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EX-32 - SECTION 906 CERTIFICATION OF THE CEO AND CFO - AMERICAN AXLE & MANUFACTURING HOLDINGS INCexhibit32.htm
EX-31.1 - SECTION 302 CERTIFICATION OF CEO - AMERICAN AXLE & MANUFACTURING HOLDINGS INCexhibit31-1.htm
EX-31.2 - SECTION 302 CERTIFICATION OF CFO - AMERICAN AXLE & MANUFACTURING HOLDINGS INCexhibit31-2.htm
EX-10.47 - SPECIAL INCENTIVE AWARD AGREEMENT DATED MARCH 15, 2010 BETWEEN AMERICAN AXLE & MANUFACTURING HOLDINGS, INC. AND DAVID C. DAUCH - AMERICAN AXLE & MANUFACTURING HOLDINGS INCexhibit10-47.htm
EX-10.50 - RETIREMENT INCENTIVE AWARD AGREEMENT DATED MARCH 15, 2010 BETWEEN AMERICAN AXLE & MANUFACTURING HOLDINGS, INC. AND PATRICK S. LANCASTER - AMERICAN AXLE & MANUFACTURING HOLDINGS INCexhibit10-50.htm
EX-10.49 - SPECIAL INCENTIVE AWARD AGREEMENT DATED MARCH 15, 2010 BETWEEN AMERICAN AXLE & MANUFACTURING HOLDINGS, INC. AND JOHN J. BELLANTI - AMERICAN AXLE & MANUFACTURING HOLDINGS INCexhibit10-49.htm
EX-10.48 - SPECIAL INCENTIVE AWARD AGREEMENT DATED MARCH 15, 2010 BETWEEN AMERICAN AXLE & MANUFACTURING HOLDINGS, INC. AND MICHAEL K. SIMONTE - AMERICAN AXLE & MANUFACTURING HOLDINGS INCexhibit10-48.htm





UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended March 31, 2010
   
or
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from _____________ to _____________
   
Commission File Number:  1-14303
_______________________________________________________________________________
 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
36-3161171
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
   
One Dauch Drive, Detroit, Michigan
48211-1198
(Address of Principal Executive Offices)
(Zip Code)
(313) 758-2000
(Registrant's Telephone Number, Including Area Code)
_______________________________________________________________________________
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  o No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

        Large accelerated filer              Accelerated filer  þ                   Non-accelerated filer                       Smaller reporting company  o
                                                                                                             (Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  No  þ

As of April 28, 2010, the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 71,438,688 shares.

Internet Website Access to Reports

The website for American Axle & Manufacturing Holdings, Inc. is www.aam.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission(SEC).  The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 
 

 

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2010
 
 
       
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    Ex. 10.48  Special Incentive Award Agreement dated March 15, 2010 between American Axle & Manufacturing Holdings, Inc. and Michael K. Simonte        
    Ex. 10.49  Special Incentive Award Agreement dated March 15, 2010 between American Axle & Manufacturing Holdings, Inc. and John J. Bellanti        
    Ex. 10.50   Retirement Incentive Award Agreement dated March 15, 2010 between American Axle & Manufacturing Holdings, Inc. and Patrick S. Lancaster        
           
           
           
 

 
 

 


In this Quarterly Report on Form 10-Q (Quarterly Report), we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance.  Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 and relate to trends and events that may affect our future financial position and operating results.  The terms such as “will,” “may,” “could,” “would,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “project,” and similar words of expressions, as well as statements in future tense, are intended to identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.  Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and differ materially from those expressed in or suggested by the forward-looking statements.  Important factors that could cause such differences include, but are not limited to:

