<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ------------ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
- ------------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-14303
American Axle & Manufacturing Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3161171
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Holbrook Avenue, Detroit, Michigan 48212-3488
- --------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(313) 974-2000
-------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ----------
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of July 30, 1999, the latest practicable date, was 39,465,097
shares.
<PAGE> 2
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
ASSETS (In millions)
------
<S> <C> <C>
Current assets:
Cash and equivalents $ 215.4 $ 4.5
Accounts receivable, net 222.6 123.8
Inventories 114.9 137.1
Prepaid expenses and other 6.4 14.5
Deferred income taxes 19.4 14.1
--------- ---------
Total current assets 578.7 294.0
Property, plant and equipment, net 774.0 829.3
Deferred income taxes 47.8 62.2
Goodwill and other 201.3 40.7
--------- ---------
TOTAL ASSETS $ 1,601.8 $ 1,226.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 264.2 $ 232.8
Accrued compensation and benefits 142.0 105.4
Other accrued expenses 36.2 24.7
--------- ---------
Total current liabilities 442.4 362.9
Long-term debt and capital lease obligations 794.8 693.4
Postretirement benefits and other long-term liabilities 154.7 129.5
--------- ---------
TOTAL LIABILITIES 1,391.9 1,185.8
Stockholders' equity
Common stock, par value $.01 per share 0.4 -
Paid-in capital 199.8 92.5
Retained earnings (accumulated deficit) 11.2 (51.5)
Cumulative translation adjustment (1.5) (0.6)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 209.9 40.4
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,601.8 1,226.2
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
\ -3-
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------------- --------------------------------
1999 1998 1999 1998
------------------ -------------------- ------------------- -------------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 800.8 $ 462.9 $ 1,498.5 $ 1,046.2
Cost of goods sold 692.4 440.7 1,298.0 962.2
----------------- ------------------- ------------------ ------------------
Gross profit 108.4 22.2 200.5 84.0
Selling, general and
administrative expenses 38.0 23.6 71.8 49.1
Goodwill amortization 1.1 - 1.2 -
----------------- ------------------- ------------------ ------------------
Operating income (loss) 69.3 (1.4) 127.5 34.9
Net interest expense (15.1) (9.9) (27.1) (19.6)
Other (expense) income, net (1.2) 0.1 (1.4) 0.4
----------------- ------------------- ------------------ ------------------
Income (loss) before income taxes 53.0 (11.2) 99.0 15.7
Income taxes 19.3 (4.2) 36.3 5.8
----------------- ------------------- ------------------ ------------------
Net income $ 33.7 $ (7.0) $ 62.7 $ 9.9
================= =================== ================== ==================
Basic earnings per share $ 0.85 $ (0.21) $ 1.63 $ 0.31
================= =================== ================== ==================
Diluted earnings per share $ 0.67 $ (0.16) $ 1.28 $ 0.23
================= =================== ================== ==================
Average shares outstanding:
Basic earnings per share 39.5 32.5 38.4 32.4
================= =================== ================== ==================
Diluted earnings per share 50.1 43.3 49.0 43.2
================= =================== ================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
-4-
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
------------ -------------
(In millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 62.7 $ 9.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 46.3 31.5
Deferred income taxes 12.7 2.0
Pensions and other postretirement benefits, net of
contributions 22.2 1.6
Loss on disposal of equipment 1.2 -
Changes in operating assets and liabilities:
Accounts receivable (76.9) 96.2
Inventories 30.7 (26.2)
Current liabilities 56.2 (61.5)
Other assets and liabilities 3.6 (4.7)
----------- ------------
Net cash provided by operating activities 158.7 48.8
----------- ------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (110.0) (121.4)
Acquisitions, net of cash acquired (225.9) -
Proceeds from sale-leaseback of equipment 187.0 -
----------- ------------
Net cash used in investing activities (148.9) (121.4)
----------- ------------
FINANCING ACTIVITIES
Payments on Revolving Credit and Receivables facilities, net (196.0) (25.0)
Proceeds from issuance of long-term debt and
capital lease obligations, net 298.8 81.9
Debt issuance costs (9.4) -
Proceeds from issuance of common stock, net 107.7 0.3
----------- ------------
Net cash provided by financing activities 201.1 57.2
----------- ------------
Effect of exchange rate changes on cash - -
----------- ------------
Net increase (decrease) in cash and equivalents 210.9 (15.4)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 4.5 17.3
----------- ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 215.4 $ 1.9
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
-5-
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
American Axle & Manufacturing Holdings, Inc. ("Holdings" or the
"Company") is the survivor of a migratory merger with American Axle &
Manufacturing of Michigan, Inc. (the "predecessor company"). Pursuant
to this merger, which was effected in January 1999, each share of the
predecessor company's common stock was converted into 3,945 shares of
Holdings' common stock. All share and per share amounts have been
adjusted to reflect this conversion.
In February 1999, Holdings completed an initial public offering and
issued 7 million shares of its common stock. The net proceeds of the
offering, after deduction of associated expenses, amounted to $107.7
million.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements contain all adjustments, consisting of normal recurring
adjustments, which are, in the opinion of Holdings' management,
necessary to present fairly the condensed consolidated financial
position of the Company as of June 30, 1999, and its condensed
consolidated results of operations for the three and six months ended
June 30, 1999 and 1998, respectively, and its condensed consolidated
cash flows for the six months ended June 30, 1999 and 1998,
respectively. Results of operations for the periods presented are not
necessarily indicative of the results for the full fiscal year.
The balance sheet at December 31, 1998 has been derived from the
audited consolidated financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For
further information, refer to the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
The Company operates in one reportable segment, the design, engineering
and manufacture of driveline systems and chassis systems (including
forged products) for trucks, buses, sport utility vehicles, and
passenger cars.
<PAGE> 6
-6-
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. AMERICAN AXLE & MANUFACTURING, INC.
Holdings has no material assets, liabilities or operations other than
those that result from its ownership of 100% of the outstanding common
stock of American Axle & Manufacturing, Inc. ("AAM Inc."). Separate
consolidated financial statements of AAM Inc. are not presented because
they would not be materially different than the accompanying unaudited
interim condensed consolidated financial statements. The following is a
summary of the consolidated assets and liabilities of AAM Inc. and its
subsidiaries and their consolidated results of operations:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------------------------------------
(In millions)
<S> <C> <C>
Assets:
Current assets $ 578.7 $ 294.0
Noncurrent assets 1,023.1 932.2
==============================================
Total assets $ 1,601.8 $ 1,226.2
==============================================
Liabilities:
Current liabilities $ 442.4 $ 362.9
Noncurrent liabilities 949.5 822.9
==============================================
Total liabilities $ 1,391.9 $ 1,185.8
==============================================
SIX MONTHS ENDED JUNE 30,
----------------------------------------------
1999 1998
----------------------------------------------
(In millions)
Net sales $ 1,498.5 $ 1,046.2
Gross profit 200.5 84.0
Net income 62.7 9.9
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------------------------------
(In millions)
<S> <C> <C>
Raw materials and work-in-process $ 79.1 $ 87.6
Finished goods 28.7 42.2
-------------------------------------
Gross inventories at average cost 107.8 129.8
Excess of average cost over LIFO cost (7.8) (7.0)
-------------------------------------
Net inventories at LIFO 100.0 122.8
Supplies and repair parts 14.9 14.3
-------------------------------------
$ 114.9 $ 137.1
=====================================
</TABLE>
<PAGE> 7
-7-
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------------------------------
1999 1998
-------------------------------------------
(In millions)
<S> <C> <C>
Credit Facilities:
Revolver $ - $ 223.0
Tranche A Term Loan - -
Tranche B Term Loan 375.0 375.0
------------------ ---------------------
Total Credit Facilities 375.0 598.0
Receivables Facility 90.0 63.0
9.75% Senior Subordinated Notes Due 2009,
net of discount 297.8 -
Albion Capital Lease Obligations 26.9 26.1
Other 5.1 6.3
------------------ ---------------------
$ 794.8 $ 693.4
================== =====================
</TABLE>
Issuance of 9.75% Senior Subordinated Notes Due 2009
In March 1999, American Axle & Manufacturing, Inc., the Company's
wholly-owned subsidiary, issued $300 million of 9.75% Senior
Subordinated Notes Due 2009 (the "Notes"). The net proceeds from the
sale of the notes were approximately $289 million after deduction of
discounts to the initial purchasers and other fees and expenses.
