2019 ANNUAL REPORT
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
D E L I V E R I N G P O W E R S I N C E 1 9 9 4
1
2019 FINANCIAL
HIGHLIGHTS
$6.5BSALES
$970M
ADJUSTED EBITDA*
$560MCASH PROVIDED
BY OPERATING
ACTIVITIES
REDUCED TOTAL
DEBT BY MORE THAN
$150M
*See pages 88-90 of AAM’s 2019 Form 10-K, included herein, for definition and reconciliation of non-GAAP financial measures.
AAM DELIVERS POWER THAT MOVES THE WORLD.
As a leading global tier 1 automotive supplier, AAM designs, engineers and manufactures
driveline and metal forming technologies that are making the next generation of vehicles smarter,
lighter, safer and more efficient. Headquartered in Detroit, AAM has over 20,000 associates
operating at nearly 80 facilities in 17 countries to support our customers on global and regional
platforms with a focus on quality, operational excellence and technology leadership.
To learn more, visit aam.com.
2
For AAM, 2019 was a year of product expansion, continued diversification and preparation for a strong
future focused on both core products and further growth into electrification.
It was also a year of celebration as AAM reached a significant milestone – the 25th anniversary of our
company’s founding. As we celebrated this tremendous achievement, we also further prepared for our
future as a leading propulsion innovator with a solid backlog of future business, a strong financial profile
and a culture of excellence throughout our organization.
1
50LAUNCHES
During 2019, we supported our global customers on approximately 50 product and program launches. Highlights include:
•
Launching and ramping up the driveline systems for the all-new GM full-size pickup trucks – This is our largest vehicle
program and we are proud to continue to support this key customer.
• Expanding our content per vehicle on Ram Heavy Duty Trucks – AAM now supplies both front and rear axles as well as
driveshafts for the Ram 2500 and 3500 Heavy Duty and Ram 3500, 4500 and 5500 Chassis Cab trucks.
• Continuing to support and grow our Ford business – AAM launched production of our EcoTrac® Power Transfer Units for
global crossover vehicles in China and Europe and expanded production in North America. In addition, we launched our
first driveshaft program with Ford on the all-new Explorer and expanded our business with transmission module launches
on new 10-speed transmissions featured on the Explorer, F-Series Super-Duty trucks, Ranger and Lincoln Aviator.
• Supporting Jaguar as it further ramps up production of its first all-electric production vehicle, the all-wheel drive I-PACE
crossover – This vehicle continues to garner praise for the superior performance supplied by AAM’s front and rear
electric drive units.
•
Launching numerous AAM powertrain component and subassembly products across the globe – AAM continues to
benefit from the increasing demand for downsized engines and multi-speed transmissions.
Light vehicle production volumes declined in each of our key markets of North America, Europe and China in 2019. AAM
was also affected by a work stoppage at our largest customer in the second half of the year. Despite these challenges, we
delivered solid operating margins and strong free cash flow generation as we adjusted our operations to new market demand.
By the end of 2019, AAM reached $6.5 billion in sales, $970 million in Adjusted EBITDA and generated strong cash flow from
operations of $560 million. We also continued to pay down debt to strengthen our financial profile over the course of the year.
AAM continued to achieve synergy savings and make progress on business and information system integration related
to our MPG acquisition. We are nearly complete with these activities and we are completing final system integration and
2
From left: EcoTrac® PTU; Ram 3500 Pickup Truck; cutaway of Jaguar I-PACE; TracRite differential; Chevrolet Silverado HD Pickup Truck DRIVELINE $4.6BSALES
34LOCATIONS METAL FORMING $1.8BSALES 32LOCATIONS
capacity optimization initiatives in 2020. Upon completion, we will have achieved cost synergy savings well above our
original target. While we will no longer look at future savings as “synergies”, our increased scope and scale will provide
significant productivity opportunities.
AAM further realigned our business structure to focus on core businesses, efficiency, growth and to support our global
customers. We integrated our Powertrain business unit into our Driveline and Metal Forming Business Units. As expected,
this move has already created cost and operational efficiencies while allowing our teams to enhance our focus on excellence
and customer service.
We also completed the sale of our U.S. iron casting operations, which allowed us to streamline our business while accelerating
our debt reduction initiatives and enhancing our margin profile. The sale included 10 manufacturing facilities in the U.S. AAM
retained the El Carmen, Mexico, iron casting facility, which provides significant vertical integration benefits to AAM while
also serving external customers in Mexico and other global markets.
The Driveline Business unit now represents $4.6 billion in sales with 34 locations. This team’s focus is to build on the core
competencies within our foundational business, which is highly concentrated on the growing light truck vehicle segment.
They will also focus on the design, development and manufacturing of new propulsion technologies which address key
megatrends in the global automotive industry.
Products supporting hybrid and electric vehicles represent significant new business opportunities. This includes our vibration
control systems, electronic limited slip differentials and our e-AAM hybrid and electric driveline solutions. We see significant
growth opportunities for these products.
With our business unit consolidation and realignment, AAM’s Metal Forming operations now represent $1.8 billion in sales
with 32 total locations. As the largest automotive forger in the world, our size and scale enables us to provide the most
power-dense components to our customers while achieving world-class quality, operating efficiency and cost effectiveness.
Our product portfolio includes products that are required in multiple propulsion alternatives, not only internal combustion
engines but hybrid and fully electric powertrains as well, and have many applications outside the automotive industry.
3
2020 FINALIST
In Europe, AAM opened a new manufacturing facility to support demand and growth from local customers. Located near
Barcelona, Spain, this facility produces a complete range of vibration control systems. We also acquired operations in
Germany from MITEC Automotive AG, which specializes in balance shaft and NVH gear-based solutions. These actions will
expand our European footprint and support current demand and future growth with new and existing European customers
including Renault, BMW, Daimler, Porsche, Audi, Jaguar Land Rover and Ford.
In China, AAM began production at Liuzhou AAM Automotive Driveline System Co., Ltd. This joint venture, located in the
state-level economic development zone of East Liuzhou, produces driveline systems for local automakers. Starting in 2020,
this joint venture will support our third electrification program – a front-wheel electric drive unit for a value-oriented small
passenger car.
On the customer side, AAM was proud to be recognized by several key customers for quality and customer service with
17 awards. We were named a GM Supplier of the Year for the third consecutive year and a Hyundai Supplier of the Year for
safety management. In addition, we received a Sustainability Award as a top-performing global supplier at the 21st annual
Ford World Excellence Awards, and a Supplier Diversity Gold Award from General Motors for supporting minority-, women-
and veteran-owned businesses.
On the technology leadership front, AAM was named a 2020 Automotive News PACE Awards Finalist for our Electric Drive
Technology on the Jaguar I-PACE. The prestigious Automotive News PACE Awards recognize supplier advances in automotive
technologies and processes that have reached the market.
We are honored to receive these and other awards, and we continue to support all our customers with industry-leading
technology, quality and customer service.
4
During the past 25 years, we’ve seen significant change in both the automotive industry and AAM. From our earliest days
to today, one constant has been our unwavering commitment to our Cultural Values and Strategic Principles. These Values
– integrity, teamwork, responsibility, excellence, lean and empowerment – guide our diverse work force and define
how we interact with each other, our communities and the environment. Our Strategic Principles – quality, technology,
global, balance, competitiveness and profitability – drive how we build our products, innovate for the future and create
shareholder value. Our Cultural Values and Strategic Principles are the core of what we do each day in every one of our
facilities and have guided us through the ups and downs of our cyclical business.
Both our Principles and our Values drive AAM’s Sustainability Program. In 2019, AAM made great strides in strengthening
the monitoring, reporting and performance of our Sustainability Program, including:
• Publishing AAM’s first Sustainability Review in March 2019 followed by our more comprehensive Sustainability Report
in 2020
• Updating global Safety and Environmental Policies and adopting a global Human Rights Policy
• Publicly disclosing our CDP energy, greenhouse gas (GHG) and water assessments to our investors for the first time
• Establishing our Top 10 Sustainability Priority Topics
• Setting specific goals to reduce energy use, water consumption and GHG emissions
• Receiving multiple customer awards specific to sustainability and diversity
5
As we head into 2020, there are several macrotrends that we are monitoring. We expect global
automotive production volumes to soften slightly, but remain robust – especially in North America. We
also anticipate the favorable mix trend towards the light truck product segment, including crossover
vehicles, to persist over the next few years.
As we move past our heavy program launch period and finalize our key MPG integration activities,
we will benefit from reduced launch costs, stabilization of our operations, a renewed focus on core
productivity initiatives and lower capital expenditures. We also expect to continue our trend of using
our free cash flow generation to reduce debt and further strengthen our financial profile. While we
don’t expect a precipitous drop in global or North American light vehicle sales, our flexible operations,
variable cost structure, ample liquidity and solid debt maturity profile position us well to weather the
potential downside scenarios that could arise from declining macroeconomic or industry-specific factors.
Much has changed in our industry and within our company since we began operation in 1994, and we
anticipate the rate of change in the global automotive landscape to only increase. While the shift to
electrification has begun, it is impossible to precisely predict how fast and how broadly the transition
will take place. Therefore, our goal is to utilize our technology leadership to provide a broad product
portfolio offering across a wide range of propulsion alternatives that position AAM to be agnostic to
the market. AAM is investing its human and financial capital to develop, design and manufacture the
6
mobility systems of the future. We are confident that we will play a significant role in the transition from
traditional internal combustion powertrains to fully electric solutions over the next generations of vehicles.
We are collaborating with our customers today to make better vehicles for a better future.
While we recently celebrated a very successful and accomplished 25 years, our future has us even more
energized. We are laser-focused on executing and adapting our business strategy to profitably grow and
diversify our company for the next 25 years and beyond. AAM has the potential to generate significant
free cash flow, allowing us to continue to fund important R&D and capital investments. Through our
foundational commitment to operational excellence, technology leadership, world-class quality and
sustainability, we are positioned to further strengthen our value proposition to our customers, achieve
our long-term strategic objectives and drive shareholder value.
As always, I thank you for your continued support of AAM.
David C. Dauch
Chairman of the Board & Chief Executive Officer
7
AAM’S ELECTRIFICATION STRATEGY:
SCALABLE TECHNOLOGY SOLUTIONS
FOR ALL SEGMENTS AND MARKETS
AAM’s all-new Electric Drive technology is designed, engineered and manufactured to provide global automakers
a product portfolio of hybrid and electric driveline systems that range from low-cost, value-oriented offerings
to high-performance solutions. Using innovative design features and extensive experience in power density,
torque transfer, noise-vibration-harshness reduction, heat management and systems integration, AAM
developed industry-leading, scalable products suitable for every vehicle segment.
AAM’s first production Electric Drive unit powers Jaguar’s first pure-electric model, the I-PACE. Starting
production in Poland in 2018, AAM ramped up supply of both the front and rear e-Drive unit during 2019.
These electric drive systems are designed for optimal power density, providing high performance in a compact
package, and were recognized as a 2020 Automotive News PACE Award finalist. Not surprisingly, the success
of our first Electric Drive system has led to additional commercial opportunities and new business awards.
Starting production in 2020, AAM’s Electric Drive technology will power multiple variants of a hybrid, high-
performance passenger car for a premium European OEM. AAM’s system will combine internal combustion
and battery electric power to deliver torque and additional horsepower to these premium vehicles. This rear
electric drive unit will be one of the most sophisticated systems in the market and will further display our
industry-leading technology in hybrid and electric driveline systems.
8
In 2019, AAM announced a third Electric Drive contract. AAM will supply the front electric drive unit on the all-
electric Baojun E300 from SAIC-GM-Wuling. This is AAM’s first Electric Drive win in China and the first on a compact,
value-brand small passenger car. This unit will be made by our Liuzhou AAM joint venture. AAM successfully
leveraged its technology leadership, relationship with its joint venture partner and current customer to secure a
new business win in China, where we believe the growth in electric vehicles will be most prominent in upcoming
years. We see many opportunities to participate in this future growth.
Our Electric Drive products represent 10% of our new business backlog for the next three years. We estimate
lifetime revenues of the three booked electric drive programs to top $1 billion.
As we further commercialize our current technology, we are fast at work on our next-generation electric drive
products. Key to this advanced technology is the advancement of our power-dense 3-in-1 system that integrates
power electronics into the electric drive system, with the electric motor and gearbox. We expect this to be the
“sweet spot” of electric powertrain integration, and optimizing this design to achieve industry-leading power density,
performance and cost competitiveness is at the top of our technology leadership priorities. AAM is dedicating
significant human and financial capital to the future of electric propulsion systems and is committed to providing
a value proposition to our customers that will be sustainable as the industry transitions to electrification.
9
As we look at our business and determine the best strategy and direction for the future of AAM, we focus on
the three Ps: People, Processes and Products.
PEOPLE
Great companies start with great people. At AAM, we are focused on recruiting, developing and retaining the
best and brightest talent around the globe. We are passionate about cultivating a positive culture that empowers
our associates and provides them the tools to develop technically, grow professionally and contribute to the
greater good of the company and the surrounding communities. We also value diversity and inclusion because
it makes AAM a better company.
AAM is partnering with local leaders to develop training programs that offer affordable education to the
community while also increasing the number and enhancing the quality of emerging candidates for future
AAM leaders across the globe. One of our critical responsibilities is to assist current and future associates
in realizing their potential and providing them the resources to Deliver POWER for AAM each and every day.
PROCESSES
In order to compete in today’s manufacturing environment, you must strive to be the most efficient, cost-
competitive option while also providing world-class quality and on-time delivery – all day every day.
10
Today, AAM is focused on the latest manufacturing process technologies, such as additive manufacturing,
laser welding and predictive data analysis. Our commitment to innovative manufacturing techniques and
processes not only allows us to continuously improve and maintain industry leading profit margins in a
very competitive landscape, but is also aimed at ensuring the safest conditions possible for our associates
and reducing the impact of our operations on the environment in the communities in which we reside.
PRODUCTS
Technology leadership is the key to driving organic growth and diversification into the future. We collaborate with
our customers to meet the constantly changing consumer demand and governmental regulations and policies
across the globe. To that end, we are focused on developing propulsion systems that provide the lightweighting,
power density, fuel efficiency, hybridization and electrification preferred and, in certain cases, required. Our
commitment to developing and manufacturing advanced mobility systems, subassemblies and components is
designed not only to provide our customers with an undeniable value proposition but also be an important player in
the transformation of light vehicles, from traditional internal combustion powertrain architectures to configurations
that will significantly reduce and ultimately eliminate CO2 emissions.
By focusing on these three Ps, we believe we can drive sustainable growth and optimal profitability while positively
influencing the communities around us and playing a key role in the global transition of light vehicles to zero
emissions propulsion systems.
11
LEADERSHIP
As of March 12, 2020
OFFICERS
David C. Dauch
Chairman of the Board &
Chief Executive Officer
Michael K. Simonte
President
David E. Barnes
Vice President &
General Counsel
Greg Deveson
President – Driveline
Terri M. Kemp
Vice President –
Human Resources
Michael J. Lynch
Vice President –
Finance & Controller
Christopher J. May
Vice President &
Chief Financial Officer
Norman Willemse
President – Metal Forming
BOARD OF DIRECTORS
David C. Dauch 4
Chairman of the Board &
Chief Executive Officer
Elizabeth A. Chappell 2, 5
Executive Chairwoman
RediMinds, Inc.
James A. McCaslin 2, 3, 4, 5
Retired President & Chief Operating Officer
Harley-Davidson Motor Company
John F. Smith 1, 5
Principal of Eagle Advisors
Retired Group Vice President, General Motors
William P. Miller II 1, 5
Head of Asset Allocation
Saudi Arabian Investment 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
President and Chief Executive Officer
TI Fluid Systems, PLC
Herbert K. Parker 1, 2
Retired Executive Vice President
of Operational Excellence and Chief Financial
Officer, Harman International
Peter D. Lyons 2, 3
U.S. Regional Managing Partner
Freshfields Bruckhaus Deringer US LLP
Sandra E. Pierce 1, 3
Senior Executive Vice President
Huntington Bank
Board Committee Assignments
1 Audit Committee
2 Nominating/Corporate Governance Committee
3 Compensation Committee
4 Executive Committee
5 Technology Committee
12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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:
Title of Each Class
Common Stock, Par Value $0.01 Per Share
Trading Symbol(s)
AXL
Name of Each Exchange on Which Registered
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 every Interactive Data File required to be submitted 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 such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See definitions of “ large accelerated filer,” “accelerated filer,” “smaller reporting company,”and “emerging growth company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer
Smaller reporting company
Emerging growth company
Non-accelerated filer
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act
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, 2019 as reported on the New York Stock Exchange was $12.76 per share and the aggregate market value of the registrant's
Common Stock held by non-affiliates was approximately $1,421.6 million. As of February 11, 2020, the number of shares of the registrant's Common Stock, $0.01 par value,
outstanding was 112,544,942 shares.
Portions of the registrant's Annual Report to Stockholders for the year ended December 31, 2019 and Proxy Statement for use in connection with its Annual Meeting of
Stockholders to be held on May 7, 2020, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after December 31, 2019, 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, 2019
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
9
15
16
16
16
17
18
20
38
39
100
100
100
101
101
101
101
101
102
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.
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.
In 2017, Alpha SPV I, Inc., a wholly-owned subsidiary of Holdings, merged with and into Metaldyne
Performance Group, Inc. (MPG), with MPG as the surviving corporation in the merger. Upon completion of the
merger, MPG became a wholly-owned subsidiary of Holdings.
Narrative Description of Business
Company Overview
We are a global Tier 1 supplier to the automotive industry. We design, engineer and manufacture driveline and
metal forming products that are making the next generation of vehicles smarter, lighter, safer and more efficient.
We employ over 20,000 associates, operating at nearly 80 facilities in 17 countries, to support our customers on
global and regional platforms with a focus on operational excellence, quality and technology leadership.
In the first quarter of 2019, we initiated a new global restructuring program (the 2019 Program) to further
streamline our business by consolidating our four existing segments into three segments. The activity occurred
through the disaggregation of our former Powertrain segment, with a portion moving into our Driveline segment and
a portion moving into our Metal Forming segment. The primary objectives of this consolidation are to further the
integration of MPG, align AAM's product and process technologies, and to achieve efficiencies within our corporate
and business unit support teams to reduce cost in our business.
In the fourth quarter of 2019, we completed the sale of the U.S. operations of our Casting segment (the Casting
Sale). The Casting Sale did not include the entities that conduct AAM's casting operations in El Carmen, Mexico,
which are now included in our Driveline segment.
Major Customers
We are a primary supplier of driveline components to General Motors Company (GM) for its full-size rear-wheel
drive (RWD) light trucks, sport utility vehicles (SUV), and crossover vehicles manufactured in North America,
supplying a significant portion of GM's rear axle and four-wheel drive and all-wheel drive (4WD/AWD) axle
requirements for these vehicle platforms. We also supply GM with various products from our Metal Forming
segment. Sales to GM were approximately 37% of our consolidated net sales in 2019, 41% in 2018, and 47% in
2017.
We also supply driveline system products to FCA US LLC (FCA) for heavy-duty Ram full-size pickup trucks and
its derivatives, the AWD Jeep Cherokee, and a passenger car driveshaft program. In addition, we sell various
products to FCA from our Metal Forming segment. Sales to FCA were approximately 17% of our consolidated net
sales in 2019, 13% in 2018 and 14% in 2017.
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.
2
Competitive Strengths
We achieve our strategic objectives by emphasizing a commitment to:
Sustaining our operational excellence and focus on cost management.
• AAM received the 2018 GM Supplier of the Year Award, which is awarded to suppliers that consistently
exceed GM's expectations, create outstanding value or bring new innovations to GM. This was the third
consecutive year that we received this award.
• We also received Ford's World Excellence Award for Sustainability in 2019, which recognizes top-
performing suppliers for their contributions to Ford's success.
• During 2019, we launched nearly 50 programs across our business units, supporting a variety of
customers including GM, FCA, Ford, and Mercedes-AMG. In 2020, we expect to launch approximately 15
new and replacement programs across our business units.
• We continue to deliver operational excellence by leveraging our global standards, policies and best
practices across all disciplines through the use of the AAM Operating System. We use this system to
focus on customer satisfaction, lean production and efficient cost management, which allows us to
improve quality, eliminate waste, and reduce lead time and total costs globally.
• 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.
• Our business is vertically integrated to reduce cost and mitigate risk in the supply chain. Retention of our
El Carmen, Mexico manufacturing facility as part of the Casting Sale, as well as our acquisitions of MPG
and USM Mexico Manufacturing LLC (USM Mexico) in 2017 furthered our efforts to vertically integrate the
supply chain and helped ensure continuity of supply for certain parts to our largest manufacturing facility.
Maintaining our high quality standards, which are the foundation of our product durability and reliability.
• AAM has an enhanced internal quality assurance system that drives continuous improvement to meet
and exceed the growing expectations of our OEM customers.
•
In 2019, we had eleven facilities globally that were awarded the GM Supplier Quality Excellence Award
for outstanding quality performance during the 2018 performance year. For our Changshu Manufacturing
Facility in China, it was the fifth consecutive year that they earned this award.
• Our Ramos, Mexico facility was awarded the FCA Outstanding Quality Award in 2019 for the 2018
performance year.
• Several other facilities were recognized for outstanding quality performance by OEMs such as Daimler,
Hino and Ashok Leyland.
Achieving technology leadership by delivering innovative 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
advanced, sophisticated electronic controls; improved fuel efficiency; lower emissions; enhanced power
density; improved safety, ride and handling performance; and enhanced reliability and durability.
•
Located at our Trollhättan Technical Center (TTC) in Sweden, our e-AAM subsidiary designs and
commercializes battery electric and hybrid driveline systems designed to improve fuel efficiency, reduce
CO2 emissions and provide AWD capability. To date, our e-AAM™ hybrid and electric driveline systems
have been awarded multiple contracts. During 2018, e-AAM's front and rear eDrive units began
production on the Jaguar I-Pace AWD Crossover, which was named the World Car of the Year and World
3
Green Car in 2019. For this vehicle content, AAM was named as a finalist for the 2020 Automotive News
PACE Award, which recognizes supplier advances in automotive technologies and processes that have
reached the market. Another e-AAM program is for a premium European OEM and is expected to launch
in 2020.
• AAM's EcoTrac® Disconnecting AWD system (EcoTrac® ) is a fuel-efficient 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. In 2018, AAM launched
the next generation of our EcoTrac® Disconnecting AWD system (EcoTrac® Gen II), which is smaller,
lighter in weight and more efficient. AAM's EcoTrac® and EcoTrac® Gen II are featured on several global
crossover platforms, including GM's Chevrolet Equinox and GMC Terrain, FCA's AWD Jeep Cherokee
and its derivatives, as well as the Cadillac XT4 and the Ford Edge and Escape.
• 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 lightweighting alternatives, AAM is well positioned to offer
innovative, industry leading solutions. Our portfolio includes high-efficiency axles, aluminum axles and
AWD applications. 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.
•
In our Metal Forming segment, we have developed forged axle tubes, which deliver significant weight and
cost reductions as compared to the traditional welded axle tubes. These forged axle tubes entered
production on a program for a major OEM customer in 2019.
