Item 1. Financial Statements
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,704.3
|
|
|
$
|
1,900.9
|
|
|
$
|
3,423.5
|
|
|
$
|
3,759.3
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
1,456.0
|
|
|
1,569.5
|
|
|
2,953.0
|
|
|
3,111.6
|
|
|
|
|
|
|
|
|
|
Gross profit
|
248.3
|
|
|
331.4
|
|
|
470.5
|
|
|
647.7
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
91.3
|
|
|
95.0
|
|
|
182.0
|
|
|
192.3
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
24.9
|
|
|
24.8
|
|
|
49.9
|
|
|
49.7
|
|
|
|
|
|
|
|
|
|
Restructuring and acquisition-related costs
|
12.2
|
|
|
36.8
|
|
|
24.3
|
|
|
55.1
|
|
|
|
|
|
|
|
|
|
Gain on sale of business
|
—
|
|
|
(15.5
|
)
|
|
—
|
|
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
Operating income
|
119.9
|
|
|
190.3
|
|
|
214.3
|
|
|
366.1
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(56.2
|
)
|
|
(54.4
|
)
|
|
(109.6
|
)
|
|
(107.6
|
)
|
|
|
|
|
|
|
|
|
Investment income
|
0.5
|
|
|
0.5
|
|
|
1.2
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
Debt refinancing and redemption costs
|
(2.4
|
)
|
|
(4.3
|
)
|
|
(2.4
|
)
|
|
(14.6
|
)
|
Gain on settlement of capital lease
|
—
|
|
|
15.6
|
|
|
—
|
|
|
15.6
|
|
Other income (expense), net
|
(3.1
|
)
|
|
5.6
|
|
|
(6.1
|
)
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
58.7
|
|
|
153.3
|
|
|
97.4
|
|
|
260.7
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
6.0
|
|
|
2.0
|
|
|
3.0
|
|
|
19.9
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
52.7
|
|
|
$
|
151.3
|
|
|
$
|
94.4
|
|
|
$
|
240.8
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
Net income attributable to AAM
|
$
|
52.5
|
|
|
$
|
151.1
|
|
|
$
|
94.1
|
|
|
$
|
240.5
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.45
|
|
|
$
|
1.31
|
|
|
$
|
0.81
|
|
|
$
|
2.09
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.45
|
|
|
$
|
1.30
|
|
|
$
|
0.81
|
|
|
$
|
2.08
|
|
See accompanying notes to condensed consolidated financial statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions)
|
Net income
|
$
|
52.7
|
|
|
$
|
151.3
|
|
|
$
|
94.4
|
|
|
$
|
240.8
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
Defined benefit plans, net of tax
(a)
|
1.1
|
|
|
12.2
|
|
|
1.8
|
|
|
13.5
|
|
Foreign currency translation adjustments
|
4.9
|
|
|
(81.0
|
)
|
|
2.4
|
|
|
(43.1
|
)
|
Changes in cash flow hedges, net of tax
(b)
|
(15.8
|
)
|
|
(7.9
|
)
|
|
(18.3
|
)
|
|
7.2
|
|
Other comprehensive loss
|
(9.8
|
)
|
|
(76.7
|
)
|
|
(14.1
|
)
|
|
(22.4
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
42.9
|
|
|
$
|
74.6
|
|
|
$
|
80.3
|
|
|
$
|
218.4
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to AAM
|
$
|
42.7
|
|
|
$
|
74.4
|
|
|
$
|
80.0
|
|
|
$
|
218.1
|
|
|
|
|
(a)
|
Amounts are net of tax of $(0.2) million and $(0.5) million for the three and six months ended June 30, 2019, and $(4.1) million and $(4.5) million for the three and six months ended June 30, 2018, respectively.
|
(b)
|
Amounts are net of tax of $4.7 million and $6.2 million for the three and six months ended June 30, 2019 and $(0.1) million and $(1.2) million for the three and six months ended June 30, 2018, respectively.
|
See accompanying notes to condensed consolidated financial statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
(Unaudited)
|
|
|
Assets
|
|
(in millions)
|
Current assets
|
|
|
Cash and cash equivalents
|
|
$
|
248.8
|
|
|
$
|
476.4
|
|
Accounts receivable, net
|
|
1,138.0
|
|
|
966.5
|
|
Inventories, net
|
|
459.9
|
|
|
459.7
|
|
Prepaid expenses and other
|
|
130.0
|
|
|
127.2
|
|
Total current assets
|
|
1,976.7
|
|
|
2,029.8
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
2,544.4
|
|
|
2,514.4
|
|
Deferred income taxes
|
|
51.9
|
|
|
45.5
|
|
Goodwill
|
|
1,140.9
|
|
|
1,141.8
|
|
Other intangible assets, net
|
|
1,063.1
|
|
|
1,111.1
|
|
GM postretirement cost sharing asset
|
|
224.1
|
|
|
219.4
|
|
Other assets and deferred charges
|
|
546.8
|
|
|
448.7
|
|
Total assets
|
|
$
|
7,547.9
|
|
|
$
|
7,510.7
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
26.0
|
|
|
$
|
121.6
|
|
Accounts payable
|
|
853.4
|
|
|
840.2
|
|
Accrued compensation and benefits
|
|
159.6
|
|
|
179.0
|
|
Deferred revenue
|
|
33.6
|
|
|
44.3
|
|
Accrued expenses and other
|
|
194.5
|
|
|
171.7
|
|
Total current liabilities
|
|
1,267.1
|
|
|
1,356.8
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
3,674.2
|
|
|
3,686.8
|
|
Deferred revenue
|
|
87.5
|
|
|
77.6
|
|
Deferred income taxes
|
|
67.4
|
|
|
92.6
|
|
Postretirement benefits and other long-term liabilities
|
|
879.5
|
|
|
810.6
|
|
Total liabilities
|
|
5,975.7
|
|
|
6,024.4
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
Common stock, par value $0.01 per share; 150.0 million shares authorized;
|
|
|
|
|
120.1 million shares issued as of June 30, 2019 and 118.9 million shares issued as of December 31, 2018
|
|
1.2
|
|
|
1.2
|
|
Paid-in capital
|
|
1,303.8
|
|
|
1,292.6
|
|
Retained earnings
|
|
827.2
|
|
|
703.5
|
|
Treasury stock at cost, 7.6 million shares as of June 30, 2019 and 7.2 million shares as of December 31, 2018
|
|
(209.3
|
)
|
|
(201.8
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
Defined benefit plans, net of tax
|
|
(239.8
|
)
|
|
(213.9
|
)
|
Foreign currency translation adjustments
|
|
(94.2
|
)
|
|
(96.6
|
)
|
Unrecognized loss on cash flow hedges, net of tax
|
|
(19.4
|
)
|
|
(1.1
|
)
|
Total AAM stockholders' equity
|
|
1,569.5
|
|
|
1,483.9
|
|
Noncontrolling interests in subsidiaries
|
|
2.7
|
|
|
2.4
|
|
Total stockholders' equity
|
|
1,572.2
|
|
|
1,486.3
|
|
Total liabilities and stockholders' equity
|
|
$
|
7,547.9
|
|
|
$
|
7,510.7
|
|
See accompanying notes to condensed consolidated financial statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Operating activities
|
|
|
|
|
Net income
|
|
$
|
94.4
|
|
|
$
|
240.8
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
Depreciation and amortization
|
|
277.3
|
|
|
258.0
|
|
Impairment of long-lived assets
|
|
—
|
|
|
23.9
|
|
Deferred income taxes
|
|
(31.8
|
)
|
|
38.0
|
|
Stock-based compensation
|
|
11.2
|
|
|
13.7
|
|
Pensions and other postretirement benefits, net of contributions
|
|
(9.5
|
)
|
|
(0.6
|
)
|
Gain on sale of business
|
|
—
|
|
|
(15.5
|
)
|
Loss (Gain) on disposal of property, plant and equipment, net
|
|
1.1
|
|
|
(4.9
|
)
|
Debt refinancing and redemption costs and (gain) on settlement of capital lease
|
|
2.4
|
|
|
(0.8
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
Accounts receivable
|
|
(170.5
|
)
|
|
(225.7
|
)
|
Inventories
|
|
—
|
|
|
(47.4
|
)
|
Accounts payable and accrued expenses
|
|
24.5
|
|
|
83.7
|
|
Deferred revenue
|
|
0.1
|
|
|
8.1
|
|
Other assets and liabilities
|
|
(62.3
|
)
|
|
(81.9
|
)
|
Net cash provided by operating activities
|
|
136.9
|
|
|
289.4
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(237.5
|
)
|
|
(273.0
|
)
|
Proceeds from sale of property, plant and equipment
|
|
1.7
|
|
|
0.9
|
|
Investment in joint venture
|
|
(2.2
|
)
|
|
—
|
|
Purchase buyouts of leased equipment
|
|
—
|
|
|
(0.5
|
)
|
Proceeds from sale of business, net
|
|
—
|
|
|
47.1
|
|
Acquisition of business
|
|
—
|
|
|
(1.3
|
)
|
Net cash used in investing activities
|
|
(238.0
|
)
|
|
(226.8
|
)
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
Payments of long-term debt and finance lease obligations
|
|
(128.2
|
)
|
|
(528.7
|
)
|
Proceeds from issuance of long-term debt
|
|
8.0
|
|
|
461.9
|
|
Debt issuance costs
|
|
—
|
|
|
(6.8
|
)
|
Purchase of noncontrolling interest
|
|
—
|
|
|
(2.2
|
)
|
Purchase of treasury stock
|
|
(7.5
|
)
|
|
(3.6
|
)
|
Net cash used in financing activities
|
|
(127.7
|
)
|
|
(79.4
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
1.2
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
(227.6
|
)
|
|
(21.1
|
)
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
478.9
|
|
|
376.8
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
251.3
|
|
|
$
|
355.7
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Interest paid
|
|
$
|
102.1
|
|
|
$
|
104.4
|
|
Income taxes paid, net of refunds
|
|
$
|
34.6
|
|
|
$
|
19.6
|
|
See accompanying notes to condensed consolidated financial statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Accumulated
|
Noncontrolling
|
|
Shares
|
Par
|
Paid-in
|
Retained
|
Treasury
|
Other Comprehensive
|
Interest
|
|
Outstanding
|
Value
|
Capital
|
Earnings
|
Stock
|
Income (Loss)
|
in Subsidiaries
|
Balance at January 1, 2018
|
111.3
|
|
$
|
1.2
|
|
$
|
1,264.6
|
|
$
|
761.0
|
|
$
|
(198.1
|
)
|
$
|
(292.7
|
)
|
$
|
4.0
|
|
Net income
|
—
|
|
—
|
|
—
|
|
89.4
|
|
—
|
|
—
|
|
0.1
|
|
Exercise of stock options and vesting of restricted stock units and performance shares
|
0.6
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Stock-based compensation
|
—
|
|
—
|
|
6.6
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Purchase of treasury stock
|
(0.2
|
)
|
—
|
|
—
|
|
—
|
|
(3.5
|
)
|
—
|
|
—
|
|
Changes in cash flow hedges
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
15.1
|
|
—
|
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
37.9
|
|
—
|
|
Defined benefit plans, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1.3
|
|
—
|
|
Purchase of noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.9
|
)
|
Balance at March 31, 2018
|
111.7
|
|
$
|
1.2
|
|
$
|
1,271.2
|
|
$
|
850.4
|
|
$
|
(201.6
|
)
|
$
|
(238.4
|
)
|
$
|
3.2
|
|
Net income
|
—
|
|
—
|
|
—
|
|
151.1
|
|
—
|
|
—
|
|
0.2
|
|
Stock-based compensation
|
—
|
|
—
|
|
7.1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.1
|
)
|
—
|
|
—
|
|
Changes in cash flow hedges
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(7.9
|
)
|
—
|
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(81.0
|
)
|
—
|
|
Defined benefit plans, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
12.2
|
|
—
|
|
Purchase of noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1.4
|
)
|
Balance at June 30, 2018
|
111.7
|
|
$
|
1.2
|
|
$
|
1,278.3
|
|
$
|
1,001.5
|
|
$
|
(201.7
|
)
|
$
|
(315.1
|
)
|
$
|
2.0
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
111.7
|
|
$
|
1.2
|
|
$
|
1,292.6
|
|
$
|
703.5
|
|
$
|
(201.8
|
)
|
$
|
(311.6
|
)
|
$
|
2.4
|
|
Net income
|
—
|
|
—
|
|
—
|
|
41.6
|
|
—
|
|
—
|
|
0.1
|
|
Vesting of restricted stock units and performance shares
|
1.2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Stock-based compensation
|
—
|
|
—
|
|
5.5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Modified-retrospective application of ASU 2016-02
|
—
|
|
—
|
|
—
|
|
1.9
|
|
—
|
|
—
|
|
—
|
|
Adoption of ASU 2018-02
|
—
|
|
—
|
|
—
|
|
27.7
|
|
—
|
|
(27.7
|
)
|
—
|
|
Purchase of treasury stock
|
(0.4
|
)
|
—
|
|
—
|
|
—
|
|
(7.3
|
)
|
—
|
|
—
|
|
Changes in cash flow hedges
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2.5
|
)
|
—
|
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2.5
|
)
|
—
|
|
Defined benefit plans, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.7
|
|
—
|
|
Balance at March 31, 2019
|
112.5
|
|
$
|
1.2
|
|
$
|
1,298.1
|
|
$
|
774.7
|
|
$
|
(209.1
|
)
|
$
|
(343.6
|
)
|
$
|
2.5
|
|
Net income
|
—
|
|
—
|
|
—
|
|
52.5
|
|
—
|
|
—
|
|
0.2
|
|
Stock-based compensation
|
—
|
|
—
|
|
5.7
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.2
|
)
|
—
|
|
—
|
|
Changes in cash flow hedges
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(15.8
|
)
|
—
|
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4.9
|
|
—
|
|
Defined benefit plans, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1.1
|
|
—
|
|
Balance at June 30, 2019
|
112.5
|
|
$
|
1.2
|
|
$
|
1,303.8
|
|
$
|
827.2
|
|
$
|
(209.3
|
)
|
$
|
(353.4
|
)
|
$
|
2.7
|
|
See accompanying notes to condensed consolidated financial statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
We are a global Tier 1 supplier to the automotive industry. We design, engineer and manufacture driveline, metal forming and casting products that are making the next generation of vehicles smarter, lighter, safer and more efficient. We employ over
25,000
associates, operating at nearly
90
facilities in
17
countries, to support our customers on global and regional platforms with a focus on quality, operational excellence and technology leadership.
In the first quarter of 2019, we initiated a new global restructuring program (the 2019 Program) to further streamline our business by consolidating our four existing segments into three segments. This activity occurred through the disaggregation of our Powertrain segment, with a portion moving into our Driveline segment and a portion moving into our Metal Forming segment. See Note 3 - Restructuring and Acquisition-Related Costs for more detail on this reorganization.
Basis of Presentation
We have prepared the accompanying interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934. These condensed consolidated financial statements are unaudited but include all normal recurring adjustments, which we consider necessary for a fair presentation of the information set forth herein. Results of operations for the periods presented are not necessarily indicative of the results for the full fiscal year.
The balance sheet at
December 31, 2018
presented herein has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete consolidated financial statements.
In order to prepare the accompanying interim condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts and disclosures in our interim condensed consolidated financial statements. Actual results could differ from those estimates.
For further information, refer to the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended
December 31, 2018
.
Effect of New Accounting Standards
Accounting Standard Update 2018-15
On August 15, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15 -
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (Topic 350-40).
ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing or hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance becomes effective at the beginning of our 2020 fiscal year and may be applied either retrospectively or prospectively. We expect to adopt this guidance prospectively on January 1, 2020 and we are currently assessing the impact that this standard will have on our consolidated financial statements.
Accounting Standards Update 2018-02
On February 14, 2018, the FASB issued ASU 2018-02 -
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220).
