the total amount of compensation expense associated with PARS and RS is recorded
to paid-in-capital. The PARS and RSUs vest over three to five years
contingent upon the satisfaction of future financial performance targets
specified by the plan and the RS vests over three years. The unearned
compensation is expensed over the expected vesting period.
The
following table summarizes activity relating to our PARS, RS and
RSUs:
Number
of Shares/Units
|
Weighted
Average Grant Date Fair Value Per Share/Unit
|
|||||||
(in
millions, except per share data)
|
||||||||
Outstanding
at January 1, 2007
|
1.8 | $ | 20.46 | |||||
Granted
|
0.9 | 26.07 | ||||||
Vested
|
(0.2 | ) | 22.78 | |||||
Cancelled
|
(0.2 | ) | 21.90 | |||||
Outstanding
at December 31, 2007
|
2.3 | 22.33 | ||||||
Granted
|
1.0 | 18.87 | ||||||
Vested
|
(0.2 | ) | 22.59 | |||||
Cancelled
|
(0.2 | ) | 21.87 | |||||
Outstanding
at December 31, 2008
|
2.9 | 21.17 | ||||||
Granted
|
1.3 | 2.81 | ||||||
Vested
|
(0.7 | ) | 18.36 | |||||
Cancelled
|
(0.2 | ) | 19.78 | |||||
Outstanding
at December 31, 2009
|
3.3 | $ | 14.77 |
As of
December 31, 2009, unrecognized compensation cost related to unvested PARS, RS
and RSUs totaled $12.6 million. The weighted average period over
which this cost is expected to be recognized is approximately two
years. In 2009 and 2008, the total fair market value of PARS, RS and
RSUs vested was $3.7 million and $2.3 million, respectively.
We made cash payments of $0.1 million and $2.0 million related to vested RSUs in
2009 and 2008, respectively. We made payments of $1.0 million in
January 2010 related to a portion of the vested RSUs in 2009.
51
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME
TAXES
Income
(loss) before income taxes for U.S. and non-U.S. operations was as
follows:
2009
|
2008
|
2007
|
||||||||||
(in
millions)
|
||||||||||||
U.S.
loss
|
$ | (364.1 | ) | $ | (1,168.4 | ) | $ | (55.1 | ) | |||
Non
- U.S. income
|
66.9 | 47.1 | 72.7 | |||||||||
Total
income (loss) before income taxes
|
$ | (297.2 | ) | $ | (1,121.3 | ) | $ | 17.6 |
The
following is a summary of the components of our provisions for income
taxes:
2009
|
2008
|
2007
|
||||||||||
(in millions) | ||||||||||||
Current
|
||||||||||||
Federal
|
$ | 6.0 | $ | 6.0 | $ | 11.1 | ||||||
Other
state and local
|
0.5 | 1.4 | 0.9 | |||||||||
Foreign
|
17.3 | 7.7 | 6.1 | |||||||||
Total
current
|
23.8 | 15.1 | 18.1 | |||||||||
Deferred
|
||||||||||||
Federal
|
(64.7 | ) | 74.7 | (32.6 | ) | |||||||
Other
state and local
|
(0.6 | ) | 3.8 | 0.6 | ||||||||
Foreign
|
(2.3 | ) | 9.7 | (5.5 | ) | |||||||
Total
deferred
|
(67.6 | ) | 88.2 | (37.5 | ) | |||||||
Total
income tax expense (benefit)
|
$ | (43.8 | ) | $ | 103.3 | $ | (19.4 | ) |
The
following is a reconciliation of our provision for income taxes to the expected
amounts using statutory rates:
2009
|
2008
|
2007
|
||||||||||
Federal
statutory
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Foreign
income taxes
|
11.6 | 2.2 | (129.6 | ) | ||||||||
State
and local
|
0.1 | - | 6.6 | |||||||||
Federal
tax credits
|
- | - | (29.8 | ) | ||||||||
Valuation
allowance
|
(10.2 | ) | (44.8 | ) | - | |||||||
U.S.
tax on unremitted foreign earnings
|
(33.2 | ) | - | - | ||||||||
NOL
carryback refund
|
16.4 | - | - | |||||||||
Other
|
(5.0 | ) | (1.6 | ) | 7.1 | |||||||
Effective
income tax rate
|
14.7 | % | (9.2 | )% | (110.7 | )% |
Our
income tax expense and effective tax rate for 2009 reflects the effect of
recording a tax benefit related to the extension of the carryback period of our
2008 NOL, recording a valuation allowance against income tax benefits on losses
in the U.S. and certain foreign subsidiaries and taxes on unremitted
foreign earnings. The income tax expense and effective tax rate for
2008 reflects the effect of the valuation allowance that was recorded in 2008 in
the U.S. and U.K. and the effect of not recording an income tax benefit on tax
losses in the U.S. The 2007 income tax benefit is primarily the
result of recognizing the deferred income tax benefit of current year losses in
the U.S. and the tax rate impact of an increase in foreign source income, which
carries a lower overall effective tax rate than U.S. income. In 2007, the
change in the effective tax rate also reflects the impact of tax
deductions on a smaller base of income (loss) before income
taxes.
In
the fourth quarter of 2009, the U.S. Congress passed the Worker, Homeownership and Business
Act of 2009 which, among other things, extended the NOL carryback period
for most taxpayers from two years to up to five years for either 2008 or 2009
NOLs. This law enabled us to carryback our 2008 NOL to 2003. As a
result of this special carryback election, we recorded an income tax benefit of
$48.8 million in the fourth quarter 2009. In February 2010, we received
the $48.8 million refund in full.
52
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As
of December 31, 2009 and 2008, we have refundable income taxes of $52.7 million
and $6.6 million, respectively, classified as prepaid expenses and other on our
Consolidated Balance Sheet. We also have income taxes payable of $3.8
million classified as other accrued expenses on our Consolidated Balance Sheet
as of December 31, 2009.
The
following is a summary of the significant components of our deferred tax assets
and liabilities:
December
31,
|
||||||||
2009
|
2008
|
|||||||
(in
millions)
|
||||||||
Current
deferred tax assets
|
||||||||
Employee
benefits
|
$ | 12.9 | $ | 27.1 | ||||
Inventory
|
6.6 | 20.8 | ||||||
Prepaid
taxes and other
|
28.5 | 27.8 | ||||||
Valuation
allowance
|
(42.1 | ) | (70.0 | ) | ||||
Total
current deferred tax assets
|
5.9 | 5.7 | ||||||
Current
deferred tax liabilities
|
||||||||
Inventory
and other
|
(4.4 | ) | (13.3 | ) | ||||
Current
deferred tax asset, net
|
$ | 1.5 | $ | (7.6 | ) |
Current deferred tax assets and liabilities recognized in our Consolidated
Balance Sheets are as follows:
December
31,
|
|||||||||||
2009
|
2008 |
|
|||||||||
(in
millions)
|
|||||||||||
U.S.
federal and state deferred tax asset, net
|
$ | - | $ | 1.3 | |||||||
Other
foreign deferred tax asset (liability), net
|
1.5 | (8.9 | ) | ||||||||
Current
deferred tax asset (liability), net
|
$ | 1.5 | $ | (7.6 | ) |
The following is a summary of the significant components of our noncurrent
deferred tax assets and liabilities:
December
31,
|
||||||||
2009
|
2008
|
|||||||
(in
millions)
|
||||||||
Noncurrent
deferred tax assets
|
||||||||
Employee
benefits
|
$ | 249.6 | $ | 246.4 | ||||
NOL
carryforwards
|
164.6 | 186.7 | ||||||
Tax
credit carryforwards
|
99.9 | 30.9 | ||||||
Capital
allowance carryforwards
|
24.6 | 20.4 | ||||||
Fixed
assets
|
33.1 | - | ||||||
Deferred
revenue
|
59.2 | 31.7 | ||||||
Capitalized
expenditures
|
75.1 | 23.6 | ||||||
Other
|
4.4 | 9.6 | ||||||
Valuation
allowances
|
(517.6 | ) | (511.8 | ) | ||||
Noncurrent
deferred tax assets
|
192.9 | 37.5 | ||||||
Noncurrent
deferred tax liabilities
|
||||||||
Fixed
assets and other
|
(170.8 | ) | (21.6 | ) | ||||
Noncurrent
deferred tax asset, net
|
$ | 22.1 | $ | 15.9 |
Noncurrent deferred tax assets and liabilities recognized in our Consolidated
Balance Sheets are as follows:
December
31,
|
||||||||
2009
|
2008
|
|||||||
(in
millions)
|
||||||||
U.S.
federal and state deferred tax asset, net
|
$ | 22.2 | $ | 6.4 | ||||
Other
foreign deferred tax asset (liability), net
|
(0.1 | ) | 9.5 | |||||
Noncurrent
deferred tax asset, net
|
$ | 22.1 | $ | 15.9 |
53
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEFERRED INCOME TAX ASSETS AND
LIABILITIES AND VALUATION ALLOWANCES The deferred income
tax assets and liabilities previously summarized reflect the impact of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the basis of such assets and liabilities as
measured by tax laws. As of December 31, 2009 and December 31, 2008,
we had deferred tax assets from domestic and foreign NOL and tax credit
carryforwards of $289.1 million and $238.0 million,
respectively. Approximately $59.5 million of the deferred tax assets
at December 31, 2009 relate to NOL carryforwards or tax credits that can be
carried forward indefinitely with the remainder having carryover periods of 10
to 20 years.
In
accordance with the accounting guidance for income taxes, 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.
At
December 31, 2009, the U.S. valuation allowance was $483.0 million compared to
$534.7 million at December 31, 2008. The change in the valuation allowance was
primarily attributable to the special 2008 NOL carryback and the establishment
of a deferred tax liability for the U.S. tax impact of undistributed earnings of
certain foreign subsidiaries, primarily offset by additional valuation
allowances recorded to offset the deferred tax benefits resulting from losses
incurred in 2009.
Accounting
guidance for income taxes requires a deferred tax liability be established for
the U.S. tax impact of undistributed earnings of foreign subsidiaries unless it
can be shown that these earnings will be permanently reinvested outside the
U.S. Prior to the fourth quarter of 2009, we did not provide for U.S.
taxes relating to undistributed earnings of our foreign subsidiaries because we
expected all accumulated and undistributed foreign earnings to be permanently
reinvested in jurisdictions outside of the U.S. In 2009, our U.S.
operations required significant cash funding. As a result, we believe
these accumulated foreign earnings in certain jurisdictions are likely to be
remitted to the U.S. as dividends or intercompany loans and have established a
deferred tax liability of $118.8 million representing the estimated tax impact
of the undistributed earnings of certain foreign subsidiaries. The remittance of
these undistributed earnings may subject us to U.S. income taxes and certain
foreign withholding taxes at the time of remittance.
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. We
reviewed the likelihood that we would be able to realize the benefit of our U.S.
deferred tax assets, based on 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.
At
December 31, 2009, our valuation allowance recorded for foreign subsidiaries was
$76.7 million compared to $47.1 million at December 31, 2008. We recorded
addition valuation allowance in 2009 primarily to offset the increase in
deferred tax benefits resulting from losses incurred in certain foreign
subsidiaries.
If, in
the future, we generate taxable income on a sustained basis in the U.S. or
in foreign jurisdictions, for which we have recorded valuation
allowances, 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 allowances.
UNRECOGNIZED INCOME TAX BENEFITS To the extent our uncertain tax
positions do not meet the “more likely than not” threshold, we have derecognized
such positions. To the extent our uncertain tax positions meet the
“more likely than not” threshold, we have measured and recorded the highest
probable benefit, and have established appropriate reserves for benefits that
exceed the amount likely to be sustained upon examination.
