<PAGE> 1
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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, 2000
------- 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 August 7, 2000, the latest practicable date, was 46,357,012
shares.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------------- -----------------
ASSETS (IN MILLIONS)
<S> <C> <C>
Current assets:
Cash and equivalents $ 67.9 $ 140.2
Accounts receivable, net 327.5 194.0
Inventories 138.9 133.3
Prepaid expenses and other 33.8 22.3
Deferred income taxes 19.7 19.7
----------------- -----------------
Total current assets 587.8 509.5
Property, plant and equipment, net 1,056.9 929.0
Deferred income taxes 24.4 50.5
Goodwill and other assets, net 191.8 188.1
----------------- -----------------
TOTAL ASSETS $ 1,860.9 $ 1,677.1
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 287.6 $ 269.1
Accrued compensation and benefits 135.3 129.7
Other accrued expenses 58.6 47.9
----------------- -----------------
Total current liabilities 481.5 446.7
Long-term debt and capital lease obligations 820.7 774.9
Postretirement benefits and other long-term liabilities 215.6 191.8
----------------- -----------------
TOTAL LIABILITIES 1,517.8 1,413.4
Stockholders' equity
Common stock, par value $.01 per share 0.5 0.5
Paid-in capital 199.8 199.8
Retained earnings 144.2 64.1
Cumulative translation adjustment and other (1.4) (0.7)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 343.1 263.7
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,860.9 $ 1,677.1
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ --------------------
2000 1999 2000 1999
------------------------ ---------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $ 819.7 $ 800.8 $ 1,655.6 $ 1,498.5
Cost of goods sold 699.6 692.4 1,415.8 1,298.0
---------- ---------- --------- ---------
Gross profit 120.1 108.4 239.8 200.5
Selling, general and
administrative expenses 41.9 39.1 84.1 73.1
Goodwill amortization 1.1 1.1 2.1 1.2
---------- ---------- --------- ---------
Operating income 77.1 68.2 153.6 126.2
Net interest expense (14.9) (15.1) (28.1) (27.1)
Other income (expense), net 1.3 (0.1) 1.6 (0.1)
---------- ---------- --------- ---------
Income before income taxes 63.5 53.0 127.1 99.0
Income taxes 23.5 19.3 47.0 36.3
---------- ---------- --------- ---------
Net income $ 40.0 $ 33.7 $ 80.1 $ 62.7
========== ========== ========= =========
Basic earnings per share $ 0.87 $ 0.85 $ 1.73 $ 1.63
========== ========== ========= =========
Diluted earnings per share $ 0.80 $ 0.67 $ 1.60 $ 1.28
========== ========== ========= =========
Average shares outstanding:
Basic earnings per share 46.4 39.5 46.4 38.4
========== ========== ========= =========
Diluted earnings per share 50.1 50.1 50.1 49.0
========== ========== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
--------- ------------
(IN MILLIONS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 80.1 $ 62.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 50.4 44.4
Deferred income taxes 32.1 12.7
Pensions and other postretirement benefits, net of
contributions 18.8 22.2
Loss on disposal of equipment 1.1 1.2
Changes in operating assets and liabilities:
Accounts receivable (134.6) (76.9)
Inventories (7.9) 30.7
Current liabilities 28.2 56.2
Other assets and liabilities (8.3) 5.5
---------- -----------
Net cash provided by operating activities 59.9 158.7
---------- -----------
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (179.8) (110.0)
Acquisitions, net of cash acquired - (225.9)
Proceeds from sale-leaseback of equipment - 187.0
---------- -----------
Net cash used in investing activities (179.8) (148.9)
---------- -----------
FINANCING ACTIVITIES
Net borrowings of (payments on) long-term debt 47.6 (185.9)
Issuance of 9.75% Senior Subordinated Notes Due 2009 - 288.7
Debt issuance costs - (9.4)
Proceeds from issuance of common stock, net - 107.7
---------- -----------
Net cash provided by financing activities 47.6 201.1
---------- -----------
Effect of exchange rate changes on cash - -
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Net (decrease) increase in cash and equivalents (72.3) 210.9
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 140.2 4.5
---------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 67.9 $ 215.4
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
American Axle & Manufacturing Holdings, Inc. ("Holdings") and its
subsidiaries (collectively, the "Company"), operates in one reportable
segment as a Tier 1 supplier to the automotive industry and is a world
leader in the manufacturing, engineering and design of driveline
systems (including forged products) for trucks, buses, sport-utility
vehicles, and passenger cars.
