Edgar Filing: AMERICAN AXLE & MANUFACTURING HOLDINGS INC

form10-k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2008

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		(I.R.S. Employer
incorporation or organization)		Identification No.)

ONE DAUCH DRIVE, DETROIT, MICHIGAN		48211-1198
(Address of principal executive offices)		(Zip Code)

313-758-2000

(Registrant’s telephone number, including area code)

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

Title of Each Class		Name of Each Exchange on Which Registered
COMMON STOCK, PAR VALUE $0.01 PER SHARE		NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS, PAR VALUE $0.01 PER SHARE		NEW YORK STOCK EXCHANGE

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark 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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The closing price of the Common Stock on June 30, 2008 as reported on the New York Stock Exchange was $7.99 per share and the aggregate market value of the registrant’s Common Stock held by non-affiliates was approximately $368.8 million.

As of March 10, 2009, the number of shares of the registrant’s Common Stock, $0.01 par value, outstanding was 55,477,525 shares.

Documents Incorporated by Reference

Portions of the registrant's Annual Report to Stockholders for the year ended December 31, 2008 and Proxy Statement for use in connection with its Annual Meeting of Stockholders to be held on April 30, 2009, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after December 31, 2008, are incorporated by reference in Part I (Items 1, 1A, 1B, 2, 3 and 4), Part II (Items 5, 6, 7, 7A and 8, 9, 9A, 9B), Part III (Items 10, 11, 12, 13 and 14) and Part IV (Item 15) of this Report.

Internet Website Access to Reports

The website for American Axle & Manufacturing Holdings, Inc. is www.aam.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(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. The Securities and Exchange Commission also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

TABLE OF CONTENTS - ANNUAL REPORT ON FORM 10-K

Year Ended December 31, 2008

			Page Number
Part I	Item 1	Business	1
	Item 1A	Risk Factors	3
	Item 1B	Unresolved Staff Comments	6
	Item 2	Properties	7
	Item 3	Legal Proceedings	8
	Item 4	Submission of Matters to a Vote of Security Holders and Executive Officers of the Registrant	8

Part II	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
	Item 6	Selected Financial Data	13
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	32
	Item 8	Financial Statements and Supplementary Data	33
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	72
	Item 9A	Controls and Procedures	72
	Item 9B	Other Information	72

Part III	Item 10	Directors, Executive Officers and Corporate Governance	72
	Item 11	Executive Compensation	72
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	72
	Item 13	Certain Relationships and Related Transactions, and Director Independence	72
	Item 14	Principal Accounting Fees and Services	72

Part IV	Item 15	Exhibits and Financial Statement Schedules	73


Exhibit 10.60		Form of 2009 Deferred Compensation Award Agreement
Exhibit 12		Computation of Ratio of Earnings to Fixed Charges
Exhibit 18		Preferability Letter from Independent Registered Public Accounting Firm
Exhibit 21		Subsidiaries of the Registrant
Exhibit 23		Consent of Independent Registered Public Accounting Firm
Exhibit 31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act
Exhibit 31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act
Exhibit 32		Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________________________________________________________________________________________________________________________________________

________________________________________________________________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 Tier I supplier to the automotive industry. We manufacture, engineer, design and validate driveline and drivetrain systems and related components and chassis modules for light trucks, sport utility vehicles (SUVs), passenger cars, crossover vehicles and commercial vehicles. Driveline and drivetrain systems include components that transfer power from the transmission and deliver it to the drive wheels. Our driveline, drivetrain and related products include axles, chassis modules, driveshafts, power transfer units, transfer cases, chassis and steering components, driving heads, crankshafts, transmission parts and metal-formed products.

Holdings, a Delaware corporation, is a successor to American Axle & Manufacturing of Michigan, Inc., a Michigan corporation, pursuant to a migratory merger between these entities in 1999.

(b)	Financial Information About Segments

See Note 13 - Segment and Geographic Information of Item 8 – “Financial Statements and Supplementary Data” included in this report.

Company Overview

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 and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. Sales to GM were approximately 74% of our total net sales in 2008, 78% in 2007 and 76% in 2006.

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 Lifetime Program Contract (LPC). 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 10 years, and require us to remain competitive with respect to technology, design and quality. We have been successful in competing, and we will continue to compete, for future GM business upon the expiration of the LPCs.

In addition to GM and Chrysler, we supply driveline systems and other related components to PACCAR Inc., Ford Motor Company (Ford), Harley-Davidson and other original equipment manufacturers (OEMs) and Tier I supplier companies such as The Timken Company, Hino Motors Ltd. and Jatco Ltd. Our net sales to customers other than GM and Chrysler were approximately 16% of sales in 2008 as compared to 10% in 2007 and 2006.

Our principal served market of $37 billion, as estimated based on information available at the end of 2007, is the global driveline market which consists of driveline, drivetrain and related components and chassis modules for light trucks, SUVs, passenger cars, crossover vehicles and commercial vehicles.

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

	Year ended December 31,
	2008			2007			2006
Axles and driveshafts		79.2	%		84.4	%		85.0	%
Chassis components, forged products and other		20.8	%		15.6	%		15.0	%
Total		100.0	%		100.0	%		100.0	%

Industry Trends and Competition

See Item 7, “Management’s Discussion and Analysis – Industry Trends 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 qualified sources in quantities sufficient for our needs.

For further information regarding productive materials, see Item 7, “Management’s Discussion and Analysis – Industry Trends and Competition.”

Research and Development (R&D)

Since March 1, 1994, we have spent approximately $765 million in R&D focusing on new product, process and system technology development. We plan to continue to invest in the development of new products, processes and systems to improve efficiency and flexibility in our operations and continue to deliver innovative new products, chassis modules and integrated driveline systems to our customers.

In 2008, R&D spending was $85.0 million as compared to $80.4 million in 2007 and $83.2 million in 2006. The focus of this investment continues to be developing innovative driveline and drivetrain systems and related components for light trucks, passenger cars, SUVs, crossover vehicles and commercial vehicles in the global marketplace. Product development in this area includes power transfer units, transfer cases, driveline and transmission differentials, multi-piece driveshafts, halfshafts, torque transfer devices, and front and rear drive axles. We continue to focus on electronic integration in our existing and future products to advance their performance. We also continue to support the development of hybrid vehicle systems. Special focus is also placed on the development of products and systems that provide our customers with efficiency and fuel economy advancements. Our efforts in these areas have resulted in the development of prototypes and various configurations of these driveline systems for several OEMs throughout the world.

Backlog

We typically enter into agreements with our customers to provide axles or other driveline or drivetrain products for the life of our customers’ vehicle programs. Our new and incremental business backlog includes formally awarded programs and incremental content and volume including customer requested engineering changes. Our backlog may be impacted by various assumptions, many of which are provided by our customers based on their long range production plans. These assumptions include future production volume estimates, changes in program launch timing and fluctuation in foreign currency exchange rates.

Our new and incremental business backlog was approximately $1.4 billion at December 31, 2008. We expect to launch approximately $0.8 billion of our new and incremental business backlog in the 2009, 2010 and 2011 calendar years. The balance of the backlog is planned to launch in 2012 and 2013. Approximately 60% of our new business backlog relates to RWD and AWD applications for passenger cars and crossover vehicles. Approximately 50% of our new business backlog will be for end use markets outside of North America and approximately 85% of our new business backlog has been sourced to our non-U.S. facilities. Our backlog associated with GM as of December 31, 2008 was approximately $1 billion.

Patents and Trademarks

We maintain and have pending various U.S. and foreign patents, 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

See Item 7, “Management’s Discussion and Analysis – Cyclicality and Seasonality.”

Environmental Matters

See Item 7, “Management’s Discussion and Analysis – Disputes and Legal Proceedings.”

Associates

As of December 31, 2008, we employed approximately 7,250 associates, approximately 3,650 of which are employed in the U.S. Approximately 2,220 associates are represented by the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW). Approximately 1,575 associates represented by the UAW at our original facilities in Michigan and New York are subject to a collective bargaining agreement that expires February 25, 2012. An additional 645 associates at our MSP Industries Corporation and Colfor Manufacturing, Inc. subsidiaries are represented by the UAW under collective bargaining agreements that expire April 17, 2013 and June 2, 2010, respectively. Approximately 35 associates are represented by the International Association of Machinists (IAM) under a collective bargaining agreement which runs through May 3, 2009. In addition, approximately 215 associates at our Albion Automotive subsidiary, approximately 2,235 associates at our Guanajuato Manufacturing Complex and approximately 345 associates at our Araucaria Manufacturing Facility majority-owned subsidiary are represented by labor unions that are subject to collective bargaining agreements. The collective bargaining agreement at Albion may be modified upon agreement by the parties and the agreements in Mexico and Brazil expire annually.

Credit and Working Capital Practices

See Item 7, “Management’s Discussion and Analysis – Liquidity and Capital Resources.”

(d)	Financial Information About Geographic Areas

International operations are subject to certain additional risks inherent in conducting business outside the U.S., 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 Note 13 - Segment and Geographic Information of Item 8 – “Financial Statements and Supplementary Data” included in this report.

Item 1A. Risk Factors

The following risk factors and other information included in this Annual Report on Form 10-K should be considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected.

Our business could be adversely affected if GM and/or Chrysler filed for bankruptcy or were unable to comply with the terms of the Secured Term Loan Facility provided by the U.S. Treasury and any additional requirements of the Troubled Asset Relief Program (TARP).

In the fourth quarter of 2008, both GM and Chrysler publicly announced that they would not be able to meet near-term working capital requirements without additional private funding, which seemed unlikely based on the distress in the credit markets, or assistance from the federal government. Both GM and Chrysler secured financing commitments by entering into loan agreements with the U.S. Treasury and began borrowing under those agreements in the fourth quarter of 2008. These loan agreements are conditioned upon submitting viable plans of reorganization and sustainability to the President of the United States in the first quarter of 2009. On February 17, 2009, both companies submitted their viability plans and are required to provide a progress report of their viability plan by March 31, 2009. If the U.S. government does not approve of the submitted plans, it may accelerate the repayment of the loans provided to either or both companies.

Even if the U.S. government allows the loans provided to GM and Chrysler to remain outstanding, it is not certain that the loans will be sufficient to meet their working capital requirements in 2009 or future periods. As part of their viability plans, both companies have requested additional funding from the U.S. government to cover near-term liquidity requirements. It is possible that additional funding, public or private, would not be available to meet these needs.

If either GM or Chrysler is unable to continue operations, we could suffer unfavorable consequences, such as payment delays, inability to collect trade and other accounts receivable, price reductions, production volume declines or the failure to honor contractual commitments including sourcing decisions and financial obligations.

General economic conditions may have an adverse impact on our operating performance and results of operations and our customers’ operating performance and results of operations, which may affect our ability and our customers’ ability to raise capital.

The recent global financial crisis has impacted our business and our customers’ business in the U.S. and globally. Longer term disruptions in the capital and credit markets could further adversely affect our customers' and our ability to access needed liquidity for working capital. Sustained weakness in general economic conditions and/or financial markets in the U.S. or globally could adversely affect our ability and our customers’ ability to raise capital on favorable terms. From time to time we have relied, and may also rely in the future, on access to financial markets as a source of liquidity for working capital requirements, acquisitions and general corporate purpose not satisfied by cash-on-hand or operating cash flows. The inability to raise capital on favorable terms, particularly during times of uncertainty in the financial markets similar to that which is currently being experienced in the financial markets, could adversely impact our ability to sustain our businesses and would likely increase our capital costs.

In addition, purchases of our customers' products may be limited by their customers’ inability to obtain adequate financing for such purchases. Continued weakness or deteriorating conditions in the U.S. or global economy that results in further reduction of automotive production and sales by our largest customers may continue to adversely affect our business, financial condition and results of operations. Additionally, in a down-cycle economic environment, we may experience the negative effects of increased competitive pricing pressure and customer turnover.

Our financial condition and operations may be adversely affected by a violation of financial and other covenants.

Our Amended and Restated Revolving Credit Facility (the “Amended and Restated Revolving Credit Facility”) contains revised financial covenants related to secured indebtedness leverage and interest coverage. The Amended and Restated Revolving Credit Facility and our existing Term Loan Facility (the “Term Loan Facility”) impose limitations on our ability to make certain investments, declare dividends or distributions on capital stock, redeem or repurchase capital stock and certain debt obligations, incur liens, incur indebtedness, merge, make acquisitions or sell all or substantially all of our assets. The Amended and Restated Revolving Credit Facility and Term Loan Facility also include customary events of default. Obligations under the Amended and Restated Revolving Credit Facility and the Term Loan facility are guaranteed by our U.S. subsidiaries. In addition, the Amended and Restated Revolving Credit Facility and the Term Loan Facility are secured by all or substantially all of our assets, the assets of AAM and each guarantor’s assets, including a pledge of capital stock of our U.S. subsidiaries and a portion of the capital stock of the first tier foreign subsidiaries of AAM, Inc. and each guarantor. A violation of any of these covenants or agreements could result in a default under these facilities, which could permit the lenders to accelerate the repayment of any borrowings outstanding at that time and levy on the collateral package granted in connection with the Amended and Restated Revolving Credit Facility and the Term Loan Facility. A default or acceleration under the Amended and Restated Credit Facility or the Term Loan Facility may result in increased capital costs and defaults under our other debt agreements and may adversely affect our ability to operate our business, our subsidiaries and guarantors’ ability to operate their business and our results of operations and financial condition.

Our business could be adversely affected by the cyclical nature of the automotive industry.

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, such as credit availability, interest rates, fuel prices and consumer confidence. The current cyclical downturn has been exacerbated by a rapid and severe economic decline in the U.S. and globally. Our business may be further adversely affected by continued economic decline that results in a further reduction of automotive production and sales by our largest customers. Our business may also be adversely affected by reduced demand for the product programs we currently support, or if we fail to obtain sales orders for new or redesigned products that replace our current product programs.

Our business is significantly dependent on sales to GM and Chrysler.

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 and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. Sales to GM were approximately 74% of our total net sales in 2008, 78% in 2007 and 76% in 2006. Further reduction in our sales to GM or further reduction by GM of its production of RWD light trucks or SUVs could have a material adverse effect on our results of operations and financial condition.

We are also the principal supplier of driveline system products for the Chrysler Group’s heavy-duty Dodge Ram full-size pick up trucks (Dodge Ram program) and its derivatives. Sales to Chrysler accounted for approximately 10% of our net sales in 2008, 12% in 2007 and 14% in 2006. Further reduction in our sales to Chrysler or further reduction by Chrysler of its production of the Dodge Ram program could have a material adverse effect on our results of operations and financial condition.

