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EXHIBIT 13
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
We are responsible for the preparation of the accompanying consolidated
financial statements of American Axle & Manufacturing Holdings, Inc. ("AAM"), as
well as their integrity and objectivity. The accompanying financial statements
were prepared in conformity with generally accepted accounting principles and
include amounts based on our best estimates and judgments.
We are also responsible for maintaining a comprehensive system of internal
control. Our system of internal control is designed to provide reasonable
assurance that we can rely upon our accounting systems and the underlying books
and records to prepare financial information presented in accordance with
generally accepted accounting principles and that our associates follow
established policies and procedures. We continually review our system of
internal control for effectiveness. We consider the recommendations of our
internal auditors and independent auditors concerning internal control and take
the necessary actions that are cost-effective in the circumstances.
The Audit Committee of our Board of Directors is composed entirely of
directors who are not AAM associates and is responsible for assuring that we
fulfilled our responsibilities in the preparation of the accompanying financial
statements. The Audit Committee meets regularly with our internal auditors, the
independent auditors, and AAM management to review their activities and ensure
that each is properly discharging its responsibilities and to assess the
effectiveness of internal control. The Audit Committee reviews the scope of
audits and the accounting principles applied in our financial reporting. The
Audit Committee selects the independent auditors annually in advance of the
Annual Meeting of Shareholders and submits its selection for ratification at the
meeting. Deloitte & Touche LLP has been engaged as independent auditors to audit
the accompanying financial statements and to issue their report thereon, which
appears on this page.
To ensure complete independence, our internal auditors and Deloitte & Touche
LLP, have full and free access to meet with the Audit Committee, without AAM
management present, to discuss the results of their audits, the adequacy of
internal control, and the quality of our financial reporting.
/s/ Richard E. Dauch /s/ Robin J. Adams
Richard E. Dauch Robin J. Adams
Co-Founder, Chairman Executive Vice President - Finance
& Chief Executive Officer & Chief Financial Officer
January 30, 2001
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of American Axle & Manufacturing
Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of American Axle
& Manufacturing Holdings, Inc. and its subsidiaries (the "Company") as of
December 31, 2000 and 1999, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Detroit, Michigan
January 30, 2001
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THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
MANAGEMENT'S DISCUSSION
AND ANALYSIS
OVERVIEW
We are a Tier I supplier to the automotive industry and a worldwide leader in
the manufacture, engineering, validation and design of driveline systems for
trucks, 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. Driveline and related products produced by us
include axles, driveshafts, chassis components, driving heads, crankshafts,
transmission parts and forged products.
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. 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 84.5%, 85.9% and 93.4% of our total sales in 2000, 1999 and
1998, respectively.
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.
Substantially all of our sales to GM are made pursuant to the LPCs. The LPCs
have terms equal to the lives of the relevant vehicle programs, which typically
run 6 to 12 years, and require us to remain competitive with respect to
technology, delivery and quality. We will compete for future GM business upon
the termination of the LPCs.
We also supply driveline components to DaimlerChrysler, Ford Motor Company,
Nissan, Renault, Visteon Automotive, Delphi Automotive, PACCAR and other
original equipment manufacturers ("OEMs") and Tier I supplier companies. Our
sales to customers other than GM increased 14% to $475.4 million in 2000 as
compared to $416.6 million in 1999. In addition, our sales to customers other
than GM have more than tripled in comparison to 1998, when such sales were only
$134.1 million, partly as a result of our acquisitions and also due to demand
for our newer technology-based products. We expect our sales to customers other
than GM to lead our growth over the next several years as we launch additional
new driveline system product programs with DaimlerChrysler and other OEM
customers.
INDUSTRY AND COMPETITION
The worldwide automotive industry is highly competitive. Customers are
constantly pressuring suppliers to optimize and improve product cost, tech-
nology, quality, and delivery. The driveline systems segment of the industry in
which we compete reflects these pressures. A prevailing trend in the industry is
that OEMs are shifting research and development ("R&D"), design and validation
responsibility to their suppliers. The OEMs have also been reducing the number
of their suppliers, preferring stronger relationships with fewer suppliers
capable of providing complete systems and modules to their increasingly global
operations. As a result, the number of Tier I suppliers is being reduced. We
expect these trends to continue, eventually resulting in a smaller number of
dominant, worldwide suppliers.
We believe AAM is well positioned to compete in the worldwide automotive
industry as these trends further impact our business. We will continue to
leverage our excellence in manufacturing, product engineering and design to
further diversify, strengthen and globalize our OEM customer base. We will also
continue to invest in the development of new product, process and systems
technologies to improve productive efficiency and flexibility in our operations
and continue to deliver innovative new products, modules and integrated
driveline systems to our customers. Our new Smart-Bar(TM) stabilizer bar-based
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active roll-control system and the Integrated Oil Pan (IOP) Front Axle with
Electronic Disconnect are two current examples of high value-added technology
products that have resulted from our commitment to R&D and seek to improve the
performance and packaging of our customers' products.
In the year 2000, we generated nearly $1.5 billion, or approximately 47% of
our total sales, from new axle and related driveline system components intro-
duced by us in the North American light vehicle market in the last two and half
years. Our strong performance in major new product introductions will continue
in 2001 as we launch high-volume four-wheel drive axle programs to support GM's
new mid-sized SUVs (such as the Chevrolet Trailblazer and GMC Envoy) and again
in 2002 when we launch the new driveline system for the Dodge Ram 2500 and 3500
series full-size pick-up trucks and GM's new mid-sized pick-up trucks (such as
the Chevrolet S-10). We believe that this performance is strong evidence of our
ability to bring the right products, systems and technologies to market at a
competitive cost for our customers. Just as importantly, we improved gross
profit and operating income margins by nearly 10% in the year 2000 as compared
to 1999 at the same time we launched such a large number of new products. We
believe this is an indication of our ability to make sound investment and
operating decisions that should help us toward our goal of steadily improving
our financial performance over the long term.
SALES FROM MAJOR NEW SALES TO CUSTOMERS GROSS PROFIT
PRODUCT PROGRAMS [BAR GRAPH] OTHER THAN GM [BAR GRAPH] [BAR GRAPH]
Sales
(In Millions) % of Sales
-------------- ----------
1998 $ 193.9 8.5%
1999 $ 899.0 30.4%
2000 $1,455.6 47.4%
These charts illustrate the results of three of our key operating initiatives.
Sales to new customers have nearly tripled in 2000 as compared to 1998. Sales
generated from major new axle and related driveline system programs introduced
in the North American light vehicle market after July 1, 1998 now represent
approximately 47% of our total sales. As a result of contributions from these
new customer relationships and our new technology-based products, together with
a continued focus on productivity improvements in manufacturing facilities,
gross profit has increased to $426.2 million in year 2000, or 13.9% of sales, as
compared to $279.1 million in 1998, or 12.2% of sales.
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MANAGEMENTS DISCUSSION AND ANALYSIS
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
RESULTS OF OPERATIONS
Net Sales
[BAR GRAPH]
Net sales increased approximately 4% in 2000 to $3.069 billion as compared to
$2.953 billion in 1999. This is in comparison to an increase in North American
light vehicle production of just under 1%. Our sales 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 we receive a higher
average dollar content per vehicle than their predecessors (GMT-400 series).
For the year 2000, our average content per vehicle (as measured for our products
supporting GM's North American light truck platforms) increased approximately 5%
to $979 per unit as compared to $930 in 1999 and $870 in 1998.
Year 2000 sales increased because we had a full year of shipments from Colfor
Manufacturing, Inc. ("Colfor") and MSP Industries Corporation ("MSP"), both of
which we acquired on April 1, 1999, and our joint venture in Brazil, which we
acquired in the fourth quarter of 1999. Excluding the impact of businesses
acquired in 1999, year 2000 sales increased approximately 2.4% as compared to
1999. Year 2000 sales also benefited from the launch of our new 11.5" rear axle
produced in our new Silao, Mexico manufacturing facility ("Guanajuato Gear &
Axle").
In addition to the impact of adding Colfor, MSP and our October 1998
acquisition, Albion Automotive (Holdings) Limited ("Albion"), a significant
factor underlying the increase in 1999 sales as compared to 1998 was the impact
of the GM work stoppage that occurred in June and July of 1998 and resulted in
the shutdown of nearly all of GM's North American production facilities. This
work stoppage impacted our operations in June and July 1998 and also resulted in
related start-up inefficiencies in our operations in August 1998. We estimate
that sales lost in 1998 as a result of the GM work stoppage were approximately
$188 million and that operating income was adversely impacted by approximately
$71.2 million.
