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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WmLt6C4s3/2q4U+Ycj1XcPLOnNVa/+riyhr5T3hR7MwH5KAAtKL9zsZYkx+3XZWy udLypVpb3m0Z3DlmDqNjIQ== 0000950124-03-000803.txt : 20030321 0000950124-03-000803.hdr.sgml : 20030321 20030321141910 ACCESSION NUMBER: 0000950124-03-000803 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN AXLE & MANUFACTURING HOLDINGS INC CENTRAL INDEX KEY: 0001062231 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 383161171 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14303 FILM NUMBER: 03612104 BUSINESS ADDRESS: STREET 1: 1840 HOLBROOK AVENUE CITY: DETROIT STATE: MI ZIP: 48212 BUSINESS PHONE: 3139742000 MAIL ADDRESS: STREET 1: 1840 HOLBROOK AVENUE CITY: DETROIT STATE: MI ZIP: 48212 10-K 1 k74284e10vk.htm FORM 10-K e10vk

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-14303

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		38-3161171
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1840 HOLBROOK AVENUE, DETROIT, MICHIGAN 48212

(Address of principal executive offices, including Zip Code)

313-974-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


COMMON STOCK, PAR VALUE $0.01 PER SHARE		NEW YORK STOCK EXCHANGE
(Title of each class)		(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes x No o

The closing price of the registrant’s Common Stock on June 30, 2002 as reported on the New York Stock Exchange was $29.74 per share. As of June 30, 2002, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $853.4 million.

As of March 12, 2003, the number of shares of the registrant’s Common Stock, par value $0.01 per share, outstanding was 49,965,183 shares.

Documents Incorporated By Reference

Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, 2002 and Proxy Statement for use in connection with its Annual Meeting of Stockholders to be held on May 1, 2003, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after December 31, 2002, are incorporated by reference in Part I (Items 1, 2 and 3), Part II (Items 5, 6, 7, 7A and 8) and Part III (Items 10, 11, 12 and 13) of this Report.

Website Access to Reports

American Axle & Manufacturing Holdings, Inc.’s internet website is www.aam.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission.

TABLE OF CONTENTS


Cautionary Statements
Part I
Part II
Part III
Part IV
Signatures
CERTIFICATIONS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
INDEPENDENT AUDITORS’ REPORT
EX-12 Statement of Computation of Ratio of Earning
EX-13 Annual Report to Stockholders
EX-21 Subsidiaries of the Company
EX-23 Consent of Deloitte & Touche LLP
EX-99.1 Certification of Richard E. Dauch
EX-99.2 Certification of Robin J. Adams

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

TABLE OF CONTENTS — ANNUAL REPORT ON FORM 10-K

Year Ended December 31, 2002


			Page Number

Cautionary Statements				1

Part I.	Item 1	Business		2
	Item 2	Properties		6
	Item 3	Legal Proceedings		7
	Item 4	Submission of Matters to a Vote of Stockholders		7
		Supplemental Item — Executive Officers and Directors of the Registrant		7

Part II.	Item 5	Market for Registrant’s Common Stock and Related Stockholder Matters		11
	Item 6	Selected Consolidated Financial Data		11
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation		11
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk		11
	Item 8	Financial Statements and Supplementary Data		11
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures		11

Part III.	Item 10	Directors and Executive Officers of the Registrant		12
	Item 11	Executive Compensation		12
	Item 12	Common Stock Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		12
	Item 13	Certain Relationships and Related Transactions		13
	Item 14	Controls and Procedures		13

Part IV.	Item 15	Exhibits, Financial Statement Schedules and Reports on Form 8-K		14
Signatures				24



Certifications				25


Schedule II		Valuation and Qualifying Accounts		27

Independent Auditors’ Report				28

Exhibit 12		Computation of Ratio of Earnings to Fixed Charges		29
Exhibit 21		Subsidiaries of our Company		30
Exhibit 23		Independent Auditors’ Consent		31
Exhibit 99.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		32
Exhibit 99.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		33

Cautionary Statements

Certain statements in this Annual Report on Form 10-K 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 “will,” “expect,” “anticipate,” “intend,” “project” and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this report. The statements are based on our 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, but not limited to:

• adverse changes in the economic conditions or political stability of our principal markets (particularly North America, Europe and South America);

• reduced demand for our customers’ products particularly light trucks and sport-utility vehicles (“SUVs”) produced by General Motors Corporation (“GM”) and DaimlerChrysler AG’s (“DaimlerChrysler”) heavy-duty Dodge Ram full-size pickup trucks (“Dodge Ram program”);

• reduced purchases of our products by GM, DaimlerChrysler or other customers;

• our ability and our customers’ ability to successfully launch new product programs;

• our ability to respond to changes in technology or increased competition;

• supply shortages or price fluctuations in raw materials, utilities or other operating supplies;

• our ability to attract and retain key associates;

• our ability to maintain satisfactory labor relations and avoid work stoppages;

• our customers’ ability to maintain satisfactory labor relations and avoid work stoppages;

• risks of noncompliance with environmental regulations;

• liabilities arising from legal proceedings to which we are or may become a party or claims against us or our products;

• availability of financing for working capital, capital expenditures, research and development or other general corporate purposes;

• adverse changes in laws, government regulations or market conditions affecting our products or our customers’ products (including the Corporate Average Fuel Economy regulations); and

• other unanticipated events and conditions that may hinder our ability to compete.

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

Part I

Item 1. Business

(a) General Development of Business

General

As used in this report, except as otherwise indicated in information incorporated by reference, references to “our Company,” “we,” “our,” “us,” or “AAM” mean American Axle & Manufacturing Holdings, Inc. (“Holdings”) and its subsidiaries and predecessors, collectively.

We are a premier Tier I supplier to the automotive industry and a worldwide leader in the manufacture, engineering, design and validation of driveline systems and related powertrain components and modules for light trucks, SUVs and passenger cars. Driveline systems include components that transfer power from the transmission and deliver it to the drive wheels. Our driveline and related powertrain products include axles, modules, driveshafts, chassis and steering components, driving heads, crankshafts, transmission parts and forged products.

In March 1994, we were formed by a private investor group led by Richard E. Dauch, who purchased the Final Drive and Forge Business Unit of the Saginaw Division of GM. In connection with this acquisition and under subsequent additional binding agreements we have entered into with GM, we are the principal supplier of driveline components to GM for its rear-wheel drive (“RWD”) light trucks and SUVs manufactured in North America, supplying substantially all of GM’s rear axle and front four-wheel drive/all-wheel drive (“4WD/AWD”) axle requirements for these vehicle platforms in 2002.

In October 1997, Blackstone Capital Partners II Merchant Banking Fund L.P. and certain of its affiliates (collectively, “Blackstone”) acquired a majority ownership position of our company in a leveraged recapitalization.

Since 1994, we have dramatically improved product quality and manufacturing efficiency through a combination of management leadership, investments in new equipment and technology, workforce training, and process and system improvements resulting in increased capacity utilization. From March 1994 through December 2002, we have invested approximately $2.1 billion in capital expenditures and we have received and maintained ISO/ QS 9000 certification for each of our facilities. As a result, (i) the average number of axles produced per production day increased from approximately 10,000 per day in March 1994 to approximately 18,500 per day in 2002 and (ii) discrepant parts shipped to GM (as measured by GM) decreased from approximately 13,400 parts per million (“PPM”) during the six months ended December 31, 1994 to 41 PPM during the six months ended December 31, 2002.

Initial Public Offering (“IPO”)

Holdings is the survivor of a migratory merger with American Axle & Manufacturing of Michigan, Inc. (“AAMM”) and has no significant assets other than its 100% ownership of American Axle & Manufacturing, Inc. (“AAM Inc.”) and its subsidiaries. Pursuant to this merger, which was effected in January 1999 in connection with our IPO, each share of AAMM’s common stock was converted into 3,945 shares of Holdings’ common stock. Holdings has no other subsidiaries other than AAM Inc. In February 1999, Holdings completed an IPO and issued 7.0 million shares of its common stock.

Acquisitions

In 1999, we acquired two domestic automotive forging companies, Colfor Manufacturing Inc. (“Colfor”) and MSP Industries Corporation (“MSP”), and a majority interest in a joint venture in Brazil which machines forging and driveline components for automotive original equipment manufacturers (“OEMs”) for aggregate cash purchase consideration of approximately $239 million.

In 1998, we acquired Albion Automotive (Holdings) Limited (“Albion”) for a cash purchase price of approximately $42 million plus $30 million of assumed debt and capital lease obligations. Albion supplies front steerable and rear axles, driving heads, crankshafts, chassis components and transmission parts used primarily in medium-duty trucks and buses for customers located in the United Kingdom and elsewhere in Europe.

(b) Financial Information About Industry Segments

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report to Stockholders (“Annual Report”), page 42, section entitled “Financials — Notes to Consolidated Financial Statements, Note 11 — Segment and Geographic Information.”

Company Overview

We are the principal supplier of driveline components to GM for its RWD light trucks and SUVs manufactured in North America, supplying substantially all of GM’s rear axle and front 4WD/ AWD axle requirements for these vehicle platforms in 2002. As a result of our Component Supply Agreement (“CSA”) and 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 a LPC. Sales to GM were approximately 86% of our total sales in 2002, 87% in 2001 and 85% in 2000.

We sell most of our products under long-term contracts with prices established at the time the contracts were entered into. 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. Customary price reductions under long-term contracts are a common practice in the automotive industry. We do not believe that price reductions offered to our customers will have a material adverse impact on our future operating results because we intend to offset such price reductions through purchased material cost reductions and other productivity improvements.

Substantially all of our sales to GM are made pursuant to the LPCs. The LPCs have terms equal to the lives of the relevant vehicle programs or their respective derivatives, which typically run 6 to 12 years, and require us to remain competitive with respect to technology, design and quality. We will compete for future GM business upon the termination of the LPCs or the CSA.

Our largest product program, the GMT-800 program, is expected to phase out in 2007. The GMT-800 program is GM’s full-size pickup and SUV platform. This program represented approximately 57% of our total sales in 2002, 61% in 2001 and 47% in 2000 and is the largest vehicle platform in the world. In 2001, we were awarded the GMT-900 program and all derivatives, which is the successor to the GMT-800 program. The GMT-900 program is expected to run through model year 2014.

We continue to diversify our customer base. In the second half of 2002, we successfully launched driveline system products for the Dodge Ram program. As a result of this program, we expect our sales to DaimlerChrylser to grow to nearly 10% of our total sales in 2003 as compared to approximately 4% in 2002 and less than 1% in 2001 and all previous years.

We also supply driveline systems and other related components to PACCAR, Inc., The Volvo Group, Ford Motor Company and other OEMs and Tier I supplier companies such as Delphi Corporation, Dana Corporation, New Venture Gear, Inc. and The Timken Company. Our sales to customers other than GM increased approximately 23% to $498.5 million in 2002 as compared to $404.6 million in 2001 and $475.4 million in 2000. This significant growth in sales to customers other than GM in 2002 was primarily due to our launch of new driveline system products to support the Dodge Ram program partially offset by a reduction in sales to Visteon Corporation.

The following chart sets forth the percentage of total revenues attributable to our products for the periods indicated:



		Year ended December 31,

		2002			2001			2000

Rear axles			59.5	%		57.9	%		53.8	%
Front axles			17.8			15.9			14.7
Driveshafts			7.0			6.5			7.3
Chassis components			6.7			7.1			7.4
Forged products			6.0			8.8			11.2
Other			3.0			3.8			5.6

	Total		100.0	%		100.0	%		100.0	%

Industry and Competition

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, pages 16-17, section entitled “Financials — Management’s Discussion and Analysis — Industry and Competition.”

Productive Materials

We believe that we have adequate sources of supply of productive materials and components for our manufacturing needs. Most raw materials (such as steel) and semi-processed or finished items (such as castings) are available within the geographical regions of our operating facilities from numerous qualified sources in quantities sufficient for our needs.

Research and Development (“R&D”)

Since March 1, 1994, we have invested approximately $316 million in R&D focusing on new product and process development. We plan to continue to invest in the development of new product, process and systems technologies to improve productive efficiency and flexibility in our operations and continue to deliver innovative new products, modules and integrated driveline systems to our customers.

We have recently designed, developed and installed our I-Ride™ driveline chassis suspension module into a demonstration crossover vehicle that coverts a front-wheel-drive vehicle to all-wheel-drive. This is a bolt in system requiring minimal vehicle alteration. This driveline system includes our new power transfer unit (“PTU”), which connects the front-wheel-drive transaxle to the rear driveshaft to deliver power to the independent rear axle contained in the chassis module. This new PTU is an important element of our plan to expand our product offerings in the worldwide passenger car and crossover vehicle markets and is a current example of our high value-added technology products that seek to improve the performance and design flexibility of our customers’ products.

Our R&D spending is focused on emerging driveline system technology trends in support of our worldwide customers. There are several critical areas of R&D focus that reflect our strong belief in advancing our core technologies to meet the needs of our customers in the future. These include new 4WD/ AWD systems incorporating PTUs and advanced driveshafts designed specifically for the rapidly growing crossover vehicle segment; I-Ride™ independent chassis modules as well as the electronic SmartBar™ stabilizer bar-based active roll-control system designed to improve vehicle ride, handling and noise, vibration and harshness (“NVH”) characteristics; new TracRite® family of advanced, controlled, traction enhancing differentials introduced into production as part of the Dodge Ram program; electronically controlled differentials for full vehicle integration; PowerLite™ axles; and an increased R&D focus on net-shaped forging design and process technology targeted specifically at mass reduction and system efficiency resulting in improved fuel economy. Another area of R&D focus is drivetrain systems for hybrid vehicles. Together with a consortium of companies, including the Ford Motor Company, we developed and installed a drivetrain system in a hybrid electric bus in 2002.

R&D spending was $54.0 million in 2002, $51.7 million in 2001 and $46.4 million in 2000.

Patents and Trademarks

We maintain and have pending various U.S. and foreign patents and trademarks and other rights to intellectual property relating to our business, which we believe are appropriate to protect our interest in existing products, new inventions, manufacturing processes and product developments. We do not believe that any single patent or trademark is material to our business nor would expiration or invalidity of any patent or trademark have a material adverse effect on our business or our ability to compete.

Cyclicality and Seasonality

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, page 24, section entitled “Financials — Management’s Discussion and Analysis — Cyclicality and Seasonality.”

Associates

We believe that one of our most important assets is our workforce. Since 1994, we have focused on making significant improvements in our labor relations through improving working conditions, incentive programs and town hall meetings with our hourly and salaried associates. We have also implemented a program of continuous training whereby associates develop their skill sets using the latest manufacturing technology to produce products of precision quality.

We also recognize that a key element of our long-term competitiveness is developing a constructive working relationship with our unions. Our unions have committed to assist us in achieving both quality and productivity gains over the life of our contracts. We believe our relationships with our associates and their unions are positive.

As of December 31, 2002, we employed approximately 12,200 associates, approximately 9,900 of which are employed in the United States. Approximately 7,800 associates are represented by the United Automobile, Aerospace and Agricultural Implement Workers of America, or “UAW”. Approximately 7,000 associates represented by the UAW are subject to a collective bargaining agreement that expires February 25, 2004; another 800 associates at Colfor and MSP are also represented by the UAW under collective bargaining agreements that expire in 2005. Approximately 300 associates are represented by the International Association of Machinists (“IAM”) under a collective bargaining agreement, which runs through May 5, 2004. In addition, approximately 600 associates at Albion, approximately 1,300 associates at our Silao, Mexico facility (“Guanajuato Gear & Axle”) and approximately 200 associates at our Brazilian majority-owned subsidiary are represented by labor unions that are subject to collective bargaining agreements. The collective bargaining agreements at Albion, certain of which may be terminated upon six-months notice, expire in 2004 and the agreements in Mexico and Brazil expire annually.

Credit and Working Capital Practices

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, pages 20-23, section entitled “Financials — Management’s Discussion and Analysis — Liquidity and Capital Resources.”


(d)	*Financial Information About Foreign and Domestic Operations and Export Sales*

International operations are subject to certain additional risks inherent in conducting business outside the United States, such as changes in currency exchange rates, price and currency exchange controls, import restrictions, nationalization, expropriation and other governmental action.

For further financial information regarding foreign and domestic sales and export sales, see Exhibit 13 to this Form 10-K, Annual Report, page 42, section entitled “Financials — Notes to Consolidated Financial Statements, Note 11 — Segment and Geographic Information.”

Item 2. Properties

The following is a summary of our principal facilities:


	Approx.		Type
Name	Sq. Feet		of Interest		Function

Detroit Gear & Axle Detroit, MI		1,891,000		Owned	Rear and front axles
Buffalo Gear, Axle & Linkage Buffalo, NY		1,199,000		Owned	Rear axles and steering linkages
Three Rivers Driveline Three Rivers, MI		750,000		Owned	Rear axles and driveshafts, front auxiliary driveshafts and universal joints
Guanajuato Gear & Axle Guanajuato, Mexico		839,000		Owned	Rear axles and driveshafts and front axles and auxiliary driveshafts
Guanajuato Forge Guanajuato, Mexico		111,000		Owned	Forged products
Scotstoun Plant Glasgow, Scotland		453,000		Leased	Front and rear axles for medium-duty trucks and vans
Spurrier Plant Lancashire, England		303,000		Leased	Crankshafts and fabricated parts
AAM do Brasil Curitiba, Brazil		130,600		Owned	Machining of forged and cast products
Detroit Forge Detroit, MI		710,000		Owned	Forged products
Tonawanda Forge Tonawanda, NY		470,000		Owned	Forged products
Cheektowaga Plant Cheektowaga, NY		116,000		Owned	Machining of forged products
Colfor — Malvern Malvern, Ohio		234,000		Owned	Forged products
Colfor — Salem Salem, Ohio		189,000		Owned	Forged products
Colfor — Minerva Minerva, Ohio		125,000		Owned	Machining of forged products
MSP — Oxford Oxford, MI		125,000		Leased	Forged products
MSP — Centerline Centerline, MI		14,000		Leased	Forged products
Technical Center Rochester Hills, MI		76,000		Owned	R&D, design engineering, metallurgy, testing, validation and sales
Corporate Headquarters Detroit, MI		31,000		Owned	Executive and administrative offices located at the Detroit Gear & Axle
Global Procurement Center Rochester Hills, MI		16,000		Leased	Executive and administrative offices

Borrowings under our Senior Secured Bank Credit Facilities (“Bank Credit Facilities”) are secured by the capital stock of our significant subsidiaries and substantially all of our assets except for those securing the Receivables Facility and other permitted bank, equipment and lease financings. See Exhibit 13 to this Form 10-K, Annual Report, pages 20-23, section entitled “Financials — Management’s Discussion and Analysis — Liquidity and Capital Resources” for further information regarding our Bank Credit Facilities.

Item 3. Legal Proceedings

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, page 24, section entitled “Financials — Management’s Discussion and Analysis — Litigation and Environmental Regulations.”


Item 4.	Submission of Matters to a Vote of Stockholders

No matters were submitted to a vote of stockholders during the fourth quarter of fiscal year 2002.

Supplemental Item — Executive Officers and Directors of the Registrant

We possess a management team with proven leadership and extensive automotive industry experience. Our executive officers and directors are:


Name	Age		Position

Richard E. Dauch(3)		60	Co-Founder, Chairman of the Board & Chief Executive Officer
Joel D. Robinson		59	President & Chief Operating Officer
Robin J. Adams		49	Executive Vice President — Finance & Chief Financial Officer
Patrick S. Lancaster		55	Group Vice President, Chief Administrative Officer & Secretary
Yogendra N. Rahangdale		55	Group Vice President & Chief Technology Officer
Alan L. Shaffer		52	Senior Vice President, Sales, Marketing & Strategic Planning
Marion A. Cumo		60	Vice President, Program Management & Launch
David C. Dauch		38	Vice President, Manufacturing — Driveline Division
Richard F. Dauch		42	Vice President, Financial Planning
George J. Dellas		60	Vice President, Quality Assurance & Customer Satisfaction
David J. Demos		52	Vice President, Investor Relations
Roy H. Langenbach		63	Vice President, Materials Management & Logistics
Allan R. Monich		49	Vice President, Manufacturing — Forging Division
Patrick J. Paige		38	Vice President, Human Resources
Daniel V. Sagady, P.E		53	Vice President, Engineering & Product Development
Abdallah F. Shanti		42	Vice President, Procurement, Information Technology & Chief Information Officer
Forest J. Farmer(1)		62	Director
Robert L. Friedman(2)		60	Director
Richard C. Lappin(1)		58	Director
B.G. Mathis(2)		70	Director
Larry W. McCurdy(3)		67	Director
Bret D. Pearlman(2)		36	Director
John P. Reilly(3)		59	Director
Thomas K. Walker(1)		62	Director


(1)	Class I Director

(2)	Class II Director

(3)	Class III Director

Richard E. Dauch, age 60, is Co-Founder, Chairman of the Board & Chief Executive Officer, and is also Chairman of the Executive Committee of the Board of Directors. He has been Chief Executive Officer and a member of the Board of Directors since co-founding our Company in 1994. In October 1997, he was named Chairman of the Board of Directors. He was also President of our Company from 1994 through December 2000. Before March 1994, he spent 12 years with Chrysler Corporation (“Chrysler”). He left Chrysler in 1991 as Executive Vice President of Worldwide Manufacturing. Mr. Dauch is a retiree of Chrysler. Prior to joining Chrysler, Mr. Dauch served as Group Vice President of Volkswagen of America, where he established the manufacturing facilities and organization for the successful launch of the first major automotive transplant in the United States. Mr. Dauch began his career with GM in 1964, where he progressed over the course of 12 years from a college-graduate-in-training to the youngest plant manager in Chevrolet’s history. He has received numerous honors, nationally and internationally, including being recognized in 1996 as the Worldwide Automotive Industry Leader of the Year by the Automotive Hall of Fame, the 1997 Manufacturer of the Year by the Michigan Manufacturer’s Association and the 1999 Michiganian of the Year by The Detroit News. He is on the board of directors of several manufacturing and civic organizations and has lectured extensively on the subjects of manufacturing and management. Mr. Dauch has authored a book, Passion for Manufacturing, which is distributed in 80 countries in several languages.

