2 0 1 6
2 0 1 6
ANNUAL
ANNUAL
REPORT
REPORT
ABOUT
Nearly
$4B
Sales
13
More than
More than
13,000
Associates
Customers
21
Countries
Locations
Manufacturing
Facilities
Engineering
Centers
As of December 31, 2016
2
FINANCIALHIGHLIGHTS
(in millions, except per share data)
Statement of income data
Net sales
Gross profit
Operating income
Net income
Diluted earnings per share
Balance sheet data
Cash and cash equivalents
Total assets
Total long-term debt, net
AAM stockholders’ equity
Statement of cash flow data
2016
$ 3,948.0
726.1
380.7
240.7
3.06
$
$ 481.2
3,448.1
1,400.9
530.0
Cash provided by operating activities
Cash used in investing activities
$ 407.6
(227.7)
2015
$ 3,903.1
635.4
358.1
235.6
3.02
$
$ 282.5
3,202.7
1,375.7
301.5
$ 377.6
(188.1)
1
1
To Our
Shareholders
David C. Dauch
Chairman of the Board & Chief Executive Officer
2 0 1 6
ANNUAL
REPORT
2
AAM had an outstanding year in 2016. The year
brought record sales and profit, operational
excellence, technology advancement and strategic
initiatives that will help position AAM to meet
future customer and market demands with a
continued focus on developing products that are
efficient, safe, and smart mobility solutions.
3
3
POWERING outstanding
financial performance
AAM achieved another year of record sales and
profit in 2016. Fueled by strong production volumes
in North American and Asian markets and laser-
sharp performance in our global manufacturing
operations, AAM had full-year sales approaching
$4 billion. Our compound annual growth rate
(CAGR) for the years between 2013 and 2016
significantly exceeded the U.S. SAAR growth
for the same period. We generated $726 million in
gross profit, $408 million of cash from operations
and strong earnings per share results of $3.06,
demonstrating our ability, once again, to meet
and exceed financial targets.
During the year, our team diligently worked to
continue to diversify our revenue base and improve
our capital structure. Business diversification,
fueled by growth in key global vehicle segments
such as crossover vehicles, has contributed to
record profitability and strong operating cash flow
generation. By meaningfully strengthening our
balance sheet and reducing debt leverage, we have
positioned AAM for both organic growth initiatives
and strategic opportunities.
4
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2014
2015
2016
$726.1
$635.4
$522.8
2014
2015
2016
$407.6
$377.6
$318.4
2014
2015
2016
POWERING growth
AAM-MPG Facts
We continue to plan and implement strategies that will help us sustain
and grow our financial, operational and technological performance. Our
strategic roadmap – which we refer to as AAM2020 – lays the foundation
for our organic and strategic growth as a company. This plan calls for AAM
to significantly grow in size, scale and served markets.
$7B
Organically, AAM continues to win new business with new global customers
in growing vehicle segments. AAM’s new and incremental backlog for
2017-2019 is approximately $875 million with nearly 80 percent of the new
Presence in
business in crossover vehicles and passenger car segments. Furthermore,
our new business wins continue to drive customer diversification and
expansion in Europe and Asia.
In November, we announced our plan to acquire Metaldyne Performance
Group Inc. (MPG). This acquisition brings together two complementary
Tier-1 organizations to create a premier global leader of driveline, drivetrain,
powertrain, and metal formed components and modules. Once the
transaction closes, the acquisition of MPG will be a major strategic step
toward the vision of AAM2020. This significant action, coupled with our
blueprint to grow within our current served market and product portfolio,
will support our long-term global growth strategy for AAM and provide
value for our key stakeholders.
But we aren’t just growing bigger, we are growing better. We are realigning
our business plan with our strategic plan and our technology roadmap. We
are building standardization across our business and regions by leveraging
the AAM Operating System along with our culture, our associates, our
processes and our brand.
25K
25,000 Associates
Diversification
• Customer Base
• Product Portfolio
• Global Markets
5
5
Delivering POWER
The auto industry has seen dramatic changes in the last few years. The megatrends of mobility,
autonomous driving, connected cars, electric and hybrid vehicles, higher transmission speeds,
downsized engines and lightweighting are driving future product development at both our
customers and within AAM. AAM is acutely focused on growing our position as a technology
leader and during 2016 we worked diligently to further that goal.
This year, we tested and demonstrated AAM’s newest lightweight axle technology —
QUANTUMTM — in multiple vehicle applications and locations. QUANTUM is at the forefront
of axle technology for improved efficiency, mass reduction and vehicle performance. It is up
to 35 percent lighter than a traditional axle and has increased vehicle capacity while being
scalable across multiple applications. We expect this technology to lead us into the next
generation of traditional, mechanical propulsion systems. QUANTUM is lighter, stronger
and smarter and will help automakers meet more stringent government regulations without
compromising performance.
L I G H T W E I G H T A X L E T E C H N O L O G Y B Y
6
EcoTrac® remains the go-to technology for customers looking for the performance of an all-wheel-drive (AWD)
vehicle with the fuel economy of a FWD vehicle. EcoTrac allows the vehicle to use its primary drive system – the
front wheels – when AWD is not needed. Our system uses sensors to detect hazardous driving conditions and
engages AWD capabilities in a smooth and seamless manner to the driver. Engineered to automatically sense
torque, EcoTrac varies the amount of power delivered to the wheels to best maintain traction, while optimizing
efficiency. Our EcoTrac technology significantly reduces fuel consumption and emissions when compared to
traditional AWD systems. Our Gen II EcoTrac design, which reduces the parasitic vehicle loss associated with
traditional AWD systems by up to 90 percent, will launch on global vehicle applications in 2018. By the end of
2019, we expect EcoTrac to represent approximately $700 million of revenue for AAM in multiple global markets.
7
7
Our e-AAM™ Hybrid and Electric Driveline Systems are at the forefront of the global trend
of electrification by delivering increased fuel efficiency, decreased tail pipe emissions and
improvements in dynamic safety, acceleration, and eAWD traction. In addition, when equipped
with AAM’s eTorque Vectoring solution, a modular system that can provide up to 1200 Nm
differential torque across the full vehicle speed range, customers are able to experience
AAM’s “true torque vectoring” at all vehicle speeds, offering a competitive systems advantage.
The industry will continue to move toward e-drive technologies and AAM’s solution provides
efficient power and improved vehicle performance and safety.
AAM’s EcoTrac and e-AAM systems are just AAM’s first steps in our work to apply active
intelligence to our portfolio of products. As the automotive industry continues to move toward
connected vehicles and advanced mobility, AAM will be ready with smarter, active technologies
that help keep drivers safe, improve vehicle performance and efficiency while maintaining
our outstanding focus on quality and durability. We won’t just be delivering POWER ...
we will be delivering SMART POWER.
8
8
Enabling POWER
In order to maintain our competitive advantage, we have continued to strengthen our
R&D capabilities with investments in our global technical facilities.
AAM’s Advanced Technology Development Center (ATDC) is now complete and fully
operational. The ATDC is the nucleus of AAM expertise, research, collaboration and
innovation. Our teams are under one roof working to seamlessly integrate all of our
functions – common data, common feedback, quick learning and quick application
of action are all a reality. The ATDC is the epicenter for creativity, innovation, and
advanced analytics and is the focal point of AAM’s development of future process,
product, and system technology.
Working in tandem with the ATDC, AAM’s Rochester Hills Technical Center (RHTC)
continues to evolve as a testing and validation facility. We are expanding and enhancing
AAM’s diagnostic and hardware assessment capabilities to allow for more extensive
product benchmarking and prototype testing. The RHTC is home to the noise, vibration
and harshness (NVH) team and AAM’s materials lab, which have been instrumental
in developing new and advanced technologies focused on lightweighting, efficiency,
and vehicle performance.
Work continues on our all-new Mechatronics Technical Center, which is located
adjacent to the RHTC. This facility will be integral to expanding our work with connected
vehicle technology, embedded software, vehicle dynamics, actuator development and
electronically controlled components. This is a critical area for AAM’s future product
growth in the areas of integration and communication between our products and
other vehicle systems.
Additionally, we are expanding global technical capabilities at our Trollhättan Technical
Center in Sweden. This important facility is our hybrid and electric driveline center
of excellence and is integral to assisting our customers in meeting stringent fuel
efficiency and CO2 requirements.
9
9
POWER to achieve excellence
The key to AAM’s ability to deliver results for customers is our commitment
to achieving Operational Excellence. This means we are operating safely,
training our associates successfully and running our business efficiently with
a standardized approach. The AAM Operating System is the foundation for
our success and is integral to delivering operational excellence daily and in
all of our facilities. This focus, which includes consistent practices, integrated
information technology systems and proactive data analysis, will continue to
ensure AAM is leading with improved customer satisfaction, lean production
and efficient cost management.
Through our global Learning Line implementation activities, we are strengthening
our understanding of Lean Principles and Kaizen basics, expanding our problem-
solving capabilities and our standard AAM Systems, resulting in highly engaged
teams focused on driving performance improvement.
• Standard Operating Metrics
• Best Practices & Continuous Improvement
• Team Level Problem Solving
• Customer Satisfaction Focus
• Active Coaching & Development
• Associate Engagement & Empowerment
10
10
AAM’s unwavering commitment to quality remains unchanged and is the heart of our
Q4 (Q-to-the-fourth) quality assurance program. Q4 ensures that AAM’s products
are reliable, durable and high-quality, thanks to our diligent attention to standardized
processes and production excellence at all of our global facilities. We’ve made
tremendous progress with the Q4 system and continue to build upon our world-class
quality with our customers.
Our most valuable asset is our global team of associates and we work hard each day
to keep them safe at each one of our facilities. With safety in mind, we have designed
and implemented our S4 (S-to-the-fourth) system and safety culture, which is focused
on developing, engaging, monitoring, and continuously educating our associates on
standardized procedures that are key to their workplace safety and well-being.
Quality
Assurance
11
11
POWER to make the world a better place
SUSTAINABILITY
AAM strongly believes that being a good corporate citizen is good for our business and good for our
customers. We continue to strive to make changes that will have a positive impact on our global
communities. During 2016, three of our facilities – Oxford Forge, RHTC and ATDC – earned ISO
50001 Energy Management certification for driving continuous improvements in energy efficiency
through energy management systems. AAM now has seven facilities that are ISO 50001-certified
including manufacturing facilities in Thailand, China and Poland and we will continue to add additional
facilities to that list. Our ENERGY STAR-certified World Headquarters (WHQ), which was our first ISO
50001 facility, has reduced energy consumption by more than 25 percent in less than 10 years.
We are also committed to reducing the environmental footprint of our manufacturing process. AAM’s
major manufacturing facilities are certified to the ISO 14001 Environmental Management Standard.
We continue to focus on three key environmental impacts – reducing waste sent to landfills, cutting
water consumption and decreasing greenhouse gas generation. During 2016, AAM facilities undertook
more than 30 projects to reduce energy, recycle oils and coolants and reduce wastewater.
COMMUNITY INVOLVEMENT
At AAM, we embrace the POWER of collaboration and teamwork. In 2016, AAM associates
partnered with local organizations and donated their time, talents and resources to make positive
differences in the communities where our associates live and work. In the U.S., our most significant
fundraising endeavors supported the Boy Scouts of America, United Way and the Boys and Girls
Clubs of Southeastern Michigan. As we continue to grow globally, AAM associates are building on
a legacy of community involvement. Our teams in the U.K., Mexico, China, Poland, Thailand, Brazil,
Germany and other countries have demonstrated that by working together we can forge long-
lasting relationships and build stronger communities and organizations. I am proud of everything
our associates do to make a difference.
12
Associates from across our Michigan facilities were the top fundraiser and Flagship team for the Metro-Detroit St. Jude Walk/Run.
In Thailand, associates from our Rayong Manufacturing Facility volunteered at a local
organization to support community involvement and honor local culture.
Team AAM from Brazil celebrated World Tree Day
by planting seedlings of the Araucaria tree.
Our team in Mexico held a charity event to support
research efforts to find a cure for cancer.
Associates from our Glasgow Manufacturing Facility
hiked the tallest mountain in the U.K. to raise funds
for medical research.
Team AAM in Germany participated in a 5K race, raising funds for programs dedicated to families and children with special needs.
13
13
POWERING the future
Where is the auto industry headed? We feel strongly that the North American market is still a very solid
operating environment for AAM for years to come. We anticipate robust market demand for pickup
trucks and full-size SUVs and further growth in crossover vehicles. These are, and will remain, strong
segments for AAM. Globally, we continue to support our customers with key vehicle launches. In Asia,
particularly China, crossovers and SUVs are one of the fastest-growing segments and AAM continues
to be seen as a valued partner for these products. In the meantime, the automotive industry is investing
significant resources into lightweighting, electrification, connectivity, autonomous driving and advanced
ride-sharing models – the future of the automotive industry.
Where is AAM headed? We are transforming into a vastly different company. We will have new customers,
new technologies and a new geographic footprint. As a global leader in driveline, drivetrain, powertrain,
and metal formed components and modules, our customer base will be better diversified and our
footprint will be more expansive. We will have a stronger financial profile through greater size, scale
and enhanced cash flow generation. As the automotive industry continues to move toward the global
megatrends, our technologies will be focused on efficient, safe, and smart mobility solutions.
There has never been a better time to be part of the AAM team. We are excited about the future.
As always, thank you for your loyal and continued support of AAM.
David C. Dauch
Chairman of the Board & Chief Executive Officer
14
AAM Leadership
Officers*
David C. Dauch
Chairman of the Board &
Chief Executive Officer
Mark S. Barrett
Vice President –
Driveline Product Engineering
Michael K. Simonte
President
Michael J. Bly
President – AAM Europe
Donald L. Joseph
President – AAM Asia
Terri M. Kemp
Vice President –
Human Resources
Timothy E. Bowes
Senior Vice President –
Strategic & Business Development
David A. Culton
Vice President –
Cost Engineering
Michael J. Lynch
Vice President –
Driveline Business Performance
& Cost Management
Alberto L. Satine
President – Driveline
Norman Willemse
President – Metal
Formed Products
Philip R. Guys
Vice President –
Global Product Engineering
& Chief Technology Officer
Christopher J. May
Vice President &
Chief Financial Officer
Allan R. Monich
Vice President –
Global Quality, Warranty & AAM
Operating Systems
Tolga I. Oal
President – AAM North America
John S. Sofia
Vice President – Global Program
Management
Thomas J. Szymanski
Vice President –
Driveline Manufacturing Services
Board of Directors**
David C. Dauch 4
Chairman of the Board &
Chief Executive Officer
Peter D. Lyons 1, 2
Regional Managing Partner – Americas
Freshfields Bruckhaus Deringer US LLP
John F. Smith 1, 5
Principal of Eagle Advisors
Retired Group Vice President General Motors
Elizabeth A. Chappell 2, 3
President & Chief Executive Officer
Detroit Economic Club
James A. McCaslin 2, 3, 4, 5
Retired President & Chief Operating Officer
Harley-Davidson Motor Company
Samuel Valenti III 1, 2, 3, 4
Chairman & Chief Executive Officer
Valenti Capital LLC
and World Capital Partners
William L. Kozyra 2, 3, 5
Chairman of the Board
& Chief Executive Officer
TI Automotive, Ltd.
William P. Miller II 1, 5
Head of Asset Allocation
Saudi Arabian Investment Company
Board Committee Assignments
1 Audit Committee
2 Nominating & Corporate Governance Committee
3 Compensation Committee
4 Executive Committee
5 Technology Committee
* As of December 31, 2016
** As of March 7, 2017
15
15
Stockholder Information
Stockholders
As of March 7, 2017, there were 235 stockholders of record.
Stock Performance
Comparison of cumulative total return of AAM with the cumulative
total return of our competitor peer group (Autoliv Inc., BorgWarner
Inc., Dana Corporation, Lear Corporation, Magna International Inc.,
Meritor Inc., Tenneco Automotive Inc. and Visteon Corporation)
and the Standard & Poor’s 500 Composite Index assuming $100
invested on December 31, 2011, through December 31, 2016. The
closing price of AXL as of December 31, 2016 was $19.30.
American Axle & Manufacturing Holdings, Inc.
One Dauch Drive
Detroit, Michigan 48211-1198
Telephone: (313) 758-2000
www.aam.com
Corporate News Releases
Corporate news releases are available on our website
at www.aam.com.
Annual Meeting of Stockholders
The 2017 Annual Meeting of Stockholders will be held on
May 4, 2017 at 8:00 a.m. EST at:
AAM World Headquarters
One Dauch Drive
Detroit, Michigan 48211-1198
Form 10-K Annual Report
AAM’s Form 10-K Annual Report for 2016, filed with the Securities
and Exchange Commission, is available on our website or from:
American Axle & Manufacturing Holdings, Inc.
Investor Relations
One Dauch Drive
Detroit, Michigan 48211-1198
Telephone: (313) 758-4635
Equity Securities
Inquiries related to shareholder records; change of name, address,
or ownership of stock; and lost or stolen stock certificates should be
directed to the transfer agent and registrar.
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
Telephone: (877) 282-1168
Internet: www.computershare.com
Stock Listing
The New York Stock Exchange is the principal market for AAM
common stock. Ticker Symbol: AXL
16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-14303
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
ONE DAUCH DRIVE, DETROIT, MICHIGAN
(Address of principal executive offices)
38-3161171
(I.R.S. Employer
Identification No.)
48211-1198
(Zip Code)
313-758-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
PREFERRED SHARE PURCHASE RIGHTS, PAR VALUE $0.01 PER SHARE
Title of Each Class
Name of Each Exchange on Which Registered
NEW YORK STOCK EXCHANGE
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of
“accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if small reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The closing price of the Common Stock on June 30, 2016 as reported on the New York Stock Exchange was $14.48 per share and the aggregate market value of the
registrant's Common Stock held by non-affiliates was approximately $1,101.1 million.
As of February 8, 2017, the number of shares of the registrant's Common Stock, $0.01 par value, outstanding was 76,478,463 shares.
Portions of the registrant's Annual Report to Stockholders for the year ended December 31, 2016 and Proxy Statement for use in connection with its Annual Meeting of
Stockholders to be held on May 4, 2017, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after
December 31, 2016, are incorporated by reference in Part I (Items 1, 1A, 1B, 2, 3 and 4), Part II (Items 5, 6, 7, 7A, 8, 9, 9A and 9B), Part III (Items 10, 11, 12, 13 and
14) and Part IV (Item 15) of this Report.
Documents Incorporated by Reference
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
TABLE OF CONTENTS - ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2016
Part I
Item 1
Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Part II
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
Part III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
Part IV
Item 15 Exhibits and Financial Statement Schedules
Page
Number
2
13
22
23
24
24
24
26
27
44
45
88
88
88
89
89
89
89
89
90
1
Item 1.
Business
Part I
As used in this report, except as otherwise indicated in information incorporated by reference, references to
“our Company,” "we," "our," "us" or “AAM” mean American Axle & Manufacturing Holdings, Inc. (Holdings) and its
subsidiaries and predecessors, collectively.
(a) General Development of Business
Holdings, a Delaware corporation, is a successor to American Axle & Manufacturing of Michigan, Inc., a
Michigan corporation, pursuant to a migratory merger between these entities in 1999.
(b) Financial Information About Segments
See Item 8, “Financial Statements and Supplementary Data - Note 12 - Segment and Geographic Information”
included in this report.
(c) Narrative Description of Business
Company Overview
We are a global Tier I supplier to the automotive industry. We manufacture, engineer, design and validate
driveline and drivetrain systems and related components and chassis modules for light trucks, sport utility vehicles
(SUVs), crossover vehicles, passenger cars and commercial vehicles. Driveline and drivetrain systems include
components that transfer power from the transmission and deliver it to the drive wheels. Our driveline, drivetrain
and related products include axles, driveheads, chassis modules, driveshafts, power transfer units, transfer cases,
chassis and steering components, transmission parts, electric drive systems and metal-formed products. In
addition to locations in the United States (U.S.) (Michigan, Ohio and Indiana), we also have offices or facilities in
Brazil, China, Germany, India, Japan, Luxembourg, Mexico, Poland, Scotland, South Korea, Sweden and Thailand.
We are the principal 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 substantially all of GM's rear
axle and four-wheel drive and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. Sales to
GM were approximately 67% of our consolidated net sales in 2016, 66% in 2015, and 68% in 2014.
We are the sole-source supplier to GM for certain axles and other driveline products for the life of each GM
vehicle program covered by Lifetime Program Contracts and Long Term Program Contracts (collectively, LPCs).
Substantially all of our sales to GM are made under purchase orders pursuant to the LPCs. The LPCs have terms
equal to the lives of the relevant vehicle programs or their respective derivatives, which typically run five to seven
years, and require us to remain competitive with respect to technology, design, quality and cost.
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. Sales to FCA were
approximately 18% of our consolidated net sales in 2016, 20% in 2015 and 18% in 2014. In addition to GM and
FCA, we supply driveline systems and other related components to Nissan Motor Co., Ltd. (Nissan), Mercedes-
Benz, Volkswagen AG (Volkswagen), Audi AG (Audi), Jaguar Land Rover Automotive PLC (JLR), Honda Motor Co.,
Ltd., Ford Motor Company (Ford), PACCAR Inc., Daimler Truck, AB Volvo (Volvo), Harley-Davidson Inc. and other
original equipment manufacturers (OEMs) and Tier I supplier companies such as Jatco Ltd. and Hino Motors Ltd.
Our consolidated net sales to customers other than GM were $1,287.8 million in 2016 as compared to $1,317.1
million in 2015 and $1,199.9 million in 2014.
Our principal served market is the driveline market, which consists of driveline, drivetrain, and related
components, including metal-formed products and chassis modules for light trucks, SUVs, crossover vehicles,
passenger cars and commercial vehicles, in the regions in which we compete.
2
The following chart sets forth the percentage of total revenues attributable to our products for the periods
indicated:
Year ended December 31,
2015
2014
2016
Axles and driveshafts ........................................................................
Drivetrain components, forged products and other ............................
Total ..............................................................................................
84%
16%
100%
83%
17%
100%
82%
18%
100%
Business Strategy
We have aligned our business strategy to build value for our key stakeholders. We accomplish our strategic
objectives by capitalizing on our competitive strengths and continuing to diversify our customer, product and
geographic sales mix, while providing exceptional value to our customers.
Competitive Strengths
We achieve our strategic objectives by emphasizing a commitment to deliver industry leading quality,
technology leadership and operational excellence through:
Maintaining our high quality standards, which are the foundation of our product durability and reliability.
• AAM has an outstanding daily track record for delivering quality products, having averaged less than 10
discrepant parts per million (PPM) in 2016.
•
•
In 2015 and 2014, our Colfor Minerva Facility in Ohio, Auburn Hills Manufacturing location in Michigan
and Changshu Manufacturing Facility in China were recognized with the GM Supplier Quality Excellence
Award for outstanding performance.
In 2015, our Changshu Manufacturing Facility was recognized with the Benz Qualified Supplier Award
and our Swidnica Manufacturing Facility in Poland was recognized with JLR "Q" Certification for delivery
and quality performance.
• AAM has an enhanced internal quality assurance system that drives continuous improvement to not only
meet but exceed the growing expectations of our OEM customers.
Achieving technology leadership by delivering innovative driveline products which improve the diversification of
our product portfolio while increasing our total global served market.
• AAM's significant investment in research and development (R&D) has resulted in the development of
advanced technology products designed to assist our customers in meeting the market demands for
improved fuel efficiency; lower emissions; enhanced power density; advanced, sophisticated electronic
controls; improved safety, ride and handling performance; and enhanced reliability and durability.
• AAM's EcoTrac® Disconnecting AWD system is a fuel-efficient and environmentally friendly driveline
system that provides OEMs the option of an all-wheel-drive system that disconnects when not needed to
improve fuel efficiency and reduce CO2 emissions compared to conventional AWD systems. AAM's
EcoTrac® Disconnecting AWD system is featured on the AWD Jeep Cherokee. We are currently
designing the next generation of our EcoTrac® Disconnecting AWD system (EcoTrac® Gen II), which is
smaller, lighter in weight and aims to recover up to 90% of fuel penalty, compared to 80% currently.
EcoTrac® Gen II is expected to launch in 2018.
•
In 2016, our Changshu Manufacturing Facility was awarded an Innovation Ability Award in the categories
of innovation, technology and competitiveness from Automobile & Parts, an established industry
publication in China, for the manufacturing of EcoTrac®.
3
•
e-AAM Driveline Systems AB (e-AAM) was created to design and commercialize battery electric and
hybrid driveline systems designed to improve fuel efficiency, reduce CO2 emissions and provide AWD
capability. In 2015, we secured a new driveline systems contract featuring patented e-AAM™ electric
driveline systems technology with a premier global OEM, which we expect to launch in 2018.
• AAM has established a high efficiency product portfolio that is designed to improve axle efficiency and
fuel economy through innovative product design technologies. As our customers focus on reducing
weight through the use of aluminum and other conventional means, AAM is well positioned to offer
innovative, industry leading solutions for lightweighting. Our portfolio includes high efficiency axles,
aluminum axles and AWD applications for plug-in hybrid electric vehicles to full-electric vehicles. AAM's
QuantumTM lightweight axle technology features a revolutionary design, which offers significant mass
reduction and increased fuel economy and efficiency that is scalable across multiple applications without
loss of performance or power.
• AAM continues to invest in R&D in emerging technology such as torque biasing capability. We have
developed capabilities in the areas of control systems and mechatronics to further integrate electronic
components such as motors, actuators, and sensors into AAM's mechanical technology to enhance
vehicle performance and provide superior torque management. AAM has established a new facility in
Michigan dedicated to mechatronic technology, where we engineer, design and develop new products
such as VecTracTM, an enhanced torque vectoring technology.
• To accelerate AAM's technological advancements, we recently launched our Advanced Technology
Development Center (ATDC) at our Detroit campus. This state-of-the-art facility is our center for
technology benchmarking, prototype development, advanced technology development, supplier
collaboration, customer showcasing and associate training on our future products, processes, and
systems.
Sustaining our operational excellence and focus on cost management to deliver exceptional value to our
customers.
•
•
In 2016, we successfully launched 16 programs and facilities to support our customers. These launches
included front and rear drive axles for a new global crossover vehicle program for JLR at our Swidnica
Manufacturing Facility and front and rear axles for a full-size pickup truck program for Nissan at our
Guanajuato Manufacturing Complex in Mexico. We also successfully localized the production of certain
Power Transfer Units and Rear Drive Modules to our Changshu Manufacturing Facility in 2016.
In 2016, our Three Rivers Manufacturing Facility in Michigan and our Guanajuato Manufacturing Complex
were recognized with Certificates of Excellence - Gold Supplier Status for outstanding on-time shipping
performance to GM Customer Care and Aftersales.
• We continue to focus on cost management through the implementation of the AAM Operating System to
improve quality, eliminate waste and reduce lead time and total costs globally.
Diversification of Customer, Product and Geographic Sales Mix
Another element of building value for our key stakeholders is the diversification of our business through the
growth of new and existing customer relationships and expansion of our product portfolio.
• We continue to evaluate and consider strategic opportunities that will complement our core strengths and
supplement our diversification strategies while providing future, profitable growth prospects. On
November 3, 2016, AAM entered into a definitive merger agreement with Metaldyne Performance Group,
Inc. (MPG) under which AAM will acquire MPG for approximately $1.7 billion in cash and stock plus the
assumption of approximately $1.7 billion in net debt (comprised of approximately $1.8 billion in debt,
reduced by approximately $0.1 billion of MPG cash and cash equivalents). Our pending acquisition of
MPG is a key step in achieving our goals of customer, product and geographic diversification.
4
•
In addition to maintaining and building upon our longstanding relationships with GM and FCA, we are
focused on generating profitable growth with new and existing global OEM customers. New business
launches in 2016 included key international customers such as JLR, Nissan, Mercedes-Benz, Isuzu and
others.
• We have accelerated the development and launch of products for crossover vehicles and passenger cars
and the global light truck and commercial vehicle markets. We have approximately $875 million of new
and incremental business backlog launching from 2017 to 2019, of which approximately 80% relates to
AWD and RWD applications for crossover vehicles and passenger cars.
• Approximately 60% of our new and incremental business backlog launching from 2017 to 2019 is for
customers other than GM. In addition, we are working on approximately $1 billion in quoted and
emerging new business opportunities. These opportunities would allow us to continue the diversification
and expansion of our customer base, product portfolio and global footprint. Substantially all of these
opportunities are for customers other than GM and a significant portion features advanced technology
such as our EcoTrac® Disconnecting AWD system and e-AAM™ electric driveline systems technology.
Achieve globalization by increasing our presence in global markets to support our customers' platforms.
• As our customers continue to design their products for global markets, they will continue to require global
support from their suppliers. For this reason, it is critical that we maintain a global presence in these
markets in order to remain competitive for new contracts. Over the past few years, we have increased
our installed capacity in cost competitive global markets to support current programs and future
opportunities. Specific actions included expanding capacity in Brazil, China, Mexico, Poland, Thailand
and the U.S.
• Approximately 40% of our $875 million of new and incremental business backlog launching from 2017 to
2019 is for end use markets outside the U.S.
• We expect our EcoTrac® Disconnecting AWD products to support three global markets by 2019.
• Our joint venture (JV) with Hefei Automobile Axle Co., Ltd. (HAAC), a subsidiary of the JAC Group (Anhui
Jianghuai Automotive Group Co., Ltd.), which includes 100% of HAAC's light commercial axle business,
continues to be a strong advantage for building relationships with leading Chinese light truck
manufacturers. We supply front and rear beam axles to several leading Chinese light truck
manufacturers, including JAC and BAIC Foton.
Providing Exceptional Value
We provide exceptional value to our key stakeholders by achieving solid financial performance.
• Over the past five years, AAM's compound annual growth rate (CAGR) for sales has exceeded the
growth rate of the industry.
• We have established a cost competitive, operationally flexible global manufacturing, engineering and
sourcing footprint to increase our presence in global growth markets, support global product development
initiatives and establish regional cost competitiveness. This includes manufacturing and engineering
facilities in Brazil, China, Germany, India, Mexico, Poland, Sweden, Thailand and the U.S.
Competition and Strengths
We compete with a variety of independent suppliers and distributors, as well as with the in-house operations of
certain OEMs. Our principal competitors include Dana Holding Corporation, GKN plc, Magna International Inc., ZF
Friedrichshafen AG, Linamar Corporation, Meritor Inc. and the in-house operations of various global OEMs. The
sector is also attracting new competitors, some of whom are entering our product segment through the acquisition
of non-core operations.
5
With a focus on engineering and manufacturing, we support our business strategy and differentiate ourselve
through exceptional long-term daily track records on quality, warranty, reliability, delivery and launch performance.
AAM has an outstanding daily track record for delivering quality products, having averaged less than 10 discrepant
parts per million (PPM) in 2016.
As global OEM’s work to meet tighter fuel efficiency emissions standards, the automotive industry is entering a
new, more advanced phase of innovation and design. This encompasses advanced powertrain applications, hybrid
and electric vehicles, autonomous vehicles and other equally sophisticated technologies. AAM is meeting these
challenges with an aggressive plan to continue increasing our investment in advanced product, process and
systems technology.
All of our global facilities utilize the AAM Operating System, a business philosophy focused on lean
manufacturing designed to reduce costs, improve quality, decrease inventory and improve our operating flexibility.
Industry Trends
See Item 7, “Management's Discussion and Analysis - Industry Trends.”
Productive Materials
We believe that we have adequate sources of supply of productive materials and components for our
manufacturing needs. Most raw materials (such as steel) and semi-processed or finished items (such as castings)
are available within the geographical regions of our operating facilities from qualified sources in quantities sufficient
for our needs. We currently have contracts with our steel suppliers that ensure continuity of supply to our principal
operating facilities in North America. We also have validation and testing capabilities that enable us to strategically
qualify steel sources on a global basis. As we continue to expand our global manufacturing footprint, we may need
to rely on suppliers in local markets that have not yet proven their ability to meet our requirements.
Research and Development (R&D)
We continue to invest in the development of new products, processes and systems to improve efficiency and
flexibility in our operations and continue to deliver innovative new products, chassis modules and integrated
driveline systems to our customers.
In 2016, R&D spending was $139.8 million as compared to $113.9 million in 2015 and $103.9 million in 2014.
The focus of this investment continues to be developing innovative driveline and drivetrain systems and related
components for light trucks, SUVs, crossover vehicles, passenger cars and commercial vehicles in the global
marketplace. Product development in this area includes power transfer units, transfer cases, driveline and
transmission differentials, multi-piece driveshafts, constant velocity joints, torque transfer devices, chassis modules
and front and rear drive axles. We continue to focus on electronic integration in our existing and future products to
advance their performance. We also continue to support the development of hybrid and electric vehicle systems.
Special emphasis is also placed on the development of products and systems that provide our customers with
advancements in fuel efficiency and emissions reduction and improved performance metrics such as noise vibration
harshness (NVH), power density and traction control improvements for safety and stability. Our efforts in these
areas have resulted in the development of prototypes and various configurations of these driveline systems for
several OEMs throughout the world.
We have also developed and commercialized a disconnecting AWD system, which strengthens AAM's position
as a leader in global driveline systems technology. AAM's EcoTrac® Disconnecting AWD system technology
seamlessly engages AWD functionality while improving fuel efficiency and reducing CO2 emissions. This
technology is featured on the Jeep Cherokee and its derivatives, and will be featured on the newly designed
Chevrolet Equinox and GMC Terrain beginning in 2017.
AAM also develops and manufactures high-efficiency axle systems through the use of proprietary technologies
to optimize product design and lubrication management, while also significantly reducing friction and improving fuel
economy. Our high efficiency axles are featured on several premium OEM vehicles, including Cadillac, Mercedes-
Benz and JLR.
