<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission file number 1-14303
-----------------------------------
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
--------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3161171
------------------------------------- --------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1840 HOLBROOK AVENUE, DETROIT, MICHIGAN 48212-3488
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(313) 974-2000
----------------------------
(Registrant's telephone number,
including area code)
-----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of November 3, 2000, the latest practicable date, was 46,398,537
shares.
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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,
2000 1999
------------------- ---------------------
ASSETS (IN MILLIONS)
------
<S> <C> <C>
Current assets:
Cash and equivalents $ 58.5 $ 140.2
Accounts receivable, net 308.2 194.0
Inventories 151.6 133.3
Prepaid expenses and other 34.0 22.3
Deferred income taxes 19.5 19.7
-------------------- ---------------------
Total current assets 571.8 509.5
Property, plant and equipment, net 1,096.2 929.0
Deferred income taxes 17.3 50.5
Goodwill and other assets, net 191.1 188.1
-------------------- ---------------------
TOTAL ASSETS $ 1,876.4 $ 1,677.1
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 302.6 $ 269.1
Accrued compensation and benefits 108.2 129.7
Other accrued expenses 64.2 47.9
-------------------- ---------------------
Total current liabilities 475.0 446.7
Long-term debt and capital lease obligations 814.9 774.9
Postretirement benefits and other long-term liabilities 220.0 191.8
-------------------- ---------------------
TOTAL LIABILITIES 1,509.9 1,413.4
Stockholders' equity
Common stock, par value $.01 per share 0.5 0.5
Paid-in capital 199.8 199.8
Retained earnings 168.4 64.1
Cumulative translation adjustment and other (2.2) (0.7)
-------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 366.5 263.7
-------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,876.4 $ 1,677.1
==================== =====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -----------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $ 675.5 $ 718.8 $ 2,331.1 $ 2,217.3
Cost of goods sold 586.4 629.4 2,002.2 1,927.4
------------ ----------- ----------- -----------
Gross profit 89.1 89.4 328.9 289.9
Selling, general and
administrative expenses 35.4 33.9 119.5 107.0
Goodwill amortization 1.0 1.1 3.1 2.3
------------ ----------- ----------- -----------
Operating income 52.7 54.4 206.3 180.6
Net interest expense (15.6) (14.3) (43.7) (41.4)
Other income, net -- 0.7 1.6 0.6
------------ ----------- ----------- -----------
Income before income taxes 37.1 40.8 164.2 139.8
Income taxes 12.9 15.4 59.9 51.7
------------ ----------- ----------- -----------
Net income $ 24.2 $ 25.4 $ 104.3 $ 88.1
============ =========== =========== ===========
Basic earnings per share $ 0.52 $ 0.64 $ 2.25 $ 2.27
============ =========== =========== ===========
Diluted earnings per share $ 0.48 $ 0.50 $ 2.08 $ 1.78
============ =========== =========== ===========
Average shares outstanding:
Basic earnings per share 46.4 39.5 46.4 38.7
============ =========== =========== ===========
Diluted earnings per share 50.1 50.1 50.1 49.3
============ =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
2000 1999
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 104.3 $ 88.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 77.0 65.8
Deferred income taxes 31.5 14.0
Pensions and other postretirement benefits, net of
contributions 6.1 33.8
Loss on disposal of equipment 1.1 1.9
Changes in operating assets and liabilities:
Accounts receivable (115.7) (99.4)
Inventories (20.4) 24.7
Current liabilities 54.5 74.7
Other assets and liabilities (17.5) 9.9
----------------- -----------------
Net cash provided by operating activities 120.9 213.5
----------------- -----------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (246.4) (206.1)
Acquisitions, net of cash acquired - (225.9)
Proceeds from sale-leaseback of equipment - 187.0
----------------- -----------------
Net cash used in investing activities (246.4) (245.0)
----------------- -----------------
FINANCING ACTIVITIES
Net borrowings of (payments on) long-term debt 43.8 (186.8)
Issuance of 9.75% Senior Subordinated Notes Due 2009 - 288.7
Debt issuance costs - (9.7)
Proceeds from issuance of common stock, net - 107.7
----------------- -----------------
Net cash provided by financing activities 43.8 199.9
----------------- -----------------
Effect of exchange rate changes on cash - -
----------------- -----------------
Net (decrease) increase in cash and equivalents (81.7) 168.4
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 140.2 4.5
----------------- -----------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 58.5 $ 172.9
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
American Axle & Manufacturing Holdings, Inc. ("Holdings") and its
subsidiaries (collectively, the "Company"), operates in one reportable
segment as a Tier 1 supplier to the automotive industry and is a world
leader in the manufacturing, engineering and design of driveline
systems (including forged products) for trucks, buses, sport-utility
vehicles, and passenger cars.