·  
global economic conditions; 
·  
our ability to comply with the definitive terms and conditions of various commercial and financing arrangements with GM;
·  
reduced purchases of our products by GM, Chrysler or other customers;
·  
reduced demand for our customers’ products (particularly light trucks and SUVs produced by GM and Chrysler);
·  
availability of financing for working capital, capital expenditures, R&D or other general corporate purposes, including our ability to comply with financial covenants;
·  
our customers’ and suppliers’ availability of financing for working capital, capital expenditures, R&D or other general corporate purposes;
·  
the impact on us and our customers of requirements imposed on, or actions taken by, our customers in response to the U.S. government’s ownership interest, the Troubled Asset Relief Program or similar programs;
·  
our ability to achieve cost reductions through ongoing restructuring actions;
·  
additional restructuring actions that may occur;
·  
our ability to achieve the level of cost reductions required to sustain global cost competitiveness;
·  
our ability to maintain satisfactory labor relations and avoid future work stoppages;
·  
our suppliers’, our customers’ and their suppliers’ ability to maintain satisfactory labor relations and avoid work stoppages;
·  
our ability to continue to implement improvements in our U.S. labor cost structure;
·  
supply shortages or price increases in raw materials, utilities or other operating supplies;
·  
currency rate fluctuations;
·  
our ability or our customers’ and suppliers’ ability to successfully launch new product programs on a timely basis;
·  
our ability to realize the expected revenues from our new and incremental business backlog;
·  
our ability to attract new customers and programs for new products;
·  
our ability to develop and produce new products that reflect market demand;
·  
lower-than-anticipated market acceptance of new or existing products;
·  
our ability to respond to changes in technology, increased competition or pricing pressures;
·  
price volatility in, or reduced availability of, fuel;
·  
adverse changes in laws, government regulations or market conditions affecting our products or our customers’ products (such as the Corporate Average Fuel Economy (“CAFE”) regulations);
·  
adverse changes in the political stability of our principal markets (particularly North America, Europe, South America and Asia);
·  
liabilities arising from warranty claims, product liability and legal proceedings to which we are or may become a party;
·  
changes in liabilities arising from pension and other postretirement benefit obligations;
·  
risks of noncompliance with environmental regulations or risks of environmental issues that could result in unforeseen costs at our facilities;
·  
our ability to attract and retain key associates; and
·  
other unanticipated events and conditions that may hinder our ability to compete.

It is not possible to foresee or identify all such factors and we make no commitment to update any forward-looking statement or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward-looking statement.

 
1

 



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Unaudited)
   
Three months ended
 
   
March 31,
 
   
2010
   
2009
 
   
(in millions, except per share data)
 
             
Net sales
  $ 521.9     $ 402.4  
                 
Cost of goods sold
    434.6       375.3  
                 
Gross profit
    87.3       27.1  
                 
Selling, general and administrative expenses
    45.3       43.8  
                 
Operating income (loss)
    42.0       (16.7 )
                 
Interest expense
    (22.7 )     (20.4 )
                 
Investment income
    0.4       1.0  
                 
Other expense, net
    (1.5 )     (0.8 )
                 
Income (loss) before income taxes
    18.2       (36.9 )
                 
Income tax expense (benefit)
    2.0       (4.2 )
                 
Net income (loss)
    16.2       (32.7 )
                 
     Net loss attributable to the noncontrolling interests
    0.1       -  
                 
Net income (loss) attributable to AAM
  $ 16.3     $ (32.7 )
                 
Basic income (loss) per share
  $ 0.23     $ (0.59 )
                 
Diluted income (loss) per share
  $ 0.22     $ (0.59 )
                 
 
See accompanying notes to condensed consolidated financial statements.

 
2

 

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

   
March 31,
   
December 31,
 
   
2010
   
2009
 
 
 
(Unaudited)
       
Assets
 
(in millions)
 
Current assets
     
Cash and cash equivalents
  $ 176.6     $ 178.1  
Short-term investments
    2.8       4.2  
Accounts receivable, net
    166.8       129.7  
Inventories, net
    99.8       90.6  
Prepaid expenses and other current assets
    71.2       114.0  
Total current assets
    517.2       516.6  
                 
Property, plant and equipment, net
    939.5       946.7  
Goodwill
    147.8       147.8  
GM postretirement cost sharing asset
    214.4       219.9  
Other assets and deferred charges
    148.7       155.8  
Total assets
  $ 1,967.6     $ 1,986.8  
                 
Liabilities and Stockholders’ Deficit
               
Current liabilities
               
Accounts payable
  $ 256.5     $ 200.9  
Accrued compensation and benefits
    111.2       98.9  
Deferred revenue
    76.0       76.1  
Accrued expenses and other current liabilities
    73.8       69.6  
Total current liabilities
    517.5       445.5  
                 
Long-term debt
    1,015.2       1,071.4  
Deferred revenue
    170.5       189.7  
Postretirement benefits and other long-term liabilities
    809.8       840.1  
Total liabilities
    2,513.0       2,546.7  
                 
Stockholders' deficit
               
Common stock, par value $0.01 per share
    0.8       0.8  
Paid-in capital
    582.3       579.9  
Accumulated deficit
    (885.4 )     (901.7 )
Treasury stock at cost, 5.5 million shares as of March 31, 2010 and 5.4
               
    million shares as of December 31, 2009
    (176.0 )     (174.8 )
Accumulated other comprehensive income (loss), net of tax
               
    Defined benefit plans
    (99.5 )     (101.8 )
    Foreign currency translation adjustments
    32.3       37.4  
Total AAM stockholders' deficit
    (545.5 )     (560.2 )
Noncontrolling interests in subsidiaries
    0.1       0.3  
Total stockholders’ deficit
    (545.4 )     (559.9 )
Total liabilities and stockholders' deficit
  $ 1,967.6     $ 1,986.8  
 
See accompanying notes to condensed consolidated financial statements.