Joel D. Robinson, age 59, was appointed President & Chief Operating Officer in January 2001. Prior to that, Mr. Robinson served as Executive Vice President — Operations & Chief Operating Officer (since August 1998) and Vice President, Manufacturing (since May 1997). Mr. Robinson joined our Company in March 1994 and has held various other positions including Executive Director of the GMT-800 program and Executive Director, Manufacturing Services. He began his career in the automotive industry at Ford Motor Company in 1963, where he held a series of technical and manufacturing management positions. Mr. Robinson also worked for American Motors Corporation, serving as Director of Vehicle Assembly, and later, at Chrysler Corporation, where he was responsible for all car body programs. Mr. Robinson has over 39 years of experience in the global automotive industry.

Robin J. Adams, age 49, has been Executive Vice President — Finance & Chief Financial Officer since joining our Company in July 1999. Prior to joining our Company, he spent 13 years with Borg-Warner in various financial positions, including Vice President and Treasurer (Principal Financial Officer) from 1993 to 1999 and Assistant Treasurer from 1991 to 1993. He began his career in 1976 with Illinois Central Railroad Company, where he served in a variety of positions in accounting, finance and corporate planning, including Assistant Director of Corporate and Financial Planning. Mr. Adams has over 25 years of experience in the transportation industry, 16 of which is in the automotive industry, and is a certified public accountant.

Patrick S. Lancaster, age 55, has been Group Vice President, Chief Administrative Officer & Secretary since January 2001. Prior to that, he was Vice President and Secretary (since March 2000), Vice President, General Counsel and Secretary (since November 1997) and General Counsel and Secretary (since June 1994). Mr. Lancaster worked at Fruehauf Trailer Corporation and its predecessor Company (from 1981 to 1994) where he last served as General Counsel and Assistant Secretary from March 1990 until he joined our Company. Mr. Lancaster is a member of the State Bar of Michigan.

Yogendra (Yogen) N. Rahangdale, age 55, has been Group Vice President & Chief Technology Officer since January 2001. Prior to that, he served as Vice President, Manufacturing and Procurement Services (since March 2000); Vice President, Manufacturing Services (since April 1999); Executive Director, Manufacturing Services (since March 1998) and Director, Corporate Manufacturing Planning (since joining our Company in August 1995). Prior to joining our Company, Mr. Rahangdale spent 12 years with Chrysler Corporation in a variety of positions including Manager, Paint & Energy Management.

Alan L. Shaffer, age 52, has been Senior Vice President, Sales, Marketing & Strategic Planning since September 2002. Prior to that, he served as Vice President, Manufacturing Services since joining our Company in October 2000. Prior to joining our Company, Mr. Shaffer was Executive Vice President of Eventory, Inc. in Bedford, Massachusetts since February 2000 and served as Group Vice President, Metalworking Technologies at Milacron, Inc. since 1986.

Marion A. Cumo, age 60, has been Vice President, Program Management & Launch since September 2002. Prior to that, he was Vice President, Materials Management and Logistics (since May 1996) and Vice President, Quality Assurance and Customer Satisfaction (since joining our Company in March 1994). Prior to joining our Company, Mr. Cumo spent 11 years working as a manufacturing executive at Chrysler Corporation. His most recent title at Chrysler was General Plants Manager of Assembly Operations. After leaving Chrysler, Mr. Cumo became president of Tri-County Chrysler Products in Peebles/ West Union, Ohio, and also worked as an automotive manufacturing consultant. Mr. Cumo began his career at GM and has over 36 years experience in the global automotive industry including positions with GM, Volkswagen of America and Chrysler.

David C. Dauch, age 38, has been Vice President, Manufacturing — Driveline Division since January 2001. Prior to that, he was Vice President, Sales and Marketing (since 1998) and Director of Sales, GM Full-Size Truck Programs (since May 1996). Mr. Dauch joined our Company in July 1995 as Manager, Sales Administration. Prior to joining our Company, Mr. Dauch held various positions at Collins & Aikman Products Company, including Sales Manager. Mr. Dauch is a member of the Board of Directors of Collins & Aikman. David C. Dauch is a son of Richard E. Dauch.

Richard F. Dauch, age 42, has been Vice President, Financial Planning since September 2002. Prior to that, he served as Vice President, Sales and Marketing (since January 2002); Vice President, Sales (since January 2001); Vice President, Manufacturing — Driveline Division (since July 1999); Vice President, Manufacturing (since August 1998); Director, Strategic and Capacity Planning (since February 1998) and Plant Manager, Detroit Gear & Axle Plant (since May 1996). Mr. Dauch joined our Company in May 1995 as Corporate Manager, Labor Relations, and served in that position until May 1996. Prior to joining our Company, Mr. Dauch served as a Senior Business Manager and Business Unit Manager with United Technologies Corporation from July 1992. Prior to his automotive career, Dauch served in the U.S. Army for eleven years, with assignments including Platoon Leader and Company Commander. Richard F. Dauch is a son of Richard E. Dauch.

George J. Dellas, age 60, has been Vice President, Quality Assurance & Customer Satisfaction since May 1996. Prior to that, he was Vice President, Procurement and Material Management since joining our Company in March 1994. Prior to joining our Company, Mr. Dellas spent 12 years in executive positions of increasing responsibility at Chrysler Corporation from Plant Manager to Director. While serving as Plant Manger, he received the Productivity Medal from the United States Senate. Before leaving Chrysler in 1991, he served as the Director of Advanced Planning for the Assembly Division. Mr. Dellas has over 37 years experience in the global automotive industry including positions with GM, Volkswagen of America and Chrysler.

David J. Demos, age 52, has been Vice President, Investor Relations since October 2002. Prior to that, he was Vice President; President and Chief Operating Officer of Colfor Manufacturing, Inc. (since July 2001); Vice President, Strategic Planning and Business Development (since March 2000); Vice President, Procurement (since August 1998); Vice President, Sales and Business Development (since November 1997); and Vice President, Sales (since May 1996). He also served as Executive Director, Sales and Marketing; and Director, Sales, Marketing and Planning. Prior to joining our Company in March 1994, Mr. Demos worked for GM for 21 years in various engineering, quality and sales positions in the United States and overseas. In his most recent position with GM, he was Chief Engineer of the Final Drive and Forge Business Unit of the Saginaw Division.

Roy H. Langenbach, age 63, has been Vice President, Materials Management & Logistics since September 2002. Prior to that, he served as Vice President, Procurement (since April 2000), and Director, Materials Management since the formation of our Company in March 1994. Mr. Langenbach has over 38 years experience in the automotive industry. Prior to joining our Company, Mr. Langenbach served in a progression of manufacturing management positions at GM, Volkswagen of America, Ford Motor Company and Benteler Industries.

Allan R. Monich, age 49, has been Vice President, Manufacturing — Forging Division since October 2001. Prior to that, he served as Vice President, Human Resources (since 1998); Vice President, Personnel (since November 1997); and Plant Manager for the Buffalo Gear & Axle Plant in Buffalo, NY since the formation of our Company in March 1994. Prior to joining our Company in March 1994, he worked for GM for 22 years in the areas of manufacturing, quality assurance, sales and engineering, including four years as a Plant Manager.

Patrick J. Paige, age 38, has been Vice President, Human Resources since January 2003. Prior to that, he was Managing Director, Europe and President & Chief Executive Officer of our Albion Automotive (Holdings) Limited subsidiary (since December 2000); Director, Labor Relations (since September 1999); Director, Corporate Relations and Communications (since August 1998); Personnel Director for our Company’s Detroit Gear & Axle facility (since May 1996); and Corporate Counsel since joining our Company in August 1994. Prior to joining our Company, Mr. Paige was with Chrysler Corporation since 1987 where he held positions of increasing responsibility in the areas of manufacturing, personnel and, most recently, Office of General Counsel. Mr. Paige is a member of the State Bar of Michigan.

Daniel V. Sagady, P.E., age 53, has been Vice President, Engineering & Product Development, since November 1997. Prior to that, he was Executive Director of Product Engineering (since May 1996) and Director of Product Engineering (since March 1994). He began his career at GM in 1967 and has spent over 35 years in the automotive industry with both Ford Motor Company and GM where he has held various positions in manufacturing, quality, testing and developmental engineering. Mr. Sagady is a licensed Professional Engineer.

Abdallah F. Shanti, age 42, has been Vice President, Procurement, Information Technology & Chief Information Officer since September 2002. Prior to that, he was Executive Director, Information Technology & Chief Information Officer since joining our Company in December 1999. Mr. Shanti began his career with Electronic Data Systems Corporation in 1984 where he served in a variety of information technology leadership roles providing services for automotive and manufacturing corporations. He has over 19 years of experience in the global automotive industry including positions with GM, where he served most recently as General Director, Systems Engineering; LucasVarity PLC, where he served as Vice President, Global Information Technology; Perot Systems Corporation and Electronic Data Systems Corporation.

Part II


Item 5.	Market for Registrant’s Common Stock and Related Stockholder Matters

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, page 42, section entitled “Financials — Notes to Consolidated Financial Statements, Note 12 — Unaudited Quarterly Financial and Market Data.”


Item 6.	Selected Consolidated Financial Data

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, page 45, section entitled “Eight Year Financial Summary.”


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, pages 16-26, section entitled “Financials — Management’s Discussion and Analysis.”


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, pages 23-24, section entitled “Financials — Management’s Discussion and Analysis — Market Risk.”


Item 8.	Financial Statements and Supplementary Data

Incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report, pages 28-42, sections entitled “Financials — Consolidated Financial Statements” and “Financials — Notes to Consolidated Financial Statements.”


Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Part III


Item 10.	Directors and Executive Officers of the Registrant

The information required by Item 10 regarding directors is incorporated by reference from the information in the sections entitled “Nominees for Class I Directors,” “Returning Members of the Board of Directors,” and “Security Ownership of AAM Directors & Officers and Certain Beneficial Owners of AAM Stock” in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 1, 2003 (“Proxy Statement”), which is being filed on March 21, 2003.

The information required by Item 10 regarding executive officers appears as a Supplemental Item in Part I and incorporated by reference from the information in the section entitled “Security Ownership of AAM Directors & Officers and Certain Beneficial Owners of AAM Stock” in our Proxy Statement.

Item 11. Executive Compensation

The information required by Item 11 is incorporated by reference from the information in the section entitled “Executive Compensation, Retirement Program and Employment Agreements” in our Proxy Statement.


Item 12.	Common Stock Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

(a)

(b)

(c)

Number of

Number of securities

securities to be

Weighted —

remaining available for

issued upon

average exercise

future issuance under

exercise of

price of

equity compensation

outstanding

plans (excluding

options, warrants

securities reflected in

Plan Category

and rights

column (a))

Equity compensation plans approved by security holders

8,907,790

10.61

3,819,546

Equity compensation plans not approved by security holders

—

Total

8,907,790

10.61

3,819,546

The information in the section entitled “Security Ownership of AAM Directors & Officers and Beneficial Owners of AAM Stock” is incorporated by reference from our Proxy Statement.

Recent Developments. In January 2003, we filed a shelf registration statement with the Securities and Exchange Commission with respect to possible secondary sales of approximately 14 million shares of common stock. Blackstone owns all of the 14 million shares covered by this registration statement. We did not sell any shares and did not receive any proceeds from this shelf registration statement.

The shelf registration statement provides that Blackstone may, from time to time, sell its shares in negotiated transactions directly with purchasers in block or other institutional trades or through one or more underwritten public offerings. We will not sell any shares and will not receive any proceeds from subsequent transactions related to this shelf registration statement. Prior to the filing of this registration statement, Blackstone’s beneficial ownership of our common stock was approximately 26%. Assuming the sale of all of the shares that were registered, Blackstone will no longer be a beneficial owner of any of our common stock.

Item 13. Certain Relationships and Related Transactions

The information from Exhibit 13 to this Form 10-K, Annual Report, page 41, section entitled “Financials — Notes to Consolidated Financial Statements, Note 10 — Related Party Transactions” and the information in the section entitled “Other Information” in our Proxy Statement is incorporated by reference.

David C. Dauch is a son of Richard E. Dauch, AAM’s Co-Founder, Chairman of the Board & Chief Executive Officer. David C. Dauch is currently Vice President, Manufacturing — Driveline Division and served in such position throughout 2002. AAM expects that David C. Dauch will remain an employee of AAM. His total compensation from AAM during 2002 was $1,534,656, which included income realized from the exercise of vested stock options during 2002.

Richard F. Dauch is a son of Richard E. Dauch, AAM’s Co-Founder, Chairman of the Board & Chief Executive Officer. Richard F. Dauch is currently Vice President, Financial Planning and has held such position since September 2002. Prior to that, he served as Vice President, Sales and Marketing throughout 2002 until September 2002. AAM expects that Richard F. Dauch will remain an employee of AAM. His total compensation from AAM during 2002 was $1,019,216, which included income realized from the exercise of vested stock options during 2002.

Robert W. Mathis is the son of B.G. Mathis, a member of the AAM Board of Directors. Robert W. Mathis became Director, Safety, Medical, Environmental & Security, in January 2003, and currently holds such position. Prior to that, he was Manager Human Resources Operations for all of 2002. AAM expects that Robert W. Mathis will remain an employee of AAM. His total compensation from AAM during 2002 was $186,378, which included income realized from the exercise of vested stock options during 2002.

Anthony C. Robinson is the son of Joel D. Robinson, President & Chief Operating Officer of AAM. Anthony C. Robinson is currently Manager Activity Based Costing and held such position for all of 2002. AAM expects that Anthony C. Robinson will remain an employee of AAM. His total compensation from AAM during 2002 was $111,791.

M. Ben Siniora is the brother-in-law of Abdallah Shanti, Vice President, Procurement, Information Technology & Chief Information Officer for AAM. M. Ben Siniora became Manager Information Technology in October 2002, and currently holds such position. Prior to that, he was Manager Information Technology Operations for the balance of 2002. AAM expects that M. Ben Siniora will remain an employee of AAM. His total compensation from AAM during 2002 was $79,823.

Item 14. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, with the participation of our management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934 (the “Exchange Act”)) within the 90-day period preceding the filing of this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Exchange Act filings.

There have been no significant changes to our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation.

Part IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as a part of this report:

1. Exhibits

See Item (c) below.

2. Schedule II — Valuation and Qualifying Accounts

The report of Deloitte & Touche LLP, independent auditors, on our consolidated financial statement schedule (Schedule II) for the years ended December 31, 2002, December 31, 2001 and December 31, 2000

All other schedules have been omitted because they are not applicable or not required.

(b) Report on Form 8-K

In consideration of our secondary offering of common stock, we filed a Current Report on Form 8-K on March 12, 2002 for the purpose of filing our audited consolidated financial statements for the years ended December 31, 2001 and 2000 and for each of the years ended December 31, 2001, 2000 and 1999; Management’s Discussion and Analysis for the year ended December 31, 2001; and Selected Consolidated Financial and Other Data for the year ended December 31, 2001 (“Seven Year Financial Summary”).

On June 27, 2002, the Securities and Exchange Commission issued an Order requiring the filing of sworn statements pursuant to Section 21(a)(1) of the Securities Exchange Act of 1934. On August 1, 2002, we filed a Current Report on Form 8-K for the purpose of filing the sworn statements of Richard E. Dauch, Co-Founder, Chairman of the Board & Chief Executive Officer, and Robin J. Adams, Executive Vice President — Finance & Chief Financial Officer pursuant to such Order.

The following exhibits were previously filed unless otherwise indicated:


Number	Description of Exhibit

3.01	Amended and Restated Certificate of Incorporation
		(Incorporated by reference to Exhibit 3.01 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
3.02	Bylaws
		(Incorporated by reference to Exhibit 3.01 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
4.01(a)	Specimen Stock Certificate
		(Incorporated by reference to Exhibit 4.01 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
4.01(b)	Indenture, dated as of March 5, 1999, among American Axle & Manufacturing, Inc., as issuer, American Axle & Manufacturing Holdings, Inc., as guarantor, and IBJ Whitehall Bank & Trust Company, as trustee
		(Incorporated by reference to Exhibit 4.01 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-4 (Registration No. 333-76605))


Number	Description of Exhibit

4.02	Form of 9.75% Senior Subordinated Note due 2009 (the “Exchange Note”)
		(Incorporated by reference to Exhibit 4.02 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-4 (Registration No. 333-76605))
4.03	Exchange and Registration Rights Agreement, dated March 5, 1999, among AAM Inc., Chase Securities, Inc., Donaldson Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. Incorporated
		(Incorporated by reference to Exhibit 4.03 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-4 (Registration No. 333-76605))
10.01	Asset Purchase Agreement, dated February 18, 1994, between AAM, Inc. and General Motors Corporation (“GM”), and all amendments thereto
		(Incorporated by reference to Exhibit 10.01 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.02	Component Supply Agreement, dated February 28, 1994, between AAM, Inc. and GM
		(Incorporated by reference to Exhibit 10.02 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.02(a)	Amendment No. 1 to Component Supply Agreement, dated February 28, 1994, between AAM, Inc. and GM
		(Incorporated by reference to Exhibit 10.02(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.02(b)	Amendment No. 2 to Component Supply Agreement, dated February 7, 1996, between AAM, Inc. and GM
		(Incorporated by reference to Exhibit 10.02(b) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.02(c)	Letter of Intent dated February 21, 1996, by G.M.T.G., GMT-800 PGM Worldwide Purchasing (“G.M.T.G”) (re: front & rear axles)
		(Incorporated by reference to Exhibit 10.02(c) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.02(d)	Letter of Intent dated February 21, 1996, by G.M.T.G. (re: front & rear propeller shafts)
		(Incorporated by reference to Exhibit 10.02(d) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.02(e)	Letter Agreement dated June 25, 1997, between AAM, Inc. and GM
		(Incorporated by reference to Exhibit 10.02(e) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-(Registration No. 333-53491))
††10.02(f)	Amended and Restated Memorandum of Understanding (“MOU”), dated September 2, 1997, between AAM, Inc. and GM
		(Incorporated by reference to Exhibit 10.02(f) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))


Number	Description of Exhibit

10.02(g)	MOU Extension Agreement, dated September 22, 1997, between AAM, Inc. and GM
		(Incorporated by reference to Exhibit 10.02(g) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.03	GMCL Purchase Order Agreement dated February 17, 1994 by and between AAM, Inc. and General Motors of Canada Limited (“GMCL”)
		(Incorporated by reference to Exhibit 10.03 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.04	AAM/ GMCL Supply Agreement dated February 17, 1994 (“AAM/ GMCL Supply Agreement”) by and between AAM, Inc. and GMCL
		(Incorporated by reference to Exhibit 10.04 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.04(a)	Amending Agreement dated as of September 5, 1996, between AAM, Inc. and GMCL
		(Incorporated by reference to Exhibit 10.04(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.04(b)	Amending Agreement dated as of October 7, 1996, between AAM, Inc. and GMCL
		(Incorporated by reference to Exhibit 10.04(b) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.04(c)	Amendment No. 1 to AAM/ GMCL Supply Agreement dated February 17, 1994, between AAM, Inc. and GMCL
		(Incorporated by reference to Exhibit 10.04(c) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.05	Agreement dated February 17, 1997, between AAM, Inc. and GM
		(Incorporated by reference to Exhibit 10.05 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.05(a)	Letter dated December 13, 1996, by AAM, Inc.
		(Incorporated by reference to Exhibit 10.05(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.07	1997 American Axle & Manufacturing of Michigan, Inc. Replacement Plan
		(Incorporated by reference to Exhibit 10.07 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.08	The Amended and Restated American Axle & Manufacturing of Michigan, Inc. Management Stock Option Plan
		(Incorporated by reference to Exhibit 10.08 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))