Resyndication of Revolving Receivables Facility
In March 1999, the Company resyndicated its revolving receivables
facility through its subsidiary, AAM Receivables Corp. In addition,
this facility has been expanded from $125 million to $153 million. The
terms of the resyndicated receivables facility remain substantially
the same as the Company's previous receivables facility.
<PAGE> 8
-8-
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerators for Basic and Diluted earnings per share:
Net income (loss) available to
common stockholders......................................... $.33.7 $ (7.0) $ 62.7 $ 9.9
Denominators:
Denominator for Basic earnings per share -
weighted-average shares outstanding......................... 39.5 32.5 38.4 32.4
Effect of dilutive securities:
Dilutive stock options outstanding............................ 10.6 10.8 10.6 10.8
------ ------- ------ ------
Denominator for Diluted earnings per share -
adjusted weighted-average shares and
assumed conversion.......................................... 50.1 43.3 49.0 43.2
====== ======= ====== ======
Basic earnings per share.......................................... $.0.85 $ (0.21) $ 1.63 $ 0.31
====== ======= ====== ======
Diluted earnings per share........................................ $.0.67 $ (0.16) $ 1.28 $ 0.23
====== ======= ====== ======
</TABLE>
6. COMPREHENSIVE INCOME
Comprehensive income was $33.3 million and $61.8 million for the three
months and six months ended June 30, 1999, respectively. Foreign
currency translation is the only reconciling difference between
comprehensive income and net income for the three and six months ended
June 30, 1999. For the three months and six months ended June 30, 1998,
comprehensive income was equal to net income.
<PAGE> 9
-9-
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SALE-LEASEBACK
In June 1999, the Company closed sale-leaseback transactions involving
$138.0 million of existing machinery and equipment. These
sale-leaseback transactions were financed under operating leases with
terms of 10.25 years and 12 years and resulted in a current loss on the
sale of machinery and equipment of $0.4 million. These sale-leaseback
transactions also resulted in gains on the sale of machinery and
equipment of approximately $4.0 million which will be recognized over
the respective lease terms. Rental expense under these operating leases
will approximate $18.6 million per annum through 2009 and $6.0 million
thereafter.
8. ACQUISITIONS
On April 1, 1999, the Company purchased two forging companies, Colfor
Manufacturing, Inc. ("Colfor") and MSP Industries Corporation ("MSP"),
for aggregate purchase consideration of approximately $225.9 million.
Colfor specializes in precision cold, warm and hot forgings and
operates three manufacturing facilities in Ohio. Giving effect as of
January 1, 1998 to Colfor's October 1998 acquisition of Valley Forge,
Inc., Colfor's pro forma 1998 sales would have been approximately $126
million. MSP manufactures precision forged powertrain, driveline,
chassis and other components for the automotive industry using cold and
warm forging processes at three manufacturing facilities in Michigan.
MSP's 1998 sales were $56 million. Purchase consideration in excess of
the fair value of net assets acquired in these transactions of
approximately $149.4 million has been recorded as goodwill.
<PAGE> 10
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis presents the factors that had a material effect on
our results of operations and cash flows during the three months ended June 30,
1999, and our financial position at June 30, 1999. Trends of a material nature
are discussed to the extent known and considered relevant. The analysis of
results compares the three months and six months ended June 30, 1999 with the
corresponding periods of 1998.
This discussion and analysis should be read in conjunction with the Unaudited
Condensed Consolidated Financial Statements and notes thereto appearing
elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. As
used in this Quarterly Report, unless the context otherwise requires, references
to "we", "us" or "American Axle" shall mean collectively (i) American Axle &
Manufacturing, Inc. ("AAM Inc."), a Delaware corporation, and its direct and
indirect subsidiaries, and (ii) American Axle & Manufacturing Holdings, Inc. and
its predecessor ("Holdings"), a Delaware corporation and the direct parent
corporation of AAM, Inc.
COMPANY OVERVIEW
We are a premier Tier I supplier to the automotive industry and a world leader
in the design, engineering and manufacture of driveline systems and chassis
systems (including forged products) for trucks, buses, sport utility vehicles
("SUVs") and passenger cars. The driveline system includes all of the components
that transfer power from the transmission and deliver it to the drive wheels.
The driveline products produced by us include axles, propeller shafts, chassis
components and forged products.
In addition to 13 locations in the United States (in Michigan, Ohio and New
York), AAM has offices and facilities in Japan, England, Germany and Scotland. A
manufacturing facility and business office is currently under construction in
Mexico.
We are General Motors Corporation's ("GM") principal supplier of driveline
components for light trucks, SUVs and rear-wheel drive ("RWD") passenger cars.
Sales to GM were approximately 88% of our net sales in the three months ended
June 30, 1999.
<PAGE> 11
-11-
ACQUISITION OF COLFOR AND MSP
On April 1, 1999, we purchased two forging companies, Colfor Manufacturing, Inc.
("Colfor") and MSP Industries Corporation ("MSP") for aggregate purchase
consideration of approximately $225.9 million. Colfor specializes in precision
cold, warm and hot forgings and operates three manufacturing facilities in Ohio.
Giving effect as of January 1, 1998 to Colfor's October 1998 acquisition of
Valley Forge, Inc., Colfor's pro forma 1998 sales would have been approximately
$126.0 million. MSP manufactures precision forged powertrain, driveline, chassis
and other components for the automotive industry using cold and warm forging
processes at three manufacturing facilities in Michigan. MSP's 1998 sales were
$56.0 million. These acquisitions have been accounted for under the purchase
method of accounting, and Colfor's and MSP's results since the acquisition date
of April 1, 1999 are included in our consolidated financial results.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data expressed as
a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Statement of income data
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 86.5 95.2 86.6 92.0
--------- --------- --------- ---------
Gross profit 13.5 4.8 13.4 8.0
Selling, general and administrative expenses 4.7 5.1 4.8 4.7
Goodwill amortization 0.1 0.0 0.1 0.0
--------- --------- --------- ---------
Operating income (loss) 8.7 (0.3) 8.5 3.3
Net interest (expense) (1.9) (2.1) (1.8) (1.8)
Other (expense) income (0.2) 0.0 (0.1) 0.0
--------- --------- --------- ---------
Income (loss) before income taxes 6.6 (2.4) 6.6 1.5
Income tax expense 2.4 (0.9) 2.4 0.6
--------- --------- --------- ---------
Net income (loss) 4.2% (1.5)% 4.2% 0.9%
========= ========== ========= =========
</TABLE>
RESULTS OF OPERATIONS--THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1998
Net Sales. Net sales increased approximately 73% to $800.8 million for the three
months ended June 30, 1999 compared with $462.9 million for the three months
ended June 30, 1998. This increase was due primarily to:
- - higher volumes resulting from strong demand for our driveline components
used in the production of light trucks and SUVs, the fastest growing
segment of the U.S. light vehicle market;
<PAGE> 12
-12-
- - increased sales related to GM's new full-size truck program (GMT-800), on
which the Company receives a higher average dollar content per vehicle than
its predecessor (GMT-400);
- - the impact of Albion Automotive ("Albion"), which was acquired in the
fourth quarter of 1998, and Colfor and MSP, which were both acquired on
April 1, 1999;
- - the impact of the GM work stoppage which occurred in June and July of 1998
and resulted in the shutdown of nearly all of GM's North American
production facilities ("1998 GM work stoppage"); we estimate that sales
lost as a result of the 1998 GM work stoppage in the three months ended
June 30, 1998 were approximately $86.1 million;
- - expiration of the temporary reductions of certain payments made by GM to us
as part of our commercial arrangements at December 31, 1998 (the "temporary
payment reductions") which adversely affected 1998 sales by approximately
$15.5 million in the three months ended June 30, 1998.