A reconciliation of the beginning and ending amounts of unrecognized income tax
benefits is as follows:
Unrecognized
Income Tax
|
Interest
and
|
|||||||
Benefits
|
Penalties
|
|||||||
(in
millions)
|
||||||||
Balance
at January 1, 2007
|
$ | 27.7 | $ | 1.0 | ||||
Increase
in prior year tax positions
|
5.1 | 1.3 | ||||||
Decrease
in prior year tax positions
|
(2.1 | ) | - | |||||
Increase
in current year tax positions
|
3.3 | - | ||||||
Statute of limitations release | (2.8 | ) | (0.4 | ) | ||||
Settlement
|
- | (0.1 | ) | |||||
Balance
at December 31, 2007
|
$ | 31.2 | $ | 1.8 | ||||
Increase
in prior year tax positions
|
7.0 | 3.6 | ||||||
Decrease
in prior year tax positions
|
(1.7 | ) | (0.2 | ) | ||||
Increase
in current year tax positions
|
4.4 | - | ||||||
Settlement
|
(0.3 | ) | - | |||||
Balance
at December 31, 2008
|
$ | 40.6 | $ | 5.2 | ||||
Increase
in prior year tax positions
|
0.5 | 4.1 | ||||||
Decrease
in prior year tax positions
|
(1.2 | ) | - | |||||
Increase
in current year tax positions
|
0.7 | 6.0 | ||||||
Balance
at December 31, 2009
|
$ | 40.6 | $ | 15.3 |
54
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At
December 31, 2009 and December 31, 2008, we had $40.6 million of net
unrecognized income tax benefits. Included in the balance at December
31, 2009 and December 31, 2008 is $10.6 million, for which the ultimate
deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility. Because of the impact of deferred tax
accounting, other than interest and penalties, the disallowance of the shorter
deductibility period would not affect the annual effective tax rate but would
accelerate the payment of cash to the taxing authority to an earlier
period.
In
2009, 2008 and 2007, we recognized $10.1 million, $3.4 million and
$1.3 million, respectively, of interest and penalties in income tax expense
(benefit) on our Consolidated Statement of Operations. We have a
liability of $15.3 million and $5.2 million related to the estimated future
payment of interest and penalties at December 31, 2009 and 2008,
respectively.
We file
income tax returns in the U.S. federal jurisdiction, as well as various states
and foreign jurisdictions. With few exceptions, we are no longer subject to U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities
for years before 2003. The 2004 and 2005 U.S. federal income tax
returns are currently under audit and we expect resolution in
2010. The Internal Revenue Service (IRS) commenced an examination of
our U.S. income tax return for 2006 and 2007 in 2008. At this time,
we are also under audit in several foreign jurisdictions.
Based
on the status of the IRS audits and audits outside the U.S. and the protocol of
finalizing audits by the relevant tax authorities, it is not possible to
estimate the impact of changes, if any, to previously recorded uncertain tax
positions. However, as of December 31, 2009, the IRS and other
foreign tax authorities have proposed certain adjustments to our taxable income
that would impact our liability for unrecognized tax
benefits. Although it is not possible to predict the timing of the
conclusion of all ongoing audits with accuracy, we anticipate that the current
U.S. IRS audits will be complete by the end of 2010. It is possible
that a reduction in the unrecognized tax benefits may occur; however,
quantification of an estimated range cannot be made at this time.
13.
CAPITAL STOCK AND EARNINGS (LOSS) PER SHARE (EPS)
On December 18, 2009, we issued 16.1 million shares of AAM common stock in
exchange for $109.7 million net proceeds. We used the proceeds
for general corporate purposes.
The following table sets forth the computation of our basic and diluted
EPS:
2009
|
2008
|
2007
|
||||||||||
(in millions, except per share data) | ||||||||||||
Numerator
|
||||||||||||
Net
income (loss) attributable to AAM
|
$ | (253.1 | ) | $ | (1,224.3 | ) | $ | 37.0 | ||||
Denominators
|
||||||||||||
Basic
shares outstanding -
|
||||||||||||
Weighted-average shares outstanding
|
52.6 | 51.6 | 53.1 | |||||||||
Effect
of dilutive securities -
|
||||||||||||
Dilutive
stock-based compensation
|
- | - | 0.7 | |||||||||
Dilutive
warrants
|
- | - | - | |||||||||
Diluted
shares outstanding -
|
||||||||||||
Adjusted
weighted-average shares after assumed conversions
|
52.6 | 51.6 | 53.8 | |||||||||
|
||||||||||||
Basic
EPS
|
$ | (4.81 | ) | $ | (23.73 | ) | $ | 0.70 | ||||
Diluted
EPS
|
$ | (4.81 | ) | $ | (23.73 | ) | $ | 0.69 |
Basic
and diluted loss per share are the same in 2009 because the effect of 0.7
million potentially dilutive warrants would have been
antidilutive. Basic and diluted loss per share are the same in
2008 because the effect of 1.0 million potentially dilutive shares would have
been antidilutive.
In
January 2009, we adopted new accounting guidance which notes that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents are participating securities and shall be included in the
computation of EPS pursuant to the two-class method. Adoption of this
new guidance increased basic and diluted shares outstanding by 2.0 million
shares and 1.1 million shares, respectively, in 2007. However, basic
and diluted shares outstanding did not increase in 2009 and 2008 as we were in a
loss position and the participating securities do not participate in
losses.
Certain
exercisable stock options were excluded in the computations of diluted EPS
because the exercise price of these options was greater than the average annual
market prices. The number of stock options outstanding excluded from
the calculation of diluted EPS was 5.7 million at year-end 2009, 5.2 million at
year-end 2008 and 1.9 million at year-end 2007. The ranges of
exercise prices related to these excluded exercisable stock options were $8.85 –
$40.83 at year-end 2009, $12.00 – $40.83 at year-end 2008 and $26.02 - $40.83 at
year-end 2007.
55
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14.
COMPREHENSIVE INCOME (LOSS)
Comprehensive
income (loss) consists of the following:
2009 | 2008 | 2007 | ||||||||||
(in
millions)
|
||||||||||||
Net
income (loss)
|
$ | (253.3 | ) | $ | (1,224.6 | ) | $ | 37.0 | ||||
Defined
benefit plans, net of tax
|
(72.5 | ) | (62.8 | ) | 34.3 | |||||||
Foreign
currency translation adjustments, net
of tax
|
37.6 | (34.0 | ) | 18.7 | ||||||||
Change
in derivatives, net of tax
|
11.4 | (8.1 | ) | (1.8 | ) | |||||||
Comprehensive
income (loss)
|
$ | (276.8 | ) | $ | (1,329.5 | ) | $ | 88.2 | ||||
Net loss attributable to noncontrolling interests
|
0.2 | 0.3 | - | |||||||||
Foreign currency translation adjustments related to noncontrolling
interests
|
(0.4 | ) | - | - | ||||||||
Comprehensive
income (loss) attributable to AAM
|
$ | (277.0 | ) | $ | (1,329.2 | ) | $ | 88.2 |
15. COMMITMENTS
AND CONTINGENCIES
PURCHASE
COMMITMENTS Obligated purchase commitments for
capital expenditures and related project expenses were approximately $76.3
million at December 31, 2009 and $96.3 million at December 31,
2008.
LEGAL
PROCEEDINGS 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. We have made, and will continue to make, capital and
other expenditures to comply with environmental requirements, including
recurring administrative costs. Such expenditures were not
significant during 2009, 2008 and 2007.
ENVIRONMENTAL OBLIGATIONS Due
to the nature of our manufacturing operations, we have legal obligations to
perform asset retirement activities pursuant to federal, state, and local
requirements. The process of estimating environmental liabilities is
complex. Significant uncertainty may exist related to the timing and
method of the settlement of these obligations. Therefore, these
liabilities are not reasonably estimable until a triggering event occurs that
allows us to estimate a range and assess the probabilities of potential
settlement dates and the potential methods of settlement. As a result
of the plant idling and consolidation in 2009, the methods and timing of certain
environmental liabilities related to these facilities became reasonably
estimable. See Note 4 – Restructuring Actions for more detail on our
environmental liabilities, included in asset retirement
obligations.
In
the future, we will update our estimated costs and potential settlement dates
and methods and their associated probabilities based on available
information. Any update may change our estimate and could result in a
material adjustment to this liability.
PRODUCT
WARRANTIES We record a liability for estimated warranty
obligations at the dates our products are sold. Our estimated
warranty obligations for products sold are based on management
estimates. For products and customers with actual warranty payment
experience, we estimate warranty costs principally based on past claims
history. For certain products and customers, actual warranty payment
experience does not exist or is not mature. In these cases, we
estimate our costs based on our contractual arrangements with individual
customers, existing customer warranty programs, sales history and internal and
external warranty data. The following table provides a reconciliation
of changes in the product warranty liability:
December
31,
|
||||||||
2009
|
2008
|
|||||||
(in
millions)
|
||||||||
Beginning
balance
|
$ | 2.6 | $ | 6.8 | ||||
Accruals
|
0.5 | 0.6 | ||||||
Settlements
|
(0.4 | ) | (0.6 | ) | ||||
Adjustments
to prior period accruals
|
(0.8 | ) | (3.5 | ) | ||||
Foreign
currency translation and other
|
0.2 | (0.7 | ) | |||||
Ending
balance
|
$ | 2.1 | $ | 2.6 |
56
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT
AND GEOGRAPHIC INFORMATION
We
operate in one reportable segment: the manufacture, engineer, design
and validation of driveline systems and related components and chassis modules
for light trucks, SUVs, passenger cars, crossover vehicles and commercial
vehicles. Financial information relating to our operations by
geographic area is presented in the following table. Net sales are
attributed to countries based upon location of customer. Long-lived
assets exclude deferred income taxes.
December
31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
millions)
|
||||||||||||
Net
sales
|
||||||||||||
United
States
|
$ | 979.7 | $ | 1,306.5 | $ | 2,069.0 | ||||||
Canada
|
66.5 | 166.2 | 385.3 | |||||||||
Mexico
|
371.6 | 469.2 | 630.6 | |||||||||
Other
|
103.8 | 167.3 | 163.3 | |||||||||
Total
net sales
|
$ | 1,521.6 | $ | 2,109.2 | $ | 3,248.2 | ||||||
Long-lived
assets
|
||||||||||||
United
States
|
$ | 818.0 | $ | 939.1 | $ | 1,507.4 | ||||||
Mexico
|
410.3 | 432.3 | 442.0 | |||||||||
Other
|
214.2 | 160.4 | 164.5 | |||||||||
Total
long-lived assets
|
$ | 1,442.5 | $ | 1,531.8 | $ | 2,113.9 |
17. UNAUDITED
QUARTERLY FINANCIAL DATA
Three
Months Ended,
|
|||||||||||||||||||
March 31 | June 30 |
September
30
|
December
31
|
||||||||||||||||
(in millions, except per share data) | |||||||||||||||||||
2009
|
|||||||||||||||||||
Net
sales
|
$ | 402.4 | $ | 245.6 | $ | 409.6 | $ | 464.0 | |||||||||||
Gross
profit (loss)
|
27.1 | (215.1 | ) | 88.5 | 68.4 | ||||||||||||||
Net
income (loss) attributable to AAM (1)
|
(32.7 | ) | (288.6 | ) | 19.6 | 48.6 | |||||||||||||
Basic
EPS (3)
|
$ | (0.59 | ) | $ | (5.20 | ) | $ | 0.35 | $ | 0.83 | |||||||||
Diluted
EPS (3)
|
$ | (0.59 | ) | $ | (5.20 | ) | $ | 0.35 | $ | 0.80 | |||||||||
2008
|
|||||||||||||||||||
Net
sales
|
$ | 587.6 | $ | 490.5 | $ | 528.1 | $ | 503.0 | |||||||||||
Gross
profit (loss)
|
12.7 | (527.9 | ) | (378.4 | ) | 28.4 | |||||||||||||
Net
income (loss) attributable to AAM (2)
|
(27.0 | ) | (644.3 | ) | (440.9 | ) | (112.1 | ) | |||||||||||
Basic
EPS (3)
|
$ | (0.52 | ) | $ | (12.49 | ) | $ | (8.54 | ) | $ | (2.17 | ) | |||||||
Diluted
EPS (3)
|
$ | (0.52 | ) | $ | (12.49 | ) | $ | (8.54 | ) | $ | (2.17 | ) | |||||||
(1)
Net
loss attributable to AAM in the second quarter of 2009 included $172.8
million of charges related to asset impairments, indirect inventory
obsolescence and idled leased assets and a $22.5 million charge related to
acceleration of BDP expense. Net income attributable to AAM in
the third quarter of 2009 included a $42.3 million gain related to the
curtailment of certain pension and other postretirement
benefits. Net income attributable to AAM in the fourth quarter
of 2009 included a $48.8 million income tax benefit for a tax refund claim
related to newly enacted legislation providing for a special 5-year NOL
carryback election.