6
Our e-AAM subsidiary engineers and develops battery electric and hybrid driveline systems to be
commercialized for crossover vehicles and passenger cars. These systems are designed to improve fuel efficiency
by up to 30%, reduce CO2 emissions and provide AWD capability with the additional benefit of improved vehicle
stability when compared to traditional mechanical AWD systems.
Through the development of our EcoTrac® Disconnecting AWD system, our high efficiency axles and our
e-AAM™ hybrid and electric driveline systems, we have significantly improved fuel efficiency and safety, ride and
handling performance while reducing emissions for our customer's products.
As our customers continue to focus on reducing vehicle weight through the use of aluminum or other
conventional means, AAM is well positioned to offer innovative, industry-leading solutions, through proprietary
technologies such as QuantumTM axles, PowerLite® axles, PowerDense® gears and PowerFilm® lubricant for
passenger car, light truck and AWD applications.
Backlog
We typically enter into agreements with our customers to provide axles or other driveline or drivetrain products
for the life of our customers' vehicle programs. Our new and incremental business includes awarded programs and
incremental content and volume including customer requested engineering changes. Our backlog may be impacted
by various assumptions, many of which are provided by our customers based on their long range production plans.
These assumptions include future production volume estimates, changes in program launch timing and fluctuation
in foreign currency exchange rates.
Our new and incremental business backlog is approximately $875 million for programs launching from 2017 to
2019. Approximately 80% of our new and incremental business backlog relates to AWD and RWD applications for
crossover vehicles and passenger cars. Approximately 40% of our new and incremental business backlog will be
for end use markets outside the U.S and approximately 60% is for customers other than GM.
Patents and Trademarks
We maintain and have pending various U.S. and foreign patents, trademarks and other rights to intellectual
property relating to our business, which we believe are appropriate to protect our interest in existing products, new
inventions, manufacturing processes and product developments. We do not believe that any single patent or
trademark is material to our business nor would expiration or invalidity of any patent or trademark have a material
adverse effect on our business or our ability to compete.
Cyclicality and Seasonality
Our operations are cyclical because they are directly related to worldwide automotive production, which is also
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 to 2
weeks) in conjunction with their model year changeover and an approximate one-week shutdown in December.
Accordingly, our quarterly results may reflect these trends.
Environmental Matters
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 will continue to make, capital and other
expenditures to comply with environmental requirements, including recurring administrative costs. Such
expenditures were not significant in 2016, 2015 and 2014.
7
Associates
We employ approximately 13,100 associates on a global basis (including our joint venture affiliates) of which
approximately 3,600 are employed in the U.S. Approximately 2,000 of these U.S. associates are represented by
the UAW, of which approximately 1,300 are hourly associates at our Three Rivers Manufacturing Facility in
Michigan who are subject to a stand alone UAW agreement that expires March 6, 2021. An additional 700
associates at our MSP Industries Corporation and Colfor Manufacturing, Inc. subsidiaries are represented by the
UAW under collective bargaining agreements that expire August 14, 2020 and June 8, 2018, respectively. In
addition, approximately 100 associates at our Albion Automotive subsidiary in Scotland, approximately 100
associates at our Chennai Manufacturing Facility in India, approximately 4,300 associates at our Guanajuato
Manufacturing Complex in Mexico and approximately 500 associates at our Araucária Manufacturing Facility in
Brazil are represented by labor unions that are subject to collective bargaining agreements. The current collective
bargaining agreements at Albion and Chennai will expire on March 31, 2017 and March 31, 2019, respectively. The
collective bargaining agreements in Mexico and Brazil expire and are renegotiated annually.
Executive Officers of the Registrant
Name
Age
Position
David C. Dauch ..........................
Michael K. Simonte ....................
Timothy E. Bowes ......................
Alberto L. Satine ........................
Norman Willemse ......................
Mark S. Barrett ...........................
Michael J. Bly .............................
David A. Culton ..........................
Philip R. Guys ............................
Donald L. Joseph........................
Terri M. Kemp ............................
Michael J. Lynch ........................
Christopher J. May .....................
Allan R. Monich ..........................
Tolga I. Oal .................................
John S. Sofia .............................
Thomas J. Szymanski ................
52
53
53
60
60
56
49
51
54
61
51
52
47
63
45
56
55
Chairman of the Board & Chief Executive Officer
President
Senior Vice President - Strategic & Business Development
President - Driveline
President - Metal Formed Products
Vice President - Driveline Product Engineering
President - AAM Europe
Vice President - Cost Engineering
Vice President - Global Product Engineering & Chief Technology Officer
President - AAM Asia
Vice President - Human Resources
Vice President - Driveline Business Performance & Cost Management
Vice President & Chief Financial Officer
Vice President - Global Quality, Warranty & AAM Operating Systems
President - AAM North America
Vice President - Global Program Management
Vice President - Driveline Manufacturing Services
David C. Dauch, age 52, has been AAM's Chief Executive Officer since September 2012. Mr. Dauch has
served on AAM's Board of Directors since April 2009 and was appointed Chairman of the Board in August 2013.
From September 2012 through August 2015, Mr. Dauch served as AAM’s President & CEO. Prior to that, Mr. Dauch
served as President & Chief Operating Officer (2008 - 2012) and held several other positions of increasing
responsibility from the time he joined AAM in 1995. Prior to joining AAM, Mr. Dauch held several positions at Collins
& Aikman Products Company, where he received the President’s Award for leadership and innovation. Mr. Dauch
also served on the Collins & Aikman Board of Directors from 2002 to 2007. Presently, he serves on the boards of
Business Leaders for Michigan, the Detroit Regional Chamber, the Great Lakes Council Boy Scouts of America, the
Boys & Girls Club of Southeast Michigan, the National Association of Manufacturers (NAM), the Original Equipment
Suppliers Association (OESA), Amerisure Mutual Holdings, Inc. and the Amerisure Companies (since December
2014) and Horizon Global Corporation (since June 2015). Mr. Dauch also serves on the Miami University Business
Advisory Council.
8
Michael K. Simonte, age 53, has been President since August 2015. Simonte previously served as Executive
Vice President & Chief Financial Officer (since December 2011); Executive Vice President - Finance & Chief
Financial Officer (since February 2009); Group Vice President - Finance & Chief Financial Officer (since December
2007); Vice President - Finance & Chief Financial Officer (since January 2006); Vice President & Treasurer (since
May 2004); and Treasurer (since September 2002). Mr. Simonte joined AAM in December 1998 as Director,
Corporate Finance. Prior to joining our Company, Mr. Simonte served as Senior Manager at the Detroit office of
Ernst & Young LLP. Mr. Simonte is a certified public accountant.
Timothy E. Bowes, age 53, has been Senior Vice President - Strategic & Business Development since April
2016. Bowes previously served as Senior Vice President - Corporate Planning (since December 2015). Prior to
joining AAM, Mr. Bowes served as Chief Executive Officer & President of Transtar Corporation, since 2013. Prior to
Transtar, Mr. Bowes served as Executive Officer & President - Commercial Truck at Meritor Inc., which he joined in
2005. He has held various leadership positions during his 25-year automotive and industrial career, managing
business operations, strategic opportunities and sales & marketing for multiple organizations. In addition to Transtar
and Meritor, Mr. Bowes' career also includes working at Hilite International, Wescast Industries, Intermet
Corporation and ITT Automotive.
Alberto L. Satine, age 60, has been President - Driveline since August 2015. Prior to that, he served as
Senior Vice President - Global Driveline Operations (since January 2014); Group Vice President - Global Sales &
Business Development (since December 2011); Vice President - Strategic & Business Development (since
November 2005); Vice President - Procurement (since January 2005); Executive Director, Global Procurement
Direct Materials (since January 2004); General Manager, Latin American Driveline Sales and Operations (since
August 2003) and General Manager of International Operations (since joining our Company in May 2001). Prior to
joining our Company, Mr. Satine held several management positions at Dana Corporation, including the position of
President of Dana's Andean Operations in South America from 1997 to 2000 and General Manager of the Spicer
Transmission Division in Toledo, Ohio from 1994 to 1997.
Norman Willemse, age 60, has been President - Metal Formed Products since August 2015. Prior to that, he
served as Vice President - Metal Formed Product Business Unit (since December 2011); Vice President - Global
Metal Formed Product Business Unit (since October 2008); Vice President - Global Metal Formed Product
Operations (since December 2007); General Manager - Metal Formed Products Division (since July 2006) and
Managing Director - Albion Automotive (since joining our Company in August 2001). Prior to joining our Company,
Mr. Willemse served at ATSAS for seven years as Executive Director Engineering & Commercial and John Deere
for over 17 years in various engineering positions of increasing responsibility. Mr. Willemse is a professional
certified mechanical engineer.
Mark S. Barrett, age 56, has been Vice President - Driveline Product Engineering since August 2016. Barrett
previously served as Group Vice President - Driveshafts (since May 2015); Group Vice President - Program
Management, Material Cost Optimization, Procurement and Driveshaft Business Unit (since November 2014);
Group Vice President - Procurement, Program Management and Driveshaft Business Unit (since August 2013);
Group Vice President - Procurement and Program Management (since February 2013); Group Vice President -
Engineering & Procurement (since November 2012); Group Vice President - Engineering, Product Development &
Procurement (since December 2011); Vice President - Engineering & Product Development (since October 2008);
Executive Director, Engineering & Product Development (since January 2008); Executive Director, Axle & Drivetrain
(since November 2006); Executive Director, Powertrain, Driveshaft and Halfshaft Engineering (since January 2006);
Executive Director, Released and Domestic Programs (since January 2004); Director, Mid Size Axle Programs
(since December 1998) and Staff Project Engineer (since joining our Company in March 1994). Prior to joining our
Company, Mr. Barrett served at General Motors for nine years in a variety of manufacturing and engineering
positions.
Michael J. Bly, age 49, has been President - AAM Europe since joining our Company in January 2014. Prior
to joining AAM, he spent more than 27 years with General Motors in a variety of management roles in the areas of
powertrain, engineering and electrification. Mr. Bly's position prior to leaving General Motors was Vice President of
European Powertrain Engineering.
9
David A. Culton, age 51, has been Vice President - Cost Engineering since May 2015. Prior to that, he served
as Vice President - Material Cost Optimization (since January 2014); President - AAM Americas, Vice President -
AAM Corporate (since June 2012); President - AAM Europe, Vice President - AAM Corporate (since November
2010); Vice President - Commercial (since September 2009); Vice President - Unibody Vehicle Business Unit (since
October 2008); Controller (since April 2007); Executive Director, Sales (since July 2006); Director, Commercial
Analysis (since August 2004); Director, Finance - Operations (Since June 2003); Finance Manager (since August
1999); and Assistant Finance Manager (since joining our Company in September 1998). Prior to joining our
Company, Mr. Culton served at Chrysler Corporation for 10 years in a variety of management, finance, engineering
and manufacturing positions.
Philip R. Guys, age 54, has been Vice President - Global Product Engineering & Chief Technology Officer
since August 2016. Guys previously served as Vice President - Driveline Product Engineering (since January
2015); Vice President - Product Engineering & Development (since November 2012), and Vice President - Product
Engineering (since joining AAM in December 2011). Prior to joining our Company, Mr. Guys served for four years at
Linamar Corporation in various senior management positions, including Vice President - Engineering, and over 20
years in various engineering positions of increasing responsibility at Ford Motor Company and General Motors.
Donald L. Joseph, age 61, has been President - AAM Asia since January 2015. Mr. Joseph joined AAM in
1994 as a Manufacturing Manager at AAM's Three Rivers Manufacturing Facility. Since then, he has served in
various manufacturing and management positions with increasing responsibility throughout AAM's global
operations, including his most recent position of Managing Director - AAM Asia. Mr. Joseph's professional career
began with General Motors in 1977. While at General Motors, Mr. Joseph served in a variety of positions with
increasing responsibility at the Hydra-matic and Saginaw Divisions. He also spent time at the NUMMI facility
studying lean manufacturing.
Terri M. Kemp, age 51, has been Vice President - Human Resources since September 2012. Prior to that, she
served as Executive Director - Human Resources & Labor Relations (since November 2010); Executive Director -
Human Resources (since September 2009); Director - Human Resources Operations (since October 2008);
Director - Program Management (since March 2008); Director - Program Management, Mexico (since August 2006);
Launch Manager (since May 2006); Manager - Manufacturing (since August 2005); Manager - Manufacturing, Front
Axles and Gears (since June 2005); Area Manager - Plant 1 (since October 2004); Director - Personnel, Detroit
Gear and Axle (since January 2003); Area Manager - Plant 6 (since March 2002); Manager - Program Management
(since February 2001); Area Manager - Manufacturing Plant 8 (since June 1999); Supervisor - I.E. Plants 1, 6 and 8
(since August 1998); Production Coordinator (since September 1997); and Manager - Productivity since joining the
Company in July 1996. Prior to joining our Company, Mrs. Kemp served for nine years at Corning Incorporated,
where she progressed through a series of manufacturing positions with increasing responsibility, including Industrial
Engineer, Department Head and Operations Manager.
Michael J. Lynch, age 52, has been Vice President - Driveline Business Performance & Cost Management
since May 2015. Prior to that, he served as Vice President - Finance & Controller (since September 2012);
Executive Director & Controller (since October 2008); Director - Commercial Analysis (since July 2006); Director -
Finance, Driveline Americas (since March 2006); Director - Investment & Commercial Analysis (since November
2005); Director - Finance, Driveline (since October 2005); Director - Finance Operations, U.S. (since April 2005);
Manager - Finance (since June 2003); Manager - Finance, Forge Division (since September 2001); Finance
Manager - Albion Automotive (since October 1998); Supervisor - Cost Estimating (since February 1998) and
Financial Analyst at the Detroit Manufacturing Facility since joining AAM in September 1996. Prior to joining our
Company, Mr. Lynch served at Stellar Engineering for nine years in various capacities.
Christopher J. May, age 47, has been Vice President & Chief Financial Officer since August 2015. Prior to
that, he served as Treasurer (since December 2011); Assistant Treasurer - Capital Markets & Risk Management
(since September 2008); Director of Internal Audit (since September 2005); Divisional Finance Manager - Metal
Formed Products (since June 2003); Finance Manager - Three Rivers Manufacturing Facility (since August 2000);
Manager Financial Reporting (since November 1998) and Financial Analyst since joining AAM in 1994. Prior to
joining AAM, Mr. May served as a Senior Accountant for Ernst & Young. Mr. May is a certified public accountant.
10
Allan R. Monich, age 63, has been Vice President - Global Quality, Warranty & AAM Operating Systems since
October 2015. Prior to that, he served as Vice President - Quality, Warranty & Customer Satisfaction (since
November 2010); Executive Director - Warranty (since January 2010); Vice President - Quality Assurance &
Customer Satisfaction (since July 2006); Vice President - Program Management & Capital Planning (since October
2005); Vice President - Program Management & Launch (since May 2004); Vice President, Manufacturing Forging
Division (since October 2001); Vice President, Human Resources (since 1998); Vice President, Personnel (since
November 1997) and Plant Manager for the Buffalo Gear & Axle Plant in Buffalo, NY since the formation of our
Company in March 1994. Prior to joining our Company in March 1994, Mr. Monich worked for General Motors for
22 years in the areas of manufacturing, quality assurance, sales and engineering, including four years as a Plant
Manager.
Tolga I. Oal, age 45, has been President - AAM North America since joining our Company in September 2015.
Prior to joining AAM, Mr. Oal served as Vice President of Global Electronics for TRW Automotive, since 2012.
Before that, Mr. Oal served in various manufacturing and management positions of increasing responsibility within
TRW for Global Electronics, including Director of Operations and as Director of Finance. Prior to joining TRW, Mr.
Oal held various leadership positions in engineering, sales, purchasing, and finance at Siemens VDO Automotive/
Continental.
John S. Sofia, age 56, has been Vice President - Global Program Management since November 2012. Prior to
that, he served as Vice President - Commercial Vehicle Business (since March 2008); Vice President - Product
Engineering, Commercial Vehicle Operations & Chief Technology Officer (since December 2007); Vice President -
Engineering & Product Development (since July 2006); Vice President - Quality Assurance & Customer Satisfaction
(since October 2004); Director, Advanced Quality Planning (since August 2002); Plant Manager, Detroit Forge
(since April 2001); Director, Product Engineering (since June 2000); Manager of the Current Production & Process
Engineering Group (since September 1997) and Engineering Manager (since joining our Company in May 1994).
Prior to joining our Company, Mr. Sofia served at Chrysler Corporation for 10 years in a variety of manufacturing
and engineering positions.
Thomas J. Szymanski, age 55, has been Vice President - Driveline Manufacturing Services since November
2014. Prior to that, he served as President - AAM North America, Vice President - AAM Corporate (since January
2014), Vice President - Operations - AAM Americas (since November 2012), Vice President - Global Manufacturing
Services (since November 2010); Executive Director - Manufacturing Planning (since October 2008); Executive
Director - Corporate Manufacturing Services Unibody Vehicles (since January 2008); Director - Cost Estimating &
Advanced Manufacturing Engineering (since August 2006); President & Chief Operating Officer - Colfor
Manufacturing, Inc. (since August 2004); Director - Corporate Manufacturing Engineering (since January 2003);
Plant Manager - Three Rivers Gear & Axle (since March 2000); Plant Manager - Tonawanda Forge (since
December 1998); Manufacturing Manager - Tonawanda Forge (since March 1994); and Area Manager, Axle
Assembly - Buffalo Gear & Axle (since the formation of our Company in March 1994). Prior to joining our Company
in March 1994, Mr. Szymanski worked for General Motors for 11 years in a variety of manufacturing and plant
management positions.
Internet Website Access to Reports
The website for American Axle & Manufacturing Holdings, Inc. is www.aam.com. Our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge
through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the
Securities and Exchange Commission (SEC). The SEC also maintains a website at www.sec.gov that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC. The information contained in the Company's website is not included, or incorporated by reference, in this
Annual Report on Form 10-K.
11
(d) Financial Information About Geographic Areas
International operations are subject to certain additional risks inherent in conducting business outside the U.S.,
such as changes in currency exchange rates, price and currency exchange controls, import restrictions,
nationalization, expropriation and other governmental action. Financial information relating to our operations by
geographic area is presented in the following table. Net sales are attributed to countries based upon location of
customer. Long-lived assets exclude deferred income taxes.
Net sales
United States ........................................................................ $
Canada .................................................................................
Mexico ..................................................................................
South America .......................................................................
China ....................................................................................
All other Asia .........................................................................
Europe and other ..................................................................
Total net sales ....................................................................... $
Long-lived assets
United States ........................................................................ $
Mexico ..................................................................................
South America .......................................................................
China ....................................................................................
All other Asia .........................................................................
Europe ..................................................................................
Total long-lived assets........................................................... $
2016
December 31,
2015
(in millions)
2014
2,147.9
94.7
1,061.9
124.6
203.4
208.8
106.7
3,948.0
831.0
529.2
61.5
129.8
92.0
111.7
1,755.2
$
$
$
$
2,121.9
119.3
1,060.2
106.6
185.5
185.2
124.4
3,903.1
824.0
522.6
48.5
85.8
103.7
120.3
1,704.9
$
$
$
$
2,073.6
64.6
1,055.5
156.5
71.3
167.3
107.2
3,696.0
867.1
513.2
80.5
59.8
117.5
94.0
1,732.1
12
Item 1A. Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be
considered as our business, financial condition, operating results and cash flows could be materially adversely
affected if any of the following risks occur.
Our business is significantly dependent on sales to GM and FCA.
We are the principal supplier of driveline components to GM for its full-size RWD light trucks and SUVs
manufactured in North America, supplying substantially all of GM's rear axle and 4WD/AWD axle requirements for
these vehicle platforms. Sales to GM were approximately 67% of our consolidated net sales in 2016, 66% in 2015,
and 68% in 2014. A reduction in our sales to GM or a reduction by GM of its production of RWD light trucks or
SUVs, as a result of market share losses of GM or otherwise, could have a material adverse effect on our results of
operations and financial condition.
We also supply driveline system products for FCA's heavy-duty Ram full-size pickup trucks and its derivatives,
the AWD Jeep Cherokee and a passenger car driveshaft program. Sales to FCA accounted for approximately 18%
of our consolidated net sales in 2016, 20% in 2015 and 18% in 2014. A reduction in our sales to FCA or a reduction
by FCA of its production of the programs we support, as a result of market share losses of FCA or otherwise, could
have a material adverse effect on our results of operations and financial condition.
Our business may also be adversely affected by reduced demand for the product programs we currently
support, or anticipate supporting in the future, or if we do not obtain sales orders for successor programs that
replace our current product programs.
Our business is dependent on the rear-wheel drive light truck and SUV market segments in North
America.
A substantial portion of our revenue is derived from products supporting RWD light truck and SUV platforms in
North America. Sales and production levels of light trucks and SUVs can be affected by many factors, including
changes in consumer demand; product mix shifts favoring other types of light vehicles, such as front-wheel drive
based crossover vehicles and passenger cars; fuel prices; and government regulation, such as the corporate
average fuel economy (CAFE) regulations and related emissions standards promulgated by federal and state
regulators. The U.S. CAFE standards for cars and light-duty trucks currently require the equivalent of 54.5 miles
per gallon by 2025. Our customers are currently planning for these regulations and the potential impact on
consumer preferences and demand for vehicles. A reduction in the market segment we currently supply could have
a material adverse impact on our results of operations and financial condition.
We are under continuing pressure from our customers to reduce our prices.
Annual price reductions are a common practice in the automotive industry. The majority of our products are sold
under purchase orders pursuant to long-term contracts with prices scheduled at the time the contracts are
established. Many of our contracts require us to reduce our prices in subsequent years and most of our contracts
allow us to adjust prices for engineering changes. If we must accommodate a customer's demand for higher annual
price reductions and are unable to offset the impact of any such price reductions through continued technology
improvements, cost reductions or other productivity initiatives, our results of operations and financial condition could
be adversely affected.
13
Our business faces substantial competition.
The automotive industry is highly competitive. Our competitors include the driveline component manufacturing
facilities controlled by OEMs, as well as many other domestic and foreign companies possessing the capability to
produce some or all of the products we supply. In addition to traditional competitors in the automotive sector, the
trend towards advanced electronic integration has increased the level of new market entrants, including technology
companies. Some of our competitors are affiliated with OEMs and others have economic advantages as compared
to our business, such as patents, existing underutilized capacity and lower wage and benefit costs. Technology,
design, quality, delivery and cost are the primary elements of competition in our industry segment. As a result of
these competitive pressures and other industry trends, OEMs and suppliers are developing strategies to reduce
costs. These strategies include supply base consolidation and global sourcing. Our business may be adversely
affected by increased competition from suppliers benefiting from OEM affiliate relationships or financial and other
resources that we do not possess. Our business may also be adversely affected if we do not sustain our ability to
meet customer requirements relative to technology, design, quality, delivery and cost.
If we are unable to respond timely to changes in regulation, technology, and market innovation, we risk
not being able to develop our intellectual property into commercially viable products.
Our results of operations and financial condition are impacted, in part, by our competitive advantage in
developing, engineering, and manufacturing innovative products. In the future, our ability to anticipate changes in
technology, successfully develop, engineer, and bring to market new and innovative proprietary products will have a
significant impact on our market competitiveness. If we are unable to maintain our competitive advantage through
innovation, there could be a material adverse effect on our results of operations and financial condition.
We may be unable to consummate and successfully integrate acquisitions and joint ventures.
Engaging in acquisitions and joint ventures involves potential risks, including financial risks and failure to
successfully integrate and realize the expected benefits of such acquisitions and joint ventures. Integrating
acquired operations is a significant challenge and there is no assurance that we will be able to manage the
integrations successfully. On November 3, 2016, AAM entered into a definitive merger agreement with Metaldyne
Performance Group Inc. (MPG). Failure to successfully consummate and integrate the MPG acquisition, or to
realize the expected benefits and efficiencies of such acquisition, may have a material adverse impact on our
results of operations and financial condition.
As we continue to expand globally and accelerate our diversification efforts, we may pursue strategic growth
initiatives with greater frequency. An inability to successfully achieve the levels of organic and inorganic growth
from our strategic initiatives could adversely impact our results of operations and financial condition.
A failure of our information technology (IT) networks and systems, or a failure to successfully integrate
the IT systems of acquired companies, could adversely impact our business and operations.
We rely upon information technology networks and systems to process, transmit and store electronic
information, and to manage or support a variety of business processes or activities. Additionally, we and certain of
our third-party vendors collect and store personal information in connection with human resources operations and
other aspects of our business. The secure operation of these information technology networks and systems and the
proper processing and maintenance of this information are critical to our business operations. We cannot be certain
that the security measures we have in place to protect these systems and data will be successful or sufficient to
protect our IT systems from current and emerging technology threats and damage from computer viruses,
unauthorized access, cyber attack and other similar disruptions. The occurrence of any of these events could
compromise our networks, and the information stored there could be accessed, publicly disclosed or lost. Any such
access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory
penalties under laws protecting the privacy of personal information, the disruption of our operations or damage to
our reputation. We may be required to incur significant costs to protect against damage caused by these disruptions
or security breaches in the future.
If the Company is able to consummate its pending acquisition of MPG, there is no assurance we would be able
to successfully integrate their IT systems, which could have a material adverse effect on our results of operations
and financial condition.
14
Our company's global operations are subject to risks and uncertainties.
We have business and technical offices and manufacturing facilities in many foreign countries. Approximately
9,500 of our 13,100 associates are located outside of the U.S. International operations are subject to certain risks
inherent in conducting business outside the U.S., such as changes in currency exchange rates, tax laws, price and
currency exchange controls, import restrictions, nationalization, expropriation and other governmental action. Our
global operations also may be adversely affected by political events and domestic or international terrorist events
and hostilities. Current events, including the recent U.S. presidential election, the United Kingdom's vote to exit the
European Union, potential changes in immigration policies and tax reform proposals, create a level of uncertainty
for multi-national companies. As U.S. companies continue to expand globally, increased complexity exists due to
the possibility of renegotiated trade deals, revised international tax law treaties, and changes to the U.S. corporate
tax code. These uncertainties could have a material adverse effect on our business and our results of operations
and financial condition. As we continue to expand our business globally, our success will depend, in part, on our
ability to anticipate and effectively manage these and other risks.
Our business is dependent on our Guanajuato Manufacturing Complex
A high concentration of our global business is supported by our Guanajuato Manufacturing Complex (GMC) in
Mexico. In 2016, GMC represented approximately half of our consolidated net sales, and represented a significant
portion of our profitability and cash flow. We expect GMC to continue to represent a substantial portion of these
metrics for the foreseeable future. A significant disruption to our GMC operations as a result of changes in trade
agreements between Mexico and the U.S., tariffs, natural disaster or otherwise could have a material adverse
impact on our results of operations and financial condition.
Negative or unexpected tax consequences, as well as possible changes in foreign and domestic tax
laws could adversely affect our results of operations.
There have been recent global proposals brought forward by the Organisation for Economic Co-operation and
Development (OECD) alongside the Group of Twenty (G-20), for tax jurisdictions to evaluate reforming longstanding
corporate tax law principles and treaties that could adversely affect multi-national companies. The focus is on the
distribution of profits between affiliated entities in different tax jurisdictions, a concept known as Base Erosion and
Profit Shifting (BEPS). Although the OECD does not enact tax law, proposals like this or others that lead to
substantial changes in enacted tax law and treaties could have a material adverse impact on our results of
operations and financial condition.
We file income tax returns in the U.S. federal jurisdiction, as well as various states and foreign jurisdictions. We
are also subject to examinations of these income tax returns by the relevant tax authorities. Based on the status of
these 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. Any negative or unexpected outcomes of
these examinations and audits could have a material adverse impact on our results of operations and financial
condition.
We may incur material losses and costs as a result of product recall or field action, product liability and
warranty claims, litigation and other disputes and claims.
We are exposed to warranty, product recall or field action and product liability claims in the event that our
products fail to perform as expected, and we may be required to participate in a recall of such products. We are not
responsible for certain warranty claims that may be incurred by our customers, which include returned components
for which no trouble was found upon inspection, discretionary acts of dealer goodwill, defects related to certain
directed buy components, and build-to-print design issues. We review warranty claim activity in detail, and we may
have disagreements with our customers as to responsibility for these types of costs incurred by our customers. In
addition, as we continue to diversify our customer base, we expect our obligation to share in the cost of providing
warranties as part of our agreements with new customers will increase. Costs and expenses associated with
warranties, field actions, product recalls and product liability claims could have a material adverse impact on our
results of operations and financial condition and may differ materially from the estimated liabilities that we have
recorded in our consolidated financial statements.
15
In addition to warranty claims relating directly to products we produce, potential product recalls for our
customers and their other suppliers, and the potential reputational harm that may result from such product recalls,
could have a material adverse impact on our results of operations and financial condition.
We are also involved in various legal proceedings incidental to our business. Although we believe that none of
these matters are likely to have a material adverse effect on our results of operations or financial condition, there
can be no assurance as to the ultimate outcome of any such legal proceeding or any future legal proceedings.
Our business could be adversely affected by disruptions in our supply chain and our customers' supply
chain.
We depend on a limited number of suppliers for certain key components and materials needed for our products.
We rely upon, and expect to continue to rely upon, certain suppliers for critical components and materials that are
not readily available in sufficient volume from other sources. As we continue to expand our global manufacturing
footprint, we may need to rely on suppliers in local markets that have not yet proven their ability to meet our
requirements. These supply chain characteristics make us susceptible to supply shortages and price increases. If
production volumes increase rapidly, there can be no assurance that the suppliers of critical components and
materials will be able or willing to meet our future needs on a timely basis.
Our supply chain as well as our customers' supply chain is also at risk of unanticipated events such as natural
disasters or changes in governmental regulations that could cause a disruption in the supply of critical components
to us and our customers. A significant disruption in the supply of these materials could have a material adverse
effect on our results of operations and financial condition.
Our company or our customers may not be able to successfully and efficiently manage the timing and
costs of new product program launches.
Certain of our customers are preparing to launch, or have recently launched, new product programs for which
we will supply newly developed driveline system products and related components. There can be no assurance
that we will successfully complete the transition of our manufacturing facilities and resources to support these new
product programs or other future product programs on a timely and cost efficient basis. Accordingly, the launch of
new product programs may adversely affect production rates or other operational efficiency and profitability
measures at our facilities. We may also experience difficulties with the performance of our supply chain on program
launches, which could result in our inability to meet our contractual obligations to key customers. Production
shortfalls or production delays, if any, could result in our failure to effectively manage our material and freight costs
relating to these program launches. In addition, our customers may delay the launch or fail to successfully execute
the launch of these new product programs, or any additional future product program for which we will supply
products. Our revenues, operating results and financial condition could be adversely impacted if our customers fail
to timely launch such programs or if we are unable to manage the timing requirements and costs of new product
program launches.
Our company may not realize all of the revenue expected from our new and incremental business
backlog.
The realization of incremental revenues from awarded business is inherently subject to a number of risks and
uncertainties, including the accuracy of customer estimates relating to the number of vehicles to be produced in
new and existing product programs and the timing of such production, as well as the fluctuation in exchange rates
for programs sourced in currencies other than our reporting currency. It is also possible that our customers may
delay or cancel a product program that has been awarded to us. Our revenues, operating results and financial
condition could be adversely affected relative to our current financial plans if we do not realize substantially all the
revenue from our new and incremental business backlog.
16
Exchange rate fluctuations could adversely affect our company's global results of operations and
financial condition.
As a result of our international operations, we are exposed to foreign currency risks that arise from our normal
business operations, including risks associated with transactions that are denominated in currencies other than our
local functional currencies. Gains and losses resulting from the remeasurement of assets and liabilities in a
currency other than the functional currency of our foreign subsidiaries are reported in current period income. In the
future, unfavorable changes in exchange rate relationships between the functional currencies of our subsidiaries
and their non-functional currency denominated assets and liabilities could have an adverse impact on our results of
operations and financial condition. While we use, from time to time, foreign currency forward contracts to help
mitigate certain of these risks and reduce the effects of fluctuations in exchange rates, our efforts to manage these
risks may not be successful.
We are also subject to currency translation risk as we are required to translate the financial statements of our
foreign subsidiaries to U.S. dollars. We report the effect of translation for our foreign subsidiaries with a functional
currency other than the U.S. dollar as a separate component of stockholders' equity. Unfavorable changes in the
exchange rate relationship between the U.S. dollar and the functional currencies of our foreign subsidiaries could
have an adverse impact on our results of operations and financial condition.
Our business could be adversely affected by volatility in the price of raw materials.
Worldwide commodity market conditions in recent years have resulted in volatility in the cost of steel and other
metallic materials we use in production. During periods of general economic improvement and increases in
customer demands, we have seen the cost of steel and metallic materials needed for our products increase. If we
are unable to pass such cost increases on to our customers, this could have a material adverse effect on our results
of operations and financial condition.
Our business could be adversely affected if we fail to maintain satisfactory labor relations.
The majority of our hourly associates worldwide are members of industrial trade unions employed under the
terms of collective bargaining agreements. Substantially all of our hourly associates in the U.S. are represented by
the UAW. Approximately 4,800 of our hourly associates at our facilities in Mexico and Brazil are also covered by
collective bargaining agreements which expire annually. There can be no assurance that future negotiations with
our labor unions will be resolved favorably or that we will not experience a work stoppage or disruption that could
have a material adverse impact on our results of operations and financial condition. In addition, there can be no
assurance that such future negotiations will not result in labor cost increases or other terms and conditions that
could adversely affect our results of operations and financial condition or our ability to compete for future business.