Sales to customers other than GM increased $69.4 million to $98.8 million for
the three months ended June 30, 1999, versus $29.4 million for the three months
ended June 30, 1998. The increase in sales to customers other than GM is
principally due to the inclusion of Albion, Colfor and MSP in 1999 and
additional business we have obtained.
Gross Profit. Gross profit increased 388% to $108.4 million for the three months
ended June 30, 1999 compared with $22.2 million for the three months ended June
30, 1998. Gross margin increased to 13.5% in the three months ended June 30,
1999 compared to 4.8% for the three months ended June 30, 1998. The increases in
gross profit and gross margin in the three months ended June 30, 1999 were due
primarily to the impact of:
- - higher production volumes;
- - increased sales of next generation axle products which carry higher average
selling prices;
- - productivity improvements; and
- - the impact of the 1998 GM work stoppage which adversely affected 1998
results by approximately $29.2 million in the three months ended June 30,
1998; and
- - expiration of the temporary payment reductions which adversely affected
1998 results by approximately $15.5 million in the three months ended June
30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (including research and development) increased 61% to
$38.0 million for the three months ended June 30, 1999 compared with $23.6
million for the three months ended June 30, 1998. The increase in spending was
primarily due to:
- - our continued investment in research and development;
- - increases in support required for our expanding operations;
- - the inclusion of Albion, Colfor and MSP in 1999; and
- - the adverse impact of the 1998 GM work stoppage on our profit-sharing
program in the three months ended June 30, 1998.
Research and development ("R&D") expenses were $8.8 million for the three months
ended June 30, 1999 compared to $5.6 million for the three months ended June 30,
1998. The increase in R&D expenses in the three months ended June 30, 1999
compared to the three
<PAGE> 13
-13-
months ended June 30, 1998 was primarily due to the inclusion of Albion, Colfor
and MSP in 1999 and other costs and expenses incurred to support new product
programs.
Selling, general and administrative expenses as a percentage of sales decreased
to 4.7% for the three months ended June 30, 1999 compared to 5.1% for the three
months ended June 30, 1998. The decrease in selling, general and administrative
expenses as a percentage of sales was primarily due to sales lost as a result of
the 1998 GM work stoppage, offset by the factors described above which resulted
in increased spending in 1999.
Operating Income. Operating income was $69.3 million for the three months ended
June 30, 1999 compared to an operating loss of $(1.4) million for the three
months ended June 30, 1998. Operating margin increased to 8.7% for the three
months ended June 30, 1999 compared to an operating deficit of (0.3%) for the
three months ended June 30, 1998. The increase in operating income and operating
margin was primarily due to the factors discussed above relating to the increase
in Gross Profit partially offset by the impact of increased selling, general and
administrative expenses also discussed above and goodwill amortization related
to the Albion, Colfor and MSP acquisitions.
Net Interest. Net interest expense was $15.1 million for the three months ended
June 30, 1999 compared to net interest expense of $9.9 million for the three
months ended June 30, 1998. The increase in net interest expense was primarily
due to higher average outstanding debt levels in 1999 and higher average
interest rates primarily associated with the 9.75% Senior Subordinated Notes we
issued in March 1999.
Income Tax Expense. There was income tax expense of $19.3 million for the three
months ended June 30, 1999 compared to an income tax benefit ($4.2) million for
the three months ended June 30, 1998. Our effective income tax rate was
approximately 36.4% for the three months ended June 30, 1999 and 37.5% for the
three months ended June 30, 1998.
Net Income. There was net income of $33.7 million for the three months ended
June 30, 1999 compared to a net loss of ($7.0) million for the three months
ended June 30, 1998, primarily due to the factors discussed above.
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1998
Net Sales. Net sales increased approximately 43% to $1,498.5 million for the six
months ended June 30, 1999 compared with $1,046.2 million for the six months
ended June 30, 1998. This increase was due primarily to:
- - higher volumes resulting from strong demand for our driveline components
used in the production of light trucks and SUVs, the fastest growing
segment of the U.S. light vehicle market;
- - increased sales related to GM's new full-size truck program (GMT-800), on
which the Company receives a higher average dollar content per vehicle than
its predecessor (GMT-400);
- - the impact of Albion Automotive, which was acquired in the fourth quarter
of 1998, and Colfor and MSP, which were both acquired on April 1, 1999;
<PAGE> 14
-14-
- - the impact of the 1998 GM work stoppage which adversely affected 1998
sales by approximately $86.1 million in the six months ended June 30,
1998; and
- - expiration of the temporary reductions which adversely affected 1998 sales
by approximately $28.2 million in the six months ended June 30, 1998.
Sales to customers other than GM increased $101.0 million to $156.4 million for
the six months ended June 30, 1999, versus $55.4 million for the six months
ended June 30, 1998. The increase in sales to customers other than GM is
primarily due to the inclusion of Albion, Colfor and MSP in 1999 and additional
business we have obtained.
Gross Profit. Gross profit increased 139% to $200.5 million for the six months
ended June 30, 1999 compared with $84.0 million for the six months ended June
30, 1998. Gross margin increased to 13.4% in the six months ended June 30, 1999
compared to 8.0% for the six months ended June 30, 1998. The increases in gross
profit and gross margin in the six months ended June 30, 1999 were due primarily
to the impact of:
- - higher production volumes;
- - increased sales of next generation axle products which carry higher average
selling prices;
- - productivity improvements;
- - the impact of the 1998 GM work stoppage which adversely affected 1998
results by approximately $29.2 million in the six months ended June 30,
1998; and
- - expiration of the temporary payment reductions which adversely affected
1998 results by approximately $28.2 million in the six months ended June
30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (including R&D) increased 46% to $71.8 million for the
six months ended June 30, 1999 compared with $49.1 million for the six months
ended June 30, 1998. Selling, general and administrative expenses as a
percentage of sales increased to 4.8% for the six months ended June 30, 1999
compared to 4.7% for the six months ended June 30, 1998. The increase in
spending was primarily due to:
- - our continued investment in research and development;
- - increases in support required for our expanding operations,
- - the inclusion of Albion, Colfor and MSP in 1999; and
- - the adverse impact of the 1998 GM work stoppage on our profit-sharing
program in the six months ended June 30, 1998.
R&D expenses were $17.2 million for the six months ended June 30, 1999 compared
to $12.0 million for the six months ended June 30, 1998. The increase in R&D
expenses in the six months ended June 30, 1999 compared to the six months ended
June 30, 1998 was primarily due to the inclusion of Albion, Colfor and MSP in
1999 and other costs and expenses incurred to support new product programs.
Operating Income. Operating income was $127.5 million for the six months ended
June 30, 1999 compared to $34.9 million for the six months ended June 30, 1998.