Basis of Presentation
The accompanying interim condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q
under the Securities Exchange Act of 1934, as amended. The statements
are unaudited but include all adjustments, consisting only of recurring
items, except as noted, which the Company considers necessary for a
fair presentation of the information set forth herein. Results of
operations for the periods presented are not necessarily indicative of
the results for the full fiscal year. Certain reclassifications have
been made to the 1999 statements to conform with the 2000 statement
presentation.
The balance sheet at December 31, 1999 has been derived from the
audited consolidated financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For
further information, refer to the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. AMERICAN AXLE & MANUFACTURING, INC.
Holdings has no material assets, liabilities or operations other than
those that result from its ownership of 100% of the outstanding common
stock of American Axle & Manufacturing, Inc. ("AAM Inc."). Separate
consolidated financial statements of AAM Inc. are not presented because
they would not be materially different than the accompanying unaudited
interim condensed consolidated financial statements. The following is a
summary of the consolidated assets and liabilities of AAM Inc. and its
subsidiaries and their consolidated results of operations:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------------------------------------------
(In millions)
<S> <C> <C>
Assets:
Current assets $ 571.8 $ 509.5
Noncurrent assets 1,304.6 1,167.6
----------------------------------------------
Total assets $ 1,876.4 $ 1,677.1
==============================================
Liabilities:
Current liabilities $ 475.0 $ 446.7
Noncurrent liabilities 1,034.9 966.7
----------------------------------------------
Total liabilities $ 1,509.9 $ 1,413.4
==============================================
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
----------------------------------------------
(In millions)
Net sales $ 2,331.1 $ 2,217.3
Gross profit 328.9 289.9
Net income 104.3 88.1
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally using the last-in first-out method (LIFO).
Non-productive inventories consist of materials consumed in the
manufacturing process but not incorporated in the finished products.
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------------------
(In millions)
<S> <C> <C>
Raw materials and work-in-process $ 116.6 $ 105.3
Finished goods 27.3 22.6
-------------------------------
Gross inventories at average cost 143.9 127.9
Excess of average cost over LIFO cost (7.8) (7.8)
-------------------------------
Net productive inventories 136.1 120.1
Non-productive inventories 15.5 13.2
-------------------------------
Total inventories $ 151.6 $ 133.3
===============================
</TABLE>
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------------------------------
(In millions)
<S> <C> <C>
Credit Facilities:
Revolver $ - $ -
Tranche A Term Loan - -
Tranche B Term Loan 374.0 375.0
---------------- -----------------
Total Credit Facilities 374.0 375.0
Receivables Facility 120.0 70.0
9.75% Senior Subordinated Notes Due 2009,
net of discount 298.0 297.9
Capital lease obligations and other 22.9 32.0
---------------- -----------------
Total long-term debt $ 814.9 $ 774.9
================ =================
</TABLE>
In August 2000, we amended our Credit Facilities. Pursuant to this
amendment, the $106.7 million of availability under the Tranche A Term
Loan Facility was either rolled over to the Revolving Credit Facility
or extinguished. In addition to the rollover, participants in the
Credit Facilities were permitted to increase their commitment to the
Revolving Credit Facility. As a result, availability under the
Revolving Credit Facility increased from $250 million to $378.8 million
through October 2004. 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.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ----------------------------
2000 1999 2000 1999
---------- ----------- ----------- -----------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Numerators for Basic and Diluted
earnings per share:
Net income $ 24.2 $ 25.4 $ 104.3 $ 88.1
Denominators:
Basic earnings per share -
weighted-average shares outstanding 46.4 39.5 46.4 38.7
Effect of dilutive securities:
Dilutive stock options outstanding 3.7 10.6 3.7 10.6
---------- ----------- ----------- -----------
Diluted earnings per share -
weighted-average shares
plus assumed conversion 50.1 50.1 50.1 49.3
========== =========== =========== ===========
Basic earnings per share $ 0.52 $ 0.64 $ 2.25 $ 2.27
========== =========== =========== ===========
Diluted earnings per share $ 0.48 $ 0.50 $ 2.08 $ 1.78
========== =========== =========== ===========
</TABLE>
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMPREHENSIVE INCOME
Comprehensive income was $23.4 million and $102.8 million for the three
months and nine months ended September 30, 2000. For the three and nine
months ended September 30, 1999, comprehensive income was $26.2 million
and $88.0 million, respectively. Foreign currency translation is the
only reconciling difference between comprehensive income and net income
for the periods presented.