ASU 2018-02 allows companies the option to reclassify disproportionate tax effects in accumulated other comprehensive income (AOCI) caused by the 2017 Tax Cuts and Jobs Act, also known as stranded tax effects, to retained earnings. ASU 2018-02 also requires expanded disclosures related to disproportionate income tax effects from AOCI, some of which are applicable to all companies regardless of whether the option to reclassify the stranded tax effects is exercised. This guidance became effective on January 1, 2019, and we elected to reclassify the stranded tax effects caused by the 2017 Tax Cuts and Jobs Act, resulting in a decrease in Accumulated other comprehensive income (loss) and an increase in Retained earnings of
$27.7 million
at January 1, 2019.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting Standards Update 2016-02
On February 25, 2016, the FASB issued ASU 2016-02 -
Leases (Topic 842)
, and has subsequently issued ASU 2017-13 -
Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842)
(collectively the Lease ASUs) which supersede the existing lease accounting guidance and establish new criteria for recognizing lease assets and liabilities. The most significant impact of these updates, to AAM, is that a lessee is required to recognize a "right-of-use" asset and lease liability for operating lease agreements that were not previously included on the balance sheet under previous lease guidance. Expense recognition in the statement of income, along with cash flow statement classification for both financing (capital) and operating leases under the new standard are not significantly changed from previous lease guidance. This guidance became effective for AAM on January 1, 2019. See Note 2 - Leasing for additional detail regarding the adoption of ASU 2016-02.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LEASING
On January 1, 2019, we adopted new accounting guidance under Accounting Standards Codification Topic 842 (ASC 842)
Leases.
ASC 842 superseded prior lease accounting guidance and established new criteria for recognizing right-of-use assets and lease liabilities for operating lease arrangements on our Condensed Consolidated Balance Sheet. We elected to adopt this guidance utilizing the optional transition method that allowed us to not retrospectively revise prior period balance sheets to include operating leases, and to only include the disclosures required under ASC 842 for the periods subsequent to adoption.
We have concluded that when an agreement grants us the right to substantially all of the economic benefits associated with an identified asset, and we are able to direct the use of that asset throughout the term of the agreement, we have a lease. We lease certain facilities and furniture under finance leases, and we also lease certain commercial office and production facilities, manufacturing machinery and equipment, vehicles and other assets under operating leases. Some of our leases include options to extend or terminate the leases and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised.
The lease consideration for some of our facilities and machinery and equipment is variable, as it is based on various indices or usage of the underlying assets, respectively. Variable lease payments based on indices have been included in the related right-of-use assets and lease liabilities on our Condensed Consolidated Balance Sheet, while variable lease payments based on usage of the underlying asset have been excluded as they do not represent present rights or obligations.
Lease cost consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2019
|
|
|
(in millions)
|
|
|
|
|
|
Finance lease cost
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
Interest on lease liabilities
|
|
—
|
|
|
0.1
|
|
Total finance lease cost
|
|
0.2
|
|
|
0.5
|
|
|
|
|
|
|
Operating lease cost
|
|
6.7
|
|
|
13.4
|
|
Short-term lease cost
|
|
1.7
|
|
|
3.4
|
|
Variable lease cost
|
|
2.3
|
|
|
4.2
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
10.9
|
|
|
$
|
21.5
|
|
For the three months ended
June 30, 2019
,
$8.2 million
and
$2.5 million
were recorded to Cost of goods sold and Selling, general and administrative expense, respectively, on our Condensed Consolidated Statement of Income, as compared to
$7.2 million
and
$2.4 million
, respectively, for the three months ended
June 30, 2018
. For the
six
months ended
June 30, 2019
,
$16.0 million
and
$5.0 million
were recorded to Cost of goods sold and Selling, general and administrative expense, respectively, on our Condensed Consolidated Statement of Income, as compared to
$14.3 million
and
$5.0 million
, respectively for the
six
months ended
June 30, 2018
.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes additional information related to our lease agreements.
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2019
|
|
|
(in millions, except lease term and rate)
|
|
|
|
Cash paid for amounts included in measurement of lease liabilities
|
|
|
Operating cash flows from finance leases
|
|
$
|
0.1
|
|
Operating cash flows from operating leases
|
|
13.6
|
|
Financing cash flows from finance leases
|
|
0.4
|
|
|
|
|
Weighted-average remaining lease term - finance leases
|
|
3.1 years
|
|
Weighted-average remaining lease term - operating leases
|
|
5.1 years
|
|
|
|
|
|
Weighted-average discount rate - finance leases
|
|
8.1
|
%
|
Weighted-average discount rate - operating leases
|
|
6.3
|
%
|
As the rate implicit in the lease is typically unknown, the discount rate used to determine the lease liability for the majority of our leases is the collateralized incremental borrowing rate in the applicable geographic area for a similar term and amount as the lease agreement.
Future undiscounted minimum payments under non-cancelable leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases
|
|
|
(in millions)
|
2019 (excluding the six months ended June 30, 2019)
|
|
$
|
0.5
|
|
|
$
|
13.0
|
|
2020
|
|
1.1
|
|
|
24.0
|
|
2021
|
|
1.0
|
|
|
16.8
|
|
2022
|
|
0.9
|
|
|
12.8
|
|
2023
|
|
0.9
|
|
|
7.9
|
|
Thereafter
|
|
—
|
|
|
19.0
|
|
Total future undiscounted minimum lease payments
|
|
4.4
|
|
|
93.5
|
|
Less: Impact of discounting
|
|
(1.4
|
)
|
|
(14.1
|
)
|
Total
|
|
$
|
3.0
|
|
|
$
|
79.4
|
|
For the full year 2019, we expect payments for short-term leases to be approximately
$5.0 million
.
The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheet as of
June 30, 2019
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases
|
|
|
(in millions)
|
Property, plant and equipment, net
|
|
$
|
3.0
|
|
|
$
|
—
|
|
Other assets and deferred charges
|
|
—
|
|
|
79.4
|
|
Total
|
|
$
|
3.0
|
|
|
$
|
79.4
|
|
|
|
|
|
|
Accrued expenses and other
|
|
$
|
0.8
|
|
|
$
|
22.0
|
|
Postretirement benefits and other long-term liabilities
|
|
2.2
|
|
|
57.4
|
|
Total
|
|
$
|
3.0
|
|
|
$
|
79.4
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ASC 842 Adoption of Practical Expedients
We have elected to adopt, for all classes of underlying assets, a package of practical expedients provided under ASC 842 that allow us to 1) not reassess whether existing or expired contracts contain or contained a lease; 2) not reassess the lease classification (operating or financing) of our existing leases at adoption; and 3) not reassess initial direct costs for existing leases.
ASC 842 also provides a practical expedient that allows companies to exclude balance sheet recognition of right-of-use assets and associated liabilities for lease terms of 12 months or less, which we have elected as part of our adoption of ASC 842 for all classes of underlying assets. We do not include right-of-use assets and operating lease liabilities on our Condensed Consolidated Balance Sheet for leases with a term of 12 months or less.
We have also elected to adopt the practical expedient under ASC 842 to not separate lease and non-lease components in contracts that contain both. These lease agreements are accounted for as a single lease component for all classes of underlying assets.
Leases Not Yet Commenced
As of
June 30, 2019
, we have entered into additional operating leases that have not yet commenced of approximately
$23 million
, which primarily reflects the lease of a production facility with a term of 15 years that is expected to commence in 2019.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RESTRUCTURING AND ACQUISITION-RELATED COSTS
In 2016, AAM initiated actions under a global restructuring program (the 2016 Program) focused on creating a more streamlined organization in addition to reducing our cost structure and preparing for acquisition and integration activities. We incurred severance charges totaling
$2.8 million
and implementation costs totaling
$29.6 million
under the 2016 Program. There were no charges incurred under the 2016 Program during the first
six
months of 2019 and we do not expect to incur any additional restructuring charges under the 2016 Program in future periods.
In the first quarter of 2019, we initiated a new global restructuring program (the 2019 Program) to further streamline our business by consolidating our four existing segments into three segments. This activity occurred through the disaggregation of our Powertrain segment, with a portion moving into our Driveline segment and a portion moving into our Metal Forming segment. The primary objectives of this consolidation are to finalize the integration of Metaldyne Performance Group, Inc. (MPG), align AAM's product and process technologies, and to achieve efficiencies within our corporate and business unit support teams to reduce cost in our business.
A summary of our restructuring activity for the first
six
months of
2019
and
2018
is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Charges
|
|
Implementation Costs
|
|
Asset Impairment Charges
|
|
Total
|
|
(in millions)
|
Accrual as of December 31, 2017
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
Charges
|
2.0
|
|
|
5.5
|
|
|
23.9
|
|
|
31.4
|
|
Cash utilization
|
(0.4
|
)
|
|
(5.1
|
)
|
|
—
|
|
|
(5.5
|
)
|
Non-cash utilization
|
—
|
|
|
—
|
|
|
(23.9
|
)
|
|
(23.9
|
)
|
Accrual as of June 30, 2018
|
$
|
1.9
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
|
|
|
|
|
|
|
|
Accrual as of December 31, 2018
|
$
|
2.4
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
4.0
|
|
Charges
|
8.2
|
|
|
8.9
|
|
|
—
|
|
|
17.1
|
|
Cash utilization
|
(7.9
|
)
|
|
(7.1
|
)
|
|
—
|
|
|
(15.0
|
)
|
Accrual as of June 30, 2019
|
$
|
2.7
|
|
|
$
|
3.4
|
|
|
$
|
—
|
|
|
$
|
6.1
|
|
As part of our restructuring actions, we incurred total severance charges of approximately
$8.2 million
and
$2.0 million
, as well as total implementation costs of approximately
$8.9 million
and
$5.5 million
, during the
six
months ended
June 30, 2019
and
2018
, respectively. We expect to incur approximately
$25 million
to
$30 million
of total restructuring charges in 2019, including costs incurred under the 2019 Program.
In the second quarter of 2018, we initiated actions to exit operations at manufacturing facilities in our Metal Forming segment and former Powertrain segment. As a result of these actions, we were required to assess the associated long-lived assets for impairment. Based on our analysis, assets that were not to be redeployed to other AAM facilities were determined to be fully impaired resulting in a charge of
$23.9 million
in the second quarter of 2018. See Note 7 - Fair Value for further detail.
In 2017, we completed the acquisitions of MPG and USM Mexico Manufacturing LLC (USM Mexico). During the
six
months ended
June 30, 2019
, we incurred the following integration charges related to these acquisitions:
|
|
|
|
|
|
Integration Expenses
|
|
(in millions)
|
Charges for the six months ended June 30, 2019
|
$
|
7.2
|
|
|
|
Total restructuring and acquisition-related charges
|
$
|
24.3
|
|
These integration expenses primarily reflect costs incurred for information technology systems and ongoing operational activities incurred in conjunction with the acquisitions. Total restructuring charges and acquisition-related charges are presented on a separate line item titled Restructuring and acquisition-related costs in our Condensed Consolidated Statements of Income, and totaled
$12.2 million
and
$24.3 million
for the three and
six
months ended
June 30, 2019
, respectively, and
$36.8 million
and
$55.1 million
for the three and
six
months ended
June 30, 2018
, respectively.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table provides a reconciliation of changes in goodwill for the
six
months ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Driveline
|
|
Metal Forming
|
|
Powertrain
|
|
Casting
|
|
Consolidated
|
|
(in millions)
|
Balance as of December 31, 2018
|
$
|
212.1
|
|
|
$
|
552.4
|
|
|
$
|
377.3
|
|
|
$
|
—
|
|
|
$
|
1,141.8
|
|
Reorganization
|
187.2
|
|
|
190.1
|
|
|
(377.3
|
)
|
|
—
|
|
|
—
|
|
Foreign currency translation
|
(1.1
|
)
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
Balance as of June 30, 2019
|
$
|
398.2
|
|
|
$
|
742.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,140.9
|
|
In the first quarter of 2019, we initiated a global restructuring program (the 2019 Program) to further streamline our business by consolidating our four existing segments into three segments. See Note 3 - Restructuring and Acquisition-Related Costs for further detail on this reorganization of our segments. Prior to this reorganization, our Powertrain segment was also a reporting unit for purposes of measuring and reporting goodwill. The goodwill that was previously attributable to the Powertrain reporting unit was reallocated to the Driveline and Metal Forming reporting units based on the relative fair value of the respective portions that became attributable to those reporting units.
The initiation of the 2019 Program and the reorganization of our business represented a triggering event in the first quarter of 2019 to test goodwill for impairment prior to reallocating the Powertrain goodwill to Driveline and Metal Forming. No impairment was identified as a result of completing this goodwill impairment test.
Other Intangible Assets
The following table provides a reconciliation of the gross carrying amount and associated accumulated amortization for AAM's other intangible assets, which are all subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
2019
|
|
2018
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
(in millions)
|
Capitalized computer software
|
$
|
41.0
|
|
|
$
|
(24.5
|
)
|
|
$
|
16.5
|
|
|
$
|
38.0
|
|
|
$
|
(20.1
|
)
|
|
$
|
17.9
|
|
Customer platforms
|
952.2
|
|
|
(158.7
|
)
|
|
793.5
|
|
|
952.2
|
|
|
(123.5
|
)
|
|
828.7
|
|
Customer relationships
|
147.0
|
|
|
(21.3
|
)
|
|
125.7
|
|
|
147.0
|
|
|
(16.5
|
)
|
|
130.5
|
|
Technology and other
|
156.0
|
|
|
(28.6
|
)
|
|
127.4
|
|
|
156.2
|
|
|
(22.2
|
)
|
|
134.0
|
|
Total
|
$
|
1,296.2
|
|
|
$
|
(233.1
|
)
|
|
$
|
1,063.1
|
|
|
$
|
1,293.4
|
|
|
$
|
(182.3
|
)
|
|
$
|
1,111.1
|
|
Amortization expense for our intangible assets was
$24.9 million
and
$49.9 million
for the
three
and
six
months ended
June 30, 2019
, respectively, and
$24.8 million
and
$49.7 million
for the
three
and
six
months ended
June 30, 2018
, respectively. Estimated amortization expense for each of the full years 2019 through 2023 is approximately
$100 million
.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVENTORIES
We state our inventories at the lower of cost or net realizable value. The cost of our inventories is determined using the first-in first-out method. When we determine that our gross inventories exceed usage requirements, or if inventories become obsolete or otherwise not saleable, we record a provision for such loss as a component of our inventory accounts.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
(in millions)
|
|
|
|
|
|
Raw materials and work-in-progress
|
|
$
|
390.7
|
|
|
$
|
375.1
|
|
Finished goods
|
|
91.0
|
|
|
99.0
|
|
Gross inventories
|
|
481.7
|
|
|
474.1
|
|
Inventory valuation reserves
|
|
(21.8
|
)
|
|
(14.4
|
)
|
Inventories, net
|
|
$
|
459.9
|
|
|
$
|
459.7
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
(in millions)
|
|
|
|
|
|
Revolving Credit Facility
|
|
$
|
—
|
|
|
$
|
—
|
|
Term Loan A Facility
|
|
81.3
|
|
|
83.8
|
|
Term Loan B Facility
|
|
1,507.4
|
|
|
1,511.2
|
|
7.75% Notes due 2019
|
|
—
|
|
|
100.0
|
|
6.625% Notes due 2022
|
|
450.0
|
|
|
450.0
|
|
6.50% Notes due 2027
|
|
500.0
|
|
|
500.0
|
|
6.25% Notes due 2026
|
|
400.0
|
|
|
400.0
|
|
6.25% Notes due 2025
|
|
700.0
|
|
|
700.0
|
|
Foreign credit facilities and other
|
|
122.6
|
|
|
127.1
|
|
Capital lease obligations
|
|
—
|
|
|
3.4
|
|
Total debt
|
|
3,761.3
|
|
|
3,875.5
|
|
Less: Current portion of long-term debt
|
|
26.0
|
|
|
121.6
|
|
Long-term debt
|
|
3,735.3
|
|
|
3,753.9
|
|
Less: Debt issuance costs
|
|
61.1
|
|
|
67.1
|
|
Long-term debt, net
|
|
$
|
3,674.2
|
|
|
$
|
3,686.8
|
|
Senior Secured Credit Facilities
In 2017, American Axle & Manufacturing Holdings, Inc. (Holdings) and American Axle & Manufacturing, Inc. (AAM, Inc.) entered into a credit agreement (the Credit Agreement). In connection with the Credit Agreement, Holdings, AAM, Inc. and certain of their restricted subsidiaries entered into a Collateral Agreement and Guarantee Agreement with the financial institutions party thereto. The Credit Agreement includes a
$100.0 million
term loan A facility (the Term Loan A Facility), a
$1.55 billion
term loan B facility (the Term Loan B Facility) and a
$932 million
multi-currency revolving credit facility (the Revolving Credit Facility, and together with the Term Loan A Facility and the Term Loan B Facility, the Senior Secured Credit Facilities). The proceeds of the Revolving Credit Facility are used for general corporate purposes.
At
June 30, 2019
, we had
$894.3 million
available under the Revolving Credit Facility. This availability reflects a reduction of
$37.7 million
for standby letters of credit issued against the facility.