Our business is dependent on the rear-wheel drive light truck and SUV market segments in North America.

A substantial portion of our revenue is derived from products supporting RWD light truck and SUV platforms in North America. Sales and production of light trucks and SUVs are being affected by many factors, including changes in consumer demand; product mix shifts favoring other types of light vehicles, such as front-wheel drive based crossover vehicles and passenger cars; fuel prices; and government regulation, such as the Corporate Average Fuel Economy regulations (CAFE) and related emissions standards promulgated by federal and state regulators. In 2007, the U.S. Congress enacted legislation increasing the U.S. fuel-economy standard industry average to 35 miles per gallon by year 2020 and the current legislative body continues to pursue more aggressive standards at a federal and/or state level. Our customers are currently assessing the impact of these regulations including consumer preferences and demand for vehicles which may have an adverse impact on the programs we currently supply. A reduction in this market segment could have a material adverse impact on our results of operations and financial condition.

We may undertake further restructuring actions.

We have initiated restructuring actions in recent years in order to realign and resize our production capacity and cost structure to meet current and projected operational and market requirements. We may need to take further actions and the charges related to these actions may have a material adverse effect on our results of operations and financial condition.

Our common stock may be delisted from the New York Stock Exchange (NYSE).

On February 27, 2009, we were notified by the NYSE that we had fallen below NYSE’s continued listing standard related to total market capitalization and stockholders’ equity. The NYSE requires, among other things, that the average market capitalization of a listed company be not less than $75 million over a consecutive 30 trading-day period and that stockholders’ equity be not less than $75 million. We intend to submit a plan to the NYSE, within the required 45 day period, to demonstrate our ability to achieve compliance with the continued listing standards within the allotted 18 month cure period. It is not certain that we will be able to successfully implement this plan within the time allotted. In addition, it is possible that we may fall below other continued listing standards. Delisting would have an adverse effect on the liquidity of our common stock and, as a result, the market price for our common stock might be adversely affected. Delisting could also make it more difficult for us to raise additional capital.

Our business could be adversely affected by the volatility in the price of raw materials.

Worldwide commodity market conditions have resulted in volatility in the cost of steel and other metallic materials in recent years. Furthermore, the cost of such steel and metallic materials needed for our products may increase. If we are unable to pass cost increases on to our customers, it could have a material adverse effect on our results of operations and financial condition.

Our business could be adversely affected by disruptions in our supply chain.

We depend on a limited number of suppliers for certain key components and materials needed for our products. We rely upon, and expect to continue to rely upon, certain suppliers for critical components and materials that are not readily available in sufficient volume from other sources. These supply chain characteristics make us susceptible to supply shortages and price increases. In recent years, several of our direct material suppliers have filed for bankruptcy protection. In addition, if GM or Chrysler were to file for bankruptcy protection, it might have a material adverse effect on our suppliers, causing us supply shortages. There can be no assurance that the suppliers of these materials will be able or willing to meet our future needs on a timely basis. A significant disruption in the supply of these materials could have a material adverse effect on our results of operations and financial condition.

Our business could be adversely affected if we fail to maintain satisfactory labor relations.

Substantially all of our hourly associates worldwide are members of industrial trade unions employed under the terms of collective bargaining agreements. Substantially all of our hourly associates in the U.S. are represented by the International UAW. Approximately 1,550 of our UAW represented associates are covered by new labor agreements that expire on February 25, 2012. In the process of negotiating these agreements, the International UAW called a strike against AAM that lasted 87 days and significantly disrupted our operations and the operations of our customers and suppliers. There can be no assurance that future negotiations with our labor unions will be resolved favorably or that we will not experience a work stoppage that could have a material adverse impact on our results of operations and financial condition. In addition, there can be no assurance that such future negotiations will not result in labor cost increases or other terms and conditions that could adversely affect our results of operations and financial condition or our ability to compete for future business.

Our business could be adversely affected by work stoppages at GM or Chrysler.

A substantial number of employees of our largest two customers, GM and Chrysler, and their key suppliers are represented by trade unions, including the International UAW. Because sales to GM and Chrysler account for approximately 84% of our sales, work stoppages at GM, Chrysler or any of their key suppliers could adversely affect our results of operations and financial condition.

Our company or our customers may not be able to successfully launch new product programs on a timely basis.

Certain of our customers are preparing to launch new product programs for which we will supply newly developed driveline system products and related components. Some of these new product program launches have required, and will continue to require, substantial capital investment. We may not be able to install and certify the equipment needed to produce products for these new product programs in time for the start of production. There can be no assurance that we will successfully complete the transition of our manufacturing facilities and resources to support these new product programs or any other future product programs. Accordingly, the launch of new product programs may adversely affect production rates or other operational efficiency and profitability measures at our facilities. In addition, our customers may delay the launch or fail to successfully execute the launch of these product programs, or any additional future product program for which we will supply products.

Our company may not realize all of the revenue expected from our new and incremental business backlog.

The realization of incremental revenues from awarded business is inherently subject to a number of risks and uncertainties, including the accuracy of customer estimates relating to the number of vehicles to be produced in new and existing product programs and the timing of such production. It is also possible that our customers may choose to delay or cancel a product program for which we have been awarded new business. Our revenues, operating results and financial position could be adversely affected relative to our current financial plans if we do not realize substantially all the revenue from our new and incremental business backlog.

We are under continuing pressure from our customers to reduce our prices.

Annual price reductions are a common practice in the automotive industry. The majority of our products are sold under long-term contracts with prices scheduled at the time the contracts are established. Certain of our contracts require us to reduce our prices in subsequent years and most of our contracts allow us to adjust prices for engineering changes. If we must accommodate a customer’s demand for higher annual price reductions and are unable to offset the impact of any such price reductions through continued technology improvements, cost reductions and other productivity initiatives, our results of operations and financial condition could be adversely affected.

Our business faces substantial competition.

The automotive industry is highly competitive. Our competitors include the driveline component manufacturing facilities controlled by certain existing original equipment manufacturers (OEMs), as well as many other domestic and foreign companies possessing the capability to produce some or all of the products we supply. Some of our competitors are affiliated with OEMs and others have economic advantages as compared to our business, such as patents, existing underutilized capacity and lower wage and benefit costs. Technology, design, quality, delivery and cost are the primary elements of competition in our industry segment. As a result of these competitive pressures and other industry trends, OEMs and suppliers are developing strategies to reduce cost. These strategies include supply base consolidation and global sourcing. Our business may be adversely affected by increased competition from suppliers benefiting from OEM affiliate relationships or financial and other resources that we do not have. Our business may also be adversely affected if we do not sustain our ability to meet customer requirements relative to technology, design, quality, delivery and cost.

Our company’s global operations are subject to risks and uncertainties.

International operations are subject to certain risks inherent in conducting business outside the U.S., such as changes in currency exchange rates, tax laws, price and currency exchange controls, import restrictions, nationalization, expropriation and other governmental action. Our global operations may also be adversely affected by political events and domestic or international terrorist events and hostilities. These uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition. As we continue to expand our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other risks.

Our company faces rising costs for pension and other postretirement benefit obligations.

We have significant pension and other postretirement benefit obligations to certain of our associates and retirees. Our ability to satisfy the funding requirements associated with these obligations will depend on our cash flow from operations and our ability to access credit and the capital markets. The funding requirements of these benefit plans, and the related expense reflected in our financial statements, are affected by several factors that are subject to an inherent degree of uncertainty and volatility, including governmental regulation. Key assumptions used to value these benefit obligations and the cost of providing such benefits, funding requirements and expense recognition include the discount rate, the expected long-term rate of return on pension assets and the health care cost trend rate. We have also assumed that GM will fulfill their obligation to share in the cost of providing other postretirement benefits to certain retirees pursuant to our 1994 Asset Purchase Agreement. If the actual trends in these factors are less favorable than our assumptions, it could have an adverse affect on our results of operations and financial condition.

We may incur material losses and costs as a result of product liability and warranty claims, litigation and other disputes and claims.

We are exposed to warranty and product liability claims in the event that our products fail to perform as expected, and we may be required to participate in a recall of such products. Our largest customers have recently extended their warranty protection for their vehicles. Other OEMs have also similarly extended their warranty programs. This trend will put additional pressure on the supply base to improve quality, reliability and warrant performance. This trend may also result in higher cost recovery claims by OEMs to suppliers whose products incur a higher rate of warranty claims. Historically, we have experienced negligible warranty charges from our customers due to our contractual arrangements and the quality, warranty, reliability and durability performance of our products. If our customers demand higher warranty-related cost recoveries, or if our products fail to perform as expected, it could have a material adverse impact on our results of operations or financial condition.

We are also involved in various legal proceedings incidental to our business. Although we believe that none of these matters is likely to have a material adverse effect on our results of operations or financial condition, there can be no assurance as to the ultimate outcome of any such legal proceeding or any future legal proceedings.

In light of current market and industry conditions, including the uncertainties regarding our customers’ ability to continue as going concerns, and other factors described in the accompanying audit report of our independent registered public accounting firm, there is a risk that disputes, claims or other demands may arise beyond what is ordinarily incidental to our business. This includes disputes that may arise with lenders related to our continued compliance with the covenants in the Revolving Credit Facility and Term Loan agreements.

Our business is subject to costs associated with environmental, health and safety regulations.

Our operations are subject to various federal, state, local and foreign laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. We believe that our operations and facilities have been and are being operated in compliance, in all material respects, with such laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. The operation of our manufacturing facilities entails risks in these areas, however, and there can be no assurance that we will not incur material costs or liabilities. In addition, potentially significant expenditures could be required in order to comply with evolving environmental, health and safety laws, regulations or other pertinent requirements that may be adopted or imposed in the future by governmental authorities.

Our company’s ability to operate effectively could be impaired if we lose key personnel.

Our success depends, in part, on the efforts of our executive officers and other key associates. In addition, our future success will depend on, among other factors, our ability to continue to attract and retain qualified personnel. The loss of the services of our executive officers or other key associates, or the failure to attract or retain associates, could have a material adverse effect on our results of operations and financial condition.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

The following is a summary of our principal facilities:

Name	Sq. Feet		Type of Interest	Function
Detroit Manufacturing Complex Detroit, MI		2,455,000	Owned	Rear and front axles and steering linkages
Guanajuato Manufacturing Complex Guanajuato, Mexico		1,336,000	Owned	Rear axles and driveshafts, front axles, front auxiliary driveshafts and forging products
Three Rivers Manufacturing Facility Three Rivers, MI		806,000	Owned	Rear axles and driveshafts, front auxiliary driveshafts and universal joints
Colfor Manufacturing, Inc.
Malvern, OH		235,000	Owned	Forged products
Minerva, OH		190,000	Owned	Forged products
Salem, OH		175,000	Owned	Forged products
Albion Automotive
Glasgow, Scotland		464,000	Leased	Front and rear axles for medium and heavy-duty Trucks and buses
Lancashire, England		135,000	Leased	Crankshafts and fabricated parts
Araucária Manufacturing Facility Araucária, Brazil		345,000	Owned	Machining of forged and cast products
Corporate Headquarters Detroit, MI		252,000	Owned	Executive and administrative offices
Changshu Manufacturing Facility Changshu, China		191,000	Owned	Rear axles
MSP Industries Oxford, MI		125,000	Leased	Forged products
Cheektowaga Manufacturing Facility Cheektowaga, NY		116,000	Owned	Machining of forged products
Technical Center Rochester Hills, MI		109,000	Owned	R&D, design engineering, metallurgy, testing and validation
DieTronik Auburn Hills, MI		76,000	Owned	Tool & die manufacturer
Oxford Forge Oxford, MI		60,000	Owned	Forged products
AccuGear, Inc. Fort Wayne, IN		49,000	Owned	Forged and machined products
Detroit South Campus Detroit, MI		40,000	Owned	Quality engineering technical, process development and safety training centers
AAM Sona Manufacturing Facility Pantnagar, India		30,000	Owned	Rear axles
European Headquarters & Engineering Center Bad Homburg, Germany		24,000	Leased	European headquarters and technical center
Pune Business Office & Engineering Center Pune, India		18,000	Leased	Engineering, information technologies and support services
Olawa Manufacturing Facility Olawa, Poland		15,000	Owned	Transmission differentials

Item 3. Legal Proceedings

See Item 7, “Management’s Discussion and Analysis – Disputes and Legal Proceedings.”

Item 4. Submission of Matters to a Vote of Security Holders

None

Executive Officers of the Registrant

Name __________	Age		Position
Richard E. Dauch .………………….….		66	Co-Founder, Chairman of the Board & Chief Executive Officer
David C. Dauch ………………………...		44	President & Chief Operating Officer
Yogendra N. Rahangdale………….……		61	Vice Chairman & Chief Technology Officer
John J. Bellanti…………………….……		54	Executive Vice President - Worldwide Operations
Michael K. Simonte………………..…...		45	Group Vice President - Finance & Chief Financial Officer
Mark S. Barrett…………………………		48	Vice President - Engineering & Product Development
David A. Culton………………………..		43	Vice President - Unibody Vehicle Business Unit
Michael C. Flynn…………………..……		51	Vice President - Global Procurement & Supply Chain Management
Curt S. Howell……………………..……		46	Vice President - Full Frame Vehicle Business Unit
John E. Jerge………………...………….		47	Vice President - Driveshaft & Halfshaft Business Unit
Patrick S. Lancaster……………….……		61	Vice President - Chief Administrative Officer & Secretary
Allan R. Monich ………………….……		55	Vice President - Quality Assurance & Customer Satisfaction
Steven J. Proctor…………………….….		52	President - AAM Asia, Vice President - AAM Corporate
Alberto L. Satine…………………..……		52	Vice President - Strategic & Business Development
Kevin M. Smith………………………...		47	Vice President - Mexico Operations
John S. Sofia………………………..…..		49	Vice President - Commercial Vehicle Business Unit
Norman Willemse………………….…..		52	Vice President - Global Metal Formed Product Business Unit

Richard E. Dauch, age 66, is Co-Founder, Chairman of the Board & Chief Executive Officer of AAM, 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 the Company began operations in March 1994. In October 1997, he was named Chairman of the Board of Directors. He was also President of AAM from March 1994 through December 2000. Prior to March 1994, he spent 12 years at the Chrysler Corporation, where he established the just-in-time materials management system and the three-shift manufacturing vehicle assembly process. He is a retired officer from the Chrysler Corporation. Mr. Dauch’s last position at Chrysler, in 1991, was Executive Vice President of Worldwide Manufacturing. Mr. Dauch also 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 has more than 44 years of experience in the automotive industry. Mr. Dauch was named the 1996 Worldwide Automotive Industry Leader of the Year by the Automotive Hall of Fame, the 1997 Manufacturer of the Year by the Michigan Manufacturers’ Association, and the 1999 Michiganian of the Year by The Detroit News. In 2003, he received the Harvard Business School of Michigan Business Statesman Award, the Ernst & Young Entrepreneur of the Year Award, and the Northwood University Outstanding Business Leader Award. In 2005, he received the CEO Legends Award from Automation Alley, and in 2006, he received the Shien-Ming Wu Foundation Manufacturing Leadership Award. Mr. Dauch also served as Chairman of the National Association of Manufacturers (N.A.M.), and currently serves on the Board of Directors of that organization. He has lectured extensively on the subject of manufacturing and authored the book, Passion for Manufacturing, which is distributed in colleges and universities globally and in several languages. Richard E. Dauch is the father of David C. Dauch.