Sales were also adversely affected in 1998 due to the temporary reduction of
certain payments made by GM to us as part of our commercial arrangements from
October 1, 1997 through December 31, 1998 ("temporary payment reductions"). The
temporary payment reductions were approximately $51.5 million in 1998.
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Gross Profit
[BAR GRAPH]
Gross profit increased approximately 10% in 2000 to $426.2 million as
compared to $388.8 million in 1999 and $156.4 million in 1998. Gross margin
increased to 13.9% in 2000 as compared to 13.2% in 1999 and 7.7% in 1998.
The increases in gross profit and gross margin in 2000 were primarily due to
the increased sales of higher value-added technology products and the successful
start-up of production in our new Guanajuato Gear & Axle and Cheektowaga, New
York ("Cheektowaga") manufacturing facilities. The increases in gross profit and
gross margin in 1999 were primarily due to the impact of higher production
volumes, productivity improvements and increased sales of next generation
products that carry higher average selling prices. Gross profit and gross margin
in 1999 also increased as a result of the impact of the 1998 GM work stoppage
and the temporary payment reductions discussed above. We estimate that gross
profit was adversely affected in 1998 due to the impact of the 1998 GM work
stoppage and the temporary payment reductions by approximately $71.2 million and
$51.5 million, respectively.
Selling, General and Administrative Expenses ("SG&A")
SG&A (including research and development) increased 10% in 2000 to $162.6
million as compared to $147.6 million in 1999 and $106.4 million in 1998. The
increase in SG&A spending in 2000 as compared to 1999 was primarily due to our
investment in R&D, the addition of Colfor, MSP and our joint venture in Brazil,
and increased profit-sharing accruals resulting from increased profitability.
The increase in SG&A spending in 1999 as compared to 1998 was primarily due to
increased R&D spending and the addition of Albion, Colfor, MSP and our joint
venture in Brazil. SG&A also increased in 1999 due to the adverse impact of the
1998 GM work stoppage on our profit-sharing program in 1998.
Research and development expenses increased $7.3 million in 2000 to $46.4
million as compared to $39.1 million in 1999 and $29.5 million in 1998. The
significant increase in our R&D spending in 2000 and 1999 as compared to 1998
was primarily due to the increased costs of supporting our new customers and
several high-volume new product programs under development during these periods.
R&D expenses in 1999 also increased as a result of the addition of Albion,
Colfor and MSP.
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THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
We continue to aggressively pursue development of new product, process and
systems technologies in our R&D activities, particularly in the areas of mass
reduction; noise, vibration and harshness improvements; durability; and new
product offerings such as integrated driveline systems and modules. In addition
to the Smart-Bar(TM) active roll-control system and IOP front axle discussed
above, our increased commitment to R&D has resulted in our development of the
PowerLite(TM) aluminum rear-axle system, TracRite(TM) traction-enhancing locking
differentials (including a brand-new electronically controlled TracRite(TM) EL
model) and our Gen II and Gen III universal joints, all of which have been
instrumental in new product program wins for AAM.
Operating Income
[BAR GRAPH]
Operating income increased 9% in 2000 to $259.4 million as compared to $237.8
million in 1999 and $49.9 million in 1998. Operating margin increased to 8.5% in
2000 as compared to 8.1% in 1999 and 2.5% in 1998. The increases in operating
income and operating margin in 2000 and 1999 were primarily due to the factors
discussed above relating to gross profit, partially offset by increased R&D and
other SG&A costs and higher goodwill amortization related to the Albion, Colfor
and MSP acquisitions.
EBITDA(1)
[BAR GRAPH]
(1) EBITDA represents income from continuing operations before interest
expense, income taxes, depreciation and amortization. EBITDA should not be
construed as income from operations, net income or cash flow from operating
activities as determined by generally accepted accounting principles. Other
companies may calculate EBITDA differently.
EBITDA increased 13% in 2000 to $377.0 million as compared to $334.6 million
in 1999 and $119.2 million in 1998. EBITDA margins increased in 2000 to 12.3% of
sales as compared to 11.3% in 1999 and 5.8% in 1998. The increases in EBITDA and
EBITDA margins were primarily due to the factors discussed above relating to
operating income. EBITDA also increased in 2000 and 1999 due to increases in
depreciation and amortization, principally related to higher levels of capital
expenditures necessary to support our new customers and new product programs.
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NET INTEREST EXPENSE. Net interest expense was $58.8 million in 2000, $54.6
million in 1999 and $44.3 million in 1998. The increase in net interest expense
was primarily due to higher average amounts of net debt outstanding and higher
average interest rates, offset by a higher amount of interest capitalized on
construction in progress.
OTHER INCOME. Other income was $2.8 million in 2000 and $0.2 million in 1999
and related principally to foreign-exchange gains. Other income in 2000 also
included a one-time benefit associated with stock sold in connection with the
demutualization of our life-insurance provider.
INCOME TAX EXPENSE. Income tax expense was $74.2 million in 2000, $67.8
million in 1999, and $2.1 million in 1998. Our effective tax rate was 36.5% in
2000 as compared to 37.0% in 1999 and 1998. The decrease in our effective income
tax rate in 2000 reflects a reduction of state taxes related to investment tax
credits and the net favorable resolution of various other federal and state tax
audit issues.
NET INCOME AND EARNINGS PER SHARE. Diluted earnings per share increased to
$2.60 per share in 2000 as compared to $2.34 in 1999 and $0.08 in 1998. After
adjusting for the impact of the GM work stoppage and temporary payment
reductions in 1998, year-over-year earnings growth was 11% in 2000 and 43% in
1999 as compared to year-over-year sales growth of 4% in 2000 and 30% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund capital expenditures and debt
service and to support working capital requirements in our expanding operations.
We rely primarily upon operating cash flow and borrowings under our primary
credit facilities to meet these needs. We believe that cash flow available from
these sources will be sufficient to meet our projected capital expenditures,
debt service obligations and working capital requirements in 2001.
OPERATING ACTIVITIES. Net cash provided by operating activities was $252.2
million in 2000 as compared to $310.3 million in 1999. A change in payment terms
with GM on March 1, 2000 from net 10 days to net 20 days adversely impacted our
2000 operating cash flow by approximately $80 million in the first quarter of
2000. A final increase in payment terms with GM to net 25(th) proximo will be
effective for products shipped to GM beginning on March 1, 2001 and will
complete a three-year transition from the next-day payment terms in effect prior
to March 1, 1999.
Operating cash flow in 2000 was also adversely impacted as compared to 1999
by our increased working capital requirements due to the start-up of production
in Guanajuato Gear & Axle and Cheektowaga. In addition to the impact of
Guanajuato Gear & Axle and Cheektowaga, inventories on hand at year-end 2000
reflect increases as compared to year-end 1999 necessary to support customer
banking requirements. Repair parts inventories also increased in 2000 as we
took delivery of a significant amount of new machinery and equipment.
Operating cash flow in 2000 was also impacted in comparison to prior years by
the one-time lump-sum payments we made to certain associates in connection with
several new long-term collective bargaining agreements we negotiated with our
unions. We also funded contributions to our various hourly and salaried pension
plans of $30.5 million in 2000, well in excess of similar contributions made in
1999 and 1998.
Offsetting the above described uses of cash, accounts payable at year-end
2000 were much higher than at year-end 1999. This increase in accounts payable
was due primarily to our heavy capital spending in the fourth quarter of 2000.
INVESTING ACTIVITIES. Capital expenditures were $381.0 million in 2000 as
compared to $301.7 in 1999. We expect capital expenditures to increase further
in 2001 to nearly $400 million before a substantial reduction in spending in
2002 as we complete our launch of several significant new long-term product
programs and increase our productive capacity to support these new programs,
while at the same time continuing to aggressively pursue cost reductions in
existing operations.
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THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
Our largest capital projects in 2000 were related to the construction and
subsequent expansion of Guanajuato Gear & Axle, which started operations in the
first quarter of 2000, and the launch of several new long-term product programs
in 2000 and early 2001, including GM's mid-sized SUVs and GM's heavy-duty
pick-up trucks and full-size luxury sport-utility vehicles (the GMC Yukon Denali
and the Cadillac Escalade).
Our largest capital projects in 2001 will include additional investment to
support the 2001 launch of GM's mid-sized SUVs as well as expenditures required
to support the 2003 model year launch of the GM MST Program (mid-sized pick-up
trucks, including the Chevrolet S-10 and GMC Sonoma) and the Dodge Ram 2500 and
3500 series of full-size pick-up trucks. Capital spending in 2001 will also
include the construction of a forging facility adjacent to Guanajuato Gear &
Axle.
Our investing activities in 1999 and 1998 included approximately $281 million
of outlays related to the Albion, Colfor and MSP acquisitions and our investment
in the joint venture in Brazil.