Basis of Presentation
The accompanying interim condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q
under the Securities Exchange Act of 1934, as amended. The statements
are unaudited but include all adjustments, consisting only of recurring
items, except as noted, which the Company considers necessary for a
fair presentation of the information set forth herein. Results of
operations for the periods presented are not necessarily indicative of
the results for the full fiscal year. Certain reclassifications have
been made to the 1999 statements to conform with the 2000 statement
presentation.
The balance sheet at December 31, 1999 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, 1999.
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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,
2000 1999
----------------------------------------------
<S> <C> <C>
Assets: (In millions)
Current assets $ 587.8 $ 509.5
Noncurrent assets 1,273.1 1,167.6
----------------------------------------------
Total assets $ 1,860.9 $ 1,677.1
==============================================
Liabilities:
Current liabilities $ 481.5 $ 446.7
Noncurrent liabilities 1,036.3 966.7
----------------------------------------------
Total liabilities $ 1,517.8 $ 1,413.4
==============================================
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
----------------------------------------------
(In millions)
<S> <C> <C>
Net sales $ 1,655.6 $ 1,498.5
Gross profit 239.8 200.5
Net income 80.1 62.7
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally using the last-in first-out method (LIFO).
Non-productive inventories consist of materials consumed in the
manufacturing process but not incorporated in the finished products.
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------------------------
(In millions)
<S> <C> <C>
Raw materials and work-in-process $ 112.3 $ 105.3
Finished goods 23.9 22.6
-------------------------
Gross inventories at average cost
136.2 127.9
Excess of average cost over LIFO cost
(7.7) (7.8)
-------------------------
Net productive inventories
128.5 120.1
Non-productive inventories
10.4 13.2
--------------------------
Total inventories $ 138.9 $ 133.3
==========================
</TABLE>
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------------------
(In millions)
<S> <C> <C>
Credit Facilities:
Revolver $ - $ -
Tranche A Term Loan - -
Tranche B Term Loan 374.5 375.0
-------------- ---------------
Total Credit Facilities 374.5 375.0
Receivables Facility 120.0 70.0
9.75% Senior Subordinated Notes Due 2009,
net of discount 298.0 297.9
Capital lease obligations and other 28.2 32.0
-------------- ---------------
Total long-term debt $ 820.7 $ 774.9
============== ===============
</TABLE>
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- --------------- --------------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Numerators for Basic and Diluted earnings per share:
Net income $ 40.0 $ 33.7 $ 80.1 $ 62.7
Denominators:
Basic earnings per share -
weighted-average shares outstanding 46.4 39.5 46.4 38.4
Effect of dilutive securities:
Dilutive stock options outstanding 3.7 10.6 3.7 10.6
-------------- -------------- --------------- --------------
Diluted earnings per share -
weighted-average shares
plus assumed conversion 50.1 50.1 50.1 49.0
============== ============== =============== ==============
Basic earnings per share $ 0.87 $ 0.85 $ 1.73 $ 1.63
============== ============== =============== ==============
Diluted earnings per share $ 0.80 $ 0.67 $ 1.60 $ 1.28
============== ============== =============== ==============
</TABLE>
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMPREHENSIVE INCOME
Comprehensive income was $39.4 million and $79.4 million for the three
months and six months ended June 30, 2000. For the three and six months
ended June 30, 1999, comprehensive income was $33.3 million and $61.8
million, respectively. Foreign currency translation is the primary
reconciling difference between comprehensive income and net income for
the periods presented.
<PAGE> 9
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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 and six months ended
June 30, 2000, and our financial position at June 30, 2000. 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, 2000 with the
corresponding period in 1999.
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, 1999. 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 Tier I supplier to the automotive industry and a world leader in the
manufacture, engineering and design of driveline systems for trucks, buses,
sport utility vehicles ("SUVs") and passenger cars. A 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. We sell most of our
products under long-term contracts at fixed prices. Some of our contracts
require us to reduce our prices in subsequent years and all of our contracts
allow us to negotiate price increases for engineering changes.