 
3

 

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Unaudited)
 
   
Three months ended
 
   
March 31,
 
   
2010
   
2009
 
 
 
(in millions)
 
Operating activities
               
Net income (loss)
  $ 16.2     $ (32.7 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
               
    Depreciation and amortization
    31.6       35.9  
    Deferred income taxes
    (1.0 )     (7.0 )
    Stock-based compensation
    2.3       2.7  
    Pensions and other postretirement benefits, net of contributions
    (19.4 )     (3.0 )
    Loss on retirement of equipment
    0.3       0.6  
    Changes in operating assets and liabilities
               
        Accounts receivable
    (37.2 )     5.8  
        AAM-GM Agreement receivable
    -       60.0  
        Inventories
    (9.6 )     (5.9 )
        Accounts payable and accrued expenses
    77.2       (60.6 )
        Deferred revenue
    (19.3 )     (17.0 )
        Other assets and liabilities
    37.9       (0.1 )
Net cash provided by (used in) operating activities
    79.0       (21.3 )
                 
Investing activities
               
Purchases of property, plant and equipment
    (18.8 )     (44.8 )
Purchase buyouts of leased equipment
    (4.0 )     -  
Proceeds from sale of equipment
    0.9       0.5  
Investment in joint venture
    -       (10.2 )
Redemption of short-term investments
    1.4       58.9  
Net cash provided by (used in) investing activities
    (20.5 )     4.4  
                 
Financing activities
               
Net short-term repayments under revolving credit facilities
    (60.0 )     (39.8 )
Payments of long-term debt and capital lease obligations
    (1.0 )     (5.2 )
Proceeds from issuance of long-term debt
    5.5       -  
Repurchase of treasury stock
    (1.2 )     -  
Debt issuance costs
    (2.2 )     -  
Net cash used in financing activities
    (58.9 )     (45.0 )
                 
Effect of exchange rate changes on cash
    (1.1 )     0.2  
                 
Net decrease in cash and cash equivalents
    (1.5 )     (61.7 )
                 
Cash and cash equivalents at beginning of period
    178.1       198.8  
                 
Cash and cash equivalents at end of period
  $ 176.6     $ 137.1  
                 
Supplemental cash flow information
               
     Interest paid
  $ 19.5     $ 29.3  
     Income taxes paid (refunds received)
  $ (46.7 )   $ 1.5  
 
See accompanying notes to condensed consolidated financial statements.

 
4

 

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
March 31, 2010
(Unaudited)

1.     ORGANIZATION AND BASIS OF PRESENTATION

 Organization  American Axle & Manufacturing Holdings, Inc. (Holdings) and its subsidiaries (collectively, we, our, us or AAM) is a Tier I supplier to the automotive industry.  We manufacture, engineer, design and validate driveline and drivetrain systems and related components and chassis modules for light trucks, sport utility vehicles (SUVs), passenger cars, crossover vehicles and commercial vehicles.  Driveline and drivetrain systems include components that transfer power from the transmission and deliver it to the drive wheels.  Our driveline, drivetrain and related products include axles, chassis modules, driveshafts, power transfer units, transfer cases, chassis and steering components, driveheads, crankshafts, transmission parts and metal-formed products.  In addition to locations in the United States (U.S.) (Michigan, New York, Ohio, Indiana and Pennsylvania), we have offices or facilities in Brazil, China, England, Germany, India, Japan, Luxembourg, Mexico, Poland, Scotland, South Korea and Thailand.

 Basis of Presentation We have prepared the accompanying interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934.  These condensed consolidated financial statements are unaudited but include all normal recurring adjustments, which we consider necessary for a fair presentation of the information set forth herein.  Results of operations for the periods presented are not necessarily indicative of the results for the full fiscal year.

 The balance sheet at December 31, 2009 presented herein has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete consolidated financial statements.
 
 In order to prepare the accompanying interim condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts and disclosures in our interim condensed consolidated financial statements.  Actual results could differ from those estimates.

 For further information, refer to the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.
 
2.  
RESTRUCTURING ACTIONS

 A summary of the restructuring related activity for the three months ended March 31, 2010 is shown below (in millions):

   
One-time Termination Benefits
   
Asset Retirement Obligations
   
Contract Related Costs
   
Total
 
Accrual as of December 31, 2009
  $ 8.0     $ 1.3     $ 21.3     $ 30.6  
     Cash utilization
    (1.7 )     -       (1.8 )     (3.5 )
     Accrual adjustments
    (0.1 )     -       -       (0.1 )
Accrual as of March 31, 2010
  $ 6.2     $ 1.3     $ 19.5     $ 27.0  

We expect to make payments of approximately $11 million during the remainder of 2010, $10 million in 2011 and $6 million in 2012 related to the remaining restructuring accrual.