We have invested a significant amount of capital for major new product
programs over the past few years and we believe these investments provide an
adequate financial return. After adjusting for the impact of the GM work
stoppage and temporary payment reductions in 1998, our after-tax return on
invested capital ("ROIC") has been in excess of 16% for each of the most recent
three years, which we believe puts us at the top end of the range for our
industry.
YEAR ENDED DECEMBER 31,
2000 1999 1998PF(1) 1998
(In millions)
Net income $ 129.2 $ 115.6 $ 80.8 $ 3.5
Add: After-tax net interest expense 37.3 34.4 27.9 27.9
- ----------------------------------------------------------------------------------------
After-tax return 166.5 150.0 108.7 31.4
Net debt at year-end(2) 781.9 634.7 688.9 688.9
Stockholders' equity at year-end 372.0 263.7 117.7 40.4
- ----------------------------------------------------------------------------------------
Invested capital at year-end 1,153.9 898.4 806.6 729.3
Invested capital at beginning of year 898.4 729.3 526.9 526.9
Average invested capital 1,026.2 813.9 666.8 628.1
- ----------------------------------------------------------------------------------------
ROIC(3) 16.2% 18.4% 16.3% 5.0%
========================================================================================
(1) adjusted to add back net income estimated to have been lost as a result of
the 1998 GM work stoppage and temporary payment reductions
(2) net debt is equal to total debt less cash and equivalents
(3) other companies may calculate ROIC differently
FINANCING ACTIVITIES. Net cash provided by financing activities was $24.1
million in 2000 as compared to $179.5 million in 1999. Total long-term debt
increased by approximately $42.2 million to $817.1 million at December 31, 2000
as compared to December 31, 1999, principally as a result of increasing our
borrowings under the Receivables Facility by $50.0 million and making our
scheduled debt repayments. In addition, we raised approximately $1.1 million
through the exercise of employee stock options in 2000.
In December 2000, AAM's Co-Founder, Chairman & CEO Richard E. Dauch agreed to
extend his employment relationship with AAM by two years until December 31,
2006. In connection with this extension, we repurchased approximately 3.1
million shares of common stock from Dauch, at current market prices, at a total
cost of approximately $21.3 million. Dauch used the proceeds from the sale to
pay off a personal loan incurred to pay taxes in connection with an earlier
investment in AAM. We agreed to repurchase these shares because of
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the favorable economic impact of this transaction and in consideration of the
extension of Dauch's employment agreement. These shares will be held in Treasury
and will be available to be reissued as our associates exercise stock options,
or for other purposes.
In 1999, our financing activities included several significant nonrecurring
events. In February 1999, we raised approximately $107.7 million of net proceeds
in our initial public offering ("IPO") and issued 7 million shares of common
stock. The IPO was followed in March 1999 by our issuance of $300 million of
9.75% Senior Subordinated Notes Due 2009 (the "9.75% Notes"), a transaction in
which we raised net proceeds of approximately $288.7 million. Also in 1999, we
closed sale-leaseback transactions involving $187 million of existing machinery
and equipment.
DEBT CAPITALIZATION AND AVAILABILITY. Our primary credit facilities consist
of our Senior Secured Bank Credit Facilities (the "Bank Credit Facilities"),
which are described in further detail below, and our receivables financing
facility (the "Receivables Facility"), which provides up to $153.0 million of
revolving financing commitments through October 2003. Other significant sources
of our debt capitalization include the 9.75% Notes and capital lease
obligations.
The Bank Credit Facilities, as amended in August 2000, consist of the
following:
- a Senior Secured Revolving Credit Facility (the "Revolver") providing for
revolving loans and the issuance of letters of credit in an aggregate
principal and stated amount not to exceed $378.8 million available through
October 2004; and
- a Senior Secured Term Loan Facility (the "Term Loan") providing for term
loans in an aggregate principal amount of $374.0 million. We will make
semi-annual principal payments in varying amounts on the Term Loan through
April 2006, at which time the remaining balance of $175 million will be
due.
Pursuant to the August 2000 amendment of the Bank Credit Facilities, $106.7
million of availability under a preexisting delayed-draw term loan facility (the
"Tranche A Term Loan") was either rolled over to the Revolving Credit Facility
or extinguished. In addition to the rollover, participants in the Bank Credit
Facilities were also permitted to increase their commitment to the Revolver.
Additionally, certain financial covenants and other key terms were amended to
reflect our improved corporate credit ratings and to increase our flexibility to
support new business growth initiatives and our ongoing operations and
customer relationships outside the United States.
With respect to the Bank Credit Facilities, $374.0 million of borrowings was
outstanding under the Term Loan and $378.8 million was available for future
borrowings under the Revolver at year-end 2000. Additionally at year-end 2000,
$120.0 million was outstanding and an additional $6.6 million was available to
us under the Receivables Facility.
The weighted-average interest rate of our long-term debt outstanding as of
year-end 2000 was approximately 9.0% as compared to approximately 8.6% at
December 31, 1999.
CREDIT RATINGS UPGRADE. 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.
MARKET RISK
In the normal course of business, we are exposed to market risk, principally
associated with changes in foreign currency exchange rates and interest rates.
To manage a portion of these inherent risks, we purchase certain types of
derivative financial instruments from time to time, based on management's
judgment of the trade-off between risk, opportunity and cost. We do not hold or
issue derivative financial instruments for trading or speculative purposes.
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THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
CURRENCY EXCHANGE RISK. Because most of our business is denominated in U.S.
dollars, we do not currently have significant exposures relating to currency
exchange risks and have only a nominal amount of currency hedges in place on the
purchase of machinery and equipment at year-end 2000. Future business
operations and opportunities, including the expansion of our business outside
North America, may expose us to the risk that cash flows resulting from these
activities may be adversely affected by changes in currency exchange rates. If
and when appropriate, we intend to manage these risks by utilizing local
currency funding of these expansions and various types of foreign exchange
forward contracts.
INTEREST RATE RISK. We are exposed to variable interest rates on the Bank
Credit Facilities, the Receivables Facility and a portion of our sale-leaseback
financing. The pre-tax earnings and cash flow impact of a one-percentage-point
increase in interest rates (approximately 11% of our weighted average interest
rate at December 31, 2000) on our long-term debt outstanding at year-end 2000
would be approximately $4.6 million. At year-end 2000, we have hedged a portion
of our interest rate risk by entering into interest rate swaps with a notional
amount of approximately $54.3 million. These interest rate swaps convert
variable financing based on 3-month LIBOR rates into fixed U.S. dollar rates
varying from 6.88% to 6.96%.
ADOPTION OF FASB STATEMENT NO. 133. FASB Statement No. 133, is effective for
us on January 1, 2001. FASB Statement No. 133 establishes standards for the
recognition and measurement of derivatives and hedging activities. We do not
presently expect the adoption of these new accounting standards to have a
material impact on our operating results or financial condition because of the
limited extent to which we engage in the types of activities affected by the
standard. However, we have established procedures under which we will monitor
our future Treasury, Procurement and other various operating activities for
transactions and agreements covered by this standard and we are prepared to
account for the impact of any such transactions and agreements in conformity
with the new standards in future periods if and when applicable.
With respect to the derivative instruments executed as of the adoption date
of January 1, 2001, we expect to record an initial unrealized mark-to-market
loss on the interest rate swaps described above of approximately $1.3 million.
The fair value of our currency forward contracts outstanding at January 1, 2001
approximates break-even.
DIRECT MATERIAL
PURCHASING TRANSITION
Through December 31, 1999, we acquired certain materials for use in the
manufacture of our products through GM's purchasing network. As a result of our
commercial arrangements with GM, we were precluded from directly negotiating
lower purchase costs for such materials from suppliers. However, we were also
protected from increases in the costs of such materials while this purchasing
arrangement was in effect. If the prices of such materials exceeded prices
jointly established with GM, GM increased the aggregate amount paid to us for
our products. If the prices of such materials were less than prices jointly
established with GM, GM reduced the aggregate amount paid to us for our
products.
Effective January 1, 2000, we assumed full responsibility for our entire
purchasing function. As a result, while the prices at which we sell our products
to GM continue to be effective as established in the LPCs, we no longer have a
contractual right to pass on future increases or decreases in the material cost
component of our products sold to GM, except for certain ferrous metals and
certain foreign exchange exposures relating to sourcing decisions directed by
GM. We believe that we can better control our material costs by establishing
direct relationships with our key suppliers and by focusing on our unique
requirements. In fact, we accelerated the transition to our fully independent
purchasing function by approximately two years because of our confidence in our
ability to achieve positive results by controlling the direct material
purchasing function ourselves.