We are the principal supplier of driveline components to General Motors
Corporation ("GM") for its light trucks, SUVs and rear-wheel drive ("RWD")
passenger cars. Other customers include Ford Motor Company, DaimlerChrysler,
Nissan, Renault, Visteon Automotive, Delphi Automotive and PACCAR. In addition
to 13 locations in the United States (in Michigan, Ohio and New York), we have
offices and facilities in Japan, England, Germany, Scotland, Mexico and Brazil.
As a result of our Lifetime Program Contracts with GM ("LPCs"), we are the
sole-source supplier to GM for certain axles and other driveline products for
the life of each GM vehicle program covered by an LPC. Sales to GM were
approximately 84% of our total sales in the three months ended June 30, 2000.
Substantially all of our sales to GM are made pursuant to the LPCs. The LPCs
establish pricing for products sold to GM and require us to remain competitive
with respect to technology, design and quality. The LPCs have terms equal to the
lives of the relevant vehicle programs of typically 6 to 12 years. We will have
to compete for future GM business upon the termination of the LPCs.
Blackstone Capital Partners II Merchant Banking Fund L.P. and certain of its
affiliates (collectively, "Blackstone") acquired a controlling interest in the
Company in a leveraged recapitalization transaction consummated in October 1997
(the "Recapitalization"). In February 1999, we completed an initial public
offering and issued 7 million shares of common stock.
<PAGE> 10
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RESULTS OF OPERATIONS
The following table sets forth certain statement of income data expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 85.4 86.5 85.5 86.6
----------------------------- -----------------------------
Gross margin 14.6 13.5 14.5 13.4
Selling, general and administrative expenses 5.1 4.9 5.1 4.9
Goodwill amortization 0.1 0.1 0.1 0.1
----------------------------- -----------------------------
Operating margin 9.4 8.5 9.3 8.4
Net interest (expense) (1.8) (1.9) (1.7) (1.8)
Other income (expense), net 0.2 - 0.1 -
----------------------------- -----------------------------
Income before income taxes 7.8 6.6 7.7 6.6
Income taxes 2.9 2.4 2.9 2.4
----------------------------- -----------------------------
Net income 4.9% 4.2% 4.8% 4.2%
============================= =============================
</TABLE>
RESULTS OF OPERATIONS--THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1999
Net Sales. Net sales increased approximately 2.4% to $819.7 million for the
three months ended June 30, 2000 as compared to $800.8 million for the three
months ended June 30, 1999. This increase was primarily due to increased sales
related to GM's new full-size truck and SUV programs (GMT-800 series), on which
the Company receives a higher average dollar content per vehicle than their
predecessors (GMT-400 series), and increased sales to customers other than GM.
Sales to customers other than GM increased $15.2 million to $131.2 million for
the three months ended June 30, 2000 as compared to $116.0 million for the three
months ended June 30, 1999.
Gross Profit. Gross profit increased to $120.1 million for the three months
ended June 30, 2000 as compared to $108.4 million for the three months ended
June 30, 1999. Gross margin increased to 14.6% in the three months ended June
30, 2000 as compared to 13.5% for the three months ended June 30, 1999. The
increases in gross profit and gross margin in 2000 were primarily due to the
impact of productivity and efficiency improvements resulting from our investment
in new machinery and equipment and increased sales of next generation products,
which carry higher average selling prices. Gross profit and gross margin were
also favorably impacted by the start of production in our new Guanajuato, Mexico
and Cheektowaga, New York manufacturing facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (including research and development) increased 7.2% to
$41.9 million for the three months ended June 30, 2000 as compared to $39.1
million for the three months ended June 30, 1999. The increase in SG&A spending
was primarily due to our continued increasing investment in R&D and increased
profit-sharing accruals resulting from increased profitability, partially offset
by cost savings associated with the integration of businesses we acquired in
1998 and 1999.
<PAGE> 11
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Research and development ("R&D") expenses were $11.4 million for the three
months ended June 30, 2000 as compared to $8.8 million for the three months
ended June 30, 1999. The increase in R&D expenses in the three months ended June
30, 2000 as compared to the three months ended June 30, 1999 was primarily due
to the increased costs of supporting new customers and new product programs
currently under development.
Operating Income. Operating income increased 13.0% to $77.1 million for the
three months ended June 30, 2000 as compared to $68.2 million for the three
months ended June 30, 1999. Operating margin increased to 9.4% for the three
months ended June 30, 2000 as compared to an operating margin of 8.5% for the
three months ended June 30, 1999. 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 increased R&D and other SG&A costs.