3.  
INVENTORIES

We state our inventories at the lower of cost or market.  The cost of worldwide inventories is determined using the FIFO method.  When we determine that our gross inventories exceed usage requirements, or if inventories become obsolete or otherwise not saleable, we record a provision for such loss as a component of our inventory accounts.

Inventories consist of the following:
 
   
March 31,
   
December 31,
 
   
2010
   
2009
 
   
(in millions)
 
             
Raw materials and work-in-progress
  $ 109.3     $ 101.3  
Finished goods
    21.1       23.0  
Gross inventories
    130.4       124.3  
Inventory valuation reserves
    (30.6 )     (33.7 )
Inventories, net
  $ 99.8     $ 90.6  

 
5

 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
4.    LONG-TERM DEBT

Long-term debt consists of the following:

   
March 31,
   
December 31,
 
   
2010
   
2009
 
   
(in millions)
 
             
Revolving Credit Facility
  $ -     $ 60.0  
9.25% Notes, net of discount
    419.8       419.6  
7.875% Notes
    300.0       300.0  
5.25% Notes, net of discount
    249.9       249.9  
2.00% Convertible Notes
    0.4       0.4  
Foreign credit facilities
    37.9       34.1  
Capital lease obligations
    7.2       7.4  
Long-term debt
  $ 1,015.2     $ 1,071.4  

 As of March 31, 2010, the Revolving Credit Facility provides up to $296.3 million of revolving bank financing commitments through December 2011 and $243.2 million of such revolving bank financing commitments through June 2013.  At March 31, 2010, we had $264.1 million available under the Revolving Credit Facility.  This availability reflects a reduction of $32.2 million for standby letters of credit issued against the facility.

The Revolving Credit Facility provides back-up liquidity for our foreign credit facilities.  We intend to use the availability of long-term financing under the Revolving Credit Facility to refinance any current maturities related to such debt agreements that are not otherwise refinanced on a long-term basis in their local markets.

 We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries.  At March 31, 2010, $37.9 million was outstanding under these facilities and an additional $2.9 million was available.

 The weighted-average interest rate of our long-term debt outstanding at March 31, 2010 was 8.2% and 8.3% as of December 31, 2009.

5.      DERIVATIVES

 Our business and financial results are affected by fluctuations in world financial markets, including interest rates and currency exchange rates.  Our hedging policy has been developed to manage these risks to an acceptable level based on management’s judgment of the appropriate trade-off between risk, opportunity and cost.  We do not hold financial instruments for trading or speculative purposes.

         Currency forward contracts  From time to time, we use foreign currency forward contracts to reduce the effects of fluctuations in exchange rates, primarily relating to the Mexican Peso.  There were no currency forward contracts in place as of March 31, 2010 or December 31, 2009.

 Interest rate hedges  We are exposed to variable interest rates on certain credit facilities.  From time to time, we use interest rate hedging to reduce the effects of fluctuations in market interest rates.  As of March 31, 2010 and December 31, 2009, no interest rate hedges were in place.

 The following table summarizes the reclassification of pre-tax derivative losses into net loss from accumulated other comprehensive income (loss):

 
Location of Gain (Loss) Reclassified into Net Income (Loss)
 
Loss Reclassified During the Three Months Ended March 31, 2010
   
Loss Reclassified During the Three Months Ended March 31, 2009
   
Loss Expected to be Reclassified During the Next 12 Months
 
        (in millions)  
Currency forward contracts
Cost of Goods Sold
  $ -     $ 2.5     $ -  
Interest rate hedges
Interest Expense
    -       1.0       -  
 
 
6

 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
6.     FAIR VALUE

The fair value accounting guidance defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset.  This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:

·  
Level 1:  Observable inputs such as quoted prices in active markets;
·  
Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
·  
Level 3:  Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 Financial instruments   The estimated fair value of our financial assets and liabilities that are recognized at fair value on a recurring basis, using available market information and other observable data are as follows:
 
    March 31, 2010     December 31, 2009    
   
Carrying  Amount
   
Fair Value
   
Carrying  Amount
    Fair Value  
Input
    (in millions)     (in millions)  
 
Balance Sheet Classification
 
 
                     
Cash equivalents
  $ 86.0     $ 86.0     $ 77.0     $ 77.0  
Level 1
Short-term investments
    2.8       2.8       4.2       4.2  
Level 2
 
 In 2008, redemptions were temporarily suspended for certain money-market and other similar funds in which we invest.  We received $1.4 million in redemptions from these funds in the three months ended March 31, 2010.  As of March 31, 2010, we have classified the fair value of the remaining investments of $2.8 million as short-term investments on our Condensed Consolidated Balance Sheet.  These funds are currently invested in securities with daily maturities.  We expect to receive the remaining balance of our current holdings in these funds in 2010.