|
|||||||||||||||||||
(2) Net loss attributable to AAM in the second quarter of
2008 included $329.9 million of charges related to asset impairments,
indirect inventory obsolescence and idled leased assets, $137.3 million of
net charges for hourly workforce and benefit reductions and $54.4 million
of charges related to deferred tax asset write-offs. Net loss
attributable to AAM in the third quarter of 2008 included $255.9 million
of charges related to asset impairments and indirect inventory
obsolescence, $83.7 million in net charges related to hourly workforce and
benefit reductions and a $51.9 million charge for the acceleration of BDP
expense.
|
|||||||||||||||||||
(3) Full
year basic and diluted EPS will not necessarily agree to the sum of the
four quarters because each quarter is a separate
calculation.
|
57
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL
GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – 7.875% NOTES, 5.25%
NOTES AND 2.00% CONVERTIBLE NOTES
Holdings
has no significant asset other than its 100% ownership in AAM, Inc. and no
direct subsidiaries other than AAM, Inc. Holdings fully and unconditionally
guarantees the 7.875% Notes and 5.25% 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
(in
millions)
|
||||||||||||||||||||
2009
|
||||||||||||||||||||
Holdings
|
AAM
Inc.
|
All
Others
|
Elims
|
Consolidated
|
||||||||||||||||
Net
sales
|
||||||||||||||||||||
External
|
$ | - | $ | 514.5 | $ | 1,007.1 | $ | - | $ | 1,521.6 | ||||||||||
Intercompany
|
- | 25.4 | 105.2 | (130.6 | ) | - | ||||||||||||||
Total
net sales
|
- | 539.9 | 1,112.3 | (130.6 | ) | 1,521.6 | ||||||||||||||
Cost
of goods sold
|
- | 656.7 | 1,026.6 | (130.6 | ) | 1,552.7 | ||||||||||||||
Gross
profit (loss)
|
- | (116.8 | ) | 85.7 | - | (31.1 | ) | |||||||||||||
Selling,
general and administrative expenses
|
- | 163.0 | 9.7 | - | 172.7 | |||||||||||||||
Operating
income (loss)
|
- | (279.8 | ) | 76.0 | - | (203.8 | ) | |||||||||||||
Non-operating
income (expense), net
|
- | (95.5 | ) | 2.2 | - | (93.3 | ) | |||||||||||||
Income
(loss) before income taxes
|
- | (375.3 | ) | 78.2 | - | (297.1 | ) | |||||||||||||
Income
tax expense (benefit)
|
- | (59.5 | ) | 15.7 | - | (43.8 | ) | |||||||||||||
Earnings (loss)
from equity in subsidiaries
|
(253.1 | ) | 17.5 | - | 235.6 | - | ||||||||||||||
Net
income (loss) before royalties and dividends
|
(253.1 | ) | (298.3 | ) | 62.5 | 235.6 | (253.3 | ) | ||||||||||||
Royalties
and dividends
|
- | 45.2 | (45.2 | ) | - | - | ||||||||||||||
Net
loss after royalties and dividends
|
(253.1 | ) | (253.1 | ) | 17.3 | 235.6 | (253.3 | ) | ||||||||||||
Net
loss attributable to noncontrolling interest
|
- | - | 0.2 | - | 0.2 | |||||||||||||||
Net
income (loss) attributable to AAM
|
$ | (253.1 | ) | $ | (253.1 | ) | $ | 17.5 | $ | 235.6 | $ | (253.1 | ) | |||||||
|
||||||||||||||||||||
2008
|
Holdings | AAM Inc. | All Others | Elims | Consolidated | |||||||||||||||
Net
sales
|
||||||||||||||||||||
External
|
$ | - | $ | 952.6 | $ | 1,156.6 | $ | - | $ | 2,109.2 | ||||||||||
Intercompany
|
- | 43.1 | 72.5 | (115.6 | ) | - | ||||||||||||||
Total
net sales
|
- | 995.7 | 1,229.1 | (115.6 | ) | 2,109.2 | ||||||||||||||
Cost
of goods sold
|
- | 1,896.4 | 1,193.6 | (115.6 | ) | 2,974.4 | ||||||||||||||
Gross
profit (loss)
|
- | (900.7 | ) | 35.5 | - | (865.2 | ) | |||||||||||||
Selling,
general and administrative expenses
|
- | 181.3 | 4.1 | - | 185.4 | |||||||||||||||
Operating
income (loss)
|
- | (1,082.0 | ) | 31.4 | - | (1,050.6 | ) | |||||||||||||
Non-operating
expense, net
|
- | (65.8 | ) | (4.9 | ) | - | (70.7 | ) | ||||||||||||
Income
(loss) before income taxes
|
- | (1,147.8 | ) | 26.5 | - | (1,121.3 | ) | |||||||||||||
Income
tax expense (benefit)
|
- | 107.3 | (4.0 | ) | - | 103.3 | ||||||||||||||
Loss
from equity in subsidiaries
|
(1,224.3 | ) | (19.2 | ) | - | 1,243.5 | - | |||||||||||||
Net
income (loss) before royalties and dividends
|
(1,224.3 | ) | (1,274.3 | ) | 30.5 | 1,243.5 | (1,224.6 | ) | ||||||||||||
Royalties
and dividends
|
- | 50.0 | (50.0 | ) | - | - | ||||||||||||||
Net
loss after royalties and dividends
|
(1,224.3 | ) | (1,224.3 | ) | (19.5 | ) | 1,243.5 | (1,224.6 | ) | |||||||||||
Net
loss attributable to noncontrolling interest
|
- | - | 0.3 | - | 0.3 | |||||||||||||||
Net
loss attributable to AAM
|
$ | (1,224.3 | ) | $ | (1,224.3 | ) | $ | (19.2 | ) | $ | 1,243.5 | $ | (1,224.3 | ) |
58
2007 | Holdings | AAM Inc. | All Others | Elims | Consolidated | |||||||||||||||
Net
sales
|
||||||||||||||||||||
External
|
$ | - | $ | 2,174.2 | $ | 1,074.0 | $ | - | $ | 3,248.2 | ||||||||||
Intercompany
|
- | 54.1 | 98.7 | (152.8 | ) | - | ||||||||||||||
Total
net sales
|
- | 2,228.3 | 1,172.7 | (152.8 | ) | 3,248.2 | ||||||||||||||
Cost
of goods sold
|
- | 2,089.3 | 1,025.7 | (145.2 | ) | 2,969.8 | ||||||||||||||
Gross
profit
|
- | 139.0 | 147.0 | (7.6 | ) | 278.4 | ||||||||||||||
Selling,
general and administrative expenses
|
- | 194.8 | 15.6 | (7.6 | ) | 202.8 | ||||||||||||||
Operating
income (loss)
|
- | (55.8 | ) | 131.4 | - | 75.6 | ||||||||||||||
Non-operating
expense, net
|
- | (55.6 | ) | (2.4 | ) | - | (58.0 | ) | ||||||||||||
Income
(loss) before income taxes
|
- | (111.4 | ) | 129.0 | - | 17.6 | ||||||||||||||
Income
tax expense (benefit)
|
- | (40.8 | ) | 21.4 | - | (19.4 | ) | |||||||||||||
Earnings
from equity in subsidiaries
|
37.0 | 63.6 | - | (100.6 | ) | - | ||||||||||||||
Net
income (loss) before royalties and dividends
|
37.0 | (7.0 | ) | 107.6 | (100.6 | ) | 37.0 | |||||||||||||
Royalties
and dividends
|
- | 44.0 | (44.0 | ) | - | - | ||||||||||||||
Net
income after royalties and dividends
|
37.0 | 37.0 | 63.6 | (100.6 | ) | 37.0 | ||||||||||||||
Net
income attributable to noncontrolling interest
|
- | - | - | - | - | |||||||||||||||
Net
income attributable to AAM
|
$ | 37.0 | $ | 37.0 | $ | 63.6 | $ | (100.6 | ) | $ | 37.0 |
59
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Balance Sheets
(in
millions)
|
||||||||||||||||||||
2009
|
Holdings
|
AAM
Inc.
|
All
Others
|
Elims
|
Consolidated
|
|||||||||||||||
Assets
|
|
|||||||||||||||||||
Current
assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | - | $ | 80.6 | $ | 97.5 | $ | - | $ | 178.1 | ||||||||||
Short-term investments
|
- | 1.4 | 2.8 | - | 4.2 | |||||||||||||||
Accounts receivable, net
|
- | 10.9 | 118.8 | - | 129.7 | |||||||||||||||
Inventories, net
|
- | 22.8 | 67.8 | - | 90.6 | |||||||||||||||
Other current assets
|
- | 86.4 | 27.6 | - | 114.0 | |||||||||||||||
Total
current assets
|
- | 202.1 | 314.5 | - | 516.6 | |||||||||||||||
Property,
plant and equipment, net
|
- | 272.8 | 673.9 | - | 946.7 | |||||||||||||||
Goodwill
|
- | - | 147.8 | - | 147.8 | |||||||||||||||
Other
assets and deferred charges
|
- | 304.8 | 70.9 | - | 375.7 | |||||||||||||||
Investment
in subsidiaries
|
- | 725.9 | - | (725.9 | ) | - | ||||||||||||||
Total
assets
|
$ | - | $ | 1,505.6 | $ | 1,207.1 | $ | (725.9 | ) | $ | 1,986.8 | |||||||||
Liabilities
and stockholders’ equity (deficit)
|
||||||||||||||||||||
Current
liabilities
|
||||||||||||||||||||
Accounts payable
|
$ | - | $ | 59.4 | $ | 141.5 | $ | - | $ | 200.9 | ||||||||||
Other accrued expenses
|
- | 185.1 | 59.5 | - | 244.6 | |||||||||||||||
Total
current liabilities
|
- | 244.5 | 201.0 | - | 445.5 | |||||||||||||||
Intercompany
payable (receivable)
|
318.8 | (470.1 | ) | 151.3 | - | - | ||||||||||||||
Long-term
debt
|
0.4 | 1,029.4 | 41.6 | - | 1,071.4 | |||||||||||||||
Investment
in subsidiaries obligation
|
241.0 | - | - | (241.0 | ) | - | ||||||||||||||
Other
long-term liabilities
|
- | 942.8 | 87.0 | - | 1,029.8 | |||||||||||||||
Total
liabilities
|
560.2 | 1,746.6 | 480.9 | (241.0 | ) | 2,546.7 | ||||||||||||||
Total
AAM Stockholders’ equity (deficit)
|
(560.2 | ) | (241.0 | ) | 725.9 | (484.9 | ) | (560.2 | ) | |||||||||||
Noncontrolling
interests in subsidiaries
|
- | - | 0.3 | - | 0.3 | |||||||||||||||
Total
stockholders’ equity (deficit)
|
(560.2 | ) | (241.0 | ) | 726.2 | (484.9 | ) | (559.9 | ) | |||||||||||
Total
liabilities and stockholders’ equity (deficit)
|
$ | - | $ | 1,505.6 | $ | 1,207.1 | $ | (725.9 | ) | $ | 1,986.8 | |||||||||
2008
|
||||||||||||||||||||
Holdings
|
AAM
Inc.