The Senior Secured Credit Facilities provide back-up liquidity for our foreign credit facilities. We intend to use the availability of long-term financing under the Senior Secured Credit Facilities to refinance any current maturities related to such debt agreements that are not otherwise refinanced on a long-term basis in their local markets, except where otherwise reclassified to Current portion of long-term debt on our Condensed Consolidated Balance Sheet.
Subsequent Event
On July 29, 2019, Holdings, AAM, Inc., and certain subsidiaries of Holdings entered into the First Amendment (First Amendment) to the Credit Agreement (as amended by the First Amendment, the Amended Credit Agreement). The First Amendment, among other things, established
$340 million
in incremental term loan A commitments under the Amended Credit Agreement with a maturity date of July 29, 2024 (Term Loan A Facility due 2024), extended the maturity date of the Revolving Credit Facility from April 6, 2022 to July 29, 2024 and modified the applicable margin with respect to interest rates under the Term Loan A Facility due 2024 and interest rates and commitment fees under the Revolving Credit Facility. The applicable margin and the maturity date for the Term Loan B Facility remain unchanged. The proceeds of
$340 million
were used to repay all of the outstanding loans under the existing Term Loan A Facility and a portion of the outstanding Term Loan B Facility, resulting in no additional indebtedness.
Foreign credit facilities
We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At
June 30, 2019
,
$119.6 million
was outstanding under our foreign credit facilities, as compared to
$127.1 million
at
December 31, 2018
. At
June 30, 2019
, an additional
$87.7 million
was available under our foreign credit facilities.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted-average interest rate of our long-term debt outstanding was
6.0%
at
June 30, 2019
and
5.9%
at
December 31, 2018
.
Capital lease obligations
Upon our adoption of ASC 842
Leases
, our capital (finance) lease obligations are now presented in Accrued expenses and other, and Postretirement benefits and other long-term liabilities on our Condensed Consolidated Balance Sheet. See Note 2 - Leasing for additional detail regarding our adoption of ASC 842.
Redemption of 7.75% Notes due 2019
In May 2019, we voluntarily redeemed the remaining balance outstanding under our
7.75%
Notes due 2019. This resulted in a principal payment of
$100 million
and
$0.3 million
in accrued interest. We also expensed approximately
$0.1 million
for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately
$2.2 million
for an early redemption premium.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. FAIR VALUE
Accounting Standards Codification 820 -
Fair Value Measurement
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. This guidance 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.
|
Financial instruments
The estimated fair value of our financial assets and liabilities that are recognized at fair value on a recurring basis, using available market information and other observable data, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
Input
|
|
|
(in millions)
|
|
|
Balance Sheet Classification
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
54.2
|
|
|
$
|
54.2
|
|
|
$
|
44.0
|
|
|
$
|
44.0
|
|
|
Level 1
|
Prepaid expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - currency forward contracts
|
|
3.2
|
|
|
3.2
|
|
|
1.3
|
|
|
1.3
|
|
|
Level 2
|
Cash flow hedges - variable-to-fixed interest rate swap
|
|
1.3
|
|
|
1.3
|
|
|
0.9
|
|
|
0.9
|
|
|
Level 2
|
Nondesignated - currency forward contracts
|
|
1.3
|
|
|
1.3
|
|
|
0.6
|
|
|
0.6
|
|
|
Level 2
|
Other assets and deferred charges
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - currency forward contracts
|
|
1.6
|
|
|
1.6
|
|
|
0.4
|
|
|
0.4
|
|
|
Level 2
|
Cash flow hedges - variable-to-fixed interest rate swap
|
|
3.4
|
|
|
3.4
|
|
|
1.6
|
|
|
1.6
|
|
|
Level 2
|
Accrued expenses and other
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - currency forward contracts
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
0.8
|
|
|
Level 2
|
Cash flow hedges - variable-to-fixed interest rate swap
|
|
8.2
|
|
|
8.2
|
|
|
0.7
|
|
|
0.7
|
|
|
Level 2
|
Nondesignated - currency forward contracts
|
|
0.1
|
|
|
0.1
|
|
|
0.4
|
|
|
0.4
|
|
|
Level 2
|
Postretirement benefits and other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - currency forward contracts
|
|
—
|
|
|
—
|
|
|
0.9
|
|
|
0.9
|
|
|
Level 2
|
Cash flow hedges - variable-to-fixed interest rate swap
|
|
20.1
|
|
|
20.1
|
|
|
6.9
|
|
|
6.9
|
|
|
Level 2
|
The carrying values of our cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term maturities of these instruments. The carrying values of our borrowings under the foreign credit facilities approximate their fair value due to the frequent resetting of the interest rates.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We estimated the fair value of the amounts outstanding on our debt using available market information and other observable data, to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
Input
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Level 2
|
Term Loan A Facility
|
|
81.3
|
|
|
79.5
|
|
|
83.8
|
|
|
79.5
|
|
|
Level 2
|
Term Loan B Facility
|
|
1,507.4
|
|
|
1,469.7
|
|
|
1,511.2
|
|
|
1,420.6
|
|
|
Level 2
|
7.75% Notes due 2019
|
|
—
|
|
|
—
|
|
|
100.0
|
|
|
102.1
|
|
|
Level 2
|
6.625% Notes due 2022
|
|
450.0
|
|
|
457.9
|
|
|
450.0
|
|
|
444.4
|
|
|
Level 2
|
6.50% Notes due 2027
|
|
500.0
|
|
|
497.5
|
|
|
500.0
|
|
|
446.3
|
|
|
Level 2
|
6.25% Notes due 2026
|
|
400.0
|
|
|
393.5
|
|
|
400.0
|
|
|
358.0
|
|
|
Level 2
|
6.25% Notes due 2025
|
|
700.0
|
|
|
688.6
|
|
|
700.0
|
|
|
636.7
|
|
|
Level 2
|
Long-Lived Assets
During the second quarter of 2018, we recorded asset impairment charges as a result of restructuring actions initiated during the quarter. See Note 3 - Restructuring and Acquisition-Related Costs for further detail. There were no such impairment charges incurred during the six months ended June 30, 2019.
The following table summarizes the impairments of long-lived assets measured at fair value on a nonrecurring basis subsequent to initial recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
Fair Value at June 30, 2018
|
|
Asset Impairment for the Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
—
|
|
|
$
|
23.6
|
|
Other assets and deferred charges
|
|
—
|
|
|
0.3
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DERIVATIVES
Our business and financial results are affected by fluctuations in global 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 derivative contracts
From time to time, we use foreign currency forward contracts to reduce the effects of fluctuations in exchange rates relating to certain foreign currencies. As of
June 30, 2019
, we have currency forward contracts outstanding with a total notional amount of
$175.2 million
that hedge our exposure to changes in foreign currency exchange rates for certain payroll expenses into the second quarter of 2022 and other items into the fourth quarter of 2019.
Variable-to-fixed interest rate swap
In 2018, we entered into a variable-to-fixed interest rate swap to reduce the variability of cash flows associated with interest payments on our variable rate debt. In the second quarter of 2019, we discontinued this variable-to-fixed interest rate swap, which was a liability of
$9.7 million
on the date that it was discontinued.
Also in the second quarter of 2019, we entered into a new variable-to-fixed interest rate swap to reduce the variability of cash flows associated with interest payments on our variable rate debt. We have the following notional amounts hedged in relation to our variable-to-fixed interest rate swap:
$1.0 billion
through May 2020,
$900.0 million
through May 2021,
$750.0 million
through May 2022,
$600.0 million
through May 2023 and
$500.0 million
through May 2024.
The following table summarizes the reclassification of derivative gains and losses into net income from accumulated other comprehensive income (loss) for those derivative instruments designated as cash flow hedges under ASC 815 -
Derivatives and Hedging
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Gain (Loss) Reclassified During
|
|
Total of Financial
|
|
Gain (Loss) Expected
|
|
|
of Gain (Loss)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Statement
|
|
to be Reclassified
|
|
|
Reclassified into
|
|
June 30,
|
|
June 30,
|
|
Line Item
|
|
During the
|
|
|
Net Income
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
Next 12 Months
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts
|
|
Cost of Goods Sold
|
|
$
|
0.7
|
|
|
$
|
(0.8
|
)
|
|
$
|
0.9
|
|
|
$
|
(2.8
|
)
|
|
$
|
2,953.0
|
|
|
$
|
3.2
|
|
Variable-to-fixed interest rate swap
|
|
Interest Expense
|
|
0.7
|
|
|
0.9
|
|
|
1.9
|
|
|
1.3
|
|
|
(109.6
|
)
|
|
(6.9
|
)
|
See Note 13 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (AOCI) for amounts recognized in other comprehensive income (loss) during the three and six months ended
June 30, 2019
and
2018
.
The following table summarizes the amount and location of gains and losses recognized in the Condensed Consolidated Statements of Income for those derivative instruments not designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized During
|
Total of Financial
|
|
|
Location of Gain (Loss)
|
|
Three Months Ended
|
|
Six Months Ended
|
Statement Line
|
|
|
Recognized in
|
|
June 30,
|
|
June 30,
|
Item
|
|
|
Net Income
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
2019
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts
|
|
Cost of Goods Sold
|
|
$
|
0.6
|
|
|
$
|
(3.5
|
)
|
|
$
|
1.8
|
|
|
$
|
0.5
|
|
$
|
2,953.0
|
|
Currency forward contracts
|
|
Other Income (Expense), net
|
|
(0.4
|
)
|
|
1.8
|
|
|
(0.6
|
)
|
|
1.8
|
|
(6.1
|
)
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost (credit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.4
|
|
|
$
|
1.0
|
|
|
$
|
0.7
|
|
|
$
|
2.1
|
|
Interest cost
|
|
7.1
|
|
|
6.8
|
|
|
14.2
|
|
|
13.7
|
|
Expected asset return
|
|
(10.3
|
)
|
|
(11.5
|
)
|
|
(20.6
|
)
|
|
(23.0
|
)
|
Amortized loss
|
|
1.5
|
|
|
2.2
|
|
|
3.2
|
|
|
4.4
|
|
Amortized prior service cost
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Curtailment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.2
|
|
Net periodic benefit cost (credit)
|
|
$
|
(1.3
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Interest cost
|
|
3.2
|
|
|
3.1
|
|
|
6.4
|
|
|
6.2
|
|
Amortized loss
|
|
—
|
|
|
0.2
|
|
|
0.1
|
|
|
0.4
|
|
Amortized prior service credit
|
|
(0.4
|
)
|
|
(0.6
|
)
|
|
(0.8
|
)
|
|
(1.3
|
)
|
Net periodic benefit cost
|
|
$
|
2.9
|
|
|
$
|
2.8
|
|
|
$
|
5.9
|
|
|
$
|
5.5
|
|
The noncurrent liabilities associated with our pension and other postretirement benefit plans are classified as Postretirement benefits and other long-term liabilities on our Condensed Consolidated Balance Sheets. As of
June 30, 2019
and
December 31, 2018
, we have a noncurrent pension liability of
$120.3 million
and
$128.6 million
, respectively. As of
June 30, 2019
and
December 31, 2018
, we have a noncurrent other postretirement benefits liability of
$504.5 million
and
$506.5 million
, respectively.
Due to the availability of our pre-funded pension balances (previous contributions in excess of prior required pension contributions) related to certain of our U.S. pension plans, we expect our regulatory pension funding requirements in
2019
to be approximately
$2.2 million
. We expect our cash payments for other postretirement benefit obligations in
2019
, net of GM cost sharing, to be approximately
$17.7 million
.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PRODUCT WARRANTIES
We record a liability for estimated warranty obligations at the dates our products are sold. These estimates are established using sales volumes and internal and external warranty data where there is no payment history and historical information about the average cost of warranty claims for customers with prior claims. We estimate our costs based on the contractual arrangements with our customers, existing customer warranty terms and internal and external warranty data, which includes a determination of our warranty claims and actions taken to improve product quality and minimize warranty claims. We continuously evaluate these estimates and our customers' administration of their warranty programs. We closely monitor actual warranty claim data and adjust the liability, as necessary, on a quarterly basis.
The following table provides a reconciliation of changes in the product warranty liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
56.2
|
|
|
$
|
53.6
|
|
|
$
|
57.7
|
|
|
$
|
49.5
|
|
Accruals
|
|
5.0
|
|
|
6.2
|
|
|
9.4
|
|
|
10.5
|
|
Payments
|
|
(3.6
|
)
|
|
(0.6
|
)
|
|
(7.3
|
)
|
|
(1.1
|
)
|
Adjustment to prior period accruals
|
|
(2.0
|
)
|
|
(0.2
|
)
|
|
(4.3
|
)
|
|
(0.2
|
)
|
Foreign currency translation
|
|
0.1
|
|
|
(0.6
|
)
|
|
0.2
|
|
|
(0.3
|
)
|
Ending balance
|
|
$
|
55.7
|
|
|
$
|
58.4
|
|
|
$
|
55.7
|
|
|
$
|
58.4
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
We adjust our effective tax rate each quarter based on our estimated annual effective tax rate. We also record the tax impact of certain discrete, unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
Income tax was expense of
$6.0 million
for the
three
months ended
June 30, 2019
, an effective income tax rate of
10.2%
, as compared to
$2.0 million
for the
three
months ended
June 30, 2018
, an effective income tax rate of
1.3%
. Income tax expense was
$3.0 million
for the
six
months ended
June 30, 2019
, an effective income tax rate of
3.1%
, as compared to
$19.9 million
for the
six
months ended
June 30, 2018
, an effective income tax rate of
7.6%
.
Our effective income tax rate for the three months ended
June 30, 2019
is higher than our effective income tax rate for the three months ended
June 30, 2018
primarily due to the impact of discrete income tax items recognized in the second quarter of 2018. During the second quarter of 2018, we recognized a discrete tax benefit as a result of finalizing an advance pricing agreement in a foreign jurisdiction, which resulted in a reduction of our liability for unrecognized income tax benefits and related interest and penalties of
$20.0 million
. Also in the second quarter of 2018, we recognized a discrete tax expense related to the sale of the aftermarket business associated with our former Powertrain segment.
Our effective income tax rate for the six months ended June 30, 2019 is lower than our effective income tax rate for the six months ended June 30, 2018. As part of the Tax Cuts and Jobs Act in 2017, a one-time transition tax (Transition Tax) was imposed on certain foreign earnings for which U.S. income tax was previously deferred. The Department of Treasury and Internal Revenue Service issued final regulations on February 5, 2019 regarding the Transition Tax, which changed the manner in which we are required to compute the Transition Tax when it is recognized over a two-year period. The application of the final regulations resulted in a
$9.3 million
income tax benefit, which has been recorded in the
six
months ended
June 30, 2019
, the period in which the final regulations were issued. Our effective income tax rate for the six months ended June 30, 2018 was also impacted by the net effect of the discrete items discussed for the three months ended June 30, 2018 above.
For the three and
six
months ended
June 30, 2019
and
2018
, our effective income tax rates vary from the U.S. federal statutory rate of 21% primarily due to favorable foreign tax rates, as well as the impact of tax credits and the effect of the discrete items described above.
We operate in multiple jurisdictions throughout the world and the income tax returns of several subsidiaries in various tax jurisdictions are currently under examination. We are currently under a U.S. federal income tax examination for the year 2015. We continue to have years subject to income tax examination in certain significant tax jurisdictions from 2013 to present. Based on the status of ongoing tax audits, and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. As of
June 30, 2019
and
December 31, 2018
, we have recorded a liability for unrecognized income tax benefits and related interest and penalties of
$51.3 million
and
$45.6 million
, respectively.
During the next 12 months, we may finalize an advance pricing agreement in a foreign jurisdiction, which could result in a cash payment to the relevant tax authorities and a reduction of our liability for unrecognized tax benefits and related interest and penalties. Although it is difficult to estimate with certainty the amount of any audit settlement, we do not expect any potential settlement to be materially different from what we have recorded in unrecognized tax benefits. We will continue to monitor the progress and conclusions of all ongoing audits and other communications with tax authorities, and will adjust our estimated liability as necessary.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12.
EARNINGS PER SHARE (EPS)
We present earnings per share using the two-class method. This method allocates undistributed earnings between common shares and non-vested share based payment awards that entitle the holder to non-forfeitable dividend rights. Our participating securities include non-vested restricted stock units.