We use important intellectual property in our business. If we are unable to protect our intellectual property
or if a third party makes assertions against us or our customers relating to intellectual property rights, our
business could be adversely affected.
We own important intellectual property, including patents, trademarks, copyrights and trade secrets, and are
involved in numerous licensing arrangements. Our intellectual property plays an important role in maintaining our
competitive position in a number of the markets that we serve. Our competitors may develop technologies that are
similar to our proprietary technologies or design around the patents we own or license. Further, as we expand our
operations in jurisdictions where the protection of intellectual property rights is less robust, the risk of others duplicating
our proprietary technologies increases, despite efforts we undertake to protect them. Developments or assertions by
or against us relating to intellectual property rights, and any inability to protect these rights, could materially adversely
affect our business and our competitive position.
17
Our company's ability to operate effectively could be impaired if we lose key personnel.
Our success depends, in part, on the efforts of our executive officers and other key associates, such as
engineers and global operational leadership. In addition, our future success will depend on, among other factors,
our ability to continue to attract and retain qualified personnel, particularly engineers and other employees with
critical expertise and skills that support key customers and products. The loss of the services of our executive
officers or other key associates, unexpected turnover, or the failure to attract or retain associates, could have a
material adverse effect on our results of operations and financial condition.
Our goodwill, other intangible assets, and long-lived assets are at risk of impairment if our business or
market conditions indicate that the carrying value of those assets exceeds their fair value.
Accounting principles generally accepted in the United States of America (GAAP) require that companies
evaluate the carrying value of goodwill, other intangible assets, and long-lived assets routinely in order to assess
whether any indication of asset impairment exists. Goodwill and other indefinite-lived intangible assets are required
to be evaluated on an annual basis, while finite-lived intangible assets and long-lived assets should be evaluated
only when events and circumstances exist that indicate an asset or group of assets may be impaired.
The pending acquisition of MPG is expected to significantly increase the value of our goodwill and other
intangible assets and is also expected to result in a change to our current organizational structure from one
reporting unit to multiple reporting units. If the acquisition does result in the creation of multiple reporting units, the
threshold for analyzing impairment of goodwill will be reduced from an evaluation of the carrying value of our
consolidated operations and its related fair value, to an analysis performed at the reporting unit level. This could
potentially provide greater risk that goodwill becomes impaired in future operating periods. Further, the expected
increase to goodwill and other intangible asset balances, upon acquisition, provides a greater chance that an
impairment of these assets would have a material adverse effect on our results of operations and financial
condition.
Our financial condition and operations may be adversely affected by a violation of financial and other
covenants.
Our revolving credit facility contains financial covenants related to secured and unsecured indebtedness
leverage and interest coverage. The revolving credit facility limits our ability to make certain investments, loans and
guarantees, declare dividends or distributions on capital stock, redeem or repurchase capital stock and certain debt
obligations, incur liens, incur indebtedness, enter into certain restrictive agreements, merge, make acquisitions or
sell all or substantially all of our assets. The indenture governing our senior unsecured notes also restricts our
ability to incur debt secured by liens, engage in consolidations or mergers or sell all or substantially all of our assets,
and engage in certain sale and leaseback transactions. The revolving credit facility also significantly restricts our
ability to incur additional secured debt. The revolving credit facility and the indentures governing our senior
unsecured notes also include customary events of default. Obligations under the revolving credit facility, the 7.75%
senior unsecured notes due 2019 (7.75% Notes), the 6.625% senior unsecured notes due 2022 (6.625% Notes),
the 6.25% senior unsecured notes due 2021 (6.25% Notes) and our 5.125% senior unsecured notes due 2019
(5.125% Notes) are required to be guaranteed by most of our U.S. subsidiaries that hold domestic assets. In
addition, the revolving credit facility is secured on a first priority basis by all or substantially all of the assets of AAM,
Inc., the assets of Holdings and each guarantor's assets, including a pledge of capital stock of our U.S. subsidiaries
that hold domestic assets, including each guarantor, and a portion of the capital stock of the first tier foreign
subsidiaries of AAM. A violation of any of these covenants or agreements could result in a default under these
contracts, which could permit the lenders or note holders, as applicable, to accelerate repayment of any borrowings
or notes outstanding at that time and levy on the collateral granted in connection with the revolving credit facility. A
default or acceleration under the revolving credit facility or the indentures governing the senior unsecured notes
may result in increased capital costs and defaults under our other debt agreements and may adversely affect our
ability to operate our business, our subsidiaries' and guarantors' ability to operate their respective businesses and
our results of operations and financial condition.
18
Our company faces substantial pension and other postretirement benefit obligations.
We have significant pension and other postretirement benefit obligations to certain of our associates and
retirees. Our ability to satisfy the funding requirements associated with these obligations will depend on our cash
flow from operations and our ability to access credit and the capital markets. The funding requirements of these
benefit plans, and the related expense reflected in our financial statements, are affected by several factors that are
subject to an inherent degree of uncertainty and volatility, including governmental regulation. Key assumptions
used to value these benefit obligations and the cost of providing such benefits, funding requirements and expense
recognition include the discount rate, the expected long-term rate of return on pension assets, mortality rates and
the health care cost trend rate. If the actual trends in these factors are less favorable than our assumptions, this
could have an adverse effect on our results of operations and financial condition.
Our business is subject to costs associated with environmental, health and safety regulations.
Our operations are subject to various federal, state, local and foreign laws and regulations governing, among
other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment
and disposal of waste and other materials. We believe that our operations and facilities have been and are being
operated in compliance, in all material respects, with such laws and regulations, many of which provide for
substantial fines and criminal sanctions for violations. The operation of our manufacturing facilities entails risks in
these areas, however, and there can be no assurance that we will not incur material costs or liabilities. In addition,
potentially significant expenditures could be required in order to comply with evolving environmental, health and
safety laws, regulations or other pertinent requirements that may be adopted or imposed in the future by
governmental authorities.
Risks Related to AAM’s Pending Merger with MPG
We cannot provide any assurance that the merger will be completed.
The completion of the merger is subject to customary closing conditions described in the merger agreement,
including, among others, (i) adoption by MPG stockholders of the merger agreement and approval of the
transactions contemplated by the merger agreement, (ii) approval by AAM stockholders of the AAM share issuance,
(iii) obtaining antitrust and other regulatory approvals in certain jurisdictions and (iv) the absence of any event,
circumstance, change, condition, occurrence or effect that, individually or in the aggregate, has or would reasonably
be expected to have, a material adverse effect on MPG's or AAM's business.
Although AAM has agreed in the merger agreement to use its reasonable best efforts to consummate and make
effective the merger and the other transactions contemplated by the merger agreement, these and other conditions
to the merger may not be satisfied. In addition, satisfying the conditions to the merger may take longer than, and
could cost more than, expected. Any delay in completing the merger may adversely affect the benefits that AAM
expects to achieve from the merger and the integration of MPG’s business.
There can be no assurance that regulatory authorities will not impose conditions, terms, obligations or
restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying the
completion of the merger, imposing additional material costs on or materially limiting the revenues of the combined
company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were
consummated successfully within the expected timeframe. In addition, we cannot provide assurance that any such
conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. Additionally,
the completion of the merger is conditioned on the absence of certain restraining orders or injunctions by judgment,
court order or law that would prohibit the completion of the merger.
19
Our inability to satisfy and comply with conditions under our existing financing arrangements or raise
additional or replacement financing could delay or prevent the completion of the merger.
Our obligations under the merger agreement are not subject to any conditions regarding our ability to finance, or
obtain financing for, the transactions contemplated by the merger agreement, and we are obligated under the
merger agreement to have sufficient funds available to satisfy our obligations under the merger agreement. If we
are unable to satisfy the conditions required under our financing commitments or any definitive financing
documentation, we may not have available the funds necessary to fund the cash portion of the merger
consideration. In addition, one or more financing sources under the financing commitments may default on its
obligation to provide the financing and the commitments of any such defaulting financing source may not be
replaced on a timely basis. Any such failure to have available the necessary funds to fund the cash portion of the
merger consideration could delay or prevent the completion of the merger.
We will incur transaction and integration costs in connection with the merger.
We expect to incur significant costs in connection with consummating the merger. In addition, we expect to incur
integration and restructuring costs following the completion of the merger as we integrate the businesses of the two
companies. There can be no assurances that the expected benefits and efficiencies related to the integration of the
businesses will be realized to offset these transaction, integration and restructuring costs over time. We will also
incur significant fees and expenses relating to the financing arrangements in connection with the merger, as well as
significant legal, financial advisor, accounting, banking and consulting fees, fees relating to regulatory filings and
notices, SEC filing fees, printing and mailing fees and other costs associated with the merger. Some of these costs
are payable regardless of whether the merger is completed.
Further, upon consummation of the merger, all MPG stock options and restricted shares will be accelerated and
any unvested awards will vest at the effective time of the merger. Upon closing, we will record a one-time charge to
earnings for the acceleration of these awards equal to the fair value on the closing date of the unvested portion of
the awards that were accelerated and vested as a result of the merger.
The merger agreement restricts our conduct of business prior to the completion of the merger and
limits our ability to pursue an alternative acquisition proposal to the merger.
Under the merger agreement, we are subject to certain restrictions on the conduct of our businesses prior to
completing the merger, which restrictions may adversely affect our ability to exercise certain business strategies.
These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other
changes to our business prior to the completion of the merger or termination of the merger agreement.
In addition, the merger agreement prohibits us from (A) soliciting, initiating, facilitating or encouraging any
inquiry, proposal or offer relating to alternative business combination transactions, or (B) engaging in discussions or
negotiations regarding, or providing any nonpublic information in connection with, proposals relating to alternative
business combination transactions, in each case, subject to certain exceptions set forth in the merger agreement. In
certain circumstances, upon termination of the merger agreement, we would be required to pay a termination fee to
MPG ranging from $50,897,000 to $101,794,000, depending on the circumstances giving rise to the right to
terminate the merger agreement, and we would be required to reimburse MPG for its transaction-related expenses,
subject to a $15 million limit (provided that the amount of any expenses paid by us to MPG will be credited against
any termination fee to be paid by us if the termination fee subsequently becomes payable). These provisions may
limit our ability to pursue offers from third parties that could result in greater value to our stockholders than the value
resulting from the merger. The termination fee may also discourage third parties from pursuing an alternative
acquisition proposal with us, or might result in third parties proposing to pay a lower value per share to acquire us
than it might otherwise have been willing to pay.
20
While the merger is pending, we will be subject to business uncertainties that could adversely affect
our business.
Uncertainty about the effect of the merger on employees, customers and suppliers may have an adverse effect
on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the
merger is consummated and for a period of time thereafter, and could cause our customers, suppliers and other
business partners to delay or defer certain business decisions or to seek to change existing business relationships
with us. Employee retention may be particularly challenging during the pendency of the merger because employees
may experience uncertainty about their future roles with the combined company. If, despite our retention efforts, key
employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain
with the companies as combined, our business could be seriously harmed. Any delay in completing the merger may
further increase such uncertainties and the adverse effects related thereto.
Failure to complete the merger could materially and adversely impact our financial conditions, results
of operations or stock price.
As described above, the conditions to the completion of the merger may not be satisfied. If the merger is not
completed for any reason, we will be subject to several risks, including the following:
•
•
•
•
•
•
•
being required to pay a termination fee ranging from $50,897,000 to $101,794,000 under certain
circumstances provided in the merger agreement;
being required to reimburse MPG for certain fees and expenses relating to the merger, such as legal,
financial advisor, accounting, banking, consulting and printing fees and expenses up to $15 million under
certain circumstances provided in the merger agreement (provided that the amount of any expenses paid to
MPG will be credited against any termination fee to be paid by us if the termination fee subsequently
becomes payable);
having had the focus of management diverted from day-to-day operations and other opportunities that could
have been beneficial to us;
the market prices of our shares of common stock might decline to the extent that the current market prices
reflect a market assumption that the merger will be completed;
customers and suppliers may seek to modify their relationship with us and our ability to attract new
employees and retain existing employees may be harmed by the failure to complete the merger;
being subject to potential litigations related to a failure to complete the merger or to enforce our obligations
under the merger agreement; and
if we seek out another merger or business combination following termination of the merger agreement, we
may not be able to negotiate a transaction with another party on terms comparable to, or better than, the
terms of the merger agreement with MPG.
Any such events could have a material adverse impact on our financial condition, results of operations or stock
price.
We will incur substantial additional indebtedness in connection with financing the merger.
Following the merger, on a combined basis, we will have substantial additional indebtedness and related debt
service obligations. This additional indebtedness and related debt service obligations could have important
consequences, including:
•
•
•
•
•
reducing flexibility in planning for, or reacting to, changes in our business, the competitive environment and
the industries in which we operate, and to technological and other changes;
lowering credit ratings;
reducing access to capital and increasing borrowing costs generally or for any additional indebtedness to
finance future operating and capital expenses and for general corporate purposes;
reducing funds available for operations, capital expenditures and other activities; and
creating competitive disadvantages relative to other companies with lower debt levels.
21
Our stockholders will have a reduced ownership and voting interest in AAM after the merger and will
exercise less influence over the board of directors, management and policies of AAM.
Our stockholders currently have the right to vote in the election of the AAM board of directors and on other
matters affecting AAM. Since new shares of our common stock will be issued to MPG stockholders in connection
with the completion of the merger, each AAM stockholder's percentage ownership of AAM will be smaller than such
stockholder's percentage ownership of AAM prior to the merger. Because of this, current AAM stockholders, as a
group, may have less influence on the board of directors, management and policies of AAM than they now have on
the board of directors, management and policies of AAM.
The merger will result in changes to the AAM board of directors that may affect the strategy and
operations of the combined company as compared to that of AAM as it currently exists.
If the merger is completed, the composition of the AAM board of directors will change. Upon completion of the
merger, the board of directors of the combined company will consist of eleven members, including three new
members designated by American Securities, LLC (the controlling stockholder of MPG). There can be no assurance
that the newly constituted board of directors of the combined company will function effectively as a team and that
there will not be any adverse effect on the combined company's business as a result.
The obligations and liabilities of MPG, some of which may be unanticipated or unknown, may be greater
than anticipated, which may diminish the value of our shares.
MPG's obligations and liabilities, some of which may be unanticipated or unknown, may be greater than
anticipated or reflected or reserved for in MPG's historical financial statements. The obligations and liabilities of
MPG could have a material adverse effect on our business, financial condition, or results of operations following the
merger. Any such liabilities could substantially reduce our earnings and cash flows or otherwise materially and
adversely affect our business, financial condition, or results of operations following the merger.
The merger may result in a loss of customers, clients, suppliers and strategic alliances.
Some of the customers, clients, suppliers, potential customers or clients or strategic partners of AAM or MPG
may terminate their business relationship with AAM or MPG following the merger. Potential clients, suppliers, or
strategic partners may delay entering into, or decide not to enter into, a business relationship with AAM or MPG
because of the merger. Further, certain of MPG's existing customer contracts may require the purchaser's consent
to the change of control of MPG, and there can be no assurance that such consent will be forthcoming. If customer,
supplier or client relationships or strategic alliances are adversely affected by the merger, our business and financial
performance following the merger could suffer.
Item 1B. Unresolved Staff Comments
None.
22
Item 2.
Properties
We operate in 13 countries and have 36 manufacturing, engineering and business office facilities worldwide of
which the principal facilities are:
Name
Three Rivers Manufacturing Facility
Three Rivers, MI ....................................
Colfor Manufacturing, Inc.
Malvern, OH
Minerva, OH ..........................................
MSP Industries
Oxford, MI .............................................
Oxford Forge
Oxford, MI .............................................
AccuGear, Inc.
Fort Wayne, IN ......................................
Auburn Hills Manufacturing, Inc.
Auburn Hills, MI ....................................
Rochester Manufacturing Facility
Rochester, IN ........................................
Guanajuato Manufacturing Complex
Guanajuato, Mexico ..............................
Type of
Interest
Owned
Owned
Function
Front and rear axles, rear drive modules, power
transfer units and steering linkages
Forged products
Forged and machined products, rear axles and
stabilizer bars
Leased
Forged and machined products
Owned
Forged products
Owned
Forged and machined products
Owned
Forged and machined products, tool manufacturer
Owned Machined products
Owned
Front and rear axles, driveshafts, front auxiliary
driveshafts, forging products, rear drive modules,
power transfer units and transfer cases
Silao Manufacturing Facility
Leased
Machined products
Silao, Mexico .........................................
AccuGear - Silao
Silao, Mexico ........................................
Araucária Manufacturing Facility
Araucária, Brazil ....................................
Rayong Manufacturing Facility
Rayong, Thailand...................................
Albion Automotive
Glasgow, Scotland ................................
Changshu Manufacturing Facility
Changshu, China ..................................
Pune Manufacturing Facility
Pune, India ............................................
Chennai Manufacturing Facility
Chennai, India .......................................
Swidnica Manufacturing Facility
Swidnica, Poland ..................................
World Headquarters
Detroit, MI ..............................................
Advanced Technology Development Center
Detroit, MI ..............................................
Owned
Forged and machined products
Owned
Front and rear axles, machining of forged and cast
products and constant velocity joints
Owned
Front and rear axles and driveshafts
Leased
Owned
Front and rear axles for medium and heavy-duty
trucks and buses and transfer cases
Independent rear drive axles, rear drive modules,
power transfer units, gear sets and machined cases
Owned
Rear axles and driveheads
Owned
Assembly of front and rear axles
Owned
Owned
Leased
Front and rear drive units, transmission differentials
and machined products
Executive and administrative offices and
engineering
Technology benchmarking, prototypes, advanced
technology development, supplier collaboration,
customer showcasing and associate training
Technical Center
Rochester Hills, MI.................................
Owned
R&D, design engineering, metallurgy, testing and
validation
We believe that our property and equipment is properly maintained and in good operating condition. We will
continue to evaluate capacity requirements in light of current and projected market conditions. We also intend to
continue redeploying assets in order to increase our capacity utilization and reduce future capital expenditures to
support program launches.
23
Item 3.
Legal Proceedings
We are involved in various legal proceedings incidental to our business. Although the outcome of these matters
cannot be predicted with certainty, we do not believe that any of these matters, individually or in the aggregate, will
have a material 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 will continue to make, capital and other
expenditures to comply with environmental requirements, including recurring administrative costs. Such
expenditures were not significant in 2016, 2015 and 2014.
Item 4.
Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock, par value $0.01 per share, is listed for trading on the New York Stock Exchange (NYSE)
under the symbol “AXL.”
Stockholders and High and Low Sales Prices
2016
2015
High .......... $
Low ........... $
High .......... $
Low ........... $
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Full Year
18.52 $
11.75 $
25.86 $
22.20 $
16.97 $
13.76 $
26.04 $
20.91 $
18.00 $
14.32 $
21.45 $
19.06 $
19.51 $
13.45 $
22.76 $
18.64 $
19.51
11.75
26.04
18.64
Prices are the quarterly high and low closing sales prices for our common stock as reported by the NYSE. We
had approximately 238 stockholders of record as of February 8, 2017.
Dividends
We did not declare or pay any cash dividends on our common stock in 2016. Our revolving credit agreement
limits our ability to declare or pay dividends or distributions on capital stock.
24
Issuer Purchases of Equity Securities
On May 5, 2016, AAM's Board of Directors authorized a share repurchase program of up to $100 million of
AAM's common shares through December 31, 2018 as part of AAM's overall capital allocation strategy. The
repurchase of shares may be made in the open market or in privately negotiated transactions and will be funded
through available cash balances and cash flow from operations. The timing and amount of any share repurchases
will be determined based on market and economic conditions, share price, alternative uses of capital and other
factors. During the second quarter of 2016, we completed an initial share repurchase of 100,000 shares for $1.5
million under the program. As of December 31, 2016 there is approximately $98.5 million available for repurchase.
We did not withhold or repurchase any shares of AAM stock in the fourth quarter of 2016.
Securities Authorized for Issuance under Equity Compensation Plans
The information regarding our securities authorized for issuance under equity compensation plans is
incorporated by reference from our Proxy Statement.
25
Item 6. Selected Financial Data
FIVE YEAR CONSOLIDATED FINANCIAL SUMMARY
Year Ended December 31,
2016
2015
2014
2013
2012
(in millions, except per share data)
3,948.0
726.1
$
3,903.1
635.4
$ 3,696.0
522.8
$ 3,207.3
478.7
$ 2,930.9
439.2
Statement of income data
Net sales ...................................................................... $
Gross profit ..................................................................
Selling, general and
administrative expenses ............................................
Restructuring and acquisition-related costs..................
Operating income .........................................................
Net interest expense ....................................................
Net income ...................................................................
Net income attributable to AAM ....................................
Diluted earnings per share ........................................... $
319.2
26.2
380.7
(90.5)
240.7
240.7
3.06
(a)
(a)
Balance sheet data
Cash and cash equivalents .......................................... $
Total assets ..................................................................
Total long-term debt, net ..............................................
Total AAM stockholders' equity (deficit)........................
Dividends declared per share ......................................
481.2
3,448.1
1,400.9
530.0
—
Statement of cash flows data
Cash provided by (used in) operating
activities .................................................................... $
Cash used in investing activities ..................................
Cash provided by (used in) financing
activities ....................................................................
Other data
Depreciation and amortization ..................................... $
Capital expenditures ....................................................
Proceeds from government grants ...............................
Purchase buyouts of leased equipment .......................
Proceeds from sale-leaseback of equipment ...............
407.6
(227.7)
18.4
201.8
223.0
2.8
4.6
—
277.3
—
358.1
(96.6)
235.6
235.6
3.02
(b)
(b)
282.5
3,202.7
1,375.7
301.5
—
255.2
—
267.6
(97.8)
143.0
143.0
1.85
(c)
(c)
249.2
3,240.4
1,504.6
113.4
—
$
$
238.4
—
240.3
(115.3)
94.5
94.5
1.23
(b)
(b)
154.0
3,005.4
1,537.0
40.5
—
$
$
$
$
$
377.6
$
318.4
$
(188.1)
(143.6)
(195.3)
(21.4)
245.5 (f)
(f)
(213.7)
61.3 (f)
$
198.4
193.5
5.1
—
—
$
199.9
206.5
2.1
—
—
$
177.0
251.9
—
—
24.1
(b)(d)(e)
(b)(d)(e)
242.2
40.6
156.4
(101.0)
366.7
367.7
4.87
62.4
2,843.5
1,433.1
(113.9)
—
(157.2) (f)
(185.4)
235.2 (f)
152.2
207.6
—
—
12.1
$
$
$
$
(a)
Includes acquisition and integration related charges of $7.1 million, net of tax, asset impairment and plant closure costs of $4.7 million
and implementation costs, including professional expenses, relating to restructuring of $6.6 million, net of tax.
(b)
Includes charges of $0.5 million, net of tax, in 2015, $35.1 million, net of tax, in 2013, and $19.8 million in 2012 related to debt
refinancing and redemption costs.
(c)
Includes a settlement charge of $23.1 million, net of tax, related to our terminated vested lump-sum pension payout in the U.S.
(d)
Includes net special charges, curtailment gains, asset impairments and asset redeployment and other restructuring costs associated
with plant closures of $26.4 million, net of tax.
(e)
Includes the impact of the reversal of our valuation allowance on U.S. federal deferred tax assets of $337.5 million in the fourth
quarter of 2012.
(f) These amounts have been adjusted to reflect the impact of retrospectively adopting the new cash flow classification guidance in
Accounting Standards Update 2016-15, as described in Item 8. Financial Statements and Supplementary Data - Note 1 - Organization
and Summary of Significant Accounting Policies. In 2013, we made cash payments of $27.5 million for redemption premiums, tender
premiums and professional fees associated with the repayment of our remaining 9.25% Notes and 7.875% Notes. These cash
payments were classified within operating activities in 2013 and the table above reflects reclassification of these payments to
financing activities as required by ASU 2016-15. Also in 2013, we received $5.0 million as the beneficiary of a key man life insurance
policy upon the passing of our Co-Founder and former Executive Chairman of the Board of Directors. This cash receipt was classified
within operating activities in 2013 and the table above reflects reclassification of the cash receipt to investing activities as required by
ASU 2016-15. In 2012, we made cash payments of $18.3 million for redemption premiums, tender premiums, make-whole premiums
and professional fees associated with the repayment of a portion of our 9.25% Notes and all of our remaining 5.25% Notes. These
cash payments were classified within operating activities in 2012 and the table above reflects reclassification of these payments to
financing activities as required by ASU 2016-15.
26
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
COMPANY OVERVIEW
American Axle & Manufacturing Holdings, Inc. (Holdings) and its subsidiaries (collectively, we, our, us or AAM)
is a global Tier I supplier to the automotive industry. We manufacture, engineer, design and validate driveline and
drivetrain systems and related components and chassis modules for light trucks, sport utility vehicles (SUVs),
crossover vehicles, passenger cars and commercial vehicles. Driveline and drivetrain systems include components
that transfer power from the transmission and deliver it to the drive wheels. Our driveline, drivetrain and related
products include axles, chassis modules, driveshafts, power transfer units, transfer cases, chassis and steering
components, driveheads, transmission parts, electric drive systems and metal-formed products. In addition to
locations in the United States (U.S.) (Michigan, Ohio and Indiana), we also have offices or facilities in Brazil, China,
Germany, India, Japan, Luxembourg, Mexico, Poland, Scotland, South Korea, Sweden and Thailand.
We are the principal 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 substantially all of GM's rear
axle and four-wheel drive and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. Sales to
GM were approximately 67% of our consolidated net sales in 2016, 66% in 2015, and 68% in 2014.
We are the sole-source supplier to GM for certain axles and other driveline products for the life of each GM
vehicle program covered by Lifetime Program Contracts and Long Term Program Contracts (collectively, LPCs).
Substantially all of our sales to GM are made under purchase orders pursuant to the LPCs. The LPCs have terms
equal to the lives of the relevant vehicle programs or their respective derivatives, which typically run five to seven
years, and require us to remain competitive with respect to technology, design, quality and cost.
We also supply driveline system products for 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. Sales to FCA were
approximately 18% of our consolidated net sales in 2016, 20% in 2015 and 18% in 2014. In addition to GM and
FCA, we supply driveline systems and other related components to Nissan Motor Co., Ltd. (Nissan), Mercedes-
Benz, Volkswagen AG (Volkswagen), Audi AG (Audi), Jaguar Land Rover Automotive PLC (JLR), Honda Motor Co.,
Ltd., Ford Motor Company (Ford), PACCAR Inc., Daimler Truck, AB Volvo (Volvo), Harley-Davidson Inc. and other
original equipment manufacturers (OEMs) and Tier I supplier companies such as Jatco Ltd. and Hino Motors Ltd.
Our consolidated net sales to customers other than GM were $1,287.8 million in 2016 as compared to $1,317.1
million in 2015 and $1,199.9 million in 2014.
Our pending acquisition of Metaldyne Performance Group Inc. (MPG) is expected to significantly increase
diversification in our product portfolio, as well as accelerate customer diversification initiatives. Upon successful
consummation of the acquisition, sales to GM and FCA as a percentage of consolidated net sales are expected to
be reduced.
INDUSTRY TRENDS
There are a number of significant trends affecting the highly competitive global automotive industry. Intense
competition, volatility in fuel, steel, metallic and other commodity prices and significant pricing pressures remain. At
the same time, the industry is intently focused on investing in future products that will incorporate the latest
technology, meet changing customer demands and comply with more stringent government regulations. The
continued advancement of technology and product innovation, as well as the capability to source programs on a
global basis, are critical to attracting and retaining business in the global automotive industry.
MORE STRINGENT GOVERNMENT REGULATIONS FOR FUEL EFFICIENCY AND EMISSIONS
REDUCTIONS With a focus on environmental legislation and regulation, there has been an increased demand for
technologies designed to help reduce emissions, increase fuel economy and minimize the environmental impact of
vehicles. The U.S. CAFE standards for cars and light-duty trucks currently require the equivalent of 54.5 miles per
gallon by 2025. As a result, OEMs and suppliers are competing to develop and market new and alternative
technologies, such as electric vehicles, hybrid vehicles, fuel cells, and fuel-efficient diesel engines. At the same
time, OEMs and suppliers are improving driveline systems to increase fuel economy and reduce emissions through
lightweighting and efficiency initiatives.
27
We are responding to the increases in CAFE standards with ongoing research and development (R&D) efforts
that focus on fuel economy, emissions reductions and environmental improvements. These efforts have led to new
business awards for products that support AWD and RWD crossover vehicles and passenger cars and further
position us to compete in the marketplace. We are continuing to invest in the development of advanced products
focused on fuel economy, mass reductions, vehicle safety and performance by integrating electronics and
technology. Approximately 80% of AAM's new and incremental business backlog launching from 2017 to 2019,
which is an estimated $875 million, relates to AAM's newest AWD systems for crossover vehicles and passenger
cars. AAM's EcoTrac® Disconnecting AWD system technology seamlessly engages AWD functionality while
improving fuel efficiency and reducing CO2 emissions. Our e-AAM™ hybrid and electric driveline systems are
designed to improve fuel efficiency by up to 30%, reduce CO2 emissions and provide AWD capability with the
additional benefit of improved vehicle stability when compared to traditional mechanical AWD systems.
AAM has established a high-efficiency product portfolio that is designed to improve axle efficiency and fuel
economy through innovative product design technology. Our lineup of high-efficiency axles for rear-wheel drive and
AWD applications and our high efficiency rear-drive module are featured on multiple award winning vehicles.
Through the development of our EcoTrac® Disconnecting AWD system, our e-AAM™ hybrid and electric driveline
systems, our QuantumTM lightweight axle technology, our high efficiency axles, PowerLite® axles and PowerDense®
gears, we have significantly advanced our efforts to improve fuel efficiency and safety, ride and handling
performance while reducing emissions and mass.
In addition to AAM's organic growth in technology and processes, our pending acquisition of MPG provides a
significant opportunity for AAM to leverage complementary technologies, expand our product portfolio, significantly
diversify our global customer base, and strengthen our long-term financial profile through greater scale. The
anticipated synergies of this acquisition are expected to enhance AAM's ability to compete in today's technological
and regulatory environment, while remaining cost competitive through increased scale and integration.
INCREASE IN DEMAND FOR ELECTRONIC INTEGRATION The electronic content of vehicles continues to
expand, largely driven by consumer demand for greater vehicle performance, enhanced functionality, and
affordable convenience options. As electronic components become an increasingly larger focus for OEMs and
suppliers, the industry will likely continue to see the addition of new market entrants from non-traditional automotive
companies, including increased competition from technology companies. An area of focus will be the product
development cycle and bridging the gap between the shorter development cycles of IT hardware and software and
the longer development cycles of traditional powertrain components. AAM's Mechatronics Technical Center in
Michigan is a facility dedicated to the engineering, design and development of driveline systems that include
electronic components. In addition, AAM's product portfolio including e-AAM™ hybrid and electric driveline systems,
EcoTrac® Disconnecting AWD system, VecTrac™ Torque Vectoring Technology and TracRite® Differential
Technology, are examples of AAM's enhanced capabilities in electronic integration.
GLOBAL AUTOMOTIVE PRODUCTION AND INDUSTRY CONSOLIDATION Asia and Eastern Europe
continue to be an area of focus for automotive capital investment as well as strategic regions for innovation and
new product development. As our customers continue to design their products for global markets, they will continue
to require global support from their suppliers. For this reason, it is critical that suppliers maintain a global presence
in these markets in order to compete for new contracts. Over the past several years, we increased our global
installed capacity to support current programs and future opportunities, including expansion in the emerging
markets of China, Poland, and Thailand. We also have engineering offices around the world to support our global
locations. As we continue to diversify our product portfolio, we plan to increase our investment in these resources
in order to provide technical solutions to our customers on a regional basis.
The cyclical nature of the automotive industry, volatile oil prices, and the shifting demands of consumer
preference and regulatory requirements, require OEMs and suppliers to remain agile with regard to product
development and global capability. A critical objective for OEMs and suppliers will be the ability to meet these
global demands while effectively managing costs. OEMs and suppliers are preparing for these challenges through
merger and acquisition activity, development of strategic partnerships and reduction of vehicle platform complexity.
In order to effectively drive technology development, recognize cost synergies, and increase global footprint, the
industry may continue to see consolidation in the supply base as companies recognize and respond to the need for
scalability. AAM's pending acquisition of MPG is a critical step in achieving the aforementioned objectives.
28
OEM RECALLS AND WARRANTY PROGRAMS An unprecedented level of vehicle recalls occurred over the
past several years, which resulted in increased attention on the automotive industry and, consequently, pressure
from legislators, media, regulators and the public. There is a continuing focus by the National Highway
Transportation Safety Administration, Environmental Protection Agency, automakers, the media, and consumers to
demand a higher level of vehicle safety and regulatory compliance, which has resulted in a trend of increased recall
activity. Further, there has been a notable rise in supplier identification related to these recalls. In an attempt to
reduce warranty costs per vehicle, OEMs are increasing their efforts to have suppliers share the burden of these
increasing warranty costs. This trend places additional pressure on the need for robust quality systems throughout
the supply chain and may also increase warranty related expenditures for the supply base. As part of our ongoing
commitment to deliver industry leading quality, we have recently implemented an enhanced internal quality
assurance system that drives continuous improvement to not only meet but exceed the growing expectations of our
OEM customers.
EVOLUTION OF THE AUTOMOTIVE INDUSTRY AS DEMAND FOR CAR-SHARING, RIDE-SHARING AND
AUTONOMOUS VEHICLES INCREASES OEMs are increasingly focused on offering their own car-sharing rental
businesses and ride-sharing services in addition to selling vehicles. Car-sharing typically allows consumers to rent
a car for a short period of time, while ride-sharing matches people to available carpools or other services that
provide on-demand rides with the use of an online application. With continued urbanization, population growth and
increased government regulations to ease congestion, it is expected that the markets for these services will
continue to grow. As such, many OEMs are exploring and expanding their own car-sharing and ride-sharing efforts.