Operating margin increased to 8.5% for the six months ended June 30, 1999
compared to 3.3% for the three months ended June 30, 1998. The increase in
operating income and operating margin was primarily due to the factors discussed
above relating to the increase in Gross Profit partially
<PAGE> 15
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offset by the impact of increased selling, general and administrative expenses
also discussed above and goodwill amortization related to the Albion, Colfor and
MSP acquisitions.
Net Interest. Net interest expense was $27.1 million for the six months ended
June 30, 1999 compared to net interest expense of $19.6 million for the six
months ended June 30, 1998. The increase in net interest expense was primarily
due to higher average outstanding debt levels in 1999 and higher average
interest rates primarily associated with the 9.75% Senior Subordinated Notes we
issued in 1999.
Income Tax Expense. There was income tax expense of $36.3 million for the six
months ended June 30, 1999 compared to $5.8 million for the six months ended
June 30, 1998. Our effective income tax rate was approximately 36.7% for the six
months ended June 30, 1999 and 36.9% for the six months ended June 30, 1998.
Net Income. There was net income of $62.7 million for the six months ended June
30, 1999 compared to $9.9 million for the six months ended June 30, 1998,
primarily due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our overall ability to mobilize cash to
support business needs and to fund growth. We rely primarily upon cash flow from
operations and borrowings under our Credit Facilities and a $153 million
receivables purchase facility (the "Receivables Facility") to finance operations
and capital expenditures.
The Credit Facilities consist of:
- - a Senior Secured Term Loan Facility (the "Tranche A Term Loan Facility")
providing for delayed draw term loans in an aggregate principal amount of
$125 million;
- - a Senior Secured Term Loan Facility (the "Tranche B Term Loan Facility"
and, together with the Tranche A Term Loan Facility, the "Term Loan
Facility") providing for term loans in an aggregate principal amount of
$375 million; and
- - a Senior Secured Revolving Credit Facility (the "Revolving Credit
Facility") providing for revolving loans and the issuance of letters of
credit in an aggregate principal and stated amount not to exceed $250
million (of which not more than $30 million may be represented by letters
of credit).
The following significant events have also impacted our liquidity and financial
flexibility:
- - On February 3, 1999, we completed an initial public offering ("IPO") and
issued 7 million shares of common stock. The net proceeds of the IPO, after
deduction of associated expenses, were $107.7 million and were used to
reduce outstanding borrowings under the Revolving Credit Facility (but not
the related commitments).
- - In March 1999, AAM Inc. issued $300 million of 9.75% Senior Subordinated
Notes Due 2009 (the "Notes"). The net proceeds from the sale of the Notes
were approximately $289 million
<PAGE> 16
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after deduction of discounts to the initial purchasers and other fees and
expenses. The net proceeds have been used to repay existing debt under the
Revolving Credit Facility and replace financing provided by the Receivables
Facility, with the remainder of such net proceeds used for general
corporate purposes, including financing acquisitions and capital
expenditures.
- - On April 1, 1999 we purchased two forging companies, Colfor Manufacturing,
Inc. ("Colfor") and MSP Industries Corporation ("MSP") for aggregate
purchase consideration of approximately $225.9 million. Purchase
consideration in excess of the fair value of net assets acquired in these
transactions of approximately $149.4 million has been recorded as goodwill.
- - In March 1999 and June 1999, we closed sale-leaseback transactions
involving $187.0 million of existing machinery and equipment. These
sale-leaseback transactions were financed under operating leases that will
have a negative impact on our operating income and will result in lower
depreciation and amortization, but will have no material impact on our net
income.
At June 30, 1999, we had working capital of $136.3 million compared with a
working capital deficit of $68.9 million at December 31, 1998. This increase in
working capital was due primarily to the $158.7 million of net cash provided by
operating activities in the six months ended June 30, 1999, which resulted
principally from the following:
- - net income earned by us of $62.7 million;
- - non-cash charges for depreciation and amortization, deferred income taxes,
pensions and other postretirement benefits of $81.2 million; and
- - $86.9 million of cash provided by a reduction in inventories and an
increase in current liabilities, offset by an increase in accounts
receivable of $76.9 million.
Working capital at June 30, 1999 also increased as a result of the net cash
proceeds held at June 30, 1999 from the IPO, the issuance of the Notes and the
sale-leaseback transactions, after repayment of outstanding borrowings on the
Revolving Credit and Receivables facilities and the funding of capital
expenditures and the Colfor and MSP purchase consideration, and the addition of
Colfor and MSP working capital.
As part of our arrangements with GM, payment terms for products shipped to GM
will steadily lengthen during the three-year period beginning March 1, 1999,
resulting in an expected increase in accounts receivable balances and a related
anticipated increase in interest expense related to our funding of working
capital. The increase in accounts receivable from GM at June 30, 1999, compared
with December 31, 1998, reflects the transition from next day payment terms to
net 10 days effective March 1, 1999. We anticipate that this and future
increases in working capital associated with the lengthening of GM payment
terms, will be funded from available sources including cash flow from operations
and our Credit Facilities.
At June 30, 1999, $375.0 million of borrowings were outstanding under the Term
Loan Facility and $375.0 million was available for future borrowings under the
Term Loan and Revolving Credit Facilities. Additionally at June 30, 1999, $90.0
million was outstanding and $5.2 million was available under the variable
funding certificates of the Receivables Facility.
<PAGE> 17
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The weighted average interest rate of our long-term debt outstanding as of June
30, 1999 was approximately 8.2% and was approximately 8.0% at December 31, 1998.
This increase in the weighted average interest rate of our long-term debt
outstanding is primarily due to the impact of the issuance of the Notes.
Capital expenditures were $110.0 million in the six months ended June 30, 1999
and $121.4 million in the six months ended June 30, 1998. These investments were
primarily made to support the launch of new product programs, to reduce
labor-intensive operations, to support additional capacity and for cost
reduction programs, including upgrades in machinery technology and quality
standards. We estimate that we will invest approximately $300 million in capital
expenditures during 1999, which we intend to fund from available sources,
including cash on-hand at June 30, 1999, cash provided from operations, and
borrowings under the Credit Facilities or the Receivables Facility.
On an overall basis, we believe our lines of credit are adequate to support
ongoing operational requirements. Beyond that, we believe we have sufficient
financial flexibility to attract long-term funding on acceptable terms as may be
needed to support our growth objectives.
SEASONALITY
Our business is 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 traditionally have incurred lower
production rates in the third quarter. Accordingly, third and fourth quarter
results may reflect these trends.
FINANCIAL INSTRUMENTS 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 attempts to manage these risks to an acceptable level based on
management's judgment of the appropriate trade-off between risk, opportunity and
costs. We hedge our interest rate risks by utilizing swaps and collars. Because
most of our business is denominated in U.S. dollars, we do not currently have
significant exposures relating to currency risks and did not have any financial
instruments to reduce currency risks at June 30, 1999, or at December 31, 1998.
We do not hold financial instruments for trading or speculative purposes.
The Credit Facilities require us to enter into interest rate hedging
arrangements with a notional value of $112.5 million. The arrangements entered
into by us, which terminate in December 2000, require us to pay a floating rate
of interest based on three-month LIBOR with a cap rate of 6.5% and a floor rate
of 5.5%.
Interest Rate Risk. As part of our risk-management program, we perform
sensitivity analyses to assess potential gains and losses in earnings and
changes in fair value relating to hypothetical movements in interest rates. A
100 basis-point increase in interest rates (approximately 12.5% of our weighted
average interest rate) affecting our debt obligations, related interest rate
swaps and collars (based on balances existing at December 31, 1998), would have
impacted our 1998 pretax earnings by approximately $5.9 million.
