<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ------- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
- ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission file number 1-14303
American Axle & Manufacturing Holdings, Inc.
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3161171
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Holbrook Avenue, Detroit, Michigan 48212-3488
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(313) 974-2000
--------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of October 29, 1999, the latest practicable date, was 46,357,012
shares.
<PAGE> 2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ -----------------
ASSETS (In millions)
<S> <C> <C>
Current assets:
Cash and equivalents $ 172.9 $ 4.5
Accounts receivable, net 245.6 123.8
Inventories 121.4 137.1
Prepaid expenses and other 7.7 14.5
Deferred income taxes 13.6 14.1
--------- ---------
Total current assets 561.2 294.0
Property, plant and equipment, net 851.0 829.3
Deferred income taxes 52.2 62.2
Goodwill and other assets 198.1 40.7
========= =========
TOTAL ASSETS $ 1,662.5 $ 1,226.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 278.5 $ 232.8
Accrued compensation and benefits 148.9 105.4
Other accrued expenses 40.5 24.7
--------- ---------
Total current liabilities 467.9 362.9
Long-term debt and capital lease obligations 795.3 693.4
Postretirement benefits and other long-term liabilities 163.2 129.5
--------- ---------
TOTAL LIABILITIES 1,426.4 1,185.8
Stockholders' equity
Common stock, par value $.01 per share 0.4 -
Paid-in capital 199.8 92.5
Retained earnings (accumulated deficit) 36.6 (51.5)
Cumulative translation adjustment (0.7) (0.6)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 236.1 40.4
========= ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,662.5 1,226.2
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 718.8 $ 364.8 $ 2,217.3 $ 1,411.0
Cost of goods sold 629.4 362.8 1,927.4 1,325.0
------- ------- --------- ---------
Gross profit 89.4 2.0 289.9 86.0
Selling, general and
administrative expenses 33.2 22.6 105.0 71.7
Goodwill amortization 1.1 - 2.3 -
------- ------- --------- ---------
Operating income (loss) 55.1 (20.6) 182.6 14.3
Net interest expense (14.3) (12.8) (41.4) (32.4)
Other (expense) income, net - (0.2) (1.4) 0.2
------- ------- --------- ---------
Income (loss) before income taxes 40.8 (33.6) 139.8 (17.9)
Income taxes (benefit) 15.4 (12.5) 51.7 (6.7)
------- ------- --------- ---------
Net income (loss) $ 25.4 $ (21.1) $ 88.1 $ (11.2)
======= ======= ========= =========
Basic earnings (loss) per share $ 0.64 $ (0.65) $ 2.27 $ (0.35)
======= ======= ========= =========
Diluted earnings (loss) per share $ 0.50 $ (0.65) $ 1.78 $ (0.35)
======= ======= ========= =========
Average shares outstanding:
Basic earnings (loss) per share 39.5 32.5 38.7 32.4
======= ======= ========= =========
Diluted earnings (loss) per share 50.1 32.5 49.3 32.4
======= ======= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1999 1998
---- ----
(In millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 88.1 $ (11.2)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 70.2 50.4
Deferred income taxes 14.0 (8.5)
Pensions and other postretirement benefits, net of
contributions 33.8 10.9
Loss on disposal of equipment 1.9 0.2
Changes in operating assets and liabilities:
Accounts receivable (99.4) 72.0
Inventories 24.7 (28.7)
Current liabilities 74.7 (22.2)
Other assets and liabilities 5.5 (20.1)
------ -------
Net cash provided by operating activities 213.5 42.8
------ -------
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (206.1) (158.8)
Acquisitions, net of cash acquired (225.9) -
Proceeds from sale-leaseback of equipment 187.0 -
------ -------
Net cash used in investing activities (245.0) (158.8)
------ -------
FINANCING ACTIVITIES
Payments on Revolving Credit and Receivables facilities, net (196.0) (25.3)
Proceeds from issuance of long-term debt and
capital lease obligations, net 297.9 128.0
Debt issuance costs (9.7) -
Proceeds from issuance of common stock, net 107.7 0.3
------ -------
Net cash provided by financing activities 199.9 103.0
------ -------
Effect of exchange rate changes on cash - -
------ -------
Net increase (decrease) in cash and equivalents 168.4 (13.0)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 4.5 17.3
------ -------
CASH AND EQUIVALENTS AT END OF PERIOD $172.9 $ 4.3
====== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
American Axle & Manufacturing Holdings, Inc. ("Holdings" or the
"Company") is the survivor of a migratory merger with American Axle &
Manufacturing of Michigan, Inc. (the "predecessor company"). Pursuant
to this merger, which was effected in January 1999, each share of the
predecessor company's common stock was converted into 3,945 shares of
Holdings' common stock. All share and per share amounts have been
adjusted to reflect this conversion.
In February 1999, Holdings completed an initial public offering and
issued 7 million shares of its common stock. The net proceeds of the
offering, after deduction of associated expenses, amounted to $107.7
million.
Basis of Presentation
The accompanying interim condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q
under the Securities Exchange Act of 1934, as amended. The statements
are unaudited but include all adjustments, consisting only of recurring
items, except as noted, which the Company considers necessary for a
fair presentation of the information set forth herein. Results of
operations for the periods presented are not necessarily indicative of
the results for the full fiscal year.
The balance sheet at December 31, 1998 has been derived from the
audited consolidated financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For
further information, refer to the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
The Company operates in one reportable segment, the design, engineering
and manufacture of driveline systems and chassis systems (including
forged products) for trucks, buses, sport utility vehicles, and
passenger cars.