David C. Dauch, age 44, has been President and Chief Operating Officer since June 2008. Prior to that, he served as Executive Vice President & COO (since December 2007); Executive Vice President – Commercial & Strategic Development (since January 2005); Senior Vice President, Commercial (since May 2004); Senior Vice President, Sales, Marketing & Driveline Division (since September 2003); Vice President, Manufacturing – Driveline Division (since January 2001); 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. David C. Dauch is the son of Richard E. Dauch.

Yogendra (Yogen) N. Rahangdale, age 61, has been Vice Chairman & Chief Technology Officer since March 2008. Prior to that, he served as Vice Chairman, a non-Board position (since December 2007); President & Chief Operating Officer (since October 2005); Executive Vice President - Operations & Planning (since May 2004); Executive Vice President & Chief Technology Officer (since September 2003); Group Vice President & Chief Technology Officer (since January 2001); 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.

John J. Bellanti, age 54, has been Executive Vice President – Worldwide Operations since October 2008. Prior to that, he served as Group Vice President – Manufacturing Services, Capital Planning & Cost Estimating (since December 2007); Vice President – Manufacturing Services, Capital Planning & Cost Estimating (since July 2006); Vice President - Engineering & Chief Technology Officer (since May 2004); Vice President, Engineering & Product Development (since September 2003); Executive Director, Manufacturing Services (since March 2000); Director, Manufacturing Engineering (since June 1998); Director Advanced Programs (since May 1996) and Plant Manager, Detroit Forge Plant (since joining our Company in March 1994). Prior to joining our Company, Mr. Bellanti, worked 22 years at General Motors in various manufacturing and engineering positions, most recently serving as Production Manager. Mr. Bellanti was on the Board of Directors for the North American Forging Industry Association from 1999 through 2003, serving as President of that Association in 2002.

Michael K. Simonte, age 45, has been Group Vice President – Finance & Chief Financial Officer since December 2007. Simonte previously served as Vice President – Finance & Chief Financial Officer (since January 2006); Vice President & Treasurer (since May 2004); and Treasurer (since September 2002). Simonte joined AAM in December 1998 as Director, Corporate Finance. In that role, he coordinated all of the financial accounting, planning and reporting activities of the company until he was appointed as Treasurer in September 2002. Prior to joining our Company, Mr. Simonte served as Senior Manager at the Detroit office of Ernst & Young LLP. Mr. Simonte is a certified public accountant.

Mark Barrett, age 48, has been Vice President – Engineering & Product Development since October 2008. Prior to that, he served as Executive Director, Engineering & Product Development (since January 2008); Executive Director, Axle & Drivetrain (since November 2006); Executive Director, Powertrain, Driveshaft and Halfshaft Engineering (since January 2006); Executive Director, Released and Domestic Programs (since January 2004); Director, Mid Size Axle Programs (since December 1998) and Staff Project Engineer (since joining our Company in March 1994). Prior to joining our Company, Mr. Barrett served at General Motors for 9 years in a variety of manufacturing and engineering positions.

David Culton, age 43, has been Vice President – Unibody Vehicle Business Unit since October 2008. Prior to that, he served as Controller (since April 2007); Executive Director, Sales (since July 2006); Director, Commercial Analysis (since August 2004); Director, Finance – Operations (Since June 2003); Finance Manager (since August 1999); and Assistant Finance Manager (since joining our Company in September 1998). Prior to joining our Company, Mr. Culton served at Chrysler Corporation for 10 years in a variety of management, finance, engineering and manufacturing positions.

Michael C. Flynn, age 51, has been Vice President – Global Procurement & Supply Chain Management since December 2007. Prior to that, he served as Vice President - Procurement (since November 2005); Executive Director, Sales (since June 2004); Director, Sales (since August 2002); Manager, Manufacturing (since June 2001); Director, Direct Material Purchasing (since February 1998); Manager, Released Programs (since July 1997); and Platform Manager (since July 1996) and Purchasing Agent (since joining our Company in March 1994). Prior to joining our Company, Mr. Flynn served at General Motors for 11 years in a variety of manufacturing, purchasing and engineering positions.

Curt S. Howell, age 46, has been Vice President – Full Frame Vehicle Business Unit since October 2008. Prior to that, he served as Vice President – Global Driveline Operations (since December 2007); General Manager, International Operations (since June 2007); General Manager, Asia (since October 2005); General Manager, Latin/South America Driveline Operations (since January 2004); Executive Director, Cost Estimating (since January 2003); Executive Director, Worldwide Sales (since January 2001); Managing Director, AAM De Mexico (since January 1998); Director, Worldwide Programs (since joining our Company in April 1994). Prior to joining our Company, Mr. Howell served at Chrysler Corporation for 7 years in a variety of engineering, sales and service positions.

John E. Jerge, age 47, has been Vice President – Driveshaft & Halfshaft Business Unit since October 2008. Prior to that, he served as Vice President - Human Resources (since September 2004); Executive Director, Labor Relations (since April 2004); Director, Labor Relations (since January 2003); Plant Manager, Detroit Gear & Axle Plant (since March 2000); Plant Manager, Buffalo Gear Axle & Linkage (since November 1997); Manufacturing Manager, Buffalo Gear Axle & Linkage (since March 1996); Area manager of Axles and Area Manager of Linkage (since joining our Company in March 1994). Prior to joining our Company, Mr. Jerge served at Chrysler Corporation for 10 years in a variety of manufacturing, engineering and plant management positions.

Patrick S. Lancaster, age 61, has been Vice President, Chief Administrative Officer & Secretary since September 2003. Prior to that, he served as Group Vice President, Chief Administrative Officer & Secretary (since January 2001); Vice President & Secretary (since March 2000); Vice President, General Counsel & Secretary (since November 1997) and General Counsel & Secretary (since June 1994). Mr. Lancaster is a member of the State Bar of Michigan.

Allan R. Monich, age 55, has been Vice President – Quality Assurance & Customer Satisfaction since July 2006. Prior to that, he served as Vice President - Program Management & Capital Planning (since October 2005); Vice President – Program Management & Launch (since May 2004); Vice President, Manufacturing Forging Division (since October 2001); 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 General Motors for 22 years in the areas of manufacturing, quality assurance, sales and engineering, including four years as a Plant Manager.

Steven J. Proctor, age 52, has been President – AAM Asia & Vice President – AAM Corporate since October 2008. Prior to that, he served as Vice President - Sales & Marketing (since June 2004); Executive Director, Driveline Sales & Marketing (since September 2003); President and Chief Operating Officer of AAM do Brasil (since September 1999); Director, GMT-360, I-10/GMT-355 (since December 1998); Director, Worldwide Programs (since February 1998); Director, Strategic Planning (since July 1996) and Director, General Motors Programs (since joining our Company in March 1994). Prior to joining our Company, Mr. Proctor worked for General Motors for 20 years in the areas of product and industrial engineering, production, material management and sales.

Alberto L. Satine, age 52, has been Vice President – Strategic & Business Development since November 2005. Prior to that, he served as Vice President - Procurement (since January 2005); Executive Director, Global Procurement Direct Materials (since January 2004); General Manager, Latin American Driveline Sales and Operations (since August 2003) and General Manager of International Operations (since joining our Company in May 2001). Prior to joining our Company, Mr. Satine held several management positions at Dana Corporation, including the position of President of Dana’s Andean Operations in South America from 1997 to 2000 and General Manager of the Spicer Transmission Division in Toledo, Ohio from 1994 to 1997.

Kevin M. Smith, age 47, has been Vice President – Mexico Operations since December 2007. Prior to that, he served as Plant Manager, Guanajuato Gear & Axle (since February 2007); Executive Director, Manufacturing Engineering (since July 2006); Executive Director, Axle Engineering (since January 2006); Director, GMT 900 Program (since October 2001); Director, Manufacturing Engineering (since June 2001); Plant Manager, Buffalo Gear, Axle & Linkage (since March 2000); Plant Manager, Three Rivers (since February 1998); Manufacturing Manager, Detroit Gear & Axle Plant (since February 1996) and Manufacturing Engineering Manager, Buffalo Gear, Axle & Linkage (since joining our Company in March 1994). Prior to joining our Company, Mr. Smith served at Chrysler Corporation for 10 years in a variety of manufacturing and engineering positions.

John S. Sofia, age 49, has been Vice President – Commercial Vehicle Business Unit since March 2008. Prior to that, he served as Vice President – Product Engineering, Commercial Vehicle Operations & Chief Technology Officer (since December 2007); Vice President – Engineering & Product Development (since July 2006); Vice President - Quality Assurance & Customer Satisfaction (since October 2004); Director, Advanced Quality Planning (since August 2002); Plant Manager, Detroit Forge (since April 2001); Director, Product Engineering (since June 2000); Manager of the Current Production & Process Engineering Group (since September 1997) and Engineering Manager (since joining our Company in May 1994). Prior to joining our Company, Mr. Sofia served at Chrysler Corporation for 10 years in a variety of manufacturing and engineering positions.

Norman Willemse, age 52, has been Vice President – Global Metal Formed Product Business Unit since October 2008. Prior to that, he served as Vice President – Global Metal Formed Product Operations (since December 2007); General Manager – Metal Formed Products Division (since July 2006) and Managing Director – Albion Automotive (since joining our Company in August 2001). Prior to joining our Company, Mr. Willemse served at ATSAS for 7 years as Executive Director Engineering & Commercial and John Deere for over 17 years in various engineering positions of increasing responsibility. Mr. Willemse is a professional certified mechanical engineer.

___________________________________________________________________________________________________________________________________________

___________________________________________________________________Part II________________________________________________________________

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock, par value $0.01 per share, is listed for trading on the New York Stock Exchange (NYSE) under the symbol “AXL.”

On February 27, 2009, we were notified by the NYSE that we have fallen below their continued listing standard related to our total market capitalization and stockholders’ equity. The NYSE requires that the average market capitalization of a listed company be not less than $75 million over a consecutive 30 trading-day period and that stockholders’ equity be not less than $75 million.

We intend to submit a plan to the NYSE, within the required 45 day period, to demonstrate our ability to achieve compliance with the continued listing standards within the allotted 18 month cure period.

Stockholders and High and Low Sales Prices

2008	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Full Year
High	$	23.08	$	22.75	$	8.74	$	5.38	$	23.08
Low	$	16.22	$	7.99	$	4.86	$	1.03	$	1.03
2007
High	$	28.16	$	30.01	$	30.59	$	27.91	$	30.59
Low	$	17.38	$	26.76	$	21.55	$	18.62	$	17.38

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 411 stockholders of record as of March 10, 2009.

Dividends

We declared and paid quarterly cash dividends of $0.02 per share in the last two quarters of 2008, and $0.15 per share in the first two quarters of 2008 and both the 2007 and 2006 fiscal years. We paid $18.3 million, $31.8 million and $31.0 million to stockholders of record under the quarterly cash dividend program during 2008, 2007 and 2006, respectively. Our Revolving Credit Facility, which was amended on November 7, 2008, imposes limitations on our ability to declare or pay dividends. On January 29, 2009 our Board of Directors decided to suspend the quarterly cash dividend effective in the first quarter of 2009.

Issuer Purchases of Equity Securities

In the fourth quarter of 2008, the Company withheld and repurchased shares to pay taxes due upon the vesting of certain individuals’ restricted stock grants. The following table provides information about our equity security purchases during the quarter ended December 31, 2008:

Period	Total Number of Shares (Or Units) Purchased		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
October 2008		5,092	$	5.38		-		-
November 2008		534	$	3.59		-		-
December 2008		7,471	$	2.33		-		-

Securities Authorized for Issuance under Equity Compensation Plans

The information regarding our securities authorized for issuance under equity compensation plans is incorporated by reference from our Proxy Statement.

Item 6. Selected Financial Data

FIVE YEAR FINANCIAL SUMMARY

Year Ended December 31,

(in millions, except per share data)

	2008			2007			2006			2005			2004
Statement of operations data
Net sales	$	2,109.2		$	3,248.2		$	3,191.7		$	3,387.3		$	3,599.6
Gross profit (loss)		(865.2	)		278.4	*		(129.4	)*		305.0	*		478.4	*
Selling, general and
administrative expenses		185.4			202.8			197.4			199.6			189.7
Operating income (loss)		(1,050.6	)		75.6	*		(326.8	)*		105.4	*		288.7	*
Net interest expense		(62.4	)		(52.3	)		(38.8	)		(27.2	)		(25.5	)
Net income (loss)		(1,224.3	)(a)		37.0	*(a)(b)		(223.0	)*(a)(b)		56.2	*		161.9	*(b)
Diluted earnings (loss) per share	$	(23.73	)	$	0.70	*	$	(4.43	)*	$	1.10	*	$	3.02	*
Diluted shares outstanding		51.6			52.7			50.4			51.1			53.5

Balance sheet data
Cash and cash equivalents	$	198.8		$	343.6		$	13.5		$	3.7		$	14.4
Total assets		2,247.8			3,135.9	*		2,793.6	*		2,948.7	*		2,788.9	*
Total long-term debt		1,139.9			858.1			672.2			489.2			448.0
Stockholders’ equity (deficit)		(435.7	)		899.4	*		822.5	*		1,003.9	*		964.4	*
Dividends declared per share	$	0.34		$	0.60		$	0.60		$	0.60		$	0.45

Statement of cash flows data
Cash provided by (used in) operating activities	$	(163.1	)	$	367.9		$	185.7		$	280.4		$	453.2
Cash used in investing activities		(231.7	)		(186.5	)		(323.6	)		(305.7	)		(240.2	)
Cash provided by (used in)
financing activities		254.5			148.3			147.3			14.8			(211.3	)
Dividends paid		(18.3	)		(31.8	)		(31.0	)		(30.4	)		(23.0	)

Other data
Depreciation and amortization	$	199.5		$	229.4		$	206.0		$	185.1		$	171.1
Capital expenditures		140.2			186.5			286.6			305.7			240.2
Purchase buyout of leased equipment		-			-			71.8			-			-

(a)	Includes special charges, asset impairments, and other non-recurring costs of $985.4 million in 2008, $58.7 million in 2007 and $248.2 million in 2006, net of tax, primarily related to restructuring actions.