     The carrying values of our cash, accounts receivable, accounts payable and accrued liabilities approximates their fair values due to the short-term maturities of these instruments.  The carrying value of our borrowings under the foreign credit facilities approximates their fair value due to the frequent resetting of the interest rates.  We estimated the fair value of the amounts outstanding on our debt using available market information and other observable data, to be as follows:

   
March 31, 2010
   
December 31, 2009
   
   
Carrying  Amount
   
Fair Value
   
Carrying  Amount
    Fair Value
 
 
Input
    (in millions)     (in millions)    
                               
Revolving Credit Facility
  $ -     $ -     $ 60.0     $ 57.0  
Level 2
9.25% Notes
    419.8       450.5       419.6       433.5  
Level 2
7.875% Notes
    300.0       278.3       300.0       258.0  
Level 2
5.25% Notes
    249.9       226.9       249.9       212.5  
Level 2
 
7.      EMPLOYEE BENEFIT PLANS

 The components of net periodic benefit cost are as follows:

   
Pension Benefits
   
Other Postretirement Benefits
 
   
Three months ended
   
Three months ended
 
   
March 31,
   
March 31,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in millions)
 
                         
Service cost
  $ 1.2     $ 1.3     $ 0.3     $ 0.7  
Interest cost
    9.3       8.9       4.0       4.6  
Expected asset return
    (8.0 )     (7.9 )     -       -  
Amortized loss (gain)
    0.6       0.4       (0.3 )     (0.5 )
Amortized prior service credit
    -       -       (0.8 )     (1.7 )
Curtailments
    -       (2.0 )     -       (3.1 )
Special termination benefits
    -       0.4       -       -  
Net periodic benefit cost
  $ 3.1     $ 1.1     $ 3.2     $ -  

  We contributed $25.1 million to our pension trusts in the first quarter of 2010 which represents substantially all of our 2010 pension funding requirements.  We expect our net cash outlay for other postretirement benefit obligations in 2010, net of GM cost sharing, to be approximately $15 million.

 
7

 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
8.       PRODUCT WARRANTIES

  We record a liability for estimated warranty obligations at the dates our product are sold. These estimates are established using sales volumes and internal and external warranty data where there is no payment history and historical information about the average cost of warranty claims for customers with prior claims. We adjust the liability as necessary.

          The following table provides a reconciliation of changes in the product warranty liability:
 
   
Three months ended
 
   
March 31,
 
   
2010
   
2009
 
   
(in millions)
 
             
Beginning balance
  $ 2.1     $ 2.6  
Accruals
    0.2       0.1  
        Settlements
    (0.1 )     (0.1 )
Adjustment to prior period accruals
    (0.1 )     (0.1 )
Foreign currency translation and other
    (0.1 )     -  
Ending balance
  $ 2.0     $ 2.5  
 
9.     INCOME TAXES

 We are required to adjust our effective tax rate each quarter to consistently estimate our annual effective tax rate.  We must also record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.  In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate.  The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.

 Income tax expense (benefit) was an expense of $2.0 million in the first quarter of 2010 as compared to a benefit of $4.2 million in the first quarter of 2009.  Our effective income tax rate was 11.0% in the first quarter of 2010 as compared to 11.4% in the first quarter of 2009.  Our income tax expense (benefit) and effective tax rate for the three months ended March 31, 2010 and 2009 reflected the effect of recording a valuation allowance against income tax benefits on U.S. losses.  Income tax expense (benefit) for the three months ended March 31, 2009 included a $6.6 million benefit related to the current year operating loss that offset deferred taxes attributable to gains recognized in other comprehensive income.

 In the first quarter of 2010, we received a $48.8 million refund as a result of the Worker, Homeownership and Business Act of 2009 which extended our 2008 net operating loss carryback period to 2003.

 As a result of the Patient Protection and Affordable Care Act of 2010, our deferred tax asset decreased by approximately $11 million.  As we have previously recorded a valuation allowance against our U.S. deferred tax assets, there is no net impact to income tax expense (benefit) or our net deferred tax assets in the first quarter of 2010.