<PAGE> 6
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. AMERICAN AXLE & MANUFACTURING, INC.
Holdings has no material assets, liabilities or operations other than
those that result from its ownership of 100% of the outstanding common
stock of American Axle & Manufacturing, Inc. ("AAM Inc."). Separate
consolidated financial statements of AAM Inc. are not presented because
they would not be materially different than the accompanying unaudited
interim condensed consolidated financial statements. The following is a
summary of the consolidated assets and liabilities of AAM Inc. and its
subsidiaries and their consolidated results of operations:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------------------------------------
(In millions)
<S> <C> <C>
Assets:
Current assets $ 561.2 $ 294.0
Noncurrent assets 1,101.3 932.2
==============================================
Total assets $ 1,662.5 $ 1,226.2
==============================================
Liabilities:
Current liabilities $ 467.9 $ 362.9
Noncurrent liabilities 958.5 822.9
==============================================
Total liabilities $ 1,426.4 $ 1,185.8
==============================================
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1999 1998
----------------------------------------------
(In millions)
Net sales $ 2,217.3 $ 1,411.0
Gross profit 289.9 86.0
Net income (loss) 88.1 (11.2)
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally using the last in first out method. Inventories
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------------------------------------
(In millions)
<S> <C> <C>
Raw materials and work-in-process $ 100.8 $ 87.6
Finished goods 13.9 42.2
---------------------------------------
Gross inventories at cost 114.7 129.8
Excess of cost over LIFO cost (8.2) (7.0)
---------------------------------------
Net inventories at LIFO 106.5 122.8
Supplies and repair parts 14.9 14.3
---------------------------------------
$ 121.4 $ 137.1
=======================================
</TABLE>
<PAGE> 7
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------
1999 1998
---------------------
(In millions)
<S> <C> <C>
Credit Facilities:
Revolver $ - $ 223.0
Tranche A Term Loan - -
Tranche B Term Loan 375.0 375.0
------- -------
Total Credit Facilities 375.0 598.0
Receivables Facility 90.0 63.0
9.75% Senior Subordinated Notes Due 2009,
net of discount 297.8 -
Albion Capital Lease Obligations 27.7 26.1
Other 4.8 6.3
------- -------
$ 795.3 $ 693.4
======= =======
</TABLE>
Issuance of 9.75% Senior Subordinated Notes Due 2009
In March 1999, AAM, Inc., issued $300.0 million of 9.75% Senior
Subordinated Notes Due 2009 (the "Notes"). The net proceeds from the
sale of the notes were approximately $288.7 million after deduction of
discounts to the initial purchasers and other fees and expenses.
Resyndication of Revolving Receivables Facility
In March 1999, the Company resyndicated its revolving receivables
facility through its subsidiary, AAM Receivables Corp. In addition,
this facility was increased from $125.0 million to $153.0 million. The
terms of the resyndicated receivables facility are substantially the
same as the Company's previous receivables facility.
Amendment of Credit Facilities
In October 1999, the Company extended the availability of $102.2
million of the Tranche A Term Loan to July 2000. Of the $125.0 million
of original Tranche A Term Loan availability, $22.8 million expired
unused. There have been no borrowings on the Tranche A Term Loan to
date.
<PAGE> 8
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in millions, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Numerators for Basic and Diluted
earnings (loss) per share:
Net income (loss) available to
common stockholders.................................... $ 25.4 $ (21.1) $ 88.1 $ (11.2)
Denominators:
Denominator for Basic earnings (loss) per share -
weighted-average shares outstanding.................... 39.5 32.5 38.7 32.4
Effect of dilutive securities:
Dilutive stock options outstanding....................... 10.6 - 10.6 -
------ ------- ------ -------
Denominator for Diluted earnings (loss) per share -
adjusted weighted-average shares and
assumed conversion..................................... 50.1 32.5 49.3 32.4
====== ======= ====== =======
Basic earnings (loss) per share.............................. $ 0.64 $ (0.65) $ 2.27 $ (0.35)
====== ======= ====== =======
Diluted earnings (loss) per share............................ $ 0.50 $ (0.65) $ 1.78 $ (0.35)
====== ======= ====== =======
</TABLE>
Exercise of Stock Options
In October 1999, an officer of the Company exercised options to
purchase 6,891,915 shares of the Company's common stock at an exercise
price of $.01 per share. After the exercise, the number of shares of
the Company's common stock outstanding increased to 46,357,012 shares.
However, this exercise will have only a nominal impact on the Company's
reporting of diluted earnings per share for the year ending December
31, 1999.
<PAGE> 9
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMPREHENSIVE INCOME
Comprehensive income was $26.2 million and $88.0 million for the three
months and nine months ended September 30, 1999, respectively. Foreign
currency translation is the only reconciling difference between
comprehensive income and net income for the three and nine months ended
September 30, 1999. For the three months and nine months ended
September 30, 1998, comprehensive income was equal to net income.
7. ACQUISITIONS
On April 1, 1999, the Company purchased two forging companies, Colfor
Manufacturing, Inc. ("Colfor") and MSP Industries Corporation ("MSP"),
for aggregate purchase consideration of approximately $225.9 million.
Colfor specializes in precision cold, warm and hot forgings and
operates three manufacturing facilities in Ohio. Giving effect as of
January 1, 1998 to Colfor's October 1998 acquisition of Valley Forge,
Inc., Colfor's pro forma 1998 sales would have been approximately $126
million. MSP manufactures precision forged powertrain, driveline,
chassis and other components for the automotive industry using cold and
warm forging processes at three manufacturing facilities in Michigan.