• AAM's Advanced Technology Development Center (ATDC) at our Detroit campus, allows us to accelerate
technological advancements. 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. Our Rochester Hills Technical
Center (RHTC) works with the ATDC to test and validate new and advanced technologies focused on
lightweighting, efficiency and vehicle performance using enhanced diagnostic and hardware assessment
capabilities. Additionally, our hybrid and electric driveline center of excellence at our TTC is key to
assisting our customers in meeting demand for technology advancement, as well as fuel efficiency and
emission standards.
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.
•
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 customers. New business launches
in 2019 included key customers such as Ford, Mercedes-AMG and Geely Auto Group.
• 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. Our
acquisition of MPG in 2017 was a key step in achieving our goals of customer, product and geographic
diversification.
4
We are focused on increasing our presence in global markets to support our customers' platforms.
• As our customers 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. In an effort to expand our global capabilities, we opened
an updated and expanded manufacturing facility in Barcelona, Spain, and began construction on a new
European headquarters and engineering center in Langen, Germany during 2019.
•
In 2019, we invested approximately $10 million in our joint venture (JV) that was formed in 2018 with
Liuzhou Wuling Automobile Industry Co., Ltd. (Liuzhou AAM), a subsidiary of Guangxi Automotive Group
Co., Ltd. This is in addition to our existing 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. Liuzhou AAM manufactures independent rear axles and driveheads to be
used on crossovers, including SUVs, minivans and multi-purpose vehicles, and was awarded a customer
contract in 2019 for its hybrid and electric driveline systems technology. HAAC supplies front and rear
beam axles to several leading Chinese light truck manufacturers, including JAC and Foton (Beiqi Foton
Motor Co., Ltd.). These joint ventures continue to be a strong advantage for building relationships with
leading Chinese manufacturers.
Competition
We compete with a variety of independent suppliers and distributors, as well as with the in-house operations of
certain vertically integrated OEMs. Technology, design, quality and cost are the primary elements of competition in
our industry segments. In addition to traditional competitors in the automotive sector, the trend toward electrification
and advanced electronic integration has increased the level of new market entrants.
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 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.
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.
Backlog
We typically enter into agreements to provide our 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 gross new and incremental business backlog is approximately $750 million for programs launching from
2020 to 2022. In 2018, our gross new and incremental business backlog was approximately $1.25 billion for
programs launching from 2019 to 2021.
Of this $750 million gross new and incremental business backlog, approximately 45% is for end-use markets
outside of North America, approximately 70% relates to light trucks, including crossover vehicles and SUVs, and
approximately 10% relates to our e-AAM™ hybrid and electric driveline systems technology.
5
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 itself
cyclical and dependent on general economic conditions and other factors. Our business is moderately seasonal as
our major OEM customers historically have an extended shutdown of operations (typically 1-2 weeks) in conjunction
with their model year changeover and an approximate one-week shutdown in December. Our major OEM
customers also occasionally have longer shutdowns of operations (up to 6 weeks) for program changeovers.
Accordingly, our quarterly results may reflect these trends.
Litigation and Environmental Matters
We are involved in, or potentially subject to, various legal proceedings or claims incidental to our business.
These include, but are not limited to, matters arising out of product warranties, tax or contractual matters, and
environmental obligations. 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 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 anticipate continuing to make, capital
and other expenditures (including recurring administrative costs) to comply with environmental requirements at our
current and former facilities. Such expenditures were not significant in 2019, 2018 and 2017.
Associates
We employ over 20,000 associates on a global basis (including our joint venture affiliates) of which
approximately 7,000 are employed in the U.S. and approximately 13,000 are employed at our foreign locations.
Approximately 5,000 are salaried associates and approximately 15,000 are hourly associates. Of the 15,000 hourly
associates, approximately 72% are covered under collective bargaining agreements with various labor unions.
Executive Officers of the Registrant
Name
Age
Position
David C. Dauch ..........................
Michael K. Simonte ....................
David E. Barnes .........................
Gregory S. Deveson ...................
Terri M. Kemp .............................
Michael J. Lynch .........................
Christopher J. May .....................
Norman Willemse .......................
55
56
61
58
54
55
50
63
Chairman of the Board & Chief Executive Officer
President
Vice President & General Counsel
President - Driveline
Vice President - Human Resources
Vice President - Finance & Controller
Vice President & Chief Financial Officer
President - Metal Forming
6
David C. Dauch, age 55, 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. Presently, he serves on the boards of Business Leaders for
Michigan, the Detroit Economic Club, 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). Mr. Dauch also serves on the Miami University Business Advisory Council, the General
Motors Supplier Council and the FCA NAFTA Supplier Advisory Council.
Michael K. Simonte, age 56, has been President since August 2015. Mr. Simonte previously served as
Executive Vice President & 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 AAM, Mr. Simonte served as Senior Manager at
the Detroit office of Ernst & Young LLP. Mr. Simonte is a certified public accountant.
David E. Barnes, age 61, has been General Counsel and Corporate Secretary since joining AAM in 2012, and
became a Vice President in 2017. In addition to his responsibilities as General Counsel and Corporate Secretary,
he also serves as the Chief Compliance Officer of AAM. Prior to joining AAM, Mr. Barnes served as Executive Vice
President, General Counsel and Secretary for Atlas Oil Company. He has held various positions during his career
at Ford Motor Company, Dykema Gossett and Venture Holdings LLC, after beginning his career at Honigman,
Miller, Schwartz and Cohn. Mr. Barnes holds a juris doctor degree.
Gregory S. Deveson, age 58, has been President - Driveline since January 2019. Prior to that, he served as
President - Powertrain since joining AAM in April 2017. Prior to joining AAM, Mr. Deveson served as Senior Vice
President of the Driveline Systems Group at Magna Powertrain from 2008 to 2016. Over his 25-year automotive
and manufacturing career, Mr. Deveson has managed business operations, strategic opportunities, product
engineering, purchasing and quality for multiple organizations.
Terri M. Kemp, age 54, 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), and
served in various plant and program management roles since joining AAM in July 1996. Prior to joining AAM, 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 55, has been Vice President - Finance & Controller since February 2017. Prior to that,
he served as Vice President - Driveline Business Performance & Cost Management (since May 2015); 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, Forging 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 AAM, Mr. Lynch served at Stellar Engineering for nine years in
various capacities.
Christopher J. May, age 50, has been Vice President & Chief Financial Officer since August 2015. Prior to
that, he served as Treasurer (since December 2011); Assistant Treasurer (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.
7
Norman Willemse, age 63, has been President - Metal Forming 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 AAM in August 2001). Prior to joining AAM, Mr. Willemse served at AS
Transmissions & Steering (ASTAS) for seven years as Executive Director Engineering Group Manager Projects and
Engineering and John Deere for over 17 years in various engineering positions of increasing responsibility. Mr.
Willemse is a professional certified mechanical engineer.
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.
8
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.
Sales to GM were approximately 37% of our consolidated net sales in 2019, 41% in 2018, and 47% in 2017. A
reduction in our sales to GM, or a reduction by GM of its production of light truck, SUV or crossover vehicle
programs that we support, 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.
Sales to FCA accounted for approximately 17% of our consolidated net sales in 2019, 13% in 2018 and 14% in
2017. 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.
We are under continuing pressure from our customers to reduce our prices.
Annual price reductions are a common practice in the automotive industry. 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
requested by our customers. If we 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.
Our business faces substantial competition.
The markets in which we compete are highly competitive. Our competitors include 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 and electrification has increased the level of new market entrants, including
technology companies. Some of our competitors are affiliated with OEMs and others could 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 markets.
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, OEM in-sourcing 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 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. Our ability to anticipate changes in technology,
successfully develop, engineer, and bring to market new and innovative proprietary products, or successfully
respond to evolving business models (including electric vehicle advances), may have a significant impact on our
market competitiveness. If we are unable to maintain our competitive advantage through innovation, or if we do not
sustain our ability to meet customer requirements relative to technology, there could be a material adverse effect on
our results of operations and financial condition.
9
Our business is dependent on certain global automotive market segments.
A substantial portion of our revenue is derived from products supporting RWD light truck and SUV platforms
and AWD crossover vehicle platforms in North America, Europe and Asia. Sales and production levels of these
vehicle platforms 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; vehicle electricification; and government regulations. Reduced demand in the market segments we currently
supply could have a material adverse impact on our results of operations and financial condition.
Our company's global operations are subject to risks and uncertainties, including tariffs and trade
relations.
As U.S. companies continue to expand globally, increased complexity exists due to recent changes to corporate
tax codes, potential revisions to international tax law treaties, renegotiated trade agreements, including the
ratification of the United States-Mexico-Canada trade agreement (USMCA) or other potential changes to the North
American Free Trade Agreement (NAFTA), and the United Kingdom's exit from the European Union. These
uncertainties, as well as the potential impacts of these agreements, 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.
We have business and technical offices and manufacturing facilities in multiple countries outside the United
States. 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, tariffs or import
restrictions, nationalization, immigration policies, expropriation and other governmental action. Our global
operations also may be adversely affected by political events, domestic or international terrorist events and
hostilities, natural disasters and significant weather events, disruptions in the global financial markets, or public
health crises, such as pandemic or epidemic illness.
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. GMC represents a significant portion of our net sales, profitability and cash flow from operations and 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.
(including USMCA or NAFTA), tariffs, labor disputes, 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 and financial condition.
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 the potential reform of
longstanding corporate tax law principles and treaties that could adversely affect multi-national companies.
Although the OECD does not enact tax law, proposals like this or others that lead to substantial changes in enacted
tax laws and treaties, such as the 2020 Mexican Tax Reform and the Tax Cuts and Jobs Act signed into law in the
United States in 2017, 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.
10
A failure of our information technology (IT) networks and systems 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 or confidential 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.
Our business could be adversely affected by the cyclical nature of the automotive industry.
Our operations are cyclical because they are directly related to worldwide automotive production, which is itself
cyclical and dependent on general economic conditions and other factors, such as credit availability, interest rates,
fuel prices, consumer preference and confidence. Our business may be adversely affected by an economic decline
or fiscal crisis that results in a reduction of automotive production and sales by our customers.
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.
Our acquisitions of MPG and USM Mexico in 2017 significantly increased the carrying value of our goodwill and
other intangible assets, and resulted in a change to our organizational structure from one reporting unit to multiple
reporting units. As such, the threshold for analyzing impairment of goodwill has been reduced from an evaluation of
the carrying value of our consolidated operations and its related fair value, to an analysis performed across multiple
reporting units. This could potentially provide greater risk that goodwill becomes impaired in future operating
periods. Further, changes in market comparables, discount rates or long-term growth rates, as a result of a change
in economic conditions or otherwise, could result in goodwill impairment in future operating periods. The increase to
goodwill and other intangible asset balances in connection with these acquisitions provides a greater chance that
an impairment of these assets would have a material adverse effect 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 defect 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.
11
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 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 new product programs for which we will supply newly
developed 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 manufacturing 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 business could be adversely affected if we, our customers, or our suppliers fail to maintain
satisfactory labor relations.
A significant portion of our hourly associates worldwide, as well as the workforces of our customers and
suppliers, are members of industrial trade unions employed under the terms of collective bargaining agreements.
There can be no assurance that future negotiations with labor unions will be resolved favorably or that we, our
customers or suppliers 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.
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, changes in governmental regulations and trade agreements (including USMCA or NAFTA), or financial or
operational instability of suppliers 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.
12
Our restructuring initiatives may not achieve their intended outcomes.
We have initiated restructuring actions in recent years to reduce cost and realign certain areas of our business
and could initiate further restructuring actions in future periods. There can be no assurance that such restructuring
initiatives will successfully achieve the intended outcomes, or that the charges related to such initiatives will not
have a material adverse effect on our results of operations and financial condition.
As part of our strategic initiatives, we are actively assessing our product portfolio. As a result, we have divested
certain operations and may pursue additional plans to divest certain operations in future periods. Our results of
operations or financial condition could be adversely affected if we initiate a divestiture and it is not completed in
accordance with our expected timeline, or at all, or if we do not realize the expected benefits of the divestiture.
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.
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 or availability of raw materials,
utilities and natural resources.
We may experience volatility in the cost or availability of raw materials used in production, including steel and
other metallic materials, and resources used in electronic components, or in the cost or availability of utilities and
natural resources used in our operations, such as electricity, water and natural gas. If we are unable to pass such
cost increases on to our customers, or are otherwise unable to mitigate these cost increases, or if we are unable to
obtain adequate supply of raw materials, utilities and natural resources, this could have a material adverse effect on
our results of operations and financial condition.
13
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, risks related to
integrating enterprise resource planning systems, and failure to successfully integrate and fully 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 integrations successfully. As we continue to expand globally and
accelerate our diversification efforts, we may pursue strategic growth initiatives, including through acquisitions and
joint ventures. 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.
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. 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.
We have incurred substantial indebtedness.
We have incurred substantial indebtedness and related debt service obligations, which could have important
consequences, including:
•
•
•
•
•
reduced flexibility in planning for, or reacting to, changes in our business, the competitive environment and
the markets in which we operate, and to technological and other changes;
reduced access to capital and increasing borrowing costs generally or for any additional indebtedness to
finance future operating and capital expenditures and for general corporate purposes;
lowered credit ratings;
reduced funds available for operations, capital expenditures and other activities; and
competitive disadvantages relative to other companies with lower debt levels.
Our Senior Secured Credit Facilities, comprised of our Revolving Credit Facility, as well as our Term Loan A
Facility due 2024 and Term Loan B Facility (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), and our senior unsecured notes, contain customary
affirmative and negative covenants. Some, or with respect to certain covenants, all of these agreements include
financial covenants based on total net leverage and cash interest expense coverage ratios and limitations on
Holdings, AAM Inc, and their restricted subsidiaries to make certain investments, declare or pay dividends or
distributions on capital stock, redeem or repurchase capital stock and certain debt obligations, incur liens, incur
indebtedness, or merge, make certain acquisitions or sales of assets. 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 senior secured credit facilities. A default or acceleration under the senior secured
credit facilities 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.
The available capacity under our Revolving Credit Facility could be limited by our total net leverage ratio under
certain conditions. An increase in net leverage ratio, as a result of decreased earnings or otherwise, could result in
reduced access to capital under our Revolving Credit Facility.
The interest rates included in the agreements that govern our Senior Secured Credit Facilities and certain of
our derivative financial instruments are based primarily on the London Interbank Offered Rate (LIBOR). In the
future, use of LIBOR is expected to be discontinued and we cannot be certain how long LIBOR will continue to be a
viable benchmark interest rate. Use of alternative interest rates could result in increased borrowing costs, volatility
14
in the markets and interest rates. As a result, our ability to obtain cost effective financing associated with our Senior
Secured Credit Facilities or otherwise could be adversely affected.
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 current and former operations and facilities have
been, and are being, operated in compliance, in all material respects, with such laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations. The operation of our manufacturing
facilities entails risks in these areas, however, and there can be no assurance that we will not incur material costs or
liabilities. In addition, potentially significant expenditures could be required in order to comply with evolving
environmental, health and safety laws, regulations or other pertinent requirements that may be adopted or imposed
in the future by governmental authorities.
Our company 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 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 associates 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.
Item 1B. Unresolved Staff Comments
None.
15
Item 2.
Properties
The table below summarizes our global manufacturing locations and administrative, engineering or technical
locations:
North America
United States
Europe
Czech Republic
Luxembourg
Asia
China
South America
Brazil
Paris, AR (b)
Litchfield, MI (a)
Oslavany (b)
Steinfort (c)
Changshu (a)
Araucária (a)
Subiaco, AR (b)
Oxford, MI (b)
Zbysov (b)
Poland
Hefei (JV) (a)
Indaiatuba (b)
Bolingbrook, IL (b)
Rochester Hills, MI (c)
England
Huzhou City (JV) (b)
Chicago, IL (b)
Royal Oak, MI (b)
Halifax (a)
Scotland
Shanghai (c)
Bluffton, IN (a)
Southfield, MI (b), (c)
France
Glasgow (a)
Suzhou (a), (b)
Columbus, IN (b)
Three Rivers, MI (a)
Decines (a)
Spain
India
Fort Wayne, IN (b)
Troy, MI (b)
Lyon (a)
Barcelona (a)
Chennai (a)
Fremont, IN (a)
Warren, MI (b)
Germany
Valencia (b)
Jamshedpur (JV) (a)
North Vernon, IN (b)
Malvern, OH (b)
Bad Homburg (c)
Sweden
Pune (a), (c)
Remington, IN (b)
Minerva, OH (b)
Dieburg (c)
Arjeplog (c)
Japan
Rochester, IN (a)
Twinsburg, OH (b)
Eisenach (a)
Trollhättan (c)
Tokyo (c)
Auburn Hills, MI (b)
Ridgway, PA (b)
Nurnberg (b)
Detroit, MI (a), (c)
St. Mary's, PA (b)
Zell (b)
Fraser, MI (b)
Charleston, SC (a)
Mexico
El Carmen (a)
Silao (a), (b)
Ramos Arizpe (a), (b)
South Korea
Pyeongtaek (a)
Thailand
Rayong (a)
(a) Location supports the Driveline segment. (b) Location supports the Metal Forming segment. (c) Administrative, engineering
or technical location.
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.
Item 3.
Legal Proceedings
We are involved in, or potentially subject to, various legal proceedings or claims incidental to our business.
These include, but are not limited to, matters arising out of product warranties, tax or contractual matters, and
environmental obligations. 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 anticipate continuing to make, capital and
other expenditures (including recurring administrative costs) to comply with environmental requirements at our
current and former facilities. Such expenditures were not significant in 2019, 2018 and 2017.
Item 4.
Mine Safety Disclosures
Not applicable.
16
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Part II
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.” We had approximately 184 stockholders of record as of February 11, 2020.
Dividends
We did not declare or pay any cash dividends on our common stock in 2019. Our Credit Agreement associated
with our Senior Secured Credit Facilities limits our ability to declare or pay dividends or distributions on capital
stock.
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.
17
Item 6. Selected Financial Data
FIVE YEAR CONSOLIDATED FINANCIAL SUMMARY
Year Ended December 31,
Statement of operations data
Net sales ............................................................. $
Gross profit ..........................................................
Selling, general and
administrative expenses ...................................
Amortization of intangible assets .........................
Impairment charges .............................................
Restructuring and acquisition-related costs .........
Gain (loss) on sale of business ............................
Operating income (loss) .......................................
Net interest expense ............................................
Gain on bargain purchase of business.................
Gain on settlement of capital lease ......................
Net income (loss) .................................................
Net income (loss) attributable to AAM ..................
Diluted earnings (loss) per share ......................... $
Balance sheet data
Cash and cash equivalents .................................. $
Total assets .........................................................
Total long-term debt, net ......................................
Total AAM stockholders' equity ............................
Dividends declared per share ..............................
Statement of cash flows data
Cash provided by operating
activities ............................................................ $
Cash used in investing activities ..........................
Cash provided by (used in) financing
activities ............................................................
Other data
Depreciation and amortization ............................. $
Capital expenditures ............................................
Proceeds from sale of business, net ....................
Acquisition of business, net of cash acquired ......
Purchase buyouts of leased equipment ...............
2019
2018
2017
2016
2015
(in millions, except per share data)
6,530.9
902.6
$
7,270.4
1,140.4
$ 6,266.0
1,119.1
$ 3,948.0
726.1
$ 3,903.1
635.4
364.7
95.4
665.0 (a)
57.8
(21.3) (b)
(301.6)
211.5
10.8 (c)
—
(484.1) (d)(h)(i)
(484.5) (d)(h)(i)
(4.31)
532.0
6,644.6
3,612.3
977.6
—
559.6
(306.6)
(200.0)
385.7
99.4
485.5 (e)
78.9
15.5 (f)
106.4
214.3
—
15.6 (g)
(56.8) (h)(i)
(57.5) (h)(i)
(0.51)
476.4
7,510.7
3,686.8
1,483.9
—
$
$
390.1
75.3
—
110.7
—
543.0
192.7
—
—
337.5 (h)(i)
337.1 (h)(i)
3.21
376.8
7,882.8
3,969.3
1,536.0
—
$
$
314.2
5.0
—
26.2
—
380.7
90.5
—
—
240.7 (h)
240.7 (h)
3.06
481.2
3,422.3 (j)
1,400.9
504.2 (j)
—
$
$
274.1
3.2
—
—
—
358.1
96.6
—
—
235.6 (i)
235.6 (i)
3.02
282.5
3,176.9 (j)
1,375.7
275.7 (j)
—
$
$
$
771.5
$
647.0
$
407.6
$
377.6
(478.2)
(184.5)
(1,378.1)
615.6
(227.7)
18.4
(188.1)
(143.6)
536.9
433.3
141.2 (b)
9.4
0.9
$
528.8
524.7
$
47.1 (f)
1.3
0.5
428.5
477.7
5.9
895.5
13.3
$
201.8
223.0
—
5.6
4.6
$
198.4
193.5
—
—
—
18
(a)
In 2019, we recorded a charge of $225 million to reduce the carrying value of our U.S. Casting operations to fair value less cost to sell, and a
goodwill impairment charge of $440 million associated with the annual goodwill impairment test for our Metal Forming segment.
(b)
In 2019, we completed the sale of our U.S. Casting operations for $245 million, consisting of $185 million in cash, of which we received net
proceeds of $141.2 million subsequent to certain customary closing adjustments, and a $60 million deferred payment obligation. As a result of
the sale, we recorded a loss of $21.3 million.
(c)
In 2019, we recognized a gain on bargain purchase of $10.8 million associated with the acquisition of certain operations of Mitec Automotive
AG.
(d)
In 2019, we offered a voluntary one-time lump sum payment option to certain eligible terminated vested participants in our U.S. pension plans
that, if accepted, would settle our pension obligations to them. As a result of this settlement, we remeasured the assets and liabilities of our
U.S. pension plans, which resulted in a non-cash charge of approximately $7.7 million, net of tax, related to the accelerated recognition of
certain deferred losses.
(e) We recorded a goodwill impairment charge in 2018 associated with the annual goodwill impairment test for our Casting and former Powertrain
segments.
(f)
In 2018, we completed the sale of the aftermarket business associated with our former Powertrain segment for approximately $50 million, of
which we received net proceeds of $47.1 million. As a result of the sale, we recorded a $15.5 million gain.
(g)
In 2018, we reached a settlement agreement related to a capital lease obligation that we had recognized as a result of the acquisition of MPG.
This settlement resulted in a gain of $15.6 million, including accrued interest.
(h) For 2019, these amounts include impairment charges of $617.8 million, net of tax, integration related and other charges of $14.2 million, net of
tax, severance costs of $15.3 million, net of tax, and implementation costs related to restructuring of $16.1 million, net of tax. For 2018, these
amounts include goodwill impairment charges of $400.3 million, net of tax, acquisition and integration related charges of $27.5 million, net of
tax, asset impairment and plant closure costs of $25.7 million, net of tax, and implementation costs, including professional expenses, relating
to restructuring of $9.2 million, net of tax. For 2017, these amounts include acquisition and integration related charges of $56.0 million, net of
tax, asset impairment and plant closure costs of $2.3 million, net of tax, and implementation costs, including professional expenses, relating to
restructuring of $9.0 million, net of tax. For 2016, these amounts include 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.
(i)
Includes charges of $6.6 million, net of tax, in 2019, $15.3 million, net of tax, in 2018, $2.3 million, net of tax, in 2017 and $0.5 million, net of
tax, in 2015 related to debt refinancing and redemption costs.