The following table sets forth the computation of our basic and diluted EPS available to shareholders of common stock (excluding participating securities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions, except per share data)
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net income attributable to AAM
|
|
$
|
52.5
|
|
|
$
|
151.1
|
|
|
$
|
94.1
|
|
|
$
|
240.5
|
|
Less: Net income attributable to participating securities
|
|
(1.5
|
)
|
|
(4.9
|
)
|
|
(2.7
|
)
|
|
(6.8
|
)
|
Net income attributable to common shareholders - Basic and Dilutive
|
|
$
|
51.0
|
|
|
$
|
146.2
|
|
|
$
|
91.4
|
|
|
$
|
233.7
|
|
|
|
|
|
|
|
|
|
|
Denominators
|
|
|
|
|
|
|
|
|
|
|
Basic common shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
115.8
|
|
|
115.4
|
|
|
115.6
|
|
|
114.8
|
|
Less: Participating securities
|
|
(3.3
|
)
|
|
(3.7
|
)
|
|
(3.4
|
)
|
|
(3.3
|
)
|
Weighted-average common shares outstanding
|
|
112.5
|
|
|
111.7
|
|
|
112.2
|
|
|
111.5
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities -
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock-based compensation
|
|
0.3
|
|
|
0.6
|
|
|
0.4
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares after assumed conversions
|
|
112.8
|
|
|
112.3
|
|
|
112.6
|
|
|
112.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.45
|
|
|
$
|
1.31
|
|
|
$
|
0.81
|
|
|
$
|
2.09
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
0.45
|
|
|
$
|
1.30
|
|
|
$
|
0.81
|
|
|
$
|
2.08
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13.
RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (AOCI)
Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss) during the
three
months ended
June 30, 2019
and
June 30, 2018
are as follows
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Foreign Currency Translation Adjustments
|
|
Unrecognized Gain (Loss) on Cash Flow Hedges
|
|
Total
|
Balance at March 31, 2019
|
$
|
(240.9
|
)
|
|
$
|
(99.1
|
)
|
|
$
|
(3.6
|
)
|
|
$
|
(343.6
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
4.9
|
|
|
(19.1
|
)
|
|
(14.2
|
)
|
|
|
|
|
|
|
|
|
Income tax effect of other comprehensive income (loss) before reclassifications
|
—
|
|
|
—
|
|
|
4.6
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
1.3
|
|
(a)
|
—
|
|
|
(1.4
|
)
|
(b)
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Income taxes reclassified into net income
|
(0.2
|
)
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss
|
1.1
|
|
|
4.9
|
|
|
(15.8
|
)
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
$
|
(239.8
|
)
|
|
$
|
(94.2
|
)
|
|
$
|
(19.4
|
)
|
|
$
|
(353.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Foreign Currency Translation Adjustments
|
|
Unrecognized Gain (Loss) on Cash Flow Hedges
|
|
Total
|
Balance at March 31, 2018
|
$
|
(250.7
|
)
|
|
$
|
3.8
|
|
|
$
|
8.5
|
|
|
$
|
(238.4
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
14.7
|
|
|
(81.2
|
)
|
|
(7.7
|
)
|
|
(74.2
|
)
|
|
|
|
|
|
|
|
|
Income tax effect of other comprehensive income (loss) before reclassifications
|
(3.6
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
1.6
|
|
(a)
|
0.2
|
|
|
(0.1
|
)
|
(b)
|
1.7
|
|
|
|
|
|
|
|
|
|
Income taxes reclassified into net income
|
(0.5
|
)
|
|
—
|
|
|
0.3
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive income (loss)
|
12.2
|
|
|
(81.0
|
)
|
|
(7.9
|
)
|
|
(76.7
|
)
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
$
|
(238.5
|
)
|
|
$
|
(77.2
|
)
|
|
$
|
0.6
|
|
|
$
|
(315.1
|
)
|
|
|
|
(a)
|
The amount reclassified from AOCI included $1.2 million in cost of goods sold (COGS) and $0.1 million in SG&A for the three months ended June 30, 2019 and $1.6 million in COGS for the three months ended June 30, 2018.
|
|
|
(b)
|
The amounts reclassified from AOCI included $(0.7) million in COGS and $(0.7) million in interest expense for the three months ended June 30, 2019 and $0.8 million in COGS and $(0.9) million in interest expense for the three months ended June 30, 2018.
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss) during the
six
months ended
June 30, 2019
and
June 30, 2018
are as follows
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Foreign Currency Translation Adjustments
|
|
Unrecognized Gain (Loss) on Cash Flow Hedges
|
|
Total
|
Balance at December 31, 2018
|
$
|
(213.9
|
)
|
|
$
|
(96.6
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(311.6
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(27.9
|
)
|
(a)
|
2.4
|
|
|
(21.7
|
)
|
|
(47.2
|
)
|
|
|
|
|
|
|
|
|
Income tax effect of other comprehensive income (loss) before reclassifications
|
—
|
|
|
—
|
|
|
5.8
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
2.5
|
|
(b)
|
—
|
|
|
(2.8
|
)
|
(c)
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
Income taxes reclassified into net income
|
(0.5
|
)
|
|
—
|
|
|
0.4
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss
|
(25.9
|
)
|
|
2.4
|
|
|
(18.3
|
)
|
|
(41.8
|
)
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
$
|
(239.8
|
)
|
|
$
|
(94.2
|
)
|
|
$
|
(19.4
|
)
|
|
$
|
(353.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Foreign Currency Translation Adjustments
|
|
Unrecognized Gain (Loss) on Cash Flow Hedges
|
|
Total
|
Balance at December 31, 2017
|
$
|
(252.0
|
)
|
|
$
|
(34.1
|
)
|
|
$
|
(6.6
|
)
|
|
$
|
(292.7
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
14.7
|
|
|
(43.3
|
)
|
|
6.9
|
|
|
(21.7
|
)
|
|
|
|
|
|
|
|
|
Income tax effect of other comprehensive income (loss) before reclassifications
|
(3.6
|
)
|
|
—
|
|
|
(1.5
|
)
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
3.3
|
|
(b)
|
0.2
|
|
|
1.5
|
|
(c)
|
5.0
|
|
|
|
|
|
|
|
|
|
Income taxes reclassified into net income
|
(0.9
|
)
|
|
—
|
|
|
0.3
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive income (loss)
|
13.5
|
|
|
(43.1
|
)
|
|
7.2
|
|
|
(22.4
|
)
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
$
|
(238.5
|
)
|
|
$
|
(77.2
|
)
|
|
$
|
0.6
|
|
|
$
|
(315.1
|
)
|
|
|
|
(a)
|
ASU 2018-02 became effective on January 1, 2019, and we elected to reclassify the stranded tax effects caused by the 2017 Tax Cuts and Jobs Act, resulting in a decrease in Accumulated other comprehensive income (loss) of $27.7 million at January 1, 2019. See Note 1 - Organization and Basis of Presentation for further detail.
|
|
|
(b)
|
The amount reclassified from AOCI included $2.4 million in cost of goods sold (COGS) and $0.1 million in SG&A for the six months ended June 30, 2019 and $3.0 million in COGS and $0.3 million in SG&A for the six months ended June 30, 2018.
|
|
|
(c)
|
The amounts reclassified from AOCI included $(0.9) million in COGS and $(1.9) million in interest expense for the six months ended June 30, 2019 and $2.8 million in COGS and $(1.3) million in interest expense for the six months ended June 30, 2018.
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Net Sales
Net sales recognized from contracts with customers, disaggregated by segment and geographical location, are presented in the following table for the three and
six
months ended
June 30, 2019
and
2018
. Net sales are attributed to regions based on the location of production. Intersegment sales have been excluded from the table.
In the first quarter of 2019, we reorganized our business to disaggregate our former Powertrain business unit, with a portion moving to our Driveline business unit and a portion moving to our Metal Forming business unit. As a result, the Powertrain amounts previously reported for the three and
six
months ended June 30, 2018 have been reclassified to Driveline and Metal Forming.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Total
|
North America
|
|
$
|
888.3
|
|
|
$
|
301.4
|
|
|
$
|
186.9
|
|
|
$
|
1,376.6
|
|
Asia
|
|
135.0
|
|
|
7.9
|
|
|
—
|
|
|
142.9
|
|
Europe
|
|
90.8
|
|
|
67.2
|
|
|
—
|
|
|
158.0
|
|
South America
|
|
25.9
|
|
|
0.9
|
|
|
—
|
|
|
26.8
|
|
Total
|
|
$
|
1,140.0
|
|
|
$
|
377.4
|
|
|
$
|
186.9
|
|
|
$
|
1,704.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Total
|
North America
|
|
$
|
985.2
|
|
|
$
|
327.1
|
|
|
$
|
209.7
|
|
|
$
|
1,522.0
|
|
Asia
|
|
177.9
|
|
|
12.5
|
|
|
—
|
|
|
190.4
|
|
Europe
|
|
78.5
|
|
|
77.5
|
|
|
—
|
|
|
156.0
|
|
South America
|
|
31.0
|
|
|
1.5
|
|
|
—
|
|
|
32.5
|
|
Total
|
|
$
|
1,272.6
|
|
|
$
|
418.6
|
|
|
$
|
209.7
|
|
|
$
|
1,900.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Total
|
North America
|
|
$
|
1,741.4
|
|
|
$
|
606.8
|
|
|
$
|
384.2
|
|
|
$
|
2,732.4
|
|
Asia
|
|
288.3
|
|
|
15.4
|
|
|
—
|
|
|
303.7
|
|
Europe
|
|
192.4
|
|
|
139.9
|
|
|
—
|
|
|
332.3
|
|
South America
|
|
51.7
|
|
|
3.4
|
|
|
—
|
|
|
55.1
|
|
Total
|
|
$
|
2,273.8
|
|
|
$
|
765.5
|
|
|
$
|
384.2
|
|
|
$
|
3,423.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Total
|
North America
|
|
$
|
1,946.4
|
|
|
$
|
666.7
|
|
|
$
|
419.5
|
|
|
$
|
3,032.6
|
|
Asia
|
|
320.9
|
|
|
24.8
|
|
|
—
|
|
|
345.7
|
|
Europe
|
|
155.3
|
|
|
159.0
|
|
|
—
|
|
|
314.3
|
|
South America
|
|
64.3
|
|
|
2.4
|
|
|
—
|
|
|
66.7
|
|
Total
|
|
$
|
2,486.9
|
|
|
$
|
852.9
|
|
|
$
|
419.5
|
|
|
$
|
3,759.3
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Contract Assets and Liabilities
The following table summarizes our beginning and ending balances for accounts receivable and contract liabilities associated with our contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable, Net
|
Contract Liabilities (Current)
|
Contract Liabilities (Long-term)
|
December 31, 2018
|
$
|
966.5
|
|
$
|
44.3
|
|
$
|
77.6
|
|
June 30, 2019
|
1,138.0
|
|
33.6
|
|
87.5
|
|
Increase/(decrease)
|
$
|
171.5
|
|
$
|
(10.7
|
)
|
$
|
9.9
|
|
Contract liabilities relate to deferred revenue associated with various settlements and commercial agreements for which we have a future performance obligation to the customer. We recognize this deferred revenue into revenue over the life of the associated program as we satisfy our performance obligations to the customer. We do not have contract assets as defined in ASC 606.
During the three and
six
months ended
June 30, 2019
, we amortized
$14.9 million
and
$27.8 million
, respectively, of previously recorded contract liabilities into revenue as we satisfied performance obligations with our customers.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT REPORTING
Subsequent to the acquisition of MPG in 2017, our business was organized into four segments: Driveline, Metal Forming, Powertrain and Casting. In the first quarter of 2019, we reorganized our business to disaggregate our former Powertrain segment, with a portion moving to our Driveline segment and a portion moving to our Metal Forming segment. As a result, our business is now organized into Driveline, Metal Forming and Casting segments, with each representing a reportable segment under ASC 280
Segment Reporting
. The Powertrain Sales and Segment Adjusted EBITDA amounts previously reported for the three and
six
months ended
June 30, 2018
, as well as the Total Assets previously reported for Powertrain as of December 31, 2018, have been reclassified to Driveline and Metal Forming in the tables below.
The results of each segment are regularly reviewed by the chief operating decision maker to assess the performance of the segment and make decisions regarding the allocation of resources to the segments.
Our product offerings by segment are as follows:
|
|
•
|
Driveline products consist primarily of front and rear axles, driveshafts, differential assemblies, clutch modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline products and systems for light trucks, SUVs, crossover vehicles, passenger cars and commercial vehicles;
|
|
|
•
|
Metal Forming products consist primarily of axle and transmission shafts, ring and pinion gears, differential gears and assemblies, connecting rods and variable valve timing products for Original Equipment Manufacturers and Tier 1 automotive suppliers; and
|
|
|
•
|
Casting products consist primarily of both thin wall castings and high strength ductile iron castings, as well as transmission pump bodies, steering knuckles, control arms, brake anchors and calipers, and ball joint housings for the global light vehicle, commercial and industrial markets.
|
We use Segment Adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. We define EBITDA to be earnings before interest expense, income taxes, depreciation and amortization. Segment Adjusted EBITDA is defined as EBITDA for our reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gain on the sale of a business, goodwill impairments and non-recurring items.
The following tables represent information by reportable segment for the three months ended
June 30, 2019
and
2018
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Total
|
Sales
|
|
$
|
1,141.1
|
|
|
$
|
484.2
|
|
|
$
|
220.7
|
|
|
$
|
1,846.0
|
|
Less: intersegment sales
|
|
1.1
|
|
|
106.8
|
|
|
33.8
|
|
|
141.7
|
|
Net external sales
|
|
$
|
1,140.0
|
|
|
$
|
377.4
|
|
|
$
|
186.9
|
|
|
$
|
1,704.3
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
152.9
|
|
|
$
|
88.0
|
|
|
$
|
25.1
|
|
|
$
|
266.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Total
|
Sales
|
|
$
|
1,274.3
|
|
|
$
|
530.4
|
|
|
$
|
243.2
|
|
|
$
|
2,047.9
|
|
Less: intersegment sales
|
|
1.7
|
|
|
111.8
|
|
|
33.5
|
|
|
147.0
|
|
Net external sales
|
|
$
|
1,272.6
|
|
|
$
|
418.6
|
|
|
$
|
209.7
|
|
|
$
|
1,900.9
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
204.3
|
|
|
$
|
116.7
|
|
|
$
|
26.9
|
|
|
$
|
347.9
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables represent information by reportable segment for the
six
months ended
June 30, 2019
and
2018
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Total
|
Sales
|
|
$
|
2,275.8
|
|
|
$
|
967.5
|
|
|
$
|
446.0
|
|
|
$
|
3,689.3
|
|
Less: intersegment sales
|
|
2.0
|
|
|
202.0
|
|
|
61.8
|
|
|
265.8
|
|
Net external sales
|
|
$
|
2,273.8
|
|
|
$
|
765.5
|
|
|
$
|
384.2
|
|
|
$
|
3,423.5
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
290.1
|
|
|
$
|
173.3
|
|
|
$
|
47.6
|
|
|
$
|
511.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Total
|
Sales
|
|
$
|
2,490.4
|
|
|
$
|
1,072.7
|
|
|
$
|
482.2
|
|
|
$
|
4,045.3
|
|
Less: intersegment sales
|
|
3.5
|
|
|
219.8
|
|
|
62.7
|
|
|
286.0
|
|
Net external sales
|
|
$
|
2,486.9
|
|
|
$
|
852.9
|
|
|
$
|
419.5
|
|
|
$
|
3,759.3
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
394.0
|
|
|
$
|
222.4
|
|
|
$
|
48.5
|
|
|
$
|
664.9
|
|
The following table represents total assets by segment as of
June 30, 2019
and December 31, 2018
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Driveline
|
|
Metal Forming
|
|
Casting
|
|
Corporate and Elims
|
|
Total
|
Total Assets as of June 30, 2019
|
|
$
|
3,621.5
|
|
|
$
|
2,657.2
|
|
|
$
|
673.4
|
|
|
$
|
595.8
|
|
|
$
|
7,547.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets as of December 31, 2018
|
|
3,529.2
|
|
|
2,723.0
|
|
|
664.7
|
|
|
593.8
|
|
|
7,510.7
|
|
The following table represents a reconciliation of Total Segment Adjusted EBITDA to consolidated income before income taxes for the three months and
six
months ended
June 30, 2019
and
2018
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total Segment Adjusted EBITDA
|
$
|
266.0
|
|
|
$
|
347.9
|
|
|
$
|
511.0
|
|
|
$
|
664.9
|
|
Interest expense
|
(56.2
|
)
|
|
(54.4
|
)
|
|
(109.6
|
)
|
|
(107.6
|
)
|
Depreciation and amortization
|
(136.5
|
)
|
|
(130.2
|
)
|
|
(277.3
|
)
|
|
(258.0
|
)
|
Restructuring and acquisition-related costs
|
(12.2
|
)
|
|
(36.8
|
)
|
|
(24.3
|
)
|
|
(55.1
|
)
|
Gain on sale of business
|
—
|
|
|
15.5
|
|
|
—
|
|
|
15.5
|
|
Gain on settlement of capital lease
|
—
|
|
|
15.6
|
|
|
—
|
|
|
15.6
|
|
Debt refinancing and redemption costs
|
(2.4
|
)
|
|
(4.3
|
)
|
|
(2.4
|
)
|
|
(14.6
|
)
|
Income before income taxes
|
$
|
58.7
|
|
|
$
|
153.3
|
|
|
$
|
97.4
|
|
|
$
|
260.7
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Holdings has no significant assets other than its
100%
ownership in AAM, Inc. and Metaldyne Performance Group, Inc. (MPG Inc.), and no direct subsidiaries other than AAM, Inc. and MPG Inc. The
6.625%
Notes,
6.50%
Notes,
6.25%
Notes (due 2026), and
6.25%
Notes (due 2025) are senior unsecured obligations of AAM, Inc.; all of which are fully and unconditionally guaranteed, on a joint and several basis, by Holdings and substantially all domestic subsidiaries of AAM, Inc. and MPG Inc.