<PAGE> 18
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Currency Risk. We do not currently have material exposures to currency
exchange-rate risk as most of our business is denominated in U.S. dollars.
Future business operations and opportunities, including the construction of a
new manufacturing facility in Guanajuato, Mexico and our recently acquired
Albion operations in Europe, may expose us to the risk that the eventual net
dollar cash inflows resulting from these activities may be adversely affected by
changes in currency exchange rates. We intend to manage these risks by utilizing
various types of foreign exchange contracts where appropriate.
YEAR 2000 COMPLIANCE
We have implemented a program to identify Year 2000 compliance issues and
develop detailed project plans so that our computer information systems will be
able to interpret the calendar year term "2000". Systems that process
transactions based on storing two digits for the year rather than the full four
digits may encounter significant process inaccuracies and even inoperability in
attempting to process Year 2000 transactions.
The Year 2000 compliance program implemented by us addresses all plant
facilities, equipment, computer hardware and software, and business support
equipment. The Year 2000 compliance program also includes modifications and
conversions necessary to address our systems and process interfaces with
third-party suppliers and customers. To date, we have named Year 2000 compliance
program team leaders, established project teams covering all locations worldwide
(including Colfor and MSP), completed our assessment of all systems which we
believe could be significantly affected by the Year 2000 issue, defined plans
for remediation and issued communications to all our departments regarding Year
2000 issues and strategies. Management presently believes that, with
modifications to existing systems and processes currently in process and
scheduled to be completed in October 1999, Year 2000 compliance will not pose
significant operational problems. In addition we plan to impose a moratorium on
non-essential system enhancements from October 1999 through January 2000.
Our design, engineering, manufacturing and administrative functions are reliant
upon a variety of third parties who could also be affected by the Year 2000
issue. As a part of our Year 2000 compliance program, we have initiated
communications with key suppliers, customers and other such third parties to
evaluate their Year 2000 readiness and to determine whether a Year 2000-related
event could impede the ability of such suppliers, customers or other third
parties to interact with and support our operations effectively. Issues
identified as a result of these communications have been addressed in our Year
2000 compliance program remediation and contingency planning actions.
Costs incurred by us to address Year 2000 compliance include the acquisition of
computer hardware and software to replace existing Year 2000 non-compliant
systems. These costs have been capitalized and amortized over the assets'
estimated useful lives. There are no significant systems replacement initiatives
that have been accelerated as a result of our Year 2000 compliance assessments.
Costs associated with modifying existing Year 2000 non-compliant systems are
expensed as incurred. The amounts expensed to date have been immaterial and we
do not expect amounts
<PAGE> 19
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required to be expensed in the future to have a material effect on our financial
position or results of operations.
If the modifications and conversions planned by us to address Year 2000
compliance are not completed on a timely basis, or if our key suppliers,
customers or other third parties have significant unresolved systems problems,
there is a risk that Year 2000 compliance could have a material impact on our
operations. Potential sources of risk include:
- - the inability of key suppliers (or their suppliers) to be Year 2000 ready,
which could result in delays in product or service deliveries from such
suppliers;
- - the inability of key customers (or their other suppliers) to be Year 2000
ready, which could result in the cancellation or postponement of orders
from such customers;
- - systems incompatibilities with key suppliers or customers resulting from
software conversions or other modifications; and
- - our inability to modify or replace systems on a timely basis, which could
result in manufacturing process delays that interrupt product shipments.
We are presently developing contingency plans for all significant components of
our computer information systems, including all plant equipment and business
support equipment and expect to complete such contingency arrangements by
October 1999. These contingency plans involve, among other things, manual
work-arounds, alternative sourcing strategies and flexible staffing
arrangements.
LITIGATION AND ENVIRONMENTAL REGULATIONS
We are involved in various legal proceedings incidental to our business.
Although the outcome of these matters can not be predicted with certainty,
management believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on the financial condition,
results of operations or cash flows.
GM has agreed to indemnify and hold harmless AAM, Inc. from certain
environmental issues identified as potential areas of environmental concern at
the time of the 1994 Acquisition. GM has also agreed to indemnify AAM, Inc.,
under certain circumstances, for up to ten years from the date of closing of the
1994 acquisition with respect to certain pre-closing environmental conditions.
Approximately one-acre of a parking lot at our Buffalo facility has been
designated by the New York Department of Environmental Conservation ("NYDEC") as
a Class 3 Inactive Hazardous Waste Disposal Site due to the presence of
polychlorinated byphenyls in subsurface soil and groundwater below existing
pavement, and an elevated level of lead in the soil. A Class 3 designation is
given to a site which does not present a significant threat to the public health
or environment and at which action may be deferred. The area is the subject of
an Order of Consent between GM and NYDEC effective February 2, 1995. Remediation
required thereunder is being performed by GM in the ordinary course of business.
In addition, GM is conducting remediation at our Tonawanda facility as a result
of the presence of polychlorinated biphenyls in
<PAGE> 20
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the soil. The contamination of both sites took place prior to our acquiring the
properties and is the responsibility of GM.
Based on our assessment of costs associated with our environmental
responsibilities, including recurring administrative costs, capital expenditures
and other compliance costs, such costs have not had, and in management's
opinion, will not have in the foreseeable future, a material effect on our
financial condition, results of operations, cash flows or competitive position.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1999, FASB Statement No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
An amendment of FASB Statement No. 133", was issued. FASB Statement No 137 and
FASB Statement No. 133 establish standards for the recognition and measurement
of derivatives and hedging activities. These statements are effective for fiscal
years beginning after June 15, 2000. We are currently analyzing the impact these
statements will have on our financial statements.
FORWARD-LOOKING INFORMATION
Certain statements in this Section and elsewhere in the Quarterly Report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect", "anticipate", "intend", and "project"
and similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this Quarterly Report.
The statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors, including reduced sales by the Company's customers, changes in
economic conditions in the markets served by the Company, increasing
competition, fluctuations in raw materials and energy prices, and other
unanticipated events and conditions. It is not possible to foresee or identify
all such factors. The Company makes 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.
<PAGE> 21
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PART II OTHER INFORMATION
Item 5. Other information
Effective July 6, 1999, the Company appointed Robin J. Adams to the
position of Executive Vice President and Chief Financial Officer.
On April 21, 1999, Forest J. Farmer Sr. and Robert L. Friedman were
elected to the Company's Board of Directors.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit
Index hereto.
(b) Report on Form 8-K
During the quarter ended June 30, 1999, the Company filed no Current
Reports on Form 8-K.
<PAGE> 22
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Registrant)
Date: August 16, 1999 By: /s/ Robin J. Adams
------------------
Robin J. Adams
Executive Vice President and
Chief Financial Officer
<PAGE> 23
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EXHIBIT INDEX
The following exhibits were previously filed unless otherwise indicated:
<TABLE>
<CAPTION>
Number Description of Exhibit Page Number
- ------ ---------------------- -----------
<S> <C> <C>
*10.01 Employment agreement, dated as of July 6, **
1999, by and between American Axle &
Manufacturing Holdings, Inc. and Robin J. Adams.
*12.01 Statement of Computation of Ratio of Earnings to Fixed
Charges 24
*27 Financial Data Schedule **
(All other exhibits are not applicable.)
</TABLE>
- --------------------------------------------------------------------------------
* Filed herewith
** Shown only in the original filed with the Securities and Exchange Commission
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (hereinafter the "Agreement") is entered into as
of the 6th day of July, 1999 ("Effective Date"), by and between American Axle &
Manufacturing Holdings, Inc. ("Company") and Robin J. Adams (hereinafter the
"Executive").