<PAGE> 9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis presents the factors that had a material effect on
our results of operations and cash flows during the three and nine months ended
September 30, 2000, and our financial position at September 30, 2000. Trends of
a material nature are discussed to the extent known and considered relevant. The
analysis of results compares the three and nine months ended September 30, 2000
with the corresponding period in 1999.
This discussion and analysis should be read in conjunction with the Unaudited
Condensed Consolidated Financial Statements and notes thereto appearing
elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and the
Company's Annual Report on Form 10-K for the year ended December 31, 1999. As
used in this Quarterly Report, unless the context otherwise requires, references
to "we", "us" or "American Axle" shall mean collectively (i) American Axle &
Manufacturing, Inc. ("AAM Inc."), a Delaware corporation, and its direct and
indirect subsidiaries, and (ii) American Axle & Manufacturing Holdings, Inc. and
its predecessor ("Holdings"), a Delaware corporation and the direct parent
corporation of AAM, Inc.
COMPANY OVERVIEW
We are a Tier I supplier to the automotive industry and a world leader in the
manufacture, engineering and design of driveline systems for trucks, buses,
sport utility vehicles ("SUVs") and passenger cars. A driveline system includes
all of the components that transfer power from the transmission and deliver it
to the drive wheels. The driveline products produced by us include axles,
propeller shafts, chassis components and forged products. We sell most of our
products under long-term contracts at fixed prices. Some of our contracts
require us to reduce our prices in subsequent years and all of our contracts
allow us to negotiate price increases for engineering changes.
We are the principal supplier of driveline components to General Motors
Corporation ("GM") for its light trucks, SUVs and rear-wheel drive ("RWD")
passenger cars. Other customers include Ford Motor Company, DaimlerChrysler,
Nissan, Renault, Visteon Automotive, Delphi Automotive and PACCAR. In addition
to 13 locations in the United States (in Michigan, Ohio and New York), we have
offices and facilities in Japan, England, Germany, Scotland, Mexico and Brazil.
As a result of our Lifetime Program Contracts with GM ("LPCs"), we are the
sole-source supplier to GM for certain axles and other driveline products for
the life of each GM vehicle program covered by an LPC. Sales to GM were
approximately 84% of our total sales in the nine months ended September 30,
2000. Substantially all of our sales to GM are made pursuant to the LPCs. The
LPCs establish pricing for products sold to GM and require us to remain
competitive with respect to technology, design and quality. The LPCs have terms
equal to the lives of the relevant vehicle programs of typically 6 to 12 years.
We will have to compete for future GM business upon the termination of the LPCs.
Blackstone Capital Partners II Merchant Banking Fund L.P. and certain of its
affiliates (collectively, "Blackstone") acquired a controlling interest in the
Company in a leveraged recapitalization transaction consummated in October 1997
(the "Recapitalization"). In February 1999, we completed an initial public
offering and issued 7 million shares of common stock.