(j) Each of these amounts have been adjusted by $25.8 million, net of tax, related to the retrospective application of our change in accounting
principle for indirect inventory, in which we changed our method of accounting from capitalizing indirect inventory and recording as expense
when the inventory was consumed, to expensing indirect inventory at the time of purchase. This change in accounting principle was effective
in the second quarter of 2017.
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
COMPANY OVERVIEW
We are a global Tier 1 supplier to the automotive industry. We design, engineer and manufacture driveline and
metal forming products that are making the next generation of vehicles smarter, lighter, safer and more efficient.
We employ over 20,000 associates, operating at nearly 80 facilities in 17 countries, to support our customers on
global and regional platforms with a focus on operational excellence, quality and technology leadership.
In the first quarter of 2019, we initiated a new global restructuring program (the 2019 Program) to further
streamline our business by consolidating our four existing segments into three segments. The activity occurred
through the disaggregation of our former Powertrain segment, with a portion moving into our Driveline segment and
a portion moving into our Metal Forming segment. The primary objectives of this consolidation are to further the
integration of MPG, align AAM's product and process technologies, and to achieve efficiencies within our corporate
and business unit support teams to reduce cost in our business.
In the fourth quarter of 2019, we completed the sale of the U.S. operations of our Casting segment (the Casting
Sale). The Casting Sale did not include the entities that conduct AAM's casting operations in El Carmen, Mexico,
which are now included in our Driveline segment. The Casting Sale did not qualify for classification as discontinued
operations, as it did not represent a strategic shift in our business that has had, or will have, a major effect on our
operations and financial results.
We are a primary supplier of driveline components to General Motors Company (GM) for its full-size rear-wheel
drive (RWD) light trucks, sport utility vehicles (SUV), and crossover vehicles manufactured in North America,
supplying a significant portion of GM's rear axle and four-wheel drive and all-wheel drive (4WD/AWD) axle
requirements for these vehicle platforms. We also supply GM with various products from our Metal Forming
segment. Sales to GM were approximately 37% of our consolidated net sales in 2019, 41% in 2018, and 47% in
2017.
We also supply driveline system products to FCA US LLC (FCA) for heavy-duty Ram full-size pickup trucks and
its derivatives, the AWD Jeep Cherokee, and a passenger car driveshaft program. In addition, we sell various
products to FCA from our Metal Forming segment. Sales to FCA were approximately 17% of our consolidated net
sales in 2019, 13% in 2018 and 14% in 2017.
INDUSTRY TRENDS
There are a number of significant trends affecting the markets in which we compete. Intense competition,
volatility in the price of raw materials, including steel, other metallic materials and resources used in electronic
components, and significant pricing pressures remain. At the same time, there is a focus on investing in future
products that will incorporate the latest technology and meet changing customer demands. 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 our global markets.
INCREASE IN DEMAND FOR ELECTRIFICATION AND ELECTRONIC INTEGRATION The electrification of
vehicles continues to expand, driven by government regulations related to emissions, such as the Corporate
Average Fuel Economy standards, as well as consumer demand for greater vehicle performance, enhanced
functionality, increased electronic content and vehicle connectivity, and affordable convenience options. We are
responding, in part, through the development of our e-AAM™ hybrid and electric driveline systems, and related
subsystems and components, which allow us to meet our customers' needs for high performance vehicles with
improved fuel economy and reduced emissions. To date, our e-AAM™ hybrid and electric driveline systems have
been awarded multiple contracts, and began production during 2018.
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. Our EcoTrac® Disconnecting AWD system, VecTrac™ Torque Vectoring
Technology and TracRite® Differential Technology, are examples of AAM's enhanced capabilities in electronic
integration.
20
EVOLUTION OF THE AUTOMOTIVE INDUSTRY AS DEMAND FOR CAR-SHARING, RIDE-SHARING AND
AUTONOMOUS VEHICLES INCREASES In addition to selling vehicles, OEMs are increasingly focused on
offering their own car-sharing rental businesses and ride-sharing services. 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 mobility. With continued urbanization, population growth, increased government regulations to
ease congestion and generational shifts in preferences, it is expected that the markets for these services will
continue to grow, which could cause a change in the type of vehicles utilized. 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 safety and reliability. The increased integration of electronics
and vehicle connectivity 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.
GLOBAL AUTOMOTIVE PRODUCTION AND INDUSTRY CONSOLIDATION As our customers 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. We have
engineering offices around the world to support our global locations and provide technical solutions to our
customers on a regional basis.
The cyclical nature of the automotive industry, volatile commodity prices, the shifting demands of consumer
preference, regulatory requirements and trade agreements require OEMs and suppliers to remain agile with regard
to product development and global capability. A critical objective for OEMs and suppliers is 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. Our acquisition of MPG in 2017 was a critical step in achieving the aforementioned objectives.
INCREASED DEMAND FOR FUEL EFFICIENCY AND EMISSIONS REDUCTIONS There has been an
increased demand for technologies designed to help reduce emissions, increase fuel economy and minimize the
environmental impact of vehicles. As a result, OEMs and suppliers are competing to develop and market new and
alternative technologies, such as electric vehicles, hybrid vehicles, fuel cells, higher speed transmissions, and
downsized, fuel-efficient engines. At the same time, OEMs and suppliers are improving products to increase fuel
economy and reduce emissions through lightweighting and efficiency initiatives.
We are responding with ongoing research and development (R&D) activities that focus on fuel economy,
emissions reductions and environmental improvements by integrating electronics and technology. Through the
development of our EcoTrac® Disconnecting AWD system, e-AAM™ hybrid and electric driveline systems,
QuantumTM lightweight axle technology, high-efficiency axles, PowerLite® axles and PowerDense® gears, high
strength connecting rod technology, refined vibration control systems, and forged axle tubes, we have significantly
advanced our efforts to improve fuel efficiency, safety, and ride and handling performance while reducing emissions
and mass. These efforts have led to new business awards and further position us to compete in the global
marketplace.
In addition to AAM's organic growth in technology and processes, our acquisitions of MPG and certain
operations of Mitec Automotive AG (Mitec), as well as our investment in our Liuzhou AAM joint venture, have
provided us with complementary technologies, expanded our product portfolio, significantly diversified our global
customer base, and strengthened our long-term financial profile through greater scale. The synergies achieved
through our strategic initiatives have enhanced AAM's ability to compete in today's technological and regulatory
environment, while remaining cost competitive through increased scale and integration.
21
The discussion of our Results of Operations and Liquidity and Capital Resources for 2018, as compared to 2017,
can be found within "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our 2018 Annual Report on Form 10-K filed with the SEC on February 15, 2019, which discussion is
incorporated herein by reference.
RESULTS OF OPERATIONS
NET SALES Net sales were $6,530.9 million in 2019 as compared to $7,270.4 million in 2018. Our change in
sales in 2019, as compared to 2018, primarily reflects the impact of lower full-sized truck sales resulting from the in-
sourcing by our largest customer of a portion of a replacement program that launched in the second half of 2018,
and a reduction of approximately $243 million associated with the impact of the GM work stoppage in the second
half of 2019. Net sales in 2019 were also impacted by customer downtime as a result of program changeovers in
2019, and lower volumes on certain crossover vehicle programs that we support, as well as a decrease of
approximately $142 million associated with the effect of metal market pass-throughs to our customers and the
impact of foreign exchange related to translation adjustments. These factors were partially offset by the impact of
program launches associated with our new business backlog.
COST OF GOODS SOLD Cost of goods sold was $5,628.3 million in 2019 as compared to $6,130.0 million in
2018. The change in cost of goods sold in 2019, as compared to 2018, primarily reflects the impact of lower global
automotive production volumes, a decrease of approximately $159 million associated with the impact of the GM
work stoppage, and a decrease of approximately $142 million related to metal market pass-through costs and the
impact of foreign exchange. This was partially offset by the impact of costs associated with program launches from
our new business backlog.
Materials costs as a percentage of total cost of goods sold were approximately 56% in 2019 and 59% in 2018.
GROSS PROFIT Gross profit was $902.6 million in 2019 as compared to $1,140.4 million in 2018. Gross
margin was 13.8% in 2019 as compared to 15.7% in 2018. Gross profit and gross margin were impacted by the
factors discussed in Net Sales and Cost of Goods Sold above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) SG&A (including R&D) was $364.7 million
in 2019 as compared to $385.7 million in 2018. SG&A as a percentage of net sales was 5.6% in 2019 and 5.3% in
2018. R&D spending was $144.7 million in 2019 as compared to $146.2 million in 2018. The change in SG&A in
2019, as compared to 2018, was primarily attributable to lower compensation-related expense due, in part, to our
restructuring initiatives.
AMORTIZATION OF INTANGIBLE ASSETS Amortization expense for the year ended December 31, 2019
was $95.4 million as compared to $99.4 million for the year ended December 31, 2018. The decrease in
amortization expense for 2019 as compared to 2018 was primarily attributable to the customer platforms and
relationships associated with the U.S. operations of our Casting segment, which ceased to be amortized upon being
classified as held-for-sale in September 2019.
IMPAIRMENT CHARGES In the third quarter of 2019, we entered into a definitive agreement to sell the U.S.
operations of our Casting segment. As a result, we recorded a pre-tax impairment charge of $225.0 million to
reduce the carrying value of this business to fair value less cost to sell upon reclassifying the assets and liabilities to
held-for-sale. See Note 2 - Sale of Business for further detail.
As a result of our annual goodwill impairment test in the fourth quarter of 2019, we determined that the carrying
value of our Metal Forming segment was greater than its fair value. As such, we recorded a goodwill impairment
charge of $440.0 million in 2019 associated with this segment. As a result of our annual goodwill impairment test in
the fourth quarter of 2018, we determined that the carrying values of our Casting and former Powertrain segments
were greater than their respective fair values. As such, we recorded a total goodwill impairment charge of $485.5
million in 2018 associated with these segments. See Note 5 - Goodwill and Other Intangible Assets for further
detail.
RESTRUCTURING AND ACQUISITION-RELATED COSTS Restructuring and acquisition-related costs were
$57.8 million in 2019 and $78.9 million in 2018. As part of our restructuring actions, we incurred severance charges
of approximately $19.4 million, as well as implementation costs, consisting primarily of plant exit costs, of
22
approximately $20.4 million during 2019. In 2018, we incurred severance charges of approximately $2.5 million, as
well as implementation costs, consisting primarily of plant exit costs and professional fees, of approximately $11.7
million, and long-lived asset impairment charges of $30.0 million.
In 2019, we initiated a new global restructuring program (the 2019 Program) to further streamline our business
by consolidating our four existing segments into three segments. This activity occurred through the disaggregation
of our former Powertrain segment, with a portion moving into our Driveline segment and a portion moving into our
Metal Forming segment. The primary objectives of this consolidation are to further the integration of MPG, align
AAM's product and process technologies, and to achieve efficiencies within our corporate and business unit support
teams to reduce cost in our business. We incurred approximately $18 million of restructuring costs in 2019 under
the 2019 Program. We expect to incur approximately $20 million to $30 million of total restructuring charges in
2020, substantially all of which are under the 2019 Program.
During 2018, we initiated actions to exit operations at manufacturing facilities in our Driveline, Metal Forming
and former Powertrain segments. As a result of these actions, we were required to assess the associated long-lived
assets for impairment. Based on our analysis, assets that were not to be redeployed to other AAM facilities were
determined to be fully impaired resulting in total charges of $30.0 million in 2018.
In 2019, we completed the acquisition of Mitec, and in 2017, we completed our acquisitions of MPG and USM
Mexico. During 2019, we incurred $1.8 million of acquisition-related costs and $16.2 million of integration expenses
associated with the acquisition of MPG. This compares to $1.2 million of acquisition-related costs, $0.5 million of
acquisition-related severance costs and $33.0 million of integration expenses, primarily associated with the
acquisition of MPG, for the year ended December 31, 2018.
Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional
or consulting fees incurred. Integration expenses primarily reflect costs incurred for information technology
infrastructure and enterprise resource planning (ERP) systems, and consulting fees incurred in conjunction with the
acquisitions. We expect to incur additional integration charges of approximately $10 million to $15 million in 2020 as
we finalize the integration of ERP systems at legacy MPG locations.
(GAIN) LOSS ON SALE OF BUSINESS In December 2019, we completed the Casting Sale and recorded a
loss on sale of business of $21.3 million, which is presented in the (Gain) loss on sale of business line item of our
Consolidated Statement of Operations for the year ended December 31, 2019. See Note 2 - Sale of Business for
further detail.
In April 2018, we completed the sale of the aftermarket business associated with our former Powertrain
segment for approximately $50 million. As a result, we recorded a $15.5 million pre-tax gain, which is presented in
the (Gain) loss on sale of business line item of our Consolidated Statement of Operations for the year ended
December 31, 2018.
OPERATING INCOME (LOSS) Operating loss was $301.6 million in 2019 as compared to income of $106.4
million in 2018. Operating margin was (4.6)% in 2019 as compared to 1.5% in 2018. The changes in operating
income (loss) and operating margin in 2019, as compared to 2018, were due to the factors discussed in Net Sales,
Cost of Goods Sold, SG&A, Amortization of Intangible Assets, Impairment Charges, Restructuring and Acquisition-
Related Costs and (Gain) Loss on Sale of Business above.
INTEREST EXPENSE Interest expense was $217.3 million in 2019 and $216.3 million in 2018. The weighted-
average interest rate of our total debt outstanding was 5.8% in both 2019 and 2018. We expect our interest
expense in 2020 to be approximately $200 million to $210 million.
INTEREST INCOME Interest income was $5.8 million in 2019 and $2.0 million in 2018. Interest income
includes interest earned on cash and cash equivalents, realized and unrealized gains and losses on our short-term
investments during the period, and the impact of the interest rate differential on our fixed-to-fixed cross-currency
swap.
OTHER INCOME (EXPENSE) Following are the components of Other Income (Expense) for 2019 and 2018:
Debt refinancing and redemption costs In July 2019, Holdings, AAM, Inc., and certain subsidiaries of
Holdings entered into the First Amendment to the Credit Agreement. The First Amendment, among other things,
23
established $340 million in incremental term loan A commitments under the Amended Credit Agreement with a
maturity date of July 29, 2024 (Term Loan A Facility due 2024), reduced the availability under the Revolving Credit
Facility from $932 million to $925 million and extended the maturity date of the Revolving Credit Facility from April 6,
2022 to July 29, 2024, and modified the applicable margin with respect to interest rates under the Term Loan A
Facility due 2024 and interest rates and commitment fees under the Revolving Credit Facility. The applicable
margin and the maturity date for the Term Loan B Facility remained unchanged. The proceeds of $340 million were
used to repay all of the outstanding loans under the existing Term Loan A Facility and a portion of the outstanding
Term Loan B Facility, resulting in no additional indebtedness. We expensed $5.1 million for the write-off of the
unamortized debt issuance costs related to the existing Term Loan A Facility and a portion of the unamortized debt
issuance costs related to our Term Loan B Facility that we had been amortizing over the expected life of the
borrowings.
In December 2019, we used a portion of the cash proceeds from the Casting Sale to make a payment on our
Term Loan B Facility, which included a principal payment of $59.8 million and $0.4 million in accrued interest. We
also expensed approximately $1.0 million for the write-off of a portion of the unamortized debt issuance costs that
we had been amortizing over the expected life of the borrowing.
In May 2019, we voluntarily redeemed the remaining balance outstanding under our 7.75% Notes due 2019.
This resulted in a principal payment of $100 million and $0.3 million in accrued interest. We also expensed
approximately $0.1 million for the write-off of the unamortized debt issuance costs that we had been amortizing over
the expected life of the borrowing, and approximately $2.2 million for an early redemption premium.
In November 2018, we voluntarily redeemed a portion of our 7.75% Notes due 2019. This resulted in a
principal payment of $100 million, and a payment of $3.9 million in accrued interest. As a result of the redemption,
we expensed approximately $0.3 million for the write-off of a portion of the unamortized debt issuance costs that we
had been amortizing over the expected life of the borrowing, and approximately $4.5 million for an early redemption
premium.
In May 2018, we voluntarily redeemed a portion of our 6.625% Notes due 2022. This resulted in a principal
payment of $100 million, and a payment of $0.8 million in accrued interest. As a result of the redemption, we
expensed $0.8 million for the write-off of a portion of the remaining unamortized debt issuance costs that we had
been amortizing over the expected life of the borrowing and $3.3 million for an early redemption premium.
In March 2018, we made a tender offer for our 6.25% Notes due 2021. Under this tender offer, we retired
$383.1 million of the 6.25% Notes due 2021. We redeemed the remaining $16.9 million of the 6.25% Notes due
2021 during the second quarter of 2018. As a result of the tender and subsequent redemption, we expensed $2.5
million for the write-off of the remaining unamortized debt issuance costs that we had been amortizing over the
expected life of the borrowing and $8.0 million in tender premiums.
Gain on bargain purchase of a business In the fourth quarter of 2019, we completed the acquisition of
Mitec, under which we acquired $20.2 million of net assets for a purchase price of $9.4 million, which was funded
entirely with available cash. We recognized a gain on bargain purchase of $10.8 million associated with this
acquisition.
Gain on settlement of capital lease In the second quarter of 2018, we reached a settlement agreement
related to a capital lease obligation that we had recognized as a result of the acquisition of MPG. This settlement
resulted in a gain of $15.6 million, including accrued interest.
Pension settlement charge In 2019, we offered a voluntary one-time lump sum payment option to certain
eligible terminated vested participants in our U.S. pension plans that, if accepted, would settle our pension
obligations to them. This resulted in a non-cash settlement charge of $9.8 million in the fourth quarter of 2019
related to the accelerated recognition of certain deferred losses.
Other, net Other, net, which includes the net effect of foreign exchange gains and losses, our proportionate
share of earnings from equity in unconsolidated subsidiaries, and all components of net periodic pension and
postretirement benefit costs other than service costs and certain settlement charges, was expense of $12.5 million
in 2019, compared to expense of $2.2 million in 2018. The increased expense in other, net in 2019, as compared to
2018, was primarily the result of increased net foreign currency remeasurement losses of approximately $6.3
million.
24
INCOME TAX EXPENSE (BENEFIT) Income tax was a benefit of $48.9 million in 2019, as compared to a
benefit of $57.1 million in 2018. Our effective income tax rate was 9.2% in 2019 as compared to 50.1% in 2018.
In 2019, our income tax benefit varied from the tax benefit computed at the U.S. federal statutory rate primarily
as a result of the goodwill impairment charge, which resulted in no income tax benefit, as well as the incremental
tax expense associated with the global intangible low-taxed income inclusion under the Tax Cuts and Jobs Act of
2017 (the 2017 Act), and our inability to realize an income tax benefit for losses incurred in certain foreign and state
jurisdictions. These items were partially offset by the impact of favorable foreign tax rates and income tax credits. In
addition, as part of the 2017 Act, a one-time transition tax (Transition Tax) was imposed on certain foreign earnings
for which U.S. income tax was previously deferred. The Department of Treasury and Internal Revenue Service
issued final regulations on February 5, 2019 regarding the Transition Tax, which changed the manner in which we
are required to compute the Transition Tax when it is recognized over a two-year period. The application of the final
regulations resulted in a $9.3 million income tax benefit, which has been recorded in 2019, the period in which the
final regulations were issued.
In 2018, our income tax benefit is higher than the tax benefit computed at the U.S. federal statutory rate
primarily due to the impact of favorable foreign tax rates, and the impact of income tax credits, partially offset by our
inability to realize an income tax benefit for losses incurred in certain foreign and state jurisdictions. In addition,
during 2018, we finalized an advance pricing agreement in a foreign jurisdiction and settled various other matters,
which resulted in an income tax benefit and a reduction of our liability for unrecognized tax benefits and related
interest and penalties of approximately $20 million. We also recorded an income tax benefit of approximately $85
million in 2018 as a result of the goodwill impairment charge, partially offset by a discrete tax expense related to the
sale of the aftermarket business associated with our former Powertrain segment.
NET INCOME (LOSS) ATTRIBUTABLE TO AAM AND EARNINGS (LOSS) PER SHARE (EPS) Net income
(loss) attributable to AAM was a loss of $484.5 million in 2019 as compared to a loss of $57.5 million in 2018.
Diluted loss per share was $4.31 in 2019 as compared to a diluted loss of $0.51 per share in 2018. Net Income
(Loss) and EPS were primarily impacted by the factors discussed above.
SEGMENT REPORTING
In the first quarter of 2019, we reorganized our business to disaggregate our former Powertrain segment, with a
portion moving to our Driveline segment and a portion moving to our Metal Forming segment. The Powertrain
amounts previously reported for the years ended December 31, 2018 and 2017 have been reclassified to Driveline
and Metal Forming accordingly.
Additionally, in the fourth quarter of 2019, we completed the Casting Sale. The Casting Sale did not include the
entities that conduct AAM's casting operations in El Carmen, Mexico, which are now included in our Driveline
segment. The Casting Sale did not qualify for classification as discontinued operations, as it did not represent a
strategic shift in our business that has had, or will have, a major effect on our operations and financial results. As
such, we continue to present Casting as a segment in the tables below, which is now comprised entirely of the U.S.
casting operations that were included in the sale. The amounts previously reported in our Casting segment for the
retained operations in El Carmen, Mexico have been reclassified to our Driveline segment for the years presented.
As a result of these activities, our business is now organized into Driveline and Metal Forming segments, with
each representing a reportable segment under ASC 280 Segment Reporting. The results of each segment are
regularly reviewed by the chief operating decision maker to assess the performance of the segment and make
decisions regarding the allocation of resources.
Our product offerings by segment are as follows:
• Driveline products consist primarily of front and rear axles, driveshafts, differential assemblies, clutch
modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline
products and systems for light trucks, sport utility vehicles (SUVs), crossover vehicles, passenger cars and
commercial vehicles;
• Metal Forming products consist primarily of axle and transmission shafts, ring and pinion gears, differential
gears and assemblies, connecting rods and variable valve timing products for Original Equipment
Manufacturers and Tier 1 automotive suppliers; and
25
• Prior to the Casting Sale, the Casting segment produced both thin wall castings and high strength ductile
iron castings, as well as transmission pump bodies, steering knuckles, control arms, brake anchors and
calipers, and ball joint housings for the global light vehicle, commercial and industrial markets.
The following tables outline our sales and Segment Adjusted EBITDA for each of our reportable segments for
the years ended December 31, 2019, 2018 and 2017 (in millions):
Year Ended December 31, 2019
Sales .................................................................................... $ 4,550.2 $ 1,845.2 $
Less: Intersegment sales ....................................................
Net external sales ................................................................ $ 4,449.7 $ 1,453.5 $
391.7
100.5
Driveline
Metal
Forming
Casting
Total
669.2 $ 7,064.6
41.5
533.7
627.7 $ 6,530.9
Segment adjusted EBITDA................................................... $
610.8 $
316.5 $
43.0 $
970.3
Year Ended December 31, 2018
Sales .................................................................................... $ 5,001.2 $ 2,046.0 $
Less: Intersegment sales .....................................................
Net external sales ................................................................ $ 4,911.4 $ 1,617.7 $
428.3
89.8
Driveline
Metal
Forming
Casting
Total
780.6 $ 7,827.8
39.3
557.4
741.3 $ 7,270.4
Segment adjusted EBITDA................................................... $
754.5 $
376.5 $
52.9 $ 1,183.9
Year Ended December 31, 2017
Sales .................................................................................... $ 4,567.8 $ 1,634.9 $
Less: Intersegment sales .....................................................