|
All
Others
|
Elims
|
Consolidated
|
||||||||||||||||
Assets
|
||||||||||||||||||||
Current
assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | - | $ | 54.6 | $ | 144.2 | $ | - | $ | 198.8 | ||||||||||
Short-term investments
|
- | 10.6 | 66.5 | - | 77.1 | |||||||||||||||
Accounts receivable, net
|
- | 81.1 | 105.8 | - | 186.9 | |||||||||||||||
2008 AAM-GM Agreement receivable
|
- | 60.0 | - | - | 60.0 | |||||||||||||||
Inventories, net
|
- | 18.8 | 92.6 | - | 111.4 | |||||||||||||||
Other current assets
|
- | 29.7 | 31.4 | - | 61.1 | |||||||||||||||
Total
current assets
|
- | 254.8 | 440.5 | - | 695.3 | |||||||||||||||
Property,
plant and equipment, net
|
- | 393.8 | 670.4 | - | 1,064.2 | |||||||||||||||
Goodwill
|
- | - | 147.8 | - | 147.8 | |||||||||||||||
Other
assets and deferred charges
|
- | 295.7 | 44.7 | - | 340.4 | |||||||||||||||
Investment
in subsidiaries
|
- | 678.4 | - | (678.4 | ) | - | ||||||||||||||
Total
assets
|
$ | - | $ | 1,622.7 | $ | 1,303.4 | $ | (678.4 | ) | $ | 2,247.7 | |||||||||
Liabilities
and stockholders’ equity (deficit)
|
||||||||||||||||||||
Current
liabilities
|
||||||||||||||||||||
Accounts payable
|
$ | - | $ | 121.7 | $ | 129.2 | $ | - | $ | 250.9 | ||||||||||
Other accrued expenses
|
- | 194.7 | 72.1 | - | 266.8 | |||||||||||||||
Total
current liabilities
|
- | 316.4 | 201.3 | - | 517.7 | |||||||||||||||
Intercompany
payable (receivable)
|
316.6 | (624.3 | ) | 307.7 | - | - | ||||||||||||||
Long-term
debt
|
0.4 | 1,094.9 | 44.6 | - | 1,139.9 | |||||||||||||||
Investment
in subsidiaries obligation
|
118.7 | - | - | (118.7 | ) | - | ||||||||||||||
Other
long-term liabilities
|
- | 954.4 | 71.2 | - | 1,025.6 | |||||||||||||||
Total
liabilities
|
435.7 | 1,741.4 | 624.8 | (118.7 | ) | 2,683.2 | ||||||||||||||
Total
AAM Stockholders’ equity (deficit)
|
(435.7 | ) | (118.7 | ) | 678.4 | (559.7 | ) | (435.7 | ) | |||||||||||
Noncontrolling
interests in subsidiaries
|
- | - | 0.2 | - | 0.2 | |||||||||||||||
Total
stockholders’ equity (deficit)
|
(435.7 | ) | (118.7 | ) | 678.6 | (559.7 | ) | (435.5 | ) | |||||||||||
Total
liabilities and stockholders’ equity (deficit)
|
$ | - | $ | 1,622.7 | $ | 1,303.4 | $ | (678.4 | ) | $ | 2,247.7 | |||||||||
60
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Statements of Cash Flows
(in
millions)
|
||||||||||||||||||||
2009
|
||||||||||||||||||||
Holdings
|
AAM
Inc.
|
All
Others
|
Elims
|
Consolidated
|
||||||||||||||||
Net
cash provided by (used in) operating activities
|
$ | - | $ | (160.1 | ) | $ | 176.0 | $ | - | $ | 15.9 | |||||||||
Investing
activities
|
||||||||||||||||||||
Purchases
of property, plant and equipment
|
- | (54.7 | ) | (86.8 | ) | - | (141.5 | ) | ||||||||||||
Redemption
of short-term investments
|
- | 7.9 | 63.7 | - | 71.6 | |||||||||||||||
Investment
in joint venture
|
- | - | (10.2 | ) | - | (10.2 | ) | |||||||||||||
Other
investing activities
|
- | 0.8 | 4.7 | - | 5.5 | |||||||||||||||
Net
cash used in investing activities
|
- | (46.0 | ) | (28.6 | ) | - | (74.6 | ) | ||||||||||||
Financing
activities
|
||||||||||||||||||||
Net
debt activity
|
- | (65.4 | ) | (9.7 | ) | - | (75.1 | ) | ||||||||||||
Intercompany
activity
|
(139.1 | ) | 329.4 | (190.3 | ) | - | - | |||||||||||||
Debt
issuance costs
|
- | (32.9 | ) | - | - | (32.9 | ) | |||||||||||||
Proceeds
from issuance of common stock
|
109.7 | 109.7 | ||||||||||||||||||
Proceeds
from issuance of warrants to GM
|
30.3 | - | - | - | 30.3 | |||||||||||||||
Employee
stock option exercises, including tax benefit
|
1.0 | - | - | 1.0 | ||||||||||||||||
Purchase
of treasury stock
|
(0.9 | ) | - | - | - | (0.9 | ) | |||||||||||||
Net
cash provided by (used in) financing activities
|
- | 232.1 | (200.0 | ) | - | 32.1 | ||||||||||||||
Effect
of exchange rate changes on cash
|
- | - | 5.9 | - | 5.9 | |||||||||||||||
Net
increase (decrease) in cash and cash equivalents
|
- | 26.0 | (46.7 | ) | - | (20.7 | ) | |||||||||||||
Cash
and cash equivalents at beginning of period
|
- | 54.6 | 144.2 | - | 198.8 | |||||||||||||||
Cash
and cash equivalents at end of period
|
$ | - | $ | 80.6 | $ | 97.5 | $ | - | $ | 178.1 | ||||||||||
2008
|
||||||||||||||||||||
Holdings
|
AAM
Inc.
|
All
Others
|
Elims
|
Consolidated
|
||||||||||||||||
Net
cash provided by (used in) operating activities
|
$ | - | $ | (329.7 | ) | $ | 166.6 | $ | - | $ | (163.1 | ) | ||||||||
Investing
activities
|
||||||||||||||||||||
Purchases
of property, plant and equipment
|
- | (54.5 | ) | (85.7 | ) | - | (140.2 | ) | ||||||||||||
Change
in short-term investments
|
- | (10.6 | ) | (66.5 | ) | - | (77.1 | ) | ||||||||||||
Proceeds
from sale of property, plant and equipment
|
- | 2.1 | 1.3 | - | 3.4 | |||||||||||||||
Other
investing activities
|
- | (10.7 | ) | (7.1 | ) | - | (17.8 | ) | ||||||||||||
Net
cash used in investing activities
|
- | (73.7 | ) | (158.0 | ) | - | (231.7 | ) | ||||||||||||
Financing
activities
|
||||||||||||||||||||
Net
debt activity
|
(2.3 | ) | 295.0 | (7.3 | ) | - | 285.4 | |||||||||||||
Intercompany
activity
|
20.7 | (48.0 | ) | 27.3 | - | - | ||||||||||||||
Debt
issuance costs
|
- | (13.4 | ) | - | - | (13.4 | ) | |||||||||||||
Payment
of dividends
|
(18.3 | ) | - | - | - | (18.3 | ) | |||||||||||||
Employee
stock option exercises, including tax benefit
|
- | 0.9 | - | - | 0.9 | |||||||||||||||
Purchase
of treasury stock
|
(0.1 | ) | - | - | - | (0.1 | ) | |||||||||||||
Net
cash provided by financing activities
|
- | 234.5 | 20.0 | - | 254.5 | |||||||||||||||
Effect
of exchange rate changes on cash
|
- | - | (4.5 | ) | - | (4.5 | ) | |||||||||||||
Net
increase (decrease) in cash and cash equivalents
|
- | (168.9 | ) | 24.1 | - | (144.8 | ) | |||||||||||||
Cash
and cash equivalents at beginning of period
|
- | 223.5 | 120.1 | - | 343.6 | |||||||||||||||
Cash
and cash equivalents at end of period
|
$ | - | $ | 54.6 | $ | 144.2 | $ | - | $ | 198.8 |
61
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2007
|
Holdings
|
AAM
Inc.