MSP's 1998 sales were $56 million. Purchase consideration in excess of
the fair value of net assets acquired in these transactions of
approximately $149.4 million has been recorded as goodwill.
8. SUBSEQUENT EVENT - JOINT VENTURE
In October 1999, the Company acquired a majority interest in a joint
venture with Hubner Industria Mecanica Ltda., of Curitiba, Parana in
Southern Brazil. Through the joint venture, a new company, AAM do
Brasil Ltda., will conduct the business of the former OEM operating
unit of Hubner, which machines forgings and driveline components for
automotive OEMs. Beginning in the fourth quarter of 1999, the operating
results of the joint venture will be included in the Company's
consolidated financial statements.
<PAGE> 10
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis presents the factors that had a material effect on
our results of operations and cash flows during the three months ended September
30, 1999, and our financial position at September 30, 1999. Trends of a material
nature are discussed to the extent known and considered relevant. The analysis
of results compares the three months and nine months ended September 30, 1999
with the corresponding periods of 1998.
This discussion and analysis should be read in conjunction with the Unaudited
Condensed Consolidated Financial Statements and notes thereto appearing
elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. As
used in this Quarterly Report, unless the context otherwise requires, references
to "we", "us" or "American Axle" shall mean collectively (i) American Axle &
Manufacturing, Inc. ("AAM Inc."), a Delaware corporation, and its direct and
indirect subsidiaries, and (ii) American Axle & Manufacturing Holdings, Inc. and
its predecessor ("Holdings"), a Delaware corporation and the direct parent
corporation of AAM, Inc.
COMPANY OVERVIEW
We are a premier Tier I supplier to the automotive industry and a world leader
in the design, engineering and manufacture of driveline systems and chassis
systems (including forged products) for trucks, buses, sport utility vehicles
("SUVs") and passenger cars. The driveline system includes all of the components
that transfer power from the transmission and deliver it to the drive wheels.
The driveline products that we produce include axles, propeller shafts, chassis
components and forged products.
In addition to 13 locations in the United States (in Michigan, Ohio and New
York), AAM has offices and facilities in Japan, England, Germany and Scotland. A
manufacturing facility and business office is currently under construction in
Mexico.
We are General Motors Corporation's ("GM") principal supplier of driveline
components for light trucks, SUVs and rear-wheel drive ("RWD") passenger cars.
Sales to GM were approximately 85% of our net sales in the three months ended
September 30, 1999.
ACQUISITION OF COLFOR AND MSP
On April 1, 1999, we purchased two forging companies, Colfor Manufacturing, Inc.
("Colfor") and MSP Industries Corporation ("MSP") for aggregate purchase
consideration of approximately $225.9 million. Colfor specializes in precision
cold, warm and hot forgings and operates three manufacturing facilities in Ohio.
Giving effect as of January 1, 1998 to Colfor's October 1998 acquisition of
Valley Forge, Inc., Colfor's pro forma 1998 sales would have been approximately
$126.0 million. MSP manufactures precision forged powertrain, driveline, chassis
and other components for the automotive industry using cold and warm forging
processes at three manufacturing facilities in Michigan. MSP's 1998 sales were
$56.0 million. These acquisitions have been accounted for under the purchase
method of accounting, and Colfor's and MSP's
<PAGE> 11
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results since the acquisition date of April 1, 1999 are included in our
consolidated financial results.
RECENT DEVELOPMENTS
In October 1999, the Company established a joint venture with Hubner Industria
Mecanica Ltda., of Curitiba, Parana in Southern Brazil. Through the joint
venture, a new company, AAM do Brasil Ltda., will conduct the business of the
former OEM operating unit of Hubner, which machines forgings and driveline
components for automotive OEMs.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data expressed as
a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Statement of income data
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 87.6 99.5 86.9 93.9
-------- -------- -------- --------
Gross profit 12.4 0.5 13.1 6.1
Selling, general and administrative expenses 4.6 6.2 4.7 5.1
Goodwill amortization 0.2 0.0 0.1 0.0
-------- -------- -------- --------
Operating income (loss) 7.6 (5.7) 8.3 1.0
Net interest (expense) (2.0) (3.5) (1.9) (2.3)
Other (expense) income (0.0) 0.0 (0.1) 0.0
-------- -------- -------- --------
Income (loss) before income taxes 5.6 (9.2) 6.3 (1.3)
Income tax expense (benefit) 2.1 (3.4) 2.3 (0.5)
-------- -------- -------- --------
Net income (loss) 3.5% (5.8)% 4.0% (0.8)%
======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS--THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1998
Net Sales. Net sales increased approximately 97% to $718.8 million for the three
months ended September 30, 1999 as compared to $364.8 million for the three
months ended September 30, 1998. This increase was due primarily to:
- - higher volumes resulting from strong demand for our driveline components
used in the production of light trucks and SUVs, the fastest growing
segment of the U.S. light vehicle market;
- - increased sales related to GM's new full-size truck program (GMT-800), on
which the Company receives a higher average dollar content per vehicle than
its predecessor (GMT-400);
- - sales from Albion Automotive ("Albion"), which was acquired in the fourth
quarter of 1998, and Colfor and MSP, which were both acquired on April 1,
1999;
- - the impact of the GM work stoppage which occurred in June and July of 1998
and resulted in the shutdown of nearly all of GM's North American
production facilities ("1998 GM work
<PAGE> 12
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stoppage"); we estimate that sales lost as a result of the 1998 GM work
stoppage in the three months ended September 30, 1998 were approximately
$101.6 million; and
- - expiration of the temporary reductions of certain payments made by GM to us
as part of our commercial arrangements at December 31, 1998 (the "temporary
payment reductions") which adversely affected 1998 sales by approximately
$10.6 million in the three months ended September 30, 1998.