Net external sales ................................................................ $ 4,501.9 $ 1,217.2 $
417.7
65.9
Driveline
Metal
Forming
Casting
Total
576.1 $ 6,778.8
29.2
512.8
546.9 $ 6,266.0
Segment adjusted EBITDA .................................................. $
762.3 $
305.7 $
34.7 $ 1,102.7
The change in Driveline sales for the year ended December 31, 2019, as compared to the year ended
December 31, 2018, primarily reflects the impact of lower full-size truck sales resulting from the in-sourcing by our
largest customer of a portion of a replacement program that launched in the second half of 2018, and a reduction of
approximately $217 million associated with the impact of the GM work stoppage. Net sales in 2019 were also
impacted by customer downtime as a result of program changeovers in 2019, and lower volumes on certain
crossover vehicle programs that we support, as well as a decrease of approximately $95 million associated with the
effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation
adjustments. These factors were partially offset by the impact of program launches associated with our new
business backlog.
The increase in Driveline sales for the year ended December 31, 2018, as compared to the year ended
December 31, 2017, primarily reflects higher volumes related to crossover vehicles and increased production
volumes from program launches associated with our new business backlog. This was partially offset by the impact
26
of lower full-size truck sales resulting from the in-sourcing by our largest customer of a portion of a replacement
program that launched in the second half of 2018, and a reduction in production volumes for certain North American
light truck programs we support as we prepared for program changeovers in 2018. Driveline sales for the year
ended December 31, 2018, as compared to the year ended December 31, 2017, were also impacted by an
increase related to metal market pass-throughs to our customers of approximately $31 million.
The change in sales in our Metal Forming segment for the year ended December 31, 2019, as compared to the
year ended December 31, 2018, reflects lower global automotive production volumes, as well as a reduction in
intersegment sales to our Driveline segment due to the factors discussed for Driveline above. Metal Forming sales
for the year ended December 31, 2019 were also negatively impacted by approximately $47 million associated with
the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation
adjustments, and by approximately $17 million associated with the GM work stoppage.
The increase in sales in our Metal Forming segment for the year ended December 31, 2018, as compared to the
year ended December 31, 2017, primarily reflects the inclusion of twelve months of MPG sales in 2018, as
compared to nine months of MPG sales in 2017, as the acquisition was completed in April 2017. The increase in
sales in 2018, as compared to 2017, also reflects an increase in metal market pass-throughs to our customers and
the impact of foreign exchange related to translation adjustments totaling approximately $43 million.
The change in sales in our Casting segment for the year ended December 31, 2019, as compared to the year
ended December 31, 2018, primarily reflects lower production volumes in the automotive, commercial and industrial
markets, and the impact of AAM completing the sale of the U.S. Casting operations on December 16, 2019. Casting
sales in 2019 were also negatively impacted by approximately $9 million associated with the GM work stoppage.
The increase in sales in our Casting segment for the year ended December 31, 2018, as compared to the year
ended December 31, 2017, reflects the inclusion of twelve months of MPG sales in 2018, as compared to nine
months of MPG sales in 2017, and an increase of approximately $13 million in metal market pass-throughs to our
customers.
We use Segment Adjusted EBITDA as the measure of earnings to assess the performance of each segment and
determine the resources to be allocated to the segments. Segment Adjusted EBITDA is defined as EBITDA for our
reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and
redemption costs, gain (loss) on the sale of a business, impairment charges, pension settlements, and non-
recurring items.
For the year ended December 31, 2019, as compared to the year ended December 31, 2018, the change in
Segment Adjusted EBITDA for the Driveline segment was primarily attributable to lower global automotive
production volumes and the impact of the GM work stoppage. Driveline Segment Adjusted EBITDA was also
impacted by a change in product mix due to customer downtime as a result of program changeovers in 2019.
For the year ended December 31, 2018, as compared to the year ended December 31, 2017, the change in
Segment Adjusted EBITDA for the Driveline segment was primarily attributable to increased material and freight
costs, as well as an increase in project expense of approximately $15 million, and costs associated with increased
levels of global launch activity in 2018.
The change in Metal Forming Segment Adjusted EBITDA for the year ended December 31, 2019, as compared
to the year ended December 31, 2018, was primarily attributable to lower global automotive production volumes, as
well as an increase in net manufacturing costs, including higher material, freight and tariff costs, of approximately
$10 million. The increase in Metal Forming Segment Adjusted EBITDA for the year ended December 31, 2018, as
compared to the year ended December 31, 2017, was primarily due to the acquisition of MPG, partially offset by
increased material and freight costs.
The change in Casting Segment Adjusted EBITDA for the year ended December 31, 2019, as compared to the
year ended December 31, 2018, primarily reflects lower production volumes, offset by the impact of price increases
to customers. The increase in Casting Segment Adjusted EBITDA for the year ended December 31, 2018, as
compared to the year ended December 31, 2017, was primarily due to the acquisition of MPG, which was partially
offset by increased labor costs in an effort to address workforce shortages at certain locations.
27
Reconciliation of Non-GAAP and GAAP Information
In addition to results reported in accordance with accounting principles generally accepted in the United States
of America (GAAP) in this MD&A, we have provided certain non-GAAP financial measures such as EBITDA and
Total Segment Adjusted EBITDA. Such information is reconciled to its closest GAAP measure in accordance with
Securities and Exchange Commission rules below.
We define EBITDA to be earnings before interest expense, income taxes, depreciation and amortization. Total
Segment Adjusted EBITDA is defined as EBITDA excluding the impact of restructuring and acquisition-related
costs, debt refinancing and redemption costs, gain (loss) on the sale of a business, impairment charges, pension
settlements, and non-recurring items. We believe that EBITDA and Total Segment Adjusted EBITDA are
meaningful measures of performance as they are commonly utilized by management and investors to analyze
operating performance and entity valuation. Our management, the investment community and the banking
institutions routinely use EBITDA and Total Segment Adjusted EBITDA, together with other measures, to measure
our operating performance relative to other Tier 1 automotive suppliers and to assess the relative mix of Adjusted
EBITDA by segment. We also believe that Total Segment Adjusted EBITDA is a meaningful measure as it is used
for operational planning and decision-making purposes. These non-GAAP financial measures are not and should
not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures as presented by
AAM may not be comparable to similarly titled measures reported by other companies.
Year Ended December 31,
2018
2017
2019
(484.1) $
217.3
(48.9)
536.9
(56.8) $
216.3
(57.1)
528.8
221.2 $
631.2
$
57.8
8.4
21.3
665.0
9.8
(10.8)
—
—
—
(2.4)
970.3 $
78.9
19.4
(15.5)
485.5
—
—
(15.6)
—
—
—
337.5
195.6
2.5
428.5
964.1
110.7
3.5
—
—
3.2
—
24.9
(3.7)
—
1,183.9
$
1,102.7
Net income (loss) ........................................................................................................ $
Interest expense .........................................................................................................
Income tax expense (benefit) ......................................................................................
Depreciation and amortization ....................................................................................
EBITDA ....................................................................................................................... $
Restructuring and acquisition-related costs ................................................................
Debt refinancing and redemption costs ......................................................................
(Gain) loss on sale of business ...................................................................................
Impairment charges ....................................................................................................
Pension settlement .....................................................................................................
Non-recurring items:
Gain on bargain purchase of business ...................................................................
Gain on settlement of capital lease ........................................................................
Acquisition-related fair value inventory adjustment ................................................
Impact of change in accounting principle ...............................................................
Other non-recurring items ......................................................................................
Total Segment Adjusted EBITDA ................................................................................ $
28
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund debt service obligations, capital expenditures and working capital
requirements, in addition to advancing our strategic initiatives. We believe that operating cash flow, available cash
and cash equivalent balances and available committed borrowing capacity under our Senior Secured Credit
Facilities will be sufficient to meet these needs.
OPERATING ACTIVITIES Net cash provided by operating activities was $559.6 million in 2019 as compared
to $771.5 million in 2018. The following factors impacted cash provided by operating activities:
Inventories We experienced an increase in cash flow from operating activities of $139.2 million related to the
change in our inventories balance from December 31, 2018 to December 31, 2019, as compared to the change in
our inventories balance from December 31, 2017 to December 31, 2018. This change was primarily the result of
increased levels of inventories as of December 31, 2018 in preparation for program changeovers and new launch
activity that occurred in the second half of 2018. As of December 31, 2019, inventories have decreased as the
program changeovers and new launch activity have transitioned into production, and as a result of inventory
reduction initiatives in 2019.
Accounts payable and accrued expenses We experienced a decrease in cash flow from operating activities
of $105.2 million related to the change in our accounts payable and accrued expenses balance from December 31,
2018 to December 31, 2019, as compared to the change in our accounts payable and accrued expenses balance
from December 31, 2017 to December 31, 2018. This change was attributable primarily to accounts payable and
was the result of increased levels of accounts payable as of December 31, 2018 in preparation for program
changeovers and new launch activity that occurred in the second half of 2018. As of December 31, 2019, there has
been a decrease in accounts payable primarily associated with the decrease in inventories discussed above, as
well as the timing of payments to suppliers.
Restructuring and acquisition-related costs We incurred $57.8 million and $78.9 million of charges related
to restructuring and acquisition-related costs in 2019 and 2018, respectively, and a significant portion of these
charges were cash charges. In 2020, we expect restructuring and acquisition-related payments to be between $30
million and $45 million for the full year.
Pension and other postretirement benefits (OPEB) Our cash payments for OPEB, net of GM cost sharing,
were $15.5 million in 2019 and $9.9 million in 2018. This compares to our annual postretirement cost of $11.7
million in 2019 and $10.3 million in 2018. We expect our cash payments for other postretirement benefit obligations
in 2020, net of GM cost sharing, to be approximately $17 million.
Due to the availability of our pre-funded pension balances (previous contributions in excess of prior required
pension contributions) related to certain of our U.S. pension plans, we expect our regulatory pension funding
requirements in 2020 to be approximately $2 million.
Interest paid Interest paid in 2019 was $205.4 million as compared to $199.7 million in 2018.
Income taxes Income taxes paid in 2019 totaled $57.1 million as compared to $46.0 million in 2018. Based on
the status of audits, and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate
the timing or impact of changes, if any, to previously recorded uncertain tax positions. As of December 31, 2019
and December 31, 2018, we have recorded a liability for unrecognized income tax benefits and related interest and
penalties of $52.6 million and $45.6 million, respectively.
During the next 12 months, we may finalize an advance pricing agreement in a foreign jurisdiction, which would
result in a cash payment to the relevant tax authorities and a reduction of our liability for unrecognized tax benefits
and related interest and penalties. Although it is difficult to estimate with certainty the amount of our tax liabilities for
the years that remain subject to audit, we do not expect the settlements will be materially different from what we
have recorded in unrecognized tax benefits. We will continue to monitor the progress and conclusions of current
and future audits and other communications with tax authorities, and will adjust our estimated liability as necessary.
INVESTING ACTIVITIES Capital expenditures were $433.3 million in 2019 and $524.7 million in 2018. We
expect our capital spending in 2020 to be approximately 5.5% of sales, which includes support for our global
29
program launches in 2020 and 2021 within our new and incremental business backlog, as well as program capacity
increases and future launches of replacement programs.
In the fourth quarter of 2019, we completed the sale of our U.S. casting operations. As a result of this sale, we
received net cash proceeds of $141.2 million, which are subject to customary post-closing adjustments. We expect
to finalize the post-closing adjustments in the first quarter of 2020.
Also in 2019, we completed the acquisition of Mitec for approximately $9 million, and made payments totaling
approximately $9 million as part of our investment in the Liuzhou AAM joint venture that was formed in 2018.
In 2018, we completed the sale of the aftermarket business associated with our former Powertrain segment. As
a result of this sale, we received net proceeds of approximately $47 million.
FINANCING ACTIVITIES Net cash used in financing activities was $200.0 million in 2019, compared to net
cash used in financing activities of $184.5 million in 2018. Total debt outstanding, net of debt issuance costs, was
$3,641.0 million at year-end 2019 and $3,808.4 million at year-end 2018. The change in total debt outstanding, net
of issuance costs, at year-end 2019, as compared to year-end 2018, was primarily due to the factors noted below.
Senior Secured Credit Facilities In July 2019, Holdings, AAM, Inc., and certain subsidiaries of Holdings
entered into the First Amendment (First Amendment) to the Credit Agreement (as amended by the First
Amendment, the Amended Credit Agreement). The First Amendment, among other things, established $340 million
in incremental term loan A commitments under the Amended Credit Agreement with a maturity date of July 29, 2024
(Term Loan A Facility due 2024), reduced the availability under the Revolving Credit Facility from $932 million to
$925 million and extended the maturity date of the Revolving Credit Facility from April 6, 2022 to July 29, 2024, and
modified the applicable margin with respect to interest rates under the Term Loan A Facility due 2024 and interest
rates and commitment fees under the Revolving Credit Facility. The applicable margin and the maturity date for the
Term Loan B Facility remain unchanged. The proceeds of $340 million were used to repay all of the outstanding
loans under the existing Term Loan A Facility and a portion of the outstanding Term Loan B Facility, resulting in no
additional indebtedness. This also satisfies all payment requirements under the Term Loan B Facility until maturity
in 2024. In 2019, we expensed $5.1 million for the write-off of the unamortized debt issuance costs related to the
existing Term Loan A Facility and a portion of the unamortized debt issuance costs related to our Term Loan B
Facility that we had been amortizing over the expected life of the borrowings.
In December 2019, we used a portion of the cash proceeds from the Casting Sale to make a payment on our
Term Loan B Facility, which included a principal payment of $59.8 million and $0.4 million in accrued interest. We
also expensed approximately $1.0 million for the write-off of the unamortized debt issuance costs that we had been
amortizing over the expected life of the borrowing.
At December 31, 2019, $898.8 million was available under the Revolving Credit Facility. This availability
reflects a reduction of $26.2 million for standby letters of credit issued against the facility. The proceeds of the
Revolving Credit Facility are used for general corporate purposes.
The Senior Secured Credit Facilities provide back-up liquidity for our foreign credit facilities. We intend to use
the availability of long-term financing under the Senior Secured Credit Facilities to refinance any current maturities
related to such debt agreements that are not otherwise refinanced on a long-term basis in their local markets,
except where otherwise reclassified to Current portion of long-term debt on our Consolidated Balance Sheet.
Redemption of 7.75% Notes Due 2019 In the second quarter of 2019, we voluntarily redeemed the remaining
balance outstanding under our 7.75% Notes due 2019. This resulted in a principal payment of $100.0 million and
$0.3 million in accrued interest. We also expensed approximately $0.1 million for the write-off of the unamortized
debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately $2.2
million for an early redemption premium.
In the fourth quarter of 2018, we voluntarily redeemed a portion of our 7.75% Notes due 2019. This resulted in
a principal payment of $100.0 million and $3.9 million in accrued interest. We also expensed approximately $0.3
million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the
expected life of the borrowing, and approximately $4.5 million for an early redemption premium.
30
Redemption of 6.625% Notes Due 2022 In the second quarter of 2018, we voluntarily redeemed a portion of
our 6.625% Notes due 2022. This resulted in a principal payment of $100.0 million, and a payment of $0.8 million
in accrued interest. During 2018, we expensed $0.8 million for the write-off of a portion of the remaining
unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing and $3.3
million for an early redemption premium.
6.25% Notes Due 2026 In the first quarter of 2018, we issued $400.0 million in aggregate principal amount of
6.25% senior notes due 2026 (the 6.25% Notes due 2026). Proceeds from the 6.25% Notes due 2026 were used
primarily to fund the tender offer for the 6.25% senior notes due 2021 (the 6.25% Notes due 2021) described below.
We paid debt issuance costs of $6.6 million during 2018 related to the 6.25% Notes due 2026.
Tender Offer of 6.25% Notes Due 2021 Also during the first quarter of 2018, we made a tender offer for our
6.25% Notes due 2021. Under this tender offer, we retired the $400.0 million of the 6.25% Notes due 2021 and
expensed $2.5 million for the write-off of the remaining unamortized debt issuance costs that we had been
amortizing over the expected life of the borrowing and $8.0 million in tender premiums.
Settlement of Capital Lease Obligation In the second quarter of 2018, we reached a settlement agreement
related to a capital lease obligation that we had recognized as a result of the acquisition of MPG. In the third quarter
of 2018, we paid $6.6 million related to this settlement agreement. During the fourth quarter of 2018, we paid the
remaining $4.8 million related to this settlement agreement.
Foreign Credit Facilities We utilize local currency credit facilities to finance the operations of certain foreign
subsidiaries. At December 31, 2019, $106.0 million was outstanding under our foreign credit facilities and an
additional $89.1 million was available, as compared to December 31, 2018, when $127.1 million was outstanding
under our foreign credit facilities and an additional $78.2 million was available.
Subsequent Event In January 2020, we issued an irrevocable notice to the holders of the 6.625% Notes due
2022 to voluntarily redeem a portion of our 6.625% Notes due 2022 in the first quarter of 2020. This will result in a
principal payment of $100.0 million and $2.0 million in accrued interest. We expect to expense approximately $0.4
million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of
the borrowing, and approximately $1.1 million for the payment of an early redemption premium.
Treasury stock Treasury stock increased by $7.5 million in 2019 to $209.3 million as compared to $201.8
million at year-end 2018, due to the withholding and repurchase of shares of AAM stock to satisfy employee tax
withholding obligations due upon the vesting of performance shares and restricted stock units.
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..
Corporate
Family Rating
BB-
B1
Senior
Unsecured
Notes Rating
B
B2
Senior
Secured Notes
Rating
BB
Ba2
Outlook
Stable
Stable
Dividend program We have not declared or paid any cash dividends on our common stock in 2019 or 2018.
31
Contractual obligations The following table summarizes payments due on our contractual obligations as of
December 31, 2019:
Current and long-term debt ...................... $
Interest obligations ...................................
Finance lease obligations.........................
Operating leases (1) ................................
Purchase obligations (2) ..........................
Other long-term liabilities (3) ....................
Total ......................................................... $
Payments due by period
Total
<1yr
3,692.2
$
1,020.0
7.8
151.4
131.9
568.7
53.2
205.8
3.2
28.2
118.7
57.9
1-3 yrs
(in millions)
548.4
$
3-5 yrs
>5 yrs
$
1,490.6
$
1,600.0
388.6
4.4
39.8
13.2
111.0
309.3
0.2
24.1
—
111.4
116.3
—
59.3
—
288.4
5,572.0
$
467.0
$
1,105.4
$
1,935.6
$
2,064.0
(1) Operating leases include all lease payments through the end of the contractual lease terms, which includes elections for
repurchase options which we are reasonably certain to exercise. 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 2029.
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 moderately seasonal as
our major OEM customers historically have an extended shutdown of operations (typically 1-2 weeks) in conjunction
with their model year changeover and an approximate one-week shutdown in December. Our major OEM
customers also occasionally have longer shutdowns of operations (up to 6 weeks) for program changeovers.
Accordingly, our quarterly results may reflect these trends.
LEGAL PROCEEDINGS
We are involved in, or potentially subject to, various legal proceedings or claims incidental to our business.
These include, but are not limited to, matters arising out of product warranties, tax or contractual matters, and
environmental obligations. Although the outcome of these matters cannot be predicted with certainty, we do not
believe that any of these matters, individually or in the aggregate, will have a material adverse effect on our
financial condition, results of operations or cash flows.
We are subject to various federal, state, local and foreign environmental and occupational safety and health
laws, regulations and ordinances, including those regulating air emissions, water discharge, waste management
and environmental cleanup. We closely monitor our environmental conditions to ensure that we are in compliance
with applicable laws, regulations and ordinances. We have made, and anticipate continuing to make, capital and
other expenditures (including recurring administrative costs) to comply with environmental requirements at our
current and former facilities. Such expenditures were not significant in 2019, 2018 and 2017.
EFFECT OF NEW ACCOUNTING STANDARDS
See Note 1 - Organization and Summary of Significant Accounting Policies in Item 8, "Financial Statements
and Supplementary Data" for discussion of new accounting standards and the effect on AAM.
32
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.
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 is performed at the reporting unit level, and 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. If the carrying amount of the reporting unit exceeds its fair
value, an impairment loss is recognized in an amount equal to the excess carrying value over fair value.
In performing goodwill impairment testing, we utilize a third-party valuation specialist to assist management in
determining the fair value of our reporting units. Fair value of each reporting unit is estimated based on a
combination of discounted cash flows and the use of pricing multiples derived from an analysis of comparable
public companies multiplied against historical and/or anticipated financial metrics of each reporting unit. These
calculations contain uncertainties as they require management to make assumptions including, but not limited to,
market comparables, future cash flows of the reporting units, and appropriate discount and long-term growth rates.
Subsequent to our acquisition of MPG in 2017, our business was organized into four segments: Driveline, Metal
Forming, Powertrain, and Casting. Under the goodwill guidance, we determined that each of our segments
represented a reporting unit. The determination of our reporting units and impairment indicators also require us to
make significant judgments.
In the first quarter of 2019, we initiated a global restructuring program (the 2019 Program) to further streamline
our business by consolidating our four existing segments into three segments. Under this program, the goodwill
that was previously attributable to our former Powertrain reporting unit was reallocated to the Driveline and Metal
Forming reporting units based on the relative fair value of the respective portions that became attributable to those
reporting units. The initiation of the 2019 Program and the reorganization of our business represented a triggering
event in the first quarter of 2019 to test goodwill for impairment prior to reallocating the former Powertrain goodwill
to Driveline and Metal Forming. No impairment was identified as a result of completing this goodwill impairment
test.
Additionally, in the fourth quarter of 2019, we completed the sale of the U.S. operations of our Casting business.
This sale did not include the entities that conduct AAM's casting operations in El Carmen, Mexico, which are now
reflected in our Driveline reporting unit.
As a result of these activities, as of December 31, 2019, our business is now organized into Driveline and Metal
Forming reporting units, which were evaluated for impairment as part of our fourth quarter 2019 test. During this
test, we determined that the carrying value of our Metal Forming reporting unit was greater than its fair value. As
such, we recorded a non-cash goodwill impairment charge of $440.0 million in 2019 associated with this reporting
unit. See Note 5 - Goodwill and Other Intangible Assets for further detail.
Also during our annual goodwill impairment test in the fourth quarter of 2019, we determined that the fair value of
our Driveline reporting unit exceeded its carrying value by approximately 7% and the carrying value of our Metal
Forming reporting unit approximated fair value after the impairment charge. A decline in the actual cash flows of
Driveline or Metal Forming in future periods, as compared to the projected cash flows used in the valuation, could
result in the carrying value of the reporting units exceeding their respective fair values. Further, a change in market
33
comparables, discount rate or long-term growth rate, as a result of a change in economic conditions or otherwise,
could result in the carrying values of the reporting units exceeding their respective fair values.
As a result of our annual goodwill impairment test in the fourth quarter of 2018, we determined that the carrying
values of our Casting and former Powertrain reporting units were greater than their respective fair values. As such,
we recorded non-cash goodwill impairment charges of $405.5 million associated with Casting and $80.0 million
associated with our former Powertrain reporting unit in 2018.
IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, excluding goodwill, to be held and used are
reviewed for impairment whenever adverse events or changes in circumstances indicate a possible impairment.
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 not recoverable, 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.