(b)	Includes charges of $3.5 million in 2007, $1.8 million in 2006 and $15.9 million in 2004, net of tax, related to debt refinancing and redemption costs.

*	These balances have been adjusted to reflect the cumulative change in accounting described in Note 1 of Item 8 – "Financial Statements and Supplementary Data."

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

OVERVIEW

American Axle & Manufacturing Holdings, Inc. (Holdings) and its subsidiaries (collectively, we, our, us or AAM) is a Tier I supplier to the automotive industry. We manufacture, engineer, design and validate driveline and drivetrain systems and related components and chassis modules for light trucks, sport utility vehicles (SUVs), passenger cars, crossover vehicles, and commercial vehicles. Driveline and drivetrain systems include components that transfer power from the transmission and deliver it to the drive wheels. Our driveline, drivetrain and related products include axles, chassis modules, driveshafts, power transfer units, transfer cases, chassis and steering components, driving heads, crankshafts, transmission parts and metal-formed products.

In addition to GM and Chrysler, we supply driveline systems and other related components to PACCAR Inc., Ford Motor Company (Ford), Harley-Davidson and other original equipment manufacturers (OEMs) and Tier I supplier companies such as The Timken Company, Hino Motors Ltd. and Jatco Ltd. Our net sales to customers other than GM and Chrysler were 16% of our total sales in 2008 as compared to 10% in 2007 and 2006.

In the second quarter of 2008, we resolved an 87 day strike called by the International United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) at our original U.S. locations in Michigan and New York. As part of the resolution of the strike, UAW represented associates ratified new national and local agreements. The new labor agreements for these locations substantially improved our operating flexibility and U.S. labor cost structure from the previous agreements. In addition, we continued our ongoing restructuring efforts in 2008 in order to realign and resize our production capacity and cost structure to meet current and projected operational and market demands. As a result of these new labor agreements and restructuring actions, we incurred significant special charges and nonrecurring operating costs during 2008. The details of our new labor agreements, impact of the strike called by the International UAW and the impact of significant special charges and nonrecurring operating costs are explained in the section entitled “RESULTS OF OPERATIONS.”

Our largest customers continue to adapt to current market conditions, including historically low U.S. industry production volumes and rapid shifts in consumer preferences. During the second half of 2008, GM announced and accelerated plans to significantly reduce production capacity for several of AAM’s major light truck product programs in response to the market changes described below. In the fourth quarter of 2008, both GM and Chrysler secured government financing commitments under the Troubled Asset Relief Program (TARP); however, both have since made requests for additional government financing commitments to continue operations through 2009, which commitments have not yet been provided. Although each company has achieved progress on critical capacity rationalization objectives and other important restructuring initiatives, it is uncertain whether the government will continue to provide necessary financial support, or whether the companies will be able to secure sufficient alternate sources of funding to continue as a going concern if the government does not provide sufficient financing in the future. In addition, the terms of the government financing commitments provided to GM and Chrysler include certain milestones, which if not met by these companies by March 31, 2009, entitle the government to accelerate repayment of the loans. If GM or Chrysler were not able to continue their operations, many suppliers, including AAM, could suffer unfavorable consequences. These unfavorable consequences could include payment delays, inability to collect trade and other accounts receivable, price reductions, production volume declines or the failure to honor contractual commitments, including sourcing decisions and financial obligations.

We have made significant adjustments to our business plan, global manufacturing footprint and cost structure to adapt to lower industry production volumes, improve our liquidity position and diversify our customer base and revenue concentrations.

·	As a result of an expanded product development focus that now includes highly engineered AWD and RWD applications for passenger cars, crossover vehicles and commercial vehicles, we have increased our total global served market by approximately 30%.

·	We are reducing our domestic production capacity by approximately 70%, while at the same time increasing global installed capacity by 150%.

In 2008, we negotiated new hourly labor agreements with the International Association of Machinists (IAM) and International UAW at the original U.S. locations. Pursuant to these new labor agreements, we are converting the former fixed legacy labor cost structure of these facilities to a highly flexible, competitive and variable cost structure.

·	In connection with hourly and salaried attrition programs administered in 2008, AAM reduced its global hourly and salaried workforce by more than 25% in 2008.

We have also significantly reduced our inventories, amended our Revolving Credit Facility and suspended our quarterly cash dividend program in 2009. The amendment of our Revolving Credit Facility in the fourth quarter of 2008 extended the maturity of a portion of the facility through 2011 and provides AAM with additional financial covenant flexibility.

AAM will continue to evaluate our customers’ compliance with the provisions of the TARP, market conditions and our underutilized U.S. capacity and may take further restructuring actions. These potential future actions could result in additional special charges, including additional asset impairments and further workforce reductions.

INDUSTRY TRENDS AND COMPETITION

There are a number of significant trends affecting the highly competitive automotive industry. Most notably, the automotive industry went from experiencing a moderate, cyclical decline heading into 2008 to suffering a severe downturn highlighted by an unprecedented drop in industry volumes by the end of 2008. The industry was significantly affected by deteriorating global economic conditions, unstable credit markets, sharply declining consumer confidence and volatile fuel prices. These factors have weakened the financial strength of many of the OEMs and suppliers, many of which were experiencing financial distress prior to 2008. Although the deterioration of the economy and credit markets has impacted the U.S. most significantly, this dynamic is global in nature and is affecting the worldwide automotive industry. Along with the general economic decline, the industry continues to experience declining U.S. production volumes, reduced U.S. domestic OEM market share, intense global competition, volatile fuel, steel, metallic and other commodity prices and significant pricing pressures. As a result, OEMs and suppliers are aggressively developing strategies to reduce costs, which include a massive restructuring of U.S. operations, shifting production to low cost regions and sourcing on a global basis. At the same time, the industry is focused on investing in future products that will incorporate the latest technology, meet customer demand and comply with government regulations.

FINANCIAL DISTRESS OF U.S. DOMESTIC AUTOMOTIVE INDUSTRY The collapse of the U.S. housing market, the global financial crisis, rising unemployment and the lowest consumer confidence level in a quarter century have all contributed to the fragile financial state of the U.S. domestic OEMs. Excess installed capacity, fluctuating fuel prices, volatile steel, metallic and other commodity prices, higher energy costs and high fixed cost structures have exacerbated the financial pressure on the industry. Uncertain industry conditions and the recent tightening of the credit markets has greatly reduced the ability for companies to obtain additional, essential financing. Over the past few years several key suppliers have filed for bankruptcy protection. In the fourth quarter of 2008, GM and Chrysler secured federally funded financing in order to meet their working capital needs; however, both have since made requests for additional government financing commitments to continue operating through 2009, which commitments have not yet been provided. As a result of these pressures, the U.S. domestic OEMs and their suppliers, including AAM, have undertaken wide-scale domestic capacity reduction initiatives, workforce reductions and other restructuring actions to reduce costs.

DECLINING U.S. AUTOMOTIVE PRODUCTION LEVELS As a result of the deteriorating global economic conditions, restrictive credit markets and declining consumer confidence, U.S. automotive production has decreased dramatically in 2008. The Seasonally Adjusted Annual Rate (SAAR) of sales in the U.S. dropped from a recent annual level of approximately 16 to 17 million units to approximately 10 million units at the end of December 2008 – the lowest U.S. domestic auto industry selling rate in more than a decade. Reduced U.S. automotive production levels is intensifying the challenges the industry faces with regard to excess installed capacity, high fixed cost structures and limited access to capital markets. With the uncertain economic conditions and the cyclical nature of the industry, we expect production levels to remain near recent historically low levels until general economic conditions and consumer credit markets significantly improve. In recent years, we have taken numerous restructuring actions and increased the variability of our U.S. labor cost structure, which better position us to manage through such adverse conditions.

CHANGE IN CONSUMER DEMAND AND PRODUCT MIX SHIFT In the U.S., consumer demand for full-frame light trucks and SUV-type vehicles continues to shift to smaller AWD passenger cars and crossover vehicles with smaller displacement engines and higher fuel economy. Fluctuating crude oil prices caused unpredictable gas prices in the U.S. throughout 2008, as the national average peaked to $4.11 per gallon in July, and back down to $1.50 by early December. This spurred a major and sudden shift in market demand to passenger cars and crossover vehicles, away from pickup trucks and SUVs. A significant portion of our current revenue stream is tied to full-size pickup trucks and SUVs. As demand has softened for these products, our current revenue streams have been impacted. We are responding to the change in vehicle mix in the North American market with ongoing research and development (R&D) efforts. These efforts have led to new business awards for products that support AWD and RWD passenger cars and crossover vehicles and position us to compete as this product mix shift continues. Approximately 60% of AAM’s new and incremental business backlog totaling $1.4 billion relates to AAM’s newest all-wheel-drive (AWD) systems for passenger cars and crossover vehicles.

GLOBAL AUTOMOTIVE PRODUCTION The trend toward the globalization of automotive production continues to intensify in regions such as Asia (particularly China, India, South Korea and Thailand), Eastern Europe and South America. Although the growth rate has recently slowed in these markets, automotive production in these regions is expected to continue to grow while production in the traditional automotive production centers such as North America, Western Europe and Japan stagnates. We began construction of new facilities in India and Thailand in 2008 and we continued to expand our existing facilities in Mexico and Brazil. We also have offices in India, China, South Korea, and Brazil to support these developing markets. We expect our business activity in these markets to increase significantly over the next several years.

DECLINING U.S. DOMESTIC OEM MARKET SHARE Intense competition from offshore and transplant OEMs has resulted in the decline of U.S. market share for U.S. domestic OEMs and contributed to a decrease in their domestic vehicle production levels by 25% in 2008 as compared to 2007. Since approximately 84% of our 2008 revenue derived from net sales to GM and Chrysler, this continuing trend is significant for us. We continue to aggressively pursue business with other OEMs and 25% of our new business backlog is related to customers other than GM and Chrysler.

PRICE PRESSURE Year-over-year price reductions are a common competitive practice in the automotive industry. As OEMs continue to restructure and pursue cost cutting initiatives, we anticipate increased pressure to reduce the cost of our own operations. The majority of our products are sold under long-term contracts with prices scheduled at the time the contracts are established. Most of our contracts allow us to adjust prices for engineering changes and certain of our contracts require us to reduce our prices in subsequent years. We do not believe that the price reductions we have committed to our customers will have a material adverse impact on our future operating results because we intend to offset such price reductions through continued cost reductions, efficiency improvements and other productivity initiatives.

STEEL AND OTHER METALLIC COMMODITIES Worldwide commodity market conditions have resulted in volatile steel and other metallic material prices. We are taking action to mitigate the impact of this trend through commercial agreements with our customers, strategic sourcing arrangements with suppliers and technology advancements that result in using less metallic content or less expensive metallic content in the manufacturing of our products. The majority of our sales contracts with our largest customers provide price adjustment provisions for metal market price fluctuations. We do not have metal market price provisions with all of our customers for all of the parts that we sell. We also have agreed to share in the risk of metal market price fluctuations in certain customer contracts. As a result, we may experience higher net costs for raw materials. These cost increases would come in the form of metal market adjustments and base price increases. We have contracts with our steel suppliers that ensure continuity of supply. We also have validations and testing capabilities that enable us to strategically utilize steel sources on a global basis.

INCREASING DEMAND FOR ALTERNATIVE ENERGY SOURCES AND ELECTRONIC INTEGRATION With a rapid shift towards aggressive, environmentally focused legislation in the U.S., we have observed an increased demand for technologies designed to help reduce emissions, increase fuel economy and minimize the environmental impact of vehicles. As a result, suppliers are competing intensely to develop and market new and alternative technologies, such as electric vehicles, hybrid vehicles, fuel cells, and diesel engines to improve fuel economy and emissions.

The electronic content of vehicles continues to expand, largely driven by consumer demand for greater vehicle performance, functionality, and affordable convenience options. This demand is a result of increased communication abilities in vehicles as well as increasingly stringent regulatory standards for energy efficiency, emissions reduction and increased safety. As electronics continue to become more reliable and affordable, we expect this trend to continue. The increased use of electronics provides greater flexibility in vehicles and enables the OEMs to better control vehicle stability, fuel efficiency, and safety while improving the overall driving experience. Suppliers with enhanced capability in electronic integration have greater sourcing opportunities with OEMs and may be able to obtain more favorable pricing for these products.

We are continuing to invest in the development of advanced products focused on fuel economy, mass reductions, vehicle safety and performance leveraging electronics and technology. We have increased our focus on alternative energy and electronics by investing in product development that is consistent with market demand.

RESULTS OF OPERATIONS

IMPACT AND RESOLUTION OF THE STRIKE CALLED BY THE INTERNATIONAL UAW On February 25, 2008, the four-year master labor agreement between AAM and the UAW that covered approximately 3,650 associates at our original five facilities in Michigan and New York expired. The International UAW called a strike at these facilities upon expiration of this agreement. On May 23, 2008, UAW represented associates at these locations ratified the national and local labor agreements. The strike had a significant adverse impact on the results of operations for the first six months of 2008, as shown below (in millions):


Loss of Net Sales	$	414.0
Increase in Gross Loss		129.4
Increase in Net Loss		132.5

The new labor agreements:

·	established a new wage and benefit package for eligible current and newly hired UAW represented associates;

·	included a voluntary Special Separation Program (SSP) for all UAW represented associates at our original U.S. locations, which offered a range of retirement and buyout incentives for eligible associates;

created an involuntary Buydown Program (BDP) for associates that did not participate in the SSP. Under the BDP, three annual lump-sum payments are made to associates in connection with, among other things, a base wage decrease. Total buydown payments are estimated to average approximately $91,000 per associate and do not exceed $105,000 per associate;

·	set a limit on Supplemental Unemployment Benefits (SUB) to be paid, thereby terminating SUB after the limit of $18.0 million is reached;

·	included the closure of our Buffalo Gear, Axle & Linkage facility (Buffalo) and Tonawanda and Detroit forging facilities; and

·	provided improved operating flexibility through Innovative Operating Agreements.