Another trend developing is the expectation that autonomous, self-driving cars will become more common with
continued advancements in technology. Autonomous vehicles present many possible benefits, such as a reduction
in deadly traffic collisions caused by human error and reduced traffic congestion, but there are also foreseeable
challenges such as liability for damage and software reliability. The increased integration of electronics that will
likely be required in autonomous vehicle developments will provide an opportunity for suppliers, such as AAM, with
advanced capabilities in this area to be competitive in this expanding market.
RESULTS OF OPERATIONS
NET SALES Net sales increased to $3,948.0 million in 2016 as compared to $3,903.1 million in 2015 and
$3,696.0 million in 2014.
The increase in sales in 2016, as compared to 2015, primarily reflects an increase of approximately 8% in
production volumes for the North American light truck and SUV programs we currently support, which was partially
offset by a reduction of approximately $51.0 million in commercial vehicle sales due to an expired program, and
reductions in both metal market pass-throughs to our customers and the impact of foreign exchange related to
translation adjustments.
The increase in sales in 2015, as compared to 2014, primarily reflects an increase of approximately 5% in
production volumes for the North American light truck and SUV programs we currently support, which was partially
offset by a reduction in metal market pass throughs to our customers and foreign exchange related to translation
adjustments. The increase in sales in 2015 also reflects higher sales supporting a global crossover program for GM
and a passenger car driveshaft program for FCA, both of which launched in the second half of 2014.
Our content-per-vehicle (CPV) (as measured by the dollar value of our products supporting our customers'
North American light truck and SUV programs) was $1,617 in 2016, as compared to $1,645 in 2015 and $1,667 in
2014. The change in CPV in 2016 as compared to 2015, relates primarily to the reduction in metal market pass-
throughs to our customers, as well as the impact of annual productivity price-downs for certain programs. The
change in CPV in 2015 as compared to 2014, relates primarily to the reduction in metal market pass throughs to our
customers.
Our 4WD/AWD penetration rate was 71% in 2016 and 2015, as compared to 69% in 2014. We define 4WD/
AWD penetration as the total number of front axles we produce divided by the total number of rear axles we
produce for the vehicle programs we support.
29
COST OF GOODS SOLD Cost of goods sold decreased to $3,221.9 million in 2016 as compared to $3,267.7
million in 2015 and $3,173.2 million in 2014. The change in cost of goods sold reflects a net reduction of
approximately $6.0 million related to an increase in sales volumes and a product mix change in 2016, as compared
to 2015, that was more than offset by the impact of lower net manufacturing costs, including the impact of foreign
exchange, lower warranty expense, and productivity initiatives. Cost of goods sold was also impacted by a
reduction of approximately $39.0 million related to metal market pass-through costs and foreign exchange related to
translation adjustments.
The change in cost of goods sold in 2015, as compared to 2014, reflects the impact of an increase in sales
volumes in 2015, as compared to 2014, partially offset by a reduction related to metal market pass-through costs
and foreign exchange related to translation adjustments.
Materials costs as a percentage of total cost of goods sold were approximately 68% in 2016 and 2015, and
69% in 2014.
GROSS PROFIT Gross profit increased to $726.1 million in 2016 as compared to $635.4 million in 2015 and
$522.8 million in 2014. Gross margin was 18.4% in 2016 as compared to 16.3% in 2015 and 14.1% in 2014. The
increase in gross profit in 2016, as compared to 2015, reflects the benefit of increased contribution margin on
higher production volumes for the North American light truck and SUV programs that we support.
The increase in gross profit in 2015 as compared to 2014, primarily reflects the benefit of higher contribution
margin on increased sales, partially offset by higher warranty and incentive compensation accruals.
Gross profit and gross margin were also impacted by the other factors discussed in Net Sales and Cost of
Goods Sold above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) SG&A (including R&D) was $319.2 million
in 2016 as compared to $277.3 million in 2015 and $255.2 million in 2014. SG&A as a percentage of net sales was
8.1% in 2016, 7.1% in 2015 and 6.9% in 2014. R&D spending in product, process and systems was $139.8 million
in 2016 as compared to $113.9 million in 2015 and $103.9 million in 2014. The change in SG&A in 2016, as
compared to 2015, is primarily due to higher R&D expense and higher incentive compensation accruals.
The change in SG&A in 2015 as compared to 2014 was primarily due to higher R&D expense, increases in our
salaried workforce and higher incentive compensation accruals.
RESTRUCTURING AND ACQUISITION-RELATED COSTS Restructuring and acquisition related costs were
$26.2 million in 2016 and we did not incur any such costs in 2015 or 2014. In the fourth quarter of 2016, AAM
initiated actions under a global restructuring program focusing on creating a more streamlined organization in
addition to reducing our cost structure and preparing for upcoming acquisition integration activities. As part of our
restructuring actions, we incurred severance charges of approximately $0.6 million, as well as other implementation
costs, including professional fees, of approximately $10.2 million in 2016. We expect to incur approximately $20 to
$25 million of additional charges under our global restructuring program in 2017.
In the third quarter of 2016, we identified an indicator of impairment at our Pantnagar Manufacturing Facility in
India due to changes in forecasted cash flows. Accordingly, we performed an assessment of the recoverability of
these assets and, as a result, recorded an impairment charge of $3.4 million to write the assets down to fair value.
In the fourth quarter of 2016, we recorded an additional charge of $1.1 million relating to the announced closure of
the facility.
On November 3, 2016, AAM announced entry into a definitive merger agreement with MPG. As part of our
pending acquisition of MPG and other strategic initiatives, we incurred expense of approximately $10.9 million
primarily related to legal and other pre-merger integration activities in the second half of 2016. We expect to incur
additional acquisition and integration related charges of approximately $40 million in 2017 in conjunction with our
pending acquisition of MPG and other strategic initiatives.
30
OPERATING INCOME Operating income increased to $380.7 million in 2016 as compared to $358.1 million in
2015 and $267.6 million in 2014. Operating margin increased to 9.6% in 2016 as compared to 9.2% in 2015 and
7.2% in 2014. The changes in operating income and operating margin in 2016, 2015 and 2014 were due to the
factors discussed in Net Sales, Cost of Goods Sold, Gross Profit and SG&A.
INTEREST EXPENSE Interest expense was $93.4 million in 2016, $99.2 million in 2015 and $99.9 million in
2014. The decrease in interest expense in 2016, as compared to 2015, reflects the decrease in our average
outstanding borrowings due to our voluntary election to prepay the outstanding principal balance on our term facility
in the fourth quarter of 2015.
The weighted-average interest rate of our total debt outstanding was 6.6% in 2016 and 6.3% in both 2015 and
2014.
INVESTMENT INCOME Investment income was $2.9 million in 2016, $2.6 million in 2015, and $2.1 million in
2014. Investment income includes interest earned on cash and cash equivalents during the period.
OTHER INCOME (EXPENSE) Following are the components of Other Income (Expense) for 2016, 2015 and
2014:
Debt refinancing and redemption costs In 2015, we expensed $0.8 million of unamortized debt issuance
costs related to a voluntary election to prepay our outstanding term facility.
Other, net Other, net, which includes the net effect of foreign exchange gains and losses and our proportionate
share of earnings from equity in unconsolidated subsidiaries, was income of $8.8 million in 2016, $12.0 million in
2015, and $6.9 million in 2014.
INCOME TAX EXPENSE Income tax expense was $58.3 million in 2016, $37.1 million in 2015, and $33.7
million in 2014. Our effective income tax rate was 19.5% in 2016 as compared to 13.6% in 2015 and 19.1% in
2014.
Our income tax expense and effective tax rate for 2016, 2015 and 2014, as compared to the U.S. federal
statutory rate of 35%, primarily reflect favorable foreign tax rates, partially offset by our inability to realize a tax
benefit for current foreign losses. Our effective tax rate for 2016 is higher than our effective tax rate for 2015
primarily due to the impact of an $11.5 million reduction in tax expense related to uncertain tax positions attributable
to transfer pricing in the fourth quarter of 2015.
In 2014, we recorded tax expense of $23.1 million for changes to prior year uncertain tax positions related to
transfer pricing and expense of $3.4 million for a change in estimate for U.S. tax on unremitted foreign earnings.
We also recorded a net tax benefit of $20.1 million in 2014 related to our ability to utilize tax credits in future periods
resulting in the recognition of a deferred tax asset.
As of December 31, 2016 and 2015, we have a valuation allowance of $164.8 million and $167.3 million,
respectively, related to net deferred tax assets in several foreign jurisdictions and U.S. state and local jurisdictions.
NET INCOME AND EARNINGS PER SHARE (EPS) Net income was $240.7 million in 2016 as compared to
$235.6 million in 2015 and $143.0 million in 2014. Diluted earnings per share was $3.06 in 2016 as compared to
$3.02 per share in 2015 and $1.85 per share in 2014. Net Income and EPS were primarily impacted by the factors
discussed in Net Sales, Cost of Goods Sold, SG&A, Restructuring and Acquisition-Related Costs and Income Tax
Expense.
31
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund capital expenditures, debt service obligations and our working capital
requirements, in addition to ongoing strategic initiatives. We believe that operating cash flow, available cash and
cash equivalent balances and available committed borrowing capacity under our revolving credit facility will be
sufficient to meet these needs.
As a result of our pending acquisition of Metaldyne Performance Group Inc. (MPG), we expect to incur
significant new indebtedness to fund the cash consideration payable in connection with the merger, related fees and
expenses, to refinance any indebtedness outstanding under the existing AAM senior secured revolving credit facility
and certain existing indebtedness of MPG, and for general corporate purposes.
OPERATING ACTIVITIES Net cash provided by operating activities increased to $407.6 million in 2016 as
compared to $377.6 million in 2015 and $318.4 million in 2014. The following factors impacted cash provided by
operating activities:
Pension and Other Postretirement Benefits (OPEB) Due to the availability of our prefunded pension
balances related to our U.S. pension plans, we were not required to make any cash payments in 2016, 2015 or
2014 to satisfy our regulatory funding requirements, nor do we expect to make any cash payments in 2017. In 2015,
we voluntarily contributed $18.3 million to our U.K. pension trust to satisfy our estimated U.K. regulatory funding
requirements for 2016 through 2018. Our annual pension charge, including settlements was income of $5.0 million
in 2016, income of $4.3 million in 2015 and expense of $32.0 million in 2014, respectively.
Our cash outlay for OPEB, net of GM cost sharing, was $17.0 million in 2016, $14.2 million in 2015, and $11.8
million in 2014. This compares to our annual postretirement cost of $12.1 million in 2016, $13.5 million in 2015, and
$13.4 million in 2014. We expect our cash outlay for other postretirement benefit obligations in 2017, net of GM
cost sharing, to be approximately $16 million.
In 2014, we offered a voluntary one-time lump sum payment option to certain eligible terminated vested
participants in our U.S. pension plans that settled our pension obligations to them. The lump sum settlements,
which were paid from plan assets, reduced our liabilities and administrative costs going forward.
In total, 3,335 participants accepted the offer and we made a one-time lump sum payment from our pension
trust of $104.2 million in 2014. As a result of this settlement, we remeasured the assets and liabilities of our U.S.
pension plans, which reduced our projected benefit obligation by $131.1 million and resulted in a non-cash charge
of $35.5 million in 2014 related to the accelerated recognition of certain deferred losses.
Deferred revenue During the fourth quarter of 2016, we reached an agreement with a customer to increase
installed capacity for a program we support. In the fourth quarter of 2016, we received $20.0 million associated with
this capacity increase and recorded the payment as deferred revenue, classified as a noncurrent liability on our
Consolidated Balance Sheet.
In 2014, we reached an agreement with a customer to increase installed capacity and adjust product mix for our
largest vehicle program. As a result of this agreement, we received $32.8 million in 2014 and recorded the
payments as deferred revenue. We recognized revenue related to this agreement of $6.9 million in 2016 and 2015,
and $5.4 million in 2014. As of December 31, 2016, we have $6.9 million of deferred revenue that is classified as a
current liability and $6.9 million of deferred revenue that is recorded as a noncurrent liability on our Consolidated
Balance Sheet.
Also in 2014, we reached an agreement with a customer to recover certain costs related to the delay of a major
product program. We received $9.3 million in 2014 related to this agreement which was recorded as deferred
revenue. We began recognizing this deferred revenue as revenue in the third quarter of 2014 when this program
launched in certain markets. We recognized revenue related to this agreement of $1.1 million in 2016 and 2015,
and $0.5 million in 2014. As of December 31, 2016, we have recorded deferred revenue of $6.6 million, $1.1 million
of which is classified as a current liability and $5.5 million which is recorded as a noncurrent liability on our
Consolidated Balance Sheet.
32
Inventories At year-end 2016, inventories were $219.5 million as compared to $230.5 million at year-end
2015 and $248.8 million at year-end 2014. The decrease in inventory in 2016, as compared to 2015, primarily
reflects the impact of inventory reduction initiatives, as well as the reduction of inventory at certain facilities as a
result of expiring programs. The decrease in inventory in 2015, as compared to 2014, primarily reflects a reduction
in steel costs, foreign exchange and inventory reduction initiatives.
Accounts receivable Accounts receivable at year-end 2016 were $560.0 million as compared to $539.1
million at year-end 2015 and $532.7 million at year-end 2014.
Interest paid Interest paid in 2016 was $87.2 million as compared to $93.8 million in 2015 and $91.1 million in
2014. The decrease in interest paid in 2016, as compared to 2015, primarily relates to our voluntary election to
prepay the outstanding principal balance on our term facility in the fourth quarter of 2015.
Accounts payable At year-end 2016, accounts payable were $382.3 million as compared to $412.7 million at
year-end 2015 and $444.3 million at year-end 2014. The decreases in our year-end 2016 accounts payable
balance, as compared to 2015, as well as our year-end 2015 accounts payable balance, as compared to 2014,
were primarily due to a reduction in inventory levels and the timing of payments made to suppliers.
Income taxes In January 2016, we completed negotiations with the Mexican tax authorities to settle 2007
through 2009 transfer pricing audits. We made a payment of $22.9 million in January 2016 that fully satisfied our
obligations for transfer pricing issues for tax years 2007 through 2013. Including these settlements, we made
payments of approximately $28 million in 2016 to the Mexican tax authorities related to transfer pricing matters.
Sales and production volumes Cash provided by operating activities was favorably impacted by higher
profits related to an increase in sales and production activity in 2015 as compared to 2014.
Restructuring and Acquisition-Related Costs In 2017, we expect to incur $20 to $25 million of cash charges
under our global restructuring program, as well as acquisition and integration related cash charges of approximately
$40 million in conjunction with our pending acquisition of MPG and other strategic initiatives.
INVESTING ACTIVITIES Capital expenditures were $223.0 million in 2016, $193.5 million in 2015 and $206.5
million in 2014. Our capital spending primarily supported our significant global program launches within our new
and incremental business backlog, as well as the upgrades to our ERP systems.
We expect our capital spending in 2017 to be in the range of 6.5% to 7% of sales, which includes support for
our global program launches in 2017 and 2018 within our new and incremental business backlog, as well as
program capacity increases and future launches of replacement programs.
In the fourth quarter of 2016, we executed early buyout options to purchase certain leased equipment in the
amount of $4.6 million. We have the ability to exercise additional early buyout options to purchase leased
equipment and we expect our cash outlay associated with these additional early buyout options to be approximately
$13 million in 2017.
We received proceeds of $2.8 million, $5.1 million and $2.1 million in 2016, 2015 and 2014, respectively,
related to a European Union government incentive for capital expenditures related to new technology.
In 2014, we sold our Detroit Manufacturing Complex and received net proceeds of $9.2 million related to this
transaction. For the year ended December 31, 2014, we classified $7.2 million of these proceeds, which represents
the amount related to the land and building for which we will have no future continuing involvement, in the Investing
Activities section of our Consolidated Statement of Cash Flows.
On November 3, 2016, AAM entered into a definitive merger agreement with MPG under which AAM will
acquire MPG for approximately $1.7 billion in cash and stock. Under the terms of the agreement, each share of
MPG's common stock will be converted into the right to receive $13.50 per share in cash and 0.5 of a share of AAM
common stock. We expect the transaction to close in the first half of 2017.
33
FINANCING ACTIVITIES Net cash provided by financing activities was $18.4 million in 2016, and net cash
used in financing activities was $143.6 million and $21.4 million in 2015 and 2014, respectively. Total debt
outstanding, net of debt issuance costs, was $1,404.2 million at year-end 2016, $1,379.0 million at year-end 2015
and 1,517.6 million at year-end 2014. The increase in total debt outstanding, net of debt issuance costs, at year-
end 2016, as compared to year-end 2015, was primarily due to increased borrowings on our foreign credit facilities.
The decrease in total debt outstanding, net of debt issuance costs, at year-end 2015, as compared to year-end
2014, was primarily due to our voluntary election to prepay our term facility in full in 2015.
Revolving Credit Facility and Term Facility As of December 31, 2016, the revolving credit facility provided
up to $523.5 million of revolving bank financing commitments through September 13, 2018. At December 31, 2016,
$507.3 million was available under the revolving credit facility, which reflected a reduction of $16.2 million for
standby letters of credit issued against the facility.
The credit agreement provided for a senior secured term loan A facility in an aggregate principal amount of
$150.0 million (term facility). In 2015, we made principal payments of $142.5 million on our term facility to prepay
all outstanding principal. Upon prepayment, we expensed $0.8 million in 2015 related to the write-off of the
remaining unamortized debt issuance costs related to our term facility that we had been amortizing over the
expected life of the borrowing.
Borrowings under the revolving credit facility and term facility bear interest at rates based on adjusted LIBOR or
an alternate base rate, plus an applicable margin. The applicable margin for LIBOR-based loans will be between
1.5% and 3.0%.
The revolving credit facility is secured on a first priority basis by all or substantially all of the assets of AAM and
each guarantor under the collateral agreement dated as of November 7, 2008, as amended and restated as of
September 13, 2013. In the event AAM achieves investment grade corporate credit ratings from Standard & Poor's
and Moody's, AAM may elect to release all of the collateral from the liens granted pursuant to the collateral
agreement, subject to notice requirements and other conditions.
The revolving credit facility provides back-up liquidity for our foreign credit facilities. We intend to use the
availability of long-term financing under the revolving credit facility 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 Consolidated Balance Sheet.
7.75% Notes In 2011, we issued $200.0 million of 7.75% senior unsecured notes due 2019 (7.75% Notes).
6.625% Notes In 2012, we issued $550.0 million of 6.625% senior unsecured notes due 2022 (6.625% Notes).
Net proceeds from the 6.625% Notes were used to fund the purchase and redemption of $250.0 million of the
outstanding 5.25% senior unsecured notes, including the payment of interest, the redemption of $42.5 million
aggregate principal amount of our 9.25% Notes, certain pension obligations and for other general corporate
purposes.
6.25% Notes In 2013, we issued $400.0 million of 6.25% senior unsecured notes due 2021 (6.25% Notes).
Net proceeds from the 6.25% Notes were used to fund the purchase and redemption of our 7.875% Notes and for
other general corporate purposes. We paid debt issuance costs of $6.6 million in 2013 related to the 6.25% Notes.
5.125% Notes In 2013, we issued $200.0 million of 5.125% senior unsecured notes due 2019 (5.125% Notes).
Net proceeds from the 5.125% Notes were used to redeem the remaining $190.0 million outstanding under our
9.25% Notes. We paid debt issuance costs related to the 5.125% Notes of $0.2 million and $3.1 million in 2014 and
2013, respectively.
Foreign credit facilities We utilize local currency credit facilities to finance the operations of certain foreign
subsidiaries. During 2016, we increased the borrowings on our foreign credit facilities, primarily to fund capital
expenditures and working capital in preparation for the launch of programs in China, which began in the fourth
quarter of 2016. At December 31, 2016, $60.4 million was outstanding under these facilities and an additional
$62.0 million was available.
34
Financing related to the pending acquisition of MPG In connection with the pending acquisition of MPG,
AAM obtained a commitment letter that provides for up to $1.65 billion in senior secured term loan facilities and up
to $800 million in a senior secured revolving credit facility. In addition, AAM intends to issue up to $1.2 billion in
new senior unsecured notes, subject to market conditions. To the extent AAM does not receive gross proceeds of
at least $1.2 billion from such an issuance, the commitment letter also provides for up to $1.2 billion in a senior
unsecured bridge facility.
These financing commitments have been obtained to fund the cash consideration payable in connection with
the merger, related fees and expenses, to refinance any indebtedness outstanding under the existing AAM senior
secured revolving credit facility and certain existing indebtednesses of MPG, and for general corporate purposes.
Credit ratings To access public debt capital markets, the Company relies on credit rating agencies to assign
short-term and long-term credit ratings to our securities as an indicator of credit quality for fixed income investors. A
credit rating agency may change or withdraw its ratings based on its assessment of our current and future ability to
meet interest and principal repayment obligations. Credit ratings affect our cost of borrowing under our revolving
credit facility and may affect our access to debt capital markets and other costs to fund our business. The credit
ratings and outlook currently assigned to our securities by the rating agencies are as follows:
Standard & Poor's ............................
Moody's Investors Services .............
Fitch Ratings ....................................
Corporate Family
Rating
BB-
BA3
BB
Senior Unsecured
Notes Rating
BB-
B1
BB
Outlook
Stable
Under Review for Downgrade
Rating Watch Negative
Dividend program We have not declared or paid any cash dividends on our common stock in 2016, 2015 or
2014.
Stock repurchase We repurchased shares of AAM common stock for $5.2 million, $3.1 million and $0.3
million, in 2016, 2015 and 2014, respectively, to satisfy employee tax withholding obligations due upon the vesting
of restricted stock units and performance shares, as well as an initial share repurchase under the authorized share
repurchase program.
On May 5, 2016, AAM's Board of Directors authorized a share repurchase program of up to $100 million of
AAM's common shares through December 31, 2018 as part of AAM's overall capital allocation strategy. The
repurchase of shares may be made in the open market or in privately negotiated transactions and will be funded
through available cash balances and cash flow from operations. The timing and amount of any share repurchases
will be determined based on market and economic conditions, share price, alternative uses of capital and other
factors. During the second quarter of 2016, we completed an initial share repurchase of 100,000 shares for $1.5
million under the program. As of December 31, 2016 there is approximately $98.5 million available for repurchase.
Exercise of employee stock options We received $0.3 million in 2016, $0.8 million in 2015, and $1.2 million
in 2014 related to the exercise of employee stock options.
Off-balance sheet arrangements Our off-balance sheet financing relates principally to operating leases for
machinery and equipment, commercial office and production facilities, vehicles and other assets with various
expiration dates.
35
Contractual obligations The following table summarizes payments due on our contractual obligations as of
December 31, 2016:
Payments due by period
Current and long-term debt ........................ $
Interest obligations .....................................
Capital lease obligations ............................
Operating leases (1) ........................................
Purchase obligations (2) ..............................
Other long-term liabilities (3) ..........................
Total ........................................................... $
Total
<1yr
1,410.4
$
401.5
5.5
72.4
203.0
605.7
41.5
93.1
1.1
23.7
182.7
59.7
1-3 yrs
(in millions)
418.9
$
168.9
1.9
25.3
20.3
130.7
3-5 yrs
>5 yrs
$
400.0
$
550.0
106.0
1.7
11.5
—
119.4
33.5
0.8
11.9
—
295.9
892.1
2,698.5
$
401.8
$
766.0
$
638.6
$
(1) Operating leases include all lease payments through the end of the contractual lease terms, which includes elections for
repurchase options. These commitments include machinery and equipment, commercial office and production facilities,
vehicles and other assets.
(2) Purchase obligations represent our obligated purchase commitments for capital expenditures and related project
expense.
(3) Other long-term liabilities primarily represent our estimated pension and other postretirement benefit obligations, net of
GM cost sharing, that were actuarially determined through 2026, as well as our unrecognized income tax benefits.
CYCLICALITY AND SEASONALITY
Our operations are cyclical because they are directly related to worldwide automotive production, which is itself
cyclical and dependent on general economic conditions and other factors. Our business is also moderately
seasonal as our major OEM customers historically have an extended shutdown of operations (typically 1-2 weeks)
in conjunction with their model year changeover and an approximate one-week shutdown in December.
Accordingly, our quarterly results may reflect these trends.
LEGAL PROCEEDINGS
We are involved in various legal proceedings incidental to our business. Although the outcome of these matters
cannot be predicted with certainty, we do not believe that any of these matters, individually or in the aggregate, will
have a material adverse effect on our financial condition, results of operations or cash flows.
We are subject to various federal, state, local and foreign environmental and occupational safety and health
laws, regulations and ordinances, including those regulating air emissions, water discharge, waste management
and environmental cleanup. We closely monitor our environmental conditions to ensure that we are in compliance
with applicable laws, regulations and ordinances. We have made, and will continue to make, capital and other
expenditures, including recurring administrative costs, to comply with environmental requirements. Such
expenditures were not significant in 2016, 2015 and 2014.
36
EFFECT OF NEW ACCOUNTING STANDARDS
Accounting Standards Update 2016-16
On October 24, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2016-16 - Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Existing income
tax guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the
asset has been sold to an outside party. This existing guidance is deemed an exception to the principle of
comprehensive recognition of current and deferred income taxes in accounting principles generally accepted in the
United States of America (GAAP). Due to the limited authoritative guidance about this exception, diversity in
practice exists. ASU 2016-16 eliminates this exception for intra-entity transfers of assets other than inventory and
requires that entities recognize the income tax consequences when the transfers occur. This guidance becomes
effective at the beginning of our 2018 fiscal year, however early adoption is permitted. The guidance requires a
modified retrospective transition method. We are currently assessing the impact that this standard will have on our
consolidated financial statements.
Accounting Standards Update 2016-15
On August 26, 2016, the FASB issued ASU 2016-15 - Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments. The update addresses the following eight specific cash flow issues: 1)
debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt
instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing;
3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of
insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies (including bank-owned
life insurance policies); 6) distributions received from equity method investees; 7) beneficial interests in
securitization transactions; and 8) separately identifiable cash flows and application of the predominance principle.
Historically, we have classified certain cash flows related to debt prepayment or debt extinguishment costs as
operating cash flows. Upon adoption, the guidance in ASU 2016-15 requires that these cash flows be classified as
financing cash flows. We do not feel that the adoption of this guidance as it relates to any of the other seven cash
flow issues specified will have a material impact on our Consolidated Statement of Cash Flows.
This guidance becomes effective at the beginning of our 2018 fiscal year, however as permitted, we have
elected to early adopt this standard in the fourth quarter of 2016. As retrospective application of this guidance is
required under the standard, we have updated the information in Item 6, "Selected Financial Data" accordingly. The
retrospective adoption of this guidance did not impact any of the periods presented in the Consolidated Statements
of Cash Flows in the three years ended December 31, 2016.
Accounting Standards Update 2016-09
On March 31, 2016, the FASB issued ASU 2016-09 - Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting. The update is intended to simplify the current
guidance for stock-based compensation for a range of issues including: the timing of income statement impact for
tax benefits or deficiencies in excess of compensation cost, the classification of tax-related cash flows resulting
from share based payments, the allowable threshold for tax withholding without resulting in liability award
classification, and a policy election for estimating forfeiture rates or recognizing forfeitures as they occur. This
guidance becomes effective at the beginning of our 2017 fiscal year, however as permitted, AAM elected to early
adopt this guidance in the fourth quarter of 2016. The guidance requires a retrospective, modified-retrospective, or
prospective transition method depending on the applicable section of the ASU. The effect of implementing this ASU
on our Consolidated Balance Sheet was an increase to our deferred tax assets and retained earnings of $4.8
million as of January 1, 2016, using the modified-retrospective transition method, for the cumulative-effect
adjustment of excess tax benefits that were not previously recognized because the related tax deduction had not
reduced current taxes payable. We have evaluated the aspects of this new guidance and, other than this one-time
increase in deferred tax assets and retained earnings, the adoption of this ASU did not have a material impact on
our accounting for share-based payments.
37
Accounting Standards Update 2016-02
On February 25, 2016, the FASB issued ASU 2016-02 - Leases (Topic 842), which supersedes the existing
lease accounting guidance and establishes new criteria for recognizing lease assets and liabilities. The most
significant impact of the update, to AAM, is that a lessee will be 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 the
existing lease guidance. A lessee will be permitted to make a policy election, excluding recognition of the right-of-
use asset and associated liability for lease terms of 12 months or less. Expense recognition in the statement of
income along with cash flow statement classification for both financing (capital) and operating leases under the new
standard will not be significantly changed from existing lease guidance. This guidance becomes effective for AAM at
the beginning of our 2019 fiscal year and requires transition under a modified retrospective method. We are
currently assessing the impact that this standard will have on our consolidated financial statements.
Accounting Standards Update 2015-07
On May 1, 2015, the FASB issued ASU 2015-07 - Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which changes the
disclosure requirements for investments in certain entities that calculate net asset value (NAV) per share. Under
current accounting standards entities are permitted to estimate the fair value of certain investments using the
investment's NAV as a practical expedient. The current disclosure guidance also permits entities to disclose the
investment at NAV in the fair value hierarchy table as either Level 2 or Level 3, based upon certain criteria. The
measurement basis utilizing NAV is different than the measurement criteria of all other investments which utilize
inputs to calculate fair value. Due to this inconsistency, the FASB issued this ASU which prohibits entities from
categorizing investments measured at NAV within the fair value hierarchy. Other than the change in presentation,
which requires retrospective application, the adoption of this new guidance did not have an impact on our
consolidated financial statements. AAM adopted this policy on January 1, 2016.
Accounting Standards Update 2014-09
In 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers (Topic 606), and has
subsequently issued ASUs 2015-14 - Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
Date, 2016-08 - Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross Versus Net), 2016-10 - Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing, 2016-12 - Revenue from Contracts with Customers (Topic 606): Narrow-
Scope Improvements and Practical Expedients, and 2016-20 - Revenue from Contracts with Customers (Topic
606): Technical Corrections and Improvements to Topic 606 (collectively, the Revenue Recognition ASUs).
The Revenue Recognition ASUs outline a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and supersede most current revenue recognition guidance, including
industry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to
depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a
contract. This guidance is effective for AAM beginning on January 1, 2018 and entities have the option of using
either a full retrospective or a modified retrospective approach for the adoption of the new standard. We are
evaluating whether we will adopt this guidance using the full retrospective or modified retrospective approach.
We are concluding the assessment phase of implementing this guidance. We have evaluated each of the five
steps in the new revenue recognition model, which are as follows: 1) Identify the contract with the customer; 2)
Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction
price to the performance obligations; and 5) Recognize revenue when (or as) performance obligations are satisfied.
Our preliminary conclusion is that the determination of what constitutes a contract with our customers (step 1), our
performance obligations under the contract (step 2), and the determination and allocation of the transaction price
(steps 3 and 4) under the new revenue recognition model will not result in significant changes in comparison to the
current revenue recognition guidance.
38
With regard to recognizing revenue when (or as) a performance obligation is satisfied (step 5), we are
thoroughly reviewing the language in our contracts with each customer to determine whether the customer obtains
control of the goods at a point in time or over time. Under current revenue recognition guidance, we recognize
revenue when products are shipped to our customers and title transfers under standard commercial terms or when
realizable in accordance with our commercial agreements. Topic 606 provides certain criteria that, if met, require
companies to recognize revenue as the product is produced (over time) instead of at a point of time (i.e. upon
shipment). We are evaluating our contracts in the context of the criteria for recognizing revenue over time. If we
conclude that we meet the criteria for recognizing revenue over time, our timing of revenue recognition would be
accelerated, however, as we utilize lean manufacturing principles and deliver to our customers on a just-in-time
basis, we do not expect any acceleration of revenue under the new guidance to be material.
There are also certain considerations related to internal control over financial reporting that are associated with
implementing the new guidance under Topic 606. We are currently evaluating our control framework for revenue
recognition and identifying any changes that may need to be made in response to the new guidance. Disclosure
requirements under the new guidance in Topic 606 have been significantly expanded in comparison to the
disclosure requirements under the current guidance. Designing and implementing the appropriate controls over
gathering and reporting the information required under Topic 606 is currently in process.
CRITICAL ACCOUNTING ESTIMATES
In order to prepare consolidated financial statements in conformity with GAAP, we are required to make
estimates and assumptions that affect the reported amounts and disclosures in our consolidated financial
statements. These estimates are subject to an inherent degree of uncertainty and actual results could differ from
our estimates.
Other items in our consolidated financial statements require estimation. In our judgment, they are not as critical
as those disclosed below. We have discussed and reviewed our critical accounting estimates disclosure with the
Audit Committee of our Board of Directors.
ACCOUNTING FOR ACQUISITIONS On November 3, 2016 we entered into a definitive merger agreement
with Metaldyne Performance Group Inc. (MPG). Upon successful consummation of this merger, we will be subject
to the accounting guidance as prescribed by ASC 805 - Business Combinations. We are required to allocate the
purchase price of an acquired business to its identifiable assets and liabilities based on fair value. The excess
purchase price over the fair value of identifiable assets and liabilities, if any, is recorded as goodwill. Determining
the fair values of assets acquired and liabilities assumed, especially with regards to intangible assets, requires
significant levels of estimates and assumptions made by management. In order to assist management, we utilize
third party valuation experts in determining the fair values.