BACKGROUND
WHEREAS, the Company desires to employ Executive, and Executive is willing
to accept employment with the Company, upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and with the intention of being legally bound hereby, the parties hereby agree
as follows:
1. EMPLOYMENT.
The Company hereby employs Executive, and Executive hereby accepts such
employment during the Employment Term as defined below and on the terms and
subject to the conditions hereinafter set forth.
2. MANAGEMENT DUTIES.
During the Employment Term, Executive shall serve as the Company's Executive
Vice President - Finance and Chief Financial Officer, reporting to the Company's
Chairman, CEO & President.
3. EXTENT OF SERVICES.
During the Employment Term, Executive shall devote substantially his full time
and attention and give his best efforts, skills, and professional abilities to
the management and operations of the Company and its business and in carrying
out the duties of the position set forth in the previous section.
4. COMPENSATION AND BENEFITS.
(a) During the Employment Term, Executive shall receive as compensation for his
services such salary, benefits, and other compensation as are set forth in this
Agreement and Exhibit A hereto, which cash compensation shall be payable in
regular installments in accordance with Company's usual payroll practices.
(b) During the Employment Term, Executive shall be entitled to participate in
all employee benefit plans made available by the Company in its discretion
generally to all other employees of the Company from time to time.
(c) Executive shall be entitled to a vacation during each year of the Agreement,
and such holidays established by the Company from time to time.
(d) All payments made to Executive or his estate which are made pursuant to this
Agreement shall be subject to such withholding as may be required by any
applicable laws, including without limitation any federal, state, and local
taxes as may be required to be withheld pursuant to any applicable law or
regulation.
5. EXPENSE REIMBURSEMENTS.
During the Employment Term, the Company shall promptly reimburse Executive for
all reasonable and itemized out-of-pocket expenses incurred by Executive in the
ordinary course of the Company's business, provided such expenses are incurred,
reported, and approved in accordance with the Company's established written
policies and procedures for Company employees generally or such written policies
and procedures applicable to senior executives of the Company, if the same shall
exist.
<PAGE> 2
6. TERM.
The period of Executive's employment under this Agreement (the "Employment
Term") shall commence on the Effective Date and, unless sooner terminated
pursuant to Section 10 of this Agreement, shall continue until the close of
business on the day immediately preceding the third anniversary of the Effective
Date.
7. REPRESENTATIONS, WARRANTIES, AND ACKNOWLEDGMENTS OF EXECUTIVE.
(a) Executive represents and warrants that he is not a party to or otherwise
subject to or bound by the terms of any contract, agreement, or understanding
which in any manner would limit or otherwise affect his ability to perform his
obligations hereunder, including without limitation any contract, agreement, or
understanding containing terms and provisions similar in any manner to those
contained herein, and that the execution and delivery of this Agreement and the
performance by Executive of his duties hereunder shall not constitute a breach
of, or otherwise contravene, the terms of any employment agreement or policy to
which Executive is a party or otherwise bound.
(b) Executive recognizes and acknowledges that (i) in the course of Executive's
employment by the Company it will be necessary for Executive to acquire
information which could include, in whole or in part, information concerning the
Company's or any parent's, subsidiary's, or affiliate's experimental and
development plans, trade secrets, secret procedures, information relating to
ideas, improvements, inventions, manufacturing processes, customers, software,
computer programs, disclosures, processes, systems, formulas, composition,
patents, patent applications, machinery, materials research activities and
plans, customers or vendors and prospective customers, the Company's or any
parent's, subsidiary's, or affiliate's product costs, the Company's or any
parent's, subsidiary's, or affiliate's prices, profits, and volume of sales, and
future business plans, and other confidential or proprietary information
belonging to the Company or any parent, subsidiary, or affiliate or relating to
the Company's or any parent's, subsidiary's, or affiliate's affairs, even if
such information has been disclosed to one or more third parties pursuant to
licensing or customer agreements or other agreements entered into by the Company
or any of its affiliates (collectively, such information is referred to herein
as the "Confidential Information"); (ii) the Confidential Information is the
property of the Company and/or any parent, subsidiary, or affiliate, as the case
may be; (iii) the use, misappropriation or disclosure of the Confidential
Information would cause irreparable injury to the Company; and (iv) it is
essential to the protection of the Company's good will and to the maintenance of
the Company's competitive position that the Confidential Information be kept
secret and that Executive not disclose the Confidential Information to others or
use the Confidential Information to Executive's own advantage or the advantage
of others (except as may be necessary for the performance of Executive's duties
hereunder or as may otherwise be provided for herein). The term "Confidential
Information" shall not include information which is or becomes generally
available to the public other than as a result of a disclosure by Executive in
violation of this Agreement.
(c) Executive further recognizes and acknowledges that his duties at the Company
may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done
as "work made for hire" as defined and used in the Copyright Act of 1976, 17
U.S.C. Section 1 et seq. In the event of publication of such materials,
Executive acknowledges that since the work is "work made for hire," the Company
will solely retain and own all rights in such materials, including right of
copyright and any associated goodwill.
8. EXECUTIVE'S COVENANTS AND AGREEMENTS.
(a) During the Employment Term, Executive shall not engage in any other
business, profession, or occupation for compensation or otherwise which would
conflict with the rendition of such services, either directly or indirectly,
without the prior written consent of the Company.
(b) Executive agrees to hold and safeguard the Confidential Information in
trust for the Company and any parent, subsidiary, or affiliate, and its and
their successors and assigns and agrees that he shall not, without the prior
written consent of the Company, disclose or make available to anyone for use
outside the Company's organization at any time, either during his employment
with the Company or thereafter, any of the Confidential Information, whether or
not developed by Executive, except as required in the performance of
Executive's duties to the
2
<PAGE> 3
Company. The foregoing notwithstanding, the Company acknowledges that Executive
may be required by applicable law or regulation or requested in connection with
any judicial, administrative, or governmental proceeding to disclose or
otherwise make available some or all of the Confidential Information. In any
such event, Executive shall treat such requirement or request consistent with
his position as Executive Vice President - Finance and Chief Financial Officer
or, if such requirement or request is learned by Executive following the
Employment Term, Executive shall provide the Company with written notice of such
requirement or request as soon as practicable after learning of same, shall
furnish only that portion of the Confidential Information which Executive is
advised by his counsel is legally required, and shall reasonably cooperate with
the Company in the event the Company seeks a protective order for such
disclosure.
(c) Executive shall disclose promptly to the Company any and all Company
Inventions (as defined below) authorized, conceived, or made by Executive during
the period of Executive's employment by the Company and related to the business
or activities of the Company, and hereby assigns and agrees to assign all of his
right, title, and interest, together with any and all associated goodwill,
world-wide in all Company Inventions and in all intellectual property rights
based upon Company Inventions to the Company. Whenever requested to do so by the
Company, Executive shall execute any and all applications, assignments, or other
instruments which the Company shall deem reasonably necessary to apply for and
obtain letters patent, mask works, trademarks, service marks, or copyrights of
the United States or any foreign country or to otherwise protect the Company's
interest therein or to evidence the assignments thereof to the Company. Such
obligations shall continue beyond the termination of Executive's employment with
the Company, regardless of the reason for such termination, with respect to
Company Inventions authored, conceived, or made by Executive during the period
of Executive's employment by the Company, and shall be binding upon Executive's
assigns, executors, administrators, and other legal representatives. The Company
shall be responsible for the preparation of any such instruments, documents,
papers, and the like and for the prosecution of any proceedings and shall
promptly reimburse Executive for all reasonable expenses incurred by him in
compliance with this Section. In the event that the Company is unable for any
reason to secure Executive's signature to any lawful and necessary document
required to apply for or execute any patent, mask work, trademark, service mark,
copyright, or other applications with respect to any Company Inventions
(including but not limited to any renewals, extensions, continuations,
divisions, or continuations in part thereof), Executive hereby irrevocably
appoints the Company and its duly authorized officers and agents as his agents
and attorneys in fact to execute and file any such application and to do all
other lawfully permitted acts to further the prosecution and issuance of
patents, mask works, trademarks, service marks, copyrights, or other rights
relating to such Company Inventions with the same legal force and effect as if
executed by Executive.