30
11
SEASONALITY
Our operations are cyclical because they are directly related to worldwide
automotive production, which is itself cyclical and dependent on general
economic conditions and other factors. Our business is also moderately seasonal
as our major OEM customers historically have a two-week shutdown of operations
in July and an approximate one-week shutdown in December. In addition, our OEM
customers have historically incurred lower production rates in the third
quarter as model changes enter production. Accordingly, our third quarter and
fourth quarter results may reflect these trends.
EFFECTS OF INFLATION
Inflation generally affects us by increasing the cost of labor, equipment,
utilities and raw materials. We believe that the relatively moderate rate of
inflation over the past few years has not had a significant impact on our
operations because we have offset the increases by realizing improvements in
operating efficiency. In order to protect against the future impact of
inflation, we will continue to aggressively pursue productivity improvements in
our operations, principally through the increased use of the AAM Manufacturing
System, a lean manufacturing system designed to reduce waste. We also plan to
continue to emphasize favorable supply agreements in our direct material
purchasing function, including joint efforts with key suppliers to identify and
share in cost reductions, the use of long-term supply agreements when
appropriate, and the further development of AAM's e-commerce initiatives.
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, we do
not believe that any of these matters, individually or in the aggregate, will
have a material effect on our consolidated financial condition, operating
results or cash flows.
GM has agreed to indemnify and hold AAM harmless from certain environmental
issues identified as potential areas of environmental concern at March 1, 1994.
GM has also agreed to indemnify AAM, under certain circumstances, for up to 10
years from such date with respect to certain pre-closing environmental
conditions. Based on our assessment of costs associated with our environmental
responsibilities, including recurring administrative costs, capital expen-
ditures and other compliance costs, we do not expect such costs to have a
material effect on our financial condition, results of operations, cash flows or
competitive position in the foreseeable future.
FORWARD-LOOKING INFORMATION
Certain statements in this Management's Discussion and Analysis and elsewhere
in this Annual 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 "will," "expect,"
"anticipate," "intend," "project" and similar words or expressions are intended
to identify forward-looking statements. These statements speak only as of the
date of this Annual 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 our customers, changes in economic conditions in the markets served by us,
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.
31
12
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
CONSOLIDATED STATEMENTS
OF INCOME
YEAR ENDED DECEMBER 31,
2000 1999 1998
(In millions, except per share data)
Net sales $ 3,069.5 $2,953.1 $2,040.6
Cost of goods sold 2,643.3 2,564.3 1,884.2
- -----------------------------------------------------------------------------------------------
Gross profit 426.2 388.8 156.4
Selling, general and administrative expenses 162.6 147.6 106.4
Goodwill amortization 4.2 3.4 0.1
- -----------------------------------------------------------------------------------------------
Operating income 259.4 237.8 49.9
Net interest expense (58.8) (54.6) (44.3)
Other income, net 2.8 0.2 -
- -----------------------------------------------------------------------------------------------
Income before income taxes 203.4 183.4 5.6
Income taxes 74.2 67.8 2.1
- -----------------------------------------------------------------------------------------------
Net income $ 129.2 $ 115.6 $ 3.5
===============================================================================================
Basic earnings per share $ 2.79 $ 2.87 $ 0.11
===============================================================================================
Diluted earnings per share $ 2.60 $ 2.34 $ 0.08
===============================================================================================
See accompanying notes to consolidated financial statements.
32
13
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2000 1999
(In millions, except per share data)
ASSETS
Current assets:
Cash and equivalents $ 35.2 $ 140.2
Accounts receivable, net of allowance of
$8.6 in 2000 and $8.0 in 1999 247.3 190.1
Inventories 160.4 133.3
Prepaid expenses and other 43.1 22.3
Deferred income taxes 14.6 19.7
- ----------------------------------------------------------------------------------------------------------
Total current assets 500.6 505.6
Property, plant and equipment, net 1,200.1 929.0
Deferred income taxes 16.1 50.5
Goodwill and other assets 185.7 188.1
- ----------------------------------------------------------------------------------------------------------
Total assets $1,902.5 $1,673.2
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 341.3 $ 269.1
Accrued compensation and benefits 120.2 129.7
Other accrued expenses 48.8 44.0
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 510.3 442.8
Long-term debt 817.1 774.9
Postretirement benefits and other long-term liabilities 203.1 191.8
- ----------------------------------------------------------------------------------------------------------
Total liabilities 1,530.5 1,409.5
Stockholders' equity:
Preferred stock, par value $0.01 per share; 10.0 million shares
authorized; no shares outstanding in 2000 or 1999 - -
Common stock, par value $0.01 per share; 150.0 million shares
authorized; 46.8 million and 46.4 million shares issued in 2000
and 1999, respectively 0.5 0.5
Series common stock, par value $0.01 per share; 40.0 million
shares authorized; no shares outstanding in 2000 or 1999 - -
Paid-in capital 202.1 199.8
Retained earnings 193.3 64.1
Treasury stock at cost; 3.1 million shares in 2000 (21.3) -
Cumulative translation adjustment (2.6) (0.7)
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 372.0 263.7
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,902.5 $1,673.2
=========================================================================================================
See accompanying notes to consolidated financial statements.
33
14
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
CONSOLIDATED STATEMENTS
OF CASH FLOWS
YEAR ENDED DECEMBER 31,
2000 1999 1998
(In millions)
OPERATING ACTIVITIES:
Net income $ 129.2 $ 115.6 $ 3.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 107.9 89.5 68.8
Deferred income taxes 30.5 9.8 2.6
Pensions and other postretirement benefits,
net of contributions 16.7 43.6 20.1
Loss on disposal of equipment 4.8 4.3 0.3
Changes in operating assets and liabilities:
Accounts receivable (59.5) (46.6) 60.5
Inventories (28.8) 12.7 (27.0)
Accounts payable and accrued expenses 92.3 73.7 (36.1)
Other assets and liabilities (40.9) 7.7 (11.3)
-----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 252.2 310.3 81.4
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (381.0) (301.7) (210.0)
Acquisitions, net of cash acquired - (239.4) (41.5)
Proceeds from sale-leaseback of equipment - 187.0 -
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (381.0) (354.1) (251.5)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Issuance of 9.75% Senior Subordinated Notes Due 2009 - 288.7 -
Net borrowings (payments) of long-term debt 45.7 (206.7) 157.1
Debt issuance costs (1.4) (10.3) (0.1)
Issuance of common stock, net - 107.7 -
Employee stock option exercises 1.1 0.1 0.3
Purchase of treasury stock (21.3) - -
- ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 24.1 179.5 157.3
- ---------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (0.3) - -
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (105.0) 135.7 (12.8)
Cash and equivalents at beginning of year 140.2 4.5 17.3
- ---------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 35.2 $ 140.2 $ 4.5
=========================================================================================================
See accompanying notes to consolidated financial statements.
34
15
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
Retained
Earnings Cumulative
Common Paid-in (Accumulated Treasury Translation Comprehensive
Stock Capital Deficit) Stock Adjustment Income
(In millions)
Balance at January 1, 1998 $ - $ 92.2 $(55.0) $ - $ -
Net income 3.5 $ 3.5
Foreign currency translation (0.6) (0.6)
--------
Comprehensive income $ 2.9
========
Exercise of stock options - 0.3
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 - 92.5 (51.5) - (0.6)
Net income
115.6 $ 115.6
Foreign currency translation (0.1) (0.1)
--------
Comprehensive income $ 115.5
========
Issuance of common stock 0.4 107.3
Exercise of stock options 0.1
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 0.5 199.8 64.1 - (0.7)
Net income 129.2 $ 129.2
Foreign currency translation (1.9) (1.9)
--------
Comprehensive income $ 127.3
========
Exercise of stock options,
including tax benefit - 2.3
Purchase of treasury stock (21.3)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 0.5 $202.1 $193.3 $(21.3) $(2.6)
=========================================================================================================
See accompanying notes to financial statements.
35
16
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. American Axle & Manufacturing Holdings, Inc. ("Holdings") and
its subsidiaries (collectively, "we," "us," "AAM" or "the Company"), is a Tier I
supplier to the automotive industry and a worldwide leader in the manufacture,
engineering, validation and design of driveline systems for trucks, sport
utility vehicles ("SUVs") and passenger cars. The driveline system includes all
the components that transfer power from the transmission and deliver it to the
drive wheels. Driveline and related products produced by us include axles,
driveshafts, chassis components, driving heads, crankshafts, transmission parts
and forged products. In addition to our 14 locations in the United States (in
Michigan, New York and Ohio), the Company also has offices and facilities in
Brazil, England, Germany, Japan, Mexico and Scotland.