|
All
Others
|
Elims
|
Consolidated
|
|||||||||||||||
Net
cash provided by operating activities
|
$ | - | $ | 136.2 | $ | 231.7 | $ | - | $ | 367.9 | ||||||||||
Investing
activities
|
||||||||||||||||||||
Purchases
of property, plant and equipment
|
- | (51.6 | ) | (134.9 | ) | - | (186.5 | ) | ||||||||||||
Net
cash used in investing activities
|
- | (51.6 | ) | (134.9 | ) | - | (186.5 | ) | ||||||||||||
Financing
activities
|
||||||||||||||||||||
Net
debt activity
|
- | 164.0 | 8.3 | - | 172.3 | |||||||||||||||
Intercompany
activity
|
33.8 | (35.4 | ) | 1.6 | - | - | ||||||||||||||
Debt
issuance costs
|
- | (7.5 | ) | - | - | (7.5 | ) | |||||||||||||
Payment
of dividends
|
(31.8 | ) | - | - | - | (31.8 | ) | |||||||||||||
Employee
stock option exercises,
|
||||||||||||||||||||
including
tax benefit
|
- | 17.3 | - | - | 17.3 | |||||||||||||||
Purchase
of treasury stock
|
(2.0 | ) | - | - | - | (2.0 | ) | |||||||||||||
Net
cash provided by financing activities
|
- | 138.4 | 9.9 | - | 148.3 | |||||||||||||||
Effect
of exchange rate changes on cash
|
- | - | 0.4 | - | 0.4 | |||||||||||||||
Net
increase in cash and cash equivalents
|
- | 223.0 | 107.1 | - | 330.1 | |||||||||||||||
Cash
and cash equivalents at beginning of period
|
- | 0.5 | 13.0 | - | 13.5 | |||||||||||||||
Cash
and cash equivalents at end of period
|
$ | - | $ | 223.5 | $ | 120.1 | $ | - | $ | 343.6 |
62
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUPPLEMENTAL
GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – 9.25%
NOTES
Holdings
has no significant asset other than its 100% ownership in AAM, Inc. and no
direct subsidiaries other then AAM, Inc. The 9.25% Notes are senior
secured obligations of AAM Inc. and are fully and unconditionally guaranteed by
Holdings and all domestic subsidiaries of 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
(in
millions)
|
||||||||||||||||||||||||
2009
|
||||||||||||||||||||||||
Holdings
|
AAM
Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Elims
|
Consolidated
|
|||||||||||||||||||
Net
sales
|
||||||||||||||||||||||||
External
|
$ | - | $ | 514.5 | $ | 142.3 | $ | 864.8 | $ | - | $ | 1,521.6 | ||||||||||||
Intercompany
|
- | 25.4 | 92.9 | 12.3 | (130.6 | ) | - | |||||||||||||||||
Total
net sales
|
- | 539.9 | 235.2 | 877.1 | (130.6 | ) | 1,521.6 | |||||||||||||||||
Cost
of goods sold
|
- | 656.7 | 271.8 | 754.8 | (130.6 | ) | 1,552.7 | |||||||||||||||||
Gross
profit (loss)
|
- | (116.8 | ) | (36.6 | ) | 122.3 | - | (31.1 | ) | |||||||||||||||
Selling,
general and administrative expenses
|
- | 163.0 | - | 9.7 | - | 172.7 | ||||||||||||||||||
Operating
income (loss)
|
- | (279.8 | ) | (36.6 | ) | 112.6 | - | (203.8 | ) | |||||||||||||||
Non-operating
income (expense), net
|
- | (95.5 | ) | 2.9 | (0.7 | ) | - | (93.3 | ) | |||||||||||||||
Income
(loss) before income taxes
|
- | (375.3 | ) | (33.7 | ) | 111.9 | - | (297.1 | ) | |||||||||||||||
Income
tax expense (benefit)
|
- | (59.5 | ) | 0.2 | 15.5 | - | (43.8 | ) | ||||||||||||||||
Earnings
(loss) from equity in subsidiaries
|
(253.1 | ) | 17.5 | (49.9 | ) | - | 285.5 | - | ||||||||||||||||
Net
income (loss) before royalties and dividends
|
(253.1 | ) | (298.3 | ) | (83.8 | ) | 96.4 | 285.5 | (253.3 | ) | ||||||||||||||
Royalties
and dividends
|
- | 45.2 | - | (45.2 | ) | - | - | |||||||||||||||||
Net
income (loss) after royalties and dividends
|
(253.1 | ) | (253.1 | ) | (83.8 | ) | 51.2 | 285.5 | (253.3 | ) | ||||||||||||||
Net
loss attributable to noncontrolling interest
|
- | - | - | 0.2 | - | 0.2 | ||||||||||||||||||
Net
income (loss) attributable to AAM
|
$ | (253.1 | ) | $ | (253.1 | ) | $ | (83.8 | ) | $ | 51.4 | $ | 285.5 | $ | (253.1 | ) | ||||||||
2008
|
Holdings
|
AAM
Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Elims
|
Consolidated
|
||||||||||||||||||
Net
sales
|
||||||||||||||||||||||||
External
|
$ | - | $ | 952.6 | $ | 148.6 | $ | 1,008.0 | $ | - | $ | 2,109.2 | ||||||||||||
Intercompany
|
- | 43.1 | 64.8 | 7.7 | (115.6 | ) | - | |||||||||||||||||
Total
net sales
|
- | 995.7 | 213.4 | 1,015.7 | (115.6 | ) | 2,109.2 | |||||||||||||||||
Cost
of goods sold
|
- | 1,896.4 | 292.6 | 901.0 | (115.6 | ) | 2,974.4 | |||||||||||||||||
Gross
profit (loss)
|
- | (900.7 | ) | (79.2 | ) | 114.7 | - | (865.2 | ) | |||||||||||||||
Selling,
general and administrative expenses
|
- | 181.3 | - | 4.1 | - | 185.4 | ||||||||||||||||||
Operating
income (loss)
|
- | (1,082.0 | ) | (79.2 | ) | 110.6 | - | (1,050.6 | ) | |||||||||||||||
Non-operating expense,
net
|
- | (65.8 | ) | (0.4 | ) | (4.5 | ) | - | (70.7 | ) | ||||||||||||||
Income
(loss) before income taxes
|
- | (1,147.8 | ) | (79.6 | ) | 106.1 | - | (1,121.3 | ) | |||||||||||||||
Income
tax expense (benefit)
|
- | 107.3 | (21.5 | ) | 17.5 | - | 103.3 | |||||||||||||||||
Loss
from equity in subsidiaries
|
(1,224.3 | ) | (19.2 | ) | (48.7 | ) | - | 1,292.2 | - | |||||||||||||||
Net
income (loss) before royalties and dividends
|
(1,224.3 | ) | (1,274.3 | ) | (106.8 | ) | 88.6 | 1,292.2 | (1,224.6 | ) | ||||||||||||||
Royalties
and dividends
|
- | 50.0 | - | (50.0 | ) | - | - | |||||||||||||||||
Net
loss after royalties and dividends
|
(1,224.3 | ) | (1,224.3 | ) | (106.8 | ) | 38.6 | 1,292.2 | (1,224.6 | ) | ||||||||||||||
Net
loss attributable to noncontrolling interest
|
- | - | - | 0.3 | - | 0.3 | ||||||||||||||||||
Net
loss attributable to AAM
|
$ | (1,224.3 | ) | $ | (1,224.3 | ) | $ | (106.8 | ) | $ | 38.9 | $ | 1,292.2 | $ | (1,224.3 | ) |
63
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2007
|
Holdings | AAM Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Elims | Consolidated | ||||||||||||||||||
Net
sales
|
||||||||||||||||||||||||
External
|
$ | - | $ | 2,174.2 | $ | 174.0 | $ | 900.0 | $ | - | $ | 3,248.2 | ||||||||||||
Intercompany
|
- | 54.1 | 70.4 | 28.3 | (152.8 | ) | - | |||||||||||||||||
Total
net sales
|
- | 2,228.3 | 244.4 | 928.3 | (152.8 | ) | 3,248.2 | |||||||||||||||||
Cost
of goods sold
|
- | 2,089.3 | 235.5 | 790.2 | (145.2 | ) | 2,969.8 | |||||||||||||||||
Gross
profit
|
- | 139.0 | 8.9 | 138.1 | (7.6 | ) | 278.4 | |||||||||||||||||
Selling,
general and administrative expenses
|
- | 194.8 | - | 15.6 | (7.6 | ) | 202.8 | |||||||||||||||||
Operating
income (loss)
|
- | (55.8 | ) | 8.9 | 122.5 | - | 75.6 | |||||||||||||||||
Non-operating expense,
net
|
- | (55.6 | ) | (0.1 | ) | (2.3 | ) | - | (58.0 | ) | ||||||||||||||
Income
(loss) before income taxes
|
- | (111.4 | ) | 8.8 | 120.2 | - | 17.6 | |||||||||||||||||
Income
tax expense (benefit)
|
- | (40.8 | ) | 20.8 | 0.6 | - | (19.4 | ) | ||||||||||||||||
Earnings
(loss) from equity in subsidiaries
|
37.0 | 63.6 | (17.3 | ) | - | (83.3 | ) | - | ||||||||||||||||
Net
income (loss) before royalties and dividends
|
37.0 | (7.0 | ) | (29.3 | ) | 119.6 | (83.3 | ) | 37.0 | |||||||||||||||
Royalties
and dividends
|
- | 44.0 | - | (44.0 | ) | - | - | |||||||||||||||||
Net
income (loss) after royalties and dividends
|
37.0 | 37.0 | (29.3 | ) | 75.6 | (83.3 | ) | 37.0 | ||||||||||||||||
Net
income attributable to noncontrolling interest
|
- | - | - | - | - | - | ||||||||||||||||||
Net
income (loss) attributable to AAM
|
$ | 37.0 | $ | 37.0 | $ | (29.3 | ) | $ | 75.6 | $ | (83.3 | ) | $ | 37.0 |
64
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Balance Sheets
(in
millions)
|
||||||||||||||||||||||||
2009
|
Holdings
|
AAM
Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Elims
|
Consolidated
|
||||||||||||||||||
Assets
|
|
|||||||||||||||||||||||
Current
assets
|
||||||||||||||||||||||||
Cash and cash equivalents
|
$ | - | $ | 80.6 | $ | 1.9 | $ | 95.6 | $ | - | $ | 178.1 | ||||||||||||
Short-term investments
|
- | 1.4 | - | 2.8 | - | 4.2 | ||||||||||||||||||
Accounts receivable, net
|
- | 10.9 | 27.5 | 91.3 | - | 129.7 | ||||||||||||||||||
Inventories, net
|
- | 22.8 | 16.8 | 51.0 | - | 90.6 | ||||||||||||||||||
Other current assets
|
- | 86.4 | 1.4 | 26.2 | - | 114.0 | ||||||||||||||||||
Total
current assets
|
- | 202.1 | 47.6 | 266.9 | - | 516.6 | ||||||||||||||||||
Property,
plant and equipment, net
|
- | 272.8 | 101.2 | 572.7 | - | 946.7 | ||||||||||||||||||
Goodwill
|
- | - | 147.8 | - | - | 147.8 | ||||||||||||||||||
Other
assets and deferred charges
|
- | 304.8 | 14.5 | 56.4 | - | 375.7 | ||||||||||||||||||
Investment
in subsidiaries
|
- | 725.9 | 13.4 | - | (739.3 | ) | - | |||||||||||||||||
Total
assets
|
$ | - | $ | 1,505.6 | $ | 324.5 | $ | 896.0 | $ | (739.3 | ) | $ | 1,986.8 | |||||||||||
Liabilities
and stockholders’ equity (deficit)
|
||||||||||||||||||||||||
Current
liabilities
|
||||||||||||||||||||||||
Accounts payable
|
$ | - | $ | 59.4 | $ | 26.0 | $ | 115.5 | $ | - | $ | 200.9 | ||||||||||||
Other accrued expenses
|
- | 185.1 | 3.7 | 55.8 | - | 244.6 | ||||||||||||||||||
Total
current liabilities
|
- | 244.5 | 29.7 | 171.3 | - | 445.5 | ||||||||||||||||||
Intercompany
payable (receivable)
|
318.8 | (470.1 | ) | 262.7 | (111.4 | ) | - | - | ||||||||||||||||
Long-term
debt
|
0.4 | 1,029.4 | 6.3 | 35.3 | - | 1,071.4 | ||||||||||||||||||
Investment
in subsidiaries obligation
|
241.0 | - | - | (241.0 | ) | - | ||||||||||||||||||
Other
long-term liabilities
|
- | 942.8 | 0.7 | 86.3 | - | 1,029.8 | ||||||||||||||||||
Total
liabilities
|
560.2 | 1,746.6 | 299.4 | 181.5 | (241.0 | ) | 2,546.7 | |||||||||||||||||
Total
AAM Stockholders’ equity (deficit)
|
(560.2 | ) | (241.0 | ) | 25.1 | 714.2 | (498.3 | ) | (560.2 | ) | ||||||||||||||
Noncontrolling
interests in subsidiaries
|
- | - | - | 0.3 | - | 0.3 | ||||||||||||||||||
Total
stockholders’ equity (deficit)
|
(560.2 | ) | (241.0 | ) | 25.1 | 714.5 | (498.3 | ) | (559.9 | ) | ||||||||||||||
Total
liabilities and stockholders’ equity (deficit)
|
$ | - | $ | 1,505.6 | $ | 324.5 | $ | 896.0 | $ | (739.3 | ) | $ | 1,986.8 | |||||||||||
2008
|
||||||||||||||||||||||||
Holdings
|
AAM
Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Elims
|
Consolidated
|
|||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Current
assets
|
||||||||||||||||||||||||