We incurred significant special charges and other operating costs related to the SSP and BDP in 2008. We expect the total cost of the SSP and BDP to be approximately $425 million. In addition, we expect a total net gain for related pension and OPEB curtailments of approximately $80 million.

These new labor agreements will structurally and permanently reduce our U.S. labor cost structure. We expect to achieve total annual structural cost reductions of up to $300 million resulting from these agreements.

SPECIAL CHARGES In 2008, 2007 and 2006, we recorded special charges, asset impairments and nonrecurring operating costs that we do not consider indicative of our ongoing operating activities. The following table details these charges (in millions):

	2008		2007		2006
Asset impairments, indirect inventory obsolescence and idle leased assets	$	603.7	$	11.6	$	196.5
U.S. hourly workforce and benefit reductions		195.1		64.0		141.1
Acceleration of BDP expense		51.9		-		-
Signing bonus		19.5		-		-
Supplemental unemployment benefits		18.0		-		27.1
U.S. salary workforce reductions		11.8		1.7		7.5
Other		22.7		11.1		5.7
Deferred tax asset valuation allowances		62.7		-		-
Total special charges and nonrecurring operating costs	$	985.4	$	88.4	$	377.9

These special charges, asset impairments and other nonrecurring operating costs are described in further detail in the sections “GROSS PROFIT (LOSS)”, “SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)” and “INCOME TAX EXPENSE (BENEFIT)."

NET SALES Net sales were $2,109.2 million in 2008 as compared to $3,248.2 million in 2007 and $3,191.7 million in 2006. We estimate the adverse impact of the International UAW strike on net sales in 2008 was $414.0 million.

Our sales in 2008, as compared to 2007, reflect a decrease of approximately 41% in production volumes for the major full-size truck and SUV programs we currently support for GM and Chrysler and a decrease of approximately 53% in production volumes for the products supporting GM’s mid-size light truck and SUV programs. These decreases reflect the general decline in consumer spending as a result of the deteriorating global economic conditions and uncertain credit markets, the reduction in consumer demand for the customer programs we support and customer decisions to restrict production and reduce inventories of unsold vehicles. Our sales in 2007, as compared to 2006, reflected substantially similar customer production volumes in both years for the major full-size truck and SUV programs we supported for GM and Chrysler and a decrease of approximately 11% in products supporting GM’s mid-size light truck and SUV programs.

Our content-per-vehicle (as measured by the dollar value of our products supporting GM’s N.A. light truck platforms and the Dodge Ram program) was $1,391 in 2008 versus $1,293 in 2007 and $1,225 in 2006. The increase in 2008 as compared to 2007 and 2006 is due to higher customer pricing pass throughs (including metal market adjustments), increased content on the GM full-size programs and mix shifts favoring full-size trucks and SUV programs.

Our 4WD/AWD penetration rate was 64.8% in 2008 as compared to 63.6% in 2007 and 61.9% in 2006. We define 4WD/AWD penetration as the total number of front axles we produce divided by the total number of rear axles we produce for the vehicle programs on which we sell product. The higher penetration rate in 2008 as compared to 2007 and 2006 is reflected in the increase in content-per-vehicle.

GROSS PROFIT (LOSS) Gross profit (loss) was a loss of $865.2 million in 2008 as compared to a profit of $278.4 million in 2007 and a loss of $129.4 million in 2006. Gross margin was negative 41.0% in 2008 as compared to 8.6% in 2007 and negative 4.0% in 2006. The decrease in gross profit and gross margin in 2008 as compared to 2007 reflects the impact of lower sales and significant special charges and other non-recurring operating costs. The increase in gross profit and gross margin in 2007 as compared to 2006 reflects the impact of higher sales, productivity gains and structural cost reductions resulting from attrition programs and other ongoing restructuring actions.

Gross profit (loss) in 2008, 2007 and 2006 reflects the impact of special charges, asset impairments and nonrecurring operating costs. These charges are discussed below:

Asset impairments, indirect inventory obsolescence and idle leased assets In the second quarter of 2008, we identified the following impairment indicators:

·	a significant decline in current and projected market demand and future customer production schedules for the major North American light truck programs we currently support; and

·	changes in the extent to which assets at our original U.S. locations will be used based on long-term plant loading decisions made by management after the new labor agreements were reached with the International UAW.

We recorded asset impairment charges of $294.8 million in the second quarter of 2008 associated with the permanent idling of certain assets and an impairment analysis of certain assets that were “held for use” as of June 30, 2008.

In the third quarter of 2008, we identified these additional impairment indicators:

·	the general decline in consumer spending as a result of the deteriorating global economic conditions and uncertain credit markets, which further negatively affected our projected future production requirements;

·	the announcement of accelerated customer production capacity reductions for programs that we support; and

·	future sourcing and product planning decisions that were announced and communicated by some of our customers in the third quarter of 2008, which adversely affected our Colfor Manufacturing subsidiary.

We recorded asset impairment charges of $246.5 million in the third quarter of 2008 associated with the permanent idling of certain assets and an impairment analysis of certain assets that were “held for use” as of September 30, 2008.

In the fourth quarter of 2008, we identified an additional impairment indicator relating to the further deterioration of global economic conditions and uncertain credit markets, especially as it relates to our European operations.

We recorded additional asset impairment charges of $11.3 million in the fourth quarter of 2008, primarily related to the permanent idling of certain assets and impairment analysis of certain assets that were “held for use” as of December 31, 2008 at our European operations.

In total, in 2008, we recorded asset impairments of $552.6 million.

Recoverability of each “held for use” asset group affected by these impairment indicators was determined by comparing the forecasted undiscounted cash flows of the operations to which the assets relate to their carrying amount. When the carrying amount of an asset group exceeded the undiscounted cash flows and was therefore nonrecoverable, the assets in this group were written down to their estimated fair value. We estimated fair value based on market prices, when available, or on a discounted cash flow analysis. We also reduced the remaining useful lives of certain “held for use” assets as part of this analysis.

As a result of the reduction in the projected usage of machinery and equipment due to the impairment indicators discussed above, certain machine repair parts and other indirect inventory were also determined to be obsolete. We recorded special charges of $46.4 million in 2008 related to the write down of these assets to their estimated net realizable value.

We also recorded a special charge of $4.7 million for the fair value of obligations for assets under operating leases that were idled during 2008.

We recorded asset impairment charges of $11.6 million in 2007 and $196.5 million in 2006 primarily associated with idling a portion of our production capacity in the U.S. dedicated to the mid-size light truck product range and other capacity reduction initiatives. The methodology used to determine impairment in 2007 and 2006 is consistent with the methodology utilized in 2008.

U.S. hourly workforce and benefit reductions In the second quarter of 2008, we offered the SSP to UAW represented associates at the original U.S. locations. Under this voluntary separation program, we offered retirement and buyout incentives to approximately 3,650 eligible hourly associates, of which approximately 2,125 accepted. In addition, certain IAM represented associates at our facilities under plant closure agreement became eligible for termination benefits. We recorded a special charge of $195.1 million for these U.S. hourly workforce and benefit reductions. This charge includes $218.7 million related to estimated postemployment costs, $61.8 million of special and contractual termination pension and other postretirement benefits (OPEB) and a gain of $85.4 million for the curtailment and settlement of certain pension and OPEB liabilities.

In September 2007, we offered the Buffalo Separation Program (BSP) to all hourly associates represented by the UAW at our Buffalo Gear, Axle & Linkage facility in Buffalo, New York. This voluntary separation program offered retirement or buyout incentives to approximately 650 eligible hourly associates. Approximately 560 associates participated in this separation program. We recorded a special charge of $56.2 million in 2007 as a result of this program. This charge includes $42.3 million related to the estimated postemployment costs and $13.9 million for the curtailment of certain pension and OPEB and related special termination benefits related to the BSP.

In 2007, we also offered a voluntary separation incentive program (VSIP) to approximately 200 associates represented by the International Association of Machinists (IAM) at our Tonawanda, New York and Detroit, Michigan facilities in 2007. Approximately 90 associates participated in this attrition program. We recorded a special charge of $7.8 million as a result of this program. This charge includes $7.4 million related to the estimated postemployment costs and $0.4 million for the curtailment of certain pension and OPEB and related special termination benefits related to the IAM VSIPs.

In 2006, we signed a supplemental new hire agreement with the UAW that reduced our total labor cost (including benefits) for new hire associates. In conjunction with this agreement, we offered the Special Attrition Program (SAP) to approximately 6,000 UAW represented associates at our original U.S. locations. Approximately 1,500 associates participated in this attrition program. We recorded a special charge of $141.1 million as a result of this program. This charge included $131.4 million related to the estimated postemployment costs and $9.7 million for the curtailment of certain pension and OPEB and related special termination benefits.

Acceleration of BDP expense In 2008, we recorded a special charge of $51.9 million for the estimated amount of BDP payments to be paid to permanently idled associates throughout the new labor agreements. This represents management’s best estimate of the portion of the total BDP payments that will not result in a future benefit to the Company.

Signing bonus As part of our new labor agreements, we recorded special charges of $19.5 million in 2008 for lump-sum ratification bonuses paid to UAW and IAM represented associates.

Supplemental unemployment benefits (SUB) In 2008, we recorded a special charge of $18.0 million relating to SUB to be paid to current UAW represented associates during the new labor agreements that expire in February 2012. The new labor agreements between AAM and the International UAW contain a SUB provision, pursuant to which we are required to pay eligible idled workers certain benefits. Under the new agreement, our obligation for SUB payments is limited to $18.0 million. Once this limit is reached, the SUB program will be terminated. As of December 31, 2008, it was probable and estimable that we will pay the full amount during the contract period.

In the third quarter of 2006, we recorded a special charge of $91.2 million relating to SUB estimated to be paid to UAW associates who were expected to be permanently idled through the end of the collective bargaining agreement that expired on February 25, 2008. Subsequent to recording the accrual, the results of the SAP reduced the number of employees expected to be permanently idled. Therefore, we revised our estimate of SUB to be paid and reduced the liability to $13.2 million at December 31, 2006.

Salaried workforce reductions In 2008, we approved a plan to reduce our salaried workforce by approximately 350 associates in the U.S. As part of this plan, we offered a voluntary salaried retirement incentive program (SRIP) to eligible salaried associates in the U.S. We recorded a special charge to cost of sales of $7.8 million in connection with this program and the estimated postemployment benefits related to the Layoff Severance Program (LSP) in 2008.

In 2006, we approved an earlier plan to reduce our salaried workforce during 2006 and 2007. These employees were provided postemployment benefits based on our LSP and a special transition program. We recorded a special charge for this involuntary separation to cost of sales for $1.7 million and $3.5 million in 2007 and 2006, respectively. The net charge in 2007 includes a charge of $3.3 million in postemployment benefits and a $1.6 million gain related to the curtailment of certain pension and other postretirement benefits related to this salaried workforce reduction. We also offered a salaried retirement incentive program to eligible salaried associates in the U.S. to voluntarily retire. As a result of 67 associates participating in this program, we recorded a special charge to cost of sales of $2.7 million in 2006.

Other Other special charges and nonrecurring operating costs were $24.7 million, $11.1 million and $5.7 million in 2008, 2007 and 2006, respectively. This includes plant idling and closure costs, charges related to the redeployment of assets to support capacity utilization initiatives, estimated postemployment benefits to be paid to associates in our European operations and restructuring accrual adjustments to update previous estimates based on actual results.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) SG&A (including R&D) was $185.4 million in 2008 as compared to $202.8 million in 2007 and $197.4 million in 2006. SG&A as a percentage of net sales was 8.8% in 2008 and 6.2% in 2007 and 2006. SG&A in 2008 includes a charge of $4.0 million for the estimated costs related to salaried workforce reductions and a credit of $2.0 million that relates to other restructuring accrual adjustments. Included in SG&A in 2006 is a special charge of $1.3 million related to salaried workforce reductions. Details of the salaried workforce reductions are discussed in Gross Profit (Loss).

The decrease in SG&A in 2008, as compared to 2007, reflects cost reduction initiatives, as well as lower profit sharing accruals and stock-based compensation expense due to a net loss and stock price depreciation in 2008. SG&A in 2007 as compared to 2006 reflects higher incentive compensation accruals and stock-based compensation expense due to increased profitability and stock price appreciation.

R&D In 2008, R&D spending in product, process and systems was $85.0 million as compared to $80.4 million in 2007 and $83.2 million in 2006. The focus of this investment continues to be developing innovative driveline and drivetrain systems and components for light trucks, SUVs, passenger cars, crossover vehicles and commercial vehicles in the global marketplace. Product development in this area includes power transfer units, transfer cases, driveline and transmission differentials, multipiece driveshafts, halfshafts, torque transfer devices, and front and rear drive axles. We continue to focus on electronic integration in our existing and future products to advance their performance. We also continue to support the development of hybrid vehicle systems. Special focus is also placed on the development of products and systems that provide our customers with efficiency and fuel economy advancements. Our efforts in these areas have resulted in the development of prototypes and various configurations of these driveline systems for several OEMs throughout the world.

OPERATING INCOME (LOSS) Operating income (loss) was a loss of $1,050.6 million in 2008 as compared to income of $75.6 million in 2007 and a loss of $326.8 million in 2006. Operating margin was negative 49.8% in 2008 as compared to a margin of 2.3% in 2007 and negative 10.2% in 2006. The changes in operating income and operating margin in 2008, 2007 and 2006 were due to the factors discussed in Gross Profit (Loss) and SG&A.

INTEREST EXPENSE Interest expense was $70.4 million in 2008, $61.6 million in 2007 and $39.0 million in 2006. Interest expense increased in 2008 as compared to 2007 and in 2007 as compared to 2006 primarily due to higher average outstanding borrowings.

INVESTMENT INCOME Investment income was $2.5 million in 2008, $9.3 million in 2007 and $0.2 million in 2006. Investment income includes dividends earned on cash and cash equivalents and short-term investments during the period. Investment income in 2008 includes a loss of $5.5 million for a decline in the net asset value of certain short-term investments. Investment income increased in 2007 because of higher cash balances in 2007 as compared to 2006.