If the initial accounting for an acquisition is incomplete by the end of the reporting period in which the
acquisition occurs, we record provisional amounts for the incomplete items. We have the ability to make
measurement period adjustments, as necessary, to reflect new information obtained about facts and circumstances
that existed as of the acquisition date that, if known, would have affected the measurement of the amounts
recognized on the date of acquisition. The measurement period ends once we receive the information that was not
obtainable as of the acquisition date, and should not exceed one year from the acquisition date.
PENSION AND OTHER POSTRETIREMENT BENEFITS In calculating our assets, liabilities and expenses
related to pension and OPEB, key assumptions include the discount rate, expected long-term rates of return on
plan assets, mortality projections and rates of increase in health care costs.
The discount rates used in the valuation of our U.S. pension and OPEB obligations were based on an actuarial
review of a hypothetical portfolio of long-term, high quality corporate bonds matched against the expected payment
stream for each of our plans. In 2016, the weighted-average discount rates determined on that basis were 4.15%
for the valuation of our pension benefit obligations and 4.20% for the valuation of our OPEB obligations. The
discount rate used in the valuation of our United Kingdom (U.K.) pension obligation was based on a review of long-
term bonds, including published indices in the applicable market. In 2016, the discount rate determined on that
basis was 2.70%. The expected long-term rates of return on our plan assets were 7.50% for our U.S. plans and
5.00% for our U.K. plan in 2016. We developed these rates of return assumptions based on future capital market
expectations for the asset classes represented within our portfolio and a review of long-term historical returns. The
asset allocation for our plans was developed in consideration of the demographics of the plan participants and
39
expected payment stream of the liability. Our investment policy allocates approximately 30-65% of the U.S. plans'
assets to equity securities, depending on the plan, with the remainder invested in fixed income securities, hedge
fund investments and cash. The rates of increase in health care costs are based on current market conditions,
inflationary expectations and historical information.
All of our assumptions were developed in consultation with our actuarial service providers. While we believe
that we have selected reasonable assumptions for the valuation of our pension and OPEB obligations at year-end
2016, actual trends could result in materially different valuations.
The effect on our pension plans of a 0.5% decrease in both the discount rate and expected return on assets is
shown below as of December 31, 2016, our valuation date.
Decline in funded status .................................................................................... $
Increase in 2016 expense ................................................................................. $
Discount
Rate
Expected
Return on
Assets
(in millions)
49.9
0.5 $
N/A
3.1
No changes in benefit levels or in the amortization of gains or losses have been assumed.
For 2017, we assumed a weighted-average annual increase in the per-capita cost of covered health care
benefits of 6.50% for OPEB. The rate is assumed to decrease gradually to 5.0% by 2023 and remain at that level
thereafter. A 0.5% decrease in the discount rate for our OPEB would have decreased total expense in 2016 and
increased the postretirement obligation, net of GM cost sharing, at December 31, 2016 by $0.5 million and $21.2
million, respectively. A 1.0% increase in the assumed health care trend rate would have increased total service and
interest cost in 2016 and the postretirement obligation, net of GM cost sharing, at December 31, 2016 by $1.5
million and $36.3 million, respectively.
AAM and GM share in the cost of OPEB for eligible retirees proportionally based on the length of service an
employee had with AAM and GM. We estimate the future cost sharing payments and present it as an asset on our
Consolidated Balance Sheet. As of December 31, 2016, we estimated $249.0 million in future GM cost sharing. If,
in the future, GM were unable to fulfill this financial obligation, our OPEB obligations could be different than our
current estimates.
PRODUCT WARRANTY We record a liability and related charge to cost of goods sold for estimated warranty
obligations at the dates our products are sold or when specific warranty issues are identified. Product warranties
not expected to be paid within one year are recorded as a noncurrent liability on our Consolidated Balance Sheet.
Our estimated warranty obligations for products sold are based on significant management estimates, with input
from our warranty, sales, engineering, quality and legal departments. For products and customers with actual
warranty payment experience, we estimate warranty costs principally based on past claims history. For certain
products and customers, actual warranty payment experience does not exist or is not mature. In these cases, we
estimate our costs based on the contractual arrangements with our customers, existing customers' warranty
program terms and internal and external warranty data, which includes a determination of our responsibility for
potential warranty issues or claims and estimates of repair costs. We actively study trends of our warranty claims
and take action 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.
In addition to our ordinary warranty provisions with our customers, we may be responsible for certain costs
associated with product recalls and field actions, which are recorded at the time our obligation is probable and can
be reasonably estimated.
40
Our warranty accrual was $42.9 million as of December 31, 2016 and $36.6 million as of December 31, 2015.
During 2016 and 2015, we made adjustments to our warranty accrual to reflect revised estimates regarding our
projected future warranty obligations. Actual experience could differ from the amounts estimated requiring
adjustments to these liabilities in future periods. It is possible that changes in our assumptions or future warranty
issues could materially affect our financial position and results of operations.
VALUATION OF DEFERRED TAX ASSETS AND OTHER TAX LIABILITIES Because we operate in many
different geographic locations, including several foreign, state and local tax jurisdictions, the evaluation of our ability
to use all recognized deferred tax assets is complex.
We are required to estimate whether recoverability of our deferred tax assets is "more likely than not," based on
forecasts of taxable income in the related tax jurisdictions. In these estimates, we use historical results, projected
future operating results based upon approved business plans, eligible carryforward periods, tax planning
opportunities and other relevant considerations. This includes the consideration of tax law changes, prior
profitability performance and the uncertainty of future projected profitability.
As of December 31, 2016, we have a valuation allowance of approximately $164.8 million related to net
deferred tax assets in several foreign jurisdictions and U.S. state and local jurisdictions. As of December 31, 2015
and 2014, our valuation allowance was $167.3 million and $156.9 million, respectively.
If, in the future, we generate taxable income on a sustained basis in foreign and U.S. state jurisdictions for
which we have recorded valuation allowances, our current estimate of the recoverability of our deferred tax assets
could change and result in the future reversal of some or all of the valuation allowance. While we believe we have
made appropriate valuations of our deferred tax assets, unforeseen changes in tax legislation, regulatory activities,
audit results, operating results, financing strategies, organization structure and other related matters may result in
material changes in our deferred tax asset valuation allowances or our tax liabilities.
We record uncertain tax positions on the basis of a two-step process whereby: (1) we determine whether it is
"more likely than not" that the tax positions will be sustained based on the technical merits of the position: and (2)
for those positions that meet the "more likely than not" recognition threshold, we recognize the largest amount of tax
benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. We
record interest and penalties on uncertain tax positions in income tax expense (benefit).
As of December 31, 2016, 2015 and 2014, we had a liability for unrecognized income tax benefits and related
interest and penalties of $30.7 million, $48.5 million and $59.5 million, respectively. In January 2016, we completed
negotiations with the Mexican tax authorities to settle 2007 through 2009 transfer pricing audits. We made a
payment of $22.9 million in January 2016 that fully satisfied our obligations for transfer pricing issues for tax years
2007 through 2013. Including these settlements, we made payments of $28 million in 2016 to the Mexican tax
authorities related to transfer pricing matters. Based on the status of the Internal Revenue Service (IRS) audits and
audits outside the U.S., 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. Although it is difficult to
estimate with certainty the amount of an audit settlement, we do not expect the settlement amounts will be
materially different from what we have recorded. We will continue to monitor the progress and conclusions of all
ongoing audits and will adjust our estimated liability as necessary.
GOODWILL We record goodwill when the purchase price of acquired businesses exceeds the value of their
identifiable net tangible and intangible assets acquired. We periodically evaluate goodwill for impairment in
accordance with the accounting guidance for goodwill and other indefinite-lived intangibles that are not amortized.
We review our goodwill for impairment annually during the fourth quarter. In addition, we review goodwill for
impairment whenever adverse events or changes in circumstances indicate a possible impairment. This review
utilizes a two-step impairment test which is performed at a consolidated level, as AAM has a single reporting unit.
The first step involves a comparison of the fair value of the reporting unit with its carrying amount, including
goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not
considered impaired and thus the second step of the impairment test is unnecessary. If the carrying amount of the
reporting unit exceeds its fair value, the second step of the process involves a measurement and comparison of the
fair value of goodwill with its carrying amount. If the carrying amount of the reporting unit's goodwill exceeds the fair
value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
41
The determination of our reporting unit and impairment indicators require us to make significant judgments. In
order to approximate the fair value of our reporting unit for purposes of testing recoverability, we use the total
market capitalization of AAM, a market approach, which is then compared to the total carrying amount of AAM.
Under the market approach, the fair value is based on observed market prices. We performed our annual
impairment test in the fourth quarter and determined there was no impairment to goodwill in 2016.
IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, excluding goodwill and other indefinite-lived
intangible assets, to be held and used are reviewed for impairment whenever adverse events or changes in
circumstances indicate a possible impairment. Recoverability of each “held for use” asset group affected by
impairment indicators is determined by comparing the forecasted undiscounted cash flows of the operations to
which the assets relate to their carrying amount. If the carrying amount of an asset group exceeds the
undiscounted cash flows and is therefore nonrecoverable, the assets in this group are written down to their
estimated fair value. We estimate fair value based on market prices, when available, or on a discounted cash flow
analysis. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to
sell. Significant judgments and estimates used by management when evaluating long-lived assets for impairment
include:
• An assessment as to whether an adverse event or circumstance has triggered the need for an impairment
review;
• Determination of asset groups, the primary asset within each group, and the primary asset's average
estimated useful life;
• Undiscounted future cash flows generated by the assets; and
• Determination of fair value when an impairment is deemed to exist, which may require assumptions related to
future general economic conditions, future expected production volumes, product pricing and cost estimates,
working capital and capital investment requirements, discount rates and estimated liquidation values.
42
Forward-Looking Statements
In this MD&A and elsewhere in this Annual Report, we make statements concerning our expectations, beliefs, plans,
objectives, goals, strategies, and future events or performance. Such statements are “forward-looking” statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and relate to trends and events that may affect our future financial
position and operating results. The terms such as “will,” “may,” “could,” “would,” “plan,” “believe,” “expect,” “anticipate,” “intend,”
“project,” "target," and similar words or expressions, as well as statements in future tense, are intended to identify forward-looking
statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be
accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are
based on information available at the time those statements are made and/or management’s good faith belief as of that time with
respect to future events and are subject to risks and may differ materially from those expressed in or suggested by the forward-
looking statements. Important factors that could cause such differences include, but are not limited to:
• reduced purchases of our products by General Motors Company (GM), FCA US LLC (FCA), or other customers;
• reduced demand for our customers' products (particularly light trucks and sport utility vehicles (SUVs) produced by GM
and FCA);
• our ability to develop and produce new products that reflect market demand;
• lower-than-anticipated market acceptance of new or existing products;
• our ability to respond to changes in technology, increased competition or pricing pressures;
• our ability to attract new customers and programs for new products;
• our ability to consummate and integrate acquisitions and joint ventures;
• risks inherent in our international operations (including adverse changes in trade agreements, tariffs, immigration policies,
political stability, taxes and other law changes, potential disruptions of production and supply, and currency rate
fluctuations, including those resulting from the recent United States presidential election and the United Kingdom's vote to
exit the European Union);
• negative or unexpected tax consequences;
• liabilities arising from warranty claims, product recall or field actions, product liability and legal proceedings to which we
are or may become a party, or the impact of product recall or field actions on our customers;
• our ability to achieve the level of cost reductions required to sustain global cost competitiveness;
• supply shortages or price increases in raw materials, utilities or other operating supplies for us or our customers as a
result of natural disasters or otherwise;
• our ability or our customers' and suppliers' ability to successfully launch new product programs on a timely basis;
• our ability to realize the expected revenues from our new and incremental business backlog;
• risks related to a failure of our information technology systems and networks, and risks associated with current and
emerging technology threats and damage from computer viruses, unauthorized access, cyber attack and other similar
disruptions;
• global economic conditions;
• our ability to maintain satisfactory labor relations and avoid work stoppages;
• our suppliers', our customers' and their suppliers' ability to maintain satisfactory labor relations and avoid work stoppages;
• price volatility in, or reduced availability of, fuel;
• our ability to protect our intellectual property and successfully defend against assertions made against us;
• our ability to attract and retain key associates;
• availability of financing for working capital, capital expenditures, research and development (R&D) or other general
corporate purposes including acquisitions, as well as our ability to comply with financial covenants;
• our customers' and suppliers' availability of financing for working capital, capital expenditures, R&D or other general
corporate purposes;
• changes in liabilities arising from pension and other postretirement benefit obligations;
• risks of noncompliance with environmental laws and regulations or risks of environmental issues that could result in
unforeseen costs at our facilities;
• adverse changes in laws, government regulations or market conditions affecting our products or our customers' products
(such as the Corporate Average Fuel Economy (CAFE) regulations);
• our ability or our customers' and suppliers' ability to comply with the Dodd-Frank Act and other regulatory requirements
and the potential costs of such compliance; and
• other unanticipated events and conditions that may hinder our ability to compete.
It is not possible to foresee or identify all such factors and we make no commitment to update any forward-looking statement
or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward-looking
statement.
43
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
MARKET RISK
Our business and financial results are affected by fluctuations in world financial markets, including currency
exchange rates and interest rates. Our hedging policy has been developed to manage these risks to an acceptable
level based on management's judgment of the appropriate trade-off between risk, opportunity and cost. We do not
hold financial instruments for trading or speculative purposes.
CURRENCY EXCHANGE RISK From time to time, we use foreign currency forward contracts to reduce the
effects of fluctuations in exchange rates, primarily relating to the Mexican Peso, Euro, Brazilian Real, British Pound
Sterling, Thai Baht, Swedish Krona, Chinese Yuan and Polish Zloty. At December 31, 2016 and December 31,
2015, we had forward contracts with a notional amount of $156.0 million and $190.0 million outstanding,
respectively. The potential decrease in fair value of foreign exchange contracts, assuming a 10% adverse change
in the foreign currency exchange rates, would be approximately $14.2 million at December 31, 2016 and was
approximately $17.3 million at December 31, 2015.
Future business operations and opportunities, including the expansion of our business outside North America,
may further increase the risk that cash flows resulting from these global operations may be adversely affected by
changes in currency exchange rates. If and when appropriate, we intend to manage these risks by creating hedges
in the structure of our global operations, utilizing local currency funding of these expansions and various types of
foreign exchange contracts.
INTEREST RATE RISK We are exposed to variable interest rates on certain credit facilities. From time to
time, we have used interest rate hedging to reduce the effects of fluctuations in market interest rates. As of
December 31, 2016, there are no interest rate swaps in place. The pre-tax earnings and cash flow impact of a one-
percentage-point increase in interest rates (approximately 15% of our weighted-average interest rate at
December 31, 2016) on our long-term debt outstanding at December 31, 2016 would be approximately $0.6 million
and was approximately $0.3 million at December 31, 2015, on an annualized basis.
44
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Item 8.
Financial Statements and Supplementary Data
Consolidated Statements of Income
Year Ended December 31,
2016
2015
(in millions, except per share data)
2014
Net sales ....................................................................................... $
3,948.0 $
3,903.1 $
3,696.0
Cost of goods sold .........................................................................
3,221.9
3,267.7
3,173.2
Gross profit ....................................................................................
Selling, general and administrative expenses ...............................
Restructuring and acquisition-related costs ...................................
Operating income ..........................................................................
726.1
319.2
26.2
380.7
635.4
277.3
—
522.8
255.2
—
358.1
267.6
Interest expense ............................................................................
(93.4)
(99.2)
(99.9)
Investment income ........................................................................
Other income (expense)
Debt refinancing and redemption costs .....................................
Other, net ..................................................................................
2.9
—
8.8
2.6
(0.8)
12.0
2.1
—
6.9
Income before income taxes .........................................................
299.0
272.7
176.7
Income tax expense ......................................................................
58.3
37.1
33.7
Net income .................................................................................... $
240.7 $
235.6 $
143.0
Basic earnings per share ............................................................... $
3.08 $
3.03 $
Diluted earnings per share ............................................................ $
3.06 $
3.02 $
1.85
1.85
See accompanying notes to consolidated financial statements
45
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
Year Ended December 31,
2016
2015
2014
(in millions)
Net income ................................................................................................. $
240.7 $
235.6 $
143.0
Other comprehensive income (loss)
Defined benefit plans, net of $4.7 million, $(8.5) million and $23.2
million of tax in 2016, 2015 and 2014, respectively ...............................
Foreign currency translation adjustments ..............................................
Changes in cash flow hedges ................................................................
Other comprehensive income (loss) ...........................................................
(19.6)
(3.2)
(10.3)
(33.1)
16.7
(70.3)
(6.0)
(59.6)
(42.7)
(30.3)
(7.7)
(80.7)
Comprehensive income .............................................................................. $
207.6 $
176.0 $
62.3
See accompanying notes to consolidated financial statements
46
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Consolidated Balance Sheets
December 31,
2016
2015
(in millions, except per share data)
Assets
Current assets
Cash and cash equivalents ................................................................................... $
Accounts receivable, net .......................................................................................
Inventories, net .....................................................................................................
Prepaid expenses and other .................................................................................
Total current assets ..................................................................................................
Property, plant and equipment, net ..........................................................................
Deferred income taxes .............................................................................................
Goodwill ...................................................................................................................
GM postretirement cost sharing asset .....................................................................
Other assets and deferred charges ..........................................................................
Total assets .............................................................................................................. $
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt .......................................................................... $
Accounts payable ..................................................................................................
Accrued compensation and benefits .....................................................................
Deferred revenue ..................................................................................................
Other accrued expenses .......................................................................................
Total current liabilities ...............................................................................................
Long-term debt, net ..................................................................................................
Deferred income taxes .............................................................................................
Deferred revenue .....................................................................................................
Postretirement benefits and other long-term liabilities .............................................
Total liabilities ...........................................................................................................
Stockholders' equity
Series A junior participating preferred stock, par value $0.01 per share;
0.1 million shares authorized; no shares outstanding in 2016 or 2015 ................
Preferred stock, par value $0.01 per share; 10.0 million shares
authorized; no shares outstanding in 2016 or 2015 .............................................
Series common stock, par value $0.01 per share; 40.0 million
shares authorized; no shares outstanding in 2016 or 2015 .................................
Common stock, par value $0.01 per share; 150.0 million shares authorized;
83.0 million and 82.3 million shares issued as of December 31, 2016 and
2015, respectively ................................................................................................
Paid-in capital ........................................................................................................
Retained earnings ..................................................................................................
Treasury stock at cost, 6.5 million shares in 2016 and 6.2 million shares in 2015 .
Accumulated other comprehensive loss
481.2 $
560.0
219.5
75.8
1,336.5
1,093.7
356.4
154.0
236.1
271.4
3,448.1 $
3.3 $
382.3
139.3
24.6
102.0
651.5
1,400.9
15.0
70.8
779.9
2,918.1
—
—
—
0.9
660.1
449.7
(191.1)
Defined benefit plans, net of tax ..........................................................................
Foreign currency translation adjustments ...........................................................
Unrecognized loss on cash flow hedges .............................................................
Total stockholders' equity .........................................................................................
Total liabilities and stockholders' equity.................................................................... $
(243.5)
(122.4)
(23.7)
530.0
3,448.1 $
See accompanying notes to consolidated financial statements
47
282.5
539.1
230.5
72.1
1,124.2
1,046.2
373.6
154.4
243.2
261.1
3,202.7
3.3
412.7
128.0
22.9
132.3
699.2
1,375.7
6.8
65.7
753.8
2,901.2
—
—
—
0.8
638.9
204.2
(185.9)
(223.9)
(119.2)
(13.4)
301.5
3,202.7
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Consolidated Statements of Cash Flows
Year Ended December 31,
Operating activities
Net income .................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization .....................................................................
Impairment of property, plant and equipment ...............................................
Deferred income taxes ................................................................................
Stock-based compensation .........................................................................
Pensions and other postretirement benefits, net of contributions .................
Loss (gain) on disposal of property, plant and equipment, net .....................
Debt refinancing and redemption costs ........................................................
Changes in operating assets and liabilities
Accounts receivable ..................................................................................
Inventories ................................................................................................
Accounts payable and accrued expenses .................................................
Deferred revenue ......................................................................................
Other assets and liabilities ........................................................................
Net cash provided by operating activities .......................................................
Investing activities
Purchases of property, plant and equipment ..................................................
Proceeds from sale of property, plant and equipment ....................................
Purchase buyouts of leased equipment .........................................................
Proceeds from government grants .................................................................
Final distribution of Reserve Yield Plus Fund .................................................
Acquisition of business, net ............................................................................
Net cash used in investing activities ...............................................................
Financing activities
Proceeds from issuance of long-term debt .....................................................
Payments of long-term debt, capital lease obligations and other ....................
Debt issuance costs .......................................................................................
Purchase of noncontrolling interest ................................................................
Employee stock option exercises ...................................................................
Purchase of treasury stock .............................................................................
Net cash provided by (used in) financing activities .........................................
Effect of exchange rate changes on cash ......................................................
Net increase in cash and cash equivalents ....................................................
Cash and cash equivalents at beginning of year ............................................
2016
2015
(in millions)
2014
240.7
$
235.6
$
143.0
201.8
3.4
33.2
21.0
(12.6)
4.3
—
(19.3)
12.2
(14.2)
7.2
(70.1)
407.6
(223.0)
1.7
(4.6)
2.8
1.0
(5.6)
(227.7)
30.3
(7.0)
—
—
0.3
(5.2)
18.4
0.4
198.7
282.5
198.4
—
26.4
15.9
(25.6)
4.2
0.8
(17.9)
11.2
(2.1)
(26.8)
(42.5)
377.6
(193.5)
0.3
—
5.1
—
—
(188.1)
16.8
(157.0)
—
(1.1)
0.8
(3.1)
(143.6)
(12.6)
33.3
249.2
199.9
—
(9.2)
9.7
31.8
(2.6)
—
(78.3)
10.9
13.7
24.5
(25.0)
318.4
(206.5)
9.1
—
2.1
—
—
(195.3)
5.0
(27.0)
(0.3)
—
1.2
(0.3)
(21.4)
(6.5)
95.2
154.0
Cash and cash equivalents at end of year ..................................................... $
481.2
$
282.5
$
249.2
Supplemental cash flow information
Interest paid .............................................................................................. $
.............................................................................. $
Income taxes paid, net
87.2
48.6
$
$
93.8
11.3
$
$
91.1
11.3
See accompanying notes to consolidated financial statements
48
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Consolidated Statement of Stockholders' Equity
Common Stock
Retained
Earnings
Accumulated
Other
Shares
Par
Paid-in
(Accumulated
Treasury Comprehensive
Outstanding
Value
Capital
Deficit)
Stock
Loss
(in millions)
Balance at January 1, 2014 ...................................
75.6 $
0.8 $
612.8 $
(174.4) $
(182.5) $
(216.2)
Net income ..............................................................
Changes in cash flow hedges ..................................
Foreign currency translation adjustments ................
Defined benefit plans, net ........................................
Exercise of stock options and vesting of restricted
stock units ................................................................
0.2
143.0
1.2
9.7
(7.7)
(30.3)
(42.7)
75.8 $
0.8 $
623.7 $
(31.4) $
(182.8) $
(296.9)
(0.3)
235.6
0.9
15.9
(1.6)
(6.0)
(70.3)
16.7
(356.5)
(10.3)
(3.2)
(19.6)
(0.1)
76.1 $
0.8 $
638.9 $
204.2 $
(3.1)
(185.9) $
0.7
0.1
0.2
21.0
240.7
4.8
(0.3)
76.5 $
0.9 $
660.1 $
449.7 $
(5.2)
(191.1) $
(389.6)
Exercise of stock options and vesting of restricted
stock units and performance shares ........................
0.4
Stock-based compensation ......................................
Purchase of treasury stock ......................................
Balance at December 31, 2014 ..............................
Net income ..............................................................
Changes in cash flow hedges ..................................
Foreign currency translation adjustments ................
Defined benefit plans, net ........................................
Stock-based compensation ......................................
Acquisition of noncontrolling interest .......................
Purchase of treasury stock ......................................
Balance at December 31, 2015 ..............................
Net income ..............................................................
Changes in cash flow hedges ..................................
Foreign currency translation adjustments ................
Defined benefit plans, net ........................................
Exercise of stock options and vesting of restricted
stock units and performance shares ........................
Stock-based compensation ......................................
Modified-retrospective application of ASU 2016-09 .
Purchase of treasury stock ......................................
Balance at December 31, 2016 ..............................
See accompanying notes to consolidated financial statements
49
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION American Axle & Manufacturing Holdings, Inc. (Holdings) and its subsidiaries (collectively,
we, our, us or AAM) is a global Tier I supplier to the automotive industry. We manufacture, engineer, design and
validate driveline and drivetrain systems and related components and chassis modules for light trucks, sport utility
vehicles (SUVs), crossover vehicles, passenger cars and commercial vehicles. Driveline and drivetrain systems
include components that transfer power from the transmission and deliver it to the drive wheels. Our driveline,
drivetrain and related products include axles, driveheads, chassis modules, driveshafts, power transfer units,
transfer cases, chassis and steering components, transmission parts, electric drive systems and metal-formed
products. In addition to locations in the United States (U.S.) (Michigan, Ohio and Indiana), we also have offices or
facilities in Brazil, China, Germany, India, Japan, Luxembourg, Mexico, Poland, Scotland, South Korea, Sweden
and Thailand.
ACQUISITION OF METALDYNE PERFORMANCE GROUP INC. (MPG) On November 3, 2016, AAM entered
into a definitive merger agreement with MPG under which AAM will acquire MPG for approximately $1.7 billion in
cash and stock. The acquisition is anticipated to close in the first half of 2017 subject to shareholder and regulatory
approval and other customary closing conditions.
In connection with the pending acquisition of MPG, AAM obtained a commitment letter that provides for up to
$1.65 billion in senior secured term loan facilities and up to $800 million in a senior secured revolving credit facility.
In addition, AAM intends to issue up to $1.2 billion in new senior unsecured notes, subject to market conditions. To
the extent AAM does not receive gross proceeds of at least $1.2 billion from such an issuance, the commitment
letter also provides for up to $1.2 billion in a senior unsecured bridge facility.
These financing commitments have been obtained to fund the cash consideration payable in connection with
the merger, related fees and expenses, to refinance any indebtedness outstanding under the existing AAM senior
secured revolving credit facility and certain existing indebtednesses of MPG, and for general corporate purposes.
PRINCIPLES OF CONSOLIDATION We include the accounts of Holdings and its subsidiaries in our
consolidated financial statements. We eliminate the effects of all intercompany transactions, balances and profits in
our consolidation.
REVENUE RECOGNITION We recognize revenue when products are shipped to our customers and title
transfers under standard commercial terms or when realizable in accordance with our commercial agreements. If
we are uncertain as to whether we will be successful collecting a balance in accordance with our understanding of a
commercial agreement, we do not recognize the revenue or cost recovery until such time as the uncertainty is
removed.
During the fourth quarter of 2016, we reached an agreement with a customer to increase installed capacity for a
program we support. In the fourth quarter of 2016, we received $20.0 million associated with this capacity increase
and recorded the payment as deferred revenue, classified as a noncurrent liability on our Consolidated Balance
Sheet. We expect to begin recognizing this deferred revenue in 2018 into revenue on a straight line basis over a
period of approximately five years, which is the period that we expect the customer to benefit from this increase in
installed capacity.
In 2014, we reached an agreement with a customer to increase installed capacity and adjust product mix for our
largest vehicle program. As a result of this agreement, we received $32.8 million in 2014 and recorded the
payments as deferred revenue. We recognize this deferred revenue into revenue on a straight line basis over a
period of approximately five years, which is the period we expect the customer to benefit from this capacity and mix
change. We recognized revenue related to this agreement of $6.9 million in 2016 and 2015, and $5.4 million in
2014. As of December 31, 2016, we have $6.9 million of deferred revenue that is classified as a current liability and
$6.9 million of deferred revenue that is recorded as a noncurrent liability on our Consolidated Balance Sheet.
50
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Also in 2014, we reached an agreement with a customer to recover certain costs related to the delay of a major
product program. We received $9.3 million in 2014 related to this agreement which was recorded as deferred
revenue. We recognize this deferred revenue into revenue on a straight line basis over a period of approximately
eight years, which is the period we expect the customer to benefit from this agreement. We recognized revenue
related to this agreement of $1.1 million in 2016 and 2015, and $0.5 million in 2014. As of December 31, 2016, we
have remaining deferred revenue of $6.6 million, $1.1 million of which is classified as a current liability and $5.5
million which is recorded as a noncurrent liability on our Consolidated Balance Sheet.
In 2009, we entered into a settlement and commercial agreement (2009 Settlement and Commercial
Agreement) with GM. As part of this agreement, we received $110.0 million from GM, of which we recorded $79.7
million as deferred revenue. As of December 31, 2016, our remaining deferred revenue related to the 2009
Settlement and Commercial Agreement is $21.6 million, $8.0 million of which is classified as a current liability and
$13.6 million of which is recorded as a noncurrent liability on our Consolidated Balance Sheet. We recognize this
deferred revenue into revenue on a straight-line basis over 120 months, which ends September 2019 and is the
period that we expect GM to benefit under the 2009 Settlement and Commercial Agreement. We recognized
revenue of $8.0 million, in 2016, 2015 and 2014 related to this agreement.
As of December 31, 2016, the majority of the remaining deferred revenue primarily relates to payments from
customers to implement capacity programs and reimbursement for engineering, design and development (ED&D)
costs on awarded programs. These deferred revenues are generally recognized into revenue over the life of these
programs. We recognized $8.9 million, $7.4 million and $7.5 million of revenue for these programs in 2016, 2015
and 2014, respectively.
RESEARCH AND DEVELOPMENT (R&D) COSTS We expense R&D, as incurred, in selling, general and
administrative expenses on our Consolidated Statement of Income. R&D spending was $139.8 million, $113.9
million and $103.9 million in 2016, 2015 and 2014, respectively.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include all cash balances, savings accounts,
sweep accounts, and highly liquid investments in money market funds and certificates of deposit with maturities of
90 days or less at the time of purchase.
ACCOUNTS RECEIVABLE The majority of our accounts receivable are due from original equipment
manufacturers (OEMs) in the automotive industry and are past due when payment is not received within the stated
terms. Trade accounts receivable for our largest customer, GM, are generally due within approximately 50 days
from the date of receipt.
Amounts due from customers are stated net of allowances for doubtful accounts. We determine our allowances
by considering factors such as the length of time accounts are past due, our previous loss history, the customer's
ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. The
allowance for doubtful accounts was $3.1 million and $4.3 million as of December 31, 2016 and 2015, respectively.
We write-off accounts receivable when they become uncollectible.
CUSTOMER TOOLING AND PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY
AGREEMENTS Engineering, R&D, and other pre-production design and development costs for products sold on
long-term supply arrangements are expensed as incurred unless we have a contractual guarantee for
reimbursement from the customer. Reimbursements received for pre-production costs relating to awarded
programs are deferred and recognized into revenue over the life of the associated program. Reimbursements
received for pre-production costs relating to future programs that have not been awarded, or amounts received for
programs that become discontinued prior to production, are recorded as a reduction of expense.
51
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Costs for tooling used to make products sold on long-term supply arrangements for which we have either title to
the assets or the noncancelable right to use the assets during the term of the supply arrangement are capitalized in
property, plant and equipment. Reimbursable costs for tooling assets for which our customer has title and we do
not have a noncancelable right to use during the term of the supply arrangement, are recorded in accounts
receivable in our consolidated balance sheets. The reimbursement for the customer-owned tooling is recorded as a
reduction of accounts receivable upon collection. Capitalized items and customer receipts in excess of tooling
costs specifically related to a supply arrangement are amortized over the shorter of the term of the arrangement or
over the estimated useful lives of the related assets.
INVENTORIES We state our inventories at the lower of cost or market. The cost of our inventories is
determined using the FIFO 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:
Raw materials and work-in-progress ................................................................ $
Finished goods .................................................................................................
Gross inventories ..............................................................................................
Inventory valuation reserves .............................................................................
Inventories, net ................................................................................................. $
December 31,
2016
2015
(in millions)
212.7 $
33.8
246.5
(27.0)
219.5 $
228.7
31.1
259.8
(29.3)
230.5
PROPERTY, PLANT AND EQUIPMENT We state property, plant and equipment, including amortizable tooling,
at historical cost, as adjusted for impairments. Construction in progress includes costs incurred for the construction
of buildings and building improvements, and machinery and equipment in process. Repair and maintenance costs
that do not extend the useful life or otherwise improve the utility of the asset beyond its existing useful state are
expensed in the period incurred.
We record depreciation and tooling amortization using the straight-line method over the estimated useful lives
of the depreciable assets. Depreciation and tooling amortization amounted to $160.4 million, $163.6 million and
$166.5 million in 2016, 2015 and 2014, respectively.
Property, plant and equipment consists of the following:
Land ....................................................................................................
Land improvements ............................................................................
Buildings and building improvements ..................................................
Machinery and equipment ...................................................................
Construction in progress .....................................................................
Estimated
Useful Lives
December 31,
2016
2015
(years)
Indefinite
$
10-15
15-40
3-12
(in millions)
24.9 $
19.2
345.5
1,976.0
109.9
2,475.5
24.9
18.8
315.5
1,853.1
88.4
2,300.7
Accumulated depreciation and amortization .......................................
Property, plant and equipment, net .....................................................
(1,381.8)
1,093.7 $
(1,254.5)
1,046.2
$
As of December 31, 2016, 2015 and 2014, we had unpaid purchases of plant and equipment in our accounts
payable of $19.0 million, $43.6 million and $31.4 million, respectively.