(d) As used in this Agreement: (i) "Inventions" means any new or useful art,
discovery, contribution, finding, and improvement thereof or know-how related
thereto, whether patentable or not, including but not limited to contributions,
concepts, ideas, developments, discoveries, processes, formulas, methods,
composition, techniques, articles, machines, designs, programs or software, and
mask works; and (ii) "Company Inventions" means all Inventions conceived or made
by Executive, alone or with others, which (1) relate or may relate in any manner
to the Business or its research and development, (2) were conceived or made, in
whole or in part, on the Company's time or with any of the Company's or any
parent's, subsidiary's, or affiliate's equipment, supplies, facilities or
Confidential Information of the Company or any parent, subsidiary, or affiliate,
or (3) result from tasks assigned to Executive by the Company.
(e) Upon the termination of Executive's employment with the Company for any
reason, Executive shall promptly deliver to the Company all correspondence,
drawings, blueprints, manuals, letters, notes, notebooks, reports, flow-charts,
programs, proposals, price lists, customer lists, potential customer contact
lists, Company vehicles, access cards, confidential directories, documents
containing, summarizing, or otherwise reflecting non-public financial or other
information, and any documents concerning the Company's customers or concerning
products or processes used by the Company and, without limiting the foregoing,
will promptly deliver to the Company any and all other documents or materials
containing or constituting Company Inventions or Confidential Information.
(f) Executive acknowledges and agrees that the remedies of Company and/or any
parent, subsidiary, or affiliate at law for a breach or threatened breach of any
of the provisions of sections 7, 8, and 11 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach,
3
<PAGE> 4
in addition to any remedies at law, the Company, and any parent, subsidiary, or
affiliate, without posting any bond, shall be entitled to cease making any
payments or providing any benefit otherwise required by this Agreement and
obtain equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction, or any other equitable
remedy which may then be available.
9. WAIVER OF BREACH.
The waiver by the Company of a breach of any provision of this Agreement by
Executive shall not operate or be construed as a waiver of any other or
subsequent breach by Executive of such or any other provision. No delay or
omission by the Company or Executive in exercising any right, remedy, or power
hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy, or power may be exercised by the Company or
Executive from time to time and as often as may be deemed expedient or necessary
by the Company or Executive in its or his sole discretion.
10. TERMINATION.
(a) Notwithstanding the Employment Term set forth in Section 6 hereof, this
Agreement shall terminate upon the earliest to occur of the following:
(i) the close of business on the last day of the Employment Term;
(ii) the Executive's death;
(iii) delivery of a written notice by either party to terminate
Executive's employment hereunder because of Executive's Disability (as
defined below); or
(iv) delivery by the Company to Executive of a written notice of the
Company's election to terminate Executive's employment hereunder for
Cause (as defined below).
(b) For purposes of this Agreement:
(i) "Executive's Disability" shall have the same meaning as such term
is used in such Company provided benefit plan(s) in which Executive is a
plan participant at the time of such claimed Executive Disability, provided
such plan(s) which is/are designed to provide benefits to Executive in the
event of a disability as defined therein. In the absence of such plan(s) or
in the event of any ambiguity of definition, "Disability" shall mean that
Executive is unable for a period of six (6) consecutive months or for an
aggregate of nine (9) months in any twelve (12) month period to
substantially perform Executive's duties as defined herein. Any question as
to the existence of the Disability of Executive as to which Executive and
Company cannot agree shall be determined in writing by a qualified
independent physician mutually acceptable to Executive and Company. If
Executive and Company cannot agree upon a qualified independent physician,
each shall appoint such a physician and those two physicians shall select a
third who shall make such determination in writing. The determination of
Disability made in writing to the Company and Executive by such three
physicians shall be final and conclusive for all purposes of this
Agreement.
(ii) "Cause" shall mean any of the following:
(1) any breach by Executive of the terms of this Agreement,
including violation of any Company policy(ies), as the same may
be altered, amended, instituted, or adopted from time to time,
which shall not have been cured within ten (10) business days
following a written demand for performance from the Company's
board of directors or its designee which identifies the manner in
which the Executive is alleged to have breached this Agreement;
(2) Executive's commission of any act of dishonesty in
rendering services hereunder, including without limitation
falsification of records, expense accounts, and other reports;
4
<PAGE> 5
(3) Executive's willful malfeasance, nonfeasance, or
willful misconduct in connection with his duties hereunder or any
act or omission which is materially injurious to the financial
condition or business reputation of the Company or any of its
parent corporations, affiliates, or subsidiaries;
(4) Executive's conviction of a felony or other crime
involving moral turpitude, fraud, embezzlement, or theft,
including without limitation any felony under the laws of the
United States of America, Canada, or Mexico, or any state or
province thereof; or
(5) drunkenness or other substance abuse while rendering
services hereunder or that impairs Executive's ability to perform
his duties hereunder or renders Executive unfit to serve as an
Executive of the Company in the capacity contemplated hereby.
(iii) Any termination of employment by the Company or by Executive
which is required by written notice shall be communicated in accordance
with section 12 hereof.
(c) Following any termination of Executive's employment hereunder, all
obligations of the Company under this Agreement (other than any obligations with
respect to the payment of accrued and unpaid salary, accrued and unpaid
vacation, and expense reimbursement under Section 5 hereof through the date of
Executive's termination of Employment hereunder) shall terminate.
11. NON-COMPETE; NON-SOLICITATION.
(a) Executive agrees that during the Employment Term and for eighteen (18)
months thereafter, Executive will not directly or indirectly do any of the
following:
(i) engage (whether as principal, agent, officer, director, employee,
consultant, partner, shareholder, individual proprietor, or otherwise,
whether alone or in association with any other person or entity) in any
business, enterprise, endeavor, or activity (other than the Company) which
(i) manufactures or markets products or services which are similar to or
compete with those produced or sold by Company or any parent, subsidiary,
or affiliate of Company, including without limitation any businesses or
endeavor which the Company or any parent, subsidiary, or affiliate have
specific plans to conduct in the future and as to which Executive is aware
of such planning, or (ii) is in competition with or substantially similar
to the business conducted by Company or any parent, subsidiary, or
affiliate of Company prior to the date hereof;
(ii) solicit, divert, or take away, or attempt to solicit, divert or
take away the trade of, or trade with, any customer, client, account, or
supplier, or prospective customer, client, account or supplier of Company
or any parent, subsidiary, or affiliate thereof, for any purpose other than
for the benefit of the Company;
(iii) recruit, solicit, or induce or attempt to recruit, solicit, or
induce, any employee of the Company or any parent, subsidiary, or affiliate
thereof, to leave his employment for any reason whatsoever, nor offer or
provide employment, either on a full time or part time or consulting basis,
to any person who then currently is, or who within one year prior thereto
had been, employed by the Company or any parent, subsidiary, or affiliate
thereof;
(iv) interfere with business relationships (whether formed before or
after the date of this Agreement) between the Company or any parent,
subsidiary, or affiliate and its/their customers, suppliers, and/or joint
venture partners;
(v) interfere with employment relationships between Company or any
parent, subsidiary, or affiliate and its/their employees, agents, or
consultants.