OTHER INCOME (EXPENSE) Following are the components of Other Income (Expense) for 2008, 2007 and 2006:

Debt refinancing and redemption costs In 2007, we expensed $5.5 million of unamortized debt issuance costs and prepayment premiums related to the voluntary prepayment of our Term Loan due 2010. This compares to the $2.7 million of unamortized debt issuance costs that were expensed in 2006, related to the cash conversion of a portion of our 2.00% Convertible Notes due 2024.

Other, net Other, net, which includes the net effect of foreign exchange gains and losses, was an expense of $2.8 million in 2008, expense of $0.2 million in 2007 and income of $12.0 million in 2006. In 2006, we recorded a gain of $10.1 million related to the resolution of various legal proceedings and claims, net of costs incurred to resolve these matters.

INCOME TAX EXPENSE (BENEFIT) In 2008, several events occurred that led us to significantly revise the near-term projected future operating results of our U.S. operations. These events included:

·	a significant decline in current and projected market demand and future customer production schedules for the major North American light truck programs we currently support;

·	long-term plant loading decisions made by management after the new labor agreements were reached with the International UAW; and

·	the impact of significant charges resulting from our restructuring actions in 2008.

In accordance with FASB Statement No. 109, “Accounting for Income Taxes,” we reviewed the likelihood that we would be able to realize the benefit of our U.S. deferred tax assets. This review was based on the revised near-term projected future operating results of our U.S. operations. We concluded that it is no longer “more likely than not” that we will realize our net deferred tax assets in the U.S. and recorded a charge to income tax expense in the second quarter of 2008 of $54.4 million to establish a full valuation allowance against these assets. We recorded an additional valuation allowance of $480.3 million in the U.S. through December 31, 2008 to offset the deferred tax benefits resulting from U.S. losses incurred in 2008.

We also reviewed the likelihood that we would be able to realize the benefit of our U.K. deferred tax assets. This review was based on the revised near-term projected future operating results of our U.K. operations. Events occurred in the fourth quarter of 2008 that provided “significant negative evidence” that was considered in evaluating whether the U.K. would be able to realize the benefit of its deferred tax assets. These events included production volume reductions and other customer announcements. We concluded that it is no longer “more likely than not” that we will realize the benefit of our deferred tax assets in the U.K. and recorded a charge to income tax expense in the fourth quarter of 2008 of $8.3 million to establish a full valuation allowance against these assets.

If, in the future, we generate taxable income in the U.S. or in the U.K. on a sustained basis, our current estimate of the recoverability of our deferred tax assets could change and result in the future reversal of some or all of the valuation allowance.

Income tax expense (benefit) was an expense of $103.3 million in 2008 as compared to a benefit of $19.4 million in 2007 and benefit of $133.3 million in 2006. Our effective income tax rate was negative 9.2% in 2008 compared to negative 110.2% in 2007 and 37.4% in 2006. Our income tax expense and effective tax rate for 2008 reflects the effect of the valuation allowance that was recorded in the second quarter of 2008 in the U.S., the effect of not recording an income tax benefit on tax losses in the U.S. and the effect of the valuation allowance recorded in the fourth quarter of 2008 in the U.K.

NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE (EPS) Net income (loss) was a loss of $1,224.3 million in 2008 as compared to income of $37.0 million in 2007 and a loss of $223.0 million in 2006. Diluted earnings (loss) were a loss of $23.73 per share in 2008 as compared to earnings of $0.70 per share in 2007 and a loss of $4.43 per share in 2006. Net Income (Loss) and EPS were primarily impacted by the factors discussed in Gross Profit (Loss) and Income Tax Expense (Benefit).

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund debt service obligations, working capital investments, and capital expenditures. We also need to fund ongoing attrition programs and buydown payments included in the new labor agreements with the International UAW. We believe that, based on current estimates, our operating cash flow, available cash, cash equivalent and short-term investment balances, and borrowings under our Revolving Credit Facility will be sufficient to meet these needs. On November 7, 2008, we amended our existing Revolving Credit Facility. Refer to the "Financing Activities" section below for more information on the amendment.

OPERATING ACTIVITIES Net cash used in operating activities was $163.1 million in 2008 as compared to net cash provided by operating activities of $367.9 million in 2007 and $185.7 million in 2006. Significant factors impacting our 2008 operating cash flow as compared to 2007 were lower sales and higher cash payments for hourly and salaried attrition programs and related restructuring actions. The increase in cash provided by operations in 2007 as compared to 2006 was impacted by higher net income, increased collections from customers, lower cash payments related to restructuring actions, receipt of customer payments to implement customer capacity programs, lower operating lease payments and lower tax payments. See below for more detail on important factors related to our cash flow from operations.

Restructuring actions We paid $227.1 million, $80.9 million and $105.3 million related to our ongoing restructuring actions in 2008, 2007 and 2006, respectively. In addition, as part of our new labor agreements, we paid $19.5 million of lump-sum ratification bonuses to UAW and IAM represented associates in 2008. We expect to make payments in 2009 of approximately $35 million for these ongoing restructuring programs.

In 2009, we announced a salaried workforce reduction initiative to reduce worldwide salaried headcount by approximately 10% to 15%. We estimate the cost of this program to be between $5 million to $10 million in 2009.

AAM-GM Agreement In the second quarter of 2008, we entered into an agreement with GM in connection with the resolution of the strike called by the International UAW (AAM – GM Agreement). Pursuant to this agreement, GM agreed to provide us with $175.0 million of cash payments through April 2009 to support the transition of our UAW represented legacy labor at our original U.S. locations. We received $115.0 million of such financial assistance in 2008 and expect to receive the remaining $60 million on or before April 1, 2009.

BDP payments An involuntary buydown program was initiated for approximately 1,525 associates that did not elect to participate in the SSP and continued employment with AAM. Under the BDP, we will make three annual lump-sum payments to associates in connection with, among other things, a base wage decrease. In 2008, we paid $51.0 million for the first lump-sum buydown payment. Associates who are indefinitely laid off for 30 days have the option to accelerate their remaining BDP lump-sum payments and terminate their employment with AAM. Several associates elected this option in 2008 and we made $0.3 million of accelerated BDP payments as of December 31, 2008. We expect the second lump-sum BDP payment to be approximately $50 million in August 2009, although we could pay more in 2009 if there are additional accelerated BDP payments. We estimate the final lump-sum BDP payment to be approximately $48 million in August 2010.

Deferred income taxes Net deferred income taxes decreased in 2008 due to the valuation allowance recorded against deferred tax assets in the U.S. and the U.K. in 2008. Our deferred tax asset valuation allowances were $581.8 million at year-end December 31, 2008, $42.3 million at year-end December 31, 2007 and $39.0 at year-end December 31, 2006, respectively.

Pension and OPEB We contributed $5.2 million to our pension trusts in 2008 as compared to $19.9 million in 2007 and $9.1 million in 2006. This funding compares to our annual pension expense, including special and contractual termination benefits, of $65.0 million in 2008, $35.0 million in 2007 and $52.1 million in 2006. We expect our regulatory pension funding requirements in 2009 to be between $15 million and $20 million.

Our cash outlay for OPEB was $11.8 million in 2008, $9.0 million in 2007 and $4.7 million in 2006. This compares to our annual postretirement benefit credit, including curtailments and settlements, of $44.4 million in 2008, and expense of $50.3 million in 2007 and $69.2 million in 2006. We expect our cash outlay for other postretirement benefit obligations in 2009 to be approximately $15 million.

Accounts receivable Accounts receivable at year-end 2008 were $186.9 million as compared to $264.0 million at year-end 2007 and $327.6 million at year-end 2006. Our year-end 2008 accounts receivable balance reflects a decrease in sales in the fourth quarter of 2008 as compared to the fourth quarter of 2007. The decrease in 2007 as compared to 2006 was impacted by reduced sales in the fourth quarter of 2007 as compared to the fourth quarter of 2006 and more timely billing and collection of metal market price adjustments.

Accounts receivable due from GM and Chrysler were $115.4 million and $23.4 million, respectively, as of December 31, 2008.

Our accounts receivable allowances were $3.3 million at year-end 2008, $2.2 million at year-end 2007 and $1.2 million at year-end 2006.

Inventories At year-end 2008, inventories were $111.4 million as compared to $242.8 million at year-end 2007 and $198.4 million at year-end 2006. The decrease in inventories in 2008 as compared to 2007 reflects lower sales levels, indirect inventory obsolescence due to reduced projected usage and the result of initiatives to reduce the amount of inventory on hand. The decrease in 2008 also includes the classification of $28.0 million from inventory to other noncurrent assets for indirect inventory that, based on current sales projections, we do not expect to use within a year. The increase in inventory in 2007 as compared to 2006 relates to an increase in business activity at our foreign locations as well as actions supporting our redeployment of assets in 2007.

Our inventory valuation allowances were $28.3 million at year-end 2008, $40.3 million at year-end 2007 and $34.7 million at year-end 2006. The decrease in the inventory valuation allowance at year-end 2008 compared to year-end 2007 is a result of the reduction of excess and obsolete inventory on hand as well as the classification of certain indirect inventories, and related valuation allowances, not expected to be used within one year as a net noncurrent asset. This decrease was partially offset by increases in obsolescence reserves for both productive and indirect inventory due to the reduction in current and projected production volumes. We monitor and adjust these valuation allowances as necessary to recognize as an asset only those quantities that we can reasonably estimate will be used.

INVESTING ACTIVITIES Capital expenditures were $140.2 million in 2008, $186.5 million in 2007 and $286.6 million in 2006. In 2008, our capital spending supported our restructuring and redeployment initiatives, customer capacity programs, the future launch of passenger car and crossover vehicle programs within our new business backlog and the continued development of our new and expanded facilities in Thailand, Brazil and India. In 2008, we also paid $7.1 million for deposits relating to the future acquisition of property and equipment for these developing facilities.

We expect our capital spending in 2009 to be in the range of $140 - $150 million, which includes support for the construction of new manufacturing facilities, processes and systems in India and Thailand.

In the fourth quarter of 2008, we executed an asset purchase agreement with FormTech Industries LLC (FormTech). As part of this agreement, we exchanged our hub and spindle forging assets for FormTech’s differential gear, hypoid pinion and ring gear forging assets. We also made a cash payment to FormTech of $10.7 million.

In 2008, certain money-market and other similar funds that we invest in temporarily suspended redemptions. Accordingly, we reclassified $77.1 million from cash and cash equivalents to short-term investments on our Consolidated Balance Sheet as of December 31, 2008. The decrease in cash and cash equivalents that occurred as a result of this reclassification is classified as a cash outflow from investing activities on our Consolidated Statement of Cash Flow for the year ended December 31, 2008. Subsequent to December 31, 2008 and through the date of this filing, we received $59.0 million of redemptions from these funds.

FINANCING ACTIVITIES Net cash provided by financing activities was $254.5 million in 2008 as compared to $148.3 million in 2007 and $147.3 million in 2006. Total debt outstanding was $1,139.9 million at year-end 2008, $858.1 million at year-end 2007 and $672.2 million at year-end 2006. Total debt outstanding increased by $281.8 million at year-end 2008 as compared to year-end 2007 primarily due to higher borrowings under our Revolving Credit Facility and the net cash outflow for operating activities. The increase in total debt outstanding at year-end 2007 as compared to year-end 2006 was primarily due to the issuance of the 7.875% Notes in the first quarter of 2007.

Revolving Credit Facility Our Revolving Credit Facility bears interest at rates based on LIBOR or an alternate base rate, plus an applicable margin. At December 31, 2008, $295.0 million was outstanding and $129.0 million was available under the Revolving Credit Facility, which reflected a reduction of $52.9 million for standby letters of credit issued against the facility.

On November 7, 2008, we amended our Revolving Credit Facility to, among other things, extend certain of the revolving credit commitments from April 2010 to December 2011. After giving effect to a 25% commitment reduction for lenders consenting to the amendment, the amended Revolving Credit Facility provides up to $476.9 million of revolving bank financing commitments through April 2010 and $369.4 million of such revolving bank financing commitments through December 2011. We paid debt issuance costs of $13.4 million related to this amendment.

Borrowings under the amended Revolving Credit Facility will continue to bear interest at rates based on LIBOR or an alternate base rate, plus an applicable margin. The applicable margin for a LIBOR based loan for lenders who have consented to the amendment is currently 550 basis points. The applicable margin did not change for lenders who did not consent. All borrowings under the amended Revolving Credit Facility are subject to a collateral coverage test.

Under the amended Revolving Credit Facility, we are required to comply with revised financial covenants related to secured indebtedness leverage and interest coverage. The amended Revolving Credit Facility imposes limitations on our ability to make certain investments, declare or pay dividends or distributions on capital stock, redeem or repurchase capital stock and certain debt obligations, incur liens, incur indebtedness, merge, make acquisitions or sell assets. The amended Revolving Credit Facility also includes customary events of default.

The amended Revolving Credit Facility is secured by a pledge of all or a portion of the capital stock of certain of our subsidiaries, including substantially all of our first-tier subsidiaries, and is partially secured by a security interest in our assets and the assets of our domestic subsidiaries. In addition, obligations under the amended Revolving Credit Facility are guaranteed by our U.S. subsidiaries, all of which are directly owned by the borrower.

Term Loan In 2007, we entered into a $250.0 million senior unsecured term loan that matures in June 2012 (Term Loan). Borrowings under the Term Loan bear interest payable at rates based on LIBOR or an alternate base rate, plus an applicable margin. Proceeds from the Term Loan were used for general corporate purposes, including the payment of amounts outstanding under the senior unsecured term loan scheduled to mature in April 2010. We paid $2.3 million in debt issuance costs related to the Term Loan in 2007.

The Term Loan shares in the guarantees and the collateral package given under the amended Revolving Credit Facility mentioned above, equally and ratably, in accordance with the terms of the amended Revolving Credit Facility agreement. The amendment had no effect on the maturity of the Term Loan. The Term Loan imposes limitations on our ability to incur certain types of liens and amounts of indebtedness, or merge, make acquisitions or sell assets. The Term Loan also includes customary events of default.

As of December 31, 2008, AAM was in compliance with the covenants in the Revolving Credit Facility and Term Loan agreements. As a result of the current automotive industry environment and the uncertainty relating to the ability of GM and Chrysler to continue operating as going concerns described below, it is uncertain whether we will be in compliance with the financial covenants in the foregoing agreements throughout 2009. Should AAM fail to be in compliance with these covenants and we are unable to obtain a waiver or amend these covenants, we may be unable to continue as a going concern.