52
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS When impairment indicators exist, we evaluate the carrying value of
long-lived assets for potential impairment. We consider projected future undiscounted cash flows, trends and other
circumstances in making such estimates and evaluations. If impairment is deemed to exist, the carrying amount of
the asset is adjusted based on its fair value. Recoverability of assets “held for use” is determined by comparing the
forecasted undiscounted cash flows of the operations to which the assets relate to their carrying amount. When the
carrying value of an asset group exceeds its fair value and is therefore nonrecoverable, those assets are written
down to fair value. Fair value is determined based on market prices, when available, or a discounted cash flow
analysis performed using management estimates.
In the third quarter of 2016, we identified an indicator of impairment at our Pantnagar Manufacturing Facility in
India due to changes in forecasted cash flows. Accordingly, we performed an assessment of the recoverability of
these assets and, as a result, recorded an impairment charge of $3.4 million to write the assets down to fair value.
GOODWILL We record goodwill when the purchase price of acquired businesses exceeds the value of their
identifiable net tangible and intangible assets acquired. We test our goodwill annually, or more frequently if
necessary, for impairment in accordance with the accounting guidance for goodwill and other indefinite-lived
intangibles. We completed impairment tests in 2016 and 2015 and concluded that there was no impairment of our
goodwill. The following table provides a reconciliation of changes in goodwill:
Beginning balance ............................................................................................ $
Foreign currency translation ..............................................................................
Ending balance .................................................................................................. $
December 31,
2016
2015
(in millions)
154.4 $
(0.4)
154.0 $
155.0
(0.6)
154.4
INTANGIBLE ASSETS During the first quarter of 2016, we completed the final stages of implementing
upgrades to our global enterprise resource planning (ERP) systems at certain remaining global locations. This
implementation included upgrades to many of our existing operating and financial systems. In connection with the
development of these ERP systems, we have recorded an intangible asset on our Consolidated Balance Sheet.
The intangible asset is related to costs incurred to obtain software licenses from a third party, as well as costs to
design and develop this internal-use software. This intangible asset is classified as other assets and deferred
charges on our Consolidated Balance Sheet and will be amortized over the estimated useful life of our ERP
systems. We recorded $5.0 million, $3.2 million and $0.4 million of expense for the amortization of these intangible
assets in 2016, 2015 and 2014, respectively. Estimated amortization expense for these assets for the next five
years is as follows: $5.0 million in 2017, $4.0 million in 2018, $3.4 million in 2019, $2.9 million in 2020, and $2.5
million in 2021.
The following table provides the gross intangible asset balance and related amortization recorded on our
Consolidated Balance Sheet as of December 31, 2016 and December 31, 2015:
Capitalized computer software intangible asset ............................................ $
Accumulated amortization .............................................................................
Capitalized computer software intangible asset, net ..................................... $
December 31,
2016
2015
(in millions)
31.7 $
(8.5)
23.2 $
28.7
(3.7)
25.0
In connection with our e-AAM subsidiary, we have in-process research and development intangible assets
which represent the technology that will be utilized in products to be launched in 2018. Accordingly, we will begin
amortizing this asset on a straight-line basis at the start of production through the expected life cycle of the related
products, which is expected to be approximately 5-7 years. These intangible assets are classified as other assets
and deferred charges on our Consolidated Balance Sheet.
53
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table provides a reconciliation of changes in the carrying value of our in-process research and
development intangible assets:
Beginning balance ............................................................................................. $
Foreign currency translation ..............................................................................
Ending balance .................................................................................................. $
December 31,
2016
2015
(in millions)
5.7 $
(0.4)
5.3 $
6.2
(0.5)
5.7
DEBT ISSUANCE COSTS The costs related to the issuance or modification of long-term debt are deferred
and amortized into interest expense over the expected life of the borrowings. As of December 31, 2016 and
December 31, 2015, our unamortized debt issuance costs were $16.7 million and $22.5 million, respectively. Debt
issuance costs associated with our senior unsecured notes are recorded as a reduction to the related debt liability.
Debt issuance costs of $5.0 million and $7.9 million related to our revolving credit facility, for which there is no
outstanding debt liability, are classified as Other Assets and Deferred Charges on our Consolidated Balance Sheets
as of December 31, 2016 and December 31, 2015, respectively. Unamortized debt issuance costs that exist upon
the extinguishment of debt are expensed and classified as debt refinancing and redemption costs on our
Consolidated Statement of Income.
DERIVATIVES We recognize all derivatives on the balance sheet at fair value and we are not subject to master
netting agreements. If a derivative qualifies under the accounting guidance as a hedge, depending on the nature of
the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged
asset, liability or firm commitment through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change in fair value, and changes in the fair
value of derivatives that do not qualify as hedges, are immediately recognized in earnings. See Note 4 -
Derivatives and Risk Management, for more detail on our derivatives.
CURRENCY TRANSLATION AND REMEASUREMENT We translate the assets and liabilities of our foreign
subsidiaries to U.S. dollars at end-of-period exchange rates. We translate the income statement elements of our
foreign subsidiaries to U.S. dollars at average-period exchange rates. We report the effect of translation for our
foreign subsidiaries that use the local currency as their functional currency as a separate component of
stockholders' equity. Gains and losses resulting from the remeasurement of assets and liabilities in a currency
other than the functional currency of a subsidiary are reported in current period income. We also report any gains
and losses arising from transactions denominated in a currency other than the functional currency of a subsidiary in
current period income. These foreign currency gains and losses resulted in a net gain of $5.8 million, $9.5 million
and $6.4 million, for the years ended 2016, 2015 and 2014, respectively, in Other Income (Expense).
PENSION AND OTHER POSTRETIREMENT DEFINED BENEFIT PLANS Net pension and postretirement
benefit expenses and the related liabilities are determined on an actuarial basis. These plan expenses and
obligations are dependent on management's assumptions developed in consultation with our actuaries. We review
these actuarial assumptions at least annually and make modifications when appropriate. See Note 6 - Employee
Benefit Plans, for more detail on our pension and other postretirement defined benefit plans.
STOCK-BASED COMPENSATION We have stock-based compensation in the form of stock options, restricted
stock units (RSUs) and performance shares. For non-performance based awards, the grant date fair value is
measured as the stock price at the date of grant. For performance based awards, fair value is estimated using
valuation techniques that require management to use estimates and assumptions. Certain awards require that
management's estimates and assumptions be evaluated at each reporting date to determine if compensation
expense related to the award should be adjusted, both on a catch-up and go-forward basis. Compensation
expense is recognized over the period during which the requisite service is provided, referred to as the vesting
period. See Note 7 - Stock-Based Compensation, for more detail on our accounting for stock-based compensation.
DEFERRED INCOME TAX ASSETS AND LIABILITIES AND VALUATION ALLOWANCES Our deferred
income tax assets and liabilities reflect the impact of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws.
54
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In accordance with the accounting guidance for income taxes, we estimate whether recoverability of our
deferred tax assets is “more likely than not,” based on forecasts of taxable income in the related tax jurisdictions. In
this estimate, we use historical results, projected future operating results based upon approved business plans,
eligible carryforward periods, tax planning opportunities and other relevant considerations. This includes the
consideration of tax law changes, prior profitability performance and the uncertainty of future projected profitability.
We record a valuation allowance to reduce our deferred tax assets to the amount that is "more likely than not," to be
realized.
We record uncertain tax positions on the basis of a two-step process whereby: (1) we determine whether it is
"more likely than not" that the tax positions will be sustained based on the technical merits of the position: and (2)
for those positions that meet the "more likely than not" recognition threshold, we recognize the largest amount of tax
benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. We
record interest and penalties on uncertain tax positions in income tax expense (benefit).
See Note 8 - Income Taxes, for more detail on our accounting for income taxes.
EARNINGS PER SHARE (EPS) We present EPS 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 nonforfeitable dividend rights. Our participating securities include non-vested restricted stock units. See
Note 9 - Earnings Per Share (EPS), for more detail on our accounting for EPS.
SHARE REPURCHASE PROGRAM On May 5, 2016, AAM's Board of Directors authorized a share
repurchase program of up to $100 million of AAM's common shares through December 31, 2018 as part of AAM's
overall capital allocation strategy. The repurchase of shares may be made in the open market or in privately
negotiated transactions and will be funded through available cash balances and cash flow from operations. The
timing and amount of any share repurchases will be determined based on market and economic conditions, share
price, alternative uses of capital and other factors. During the second quarter of 2016, we completed an initial
share repurchase of 100,000 shares for $1.5 million under the program. As of December 31, 2016 there is
approximately $98.5 million available for repurchase.
PRODUCT WARRANTY See Note 10 - Commitments and Contingencies, for more detail on our accounting for
product warranties.
USE OF ESTIMATES In order to prepare consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP), we are required to make estimates and
assumptions that affect the reported amounts and disclosures in our consolidated financial statements. Actual
results could differ from those estimates.
EFFECT OF NEW ACCOUNTING STANDARDS
Accounting Standards Update 2016-16
On October 24, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2016-16 - Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Existing income
tax guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the
asset has been sold to an outside party. This existing guidance is deemed an exception to the principle of
comprehensive recognition of current and deferred income taxes under GAAP. Due to the limited authoritative
guidance about this exception, diversity in practice exists. ASU 2016-16 eliminates this exception for intra-entity
transfers of assets other than inventory and requires that entities recognize the income tax consequences when the
transfers occur. This guidance becomes effective at the beginning of our 2018 fiscal year, however early adoption
is permitted. The guidance requires a modified retrospective transition method. We are currently assessing the
impact that this standard will have on our consolidated financial statements.
55
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting Standards Update 2016-15
On August 26, 2016, the FASB issued ASU 2016-15 - Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments. The update addresses the following eight specific cash flow issues: 1)
debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt
instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing;
3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of
insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies (including bank-owned
life insurance policies); 6) distributions received from equity method investees; 7) beneficial interests in
securitization transactions; and 8) separately identifiable cash flows and application of the predominance principle.
Historically, we have classified certain cash flows related to debt prepayment or debt extinguishment costs as
operating cash flows. Upon adoption, the guidance in ASU 2016-15 requires that these cash flows be classified as
financing cash flows. We do not feel that the adoption of this guidance as it relates to any of the other seven cash
flow issues specified will have a material impact on our Consolidated Statement of Cash Flows.
This guidance becomes effective at the beginning of our 2018 fiscal year, however as permitted, we have
elected to early adopt this standard in the fourth quarter of 2016. The retrospective adoption of this guidance did not
impact any of the periods presented in the Consolidated Statements of Cash Flows in the three years ended
December 31, 2016.
Accounting Standards Update 2016-09
On March 31, 2016, the FASB issued ASU 2016-09 - Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting. The update is intended to simplify the current
guidance for stock-based compensation for a range of issues including: the timing of income statement impact for
tax benefits or deficiencies in excess of compensation cost, the classification of tax-related cash flows resulting
from share based payments, the allowable threshold for tax withholding without resulting in liability award
classification, and a policy election for estimating forfeiture rates or recognizing forfeitures as they occur. This
guidance becomes effective at the beginning of our 2017 fiscal year, however as permitted, AAM elected to early
adopt this guidance in the fourth quarter of 2016. The guidance requires a retrospective, modified-retrospective, or
prospective transition method depending on the applicable section of the ASU. The effect of implementing this ASU
on our Consolidated Balance Sheet was an increase to our deferred tax assets and retained earnings of $4.8
million as of January 1, 2016, using the modified-retrospective transition method, for the cumulative-effect
adjustment of excess tax benefits that were not previously recognized because the related tax deduction had not
reduced current taxes payable. We have evaluated the aspects of this new guidance and, other than this one-time
increase in deferred tax assets and retained earnings, the adoption of this ASU did not have a material impact on
our accounting for share-based payments.
Accounting Standards Update 2016-02
On February 25, 2016, the FASB issued ASU 2016-02 - Leases (Topic 842), which supersedes the existing
lease accounting guidance and establishes new criteria for recognizing lease assets and liabilities. The most
significant impact of the update, to AAM, is that a lessee will be 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 the
existing lease guidance. A lessee will be permitted to make a policy election, excluding recognition of the right-of-
use asset and associated liability for lease terms of 12 months or less. Expense recognition in the statement of
income along with cash flow statement classification for both financing (capital) and operating leases under the new
standard will not be significantly changed from existing lease guidance. This guidance becomes effective for AAM at
the beginning of our 2019 fiscal year and requires transition under a modified retrospective method. We are
currently assessing the impact that this standard will have on our consolidated financial statements.
56
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting Standards Update 2015-07
On May 1, 2015, the FASB issued ASU 2015-07 - Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which changes the
disclosure requirements for investments in certain entities that calculate net asset value (NAV) per share. Under
current accounting standards entities are permitted to estimate the fair value of certain investments using the
investment's NAV as a practical expedient. The current disclosure guidance also permits entities to disclose the
investment at NAV in the fair value hierarchy table as either Level 2 or Level 3, based upon certain criteria. The
measurement basis utilizing NAV is different than the measurement criteria of all other investments which utilize
inputs to calculate fair value. Due to this inconsistency, the FASB issued this ASU which prohibits entities from
categorizing investments measured at NAV within the fair value hierarchy. Other than the change in presentation,
which requires retrospective application, the adoption of this new guidance did not have an impact on our
consolidated financial statements. AAM adopted this policy on January 1, 2016.
Accounting Standards Update 2014-09
In 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers (Topic 606), and has
subsequently issued ASUs 2015-14 - Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
Date, 2016-08 - Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross Versus Net), 2016-10 - Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing, 2016-12 - Revenue from Contracts with Customers (Topic 606): Narrow-
Scope Improvements and Practical Expedients, and 2016-20 - Revenue from Contracts with Customers (Topic
606): Technical Corrections and Improvements to Topic 606 (collectively, the Revenue Recognition ASUs).
The Revenue Recognition ASUs outline a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and supersede most current revenue recognition guidance, including
industry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to
depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a
contract. This guidance is effective for AAM beginning on January 1, 2018 and entities have the option of using
either a full retrospective or a modified retrospective approach for the adoption of the new standard. We are
evaluating whether we will adopt this guidance using the full retrospective or modified retrospective approach.
We are concluding the assessment phase of implementing this guidance. We have evaluated each of the five
steps in the new revenue recognition model, which are as follows: 1) Identify the contract with the customer; 2)
Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction
price to the performance obligations; and 5) Recognize revenue when (or as) performance obligations are satisfied.
Our preliminary conclusion is that the determination of what constitutes a contract with our customers (step 1), our
performance obligations under the contract (step 2), and the determination and allocation of the transaction price
(steps 3 and 4) under the new revenue recognition model will not result in significant changes in comparison to the
current revenue recognition guidance.
With regard to recognizing revenue when (or as) a performance obligation is satisfied (step 5), we are
thoroughly reviewing the language in our contracts with each customer to determine whether the customer obtains
control of the goods at a point in time or over time. Under current revenue recognition guidance, we recognize
revenue when products are shipped to our customers and title transfers under standard commercial terms or when
realizable in accordance with our commercial agreements. Topic 606 provides certain criteria that, if met, require
companies to recognize revenue as the product is produced (over time) instead of at a point of time (i.e. upon
shipment). We are evaluating our contracts in the context of the criteria for recognizing revenue over time. If we
conclude that we meet the criteria for recognizing revenue over time, our timing of revenue recognition would be
accelerated, however, as we utilize lean manufacturing principles and deliver to our customers on a just-in-time
basis, we do not expect any acceleration of revenue under the new guidance to be material.
57
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
There are also certain considerations related to internal control over financial reporting that are associated with
implementing the new guidance under Topic 606. We are currently evaluating our control framework for revenue
recognition and identifying any changes that may need to be made in response to the new guidance. Disclosure
requirements under the new guidance in Topic 606 have been significantly expanded in comparison to the
disclosure requirements under the current guidance. Designing and implementing the appropriate controls over
gathering and reporting the information required under Topic 606 is currently in process.
2. RESTRUCTURING AND ACQUISITION-RELATED COSTS
In the fourth quarter of 2016, AAM initiated actions under a global restructuring program focusing on creating a
more streamlined organization in addition to reducing our cost structure and preparing for upcoming acquisition
integration activities. A summary of this activity for 2016 is shown below:
Severance Charges
Implementation
Costs
Asset Impairment
Charges
Total
Accrual as of January 1, 2016....... $
Charges ........................................
Cash utilization ..............................
Non-cash utilization .......................
Accrual adjustments ......................
Accrual as of December 31, 2016 . $
— $
0.6
—
—
—
(in millions)
— $
10.2
(1.0)
—
—
— $
4.5
—
(4.5)
—
0.6
$
9.2
$
— $
—
15.3
(1.0)
(4.5)
—
9.8
As part of our restructuring actions, we incurred severance charges of approximately $0.6 million, as well as
implementation costs, including professional expenses, of approximately $10.2 million in 2016. We expect to incur
approximately $20 to $25 million of additional charges under our global restructuring program in 2017.
In the third quarter of 2016, we identified an indicator of impairment at our Pantnagar Manufacturing Facility in
India due to changes in forecasted cash flows. Accordingly, we performed an assessment of the recoverability of
these assets and, as a result, recorded an impairment charge of $3.4 million to write the assets down to fair value.
In the fourth quarter of 2016, we recorded an additional charge of $1.1 million relating to the announced closure of
the facility.
On November 3, 2016, AAM announced entry into a definitive merger agreement with MPG. The following table
represents a summary of acquisition-related charges incurred in 2016 related to the pending acquisition of MPG
and other strategic initiatives:
Acquisition-
Related Costs
Integration
Expenses
Other
Total
Charges ........................................... $
9.5
$
(in millions)
1.4
$
— $
Total restructuring and acquisition-related charges $
10.9
26.2
Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional
or consulting fees incurred. Integration expenses reflect consulting fees incurred in preparation for the upcoming
acquisition and ongoing integration activities. Total charges associated with our global restructuring program and
acquisition-related charges of $26.2 million are shown on a separate line item titled "Restructuring and Acquisition-
Related Costs" in our Consolidated Statements of Income.
58
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt, net consists of the following:
December 31,
2016
2015
Revolving Credit Facility ............................................................................ $
7.75% Notes ..............................................................................................
6.625% Notes ............................................................................................
6.25% Notes ..............................................................................................
5.125% Notes ............................................................................................
Foreign credit facilities ...............................................................................
Capital lease obligations ............................................................................
Debt ...........................................................................................................
Less: Current portion of long-term debt .................................................
Long-term debt ..........................................................................................
Less: Debt issuance costs .....................................................................
(in millions)
— $
200.0
550.0
400.0
200.0
60.4
5.5
1,415.9
3.3
1,412.6
11.7
Long-term debt, net ................................................................................... $
1,400.9 $
—
200.0
550.0
400.0
200.0
38.0
5.6
1,393.6
3.3
1,390.3
14.6
1,375.7
REVOLVING CREDIT FACILITY AND TERM FACILITY We have a revolving credit facility that provides up to
$523.5 million of revolving bank financing commitments through September 13, 2018. At December 31, 2016,
$507.3 million was available under the revolving credit facility, which reflected a reduction of $16.2 million for
standby letters of credit issued against the facility.
The credit agreement provided for a senior secured term loan A facility in an aggregate principal amount of
$150.0 million (term facility). In 2015, we made principal payments of $142.5 million on our term facility to prepay
all outstanding principal. Upon prepayment, we expensed $0.8 million in 2015 related to the write-off of the
remaining unamortized debt issuance costs related to our term facility that we had been amortizing over the
expected life of the borrowing.
Borrowings under the revolving credit facility and term facility bear interest at rates based on adjusted LIBOR or
an alternate base rate, plus an applicable margin. The applicable margin for LIBOR-based loans will be between
1.5% and 3.0%.
The revolving credit facility is secured on a first priority basis by all or substantially all of the assets of AAM and
each guarantor under the collateral agreement dated as of November 7, 2008, as amended and restated as of
September 13, 2013. In the event AAM achieves investment grade corporate credit ratings from Standard & Poor's
and Moody's, AAM may elect to release all of the collateral from the liens granted pursuant to the collateral
agreement, subject to notice requirements and other conditions. The revolving credit facility limits our ability to
make certain investments, loans and guarantees, declare dividends or distributions on capital stock, redeem or
repurchase capital stock and certain debt obligations, incur liens, incur indebtedness, enter into certain restrictive
agreements, merge, make acquisitions or sell all or substantially all of our assets.
The revolving credit facility provides back-up liquidity for our foreign credit facilities. We intend to use the
availability of long-term financing under the revolving credit facility 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 Consolidated Balance Sheet.
59
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7.75% NOTES In 2011, we issued $200.0 million of 7.75% senior unsecured notes due 2019 (7.75% Notes).
6.625% NOTES In 2012, we issued $550.0 million of 6.625% senior unsecured notes due 2022 (6.625%
Notes). Net proceeds from the 6.625% Notes were used to fund the purchase and redemption of $250.0 million of
the outstanding 5.25% senior unsecured notes, including the payment of interest, the redemption of $42.5 million
aggregate principal amount of our 9.25% Notes, certain pension obligations and for other general corporate
purposes.
6.25% NOTES In 2013, we issued $400.0 million of 6.25% senior unsecured notes due 2021 (6.25% Notes).
Net proceeds from the 6.25% Notes were used to fund the purchase and redemption of our 7.875% Notes and for
other general corporate purposes. We paid debt issuance costs of $6.6 million in 2013 related to the 6.25% Notes.
5.125% NOTES In 2013, we issued $200.0 million of 5.125% senior unsecured notes due 2019 (5.125%
Notes). Net proceeds from the 5.125% Notes were used to redeem the remaining $190.0 million outstanding under
our 9.25% Notes. We paid debt issuance costs related to the 5.125% Notes of $0.2 million and $3.1 million in 2014
and 2013, respectively.
LEASES We lease certain facilities and furniture under capital leases expiring at various dates. The gross
asset cost of our capital leases was $8.8 million and $7.9 million at December 31, 2016 and 2015, respectively.
The net book value included in property, plant and equipment, net on the balance sheet was $5.5 million and $5.6
million at December 31, 2016 and 2015, respectively. The weighted-average interest rate on these capital lease
obligations at December 31, 2016 was 6.6%.
We also lease certain manufacturing machinery and equipment, commercial office and production facilities,
vehicles and other assets under operating leases expiring at various dates. Future minimum payments under
noncancelable operating leases are as follows: $23.7 million in 2017, $16.5 million in 2018, $8.8 million in 2019,
$6.3 million in 2020, and $5.2 million in 2021. Our total expense relating to operating leases was $26.9 million,
$25.3 million and $23.6 million in 2016, 2015 and 2014, respectively.
FOREIGN CREDIT FACILITIES We utilize local currency credit facilities to finance the operations of certain
foreign subsidiaries. These credit facilities, some of which are guaranteed by Holdings and/or AAM, Inc., expire at
various dates through July 2019. During 2016, we increased the borrowings on our foreign credit facilities, primarily
to fund capital expenditures and working capital in preparation for the launch of programs in China, which began in
the fourth quarter of 2016. At December 31, 2016, $60.4 million was outstanding under these facilities and an
additional $62.0 million was available.
FINANCING RELATED TO THE PENDING ACQUISITION OF MPG In connection with the pending acquisition
of MPG, AAM obtained a commitment letter that provides for up to $1.65 billion in senior secured term loan facilities
and up to $800 million in a senior secured revolving credit facility. In addition, AAM intends to issue up to $1.2
billion in new senior unsecured notes, subject to market conditions. To the extent AAM does not receive gross
proceeds of at least $1.2 billion from such an issuance, the commitment letter also provides for up to $1.2 billion in
a senior unsecured bridge facility.
These financing commitments have been obtained to fund the cash consideration payable in connection with
the merger, related fees and expenses, to refinance any indebtedness outstanding under the existing AAM senior
secured revolving credit facility and certain existing indebtednesses of MPG, and for general corporate purposes.
DEBT MATURITIES Aggregate maturities of long-term debt are as follows (in millions):
2017 ................................................................................................................................................ $
2018 ................................................................................................................................................
2019 ................................................................................................................................................
2020 ................................................................................................................................................
2021 ................................................................................................................................................
Thereafter .......................................................................................................................................
Total ................................................................................................................................................ $
42.6
17.5
403.3
0.8
400.9
550.8
1,415.9
60
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTEREST EXPENSE AND INVESTMENT INCOME Interest expense was $93.4 million in 2016, $99.2 million
in 2015 and $99.9 million in 2014. The decrease in interest expense in 2016, as compared to 2015, reflects the
decrease in our average outstanding borrowings due to our voluntary election to prepay the outstanding principal
balance on our term facility in the fourth quarter of 2015.
We capitalized interest of $6.5 million in 2016, $4.5 million in 2015 and $5.8 million in 2014. The weighted-
average interest rate of our long-term debt outstanding at December 31, 2016 was 6.6% as compared to 6.5% and
6.4% at December 31, 2015 and 2014, respectively.
Investment income was $2.9 million in 2016 as compared to $2.6 million and $2.1 million in 2015 and 2014,
respectively. Investment income includes interest earned on cash and cash equivalents and realized and
unrealized gains and losses on our short-term investments during the period.
4. DERIVATIVES AND RISK MANAGEMENT
DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, we are exposed to market risk
associated with changes in foreign currency exchange rates and interest rates. To manage a portion of these
inherent risks, we may purchase certain types of derivative financial instruments based on management's judgment
of the trade-off between risk, opportunity and cost. We do not hold or issue derivative financial instruments for
trading or speculative purposes. The ineffective portion of any hedge is included in current earnings. The impact of
hedge ineffectiveness was not significant in any of the periods presented.
CURRENCY FORWARD CONTRACTS From time to time, we use foreign currency forward contracts to
reduce the effects of fluctuations in exchange rates, primarily relating to the Mexican Peso, Euro, Brazilian Real,
British Pound Sterling, Thai Baht, Swedish Krona, Chinese Yuan and Polish Zloty. We had forward contracts with a
notional amount of $156.0 million and $190.0 million outstanding at December 31, 2016 and 2015, respectively, that
hedge our exposure to changes in foreign currency exchange rates for certain payroll expenses into the fourth
quarter of 2019 and the purchase of certain direct and indirect inventory and other working capital items into the
second quarter of 2017.
The following table summarizes the reclassification of pre-tax derivative gains (losses) into net income from
accumulated other comprehensive income (loss) for those derivative instruments designated as cash flow hedges
under Accounting Standards Codification 815 - Derivatives and Hedging (ASC 815):
Location of Gain
(Loss)
Reclassified into
Net Income
Gain (Loss) Reclassified During
the Twelve Months Ended
December 31,
2016
2015
2014
(in millions)
Loss Expected
to be
Reclassified
During the
Next 12 Months
Currency forward contracts ............... Cost of Goods Sold
$
(10.5) $
(10.9) $
0.9 $
(12.3)
See Note 11 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) for amounts
recognized in other comprehensive income (loss) during the years ended December 31, 2016, December 31, 2015
and December 31, 2014.
The following table summarizes the amount and location of gains (losses) recognized in the Consolidated
Statement of Income for those derivative instruments not designated as hedging instruments under ASC 815:
Location of Loss
Recognized in Net Income
Loss Recognized During the Twelve Months
Ended December 31,
2016
2015
2014
(in millions)
Currency forward contracts ........ Cost of Goods Sold
Currency forward contracts ........ Other Income (Expense), Net
$
(5.8) $
(0.7)
(4.0) $
(1.6)
(1.8)
—
61
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATIONS OF CREDIT RISK In the normal course of business, we provide credit to customers.
We periodically evaluate the creditworthiness of our customers and we maintain reserves for potential credit losses.
Sales to GM were approximately 67% of our consolidated net sales in 2016, 66% in 2015, and 68% in 2014.
Accounts and other receivables due from GM were $369.1 million at year-end 2016 and $361.1 million at year-end
2015. Sales to FCA US LLC (FCA), were approximately 18% of our consolidated net sales in 2016, 20% in 2015
and 18% in 2014. Accounts and other receivables due from FCA were $87.3 million at year-end 2016 and $96.8
million at year-end 2015. No other single customer accounted for more than 10% of our consolidated net sales in
any year presented.
In addition, our total GM postretirement cost sharing asset was $249.0 million as of December 31, 2016 and
$256.3 million as of December 31, 2015. See Note 6 - Employee Benefit Plans for more detail on this cost sharing
asset.
We diversify the concentration of invested cash and cash equivalents among different financial institutions and
we monitor the selection of counterparties to other financial instruments to avoid unnecessary concentrations of
credit risk.
5. FAIR VALUE
The fair value accounting guidance 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 values 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:
December 31, 2016
Carrying
Amount
Fair
Value
December 31, 2015
Carrying
Amount
Fair
Value
Input
(in millions)
Balance Sheet Classification
Cash equivalents ........................................................ $
Currency forward contracts - Prepaid expenses and
other
Nondesignated currency forward contracts ............
Currency forward contracts - Other accrued
expenses
Cash flow hedges ...................................................
Nondesignated currency forward contracts ............
Currency forward contracts - Postretirement benefits
and other long-term liabilities
187.2 $
187.2 $
61.7 $
61.7
Level 1
—
—
0.2
0.2
Level 2
12.3
1.4
12.3
1.4
7.5
1.9
7.5
1.9
Level 2
Level 2
Cash flow hedges ...................................................
11.4
11.4
5.9
5.9
Level 2
62
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 values due to the frequent resetting of the interest rates. We
estimated the fair value of our outstanding debt using available market information and other observable data to be
as follows:
December 31, 2016
December 31, 2015
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Input
(in millions)
Revolving Credit Facility ............................. $
7.75% Notes ...............................................
6.625% Notes .............................................
6.25% Notes ...............................................
5.125% Notes .............................................
— $
— $
— $
200.0
550.0
400.0
200.0
221.0
566.1
412.0
201.7
200.0
550.0
400.0
200.0
—
218.5
574.8
415.0
202.0
Level 2
Level 2
Level 2
Level 2
Level 2
Investments in our defined benefit pension plans are stated at fair value. See Note 6 - Employee Benefit Plans
for additional fair value disclosures of our pension plan assets.
6. EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT DEFINED BENEFIT PLANS We sponsor various qualified and
non-qualified defined benefit pension plans for our eligible associates. We also maintain hourly and salaried benefit
plans that provide postretirement medical, dental, vision and life insurance benefits (OPEB) to our eligible retirees
and their dependents in the U.S.
AAM and GM share proportionally in the cost of OPEB for eligible retirees based on the length of service an
employee had with AAM and GM. We have included in our OPEB obligation the amounts expected to be received
pursuant to this agreement of $249.0 million and $256.3 million at December 31, 2016 and December 31, 2015,
respectively. We have also recorded a corresponding asset for these amounts on our Consolidated Balance Sheet,
$12.9 million that is classified as a current asset and $236.1 million that is classified as a noncurrent asset as of
December 31, 2016.
Actuarial valuations of our benefit plans were made as of December 31, 2016 and 2015. The principal
weighted-average assumptions used in the year-end valuation of our U.S. and U.K. plans appear in the following
table. The U.S. discount rates are based on an actuarial review of a hypothetical portfolio of long-term, high quality
corporate bonds matched against the expected payment stream for each of our plans. The U.K. discount rate is
based on a review of long-term bonds, in consideration of the average duration of plan liabilities. The assumptions
for expected return on plan assets are based on future capital market expectations for the asset classes
represented within our portfolios and a review of long-term historical returns. The rates of increase in compensation
and health care costs are based on current market conditions, inflationary expectations and historical information.
Pension Benefits
OPEB
2016
2015
2014
2016
2015
2014
U.S.
U.K
U.S.
U.K
U.S.
U.K.
Discount rate ..............
4.15%
2.70% 4.40%
3.90% 4.10%
3.70% 4.20% 4.45% 4.15%
Expected return on
plan assets .................
Rate of compensation
increase .....................
7.50%
5.00% 7.50%
5.00% 7.50%
5.00%
N/A
N/A
N/A
4.00%
3.45% 4.00%
3.30% 4.00%
3.30% 4.00% 4.00% 4.00%
63
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The accumulated benefit obligation for all defined benefit pension plans was $702.2 million and $678.6 million
at December 31, 2016 and December 31, 2015, respectively. As of December 31, 2016, the accumulated benefit
obligation for our underfunded defined benefit pension plans was $567.6 million, the projected benefit obligation
was $580.2 million and the fair value of assets for these plans was $461.1 million. The following table summarizes
the changes in projected benefit obligations and plan assets and reconciles the funded status of the benefit plans,
which is the net benefit plan liability:
Pension Benefits
December 31,
OPEB
December 31,
2016
2015
2016
2015
Change in benefit obligation
Benefit obligation at beginning of year .................... $
Service cost ............................................................
Interest cost ............................................................
Actuarial loss (gain) ................................................
Change in GM portion of OPEB obligation ..............
Participant contributions ..........................................
Benefit payments ....................................................
Currency fluctuations ..............................................
Net change ..............................................................
Benefit obligation at end of year .............................. $
Change in plan assets
Fair value of plan assets at beginning of year......... $
Actual return on plan assets....................................
Employer contributions ............................................
Participant contributions ..........................................
Benefit payments ....................................................
Currency fluctuations ..............................................
Net change ..............................................................
Fair value of plan assets at end of year .................. $
693.1 $
2.9
28.8
54.8
—
0.3
(38.1)
(24.2)
24.5
717.6 $
612.8 $
61.7
2.3
0.3
(38.1)
(27.7)
(1.5)
611.3 $
(in millions)
738.8 $
3.2
588.4 $
0.3
28.6
(32.1)
—
0.4
(38.4)
(7.4)
14.0
(6.8)
(7.2)
—
(17.0)
—
(45.7)
693.1 $
(16.7)
571.7 $
643.7 $
(5.0)
20.1
0.4
(38.4)
(8.0)
(30.9)
612.8 $
— $
—
17.0
—
(17.0)
—
—
— $
654.7
0.4
15.0
(35.9)
(31.6)
—
(14.2)
—
(66.3)
588.4
—
—
14.2
—
(14.2)
—
—
—
Amounts recognized in our Consolidated Balance Sheets are as follows:
Pension Benefits
December 31,
OPEB
December 31,
2016
2015
2016
2015
(in millions)
Noncurrent assets ...................................................... $
12.9 $
27.0 $
— $
Current liabilities .........................................................