Number	Description of Exhibit

10.09	Nonqualified Stock Option Agreement, dated October 30, 1997, between AAM, Inc. and Dauch
		(Incorporated by reference to Exhibit 10.09 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.10	Indemnification Agreement, dated February 28, 1994, between AAM, Inc. and GM
		(Incorporated by reference to Exhibit 10.10 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
‡10.11	Employment Agreement, dated November 6, 1997, by and between the Company and Richard E. Dauch
		(Incorporated by reference to Exhibit 10.11 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.11(a)	Letter Agreement, dated August 18, 1997, between AAM Acquisition, Inc. and Richard E. Dauch
		(Incorporated by reference to Exhibit 10.11(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.12	Recapitalization Agreement, dated as of September 19, 1997, among AAM, Inc., the Company, Jupiter Capital Corporation (“Jupiter”), Richard E. Dauch, Morton E. Harris (“Harris”) and AAM Acquisition, Inc.
		(Incorporated by reference to Exhibit 10.12 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.13	Stockholders’ Agreement, dated as October 29, 1997, among Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone Offshore Capital Partners II L.P., Blackstone Family Investment Partnership II L.P., Jupiter, Richard E. Dauch, Harris and American Axle & Manufacturing of Michigan, Inc.
		(Incorporated by reference to Exhibit 10.13 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.13(a)	Disposition Agreement, dated as of December 10, 1998, between American Axle & Manufacturing of Michigan, Inc. and Richard E. Dauch
		(Incorporated by reference to Exhibit 10.13(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.14	Monitoring Agreement, dated as of October 29, 1997, between the Company and Blackstone Management Partners L.P.
		(Incorporated by reference to Exhibit 10.14 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))


Number	Description of Exhibit

10.15	Credit Agreement, dated as of October 27, 1997 (the “Credit Agreement”), among the Company, AAM, Inc., the lenders named therein, The Chase Manhattan Bank, as administrative agent and collateral agent, and Chase Manhattan Bank Delaware, as fronting bank
		(Incorporated by reference to Exhibit 10.15 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.15(a)	Amendment No. 1, Waiver and Agreement, dated as of September 30, 1998, to the Credit Agreement, as amended
		(Incorporated by reference to Exhibit 10.15(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.15(b)	Amendment No. 2, Waiver and Agreement, dated as of January 11, 1999, to the Credit Agreement, as amended
		(Incorporated by reference to Exhibit 10.15(b) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.16	AAM Master Trust Pooling Agreement, dated as of October 29, 1997, among AAM Receivables Corp. (“AAM Receivables”), the Company, as Servicer, and The Chase Manhattan Bank, as Trustee
		(Incorporated by reference to Exhibit 10.16 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.16(a)	AAM Master Trust Series 1997-A Supplement to Pooling Agreement, dated as of October 29, 1997 (“Series 1997-A Supplement”), among AAM Receivables, the Company, as Servicer, and The Chase Manhattan Bank, as Trustee
		(Incorporated by reference to Exhibit 10.16(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.16(b)	Amendment No. 1 to Series 1997-A Supplement, dated July 17, 1998
		(Incorporated by reference to Exhibit 10.16(b) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.16(c)	Amendment No. 2 to Series 1997-A Supplement, dated September 30, 1998
		(Incorporated by reference to Exhibit 10.16(c) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.17	Receivables Sale Agreement, dated as of October 29, 1997, between AAM Receivables, as purchaser, and the Company, as Seller and Servicer
		(Incorporated by reference to Exhibit 10.17 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))


Number	Description of Exhibit

10.18	Servicing Agreement, dated as of October 29, 1997, among AAM Receivables, the Company, as Servicer, and The Chase Manhattan Bank, as Trustee
		(Incorporated by reference to Exhibit 10.18 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.20	1999 Stock Incentive Plan
		(Incorporated by reference to Exhibit 10.20 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.22(a)	Lifetime Program Contract for GMT-325 Products, between GM and AAM, Inc.
		(Incorporated by reference to Exhibit 10.22(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.22(b)	Lifetime Program Contract for GMT-330 Products, between GM and AAM, Inc.
		(Incorporated by reference to Exhibit 10.22(b) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.22(c)	Lifetime Program Contract for New M-SUV Products, between GM and AAM, Inc.
		(Incorporated by reference to Exhibit 10.22(c) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.22(d)	Lifetime Program Contract for GMT-400 Products, between GM and AAM, Inc.
		(Incorporated by reference to Exhibit 10.22(d) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.22(e)	Lifetime Program Contract for GMT-800 Products, between GM and AAM, Inc.
		(Incorporated by reference to Exhibit 10.22(e) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.23	Senior Secured Promissory Note dated August 14, 1998, made by Richard E. Dauch in favor of AAM, Inc.
		(Incorporated by reference to Exhibit 10.23 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
††10.24	Nomination Letter, dated August 8, 1998 between Isuzu/ GM Joint Purchasing Team and AAM, Inc.
		(Incorporated by reference to Exhibit 10.24 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-1 (Registration No. 333-53491))


Number	Description of Exhibit

10.25	AAM Master Trust Pooling Agreement, dated as of October 29, 1997, as Amended and Restated as of March 25, 1999
		(Incorporated by reference to Exhibit 10.16 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-4 (Registration No. 333-76605))
10.26	AAM Master Trust Series 1999-A Supplement to Pooling Agreement, dated as of March 25, 1999
		(Incorporated by reference to Exhibit 10.16(a) filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-4 (Registration No. 333-76605))
10.27	Receivables Sale Agreement, dated as of October 29, 1997, as Amended and Restated as of March 25, 1999
		(Incorporated by reference to Exhibit 10.17 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-4 (Registration No. 333-76605))
10.28	Servicing Agreement, dated as of October 27, 1997, as Amended and Restated as of March 25, 1999
		(Incorporated by reference to Exhibit 10.18 filed with American Axle & Manufacturing Holdings, Inc. Registration Statement on Form S-4 (Registration No. 333-76605))
10.30	Amendment No. 2 dated August 31, 1999, to the AAM/ GMCL Supply Agreement originally dated February 17, 1994
		(Incorporated by reference to Exhibit 10.01 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended September 30, 1999)
10.31	Letter Agreement, dated as of December 15, 1998, as amended January 11, 2000, between B.G. Mathis and the Company
		(Incorporated by reference to Exhibit 10.01 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended March 31, 2000)
††10.32	Amendment No. 3 to AAM/ GMCL Supply Agreement dated February 17, 1994, as amended
		(Incorporated by reference to Exhibit 10.02 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended March 31, 2000)
††10.33	Agreement dated as of February 24, 2000, by and between American Axle & Manufacturing, Inc. and General Motors Corporation
		(Incorporated by reference to Exhibit 10.03 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended March 31, 2000)
††10.34	Settlement Agreement dated as of July 28, 2000 by and between American Axle & Manufacturing, Inc. and General Motors Corporation
		(Incorporated by reference to Exhibit 10.01 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended September 30, 2000)


Number	Description of Exhibit

10.35	Amendment No. 4 and Agreement dated as of July 27, 2000, to the Credit Agreement, as amended
		(Incorporated by reference to Exhibit 10.02 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended September 30, 2000)
10.36	Amendment No. 5 and Agreement dated as of August 15, 2000, to the Credit Agreement, as amended
		(Incorporated by reference to Exhibit 10.03 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended September 30, 2000)
‡10.37	Amendment dated December 20, 2000 to Employment Agreement dated as of November 6, 1997 by and between American Axle & Manufacturing Holdings, Inc. and Richard E. Dauch
		(Incorporated by reference to Exhibit 10.07 filed with American Axle & Manufacturing Holdings, Inc. Form 10-K for the year ended December 31, 2000)
‡10.38	Stock Purchase Agreement dated December 20, 2000 by and between American Axle & Manufacturing Holdings, Inc. and Richard E. Dauch
		(Incorporated by reference to Exhibit 10.08 filed with American Axle & Manufacturing Holdings, Inc. Form 10-K for the year ended December 30, 2000)
‡10.39	Supplemental Compensation Agreement dated December 20, 2000 by and between American Axle & Manufacturing Holdings, Inc. and Richard E. Dauch
		(Incorporated by reference to Exhibit 10.09 filed with American Axle & Manufacturing Holdings, Inc. Form 10-K for the year ended December 30, 2000)
‡10.40	Employment Agreement dated September 30, 2000 by and between American Axle & Manufacturing Holdings, Inc. and Alan Shaffer
		(Incorporated by reference to Exhibit 10.10 filed with American Axle & Manufacturing Holdings, Inc. Form 10-K for the year ended December 30, 2000)
10.41	Lifetime Program Contract between General Motors Corporation North American Operations (“Buyer”) and American Axle & Manufacturing, Inc. (“Seller”)
		(Incorporated by reference to Exhibit 10.01 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended June 30, 2001)
10.42	Agreement dated as of June 14, 2001 by and between General Motors Corporation and American Axle & Manufacturing, Inc.
		(Incorporated by reference to Exhibit 10.02 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended June 30, 2001)
10.43	Restatement of the American Axle & Manufacturing, Inc. Personal Savings Plan for Hourly-Rate Associates dated September 27, 2001
		(Incorporated by reference to Exhibit 10.01 to our Registration Statement on Form S-8 (Registration Statement No. 333-70466)


Number	Description of Exhibit

10.44	Restatement of the American Axle & Manufacturing, Inc. Salaried Savings Plan dated September 27, 2001
		(Incorporated by reference to Exhibit 10.02 to our Registration Statement on Form S-8 (Registration Statement No. 333-70466)
10.45	Amendment No. 1 to the 1999 American Axle & Manufacturing of Michigan, Inc. Stock Incentive Plan
		(Incorporated by reference to Exhibit 10.03 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended September 30, 2001)
10.46	Amendment No. 2 to the 1999 American Axle & Manufacturing, Inc. Stock Incentive Plan
		(Incorporated by reference to Exhibit 10.04 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended September 30, 2001)
††10.47	Agreement dated as December 21, 2001 by and between General Motors Corporation and American Axle & Manufacturing, Inc.
		(Incorporated by reference to Exhibit 10.47 filed with American Axle & Manufacturing Holdings, Inc. Form 10-K for the year ended December 30, 2001)
10.48	Amendment to Monitoring Agreement Dated As of October 29, 1997
		(Incorporated by reference to Exhibit 10.48 filed with American Axle & Manufacturing Holdings, Inc. Form 10-K for the year ended December 30, 2001)
‡10.49	Second Amendment, dated as of December 10, 2001, to the Employment Agreement, dated as of November 6, 1997, by and between American Axle & Manufacturing Holdings, Inc., a Delaware corporation and Richard E. Dauch
		(Incorporated by reference to Exhibit 10.49 filed with American Axle & Manufacturing Holdings, Inc. Form 10-K for the year ended December 30, 2001)
10.50	Amendment No. 6 and Agreement dated May 8, 2002 to the Credit Agreement, as amended
		(Incorporated by reference to Exhibit 10.50 filed with American Axle & Manufacturing Holdings, Inc. Form 10-Q for the quarterly period ended March 31, 2002)
*12	Statement of Computation of Ratio of Earnings to Fixed Charges
*13	Annual Report to Stockholders for the year ended December 31, 2002, pages 16 — 42 and page 45, sections entitled “Financials — Management’s Discussion and Analysis,” “Financials — Consolidated Financial Statements,” “Financials — Notes to Consolidated Financial Statements” and “Eight Year Financial Summary” **
*21	Subsidiaries of the Company
*23	Consent of Deloitte & Touche LLP


Number		Description of Exhibit

*99.1		Certification of Richard E. Dauch, Co-Founder, Chairman of the Board & Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*99.2		Certification of Robin J. Adams, Executive Vice President — Finance & Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		(All other exhibits are not applicable.)

† New Confidentiality Request

†† Confidentiality Requests Already Approved by the SEC

‡ Reflects Management or Compensatory Contract

* Filed herewith

** Shown only in the original filed with the Securities and Exchange Commission

Signatures

Pursuant to the requirements of Section 13 or 15(d) 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)

By: /s/ ROBIN J. ADAMS

Name: Robin J. Adams

Title: Executive Vice President — Finance

& Chief Financial Officer

(Chief Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.


Signature	Title	Date

/s/ RICHARD E. DAUCH Richard E. Dauch	Co-Founder, Chairman of the Board of Directors & Chief Executive Officer	March 21, 2003

/s/ ROBIN J. ADAMS Robin J. Adams	Executive Vice President — Finance & Chief Financial Officer	March 21, 2003

/s/ FOREST J. FARMER Forest J. Farmer	Director	March 21, 2003

/s/ ROBERT L. FRIEDMAN Robert L. Friedman	Director	March 21, 2003
/s/ RICHARD C. LAPPIN Richard C. Lappin	Director	March 21, 2003

/s/ B.G. MATHIS B.G. Mathis	Director	March 21, 2003

/s/ LARRY W. MCCURDY Larry W. McCurdy	Director	March 21, 2003

/s/ BRET D. PEARLMAN Bret D. Pearlman	Director	March 21, 2003

/s/ JOHN P. REILLY John P. Reilly	Director	March 21, 2003

/s/ THOMAS K. WALKER Thomas K. Walker	Director	March 21, 2003

CERTIFICATIONS

I, Richard E. Dauch, Co-Founder, Chairman of the Board & Chief Executive Officer, certify that:

      1. I have reviewed this annual report on Form 10-K of American Axle & Manufacturing Holdings, Inc;

      2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

      3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

      4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

      c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 21, 2003

By: /s/ RICHARD E. DAUCH

Richard E. Dauch

Co-Founder, Chairman of the Board & Chief Executive Officer

(Principal Executive Officer)

I, Robin J. Adams, Executive Vice President — Finance & Chief Financial Officer, certify that:

Date: March 21, 2003

By: /s/ ROBIN J. ADAMS

Robin J. Adams

Executive Vice President — Finance & Chief Financial Officer

(Principal Financial Officer)

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.


			Additions –
	Balance at		Charged to		Deductions –			Balance
	Beginning of		Costs and		See Notes			At End of
	Period		Expenses		Below			Period


	(In millions)
Year Ended December 31, 2000:
Allowance for doubtful accounts	$	11.4		0.8		0.2	(1)	$	12.0
Valuation allowance for deferred taxes		33.4		1.5		6.2	(2)		28.7
Inventory valuation allowance		34.7		6.8		14.2	(3)		27.3
LIFO reserve		7.8		1.3		—			9.1

Year Ended December 31, 2001:
Allowance for doubtful accounts		12.0		5.0		4.3	(1)		12.7
Valuation allowance for deferred taxes		28.7		5.1		2.8	(2)		31.0
Inventory valuation allowance		27.3		8.9		11.7	(3)		24.5
LIFO reserve		9.1		0.2		—			9.3

Year Ended December 31, 2002:
Allowance for doubtful accounts		12.7		5.2		12.5	(1)		5.4
Valuation allowance for deferred taxes		31.0		23.4		12.8	(2)		41.6
Inventory valuation allowance		24.5		6.6		8.9	(3)		22.2
LIFO reserve		9.3		1.3		—			10.6


(1)	Uncollectible accounts charged off net of recoveries.

(2)	Adjustments associated with our assessment of the uncertainty of realizing the full benefit of deferred tax assets (principally related to acquired foreign NOLs and capital allowance carryforwards).

(3)	Inventory adjustments for physical quantity discrepancies and write-offs of excess and obsolete inventories.

For further information regarding our valuation allowances, see Exhibit 13 to this Form 10-K, Annual Report, pages 16-26, section entitled “Financials — Management’s Discussion and Analysis.”

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

American Axle & Manufacturing Holdings, Inc.:

We have audited the consolidated financial statements of American Axle & Manufacturing Holdings, Inc. and its subsidiaries (“AAM”) as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated January 22, 2003, which report includes an explanatory paragraph relating to AAM’s change in method of accounting for goodwill in 2002; such consolidated financial statements and report are included in your 2002 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of AAM, listed in Item 15. This financial statement schedule is the responsibility of AAM’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan

January 22, 2003

(AMERICAN AXLE & MANUFACTURING LOGO)

EX-12 3 k74284exv12.htm EX-12 STATEMENT OF COMPUTATION OF RATIO OF EARNING exv12

EXHIBIT 12 — COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.



	Year Ended December 31,

	2002			2001			2000			1999			1998


	(Unaudited)
	(In millions, except for ratios)
Fixed Charges:
Interest expense, including amortization of debt issuance costs	$	51.0		$	60.2		$	65.7		$	61.7		$	44.8
Estimated interest portion of rents		15.8			16.6			15.0			12.0			4.7
Capitalized interest		8.2			13.2			11.9			8.5			3.8
Preferred stock dividend		—			—			—			—			—
Gross-up of preferred stock dividend as if it were pre-tax		—			—			—			—			—

Total fixed charges as defined		75.0			90.0			92.6			82.2			53.3

Earnings:
Income from continuing operations before income tax expense		273.8			180.9			203.4			183.4			5.6
Total fixed charges as defined		75.0			90.0			92.6			82.2			53.3
Fixed charges not deducted in the determination of income from continuing operations before income tax expense		(8.2	)		(13.2	)		(11.9	)		(8.5	)		(3.8	)

Total earnings as defined	$	340.6		$	257.7		$	284.1		$	257.1		$	55.1

Ratio of earnings to fixed charges		4.54			2.86			3.07			3.13			1.03

29 EX-13 4 k74284exv13.htm EX-13 ANNUAL REPORT TO STOCKHOLDERS exv13

EXHIBIT 13

FINANCIALS

MANAGEMENT’S DISCUSSION AND ANALYSIS

Overview

We are a premier Tier I supplier to the automotive industry and a worldwide leader in the manufacture, engineering, design and validation of driveline systems and related powertrain components and modules for light trucks, sport utility vehicles (“SUVs”) and passenger cars. Driveline systems include components that transfer power from the transmission and deliver it to the drive wheels. Our driveline and related powertrain products include axles, modules, driveshafts, chassis and steering components, driving heads, crankshafts, transmission parts and forged products.

We are the principal supplier of driveline components to General Motors Corporation (“GM”) for its rear-wheel drive (“RWD”) light trucks and SUVs manufactured in North America, supplying substantially all of GM’s rear axle and front four-wheel drive/all-wheel drive (“4WD/ AWD”) axle requirements for these vehicle platforms in 2002. As a result of our Component Supply Agreement (“CSA”) and 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 a LPC. Sales to GM were approximately 86% of our total sales in 2002, 87% in 2001 and 85% in 2000.

We continue to diversify our customer base. In the second half of 2002, we successfully launched driveline system products for the DaimlerChrysler AG (“DaimlerChrysler”) heavy-duty Dodge Ram 4x4 full-size pickup trucks (“Dodge Ram program”). As a result of this program, we expect our sales to DaimlerChrysler to grow to nearly 10% of our total sales in 2003 as compared to approximately 4% in 2002 and less than 1% in 2001 and all previous years.

We also supply driveline systems and other related components to PACCAR Inc., The Volvo Group, Ford Motor Company and other original equipment manufacturers (“OEMs”) and Tier I supplier companies such as Delphi Corporation, Dana Corporation, New Venture Gear, Inc. and The Timken Company. Our sales to customers other than GM increased approximately 23% to $498.5 million in 2002 as compared to $404.6 million in 2001 and $475.4 million in 2000. This significant growth in sales to customers other than GM in 2002 was primarily due to our launch of new driveline system products to support the Dodge Ram program partially offset by a reduction in sales to Visteon Corporation.

Industry and Competition

The worldwide automotive industry is highly competitive. Customers constantly pressure suppliers to optimize and improve technology, quality, product cost, durability, reliability and overall customer service. The driveline systems segment of the industry in which we compete reflects these pressures. A prevailing trend in the industry is that OEMs are shifting research and development (“R&D”), design and validation responsibility to their suppliers. The OEMs have also been reducing the number of their suppliers, preferring stronger relationships with fewer suppliers capable of providing complete systems and modules to their increasingly global operations. As a result, the number of Tier I suppliers is being reduced, and we expect these trends to continue.

We believe we are well positioned to compete in the worldwide automotive industry as these trends further impact our business. We will continue to leverage our excellence in manufacturing, product engineering and design to further diversify, strengthen and globalize our OEM customer base. We will also continue to invest in the development of new product, process and systems technologies to improve productive efficiency and flexibility in our operations and

These charts illustrate the significant improvement in our financial performance in 2002. We have benefited from higher production volumes, continued productivity gains and tight cost controls. We also benefited from significant reductions in capital expenditure requirements. Capital spending decreased to $207.7 million in 2002 from $375.5 million in 2001. This reduction is a key component of the improvement in our cash flow. Additionally, we were able to meet high customer demands due to adequate capacity in place from prior years’ investments in property, plant and equipment.

(1) Net debt is equal to total debt less cash and cash equivalents. Net debt to capital is equal to net debt divided by the sum of stockholders’ equity and net debt.

continue to deliver innovative new products such as chassis modules and integrated driveline systems to our customers.

Our position as a leader in driveline systems and chassis module vehicle integration continues to strengthen. For example, we have recently designed, developed and installed our I-Ride™ driveline chassis suspension module into a demonstration crossover vehicle that converts a front-wheel-drive vehicle to all-wheel-drive. This is a bolt in system requiring minimal vehicle alteration. This driveline system includes our new power transfer unit (“PTU”), which connects the front-wheel-drive transaxle to the rear driveshaft to deliver power to the independent rear axle contained in the chassis module. This new PTU is an important element of our plan to expand our product offerings in the worldwide passenger car and crossover vehicle markets.

Other examples of our high value-added technology products that improve the performance and design flexibility of our customers’ products include our integrated oil pan (“IOP”) front axle module with electronic disconnect, the electronic SmartBar™ stabilizer bar-based active roll-control system and our family of TracRite® differentials. In addition, our investment in noise, vibration and harshness (“NVH”) analysis and testing capabilities provides our customers with improved driveline system performance. These innovations and many other product enhancements derived from our commitments to R&D are having a positive impact on our business.