Upon reclassification of the U.S. casting operations to held-for-sale in the third quarter of 2019, we recorded a
pre-tax impairment charge of $225.0 million to reduce the carrying value of this business to fair value less cost to
sell. See Note 2 - Sale of Business for further detail.
The goodwill impairment charges recognized in 2019 and 2018 as described above represented triggering
events for testing the recoverability of other long-lived assets, including property, plant and equipment and
amortizable intangible assets associated with our Metal Forming segment in 2019 and our Casting and former
Powertrain segments in 2018. No impairments of long-lived assets were identified as a result of these recoverability
tests.
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 2019, the weighted-average discount rates determined on that basis were 3.40%
for the valuation of our pension benefit obligations and 3.35% for the valuation of our OPEB obligations. The
discount rate used in the valuation of our United Kingdom (U.K.) pension obligations were based on hypothetical
yield curves developed from corporate bond yield information within each regional market. In 2019, the weighted-
average discount rates determined on that basis were 2.05% for our U.K. plans. The expected weighted-average
long-term rates of return on our plan assets were 7.25% for our U.S. plans, and 4.00% for our U.K. plans in 2019.
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 expected payment stream of
the liability. Our investment policy allocates approximately 30-55% 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.
34
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
2019, 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, 2019, our valuation date.
Decline in funded status ................................................................................. $
Increase in 2019 expense ............................................................................... $
Discount
Rate
Expected
Return on
Assets
(in millions)
50.9
0.8 $
N/A
3.0
No changes in benefit levels or in the amortization of gains or losses have been assumed.
For 2020, 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 2026 and remain at that level
thereafter. A 0.5% decrease in the discount rate for our OPEB would have decreased total expense in 2019 and
increased the postretirement obligation, net of GM cost sharing, at December 31, 2019 by $0.1 million and $19.6
million, respectively. A 1.0% increase in the assumed health care trend rate would have increased total service and
interest cost in 2019 and the postretirement obligation, net of GM cost sharing, at December 31, 2019 by $1.4
million and $33.8 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, 2019, we estimated $236.0 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.
Our warranty accrual was $62.0 million as of December 31, 2019 and $57.7 million as of December 31, 2018.
During 2019 and 2018, 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. In accordance with the accounting guidance for income taxes,
35
we review the likelihood that we will realize the benefit of deferred tax assets and 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 determining the requirement for a valuation allowance, the historical results, projected future
operating results based upon approved business plans, eligible carry forward periods, and tax planning
opportunities are considered, along with other relevant positive and negative evidence. If, based upon available
evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded.
As of December 31, 2019, we have a valuation allowance of approximately $196.0 million related to net
deferred tax assets in several foreign jurisdictions and U.S. state and local jurisdictions. As of December 31, 2018
and 2017, our valuation allowance was $183.3 million and $180.4 million, respectively.
If, in the future, we generate taxable income on a sustained basis in foreign and U.S. state and local
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, 2019 and 2018, we had a liability for unrecognized income tax benefits and related interest
and penalties of $52.6 million and $45.6 million, respectively. During the next 12 months, we may finalize an
advance pricing agreement in a foreign jurisdiction, which would result in a cash payment to the relevant tax
authorities and a reduction of our liability for unrecognized tax benefits and related interest and penalties. Although
it is difficult to estimate with certainty the amount of any audit settlement, we do not expect any potential settlement
to be materially different from what we have recorded in unrecognized tax benefits. Based on the status of ongoing
tax audits, and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the
impact of changes, if any, to previously recorded uncertain tax positions. We will continue to monitor the progress
and conclusions of all ongoing audits and other communications with tax authorities and will adjust our estimated
liability as necessary.
36
Forward-Looking Statements
In this MD&A and elsewhere in this Form 10-K (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;
• our ability to respond to changes in technology, increased competition or pricing pressures;
• 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 attract new customers and programs for new products;
• reduced demand for our customers' products (particularly light trucks and sport utility vehicles (SUVs) produced by GM and
FCA);
• risks inherent in our global operations (including tariffs and the potential consequences thereof to us, our suppliers, and our
customers and their suppliers, adverse changes in trade agreements, such as NAFTA or USMCA, immigration policies, political
stability, taxes and other law changes, currency rate fluctuations, and potential disruptions of production and supply, including
those as a result of public health crises, such as pandemic or epidemic illness, or otherwise);
• a significant disruption in operations at one or more of our key manufacturing facilities;
• negative or unexpected tax consequences;
• 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;
• an impairment of our goodwill, other intangible assets, or long-lived assets if our business or market conditions indicate that the
carrying values of those assets exceed their fair values;
• 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 or our customers' and suppliers' ability to successfully launch new product programs on a timely basis;
• 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;
• supply shortages or price increases in raw material and/or freight, utilities or other operating supplies for us or our customers as
a result of natural disasters or otherwise;
• our ability to achieve the level of cost reductions required to sustain global cost competitiveness;
• our ability to realize the expected revenues from our new and incremental business backlog;
• price volatility in, or reduced availability of, fuel;
• our ability to protect our intellectual property and successfully defend against assertions made against us;
• 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;
• risks of noncompliance with environmental laws and regulations or risks of environmental issues that could result in unforeseen
costs at our facilities or reputational damage;
• adverse changes in laws, government regulations or market conditions affecting our products or our customers' products;
• our ability or our customers' and suppliers' ability to comply with regulatory requirements and the potential costs of such
compliance;
• changes in liabilities arising from pension and other postretirement benefit obligations;
• our ability to attract and retain key associates; 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.
37
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
MARKET RISK
Our business and financial results are affected by fluctuations in global 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 and option contracts to
reduce the effects of fluctuations in certain foreign currencies. At December 31, 2019 and December 31, 2018, we
had currency forward contracts with a notional amount of $180.1 million and $185.8 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 $16.5 million at December 31, 2019 and was
approximately $17.1 million at December 31, 2018.
In the third quarter of 2019, we entered into a fixed-to-fixed cross-currency swap to reduce the variability of
functional currency equivalent cash flows associated with changes in exchange rates on certain Euro-based
intercompany loans. At December 31, 2019, the notional amount of the fixed-to-fixed cross-currency swap was
$224.2 million. The potential decrease in fair value of the fixed-to-fixed cross-currency swap, assuming a 10%
adverse change in foreign currency exchange rates, would be approximately $22.4 million at December 31, 2019.
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 natural
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 In 2018, we entered into a variable-to-fixed interest rate swap to reduce the variability
of cash flows associated with interest payments on our variable rate debt. In the second quarter of 2019, we
discontinued this variable-to-fixed interest rate swap, which was in a liability position of $9.7 million on the date that
it was discontinued.
Also in the second quarter of 2019, we entered into a new variable-to-fixed interest rate swap to reduce the
variability of cash flows associated with interest payments on our variable rate debt. As of December 31, 2019, we
have the following notional amounts hedged in relation to our variable-to-fixed interest rate swap: $1.0 billion
through May 2020, $900.0 million through May 2021, $750.0 million through May 2022, $600.0 million through May
2023 and $500.0 million through May 2024.
The pre-tax earnings and cash flow impact of a one-percentage-point increase in interest rates (approximately
17% of our weighted-average interest rate at December 31, 2019) on our long-term debt outstanding at
December 31, 2019 would be approximately $6.3 million and was approximately $8.2 million at December 31, 2018,
on an annualized basis.
38
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Item 8.
Financial Statements and Supplementary Data
Consolidated Statements of Operations
Year Ended December 31,
2019
2018
(in millions, except per share data)
2017
Net sales ....................................................................................... $
6,530.9 $
7,270.4 $
6,266.0
Cost of goods sold .........................................................................
5,628.3
6,130.0
5,146.9
Gross profit ....................................................................................
902.6
1,140.4
1,119.1
Selling, general and administrative expenses ...............................
Amortization of intangible assets ...................................................
Impairment charges (Note 2 and Note 5) ......................................
Restructuring and acquisition-related costs ...................................
(Gain) loss on sale of business (Note 2) ........................................
364.7
95.4
665.0
57.8
21.3
385.7
99.4
485.5
78.9
(15.5)
390.1
75.3
—
110.7
—
Operating income (loss) ................................................................
(301.6)
106.4
543.0
Interest expense ............................................................................
(217.3)
(216.3)
(195.6)
Interest income ..............................................................................
5.8
2.0
2.9
Other income (expense)
Debt refinancing and redemption costs .....................................
Gain on bargain purchase of business ......................................
Gain on settlement of capital lease ...........................................
Pension settlement charge ........................................................
Other, net ..................................................................................
(8.4)
10.8
—
(9.8)
(12.5)
(19.4)
—
15.6
—
(2.2)
(3.5)
—
—
—
(6.8)
Income (loss) before income taxes ................................................
(533.0)
(113.9)
340.0
Income tax expense (benefit) ........................................................
(48.9)
(57.1)
2.5
Net income (loss) ........................................................................... $
(484.1) $
(56.8) $
337.5
Net income attributable to noncontrolling interests ........................
(0.4)
(0.7)
(0.4)
Net income (loss) attributable to AAM ........................................... $
(484.5) $
(57.5) $
337.1
Basic earnings (loss) per share ..................................................... $
(4.31) $
(0.51) $
Diluted earnings (loss) per share ................................................... $
(4.31) $
(0.51) $
3.22
3.21
See accompanying notes to consolidated financial statements
39
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss)
Year Ended December 31,
2019
2018
2017
(in millions)
Net income (loss) ....................................................................................... $
(484.1) $
(56.8) $
337.5
Other comprehensive income (loss)
Defined benefit plans, net of $3.0 million, $(9.8) million and $3.4
million of tax in 2019, 2018 and 2017, respectively ...............................
Foreign currency translation adjustments ..............................................
Changes in cash flow hedges, net of tax of $6.1 million, $0.5 million
and $(0.2) million in 2019, 2018 and 2017, respectively........................
Other comprehensive income (loss) ...........................................................
(18.3)
(4.6)
(14.6)
(37.5)
38.1
(62.5)
5.5
(18.9)
(8.5)
88.3
17.1
96.9
Comprehensive income (loss) .................................................................... $
(521.6) $
(75.7) $
434.4
Net income attributable to noncontrolling interests ................................
(0.4)
(0.7)
(0.4)
Comprehensive income (loss) attributable to AAM ..................................... $
(522.0) $
(76.4) $
434.0
See accompanying notes to consolidated financial statements
40
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Consolidated Balance Sheets
December 31,
2019
2018
(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 ...................................................................................................................
Other intangible assets, net .....................................................................................
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 ..................................................................................................
Accrued expenses and other .................................................................................
Total current liabilities ...............................................................................................
Long-term debt, net ..................................................................................................
Deferred revenue .....................................................................................................
Deferred income taxes .............................................................................................
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 2019 or 2018 ................
Preferred stock, par value $0.01 per share; 10.0 million shares
authorized; no shares outstanding in 2019 or 2018 .............................................
Series common stock, par value $0.01 per share; 40.0 million
shares authorized; no shares outstanding in 2019 or 2018 .................................
Common stock, par value $0.01 per share; 150.0 million shares authorized;
120.2 million and 118.9 million shares issued as of December 31, 2019 and
December 31, 2018, respectively ........................................................................
Paid-in capital ........................................................................................................
Retained earnings ..................................................................................................
Treasury stock at cost, 7.6 million shares in 2019 and 7.2 million shares in 2018 .
Accumulated other comprehensive loss
Defined benefit plans, net of tax ..........................................................................
Foreign currency translation adjustments ...........................................................
Unrecognized loss on cash flow hedges, net of tax ............................................
Total AAM stockholders' equity ................................................................................
Noncontrolling interests in subsidiaries ...............................................................
Total stockholders' equity .........................................................................................
Total liabilities and stockholders' equity .................................................................... $
See accompanying notes to consolidated financial statements
41
532.0 $
815.4
373.6
136.8
1,857.8
2,358.4
64.1
699.1
864.5
223.3
577.4
6,644.6 $
28.7 $
623.5
154.4
18.9
200.9
1,026.4
3,612.3
83.7
19.6
922.2
5,664.2
—
—
—
1.2
1,313.9
248.6
(209.3)
(259.9)
(101.2)
(15.7)
977.6
2.8
980.4
6,644.6 $
476.4
966.5
459.7
127.2
2,029.8
2,514.4
45.5
1,141.8
1,111.1
219.4
448.7
7,510.7
121.6
840.2
179.0
44.3
171.7
1,356.8
3,686.8
77.6
92.6
810.6
6,024.4
—
—
—
1.2
1,292.6
703.5
(201.8)
(213.9)
(96.6)
(1.1)
1,483.9
2.4
1,486.3
7,510.7
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Consolidated Statements of Cash Flows
Year Ended December 31,
2019
2018
(in millions)
2017
(484.1) $
(56.8) $
337.5
Operating activities
Net income (loss) ........................................................................................... $
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization .....................................................................
Impairment charges .....................................................................................
Deferred income taxes ................................................................................
Stock-based compensation .........................................................................
Pensions and other postretirement benefits, net of contributions .................
(Gain) loss on sale or acquisition of business ..............................................
(Gain) loss on disposal of property, plant and equipment, net ......................
Debt refinancing and redemption costs and (gain) on settlement of capital
lease ............................................................................................................
Changes in operating assets and liabilities, net of amounts acquired or
disposed
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 sale of business, net ..............................................................
Acquisition of business, net of cash acquired .................................................
Investment in affiliates ...................................................................................
Net cash used in investing activities ...............................................................
Financing activities
Net short-term proceeds from credit facilities .................................................
Proceeds from issuance of long-term debt .....................................................
Payments of long-term debt, finance 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 (decrease) in cash, cash equivalents and restricted cash .........
Cash, cash equivalents and restricted cash at beginning of year ...................
Supplemental cash flow information
Interest paid .............................................................................................. $
Income taxes paid, net
.............................................................................. $
Non-cash investing activities: Debt security received for sale of U.S.
Casting (Note 2) ........................................................................................ $
Non-cash investing activities: AAM common shares issued for
acquisition of MPG .................................................................................... $
See accompanying notes to consolidated financial statements
42
536.9
667.9
(94.6)
22.4
(8.8)
10.5
4.1
8.4
63.9
56.1
(97.7)
(17.9)
(107.5)
559.6
(433.3)
5.0
(0.9)
141.2
(9.4)
(9.2)
(306.6)
—
356.3
(545.5)
(3.3)
—
—
(7.5)
(200.0)
0.1
53.1
478.9
528.8
515.5
(35.0)
27.9
(9.9)
(15.5)
(3.2)
4.0
56.1
(83.1)
7.5
10.7
(175.5)
771.5
(524.7)
4.9
(0.5)
47.1
(1.3)
(3.7)
(478.2)
—
509.6
(681.2)
(6.9)
(2.3)
—
(3.7)
(184.5)
(6.7)
102.1
376.8
428.5
1.5
(154.2)
43.4
(6.0)
—
1.6
3.5
(44.9)
2.5
(12.6)
14.8
31.4
647.0
(477.7)
2.5
(13.3)
5.9
(895.5)
—
(1,378.1)
4.4
2,862.7
(2,154.4)
(91.0)
—
0.9
(7.0)
615.6
11.1
(104.4)
481.2
376.8
182.7
31.9
—
205.4
57.1
60.0
$
$
$
199.7
46.0
$
$
— $
— $
— $
576.7
Cash, cash equivalents and restricted cash at end of year ............................ $
532.0
$
478.9
$
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
Consolidated Statements of Stockholders' Equity
Common Stock
Shares
Par
Outstanding
Value
Paid-in
Capital
Accumulated
Other
Noncontrolling
Retained
Treasury Comprehensive
Interest
Earnings
Stock
Loss
in Subsidiaries
(in millions)
Balance at January 1, 2017 ...................
76.5 $
0.9 $ 660.1 $
423.9 $ (191.1) $
(389.6) $
Net income ..............................................
Changes in cash flow hedges .................
Foreign currency translation adjustments
Defined benefit plans, net ........................
Acquisition of MPG ..................................
Exercise of stock options and vesting of
restricted stock units and performance
shares .....................................................
Stock-based compensation .....................
Purchase of treasury stock ......................
Balance at December 31, 2017 .............
Net income (loss) ....................................
Changes in cash flow hedges .................
Foreign currency translation adjustments
Defined benefit plans, net ........................
Purchase of non-controlling interest ........
Exercise of stock options and vesting of
restricted stock units and performance
shares .....................................................
Stock-based compensation .....................
Purchase of treasury stock ......................
Balance at December 31, 2018 .............
Net income (loss) ....................................
Changes in cash flow hedges .................
Foreign currency translation adjustments
Defined benefit plans, net ........................
Vesting of restricted stock units and
performance shares ................................
Stock-based compensation .....................
Modified-retrospective application of
ASU 2016-02 ...........................................
Adoption of ASU 2018-02 ........................
Purchase of treasury stock ......................
Balance at December 31, 2019 .............
—
0.4
3.6
4.0
0.7
(2.3)
2.4
0.4
337.1
17.1
88.3
(8.5)
34.3
0.3
579.6
(1.7)
0.8
(0.3)
0.9
24.0
(5.3)
111.3 $
1.2 $ 1,264.6 $
761.0 $ (198.1) $
(292.7) $
(57.5)
5.5
(62.5)
38.1
0.7
(0.3)
111.7 $
0.1
27.9
1.2 $ 1,292.6 $
703.5 $ (201.8) $
(311.6) $
(3.7)
1.3
21.3
(484.5)
1.9
27.7
(7.5)
(14.6)
(4.6)
(18.3)
(27.7)
(0.4)
112.6 $
1.2 $ 1,313.9 $
248.6 $ (209.3) $
(376.8) $
2.8
See accompanying notes to consolidated financial statements
43
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION We are a global Tier 1 supplier to the automotive industry. We design, engineer and
manufacture driveline and metal forming products, employing over 20,000 associates, operating at nearly 80
facilities in 17 countries, to support our customers on global and regional platforms with a continued focus on
delivering operational excellence, quality and technology leadership.
PRINCIPLES OF CONSOLIDATION We include the accounts of American Axle & Manufacturing Holdings, Inc.
(Holdings) and its subsidiaries in our consolidated financial statements. We eliminate the effects of all
intercompany transactions, balances and profits in our consolidation.
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.
REVENUE RECOGNITION We are obligated under our contracts with customers to manufacture and supply
products for use in our customers’ operations. We satisfy these performance obligations at the point in time that the
customer obtains control of the products, which is the point in time that the customer is able to direct the use of, and
obtain substantially all of the remaining benefits from, the products. This typically occurs upon shipment to the
customer in accordance with purchase orders and delivery releases issued by our customers. See Note 15 -
Revenue from Contracts with Customers for more detail on our revenue.
ACCOUNTS RECEIVABLE The majority of our accounts receivable are due from original equipment
manufacturers (OEMs) in the automotive industry and are considered past due when payment is not received within
the terms stated within the contract. Trade accounts receivable for our customers are generally due within
approximately 50 days from the date our customers receive our product.
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 $8.0 million and $8.4 million as of December 31, 2019 and 2018, respectively.
We write-off accounts receivable when they become uncollectible.
We have agreements in place with factoring companies to sell customer receivables on a nonrecourse basis
from our locations in France, Germany, the Czech Republic and the United Kingdom. The factoring companies
collect payment for the sold receivables and AAM has no continuing involvement with such receivables.
We also participate in an early payment program offered by our largest customer, which allows us to sell certain
of our U.S. receivables from this customer to a third party at our discretion. AAM has no continuing involvement
with the sold receivables.
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.
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.
44
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES We state our inventories at the lower of cost or net realizable value. 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,
2019
2018
(in millions)
310.4 $
83.7
394.1
(20.5)
373.6 $
375.1
99.0
474.1
(14.4)
459.7
MAINTENANCE, REPAIR AND OPERATIONS (MRO) MATERIALS We include all spare parts and other
durable materials for machinery and equipment that are consumed in the manufacturing process in MRO, which is
included in Other assets and deferred charges in our Consolidated Balance Sheets. MRO assets are capitalized at
actual cost and amortized on a straight-line basis over a useful life of six years, beginning from their purchase date.
Repair costs for MRO assets are expensed in the period incurred. Amortization expense related to MRO was $67.7
million, $62.4 million and $51.6 million for 2019, 2018 and 2017, respectively.
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 $373.8 million, $367.0 million and
$301.6 million in 2019, 2018 and 2017, 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,
2019
2018
(years)
Indefinite
$
10-15
15-40
3-12
(in millions)
45.1 $
24.4
512.7
3,645.6
219.5
4,447.3
53.6
22.0
501.5
3,342.8
511.1
4,431.0
Accumulated depreciation and amortization .......................................
Property, plant and equipment, net .....................................................
(2,088.9)
2,358.4 $
(1,916.6)
2,514.4
$
As of December 31, 2019, 2018 and 2017, we had unpaid purchases of plant and equipment in our accounts
payable of $46.0 million, $84.1 million and $103.0 million, respectively.
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
45
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 is performed using management estimates.
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 as of October 1, or more
frequently if necessary, for impairment in accordance with the accounting guidance for goodwill and other indefinite-
lived intangibles. See Note 5 - Goodwill and Other Intangible Assets, for more detail on our goodwill.
OTHER INTANGIBLE ASSETS Intangible assets are valued using primarily the relief from royalty method or
the multi-period excess earnings method, both of which utilize significant unobservable inputs. These inputs are
defined in the fair value hierarchy as Level 3 inputs, which require management to make estimates and
assumptions regarding certain financial measures using forecasted or projected information. See Note 5 - Goodwill
and Other Intangible Assets, for more detail on our intangible assets.
LEASING We record a right of use asset and lease liability when an agreement grants us the right to
substantially all of the economic benefits associated with an identified asset, and we are able to direct the use of
that asset throughout the term of the agreement, if such term exceeds 12 months. Options to extend or terminate
the agreements have been included in the relevant lease term to the extent that they are reasonably certain to be
exercised. For agreements that contain both lease and non-lease components, we account for these agreements
as a single lease component for all classes of underlying assets.
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, 2019 and
December 31, 2018, our unamortized debt issuance costs were $63.3 million and $80.7 million, respectively. Debt
issuance costs associated with our senior unsecured notes, as well as our Term Loan A Facility and Term Loan B
Facility (as defined in Note 6 - Long-Term Debt), are recorded as a reduction to the related debt liability. Debt
issuance costs of $12.1 million and $13.6 million related to our Revolving Credit Facility (also as defined in Note 6 -
Long-Term Debt), are classified as Other assets and deferred charges on our Consolidated Balance Sheets as of
December 31, 2019 and December 31, 2018, 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
Statements of Operations.
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. Changes in the fair value of derivatives that do not qualify as hedges, are
immediately recognized in earnings. See Note 7 - 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 net losses of $6.5 million, $0.2 million
and $7.3 million for the years 2019, 2018 and 2017, respectively, in Other income (expense).
46
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 9 - Employee
Benefit Plans, for more detail on our pension and other postretirement defined benefit plans.
STOCK-BASED COMPENSATION We award stock-based compensation in the form of 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 10 - Stock-Based
Compensation and Other Incentive Compensation, for more detail on our accounting for stock-based
compensation.
RESEARCH AND DEVELOPMENT (R&D) COSTS We expense R&D, as incurred, in selling, general and
administrative expenses on our Consolidated Statements of Operations. R&D spending was $144.7 million, $146.2
million and $161.5 million in 2019, 2018 and 2017, respectively.