These Condensed Consolidating Financial Statements are prepared under the equity method of accounting whereby the investments in subsidiaries are recorded at cost and adjusted for the parent’s share of the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other equity changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
AAM Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elims
|
|
Consolidated
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
$
|
—
|
|
|
$
|
223.9
|
|
|
$
|
516.9
|
|
|
$
|
963.5
|
|
|
$
|
—
|
|
|
$
|
1,704.3
|
|
Intercompany
|
|
—
|
|
|
0.3
|
|
|
74.1
|
|
|
10.1
|
|
|
(84.5
|
)
|
|
—
|
|
Total net sales
|
|
—
|
|
|
224.2
|
|
|
591.0
|
|
|
973.6
|
|
|
(84.5
|
)
|
|
1,704.3
|
|
Cost of goods sold
|
|
—
|
|
|
226.6
|
|
|
532.3
|
|
|
781.6
|
|
|
(84.5
|
)
|
|
1,456.0
|
|
Gross profit (loss)
|
|
—
|
|
|
(2.4
|
)
|
|
58.7
|
|
|
192.0
|
|
|
—
|
|
|
248.3
|
|
Selling, general and administrative expenses
|
|
—
|
|
|
70.5
|
|
|
7.6
|
|
|
13.2
|
|
|
—
|
|
|
91.3
|
|
Amortization of intangible assets
|
|
—
|
|
|
1.4
|
|
|
22.6
|
|
|
0.9
|
|
|
—
|
|
|
24.9
|
|
Restructuring and acquisition-related costs
|
|
—
|
|
|
4.6
|
|
|
4.7
|
|
|
2.9
|
|
|
—
|
|
|
12.2
|
|
Operating income (loss)
|
|
—
|
|
|
(78.9
|
)
|
|
23.8
|
|
|
175.0
|
|
|
—
|
|
|
119.9
|
|
Non-operating income (expense), net
|
|
—
|
|
|
(62.5
|
)
|
|
1.8
|
|
|
(0.5
|
)
|
|
—
|
|
|
(61.2
|
)
|
Income (loss) before income taxes
|
|
—
|
|
|
(141.4
|
)
|
|
25.6
|
|
|
174.5
|
|
|
—
|
|
|
58.7
|
|
Income tax expense (benefit)
|
|
—
|
|
|
1.4
|
|
|
(0.2
|
)
|
|
4.8
|
|
|
—
|
|
|
6.0
|
|
Earnings from equity in subsidiaries
|
|
52.5
|
|
|
57.3
|
|
|
32.9
|
|
|
—
|
|
|
(142.7
|
)
|
|
—
|
|
Net income (loss) before royalties
|
|
52.5
|
|
|
(85.5
|
)
|
|
58.7
|
|
|
169.7
|
|
|
(142.7
|
)
|
|
52.7
|
|
Royalties
|
|
—
|
|
|
84.8
|
|
|
0.7
|
|
|
(85.5
|
)
|
|
—
|
|
|
—
|
|
Net income (loss) after royalties
|
|
52.5
|
|
|
(0.7
|
)
|
|
59.4
|
|
|
84.2
|
|
|
(142.7
|
)
|
|
52.7
|
|
Net income attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
Net income (loss) attributable to AAM
|
|
$
|
52.5
|
|
|
$
|
(0.7
|
)
|
|
$
|
59.4
|
|
|
$
|
84.0
|
|
|
$
|
(142.7
|
)
|
|
$
|
52.5
|
|
Other comprehensive income (loss), net of tax
|
|
(9.8
|
)
|
|
(14.8
|
)
|
|
5.6
|
|
|
8.7
|
|
|
0.5
|
|
|
(9.8
|
)
|
Comprehensive income (loss) attributable to AAM
|
|
$
|
42.7
|
|
|
$
|
(15.5
|
)
|
|
$
|
65.0
|
|
|
$
|
92.7
|
|
|
$
|
(142.2
|
)
|
|
$
|
42.7
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
AAM Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elims
|
|
Consolidated
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
$
|
—
|
|
|
$
|
302.8
|
|
|
$
|
572.6
|
|
|
$
|
1,025.5
|
|
|
$
|
—
|
|
|
$
|
1,900.9
|
|
Intercompany
|
|
—
|
|
|
2.3
|
|
|
78.0
|
|
|
10.8
|
|
|
(91.1
|
)
|
|
—
|
|
Total net sales
|
|
—
|
|
|
305.1
|
|
|
650.6
|
|
|
1,036.3
|
|
|
(91.1
|
)
|
|
1,900.9
|
|
Cost of goods sold
|
|
—
|
|
|
305.7
|
|
|
542.3
|
|
|
812.6
|
|
|
(91.1
|
)
|
|
1,569.5
|
|
Gross profit (loss)
|
|
—
|
|
|
(0.6
|
)
|
|
108.3
|
|
|
223.7
|
|
|
—
|
|
|
331.4
|
|
Selling, general and administrative expenses
|
|
—
|
|
|
60.2
|
|
|
19.9
|
|
|
14.9
|
|
|
—
|
|
|
95.0
|
|
Amortization of intangible assets
|
|
—
|
|
|
1.4
|
|
|
22.5
|
|
|
0.9
|
|
|
—
|
|
|
24.8
|
|
Restructuring and acquisition-related costs
|
|
—
|
|
|
9.8
|
|
|
26.8
|
|
|
0.2
|
|
|
—
|
|
|
36.8
|
|
Gain on sale of business
|
|
—
|
|
|
—
|
|
|
(15.5
|
)
|
|
—
|
|
|
—
|
|
|
(15.5
|
)
|
Operating income (loss)
|
|
—
|
|
|
(72.0
|
)
|
|
54.6
|
|
|
207.7
|
|
|
—
|
|
|
190.3
|
|
Non-operating income (expense), net
|
|
—
|
|
|
(63.3
|
)
|
|
3.2
|
|
|
23.1
|
|
|
—
|
|
|
(37.0
|
)
|
Income (loss) before income taxes
|
|
—
|
|
|
(135.3
|
)
|
|
57.8
|
|
|
230.8
|
|
|
—
|
|
|
153.3
|
|
Income tax expense (benefit)
|
|
—
|
|
|
8.0
|
|
|
0.1
|
|
|
(6.1
|
)
|
|
—
|
|
|
2.0
|
|
Earnings from equity in subsidiaries
|
|
151.1
|
|
|
106.3
|
|
|
67.3
|
|
|
—
|
|
|
(324.7
|
)
|
|
—
|
|
Net income (loss) before royalties
|
|
151.1
|
|
|
(37.0
|
)
|
|
125.0
|
|
|
236.9
|
|
|
(324.7
|
)
|
|
151.3
|
|
Royalties
|
|
—
|
|
|
85.0
|
|
|
0.9
|
|
|
(85.9
|
)
|
|
—
|
|
|
—
|
|
Net income after royalties
|
|
151.1
|
|
|
48.0
|
|
|
125.9
|
|
|
151.0
|
|
|
(324.7
|
)
|
|
151.3
|
|
Net income attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
Net income attributable to AAM
|
|
$
|
151.1
|
|
|
$
|
48.0
|
|
|
$
|
125.9
|
|
|
$
|
150.8
|
|
|
$
|
(324.7
|
)
|
|
$
|
151.1
|
|
Other comprehensive loss, net of tax
|
|
(76.7
|
)
|
|
(29.2
|
)
|
|
(75.3
|
)
|
|
(81.0
|
)
|
|
185.5
|
|
|
(76.7
|
)
|
Comprehensive income attributable to AAM
|
|
$
|
74.4
|
|
|
$
|
18.8
|
|
|
$
|
50.6
|
|
|
$
|
69.8
|
|
|
$
|
(139.2
|
)
|
|
$
|
74.4
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
AAM Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elims
|
|
Consolidated
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
$
|
—
|
|
|
$
|
506.1
|
|
|
$
|
1,055.3
|
|
|
$
|
1,862.1
|
|
|
$
|
—
|
|
|
$
|
3,423.5
|
|
Intercompany
|
|
—
|
|
|
1.0
|
|
|
142.8
|
|
|
20.7
|
|
|
(164.5
|
)
|
|
—
|
|
Total net sales
|
|
—
|
|
|
507.1
|
|
|
1,198.1
|
|
|
1,882.8
|
|
|
(164.5
|
)
|
|
3,423.5
|
|
Cost of goods sold
|
|
—
|
|
|
499.9
|
|
|
1,082.6
|
|
|
1,535.0
|
|
|
(164.5
|
)
|
|
2,953.0
|
|
Gross profit
|
|
—
|
|
|
7.2
|
|
|
115.5
|
|
|
347.8
|
|
|
—
|
|
|
470.5
|
|
Selling, general and administrative expenses
|
|
—
|
|
|
140.0
|
|
|
15.6
|
|
|
26.4
|
|
|
—
|
|
|
182.0
|
|
Amortization of intangible assets
|
|
—
|
|
|
2.9
|
|
|
45.2
|
|
|
1.8
|
|
|
—
|
|
|
49.9
|
|
Restructuring and acquisition-related costs
|
|
—
|
|
|
10.9
|
|
|
8.2
|
|
|
5.2
|
|
|
—
|
|
|
24.3
|
|
Operating income (loss)
|
|
—
|
|
|
(146.6
|
)
|
|
46.5
|
|
|
314.4
|
|
|
—
|
|
|
214.3
|
|
Non-operating income (expense), net
|
|
—
|
|
|
(121.3
|
)
|
|
4.7
|
|
|
(0.3
|
)
|
|
—
|
|
|
(116.9
|
)
|
Income (loss) before income taxes
|
|
—
|
|
|
(267.9
|
)
|
|
51.2
|
|
|
314.1
|
|
|
—
|
|
|
97.4
|
|
Income tax expense (benefit)
|
|
—
|
|
|
(14.7
|
)
|
|
0.1
|
|
|
17.6
|
|
|
—
|
|
|
3.0
|
|
Earnings from equity in subsidiaries
|
|
94.1
|
|
|
81.4
|
|
|
67.1
|
|
|
—
|
|
|
(242.6
|
)
|
|
—
|
|
Net income (loss) before royalties
|
|
94.1
|
|
|
(171.8
|
)
|
|
118.2
|
|
|
296.5
|
|
|
(242.6
|
)
|
|
94.4
|
|
Royalties
|
|
—
|
|
|
154.6
|
|
|
1.5
|
|
|
(156.1
|
)
|
|
—
|
|
|
—
|
|
Net income (loss) after royalties
|
|
94.1
|
|
|
(17.2
|
)
|
|
119.7
|
|
|
140.4
|
|
|
(242.6
|
)
|
|
94.4
|
|
Net income attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
Net income (loss) attributable to AAM
|
|
$
|
94.1
|
|
|
$
|
(17.2
|
)
|
|
$
|
119.7
|
|
|
$
|
140.1
|
|
|
$
|
(242.6
|
)
|
|
$
|
94.1
|
|
Other comprehensive income (loss), net of tax
|
|
(14.1
|
)
|
|
(13.8
|
)
|
|
3.3
|
|
|
6.9
|
|
|
3.6
|
|
|
(14.1
|
)
|
Comprehensive income (loss) attributable to AAM
|
|
$
|
80.0
|
|
|
$
|
(31.0
|
)
|
|
$
|
123.0
|
|
|
$
|
147.0
|
|
|
$
|
(239.0
|
)
|
|
$
|
80.0
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
AAM Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elims
|
|
Consolidated
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
$
|
—
|
|
|
$
|
604.3
|
|
|
$
|
1,154.9
|
|
|
$
|
2,000.1
|
|
|
$
|
—
|
|
|
$
|
3,759.3
|
|
Intercompany
|
|
—
|
|
|
3.3
|
|
|
156.0
|
|
|
20.3
|
|
|
(179.6
|
)
|
|
—
|
|
Total net sales
|
|
—
|
|
|
607.6
|
|
|
1,310.9
|
|
|
2,020.4
|
|
|
(179.6
|
)
|
|
3,759.3
|
|
Cost of goods sold
|
|
—
|
|
|
583.9
|
|
|
1,119.1
|
|
|
$
|
1,588.2
|
|
|
(179.6
|
)
|
|
3,111.6
|
|
Gross profit
|
|
—
|
|
|
23.7
|
|
|
191.8
|
|
|
432.2
|
|
|
—
|
|
|
647.7
|
|
Selling, general and administrative expenses
|
|
—
|
|
|
120.0
|
|
|
41.8
|
|
|
30.5
|
|
|
—
|
|
|
192.3
|
|
Amortization of intangible assets
|
|
—
|
|
|
2.9
|
|
|
45.1
|
|
|
1.7
|
|
|
—
|
|
|
49.7
|
|
Restructuring and acquisition-related costs
|
|
—
|
|
|
26.1
|
|
|
27.9
|
|
|
1.1
|
|
|
—
|
|
|
55.1
|
|
Gain on sale of business
|
|
—
|
|
|
—
|
|
|
(15.5
|
)
|
|
—
|
|
|
—
|
|
|
(15.5
|
)
|
Operating income (loss)
|
|
—
|
|
|
(125.3
|
)
|
|
92.5
|
|
|
398.9
|
|
|
—
|
|
|
366.1
|
|
Non-operating income (expense), net
|
|
—
|
|
|
(133.8
|
)
|
|
8.2
|
|
|
20.2
|
|
|
—
|
|
|
(105.4
|
)
|
Income (loss) before income taxes
|
|
—
|
|
|
(259.1
|
)
|
|
100.7
|
|
|
419.1
|
|
|
—
|
|
|
260.7
|
|
Income tax expense
|
|
—
|
|
|
9.1
|
|
|
0.5
|
|
|
10.3
|
|
|
—
|
|
|
19.9
|
|
Earnings from equity in subsidiaries
|
|
240.5
|
|
|
173.5
|
|
|
107.8
|
|
|
—
|
|
|
(521.8
|
)
|
|
—
|
|
Net income (loss) before royalties
|
|
240.5
|
|
|
(94.7
|
)
|
|
208.0
|
|
|
408.8
|
|
|
(521.8
|
)
|
|
240.8
|
|
Royalties
|
|
—
|
|
|
169.2
|
|
|
1.9
|
|
|
(171.1
|
)
|
|
—
|
|
|
—
|
|
Net income after royalties
|
|
240.5
|
|
|
74.5
|
|
|
209.9
|
|
|
237.7
|
|
|
(521.8
|
)
|
|
240.8
|
|
Net income attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
Net income attributable to AAM
|
|
$
|
240.5
|
|
|
$
|
74.5
|
|
|
$
|
209.9
|
|
|
$
|
237.4
|
|
|
$
|
(521.8
|
)
|
|
$
|
240.5
|
|
Other comprehensive loss, net of tax
|
|
(22.4
|
)
|
|
(3.6
|
)
|
|
(40.2
|
)
|
|
(37.3
|
)
|
|
81.1
|
|
|
(22.4
|
)
|
Comprehensive income attributable to AAM
|
|
$
|
218.1
|
|
|
$
|
70.9
|
|
|
$
|
169.7
|
|
|
$
|
200.1
|
|
|
$
|
(440.7
|
)
|
|
$
|
218.1
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
AAM Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elims
|
|
Consolidated
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
|
$
|
71.2
|
|
|
$
|
0.1
|
|
|
$
|
177.5
|
|
|
$
|
—
|
|
|
$
|
248.8
|
|
Accounts receivable, net
|
|
—
|
|
|
116.2
|
|
|
313.3
|
|
|
708.5
|
|
|
—
|
|
|
1,138.0
|
|
Intercompany receivables
|
|
—
|
|
|
4,574.2
|
|
|
4,316.7
|
|
|
171.3
|
|
|
(9,062.2
|
)
|
|
—
|
|
Inventories, net
|
|
—
|
|
|
45.9
|
|
|
169.6
|
|
|
244.4
|
|
|
—
|
|
|
459.9
|
|
Prepaid expenses and other
|
|
—
|
|
|
32.9
|
|
|
5.1
|
|
|
92.0
|
|
|
—
|
|
|
130.0
|
|
Total current assets
|
|
—
|
|
|
4,840.4
|
|
|
4,804.8
|
|
|
1,393.7
|
|
|
(9,062.2
|
)
|
|
1,976.7
|
|
Property, plant and equipment, net
|
|
—
|
|
|
291.4
|
|
|
741.6
|
|
|
1,511.4
|
|
|
—
|
|
|
2,544.4
|
|
Goodwill
|
|
—
|
|
|
—
|
|
|
719.0
|
|
|
421.9
|
|
|
—
|
|
|
1,140.9
|
|
Intangible assets, net
|
|
—
|
|
|
16.5
|
|
|
1,016.4
|
|
|
30.2
|
|
|
—
|
|
|
1,063.1
|
|
Intercompany notes and accounts receivable
|
|
—
|
|
|
1,324.2
|
|
|
179.9
|
|
|
—
|
|
|
(1,504.1
|
)
|
|
—
|
|
Other assets and deferred charges
|
|
—
|
|
|
331.3
|
|
|
184.3
|
|
|
307.2
|
|
|
—
|
|
|
822.8
|
|
Investment in subsidiaries
|
|
2,884.0
|
|
|
2,330.9
|
|
|
1,798.5
|
|
|
—
|
|
|
(7,013.4
|
)
|
|
—
|
|
Total assets
|
|
$
|
2,884.0
|
|
|
$
|
9,134.7
|
|
|
$
|
9,444.5
|
|
|
$
|
3,664.4
|
|
|
$
|
(17,579.7
|
)
|
|
$
|
7,547.9
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
6.4
|
|
|
$
|
3.0
|
|
|
$
|
16.6
|
|
|
$
|
—
|
|
|
$
|
26.0
|
|
Accounts payable
|
|
—
|
|
|
115.4
|
|
|
252.7
|
|
|
485.3
|
|
|
—
|
|
|
853.4
|
|
Intercompany payables
|
|
—
|
|
|
3,587.9
|
|
|
5,468.4
|
|
|
5.9
|
|
|
(9,062.2
|
)
|
|
—
|
|
Accrued expenses and other
|
|
—
|
|
|
146.1
|
|
|
43.5
|
|
|
198.1
|
|
|
—
|
|
|
387.7
|
|
Total current liabilities
|
|
—
|
|
|
3,855.8
|
|
|
5,767.6
|
|
|
705.9
|
|
|
(9,062.2
|
)
|
|
1,267.1
|
|
Intercompany notes and accounts payable
|
|
1,311.8
|
|
|
28.4
|
|
|
—
|
|
|
163.9
|
|
|