In 2002, we generated approximately $2.696 billion of our sales, or approximately 78% of our total sales, from new axle and related driveline system components introduced by us since July 1998. This compares to approximately 69% in 2001 and 47% in 2000.

Over the past three years, our content-per-vehicle has increased to $1,140 in 2002 from $1,115 in 2001 and $979 in 2000 primarily as a result of our 2002 launch of new driveline system products supporting the Dodge Ram program and the industry trend toward higher 4WD/AWD penetration. We benefit from increased 4WD/AWD penetration because we are able to sell two axles on a 4WD/AWD vehicle versus one on a traditional light truck or SUV. Our 4WD/AWD penetration has increased over the past three years to 58.5% in 2002 as compared to 54.9% in 2001 and 49.6% in 2000.

Results of Operations

Summary. In 2002, we significantly improved our financial performance as compared to 2001. This improvement was a result of realizing the benefits of higher production volumes, increased capacity utilization, continued productivity gains and tight cost controls.

Our operating income improved approximately 29% to $311.2 million in 2002 as compared to $241.3 million in 2001. At the same time, our capital expenditures decreased nearly $170 million in 2002. In addition, as a result of our cash flow gains principally associated with our improved profitability and reduced capital expenditures, we generated an additional $274.0 million in operating cash flow after capital expenditures and purchase buyouts of leased equipment in 2002 as compared to 2001, and reduced our net debt to capital ratio to 50.7% at year-end 2002 from 61.8% at year-end 2001.

Net sales. Net sales in 2002 were $3.480 billion as compared to $3.107 billion in 2001 and $3.070 billion in 2000. Our increase in 2002 sales of 12% over 2001 compares to an estimated 6% increase in North American (“N.A.”) light vehicle production for the year and a 16% increase in GM light truck

production. Sales were positively impacted in 2002 by our launch of new driveline system products supporting the Dodge Ram program, the launch of the all-new HUMMER H2 and the introduction of the longer wheel-base Chevrolet Trailblazer EXT/GMC Envoy XL. Our sales in 2002 also reflected a reduction in sales to Visteon Corporation, the end of our supply contract related to certain products supporting GM’s full-size van platform and the discontinuance of the Pontiac Firebird/Chevrolet Camaro program.
     Our increase in 2001 sales of 1% over 2000 compares to an estimated 10% reduction in N.A. light vehicle production for the year and a 4% decline in GM light truck production.
     Our content-per-vehicle increased to $1,140 in 2002 from $1,115 in 2001 and $979 in 2000. This represents an improvement of approximately 16% since 2000 and was primarily a result of higher 4WD/AWD penetration in the products we ship to GM and our launch of new driveline system products supporting the Dodge Ram program. These gains in content-per-vehicle in 2002 were partly offset by a product mix shift in GM light truck production to more mid-sized SUVs.
     In 2001, sales gains related to our increased content-per-vehicle were partly offset by reductions in shipments to customers other than GM affected by lower demand for passenger cars and commercial vehicles in North America and Europe.

      Gross profit. Gross profit was $491.7 million in 2002 as compared to $409.7 million in 2001 and $426.2 million in 2000. Gross margin was 14.1% in 2002 as compared to 13.2% in 2001 and 13.9% in 2000. The increases in gross profit and gross margin in 2002 were primarily due to the impact of higher production volumes, productivity gains and tight cost controls including reductions in purchased material costs. Gross profit and gross margin in 2002 were negatively impacted by $19.2 million of increased depreciation and amortization and $9.4 million of losses related to the retirement of fixed assets.
      On July 14, 2002, a fire occurred at our forge operations in Detroit. At year-end 2002, a substantial portion of our insurance claim related to this fire was settled and we recognized a gain of $10.4 million in other income. While the fire did not affect our ability to meet customer demand, additional costs of $4.9 million were incurred in 2002 to maintain continuity of supply to our customers. These costs were offset by insurance recoveries received in 2002 and had no gross margin impact. The details of the accounting related to the fire are explained more fully in the section entitled “Management’s Discussion and Analysis (“MD&A”) — Impact of Insurance Settlement.”

The decreases in gross profit and gross margin in 2001 as compared to 2000 were partly due to lost contribution margin resulting from lower production volumes. In addition, depreciation and amortization expense increased $18.7 million in 2001. This increase in depreciation and amortization, which principally reflected the cost of investments we have made to support our long-term production requirements, negatively impacted gross profit and gross margin in 2001.

Gross profit and gross margin were also negatively impacted in 2001 by an $11.7 million fourth quarter charge related to the consolidation of our operations located in the United Kingdom. This charge included costs to cancel contracts for services no longer needed, a write-off of fixed assets made permanently idle as a result of a facility shutdown and a severance and other obligations accrual payable to approximately 350 associates pursuant to FASB Statement No. 112, “Employers’ Accounting for Postemployment Benefits.” Excluding the impact of this $11.7 million charge, gross profit would have been $421.4 million and gross margin would have been 13.6% in 2001.

At year-end 2002, the consolidation of our operations in the United Kingdom was fully implemented.

Selling, General and Administrative Expenses (“SG&A”). SG&A (including R&D) amounted to $180.5 million in 2002 as compared to $164.4 million in 2001 and $162.6 million in 2000. SG&A as a percentage of net sales was 5.2% for 2002 and 5.3% for both 2001 and 2000. We have successfully controlled our SG&A as we have increased our revenue and profitability.

The increase in SG&A for 2002 was primarily due to higher R&D spending, and increased profit sharing accruals which resulted from our increased profitability and the impact of a gain related to a fire at our forge operations in Detroit. The details of the accounting related to the fire are explained more fully in the section entitled “MD&A — Impact of Insurance Settlement.”

The increase in spending related to SG&A in 2001 as compared to 2000 was primarily due to increased R&D. However, this increase in R&D was partly offset by cost reductions in other areas, including the impact of lower profit-sharing accruals in 2001.

R&D spending was $54.0 million in 2002 as compared to $51.7 in 2001 and $46.4 million in 2000. Our increased R&D spending is focused on emerging driveline system technology trends in support of our worldwide customers. There are several critical areas of R&D focus that reflect our strong belief in advancing our core technologies to meet the needs of our

customers in the future. These include new 4WD/AWD systems incorporating PTUs and advanced driveshafts designed specifically for the rapidly growing crossover vehicle segment; I-Ride™ independent chassis modules as well as the electronic SmartBar™ stabilizer bar-based active roll-control system designed to improve vehicle ride, handling and NVH characteristics; new TracRite® family of advanced, controlled, traction enhancing differentials introduced into production as part of the Dodge Ram program; electronically controlled differentials for full vehicle integration; PowerLite™ axles; and an increased R&D focus on net-shaped forging design and process technology targeted specifically at mass reduction and system efficiency resulting in improved fuel economy. Another area of R&D focus is drivetrain systems for hybrid vehicles. Together with a consortium of companies, including the Ford Motor Company, we developed and installed a drivetrain system in a hybrid electric bus in 2002.

     Operating income. Operating income was $311.2 million in 2002 as compared to $241.3 million in 2001 and $259.4 million in 2000. Operating margin was 8.9% in 2002, 7.8% in 2001 and 8.5% in 2000. The increases in operating income and operating margin in 2002 were primarily due to the factors previously discussed relating to the increases in gross profit and gross margin, partly offset by higher SG&A.
     Operating income in 2002 was also favorably impacted by our adoption of FASB Statement No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. Under FASB Statement No. 142, we no longer amortize goodwill. Instead, we periodically evaluate goodwill and any other acquired intangible assets for impairment. The impact of no longer amortizing goodwill resulted in a $4.0 million increase in operating income in 2002.
      The decreases in operating income and operating margin in 2001 were primarily due to the factors previously discussed relating to the decreases in gross profit and gross margin and the increase in SG&A.

      Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization (“EBITDA”). EBITDA was $470.6 million in 2002 as compared to $367.8 million in 2001 and $377.0 million in 2000. EBITDA margin was 13.5% in 2002, 11.8% in 2001 and 12.3% in 2000. The increases in EBITDA and EBITDA margin in 2002 were primarily due to the factors previously discussed relating to the increases in gross profit and gross margin, partly offset by higher SG&A.
     In 2002, EBITDA and EBITDA margin were also positively impacted by an insurance settlement related to a fire at our forge operations in Detroit. Excluding the impact of this gain, EBITDA and EBITDA margin would have been $462.1 million and 13.3%, respectively. The details of the accounting related to the fire are explained more fully in the section entitled “MD&A — Impact of Insurance Settlement.”
     The decreases in EBITDA and EBITDA margin in 2001 were primarily due to the factors previously discussed relating to the decreases in gross profit and gross margin and the increase in SG&A.

EBITDA

The following table summarizes the calculation of EBITDA in 2002, 2001 and 2000:



	Year Ended December 31,

	2002		2001		2000


	(In millions)
Net income	$	176.1	$	114.9	$	129.2
Interest expense		51.0		60.3		65.7
Income taxes		97.7		66.0		74.2
Depreciation and amortization		145.8		126.6		107.9

EBITDA(1)	$	470.6	$	367.8	$	377.0

(1) We believe that EBITDA is a meaningful measure of performance as it is commonly utilized in our industry to analyze operating performance, liquidity and entity valuation. EBITDA should not be construed as income from operations, net income or cash flow from operating activities as determined by accounting principles generally accepted in the United States of America. Other companies may calculate EBITDA differently.

Net Interest Expense. Net interest expense was $50.6 million in 2002, $59.4 million in 2001 and $58.8 million in 2000. We have reduced our borrowings in 2002 as a result of our increased operating cash flow and lower capital spending. Net interest expense was also favorably impacted by lower average interest rates in effect during 2002. The increase in net interest expense in 2001 was due primarily to a higher average amount of net debt outstanding, partially offset by lower average interest rates in effect during 2001.

Other Income (Expense). In 2002, we recognized a gain of $10.4 million due to an insurance settlement related to a fire at our forge operations in Detroit. The details of the accounting related to the fire are explained more fully in the section entitled “MD&A — Impact of Insurance Settlement.”

We also recognized $2.8 million of other income in 2002, $1.0 million of other expense in 2001 and $2.8 million of other income in 2000 related principally to foreign exchange gains and losses.

Income Tax Expense. Income tax expense was $97.7 million in 2002, $66.0 million in 2001 and $74.2 million in 2000. Our effective tax rate was 35.7% in 2002 and 36.5% in both 2001 and 2000. The decrease in our effective tax rate in 2002 was primarily due to lower effective tax rates in our foreign operations and the elimination of goodwill amortization for book accounting purposes as a result of our adoption of FASB Statement No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. These decreases were partially offset by an increase in our state and local taxes and a reduction of the tax benefit related to our domestic exporting activities.

Net Income and Earnings Per Share. Net income was $176.1 million in 2002 as compared to $114.9 million in 2001 and $129.2 million in 2000. Diluted earnings per share were $3.38 per share in 2002 as compared to $2.36 per share in 2001 and $2.60 per share in 2000.

In 2002, net income was positively impacted by a $5.5 million gain, net of tax and other related costs, due to an insurance settlement related to a fire at our forge operations in Detroit. Excluding the impact of this gain, net income in 2002 would have been $170.6 million. The details of the accounting related to the fire are explained more fully in the section entitled “MD&A — Impact of Insurance Settlement.”

Liquidity and Capital Resources

Our primary liquidity needs are to fund capital expenditures and debt service and support working capital requirements in our business. We rely principally upon operating cash flow and borrowings under our primary bank credit facilities to meet these needs. We believe that cash flow available from these sources will be sufficient to meet our projected capital expenditures, debt service obligations and working capital requirements in the foreseeable future.

Operating Activities. Net cash provided by operating activities was $384.2 million in 2002 as compared to $232.8 million in 2001 and $252.2 million in 2000. Our improved operating performance in 2002 was a primary reason for the significant increase in our cash flow of $151.4 million in 2002 as compared to 2001. After adjusting our earnings for the non-cash impact of depreciation and amortization, deferred income taxes, pensions and other postretirement benefits, our operations generated $101.9 million of additional operating cash flow in 2002 as compared to 2001.
An increase in accelerated tax depreciation, in addition to the cash benefit associated with the exercise of stock options and the impact of other tax planning strategies, resulted in $18.5 million of additional operating cash flow in 2002 as compared to 2001. The increase in accelerated tax depreciation is principally related to the significant amount of new machinery and equipment we placed in service in connection with new product programs launched in 2002 and 2001. We expect to continue to generate operating cash flow from increased deferred tax liabilities in the foreseeable future.

Our deferred tax asset valuation allowances were $41.6 million at year-end 2002, $31.0 million at year-end 2001 and $28.7 million at year-end 2000. The increase in our deferred tax asset valuation allowances over this three year period was principally related to foreign net operating losses and capital allowance carryforwards, including allowances set up in our initial purchase accounting for the acquisition of Albion Automotive (Holdings) Limited (“Albion”) in 1998. Although these carryforwards do not expire, we considered Albion’s prior operating results and future plans, as well as the utilization period of other temporary differences, in determining the amount of our valuation allowances.

With respect to our defined benefit pension plans, we funded $47.1 million of our pension benefit obligations in 2002 as compared to $35.6 million in 2001 and $27.8 million in 2000. This funding compares to our annual pension expense of $25.6 million in 2002, $19.7 million in 2001 and $20.5 million in 2000. We currently expect our pension funding in 2003 to approximate our 2003 pension expense in the range of $30 million to $35 million.

Changes in our net investment in working capital and other operating assets and liabilities resulted in $55.7 million of additional cash flow in 2002 as compared to an outflow of $28.4 million in 2001. One of the most significant factors supporting this trend was the impact of our final change in payment terms with GM on March 1, 2001. This change in payment terms adversely impacted our operating cash flow in the first quarter of 2001 by approximately $90 million. This final change in payment terms with GM was effective for products shipped to GM beginning on March 1, 2001 and completed a three-year transition from the next-day payment terms in effect prior to March 1, 1999. Similar changes in payment

terms with GM adversely impacted operating cash flow in the first quarter of 2000 by approximately $80 million.

Accounts receivable at year-end 2002 increased $65.0 million to $335.7 million as compared to $270.7 at year-end 2001 and $247.3 at year-end 2000. This increase was primarily due to increased sales in the fourth quarter of 2002 as compared to the fourth quarter of 2001, including the impact of our shipments related to the Dodge Ram program. Sales in the fourth quarter of 2002 increased $119.4 million to $911.0 million as compared to $791.6 million in 2001 and $738.4 million in 2000. The increase in accounts receivable at year-end 2001 as compared to year-end 2000 was also principally related to increased sales activity in the fourth quarter of 2001 as compared to the fourth quarter of 2000. In addition, operating cash flow was favorably impacted in 2001 as compared to 2000 by increased accounts receivable collections related to customer tooling.

Our accounts receivable allowances were $5.4 million at year-end 2002, $12.7 million at year-end 2001 and $12.0 million at year-end 2000. Our accounts receivable allowances were reduced in 2002 to recognize the settlement of several non-routine pricing adjustments and cost recoveries with our customers during the year that were specifically reserved at year-end 2001.

Inventories increased at year-end 2002 to support our increased sales activity in the second half of 2002. At year-end 2002, inventories were $174.6 million as compared to $158.0 million at year-end 2001 and $160.4 million at year-end 2000. Our launch of new driveline system products related to the Dodge Ram program required a new working capital investment in direct and indirect inventories in the second half of 2002. Spare parts inventories increased in 2002 as we continue to source our initial stocks of related maintenance material for new machinery and equipment required to support new product programs. Our inventory valuation allowances were $22.2 million at year-end 2002, $24.5 million at year-end 2001 and $27.3 million at year-end 2000. The reduction in our inventory valuation allowances since 2000 was primarily due to the usage and disposal of excess indirect inventory.

Operating cash flow in 2002 as compared to 2001 also benefited from an increase in accounts payable and accrued expenses. The most significant factor underlying this trend was favorable changes in supplier payment terms. Another factor that favorably impacted our operating cash flow in 2002 was the significant reduction in the rate of our capital spending in the second half of 2001 that continued into 2002. Our accrued expenses at year-end 2002 as compared to year-end 2001 increased primarily due to higher profit sharing accruals.

Our accruals at year-end 2001 included $9.7 million for the unpaid severance and other benefit obligations related to the consolidation of our operations located in the United Kingdom. At year-end 2002, the consolidation of our operations in the United Kingdom was fully implemented.

Prepaid expenses and other assets increased $20.0 million at year-end 2002 as compared to year-end 2001 primarily due to the confirmation of state policy to refund certain state tax credits within one year. At year-end 2001, we classified such state tax credits as noncurrent assets because payment was not expected within one year.

As compared to 2002 and 2001, operating cash flow in 2000 was adversely impacted by increased working capital requirements due to the start-up of production in our new Silao, Mexico (“Guanajuato Gear & Axle”) and Cheektowaga, New York manufacturing facilities. Operating cash flow in 2000 was also negatively impacted by the one-time lump-sum payments we made to associates in connection with several new long-term collective bargaining agreements we negotiated with our unions.

Investing Activities. Capital expenditures were $207.7 million in 2002, $375.5 million in 2001 and $381.0 million in 2000. Although we continue to make strategic investments to support new manufacturing processes, systems and technologies, and improve product designs and achieve operating cost reductions, we have been able to reduce our capital spending because we have substantially completed the process of rebuilding our facilities to support our long-term production requirements. We expect our capital expenditures in 2003 to normalize at a level between $225 million and $250 million.
Our largest capital projects in 2002, 2001 and 2000 included the construction and subsequent expansion of our Guanajuato Gear & Axle manufacturing facility, which started operations in 2000, including its subsequent expansion to add a forging facility and sequencing center in 2002. Our capital expenditures in this three-year period also included our investment to support several new long-term product programs including GM’s heavy-duty pickup trucks and full-size luxury SUVs (the GMC Yukon Denali and the Cadillac Escalade), GM’s new mid-sized SUVs (GMC Envoy, Chevrolet Trailblazer and the extended versions of each model), the HUMMER H2 and the Dodge Ram program.

Our largest capital projects in 2003 will include additional expenditures to support the model year 2004 launch of the all-new GM mid-sized pickup trucks (Chevrolet Colorado and GMC Canyon), construction of our new world headquarters in Detroit, Michigan and the expansion of our Technical Center in Rochester Hills, Michigan. In 2003, we will also make our initial investments for equipment to support the launch of an all-new 2005 model year SUV, continue to support new production programs and facility expansion projects at AAM do Brasil and increase capacity and productivity programs in Detroit and Guanajuato Gear & Axle in support of both GM and DaimlerChrysler.

Return on Invested Capital (“ROIC”)



	Year Ended December 31,

	2002			2001			2000


	(In millions)
Net income	$	176.1		$	114.9		$	129.2
After-tax net interest expense		32.5			37.7			37.3

After-tax return		208.6			152.6			166.5
Net debt(1) at year-end		724.7			865.9			781.9
Stockholders’ equity at year-end		703.6			534.7			372.0

Invested capital at year-end		1,428.3			1,400.6			1,153.9
Invested capital at beginning of year		1,400.6			1,153.9			898.4
Average invested capital		1,414.5			1,277.3			1,026.2

ROIC(2)		14.7	%		11.9	%		16.2	%


(1)	Net debt is equal to total debt less cash and cash equivalents.

(2)	We believe that ROIC is a meaningful overall measure of business performance because it reflects our earnings based on our investment level. Other companies may calculate ROIC differently.

In 2002, our investing activities included $45.2 million of optional purchase buyouts of leased manufacturing equipment. The manufacturing equipment purchased in these transactions was originally financed under sale-leaseback agreements in 1996 and 1997.

Although we have invested a significant amount of capital to support our long-term production requirements over the past few years, we believe these investments support our goal of improving our long-term financial performance. Our ROIC was 14.7% in 2002, 11.9% in 2001 and 16.2% in 2000. We believe our ROIC performance is at the top end of the range for our industry.

Our ROIC in 2002 improved as compared to 2001 primarily due to our increased operating profitability and net income. In 2002, ROIC was also positively impacted by a $5.5 million gain, net of tax and other related costs, due to an insurance settlement related to a fire at our forge operations in Detroit. Excluding the impact of this gain, ROIC in 2002 would have been 14.4%. The details of the accounting related to the fire are explained more fully in the section entitled “MD&A — Impact of Insurance Settlement.”

Our ROIC was lower in 2001 as compared to 2000 due to an increase in our working capital requirements primarily attributable to the March 2001 change in GM payment terms, an increase in the fixed capital we had in place in advance of 2002 product program launches and the impact of the estimated 10% reduction in N.A. light vehicle production in 2001 as compared to 2000.

Financing Activities. Net cash used in financing activities was $133.2 million in 2002 as compared to a net source of cash of $120.2 million in 2001 and a net source of cash of $24.1 million in 2000. Total long-term debt outstanding decreased in 2002 by $144.1 million to $734.1 million at year-end 2002 as compared to $878.2 million at year-end 2001. Improved operating cash flow performance and a lower level of capital spending were the primary reasons for our lower net borrowings at year-end 2002 as compared to year-end 2001.