Noncurrent liabilities ...................................................
(5.7)
(113.5)
(4.2)
(103.1)
(29.1)
(542.6)
Net liability .................................................................. $
(106.3) $
(80.3) $
(571.7) $
—
(29.4)
(559.0)
(588.4)
64
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pre-tax amounts recorded in accumulated other comprehensive income (loss) (AOCI), not yet recognized in net
periodic benefit cost (credit) as of December 31, 2016 and 2015, consists of:
Pension Benefits
December 31,
OPEB
December 31,
2016
2015
2016
2015
Net actuarial gain (loss) .............................................. $
Net prior service credit ...............................................
Total amounts recorded.............................................. $
(247.9) $
0.5
(247.4) $
The components of net periodic benefit cost (credit) are as follows:
(in millions)
(222.9) $
0.6
(222.3) $
8.5 $
9.9
18.4 $
1.1
12.7
13.8
Pension Benefits
2016
2015
2014
2016
OPEB
2015
2014
Service cost ...................................... $
Interest cost ......................................
Expected asset return.......................
Amortized actuarial loss ...................
Amortized prior service credit ...........
Settlement charge ............................
Net periodic benefit cost (credit) ....... $
2.9 $
28.8
(42.1)
5.5
(0.1)
—
(5.0) $
3.2 $
(in millions)
3.5 $
0.3 $
0.4 $
28.6
(42.0)
6.0
(0.1)
—
(4.3) $
36.1
(48.4)
5.4
(0.1)
14.0
—
0.5
(2.7)
35.5
32.0 $
—
12.1 $
15.0
—
0.8
(2.7)
—
13.5 $
0.3
15.3
—
0.5
(2.7)
—
13.4
Our postretirement cost sharing asset from GM is measured on the same basis as the portion of the obligation
to which it relates. The actuarial gains and losses related to the GM portion of the OPEB obligation are recognized
immediately in the Consolidated Statement of Income as an offset against the gains and losses related to the
change in the corresponding GM postretirement cost sharing asset. These items are presented net in the change
in benefit obligation and net periodic benefit cost components disclosed above. Remaining actuarial gains and
losses are deferred and amortized over the expected future service periods of the active participants.
The estimated net actuarial loss and prior service credit for the defined benefit pension plans that is expected to
be amortized from AOCI into net periodic benefit credit in 2017 are $7.1 million and $0.1 million, respectively. The
estimated net actuarial loss and prior service credit for the other defined benefit postretirement plans that is
expected to be amortized from AOCI into net periodic benefit cost in 2017 are $0.5 million and $2.7 million,
respectively.
For measurement purposes, a weighted average annual increase in the per-capita cost of covered health care
benefits of 6.50% was assumed for 2017. The rate was assumed to decrease gradually to 5.0% by 2023 and to
remain at that level thereafter. Health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A 1.0% increase in the assumed health care cost trend rate would have increased total service
and interest cost in 2016 and the postretirement obligation, net of GM cost sharing, at December 31, 2016 by $1.5
million and $36.3 million, respectively. A 1.0% decrease in the assumed health care cost trend rate would have
decreased total service and interest cost in 2016 and the postretirement obligation, net of GM cost sharing, at
December 31, 2016 by $1.3 million and $30.1 million, respectively.
The expected future pension and other postretirement benefits to be paid, net of GM cost sharing, for each of
the next five years and in the aggregate for the succeeding five years thereafter are as follows: $59.6 million in
2017; $54.0 million in 2018; $53.9 million in 2019; $55.1 million in 2020; $56.1 million in 2021 and $292.7 million for
2022 through 2026. These amounts were estimated using the same assumptions that were used to measure our
2016 year-end pension and OPEB obligations and include an estimate of future employee service.
65
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Contributions In December 2015, we voluntarily contributed $18.3 million to our U.K. pension trust to satisfy
our estimated U.K. regulatory funding requirements for 2016 through 2018. Due to the availability of our prefunded
pension balances related to our U.S. pension plans, we do not expect to make any cash payments in 2017 to
satisfy our regulatory funding requirements. We expect our cash outlay, net of GM cost sharing, for OPEB to be
approximately $16 million in 2017.
Terminated vested lump sum payout offer In 2014, we offered a voluntary one-time lump sum payment
option to certain eligible terminated vested participants in our U.S. pension plans that settled our pension
obligations to them. The lump sum settlements, which were paid from plan assets, reduced our liabilities and
administrative costs going forward.
In total, 3,335 participants accepted the offer and we made a one-time lump sum payment from our pension
trust of $104.2 million in 2014. As a result of this settlement, we remeasured the assets and liabilities of our U.S.
pension plans, which reduced our projected benefit obligation by $131.1 million and resulted in a non-cash charge
of $35.5 million in 2014 related to the accelerated recognition of certain deferred losses.
Pension plan assets The weighted-average asset allocations of our pension plan assets at December 31,
2016 and 2015 appear in the following table. The asset allocation for our plans is developed in consideration of the
demographics of the plan participants and expected payment stream of the benefit obligation.
U.S.
Target
U.K.
Target
2016
2015
Allocation
2016
2015
Allocation
Equity securities ..................
Fixed income securities .......
Hedge funds ........................
Cash ....................................
42.0%
48.0
9.0
1.0
34.8%
30% - 65%
27.3%
26.7%
25% - 35%
46.2
17.8
1.2
35% - 55%
0% - 20%
0% - 5%
57.0
11.7
4.0
52.0
9.6
11.7
55% - 65%
5% - 15%
0% - 5%
Total.....................................
100.0%
100.0%
100.0%
100.0%
The primary objective of our pension plan assets is to provide a source of retirement income for participants
and beneficiaries. Our primary financial objectives for the pension plan assets have been established in
conjunction with a comprehensive review of our current and projected financial requirements. These objectives
include having the ability to pay all future benefits and expenses when due, maintaining flexibility and minimizing
volatility. These objectives are based on a long-term investment horizon.
66
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Defined Benefit Pension Plan Assets Investments in our defined benefit plans are stated at fair value. Level
1 assets are valued using quoted market prices that represent the asset value of the shares held by the trusts. The
level 2 assets are investments in pooled funds, which are valued using a model to reflect the valuation of their
underlying assets that are publicly traded with observable values. The fair values of our pension plan assets are as
follows:
December 31, 2016
Asset Categories
Cash & Cash Equivalents ................................ $
Equity
U.S. Large Cap...............................................
U.S. Small/Mid Cap ........................................
World Equity ...................................................
Fixed Income Securities
Government & Agencies.................................
Corporate Bonds - Investment Grade.............
Corporate Bonds - Non-investment Grade .....
Emerging Market Debt....................................
Other ..............................................................
Hedge Funds
Property Funds (a) ...........................................
Multi Strategy Hedge Fund (a) .........................
Structured Credit Fund (a) ...............................
Total Plan Assets.............................................. $
Level 1
Level 2
Level 3
Total
10.4 $
(in millions)
— $
— $
10.4
90.9
37.3
106.5
74.7
143.7
26.2
24.2
5.0
—
—
—
33.1
—
—
—
—
—
—
—
518.9 $
—
—
—
33.1 $
—
—
—
—
—
—
—
—
—
—
—
— $
90.9
37.3
106.5
107.8
143.7
26.2
24.2
5.0
45.5
8.8
5.0
611.3
December 31, 2015
Asset Categories
Level 1
Level 2
Level 3
Total
Cash & Cash Equivalents ................................ $
Equity
U.S. Large Cap...............................................
U.S. Small/Mid Cap ........................................
World Equity ...................................................
Fixed Income Securities
Government & Agencies.................................
Corporate Bonds - Investment Grade.............
Corporate Bonds - Non-investment Grade .....
Emerging Market Debt....................................
Other ..............................................................
Hedge Funds
Property Funds (a) ...........................................
Multi Strategy Hedge Fund (a) .........................
Total Plan Assets.............................................. $
23.7 $
(in millions)
— $
— $
77.1
28.2
95.5
68.1
138.4
24.8
18.1
6.9
—
—
—
35.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
480.8 $
—
—
35.8 $
—
—
— $
23.7
77.1
28.2
95.5
103.9
138.4
24.8
18.1
6.9
54.6
41.6
612.8
(a) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its
equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to
permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.
67
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEFINED CONTRIBUTION PLANS Most of our salaried U.S. associates are eligible to participate in voluntary
savings plans. Our maximum match is 50% of eligible salaried associates' contribution up to 10% of their eligible
salary. Matching contributions amounted to $5.2 million in 2016, $4.6 million in 2015 and $3.9 million in 2014. U.S.
salaried associates are eligible annually to receive an additional AAM Retirement Contribution (ARC) benefit
between 3% to 5% of eligible salary, depending on years of service. We made ARC contributions of $5.8 million,
$5.3 million and $4.9 million in 2016, 2015 and 2014, respectively.
Certain UAW represented associates at our original U.S. locations are eligible for a Company match on
associate contributions made to the voluntary savings plans. Our maximum match is 25% of hourly associates'
contribution up to the first 6% of their contributions. Matching contributions amounted to $0.4 million in 2016, and
$0.1 million in 2015 and 2014. Certain UAW represented associates are also eligible to receive an ARC benefit of
5% of eligible wages. We made ARC contributions of $1.9 million in 2016, $2.5 million in 2015 and $2.6 million in
2014 related to these associates.
DEFERRED COMPENSATION PLAN Certain U.S. associates are eligible to participate in a non-qualified
deferred compensation plan. Payments of $0.5 million, $0.7 million and $1.2 million have been made in 2016, 2015
and 2014, respectively, to eligible associates that have elected distributions.
At December 31, 2016 and 2015, our deferred compensation liability was $5.3 million and $5.1 million,
respectively. Due to the changes in the value of this deferred compensation plan we increased our liability by $0.2
million, $0.1 million and $0.3 million in 2016, 2015 and 2014, respectively.
68
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK-BASED COMPENSATION
At December 31, 2016, we had stock-based awards outstanding under stock incentive compensation plans
approved by our stockholders. Under these plans, shares have been authorized for issuance to our directors,
officers and certain other associates in the form of options, unvested restricted stock units, performance shares or
other awards that are based on the value of our common stock. Shares available for future grants at December 31,
2016 were 2.7 million. The current stock plan will expire in April 2022.
STOCK OPTIONS Under the terms of the plans, stock options were granted at the market price of the stock on
the grant date. The contractual term of outstanding stock options is 10 years. We issue new shares to satisfy
stock-based awards.
Stock option awards became exercisable in three approximately equal annual installments beginning one year
from the initial date of grant.
The following table summarizes activity relating to our stock options:
Weighted-
Number of
Average Exercise
Shares
Price Per Share
(in millions, except per share data)
Outstanding at January 1, 2014 .........................................................
Options granted ..................................................................................
Options exercised ...............................................................................
Options canceled ................................................................................
Outstanding at December 31, 2014 ....................................................
Options granted ..................................................................................
Options exercised ...............................................................................
Options canceled ................................................................................
Outstanding at December 31, 2015 ....................................................
Options granted ..................................................................................
Options exercised ...............................................................................
Options canceled ................................................................................
Outstanding at December 31, 2016 ....................................................
Exercisable at December 31, 2014 .....................................................
Exercisable at December 31, 2015 .....................................................
Exercisable at December 31, 2016 .....................................................
2.0 $
—
(0.1)
(1.0)
0.9 $
—
(0.1)
(0.2)
0.6 $
—
(0.1)
(0.2)
0.3 $
0.9 $
0.6 $
0.3 $
29.22
—
13.87
37.70
20.66
—
17.13
26.65
18.58
—
10.08
16.08
20.71
20.66
18.58
20.71
As of December 31, 2016, there were no unvested stock options. The total intrinsic value of options
outstanding and exercisable as of December 31, 2016 was $1.1 million. The total intrinsic value of stock options
exercised was $0.2 million in 2016, $0.3 million in 2015 and $0.5 million in 2014.
69
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the range of exercise prices for stock options that are outstanding and
exercisable at December 31, 2016:
Range of
Exercise Prices
Stock Options
Outstanding and
Exercisable
Weighted-
Remaining
Average Exercise Weighted-Average
Price Per Share
Contractual Life
(in years)
$9.19 - $10.08 ...................................................
$26.02 ...............................................................
(in millions, except per share data)
9.27
0.1 $
0.2
0.3 $
26.02
20.71
1.6
0.2
0.6
RESTRICTED STOCK UNITS We have awarded restricted stock units (RSUs). Compensation expense
associated with RSUs settled in stock is recorded to paid-in-capital ratably over the three-year vesting period.
The following table summarizes activity relating to our RSUs:
Weighted-Average
Number of
Grant Date Fair
Shares/Units
Value per Share/Unit
(in millions, except per share data)
Outstanding at January 1, 2014 ....................................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2014 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2015 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2016 ...............................................
1.3 $
0.5
(0.1)
(0.1)
1.6 $
0.5
(0.3)
(0.1)
1.7 $
0.9
(0.7)
(0.1)
1.8 $
12.24
19.58
13.95
12.76
14.54
25.21
11.03
19.99
18.19
15.41
13.23
18.75
18.70
As of December 31, 2016, unrecognized compensation cost related to unvested RSUs totaled $12.2 million.
The weighted average period over which this cost is expected to be recognized is approximately one year. In 2016
and 2015, the total fair market value of RSUs vested was $10.5 million and $9.5 million, respectively.
PERFORMANCE SHARES As of December 31, 2016, we have performance shares (PS) outstanding under
our 2012 Omnibus Incentive Plan. We grant performance shares payable in stock to officers which vest in full over
a three-year performance period. These grants are based equally on a total shareholder return (TSR) measure and
AAM's three-year earnings before interest, taxes, depreciation and amortization (EBITDA) margin. The TSR metric
compares our TSR over the three-year performance period relative to the TSR of our pre-defined competitor peer
group. Share price appreciation and dividends paid are measured over the performance period to determine TSR.
As these awards are settled in stock, the compensation expense booked ratably over the vesting period is recorded
to paid-in-capital.
70
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes activity relating to our performance shares:
EBITDA Awards
Outstanding at January 1, 2014 ....................................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2014 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2015 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2016 ...............................................
TSR Awards
Outstanding at January 1, 2014 ....................................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2014 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2015 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2016 ...............................................
Number of
Shares
Weighted Average
Grant Date Fair
Value per Share
(in millions, except per share data)
— $
0.2
—
—
0.2 $
0.1
—
—
0.3 $
0.2
—
—
0.5 $
— $
0.2
—
—
0.2 $
0.1
—
—
0.3 $
0.2
—
—
0.5 $
—
27.66
—
—
27.66
37.68
—
—
32.27
28.04
—
—
30.19
—
21.11
—
—
21.11
31.22
—
—
25.77
13.16
—
—
19.55
We estimate the fair value of our EBITDA performance shares on the date of grant using our estimated three-
year EBITDA margin, based on AAM's budget and long-range plan assumptions at that time, and adjust quarterly as
necessary. We estimate the fair value of our TSR performance shares on the date of grant using the Monte Carlo
simulation approach. The Monte Carlo simulation approach utilizes inputs on volatility assumptions, risk free rates,
the price of the Company’s and our competitor peer group's common stock and their correlation as of each
valuation date. Volatility assumptions are based on historical and implied volatility measurements.
Based on the current fair value, the estimated unrecognized compensation cost related to unvested PS totaled
$10.6 million, as of December 31, 2016. The weighted-average period over which this cost is expected to be
recognized is approximately one year.
71
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERFORMANCE AWARDS As of December 31, 2016, we have no TSR performance awards outstanding.
We granted performance awards payable in cash to our officers and executives which vested in full over a three
year performance period. The payout of these awards was based on a TSR measure that compared our TSR over
the three-year performance period relative to the TSR of our pre-defined competitor peer group. Share price
appreciation and dividends paid were measured over the performance period to determine TSR.
According to the applicable accounting guidance, these awards were considered to be stock-based
compensation because the final payout amount was based “at least in part” on the price of our shares. However, as
these awards were settled in cash, they are determined to be liability awards and have been remeasured at the end
of each reporting period until settlement. The fair value of the performance awards was calculated on a quarterly
basis using the Monte Carlo simulation approach, described above, and the liability was adjusted accordingly based
on changes to the fair value and the percentage of time vested.
We recognized compensation expense associated with these performance awards of approximately $1.4 million
in 2014. We made a cash payment of $3.7 million and $8.5 million in 2015 and 2014, respectively, related to the
TSR performance awards.
8.
INCOME TAXES
Income before income taxes for U.S. and non-U.S. operations was as follows:
2016
2015
(in millions)
2014
U.S. income .............................................................................. $
Non - U.S. income ....................................................................
Total income before income taxes............................................ $
90.0 $
209.0
299.0 $
88.3 $
184.4
272.7 $
12.0
164.7
176.7
The following is a summary of the components of our provisions for income taxes:
Current
Federal ..................................................................................... $
Other state and local ................................................................
Foreign .....................................................................................
Total current ............................................................................. $
Deferred
Federal ..................................................................................... $
Foreign .....................................................................................
Total deferred ...........................................................................
Total income tax expense......................................................... $
2016
2015
(in millions)
2014
0.4 $
—
27.5
27.9 $
31.2 $
(0.8)
30.4
58.3 $
0.5 $
0.2
10.8
11.5 $
26.4 $
(0.8)
25.6
37.1 $
0.6
0.1
44.2
44.9
(11.6)
0.4
(11.2)
33.7
72
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of our provision for income taxes to the expected amounts using statutory rates:
Federal statutory ......................................................................
Foreign income taxes ...............................................................
Change in enacted tax rate ......................................................
State and local .........................................................................
Tax credits ................................................................................
Valuation allowance .................................................................
U.S. tax on unremitted foreign earnings ...................................
Uncertain tax positions .............................................................
Other ........................................................................................
Effective income tax rate ..........................................................
2016
2015
2014
35.0%
(20.5)
(0.2)
—
(1.1)
0.4
0.2
0.5
5.2
35.0%
(17.6)
—
0.1
(1.3)
2.6
0.2
(5.7)
0.3
35.0%
(25.1)
—
0.1
(11.4)
4.5
1.9
13.0
1.1
19.5%
13.6%
19.1%
Our income tax expense and effective tax rate for 2016, 2015 and 2014, as compared to the U.S. federal
statutory rate of 35%, primarily reflect favorable foreign tax rates, partially offset by our inability to realize a tax
benefit for current foreign losses. Our effective tax rate for 2016 is higher than our effective tax rate for 2015
primarily due to the impact of an $11.5 million reduction in tax expense related to uncertain tax positions attributable
to transfer pricing in the fourth quarter of 2015.
In 2014, we recorded tax expense of $23.1 million for changes to prior year uncertain tax positions related to
transfer pricing and expense of $3.4 million for a change in estimate for U.S. tax on unremitted foreign earnings.
We also recorded a net tax benefit of $20.1 million in 2014 related to our ability to utilize tax credits in future periods
resulting in the recognition of a deferred tax asset.
As of December 31, 2016 and 2015, we have refundable income taxes of $3.4 million and $2.5 million,
respectively, classified as prepaid expenses and other on our Consolidated Balance Sheet. We also have income
taxes payable of $0.9 million and $6.8 million classified as other accrued expenses on our Consolidated Balance
Sheet as of December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, we have accrued
value added tax payable of $34.2 million and $35.8 million, respectively, classified as other accrued expenses on
our Consolidated Balance Sheet.
In 2015 AAM early adopted ASU 2015-17 - Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes. Based on the early adoption of this standard, all of AAM's deferred tax assets and liabilities, in 2016 and
2015, are classified as noncurrent in our Consolidated Balance Sheets.
73
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the significant components of our noncurrent deferred tax assets and liabilities:
Noncurrent deferred tax assets
Employee benefits ................................................................................................ $
Inventory ...............................................................................................................
Net operating loss (NOL) carryforwards ...............................................................
Tax credit carryforwards .......................................................................................
Capital allowance carryforwards ...........................................................................
Fixed assets .........................................................................................................
Deferred revenue .................................................................................................
Capitalized expenditures ......................................................................................
Other ....................................................................................................................
Valuation allowances ............................................................................................
Noncurrent deferred tax assets ............................................................................ $
December 31,
2016
2015
(in millions)
219.3 $
8.9
126.7
35.1
11.6
15.9
19.3
71.9
20.5
(164.8)
364.4 $
211.1
9.4
117.0
25.8
13.6
13.5
15.0
120.5
22.4
(167.3)
381.0
Noncurrent deferred tax liabilities
Fixed assets and other .........................................................................................
Noncurrent deferred tax asset, net ....................................................................... $
(23.0)
341.4 $
(14.2)
366.8
Noncurrent deferred tax assets and liabilities recognized in our Consolidated Balance Sheets are as follows:
U.S. federal and state deferred tax asset, net ...................................................... $
Other foreign deferred tax asset, net ....................................................................
Noncurrent deferred tax asset, net ....................................................................... $
December 31,
2016
2015
(in millions)
333.1 $
8.3
341.4 $
354.7
12.1
366.8
DEFERRED INCOME TAX ASSETS AND LIABILITIES AND VALUATION ALLOWANCES The deferred
income tax assets and liabilities summarized above reflect the impact of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities
as measured by tax laws. As of December 31, 2016 and December 31, 2015, we had deferred tax assets from
domestic and foreign NOL and tax credit carryforwards of $173.4 million and $156.4 million, respectively.
Approximately $98.4 million of the deferred tax assets at December 31, 2016 relate to tax credits that can be
carried forward indefinitely with the remainder having carryover periods of 5 to 20 years.
Accounting guidance for income taxes requires a deferred tax liability to be established for the U.S. tax impact
of undistributed earnings of foreign subsidiaries unless it can be shown that these earnings will be permanently
reinvested outside the U.S. Deferred income taxes have not been provided on $931.8 million of undistributed
earnings of certain foreign subsidiaries as such amounts are considered permanently reinvested. The remittance of
these undistributed earnings may subject us to U.S. income taxes and certain foreign withholding taxes at the time
of remittance, however, the determination of the amount of unrecognized deferred tax liability relating to the
remittance of undistributed earnings is not practicable.
In accordance with the accounting guidance for income taxes, we estimate whether recoverability of our
deferred tax assets is “more likely than not,” based on forecasts of taxable income in the related tax jurisdictions. In
this estimate, we use historical results, projected future operating results based upon approved business plans,
eligible carry forward periods, tax planning opportunities and other relevant considerations. This includes the
consideration of tax law changes, prior profitability performance and the uncertainty of future projected profitability.
74
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under applicable GAAP, a sustained period of profitability in our operations is required before we would change
our judgment regarding the need for a valuation allowance against our net deferred tax assets. During 2016, our
business in China turned to a position of cumulative profitability on a pre-tax basis, considering our operating results
for the current year and the previous two years. We have concluded that this record of cumulative profitability in
recent years, in addition to our long range forecast showing continued profitability, has provided positive evidence
that it is more likely than not that our net deferred tax assets in China will be realized. Accordingly, in the fourth
quarter of 2016, we released our valuation allowance in China resulting in a $5.4 million tax benefit in our 2016
provision for income taxes.
As of December 31, 2016 and December 31, 2015, we have a valuation allowance of $164.8 million and $167.3
million, respectively, related to net deferred tax assets in several foreign jurisdictions and U.S. state and local
jurisdictions.
UNRECOGNIZED INCOME TAX BENEFITS To the extent our uncertain tax positions do not meet the “more
likely than not” threshold, we have derecognized such positions. To the extent our uncertain tax positions meet the
“more likely than not” threshold, we have measured and recorded the highest probable benefit, and have
established appropriate reserves for benefits that exceed the amount likely to be sustained upon examination.
A reconciliation of the beginning and ending amounts of unrecognized income tax benefits is as follows:
Balance at January 1, 2014 .................................................................. $
Increase in prior year tax positions .....................................................
Decrease in prior year tax positions ...................................................
Increase in current year tax positions .................................................
Balance at December 31, 2014 ............................................................. $
Increase in prior year tax positions .....................................................
Decrease in prior year tax positions ...................................................
Increase in current year tax positions .................................................
Foreign currency remeasurement adjustment .................................... $
Balance at December 31, 2015 ............................................................. $
Increase in prior year tax positions .....................................................
Decrease in prior year tax positions ...................................................
Increase in current year tax positions .................................................
Settlement ..........................................................................................
Foreign currency remeasurement adjustment ....................................
Balance at December 31, 2016 ............................................................. $
Unrecognized
Income Tax
Benefits
Interest and
Penalties
(in millions)
21.7 $
10.5
(0.5)
15.6
47.3 $
—
(9.4)
8.8
(5.1) $
41.6 $
0.4
(2.5)
9.3
(17.3)
(3.3)
28.2 $
4.1
8.1
—
—
12.2
1.4
(4.9)
—
(1.8)
6.9
2.0
(0.5)
—
(5.6)
(0.3)
2.5
At December 31, 2016 and December 31, 2015, we had $28.2 million and $41.6 million of net unrecognized
income tax benefits, respectively. The decrease in net unrecognized income tax benefits at December 31, 2016, as
compared to December 31, 2015, is primarily attributable to settlements during the year. In January 2016, we
completed negotiations with the Mexican tax authorities to settle 2007 through 2009 transfer pricing audits. We
made a payment of $22.9 million in January 2016 that fully satisfied our obligations for transfer pricing issues for tax
years 2007 through 2013. Including these settlements, we made payments of approximately $28 million in 2016 to
the Mexican tax authorities related to transfer pricing matters.
In 2016, 2015, and 2014, we recognized expense of $1.5 million, a benefit of $3.5 million and expense of $8.1
million, respectively, related to interest and penalties in income tax expense on our Consolidated Statement of
Income. We have a liability of $2.5 million and $6.9 million related to the estimated future payment of interest and
penalties at December 31, 2016 and 2015, respectively. The amount of the uncertain tax position as of
December 31, 2016 that, if recognized, would affect the effective tax rate is $30.7 million.
75
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We file income tax returns in the U.S. federal jurisdiction, as well as various states and foreign jurisdictions.
U.S. federal income tax examinations for the years 2012 and 2013 were settled in January of 2017 and U.S. federal
income tax examinations for the years 2010 and 2011 were settled in 2015. These settlements resulted in no cash
payment or reduction in our liability for unrecognized income tax benefits. In 2015, we closed our transfer pricing
examination for the 2010-11 tax year with the India Tax Authorities with no resulting adjustments. We are no longer
subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before
2011. At this time, we have audits underway in Germany for the 2012 through 2014 tax years and in India for the
2011-2012 and 2013-2014 tax years. We are not aware of any other examinations underway in any other tax
jurisdiction.
Based on the status of the IRS audits and audits outside the U.S., 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. Although it is difficult to estimate with certainty the amount of an audit settlement, we do not expect
the settlement will be materially different from what we have recorded. We will continue to monitor the progress
and conclusions of all ongoing audits and will adjust our estimated liability as necessary.
9. EARNINGS PER SHARE (EPS)
We present EPS 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 nonforfeitable 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):
2016
2014
2015
(in millions, except per share data)
Numerator
Net income ............................................................................................... $
Less: Net income allocated to participating securities..........................
Net income attributable to common shareholders - Basic and Dilutive .... $
240.7 $
(5.5)
235.2 $
235.6 $
(5.3)
230.3 $
143.0
(2.9)
140.1
Denominators
Basic common shares outstanding -
Weighted-average shares outstanding ................................................
Less: Participating securities ...........................................................
Weighted-average common shares outstanding ..................................
78.2
(1.8)
76.4
77.7
(1.8)
75.9
77.3
(1.6)
75.7
Effect of dilutive securities -
Dilutive stock-based compensation ......................................................
0.5
0.4
0.2
Diluted shares outstanding -
Adjusted weighted-average shares after assumed conversions ..........
76.9
76.3
75.9
Basic EPS ................................................................................................ $
3.08 $
3.03 $
1.85
Diluted EPS .............................................................................................. $
3.06 $
3.02 $
1.85
Certain exercisable stock options were excluded in the computations of diluted EPS because the exercise price
of these options was greater than the average annual market prices of our stock. The number of stock options
outstanding excluded from the calculation of diluted EPS was 0.2 million at year-end 2016, 0.2 million at year-end
2015 and 0.5 million at year-end 2014. The exercise price related to these stock options was $26.02 at year-end
2016 and 2015 and a range of $19.54 - $26.65 at year-end 2014.
76
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS Obligated purchase commitments for capital expenditures and related project
expenses were approximately $203.0 million at December 31, 2016 and $104.1 million at December 31, 2015.
LEGAL PROCEEDINGS We are involved in various legal proceedings incidental to our business. Although the
outcome of these matters cannot be predicted with certainty, we do not believe that any of these matters,
individually or in the aggregate, will have a material 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 will continue to closely monitor our environmental conditions to ensure that we are
in compliance with all laws, regulations and ordinances. We have made, and will continue to make, capital and
other expenditures to comply with environmental requirements, including recurring administrative costs. Such
expenditures were not significant during 2016, 2015 and 2014.
ENVIRONMENTAL OBLIGATIONS Due to the nature of our manufacturing operations, we have legal
obligations to perform asset retirement activities pursuant to federal, state, and local requirements. The process of
estimating environmental liabilities is complex. Significant uncertainty may exist related to the timing and method of
the settlement of these obligations. Therefore, these liabilities are not reasonably estimable until a triggering event
occurs that allows us to estimate a range and assess the probabilities of potential settlement dates and the potential
methods of settlement.
In the future, we will update our estimated costs and potential settlement dates and methods and their
associated probabilities based on available information. Any update may change our estimate and could result in a
material adjustment to this liability.
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
take actions 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.
During 2016 and 2015, we also made adjustments to our warranty accrual to reflect revised estimates
regarding our projected future warranty obligations. The following table provides a reconciliation of changes in the
product warranty liability:
Beginning balance ............................................................................................. $
Accruals .............................................................................................................
Settlements ........................................................................................................
Adjustments to prior period accruals ..................................................................
Foreign currency translation ...............................................................................
Ending balance ................................................................................................... $
December 31,
2016
2015
(in millions)
36.6 $
16.0
(7.3)
(2.3)
(0.1)
42.9 $
12.4
17.0
(6.1)
14.0
(0.7)
36.6
77
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss)
(AOCI) during the year ended December 31, 2016, December 31, 2015 and December 31, 2014 are as follows (in
millions):
Defined
Benefit Plans
Foreign
Currency
Translation
Adjustments
Unrecognized
Loss on Cash
Flow Hedges
Total
Balance at January 1, 2014 .................................... $
(197.9)
$
(18.6)
$
0.3
$ (216.2)
Other comprehensive loss before reclassifications.
Income tax effect of other comprehensive loss
before reclassifications ...........................................
Amounts reclassified from accumulated other
comprehensive income (loss) into net income ........
Income taxes reclassified into net income ..............
Net current period other comprehensive loss .........
(104.7)
36.6
38.8 (a)(c)
(13.4)
(42.7)
(30.3)
(6.8)
(141.8)
—
—
—
(30.3)
—
36.6
(0.9) (b)
—
(7.7)
37.9
(13.4)
(80.7)
Balance at December 31, 2014 ............................... $
(240.6)
$
(48.9)
$
(7.4)
$ (296.9)
Other comprehensive income (loss) before
reclassifications ......................................................
Income tax effect of other comprehensive income
(loss) before reclassifications .................................
Amounts reclassified from accumulated other
comprehensive loss into net income .......................
Income taxes reclassified into net income ..............
Net current period other comprehensive income
(loss) ......................................................................
21.2
(7.2)
4.0 (a)
(1.3)
(70.3)
(16.9)
(66.0)
—
—
—
—
10.9 (b)
—
(7.2)
14.9
(1.3)
16.7
(70.3)
(6.0)
(59.6)
Balance at December 31, 2015 ............................... $
(223.9)
$
(119.2)
$
(13.4)
$ (356.5)
Other comprehensive income (loss) before
reclassifications ......................................................
Income tax effect of other comprehensive income
(loss) before reclassifications .................................
Amounts reclassified from accumulated other
comprehensive loss into net income .......................
Income taxes reclassified into net income ..............
(27.5)
5.8
3.2 (a)
(1.1)
(3.2)
(20.8)
(51.5)
—
—
—
—
10.5 (b)
—
5.8
13.7
(1.1)
Net current period other comprehensive loss .........
(19.6)
(3.2)
(10.3)
(33.1)
Balance at December 31, 2016 ............................... $
(243.5)
$
(122.4)
$
(23.7)
$ (389.6)
(a) The amount reclassified from AOCI included $4.4 million in cost of goods sold (COGS) and $(1.2) million in selling, general
& administrative expenses (SG&A) for the year ended December 31, 2016, $4.8 million in COGS and $(0.8) million in SG&A for
the year ended December 31, 2015 and $36.0 million in COGS and $2.8 million in SG&A for the year ended December 31,
2014.
(b) The amounts reclassified from AOCI are included in COGS.
(c) Includes a reclassification of $23.1 million, net of tax, related to our terminated vested lump-sum pension payout in the U.S.
78
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SEGMENT AND GEOGRAPHIC INFORMATION
We operate in one reportable segment: the manufacture, engineer, design and validation of driveline systems
and related components and chassis modules for light trucks, SUVs, crossover vehicles, passenger cars and
commercial vehicles. Financial information relating to our operations by geographic area is presented in the
following table. Net sales are attributed to countries based upon location of customer. Long-lived assets exclude
deferred income taxes.