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 for income tax purposes.
In accordance with the accounting guidance for income taxes, we review the likelihood that we will realize the
benefit of deferred tax assets and 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 determining the requirement for a
valuation allowance, the historical results, projected future operating results based upon approved business plans,
eligible carry forward periods, and tax planning opportunities are considered, along with other relevant positive and
negative evidence. If, based upon available evidence, it is more likely than not the deferred tax assets will not be
realized, a valuation allowance is recorded.
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 11 - Income Taxes, for more detail on our accounting for income taxes.
EARNINGS (LOSS) 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 non-forfeitable dividend rights. Our participating securities include non-vested restricted stock units. See
Note 12 - Earnings (Loss) Per Share (EPS), for more detail on our accounting for EPS.
PRODUCT WARRANTY We record estimated warranty obligation liabilities at the dates our products are sold,
using sales volumes and internal and external warranty data where there is no payment history and historical
information about the average cost of warranty claims for customers with prior claims. We estimate our costs based
on the contractual arrangements with our customers, existing customer warranty terms and internal and external
warranty data, which includes a determination of our warranty claims and actions taken to improve product quality
and minimize warranty claims. See Note 13 - Commitments and Contingencies, for 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.
47
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EFFECT OF NEW ACCOUNTING STANDARDS
Accounting Standards Update 2019-12
On December 18, 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2019-12 - Income Taxes (Topic 740). This guidance is intended to simplify the accounting and
disclosure requirements for income taxes by removing various exceptions, and requires that the effect of an
enacted change in tax laws or rates be included in the annual effective tax rate computation in the interim period of
the enactment. This guidance becomes effective at the beginning of our 2021 fiscal year. We expect to adopt this
guidance on January 1, 2021 and we are currently assessing the impact that this standard will have on our
consolidated financial statements.
Accounting Standards Update 2018-15
On August 15, 2018, the FASB issued ASU 2018-15 - Customer's Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement that is a Service Contract (Topic 350-40). ASU 2018-15 aligns the
requirements for capitalizing implementation costs incurred in a cloud computing or hosting arrangement that is a
service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-
use software. This guidance becomes effective at the beginning of our 2020 fiscal year and may be applied either
retrospectively or prospectively. We will adopt this guidance prospectively on January 1, 2020 and we do not
expect this standard will have a material impact on our consolidated financial statements.
Accounting Standards Update 2018-02
On February 14, 2018, the FASB issued ASU 2018-02 - Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (Topic 220). ASU 2018-02 allows companies the option to reclassify
disproportionate tax effects in accumulated other comprehensive income (AOCI) caused by the 2017 Tax Cuts and
Jobs Act, also known as stranded tax effects, to retained earnings. ASU 2018-02 also requires expanded
disclosures related to disproportionate income tax effects from AOCI, some of which are applicable to all companies
regardless of whether the option to reclassify the stranded tax effects is exercised. The guidance became effective
on January 1, 2019, and we elected to reclassify the stranded tax effects caused by the 2017 Tax Cuts and Jobs
Act, resulting in a decrease in Accumulated other comprehensive income (loss) and an increase in Retained
earnings of $27.7 million at January 1, 2019.
Accounting Standards Update 2016-13
On June 16, 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss model under
current guidance, and will require entities to consider forecasted credit losses, in addition to past events and current
conditions when measuring incurred credit losses. ASU 2016-13 also requires the inclusion of an allowance for
credit losses roll-forward in the notes to the financial statements. This guidance becomes effective at the beginning
of our 2020 fiscal year, and requires a modified-retrospective transition method. We will adopt this guidance on
January 1, 2020 and are currently in the process of updating our accounting policies related to credit losses to
reflect the new requirements. We do not expect this standard will have a material impact on our consolidated
financial statements.
48
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting Standards Update 2016-02
On February 25, 2016, the FASB issued ASU 2016-02 - Leases (Topic 842), and has subsequently issued ASU
2017-13 - Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic
840) and Leases (Topic 842) (collectively the Lease ASUs) which supersede the existing lease accounting guidance
and establish new criteria for recognizing lease assets and liabilities. The most significant impact of these updates,
to AAM, is that a lessee is required to recognize a "right-of-use" asset and lease liability for operating lease
agreements that were not previously included on the balance sheet under the previous lease guidance. Expense
recognition in the statement of operations along with cash flow statement classification for both financing (capital)
and operating leases under the new standard are not significantly changed from previous lease guidance. This
guidance became effective for AAM on January 1, 2019, and we have adopted this guidance using the optional
transition method that allows us to not retrospectively revise prior period balance sheets to include operating
leases. See Note 3 - Leasing for more detail.
2. SALE OF BUSINESS
On December 16, 2019, we completed the sale of our U.S. casting operations to funds managed by Gamut
Capital Management (the Casting Sale). The sales price of $245.0 million consisted of $185.0 million in cash and a
$60.0 million deferred payment obligation, which will accrue interest at an annual rate of 6% beginning on January
1, 2020 for a period of twelve years. Upon closing the sale, we received net cash proceeds of $141.2 million
subsequent to customary closing adjustments. The cash proceeds are subject to post-closing adjustments, which
we expect to finalize in the first quarter of 2020. The sale did not include the entities that conduct AAM's casting
operations in El Carmen, Mexico.
Upon reclassification of the U.S. casting operations to held-for-sale in the third quarter of 2019, we recorded a
pre-tax impairment charge of $225.0 million to reduce the carrying value of this business to fair value less cost to
sell. The sale of the U.S. operations of our Casting segment did not qualify for classification as discontinued
operations, as the sale did not represent a strategic shift in our business that has had, or will have, a major effect on
our operations and financial results. Upon finalizing the sale, we recorded a loss on deconsolidation of the U.S.
Casting entities of $21.3 million, which is presented in (Gain) loss on sale of business in our Consolidated
Statement of Operations for the year ended December 31, 2019.
The assets and liabilities disposed as of December 16, 2019 are as follows (in millions):
Accounts receivable, net .......................................................................................................... $
Inventories ...............................................................................................................................
Prepaid expenses and other ....................................................................................................
Property, plant and equipment, net ..........................................................................................
Intangible assets, net ...............................................................................................................
Other assets and deferred charges .........................................................................................
Impairment of carrying value ...................................................................................................
Total assets disposed ........................................................................................................... $
Accounts payable .................................................................................................................... $
Accrued compensation and benefits ........................................................................................
Accrued expenses and other ...................................................................................................
Postretirement benefits and other long-term liabilities .............................................................
Total liabilities disposed ........................................................................................................ $
84.9
32.6
2.1
191.8
158.2
81.7
(225.0)
326.3
71.7
6.9
4.5
20.1
103.2
49
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LEASING
On January 1, 2019, we adopted new accounting guidance under Accounting Standards Codification Topic 842
(ASC 842) Leases. ASC 842 superseded prior lease accounting guidance and established new criteria for
recognizing right-of-use assets and lease liabilities for operating lease arrangements on our Consolidated Balance
Sheet. We elected to adopt this guidance utilizing the optional transition method that allowed us to not
retrospectively revise prior period balance sheets to include operating leases, and to only include the disclosures
required under ASC 842 for the periods subsequent to adoption.
We have concluded that when an agreement grants us the right to substantially all of the economic benefits
associated with an identified asset, and we are able to direct the use of that asset throughout the term of the
agreement, we have a lease. We lease certain facilities, manufacturing machinery and equipment, and furniture
under finance leases, and we also lease certain commercial office and production facilities, manufacturing
machinery and equipment, vehicles and other assets under operating leases. Some of our leases include options
to extend or terminate the leases and these options have been included in the relevant lease term to the extent that
they are reasonably certain to be exercised.
The lease consideration for some of our facilities and machinery and equipment is variable, as it is based on
various indices or usage of the underlying assets, respectively. Variable lease payments based on indices have
been included in the related right-of-use assets and lease liabilities on our Consolidated Balance Sheet, while
variable lease payments based on usage of the underlying asset have been excluded as they do not represent
present rights or obligations.
Lease cost consists of the following:
Twelve Months Ended
December 31,
2019
(in millions)
Finance lease cost
Amortization of right-of-use assets .......................................................................... $
Interest on lease liabilities ........................................................................................
Total finance lease cost ................................................................................................
Operating lease cost ....................................................................................................
Short-term lease cost ...................................................................................................
Variable lease cost .......................................................................................................
Total lease cost ............................................................................................................ $
1.0
0.3
1.3
28.9
5.9
7.2
43.3
For the year ended December 31, 2019, $31.9 million and $10.1 million were recorded to Cost of goods sold
(COGS) and Selling, general and administrative expenses (SG&A), respectively, on our Consolidated Statement of
Operations, as compared to $28.4 million and $10.0 million, respectively, for the year ended December 31, 2018
and $25.3 million and $10.2 million, respectively, for the year ended December 31, 2017.
50
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes additional information related to our lease agreements.
Twelve Months Ended
December 31,
2019
(in millions, except lease
term and rate)
Cash paid for amounts included in measurement of lease liabilities
Operating cash flows from finance leases ..................................................................... $
Operating cash flows from operating leases ..................................................................
Financing cash flows from finance leases .....................................................................
Weighted-average remaining lease term - finance leases .................................................
Weighted-average remaining lease term - operating leases ..............................................
Weighted-average discount rate - finance leases ..............................................................
Weighted-average discount rate - operating leases ...........................................................
0.3
29.0
1.0
2.8 years
9.2 years
5.1%
6.1%
As the rate implicit in the lease is typically unknown, the discount rate used to determine the lease liability for the
majority of our leases is the collateralized incremental borrowing rate in the applicable geographic area for a similar
term and amount as the lease agreement.
Future undiscounted minimum payments under non-cancelable leases are as follows:
Finance Leases
Operating Leases
2020 .......................................................................................................
2021 .......................................................................................................
2022 .......................................................................................................
2023 .......................................................................................................
2024 .......................................................................................................
Thereafter ...............................................................................................
Total future undiscounted minimum lease payments ..............................
Less: Impact of discounting ...................................................................
Total ........................................................................................................
$
$
(in millions)
3.2 $
2.7
1.7
0.2
—
—
7.8
(0.5)
7.3 $
28.2
21.9
17.9
13.4
10.7
59.3
151.4
(32.9)
118.5
The right-of-use assets and lease liabilities recorded on our Consolidated Balance Sheet as of December 31,
2019 are as follows:
Finance Leases
Operating Leases
Property, plant and equipment, net .......................................................... $
Other assets and deferred charges .........................................................
Total ......................................................................................................... $
Accrued expenses and other ................................................................... $
Postretirement benefits and other long-term liabilities .............................
Total ......................................................................................................... $
(in millions)
7.3 $
—
7.3 $
3.3 $
4.0
7.3 $
—
118.5
118.5
21.8
96.7
118.5
51
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ASC 842 Adoption of Practical Expedients
We have elected to adopt, for all classes of underlying assets, a package of practical expedients provided
under ASC 842 that allow us to 1) not reassess whether existing or expired contracts contain or contained a lease;
2) not reassess the lease classification (operating or financing) of our existing leases at adoption; and 3) not
reassess initial direct costs for existing leases.
ASC 842 also provides a practical expedient that allows companies to exclude balance sheet recognition of
right-of-use assets and associated liabilities for lease terms of 12 months or less, which we have elected as part of
our adoption of ASC 842 for all classes of underlying assets. We do not include right-of-use assets and operating
lease liabilities on our Consolidated Balance Sheet for leases with a term of 12 months or less.
We have also elected to adopt the practical expedient under ASC 842 to not separate lease and non-lease
components in contracts that contain both. These lease agreements are accounted for as a single lease
component for all classes of underlying assets.
Leases Not Yet Commenced
As of December 31, 2019, we have entered into additional leases that have not yet commenced of
approximately $78.9 million, which primarily reflects a lease of a facility in the United States, which has a term of 15
years, and the lease of our new European headquarters and engineering center in Langen, Germany, which has a
term of 20 years. These leases are expected to commence in 2020.
ASC 840 Disclosure
As we elected to adopt the guidance under ASC 842 utilizing the optional transition method that allowed us to
only include the disclosures required under ASC 842 for the periods subsequent to adoption, we are required to
include the disclosures under ASC 840 for the period prior to adoption.
At December 31, 2018, the gross asset cost of our capital leases was $10.5 million and the net book value
included in property, plant and equipment, net on the balance sheet was $3.4 million. The weighted-average
interest rate on these capital lease obligations at December 31, 2018 was 7.9%.
Future minimum payments under non-cancelable operating leases at December 31, 2018 were as follows:
$32.6 million in 2019, $24.3 million in 2020, $16.2 million in 2021, $12.6 million in 2022, and $7.5 million in 2023.
52
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RESTRUCTURING AND ACQUISITION-RELATED COSTS
In 2016, AAM initiated actions under a global restructuring program (the 2016 Program) focused on creating a
more streamlined organization in addition to reducing our cost structure and preparing for acquisition and
integration activities. From inception of the 2016 Program, we incurred severance charges totaling $2.8 million and
implementation costs totaling $29.6 million. We do not expect to incur any additional restructuring charges in future
periods related to the 2016 Program. In addition to costs incurred under the 2016 program, we initiated actions in
2018 to exit operations at manufacturing facilities in our Driveline, Metal Forming and former Powertrain segments.
In the first quarter of 2019, we initiated a new global restructuring program (the 2019 Program) to further
streamline our business by consolidating our four existing segments into three segments. This activity occurred
through the disaggregation of our former Powertrain segment, with a portion moving into our Driveline segment and
a portion moving into our Metal Forming segment. The primary objectives of this consolidation are to further the
integration of MPG, align AAM's product and process technologies, and to achieve efficiencies within our corporate
and business unit support teams to reduce cost in our business. We expect to complete restructuring activities
under the 2019 Program by December 31, 2020.
A summary of our restructuring activity for the years 2019, 2018 and 2017 is shown below:
Severance
Charges
Implementation
Costs
Asset Impairment
Charges
Total
Accrual at January 1, 2017 ......... $
Charges ......................................
Cash utilization ...........................
Non-cash utilization ....................
Accrual at December 31, 2017....
Charges ......................................
Cash utilization ...........................
Non-cash utilization ....................
Accrual at December 31, 2018....
Charges ......................................
Cash utilization ...........................
Non-cash utilization ....................
Accrual at December 31, 2019.... $
0.6 $
2.0
(2.3)
—
0.3
2.5
(0.4)
—
2.4
19.4
(17.0)
—
4.8 $
(in millions)
9.2 $
13.9
(23.1)
—
—
11.7
(10.1)
—
1.6
20.4
(14.6)
—
7.4 $
— $
1.5
—
(1.5)
—
30.0
—
(30.0)
—
—
—
—
— $
9.8
17.4
(25.4)
(1.5)
0.3
44.2
(10.5)
(30.0)
4.0
39.8
(31.6)
—
12.2
As part of our total restructuring actions during 2019, we incurred severance charges of approximately $19.4
million, as well as implementation costs, consisting primarily of plant exit costs, of approximately $20.4 million.
Approximately $18 million of the restructuring costs incurred in 2019 were under the 2019 Program. Approximately
$6.4 million, $21.5 million, and $0.7 million of our total restructuring costs in 2019 related to our Driveline, Metal
Forming and Casting segments, respectively, while the remainder were corporate costs.
In 2018, we incurred severance charges of approximately $2.5 million, as well as implementation costs,
consisting primarily of plant exit costs and professional fees, of approximately $11.7 million, and long-lived asset
impairment charges of $30.0 million. In 2017, severance charges were approximately $2.0 million, while
implementation costs, including professional fees, were $13.9 million and long-lived asset impairment charges were
$1.5 million.
We expect to incur approximately $20 million to $30 million of total restructuring charges in 2020, substantially
all of which are under the 2019 Program.
53
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 2019, we completed our acquisition of Mitec, and in 2017, we completed our acquisitions of MPG and USM
Mexico. The following table represents a summary of charges incurred in 2019, 2018 and 2017 associated with
acquisition and integration costs:
Acquisition-
Related Costs
Severance
Charges
Integration
Expenses
Total
2019 Charges .............................................. $
2018 Charges ..............................................
2017 Charges ..............................................
1.8 $
1.2
40.7
— $
0.5
7.2
16.2 $
33.0
45.4
18.0
34.7
93.3
Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional
or consulting fees incurred. Integration expenses primarily reflect costs incurred for information technology
infrastructure and enterprise resource planning systems, and consulting fees incurred in conjunction with the
acquisitions.
Total restructuring charges and acquisition-related charges of $57.8 million, $78.9 million and $110.7 million are
shown on a separate line item titled "Restructuring and Acquisition-Related Costs" in our Consolidated Statements
of Operations for 2019, 2018 and 2017, respectively.
54
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill The following table provides a reconciliation of changes in goodwill for the year ended December 31,
2019 and the year ended December 31, 2018:
Driveline
Metal
Forming
Powertrain
Casting
Consolidated
Balance as of January 1, 2018 ........... $
211.1
$
558.9
$
$
405.5
$
1,654.3
Acquisition of MPG...........................
Acquisition of USM Mexico...............
Impairment charge ...........................
Sale of business ...............................
Foreign currency translation.............
Balance as of December 31, 2018 ..... $
Reorganization .................................
Impairment charge ...........................
Foreign currency translation.............
Balance as of December 31, 2019 ..... $
—
1.3
—
—
(0.3)
$
212.1
187.2
—
(1.0)
0.9
—
—
—
(7.4)
552.4
190.1
(440.0)
(1.7)
(in millions)
478.8
—
—
(80.0)
(15.1)
(6.4)
$
$
377.3
(377.3)
—
—
—
—
(405.5)
—
—
— $
—
—
—
0.9
1.3
(485.5)
(15.1)
(14.1)
1,141.8
—
(440.0)
(2.7)
699.1
398.3
$
300.8
$
— $
— $
We conduct our annual goodwill impairment test in the fourth quarter of each year. In performing this test, we
utilize a third-party valuation specialist to assist management in determining the fair value of our reporting units. Fair
value of each reporting unit is estimated based on a combination of discounted cash flows and the use of pricing
multiples derived from an analysis of comparable public companies multiplied against historical and/or anticipated
financial metrics of each reporting unit. These calculations contain uncertainties as they require management to
make assumptions including, but not limited to, market comparables, future cash flows of the reporting units, and
appropriate discount and long-term growth rates. This fair value determination is categorized as Level 3 within the
fair value hierarchy.
In the first quarter of 2019, we initiated a global restructuring program (the 2019 Program) to further streamline
our business by consolidating our four existing segments into three segments. See Note 4 - Restructuring and
Acquisition-Related Costs for further detail on this reorganization of our segments. Prior to this reorganization, our
former Powertrain segment was also a reporting unit for purposes of measuring and reporting goodwill. The
goodwill that was previously attributable to the former Powertrain reporting unit was reallocated to the Driveline and
Metal Forming reporting units based on the relative fair value of the respective portions that became attributable to
those reporting units. The initiation of the 2019 Program and the reorganization of our business represented a
triggering event in the first quarter of 2019 to test goodwill for impairment prior to reallocating the former Powertrain
goodwill to Driveline and Metal Forming. No impairment was identified as a result of completing this goodwill
impairment test.
As a result of our annual goodwill impairment test in the fourth quarter of 2019, we determined that the carrying
value of our Metal Forming reporting unit was greater than its fair value. As such, we recorded a goodwill
impairment charge of $440.0 million in 2019 associated with this reporting unit. This impairment was primarily the
result of a decline in the projected cash flows of this reporting unit under our long-range plan completed in the fourth
quarter of 2019, as compared to the long-range plan completed in the fourth quarter of 2018. This was driven, in
part, by lower forecasted sales volumes in the internal and external data sources used to form our projections. At
December 31, 2019, accumulated goodwill impairment losses were $925.5 million.
As a result of our test in the fourth quarter of 2018, we determined that the carrying values of our Casting and
former Powertrain reporting units were greater than their respective fair values. As such, we recorded non-cash
goodwill impairment charges of $405.5 million associated with our Casting reporting unit and $80.0 million
associated with our former Powertrain reporting unit in 2018. These impairments were primarily the result of a
general contraction of pricing multiples associated with capital intensive businesses such as the business
conducted by our Casting and former Powertrain reporting units, as well as a decline in the projected cash flows of
55
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
these reporting units under our long-range plan completed in the fourth quarter of 2018, as compared to the long-
range plan completed in the fourth quarter of 2017.
The decline in projected cash flows for the Powertrain reporting unit was primarily the result of decreased
contribution margin on lower production volumes for certain passenger car programs that we support. The decline
in projected cash flows for the Casting reporting unit was primarily the result of a projected increase in labor costs in
an effort to address workforce shortages at certain locations, as well as an increase in other maintenance and
capital requirements.
In the second quarter of 2018, we completed the sale of the aftermarket business associated with our former
Powertrain segment. We allocated $15.1 million of goodwill to the sold business, which represented the fair value
of the business sold relative to the fair value of the associated reporting unit.
Other Intangible Assets The following table provides a reconciliation of the gross carrying amount and
associated accumulated amortization for AAM's total intangible assets, which are all subject to amortization, as of
December 31, 2019 and December 31, 2018:
December 31,
2019
Accumulated
Amortization
Gross
Carrying
Amount
Net
Carrying
Amount
Gross
Carrying
Amount
December 31,
2018
Accumulated
Amortization
Net
Carrying
Amount
$
45.8 $
Capitalized computer
software ................................
Customer platforms ..............
Customer relationships .........
Technology and other ...........
Total ..................................... $ 1,111.0 $
156.0
856.2
53.0
(27.6) $
(in millions)
18.2
$
38.0 $
(20.1) $
17.9
(174.4)
(9.4)
(35.1)
(246.5) $
681.8
43.6
120.9
864.5
952.2
147.0
156.2
(123.5)
(16.5)
(22.2)
828.7
130.5
134.0
$ 1,293.4 $
(182.3) $ 1,111.1
In the fourth quarter of 2019, we completed the sale of the U.S. operations of our Casting business to entities
affiliated with Gamut Capital Management, L.P. As such, during 2019 we reduced the gross carrying amount of our
customer platforms and customer relationships by $96.0 million and $94.0 million, respectively, and reduced the
associated accumulated amortization by $17.2 million and $14.6 million, respectively.
As a result of the acquisition of MPG in 2017, we recorded intangible assets related to aftermarket customer
relationships that were associated with the former Powertrain aftermarket business that we sold in the second
quarter of 2018. As such, during 2018 we reduced the gross carrying amount of our customer relationships by $4.8
million, and reduced the associated accumulated amortization by $0.3 million.
Amortization expense for our intangible assets was $95.4 million for the year ended December 31, 2019, $99.4
million for the year ended December 31, 2018, and $75.3 million for the year ended December 31, 2017. The
change in amortization expense in 2019, as compared to 2018, was primarily attributable to the sale of the U.S.
operations of our Casting business in the fourth quarter of 2019. The increase in amortization expense in 2018, as
compared to 2017, was primarily attributable to the impact of twelve months of amortization on the MPG intangibles
in 2018, as compared to nine months of amortization in 2017. Estimated amortization expense is approximately
$87 million per year for each of the years 2020 through 2024.
56
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt, net consists of the following:
December 31,
2019
2018
Revolving credit facility .............................................................................. $
Term Loan A Facility ...................................................................................
Term Loan B Facility ..................................................................................