Total long-term debt increased $61.1 million to $878.2 million at year-end 2001 as compared to $817.1 million as of year-end 2000, principally as a result of increasing our net borrowings under our primary bank credit facilities to fund capital spending requirements.

In March 2002, we priced a secondary offering of 8.0 million shares of common stock owned by Blackstone Capital Partners II Merchant Banking Fund L.P. and certain of its affiliates (collectively, “Blackstone”) and 1.5 million shares of common stock owned by Richard E. Dauch, AAM’s Co-Founder, Chairman of the Board & Chief Executive Officer. We did not sell any shares and did not receive any of the proceeds from the sale of shares by the selling stockholders in this offering. Additionally, in August 2001, we raised $57.7 million in a public offering of 7.5 million shares of our common stock through which we issued 3.0 million treasury shares and Blackstone sold 4.5 million shares. We used the proceeds from the sale of our shares in 2001 to repay a portion of our outstanding debt.

Prior to these offerings, Blackstone’s beneficial ownership of our common stock was approximately 55%. After the offerings, Blackstone’s beneficial ownership of our common stock was approximately 27%.

Prior to the March 2002 offering, Mr. Dauch’s beneficial ownership of our common stock was approximately 17%. After such offering, Mr. Dauch beneficially owned approximately 14% of our common stock and remains the largest holder of our common stock other than Blackstone.

Consistent with our Registration Statement disclosures related to these offerings, we have assumed the exercise of deep-in-the-money options to purchase common shares that were granted prior to our initial public offering and that were exercisable at the time of the offerings in the determination of the beneficial ownership percentages for Blackstone and Mr. Dauch disclosed in the preceding paragraphs. Approximately 4.1 million and 4.0 million shares of common stock related to such options were assumed to be outstanding in the beneficial ownership calculations in March 2002 and August 2001, respectively.

In December 2000, Mr. Dauch agreed to extend his employment relationship with us by two years until December 31, 2006. In connection with this extension, we repurchased approximately 3.1 million shares of common stock from Mr. Dauch, at current market prices, at a total cost of approximately $21.3 million. No compensation expense was recognized in connection with the repurchase as Mr. Dauch held the shares for more than one year. Mr. Dauch used the proceeds from the sale to pay off a personal loan, which was neither extended nor guaranteed by AAM, incurred to pay taxes in connection with an earlier investment in our company. We agreed to repurchase these shares because of the favorable economic impact of this transaction and in consideration of the extension of Mr. Dauch’s employment agreement.

Debt Capitalization and Availability. Our primary bank credit facilities consist of our Senior Secured Bank Credit Facilities (the “Bank Credit Facilities”), which are described in further detail below, and our receivables financing facility (the “Receivables Facility”), which provides up to $153.0 million of revolving financing commitments through October 2003. Borrowings under the Bank Credit Facilities are secured by the capital stock of our significant subsidiaries and substantially all of our assets except for those securing the Receivables Facility and other permitted bank, equipment and lease financings. Other significant sources of debt capitalization include our 9.75% Senior Subordinated Notes due March 2009 (“9.75% Notes”), capital lease obligations, an uncommitted bank credit line and local currency credit facilities.

The Bank Credit Facilities, which were last amended in May 2002, consist of the following:

• Senior Secured Revolving Credit Facility (the “Revolver”) providing for revolving loans and the issuance of letters of credit in an aggregate principal and stated amount not to exceed $378.8 million available through October 2004; and

• Senior Secured Term Loan Facility (the “Term Loan”) providing for term loans in an aggregate principal amount of $372.0 million. We will make semi-annual principal payments in varying amounts on the Term Loan through April 2006, at which time the remaining balance of $175.0 million will be due.

With respect to the Bank Credit Facilities, $372.0 million was outstanding under the Term Loan at year-end 2002. In addition, we had additional borrowing capacity of $378.8 million under the Bank Credit Facilities, all of which was available under the Revolver. Additionally at year-end 2002, $123.0 million was available to us under the Receivables Facility.

Our debt covenants associated with the Bank Credit Facilities include a provision that requires us to accelerate repayment of outstanding borrowings if we generate cash flow in excess of an amount determined by a formula defined in the related credit agreement. Our cash flow performance in 2002 will trigger such a required prepayment of approximately $23.0 million in the first quarter of 2003. Although this prepayment covers our scheduled maturities on the Bank Credit Facilities through year-end 2004, we currently expect our projected cash flow performance in 2003 to result in another required prepayment of outstanding credit facility borrowings in the first quarter of 2004.

In 2001, we secured the use of an uncommitted bank credit line that currently provides us with $24.0 million of additional borrowing capacity. At year-end 2002, $7.0 million was outstanding under such Money Market Line.

The weighted average interest rate of our long-term debt outstanding was 5.8%, 7.2% and 8.9% during 2002, 2001 and 2000, respectively.

Off-Balance Sheet Financing. Our off-balance sheet financing relates principally to operating leases for certain facilities and manufacturing machinery and equipment. These operating leases are fully disclosed in Note 2 to our consolidated financial statements. Pursuant to these operating leases, most of which were initiated prior to year-end 1999, we have the opportunity to purchase underlying machinery and equipment at specified buy-out dates. We exercised our purchase options for $45.2 million of such lease buy-outs in 2002. Remaining lease renewal or repurchase options are approximately $3 million in 2003 and $106 million in 2006.

Credit Ratings Upgrades. In March 2002, Moody’s Investors Service (“Moody’s”) upgraded their rating on our 9.75% Notes to Ba3 from B1. Moody’s also improved their ratings outlook to positive, from stable, and confirmed their Ba2 rating on our senior secured debt.

In March 2002, Standard & Poor’s (“S&P”) revised their ratings outlook to positive, from stable, and affirmed their BB corporate credit rating on our senior secured debt.

In October 2002, S&P raised their corporate credit rating and senior secured debt rating from BB to BB+. S&P also raised their corporate credit rating on our subordinated debt from B+ to BB-.

In December 2002, Moody’s raised their senior secured debt rating from Ba2 to Ba1. Moody’s also raised their rating on our 9.75% Notes to Ba2 from Ba3.

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 cost. We do not hold financial instruments for trading or speculative purposes.

Currency Exchange Risk. Because most of our business is denominated in U.S.

Contractual Obligations(1)

Following is a table summarizing our payments due on our contractual obligations:


	Long-term
	debt and						Total
	capital lease		Operating		Purchase		contractual
	obligations		leases		commitments		obligations


	(In millions)
2003	$	67.0	$	34.5	$	93.2	$	194.7
2004		0.3		26.5		—		26.8
2005		174.1		28.2		—		202.3
2006		191.1		29.0		—		220.1
2007		0.1		28.9		—		29.0
Thereafter		301.5		68.4		—		369.9

	$	734.1	$	215.5	$	93.2	$	1,042.8


(1)	This table excludes the options to purchase equipment under operating leases at the end of the contractual lease terms and includes the estimated required prepayment in 2003 under the Bank Credit Facilities.

dollars, we do not currently have significant exposures relating to currency exchange risks. We had only a nominal amount of currency hedges in effect during 2002 and, at year-end 2002, we did not have any currency hedges in place. Future business operations and opportunities, including the expansion of our business outside North America, may expose us to the risk that cash flows resulting from these activities may be adversely affected by changes in currency exchange rates. If and when appropriate, we intend to manage these risks by utilizing local currency funding of these expansions and various types of foreign exchange hedging contracts.

Interest Rate Risk. We are exposed to variable interest rates on our Bank Credit Facilities, the Receivables Facility and a portion of our sale-leaseback financing. The pre-tax earnings and cash flow impact of a one-percentage-point increase in interest rates (approximately 16.5% of our weighted average interest rate at December 31, 2002) on our long-term debt outstanding at year-end 2002 would be approximately $3.9 million.

At year-end 2002, we have hedged a portion of our interest rate risk by entering into interest rate swaps with a notional amount of approximately $37.1 million. These interest rate swaps convert variable financing based on 3-month LIBOR rates into fixed U.S. dollar rates varying from 6.88% to 6.96%. We have designated the interest rate swaps as effective cash flow hedges of the related debt and lease obligations and, accordingly, we have reflected the net cost of such agreements as an adjustment to interest expense over the lives of the debt and lease agreements.

Impact of Insurance Settlement

On July 14, 2002, a fire occurred at our forge operations in Detroit. There were no resulting injuries and the fire did not affect our ability to meet customer demand. Our insurance policies provide coverage for damage for property destroyed and incremental costs incurred to maintain continuity of supply.

• Damage for property destroyed — A portion of the building and several machines were damaged. At year-end 2002, a substantial portion of our insurance claim was settled and we recognized a gain in the fourth quarter of $10.4 million in other income. This gain consists of expected proceeds from the insurance company related to our overall property damage claim of $11.0 million offset by $0.1 million net book value of the damaged building and equipment, and a $0.5 million insurance deductible related to property damage expensed in the third quarter. Additionally, we recognized $1.9 million ($0.9 million in cost of goods sold and $1.0 million in SG&A) of incremental profit sharing expense in 2002 as a result of this gain. The net pre-tax gain at year-end 2002 was $8.5 million and the net after-tax gain amounted to $5.5 million.

• Incremental costs — While the fire did not affect our ability to meet customer demand, additional costs of $4.9 million were incurred in 2002 to maintain continuity of supply to our customers. These costs were offset by insurance recoveries received in 2002 and had no impact on our results of operations. However, our gross profit was impacted by a $0.5 million insurance deductible related to incremental costs in the third quarter of 2002.

At December 31, 2002, we had $9.0 million of accounts receivable related to this insurance settlement. Final settlement of this claim is expected to occur in 2003.

Cyclicality and Seasonality

Our operations are cyclical because they are directly related to worldwide automotive production, which is itself cyclical and dependent on general economic conditions and other factors. Our business is also moderately seasonal as our major OEM customers historically have a two-week shutdown of operations in July and an approximate one-week shutdown in December. In addition, our OEM customers have historically incurred lower production rates in the third quarter as model changes enter production. Accordingly, our third quarter and fourth quarter results may reflect these trends.

Effects of Inflation

Inflation generally affects us by increasing the cost of labor, equipment, utilities and raw materials. Because rates of inflation in countries where we have significant operations have been moderate during the periods presented and because we have mitigated the impact of inflation through productivity gains and tight cost controls, we believe that inflation has not had a significant impact on our operations. In order to protect against the future impact of inflation, we will continue to aggressively pursue productivity improvements in our operations, principally through the increased use of the AAM Manufacturing System, a lean manufacturing system designed to reduce waste. We also plan to continue to emphasize favorable supply agreements in our direct material purchasing function, including joint efforts with key suppliers to identify and share in cost reductions, the use of long-term supply agreements when appropriate and the further development of our e-commerce initiatives.

Litigation and Environmental Regulations

We are involved in various legal proceedings incidental to our business. Although the outcome of these matters cannot be predicted with certainty, we do not believe that any of these matters, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flow.

GM has agreed to indemnify and hold us harmless from certain environmental issues identified as potential areas of environmental concern at March 1, 1994. GM has also agreed to indemnify us, under certain circumstances, for up to 10 years from such date with respect to certain pre-closing environmental conditions. Based on our assessment of costs associated with our environmental responsibilities, including recurring administrative costs, capital 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

We adopted FASB Statement No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. Under the transitional provisions of FASB Statement No. 142, we completed our initial goodwill impairment test in the second quarter of 2002 and a second goodwill impairment test as of

December 31, 2002. No impairment was indicated as a result of either of these goodwill impairment tests.

Effective January 1, 2002, we adopted FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” FASB Statement No. 144 supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” as well as certain provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The main objective of FASB Statement No. 144 is to further clarify certain provisions of FASB Statement No. 121 relating to the impairment of long-lived assets. FASB Statement No. 144 also includes more stringent requirements for classifying assets available for disposal and expands the scope of activities that will require discontinued operations reporting. The adoption of FASB Statement No. 144 did not have any impact on our results of operations or financial position in 2002.

In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” FASB Statement No. 146 supersedes Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” The main objective of FASB Statement No. 146 is to clarify the requirements for recognition of a liability for costs associated with an exit or disposal activity. FASB Statement No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. FASB Statement No. 146 is effective for exit or disposal activities initiated after December 31, 2002.

In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123.” The main objective of FASB Statement No. 148 is to provide alternative methods of transition for a voluntary change to fair value-based method of accounting for stock-based employee compensation. FASB Statement No. 148 also amends the disclosure requirements of FASB Statement No. 123 to require prominent disclosures in both annual and interim financial statements with respect to the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We apply the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for stock-based employee compensation and, therefore, FASB Statement No. 148 did not have any impact on our results of operations or financial position in 2002. However, we have modified our consolidated financial statement disclosures as required by this Statement at year-end 2002.

Critical Accounting Policies

Our critical accounting policies are more fully described in Note 1 to our consolidated financial statements. In order to prepare consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts and disclosures in our consolidated financial statements. By their nature, these estimates are subject to an inherent degree of uncertainty and actual results could differ from our estimates.

Our critical accounting policies include:

Accounts receivable allowances. The scope of our relationships with certain customers, such as GM and DaimlerChrysler, is inherently complex and, from time to time, we identify differences in our valuation of receivables due from these customers. Differences in the quantity of parts processed as received by customers and the quantity of parts shipped by AAM is one major type of such difference. Other differences arise in the application of commercial agreements addressing the valuation of nonroutine pricing adjustments or cost recoveries related to such items as significant variations in production volumes, engineering changes and the impact of foreign exchange and metal market price movements. By their nature, some of the commercial issues require bilateral discussion or negotiation to resolve. It is not unusual for some of these differences to be outstanding for several months before both parties agree on the valuation of an item and settle the receivable.

From a financial reporting perspective, we track the aging of uncollected billings and adjust our allowance on a quarterly basis as necessary based on our evaluation of the probability of collection. If we are uncertain as to whether we will be successful collecting a balance we determine in accordance with our understanding of a commercial agreement, we do not recognize the revenue or cost recovery until such time that the uncertainty is removed.

While we believe that we have made an appropriate valuation of our accounts receivable due from GM, DaimlerChrysler and other customers for accounting purposes, unforeseen changes in our ability to enforce commercial agreements or collect aged receivables may result in actual collections that differ materially from current estimates.

Valuation of indirect inventories. As part of our strategy to control our investment in working capital and manage the risk of excess and obsolete inventory, we generally do not maintain large balances of productive raw materials, work-in-process or finished goods inventories. Instead, we utilize lean manufacturing techniques and coordinate our daily production activities to meet our daily customer delivery requirements. The ability to address plant maintenance issues on a real-time basis is a critical element of our ability to pursue such an operational strategy. Our machinery and equipment may run for long periods of time without disruption and suddenly fail to operate as intended. In addition, certain repair parts required to address such maintenance requirements may be difficult or cost prohibitive to source on a real-time basis.

To facilitate our continuous preventive maintenance strategies and to protect against costly disruptions in operations due to machine downtime, we carry a significant investment in inherently slow-moving machine repair parts and other maintenance materials and supplies. At December 31, 2002, such indirect inventories comprise approximately 28% of our total gross inventories. For inventory valuation purposes, we evaluate our usage of such slow-moving inventory on a quarterly basis by part number and adjust our inventory valuation allowances as necessary to recognize as an asset only those quantities that we can reasonably estimate will be used. We have used the same approach in 2002 and 2001 to evaluate the adequacy of our indirect inventory valuation allowances.

While we believe that we have made an appropriate valuation of such inventory for accounting purposes, unforeseen changes in inventory usage requirements, manufacturing processes, maintenance and repair techniques or inventory control may result in actual usage of such inventories that differ materially from current estimates.

Estimated useful lives for depreciation. At December 31, 2002, over 80% of our capitalized investment in property, plant and equipment, or approximately $1.7 billion, was related to productive machinery and equipment used in support of our manufacturing operations. The selection of appropriate useful life estimates for such machinery and equipment is a critical element of our ability to properly match the cost of such assets with the operating profits and cash flow generated by their use. We currently depreciate productive machinery and equipment on the straight-line method using composite useful life estimates up to 15 years. While we believe that the useful life estimates currently being used for depreciation purposes reasonably approximate the period of time we will use such assets in operations, unforeseen changes in product design and technology standards or cost, quality and delivery requirements may result in actual useful lives that differ materially from the current estimates.

Valuation of deferred tax assets. Because we operate in many different geographic locations, including several foreign, state and local tax jurisdictions, the nature of our tax provisions and the evaluation of our ability to use all recognized deferred tax assets are inherently complex. In assessing our ability to realize such deferred tax assets, we review the scheduled reversal of deferred tax liabilities, the projections of taxable income in future periods and the effectiveness of various tax planning strategies in making our assessment. Our consideration of these matters requires significant management judgment in determining our deferred tax asset valuation allowances. While we believe that we have made appropriate valuations of our deferred tax assets, unforeseen changes in tax legislation, regulatory activities, audit results, operating results, financing strategies, organization structure and other related matters may result in material changes in our deferred tax asset valuation allowances.

Pension and other postretirement benefits. In calculating our liabilities and expenses related to our pension and other postretirement benefits, the key assumptions include the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation and healthcare costs.

The discount rate we utilized for determining future pension obligations was based on a review of long-term bonds, including published indices. The discount rate determined on that basis decreased 75 basis points to 6.75% in 2002. The expected long-term rate of return on plan assets was 9.00% in 2002. We developed this rate of return based on our review of the long-term historical rates of return for the asset classes on which our current asset allocation strategy is based. The rates of increase in compensation and healthcare costs are based on current market conditions and historical information.

All of the above assumptions were developed through consultation with, and input from, our actuaries. While we believe that we have selected reasonable assumptions for the valuation of our pension and other postretirement benefits obligations at year-end 2002, actual trends affecting the underlying assumptions could result in materially different valuations.

Forward-Looking Information

Certain statements in this MD&A and elsewhere in this Annual 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 “will,” “expect,” “anticipate,” “intend,” “project” and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this Annual Report. The statements are based on our 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, but not limited to:

• adverse changes in the economic conditions or political stability of our principal markets (particularly North America, Europe and South America);

• reduced demand for our customers’ products, particularly light trucks and SUVs produced by GM and DaimlerChrysler’s Dodge Ram program;

• reduced purchases of our products by GM, DaimlerChrysler or other customers;

• our ability and our customers’ ability to successfully launch new product programs;

• our ability to respond to changes in technology or increased competition;

• supply shortages or price fluctuations in raw materials, utilities or other operating supplies;

• our ability to attract and retain key associates;

• our ability to maintain satisfactory labor relations and avoid work stoppages;

• our customers’ ability to maintain satisfactory labor relations and avoid work stoppages;

• risks of noncompliance with environmental regulations;

• liabilities arising from legal proceedings to which we are or may become a party or claims against us or our products;

• availability of financing for working capital, capital expenditures, R&D or other general corporate purposes;

• adverse changes in laws, government regulations or market conditions affecting our products or our customers’ products (including the Corporate Average Fuel Economy regulations); and

• other unanticipated events and conditions that hinder our ability to compete.

MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS

We are responsible for the preparation of the accompanying consolidated financial statements of American Axle & Manufacturing Holdings, Inc. (“AAM”), as well as their integrity and objectivity. These financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and include our best estimates and judgments.

We are also responsible for maintaining a comprehensive system of internal controls and establishing and maintaining disclosure controls and procedures. Our system of internal controls is designed to provide reasonable assurance that we can rely upon our accounting systems and the underlying books and records to prepare financial information presented in accordance with accounting principles generally accepted in the United States of America and that our associates follow established policies and procedures. Our disclosure controls and procedures are designed to timely alert our Chief Executive Officer and Chief Financial Officer to material information required to be included in our periodic Exchange Act filings. We continually review our system of internal controls and disclosure controls and procedures for effectiveness. We consider the recommendations of our internal auditors and independent auditors concerning internal controls and disclosure controls and procedures and take the necessary actions that are cost-effective in the circumstances.

The Audit Committee of our Board of Directors is comprised entirely of independent directors who are not AAM associates and is responsible for assuring that we fulfilled our responsibilities in the preparation of the accompanying consolidated financial statements. The Audit Committee meets regularly with our internal auditors, the independent auditors and AAM management to review their activities and ensure that each is properly discharging its responsibilities and assesses the effectiveness of our internal controls and disclosure controls and procedures. The Audit Committee is responsible for hiring the independent auditors and reviewing the scope of all audits and the accounting principles applied in our financial reporting. Deloitte & Touche LLP has been engaged as independent auditors to audit the accompanying consolidated financial statements and issue their report thereon, which appears on this page.

To ensure complete independence, our internal auditors and Deloitte & Touche LLP have full and free access to meet with the Audit Committee, without AAM management present, to discuss the results of their audits, the quality of our financial reporting and the adequacy of our internal controls and disclosure controls and procedures.


/s/ RICHARD E. DAUCH		/s/ ROBIN J. ADAMS

RICHARD E. DAUCH Co-Founder, Chairman of the Board & Chief Executive Officer January 22, 2003		ROBIN J. ADAMS Executive Vice President — Finance & Chief Financial Officer (also in the capacity of Chief Accounting Officer) January 22, 2003

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of American Axle & Manufacturing Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of American Axle & Manufacturing Holdings, Inc. and its subsidiaries (“AAM”) as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of AAM’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of AAM at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, AAM changed its method of accounting for goodwill in 2002.