2016
December 31,
2015
(in millions)
2014
Net sales
United States ............................................................................ $
Canada ....................................................................................
Mexico ......................................................................................
South America ..........................................................................
China ........................................................................................
All other Asia ............................................................................
Europe and other .....................................................................
Total net sales .......................................................................... $
2,147.9
$
2,121.9
$
2,073.6
94.7
1,061.9
124.6
203.4
208.8
106.7
119.3
1,060.2
106.6
185.5
185.2
124.4
64.6
1,055.5
156.5
71.3
167.3
107.2
3,948.0
$
3,903.1
$
3,696.0
Long-lived assets
United States ............................................................................ $
Mexico ......................................................................................
South America ..........................................................................
China ........................................................................................
All other Asia ............................................................................
Europe .....................................................................................
Total long-lived assets .............................................................. $
$
831.0
529.2
61.5
129.8
92.0
111.7
$
824.0
522.6
48.5
85.8
103.7
120.3
867.1
513.2
80.5
59.8
117.5
94.0
1,755.2
$
1,704.9
$
1,732.1
79
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. UNAUDITED QUARTERLY FINANCIAL DATA
Three Months Ended,
March 31
June 30
September
30
December
31
(in millions, except per share data)
2016
Net sales .................................................................. $
Gross profit ..............................................................
Net income ...............................................................
Basic EPS (1) ............................................................ $
Diluted EPS (1) ......................................................... $
2015
Net sales .................................................................. $
Gross profit ..............................................................
Net income ...............................................................
Basic EPS (1) ............................................................ $
Diluted EPS (1) ......................................................... $
969.2 $
174.0
61.1
0.78 $
0.78 $
969.1 $
152.8
53.2
0.69 $
0.68 $
1,025.4 $
1,006.9 $
191.4
71.0
0.91 $
0.90 $
181.2
61.7
0.79 $
0.78 $
946.5
179.5 (2)
46.9
0.60
0.59
1,004.0 $
971.6 $
164.5
58.6
0.75 $
0.75 $
158.3
60.9
0.78 $
0.78 $
958.4
159.8
62.9
0.81
0.81
(1) Full year basic and diluted EPS will not necessarily agree to the sum of the four quarters because each
quarter is a separate calculation.
(2) In the third quarter of 2016, we identified an indicator of impairment at our Pantnagar Manufacturing Facility in
India due to changes in forecasted cash flows and, as a result, recorded an impairment charge of $3.4 million
to write the assets down to fair value. This impairment charge was recorded to Cost of Goods Sold in the third
quarter of 2016 but has been reclassified to Restructuring and Acquisition-Related Costs in the Consolidated
Statement of Income for the full year 2016. This reclassification occurred in the fourth quarter of 2016 as a
result of the announced closure of the facility.
80
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Holdings has no significant assets other than its 100% ownership in AAM, Inc. and no direct subsidiaries other than
AAM, Inc. The 7.75% Notes, 6.625% Notes, 6.25% Notes and 5.125% Notes 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., which are 100% indirectly owned by Holdings.
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
2016
Net sales
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
(in millions)
Elims
Consolidated
External .............................................................. $
— $
1,109.6
$
212.2
$
2,626.2
$
— $
3,948.0
(266.0)
(266.0)
(266.0)
—
3,948.0
3,221.9
726.1
319.2
26.2
380.7
(81.7)
299.0
58.3
—
240.7
—
240.7
(33.1)
207.6
Intercompany ......................................................
Total net sales ........................................................
Cost of goods sold ..................................................
Gross profit .............................................................
Selling, general and administrative expenses ........
Restructuring and acquisition-related costs ............
Operating income (loss) .........................................
Non-operating income (expense), net ....................
Income (loss) before income taxes .........................
Income tax expense ...............................................
Earnings (loss) from equity in subsidiaries .............
Net income (loss) before royalties ..........................
Royalties ................................................................
Net income after royalties .......................................
Other comprehensive loss, net of tax .....................
—
—
—
—
—
—
—
—
—
—
240.7
240.7
—
240.7
(33.1)
8.3
1,117.9
1,063.8
54.1
248.6
21.1
(215.6)
(96.6)
(312.2)
27.4
267.4
(72.2)
312.9
240.7
(33.1)
241.6
453.8
375.4
78.4
—
—
78.4
10.9
89.3
4.2
(16.7)
68.4
—
68.4
(1.2)
16.1
2,642.3
2,048.7
593.6
70.6
5.1
517.9
4.0
521.9
26.7
—
495.2
(312.9)
182.3
(12.1)
—
—
—
—
—
—
—
(491.4)
(491.4)
—
(491.4)
46.4
Comprehensive income .......................................... $
207.6
$
207.6
$
67.2
$
170.2
$
(445.0) $
81
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2015
Net sales
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Elims
Consolidated
External .............................................................. $
— $
1,149.0
$
210.3
$
2,543.8
$
— $
3,903.1
(286.7)
(286.7)
(286.7)
—
3,903.1
3,267.7
Intercompany ......................................................
Total net sales ........................................................
Cost of goods sold ..................................................
Gross profit .............................................................
Selling, general and administrative expenses ........
Operating income (loss) .........................................
Non-operating income (expense), net ....................
Income (loss) before income taxes .........................
Income tax expense ...............................................
Earnings (loss) from equity in subsidiaries .............
Net income (loss) before royalties ..........................
Royalties ................................................................
Net income after royalties .......................................
Other comprehensive loss, net of tax .....................
—
—
—
—
—
—
—
—
—
235.6
235.6
—
235.6
(59.6)
9.4
1,158.4
1,114.5
43.9
210.6
(166.7)
(99.3)
(266.0)
21.6
262.3
(25.3)
260.9
235.6
(59.6)
258.3
468.6
385.2
83.4
0.1
83.3
10.1
93.4
5.5
(20.8)
67.1
—
67.1
(63.6)
19.0
2,562.8
2,054.7
508.1
66.6
441.5
3.8
445.3
10.0
—
435.3
(260.9)
174.4
(68.4)
Comprehensive income .......................................... $
176.0
$
176.0
$
3.5
$
106.0
$
(285.5) $
2014
Net sales
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Elims
Consolidated
External ............................................................... $
— $
1,099.5
$
225.1
$
2,371.4
$
— $
3,696.0
(281.6)
(281.6)
(281.6)
—
3,696.0
3,173.2
Intercompany .......................................................
Total net sales ........................................................
Cost of goods sold ..................................................
Gross profit .............................................................
Selling, general and administrative expenses ........
Operating income (loss) .........................................
Non-operating income (expense), net ....................
Income (loss) before income taxes .........................
Income tax expense (benefit) .................................
Earnings (loss) from equity in subsidiaries .............
Net income (loss) before royalties ..........................
Royalties ................................................................
Net income after royalties .......................................
Other comprehensive loss, net of tax .....................
—
—
—
—
—
—
—
—
—
143.0
143.0
—
143.0
(80.7)
13.1
1,112.6
1,112.4
0.2
194.0
(193.8)
(103.0)
(296.8)
(11.8)
204.0
(81.0)
224.0
143.0
(80.7)
246.9
472.0
396.1
75.9
0.2
75.7
9.0
84.7
0.9
(23.3)
60.5
—
60.5
(23.5)
21.6
2,393.0
1,946.3
446.7
61.0
385.7
3.1
388.8
44.6
—
344.2
(224.0)
120.2
(34.8)
Comprehensive income .......................................... $
62.3
$
62.3
$
37.0
$
85.4
$
(184.7) $
82
—
—
—
—
—
—
(477.1)
(477.1)
—
(477.1)
191.6
—
—
—
—
—
—
(323.7)
(323.7)
—
(323.7)
139.0
635.4
277.3
358.1
(85.4)
272.7
37.1
—
235.6
—
235.6
(59.6)
176.0
522.8
255.2
267.6
(90.9)
176.7
33.7
—
143.0
—
143.0
(80.7)
62.3
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Balance Sheets
2016
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Elims
Consolidated
Assets
Current assets
Cash and cash equivalents ...................................... $
Accounts receivable, net ..........................................
Intercompany receivables ........................................
Inventories, net ........................................................
Other current assets ................................................
Total current assets......................................................
Property, plant and equipment, net ..............................
Goodwill .......................................................................
Intercompany notes and accounts receivable ..............
Other assets and deferred charges .............................
Investment in subsidiaries ...........................................
Total assets .................................................................. $
Liabilities and stockholders' equity
Current liabilities
Current portion of long-term debt ............................. $
Accounts payable .....................................................
Intercompany payables ............................................
Other current liabilities .............................................
Total current liabilities ..................................................
Intercompany notes and accounts payable..................
Long-term debt, net .....................................................
Investment in subsidiaries obligation ...........................
Other long-term liabilities .............................................
Total liabilities ..............................................................
Total stockholders' equity .............................................
Total liabilities and stockholders' equity ....................... $
(in millions)
— $
—
—
—
—
—
—
—
—
—
851.8
851.8
$
— $
—
—
—
—
321.8
—
—
—
321.8
530.0
851.8
$
84.3
126.7
442.6
46.0
29.4
729.0
213.7
—
343.9
662.6
1,559.0
3,508.2
$
$
1.6
21.9
326.0
29.1
0.5
379.1
102.9
147.8
242.2
37.1
—
909.1
$
$
— $
— $
80.6
324.8
142.2
547.6
14.6
1,339.7
—
754.5
2,656.4
851.8
3,508.2
$
35.8
153.4
4.3
193.5
7.5
4.1
124.7
0.6
330.4
578.7
909.1
$
395.3
411.4
9.1
144.4
45.9
1,006.1
777.1
6.2
—
164.2
—
1,953.6
3.3
265.9
299.5
119.4
688.1
242.2
57.1
—
110.6
1,098.0
855.6
1,953.6
$
— $
—
(777.7)
—
—
(777.7)
—
—
(586.1)
—
(2,410.8)
$ (3,774.6) $
$
— $
—
(777.7)
—
(777.7)
(586.1)
—
(124.7)
—
(1,488.5)
(2,286.1)
$ (3,774.6) $
481.2
560.0
—
219.5
75.8
1,336.5
1,093.7
154.0
—
863.9
—
3,448.1
3.3
382.3
—
265.9
651.5
—
1,400.9
—
865.7
2,918.1
530.0
3,448.1
2015
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Elims
Consolidated
Assets
Current assets
Cash and cash equivalents ...................................... $
Accounts receivable, net ..........................................
Intercompany receivables ........................................
Inventories, net ........................................................
Other current assets ................................................
Total current assets......................................................
Property, plant and equipment, net ..............................
Goodwill .......................................................................
Intercompany notes and accounts receivable ..............
Other assets and deferred charges .............................
Investment in subsidiaries ...........................................
Total assets .................................................................. $
Liabilities and stockholders' equity
Current liabilities
Current portion of long-term debt ............................. $
Accounts payable .....................................................
Intercompany payables ............................................
Other current liabilities .............................................
Total current liabilities ..................................................
Intercompany notes and accounts payable..................
Long-term debt, net .....................................................
Investment in subsidiaries obligation ...........................
Other long-term liabilities .............................................
Total liabilities ..............................................................
Total stockholders' equity .............................................
Total liabilities and stockholders' equity ....................... $
— $
—
—
—
—
—
—
—
—
—
622.3
622.3
$
— $
—
—
—
—
320.8
—
—
—
320.8
301.5
622.3
$
52.0
127.2
311.8
59.8
30.4
581.2
214.1
—
393.5
683.6
1,315.9
3,188.3
$
— $
19.7
249.7
31.1
0.5
301.0
91.9
147.8
252.2
41.4
—
834.3
$
$
— $
— $
35.8
154.9
4.1
194.8
—
4.5
111.7
0.5
311.5
522.8
834.3
$
103.0
248.7
134.2
485.9
10.3
1,336.5
—
733.3
2,566.0
622.3
3,188.3
83
$
230.5
392.2
9.4
139.6
41.2
812.9
740.2
6.6
—
152.9
—
1,712.6
3.3
273.9
167.3
144.9
589.4
314.6
34.7
—
92.5
1,031.2
681.4
1,712.6
$
— $
—
(570.9)
—
—
(570.9)
—
—
(645.7)
—
(1,938.2)
$ (3,154.8) $
$
— $
—
(570.9)
—
(570.9)
(645.7)
—
(111.7)
—
(1,328.3)
(1,826.5)
$ (3,154.8) $
282.5
539.1
—
230.5
72.1
1,124.2
1,046.2
154.4
—
877.9
—
3,202.7
3.3
412.7
—
283.2
699.2
—
1,375.7
—
826.3
2,901.2
301.5
3,202.7
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Statements of Cash Flows
2016
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
(in millions)
Elims
Consolidated
Net cash provided by operating activities.......... $
— $
78.3
$
25.3
$
304.0
$
— $
407.6
Investing activities
Purchases of property, plant and equipment ..........
Proceeds from sale of property, plant and
equipment ..............................................................
Purchase buyouts of leased equipment..................
Proceeds from government grants .........................
Final distribution of Reserve Yield Plus Fund .........
Acquisition of business, net ....................................
Net cash used in investing activities .......................
Financing activities
Net debt activity ......................................................
Employee stock option exercises ...........................
Purchase of treasury stock .....................................
Intercompany activity ..............................................
Net cash provided by (used in) financing activities .
Effect of exchange rate changes on cash...............
Net increase in cash and cash equivalents ............
Cash and cash equivalents at beginning of period .
—
—
—
—
—
—
—
—
—
(5.2)
5.2
—
—
—
—
(36.8)
(18.0)
(168.2)
—
(4.6)
—
1.0
—
(40.4)
(0.7)
0.3
—
(5.2)
(5.6)
—
32.3
52.0
0.3
—
—
—
(5.6)
(23.3)
1.4
—
2.8
—
—
(164.0)
(0.4)
24.4
—
—
—
(0.4)
—
1.6
—
—
—
—
24.4
0.4
164.8
230.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Cash and cash equivalents at end of period........... $
— $
84.3
$
1.6
$
395.3
$
— $
(223.0)
1.7
(4.6)
2.8
1.0
(5.6)
(227.7)
23.3
0.3
(5.2)
—
18.4
0.4
198.7
282.5
481.2
2015
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Elims
Consolidated
Net cash provided by operating activities.......... $
— $
163.7
$
68.1
$
145.8
$
— $
377.6
Investing activities
Purchases of property, plant and equipment ..........
Proceeds from sale of property, plant and
equipment ..............................................................
Proceeds from government grants .........................
Intercompany activity ..............................................
Net cash used in investing activities .......................
Financing activities
Net debt activity ......................................................
Employee stock option exercises ...........................
Purchase of treasury stock .....................................
Purchase of noncontrolling interest ........................
Intercompany activity ..............................................
Net cash provided by (used in) financing activities .
Effect of exchange rate changes on cash...............
Net increase (decrease) in cash and cash
equivalents .............................................................
Cash and cash equivalents at beginning of period .
—
—
—
—
—
—
—
(3.1)
—
3.1
—
—
—
—
Cash and cash equivalents at end of period........... $
— $
(36.4)
(12.8)
(144.3)
0.1
—
—
(36.3)
0.1
—
(55.0)
(67.7)
(142.8)
(0.4)
0.1
5.1
—
(139.1)
3.0
—
—
(1.1)
55.0
56.9
(12.6)
51.0
179.5
—
—
—
—
(0.4)
—
—
—
0.8
—
—
(3.1)
(145.1)
—
(17.7)
69.7
52.0
84
—
—
—
55.0
55.0
—
—
—
—
(55.0)
(55.0)
—
—
—
(193.5)
0.3
5.1
—
(188.1)
(140.2)
0.8
(3.1)
(1.1)
—
(143.6)
(12.6)
33.3
249.2
282.5
$
— $
230.5
$
— $
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2014
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Elims
Consolidated
Net cash provided by operating activities.......... $
— $
83.4
$
41.9
$
193.1
$
— $
318.4
Investing activities
Purchases of property, plant and equipment ..........
Proceeds from sale of property, plant and
equipment ..............................................................
Proceeds from government grants .........................
Intercompany activity ..............................................
Net cash used in investing activities .......................
Financing activities
Net debt activity ......................................................
Debt issuance costs ...............................................
Employee stock option exercises ...........................
Purchase of treasury stock .....................................
Intercompany activity ..............................................
Net cash provided by (used in) financing activities .
Effect of exchange rate changes on cash...............
Net increase in cash and cash equivalents ............
Cash and cash equivalents at beginning of period .
—
—
—
—
—
—
—
—
(0.3)
0.3
—
—
—
—
(51.3)
(18.6)
(136.6)
7.9
—
—
(43.4)
(7.8)
(0.3)
1.2
—
(0.3)
(7.2)
—
32.8
36.9
0.4
—
(23.3)
(41.5)
0.8
2.1
—
(133.7)
(0.4)
(13.8)
—
—
—
—
(0.4)
—
—
—
—
—
—
23.3
9.5
(6.5)
62.4
117.1
—
—
—
23.3
23.3
—
—
—
—
(23.3)
(23.3)
—
—
—
Cash and cash equivalents at end of period........... $
— $
69.7
$
— $
179.5
$
— $
15. SUBSEQUENT EVENTS
On February 9, 2017, AAM entered into an agreement pursuant to which, at the time of closing, AAM will
acquire 100% of a subsidiary of U.S. Manufacturing Corporation for $162.5 million, subject to adjustment at the
closing of the transaction. This acquisition is expected to close in the first quarter of 2017 and we will fund the
purchase price with available cash. The acquisition will be accounted for under the acquisition method and the
purchase price will be allocated to the identifiable assets and liabilities of the acquired company based on the
respective fair values of the assets and liabilities.
(206.5)
9.1
2.1
—
(195.3)
(22.0)
(0.3)
1.2
(0.3)
—
(21.4)
(6.5)
95.2
154.0
249.2
85
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of American Axle & Manufacturing Holdings, Inc.:
Detroit, Michigan
We have audited the accompanying consolidated balance sheets of American Axle & Manufacturing Holdings, Inc.
and subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of
income, comprehensive income, cash flows and stockholders' equity for each of the three years in the period ended
December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15. We
also have audited the Company's internal control over financial reporting as of December 31, 2016, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
these financial statements and financial statement schedule, and an opinion on the Company's internal control over
financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
86
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of American Axle & Manufacturing Holdings, Inc. and subsidiaries as of December 31, 2016 and
2015, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also,
in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
Detroit, Michigan
February 10, 2017
87
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure
controls and procedures and internal control over financial reporting and concluded that our disclosure controls and
procedures (as defined in Rules 13a - 15(e) or 15d - 15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) were effective as of December 31, 2016.
Management Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Our
internal control system was designed to provide reasonable assurance to our management and Board of Directors
regarding the preparation and fair presentation of our consolidated financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31,
2016. In making this assessment, we used criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment,
management concluded that, as of December 31, 2016, our internal control over financial reporting was effective
based on those criteria.
The attestation report of our independent registered public accounting firm regarding internal control over
financial reporting is included in Item 8, ”Financial Statements and Supplementary Data.”
Change in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter ended
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Item 9B. Other Information
None
88
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 401(b), (d) (e) and (f) of Regulation S-K about our executive officers is
furnished in Part I of this Form 10-K, Annual Report under the caption “Executive Officers of the Registrant.” All
other information required by Item 10 is incorporated herein by reference from our Proxy Statement which we
expect to file on or about March 23, 2017.
We have adopted a code of ethics that applies to our Chief Executive Officer and Chief Financial Officer and
the senior financial executives who report directly to our Chief Financial Officer. This code of ethics is available on
our website at www.aam.com. We will post on our website any amendment to or waiver from the provisions of the
code of ethics or our code of business conduct that applies to executive officers or directors of the Company.
Item 11.
Executive Compensation
The information required by Item 11 is incorporated by reference from our Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by Item 12 is incorporated by reference from our Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 under Items 404 and 407(a) of Regulation S-K is incorporated by reference
from our Proxy Statement.
Item 14.
Principal Accounting Fees and Services
The information required by Item 8(e) of Schedule 14A is incorporated by reference from our Proxy Statement.
89
Part IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as a part of this report:
1. All Financial Statements
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2016, 2015
and 2014 is filed as part of this Form 10-K.
All other schedules have been omitted because they are not applicable or not required.
3. Exhibits
The following exhibits were previously filed unless otherwise indicated:
Number
Description of Exhibit
2.1
Agreement and Plan of Merger by and among American Axle & Manufacturing Holdings, Inc.,
ALPHA SPV I, Inc. and Metaldyne Performance Group Inc.
(Incorporated by reference to Exhibit 2.1 of Current Report on Form 8-K dated November 8,
2016.)
3.01
Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.01 filed with American Axle & Manufacturing Holdings,
Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
3.02
Amended and Restated Bylaws of American Axle & Manufacturing Holdings, Inc.
(Incorporated by reference to Exhibit 3.02 filed with American Axle & Manufacturing Holdings,
Inc. Form 10-K for the year ended December 31, 2009.)
3.03
Second Amended and Restated Bylaws of American Axle & Manufacturing Holdings, Inc.
(Incorporated by reference to Exhibit 3.03 of Current Report on Form 8-K dated August 3,
2016.)
4.01
Specimen Certificate for shares of the Company's Common Stock
(Incorporated by reference to Exhibit 4.01 filed with American Axle & Manufacturing Holdings,
Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
4.02
Form of Indenture, among American Axle & Manufacturing, Inc., American Axle & Manufacturing
Holdings, Inc., as guarantor, certain subsidiary guarantors and U.S. Bank National Association, as
trustee
(Incorporated by reference to Exhibit 4.3 of Registration Statement on Form S-3 dated July 12,
2011.)
90
Number
Description of Exhibit
4.03
Indenture, dated as of November 3, 2011, among American Axle & Manufacturing, Inc., the
Guarantors and U.S. Bank National Association, as trustee
(Incorporated by Reference to Exhibit 4.1 of Current Report on Form 8-K dated October 31,
2011.)
4.04
Form of 7.75% Senior Notes due 2019
(Incorporated by Reference to Exhibit 4.2 of Current Report on Form 8-K dated October 31,
2011.)
4.05
Form of 6.625% Notes due 2022
(Incorporated by Reference to Exhibit 4.1 of Current Report on Form 8-K dated September 17,
2012.)
4.06
Form of 6.25% Notes due 2021
(Incorporated by Reference to Exhibit 4.1 of Current Report on Form 8-K dated February 28,
2013.)
4.07
Form of 5.125% Notes due 2019
(Incorporated by Reference to Exhibit 4.1 of Current Report on Form 8-K dated November 12,
2013.)
10.01
Asset Purchase Agreement, dated February 18, 1994, between AAM, Inc. and GM, and all
amendments thereto
(Incorporated by reference to Exhibit 10.01 filed with American Axle & Manufacturing Holdings,
Inc. Registration Statement on Form S-1 (Registration No. 333-53491))
10.02
Lifetime Program Contract for GMT-900 Products, between GM and AAM, Inc.
(Incorporated by reference to Exhibit 10.51 filed with American Axle & Manufacturing Holdings,
Inc. Form 10-Q for the quarterly period ended June 30, 2003.)
++10.03
Letter Agreement dated April 22, 2004 by and between DaimlerChrysler Corporation and AAM,
Inc.
(Incorporated by reference to Exhibit 10.43 filed with American Axle & Manufacturing Holdings,
Inc. Form 10-Q for the quarterly period ended June 30, 2004.)
‡10.04
Forms of Restricted Stock and Restricted Stock Unit Agreements under 1999 Stock Incentive
Plan
(Incorporated by reference to Exhibit 10.45 filed with American Axle & Manufacturing Holdings,
Inc. Form 10-Q for the quarterly period ended September 30, 2004.)
‡10.05
Form of Nonqualified Stock Option Agreement
(Incorporated by reference to Exhibit 10.5 of Current Report on Form 8-K dated October 26,
2005.)
‡10.06
Restated 1999 American Axle & Manufacturing Holdings, Inc. Stock Incentive Compensation Plan
(Incorporated by reference to Exhibit 10.51 filed with American Axle & Manufacturing Holdings,
Inc. Form 10-K for the year ended December 31, 2005.)
91
Number
Description of Exhibit
++10.07
Letter Agreement between General Motors Corporation and American Axle & Manufacturing, Inc.
dated June 29, 2007
(Incorporated by reference to Exhibit 99.1 of Current Report on Form 8-K dated June 29,
2007.)
‡10.08
Form of 2008 Stock Option Award Agreement for executive officers of American Axle &
Manufacturing Holdings, Inc.
(Incorporated by reference to Exhibit 10.52 filed with American Axle & Manufacturing Holdings,
Inc. Form 10-K for the year ended December 31, 2007.)
10.09
Agreement between General Motors Corporation and American Axle & Manufacturing, Inc. dated
May 3, 2008, as amended May 16, 2008
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated May 23, 2008.)
‡10.10
Amended and Restated AAM 2009 Long-Term Incentive Plan
(Incorporated by reference to Exhibit 10.61 filed with American Axle & Manufacturing Holdings,
Inc. Form 10-Q for the quarter ended June 30, 2009.)
++10.11
Settlement and Commercial Agreement, dated as of September 16, 2009, among General Motors
Company, American Axle & Manufacturing Holdings, Inc. and American Axle & Manufacturing, Inc.
(Incorporated by reference to Exhibit 10.62 of Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2009.)
‡10.12
Form of Nonqualified Stock Option Award Agreement under the 2012 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.2 of Current Report on Form 8-K dated May 1, 2012.)
‡10.13
Form of Restricted Stock Unit Award Agreement for Non-employee Directors under the 2012
Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.3 of Current Report on Form 8-K dated May 1, 2012.)
‡10.14
Form of Restricted Stock Unit Award Agreement (Cliff Vesting) for Executive Officers under the
2012 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.4 of Current Report on Form 8-K dated May 1, 2012.)
‡10.15
Form of Restricted Stock Unit Award Agreement (Installment Vesting) for Executive Officers under
the 2012 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.5 of Current Report on Form 8-K dated May 1, 2012.)
‡10.16
Form of Performance Unit Award Agreement for Executive Officers under the 2012 Omnibus
Incentive Plan
(Incorporated by reference to Exhibit 10.6 of Current Report on Form 8-K dated May 1, 2012.)
‡10.17
American Axle & Manufacturing, Inc. Amended and Restated Supplemental Executive Retirement
Program Document
(Incorporated by reference to Exhibit 10.37 of Quarterly Report on Form 10-Q dated July 27,
2012.)
92
Number
Description of Exhibit
10.18
10.19
10.20
Amendment and Restatement Agreement dated as of September 13, 2013, among American Axle
& Manufacturing Holdings, Inc., JPMorgan Chase Bank, N.A., as Administrative Agent and as
Collateral Agent, and each financial institution party thereto as a lender, including as Exhibit A
thereto, the Amended and Restated Credit Agreement dated as of January 9, 2004 and amended
and restated as of September 13, 2013 among American Axle & Manufacturing, Inc., American
Axle & Manufacturing Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A.,
as Administrative Agent
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated September 16,
2013.)
Guarantee Agreement dated as of January 9, 2004, as amended and restated as of September
13, 2013, among American Axle & Manufacturing, Inc., American Axle & Manufacturing Holdings,
Inc., certain subsidiaries of American Axle & Manufacturing, Inc. identified therein, and JPMorgan
Chase Bank, N.A. as Administrative Agent for the lenders referred to therein
(Incorporated by reference to Exhibit 10.2 of Current Report on Form 8-K dated September 16,
2013.)
Collateral Agreement dated as of November 7, 2008, as amended and restated as of September
13, 2013, among American Axle & Manufacturing Holdings, Inc., American Axle & Manufacturing,
Inc., certain subsidiaries of American Axle & Manufacturing, Inc. identified therein and JPMorgan
Chase Bank, N.A., as Collateral Agent
(Incorporated by reference to Exhibit 99.1 of Current Report on Form 8-K dated September 16,
2013.)
‡10.21
Form of Performance Share Award Agreement (Relative TSR) for Executive Officers under the
2012 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.35 of Annual Report on Form 10-K dated February 7,
2014.)
‡10.22
Form of Performance Share Award Agreement (EBITDA) for Executive Officers under the 2012
Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.36 of Annual Report on Form 10-K dated February 7,
2014.)
‡10.23
Form of Restricted Stock Unit Award Agreement (Cliff Vesting) for Executive Officers under the
2012 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.37 of Annual Report on Form 10-K dated February 7,
2014.)
‡10.24
Form of Restricted Stock Unit Award Agreement for Board of Directors under the 2012 Omnibus
Incentive Plan
(Incorporated by reference to Exhibit 10.1 of Quarterly Report on Form 10-Q dated May 2,
2014.)
‡10.25
Amended and Restated Employment Agreement dated February 19, 2015 by and between the
Company and David C. Dauch
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated February 26,
2015.)
‡10.26
AAM Executive Officer Change in Control Plan dated February 19, 2015
(Incorporated by reference to Exhibit 10.2 of Current Report on Form 8-K dated February 26,
2015.)
93
Number
Description of Exhibit
‡10.27
Form of Performance Share Award Agreement (Relative TSR) for Executive Officers under the
2012 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.3 of Current Report on Form 8-K dated February 26,
2015.)
‡10.28
Form of Performance Share Award Agreement (EBITDA) for Executive Officers under the 2012
Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.4 of Current Report on Form 8-K dated February 26,
2015.)
‡10.29
Form of Restricted Stock Unit Award Agreement for Executive Officers under the 2012 Omnibus
Incentive Plan
(Incorporated by reference to Exhibit 10.5 of Current Report on Form 8-K dated February 26,
2015.)
‡10.30
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the 2012
Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.6 of Current Report on Form 8-K dated February 26,
2015.)
‡10.31
Amended and Restated American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive
Plan
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated May 1, 2015.)
‡10.32
Employment Agreement dated as of August 1, 2015 by and between the Company and Michael
K. Simonte
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated July 31, 2015.)
‡10.33
Second Amended and Restated American Axle & Manufacturing, Inc. Incentive Compensation
Plan for Executive Officers effective as of January 1, 2016
(Incorporated by reference to Exhibit 10.38 of Annual Report on Form 10-K dated February 12,
2016.)
‡10.34
Voting Agreement
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated November 8,
2016.)
*12
*21
*23
*31.1
*31.2
*32
Computation of Ratio of Earnings to Fixed Charges
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
94
Number
Description of Exhibit
**101.INS
XBRL Instance Document
**101.SCH
XBRL Taxonomy Extension Schema Document
**101.PRE
XBRL Extension Presentation Linkbase Document
**101.LAB
XBRL Taxonomy Extension Label Linkbase Document
**101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
(All other exhibits are not applicable.)
++
‡
*
**
Confidential Treatment Request Granted by the SEC
Reflects Management or Compensatory Contract
Shown only in the original filed with the Securities and Exchange Commission
Submitted electronically with the original filed with the Securities and Exchange Commission
95
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
Balance at
Additions -
Charged to Deductions -
Beginning of Costs and
Expenses
Period
See Notes
Below
(in millions)
Balance
At End of
Period
Year Ended December 31, 2014
Allowance for doubtful accounts ........................... $
4.9 $
1.3 $
1.6 (1) $
4.6
Allowance for deferred taxes ................................
Inventory valuation allowance ...............................
163.7
27.3
Year Ended December 31, 2015
Allowance for doubtful accounts ...........................
4.6
Allowance for deferred taxes ................................
156.9
Inventory valuation allowance ...............................
27.9
Year Ended December 31, 2016
Allowance for doubtful accounts ...........................
4.3
Allowance for deferred taxes ................................
167.3
Inventory valuation allowance ...............................
29.3
13.8
10.6
2.5
31.9
11.1
0.4
18.4
7.5
20.6 (3)
156.9
10.0 (2)
27.9
2.8 (1)
4.3
21.5 (4)
167.3
9.7 (2)
29.3
1.6 (1)
3.1
20.9 (5)
164.8
9.8 (2)
27.0
(1) Uncollectible accounts charged off net of recoveries.
(2) Primarily relates to inventory adjustments for physical quantity discrepancies and write-offs of excess and
obsolete inventories.
(3) Primarily relates to the reversal of a valuation allowance against an expiring net operating loss in China.
(4) Primarily reflects a reduction in deferred tax assets at various foreign locations due to foreign currency
translation.
(5) Primarily reflects a reduction in deferred tax assets at various foreign locations due to foreign currency
translation, as well as the reversal of the valuation allowance of $5.4 million against our deferred tax assets in
China.
96
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
AMERICAN AXLE & MANUFACTURING
HOLDINGS, INC.
(Registrant)
/s/ Christopher J. May
Christopher J. May
Vice President & Chief Financial Officer
(Chief Accounting Officer)
Date: February 10, 2017
97
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities on the dates indicated.
Signature
Title
Date
/s/ David C. Dauch
David C. Dauch
/s/ Christopher J. May
Christopher J. May
/s/ Elizabeth A. Chappell
Elizabeth A. Chappell
/s/ William L. Kozyra
William L. Kozyra
/s/ Peter D. Lyons
Peter D. Lyons
/s/ James A. McCaslin
James A. McCaslin
/s/ William P. Miller II
William P. Miller II
/s/ John F. Smith
John F. Smith
/s/ Samuel Valenti III
Samuel Valenti III
Chairman of the Board &
Chief Executive Officer
Vice President &
Chief Financial Officer
Director
Director
Director
Director
Director
Director
Director
February 10, 2017
February 10, 2017
February 10, 2017
February 10, 2017
February 10, 2017
February 10, 2017
February 10, 2017
February 10, 2017
February 10, 2017
98
POWER
STARTS HERE.
L I G H T E R | S T R O N G E R | S M A R T E R
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