Holdings is the survivor of a migratory merger with American Axle &
Manufacturing of Michigan, Inc. ("AAMM") and has no significant assets other
than its 100% ownership of American Axle & Manufacturing, Inc. ("AAM Inc.") and
its subsidiaries. Pursuant to this merger, which was effected in January 1999,
each share of AAMM'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. Holdings has no other subsidiaries other than AAM Inc.
PRINCIPLES OF CONSOLIDATION. We include the accounts of Holdings and its
subsidiaries in our consolidated financial statements. We eliminate all
intercompany transactions, balances and profits in our consolidation.
REVENUE RECOGNITION. We recognize revenue when products are shipped to our
customers.
RESEARCH AND DEVELOPMENT COSTS. We expense research and development costs
("R&D") as incurred. R&D costs were $46.4 million, $39.1 million and $29.5
million in 2000, 1999 and 1998, respectively.
CASH AND EQUIVALENTS. Cash and equivalents include all of our cash balances
and highly liquid investments with a maturity of 90 days or less at time of
purchase.
TOOLING. Costs we incur for customer tooling for which we will be reimbursed
are classified as accounts receivable. When we estimate the cost of these
projects to exceed customer reimbursement, we record a provision for such loss
as a component of our allowance for doubtful accounts.
INVENTORIES. We state inventories at the lower of cost or market. Cost is
determined principally using the last-in, first-out method (LIFO). We classify
perishable tooling, repair parts and other materials consumed in the
manufacturing process but not incorporated into our finished products as raw
materials.
Inventories consist of the following:
DECEMBER 31, 2000 1999
(In millions)
Raw materials, work-in-
process and repair parts $138.2 $118.5
Finished goods 31.3 22.6
------------------
Gross inventories 169.5 141.1
LIFO reserve (9.1) (7.8)
------------------
Total inventories $160.4 $133.3
==================
36
17
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment consists of the
following:
DECEMBER 31, 2000 1999
(In millions)
Land and land
improvements $ 23.9 $ 23.1
Buildings and building
improvements 201.1 125.7
Machinery and equipment 1,101.9 833.7
Construction in progress 236.9 227.1
- -------------------------------------------------
1,563.8 1,209.6
Accumulated depreciation (363.7) (280.6)
- -------------------------------------------------
Property, plant and
equipment, net $1,200.1 $ 929.0
=================================================
We state property, plant and equipment at cost. Construction in progress
includes costs incurred for the construction of buildings and building
improvements, and machinery and equipment in process. We record depreciation on
the straight-line method over the estimated useful lives of depreciable assets,
which range from 3 to 40 years and averaged approximately 13 years in 2000.
Depreciation amounted to $100.6 million, $85.5 million and $67.3 million in
2000, 1999 and 1998, respectively.
GOODWILL. We record goodwill when the purchase price of acquired businesses
exceeds the value of their identifiable net tangible and intangible assets
acquired. We amortize goodwill on the straight-line method over periods up to 40
years. Accumulated amortization was $7.7 million at December 31, 2000 and $3.5
million at December 31, 1999.
IMPAIRMENT OF LONG-LIVED ASSETS. We periodically review the realization of
our long-lived assets, including goodwill, based on an evaluation of remaining
useful lives and the current and expected future profitability and cash flows
related to such assets.
STOCK-BASED COMPENSATION. We account for employee stock options in accordance
with APB No. 25 and related interpretations. We measure compensation cost as the
excess, if any, of the market price of our common stock at the date of grant
over the amount our associates must pay to acquire the stock.
CURRENCY TRANSLATION. We translate the assets and liabilities of our foreign
subsidiaries to U.S. dollars at end-of-period exchange rates. We translate the
income statement elements of our foreign subsidiaries to U.S. dollars at
average-period exchange rates. We report the effect of translation for our
foreign subsidiaries that use the local currency as their functional currency as
a separate component of stockholders' equity. Gains and losses resulting from
the remeasurement of assets and liabilities of our foreign subsidiary that uses
the U.S. dollar as its functional currency are reported in current period
income. We also report any gains and losses arising from transactions
denominated in a currency other than our functional currency in current period
income.
USE OF ESTIMATES. In order to prepare financial statements in conformity with
generally accepted accounting principles, we are required to make estimates and
assumptions that affect the reported amounts and disclosures in our financial
statements. Actual results could differ from those estimates.
RECLASSIFICATIONS. We have reclassified certain 1998 and 1999 amounts to
conform to the presentation of our 2000 financial statements.
2. ACQUISITIONS
In 1999, we purchased two domestic automotive forging companies, Colfor
Manufacturing Inc. ("Colfor") and MSP Industries Corporation ("MSP"), and a
majority interest in a joint venture in Brazil which machines forging and
driveline components for automotive OEMs for aggregate cash purchase
consideration of approximately $239 million.
In 1998, we acquired Albion Automotive (Holdings) Limited ("Albion") for a
cash purchase price of approximately $42 million plus $30 million of assumed
debt and capital lease obligations.
37
18
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
3. LONG-TERM DEBT AND
LEASE OBLIGATIONS
Long-term debt consists of the following:
DECEMBER 31, 2000 1999
(In millions)
Bank Credit Facilities:
Revolver $ - $ -
Term Loan 374.0 375.0
- --------------------------------------------------------------
Total Bank Credit Facilities 374.0 375.0
Receivables Facility 120.0 70.0
9.75% Notes, net of discount 298.1 297.9
Capital lease obligations 17.4 25.7
Other 7.6 6.3
- --------------------------------------------------------------
Long-term debt $817.1 $ 774.9
==============================================================
BANK CREDIT FACILITIES. At December 31, 2000, the Senior Secured Bank Credit
Facilities ("Bank Credit Facilities") consist of a $378.8 million Revolving
Credit Facility due October 2004 ("Revolver") and a $374.0 million Senior
Secured Term Loan Facility ("Term Loan") due in semi-annual installments of
varying amounts through April 2006.
Borrowings under the Bank Credit Facilities are secured by the capital stock
of our significant subsidiaries and all of our assets except for those securing
the Receivables Facility and other permitted bank, equipment and lease
financings. Borrowings under the Bank Credit Facilities bear interest at rates
based on LIBOR or an alternate base rate, plus an applicable margin. At December
31, 2000, $378.8 million was available for future borrowings under the Revolver.
At December 31, 2000, the weighted average rate of interest on the balances
outstanding under the Bank Credit Facilities was 8.6%.
RECEIVABLES FACILITY. We have established a receivables financing facility
(the "Receivables Facility") through AAM Receivables Corp. ("Receivables
Corp."), a wholly-owned, bankruptcy-remote subsidiary of AAM Inc. Pursuant to
the Receivables Facility, AAM Inc. agreed to sell certain trade receivables from
time to time to Receivables Corp., which, in turn, transferred all of such
receivables to a trust that issued variable funding certificates representing
undivided interests in the receivables pool. Under the variable funding
certificates, a bank group provided us a revolving financing commitment of up to
$153.0 million through October 2003, subject to the terms and conditions of the
Receivables Facility. The receivables held by the trust are not available to our
general creditors. In accordance with FASB Statement No. 125, we have accounted
for the Receivables Facility as if it were a secured borrowing.
The Receivables Facility bears interest at rates based on LIBOR or an
alternate base rate, plus an applicable margin. Availability under the
Receivables Facility depends on the amount of receivables generated by AAM Inc.,
the rate of collection on those receivables and certain other characteristics of
those receivables that affect their eligibility. At December 31, 2000, $120.0
million was outstanding and an additional $6.6 million was available to us under
the Receivables Facility.
The weighted-average interest rate on our borrowings under the Receivables
Facility at December 31, 2000 was 8.1%.
9.75% NOTES. In March 1999, AAM Inc. issued $300 million of 9.75% Senior
Subordinated Notes Due 2009 (the "9.75% Notes"). Our net proceeds from the
issuance of the 9.75% Notes was approximately $288.7 million after deduction of
discounts to the initial purchasers, and other fees and expenses.
The 9.75% Notes are unsecured senior subordinated obligations of AAM Inc. and
are fully and unconditionally guaranteed by Holdings. Prior to the maturity date
of March 1, 2009, we may redeem the 9.75% Notes beginning on March 1, 2004 at
stated redemption prices beginning at 104.875% at March 1, 2004 and decreasing
to 100% on March 1, 2007 and thereafter. In addition, we may also redeem up to
$105 million of the 9.75% Notes using the proceeds of certain equity offerings
through March 1, 2002 at a redemption price of 109.75%.
Including amortization of the original issue discount, the 9.75% Notes bear
interest at 9.875%.