<PAGE> 10
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RESULTS OF OPERATIONS
The following table sets forth certain statement of income data expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 86.8 87.6 85.9 86.9
----------------------------- -----------------------------
Gross margin 13.2 12.4 14.1 13.1
Selling, general and administrative expenses 5.2 4.6 5.1 4.8
Goodwill amortization 0.2 0.2 0.1 0.1
----------------------------- -----------------------------
Operating margin 7.8 7.6 8.9 8.2
Net interest (expense) (2.3) (2.0) (1.9) (1.9)
Other income, net - - .1 -
----------------------------- -----------------------------
Income before income taxes 5.5 5.6 7.1 6.3
Income taxes 1.9 2.1 2.6 2.3
----------------------------- -----------------------------
Net income 3.6% 3.5% 4.5% 4.0%
============================= =============================
</TABLE>
RESULTS OF OPERATIONS--THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1999
Net Sales. Net sales decreased approximately 6% to $675.5 million for the three
months ended September 30, 2000 as compared to $718.8 million for the same
period in 1999. The lower sales volume in the third quarter of 2000 was
principally due to an approximate 7% decrease in sales to GM as compared to the
third quarter of last year resulting from planned model changeovers. Sales to
customers other than GM amounted to $106.3 million for the three months ended
September 30, 2000, approximately the same as in the three months ended
September 30, 1999.
Gross Profit. Gross profit increased to 13.2% of sales or $89.1 million for the
three months ended September 30, 2000 as compared to 12.4% of sales or $89.4
million for the three months ended September 30, 1999. The increase in gross
margin percentage was due principally to increased sales of higher value-added
products and the successful start-up of production in our new Guanajuato, Mexico
and Cheektowaga, New York manufacturing facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (including research and development) increased 4.4% to
$35.4 million for the three months ended September 30, 2000 as compared to $33.9
million for the three months ended September 30, 1999. The increase in SG&A
spending was primarily due to our continued increasing investment in R&D,
partially offset by cost savings associated with the integration of businesses
we acquired in 1998 and 1999.
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Research and development ("R&D") expenses increased 20% to $11.5 million for the
three months ended September 30, 2000 as compared to $9.6 million for the three
months ended September 30, 1999. The increase in R&D spending in the three
months ended September 30, 2000 as compared to the same period in 1999 was
primarily due to the increased costs of supporting our new customers and our new
product programs currently under development. We continue to focus on the
development of new systems, products and processes, particularly in the areas of
mass reduction; noise, vibration and harshness improvements; durability
enhancements; and new product offerings such as systems and modules. Recent
innovative product introductions include the Integrated Oil Pan (IOP) Front Axle
Module with Electronic Disconnect and the PowerLite(TM) rear-axle system.
Operating Income. Operating income increased to 7.8% of sales or $52.7 million
for the three months ended September 30, 2000 as compared to 7.6% of sales or
$54.4 million for the three months ended September 30, 1999. The increase in
operating margin percentage was primarily due to the factors discussed above
relating to the increase in the gross margin percentage, partially offset by
increased R&D spending.
Net Interest Expense. Net interest expense was $15.6 million for the three
months ended September 30, 2000 as compared to $14.3 million for the three
months ended September 30, 1999. The increase in net interest expense was
primarily due to a higher average amount of net debt outstanding and higher
average interest rates, offset by a higher amount of interest capitalized on
construction in progress.
Income Tax Expense. Income tax expense was $12.9 million for the three months
ended September 30, 2000 as compared to $15.4 million for the three months ended
September 30, 1999. Our effective income tax rate was approximately 34.8% for
the three months ended September 30, 2000 as compared to 37.7% for the same
period in 1999. Our effective income tax rate in the current quarter reflects an
anticipated rate of 36.5% for the full year 2000 as compared to 37.0% in 1999.
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. Net income was $24.2 million for the three
months ended September 30, 2000 as compared to $25.4 million for the three
months ended September 30, 1999. Diluted earnings per share were $0.48 in the
three months ended September 30, 2000 as compared to $0.50 in the three months
ended September 30, 1999.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1999
Net Sales. Net sales increased approximately 5.1% to $2,331.1 million for the
nine months ended September 30, 2000 as compared to $2,217.3 million for the
nine months ended September 30, 1999. This increase was primarily due to strong
demand for our products and increased sales related to GM's new full-size truck
and SUV programs (GMT-800 series), on which the Company receives a higher
average dollar content per vehicle than their predecessors (GMT-400 series).