 
8

 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

10.    COMPREHENSIVE INCOME (LOSS)

  Comprehensive income (loss) consists of the following:

   
Three months ended
 
   
March 31,
 
   
2010
   
2009
 
   
(in millions)
 
             
Net income (loss)
  $ 16.2     $ (32.7 )
Defined benefit plans, net of tax
    2.3       10.0  
Foreign currency translation adjustments, net of tax
    (5.2 )     0.4  
Change in derivatives, net of tax
    -       2.4  
Comprehensive income (loss)
  $ 13.3     $ (19.9 )
      Net loss attributable to the noncontrolling interests
    0.1       -  
      Foreign currency translation adjustments related to noncontrolling interests
    0.1       (0.2 )
Comprehensive income (loss) attributable to AAM
  $ 13.5     $ (20.1 )
 
 
11.     EARNINGS (LOSS) PER SHARE (EPS)

          The following table sets forth the computation of our basic and diluted EPS:

   
Three months ended
 
   
March 31,
 
   
2010
   
2009
 
   
(in millions, except per share data)
 
Numerator
           
Net income (loss) attributable to AAM
  $ 16.3     $ (32.7 )
                 
Denominators
               
Basic shares outstanding -
               
    Weighted-average shares outstanding
    71.6       55.4  
                 
Effect of dilutive securities -
               
    Dilutive stock-based compensation
    0.1       -  
    Dilutive warrants
    2.9       -  
                 
Diluted shares outstanding -
               
    Adjusted weighted-average shares after assumed conversions
    74.6       55.4  
Basic EPS
  $ 0.23     $ (0.59 )
Diluted EPS
  $ 0.22     $ (0.59 )

There were no potentially dilutive shares as of March 31, 2009.

Certain exercisable stock options were excluded in the computations of diluted EPS because the exercise price of these options was greater than the average period market prices.  The number of stock options outstanding, which were not included in the calculation of diluted EPS, was 5.0 million at March 31, 2010 and 6.0 million at March 31, 2009.  The ranges of exercise prices related to the excluded exercisable stock options were $10.08 - $40.83 at March 31, 2010 and $2.81 - $40.83 at March 31, 2009.

 
9

 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
12.   SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – 7.875% NOTES, 5.25% NOTES AND 2.00% CONVERTIBLE NOTES

 Holdings has no significant assets other than its 100% ownership in AAM, Inc. and no direct subsidiaries other than AAM, Inc.  Holdings fully and unconditionally guarantees the 5.25% Notes and 7.875% Notes, which are senior unsecured obligations of AAM, Inc.  The 2.00% Convertible Notes are senior unsecured obligations of Holdings and are fully and unconditionally guaranteed by AAM, Inc.

 The following Condensed Consolidating Financial Statements are included in lieu of providing separate financial statements for Holdings and AAM, Inc. These Condensed Consolidating Financial Statements are prepared under the equity method of accounting whereby the investments in subsidiaries are recorded at cost and adjusted for the parent’s share of the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other equity changes.

Condensed Consolidating Statements of Operations
Three months ended March 31,
(in millions)
                             
   
Holdings
   
AAM Inc.
   
All Others
   
Elims
   
Consolidated
 
2010
     
Net sales
                             
    External
  $ -     $ 118.3     $ 403.6     $ -     $ 521.9  
    Intercompany
    -       7.0       39.4       (46.4 )     -  
Total net sales
    -       125.3       443.0       (46.4 )     521.9  
Cost of goods sold
    -       128.7       352.3       (46.4 )     434.6  
Gross profit (loss)
    -       (3.4 )     90.7       -       87.3  
Selling, general and administrative expenses
    -       41.8       3.5       -       45.3  
Operating income (loss)
    -       (45.2 )     87.2       -       42.0  
Non-operating expense, net
    -       (22.5 )     (1.3 )     -       (23.8 )
Income (loss) before income taxes
    -       (67.7 )     85.9       -       18.2  
Income tax expense (benefit)
    -       (0.3 )     2.3       -       2.0  
Earnings from equity in subsidiaries
    16.3       65.0       -       (81.3 )     -  
Net income (loss) before royalties and dividends
    16.3       (2.4 )     83.6       (81.3 )     16.2  
Royalties and dividends
    -       18.7       (18.7 )     -       -  
Net income after royalties and dividends
    16.3       16.3       64.9       (81.3 )     16.2  
    Net loss attributable to noncontrolling interests
    -       -       0.1       -       0.1  
Net income attributable to AAM
  $ 16.3     $ 16.3     $ 65.0     $ (81.3 )   $ 16.3  
                                         