(1,504.1
|
)
|
|
—
|
|
Long-term debt, net
|
|
—
|
|
|
3,571.1
|
|
|
—
|
|
|
103.1
|
|
|
—
|
|
|
3,674.2
|
|
Other long-term liabilities
|
|
—
|
|
|
502.4
|
|
|
312.5
|
|
|
219.5
|
|
|
—
|
|
|
1,034.4
|
|
Total liabilities
|
|
1,311.8
|
|
|
7,957.7
|
|
|
6,080.1
|
|
|
1,192.4
|
|
|
(10,566.3
|
)
|
|
5,975.7
|
|
Total AAM Stockholders’ equity
|
|
1,569.5
|
|
|
1,177.0
|
|
|
3,364.4
|
|
|
2,469.3
|
|
|
(7,010.7
|
)
|
|
1,569.5
|
|
Noncontrolling interests in subsidiaries
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
2.7
|
|
|
(2.7
|
)
|
|
2.7
|
|
Total stockholders’ equity
|
|
1,572.2
|
|
|
1,177.0
|
|
|
3,364.4
|
|
|
2,472.0
|
|
|
(7,013.4
|
)
|
|
1,572.2
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,884.0
|
|
|
$
|
9,134.7
|
|
|
$
|
9,444.5
|
|
|
$
|
3,664.4
|
|
|
$
|
(17,579.7
|
)
|
|
$
|
7,547.9
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
AAM Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elims
|
|
Consolidated
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
|
$
|
36.7
|
|
|
$
|
0.2
|
|
|
$
|
439.5
|
|
|
$
|
—
|
|
|
$
|
476.4
|
|
Accounts receivable, net
|
|
—
|
|
|
122.7
|
|
|
287.7
|
|
|
556.1
|
|
|
—
|
|
|
966.5
|
|
Intercompany receivables
|
|
—
|
|
|
3,337.2
|
|
|
2,356.3
|
|
|
93.5
|
|
|
(5,787.0
|
)
|
|
—
|
|
Inventories, net
|
|
—
|
|
|
42.5
|
|
|
157.7
|
|
|
259.5
|
|
|
—
|
|
|
459.7
|
|
Prepaid expenses and other
|
|
—
|
|
|
34.4
|
|
|
6.0
|
|
|
86.8
|
|
|
—
|
|
|
127.2
|
|
Total current assets
|
|
—
|
|
|
3,573.5
|
|
|
2,807.9
|
|
|
1,435.4
|
|
|
(5,787.0
|
)
|
|
2,029.8
|
|
Property, plant and equipment, net
|
|
—
|
|
|
275.8
|
|
|
758.6
|
|
|
1,480.0
|
|
|
—
|
|
|
2,514.4
|
|
Goodwill
|
|
—
|
|
|
—
|
|
|
719.0
|
|
|
422.8
|
|
|
—
|
|
|
1,141.8
|
|
Intangible assets, net
|
|
—
|
|
|
18.6
|
|
|
1,059.6
|
|
|
32.9
|
|
|
—
|
|
|
1,111.1
|
|
Intercompany notes and accounts receivable
|
|
—
|
|
|
1,316.8
|
|
|
144.5
|
|
|
—
|
|
|
(1,461.3
|
)
|
|
—
|
|
Other assets and deferred charges
|
|
—
|
|
|
319.8
|
|
|
126.4
|
|
|
267.4
|
|
|
—
|
|
|
713.6
|
|
Investment in subsidiaries
|
|
2,790.5
|
|
|
2,241.5
|
|
|
1,748.7
|
|
|
—
|
|
|
(6,780.7
|
)
|
|
—
|
|
Total assets
|
|
$
|
2,790.5
|
|
|
$
|
7,746.0
|
|
|
$
|
7,364.7
|
|
|
$
|
3,638.5
|
|
|
$
|
(14,029.0
|
)
|
|
$
|
7,510.7
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
100.0
|
|
|
$
|
—
|
|
|
$
|
21.6
|
|
|
$
|
—
|
|
|
$
|
121.6
|
|
Accounts payable
|
|
—
|
|
|
94.2
|
|
|
246.5
|
|
|
499.5
|
|
|
—
|
|
|
840.2
|
|
Intercompany payables
|
|
—
|
|
|
2,050.0
|
|
|
3,615.7
|
|
|
121.3
|
|
|
(5,787.0
|
)
|
|
—
|
|
Accrued expenses and other
|
|
—
|
|
|
169.0
|
|
|
35.8
|
|
|
190.2
|
|
|
—
|
|
|
395.0
|
|
Total current liabilities
|
|
—
|
|
|
2,413.2
|
|
|
3,898.0
|
|
|
832.6
|
|
|
(5,787.0
|
)
|
|
1,356.8
|
|
Intercompany notes and accounts payable
|
|
1,304.2
|
|
|
12.5
|
|
|
—
|
|
|
144.6
|
|
|
(1,461.3
|
)
|
|
—
|
|
Long-term debt, net
|
|
—
|
|
|
3,578.3
|
|
|
3.0
|
|
|
105.5
|
|
|
—
|
|
|
3,686.8
|
|
Other long-term liabilities
|
|
—
|
|
|
508.9
|
|
|
271.7
|
|
|
200.2
|
|
|
—
|
|
|
980.8
|
|
Total liabilities
|
|
1,304.2
|
|
|
6,512.9
|
|
|
4,172.7
|
|
|
1,282.9
|
|
|
(7,248.3
|
)
|
|
6,024.4
|
|
Total AAM Stockholders’ equity
|
|
1,483.9
|
|
|
1,233.1
|
|
|
3,192.0
|
|
|
2,353.2
|
|
|
(6,778.3
|
)
|
|
1,483.9
|
|
Noncontrolling interests in subsidiaries
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
|
(2.4
|
)
|
|
2.4
|
|
Total stockholders’ equity
|
|
1,486.3
|
|
|
1,233.1
|
|
|
3,192.0
|
|
|
2,355.6
|
|
|
(6,780.7
|
)
|
|
1,486.3
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,790.5
|
|
|
$
|
7,746.0
|
|
|
$
|
7,364.7
|
|
|
$
|
3,638.5
|
|
|
$
|
(14,029.0
|
)
|
|
$
|
7,510.7
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
AAM Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elims
|
|
Consolidated
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
—
|
|
|
$
|
186.8
|
|
|
$
|
65.2
|
|
|
$
|
(115.1
|
)
|
|
$
|
—
|
|
|
$
|
136.9
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
—
|
|
|
(32.8
|
)
|
|
(60.4
|
)
|
|
(144.3
|
)
|
|
—
|
|
|
(237.5
|
)
|
Proceeds from sale of property, plant and equipment
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
Investment in joint ventures
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.2
|
)
|
|
—
|
|
|
(2.2
|
)
|
Intercompany activity
|
|
—
|
|
|
—
|
|
|
(6.4
|
)
|
|
6.4
|
|
|
—
|
|
|
—
|
|
Net cash used in investing activities
|
|
—
|
|
|
(32.8
|
)
|
|
(65.1
|
)
|
|
(140.1
|
)
|
|
—
|
|
|
(238.0
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt activity
|
|
—
|
|
|
(112.0
|
)
|
|
(0.2
|
)
|
|
(8.0
|
)
|
|
—
|
|
|
(120.2
|
)
|
Purchase of treasury stock
|
|
(7.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.5
|
)
|
Intercompany activity
|
|
7.5
|
|
|
(7.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in financing activities
|
|
—
|
|
|
(119.5
|
)
|
|
(0.2
|
)
|
|
(8.0
|
)
|
|
—
|
|
|
(127.7
|
)
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
—
|
|
|
34.5
|
|
|
(0.1
|
)
|
|
(262.0
|
)
|
|
—
|
|
|
(227.6
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
—
|
|
|
36.7
|
|
|
2.7
|
|
|
439.5
|
|
|
—
|
|
|
478.9
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
—
|
|
|
$
|
71.2
|
|
|
$
|
2.6
|
|
|
$
|
177.5
|
|
|
$
|
—
|
|
|
$
|
251.3
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
AAM Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elims
|
|
Consolidated
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
—
|
|
|
$
|
152.3
|
|
|
$
|
8.6
|
|
|
$
|
128.5
|
|
|
$
|
—
|
|
|
$
|
289.4
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
—
|
|
|
(40.3
|
)
|
|
(74.5
|
)
|
|
(158.2
|
)
|
|
—
|
|
|
(273.0
|
)
|
Proceeds from sale of property, plant and equipment
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
0.4
|
|
|
—
|
|
|
0.9
|
|
Purchase buyouts of leased equipment
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
Proceeds from sale of business, net
|
|
—
|
|
|
—
|
|
|
42.7
|
|
|
4.4
|
|
|
—
|
|
|
47.1
|
|
Acquisition of business, net of cash acquired
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
|
—
|
|
|
(1.3
|
)
|
Net cash used in investing activities
|
|
—
|
|
|
(40.3
|
)
|
|
(31.8
|
)
|
|
(154.7
|
)
|
|
—
|
|
|
(226.8
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt activity
|
|
—
|
|
|
(111.2
|
)
|
|
(0.4
|
)
|
|
44.8
|
|
|
—
|
|
|
(66.8
|
)
|
Debt issuance costs
|
|
—
|
|
|
(6.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6.8
|
)
|
Purchase of treasury stock
|
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.6
|
)
|
Purchase of noncontrolling interest
|
|
—
|
|
|
—
|
|
|
(2.2
|
)
|
|
—
|
|
|
—
|
|
|
(2.2
|
)
|
Intercompany activity
|
|
3.6
|
|
|
(3.6
|
)
|
|
28.5
|
|
|
(28.5
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
—
|
|
|
(121.6
|
)
|
|
25.9
|
|
|
16.3
|
|
|
—
|
|
|
(79.4
|
)
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.3
|
)
|
|
—
|
|
|
(4.3
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
—
|
|
|
(9.6
|
)
|
|
2.7
|
|
|
(14.2
|
)
|
|
—
|
|
|
(21.1
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
—
|
|
|
91.9
|
|
|
0.1
|
|
|
284.8
|
|
|
—
|
|
|
376.8
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
—
|
|
|
$
|
82.3
|
|
|
$
|
2.8
|
|
|
$
|
270.6
|
|
|
$
|
—
|
|
|
$
|
355.7
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis (MD&A) should be read in conjunction with the unaudited condensed consolidated financial statements and notes appearing elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year ended
December 31, 2018
.
Unless the context otherwise requires, references to "we," "our," "us" or "AAM" shall mean collectively (i) American Axle & Manufacturing Holdings, Inc. (Holdings), a Delaware corporation, (ii) American Axle & Manufacturing, Inc. (AAM, Inc.), a Delaware corporation, and its direct and indirect subsidiaries, and, (iii) Metaldyne Performance Group, Inc. (MPG) and its direct and indirect subsidiaries. AAM Inc. and MPG are wholly-owned subsidiaries of Holdings.
COMPANY OVERVIEW
We are a global Tier 1 supplier to the automotive industry. We design, engineer and manufacture driveline, metal forming and casting products that are making the next generation of vehicles smarter, lighter, safer and more efficient. We employ over
25,000
associates, operating at nearly
90
facilities in
17
countries, to support our customers on global and regional platforms with a focus on quality, operational excellence and technology leadership.
We are a primary supplier of driveline components to General Motors Company (GM) for its full-size rear-wheel drive (RWD) light trucks and SUVs manufactured in North America, supplying a significant portion of GM’s rear axle and four-wheel drive and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. We also supply GM with various products from our Metal Forming and Casting segments. Sales to GM were approximately
39%
of our consolidated net sales in the first
six
months of
2019
,
42%
of our consolidated net sales in the first
six
months of
2018
and
41%
of our consolidated net sales for the full year of
2018
.
We also supply driveline system products to FCA US LLC (FCA) for heavy-duty Ram full-size pickup trucks and its derivatives, the AWD Jeep Cherokee, and a passenger car driveshaft program. In addition, we sell various products to FCA from our Metal Forming and Casting segments. Sales to FCA were approximately
14%
of our consolidated net sales in the first
six
months of
2019
, and
13%
of our consolidated net sales in the first
six
months of
2018
and for the full year
2018
.
In 2019, we initiated a new global restructuring program (the 2019 Program) to further streamline our business by consolidating our four existing segments into three segments. This activity occurred through the disaggregation of our former Powertrain segment, with a portion moving into our Driveline segment and a portion moving into our Metal Forming segment. The primary objectives of this consolidation are to finalize the integration of MPG, align AAM's product and process technologies, and to achieve efficiencies within our corporate and business unit support teams to reduce cost in our business. Throughout this MD&A, amounts previously reported for the Powertrain segment have been reclassified to the Driveline and Metal Forming segments accordingly.
RESULTS OF OPERATIONS –– THREE MONTHS ENDED
JUNE 30, 2019
AS COMPARED TO THREE MONTHS ENDED
JUNE 30, 2018
Net Sales
Net sales were
$1,704.3 million
in the
second
quarter of
2019
as compared to
$1,900.9 million
in the
second
quarter of
2018
. Our change in sales in the
second
quarter of
2019
, as compared to the
second
quarter of
2018
, primarily reflects the impact of lower full-size truck sales resulting from the in-sourcing by our largest customer of a portion of a replacement program that launched in the second half of 2018, as well as lower volumes on certain crossover vehicle programs that we support. Net sales in the second quarter of 2019, as compared to the second quarter of 2018, were also negatively impacted by approximately $34 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments. These factors were partially offset by the impact of program launches associated with our new business backlog.