/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP Detroit, Michigan January 22, 2003

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME



		Year Ended December 31,

		2002			2001			2000


		(In millions, except per share data)
Net sales		$	3,480.2		$	3,107.2		$	3,069.5
Cost of goods sold			2,988.5			2,697.5			2,643.3

Gross profit			491.7			409.7			426.2
Selling, general and administrative expenses			180.5			164.4			162.6
Goodwill amortization			—			4.0			4.2

Operating income			311.2			241.3			259.4
Net interest expense			(50.6	)		(59.4	)		(58.8	)
Other income (expense):
	Gain on insurance settlement		10.4			—			—
	Other, net		2.8			(1.0	)		2.8

Income before income taxes			273.8			180.9			203.4
Income taxes			97.7			66.0			74.2

Net income		$	176.1		$	114.9		$	129.2

Basic earnings per share		$	3.62		$	2.55		$	2.79

Diluted earnings per share		$	3.38		$	2.36		$	2.60

See accompanying notes to consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS



			December 31,

			2002			2001


			(In millions, except per
			share data)
ASSETS
Current assets:
	Cash and cash equivalents		$	9.4		$	12.3
	Accounts receivable, net of allowance of $5.4 million in 2002 and $12.7 million in 2001			335.7			270.7
	Inventories, net			174.6			158.0
	Prepaid expenses and other			37.3			17.3
	Deferred income taxes			9.1			19.7

Total current assets				566.1			478.0
Property, plant and equipment, net				1,553.5			1,448.7
Deferred income taxes				10.9			19.4
Goodwill				150.2			150.2
Other assets and deferred charges				55.0			64.6

Total assets			$	2,335.7		$	2,160.9

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	327.5		$	304.0
	Accrued compensation and benefits			157.2			110.6
	Other accrued expenses			50.5			62.4

Total current liabilities				535.2			477.0
Long-term debt				734.1			878.2
Deferred income taxes				52.0			36.7
Postretirement benefits and other long-term liabilities				310.8			234.3

Total liabilities				1,632.1			1,626.2
Stockholders’ equity:
	Preferred stock, par value $0.01 per share; 10.0 million shares authorized; no shares outstanding in 2002 or 2001			—			—
	Common stock, par value $0.01 per share; 150.0 million shares authorized; 49.8 million and 47.2 million shares issued in 2002 and 2001, respectively			0.5			0.5
	Series common stock, par value $0.01 per share; 40.0 million shares authorized; no shares outstanding in 2002 or 2001			—			—
	Paid-in capital			279.0			242.2
	Retained earnings			484.3			308.2
	Treasury stock at cost; 0.1 million shares in 2002 and 2001			(0.7	)		(0.7	)
	Accumulated other comprehensive loss, net of tax:
		Minimum pension liability adjustment		(51.2	)		(9.9	)
		Foreign currency translation adjustments		(6.8	)		(3.9	)
		Unrecognized loss on derivatives		(1.5	)		(1.7	)

Total stockholders’ equity				703.6			534.7

Total liabilities and stockholders’ equity			$	2,335.7		$	2,160.9

See accompanying notes to consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



			Year Ended December 31,

			2002			2001			2000


			(In millions)
Operating activities:
Net income			$	176.1		$	114.9		$	129.2
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			145.8			126.6			107.9
	Deferred income taxes			58.7			40.2			30.5
	Pensions and other postretirement benefits, net of contributions			14.2			11.2			16.7
	Loss on retirement of equipment			9.4			5.2			4.8
	Gain on insurance settlement			(10.4	)		—			—
	Changes in operating assets and liabilities:
		Accounts receivable		(53.1	)		(25.0	)		(59.5	)
		Inventories		(15.9	)		1.2			(28.8	)
		Accounts payable and accrued expenses		41.3			(44.3	)		92.3
		Other assets and liabilities		18.1			2.8			(40.9	)

Net cash provided by operating activities				384.2			232.8			252.2

Investing activities:
Purchases of property, plant and equipment				(207.7	)		(375.5	)		(381.0	)
Purchase buyouts of leased equipment				(45.2	)		—			—

Net cash used in investing activities				(252.9	)		(375.5	)		(381.0	)

Financing activities:
Net (payments) borrowings under revolving credit facilities				(139.6	)		55.4			53.3
Proceeds from issuance of long-term debt				2.2			15.0			0.1
Payments of long-term debt and capital lease obligations				(8.2	)		(8.8	)		(7.7	)
Debt issuance costs				—			(0.1	)		(1.4	)
Issuance of common stock, net				—			57.7			—
Employee stock option exercises				12.4			1.0			1.1
Purchase of treasury stock				—			—			(21.3	)

Net cash provided by (used in) financing activities				(133.2	)		120.2			24.1

Effect of exchange rate changes on cash				(1.0	)		(0.4	)		(0.3	)

Net decrease in cash and cash equivalents				(2.9	)		(22.9	)		(105.0	)
Cash and cash equivalents at beginning of year				12.3			35.2			140.2

Cash and cash equivalents at end of year			$	9.4		$	12.3		$	35.2

Supplemental cash flow information:
Interest paid			$	57.0		$	70.5		$	71.6
Income taxes paid, net of refunds			$	22.3		$	20.4		$	43.9

See accompanying notes to consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



	Common Stock												Accumulated
													Other
	Shares			Par		Paid-in		Retained		Treasury			Comprehensive			Comprehensive
	Outstanding			Value		Capital		Earnings		Stock			Loss			Income


	(In millions)
Balance at January 1, 2000		46.4		$	0.5	$	199.8	$	64.1	$	—		$	(0.7	)
Net income									129.2							$	129.2
Foreign currency translation, net														(1.9	)		(1.9	)

Comprehensive income																$	127.3

Exercise of stock options, including tax benefit		0.4					2.3
Purchase of treasury stock		(3.1	)								(21.3	)

Balance at December 31, 2000		43.7			0.5		202.1		193.3		(21.3	)		(2.6	)
Net income									114.9							$	114.9
Cumulative effect of adopting FASB Statement No. 133, net														(0.8	)		(0.8	)
Unrecognized loss on derivatives, net														(0.9	)		(0.9	)
Foreign currency translation, net														(1.3	)		(1.3	)
Minimum pension liability adjustment, net														(9.9	)		(9.9	)

Comprehensive income																$	102.0

Issuance of common stock		3.0					37.1				20.6
Exercise of stock options, including tax benefit		0.4					3.0

Balance at December 31, 2001		47.1			0.5		242.2		308.2		(0.7	)		(15.5	)
Net income									176.1							$	176.1
Unrecognized gain on derivatives, net														0.2			0.2
Foreign currency translation, net														(2.9	)		(2.9	)
Minimum pension liability adjustment, net														(41.3	)		(41.3	)

Comprehensive income																$	132.1

Exercise of stock options, including tax benefit		2.6					36.8

Balance at December 31, 2002		49.7		$	0.5	$	279.0	$	484.3	$	(0.7	)	$	(59.5	)

See accompanying notes to consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization. American Axle & Manufacturing Holdings, Inc. (“Holdings”) and its subsidiaries (collectively, “we,” “our,” “us” or “AAM”), is a premier Tier I supplier to the automotive industry and a worldwide leader in the manufacture, engineering, design and validation of driveline systems and related powertrain components and modules for light trucks, sport utility vehicles (“SUVs”) and passenger cars. Driveline systems include components that transfer power from the transmission and deliver it to the drive wheels. Our driveline and related powertrain products include axles, modules, driveshafts, chassis and steering components, driving heads, crankshafts, transmission parts and forged products. In addition to our 14 locations in the United States (“U.S.”) (in Michigan, New York and Ohio), we have offices and facilities in Brazil, England, Germany, Japan, Mexico and Scotland.

Principles of Consolidation. We include the accounts of Holdings and its subsidiaries in our consolidated financial statements. We eliminate the effects of all intercompany transactions, balances and profits in our consolidation.

Revenue Recognition. We recognize revenue when products are shipped to our customers and title transfers under standard commercial terms. If we are uncertain as to whether we will be successful collecting a balance we determine in accordance with our understanding of a commercial agreement, we do not recognize the revenue or cost recovery until such time as the uncertainty is removed.

Research and Development (“R&D”) Costs. We expense R&D as incurred. R&D spending was $54.0 million, $51.7 million and $46.4 million in 2002, 2001 and 2000, respectively.

Cash and Cash Equivalents. Cash and cash equivalents include all of our cash balances and highly liquid investments with a maturity of 90 days or less at the time of purchase.

Customer Tooling. Reimbursable costs incurred for customer tooling are classified as accounts receivable. When we estimate the cost of such customer tooling to exceed customer reimbursement, we record a provision for such loss as a component of our allowance for doubtful accounts.

Inventories. We state our inventories at the lower of cost or market. The cost of our U.S. inventories is determined principally using the last-in, first-out method (“LIFO”). The cost of our foreign inventories and all of our indirect inventories is determined principally using the first-in, first-out method (“FIFO”). We classify indirect inventories, which include perishable tooling, repair parts and other materials consumed in the manufacturing process but not incorporated into our finished products, as raw materials. When we determine that our gross inventories exceed usage requirements, or if inventories become obsolete or otherwise not saleable, we record a provision for such loss as a component of our inventory accounts. This policy predominantly affects our accounting for indirect inventories.

Inventories consist of the following:


	2002			2001


	(In millions)
Raw materials and work-in-process	$	181.5		$	166.1
Finished goods		25.9			25.7

Gross inventories		207.4			191.8
LIFO reserve		(10.6	)		(9.3	)
Other inventory valuation reserves		(22.2	)		(24.5	)

Inventories, net	$	174.6		$	158.0

Property, Plant and Equipment. Property, plant and equipment consists of the following:


	Estimated
	Useful Lives		2002			2001

	(Years)
			(In millions)
Land		—	$	20.7		$	20.9
Land improvements		10-15		12.5			11.5
Buildings and building improvements		15-40		266.4			235.8
Machinery and equipment		3-15		1,747.6			1,372.4
Construction in progress		—		92.7			279.1

				2,139.9			1,919.7
Accumulated depreciation				(586.4	)		(471.0	)

Property, plant and equipment, net			$	1,553.5		$	1,448.7

We state property, plant and equipment at cost. Construction in progress includes costs incurred for the construction of buildings and building improvements, and machinery and equipment in process. All expenditures for repair and maintenance costs that do not extend the useful life of the related asset are expensed in the period incurred.

We record depreciation on the straight-line method over the estimated useful lives of depreciable assets, which averaged approximately 13 years in 2002 and 2001. Depreciation amounted to $141.5 million, $118.2 million and $100.6 million in 2002, 2001 and 2000, respectively.

Goodwill. We record goodwill when the purchase price of acquired businesses exceeds the value of their identifiable net tangible and intangible assets acquired. With the adoption of FASB Statement No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002, we no longer amortize goodwill. Instead, we test goodwill and any other acquired intangible assets for impairment. Under the transitional provisions of FASB Statement No. 142, we

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

completed our initial goodwill impairment test in the second quarter of 2002. No impairment was indicated as a result of this initial goodwill impairment test. To meet our ongoing annual obligation, we completed an additional impairment test as of December 31, 2002 and again concluded that there was no impairment of our goodwill.

Prior to January 1, 2002, we amortized goodwill on the straight-line method over periods up to 40 years. We amortized $4.0 million and $4.2 million of goodwill in 2001 and 2000, respectively. Accumulated goodwill amortization was $11.7 million at both December 31, 2002 and 2001. Goodwill is our only significant intangible asset.

The following sets forth a reconciliation of net income and earnings per share (“EPS”) information for the year ended December 31, 2002 as compared to the years ended December 31, 2001 and 2000 as adjusted for the adoption of FASB Statement No. 142:


	2002		2001		2000


	(In millions, except per share data)
Net income, as reported	$	176.1	$	114.9	$	129.2
Add: Goodwill amortization, net of tax		—		2.5		2.7

Adjusted net income	$	176.1	$	117.4	$	131.9

Basic EPS, as reported	$	3.62	$	2.55	$	2.79

Basic EPS, as adjusted	$	3.62	$	2.60	$	2.85

Diluted EPS, as reported	$	3.38	$	2.36	$	2.60

Diluted EPS, as adjusted	$	3.38	$	2.41	$	2.65

Impairment of Long-Lived Assets. Effective January 1, 2002, we adopted FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” FASB Statement No. 144 supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” as well as certain provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The main objective of FASB Statement No. 144 is to further clarify certain provisions of FASB Statement No. 121 relating to the impairment of long-lived assets. FASB Statement No. 144 also includes more stringent requirements for classifying assets available for disposal and expands the scope of activities that will require discontinued operations reporting. The adoption of FASB Statement No. 144 did not have any impact on our results of operations or financial position in 2002.

Stock-Based Compensation. In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123.” The main objective of FASB Statement No. 148 is to provide alternative methods of transition for a voluntary change to fair value-based method of accounting for stock-based employee compensation. FASB Statement No. 148 also amends the disclosure requirements of FASB Statement No. 123 to require prominent disclosures in both annual and interim financial statements with respect to the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

As permitted by FASB Statement No. 123, “Accounting for Stock-Based Compensation,” we account for our employee stock options in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Although it is our practice to grant options with no intrinsic value, we measure compensation cost as the excess, if any, of the market price of our common stock at the date of grant over the amount our associates must pay to acquire the stock. Had we determined compensation cost based upon the fair value of the options at the grant date consistent with the alternative fair value method set forth in FASB Statement No. 123, our net income and EPS would have been adjusted to the pro forma amounts indicated as follows:


	2002			2001			2000


	(In millions, except per share data)
Net income, as reported	$	176.1		$	114.9		$	129.2
Deduct: Total employee stock option expense determined under the fair value method, net of related tax effects		(10.5	)		(5.0	)		(3.0	)

Pro forma net income	$	165.6		$	109.9		$	126.2

Basic EPS, as reported	$	3.62		$	2.55		$	2.79

Basic EPS, pro forma	$	3.41		$	2.44		$	2.73

Diluted EPS, as reported	$	3.38		$	2.36		$	2.60

Diluted EPS, pro forma	$	3.21		$	2.28		$	2.57

We estimated the fair value of our employee stock options on the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	2002		2001		2000

Assumptions:
Expected volatility		53.79%		52.10%		39.70%
Risk-free interest rate		4.60%		4.91%		5.64%
Dividend yield		None		None		None
Expected life of option		7 years		7 years		7 years
Weighted average grant-date fair value	$	14.51	$	5.29	$	7.89

FASB Statement No. 148 did not have any impact on our results of operations or financial position in 2002.

Derivatives. We account for derivatives under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted. FASB Statement No. 133 requires us to recognize all derivatives on the balance sheet at fair value. If a derivative qualifies under FASB Statement No. 133 as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in fair value, and changes in the fair value of derivatives that do not qualify as hedges, are immediately recognized in earnings.

Currency Translation. We translate the assets and liabilities of our foreign subsidiaries to U.S. dollars at end-of-period exchange rates. We translate the income statement elements of our foreign subsidiaries to U.S. dollars at average-period exchange rates. We report the effect of translation for our foreign subsidiaries that use the local currency as their functional currency as a separate component of stockholders’ equity. Gains and losses resulting from the remeasurement of assets and liabilities of our foreign subsidiary that uses the U.S. dollar as its functional currency are reported in current period income. We also report any gains and losses arising from transactions denominated in a currency other than our functional currency in current period income.

Use of Estimates. In order to prepare consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts and disclosures in our consolidated financial statements. Actual results could differ from those estimates.

Reclassifications. We have reclassified certain 2001 and 2000 amounts to conform to the presentation of our 2002 consolidated financial statements.

Effect of New Accounting Standards. In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” FASB Statement No. 146 supersedes Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” The main objective of FASB Statement No. 146 is to clarify the requirements for recognition of a liability for costs associated with an exit or disposal activity. FASB Statement No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. FASB Statement No. 146 is effective for exit or disposal activities initiated after December 31, 2002.

2. Long-Term Debt and Lease Obligations

Long-term debt consists of the following:


	2002		2001


	(In millions)
Bank Credit Facilities:
Revolver	$	—	$	25.0
Term Loan		372.0		373.0

Total Bank Credit Facilities		372.0		398.0
Receivables Facility		30.0		138.0
9.75% Notes, net of discount		298.6		298.3
Capital lease obligations		5.9		10.8
Other debt agreements		27.6		33.1

Long-term debt	$	734.1	$	878.2

Bank Credit Facilities. At December 31, 2002, our Senior Secured Bank Credit Facilities (the “Bank Credit Facilities”) consist of a $378.8 million Senior Secured Revolving Credit Facility (the “Revolver”) due October 2004 and a $372.0 million Senior Secured Term Loan Facility (the “Term Loan”) due in semi-annual installments of varying amounts through April 2006, at which time the remaining balance of $175.0 million will be due.

Borrowings under the Bank Credit Facilities are secured by the capital stock of our significant subsidiaries and substantially all of our assets except for those securing our receivables financing facility (the “Receivables Facility”) and other permitted bank, equipment and lease financings. Borrowings under the Bank Credit Facilities bear interest at rates based on LIBOR or an alternate base rate, plus an applicable margin. At December 31, 2002, $378.8 million was available for future borrowings under the Revolver.

At December 31, 2002, the weighted average interest rate on the balances outstanding under the Bank Credit Facilities was 3.2%.

Receivables Facility. We have established the Receivables Facility through AAM Receivables Corp. (“Receivables Corp.”), a wholly-owned, bankruptcy-remote subsidiary of American Axle & Manufacturing, Inc. (“AAM Inc.”). Pursuant to the Receivables Facility, AAM Inc. agreed to sell certain trade receivables from time to time to Receivables Corp., which, in turn, transferred all of such receivables to a trust that issued variable funding certificates representing undivided interests in the receivables pool. Under the variable funding certificates, a bank group provided us a revolving financing commitment of up to $153.0 million through October 2003, subject to the terms and conditions of the Receivables Facility. The receivables held by the trust are not available to our general creditors. In accordance with FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” we have accounted for the Receivables Facility as if it were a secured borrowing.

The Receivables Facility bears interest at rates based on LIBOR plus an applicable margin. Availability under the Receivables Facility depends on the amount of receivables generated by AAM Inc., the rate of collection on those receivables and certain other characteristics of those receivables that affect their eligibility. At December 31, 2002, $30.0 million was outstanding and an additional $123.0 million was available to us under the Receivables Facility.

The weighted-average interest rate on our borrowings under the Receivables Facility at December 31, 2002 was 2.7%.

9.75% Notes. In March 1999, AAM Inc. issued $300.0 million of 9.75% Senior Subordinated Notes Due 2009 (“9.75% Notes”). Our net proceeds from the issuance of the 9.75% Notes were $288.7 million after deduction of discounts to the initial purchasers, and other fees and expenses.

The 9.75% Notes are unsecured senior subordinated obligations of AAM Inc. and are fully and unconditionally guaranteed by Holdings. Holdings is the survivor of a migratory merger with American Axle & Manufacturing of Michigan, Inc. (“AAMM”) and has no significant assets other than its 100% ownership of AAM Inc. Holdings has no other subsidiaries other than AAM Inc. Holdings is restricted from obtaining

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

funds from AAM Inc. by dividend or loan pursuant to the terms of the indenture relating to the 9.75% Notes.

Prior to the maturity date of March 1, 2009, we may redeem the 9.75% Notes beginning on March 1, 2004 at stated redemption prices beginning at 104.875% at March 1, 2004 and decreasing to 100% on March 1, 2007 and thereafter.

Including amortization of the original issue discount, the 9.75% Notes bear interest at 9.875%.

Leases. We lease certain facilities, machinery and equipment under capital leases expiring at various dates. Approximately $37.4 million and $33.9 million of such gross asset cost is included in property, plant and equipment at December 31, 2002 and 2001, respectively. The weighted-average interest rate on these capital lease obligations at December 31, 2002 was 8.8%.

We also lease certain facilities, machinery and equipment under operating leases expiring at various dates. All of the leases contain renewal and/or purchase options. Future minimum payments under noncancellable operating leases are as follows: $34.5 million in 2003; $26.5 million in 2004; $28.2 million in 2005; $29.0 million in 2006; $28.9 million in 2007 and $68.4 million thereafter. Our total expense relating to such operating leases was $44.3 million, $48.5 million and $45.1 million in 2002, 2001 and 2000, respectively.

Other Debt Agreements. We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. These credit facilities, which are generally secured by the assets of the local subsidiaries, expire at various dates through March 2006. At December 31, 2002, $20.2 million was outstanding and an additional $0.3 million was available to us under such credit facilities.

In 2001, we secured the use of an uncommitted bank credit line that currently provides us with $24.0 million of additional borrowing capacity. At December 31, 2002, $7.0 million was outstanding on such Money Market Line bearing interest at an average rate of 2.9%. At December 31, 2001, $7.0 million was outstanding on this uncommitted bank credit line.