7.875% Notes In 2007, we issued $300.0 million of 7.875% senior unsecured notes due 2017. Net proceeds from these notes were used for general corporate purposes, including payment of amounts outstanding under our Revolving Credit Facility. We paid debt issuance costs of $5.2 million related to the 7.875% Notes in 2007.

2.00% Convertible Notes In 2006, the 2.00% Senior Convertible Notes due 2024 became convertible into cash under terms of the indenture. A total of $2.3 million and $147.3 million of the notes were converted into cash in 2008 and 2006, respectively, and $0.4 million of the notes remain outstanding as of December 31, 2008.

Foreign Credit Facilities We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At December 31, 2008, $36.9 million was outstanding under these facilities and an additional $48.2 million was available.

The weighted-average interest rate of our total debt outstanding was 7.2%, 8.1% and 6.8% during 2008, 2007 and 2006, respectively.

Credit ratings Our current credit ratings and (outlook), as of the date of this filing, are summarized in the table below:

	Corporate Family Rating	Secured Term Loan Rating		Unsecured Senior Notes Rating	Outlook
Standard & Poor's	CCC+		B-	CCC-	Negative
Moody's Investors Services	Caa1		B2	Caa2	Negative
Fitch Ratings	B-		B+	CCC	Negative

Dividend program We paid $18.3 million, $31.8 million and $31.0 million to stockholders of record under the quarterly cash dividend program during 2008, 2007 and 2006, respectively. The decrease in dividend payments in 2008 relates to the reduction of the quarterly dividend from $0.15 per share to $0.02 per share in the third quarter of 2008. On January 29, 2009, the Company’s Board of Directors decided to suspend the quarterly cash dividend effective in the first quarter of 2009.

Off-balance sheet arrangements Our off-balance sheet financing relates principally to operating leases for certain facilities and manufacturing machinery and equipment. We lease certain machinery and equipment under operating leases with various expiration dates. Pursuant to these operating leases, we have the option to purchase the underlying machinery and equipment on specified dates. In 2006, we renewed and amended equipment leases of $33.6 million, elected to exercise our purchase option for $71.8 million of assets and entered into sale-leaseback transactions amounting to $34.8 million. Remaining lease repurchase options are $39.0 million through 2013.

Contractual Obligations The following table summarizes payments due on our contractual obligations as of December 31, 2008:

	Payments due by period
	Total		<1yr		1-3 yrs		3-5 yrs		>5 yrs
	(in millions)
Long-term debt	$	1,132.0	$	21.0	$	307.6	$	253.6	$	549.8
Interest obligations		312.3		55.9		101.3		78.7		76.4
Capital lease obligations		7.9		0.5		1.2		0.8		5.4
Operating leases		60.3		18.4		31.6		10.3		-
Purchase obligations		96.3		86.7		9.6		-		-
Other long-term liabilities		701.6		59.3		144.4		134.7		363.2
Total	$	2,310.4	$	241.8	$	595.7	$	478.1	$	994.8

	(1) Operating leases include all lease payments through the end of the contractual lease terms, including elections for repurchase options, and exclude any non-exercised purchase options on such leased equipment.
	(2) Purchase obligations represent our obligated purchase commitments for capital expenditures and related project expense.
	(3) Other long-term liabilities represent our estimated pension and other postretirement benefit obligations that were actuarially determined through 2018, as well as our unrecognized income tax benefits.

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.

DISPUTES AND LEGAL PROCEEDINGS

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 flows.

We are subject to various federal, state, local and foreign environmental and occupational safety and health laws, regulations and ordinances, including those regulating air emissions, water discharge, waste management and environmental cleanup. We closely monitor our environmental conditions to ensure that we are in compliance with applicable laws, regulations and ordinances. GM has agreed to indemnify and hold us harmless against certain environmental conditions existing prior to our asset purchase from GM on March 1, 1994. GM’s indemnification obligations terminated on March 1, 2004 with respect to new claims that may arise against GM. We have made, and will continue to make, capital and other expenditures (including recurring administrative costs) to comply with environmental requirements. Such expenditures were not significant during 2008.

EFFECT OF NEW ACCOUNTING STANDARDS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This interpretation prescribes a “more likely than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We adopted FIN 48 on January 1, 2007 and the impact of adoption was not significant.

In September 2006, the FASB issued Statement No. 158 (SFAS 158), “Employers Accounting for Defined Benefit Pension and Other Postretirement Plans.” This statement amended FASB Statement Nos. 87, 88, 106 and 132R. We adopted the balance sheet recognition provisions of SFAS 158 on December 31, 2006. The effective date for plan assets and benefit obligations to be measured as of the date of the fiscal year-end statement of financial position is January 1, 2008. We elected to early adopt the measurement date provisions on January 1, 2007. As a result, we recorded a transition adjustment of $12.0 million in the first quarter of 2007 to the opening retained earnings balance related to the net periodic benefit cost for the period between September 30, 2006 and January 1, 2007.

In September 2006, the FASB issued Statement No. 157 (SFAS 157), “Fair Value Measurements.” This statement clarifies the definition of fair value and establishes a fair value hierarchy. SFAS 157, as originally issued, was effective for us on January 1, 2008. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, which defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis. The effective date for us under this FSP is January 1, 2009. As allowed by FSP FAS 157-2, we partially adopted SFAS 157 on January 1, 2008 and the impact of adoption was not significant. We do not expect the impact of applying SFAS 157 to the remaining assets and liabilities on January 1, 2009 to be material.

SFAS 157 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset. SFAS 157 also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:

·	Level 1: Observable inputs such as quoted prices in active markets;

·	Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

·	Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

On a recurring basis, we measure our derivatives and short-term investments at fair value. The fair value of these derivatives and short-term investments are determined using Level 2 inputs, as described above.

As allowed by FSP FAS 157-2, we did not apply SFAS 157 to fair value measurements of certain assets and liabilities included in net property, plant and equipment, accrued compensation and benefits, other accrued expenses, and postretirement benefits and other long-term liabilities on our Consolidated Balance Sheets.

In February 2007, the FASB issued Statement No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits entities to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 was effective for us on January 1, 2008 and we did not elect to measure any additional assets or liabilities at fair value.

In December 2007, the FASB issued Statement No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51.” SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for us on January 1, 2009. We do not expect the impact of adopting this statement to be material.

In December 2007, the FASB issued Statement No. 141 (Revised) (SFAS 141R), “Business Combinations.” This statement replaces FASB Statement No. 141 and establishes principles and requirements for how the acquirer:

	a. Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree
	b. Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase
	c. Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

SFAS 141R is effective for us prospectively for any acquisitions made on or after January 1, 2009.

In March 2008, the FASB issued Statement No. 161 (SFAS 161), “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133.” This statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for us prospectively on January 1, 2009.

In May 2008, the FASB ratified FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement),” which requires issuers of convertible debt securities within its scope to separate these securities into a debt component and an equity component, resulting in the debt component being recorded at fair value without consideration given to the conversion feature. Issuance costs are also allocated between the debt and equity components. FSP No. APB 14-1 will require that convertible debt within its scope reflect a company’s nonconvertible debt borrowing rate when interest expense is recognized. FSP No. APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all prior periods. We do not expect the impact of adopting this FSP on January 1, 2009 to be material.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This staff position notes that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the computation of EPS pursuant to the two-class method. FSP No. EITF 03-6-1 is effective for us retrospectively on January 1, 2009. Adoption of this staff position is expected to increase basic shares outstanding by approximately 2.6 million shares in 2008, 1.9 million shares in 2007 and 1.5 million shares in 2006. Adoption of this staff position is expected to increase diluted shares outstanding by approximately 2.6 million shares in 2008, 1.1 million shares in 2007 and 1.5 million shares in 2006.

CRITICAL ACCOUNTING ESTIMATES

In order to prepare consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), we are required to make estimates and assumptions that affect the reported amounts and disclosures in our consolidated financial statements. These estimates are subject to an inherent degree of uncertainty and actual results could differ from our estimates.

Other items in our consolidated financial statements require estimation. In our judgment, they are not as critical as those disclosed herein. We have discussed and reviewed our critical accounting estimates disclosure with the Audit Committee of our Board of Directors.

PENSION AND OTHER POSTRETIREMENT BENEFITS In calculating our assets, liabilities and expenses related to pension and other postretirement benefits (OPEB), key assumptions include the discount rate, expected long-term rates of return on plan assets and rates of increase in health care costs and compensation.

The discount rates used in the valuation of our U.S. pension and OPEB obligations were based on an actuarial review of a hypothetical portfolio of long-term, high quality corporate bonds matched against the expected payment stream for each of our plans. In 2008, the discount rates determined on that basis ranged from 6.50% to 6.60% for the valuation of our pension benefit obligations and 6.50% for the valuation of our OPEB obligations. The discount rate used in the valuation of our U.K. pension obligation was based on a review of long-term bonds, including published indices in the applicable market. In 2008, the discount rate determined on that basis was 5.90%. The expected long-term rates of return on our plan assets were 8.00% for our U.S. plans and 5.90% for our U.K. plan in 2008. We developed these rates of return assumptions based on a review of long-term historical returns and future capital market expectations for the asset classes represented within our portfolio. The asset allocation for our plans was developed in consideration of the demographics of the plan participants and expected payment stream of the liability. In consideration of the significant plan design changes to our largest U.S. plan in 2008, we have adopted an investment policy with a higher allocation to fixed income securities. Our investment policy allocates 50-70% of the plans’ assets to equity securities, depending on the plan, with the remainder invested in fixed income securities and cash. The rates of increase in compensation and health care costs are based on current market conditions, inflationary expectations and historical information.

All of our assumptions were developed in consultation with our actuarial service providers. While we believe that we have selected reasonable assumptions for the valuation of our pension and OPEB obligations at year-end 2008, actual trends could result in materially different valuations.

The effect on our pension plans of a 0.5% decrease in both the discount rate and expected return on assets is shown below as of December 31, 2008, our valuation date.

			Expected
	Discount		Return on
	Rate		Assets
	(in millions)
Decline in funded status	$	34.4		N/A
Increase in 2008 expense	$	1.8	$	1.9

No changes in benefit levels and no changes in the amortization of gains or losses have been assumed.

For 2009, we assumed a weighted average annual increase in the per-capita cost of covered healthcare benefits of 8.00% for hourly OPEB and 7.50% for salaried OPEB. The rate is assumed to decrease gradually to 5% for 2015 and remain at that level thereafter. A 0.5% decrease in the discount rate for our OPEB would have increased total service and interest cost in 2008 and the postretirement obligation at December 31, 2008 by $0.9 million and $15.6 million, respectively. A 1.0% increase in the assumed health care trend rate would have increased total service and interest cost in 2008 and the postretirement obligation at December 31, 2008 by $5.8 million and $28.7 million, respectively.

In addition, pursuant to our 1994 Asset Purchase Agreement, GM agreed to proportionally share in the cost of OPEB for eligible retirees based on the length of service an employee had with AAM and GM. We estimate the future cost sharing payments and present it as a noncurrent asset on our Consolidated Balance Sheet. As of December 31, 2008, we estimated $221.2 million in future GM cost sharing. If, in the future, GM was unable to fulfill its financial obligations under the Asset Purchase Agreement, our OPEB expenses may be different than our current estimates.

POSTEMPLOYMENT BENEFITS As part of our operations, we will pay postemployment benefits to associates who are temporarily or permanently on layoff. These benefits received prior to retirement may relate to a pre-existing plan or a one-time termination plan. Annual net postemployment benefits expense under our benefit plans and the related liabilities are accrued as service is rendered for those obligations that accumulate or vest and when the liability is probable and can be reasonably estimated. Obligations that do not accumulate or vest are recorded when payment of the benefits is probable and the amounts can be reasonably estimated. Due to the complexities inherent in estimating these obligations, our actual costs could differ materially. Accordingly, we will continue to review our expected liability and make adjustments as necessary.

In the second quarter of 2008, we expensed $18.0 million relating to supplemental unemployment benefits (SUB) estimated to be paid to current UAW represented associates who are expected to be permanently idled through the end of the current collective bargaining agreements that expire in February 2012. Under our new labor agreements, our obligation for SUB payments is limited to $18.0 million. Once this limit is reached, the SUB program will be terminated. As of December 31, 2008, it was probable and estimable that we will pay the full amount during the contract period.

In 2008, we recorded expense of $51.9 million for the estimated amount of total BDP payments to be paid to permanently idled associates throughout the new labor agreements. This represents management’s best estimate of the portion of the total BDP payments that will not result in a future benefit to the Company. If the number of associates who we expect to become permanently idled increased by 10%, we would expect the estimated BDP expense for permanently idled associates would increase by approximately $5 million.

ENVIRONMENTAL OBLIGATIONS Due to the nature of our operations, we have legal obligations to perform asset retirement activities related to federal, state, local and foreign environmental requirements. The process of estimating environmental liabilities is complex and significant uncertainty exists related to the timing and method of the settlement of these obligations. Therefore, these liabilities are not reasonably estimable until a triggering event occurs that allows us to estimate a range and possibilities of potential settlement dates, and the potential methods of settlement.

As a result of the recent plant closures in 2008, the methods and timing of certain environmental liabilities related to these facilities became reasonably estimable. Based on management’s best estimate of the costs, methods and timing of the settlement of these obligations, we recorded a charge of $1.0 million in 2008. In addition, as a result of the sale of our Buffalo and Tonawanda facilities in the fourth quarter of 2008, we transferred certain environmental obligations and reduced our estimated environmental liability by $1.4 million. Our environmental liability as of December 31, 2008 is $0.4 million. In the future, we will update our estimated costs and potential settlement dates and methods and their associated probabilities based on current information. Any update may change our best estimate and could result in a material adjustment to this liability.

ACCOUNTS RECEIVABLE ALLOWANCES The scope of our relationships with certain customers, such as GM and Chrysler, 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. Price differences can arise when we and our customer agree on a price change but the customer’s pricing database does not reflect the commercial agreement. In these instances, revenue is fixed and determinable, but payment could fall outside our normal payment terms as we work through the process of resolving these differences.

Substantially all of our transactions with customers occur within the parameters of a purchase order which makes our price fixed and determinable. We sometimes enter into non-routine agreements outside the original scope of the purchase order. These agreements may be temporary, are fixed and determinable, and often have payment terms that are different than our normal terms. We recognize the revenue or cost recovery from such arrangements in accordance with the commercial agreement.

We track the aging of uncollected billings and adjust our accounts receivable allowances on a quarterly basis as necessary based on our evaluation of the probability of collection. The adjustments we have made due to the write-off of uncollectible amounts have been negligible.