Our sales also increased in 2000 due to shipments from Colfor Manufacturing,
Inc. ("Colfor") and MSP Industries Corporation ("MSP"), which we acquired on
April 1, 1999; our joint venture in Brazil, which we acquired in the fourth
quarter of 1999; and the start-up of our new manufacturing facility in
Guanajuato, Mexico. Excluding the impact of sales from the businesses acquired
in 1999, our sales have increased approximately 3% in 2000 on a year-to-date
basis as compared to 1999.
<PAGE> 12
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Sales to customers other than GM increased 23.9% to $369.2 million for the nine
months ended September 30, 2000 as compared to $298.0 million for the nine
months ended September 30, 1999. The increase in sales to customers other than
GM is principally due to Colfor and MSP sales in the first quarter of 2000 and
additional non-GM business we have obtained.
Gross Profit. Gross profit increased 13.5% to $328.9 million for the nine months
ended September 30, 2000 as compared to $289.9 million for the nine months ended
September 30, 1999. Gross margin increased to 14.1% in the nine months ended
September 30, 2000 as compared to 13.1% for the nine months ended September 30,
1999. The increases in gross profit and gross margin in 2000 were primarily due
to the increased sales of higher value-added products and the successful
start-up of production in the new Guanajuato, Mexico and Cheektowaga, New York
manufacturing facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (including research and development) increased 11.7% to
$119.5 million for the nine months ended September 30, 2000 as compared to
$107.0 million for the nine months ended September 30, 1999. The increase in
SG&A spending was primarily due to our continued increasing investment in R&D
and the addition of Colfor, MSP and our joint venture in Brazil.
Research and development ("R&D") expenses increased 24% to $33.3 million for the
nine months ended September 30, 2000 as compared to $26.8 million for the nine
months ended September 30, 1999. The increase in R&D spending in the nine months
ended September 30, 2000 as compared to the same period in 1999 was primarily
due to the increased costs of supporting our new customers and our new product
programs currently under development. We continue to focus on the development of
new systems, products and processes, particularly in the areas of mass
reduction; noise, vibration and harshness improvements; durability enhancements;
and new product offerings such as systems and modules. Recent innovative product
introductions include the Integrated Oil Pan (IOP) Front Axle Module with
Electronic Disconnect and the PowerLite(TM) rear-axle system.
Operating Income. Operating income increased 14.2% to $206.3 million for the
nine months ended September 30, 2000 as compared to $180.6 million for the nine
months ended September 30, 1999. Operating margin increased to 8.9% for the nine
months ended September 30, 2000 as compared to an operating margin of 8.2% for
the nine months ended September 30, 1999. The increase in operating income and
operating margin was primarily due to the factors discussed above relating to
the increase in Gross Profit, partially offset by increased R&D and other SG&A
costs and higher goodwill amortization related to Colfor, MSP and our joint
venture in Brazil.
Net Interest Expense. Net interest expense was $43.7 million for the nine months
ended September 30, 2000 as compared to $41.4 million for the nine months ended
September 30, 1999. The increase in net interest expense was primarily due to a
higher average amount of net debt outstanding and higher average interest rates,
offset by a higher amount of interest capitalized on construction in progress.
Income Tax Expense. Income tax expense was $59.9 million for the nine months
ended September 30, 2000 as compared to $51.7 million for the nine months ended
September 30, 1999. Our effective income tax rate was 36.5% for the nine months
ended September 30, 2000 and 37.0% for the nine months ended September 30, 1999.
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. Net income increased 18.4% to $104.3 million
for the nine months ended September 30, 2000 as compared to $88.1 million for
the nine months ended September 30, 1999. Diluted earnings per share increased
approximately 16.9% to $2.08 in the
<PAGE> 13
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nine months ended September 30, 2000 as compared to $1.78 in the nine months
ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We rely primarily on cash flow from operations and borrowings under our Credit
Facilities and receivables financing facility to finance operations and capital
expenditures.