Sales to customers other than GM increased $76.9 million to $106.7 million for
the three months ended September 30, 1999, versus $29.8 million for the three
months ended September 30, 1998. The increase in sales to customers other than
GM is principally due to the inclusion of Albion, Colfor and MSP sales in 1999
and additional non-GM business we have obtained.
Gross Profit. Gross profit increased to $89.4 million for the three months ended
September 30, 1999 as compared to $2.0 million for the three months ended
September 30, 1998. Gross margin increased to 12.4% in the three months ended
September 30, 1999 as compared to 0.5% for the three months ended September 30,
1998. The increases in gross profit and gross margin in the three months ended
September 30, 1999 were due primarily to the impact of:
- - higher production volumes;
- - increased sales of next generation axle products which carry higher
average selling prices;
- - productivity improvements;
- - the impact of the 1998 GM work stoppage which adversely affected 1998
results by approximately $42.0 million in the three months ended
September 30, 1998; and
- - expiration of the temporary payment reductions which adversely affected
1998 results by approximately $10.6 million in the three months ended
September 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (including research and development) increased 46.9% to
$33.2 million for the three months ended September 30, 1999 as compared to $22.6
million for the three months ended September 30, 1998. The increase in spending
was primarily due to:
- - our continued increasing investment in research and development;
- - increases in support required for our expanding operations;
- - the inclusion of Albion, Colfor and MSP in 1999; and
- - the adverse impact of the 1998 GM work stoppage on our profit-sharing
program in the three months ended September 30, 1998.
Research and development ("R&D") expenses were $9.6 million for the three months
ended September 30, 1999 as compared to $7.1 million for the three months ended
September 30, 1998. The increase in R&D expenses in the three months ended
September 30, 1999 as compared to the three months ended September 30, 1998 was
primarily due to the increased costs of supporting new product programs
currently under development, as well as the inclusion of Albion, Colfor and MSP
R&D in 1999.
Selling, general and administrative expenses ("SG&A") as a percentage of sales
decreased to 4.6% for the three months ended September 30, 1999 as compared to
6.2% for the three months ended September 30, 1998. The decrease in SG&A as a
percentage of sales was primarily due to sales lost as a result of the 1998 GM
work stoppage, offset by the factors described above which resulted in increased
spending in 1999.
<PAGE> 13
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Operating Income. Operating income was $55.1 million for the three months ended
September 30, 1999 as compared to an operating loss of $20.6 million for the
three months ended September 30, 1998. Operating margin increased to 7.6% for
the three months ended September 30, 1999 as compared to an operating margin
deficit of 5.7% for the three months ended September 30, 1998. The increase in
operating income and operating margin was primarily due to the factors discussed
above relating to the increase in Gross Profit, partially offset by increased
SG&A and goodwill amortization related to Albion, Colfor and MSP.
Net Interest Expense. Net interest expense was $14.3 million for the three
months ended September 30, 1999 as compared to net interest expense of $12.8
million for the three months ended September 30, 1998. The increase in net
interest expense was primarily due to higher average outstanding debt levels and
higher average interest rates in 1999 primarily associated with the 9.75% Senior
Subordinated Notes we issued in March 1999. This increase was partially offset
by interest income related to a higher amount of cash on-hand and a higher
amount of interest capitalized on construction in progress.
Income Tax Expense. Income tax expense was $15.4 million for the three months
ended September 30, 1999 as compared to an income tax benefit of $12.5 million
for the three months ended September 30, 1998. Our effective income tax rate was
approximately 37.7% for the three months ended September 30, 1999 and 37.2% for
the three months ended September 30, 1998.
Net Income. Net income was $25.4 million for the three months ended September
30, 1999 compared to a net loss of $21.1 million for the three months ended
September 30, 1998, primarily due to the factors discussed above.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1998
Net Sales. Net sales increased approximately 57.1% to $2,217.3 million for the
nine months ended September 30, 1999 as compared to $1,411.0 million for the
nine months ended September 30, 1998. This increase was due primarily to:
- - higher volumes resulting from strong demand for our driveline components
used in the production of light trucks and SUVs, the fastest growing
segment of the U.S. light vehicle market;
- - increased sales related to GM's new full-size truck program (GMT-800), on
which the Company receives a higher average dollar content per vehicle than
its predecessor (GMT-400);
- - sales from Albion Automotive, which was acquired in the fourth quarter of
1998, and Colfor and MSP, which were both acquired on April 1, 1999;
- - the impact of the 1998 GM work stoppage which adversely affected 1998 sales
by approximately $187.7 million in the nine months ended September 30,
1998; and
- - expiration of the temporary payment reductions which adversely affected
1998 sales by approximately $38.8 million in the nine months ended
September 30, 1998.
Sales to customers other than GM increased $213.0 million to $298.0 million for
the nine months ended September 30, 1999, versus $85.0 million for the nine
months ended September 30,
<PAGE> 14
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1998. The increase in sales to customers other than GM is primarily due to the
inclusion of Albion, Colfor and MSP sales in 1999 and additional non-GM business
we have obtained.