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

VALUATION OF INDIRECT INVENTORY AND MACHINE REPAIR PARTS 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. Certain machine repair parts 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. For valuation purposes, we evaluate our usage of such assets on a quarterly basis and adjust our net book values as necessary to recognize as an asset only those quantities that we can reasonably estimate will be used.

In 2008, as a result of the reduction in the projected usage of machinery and equipment, we recorded expense of $46.4 million related to the write down of the net book value of certain machine repair parts and other indirect inventory to their net realizable value. In addition, we evaluated the estimated timing of our projected usage of these assets based on current sales projections and determined that $28.0 million of these assets should be classified as noncurrent as they are not expected to be used within a year.

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

ESTIMATED USEFUL LIVES FOR DEPRECIATION At December 31, 2008, approximately 80% of our capitalized investment in property, plant and equipment 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 12 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 our 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.

GOODWILL We review our goodwill for impairment annually during the fourth quarter. In addition, we review goodwill for impairment whenever adverse events or changes in circumstances indicate a possible impairment. This review utilizes a two-step impairment test required under FASB Statement No. 142, “Goodwill and Other Intangibles.” The first step involves a comparison of the fair value of a reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step of the process involves a comparison of the fair value of goodwill with its carrying value. If the carrying value of the reporting unit's goodwill exceeds the fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

The determination of our reporting units and the fair value of those reporting units and corresponding goodwill require us to make significant assumptions and estimates, including the extent and timing of future cash flows. As part of the determination of future cash flows, we need to make assumptions on future general economic conditions, business projections, growth rates and discount rates. These assumptions require significant judgment and are subject to a considerable degree of uncertainty. We believe that the assumptions and estimates in our review of goodwill for impairment are reasonable. However, different assumptions could materially effect our conclusions on this matter. We performed multiple goodwill impairment analyses in 2008, including our annual analysis in the fourth quarter, and determined there was no impairment to goodwill in 2008.

IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, excluding goodwill, to be held and used are reviewed for impairment whenever adverse events or changes in circumstances indicate a possible impairment. An impairment loss is recognized when the long-lived assets’ carrying value exceeds the fair value. If business conditions or other factors cause the profitability and estimated cash flows to be generated from an asset to decline, we may be required to record impairment charges at that time. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. Significant judgments and estimates used by management when evaluating long-lived assets for impairment include:

• An assessment as to whether an adverse event or circumstance has triggered the need for an impairment review;

• Determination of asset groups, the primary asset within each group, and the primary asset’s average estimated useful life;

• Undiscounted future cash flows generated by the assets; and

• Determination of fair value when an impairment is deemed to exist, which may require assumptions related to future general economic conditions, business projections, discount rates and salvage values.

In the years ended December 31, 2008, 2007 and 2006, we recognized asset impairment and related charges of $603.7 million, $11.6 million and $196.5 million, respectively. These charges related to the permanent idling of certain assets, impairment analysis of certain assets that were “held for use”, the write down of assets “held for sale”, the write down of related machine repair parts and indirect inventory and the idling of certain leased assets.

VALUATION OF DEFERRED TAX ASSETS AND OTHER TAX LIABILITIES Because we operate in many different geographic locations, including several foreign, state and local tax jurisdictions, the evaluation of our ability to use all recognized deferred tax assets is complex.

We are required to estimate whether recoverability of our deferred tax assets is more likely than not, based on forecasts of taxable income in the related tax jurisdictions. In these estimates, we use historical results, projected future operating results based upon approved business plans, eligible carryforward periods, tax planning opportunities and other relevant considerations. This includes the consideration of tax law changes, prior profitability performance and the uncertainty of future projected profitability.

While we believe 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 or our tax liabilities.

To the extent our uncertain tax positions do not meet the “more likely than not” threshold, we have derecognized such positions. To the extent our uncertain tax positions meet the “more likely than not” threshold, we have measured and recorded the highest probable benefit, and have established appropriate reserves for benefits that exceed the amount likely to be defended upon examination.

Forward-Looking Statements

In this MD&A and elsewhere in this Annual Report, we make certain statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 and relate to trends and events that may affect our future financial position and operating results. The terms “will,” “may,” “could,” “would,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “project” and similar words or expressions are intended to identify forward-looking statements.

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

·	the ability of General Motors Corporation (GM) and Chrysler LLC (Chrysler) to obtain sufficient funding from either governmental or private sources;
·	the ability of GM and Chrysler to comply with the terms of the Secured Term Loan Facility provided by the U.S. Treasury and any additional requirements of the Troubled Asset Relief Program (TARP) applicable to our customers;

·	the impact on our business of requirements imposed on, or actions taken by, any of our customers in response to TARP or similar programs;

·	global economic conditions;

·	availability of financing for working capital, capital expenditures, R&D or other general corporate purposes, including our ability to comply with financial covenants;
·	our customers' and suppliers' availability of financing for working capital, capital expenditures, R&D or other general corporate purposes;
·	reduced purchases of our products by GM, Chrysler or other customers;

·	reduced demand for our customers’ products (particularly light trucks and SUVs produced by GM and Chrysler);

·	our ability to achieve cost reductions through ongoing restructuring actions;

·	additional restructuring actions that may occur;

·	our ability to achieve the level of cost reductions required to sustain global cost competitiveness;

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

·	our suppliers’ ability to maintain satisfactory labor relations and avoid work stoppages;

·	our customers’ and their suppliers’ ability to maintain satisfactory labor relations and avoid work stoppages;

·	our ability to implement improvements in our U.S. labor cost structure;

·	our ability to consummate and integrate acquisitions;

·	supply shortages or price increases in raw materials, utilities or other operating supplies;

·	our ability or our customers’ and suppliers’ ability to successfully launch new product programs on a timely basis;

·	our ability to realize the expected revenues from our new and incremental business backlog;

·	our ability to attract new customers and programs for new products;

·	our ability to develop and produce new products that reflect market demand;

·	lower-than-anticipated market acceptance of new or existing products;

·	our ability to respond to changes in technology, increased competition or pricing pressures;

·	continued or increased high prices for or reduced availability of fuel;

·	adverse changes in laws, government regulations or market conditions affecting our products or our customers’ products (such as the Corporate Average Fuel Economy regulations);

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

·	liabilities arising from warranty claims, product liability and legal proceedings to which we are or may become a party;

·	changes in liabilities arising from pension and other postretirement benefit obligations;

·	risks of noncompliance with environmental regulations or risks of environmental issues that could result in unforeseen costs at our facilities;

·	our ability to attract and retain key associates;

·	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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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 From time to time, we use foreign currency forward contracts to reduce the effects of fluctuations in exchange rates, primarily relating to the Mexican Peso, Euro, Pound Sterling, Brazilian Real and Canadian Dollar. At December 31, 2008, we had currency forward contracts with a notional amount of $36.9 million outstanding. The potential decrease in fair value of foreign exchange contracts, assuming a 10% adverse change in the foreign currency exchange rates, would be approximately $4 million at December 31, 2008.

Future business operations and opportunities, including the expansion of our business outside North America, may further increase 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 contracts.

INTEREST RATE RISK We are exposed to variable interest rates on certain credit facilities. From time to time, we use interest rate hedging to reduce the effects of fluctuations in market interest rates. Generally, we designate interest rate swaps as effective cash flow hedges of the related debt and reflect the net cost of such agreements as an adjustment to interest expense over the lives of the debt agreements. In the fourth quarter of 2008, we terminated our interest rate swap that converted variable rate financing based on 3-month LIBOR into fixed interest rates. As of December 31, 2008, there are no interest rate swaps in place. The pre-tax earnings and cash flow impact of a one-percentage-point increase in interest rates (approximately 14% of our weighted-average interest rate at December 31, 2008) on our long-term debt outstanding at December 31, 2008 would be approximately $6 million on an annualized basis.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

Item 8. Financial Statements and Supplementary Data

Consolidated Statements of Operations

Year Ended December 31,

(in millions, except per share data)

	2008			2007			2006

Net sales	$	2,109.2		$	3,248.2		$	3,191.7

Cost of goods sold		2,974.4			2,969.8			3,321.1

Gross profit (loss)		(865.2	)		278.4			(129.4	)

Selling, general and administrative expenses		185.4			202.8			197.4

Operating income (loss)		(1,050.6	)		75.6			(326.8	)

Interest expense		(70.4	)		(61.6	)		(39.0	)

Investment income		2.5			9.3			0.2

Other income (expense)
Debt refinancing and redemption costs		-			(5.5	)		(2.7	)
Other, net		(2.8	)		(0.2	)		12.0

Income (loss) before income taxes		(1,121.3	)		17.6			(356.3	)

Income tax expense (benefit)		103.3			(19.4	)		(133.3	)

Minority interest		0.3			-			-

Net income (loss)	$	(1,224.3	)	$	37.0		$	(223.0	)

Basic earnings (loss) per share	$	(23.73	)	$	0.72		$	(4.43	)

Diluted earnings (loss) per share	$	(23.73	)	$	0.70		$	(4.43	)

See accompanying notes to consolidated financial statements

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

Consolidated Balance Sheets

December 31,

(in millions, except per share data)

	2008			2007
Assets
Current assets
Cash and cash equivalents	$	198.8		$	343.6
Short-term investments		77.1			-
Accounts receivable, net of allowances of
$3.3 million in 2008 and $2.2 million in 2007		186.9			264.0
AAM-GM Agreement receivable		60.0			-
Inventories, net		111.4			242.8
Deferred income taxes		5.5			19.5
Prepaid expenses and other		55.6			73.4
Total current assets		695.3			943.3

Property, plant and equipment, net		1,064.2			1,696.2
Deferred income taxes		20.7			78.7
Goodwill		147.8			147.8
GM postretirement cost sharing asset		221.2			212.5
Other assets and deferred charges		98.5			57.4
Total assets	$	2,247.7		$	3,135.9

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	250.9		$	313.8
Accrued compensation and benefits		127.5			126.6
Deferred revenue		66.7			10.2
Deferred income taxes		13.1			-
Other accrued expenses		59.5			61.0
Total current liabilities		517.7			511.6

Long-term debt		1,139.9			858.1
Deferred income taxes		4.8			6.6
Deferred revenue		178.2			66.0
Postretirement benefits and other long-term liabilities		842.8			794.2
Total liabilities		2,683.4			2,236.5

Stockholders’ equity (deficit)
Series A junior participating preferred stock, par value $0.01 per share;
0.1 million shares authorized; no shares outstanding in 2008 or 2007		-			-
Preferred stock, par value $0.01 per share; 10.0 million shares
authorized; no shares outstanding in 2008 or 2007		-			-
Common stock, par value $0.01 per share; 150.0 million shares
authorized; 56.9 million and 56.7 million shares issued and outstanding
in 2008 and 2007, respectively		0.6			0.6
Series common stock, par value $0.01 per share; 40.0 million
shares authorized; no shares outstanding in 2008 or 2007		-			-
Paid-in capital		426.7			416.3
Retained earnings (accumulated deficit)		(648.6	)		591.9
Treasury stock at cost, 5.2 million shares in 2008 and 2007		(173.9	)		(173.8	)
Accumulated other comprehensive income (loss), net of tax
Defined benefit plans		(29.3	)		33.5
Foreign currency translation adjustments		0.2			34.2
Unrecognized loss on derivatives		(11.4	)		(3.3	)
Total stockholders’ equity (deficit)		(435.7	)		899.4
Total liabilities and stockholders’ equity (deficit)	$	2,247.7		$	3,135.9

See accompanying notes to consolidated financial statements

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

Consolidated Statements of Cash Flows

Year Ended December 31,

(in millions)

	2008			2007			2006
Operating Activities
Net income (loss)	$	(1,224.3	)	$	37.0		$	(223.0	)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Asset impairments and related indirect inventory obsolescence		599.0			11.6			196.5
Depreciation and amortization		199.5			229.4			206.0
Deferred income taxes		82.5			(47.4	)		(184.3	)
Stock-based compensation		9.9			18.4			10.2
Pensions and other postretirement benefits, net of contributions		3.6			53.3			114.8
Loss on retirement of property, plant and equipment		4.0			8.5			6.3
Debt refinancing and redemption costs		-			5.5			2.7
Changes in operating assets and liabilities
Accounts receivable		71.9			64.9			2.9
Inventories		52.6			(28.4	)		1.9
Accounts payable and accrued expenses		(77.1	)		(5.2	)		43.7
Deferred revenue: AAM-GM Agreement		81.8			-			-
Other assets and liabilities		33.5			20.3			8.0
Net cash provided by (used in) operating activities		(163.1	)		367.9			185.7

Investing activities
Purchases of property, plant and equipment		(140.2	)		(186.5	)		(286.6	)
Payments of deposits for acquisition of property and equipment		(7.1	)		-			-
Proceeds from sale of property, plant and equipment		3.4			-			-
Reclassification of cash equivalents to short-term investments		(77.1	)		-			-
Acquisition, net		(10.7	)		-			-
Purchase buyouts of leased equipment		-			-			(71.8	)
Proceeds from sale-leasebacks		-			-			34.8
Net cash used in investing activities		(231.7	)		(186.5	)		(323.6	)

Financing activities
Net borrowings (repayments) under revolving credit facilities		290.3			(130.8	)		67.2
Proceeds from issuance of long-term debt		8.9			556.1			261.6
Conversion of 2.00% Notes		(2.3	)		-			(147.3	)
Payment of Term Loan due 2010		-			(252.5	)		-
Payments of other long-term debt and capital lease obligations		(11.5	)		(0.5	)		(1.0	)
Debt issuance costs		(13.4	)		(7.5	)		(4.4	)
Employee stock option exercises		0.7			13.5			1.3
Tax benefit on stock option exercises		0.2			3.8			1.0
Dividends paid		(18.3	)		(31.8	)		(31.0	)
Purchase of treasury stock		(0.1	)		(2.0	)		(0.1	)
Net cash provided by financing activities		254.5			148.3			147.3

Effect of exchange rate changes on cash		(4.5	)		0.4			0.4

Net increase (decrease) in cash and cash equivalents		(144.8	)		330.1			9.8

Cash and cash equivalents at beginning of year		343.6			13.5			3.7

Cash and cash equivalents at end of year	$	198.8		$	343.6		$	13.5

Supplemental cash flow information

Interest paid		$	75.9			$	58.1			$	44.8
Income taxes paid, net of refunds		$	4.8			$	20.6			$	49.4

See accompanying notes to consolidated financial statements

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

Consolidated Statement of Stockholders’ Equity (Deficit)

(in millions)