Cash and cash equivalents
|
$ | - | $ | 54.6 | $ | - | $ | 144.2 | $ | - | $ | 198.8 | ||||||||||||
Short-term investments
|
- | 10.6 | - | 66.5 | - | 77.1 | ||||||||||||||||||
Accounts receivable, net
|
- | 81.1 | 18.6 | 87.2 | - | 186.9 | ||||||||||||||||||
2008 AAM-GM Agreement receivable
|
- | 60.0 | - | - | - | 60.0 | ||||||||||||||||||
Inventories, net
|
- | 18.8 | 22.1 | 70.5 | - | 111.4 | ||||||||||||||||||
Other current assets
|
- | 29.7 | 7.9 | 23.5 | - | 61.1 | ||||||||||||||||||
Total
current assets
|
- | 254.8 | 48.6 | 391.9 | - | 695.3 | ||||||||||||||||||
Property,
plant and equipment, net
|
- | 393.8 | 110.1 | 560.3 | - | 1,064.2 | ||||||||||||||||||
Goodwill
|
- | - | 147.8 | - | - | 147.8 | ||||||||||||||||||
Other
assets and deferred charges
|
- | 295.7 | - | 44.7 | - | 340.4 | ||||||||||||||||||
Investment
in subsidiaries
|
- | 678.4 | 20.7 | - | (699.1 | ) | - | |||||||||||||||||
Total
assets
|
$ | - | $ | 1,622.7 | $ | 327.2 | $ | 996.9 | $ | (699.1 | ) | $ | 2,247.7 | |||||||||||
Liabilities
and stockholders’ equity (deficit)
|
||||||||||||||||||||||||
Current
liabilities
|
||||||||||||||||||||||||
Accounts payable
|
$ | - | $ | 121.7 | $ | 29.5 | $ | 99.7 | $ | - | $ | 250.9 | ||||||||||||
Other accrued expenses
|
- | 194.7 | 10.1 | 62.0 | - | 266.8 | ||||||||||||||||||
Total
current liabilities
|
- | 316.4 | 39.6 | 161.7 | - | 517.7 | ||||||||||||||||||
Intercompany
payable (receivable)
|
316.6 | (624.3 | ) | 192.8 | 114.9 | - | - | |||||||||||||||||
Long-term
debt
|
0.4 | 1,094.9 | 6.5 | 38.1 | - | 1,139.9 | ||||||||||||||||||
Investment
in subsidiaries obligation
|
118.7 | - | - | - | (118.7 | ) | - | |||||||||||||||||
Other
long-term liabilities
|
- | 954.4 | 0.8 | 70.4 | - | 1,025.6 | ||||||||||||||||||
Total
liabilities
|
435.7 | 1,741.4 | 239.7 | 385.1 | (118.7 | ) | 2,683.2 | |||||||||||||||||
Total
AAM Stockholders’ equity (deficit)
|
(435.7 | ) | (118.7 | ) | 87.5 | 611.6 | (580.4 | ) | (435.7 | ) | ||||||||||||||
Noncontrolling
interests in subsidiaries
|
- | - | - | 0.2 | - | 0.2 | ||||||||||||||||||
Total
stockholders’ equity (deficit)
|
(435.7 | ) | (118.7 | ) | 87.5 | 611.8 | (580.4 | ) | (435.5 | ) | ||||||||||||||
Total
liabilities and stockholders’ equity (deficit)
|
$ | - | $ | 1,622.7 | $ | 327.2 | $ | 996.9 | $ | (699.1 | ) | $ | 2,247.7 | |||||||||||
65
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed
Consolidating Statements of Cash Flows
(in
millions)
|
||||||||||||||||||||||||
2009
|
Holdings
|
AAM
Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Elims
|
Consolidated
|
||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$ | - | $ | (160.1 | ) | $ | 15.6 | $ | 160.4 | $ | - | $ | 15.9 | |||||||||||
Investing
activities
|
||||||||||||||||||||||||
Purchases
of property, plant and equipment
|
- | (54.7 | ) | (26.3 | ) | (60.5 | ) | - | (141.5 | ) | ||||||||||||||
Redemption
of short-term investments
|
- | 7.9 | - | 63.7 | - | 71.6 | ||||||||||||||||||
Investment
in joint venture
|
- | - | (10.2 | ) | - | - | (10.2 | ) | ||||||||||||||||
Other
investing activities
|
- | 0.8 | 0.3 | 4.4 | - | 5.5 | ||||||||||||||||||
Net
cash provided by (used in) investing activities
|
- | (46.0 | ) | (36.2 | ) | 7.6 | - | (74.6 | ) | |||||||||||||||
Financing
activities
|
||||||||||||||||||||||||
Net
debt activity
|
- | (65.4 | ) | (0.2 | ) | (9.5 | ) | - | (75.1 | ) | ||||||||||||||
Intercompany
activity
|
(139.1 | ) | 329.4 | 22.7 | (213.0 | ) | - | - | ||||||||||||||||
Debt
issuance costs
|
- | (32.9 | ) | - | - | - | (32.9 | ) | ||||||||||||||||
Proceeds
from issuance of common stock
|
109.7 | - | - | - | - | 109.7 | ||||||||||||||||||
Proceeds
from issuance of warrants to GM
|
30.3 | - | - | - | - | 30.3 | ||||||||||||||||||
Employee
stock option exercises,
|
||||||||||||||||||||||||
including
tax benefit
|
- | 1.0 | - | - | - | 1.0 | ||||||||||||||||||
Purchase
of treasury stock
|
(0.9 | ) | - | - | - | - | (0.9 | ) | ||||||||||||||||
Net
cash provided by (used in) financing activities
|
- | 232.1 | 22.5 | (222.5 | ) | - | 32.1 | |||||||||||||||||
Effect
of exchange rate changes on cash
|
- | - | - | 5.9 | - | 5.9 | ||||||||||||||||||
Net
increase (decrease) in cash and cash equivalents
|
- | 26.0 | 1.9 | (48.6 | ) | - | (20.7 | ) | ||||||||||||||||
Cash
and cash equivalents at beginning of period
|
- | 54.6 | - | 144.2 | - | 198.8 | ||||||||||||||||||
Cash
and cash equivalents at end of period
|
$ | - | $ | 80.6 | $ | 1.9 | $ | 95.6 | $ | - | $ | 178.1 | ||||||||||||
2008
|
Holdings
|
AAM
Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Elims
|
Consolidated
|
||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$ | - | $ | (329.7 | ) | $ | 25.3 | $ | 141.3 | $ | - | $ | (163.1 | ) | ||||||||||
Investing
activities
|
||||||||||||||||||||||||
Purchases
of property, plant and equipment
|
- | (54.5 | ) | (1.0 | ) | (84.7 | ) | - | (140.2 | ) | ||||||||||||||
Change
in short-term investments
|
- | (10.6 | ) | - | (66.5 | ) | - | (77.1 | ) | |||||||||||||||
Proceeds
from sale of property, plant and
equipment
|
- | 2.1 | - | 1.3 | - | 3.4 | ||||||||||||||||||
Other
investing activities
|
- | (10.7 | ) | - | (7.1 | ) | - | (17.8 | ) | |||||||||||||||
Net
cash used in investing activities
|
- | (73.7 | ) | (1.0 | ) | (157.0 | ) | - | (231.7 | ) | ||||||||||||||
Financing
activities
|
||||||||||||||||||||||||
Net
debt activity
|
(2.3 | ) | 295.0 | (0.2 | ) | (7.1 | ) | - | 285.4 | |||||||||||||||
Intercompany
activity
|
20.7 | (48.0 | ) | (24.1 | ) | 51.4 | - | - | ||||||||||||||||
Debt
issuance costs
|
- | (13.4 | ) | - | - | - | (13.4 | ) | ||||||||||||||||
Payment
of dividends
|
(18.3 | ) | - | - | - | - | (18.3 | ) | ||||||||||||||||
Employee
stock option exercises, including tax benefit
|
- | 0.9 | - | - | - | 0.9 | ||||||||||||||||||
Purchase
of treasury stock
|
(0.1 | ) | - | - | - | - | (0.1 | ) | ||||||||||||||||
Net
cash provided by (used in) financing activities
|
- | 234.5 | (24.3 | ) | 44.3 | - | 254.5 | |||||||||||||||||
Effect
of exchange rate changes on cash
|
- | - | - | (4.5 | ) | - | (4.5 | ) | ||||||||||||||||
Net
increase (decrease) in cash and cash equivalents
|
- | (168.9 | ) | - | 24.1 | - | (144.8 | ) | ||||||||||||||||
Cash
and cash equivalents at beginning of period
|
- | 223.5 | - | 120.1 | - | 343.6 | ||||||||||||||||||
Cash
and cash equivalents at end of period
|
$ | - | $ | 54.6 | $ | - | $ | 144.2 | $ | - | $ | 198.8 |
66
AMERICAN
AXLE & MANUFACTURING HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2007
|
Holdings
|
AAM
Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Elims
|
Consolidated
|
||||||||||||||||||
Net
cash provided by operating activities
|
$ | - | $ | 136.2 | $ | 12.6 | $ | 219.1 | $ | - | $ | 367.9 | ||||||||||||
Investing
activities
|
||||||||||||||||||||||||
Purchases
of property, plant and equipment
|
- | (51.6 | ) | (13.3 | ) | (121.6 | ) | - | (186.5 | ) | ||||||||||||||
Net
cash used in investing activities
|
- | (51.6 | ) | (13.3 | ) | (121.6 | ) | - | (186.5 | ) | ||||||||||||||
Financing
activities
|
||||||||||||||||||||||||
Net
debt activity
|
- | 164.0 | (0.1 | ) | 8.4 | - | 172.3 | |||||||||||||||||
Intercompany
activity
|
33.8 | (35.4 | ) | 0.8 | 0.8 | - | - | |||||||||||||||||
Debt
issuance costs
|
- | (7.5 | ) | - | - | - | (7.5 | ) | ||||||||||||||||
Payment
of dividends
|
(31.8 | ) | - | - | - | - | (31.8 | ) | ||||||||||||||||
Employee
stock option exercises,
|
||||||||||||||||||||||||
including
tax benefit
|
- | 17.3 | - | - | - | 17.3 | ||||||||||||||||||
Purchase
of treasury stock
|
(2.0 | ) | - | - | - | - | (2.0 | ) | ||||||||||||||||
Net
cash provided by financing activities
|
- | 138.4 | 0.7 | 9.2 | - | 148.3 | ||||||||||||||||||
Effect
of exchange rate changes on cash
|
- | - | - | 0.4 | - | 0.4 | ||||||||||||||||||
Net
increase in cash and cash equivalents
|
- | 223.0 | - | 107.1 | - | 330.1 | ||||||||||||||||||
Cash
and cash equivalents at beginning of period
|
- | 0.5 | - | 13.0 | - | 13.5 | ||||||||||||||||||
Cash
and cash equivalents at end of period
|
$ | - | $ | 223.5 | $ | - | $ | 120.1 | $ | - | $ | 343.6 |
67
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of American Axle & Manufacturing
Holdings, Inc.:
Detroit,
Michigan
We have
audited the accompanying consolidated balance sheets of American Axle &
Manufacturing Holdings, Inc. and subsidiaries (the "Company") as of December 31,
2009 and 2008, and the related statements of operations, stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial statement schedule
listed in the Index at Item 15. We also have audited the
Company's internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule and an opinion on the Company's internal control
over financial reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2009 and 2008, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein. Also, in
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/
DELOITTE & TOUCHE LLP
Detroit,
Michigan
February
22, 2010
68
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer,
we evaluated our disclosure controls and procedures and internal control over
financial reporting and concluded that 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 December 31, 2009.
Management
Report on Internal Control over Financial Reporting
We
are responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to
provide reasonable assurance to our management and Board of Directors regarding
the preparation and fair presentation of our consolidated financial
statements.
Our management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making the assessment, we used
the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our assessment, management concluded
that, as of December 31, 2009, our internal control over financial reporting is
effective based on those criteria.
The attestation report of our independent registered public accounting firm
regarding internal control over financial reporting is included in Item 8 –
“Financial Statements and Supplementary Data.”