 
2009
                                       
Net sales
                                       
    External
  $ -     $ 181.6     $ 220.8     $ -     $ 402.4  
    Intercompany
    -       7.5       28.5       (36.0 )     -  
Total net sales
    -       189.1       249.3       (36.0 )     402.4  
Cost of goods sold
    -       187.6       223.7       (36.0 )     375.3  
Gross profit
    -       1.5       25.6       -       27.1  
Selling, general and administrative expenses
    -       41.1       2.7       -       43.8  
Operating income (loss)
    -       (39.6 )     22.9       -       (16.7 )
Non-operating income (expense), net
    -       (20.7 )     0.5       -       (20.2 )
Income (loss) before income taxes
    -       (60.3 )     23.4       -       (36.9 )
Income tax expense (benefit)
    -       (5.7 )     1.5       -       (4.2 )
Earnings (loss) from equity in subsidiaries
    (32.7 )     12.2       -       20.5       -  
Net income (loss) before royalties and dividends
    (32.7 )     (42.4 )     21.9       20.5       (32.7 )
Royalties and dividends
    -       9.7       (9.7 )     -       -  
Net income (loss) after royalties and dividends
    (32.7 )     (32.7 )     12.2       20.5       (32.7 )
    Net income attributable to noncontrolling interests
    -       -       -       -       -  
Net income (loss) attributable to AAM
  $ (32.7 )   $ (32.7 )   $ 12.2     $ 20.5     $ (32.7 )


 
10

 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 
Condensed Consolidating Balance Sheets
(in millions)
                             
   
Holdings
   
AAM Inc.
   
All Others
   
Elims
   
Consolidated
 
March 31, 2010
                             
Assets
                             
Current assets
                             
    Cash and cash equivalents
  $ -     $ 26.0     $ 150.6     $ -     $ 176.6  
    Short-term investments
    -       -       2.8       -       2.8  
    Accounts receivable, net
    -       32.1       134.7       -       166.8  
    Inventories, net
    -       22.9       76.9       -       99.8  
    Other current assets
    -       39.4       31.8       -       71.2  
Total current assets
    -       120.4       396.8       -       517.2  
Property, plant and equipment, net
    -       272.1       667.4       -       939.5  
Goodwill
    -       -       147.8       -       147.8  
Other assets and deferred charges
    -       296.7       66.4       -       363.1  
Investment in subsidiaries
    -       787.1       -       (787.1 )     -  
Total assets
  $ -     $ 1,476.3     $ 1,278.4     $ (787.1 )   $ 1,967.6  
Liabilities and stockholders’ equity (deficit)
                                       
Current liabilities
                                       
    Accounts payable
  $ -     $ 68.1     $ 188.4     $ -     $ 256.5  
    Accrued expenses and other current liabilities
    -       191.8       69.2       -       261.0  
Total current liabilities
    -       259.9       257.6       -       517.5  
Intercompany payable (receivable)
    319.9       (430.4 )     110.5       -       -  
Long-term debt
    0.4       969.7       45.1       -       1,015.2  
Investment in subsidiaries obligation
    225.2       -       -       (225.2 )     -  
Other long-term liabilities
    -       902.3       78.0       -       980.3  
Total liabilities
    545.5       1,701.5       491.2       (225.2 )     2,513.0  
Total AAM stockholders’ equity (deficit)
    (545.5 )     (225.2 )     787.1       (561.9 )     (545.5 )
     Noncontrolling interests in subsidiaries
    -       -       0.1       -       0.1  
Total stockholders’ equity (deficit)
    (545.5 )     (225.2 )     787.2       (561.9 )     (545.4 )
Total liabilities and stockholders’ equity (deficit)
  $ -     $ 1,476.3     $ 1,278.4     $ (787.1 )   $ 1,967.6  
                                         
December 31, 2009
                                       
Assets
                                       
Current assets
                                       
    Cash and cash equivalents
  $ -     $ 80.6     $ 97.5     $ -     $ 178.1  
    Short-term investments
    -       1.4       2.8       -       4.2  
    Accounts receivable, net
    -       10.9       118.8       -       129.7  
    Inventories, net
    -       22.8       67.8       -       90.6  
    Other current assets
    -       86.4       27.6       -       114.0  
Total current assets
    -       202.1       314.5       -       516.6  
Property, plant and equipment, net
    -       272.8       673.9       -       946.7  
Goodwill
    -       -       147.8       -       147.8  
Other assets and deferred charges
    -       304.8       70.9       -       375.7  
Investment in subsidiaries
    -       725.9       -       (725.9 )     -  
Total assets
  $ -     $ 1,505.6     $ 1,207.1     $ (725.9 )   $ 1,986.8  
Liabilities and stockholders’ equity (deficit)
                                       