Net Interest Expense. Net interest expense was $14.9 million for the three
months ended June 30, 2000 as compared to $15.1 million for the three months
ended June 30, 1999. The decrease in net interest expense was primarily due to a
higher amount of interest capitalized on construction in progress, partially
offset by higher average interest rates.
Income Tax Expense. Income tax expense was $23.5 million for the three months
ended June 30, 2000 as compared to $19.3 million for the three months ended June
30, 1999. Our effective income tax rate was approximately 37.0% for both of
these periods.
Net Income and Earnings Per Share. Diluted earnings per share increased
approximately 19% to $0.80 in the three months ended June 30, 2000 as compared
to $0.67 in the three months ended June 30, 1999. Net income increased
approximately 19% to $40.0 million for the three months ended June 30, 2000
compared to net income of $33.7 million for the three months ended June 30,
1999.
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1999
Net Sales. Net sales increased approximately 10.5% to $1,655.6 million for the
six months ended June 30, 2000 as compared to $1,498.5 million for the six
months ended June 30, 1999. This increase was primarily due to strong demand for
our products and increased sales related to GM's new full-size truck and SUV
programs (GMT-800 series), on which the Company receives a higher average dollar
content per vehicle than their predecessors (GMT-400 series).
Our sales also increased in 2000 due to shipments from Colfor Manufacturing,
Inc. ("Colfor") and MSP Industries Corporation ("MSP"), which we acquired on
April 1, 1999; the start-up of our new manufacturing facility in Guanajuato,
Mexico; and our joint venture in Brazil, which we acquired in the fourth quarter
of 1999. Excluding sales from the businesses acquired in 1999, our sales
increased approximately 7% in 2000 as compared to 1999.
Sales to customers other than GM increased $71.6 million to $262.8 million for
the six months ended June 30, 2000 as compared to $191.2 million for the six
months ended June 30, 1999. The increase in sales to customers other than GM is
principally due to Colfor and MSP sales in the first quarter of 2000 and
additional non-GM business we have obtained.
Gross Profit. Gross profit increased to $239.8 million for the six months ended
June 30, 2000 as compared to $200.5 million for the six months ended June 30,
1999. Gross margin increased to 14.5% in the six months ended June 30, 2000 as
compared to 13.4% for the six months ended June 30, 1999. The increases in gross
profit and gross margin in 2000 were primarily due to the impact of higher
production volumes, productivity and efficiency improvements resulting from our
investment in new machinery and equipment and increased sales of next generation
products, which carry higher average selling prices.
<PAGE> 12
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses (including research and development) increased 15.0% to
$84.1 million for the six months ended June 30, 2000 as compared to $73.1
million for the six months ended June 30, 1999. The increase in SG&A spending
was primarily due to our continued increasing investment in R&D, the addition of
Colfor, MSP and our joint venture in Brazil. SG&A also increased in 2000 due to
increased profit-sharing accruals resulting from increased profitability.
Research and development ("R&D") expenses were $21.8 million for the six months
ended June 30, 2000 as compared to $17.2 million for the six months ended June
30, 1999. The increase in R&D expenses in the six months ended June 30, 2000 as
compared to the six months ended June 30, 1999 was primarily due to the
increased costs of supporting new customers and new product programs currently
under development, as well as the addition of Colfor and MSP spending in 2000.
Operating Income. Operating income increased 22% to $153.6 million for the six
months ended June 30, 2000 as compared to $126.2 million for the six months
ended June 30, 1999. Operating margin increased to 9.3% for the six months ended
June 30, 2000 as compared to an operating margin of 8.4% for the six months
ended June 30, 1999. 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 increased R&D and other SG&A costs and higher
goodwill amortization related to Colfor, MSP and our joint venture in Brazil.
Net Interest Expense. Net interest expense was $28.1 million for the six months
ended June 30, 2000 as compared to $27.1 million for the six months ended June
30, 1999. The increase in net interest expense was primarily due to a higher
average amount of net debt outstanding and higher average interest rates in 2000
primarily associated with our issuance of the 9.75% Senior Subordinated Notes in
March 1999. This increase in interest expense was partially offset by interest
income related to increased levels of cash on-hand and a higher amount of
interest capitalized on construction in progress.
Income Tax Expense. Income tax expense was $47.0 million for the six months
ended June 30, 2000 as compared to $36.3 million for the six months ended June
30, 1999. Our effective income tax rate was approximately 37.0% for both of
these periods.