Cost of Goods Sold
Cost of goods sold was
$1,456.0 million
in the
second
quarter of
2019
, as compared to
$1,569.5 million
in the
second
quarter of
2018
. The change in cost of goods sold principally reflects the impact of lower production volumes. This was partially offset by the impact of costs associated with program launches from our new business backlog, higher material and freight costs, including tariffs, and an increase in depreciation expense of approximately $6 million as a result of significant program launch activity in 2018.
For the three months ended
June 30, 2019
, material costs were approximately
57%
of total costs of goods sold, as compared to approximately
59%
for the three months ended
June 30, 2018
.
Gross Profit
Gross profit was
$248.3 million
in the
second
quarter of
2019
as compared to
$331.4 million
in the
second
quarter of
2018
. Gross margin was
14.6%
in the
second
quarter of
2019
as compared to
17.4%
in the
second
quarter of
2018
. Gross profit and gross margin were impacted by the factors discussed in Net Sales and Cost of Goods Sold above.
Selling, General and Administrative Expenses (SG&A)
SG&A (including research and development (R&D)) was
$91.3 million
or
5.4%
of net sales in the
second
quarter of
2019
as compared to
$95.0 million
or
5.0%
of net sales in the
second
quarter of
2018
. R&D spending was approximately
$33.2 million
in the
second
quarter of
2019
as compared to
$34.1 million
in the
second
quarter of
2018
. The change in SG&A in the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, is primarily attributable to lower compensation-related expense and a decrease in R&D spending.
Amortization of Intangible Assets
Amortization expense related to intangible assets was
$24.9 million
for the three months ended
June 30, 2019
and
$24.8 million
for the three months ended
June 30, 2018
.
Restructuring and Acquisition-Related Costs
Restructuring and acquisition-related costs were
$12.2 million
in the
second
quarter of
2019
, as compared to
$36.8 million
in the
second
quarter of
2018
. As part of our restructuring actions, we incurred severance charges of approximately
$4.1 million
, as well as implementation costs of approximately
$4.6 million
during the three months ended
June 30, 2019
. This compares to severance charges of $1.8 million and implementation charges of $1.6 million for the three months ended
June 30, 2018
.
During the three months ended
June 30, 2019
, we incurred
$3.5 million
of integration expenses primarily associated with the integration of MPG. This compares to $9.5 million of integration expenses incurred during the three months ended
June 30, 2018
. Integration expenses reflect costs incurred for information technology systems, ongoing operational activities, and consulting fees incurred in conjunction with acquisitions.
In the second quarter of 2018, we initiated actions to exit operations at manufacturing facilities in our Metal Forming and former Powertrain segments. As a result of these actions, we were required to assess the associated long-lived assets for impairment. Based on our analysis, assets that were not to be redeployed to other AAM facilities were determined to be fully impaired resulting in a charge of
$23.9 million
for the three months ended June 30, 2018.
Gain on Sale of Business
In April 2018, we completed the sale of the aftermarket business associated with our former Powertrain segment for approximately $50 million. As a result, we recorded a $15.5 million pre-tax gain, which is presented in the Gain on sale of business line item of our Condensed Consolidated Statement of Income for the three months ended June 30, 2018.
Operating Income
Operating income was
$119.9 million
in the
second
quarter of
2019
, as compared to
$190.3 million
in the
second
quarter of
2018
. Operating margin was
7.0%
in the
second
quarter of
2019
, as compared to
10.0%
in the
second
quarter of
2018
. The changes in operating income and operating margin were due to factors discussed in Net Sales, Cost of Goods Sold, SG&A, Restructuring and Acquisition-Related Costs, and Gain on Sale of Business above.
Interest Expense and Investment Income
Interest expense was
$56.2 million
in the
second
quarter of
2019
, as compared to
$54.4 million
in the
second
quarter of
2018
. Investment income was
$0.5 million
in the
second
quarter of both
2019
and
2018
. The weighted-average interest rate of our long-term debt outstanding was
5.9%
in the
second
quarter of
2019
and
5.8%
in the
second
quarter of
2018
.
Debt Refinancing and Redemption Costs
In May 2019, we voluntarily redeemed the remaining balance outstanding under our
7.75%
Notes due 2019. This resulted in a principal payment of
$100 million
and
$0.3 million
in accrued interest. We also expensed approximately
$0.1 million
for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately
$2.2 million
for an early redemption premium.
In the second quarter of 2018, we redeemed the remaining $16.9 million of 6.25% Notes due 2021, resulting in expense of $0.2 million. Also in the second quarter of 2018, we voluntarily redeemed a portion of our 6.625% Notes due 2022. This resulted in a principal payment of $100 million, and a payment of $0.8 million in accrued interest. We expensed approximately $0.8 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and $3.3 million for an early redemption premium.
Gain on Settlement of Capital Lease
In the second quarter of 2018, we reached a settlement agreement related to a capital lease obligation that we had recognized as a result of the acquisition of MPG. This settlement resulted in a gain of $15.6 million, including accrued interest.
Other Income (Expense), Net
Other income (expense), net includes the net effect of foreign exchange gains and losses, our proportionate share of earnings from equity in unconsolidated subsidiaries, and all components of net periodic pension and postretirement benefit costs other than service cost. Other income (expense), net was expense of
$3.1 million
in the
second
quarter of
2019
, as compared to income of
$5.6 million
in the
second
quarter of
2018
. The change in other income (expense), net was primarily attributable to foreign exchange losses in 2019, as compared to foreign exchange gains in 2018.
Income Tax Expense
Income tax expense was
$6.0 million
for the
three
months ended
June 30, 2019
, as compared to
$2.0 million
for the
three
months ended
June 30, 2018
. Our effective income tax rate was
10.2%
in the
second
quarter of
2019
, as compared to
1.3%
in the
second
quarter of
2018
.
Our effective income tax rate for the three months ended
June 30, 2019
is higher than our effective income tax rate for the three months ended
June 30, 2018
primarily due to the impact of discrete income tax items recognized in the second quarter of 2018. During the second quarter of 2018, we recognized a discrete tax benefit as a result of finalizing an advance pricing agreement in a foreign jurisdiction, which resulted in a reduction of our liability for unrecognized income tax benefits and related interest and penalties of $20.0 million. Also in the second quarter of 2018, we recognized a discrete tax expense related to the sale of the aftermarket business associated with our former Powertrain segment. For the three months ended June 30, 2019 and 2018, our effective income tax rates vary from the U.S. federal statutory rate of 21% primarily due to favorable foreign tax rates, as well as the impact of tax credits and the effect of the discrete items described above.
Net Income Attributable to AAM and Earnings Per Share (EPS)
Net income attributable to AAM was
$52.5 million
in the
second
quarter of
2019
, as compared to
$151.1 million
in the
second
quarter of
2018
. Diluted EPS was
$0.45
per share in the
second
quarter of
2019
, as compared to
$1.30
per share in the
second
quarter of
2018
.
Net income attributable to AAM and EPS for the
second
quarters of
2019
and
2018
were primarily impacted by the factors discussed above.
RESULTS OF OPERATIONS ––
SIX
MONTHS ENDED
JUNE 30, 2019
AS COMPARED TO
SIX
MONTHS ENDED
JUNE 30, 2018
Net Sales
Net sales were
$3,423.5 million
in the first
six
months of
2019
as compared to
$3,759.3 million
in the first
six
months of
2018
. Our change in sales in the first
six
months of
2019
, as compared to the first
six
months of
2018
, primarily reflects the impact of lower full-size truck sales resulting from the in-sourcing by our largest customer of a portion of a replacement program that launched in the second half of 2018, as well as the impact of customer downtime as a result of program changeovers in the first quarter of 2019 and lower volumes on certain crossover vehicle programs that we support. Net sales for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, were also negatively impacted by approximately $46 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments. These factors were partially offset by the impact of program launches associated with our new business backlog.
Cost of Goods Sold
Cost of goods sold was
$2,953.0 million
in the first
six
months of
2019
as compared to
$3,111.6 million
in the first
six
months of
2018
. The change in cost of goods sold principally reflects the impact of lower production volumes. This was partially offset by the impact of costs associated with program launches from our new business backlog, higher material and freight costs, including tariffs, and an increase in depreciation expense of approximately $19 million as a result of significant program launch activity in 2018.
For the
six
months ended
June 30, 2019
, material costs were approximately 57% of total costs of goods sold as compared to approximately 59% for the
six
months ended
June 30, 2018
.
Gross Profit
Gross profit was
$470.5 million
in the first
six
months of
2019
as compared to
$647.7 million
in the first
six
months of
2018
. Gross margin was
13.7%
in the first
six
months of
2019
as compared to
17.2%
in the first
six
months of
2018
. Gross profit and gross margin were impacted by the factors discussed in Net Sales and Cost of Goods Sold above.
SG&A
SG&A (including R&D) was
$182.0 million
or
5.3%
of net sales in the first
six
months of
2019
as compared to
$192.3 million
or
5.1%
of net sales in the first
six
months of
2018
. R&D spending was approximately
$67.5 million
in the first
six
months of
2019
as compared to
$72.6 million
in the first
six
months of
2018
. The change in SG&A in the first
six
months of
2019
, as compared to the first
six
months of
2018
, is primarily attributable to lower compensation-related expense and a decrease in R&D spending.
Amortization of Intangible Assets
Amortization expense related to intangible assets for the
six
months ended
June 30, 2019
was
$49.9 million
as compared to
$49.7 million
for the
six
months ended
June 30, 2018
.
Restructuring and Acquisition-Related Costs
Restructuring and acquisition-related costs were
$24.3 million
for the six months ended June 30, 2019, as compared to
$55.1 million
for the six months ended June 30, 2018. As part of our restructuring actions, we incurred severance charges of approximately
$8.2 million
and
$2.0 million
, as well as implementation costs, including professional expenses, of approximately
$8.9 million
and
$5.5 million
, during the
six
months ended
June 30, 2019
and
2018
, respectively. We expect to incur approximately $25 million to $30 million of total restructuring charges in
2019
, including costs incurred under the 2019 Program.
During the six months ended
June 30, 2019
, we incurred
$7.2 million
of integration expenses primarily associated with the acquisition of MPG. This compares to $1.1 million of acquisition-related costs and $22.6 million of integration expenses incurred during the six months ended
June 30, 2018
. We expect to incur total integration charges of approximately $15 million to $20 million in
2019
as we further the integration of MPG.
Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional or consulting fees incurred. Integration expenses reflect costs incurred for information technology systems, ongoing operational activities, and consulting fees incurred in conjunction with acquisitions.
In the first six months of 2018, we initiated actions to exit operations at manufacturing facilities in our Metal Forming and former Powertrain segments. As a result of these actions, we were required to assess the associated long-lived assets for impairment. Based on our analysis, assets that were not to be redeployed to other AAM facilities were determined to be fully impaired resulting in a charge of
$23.9 million
for the six months ended June 30, 2018.
Gain on Sale of Business
In April 2018, we completed the sale of the aftermarket business associated with our former Powertrain segment for approximately $50 million. As a result, we recorded a $15.5 million pre-tax gain, which is presented in the Gain on sale of business line item of our Condensed Consolidated Statement of Income for the six months ended June 30, 2018.
Operating Income
Operating income was
$214.3 million
in the first six months of
2019
as compared to
$366.1 million
in the first six months of
2018
. Operating margin was
6.3%
in the first six months of
2019
as compared to
9.7%
in the first six months of
2018
. The changes in operating income and operating margin were due to factors discussed in Net Sales, Cost of Goods Sold, SG&A, Restructuring and Acquisition-Related Costs and Gain on Sale of Business above.
Interest Expense and Investment Income
Interest expense was
$109.6 million
in the first six months of
2019
as compared to
$107.6 million
in the first six months of
2018
. Investment income was
$1.2 million
in the first six months of
2019
as compared to
$1.0 million
in the first six months of
2018
.
The weighted-average interest rate of our long-term debt outstanding was
5.9%
for the six months ended June 30,
2019
and 5.8% for the six months ended June 30,
2018
. We expect our interest expense for the full year 2019 to be approximately $215 million to $225 million.
Debt Refinancing and Redemption Costs
In May 2019, we voluntarily redeemed the remaining balance outstanding under our
7.75%
Notes due 2019. This resulted in a principal payment of
$100 million
and
$0.3 million
in accrued interest. We also expensed approximately
$0.1 million
for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately
$2.2 million
for an early redemption premium.
In March 2018, we made a tender offer for our 6.25% Notes due 2021. Under this tender offer, we retired $383.1 million of the 6.25% Notes due 2021. We redeemed the remaining $16.9 million of the 6.25% Notes due 2021 during the second quarter of 2018. During the six months ended June 30, 2018, we expensed $2.5 million for the write-off of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing and $8.0 million in tender premiums.
In May 2018, we voluntarily redeemed a portion of our 6.625% Notes due 2022. This resulted in a principal payment of $100.0 million, and a payment of $0.8 million in accrued interest. During the six months ended June 30, 2018, we expensed $0.8 million for the write-off of a portion of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing and $3.3 million for an early redemption premium.
Gain on Settlement of Capital Lease
In the second quarter of 2018, we reached a settlement agreement related to a capital lease obligation that we had recognized as a result of the acquisition of MPG. This settlement resulted in a gain of $15.6 million, including accrued interest.
Other Income (Expense), Net
Other income (expense), net includes the net effect of foreign exchange gains and losses, our proportionate share of earnings from equity in unconsolidated subsidiaries, and all components of net periodic pension and postretirement benefit costs other than service cost. Other income (expense), net was expense of
$6.1 million
in the first
six
months of
2019
as compared to income of
$0.2 million
in the first
six
months of
2018
. The change in other income (expense), net was primarily attributable to foreign exchange losses in 2019, as compared to foreign exchange gains in 2018.
Income Tax Expense
Income tax expense was
$3.0 million
for the
six
months ended
June 30, 2019
as compared to
$19.9 million
for the
six
months ended
June 30, 2018
. Our effective income tax rate was
3.1%
in the first
six
months of
2019
as compared to
7.6%
in the first
six
months of
2018
.
As part of the Tax Cuts and Jobs Act in 2017, a one-time transition tax (Transition Tax) was imposed on certain foreign earnings for which U.S. income tax was previously deferred. The Department of Treasury and Internal Revenue Service issued final regulations on February 5, 2019 regarding the Transition Tax, which changed the manner in which we are required to compute the Transition Tax when it is recognized over a two-year period. The application of the final regulations resulted in a $9.3 million income tax benefit, which has been recorded in the
six
months ended
June 30, 2019
, the period in which the final regulations were issued.
Also, in the six months ended June 30, 2018, we recognized a discrete tax benefit as a result of finalizing an advance pricing agreement in a foreign jurisdiction, which resulted in a reduction of our liability for unrecognized income tax benefits and related interest and penalties of $20.0 million. In addition, we recognized a discrete tax expense in the six months ended June 30, 2018 related to the sale of the aftermarket business associated with our former Powertrain segment.
For the six months ended June 30, 2019 and 2018, our effective income tax rates vary from the U.S. federal statutory rate of 21% primarily due to favorable foreign tax rates, as well as the impact of tax credits and the effect of the discrete items described above.
Net Income Attributable to AAM and Earnings Per Share (EPS)
Net income attributable to AAM was
$94.1 million
in the first
six
months of
2019
as compared to
$240.5 million
in the first
six
months of
2018
. Diluted EPS was
$0.81
per share in the first
six
months of
2019
as compared to
$2.08
per share in the first
six
months of
2018
.
Net income attributable to AAM and EPS for the first
six
months of
2019
and
2018
were primarily impacted by the factors discussed above.
SEGMENT REPORTING
In the first quarter of 2019, we reorganized our business to disaggregate our former Powertrain segment, with a portion moving to our Driveline segment and a portion moving to our Metal Forming segment. As a result, our business is now organized into Driveline, Metal Forming and Casting segments, with each representing a reportable segment under ASC 280
Segment Reporting
. The Powertrain amounts previously reported for the three and six months ended June 30, 2018 have been reclassified to Driveline and Metal Forming.
The results of each segment are regularly reviewed by the chief operating decision maker to assess the performance of the segment and make decisions regarding the allocation of resources to the segments.