Debt Covenants. The Bank Credit Facilities and the 9.75% Notes contain various operating covenants which, among other things, impose limitations on our ability to declare or pay dividends or distributions on capital stock, redeem or repurchase capital stock, incur liens, incur indebtedness, or merge, make acquisitions or sell assets. We are also required to comply with financial covenants relating to interest coverage, leverage, retained earnings and capital expenditures. At our option, we may prepay borrowings under the Bank Credit Facilities at any time without penalty, other than breakage costs.

Prepayment Terms. We are also subject to mandatory prepayment terms under the Bank Credit Facilities under certain conditions. Pursuant to such mandatory prepayment terms, a prepayment is triggered if our annual operating cash flows exceed what is required to meet our current debt service and capital expenditure obligations. Based on the applicable covenant formula specified in the Bank Credit Facilities, we will be required to make such a mandatory, forward-order prepayment of $23.0 million prior to March 31, 2003. This mandatory prepayment is included as part of our 2003 debt maturities in the schedule appearing below. This mandatory prepayment satisfies all of our debt service obligations on the Bank Credit Facilities until 2005 unless an additional mandatory prepayment is required based on our 2003 or 2004 operating results.

Debt Maturities. Aggregate maturities of long-term debt are as follows (in millions):


2003	$	67.0
2004		0.3
2005		174.1
2006		191.1
2007		0.1
Thereafter		301.5

Total	$	734.1

We have sufficient availability to refinance all current maturities of long-term debt through the Bank Credit Facilities, the Receivables Facility and the Money Market Line and have, therefore, classified such obligations as long-term debt at December 31, 2002.

Net Interest Expense. The following table summarizes supplemental information regarding the components of net interest expense as reported in our consolidated statements of income:


	2002			2001			2000


	(In millions)
Gross interest expense	$	59.2		$	73.5		$	77.6
Capitalized interest		(8.2	)		(13.2	)		(11.9	)
Interest income		(0.4	)		(0.9	)		(6.9	)

Net interest expense	$	50.6		$	59.4		$	58.8

3. Derivatives and Risk Management

Derivative Financial Instruments. In the normal course of business, we are exposed to market risk principally associated with changes in foreign currency exchange rates and interest rates. To manage a portion of these inherent risks, we purchase certain types of derivative financial instruments, from time to time, based on management’s judgment of the trade-off between risk, opportunity and cost. We do not hold or issue derivative financial instruments for trading or speculative purposes.

Currency Forward Contracts. Because most of our business is denominated in U.S. dollars, we do not currently have significant exposures relating to currency exchange risks. We had only a nominal amount of currency hedges in effect during 2002 and during 2001 and, at December 31, 2002 and 2001, we did not have any currency hedges in place.

Interest Rate Swaps. We are exposed to variable interest rates on the Bank Credit Facilities, the Receivables Facility and a portion of our sale-leaseback financing. At December 31, 2002, we have hedged a portion of our interest rate risk by entering into interest rate swaps with a notional amount of approximately $37.1 million. These interest rate swaps convert variable financing based on 3-month LIBOR rates

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

into fixed U.S. dollar rates varying from 6.88% to 6.96%. We have designated the interest rate swaps as effective cash flow hedges of the related debt and lease obligations and, accordingly, we have reflected the net cost of such agreements as an adjustment to interest expense over the lives of the debt and lease agreements.

Fair Value of Financial Instruments. The carrying value of our cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates their fair values due to the short-term maturities of these assets and liabilities. The carrying value of our borrowings under the Bank Credit Facilities, the Receivables Facility, the Money Market Line and other foreign debt approximates their fair value due to the frequent resetting of the interest rates. We have estimated the fair value of the 9.75% Notes, using available market information, to be approximately $322.5 million at December 31, 2002, and $312.0 million at December 31, 2001.

Concentrations of Credit Risk. In the normal course of business, we provide credit to customers in the automotive industry. We periodically evaluate the credit worthiness of our customers and we maintain reserves for potential credit losses, which, when realized, have been within the range of our allowance for doubtful accounts. When appropriate, we also diversify the concentration of invested cash among different financial institutions and we monitor the selection of counter parties to other financial instruments to avoid unnecessary concentrations of credit risk.

With the exception of sales to General Motors Corporation (“GM”), no single customer accounted for more than 10% of our consolidated net sales in any year presented. Sales to GM were approximately 86%, 87% and 85% of our total net sales in 2002, 2001 and 2000, respectively. Accounts receivable due from GM were $233.1 million at year-end 2002 and $230.8 million at year-end 2001.

4. Insurance Settlement

• Damage for property destroyed — A portion of the building and several machines were damaged. At year-end 2002, a substantial portion of our insurance claim was settled and we recognized a gain in the fourth quarter of $10.4 million in other income. This gain consists of expected proceeds from the insurance company related to our overall property damage claim of $11.0 million offset by $0.1 million net book value of the damaged building and equipment, and a $0.5 million insurance deductible related to property damage expensed in the third quarter. Additionally, we recognized $1.9 million ($0.9 million in cost of goods sold and $1.0 million in SG&A) of incremental profit sharing expense in 2002 as a result of this gain. The net pre-tax gain at year-end 2002 was $8.5 million and the net after-tax gain amounted to $5.5 million.

• Incremental costs — While the fire did not affect our ability to meet customer demand, additional costs of $4.9 million were incurred in 2002 to maintain continuity of supply to our customers. These costs were offset by insurance recoveries received in 2002 and had no impact on our results of operations. However, our gross profit was impacted by a $0.5 million insurance deductible related to incremental costs in the third quarter of 2002.

At December 31, 2002, we had $9.0 million of accounts receivable related to this insurance settlement. Final settlement of this claim is expected to occur in 2003.

5. Employee Benefit Plans

Pension and Other Postretirement Benefits. We sponsor various qualified and non-qualified defined benefit pension plans for our eligible associates. We also maintain hourly and salaried benefit plans that provide postretirement medical, dental, vision and life benefits to our eligible retirees and their dependents in the U.S. We provide benefits under collective bargaining agreements to a majority of our hourly associates.

Actuarial valuations of our benefit plans were made as of September 30, 2002 and 2001. The principal weighted average assumptions used in the valuation of our U.S. and foreign plans were as follows:



	Pension Benefits												Other Benefits


	2002				2001				2000				2002		2001		2000

	U.S.		Foreign		U.S.		Foreign		U.S.		Foreign

Discount rate		6.75%		5.50%		7.50%		6.00%		8.00%		6.00%		6.75%		7.50%		8.00%
Expected return on plan assets		9.00%		8.00%		9.25%		8.00%		9.25%		8.00%		N/A		N/A		N/A
Rate of compensation increase		4.25%		3.50%		4.25%		3.50%		4.25%		4.00%		4.25%		4.25%		4.25%

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the changes in benefit obligations and plan assets and reconciles the funded status of the benefit plans to the net benefit plan asset (liability):



	Pension Benefits						Other Benefits

	2002			2001			2002			2001


	(In millions)
Change in benefit obligation:
Benefit obligation at beginning of year	$	249.3		$	196.4		$	170.4		$	115.5
Service cost		24.0			21.0			22.5			17.5
Interest cost		19.7			16.4			14.4			10.6
Plan amendments		—			0.1			—			—
Actuarial loss		41.0			17.3			68.4			27.6
Participant contributions		1.8			2.0			—			—
Curtailments		(0.7	)		—			—			—
Benefit payments		(5.0	)		(3.0	)		(1.3	)		(0.8	)
Currency fluctuations		5.6			(0.9	)		—			—

Net change		86.4			52.9			104.0			54.9

Benefit obligation at end of year		335.7			249.3			274.4			170.4

Change in plan assets:
Fair value of plan assets at beginning of year		199.8			200.5			—			—
Actual return on plan assets		(26.3	)		(33.9	)		—			—
Employer contributions		36.8			35.5			1.3			0.8
Participant contributions		1.8			1.9			—			—
Benefit payments		(5.0	)		(3.0	)		(1.3	)		(0.8	)
Currency fluctuations		3.2			(1.2	)		—			—

Net change		10.5			(0.7	)		—			—

Fair value of plan assets at end of year		210.3			199.8			—			—

Funded status — U.S. plans at September 30		(95.6	)		(35.0	)		(274.4	)		(170.4	)
Funded status — foreign plan at September 30		(29.8	)		(14.5	)		—			—
Unrecognized actuarial (gain) loss		111.9			23.8			64.9			(2.6	)
Unrecognized prior service cost		17.2			18.7			—			—
Fourth quarter contribution		10.7			0.4			0.3			0.2

Net asset (liability) at December 31	$	14.4		$	(6.6	)	$	(209.2	)	$	(172.8	)

Amounts recognized in our balance sheets are as follows:



	Pension Benefits						Other Benefits

	2002			2001			2002			2001


	(In millions)
Prepaid benefit cost	$	14.1		$	0.8		$	—		$	—
Accrued benefit liability		(96.5	)		(39.8	)		(209.2	)		(172.8	)
Intangible asset		16.0			17.7			—			—
Minimum pension liability adjustment		80.8			14.7			—			—

Net asset (liability) at December 31	$	14.4		$	(6.6	)	$	(209.2	)	$	(172.8	)

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of net periodic benefit costs are as follows:



	Pension Benefits									Other Benefits

	2002			2001			2000			2002		2001			2000


	(In millions)
Service cost	$	24.0		$	21.0		$	20.2		$	22.5	$	17.5		$	18.4
Interest cost		19.7			16.4			14.0			14.4		10.6			8.5
Expected asset return		(20.8	)		(17.7	)		(13.8	)		N/A		N/A			N/A
Amortized loss (gain)		0.1			(1.7	)		(1.5	)		—		(1.2	)		(1.4	)
Amortized prior service cost		1.6			1.7			1.6			—		—			—
Other		1.0			—			—			—		—			—

Net benefit cost	$	25.6		$	19.7		$	20.5		$	36.9	$	26.9		$	25.5

For measurement purposes, a 10.0% annual increase in the per-capita cost of covered health care benefits was assumed for 2003. The rate was assumed to decrease gradually to 5.0% for 2008 and remain at that level thereafter. Health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point increase in the assumed health care cost trend rate would have increased total service and interest cost in 2002 and the postretirement obligation by $9.0 million and $59.3 million, respectively. A one-percentage-point decrease in the assumed health care cost trend rate would have decreased total service and interest cost in 2002 and the postretirement obligation by $6.8 million and $45.3 million, respectively.

Severance Obligations and Other Postemployment Benefits. Pursuant to FASB Statement No. 112, “Employers’ Accounting for Postemployment Benefits,” and in connection with the consolidation of our operations located in the United Kingdom, we accrued benefits payable (including loyalty bonuses) to approximately 350 associates in 2001. We expensed a total of $10.0 million for such benefits in 2001, of which approximately $9.7 million was unpaid and accrued at December 31, 2001. At year-end 2002, the consolidation of our United Kingdom operations was fully implemented.

Voluntary Savings Plans. Most of our U.S. associates are eligible to participate in voluntary savings plans. Our maximum match under these plans is 50% of the first 6% of salaried associate contributions. Matching contributions amounted to $2.3 million, $2.0 million and $2.6 million in 2002, 2001 and 2000, respectively. Under these plans, our common stock became an investment option for our participants during 2002.

Deferred Compensation Plan. Certain U.S. associates are eligible to participate in a non-qualified deferred compensation plan. We have not funded any portion of the $7.1 million liability at December 31, 2002. At December 31, 2001, our funded portion of the plan amounted to $2.2 million of the $4.8 million liability. We recognized $0.6 million, $0.5 million and $0.1 million of expense related to this deferred compensation plan in 2002, 2001 and 2000, respectively.

6. Stock Options

At December 31, 2002, we have stock options outstanding under three stock compensation plans approved by our stockholders. Under two of these plans, one of which was amended by our stockholders in 2001, a total of 14.1 million options have been authorized for issuance to our directors, officers and certain other associates in the form of options, stock appreciation rights or other awards that are based on the value of our common stock. We have granted a total of 10.3 million options under these stock compensation plans through December 31, 2002, which become exercisable based upon duration of employment. The vesting of some of these options were accelerated in each of the years presented due to the satisfaction of certain annual or cumulative performance criteria. At December 31, 2002, 2.4 million of these options have been exercised.

At December 31, 2002, there are also 1.0 million options held by several of our officers that were granted in 1997 as a replacement for an incentive compensation plan established in 1994. These options were immediately vested and are exercisable at a weighted-average exercise price per share of approximately $0.19. A total of 0.9 million options granted under this plan have been exercised prior to December 31, 2002.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity relating to our stock options:


		Number of			Weighted-Average
		Shares			Exercise Price


		(In millions, except per share data)
Outstanding at January 1, 2000			7.8		$	4.07
	Options granted		1.5			14.85
	Options exercised		(0.4	)		2.93
	Options lapsed or canceled		(0.1	)		7.66

Outstanding at December 31, 2000			8.8		$	5.90
	Options granted		1.6			8.94
	Options exercised		(0.4	)		2.42
	Options lapsed or canceled		(0.1	)		6.09

Outstanding at December 31, 2001			9.9		$	6.54
	Options granted		1.8			24.25
	Options exercised		(2.7	)		4.61
	Options lapsed or canceled		(0.1	)		12.57

Outstanding at December 31, 2002			8.9		$	10.61

Options outstanding at December 31, 2002 have a weighted-average remaining contractual life of approximately 8 years. The following is a summary of the range of exercise prices for stock options that are outstanding and exercisable at December 31, 2002:


			Weighted		Number of		Weighted
Range of	Outstanding		Average		Stock Options		Average
Exercise Prices	Stock Options		Exercise Price		Exercisable		Exercise Price


	(In millions, except per share data)
$0.01 – $0.25		1.0	$	0.19		1.0	$	0.19
$4.26		3.0		4.26		3.0		4.26
$8.85		1.4		8.85		0.4		8.85
$9.00 – $13.13		0.2		12.30		0.1		12.36
$15.00 – $18.40		1.5		15.34		1.1		15.35
$24.15 – $34.88		1.8		24.25		—		—

		8.9	$	10.61		5.6	$	6.31

7. Income Taxes

Income before income taxes for U.S. and non-U.S. operations was as follows:


	2002		2001		2000


	(In millions)
U.S. income	$	263.1	$	161.5	$	193.5
Non-U.S. income		10.7		19.4		9.9

Total income before income taxes	$	273.8	$	180.9	$	203.4

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the components of our provisions for income taxes:


	2002		2001			2000


	(In millions)
Current:
Federal	$	31.4	$	7.3		$	29.6
Michigan single business tax		4.2		4.7			5.5
Other state and local		0.7		(3.8	)		(3.2	)
Foreign		2.7		17.6			0.7

Total current		39.0		25.8			32.6

Deferred:
Federal		45.5		38.4			34.5
Michigan single business tax		0.2		(1.3	)		1.5
Other state and local		3.9		3.2			1.1
Foreign		9.1		(0.1	)		4.5

Total deferred		58.7		40.2			41.6

Total income taxes	$	97.7	$	66.0		$	74.2

The following is a reconciliation of our provision for income taxes to the expected amounts using statutory rates:


	2002			2001			2000

Federal statutory		35.0	%		35.0	%		35.0	%
Foreign income taxes		3.0			4.2			1.2
State and local		2.0			0.5			1.6
Federal tax credits		(2.0	)		(1.2	)		(2.2	)
Other		(2.3	)		(2.0	)		0.9

Effective income tax rate		35.7	%		36.5	%		36.5	%

The following is a summary of the significant components of our deferred tax assets and liabilities:


	2002			2001


	(In millions)
Current deferred tax assets:
Employee benefits	$	9.0		$	12.4
Accounts receivable		1.1			4.2
Inventory and other		—			3.1

Total current deferred tax assets		10.1			19.7
Current deferred tax liabilities:
Inventory and other		1.0			—

Current deferred tax asset, net	$	9.1		$	19.7

Noncurrent deferred tax assets:
Employee benefits	$	96.8		$	62.2
NOL carryforwards		20.4			20.5
Tax credit carryforwards		14.4			20.0
Fixed assets		15.0			15.3
Prepaid taxes		20.3			11.7
Goodwill		3.1			1.2
Other		4.9			6.3
Valuation allowance		(41.6	)		(31.0	)

Noncurrent deferred tax assets, net		133.3			106.2
Noncurrent deferred tax liabilities:
Fixed assets		(174.4	)		(123.5	)

Noncurrent deferred tax liability, net	$	(41.1	)	$	(17.3	)

Noncurrent deferred tax assets and liabilities recognized in our balance sheets are as follows:


	2002			2001


	(In millions)
U.S. Federal deferred tax liability, net	$	(52.0	)	$	(36.7	)
Other foreign deferred tax asset, net		10.9			19.4

Noncurrent deferred tax liability, net	$	(41.1	)	$	(17.3	)

The deferred income tax assets and liabilities summarized in the preceding tables reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws. At year-end 2002, our net noncurrent foreign deferred tax asset was primarily attributable to timing differences related to our minimum pension liability for our foreign operations. At year-end 2001, our net noncurrent foreign deferred tax asset was primarily attributable to foreign net operating losses (“NOLs”) and capital allowance carryforwards that do not expire. Also at year-end 2002 and 2001, our net noncurrent U.S. Federal deferred tax liability was principally attributable to the impact of accelerated tax depreciation. The impact of this accelerated tax depreciation was partially offset in both 2002 and 2001 by timing differences related to postretirement benefits, the impact of U.S. Federal R&D tax credit carryforwards that expire between 2018 and 2022, and alternative minimum tax credit carryforwards that do not expire.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our deferred tax asset valuation allowances at December 31, 2002 and 2001 were principally related to foreign NOLs and capital allowance carryforwards, including allowances set up in our initial purchase accounting for the acquisition of Albion Automotive (Holdings) Limited (“Albion”) in 1998. Although these carryforwards do not expire, we considered Albion’s prior operating results and future plans, as well as the utilization period of other temporary differences, in determining the amount of our valuation allowances. As a result of our consideration of these factors, we do not believe that we will realize the value of these deferred tax assets.

Payments for federal, state, local and foreign income taxes were $31.5 million, $31.7 million and $43.9 million in 2002, 2001 and 2000, respectively.

8. Earnings per Share

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


		2002		2001		2000


		(In millions except per
		share data)
Numerator:
Net income		$	176.1	$	114.9	$	129.2

Denominators:
Basic shares outstanding —
	Weighted-average shares outstanding		48.6		45.1		46.3
Effect of dilutive securities:
	Dilutive stock options		3.5		3.6		3.4

Diluted shares outstanding —
	Adjusted weighted-average shares after assumed conversions		52.1		48.7		49.7

Basic EPS		$	3.62	$	2.55	$	2.79

Diluted EPS		$	3.38	$	2.36	$	2.60

Certain exercisable stock options were excluded in the computations of diluted EPS because these options were greater than the average annual market prices. The number of stock options outstanding which were not included in the calculation of diluted EPS were less than 0.1 million at year-end 2002, 1.7 million at year-end 2001 and 1.8 million at year-end 2000. The ranges of exercise prices related to the excluded exercisable stock options were $27.00 — $34.88 at year-end 2002 and $15.00 — $15.56 at both year-end 2001 and 2000.

9. Commitments and Contingencies

Obligated purchase commitments for capital expenditures were approximately $93.2 million at December 31, 2002 and $95.6 million at December 31, 2001.

We are involved in various legal proceedings incidental to our business. Although the outcome of these matters cannot be predicted with certainty, we do not believe that any of these matters, individually or in the aggregate, will have a material effect on our consolidated financial condition, operating results or cash flows.

10. Related Party Transactions

In connection with a leveraged recapitalization transaction in 1997 through which Blackstone Capital Partners II Merchant Banking Fund L.P. and certain of its affiliates (collectively, “Blackstone”) acquired a majority ownership interest, we entered into an agreement, which was amended in 2001, pursuant to which Blackstone provides certain advisory and consulting services to us. We incurred costs of $2.0 million, $4.0 million and $4.6 million for such services provided by Blackstone in 2002, 2001 and 2000, respectively.

In March 2002, we priced a secondary offering of 8.0 million shares of common stock owned by Blackstone and 1.5 million shares of common stock owned by Richard E. Dauch, AAM’s Co-Founder, Chairman of the Board & Chief Executive Officer. We did not sell any shares and did not receive any of the proceeds from the sale of shares by the selling stockholders in this offering. Additionally, in August 2001, we raised $57.7 million in a public offering of 7.5 million shares of our common stock through which we issued 3.0 million treasury shares and Blackstone sold 4.5 million shares. We used the proceeds from the sale of our shares in 2001 to repay a portion of our outstanding debt.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Segment and Geographic Information

We operate in one reportable segment: the manufacture, engineering, design and validation of driveline systems and related powertrain components and modules for light trucks, SUVs and passenger cars. Financial information relating to our operations by geographic area is presented in the following table. Net sales are attributed to countries based upon location of customer. Long-lived assets exclude deferred income taxes.