Gross Profit. Gross profit increased 237% to $289.9 million for the nine months
ended September 30, 1999 as compared to $86.0 million for the nine months ended
September 30, 1998. Gross margin increased to 13.1% in the nine months ended
September 30, 1999 as compared to 6.1% for the nine months ended September 30,
1998. The increases in gross profit and gross margin in the nine months ended
September 30, 1999 were due primarily to the impact of:
- - higher production volumes;
- - increased sales of next generation axle products which carry higher
average selling prices;
- - productivity improvements;
- - the impact of the 1998 GM work stoppage which adversely affected 1998
results by approximately $71.2 million in the nine months ended
September 30, 1998; and
- - expiration of the temporary payment reductions which adversely affected
1998 results by approximately $38.8 million in the nine months ended
September 30, 1998.
Selling, General and Administrative Expenses. SG&A (including R&D) increased
46.4% to $105.0 million for the nine months ended September 30, 1999 as compared
to $71.7 million for the nine months ended September 30, 1998. SG&A as a
percentage of sales decreased to 4.7% for the nine months ended September 30,
1999 as compared to 5.1% for the nine months ended September 30, 1998. The
increase in spending was primarily due to:
- - our continued increasing investment in research and development;
- - increases in support required for our expanding operations;
- - the inclusion of Albion, Colfor and MSP in 1999; and
- - the adverse impact of the 1998 GM work stoppage on our
profit-sharing program in the nine months ended September 30, 1998.
R&D expenses were $26.8 million for the nine months ended September 30, 1999 as
compared to $19.1 million for the nine months ended September 30, 1998. The
increase in R&D expenses in the nine months ended September 30, 1999 as compared
to the nine months ended September 30, 1998 was primarily due to the increased
costs of supporting new product programs currently under development, as well as
the inclusion of Albion, Colfor and MSP R&D in 1999.
Operating Income. Operating income was $182.6 million for the nine months ended
September 30, 1999 as compared to $14.3 million for the nine months ended
September 30, 1998. Operating margin increased to 8.3% for the nine months ended
September 30, 1999 as compared to 1.0% for the nine months ended September 30,
1998. The increase in operating income and operating margin was primarily due to
the factors discussed above relating to the increase in Gross Profit partially
offset by increased SG&A and goodwill amortization related to the Albion, Colfor
and MSP acquisitions.
Net Interest Expense. Net interest expense was $41.4 million for the nine months
ended September 30, 1999 as compared to net interest expense of $32.4 million
for the nine months ended September 30, 1998. The increase in net interest
expense was primarily due to higher average outstanding debt levels and higher
average interest rates in 1999 primarily associated
<PAGE> 15
-15-
with the 9.75% Senior Subordinated Notes we issued in 1999. This increase was
partially offset by a higher amount of cash on-hand and a higher amount of
interest capitalized on construction in progress.
Income Tax Expense. Income tax expense was $51.7 million for the nine months
ended September 30, 1999 as compared to an income tax benefit of $6.7 million
for the nine months ended September 30, 1998. Our effective income tax rate was
approximately 37.0% for the nine months ended September 30, 1999 and 37.4% for
the nine months ended September 30, 1998.
Net Income. Net income was $88.1 million for the nine months ended September 30,
1999 as compared to a net loss of $11.2 million for the nine months ended
September 30, 1998, primarily due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our overall ability to mobilize cash to
support business needs and to fund growth. We rely primarily upon cash flow from
operations and borrowings under our Credit Facilities and our $153.0 million
receivables purchase facility (the "Receivables Facility") to finance operations
and capital expenditures.
The Credit Facilities consist of:
- - a Senior Secured Term Loan Facility (the "Tranche A Term Loan Facility")
providing for delayed draw term loans in an aggregate principal amount of
$102.2 million as amended in October 1999;
- - a Senior Secured Term Loan Facility (the "Tranche B Term Loan Facility"
and, together with the Tranche A Term Loan Facility, the "Term Loan
Facility") providing for term loans in an aggregate principal amount of
$375.0 million; and
- - a Senior Secured Revolving Credit Facility (the "Revolving Credit
Facility") providing for revolving loans and the issuance of letters of
credit in an aggregate principal and stated amount not to exceed $250.0
million (of which not more than $30 million may be represented by letters
of credit).
The following significant events have impacted our liquidity and financial
flexibility in 1999:
- - In February 1999, we completed an initial public offering ("IPO") and
issued 7.0 million shares of common stock. The net proceeds of the IPO,
after deduction of associated expenses, were $107.7 million and were used
to reduce outstanding borrowings under the Revolving Credit Facility (but
not the related commitments).
- - In March 1999, AAM Inc. issued $300 million of 9.75% Senior Subordinated
Notes Due 2009 (the "Notes"). The net proceeds from the sale of the Notes
were approximately $288.7 million after deduction of discounts to the
initial purchasers and other fees and expenses. The net proceeds have been
used to repay existing debt under the Revolving Credit Facility and replace
financing provided by the Receivables Facility, with the remainder of such
net proceeds used for general corporate purposes, including financing
acquisitions and capital expenditures.
<PAGE> 16
-16-
- - In April 1999 we purchased two forging companies, Colfor Manufacturing,
Inc. ("Colfor") and MSP Industries Corporation ("MSP") for aggregate
purchase consideration of approximately $225.9 million. Purchase
consideration in excess of the fair value of net assets acquired in these
transactions of approximately $149.4 million has been recorded as goodwill.