38
19
DEBT COVENANTS. The Bank Credit Facilities and the 9.75% Notes contain
various operating covenants which, among other things, impose limitations on our
ability to declare or pay dividends or distributions on capital stock, redeem or
repurchase capital stock, incur liens, incur indebtedness, or merge, make
acquisitions or sell assets. We are also required to comply with financial
covenants relating to interest coverage, leverage, retained earnings and capital
expenditures. At our option, we may prepay borrowings under the Bank Credit
Facilities at any time without penalty, other than breakage costs. We are also
subject to mandatory prepayment terms under the Bank Credit Facilities under
certain conditions.
LEASES. We lease certain facilities, machinery and equipment under capital
leases expiring at various dates. Approximately $34.9 million and $37.7 million
of such gross asset cost is included in property, plant and equipment at
December 31, 2000 and 1999, respectively. The weighted-average interest rate on
these capital lease obligations was 7.0% at December 31, 2000.
In 1999, we closed two sale-leaseback transactions involving approximately
$187 million of existing machinery and equipment. These transactions were
financed under operating leases with terms between 10 and 12 years. We are
amortizing a gain on the sale of machinery and equipment of approximately $4
million over the respective lease terms.
We also lease certain other facilities, machinery and equipment under
operating leases expiring at various dates. All of the leases contain renewal
and/or purchase options. Our expense for operating leases was $45.1 million,
$32.6 million and $14.0 million for the years ended December 31, 2000, 1999 and
1998, respectively. Future minimum payments under noncancelable operating leases
are as follows: $42.6 million in 2001, $64.8 million in 2002, $26.9 million in
2003, $26.3 million in 2004, $28.5 million in 2005 and $120.6 million
thereafter.
DEBT MATURITIES. Aggregate maturities of long-term debt are as follows (in
millions):
2001 $ 14.0
2002 6.4
2003 124.2
2004 21.2
2005 175.0
Thereafter 476.3
---------------------
Total $ 817.1
=====================
We have sufficient availability to refinance current maturities of long-term
debt through the Bank Credit Facilities and the Receivables Facility and have,
therefore, classified such obligations as long-term debt at December 31, 2000.
Gross interest expense was $77.6 million, $70.2 million and $48.6 million in
2000, 1999 and 1998, respectively. We paid interest of $71.6 million, $55.8
million and $50.2 million in 2000, 1999 and 1998, respectively. We capitalized
interest of $11.9 million, $8.5 million and $3.8 million in 2000, 1999 and 1998,
respectively.
Interest income was $6.8 million, $7.1 million and $0.5 million in 2000, 1999
and 1998, respectively.
4. DERIVATIVES AND RISK MANAGEMENT
DERIVATIVE FINANCIAL INSTRUMENTS. In the normal course of business, we are
exposed to market risk, principally associated with changes in foreign currency
exchange rates and interest rates. To manage a portion of these inherent risks,
we purchase certain types of derivative financial instruments, from time to
time, based on management's judgment of the trade-off between risk, opportunity
and cost. We do not hold or issue derivative financial instruments for trading
or speculative purposes.
39
20
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
CURRENCY FORWARD CONTRACTS. Because most of our business is denominated in
U.S. dollars, we do not currently have significant exposures relating to
currency exchange risks. At December 31, 2000, we have currency hedges in place
on the purchase of machinery and equipment with a notional amount of $5.4
million.
INTEREST RATE SWAPS. We are exposed to variable interest rates on the Bank
Credit Facilities, the Receivables Facility and a portion of our sale-leaseback
financing. At December 31, 2000, we have hedged a portion of our interest rate
risk by entering into interest rate swaps with a notional amount of
approximately $54.3 million. These interest rate swaps convert variable
financing based on 3-month LIBOR rates into fixed U.S. dollar rates varying from
6.88% to 6.96%.
In connection with the Term Loan, we entered into a $112.5 million rate
collar transaction in 1997 to pay a floating rate of interest based on 3-month
LIBOR with a cap rate of 6.5% and a floor rate of 5.5%. The rate collar
transaction terminated at December 31, 2000.
We have designated the rate collar transaction and the interest rate swap
agreements as effective hedges of the related debt and lease obligations and,
accordingly, we have reflected the net cost of such agreements as an adjustment
to interest expense over the lives of the debt and lease agreements.
ADOPTION OF FASB STATEMENT NO. 133. FASB Statement No. 133 is effective for
us on January 1, 2001. FASB Statement No. 133 establishes standards for the
recognition and measurement of derivatives and hedging activities. We do not
presently expect the adoption of these new accounting standards to have a
material impact on our operating results or financial condition because of the
limited extent to which we engage in the types of activities affected by the
standard.
With respect to the derivative instruments executed as of the adoption date
of January 1, 2001, we expect to record an initial unrealized mark-to-market
loss on the interest rate swaps described above of approximately $1.3 million.
The fair value of our currency forward contracts outstanding at January 1, 2001
approximates break-even.
At December 31, 1999, the interest rate swaps and collars had notional values
of $175 million and unrealized losses of approximately $0.1 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of our cash and
equivalents, accounts receivable, accounts payable and accrued liabilities
approximates their fair values due to the short-term maturities of these assets
and liabilities. The carrying value of our borrowings under the Bank Credit
Facilities and the Receivables Facility approximate their fair value due to
the frequent resetting of the interest rate. We have estimated the fair value of
the 9.75% Notes at December 31, 2000, using available market information, to be
approximately $253.5 million.
CONCENTRATIONS OF CREDIT RISK. In the normal course of business, we provide
credit to customers in the automotive industry. We periodically evaluate the
credit worthiness of our customers and we maintain reserves for potential credit
losses, which, when realized, have been within the range of our allowance for
doubtful accounts. When appropriate, we also diversify the concentration of
invested cash among different financial institutions and we monitor the
selection of counterparties to other financial instruments to avoid unnecessary
concentrations of credit risk.
5. EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFITS. We sponsor various qualified and
non-qualified defined benefit pension plans for our eligible associates. We also
maintain hourly and salaried benefit plans that provide postretirement medical,
dental, vision and life benefits to our eligible retirees and their dependents
in the United States. We provide benefits under collective bargaining agreements
to a majority of our hourly associates.
40
21
Actuarial valuations of the U.S. benefit plans were made at September 30,
2000 and 1999, respectively. Actuarial valuations of the foreign benefit plan
were made at September 30, 2000 and December 31, 1999, respectively.
The following table summarizes the changes in benefit obligations and plan
assets and reconciles the funded status of the benefit plans to the net benefit
plan liability:
PENSION BENEFITS OTHER BENEFITS
-----------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------
(In millions)
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 156.8 $ 148.6 $ 90.1 $ 79.5
Service costs 20.2 21.7 18.4 21.7
Interest cost 14.0 10.9 8.5 7.2
Plan amendments 17.3 - - -
Actuarial gain (6.6) (22.7) (0.6) (17.2)
Participant contributions 1.7 1.7 - -
Adjustment due to measurement date change (1.1) - - -
Benefit payments (3.1) (2.4) (0.9) (1.1)
Currency fluctuations (2.8) (1.0) - -
- ----------------------------------------------------------------------------------------------------------------
Net change 39.6 8.2 25.4 10.6
- ----------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 196.4 156.8 115.5 90.1
- ----------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 161.8 143.6 - -
Actual return on plan assets 13.5 18.4 - -
Employer contributions 30.5 1.5 0.9 1.1
Participant contributions 1.6 1.7 - -
Adjustment due to measurement date change (0.8) - - -
Benefit payments (3.1) (2.4) (0.9) (1.1)
Currency fluctuations (3.0) (1.0) - -
- ----------------------------------------------------------------------------------------------------------------
Net change 38.7 18.2 - -
- ----------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 200.5 161.8 - -
- ----------------------------------------------------------------------------------------------------------------
Funded status -- U. S. plans at September 30 - 1.7 (115.5) (90.1)
Funded status -- foreign plan at September 30, 2000
and December 31, 1999 4.1 3.3 - -
Unrecognized actuarial gain (47.3) (42.6) (31.5) (31.3)
Unrecognized prior service cost 20.3 4.6 0.1 0.1
Fourth quarter contribution 0.3 3.0 0.2 0.3
- ----------------------------------------------------------------------------------------------------------------
Net liability at December 31 $(22.6) $ (30.0) $(146.7) $(121.0)
================================================================================================================
41
22
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
The principal weighted average assumptions used in the valuation of the U.S. and
foreign plans were as follows:
PENSION BENEFITS OTHER BENEFITS
---------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
---------------------------------------------------------------------------------------------
U.S. Foreign U.S. Foreign U.S. Foreign
---------------------------------------------------------------------------------------------
Discount rate 8.00% 6.00% 7.75% 6.00% 6.75% 5.50% 8.00% 7.85% 7.15%
Expected return
on plan assets 9.25% 8.00% 9.25% 8.00% 9.25% 8.00% N/A N/A N/A
Rate of compensation
increase 4.25% 4.00% 4.25% 4.00% 4.00% 3.50% 4.25% 4.25% 4.00%
PENSION BENEFITS OTHER BENEFITS
-----------------------------------------------------------------
2000 1999 1998 2000 1999 1998
-----------------------------------------------------------------
(In millions)
COMPONENTS OF NET PERIODIC BENEFIT COSTS:
Service cost $ 20.2 $ 21.7 $ 17.2 $ 18.4 $ 21.7 $ 18.9
Interest cost 14.0 10.9 7.6 8.5 7.2 5.4
Expected asset return (13.8) (12.4) (9.0) N/A N/A N/A
Amortized gain (1.5) (0.2) (1.6) (1.4) (0.4) (1.3)
Amortized prior service cost 1.6 0.5 0.5 -- -- --
- ----------------------------------------------------------------------------------------------------------------
Net benefit cost $ 20.5 $ 20.5 $ 14.7 $ 25.5 $ 28.5 $ 23.0
================================================================================================================
For measurement purposes, a 6.1% annual increase in the per-capita cost of
covered health care benefits was assumed for 2000. The rate was assumed to
decrease gradually to 5% for 2002 and remain at that level thereafter. Health
care cost trend rates have a significant effect on the amounts reported for the
health care plans. A one-percent-age-point increase in the assumed health care
cost trend rate would have increased total service and interest cost and the
postretirement obligation by $6.4 million and $25.4 million, respectively. A
one-percentage-point decrease in the assumed health care cost trend rate would
have decreased total service and interest cost and the postretirement obli-
gation by $4.8 million and $19.3 million, respectively.