	2002		2001		2000


	(In millions)
Net sales:
United States	$	2,524.9	$	2,305.9	$	2,291.3
Canada		402.7		376.1		372.6
Mexico and South America		432.1		299.1		266.1
Europe and Other		120.5		126.1		139.5

Total net sales	$	3,480.2	$	3,107.2	$	3,069.5

Long-lived assets:
United States	$	1,378.4	$	1,308.0	$	1,156.5
Other		380.3		355.5		229.3

Total long-lived assets	$	1,758.7	$	1,663.5	$	1,385.8

12. Unaudited Quarterly Financial and Market Data


Quarter Ended		March 31		June 30		September 30		December 31			Full Year


		(In millions, except per share data)
2002:
Net sales		$	859.2	$	881.3	$	828.7	$	911.0		$	3,480.2
Gross profit			118.7		131.5		112.3		129.2			491.7
Net income			38.8		48.6		36.5		52.2	(1)		176.1
Basic EPS		$	0.82	$	1.01	$	0.74	$	1.05		$	3.62
Diluted EPS(2)		$	0.75	$	0.92	$	0.70	$	0.99		$	3.38
Market price(3)
	High	$	30.05	$	36.19	$	31.00	$	24.86		$	36.19
	Low	$	20.26	$	25.95	$	21.00	$	20.45		$	20.26
2001:
Net sales		$	761.1	$	811.0	$	743.5	$	791.6		$	3,107.2
Gross profit			95.9		114.1		95.7		104.0			409.7
Net income			24.0		34.0		25.5		31.4			114.9
Basic EPS		$	0.55	$	0.77	$	0.56	$	0.67		$	2.55
Diluted EPS(2)		$	0.51	$	0.72	$	0.51	$	0.62		$	2.36
Market price(3)
	High	$	11.55	$	17.00	$	22.25	$	21.79		$	22.25
	Low	$	7.75	$	8.85	$	10.03	$	12.06		$	7.75

(1) The fourth quarter of 2002 includes a $5.5 million gain, net of tax and other related costs, due to an insurance settlement related to a fire at our forge operations in Detroit. See Note 4 for further discussion.

(2) Full year diluted EPS will not necessarily agree to the sum of the four quarters because each quarter is a separate calculation.

(3) Prices are the quarterly high and low closing sales prices for our common stock as reported by the New York Stock Exchange. We had approximately 466 stockholders of record as of February 20, 2003.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

EIGHT YEAR FINANCIAL SUMMARY



	Year Ended December 31,

	2002			2001			2000			1999			1998			1997			1996			1995


	(In millions, except per share data)
Statement of income data:
Net sales	$	3,480.2		$	3,107.2		$	3,069.5		$	2,953.1		$	2,040.6	(b)	$	2,147.5		$	2,022.3		$	1,968.1
Gross profit		491.7			409.7			426.2			388.8			156.4	(b)		216.0			172.0			179.5
Selling, general and administrative expenses		180.5			164.4			162.6			147.6			106.4			104.0			83.1			70.6
Operating income		311.2			241.3			259.4			237.8			49.9	(b)		112.0			88.9			108.9
Net interest (expense) income		(50.6	)		(59.4	)		(58.8	)		(54.6	)		(44.3	)		(1.8	)		9.4			9.1
Net income		176.1	(a)		114.9			129.2			115.6			3.5			55.3			61.7			70.6
Diluted earnings per share	$	3.38		$	2.36		$	2.60		$	2.34		$	0.08		$	0.43		$	0.43		$	0.50
Diluted shares outstanding(c)		52.1			48.7			49.7			49.5			43.2			126.5			142.5			142.5
Balance sheet data:
Cash and cash equivalents	$	9.4		$	12.3		$	35.2		$	140.2		$	4.5		$	17.3		$	126.0		$	170.3
Total assets		2,335.7			2,160.9			1,902.5			1,673.2			1,223.9			1,016.7			771.2			737.0
Total long-term debt		734.1			878.2			817.1			774.9			693.4			507.0			2.4			1.0
Preferred stock		—			—			—			—			—			—			200.0			200.0
Stockholders’ equity		703.6			534.7			372.0			263.7			40.4			37.2			250.2			168.6
Statement of cash flow data:
Cash provided by operating activities	$	384.2		$	232.8		$	252.2		$	310.3		$	81.4		$	200.8		$	65.7		$	196.9
Cash used in investing activities		(252.9	)		(375.5	)		(381.0	)		(354.1	)		(251.5	)		(282.6	)		(131.2	)		(147.1	)
Cash provided by (used in) financing activities		(133.2	)		120.2			24.1			179.5			157.3			(26.9	)		21.2			(0.3	)
Other data:
EBITDA(d)	$	470.6		$	367.8		$	377.0		$	334.6		$	119.2		$	152.8		$	134.7		$	144.8
Depreciation and amortization		145.8			126.6			107.9			89.5			68.8			50.2			36.1			25.2
Capital expenditures		207.7			375.5			381.0			301.7			210.0			282.6			162.3			147.1
(Proceeds from) buyouts of sale-leasebacks		45.2			—			—			(187.0	)		—			—			(31.1	)		—
Invested capital(e)		1,428.3			1,400.6			1,153.9			898.4			729.3			526.9			326.6			199.3

(a) Excluding a $5.5 million gain, net of tax and other related costs, due to an insurance settlement related to a fire at our forge operations in Detroit, net income would have been $170.6 million. See Note 4 for further discussion.

(b) Excluding the GM work stoppage which occurred in June and July of 1998 and the temporary reduction of certain payments made by GM to us as part of the commercial arrangements between us, net sales would have been $2,279.7 million, gross profit would have been $279.1 million and operating income would have been $172.6 million.

(c) Pursuant to a migratory merger effected in January 1999 and undertaken in connection with the IPO, each share of American Axle & Manufacturing of Michigan, Inc.’s common stock was converted into 3,945 shares of American Axle & Manufacturing Holdings, Inc. common stock. All share and per share amounts have been adjusted to reflect this conversion.

(d) We believe that EBITDA is a meaningful measure of performance as it is commonly utilized in our industry to analyze operating performance, liquidity and entity valuation. EBITDA should not be construed as income from operations, net income or cash flow from operating activities as determined by accounting principles generally accepted in the United States of America. Other companies may calculate EBITDA differently.


	2002		2001		2000		1999		1998		1997		1996		1995

Net income	$	176.1	$	114.9	$	129.2	$	115.6	$	3.5	$	55.3	$	61.7	$	70.6
Interest expense		51.0		60.3		65.7		61.7		44.8		8.4		0.3		1.6
Income taxes		97.7		66.0		74.2		67.8		2.1		38.9		36.6		47.4
Depreciation and amortization		145.8		126.6		107.9		89.5		68.8		50.2		36.1		25.2

EBITDA	$	470.6	$	367.8	$	377.0	$	334.6	$	119.2	$	152.8	$	134.7	$	144.8

(e) Invested capital represents the sum of total debt and stockholders’ equity (including preferred stock) less cash and cash equivalents.

45 EX-21 5 k74284exv21.htm EX-21 SUBSIDIARIES OF THE COMPANY exv21

EXHIBIT 21 — SUBSIDIARIES OF OUR COMPANY

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

Organized

% Owned by

Under

Immediate

Subsidiary

Laws of

Parent(1)

American Axle & Manufacturing Holdings, Inc.

Delaware

American Axle & Manufacturing, Inc.

Delaware

100%

AAM Receivables Corp.

Delaware

100%

American Axle International Sales, LTD.

U.S. V.I.

100%

Colfor Manufacturing Inc.

Delaware

100%

MSP Industries Corporation

Michigan

100%

MSP Team, LLC

Michigan

99%

(2)

American Axle & Manufacturing de Mexico Holdings S. de R.L. de C.V.

Mexico

99.99%

(2)

Guanajuato Gear & Axle de Mexico S. de R.L. de C.V.

Mexico

99.99%

(2)

American Axle & Manufacturing de Mexico S.A. de C.V.

Mexico

99.99%

(2)

AAM International Holdings, Inc.

Delaware

100%

Albion Automotive (Holdings) Limited

Scotland

100%

Albion Automotive Limited

Scotland

100%

Farington Components Limited

England

100%

AAM Comércio e Participações Ltda.

Brazil

99.99%

(2)

AAM do Brasil Ltda.

Brazil

99.2%


(1)	All subsidiaries set forth herein are reported in our financial statements through consolidations; there are no subsidiaries omitted from this list.

(2)	Remaining shares owned by the Company or its subsidiaries.

30 EX-23 6 k74284exv23.htm EX-23 CONSENT OF DELOITTE & TOUCHE LLP exv23

EXHIBIT 23 — INDEPENDENT AUDITORS’ CONSENT

To the Board of Directors and Stockholders of

American Axle & Manufacturing Holdings, Inc.

We consent to the incorporation by reference in Registration Statements Nos. 333-41976 and 333-70466 on Form S-8 and Nos. 333-102346 and 333-83946 on Form S-3 of American Axle & Manufacturing Holdings, Inc. (“AAM”) of our reports dated January 22, 2003 (which reports express an unqualified opinion and include an explanatory paragraph relating to AAM’s change in method of accounting for goodwill in 2002) appearing and incorporated by reference in this Annual Report on Form 10-K of American Axle & Manufacturing Holdings, Inc. for the year ended December 31, 2002.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan

March 21, 2003

31 EX-99.1 7 k74284exv99w1.htm EX-99.1 CERTIFICATION OF RICHARD E. DAUCH exv99w1

EXHIBIT 99.1 — CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of American Axle & Manufacturing Holdings, Inc. (the “Issuer”) on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard E. Dauch,
Co-Founder, Chairman of the Board & Chief Executive Officer of the Issuer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.


By: /s/ RICHARD E. DAUCH

Richard E. Dauch Co-Founder, Chairman of the Board & Chief Executive Officer March 21, 2003

32 EX-99.2 8 k74284exv99w2.htm EX-99.2 CERTIFICATION OF ROBIN J. ADAMS exv99w2

EXHIBIT 99.2 — CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of American Axle & Manufacturing Holdings, Inc. (the “Issuer”) on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robin J. Adams, Executive Vice President — Finance & Chief Financial Officer of the Issuer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:


By: /s/ ROBIN J. ADAMS

Robin J. Adams Executive Vice President — Finance & Chief Finacial Officer March 21, 2003

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	•	adverse changes in the economic conditions or political stability of our principal markets (particularly North America, Europe and South America);

	•	reduced demand for our customers’ products particularly light trucks and sport-utility vehicles (“SUVs”) produced by General Motors Corporation (“GM”) and DaimlerChrysler AG’s (“DaimlerChrysler”) heavy-duty Dodge Ram full-size pickup trucks (“Dodge Ram program”);

	•	reduced purchases of our products by GM, DaimlerChrysler or other customers;

	•	our ability and our customers’ ability to successfully launch new product programs;

	•	our ability to respond to changes in technology or increased competition;

	•	supply shortages or price fluctuations in raw materials, utilities or other operating supplies;

	•	our ability to attract and retain key associates;

	•	our ability to maintain satisfactory labor relations and avoid work stoppages;

	•	our customers’ ability to maintain satisfactory labor relations and avoid work stoppages;

	•	risks of noncompliance with environmental regulations;

	•	liabilities arising from legal proceedings to which we are or may become a party or claims against us or our products;

	•	availability of financing for working capital, capital expenditures, research and development or other general corporate purposes;

	•	adverse changes in laws, government regulations or market conditions affecting our products or our customers’ products (including the Corporate Average Fuel Economy regulations); and

	•	other unanticipated events and conditions that may hinder our ability to compete.


	See Item (c) below.

	2. Schedule II — Valuation and Qualifying Accounts

	The report of Deloitte & Touche LLP, independent auditors, on our consolidated financial statement schedule (Schedule II) for the years ended December 31, 2002, December 31, 2001 and December 31, 2000

	All other schedules have been omitted because they are not applicable or not required.


	In consideration of our secondary offering of common stock, we filed a Current Report on Form 8-K on March 12, 2002 for the purpose of filing our audited consolidated financial statements for the years ended December 31, 2001 and 2000 and for each of the years ended December 31, 2001, 2000 and 1999; Management’s Discussion and Analysis for the year ended December 31, 2001; and Selected Consolidated Financial and Other Data for the year ended December 31, 2001 (“Seven Year Financial Summary”).

	On June 27, 2002, the Securities and Exchange Commission issued an Order requiring the filing of sworn statements pursuant to Section 21(a)(1) of the Securities Exchange Act of 1934. On August 1, 2002, we filed a Current Report on Form 8-K for the purpose of filing the sworn statements of Richard E. Dauch, Co-Founder, Chairman of the Board & Chief Executive Officer, and Robin J. Adams, Executive Vice President — Finance & Chief Financial Officer pursuant to such Order.


	1. I have reviewed this annual report on Form 10-K of American Axle & Manufacturing Holdings, Inc;

	2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


		production. Sales were positively impacted in 2002 by our launch of new driveline system products supporting the Dodge Ram program, the launch of the all-new HUMMER H2 and the introduction of the longer wheel-base Chevrolet Trailblazer EXT/GMC Envoy XL. Our sales in 2002 also reflected a reduction in sales to Visteon Corporation, the end of our supply contract related to certain products supporting GM’s full-size van platform and the discontinuance of the Pontiac Firebird/Chevrolet Camaro program. Our increase in 2001 sales of 1% over 2000 compares to an estimated 10% reduction in N.A. light vehicle production for the year and a 4% decline in GM light truck production. Our content-per-vehicle increased to $1,140 in 2002 from $1,115 in 2001 and $979 in 2000. This represents an improvement of approximately 16% since 2000 and was primarily a result of higher 4WD/AWD penetration in the products we ship to GM and our launch of new driveline system products supporting the Dodge Ram program. These gains in content-per-vehicle in 2002 were partly offset by a product mix shift in GM light truck production to more mid-sized SUVs. In 2001, sales gains related to our increased content-per-vehicle were partly offset by reductions in shipments to customers other than GM affected by lower demand for passenger cars and commercial vehicles in North America and Europe.

		Gross profit. Gross profit was $491.7 million in 2002 as compared to $409.7 million in 2001 and $426.2 million in 2000. Gross margin was 14.1% in 2002 as compared to 13.2% in 2001 and 13.9% in 2000. The increases in gross profit and gross margin in 2002 were primarily due to the impact of higher production volumes, productivity gains and tight cost controls including reductions in purchased material costs. Gross profit and gross margin in 2002 were negatively impacted by $19.2 million of increased depreciation and amortization and $9.4 million of losses related to the retirement of fixed assets. On July 14, 2002, a fire occurred at our forge operations in Detroit. At year-end 2002, a substantial portion of our insurance claim related to this fire was settled and we recognized a gain of $10.4 million in other income. While the fire did not affect our ability to meet customer demand, additional costs of $4.9 million were incurred in 2002 to maintain continuity of supply to our customers. These costs were offset by insurance recoveries received in 2002 and had no gross margin impact. The details of the accounting related to the fire are explained more fully in the section entitled “Management’s Discussion and Analysis (“MD&A”) — Impact of Insurance Settlement.”


		customers in the future. These include new 4WD/AWD systems incorporating PTUs and advanced driveshafts designed specifically for the rapidly growing crossover vehicle segment; I-Ride™ independent chassis modules as well as the electronic SmartBar™ stabilizer bar-based active roll-control system designed to improve vehicle ride, handling and NVH characteristics; new TracRite® family of advanced, controlled, traction enhancing differentials introduced into production as part of the Dodge Ram program; electronically controlled differentials for full vehicle integration; PowerLite™ axles; and an increased R&D focus on net-shaped forging design and process technology targeted specifically at mass reduction and system efficiency resulting in improved fuel economy. Another area of R&D focus is drivetrain systems for hybrid vehicles. Together with a consortium of companies, including the Ford Motor Company, we developed and installed a drivetrain system in a hybrid electric bus in 2002.

		Operating income. Operating income was $311.2 million in 2002 as compared to $241.3 million in 2001 and $259.4 million in 2000. Operating margin was 8.9% in 2002, 7.8% in 2001 and 8.5% in 2000. The increases in operating income and operating margin in 2002 were primarily due to the factors previously discussed relating to the increases in gross profit and gross margin, partly offset by higher SG&A. Operating income in 2002 was also favorably impacted by our adoption of FASB Statement No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. Under FASB Statement No. 142, we no longer amortize goodwill. Instead, we periodically evaluate goodwill and any other acquired intangible assets for impairment. The impact of no longer amortizing goodwill resulted in a $4.0 million increase in operating income in 2002. The decreases in operating income and operating margin in 2001 were primarily due to the factors previously discussed relating to the decreases in gross profit and gross margin and the increase in SG&A.

		Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization (“EBITDA”). EBITDA was $470.6 million in 2002 as compared to $367.8 million in 2001 and $377.0 million in 2000. EBITDA margin was 13.5% in 2002, 11.8% in 2001 and 12.3% in 2000. The increases in EBITDA and EBITDA margin in 2002 were primarily due to the factors previously discussed relating to the increases in gross profit and gross margin, partly offset by higher SG&A. In 2002, EBITDA and EBITDA margin were also positively impacted by an insurance settlement related to a fire at our forge operations in Detroit. Excluding the impact of this gain, EBITDA and EBITDA margin would have been $462.1 million and 13.3%, respectively. The details of the accounting related to the fire are explained more fully in the section entitled “MD&A — Impact of Insurance Settlement.” The decreases in EBITDA and EBITDA margin in 2001 were primarily due to the factors previously discussed relating to the decreases in gross profit and gross margin and the increase in SG&A.


	•	Senior Secured Revolving Credit Facility (the “Revolver”) providing for revolving loans and the issuance of letters of credit in an aggregate principal and stated amount not to exceed $378.8 million available through October 2004; and

	•	Senior Secured Term Loan Facility (the “Term Loan”) providing for term loans in an aggregate principal amount of $372.0 million. We will make semi-annual principal payments in varying amounts on the Term Loan through April 2006, at which time the remaining balance of $175.0 million will be due.


	•	Damage for property destroyed — A portion of the building and several machines were damaged. At year-end 2002, a substantial portion of our insurance claim was settled and we recognized a gain in the fourth quarter of $10.4 million in other income. This gain consists of expected proceeds from the insurance company related to our overall property damage claim of $11.0 million offset by $0.1 million net book value of the damaged building and equipment, and a $0.5 million insurance deductible related to property damage expensed in the third quarter. Additionally, we recognized $1.9 million ($0.9 million in cost of goods sold and $1.0 million in SG&A) of incremental profit sharing expense in 2002 as a result of this gain. The net pre-tax gain at year-end 2002 was $8.5 million and the net after-tax gain amounted to $5.5 million.

	•	Incremental costs — While the fire did not affect our ability to meet customer demand, additional costs of $4.9 million were incurred in 2002 to maintain continuity of supply to our customers. These costs were offset by insurance recoveries received in 2002 and had no impact on our results of operations. However, our gross profit was impacted by a $0.5 million insurance deductible related to incremental costs in the third quarter of 2002.


	•	Damage for property destroyed — A portion of the building and several machines were damaged. At year-end 2002, a substantial portion of our insurance claim was settled and we recognized a gain in the fourth quarter of $10.4 million in other income. This gain consists of expected proceeds from the insurance company related to our overall property damage claim of $11.0 million offset by $0.1 million net book value of the damaged building and equipment, and a $0.5 million insurance deductible related to property damage expensed in the third quarter. Additionally, we recognized $1.9 million ($0.9 million in cost of goods sold and $1.0 million in SG&A) of incremental profit sharing expense in 2002 as a result of this gain. The net pre-tax gain at year-end 2002 was $8.5 million and the net after-tax gain amounted to $5.5 million.

	•	Incremental costs — While the fire did not affect our ability to meet customer demand, additional costs of $4.9 million were incurred in 2002 to maintain continuity of supply to our customers. These costs were offset by insurance recoveries received in 2002 and had no impact on our results of operations. However, our gross profit was impacted by a $0.5 million insurance deductible related to incremental costs in the third quarter of 2002.


(1)	The fourth quarter of 2002 includes a $5.5 million gain, net of tax and other related costs, due to an insurance settlement related to a fire at our forge operations in Detroit. See Note 4 for further discussion.

(2)	Full year diluted EPS will not necessarily agree to the sum of the four quarters because each quarter is a separate calculation.

(3)	Prices are the quarterly high and low closing sales prices for our common stock as reported by the New York Stock Exchange. We had approximately 466 stockholders of record as of February 20, 2003.


(a)	Excluding a $5.5 million gain, net of tax and other related costs, due to an insurance settlement related to a fire at our forge operations in Detroit, net income would have been $170.6 million. See Note 4 for further discussion.

(b)	Excluding the GM work stoppage which occurred in June and July of 1998 and the temporary reduction of certain payments made by GM to us as part of the commercial arrangements between us, net sales would have been $2,279.7 million, gross profit would have been $279.1 million and operating income would have been $172.6 million.

(c)	Pursuant to a migratory merger effected in January 1999 and undertaken in connection with the IPO, each share of American Axle & Manufacturing of Michigan, Inc.’s common stock was converted into 3,945 shares of American Axle & Manufacturing Holdings, Inc. common stock. All share and per share amounts have been adjusted to reflect this conversion.

(d)	We believe that EBITDA is a meaningful measure of performance as it is commonly utilized in our industry to analyze operating performance, liquidity and entity valuation. EBITDA should not be construed as income from operations, net income or cash flow from operating activities as determined by accounting principles generally accepted in the United States of America. Other companies may calculate EBITDA differently.


(e)	Invested capital represents the sum of total debt and stockholders’ equity (including preferred stock) less cash and cash equivalents.


	(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

	(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.