Net Income and Earnings Per Share. Diluted earnings per share increased
approximately 25% to $1.60 in the six months ended June 30, 2000 as compared to
$1.28 in the six months ended June 30, 1999. Net income increased approximately
28% to $80.1 million for the six months ended June 30, 2000 as compared to net
income of $62.7 million for the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We rely primarily on cash flow from operations and borrowings under our Credit
Facilities and receivables financing facility to finance operations and capital
expenditures.
Cash Flow from Operations. As part of our commercial arrangements with GM,
payment terms for products shipped to GM will continue to steadily lengthen
during the three-year period beginning March 1, 1999. This planned change in
payment terms has resulted in an expected increase in accounts receivable
balances and a related increase in interest expense related to our funding of
working capital. Our accounts receivable balances increased approximately $80
million in March 2000 due to the transition from net 10 days payment terms to
net 20 days with GM effective March 1, 1999. This current year increase in
accounts receivable compares to an increase of approximately $62 million in
March 1999 due to the transition from next day payment terms to net 10 days with
GM effective March 1, 1999. One additional increase in payment terms with GM to
net 25th proximo is scheduled to begin on March 1, 2001.
<PAGE> 13
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At June 30, 2000, we had working capital of $106.3 million as compared to
working capital of $62.8 million at December 31, 1999. Cash flow provided by
operating activities for the six months ended June 30, 2000, including the
impact of the change in payment terms with GM on March 1, 2000, was $59.9
million as compared to cash flow provided by operating activities of $158.7
million in the three months ended June 30, 1999. In addition to the impact of
the change in payment terms with GM, our increased levels of business activity
in 2000, as well as the start of production in our new Guanajuato, Mexico and
Cheektowaga, New York manufacturing facilities, resulted in increased accounts
receivable balances and higher inventories as compared to the six months ended
June 30, 1999.
Capital Expenditures. Capital expenditures were $179.8 million in the six months
ended June 30, 2000 as compared to $110.0 million in the six months ended June
30, 1999. Our largest capital projects in 2000 are related to the launch of new
product programs, including the GM M-SUV Program (compact SUVs, including the
Jimmy, Blazer and Bravada) and the GM MST Program (mid-sized pick-up trucks,
including the S-10 pick-up and Sonoma), and to support additional capacity,
including the construction and expansion of our new manufacturing facility in
Guanajuato, Mexico. We are also continuing to make investments to reduce
labor-intensive operations and to support numerous cost reduction programs,
including upgrades in equipment technology and quality standards. We estimate
that we will invest approximately $360 - $380 million in capital expenditures
during the year ending December 31, 2000, which we intend to fund from available
sources, including cash on-hand, cash flow provided by operations, and
borrowings under the Credit Facilities or the receivables financing facility.
Debt Availability. At June 30, 2000, we had borrowing capacity of approximately
$385.2 million under the Credit Facilities and the receivables financing
facility. Our total borrowing under the Credit facilities at June 30, 2000
consisted solely of the $374.5 million Tranche B Term Loan facility.
Availability under the Credit Facilities' consisted of $102.2 million under the
delayed draw Tranche A Term Loan facility and $250 million under the Revolving
Credit Facility. Borrowings under the receivables financing facility amounted to
$120 million at June 30, 2000 of a total availability of $153 million.
The Tranche A Term Loan Facility, which was due to expire at July 31, 2000 if
not used, was extended until August 31, 2000 and was increased pursuant to this
extension to $106.7 million.
The weighted average interest rate of our long-term debt outstanding was 8.9% at
June 30, 2000 as compared to 8.6% at December 31, 1999.
Credit Ratings. On May 22, 2000, Standard & Poor's raised our corporate credit
and bank loan ratings to double `B' ("BB") from double `B'-minus ("BB-"). Our
subordinated debt rating was raised to single `B'-plus ("B+") from single-`B'
("B").
On August 7, 2000, Moody's Investors Service upgraded the ratings of our senior
debt to Ba2 from Ba3. Moody's also upgraded our subordinated debt rating to B1
from B2.
On an overall basis, we believe that our current capital resources will continue
to be sufficient to support ongoing operational requirements. We also believe
that we have sufficient financial flexibility to attract long-term funding on
acceptable terms as may be needed to support our growth objectives.