- - In March 1999 and June 1999, we closed sale-leaseback transactions
involving $187.0 million of existing machinery and equipment. These
sale-leaseback transactions were financed under operating leases that will
have a negative impact on our operating income and will result in lower
depreciation and amortization, but will have no material impact on our net
income.
- - In October 1999, the Company extended the availability of $102.2 million of
the Tranche A Term Loan to July 2000. Of the $125.0 million of original
Tranche A Term Loan availability, $22.8 million expired unused. There have
been no borrowings on the Tranche A Term Loan to date.
At September 30, 1999, we had working capital of $93.3 million as compared to a
working capital deficit of $68.9 million at December 31, 1998. For the nine
months ended September 30, 1999, our net cash provided by operating activities
exceeded capital expenditures by approximately $7.4 million. Working capital
also increased in the nine months ended September 30, 1999 as a result of the
net cash proceeds held at September 30, 1999 from the IPO, the issuance of the
Notes and the sale-leaseback transactions, after repayment of outstanding
borrowings on the Revolving Credit and Receivables facilities and the Colfor and
MSP purchase consideration, and the addition of Colfor and MSP working capital.
As part of our arrangements with GM, payment terms for products shipped to GM
will steadily lengthen during the three-year period beginning March 1, 1999,
resulting in an expected increase in accounts receivable balances and a related
anticipated increase in interest expense related to our funding of working
capital. Approximately $62.6 million of the increase in accounts receivable at
September 30, 1999 as compared to December 31, 1998, is due to the transition
from next day payment terms with GM to net 10 days effective March 1, 1999. We
anticipate that this and future increases in working capital associated with the
lengthening of GM payment terms will be funded from available sources including
cash flow from operations and our Credit Facilities.
At September 30, 1999, $375.0 million of borrowings were outstanding under the
Term Loan Facility and $375.0 million was available for future borrowings under
the Term Loan and Revolving Credit Facilities. However, as discussed previously,
$22.8 million of the Tranche A Term Loan expired unused in October 1999.
Additionally at September 30, 1999, $90.0 million was outstanding and $20.2
million was available under the variable funding certificates of the Receivables
Facility.
The weighted average interest rate of our long-term debt outstanding as of
September 30, 1999 was approximately 8.2% as compared to approximately 8.0% at
December 31, 1998. This increase in the weighted average interest rate of our
long-term debt outstanding is primarily due to the impact of the issuance of the
Notes.
<PAGE> 17
-17-
Capital expenditures were $206.1 million in the nine months ended September 30,
1999 as compared to $158.8 million in the nine months ended September 30, 1998.
These investments were primarily made to support the launch of new product
programs, to reduce labor-intensive operations, to support additional capacity
and to support cost reduction programs, including upgrades in equipment
technology and quality standards. We estimate that we will invest approximately
$300 million in capital expenditures during the year ending December 31, 1999,
which we intend to fund from available sources, including cash provided from
operations and cash on-hand at September 30, 1999, and borrowings under the
Credit Facilities or the Receivables Facility.
On an overall basis, we believe our current capital resources are adequate to
support ongoing operational requirements. We also believe that we have
sufficient financial flexibility to attract long-term funding on acceptable
terms as may be needed to support our growth objectives.
SEASONALITY
Consistent with the automotive industry, our business is moderately seasonal
because our major OEM customers historically have a two week shutdown of
operations in July and an approximate one week shutdown in December. In
addition, our OEM customers traditionally have incurred lower production rates
in the third quarter due to the timing of program change-over activities. Our
third quarter results reflect these trends and our fourth quarter results may be
affected as well.
FINANCIAL INSTRUMENTS MARKET RISK
Our business and financial results are affected by fluctuations in world
financial markets, including interest rates and currency exchange rates. Our
hedging policy has been developed to manage these risks to an acceptable level
based on management's judgment of the appropriate trade-off between risk,
opportunity and costs. We do not hold financial instruments for trading or
speculative purposes.
We hedge our interest rate risks by utilizing swaps and collars. Because most of
our business is denominated in U.S. dollars, we do not currently have
significant exposures relating to currency risks and have only a nominal amount
of currency hedges in place at September 30, 1999.
Our Credit Facilities require us to enter into interest rate hedging
arrangements with a notional value of $112.5 million. Accordingly, we have
entered into such hedging arrangements, which terminate in December 2000 and
which require us to pay a floating rate of interest based on three-month LIBOR
with a cap rate of 6.5% and a floor rate of 5.5%.
Interest Rate Risk. As part of a comprehensive risk-management program, we
perform sensitivity analyses to assess potential gains and losses in earnings
and changes in fair value relating to hypothetical movements in interest rates.
A 100 basis-point increase in interest rates (approximately 12.5% of our
weighted average interest rate at December 31, 1998) affecting our debt
obligations, and related interest rate swaps and collars, would have impacted
our 1998 pretax earnings by approximately $5.9 million based upon balances
existing at December 31, 1998.
<PAGE> 18
-18-
Currency Risk. We do not currently have material exposures to currency
exchange-rate risk as most of our business is denominated in U.S. dollars.
Future business operations and opportunities, including the construction of a
new manufacturing facility in Guanajuato, Mexico and our Albion operations in
Europe, may expose us to the risk that the eventual net dollar cash inflows
resulting from these activities may be adversely affected by changes in currency
exchange rates. We intend to manage these risks by utilizing various types of
foreign exchange contracts.