Change
in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that
occurred during the fourth fiscal quarter ended December 31, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information
None
69
Item 10. Directors, Executive Officers and Corporate
Governance
The information required by Item
401(b), (d) (e) and (f) of Regulation S-K about our executive officers is
furnished in Part I of this Form 10-K, Annual Report under the caption
“Executive Officers of the Registrant.” All other information required by Item
10 is incorporated herein by reference from our Proxy Statement which we expect
to file on or about March 19, 2010.
We have adopted a code of ethics
that applies to our Chief Executive Officer, Chief Administrative Officer and
Chief Financial Officer and the senior financial executives who report directly
to our Chief Financial Officer. This code of ethics is available on
our website at www.aam.com.
We will post on our website any amendment to or waiver from the
provisions of the code of ethics or our code of business conduct that applies to
executive officers or directors of the Company.
Item 11. Executive Compensation
The information required by Item 11 is
incorporated by reference from our Proxy Statement.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The information required by Item 12 is
incorporated by reference from our Proxy Statement.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
The
information required by Item 13 under Items 404 and 407(a) of Regulation S-K is
incorporated by reference from our Proxy Statement.
Item 14. Principal Accounting Fees and
Services
The information required by Item 8(e)
of Schedule 14A is incorporated by reference from our Proxy
Statement.
70
Item 15. Exhibits and Financial Statement
Schedules
The
following documents are filed as a part of this report:
1.
|
All
Financial Statements
|
Consolidated
Statements of Operations
Consolidated
Balance Sheets
Consolidated
Statements of Cash Flows
Consolidated
Statements of Stockholders’ Equity (Deficit)
Notes to
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2.
|
Financial
Statement Schedules
|
Schedule
II – Valuation and Qualifying Accounts for the years ended December 31, 2009,
2008 and 2007 are filed as part of this Form 10-K.
All other
schedules have been omitted because they are not applicable or not
required.
3.
|
Exhibits
|
The
following exhibits were previously filed unless otherwise
indicated:
Number Description of
Exhibit
3.01
|
Amended
and Restated Certificate of
Incorporation
|
(Incorporated
by reference to Exhibit 3.01 filed with American Axle & Manufacturing
Holdings, Inc. Registration Statement on Form S-1 (Registration No.
333-53491))
*3.02
|
Amended
and Restated Bylaws of American Axle & Manufacturing
Inc.
|
4.01
|
Specimen
Certificate for shares of the Company’s Common
Stock
|
|
(Incorporated
by reference to Exhibit 4.01 filed with American Axle & Manufacturing
Holdings, Inc. Registration Statement on Form S-1 (Registration No.
333-53491))
|
4.02
|
5.25%
Senior Notes due 2014, Indenture, dated as of February 11, 2004, among
AAM, Inc., as issuer, the Company, as guarantor, and BNY Midwest Trust
Company, as trustee
|
|
(Incorporated
by reference to Exhibit 4.02 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31,
2003)
|
4.03
|
Senior
Convertible Notes due 2024, Indenture, dated as of February 11, 2004,
among the Company, as issuer, AAM, Inc., as guarantor, and BNY Midwest
Trust Company, as trustee
|
|
(Incorporated
by reference to Exhibit 4.03 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31,
2003)
|
4.04
|
7.875%
Senior Notes due 2017, Indenture, dated as of February 27, 2007, between
AAM, Inc., as issuer, the Company, as guarantor, and Bank of New York
Trust Company, N.A., as trustee.
|
(Incorporated
by reference to Exhibit 4.04 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31, 2007)
71
Number
|
Description
of Exhibit
|
4.05
|
Warrant
Agreement dated as of September 16, 2009, among American Axle &
Manufacturing, Inc., American Axle & Manufacturing Holdings, Inc. and
General Motors Company
|
(Incorporated
by reference to Exhibit 4.01 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended September 30,
2009)
4.06
|
Indenture,
dated as of December 18, 2009, among American Axle & Manufacturing,
Inc., the Guarantors and U.S. Bank National Association, as trustee
(including the form of the 9.25% Senior Secured Note due
2017).
|
(Incorporated
by reference to Exhibit 4.01 of Current Report on Form 8-K dated December 21,
2009.)
4.07
|
Amended
and Restated Rights Agreement, dated as of October 30, 2009, between
American Axle & Manufacturing Holdings, Inc. and Computershare Trust
Company, N.A., as Rights Agent.
|
(Incorporated
by reference to Exhibit 4.01 of Current Report on Form 8-K dated November 2,
2009.)
10.01
|
Asset
Purchase Agreement, dated February 18, 1994, between AAM, Inc. and GM, and
all amendments thereto
|
|
(Incorporated
by reference to Exhibit 10.01 filed with American Axle & Manufacturing
Holdings, Inc. Registration Statement on Form S-1 (Registration No.
333-53491))
|
10.02
|
The
Amended and Restated American Axle & Manufacturing of Michigan, Inc.
Management Stock Option Plan
|
|
(Incorporated
by reference to Exhibit 10.08 filed with American Axle & Manufacturing
Holdings, Inc. Registration Statement on Form S-1 (Registration No.
333-53491))
|
‡10.03
|
Employment
Agreement, dated November 6, 1997, by and between the Company and Richard
E. Dauch
|
|
(Incorporated
by reference to Exhibit 10.11 filed with American Axle & Manufacturing
Holdings, Inc. Registration Statement on Form S-1 (Registration No.
333-53491))
|
10.04
|
Disposition
Agreement, dated as of December 10, 1998, between American Axle &
Manufacturing of Michigan, Inc. and Richard E.
Dauch
|
|
(Incorporated
by reference to Exhibit 10.13(a) filed with American Axle &
Manufacturing Holdings, Inc. Registration Statement on Form S-1
(Registration No. 333-53491))
|
‡10.05
|
Amendment
dated December 20, 2000 to Employment Agreement dated as of November 6,
1997 by and between the Company and Richard E.
Dauch
|
|
(Incorporated
by reference to Exhibit 10.07 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31,
2000)
|
‡10.06
|
Second
Amendment, dated as of December 10, 2001, to the Employment Agreement,
dated as of November 6, 1997, by and between the Company and Richard E.
Dauch
|
|
(Incorporated
by reference to Exhibit 10.49 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 30,
2001)
|
10.07
|
Lifetime
Program Contract for GMT-900 Products, between GM and AAM,
Inc.
|
|
(Incorporated
by reference to Exhibit 10.51 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended June 30,
2003)
|
72
Number
|
Description
of Exhibit
|
++10.08
|
Letter
Agreement dated April 22, 2004 by and between DaimlerChrysler Corporation
and AAM, Inc.
|
(Incorporated
by reference to Exhibit 10.43 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended June 30,
2004)
‡10.09
|
Forms
of Restricted Stock and Restricted Stock Unit Agreements under 1999 Stock
Incentive Plan
|
(Incorporated
by reference to Exhibit 10.45 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended September 30,
2004)
‡10.10 Form
of 2002 Stock Option Agreement
(Incorporated
by reference to Exhibit 10.2 of Current Report on Form 8-K dated October 26,
2005.)
‡10.11 Form
of 2003 Stock Option Agreement
(Incorporated
by reference to Exhibit 10.2 of Current Report on Form 8-K dated October 26,
2005.)
‡10.12 Form
of 2004 Stock Option Agreement
(Incorporated
by reference to Exhibit 10.3 of Current Report on Form 8-K dated October 26,
2005.)
‡10.13 Form
of 2005 Stock Option Agreement
(Incorporated
by reference to Exhibit 10.4 of Current Report on Form 8-K dated October 26,
2005.)
‡10.14 Form
of Nonqualified Stock Option Agreement
(Incorporated
by reference to Exhibit 10.5 of Current Report on Form 8-K dated October 26,
2005.)
‡10.15
|
Employment
Agreement Extension between American Axle & Manufacturing Holdings,
Inc. and Richard E. Dauch dated November 3,
2005
|
(Incorporated
by reference to Exhibit 99.1 of Current Report on Form 8-K dated November 3,
2005.)
‡10.16
|
Restated
1999 American Axle & Manufacturing Holdings, Inc. Stock Incentive
Compensation Plan
|
(Incorporated
by reference to Exhibit 10.51 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31, 2005)
‡10.17
|
Form
of Restricted Stock Unit Award Agreement for Non-Employee
Directors
|
(Incorporated
by reference to Exhibit 10.52 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended March 31,
2006)
‡10.18
|
Amended
and Restated American Axle & Manufacturing Holdings, Inc. Incentive
Compensation Plan for Executive
Officers
|
(Incorporated
by reference to Exhibit 99.1 of Current Report on Form 8-K dated February 1,
2007.)
‡10.19
|
Employment
Agreement Amendment between American Axle & Manufacturing Holdings,
Inc. and Richard E. Dauch dated November 15,
2006
|
(Incorporated
by reference to Exhibit 10.45 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31, 2006.)
73
Number Description
of Exhibit
‡10.20
|
Amended
and Restated American Axle & Manufacturing, Inc. Supplemental
Executive Retirement Program dated as December 22,
2006
|
(Incorporated by reference to
Exhibit 10.46 filed with American Axle & Manufacturing Holdings, Inc. Form
10-K for the year ended December 31, 2006.)
++10.21
|
Letter
Agreement, dated June 29, 2007, between AAM and
GM
|
|
(Incorporated by reference to Exhibit 99.1 of Current Report on Form
8-K dated June 29,2007)
|
‡10.22
|
Amendment
No. 1 dated as of July 25, 2007 to the Restricted Stock Unit Award
Agreements dated as of March 15, 2005, March 15, 2006 and March 14, 2007
between Richard E. Dauch and American Axle & Manufacturing Holdings,
Inc.
|
|
(Incorporated by reference to Exhibit 99.1 of Current Report on Form
8-K dated July 25,2007)
|
‡10.23
|
Form
of Restricted Stock Unit Award Agreement for Non-Employee Directors of
American Axle & Manufacturing Holdings,
Inc.
|
|
(Incorporated by reference to Exhibit 10.1 of Current Report on Form
8-K dated February 1,2008)
|
‡10.24
|
Amendment,
dated January 31, 2008, to Employment Agreement, dated November 6, 1997,
between American Axle & Manufacturing Holdings, Inc. and Richard E.
Dauch.
|
|
(Incorporated by reference to Exhibit 10.2 of Current Report on Form 8-K
dated February 1,2008)
|
‡10.25
|
Form
of 2008 Stock Option Award Agreement for executive officers of American
Axle & Manufacturing Holdings,
Inc.
|
(Incorporated
by reference to Exhibit 10.52 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31, 2007)
‡10.26
|
Form
of 2008 Restricted Stock Award Agreement for certain executive officers of
American Axle & Manufacturing Holdings, Inc. (Ratable
Vesting)
|
(Incorporated
by reference to Exhibit 10.53 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31, 2007)
‡10.27
|
Form
of 2008 Restricted Stock Award Agreement for certain executive officers of
American Axle & Manufacturing Holdings, Inc. (Cliff
Vesting)
|
(Incorporated
by reference to Exhibit 10.54 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31, 2007)
‡10.28
|
Form
of 2008 Performance Award Agreement for certain executive officers of
American Axle & Manufacturing Holdings,
Inc.
|
(Incorporated
by reference to Exhibit 10.55 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31, 2007)
10.29 | Agreement between General Motors Corporation and American Axle & Manufacturing, Inc. dated May 3, 2008, as amended May 16, 2008. |
(Incorporated
by reference to Exhibit 10.1 of Current Report on Form 8-K dated May 23,
2008)
‡10.30
|
Form
of 2009 Deferred Compensation Unit Award
Agreement
|
(Incorporated
by reference to Exhibit 10.60 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-K for the year ended December 31, 2008)
74
Number
|
Description
of Exhibit
|
10.31
|
Amended
and Restated AAM 2009 Long-Term Incentive
Plan
|
(Incorporated
by reference to Exhibit 10.61 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended June 30,
2009)
10.32
|
Waiver
and Amendment dated as of June 30, 2009 among American Axle &
Manufacturing Holdings, Inc., American Axle & Manufacturing, Inc., the
banks and other financial institutions identified therein as lenders party
thereto, and JP Morgan Chase Bank, N.A., as Administrative
Agent.
|
(Incorporated
by reference to Exhibit 99.1 of Current Report on Form 8-K dated July 7,
2009.)