Should any provision of this Section be adjudged to any extent invalid by any
competent tribunal or court, such provision shall be deemed modified to the
extent necessary to make it enforceable. It is expressly understood and agreed
that although Executive and the Company consider the restrictions contained in
this section 11 to be fair and reasonable, if a final judicial determination is
made by a court of competent jurisdiction that the time or territory or
5
<PAGE> 6
any other restriction contained in this Agreement is an unenforceable
restriction against Executive, the provisions of this Agreement shall not be
rendered void but shall be deemed amended to apply as to such maximum time and
territory and to such maximum extent as such court may judicially determine or
indicate to be enforceable.
(b) The provisions of this section 11 shall not be construed to prohibit the
ownership by Executive of up to 3% of any class of securities of any corporation
that has a class of securities registered pursuant to the Securities Exchange
Act of 1934, as amended.
12. NOTICES.
All notices required or permitted hereunder shall be made in writing by
hand-delivery, certified or registered first class mail, or air courier
guaranteeing overnight delivery to the other party at the following addresses:
To the Executive: Robin J. Adams
------------------------------------
------------------------------------
To Company: Vice President - Human Resources
American Axle & Manufacturing, Inc.
1840 Holbrook Avenue
Detroit, Michigan 48212-3488
copy to: General Counsel
American Axle & Manufacturing, Inc.
1840 Holbrook Avenue
Detroit, Michigan 48212-3488
or to such other address as either of such parties may designate in a written
notice served upon the other party in the manner provided herein. All notices
required or permitted hereunder shall be deemed duly given and received when
delivered by hand, if personally delivered; on the third business day after the
date of mailing if sent by certified or registered first-class mail; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
13. SEVERABILITY.
If any term or provision of this Agreement or the application thereof to any
person or circumstance shall, to any extent, be held invalid or unenforceable by
a court of competent jurisdiction, the remainder of this Agreement or the
application of any such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law. If any of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, scope, activity or subject, it shall be construed by limiting
and reducing it so as to be valid and enforceable to the extent compatible with
the applicable law or the determination by a court of competent jurisdiction.
14. GOVERNING LAW.
The implementation and interpretation of this Agreement shall be governed by and
enforced in accordance with the laws of the State of Michigan, U.S.A., without
giving effect to the conflicts of laws provisions thereof.
15. BINDING EFFECT AND ASSIGNABILITY.
The rights and obligations of the parties under this Agreement shall inure to
the benefit of, shall be binding upon, and shall be enforceable by, their
respective heirs, successors, assigns, personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. Executive's rights under this Agreement shall
6
<PAGE> 7
not, in any voluntary or involuntary manner, be assigned or assignable and may
not be pledged or hypothecated without the prior written consent of the Company.
16. COUNTERPARTS; SECTION HEADINGS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
but one and the same instrument. The section headings of this Agreement are for
convenience of reference only.
17. SURVIVAL.
Except as expressly provided herein, notwithstanding the termination or
expiration of this Agreement or Executive's employment hereunder for any reason,
Sections 7(b), 7(c), 8, 11, 14, 15, and 17 hereof shall survive any such
expiration or termination.
18. ENTIRE AGREEMENT.
This instrument constitutes the entire agreement with respect to the subject
matter hereof between the parties hereto and replaces and supersedes as of the
date hereof any and all prior oral or written agreements and understandings
between the parties hereto. This Agreement may only be modified or amended by a
written agreement executed by the both the Executive and the Company, provided
execution by the Company.
19. AGREEMENT TO CONTROL.
In the event of any conflict or inconsistency between the terms of this
Agreement and the terms of any other agreement, plan, or arrangement to which
Executive is a party, or which apply to or benefit the Executive, the terms of
this Agreement shall control.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement the date first written above.
EXECUTIVE: COMPANY:
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
/s/ Robin J. Adams By: /s/ Allan R. Monich
- --------------------------- --------------------------------
Robin J. Adams Name: Allan R. Monich
--------------------------------
Title: Vice President - Human Resources
--------------------------------
7
<PAGE> 8
Exhibit A
Compensation Package
--------------------
Position: Executive Vice President - Finance and Chief
Financial Officer ("CFO") of American Axle &
Manufacturing Holdings, Inc.
Base Salary: $225,000.00(1)
Incentive Compensation (Bonus): Eligibility for annual bonus consistent with
American Axle & Manufacturing, Inc., Incentive
Compensation (Bonus) Plan, as the same is
adopted or amended from time to time (2)
Stock Option Plan: Inclusion in the American Axle & Manufacturing
Holdings, Inc. 1999 Stock Incentive Plan to
purchase 100,000 shares at market price on date
of grant to be earned out over 3 years -- 1/3
each year (currently under development) (3)
Vacation Eligibility: Four (4) weeks
Company Vehicle: In accordance with the corporate vehicle
program for American Axle & Manufacturing,
Inc., as the same may be amended from time to
time
Other: Relocation package
- --------------------------------------------------------------------------------
(1) Eligible for annual merit increase consideration in accordance with
corporate policies and practice.
(2) Based on overall performance of American Axle & Manufacturing, Inc.
(3) Subject to approval of AAM Board of Directors.
<PAGE> 1
-24-
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Exhibit 12.01 - Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
(in millions, except for ratios)
YEAR ENDED DECEMBER 31: 1998 1997 1996 1995
- ----------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Fixed charges:
Interest expense, including amortization of debt issuance costs $ 44.8 $ 9.0 $ 0.3 $ 1.6
Estimated interest portion of rents 4.6 3.2 1.5 0.1
Capitalized interest 3.8 0.2 - -
Preferred stock dividend - 12.0 17.9 13.6
Gross-up of preferred stock dividend as if it were pre-tax - 6.8 10.1 7.7
-----------------------------------------
Total fixed charges as defined 53.2 31.2 29.8 23.0
Earnings:
Income from continuing operations before income tax expense 5.6 94.2 98.3 118.0
Total fixed charges as defined 53.2 31.2 29.8 22.9
Fixed charges not deducted in the determination of income from
continuing operations before income tax expense (3.8) (19.0) (28.0) (21.3)
-----------------------------------------
Total earnings as defined 55.0 106.4 100.1 119.6
-----------------------------------------
Ratio of earnings to fixed charges 1.03 3.41 3.36 5.21
=========================================
<CAPTION>
Six
SIX MONTHS ENDED JUNE 30, 1999: Months
- ------------------------------- -----------
<S> <C>
Fixed charges:
Interest expense, including amortization of debt issuance costs $28.7
Estimated interest portion of rents 3.1
Capitalized interest 3.1
----------
Total fixed charges as defined 34.9
Earnings:
Income from continuing operations before income tax expense 99.0
Total fixed charges as defined 34.9
Fixed charges not deducted in the determination of income from
continuing operations before income tax expense (3.1)
----------
Total earnings as defined 130.8
----------
Ratio of earnings to fixed charges 3.7
==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 215
<SECURITIES> 0
<RECEIVABLES> 228
<ALLOWANCES> 5
<INVENTORY> 115
<CURRENT-ASSETS> 579
<PP&E> 1,017
<DEPRECIATION> 243
<TOTAL-ASSETS> 1,602
<CURRENT-LIABILITIES> 442
<BONDS> 795
0
0
<COMMON> 0
<OTHER-SE> 210
<TOTAL-LIABILITY-AND-EQUITY> 1,602
<SALES> 1,499
<TOTAL-REVENUES> 1,499
<CGS> 1,298
<TOTAL-COSTS> 1,298
<OTHER-EXPENSES> 73
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 100
<INCOME-TAX> 36
<INCOME-CONTINUING> 63
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63
<EPS-BASIC> 2
<EPS-DILUTED> 1
</TABLE>