Current liabilities
                                       
    Accounts payable
  $ -     $ 59.4     $ 141.5     $ -     $ 200.9  
    Other accrued expenses
    -       185.1       59.5       -       244.6  
Total current liabilities
    -       244.5       201.0       -       445.5  
Intercompany payable (receivable)
    318.8       (470.1 )     151.3       -       -  
Long-term debt
    0.4       1,029.4       41.6       -       1,071.4  
Investment in subsidiaries obligation
    241.0       -       -       (241.0 )     -  
Other long-term liabilities
    -       942.8       87.0       -       1,029.8  
Total liabilities
    560.2       1,746.6       480.9       (241.0 )     2,546.7  
Total AAM stockholders’ equity (deficit)
    (560.2 )     (241.0 )     725.9       (484.9 )     (560.2 )
     Noncontrolling interests in subsidiaries
    -       -       0.3       -       0.3  
Total stockholders’ equity (deficit)
    (560.2 )     (241.0 )     726.2       (484.9 )     (559.9 )
Total liabilities and stockholders’ equity (deficit)
  $ -     $ 1,505.6     $ 1,207.1     $ (725.9 )   $ 1,986.8  
 
 
11

 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

Condensed Consolidating Statements of Cash Flows
Three months ended March 31,
(in millions)
                             
   
Holdings
   
AAM Inc.
   
All Others
   
Elims
   
Consolidated
 
2010
                             
Operating activities
                             
Net cash provided by (used in) operating activities
  $ -     $ (26.9 )   $ 105.9     $ -     $ 79.0  
Investing activities
                                       
Purchases of property, plant and equipment
    -       (5.4 )     (13.4 )     -       (18.8 )
Purchase buyouts of leased equipment
    -       (4.0 )     -       -       (4.0 )
Redemption of short-term investments
    -       1.4       -       -       1.4  
Other investing activities
    -       0.9       -       -       0.9  
Net cash used in investing activities
    -       (7.1 )     (13.4 )     -       (20.5 )
Financing activities
                                       
Net debt activity
    -       (59.7 )     4.2       -       (55.5 )
Intercompany activity
    1.2       41.3       (42.5 )     -       -  
Debt issuance costs
    -       (2.2 )     -       -       (2.2 )
Purchase of treasury stock
    (1.2 )     -       -       -       (1.2 )
Net cash used in financing activities
    -       (20.6 )     (38.3 )     -       (58.9 )
Effect of exchange rate changes on cash
    -       -       (1.1 )     -       (1.1 )
Net increase (decrease) in cash and cash equivalents
    -       (54.6 )     53.1       -       (1.5 )
Cash and cash equivalents at beginning of period
    -       80.6       97.5       -       178.1  
Cash and cash equivalents at end of period
  $ -     $ 26.0     $ 150.6     $ -     $ 176.6  
                                         
2009
                                       
Operating activities
                                       
Net cash provided by (used in) operating activities
  $ -     $ (33.8 )   $ 12.5     $ -     $ (21.3 )
Investing activities
                                       
Purchases of property, plant and equipment
    -       (15.1 )     (29.2 )     -       (44.3 )
Redemption of short-term investments
    -       6.0       52.9       -       58.9  
Investment in joint venture
    -       -       (10.2 )             (10.2 )
Other investing activities
    -       0.5       (0.5 )     -       -  
Net cash provided by (used in) investing activities
    -       (8.6 )     13.0       -       4.4  
Financing activities
                                       
Net debt activity
    -       (45.0 )     -               (45.0 )
Intercompany activity
    -       33.3       (33.3 )     -       -  
Net cash used in financing activities
    -       (11.7 )     (33.3 )     -       (45.0 )
Effect of exchange rate changes on cash
    -       -       0.2       -       0.2  
Net decrease in cash and cash equivalents
    -       (54.1 )     (7.6 )     -       (61.7 )
Cash and cash equivalents at beginning of period
    -       54.6       144.2       -       198.8  
Cash and cash equivalents at end of period
  $ -     $ 0.5     $ 136.6     $ -     $ 137.1  

 
12

 
 
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.   SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – 9.25% NOTES

Holdings has no significant asset other than its 100% ownership in AAM, Inc. and no direct subsidiaries other than AAM, Inc.  The 9.25% Notes are senior secured obligations of AAM Inc. and are fully and unconditionally guaranteed by Holdings and all domestic subsidiaries of AAM, Inc.

These Condensed Consolidating Financial Statements are prepared under the equity method of accounting whereby the investments in subsidiaries are recorded at cost and adjusted for the parent’s share of the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other equity changes.
 
Condensed Consolidating Statements of Operations
Three months ended March 31,
(in millions)
                                 
 
2010
 
Holdings
   
AAM Inc.
   
Guarantor Subsidiaries
   
Non-Guarantor Subsidiaries
   
Elims
   
Consolidated
 
Net sales
                                   
    External
  $ -     $ 118.3     $ 47.2     $ 356.4     $ -     $ 521.9  
    Intercompany
    -       7.0       37.0       2.4