7.75% Notes due 2019 ..............................................................................
6.625% Notes due 2022 ............................................................................
6.50% Notes due 2027 ..............................................................................
6.25% Notes due 2026 ..............................................................................
6.25% Notes due 2025 ..............................................................................
Foreign credit facilities and other ...............................................................
Capital lease obligations ............................................................................
Total debt ...................................................................................................
Less: Current portion of long-term debt .................................................
Long-term debt ..........................................................................................
Less: Debt issuance costs .....................................................................
(in millions)
— $
340.0
1,188.8
—
450.0
500.0
400.0
700.0
113.4
—
3,692.2
28.7
3,663.5
51.2
Long-term debt, net ................................................................................... $
3,612.3 $
—
83.8
1,511.2
100.0
450.0
500.0
400.0
700.0
127.1
3.4
3,875.5
121.6
3,753.9
67.1
3,686.8
SENIOR SECURED CREDIT FACILITIES In 2017, Holdings and American Axle & Manufacturing, Inc. (AAM
Inc.) entered into a credit agreement (the Credit Agreement). In connection with the Credit Agreement, Holdings,
AAM, Inc. and certain of their restricted subsidiaries entered into a Collateral Agreement and Guarantee Agreement
with the financial institutions party thereto. The Credit Agreement included a $100.0 million term loan A facility (the
Term Loan A Facility), a $1.55 billion term loan B facility (the Term Loan B Facility) and a $932 million multi-currency
revolving credit facility (the Revolving Credit Facility, and together with the Term Loan A Facility and the Term Loan
B Facility, the Senior Secured Credit Facilities).
In July 2019, Holdings, AAM, Inc., and certain subsidiaries of Holdings entered into the First Amendment (First
Amendment) to the Credit Agreement (as amended by the First Amendment, the Amended Credit Agreement). The
First Amendment, among other things, established $340 million in incremental term loan A commitments under the
Amended Credit Agreement with a maturity date of July 29, 2024 (Term Loan A Facility due 2024), reduced the
availability under the Revolving Credit Facility from $932 million to $925 million and extended the maturity date of
the Revolving Credit Facility from April 6, 2022 to July 29, 2024, and modified the applicable margin with respect to
interest rates under the Term Loan A Facility due 2024 and interest rates and commitment fees under the Revolving
Credit Facility. The applicable margin and the maturity date for the Term Loan B Facility remain unchanged. The
proceeds of $340 million were used to repay all of the outstanding loans under the existing Term Loan A Facility and
a portion of the outstanding Term Loan B Facility, resulting in no additional indebtedness. This also satisfies all
payment requirements under the Term Loan B Facility until maturity in 2024. We expensed $5.1 million for the write-
off of the unamortized debt issuance costs related to the existing Term Loan A Facility and a portion of the
unamortized debt issuance costs related to our Term Loan B Facility that we had been amortizing over the expected
life of the borrowings.
In December 2019, we used a portion of the cash proceeds from the Casting Sale to make a payment on our
Term Loan B Facility, which included a principal payment of $59.8 million and $0.4 million in accrued interest. We
also expensed approximately $1.0 million for the write-off of the unamortized debt issuance costs that we had been
amortizing over the expected life of the borrowing.
57
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2019, $898.8 million was available under the Revolving Credit Facility. This availability
reflects a reduction of $26.2 million for standby letters of credit issued against the facility. The proceeds of the
Revolving Credit Facility are used for general corporate purposes.
The Senior Secured Credit Facilities provide back-up liquidity for our foreign credit facilities. We intend to use
the availability of long-term financing under the Senior Secured Credit Facilities to refinance any current maturities
related to such debt agreements that are not otherwise refinanced on a long-term basis in their local markets,
except where otherwise reclassified to Current portion of long-term debt on our Consolidated Balance Sheet.
REDEMPTION OF 7.75% NOTES DUE 2019 In the second quarter of 2019, we voluntarily redeemed the
remaining balance outstanding under our 7.75% Notes due 2019. This resulted in a principal payment of $100.0
million and $0.3 million in accrued interest. We also expensed approximately $0.1 million for the write-off of the
unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and
approximately $2.2 million for an early redemption premium.
In the fourth quarter of 2018, we voluntarily redeemed a portion of our 7.75% Notes due 2019. This resulted in
a principal payment of $100.0 million and $3.9 million in accrued interest. We also expensed approximately $0.3
million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the
expected life of the borrowing, and approximately $4.5 million for an early redemption premium.
REDEMPTION OF 6.625% NOTES DUE 2022 In the second quarter of 2018, we voluntarily redeemed a
portion of our 6.625% Notes due 2022. This resulted in a principal payment of $100.0 million, and a payment of
$0.8 million in accrued interest. During 2018, we expensed $0.8 million for the write-off of a portion of the
remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing
and $3.3 million for an early redemption premium.
6.25% NOTES DUE 2026 In the first quarter of 2018, we issued $400.0 million in aggregate principal amount of
6.25% senior notes due 2026 (the 6.25% Notes due 2026). Proceeds from the 6.25% Notes due 2026 were used
primarily to fund the tender offer for the 6.25% senior notes due 2021 (the 6.25% Notes due 2021) described below.
We paid debt issuance costs of $6.6 million during 2018 related to the 6.25% Notes due 2026.
TENDER OFFER OF 6.25% NOTES DUE 2021 Also during the first quarter of 2018, we made a tender offer
for our 6.25% Notes due 2021. Under this tender offer, we retired the $400.0 million of the 6.25% Notes due 2021
and expensed $2.5 million for the write-off of the remaining unamortized debt issuance costs that we had been
amortizing over the expected life of the borrowing and $8.0 million in tender premiums.
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 January 2021. At December 31, 2019, $106.0 million was outstanding under these facilities
and an additional $89.1 million was available. At December 31, 2018, $127.1 million was outstanding under these
facilities and an additional $78.2 million was available.
DEBT MATURITIES Aggregate maturities of long-term debt are as follows (in millions):
2020 ................................................................................................................................................ $
2021 ................................................................................................................................................
2022 ................................................................................................................................................
2023 ................................................................................................................................................
2024 ................................................................................................................................................
Thereafter .......................................................................................................................................
Total ................................................................................................................................................ $
53.2
77.1
471.3
29.8
1,460.8
1,600.0
3,692.2
CAPITAL LEASE OBLIGATIONS Upon our adoption of ASC 842 Leases, our capital (finance) lease
obligations are now presented in Accrued expenses and other, and Postretirement benefits and other long-term
liabilities on our Consolidated Balance Sheet. See Note 3 - Leasing for additional detail regarding our adoption of
ASC 842.
58
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTEREST EXPENSE AND INTEREST INCOME Interest expense was $217.3 million in 2019, $216.3 million
in 2018 and $195.6 million in 2017. The change in interest expense in 2018, as compared to 2017, is primarily
attributable to additional interest expense incurred on borrowings outstanding under our Senior Secured Credit
Facilities entered into in April 2017, as well as on $700.0 million aggregate principal amount of 6.25% senior notes
due 2025 and $500.0 million in aggregate principal amount of 6.50% senior notes due 2027, which were issued in
March 2017.
We capitalized interest of $15.5 million in 2019, $28.4 million in 2018 and $18.3 million in 2017. The weighted-
average interest rate of our long-term debt outstanding at December 31, 2019 was 5.8% as compared to 5.9% and
5.7% at December 31, 2018 and 2017, respectively.
Interest income was $5.8 million in 2019, $2.0 million in 2018 and $2.9 million in 2017. Interest income includes
interest earned on cash and cash equivalents, realized and unrealized gains and losses on our short-term
investments during the period, and the impact of the interest rate differential on our fixed-to-fixed cross-currency
swap.
SUBSEQUENT EVENT In January 2020, we issued an irrevocable notice to the holders of the 6.625% Notes
due 2022 to voluntarily redeem a portion of our 6.625% Notes due 2022 in the first quarter of 2020. This will result
in a principal payment of $100 million and $2.0 million in accrued interest. We expect to expense approximately
$0.4 million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected
life of the borrowing, and approximately $1.1 million for the payment of an early redemption premium.
59
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 impact of hedge ineffectiveness was not significant in any of the periods
presented.
CURRENCY DERIVATIVE CONTRACTS From time to time, we use foreign currency forward and option
contracts to reduce the effects of fluctuations in exchange rates relating to certain foreign currencies. We had
currency forward contracts outstanding with a notional amount of $180.1 million and $185.8 million at December 31,
2019 and 2018, respectively, that hedge our exposure to changes in foreign currency exchange rates for certain
payroll expenses into the third quarter of 2022 and the purchase of certain direct and indirect inventory and other
working capital items into the third quarter of 2020.
FIXED-TO-FIXED CROSS-CURRENCY SWAP In 2019, we entered into a fixed-to-fixed cross-currency swap
to reduce the variability of functional currency equivalent cash flows associated with changes in exchange rates on
certain Euro-based intercompany loans. As of December 31, 2019, the notional amount of the fixed-to-fixed cross-
currency swap was $224.2 million, and hedges our exposure to changes in exchange rates on the intercompany
loans into the second quarter of 2024.
VARIABLE-TO-FIXED INTEREST RATE SWAP In 2017, we entered into a variable-to-fixed interest rate swap
to reduce the variability of cash flows associated with interest payments on our variable rate debt. In the second
quarter of 2018, we discontinued this variable-to-fixed interest rate swap, which was in an asset position of $5.6
million on the date that it was discontinued.
Also in the second quarter of 2018, we entered into a new variable-to-fixed interest rate swap to reduce the
variability of cash flows associated with interest payments on our variable rate debt. In the second quarter of 2019,
we discontinued this variable-to-fixed interest rate swap, which was a liability of $9.7 million on the date that it was
discontinued.
Also in the second quarter of 2019, we entered into a new variable-to-fixed interest rate swap to reduce the
variability of cash flows associated with interest payments on our variable rate debt. As of December 31, 2019, we
have the following notional amounts hedged in relation to our variable-to-fixed interest rate swap: $1.0 billion
through May 2020, $900.0 million through May 2021, $750.0 million through May 2022, $600.0 million through May
2023 and $500.0 million through May 2024.
The following table summarizes the reclassification of pre-tax derivative gains (losses) into net income (loss)
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 (Loss)
Gain (Loss) Reclassified
During the Twelve
Months Ended
December 31,
Total of
Financial
Statement
Line Item
2019
2018
2017
2019
(in millions)
Gain (Loss)
Expected to
be
Reclassified
During the
Next 12
Months
Currency forward contracts ............ Cost of Goods Sold $
Fixed-to-fixed cross-currency swap Other Income
(Expense), net
2.4 $ (2.8) $ (5.3) $ 5,628.3 $
1.3
(12.5)
—
—
Variable-to-fixed interest rate swap Interest Expense
(2.0)
3.2
—
(217.3)
60
5.0
—
(8.2)
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
See Note 14 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) for amounts
recognized in Accumulated other comprehensive income (loss) during the years ended December 31, 2019,
December 31, 2018 and December 31, 2017.
The following table summarizes the amount and location of gains (losses) recognized in the Consolidated
Statements of Operations for those derivative instruments not designated as hedging instruments under ASC 815:
Location of Gain/(Loss)
Recognized in Net Income
(Loss)
Gain (Loss) Recognized
During the Twelve Months
Ended December 31,
2018
2019
2017
Total of Financial
Statement Line
Item
2019
Currency forward contracts . Cost of Goods Sold
Currency forward contracts . Other Income (Expense), Net
$
Currency option contracts ... Cost of Goods Sold
(in millions)
3.9 $
—
—
1.6 $
1.4
2.7 $
(0.1)
—
0.8
5,628.3
(12.5)
5,628.3
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 37% of our consolidated net sales in 2019, 41% in 2018, and 47% in 2017.
Accounts and other receivables due from GM were $328.5 million at year-end 2019 and $353.7 million at year-end
2018. Sales to FCA US LLC (FCA), were approximately 17% of our consolidated net sales in 2019, 13% in 2018
and 14% in 2017. Accounts and other receivables due from FCA were $154.8 million at year-end 2019 and $176.0
million at year-end 2018. 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 $236.0 million as of December 31, 2019 and
$232.9 million as of December 31, 2018. See Note 9 - 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.
61
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 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, 2019 December 31, 2018
Carrying
Amount
Carrying
Amount
Fair
Value
Fair
Value
Input
(in millions)
44.0 $
44.0
Level 1
1.3
0.9
0.6
0.4
—
1.6
0.8
0.7
0.4
0.9
6.9
1.3
0.9
0.6
Level 2
Level 2
Level 2
0.4
Level 2
— Level 2
Level 2
1.6
0.8
0.7
0.4
0.9
6.9
Level 2
Level 2
Level 2
Level 2
Level 2
Balance Sheet Classification
Cash equivalents ................................................................ $ 271.3 $ 271.3 $
Prepaid expenses and other
Cash flow hedges - currency forward contracts ..............
Cash flow hedges - variable-to-fixed interest rate swap .
5.0
5.0
0.9
0.9
Nondesignated - currency forward contracts ..................
Other assets and deferred charges
Cash flow hedges - currency forward contracts ..............
Cash flow hedges - fixed-to-fixed cross-currency swap ..
Cash flow hedges - variable-to-fixed interest rate swap .
Accrued expenses and other
Cash flow hedges - currency forward contracts..............
Cash flow hedges - variable-to-fixed interest rate swap .
Nondesignated - currency forward contracts ..................
Postretirement benefits and other long-term liabilities
1.9
3.4
1.1
2.2
—
7.9
—
1.9
3.4
1.1
2.2
—
7.9
—
Cash flow hedges - currency forward contracts..............
Cash flow hedges - variable-to-fixed interest rate swap .
—
18.4
—
18.4
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, 2019
December 31, 2018
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Input
(in millions)
Revolving Credit Facility ............................. $
Term Loan A Facility ...................................
Term Loan B Facility ...................................
7.75% Notes due 2019 ...............................
6.625% Notes due 2022 .............................
6.50% Notes due 2027 ...............................
6.25% Notes due 2026 ...............................
6.25% Notes due 2025 ...............................
— $
— $
— $
340.0
1,188.8
—
450.0
500.0
400.0
700.0
337.9
1,174.0
—
455.4
516.3
409.0
716.6
83.8
1,511.2
100.0
450.0
500.0
400.0
700.0
—
79.5
1,420.6
102.1
444.4
446.3
358.0
636.7
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Investments in our defined benefit pension plans are stated at fair value. See Note 9 - Employee Benefit Plans
for additional fair value disclosures of our pension plan assets.
LONG-LIVED ASSETS During the year ended December 31, 2018, we recorded asset impairment charges as
a result of restructuring actions initiated during the period. See Note 4 - Restructuring and Acquisition-Related
Costs for further detail.
The following table summarizes the impairments of long-lived assets measured at fair value on a nonrecurring
basis subsequent to initial recognition:
Balance Sheet Classification
Fair Value
Asset
Impairment
Fair Value
Asset
Impairment
(in millions)
December 31, 2019
December 31, 2018
Property, plant and equipment, net............. $
Other assets and deferred charges ............
— $
—
— $
—
— $
—
28.8
1.2
63
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. 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.
Actuarial valuations of our benefit plans were made as of December 31, 2019 and 2018. The primary weighted-
average assumptions used in the year-end valuation of our principal 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 rates are based on
hypothetical yield curves developed from corporate bond yield information within each regional market. 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
2019
2018
2017
2019
U.S.
U.K.
U.S.
U.K.
U.S.
U.K.
OPEB
2018
2017
Discount rate ...........................
3.40% 2.05% 4.30% 2.95% 3.65% 2.75% 3.35% 4.35% 3.65%
Expected return on plan
assets ......................................
Rate of compensation
increase ...................................
7.25% 4.00% 7.50% 5.10% 7.45% 5.10%
N/A
N/A
N/A
N/A
3.15% 4.00% 3.40% 4.00% 3.40% 4.00% 4.00% 4.00%
The accumulated benefit obligation for all defined benefit pension plans was $737.8 million and $732.5 million
at December 31, 2019 and December 31, 2018, respectively. As of December 31, 2019, the accumulated benefit
obligation for our underfunded defined benefit pension plans was $608.0 million, the projected benefit obligation
was $608.0 million and the fair value of assets for these plans was $483.2 million.
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 $236.0 million and $232.9 million at December 31, 2019 and December 31, 2018,
respectively. We have also recorded a corresponding asset for these amounts on our Consolidated Balance Sheet,
$12.7 million that is classified as a current asset and $223.3 million that is classified as a noncurrent asset as of
December 31, 2019.
64
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
2019
2018
2019
2018
Change in benefit obligation
Benefit obligation at beginning of year .................... $
Service cost ............................................................
Interest cost ............................................................
Plan amendments ...................................................
Actuarial loss (gain) ................................................
Change in GM portion of OPEB obligation ..............
Participant contributions ..........................................
Curtailments ............................................................
Settlements .............................................................
Benefit payments ....................................................
Sale of business ......................................................
Currency fluctuations ..............................................
Other .......................................................................
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 ....................................................
Settlements .............................................................
Sale of business ......................................................
Currency fluctuations ..............................................
Net change ..............................................................
Fair value of plan assets at end of year .................. $
(in millions)
824.0 $
2.6
537.3 $
0.3
734.5 $
1.5
28.0
—
71.5
—
0.2
(1.9)
(28.8)
(44.1)
(26.2)
5.5
—
27.3
4.3
(63.2)
—
0.3
(11.6)
(0.6)
(39.7)
—
(9.4)
0.5
5.7
740.2 $
(89.5)
734.5 $
625.8 $
87.5
10.0
0.2
(44.1)
(28.8)
(20.7)
6.7
10.8
636.6 $
702.2 $
(31.0)
4.4
0.3
(39.8)
(0.6)
—
(9.7)
(76.4)
625.8 $
12.8
—
11.9
3.1
—
—
—
(15.5)
(0.8)
—
—
11.8
549.1 $
— $
—
15.5
—
(15.5)
—
—
—
—
— $
613.3
0.4
12.4
(2.3)
(43.8)
(32.6)
—
(0.2)
—
(9.9)
—
—
—
(76.0)
537.3
—
—
9.9
—
(9.9)
—
—
—
—
—
Amounts recognized in our Consolidated Balance Sheets are as follows:
Pension Benefits
December 31,
OPEB
December 31,
2019
2018
2019
2018
(in millions)
Noncurrent assets ...................................................... $
21.2 $
26.4 $
— $
Current liabilities .........................................................
Noncurrent liabilities ...................................................
(6.6)
(118.2)
(6.5)
(128.6)
(29.1)
(520.0)
Net liability .................................................................. $
(103.6) $
(108.7) $
(549.1) $
—
(30.8)
(506.5)
(537.3)
65
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, 2019 and 2018, consists of:
Pension Benefits
December 31,
OPEB
December 31,
2019
2018
2019
2018
Net actuarial gain (loss) .............................................. $
Net prior service credit (cost) .....................................
Total amounts recorded .............................................. $
(239.2) $
(1.2)
(240.4) $
The components of net periodic benefit cost (credit) are as follows:
(in millions)
(230.6) $
(1.2)
(231.8) $
19.3 $
4.7
24.0 $
31.3
6.2
37.5
Pension Benefits
2019
2018
2017
2019
OPEB
2018
2017
Service cost ...................................... $
Interest cost ......................................
Expected asset return.......................
Amortized actuarial loss ...................
Amortized prior service cost (credit) .
Curtailment loss (gain)......................
Settlement charge ............................
Net periodic benefit cost (credit) ....... $
1.5 $
2.6 $
(in millions)
3.6 $
0.3 $
0.4 $
28.0
(41.1)
6.4
—
—
10.4
27.3
(45.8)
7.8
0.1
3.2
0.4
5.2 $
(4.4) $
28.9
(44.0)
7.1
(0.1)
—
12.8
—
0.1
(1.5)
—
3.2
(1.3) $
—
11.7 $
12.4
—
0.8
(2.7)
(0.6)
—
0.3
13.3
—
0.6
(2.7)
—
—
10.3 $
11.5
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 Statements of Operations 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 or the
remaining life expectancy of the inactive participants.
The estimated net actuarial loss and prior service cost for the defined benefit pension plans that is expected to
be amortized from AOCI into net periodic benefit cost in 2020 are $8.6 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 2020 are $1.0 million and $1.5 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 2020. The rate was assumed to decrease gradually to 5.00% by 2026 and to
remain at that level thereafter. Health care cost trend rates may 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 2019 and the postretirement obligation, net of GM cost sharing, at December 31, 2019
by $1.4 million and $33.8 million, respectively. A 1.0% decrease in the assumed health care cost trend rate would
have decreased total service and interest cost in 2019 and the postretirement obligation, net of GM cost sharing, at
December 31, 2019 by $1.1 million and $28.4 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: $57.9 million in
2020; $56.0 million in 2021; $55.0 million in 2022; $55.0 million in 2023; $56.4 million in 2024 and $288.4 million for
66
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2025 through 2029. These amounts were estimated using the same assumptions that were used to measure our
2019 year-end pension and OPEB obligations and include an estimate of future employee service.
Contributions We contributed $2.2 million to our pension trusts in 2019. Due to the availability of our pre-
funded pension balances (previous contributions in excess of prior required pension contributions) related to certain
of our U.S. pension plans, we expect our regulatory pension funding requirements in 2020 to be approximately $1.5
million. We expect our cash payments, net of GM cost sharing, for OPEB to be approximately $17 million in 2020.
Terminated vested lump sum payment offer In 2019, we offered a voluntary one-time lump sum payment
option to certain eligible terminated vested participants in our U.S. pension plans that, if accepted, would settle our
pension obligations to them (AAM Pension Payout Offer). The lump sum settlements, which were paid from plan
assets, reduced our liabilities and administrative costs going forward.
The AAM Pension Payout Offer was offered to approximately 2,000 of our U.S. pension plan participants, of
which 616 participants accepted the offer. We made a one-time lump sum payment from our pension trust of $28.4
million in 2019. 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 $32.5 million and resulted in a non-cash settlement charge of
$9.8 million in the fourth quarter of 2019 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,
2019 and 2018 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.
U.K.
Target
Target
2019
2018
Allocation
2019
2018
Allocation
Equity securities ...................
35.2%
31.9% 30% - 55%
22.7%
19.0% 15% - 25%
Fixed income securities .......
Alternative assets ................
Cash ....................................
52.9
10.4
1.5
57.5
10.0
0.6
40% - 60%
5% - 10%
0% - 5%
66.8
9.4
1.1
68.3
10.5
2.2
65% - 75%
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.
67
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, 2019
Asset Categories
Level 1
Level 2
Level 3
Total
Cash and 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 ..............................................................
Other
Property Funds (a) ...........................................
Liquid Alternatives Fund (a) .............................
Structured Credit Fund (a) ...............................
Total Plan Assets .............................................. $
7.3 $
(in millions)
2.0 $
— $
82.4
22.7
88.1
74.3
185.8
21.7
20.4
6.9
3.0
—
4.7
45.0
0.6
1.1
0.7
4.8
—
—
—
509.6 $
—
—
—
61.9 $
—
—
—
—
—
—
—
—
—
—
—
— $
9.3
85.4
22.7
92.8
119.3
186.4
22.8
21.1
11.7
57.3
1.6
6.2
636.6
December 31, 2018
Asset Categories
Level 1
Level 2
Level 3
Total
Cash and 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 ..............................................................