Our product offerings by segment are as follows:
|
|
•
|
Driveline products consist primarily of front and rear axles, driveshafts, differential assemblies, clutch modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline products and systems for light trucks, SUVs, crossover vehicles, passenger cars and commercial vehicles;
|
|
|
•
|
Metal Forming products consist primarily of axle and transmission shafts, ring and pinion gears, differential gears and assemblies, connecting rods and variable valve timing products for Original Equipment Manufacturers and Tier 1 automotive suppliers; and
|
|
|
•
|
Casting products consist of both thin wall castings and high strength ductile iron castings, as well as transmission pump bodies, steering knuckles, control arms, brake anchors and calipers, and ball joint housings for the global light vehicle, commercial and industrial markets.
|
The following table represents sales by reportable segment for the
three
and six months ended
June 30, 2019
and
2018
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Driveline
|
$
|
1,141.1
|
|
|
$
|
1,274.3
|
|
|
$
|
2,275.8
|
|
|
$
|
2,490.4
|
|
Metal Forming
|
484.2
|
|
|
530.4
|
|
|
967.5
|
|
|
1,072.7
|
|
Casting
|
220.7
|
|
|
243.2
|
|
|
446.0
|
|
|
482.2
|
|
Eliminations
|
(141.7
|
)
|
|
(147.0
|
)
|
|
(265.8
|
)
|
|
(286.0
|
)
|
Net Sales
|
$
|
1,704.3
|
|
|
$
|
1,900.9
|
|
|
$
|
3,423.5
|
|
|
$
|
3,759.3
|
|
The change in Driveline sales for the
three
and six months ended
June 30, 2019
, as compared to the
three
and six months ended
June 30, 2018
, primarily reflect the impact of lower full-size truck sales resulting from the in-sourcing by our largest customer of a portion of a replacement program that launched in the second half of 2018, as well as lower volumes on certain crossover vehicle programs that we support. This was partially offset by the impact of program launches associated with our new business backlog.
Driveline sales were also negatively impacted by approximately $23 million for the second quarter of 2019, as compared to the second quarter of 2018, and $43 million for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments.
The change in net sales in our Metal Forming segment in the
three
and six months ended
June 30, 2019
, as compared to the
three
and six months ended
June 30, 2018
, reflect lower global automotive production volumes, as well as a reduction in intersegment sales to our Driveline segment due to the factors discussed for Driveline above. Also for the three and six months ended June 30, 2019, as compared to the three and six months ended June 30, 2018, Metal Forming sales were negatively impacted by approximately $9 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments.
The change in net sales in our Casting segment in the
three
and six months ended
June 30, 2019
, as compared to the
three
and six months ended
June 30, 2018
, reflect lower production volumes. For the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, net sales for the Casting segment increased by approximately $8 million related to metal market pass-throughs and price increases to customers.
We use Segment Adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. We define EBITDA to be earnings before interest expense, income taxes, depreciation and amortization. Segment Adjusted EBITDA is defined as EBITDA for our reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gain on the sale of a business, goodwill impairments and non-recurring items.
The amounts for Segment Adjusted EBITDA for the
three
and six months ended
June 30, 2019
and
2018
are as follows
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Driveline
|
$
|
152.9
|
|
|
$
|
204.3
|
|
|
$
|
290.1
|
|
|
$
|
394.0
|
|
Metal Forming
|
88.0
|
|
|
116.7
|
|
|
173.3
|
|
|
222.4
|
|
Casting
|
25.1
|
|
|
26.9
|
|
|
47.6
|
|
|
48.5
|
|
Total Segment adjusted EBITDA
|
$
|
266.0
|
|
|
$
|
347.9
|
|
|
$
|
511.0
|
|
|
$
|
664.9
|
|
For the
three
and six months ended
June 30, 2019
, as compared to the
three
and six months ended
June 30, 2018
, the change in Segment Adjusted EBITDA for the Driveline segment was primarily attributable to lower production volumes, as well as increased costs associated with global launch activity. For the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, Segment Adjusted EBITDA for the Driveline segment was also impacted by a change in product mix due to customer downtime as a result of program changeovers in the first quarter of 2019 and an increase of approximately $12 million in material and freight costs, including tariffs.
The change in Metal Forming Segment Adjusted EBITDA for the
three
and six months ended
June 30, 2019
, as compared to the
three
and six months ended
June 30, 2018
, was primarily attributable to lower production volumes, as well as an increase in net manufacturing costs, including higher material, freight and tariff costs.
The change in Casting Segment Adjusted EBITDA for the
three
and six months ended
June 30, 2019
, as compared to the
three
and six months ended
June 30, 2018
was primarily attributable to lower production volumes, partially offset by the impact of price increases to customers.
Reconciliation of Non-GAAP and GAAP Information
In addition to results reported in accordance with accounting principles generally accepted in the United States of America (GAAP) in this MD&A, we have provided certain non-GAAP financial measures such as EBITDA and Total Segment Adjusted EBITDA. Such information is reconciled to its closest GAAP measure in accordance with Securities and Exchange Commission rules below.
We define EBITDA to be earnings before interest expense, income taxes, depreciation and amortization. Total Segment Adjusted EBITDA is defined as EBITDA for our reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gain on the sale of a business, goodwill impairments and non-recurring items. We believe that EBITDA and Total Segment Adjusted EBITDA are meaningful measures of performance as they are commonly utilized by management and investors to analyze operating performance and entity valuation. Our management, the investment community and the banking institutions routinely use EBITDA and Total Segment Adjusted EBITDA, together with other measures, to measure our operating performance relative to other Tier 1 automotive suppliers and to assess the relative
mix of Adjusted EBITDA by segment. We also believe that Total Segment Adjusted EBITDA is a meaningful measure as it is used for operational planning and decision-making purposes. These non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures as presented by AAM may not be comparable to similarly titled measures reported by other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
|
$
|
52.7
|
|
|
$
|
151.3
|
|
|
$
|
94.4
|
|
|
$
|
240.8
|
|
Interest expense
|
56.2
|
|
|
54.4
|
|
|
109.6
|
|
|
107.6
|
|
Income tax expense
|
6.0
|
|
|
2.0
|
|
|
3.0
|
|
|
19.9
|
|
Depreciation and amortization
|
136.5
|
|
|
130.2
|
|
|
277.3
|
|
|
258.0
|
|
EBITDA
|
$
|
251.4
|
|
|
$
|
337.9
|
|
|
$
|
484.3
|
|
|
$
|
626.3
|
|
Restructuring and acquisition-related costs
|
12.2
|
|
|
36.8
|
|
|
24.3
|
|
|
55.1
|
|
Debt refinancing and redemption costs
|
2.4
|
|
|
4.3
|
|
|
2.4
|
|
|
14.6
|
|
Gain on sale of business
|
—
|
|
|
(15.5
|
)
|
|
—
|
|
|
(15.5
|
)
|
Non-recurring items:
|
|
|
|
|
|
|
|
Gain on settlement of capital lease
|
—
|
|
|
(15.6
|
)
|
|
—
|
|
|
(15.6
|
)
|
Total Segment Adjusted EBITDA
|
$
|
266.0
|
|
|
$
|
347.9
|
|
|
$
|
511.0
|
|
|
$
|
664.9
|
|
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund debt service obligations, capital expenditures and working capital requirements, in addition to advancing our strategic initiatives. We believe that operating cash flow, available cash and cash equivalent balances and available borrowing capacity under our credit facilities will be sufficient to meet these needs.
Operating Activities
In the first
six
months of
2019
, net cash provided by operating activities was
$136.9 million
as compared to net cash provided by operating activities of
$289.4 million
in the first
six
months of
2018
. The following factors impacted cash from operating activities in the first
six
months of
2019
as compared to the first
six
months of
2018
:
Net income
Net income was
$94.4 million
in the first
six
months of
2019
as compared to
$240.8 million
in the first
six
months of
2018
. The change in net income in the first
six
months of
2019
, as compared to the first
six
months of
2018
, was the result of the factors discussed in the Results of Operations -
Six
Months Ended
June 30, 2019
as Compared to
Six
Months Ended
June 30, 2018
section of this MD&A.
Accounts receivable
For the six months ended June 30, 2019, we experienced an increase in cash flow from operating activities of approximately $55 million related to the change in our accounts receivable balance from December 31, 2018 to June 30, 2019, as compared to the change in our accounts receivable balance from December 31, 2017 to June 30, 2018. This change in accounts receivable was primarily attributable to lower sales.
Accounts payable and accrued expenses
For the six months ended June 30, 2019, we experienced a decrease in cash flow from operating activities of approximately $59 million related to the change in our accounts payable and accrued expenses balances from December 31, 2018 to June 30, 2019, as compared to the change in our accounts payable and accrued expenses balances from December 31, 2017 to June 30, 2018. This change was attributable primarily to accounts payable and the timing of payments to suppliers.
Interest paid
Interest paid in the first six months of 2019 was
$102.1 million
, as compared to
$104.4 million
in the first six months of 2018.
Restructuring and acquisition-related costs
For the full year
2019
, we expect restructuring and acquisition-related payments to be between $50 million and $60 million, and we expect the timing of cash payments to approximate the timing of charges incurred.
Pension and other postretirement benefits
Due to the availability of our pre-funded pension balances (previous contributions in excess of prior required pension contributions) related to certain of our U.S. pension plans, we expect our regulatory pension funding requirements in
2019
to be approximately
$2.2 million
. We expect our cash payments for other postretirement benefit obligations in
2019
, net of GM cost sharing, to be approximately
$17.7 million
.
Investing Activities
In the first
six
months of
2019
, net cash used in investing activities was
$238.0 million
as compared to
$226.8 million
for the
six
months ended
June 30, 2018
. Capital expenditures were
$237.5 million
in the first
six
months of
2019
as compared to
$273.0 million
in the first
six
months of
2018
. We expect our capital spending in 2019 to be approximately 7% of sales, which includes support for our global program launches in 2019 and 2020 within our new and incremental business backlog, as well as program capacity increases and future launches of replacement programs.
In the second quarter of 2019, we made a payment of $2.2 million as part of our investment in the Liuzhou Wuling joint venture that was formed in 2018. We expect to make additional payments of approximately $8 million as part of this investment during the second half of 2019.
In the first six months of 2018, we completed the sale of the aftermarket business associated with our Powertrain segment. As a result of this sale, we received net proceeds of approximately $47 million.
Financing Activities
In the first
six
months of
2019
, net cash used in financing activities was
$127.7 million
, as compared to net cash used in financing activities of
$79.4 million
in the first
six
months of
2018
. The following factors impacted cash from financing activities in the first
six
months of
2019
as compared to the first
six
months of
2018
:
Senior Secured Credit Facilities
In 2017, Holdings and American Axle & Manufacturing, Inc. (AAM, Inc.) entered into a credit agreement (the Credit Agreement). In connection with the Credit Agreement, Holdings, AAM, Inc. and certain of their restricted subsidiaries entered into a Collateral Agreement and Guarantee Agreement with the financial institutions party thereto. The Credit Agreement includes a
$100.0 million
term loan A facility (the Term Loan A Facility), a
$1.55 billion
term
loan B facility (the Term Loan B Facility) and a
$932 million
multi-currency revolving credit facility (the Revolving Credit Facility, and together with the Term Loan A Facility and the Term Loan B Facility, the Senior Secured Credit Facilities). The borrowings under the Revolving Credit Facility are used for general corporate purposes.
At
June 30, 2019
, we had
$894.3 million
available under the Revolving Credit Facility. This availability reflects a reduction of
$37.7 million
for standby letters of credit issued against the facility.
The Senior Secured Credit Facilities provide back-up liquidity for our foreign credit facilities. We intend to use the availability of long-term financing under the Senior Secured Credit Facilities to refinance any current maturities related to such debt agreements that are not otherwise refinanced on a long-term basis in their local markets, except where otherwise reclassified to Current portion of long-term debt on our Condensed Consolidated Balance Sheet.
Subsequent Event
On July 29, 2019, Holdings, AAM, Inc., and certain subsidiaries of Holdings entered into the First Amendment (First Amendment) to the Credit Agreement (as amended by the First Amendment, the Amended Credit Agreement). The First Amendment, among other things, established $340 million in incremental term loan A commitments under the Amended Credit Agreement with a maturity date of July 29, 2024 (Term Loan A Facility due 2024), extended the maturity date of the Revolving Credit Facility from April 6, 2022 to July 29, 2024 and modified the applicable margin with respect to interest rates under the Term Loan A Facility due 2024 and interest rates and commitment fees under the Revolving Credit Facility. The applicable margin and the maturity date for the Term Loan B Facility remain unchanged. The proceeds of $340 million were used to repay all of the outstanding loans under the existing Term Loan A Facility and a portion of the outstanding Term Loan B Facility, resulting in no additional indebtedness.
In the third quarter of 2019, we expect to pay approximately $4 million of debt issuance costs related to this First Amendment, and we expect to expense approximately $5 million for the write-off of the unamortized debt issuance costs related to the existing Term Loan A Facility and a portion of the unamortized debt issuance costs related to our Term Loan B Facility that we had been amortizing over the expected life of the borrowings.
Redemption of 7.75% Notes due 2019
In May 2019, we voluntarily redeemed the remaining balance outstanding under our 7.75% Notes due 2019. This resulted in a principal payment of $100 million and
$0.3 million
in accrued interest. We also expensed approximately
$0.1 million
for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately
$2.2 million
for an early redemption premium.
6.25% Notes due 2026
In March 2018, we issued
$400.0 million
in aggregate principal amount of 6.25% senior notes due 2026 (the 6.25% Notes due 2026). Proceeds from the 6.25% Notes due 2026 were used primarily to fund the tender offer for the 6.25% senior notes due 2021 (the 6.25% Notes due 2021) described below. We paid debt issuance costs of $6.6 million in the first three months of 2018 related to the 6.25% Notes due 2026.
Tender Offer of 6.25% Notes due 2021
Also in March 2018, we made a tender offer for our 6.25% Notes due 2021. Under this tender offer, we retired $383.1 million of the 6.25% Notes due 2021 in the first quarter of 2018. We redeemed the remaining $16.9 million of the 6.25% Notes due 2021 during the second quarter of 2018. During the six months ended June 30, 2018, we expensed $2.5 million for the write-off of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing and $8.0 million in tender premiums.
Redemption of 6.625% Notes due 2022
In May 2018, we voluntarily redeemed a portion of our 6.625% Notes due 2022. This resulted in a principal payment of $100.0 million, and a payment of $0.8 million in accrued interest. During the six months ended June 30, 2018, we expensed $0.8 million for the write-off of a portion of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing and $3.3 million for an early redemption premium.
Foreign credit facilities
We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At
June 30, 2019
, $119.6 million was outstanding under our foreign credit facilities, as compared to
$127.1 million
at December 31, 2018. At
June 30, 2019
, an additional
$87.7 million
was available under our foreign credit facilities.
Treasury stock
Treasury stock increased by
$7.5 million
in the first
six
months of
2019
to
$209.3 million
as compared to
$201.8 million
at year-end
2018
, due to the withholding and repurchase of shares of AAM stock to satisfy employee tax withholding obligations due upon the vesting of performance shares and restricted stock units.
CRITICAL ACCOUNTING ESTIMATES
Subsequent to the disaggregation of our Powertrain reporting unit into the Driveline and Metal Forming reporting units, the fair value of our Metal Forming reporting unit exceeded its carrying value by approximately 11%. Fair value of the reporting unit is estimated based on a combination of discounted cash flows and the use of pricing multiples derived from an analysis of comparable public companies multiplied against historical and/or anticipated financial metrics of the reporting unit. These calculations contain uncertainties as they require management to make assumptions including, but not limited to, market comparables, future cash flows of the reporting unit, and appropriate discount and long-term growth rates.
A decline in the actual cash flows of Metal Forming in future periods, as compared to the projected cash flows used in the valuation, could result in the carrying value of the reporting unit exceeding its fair value. Further, a change in the discount rate or long-term growth rate as a result of a change in economic conditions could result in the carrying value of the reporting unit exceeding its fair value.
AAM's critical accounting estimates are included in our Annual Report on Form 10-K for the year ended December 31, 2018 and did not materially change during the six months ended June 30, 2019.
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 an extended shutdown of operations (typically 1-2 weeks) in conjunction with their model year changeover and an approximate one-week shutdown in December. Our major OEM customers also occasionally have longer shutdowns of operations (up to six weeks) for program changeovers. Accordingly, our quarterly results may reflect these trends.
LITIGATION AND ENVIRONMENTAL MATTERS
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. We have made, and anticipate continuing to make, capital and other expenditures, including recurring administrative costs, to comply with environmental requirements. Such expenditures were not significant in the
second
quarter of
2019
.