Cash Flow from Operations. As part of our commercial arrangements with GM,
payment terms for products shipped to GM will continue to steadily lengthen
during the three-year period beginning March 1, 1999. This planned change in
payment terms has resulted in an expected increase in accounts receivable
balances and a related increase in interest expense related to our funding of
working capital. Our accounts receivable balances increased approximately $80
million in March 2000 due to the transition from net 10 days payment terms to
net 20 days with GM effective March 1, 1999. This current year increase in
accounts receivable compares to an increase of approximately $62 million in
March 1999 due to the transition from next day payment terms to net 10 days with
GM effective March 1, 1999. One additional increase in payment terms with GM to
net 25th proximo is scheduled to begin on March 1, 2001.
At September 30, 2000, we had working capital of $96.8 million as compared to
working capital of $62.8 million at December 31, 1999. Cash flow provided by
operating activities for the nine months ended September 30, 2000, including the
impact of the change in payment terms with GM on March 1, 2000, was $120.9
million as compared to cash flow provided by operating activities of $213.5
million in the nine months ended September 30, 1999. In addition to the impact
of the change in payment terms with GM, our increased levels of business
activity in 2000, as well as the start of production in our new Guanajuato,
Mexico and Cheektowaga, New York manufacturing facilities, resulted in increased
working capital requirements in 2000 as compared to 1999.
Capital Expenditures. Capital expenditures were $246.4 million in the nine
months ended September 30, 2000 as compared to $206.1 million in the nine months
ended September 30, 1999. Our largest capital projects in 2000 are related to
the launch of new product programs, including the GM M-SUV Program (compact
SUVs, including the Jimmy, Blazer and Bravada) and the GM MST Program (mid-sized
pick-up trucks, including the S-10 pick-up and Sonoma), and to support
additional capacity, including the construction and expansion of our new
manufacturing facility in Guanajuato, Mexico. We are also continuing to make
investments to reduce labor-intensive operations and to support numerous cost
reduction programs, including upgrades in equipment technology and quality
standards. We estimate that we will invest approximately $360 - $380 million in
capital expenditures during the year ending December 31, 2000, which we intend
to fund from available sources, including cash on-hand, cash flow provided by
operations, and borrowings under the Credit Facilities or the receivables
financing facility.
Credit Ratings. On May 22, 2000, Standard & Poor's raised our corporate credit
and bank loan ratings to double `B' ("BB") from double `B'-minus ("BB-"). Our
subordinated debt rating was raised to single `B'-plus ("B+") from single-`B'
("B"). On August 7, 2000, Moody's Investors Service upgraded the ratings of our
senior debt to Ba2 from Ba3. Moody's also upgraded our subordinated debt rating
to B1 from B2.
Amendment of Credit Facilities. In August 2000, we amended our Credit
Facilities. Pursuant to this amendment, the $106.7 million of availability under
the Tranche A Term Loan Facility was either rolled over to the Revolving Credit
Facility or extinguished. In addition to the rollover, participants in the
Credit Facilities were permitted to increase their commitment to the Revolving
Credit Facility. As a result, availability under the Revolving Credit Facility
increased from $250 million to $378.8 million through October 2004.
Additionally, certain financial covenants and
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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.
Debt Availability. At September 30, 2000, we had borrowing capacity of $397.0
million under the Credit Facilities and the receivables financing facility. Our
total borrowing under the Credit facilities at September 30, 2000 consisted
solely of the $374.0 million Tranche B Term Loan facility. Availability under
the Revolving Credit Facility was $378.8 million. Borrowings under the
receivables financing facility amounted to $120.0 million at September 30, 2000
of a total availability of $138.2 million.
The weighted average interest rate of our long-term debt outstanding was 8.8% at
September 30, 2000 as compared to 8.6% at December 31, 1999.
On an overall basis, we believe that our current capital resources will continue
to be sufficient to support ongoing operational requirements. We also believe
that we have sufficient financial flexibility to attract long-term funding on
acceptable terms as may be needed to support our growth objectives.
SEASONALITY
Our business is moderately seasonal as our major OEM customers historically have
a two-week shutdown of operations in July and approximately a one-week shutdown
in December. In addition, OEM customers have historically incurred lower
production rates in the third quarter as model changes enter production. Our
third quarter results reflect these trends and our fourth quarter 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.
Interest Rate Risk. We hedge our interest rate risks by utilizing swaps and
collars. Our Credit Facilities require us to enter into interest rate hedging
arrangements with a notional value of $112.5 million. Accordingly, we have
entered into such hedging arrangements, which terminate in December 2000 and
which require us to pay a floating rate of interest based on three-month LIBOR
with a cap rate of 6.5% and a floor rate of 5.5%.