VOLUNTARY SAVINGS PLANS. Most of our U.S. associates are eligible to
participate in a voluntary savings plan. Our maximum match under these plans is
50% of the first 6% of salaried associate contributions. Matching contributions
amounted to $2.6 million, $1.6 million and $1.5 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
DEFERRED COMPENSATION PLAN. Certain U.S. associates are eligible to
participate in a non-qualified deferred compensation plan. We fund a portion of
the amounts elected to be deferred by the participants in this plan. Our funded
portion of the plan amounted to approximately $1.4 million of the $2.6 million
liability at December 31, 2000.
6. STOCK OPTIONS
In 1997 and in 1999, we established two stock option plans and an incentive
stock plan (the "stock compensation plans") under which a total of 9.5 million
shares of common stock are authorized for issuance to our directors, officers
and certain other associates in the form of options, stock appreciation rights
or other awards that are based on the value of our common stock. Under these
stock compensation
42
23
plans, the exercise price of the options, rights or other awards will not be
less than the fair market value of our common stock on the date of grant. We
have granted a total of 7.5 million options under these stock compensation plans
at December 31, 2000, which become exercisable based upon duration of
employment. The vesting of some of these options can be accelerated subject to
the satisfaction of certain performance criteria each year. At December 31,
2000, 0.4 million of these options have been exercised.
At December 31, 2000, there are also 1.7 million options held by several of
our officers that were granted in 1997 as a replacement for an incentive
compensation plan established in 1994. These options were immediately vested and
are exercisable at a weighted-average exercise price per share of approximately
$0.18. A total of 0.1 million options granted under this plan have been
exercised prior to December 31, 2000.
The following table summarizes activity relating to our stock options:
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
(In millions, except per share data)
Outstanding at January 1, 1998 14.5 $ 1.71
Options granted -- --
Options exercised (0.1) 4.26
Options lapsed or canceled (0.1) 4.26
- ------------------------------------------------------------------
Outstanding at December 31, 1998 14.3 $ 1.68
Options granted 0.6 15.38
Options exercised (6.9) 0.02
Options lapsed or canceled (0.2) 6.34
- ------------------------------------------------------------------
Outstanding at December 31, 1999 7.8 $ 4.07
Options granted 1.5 14.85
Options exercised (0.4) 2.93
Options lapsed or canceled (0.1) 7.66
- ------------------------------------------------------------------
Outstanding at December 31, 2000 8.8 $ 5.90
==================================================================
Options exercisable at December 31, 1998 9.4 $ 0.31
==================================================================
Options exercisable at December 31, 1999 3.9 $ 2.42
==================================================================
Options exercisable at December 31, 2000 4.7 $ 3.29
==================================================================
Options outstanding at December 31, 2000 have a weighted-average remaining
contractual life of approximately 9 years. Of the options outstanding at
December 31, 2000, 1.7 million options have exercise prices of $0.25 per share
or less. The remaining 7.1 million shares have a weighted average exercise price
of $7.29 per share, with a range of $4.26 to $15.56.
43
24
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
Had we determined compensation cost based upon the fair value of the options
at the grant date consistent with the method specified by FASB Statement No.
123, our net income and earnings per share would have been adjusted to the pro
forma amounts indicated below:
2000 1999 1998
---- ---- ----
(In millions, except per share data)
Net income as reported $ 129.2 $ 115.6 $ 3.5
========= ========== ========
Pro forma $ 126.2 $ 114.5 $ 2.8
========= ========== ========
Basic earnings per share as reported $ 2.79 $ 2.87 $ 0.11
========= ========== ========
Pro forma $ 2.73 $ 2.84 $ 0.09
========= ========== ========
Diluted earnings per share as reported $ 2.60 $ 2.34 $ 0.08
========= ========== ========
Pro forma $ 2.57 $ 2.30 $ 0.06
========= ========== ========
For options granted prior to our IPO in January 1999, we determined the fair
value of each option using the minimum value method and an assumed interest rate
of 6.13%. For options granted after the IPO, the fair value of each option was
estimated on the date of grant using an option-pricing model with the following
assumptions:
2000 1999
---- ----
ASSUMPTIONS:
Expected volatility 39.7% 38.6%
Risk-free interest rate 5.64% 4.74%
Dividend yield none none
Expected life of option 7 years 7 years
Weighted average grant-date fair value $ 7.89 $ 6.95
7. INCOME TAXES
The following is a summary of the components of the provision for income taxes:
2000 1999 1998
---- ---- ----
(In millions)
CURRENT:
Federal $ 29.6 $ 47.7 $ --
Michigan single business tax 5.5 7.2 0.4
Other state and local (3.2) (0.5) (0.9)
Foreign 0.7 -- --
------- ------- ------
Total current 32.6 54.4 (0.5)
DEFERRED:
Federal 34.5 11.1 3.6
Michigan single business tax 1.5 2.9 1.2
Other state and local 1.1 1.8 (0.4)
Foreign 4.5 (2.4) (1.8)
------- ------- ------
Total deferred 41.6 13.4 2.6
------- ------- ------
Total income taxes $ 74.2 $ 67.8 $ 2.1
======= ======= ======
44
25
The following is a reconciliation of the provision for income taxes to the
expected amounts using the statutory rate:
2000 1999 1998
---- ---- ----
Federal statutory 35.0% 35.0% 35.0%
State and local 1.6 4.5 5.7
Federal credits and other -- (2.5) (7.3)
Foreign rate difference (0.1) -- 3.6
---- ---- ----
Effective income tax rate 36.5% 37.0% 37.0%
==== ==== ====
The following is a summary of the significant components of our deferred tax
assets and liabilities:
2000 1999
---- ----
(In millions)
CURRENT DEFERRED TAX ASSETS:
Employee benefits $ 8.5 $ 11.0
Inventory 0.6 2.6
Other 5.5 6.1
------- --------
Total current deferred tax assets $ 14.6 $ 19.7
======= ========
NONCURRENT DEFERRED TAX ASSETS:
Employee benefits $ 53.9 $ 53.6
NOL carryforwards 21.2 26.4
Fixed assets 17.8 18.3
Prepaid taxes 14.2 24.1
Tax credit carryforwards 3.7 6.4
Goodwill 1.7 1.8
Other 4.7 6.3
Valuation allowance (28.7) (33.4)
------- --------
Total noncurrent deferred tax assets 88.5 103.5
DEFERRED TAX LIABILITIES -- NONCURRENT:
Fixed assets 72.4 53.0
------- --------
Net noncurrent deferred tax assets $ 16.1 $ 50.5
======= ========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes and the impact of available
net operating loss ("NOL") and tax credit carryforwards.
45
26
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
At December 31, 2000, we had unused NOLs for foreign tax purposes of
approximately $129.9 million, including capital allowance carryforwards. None of
these carryforwards expire. We also have $3.7 million of federal R&D tax
credits. These tax credit carryforwards expire between 2018 and 2019.