<PAGE> 14
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SEASONALITY
Our business is moderately seasonal as our major OEM customers historically have
a two-week shutdown of operations in July and approximately a one-week shutdown
in December. In addition, 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.
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 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 costs. We do not hold financial instruments for trading or
speculative purposes.
Interest Rate Risk. We hedge our interest rate risks by utilizing swaps and
collars. Our Credit Facilities require us to enter into interest rate hedging
arrangements with a notional value of $112.5 million. Accordingly, we have
entered into such hedging arrangements, which terminate in December 2000 and
which 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%.
As part of a comprehensive 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% of our weighted average interest
rate at December 31, 1999) affecting our debt obligations, and related interest
rate swaps and collars, would have impacted our 1999 pretax earnings by
approximately $3.5 million based on December 31, 1999 debt levels.
Currency Risk. Because most of our business is denominated in U.S. dollars, we
do not currently have significant exposures relating to currency risks and have
only a nominal amount of currency hedges in place at June 30, 2000. Future
business operations and opportunities, including the expansion of our business
outside North America, may expose us to the risk that cash flow resulting from
these activities may be adversely affected by changes in currency exchange
rates. We intend to manage these risks by using local currency funding of these
expansions and by utilizing various types of foreign exchange contracts.
LITIGATION AND ENVIRONMENTAL REGULATIONS
We are involved in various legal proceedings incidental to our business.
Although the outcome of these matters cannot 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 flow.
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.
Based on our assessment of costs associated with our environmental
responsibilities, including recurring administrative costs, capital expenditures
and other compliance costs, we do not expect such costs to have a material
effect on our financial condition, results of operations, cash flow or
competitive position in the foreseeable future.
<PAGE> 15
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EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued. FASB Statement No. 133 establishes standards
for the recognition and measurement of derivatives and hedging activities. This
statement is effective for us on January 1, 2001. We are currently analyzing the
impact this statement will have on our financial statements.
FORWARD-LOOKING INFORMATION
Certain statements in this Section and elsewhere in this 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> 16
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of stockholders was held on May 4, 2000 for the purpose of
electing directors and approving the appointment of auditors. Proxies for the
meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act
of 1934 and there was no solicitation in opposition to management's
solicitation. Each of management's nominees for directors as listed in the proxy
statement were elected with the number of votes set forth below:
Number of Votes
------------------------------
Abstained/
In Favor Withheld
------------ -----------
CLASS I DIRECTORS - TERM EXPIRES IN 2003:
Forest J. Farmer, Sr. 43,502,302 60,059
Richard C. Lappin 43,502,302 60,059
Thomas K. Walker 43,502,302 60,059
CLASS III DIRECTOR - TERM EXPIRES IN 2002:
John P. Reilly 45,502,302 60,059
In addition to the directors listed above, returning members of the Board of
Directors included the following:
CHAIRMAN OF THE BOARD OF DIRECTORS, CLASS III DIRECTOR - TERM EXPIRES IN 2002:
Richard E. Dauch
CLASS II DIRECTORS - TERM EXPIRES IN 2001:
Robert L. Friedman Class II Director - Term Expires in 2003
B.G. Mathis Class II Director - Term Expires in 2003
Bret D. Pearlman Class II Director - Term Expires in 2003
CLASS III DIRECTOR - TERM EXPIRES IN 2002:
David A. Stockman Class III Director - Term Expires in 2002
The result of the other matter voted upon at the annual meeting is as follows:
Number of Votes
--------------------------------------
In Favor Against Abstained
---------- ------- ---------
Deloitte & Touche LLP as
independent auditors for 2000 43,546,910 10,350 5,101
<PAGE> 17
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ITEM 5. OTHER INFORMATION.
Resignation of Director
Effective August 10, 2000, David A. Stockman resigned from our 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, 2000, we did not file a Current Report
on Form 8-K.
<PAGE> 18
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SIGNATURES
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 11, 2000 By: /s/ Robin J. Adams
------------------
Robin J. Adams
Executive Vice President - Finance &
Chief Financial Officer
<PAGE> 19
-19-
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description of Exhibit Page
------ ---------------------- ----
<S> <C> <C>
*12.01 Statement of Computation of Ratio of Earnings to Fixed Charges 20
*27 Financial Data Schedule **
(All other exhibits are not applicable.)
---------------
* Filed herewith
** Shown only in the original filed with the Securities and Exchange
Commission
</TABLE>