10.33
|
Intercreditor
Agreement dated as of September 16, 2009 among American Axle &
Manufacturing Holdings, Inc., American Axle & Manufacturing, Inc.,
General Motors Company and JPMorgan Chase Bank, N.A., as Collateral
Agent.
|
(Incorporated
by reference to Exhibit 99.1 of Current Report on Form 8-K dated September 17,
2009.)
10.34
|
Revolving
Credit Restatement Agreement dated as of September 16, 2009 among American
Axle & Manufacturing Holdings, Inc., American Axle &
Manufacturing, Inc., the banks and other financial institutions identified
therein as lenders party thereto, and JP Morgan Chase Bank, N.A., as
Administrative Agent.
|
(Incorporated
by reference to Exhibit 99.2 of Current Report on Form 8-K dated September 17,
2009.)
10.35
|
Amended
and Restated Revolving Credit Agreement dated as of January 9, 2004, as
amended and restated as of September 16, 2009, among American Axle &
Manufacturing Holdings, Inc., American Axle & Manufacturing, Inc., the
banks and other financial institutions identified therein as lenders party
thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent for the
lenders party thereto, and J.P. Morgan Securities Inc. and Banc of America
Securities LLC, as Joint Lead Arrangers and Joint
Bookrunners.
|
(Incorporated
by reference to Exhibit 99.3 of Current Report on Form 8-K dated September 17,
2009.)
10.36
|
Term
Loan Restatement Agreement dated as of September 16, 2009, among American
Axle & Manufacturing Holdings, Inc., American Axle &
Manufacturing, Inc., the banks and other financial institutions identified
therein as lenders party thereto, and JP Morgan Chase Bank, N.A., as
Administrative Agent.
|
(Incorporated
by reference to Exhibit 99.4 of Current Report on Form 8-K dated September 17,
2009.)
10.37
|
Amended
and Restated Term Loan Agreement dated as of June 14, 2007, as amended and
restated as of September 16, 2009, among American Axle & Manufacturing
Holdings, Inc., American Axle & Manufacturing, Inc., JPMorgan Chase
Bank, N.A. as Administrative Agent for the lenders party thereto, and J.P.
Morgan Securities Inc. and Banc of America Securities LLC, as Joint Lead
Arrangers and Joint Bookrunners.
|
(Incorporated
by reference to Exhibit 99.5 of Current Report on Form 8-K dated September 17,
2009.)
10.38
|
Collateral
Agreement dated as of November 7, 2008, as amended and restated as of
September 16, 2009, among American Axle & Manufacturing Holdings,
Inc., American Axle & Manufacturing, Inc., certain subsidiaries of
American Axle & Manufacturing, Inc. identified therein and JPMorgan
Chase Bank, N.A., as Collateral
Agent.
|
(Incorporated
by reference to Exhibit 99.6 of Current Report on Form 8-K dated September 17,
2009.)
75
Number
|
Description
of Exhibit
|
10.39
|
Settlement
and Commercial Agreement, dated as of September 16, 1009, among General
Motors Company, American Axle & Manufacturing Holdings, Inc. and
American Axle & Manufacturing,
Inc.
|
(Incorporated
by reference to Exhibit 10.62 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended September 30,
2009)
10.40
|
Second
Lien Term Credit Agreement dated as of September 16, 2009, between
American Axle & Manufacturing, Inc. and General Motors Company, as
lender. Second Lien Collateral Agreement dated as of September 16,
2009, among American Axle & Manufacturing Holdings, Inc., American
Axle & Manufacturing, Inc., certain subsidiaries of American Axle
& Manufacturing, Inc. identified therein and General Motors
Company.
|
(Incorporated
by reference to Exhibit 10.63 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended September 30,
2009)
10.41
|
Access
and Security Agreement, dated as of September 16, 2009, between American
Axle & Manufacturing, Inc. and General Motors
Company.
|
(Incorporated
by reference to Exhibit 99.1 filed with American Axle & Manufacturing
Holdings, Inc. Form 10-Q for the quarterly period ended September 30,
2009)
10.42
|
Letter
Amendment, dated December 4, 2009, to the Credit Agreement, dated as of
September 16, 2009, by and among American Axle & Manufacturing, Inc.,
American Axle & Manufacturing Holdings, Inc. and General Motors
Company.
|
(Incorporated
by reference to Exhibit 99.1 of Current Report on Form 8-K dated December 7,
2009.)
10.43
|
Amended
and Restated Credit Agreement dated as of January 9, 2004, as amended and
restated as of December 18, 2009, among American Axle & Manufacturing
Holdings, Inc., American Axle & Manufacturing, Inc., JPMorgan Chase
Bank, N.A. as Administrative Agent for the lenders party thereto, and J.P.
Morgan Securities Inc. and Banc of America Securities LLC, as Joint Lead
Arrangers and Joint Bookrunners.
|
(Incorporated
by reference to Exhibit 10.1 of Current Report on Form 8-K dated December 21,
2009.)
10.44
|
First
Lien Intercreditor Agreement dated as of December 18, 2009, among American
Axle & Manufacturing Holdings, Inc., American Axle &
Manufacturing, Inc., certain domestic subsidiaries of the Company,
JPMorgan Chase Bank, N.A., U.S. Bank National Association and any
additional authorized representative from time to time party
hereto.
|
(Incorporated
by reference to Exhibit 99.1 of Current Report on Form 8-K dated December 21,
2009.)
10.45
|
Collateral
Agreement dated as of November 7, 2008, as amended and restated as of
December 18, 2009, among American Axle & Manufacturing Holdings, Inc.,
American Axle & Manufacturing, Inc., certain subsidiaries of American
Axle & Manufacturing, Inc. identified therein and JPMorgan Chase Bank,
N.A., as Collateral Agent.
|
(Incorporated
by reference to Exhibit 99.2 of Current Report on Form 8-K dated December 21,
2009.)
‡10.46
|
Amendment,
dated as of December 22, 2009, to the Employment Agreement, dated as
of November 6, 1997, by and between American Axle & Manufacturing
Holdings, Inc. and Richard E.
Dauch.
|
(Incorporated
by reference to Exhibit 10.1 of Current Report on Form 8-K dated December 29,
2009.)
76
Number
|
Description
of Exhibit
|
*12
|
Computation
of Ratio of Earnings to Fixed
Charges
|
*21
|
Subsidiaries
of the Registrant
|
*23
|
Consent
of Independent Registered Public Accounting
Firm
|
*31.1
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act
|
*31.2
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act
|
*32
|
Certifications
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
(All other exhibits are not
applicable.)
++ Confidential
Treatment Request Granted by the SEC
‡ Reflects
Management or Compensatory Contract
* Filed
herewith
77
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
Additions
-
|
||||||||||||||||||||
Balance
at
|
Charged
to
|
Deductions
-
|
Balance
|
|||||||||||||||||
Beginning
of
|
Costs
and
|
See
Notes
|
At
End of
|
|||||||||||||||||
Period
|
Expenses
|
Below
|
Period
|
|||||||||||||||||
(in
millions)
|
||||||||||||||||||||
Year Ended December 31,
2007:
|
||||||||||||||||||||
Allowance
for doubtful accounts
|
$ | 1.2 | $ | 1.4 | $ | 0.4 | (1 | ) | $ | 2.2 | ||||||||||
Allowance
for deferred taxes
|
39.0 | 12.7 | 9.4 | (2 | ) | 42.3 | ||||||||||||||
Inventory
valuation allowance
|
34.7 | 12.7 | 7.1 | (3 | ) | 40.3 | ||||||||||||||
Year Ended December 31,
2008:
|
||||||||||||||||||||
Allowance
for doubtful accounts
|
2.2 | 1.9 | 0.8 | (1 | ) | 3.3 | ||||||||||||||
Allowance
for deferred taxes
|
42.3 | 551.9 | 12.4 | (2 | ) | 581.8 | ||||||||||||||
Inventory
valuation allowance
|
40.3 | 58.9 | 70.9 | (4 | ) | 28.3 | ||||||||||||||
Year Ended December 31,
2009:
|
||||||||||||||||||||
Allowance
for doubtful accounts
|
3.3 | 8.2 | 3.2 | (1 | ) | 8.3 | ||||||||||||||
Allowance
for deferred taxes
|
581.8 | 268.3 | 290.4 | (5 | ) | 559.7 | ||||||||||||||
Inventory
valuation allowance
|
28.3 | 17.3 | 11.9 | (3 | ) | 33.7 | ||||||||||||||
(1)
Uncollectible accounts charged off net of recoveries.
|
||||||||||||||||||||
(2)
Adjustments associated with our assessment of the uncertainty of realizing
the full benefit of deferred tax assets (principally related to acquired
foreign NOLs and capital allowance carryforwards) and currency
translation.
|
||||||||||||||||||||
(3)
Primarily relates to inventory adjustments for physical quantity
discrepancies and write-offs of excess and obsolete
inventories.
|
||||||||||||||||||||
(4)
Primarily relates to write-offs of excess and obsolete inventories and the
classification of certain indirect inventories, and related valuation
allowances, as noncurrent assets in 2008.
|
||||||||||||||||||||
(5) Primarily relates to special legislation that was passed in 2009 that allowed us to extend the carryback period of our 2008 net operating loss and the decrease in the net deferred tax assets due to a deferred tax liability that was recorded in 2009 for the estimated tax impact of undistributed earnings of certain foreign subsidiaries. |
78
|
Signatures
|
Pursuant
to the requirements of Section 13 or 15(d) 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:
February 22, 2010
/s/ Michael K. Simonte
Michael
K. Simonte
Executive
Vice President - Finance
&
Chief Financial Officer
(Chief
Accounting Officer)
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities on the dates
indicated.
Signature | Title | Date |
/s/ Richard E. Dauch | Co-Founder, Chairman of the Board & | February 22, 2010 |
Richard E. Dauch |
Chief
Executive Officer
|
|
/s/ Michael K. Simonte | Executive Vice President - Finance & | February 22, 2010 |
Michael K. Simonte | Chief Financial Officer | |
/s/ Salvatore J. Bonanno Sr. | Director | February 22, 2010 |
Salvatore J. Bonanno Sr. | ||
/s/ Elizabeth A. Chappell | Director | February 22, 2010 |
Elizabeth A. Chappell | ||
/s/ David C. Dauch | Director | February 22, 2010 |
David C. Dauch | ||
/s/ Forest J. Farmer | Director | February 22, 2010 |
Forest J. Farmer | ||
/s/ Richard C. Lappin | Director | February 22, 2010 |
Richard C. Lappin | ||
/s/ William P. Miller II | Director | February 22, 2010 |
William P. Miller II | ||
/s/ Larry K. Switzer | Director | February 22, 2010 |
Larry K. Switzer | ||
/s/ Thomas K. Walker | Director | February 22, 2010 |
Thomas K. Walker | ||
/s/ Dr. Henry T. Yang | Director | February 22, 2010 |
Dr. Henry T. Yang |
79