As part of a comprehensive risk-management program, we perform sensitivity
analyses to assess potential gains and losses in earnings and changes in fair
value relating to hypothetical movements in interest rates. A 100 basis-point
increase in interest rates (approximately 12% of our weighted average interest
rate at December 31, 1999) affecting our debt obligations, and related interest
rate swaps and collars, would have impacted our 1999 pretax earnings by
approximately $3.5 million based on December 31, 1999 debt levels.
Currency Risk. Because most of our business is denominated in U.S. dollars, we
do not currently have significant exposures relating to currency risks and have
only a nominal amount of currency hedges in place at September 30, 2000. Future
business operations and opportunities, including the expansion of our business
outside North America, may expose us to the risk that cash flow resulting from
these activities may be adversely affected by changes in currency exchange
rates. We intend to manage these risks by using local currency funding of these
expansions and by utilizing various types of foreign exchange contracts.
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LITIGATION AND ENVIRONMENTAL REGULATIONS
We are involved in various legal proceedings incidental to our business.
Although the outcome of these matters cannot be predicted with certainty,
management believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on the financial condition,
results of operations or cash flow.
GM has agreed to indemnify and hold harmless AAM, Inc. from certain
environmental issues identified as potential areas of environmental concern at
the time of the 1994 Acquisition. GM has also agreed to indemnify AAM, Inc.,
under certain circumstances, for up to ten years from the date of closing of the
1994 acquisition with respect to certain pre-closing environmental conditions.
Based on our assessment of costs associated with our environmental
responsibilities, including recurring administrative costs, capital expenditures
and other compliance costs, we do not expect such costs to have a material
effect on our financial condition, results of operations, cash flow or
competitive position in the foreseeable future.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued. FASB Statement No. 133 establishes standards
for the recognition and measurement of derivatives and hedging activities. This
statement is effective for us on January 1, 2001. We 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.
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 our
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 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. We make no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement.
<PAGE> 16
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PART II. OTHER INFORMATION
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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, 2000, we did not file a Current
Report on Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Registrant)
Date: November 14, 2000 By: /s/ Robin J. Adams
------------------
Robin J. Adams
Executive Vice President - Finance &
Chief Financial Officer
<PAGE> 18
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description of Exhibit
------ ----------------------
<S> <C> <C>
*10.01+ Settlement Agreement dated as of July 28, 2000 by and
between American Axle & Manufacturing, Inc. and General
Motors Corporation.
*10.02 AMENDMENT NO. 4 AND AGREEMENT dated
as of July 27, 2000, to the Credit Agreement dated as of
October 27, 1997, as amended by Amendment No. 1, Waiver
and Agreement, dated as of September 30, 1998, by
Amendment No. 2, and Agreement, dated as of January 11,
1999, and by Amendment No. 3 and Agreement, dated as of
October 26, 1999 among AAM, the lenders party thereto, The
Chase Manhattan Bank, a New York banking corporation, as
administrative agent and Chase Manhattan Bank Delaware, as
fronting bank.
*10.03 AMENDMENT NO. 5 AND AGREEMENT dated
as of August 15, 2000, to the Credit Agreement dated as of
October 27, 1997, as amended by Amendment No. 1, Waiver
and Agreement, dated as of September 30, 1998, by
Amendment No. 2, and Agreement, dated as of January 11,
1999, by Amendment No. 3 and Agreement, dated as of
October 26, 1999 and by Amendment No. 4 and Agreement,
dated as of July 27, 2000, among AAM, the lenders party
thereto, The Chase Manhattan Bank, a New York banking
corporation, as administrative agent and Chase Manhattan
Bank Delaware, as fronting bank.
*12.01 Statement of Computation of Ratio of Earnings to Fixed
Charges
*27 Financial Data Schedule
(All other exhibits are not applicable.)
</TABLE>
-------------------
* Filed herewith
+ Certain portions of the identified Exhibit have been omitted and separately
filed with the Securities and Exchange Commission based upon a request for
confidential treatment.