YEAR 2000 READINESS
We have implemented a program to identify Year 2000 readiness issues and have
developed and executed detailed project plans so that our computer information
systems will be able to interpret the calendar year term "2000". Systems that
process transactions based on storing two digits for the year rather than the
full four digits may encounter significant process inaccuracies and even
inoperability in attempting to process Year 2000 transactions.
The Year 2000 readiness program implemented by us addresses all plant
facilities, equipment, computer hardware and software, and business support
equipment. The Year 2000 readiness program also includes modifications and
conversions necessary to address our systems and process interfaces with
third-party suppliers and customers. We have named Year 2000 readiness program
team leaders for the Company as a whole and for each operating location,
established project teams covering all AAM locations worldwide, completed our
assessment of all systems which we believe could be significantly affected by
the Year 2000 issue, defined plans for remediation and issued communications to
all of our departments regarding Year 2000 issues and strategies.
We have completed remediation on all critical systems at all plants and for the
business support equipment used by Company management. We have also imposed a
moratorium on non-essential system enhancements from October 1999 through
January 2000. Because of the modifications already made to existing systems,
management presently believes that Year 2000 readiness will not pose significant
operational problems for us.
Our design, engineering, manufacturing and administrative functions are reliant
upon a variety of third parties who could also be affected by the Year 2000
issue. As a part of our Year 2000 readiness program, we have continuously
communicated with key suppliers, customers and other such third parties to
evaluate their Year 2000 readiness and to determine whether a Year 2000-related
event could impede the ability of such suppliers, customers or other third
parties to interact with and support our operations effectively. Issues
identified as a result of these communications have been addressed in our Year
2000 readiness program remediation and contingency planning actions. As a result
of our communications and remediation, management presently believes that our
manufacturing operations will not be significantly impacted by supply shortages
or other interruptions caused by the Year 2000 issue.
Costs incurred by us to address Year 2000 readiness include the acquisition of
computer hardware and software to replace existing Year 2000 non-compliant
systems. These costs have been capitalized and amortized over the assets'
estimated useful lives. There are no significant systems replacement initiatives
that have been accelerated as a result of our Year 2000 readiness assessments.
<PAGE> 19
-19-
Costs associated with modifying existing Year 2000 non-compliant systems are
expensed as incurred. The amounts expensed to date have been immaterial and we
do not expect amounts required to be expensed in the future to have a material
effect on our financial position or results of operations.
If modifications and conversions intended to address Year 2000 readiness are
not successful, or if our key suppliers, customers or other third parties have
significant unresolved systems problems, there is a risk that the Year 2000
issue could have a material impact on our operations. Potential sources of
risk include:
- - the inability of key suppliers (or their suppliers) to be Year 2000 ready,
which could result in delays in product or service deliveries from such
suppliers;
- - the inability of key customers (or their other suppliers) to be Year 2000
ready, which could result in the cancellation or postponement of orders
from such customers;
- - systems incompatibilities with key suppliers or customers resulting from
software conversions or other modifications; and
- - our inability to modify or replace systems on a timely basis, which could
result in manufacturing process delays that interrupt product shipments.
To mitigate any unexpected impacts on our operations, we are presently
developing contingency plans for all significant components of our computer
information systems, including all plant equipment and business support
equipment. These contingency plans involve, among other things, manual
work-arounds, alternative sourcing strategies and flexible staffing
arrangements. In addition, we plan to have associates on site at our principal
operating locations on January 1, 2000 so that, if necessary, we can immediately
take any action required.
LITIGATION AND ENVIRONMENTAL REGULATIONS
We are involved in various legal proceedings incidental to our business.
Although the outcome of these matters cannot be predicted with certainty,
management believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on the financial condition,
results of operations or cash flows.
GM has agreed to indemnify and hold harmless AAM, Inc. from certain
environmental issues identified as potential areas of environmental concern at
the time of the 1994 Acquisition. GM has also agreed to indemnify AAM, Inc.,
under certain circumstances, for up to ten years from the date of closing of the
1994 acquisition with respect to certain pre-closing environmental conditions.
Approximately one-acre of a parking lot at our Buffalo facility has been
designated by the New York Department of Environmental Conservation ("NYDEC") as
a Class 3 Inactive Hazardous Waste Disposal Site due to the presence of
polychlorinated byphenyls in subsurface soil and groundwater below existing
pavement, and an elevated level of lead in the soil. A Class 3 designation is
given to a site which does not present a significant threat to the public health
or environment and at which action may be deferred. The area is the subject of
an Order of Consent between GM and NYDEC effective February 2, 1995. Remediation
required thereunder has been completed by GM and GM is monitoring the site as
required by the Order of Consent.
<PAGE> 20
-20-
In addition, GM is conducting remediation at our Tonawanda facility as a result
of the presence of polychlorinated biphenyls in the soil. The contamination of
both sites took place prior to our acquiring the properties and is the
responsibility of GM.
Based on our assessment of costs associated with our environmental
responsibilities, including recurring administrative costs, capital expenditures
and other compliance costs, such costs have not had, and in management's
opinion, will not have in the foreseeable future, a material effect on our
financial condition, results of operations, cash flows or competitive position.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1999, FASB Statement No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
An amendment of FASB Statement No. 133", was issued. FASB Statement No. 137 and
FASB Statement No. 133 establish standards for the recognition and measurement
of derivatives and hedging activities. These statements are effective for fiscal
years beginning after June 15, 2000. We are currently analyzing the impact these
statements will have on our financial statements.
FORWARD-LOOKING INFORMATION
Certain statements in this Section and elsewhere in this Quarterly Report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect", "anticipate", "intend", and "project"
and similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this Quarterly Report.
The statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors, including reduced sales by the Company's customers, changes in
economic conditions in the markets served by the Company, increasing
competition, fluctuations in raw materials and energy prices, and other
unanticipated events and conditions. It is not possible to foresee or identify
all such factors. The Company makes no commitment to update any forward-looking
statement or to disclose any facts, events, or circumstances after the date
hereof that may affect the accuracy of any forward-looking statement.
<PAGE> 21
-21-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit
Index hereto.
(b) Report on Form 8-K
During the quarter ended September 30, 1999, we did not file a Current
Report on Form 8-K.
<PAGE> 22
-22-
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Registrant)
Date: November 12, 1999 By: /s/ Robin J. Adams
----------------------
Robin J. Adams
Executive Vice President and
Chief Financial Officer
<PAGE> 23
-23-
EXHIBIT INDEX
The following exhibits were previously filed unless otherwise indicated:
<TABLE>
<CAPTION>
Number Description of Exhibit Page Number
<S> <C>
*10.01 Amendment No. 2 dated August 31 ,1999 to the **
AAM/GMCL Supply Agreement between American
Axle & Manufacturing, Inc. ("AAM") and General Motors
of Canada Limited ("GMCL") originally dated February 17,
1994, as amended ("the Supply Agreement")
*12.01 Statement of Computation of Ratio of Earnings to Fixed
Charges 24
*27 Financial Data Schedule **
(All other exhibits are not applicable.)
</TABLE>
- -------------------------
* Filed herewith
** Shown only in the original filed with the Securities and Exchange Commission
<PAGE> 1
EXHIBIT 10.01
AMENDMENT NO. 2 TO
AAM/GMCL SUPPLY AGREEMENT BETWEEN AMERICAN AXLE & MANUFACTURING,
INC. ("AAM")
AND GENERAL MOTORS OF CANADA LIMITED ("GMCL") DATED FEBRUARY 17, 1994,
AS AMENDED, (THE "SUPPLY AGREEMENT")
AAM and GMCL hereby agree to extend the term of the Supply Agreement such that
the Supply Agreement will remain in force and effect until the later of (i)
June 30, 2000, or (ii) the buildout of the C/K 400 series at the GM Arlington
Assembly Plant, unless earlier terminated pursuant to Section 12 thereof. This
agreement to extend the term of the Supply Agreement amends and supersedes the
expiration date set forth in Amendment No. 1 to the Supply Agreement.
All other terms and conditions of the Supply Agreement shall remain in full
force and effect as written, unaffected by this amendment.
Dated as of 31st of August 1999
-------------------
American Axle and Manufacturing, Inc. General Motors of Canada Limited
By: /s/ B.G. Mathis By: /s/ L. Worrall
---------------------------- ----------------------------
Its: Executive Vice President Its: Vice President Purchasing
--------------------------- & Operations
---------------------------
<PAGE> 1
-24-
American Axle & Manufacturing Holdings, Inc.
Exhibit 12.01 - Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
(in millions, except for ratios)
YEAR ENDED DECEMBER 31: 1998 1997 1996 1995
--------------------------------------
<S> <C> <C> <C> <C>
Fixed charges:
Interest expense, including amortization of debt issuance costs $44.8 $ 9.0 $ 0.3 $ 1.6
Estimated interest portion of rents 4.6 3.2 1.5 0.1
Capitalized interest 3.8 0.2 - -
Preferred stock dividend - 12.0 17.9 13.6
Gross-up of preferred stock dividend as if it were pre-tax - 6.8 10.1 7.7
--------------------------------------
Total fixed charges as defined 53.2 31.2 29.8 23.0
Earnings:
Income from continuing operations before income tax expense 5.6 94.2 98.3 118.0
Total fixed charges as defined 53.2 31.2 29.8 22.9
Fixed charges not deducted in the determination of income from
continuing operations before income tax expense (3.8) (19.0) (28.0) (21.3)
--------------------------------------
Total earnings as defined 55.0 106.4 100.1 119.6
--------------------------------------
Ratio of earnings to fixed charges 1.03 3.41 3.36 5.21
======================================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999:
<S> <C>
Fixed charges:
Interest expense, including amortization of debt issuance costs $ 45.6
Estimated interest portion of rents 6.7
Capitalized interest 5.6
------
Total fixed charges as defined 57.9
Earnings:
Income from continuing operations before income tax expense 139.8
Total fixed charges as defined 57.9
Fixed charges not deducted in the determination of income from
continuing operations before income tax expense (5.6)
------
Total earnings as defined 192.1
------
Ratio of earnings to fixed charges 3.32
======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 173
<SECURITIES> 0
<RECEIVABLES> 251
<ALLOWANCES> 5
<INVENTORY> 121
<CURRENT-ASSETS> 561
<PP&E> 1,115
<DEPRECIATION> 264
<TOTAL-ASSETS> 1,663
<CURRENT-LIABILITIES> 468
<BONDS> 795
0
0
<COMMON> 0
<OTHER-SE> 236
<TOTAL-LIABILITY-AND-EQUITY> 1,663
<SALES> 2,217
<TOTAL-REVENUES> 2,217
<CGS> 1,927
<TOTAL-COSTS> 1,927
<OTHER-EXPENSES> 107
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 140
<INCOME-TAX> 52
<INCOME-CONTINUING> 88
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-BASIC> 2.27
<EPS-DILUTED> 1.78
</TABLE>