We established a valuation allowance of $45.5 million in 1998, which was
subsequently reduced to $33.4 million in 1999 and $28.7 million in 2000. We
reduced the valuation allowance due to changes in our assessment of the
uncertainty of realizing the full benefit of the foreign NOL and capital
allowance carryforwards. We considered prior operating results and future
plans, as well as the utilization period of other temporary differences, in
determining the amount of the valuation allowance.
Income tax payments, including federal, state, local and foreign were $43.9
million, $48.8 million and $9.3 million in 2000, 1999 and 1998, respectively.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
2000 1999 1998
---- ---- ----
(In millions, except per share data)
NUMERATOR:
Net income $ 129.2 $ 115.6 $ 3.5
========= ========= ========
DENOMINATORS:
Basic shares outstanding--
weighted-average shares outstanding 46.3 40.3 32.4
Effect of dilutive securities:
Dilutive stock options 3.4 9.2 10.8
--------- --------- --------
Diluted shares outstanding--
adjusted weighted-average shares after
assumed conversions 49.7 49.5 43.2
========= ========= ========
Basic earnings per share $ 2.79 $ 2.87 $ 0.11
========= ========= ========
Diluted earnings per share $ 2.60 $ 2.34 $ 0.08
========= ========= ========
9. COMMITMENTS AND CONTINGENCIES
At December 31, 2000, obligated purchase commitments for capital expenditures
were approximately $210.2 million.
We are involved in various legal proceedings incidental to our business.
Although the outcome of these matters cannot be predicted with certainty, we do
not believe that any of these matters, individually or in the aggregate, will
have a material effect on our consolidated financial condition, operating
results or cash flows.
46
27
10. RELATED PARTY TRANSACTIONS
In December 2000, AAM's Co-Founder, Chairman & CEO Richard E. Dauch agreed to
extend his employment relationship with AAM by two years until December 31,
2006. In connection with this extension, we repurchased approximately 3.1
million shares of common stock from Dauch, at current market prices, at a total
cost of approximately $21.3 million. Dauch used the proceeds from the sale to
pay off a personal loan incurred to pay taxes in connection with an earlier
investment in AAM.
In connection with a leveraged recapitalization transaction in 1997 through
which Blackstone Capital Partners II Merchant Banking Fund L.P. and certain of
its affiliates (collectively "Blackstone") acquired a majority ownership
interest, we entered into an agreement pursuant to which Blackstone provides
certain advisory and consulting services to us. We incurred costs of $4.6
million, $4.0 million and $2.4 million for such services provided by Blackstone
in 2000, 1999 and 1998, respectively.
11. SEGMENT AND GEOGRAPHIC INFORMATION
We operate in one reportable segment: the manufacture, engineering,
validation and design of driveline systems for trucks, sport utility vehicles
("SUVs") and passenger cars. Financial information relating to our operations by
geographic area is presented in the following table. Net sales are attributed to
countries based upon location of customer. Long-lived assets exclude deferred
income taxes.
2000 1999 1998
---- ---- ----
(In millions)
NET SALES:
United States $ 2,296.2 $ 2,285.2 $ 1,619.1
Canada 372.6 405.9 264.2
Mexico and South America 283.6 140.4 127.5
Europe and Other 139.5 126.5 29.8
Inter-geographic revenues (22.4) (4.9) --
---------- ---------- ----------
Total net sales $ 3,069.5 $ 2,953.1 $ 2,040.6
========== ========== ==========
LONG-LIVED ASSETS:
United States $ 1,156.5 $ 947.0 $ 787.0
Other 229.3 170.1 83.0
---------- ---------- ----------
Total long-lived assets $ 1,385.8 $ 1,117.1 $ 870.0
========== ========== ==========
With the exception of sales to General Motors Corporation ("GM"), no single
customer accounted for more than 10% of our consolidated net sales in any year
presented. Sales to GM were approximately 84.5%, 85.9% and 93.4% of our total
net sales in 2000, 1999 and 1998, respectively.
47
28
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
12. UNAUDITED QUARTERLY FINANCIAL DATA AND MARKET
FOR THE COMPANY'S COMMON STOCK
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR
- ------------- -------- ------- ------------ ----------- ---------
(In millions, except per share data)
2000
Net sales $ 835.9 $ 819.7 $ 675.5 $ 738.4 $ 3,069.5
Gross profit 119.7 120.1 89.1 97.3 426.2
Net income 40.1 40.0 24.2 24.9 129.2
Diluted earnings per share(1) 0.80 0.80 0.48 0.51 2.60
Market price(2)
High $ 17.13 $ 16.94 $ 16.13 $ 12.63 $ 17.13
Low $ 11.50 $ 14.13 $ 10.25 $ 5.75 $ 5.75
1999
Net sales $ 697.7 $ 800.8 $ 718.8 $ 735.8 $ 2,953.1
Gross profit 92.1 108.4 89.4 98.9 388.8
Net income 29.0 33.7 25.4 27.5 115.6
Diluted earnings per share(1) 0.61 0.67 0.50 0.56 2.34
Market price(2)
High $ 16.69 $ 16.31 $ 16.94 $ 15.00 $ 16.94
Low $ 11.69 $ 12.00 $ 14.00 $ 11.94 $ 11.69
(1) Full year diluted earnings per share will not necessarily agree to the sum
of the four quarters because each quarter is a separate calculation.
(2) Prices are based on the composite tape of the New York Stock Exchange. We
had approximately 475 stockholders of record at February 7, 2001.
48
29
THE AAM ADVANTAGE
[AAM LOGO]
2000 ANNUAL REPORT
Six-Year Financial Summary
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998(a) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share data)
STATEMENT OF INCOME DATA:
Net sales $ 3,069.5 $ 2,953.1 $ 2,040.6 $ 2,147.5 $ 2,022.3 $ 1,968.1
Gross profit 426.2 388.8 156.4 216.0 172.0 179.5
Selling, general and
administrative expenses 162.6 147.6 106.4 104.0 83.1 70.6
Operating income 259.4 237.8 49.9 112.0 88.9 108.9
Net interest (expense) income (58.8) (54.6) (44.3) (1.8) 9.4 9.1
Net income 129.2 115.6 3.5 55.3 61.7 70.6
Diluted earnings per share $ 2.60 $ 2.34 $ 0.08 $ 0.43 $ 0.43 $ 0.50
Diluted shares outstanding(b) 49.7 49.5 43.2 126.5 142.5 142.5
BALANCE SHEET DATA:
Cash and equivalents $ 35.2 $ 140.2 $ 4.5 $ 17.3 $ 126.0 $ 170.3
Total assets 1,902.5 1,673.2 1,223.9 1,016.7 771.2 737.0
Total long-term debt 817.1 774.9 693.4 507.0 2.4 1.0
Preferred stock -- -- -- -- 200.0 200.0
Stockholders' equity 372.0 263.7 40.4 37.2 250.2 168.6
Invested capital(c) 1,153.9 898.4 729.3 526.9 326.6 199.3
OTHER DATA:
Net cash provided by
operating activities $ 252.2 $ 310.3 $ 81.4 $ 200.8 $ 65.7 $ 196.9
EBITDA(d) 377.0 334.6 119.2 152.8 134.7 144.8
Depreciation and amortization 107.9 89.5 68.8 50.2 36.1 25.2
Capital expenditures 381.0 301.7 210.0 282.6 162.3 147.1
- ------------------------------------------------------------------------------------------------------------------------------
(a) The following table sets forth the estimated adverse impact on our 1998
operating results related to the GM work stoppage which occurred in June
and July of 1998 and the temporary reduction of certain payments made by GM
to us as part of the commercial arrangements between us.
As Temporary As
Reported GM Work Payment Adjusted
1998 Stoppage Reductions 1998
-----------------------------------------------
Net sales $ 2,040.6 $ 187.6 $ 51.5 $ 2,279.7
Gross profit 156.4 71.2 51.5 279.1
Operating income 49.9 71.2 51.5 172.6
EBITDA (d) 119.2 71.2 51.5 241.9
(b) Pursuant to a migratory merger effected in January 1999 and undertaken in
connection with the IPO, each share of American Axle & Manufacturing of
Michigan, Inc.'s common stock was converted into 3,945 shares of American
Axle & Manufacturing Holdings, Inc. common stock. All share and per share
amounts have been adjusted to reflect this conversion.
(c) Invested capital represents the sum of total debt and stockholders' equity
(including preferred stock) less cash and equivalents.
(d) EBITDA represents income from continuing operations before interest
expense, income taxes, depreciation and amortization. EBITDA should not be
construed as income from operations, net income or cash flow from operating
activities as determined by generally accepted accounting principles. Other
companies may calculate EBITDA differently.
49