Other
Property Funds (a) ...........................................
Liquid Alternatives Fund (a) .............................
Structured Credit Fund (a) ...............................
Total Plan Assets .............................................. $
3.5 $
(in millions)
3.2 $
— $
72.5
17.4
79.5
86.5
177.2
19.8
18.0
6.9
3.4
0.1
5.3
54.3
2.7
1.5
0.9
8.9
—
—
—
481.3 $
—
—
—
80.3 $
—
—
—
—
—
—
—
—
—
—
—
— $
6.7
75.9
17.5
84.8
140.8
179.9
21.3
18.9
15.8
56.0
2.5
5.7
625.8
(a) In accordance with ASC 810-10, 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.
68
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEFINED CONTRIBUTION PLANS Most of our salaried and hourly U.S. associates, including certain UAW
represented associates at our legacy U.S. locations, are eligible to participate in voluntary savings plans. Our
maximum match is 50% of eligible associates' contribution up to 10% of their eligible salary. Matching contributions
amounted to $11.5 million in 2019, $12.4 million in 2018 and $10.0 million in 2017. Certain U.S. 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 $10.3 million, $7.3 million and $7.1 million in
2019, 2018 and 2017, respectively.
69
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK-BASED COMPENSATION AND OTHER INCENTIVE COMPENSATION
STOCK-BASED COMPENSATION
At December 31, 2019, we had stock-based awards outstanding under stock 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 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, 2019 were 5.3
million. The current stock plan will expire in May 2028.
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, 2017 ....................................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2017 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2018 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2019 ...............................................
1.8 $
1.3
(0.4)
(0.2)
2.5 $
1.7
(0.4)
(0.3)
3.5 $
1.0
(0.7)
(0.7)
3.1 $
18.70
18.09
19.70
16.79
18.35
14.57
24.16
15.84
16.00
15.78
15.53
16.05
16.03
As of December 31, 2019, unrecognized compensation cost related to unvested RSUs totaled $17.0 million.
The weighted average period over which this cost is expected to be recognized is approximately 2 years. In 2019
and 2018, the total fair market value of RSUs vested was $10.9 million and $6.1 million, respectively.
PERFORMANCE SHARES As of December 31, 2019, we have performance shares (PS) outstanding under
our 2018 Omnibus Incentive Plan. We grant performance shares payable in stock to officers which vest in full over
a three-year performance period. In 2019, these grants were based on a total shareholder return (TSR) measure,
and in 2018, these grants were based equally on a TSR measure, and AAM's three-year cumulative free cash flow.
In 2017, these grants were based equally on a TSR measure and AAM's three-year adjusted 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. Based on these EBITDA,
free cash flow and relative TSR performance metrics, the number of performance shares that will vest will be
between 0% and 200% of the grant date amount. 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 is
recorded ratably over the vesting period 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, 2017 ....................................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2017 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2018 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2019 ...............................................
TSR Awards
Outstanding at January 1, 2017 ....................................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2017 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2018 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2019 ...............................................
Free Cash Flow Awards
Outstanding at January 1, 2018 ....................................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2018 ...............................................
Granted ........................................................................................
Vested ..........................................................................................
Canceled ......................................................................................
Outstanding at December 31, 2019 ...............................................
71
Number of
Shares
Weighted Average
Grant Date Fair
Value per Share
(in millions, except per share data)
0.5 $
0.2
(0.1)
—
0.6 $
—
(0.1)
—
0.5 $
—
(0.4)
—
0.1 $
0.5 $
0.2
(0.1)
—
0.6 $
0.3
(0.1)
—
0.8 $
0.3
(0.2)
(0.1)
0.8 $
— $
0.3
—
—
0.3 $
—
—
—
0.3 $
30.19
39.01
27.73
—
33.91
—
37.67
—
34.49
—
31.21
—
39.09
19.55
24.58
22.78
—
20.93
13.91
31.21
—
16.25
24.36
17.54
20.49
20.13
—
14.28
—
—
14.28
—
—
—
14.28
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We estimate the fair value of our EBITDA performance shares on the date of grant using our estimated three-
year adjusted 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. We
estimate the fair value of our free cash flow performance shares on the date of grant using our estimated three-year
cumulative free cash flow, based on AAM's budget and long-range plan assumptions at the time, and adjust
quarterly as necessary.
Based on the current fair value, the estimated unrecognized compensation cost related to unvested PS totaled
$6.8 million, as of December 31, 2019. The weighted-average period over which this cost is expected to be
recognized is approximately two years.
OTHER INCENTIVE COMPENSATION
PERFORMANCE UNITS As of December 31, 2019, we have performance units (PU) outstanding under our
2018 Omnibus Incentive Plan. We grant PU payable in cash to officers and certain other associates which vest in
full over a three-year performance period. These liability classified awards are incentive compensation as they are
based on AAM's three-year cumulative free cash flow and are not indexed to or impacted by our share price. The
$14.2 million of PU granted during 2019 will vest for officers between 0% and 200% of the grant date amount, and
for other associates between 0% and 150% of the grant date amount, using our cumulative free cash flow
performance metric. Based on the current fair value, the estimated unrecognized compensation cost related to
unvested PU totaled $6.3 million, as of December 31, 2019. The weighted-average period over which this cost is
expected to be recognized is approximately two years.
72
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
The components of income (loss) before income taxes are as follows:
2019
2018
(in millions)
2017
U.S. loss ................................................................................... $
Non - U.S. income ....................................................................
Total income (loss) before income taxes .................................. $
(889.0) $
356.0
(533.0) $
(549.4) $
435.5
(113.9) $
(37.1)
377.1
340.0
The following is a summary of the components of our provision for income taxes:
2019
2018
(in millions)
2017
Current
Federal ..................................................................................... $
State and local .........................................................................
Foreign .....................................................................................
Total current ............................................................................. $
Deferred
Federal ..................................................................................... $
State and local .........................................................................
Foreign .....................................................................................
Total deferred ...........................................................................
(11.9) $
0.1
49.3
37.5 $
(73.5) $
(1.5)
(11.4)
(86.4)
(81.5) $
3.2
46.5
87.1
(0.7)
62.4
(31.8) $
148.8
(5.1) $
(6.7)
(13.5)
(25.3)
(122.3)
(17.0)
(7.0)
(146.3)
2.5
Total income tax expense (benefit) ........................................... $
(48.9) $
(57.1) $
The following is a reconciliation of income taxes calculated at the U.S. federal statutory income tax rate of 21% in
2019 and 2018 and 35% in 2017 to our provision for income taxes:
2019
2018
2017
Federal statutory ...................................................................... $
Foreign income taxes ...............................................................
Change in enacted tax rate ......................................................
Transition tax ............................................................................
State and local .........................................................................
Tax credits ................................................................................
Valuation allowance .................................................................
Goodwill impairment .................................................................
Withholding taxes .....................................................................
U.S. tax on unremitted foreign earnings ...................................
Global intangible low-taxed income ..........................................
Uncertain tax positions .............................................................
Other ........................................................................................
Effective income tax expense (benefit)..................................... $
(111.9) $
(40.2)
0.2
(7.5)
(20.0)
(9.6)
12.6
92.4
4.0
(2.8)
31.1
5.9
(3.1)
(48.9) $
(23.9) $
(39.7)
(8.3)
5.8
(12.8)
(20.1)
12.9
21.6
6.6
4.1
8.0
(9.8)
(1.5)
(57.1) $
119.0
(96.3)
(107.6)
108.3
(6.3)
(8.8)
(6.1)
—
4.7
(18.6)
—
13.5
0.7
2.5
73
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 2019, our income tax benefit varied from the tax benefit computed at the U.S. federal statutory rate primarily
as a result of the goodwill impairment charge, which resulted in no income tax benefit, as well as the incremental
tax expense associated with the global intangible low-taxed income inclusion under the Tax Cuts and Jobs Act of
2017 (the 2017 Act), and our inability to realize an income tax benefit for losses incurred in certain foreign and state
jurisdictions. These items were partially offset by the impact of favorable foreign tax rates and income tax credits. In
addition, as part of the 2017 Act, a one-time transition tax (Transition Tax) was imposed on certain foreign earnings
for which U.S. income tax was previously deferred. The Department of Treasury and Internal Revenue Service
issued final regulations on February 5, 2019 regarding the Transition Tax, which changed the manner in which we
are required to compute the Transition Tax when it is recognized over a two-year period. The application of the final
regulations resulted in a $9.3 million income tax benefit, which has been recorded in 2019, the period in which the
final regulations were issued.
In 2018, our income tax benefit varied from the tax benefit computed at the U.S. federal statutory rate, and in
2017 our income tax expense was lower than tax expense computed at the U.S. federal statutory rate, primarily due
to the impact of favorable foreign tax rates, and the impact of income tax credits, partially offset by our inability to
realize an income tax benefit for losses incurred in certain foreign and state jurisdictions. In addition, during 2018,
we finalized an advance pricing agreement in a foreign jurisdiction and settled various other matters, which resulted
in an income tax benefit and a reduction of our liability for unrecognized tax benefits and related interest and
penalties of approximately $20 million. We also recorded an income tax benefit of approximately $85 million in 2018
as a result of the goodwill impairment charge, partially offset by a discrete tax expense related to the sale of the
aftermarket business associated with our former Powertrain segment.
In connection with our analysis of the impacts of the 2017 Act, we recorded estimated provisional amounts
under SAB 118, resulting in a discrete net tax benefit of approximately $20 million for the year ended December 31,
2017. This net benefit primarily consisted of a benefit of approximately $110 million for the remeasurement of our
net deferred tax liabilities as a result of the change in tax rate and a benefit of $18 million related to the reduction of
a previously recorded deferred tax liability on certain foreign earnings, partially offset by expense of approximately
$108 million related to the Transition Tax. These were provisional amounts at December 31, 2017 under SAB 118
because we had not yet completed our accounting for all of the enactment-date income tax effects of the 2017 Act.
As of December 31, 2018, we had completed our accounting for all of the enactment-date income tax effects of the
2017 Act.
Upon further analysis of the 2017 Act, and based on notices and regulations issued and proposed by the U.S.
Department of Treasury and the Internal Revenue Service, we finalized our calculations of the Transition Tax liability
during 2018 and adjusted our December 31, 2017 provisional amount by an additional tax expense of $5.8 million.
Also, based on finalizing our calculations during 2018 related to the remeasurement of certain deferred tax assets
and liabilities, we adjusted our December 31, 2017 provisional amount by an additional tax benefit of $8.3 million.
These adjustments to our provisional amounts resulted in a net income tax benefit of $2.5 million, which is included
as a component of Income tax expense (benefit) in our Consolidated Statement of Operations for the year ended
December 31, 2018. Also as part of the completion of our SAB 118 analysis, the balance of the 2018 Transition Tax
liability was determined to be satisfied with existing U.S. tax attributes resulting in no current income tax payable.
Under GAAP, we must make an accounting policy election to either recognize deferred taxes for temporary
basis differences expected to reverse as global intangible low-taxed income (GILTI) in future years, or to provide for
the tax expense related to GILTI in the year the tax is incurred as period expense. We have elected to account for
GILTI in the year the tax is incurred.
As of December 31, 2019, we have refundable income taxes of approximately $25 million classified as Prepaid
expenses and other on our Consolidated Balance Sheet, as compared to approximately $10 million as of December
31, 2018. We also have income taxes payable of approximately $3 million and $10 million classified as Accrued
expenses and other on our Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.
74
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The approximate tax effect of each significant type of temporary difference and carryforward that results in a
deferred tax asset or liability is as follows:
Deferred tax assets
Employee benefits ................................................................................................ $
Inventory ...............................................................................................................
Net operating loss (NOL) carryforwards ...............................................................
Tax credit carryforwards .......................................................................................
Capital allowance carryforwards ...........................................................................
Capitalized expenditures ......................................................................................
Interest carryforward ............................................................................................
Operating lease liabilities ......................................................................................
Other ....................................................................................................................
Valuation allowances ............................................................................................
Deferred tax assets .............................................................................................. $
Deferred tax liabilities
Other intangible assets .........................................................................................
Fixed assets .........................................................................................................
Operating lease right-of-use assets ......................................................................
Other ....................................................................................................................
Deferred tax liabilities ........................................................................................... $
December 31,
2019
2018
(in millions)
149.4 $
27.3
201.7
47.8
9.3
42.9
43.9
27.1
42.7
(196.0)
396.1 $
(199.7)
(120.7)
(27.1)
(4.1)
(351.6) $
152.9
22.9
166.0
44.3
10.0
25.9
—
—
47.3
(183.3)
286.0
(176.0)
(141.9)
—
(15.2)
(333.1)
Deferred tax asset (liability), net ........................................................................... $
44.5 $
(47.1)
Deferred tax assets and liabilities recognized in our Consolidated Balance Sheets are as follows:
U.S. federal and state deferred tax asset (liability), net ........................................ $
Other foreign deferred tax asset, net ....................................................................
Deferred tax asset (liability), net ........................................................................... $
December 31,
2019
2018
(in millions)
5.0 $
39.5
44.5 $
(76.6)
29.5
(47.1)
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
for income tax purposes. ASC 740 - Income Taxes states that companies must measure deferred tax amounts at
the rate at which they are expected to be realized.
As of December 31, 2019 and December 31, 2018, we had deferred tax assets from domestic and foreign net
operating loss and tax credit carryforwards of $258.8 million and $220.3 million, respectively. Approximately $101.5
million of the deferred tax assets at December 31, 2019 relate to NOL and tax credits that can be carried forward
indefinitely with the remainder expiring between 2020 and 2039.
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. We have provided deferred income taxes for the estimated U.S. federal income tax,
75
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
foreign income tax, and applicable withholding taxes on earnings of subsidiaries expected to be distributed. As a
result of the enactment of the 2017 Act in the fourth quarter of 2017, we recognized a one-time transition tax
expense related to certain foreign earnings for which U.S. tax had been previously deferred, and remeasured our
deferred tax liability related to foreign earnings. In general, the 2017 Act allows for a dividends received deduction
for the repatriation of foreign earnings to the U.S. and, as such, no additional U.S. federal income tax is expected.
In accordance with the accounting guidance for income taxes, we review the likelihood that we will realize the
benefit of deferred tax assets and 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 determining the requirement for a
valuation allowance, the historical results, projected future operating results based upon approved business plans,
eligible carry forward periods, and tax planning opportunities are considered, along with other relevant positive and
negative evidence. If, based upon available evidence, it is more likely than not the deferred tax assets will not be
realized, a valuation allowance is recorded.
During 2019 and 2018, we recorded a net tax expense of $25.4 million and $16.0 million, respectively, resulting
from net losses in certain foreign and U.S. state and local jurisdictions with no corresponding tax benefit due to
increases in our valuation allowance. This was partially offset by a net tax benefit of $12.8 million and $3.1 million,
respectively, resulting from changes in determinations relating to the potential realization of deferred tax assets and
the resulting reversal of a valuation allowance in a foreign jurisdiction.
As of December 31, 2019 and December 31, 2018, we have a valuation allowance of $196.0 million and $183.3
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 that we have uncertain tax positions, a
determination is made as to whether such positions meet the “more likely than not” threshold. This threshold must
be met in order to record any tax benefit and, to the extent that an uncertain tax position meets 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, 2017 .............................................................. $
Increase in prior year tax positions .................................................
Decrease in prior year tax positions ...............................................
Increase in current year tax positions .............................................
Increase from acquisitions ..............................................................
Settlement ......................................................................................
Foreign currency remeasurement adjustment ................................
Balance at December 31, 2017 ........................................................ $
Increase in prior year tax positions .................................................
Decrease in prior year tax positions ...............................................
Increase in current year tax positions .............................................
Settlement ......................................................................................
Balance at December 31, 2018 ........................................................ $
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, 2019 ........................................................ $
76
Unrecognized
Income Tax
Benefits
Interest and
Penalties
(in millions)
28.2 $
1.5
(0.4)
10.5
8.3
(1.2)
0.8
47.7 $
5.6
(16.9)
6.0
(3.7)
38.7 $
0.2
(3.1)
4.4
0.9
41.1 $
2.5
3.1
—
—
1.9
(0.1)
0.1
7.5
3.5
(2.5)
—
(1.6)
6.9
4.5
(0.1)
—
0.2
11.5
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2019 and December 31, 2018, we had $41.1 million and $38.7 million of gross unrecognized
income tax benefits, respectively.
In 2019, 2018, and 2017, we recognized expense of $4.4 million, $1.0 million and $3.1 million, respectively,
related to interest and penalties in Income tax expense (benefit) on our Consolidated Statements of Operations.
We have a liability of $11.5 million and $6.9 million related to the estimated future payment of interest and penalties
at December 31, 2019 and 2018, respectively. The amount of the unrecognized income tax benefits, including
interest and penalties, as of December 31, 2019 that, if recognized, would affect the effective tax rate is $49.4
million.
We operate in multiple jurisdictions throughout the world and the income tax returns of several subsidiaries in
various tax jurisdictions are currently under examination. We are currently under a U.S. federal income tax
examination for the years 2015 through 2017. Generally, we are no longer subject to U.S. federal, state and local,
or non-U.S. income tax examinations by tax authorities for years prior to 2013.
During the next 12 months, we may finalize another advance pricing agreement in a foreign jurisdiction, which
would result in a cash payment to the relevant tax authorities and a reduction of our liability for unrecognized tax
benefits and related interest and penalties. Although it is difficult to estimate with certainty the amount of any audit
settlement, we do not expect any potential settlement to be materially different from what we have recorded in
unrecognized tax benefits. Based on the status of ongoing tax audits, and the protocol of finalizing audits by the
relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain
tax positions. We will continue to monitor the progress and conclusions of all ongoing audits and other
communications with tax authorities and will adjust our estimated liability as necessary.
77
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EARNINGS (LOSS) 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):
Numerator
Net income (loss) attributable to AAM ...................................................... $
Less: Net income allocated to participating securities..........................
Net income (loss) attributable to common shareholders - Basic and
Dilutive ..................................................................................................... $
Denominators
Basic common shares outstanding -
2019
2017
2018
(in millions, except per share data)
(484.5) $
—
(57.5) $
—
337.1
(7.5)
(484.5) $
(57.5) $
329.6
Weighted-average shares outstanding ................................................
Less: Participating securities ...........................................................
Weighted-average common shares outstanding ..................................
115.6
(3.3)
112.3
115.0
(3.4)
111.6
104.6
(2.3)
102.3
Effect of dilutive securities -
Dilutive stock-based compensation ......................................................
—
—
0.5
Diluted shares outstanding -
Adjusted weighted-average shares after assumed conversions ..........
112.3
111.6
102.8
Basic EPS ................................................................................................ $
(4.31) $
(0.51) $
3.22
Diluted EPS .............................................................................................. $
(4.31) $
(0.51) $
3.21
Basic and diluted loss per share are the same in 2019 and 2018 because the effect of 0.4 million dilutive
performance shares in 2019, and the effect of 0.8 million dilutive stock options and performance shares in 2018,
would have been antidilutive.
78
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS Obligated purchase commitments for capital expenditures and related project
expenses were approximately $131.9 million at December 31, 2019 and $287.2 million at December 31, 2018.
LEGAL PROCEEDINGS We are involved in, or potentially subject to, various legal proceedings or claims
incidental to our business. These include, but are not limited to, matters arising out of product warranties, tax or
contractual matters, and environmental obligations. 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 anticipate continuing to make, capital
and other expenditures (including recurring administrative costs) to comply with environmental requirements at our
current and former facilities. Such expenditures were not significant in 2019, 2018 and 2017.
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 at our current
and former facilities. 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
actions taken to improve product quality and minimize warranty claims. We continuously evaluate these estimates
and our customers' administration of their warranty programs. We closely monitor actual warranty claim data and
adjust the liability, as necessary, on a quarterly basis.
During 2019 and 2018, 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,
2019
2018
(in millions)
57.7 $
18.5
(10.4)
(3.9)
0.1
62.0 $
49.5
19.1
(10.7)
0.4
(0.6)
57.7
79
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. 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, 2019, December 31, 2018 and December 31, 2017 are as follows (in
millions):
Balance at January 1, 2017 ............................ $
(243.5)
Defined
Benefit Plans
Foreign
Currency
Translation
Adjustments
$
(122.4)
Unrecognized
Loss on Cash
Flow Hedges
$
(23.7)
Total
$
(389.6)
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) ..................................................
(20.1)
5.5
8.2 (b)
(2.1)
(8.5)
88.3
—
—
—
88.3
12.0
(0.2)
5.3 (c)
—
17.1
80.2
5.3
13.5
(2.1)
96.9
Balance at December 31, 2017 ....................... $
(252.0)
$
(34.1)
$
(6.6)
$
(292.7)
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 loss ....................
Income taxes reclassified into net loss ...........
Net current period other comprehensive
income (loss) ..................................................
41.9
(8.4)
6.0 (b)
(1.4)
38.1
(62.7)
—
0.2
—
(62.5)
5.4
(0.2)
(0.4) (c)
0.7
5.5
(15.4)
(8.6)
5.8
(0.7)
(18.9)
Balance at December 31, 2018 ....................... $
(213.9)
$
(96.6)
$
(1.1)
$
(311.6)
Other comprehensive loss before
reclassifications ..............................................
Income tax effect of other comprehensive
loss before reclassifications ............................
Amounts reclassified from accumulated other
comprehensive loss into net loss ....................
Income taxes reclassified into net loss ...........
Net current period other comprehensive loss .
(61.5) (a)
(4.6)
5.6
12.5 (b)
(2.6)
(46.0)
—
—
—
(4.6)
(19.0)
6.3
(1.7) (c)
(0.2)
(14.6)
(85.1)
11.9
10.8
(2.8)
(65.2)
Balance at December 31, 2019 ....................... $
(259.9)
$
(101.2)
$
(15.7)
$
(376.8)
(a) ASU 2018-02 became effective on January 1, 2019, and we elected to reclassify the stranded tax effects caused by the
2017 Tax Cuts and Jobs Act, resulting in a decrease in Accumulated other comprehensive income (loss) of $27.7 million at
January 1, 2019. See Note 1 - Organization and Summary of Significant Accounting Policies for further detail.
(b) Subsequent to the adoption of ASU 2017-07 effective January 1, 2018, these amounts were reclassified from AOCI to
Other, net for the years ended December 31, 2019 and 2018. The amount reclassified for 2019 includes a credit to AOCI of
$7.4 million related to the net effect of the AAM Pension Payout Offer and the Casting Sale. See Note 2 - Sale of Business and
Note 9 - Employee Benefit Plans for more detail. For the year ended December 31, 2017, $8.7 million was reclassified from
AOCI to Cost of goods sold (COGS) and $(0.5) million was reclassified from AOCI to Selling, general and administrative
expenses.
(c) The amounts reclassified from AOCI included $(2.4) million in COGS, $2.0 million in interest expense and $(1.3) million in
other income for the year ended December 31, 2019, $2.8 million in COGS and $(3.2) million in interest expense for the year
ended December 31, 2018 and $5.3 million in COGS for the year ended December 31, 2017.
80
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. REVENUE FROM CONTRACTS WITH CUSTOMERS
The guidance in ASC 606 Revenue from Contracts with Customers 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. We are obligated
under our contracts with customers to manufacture and supply products for use in our customers’ operations. We
satisfy these performance obligations at the point in time that the customer obtains control of the products, which is
the point in time that the customer is able to direct the use of, and obtain substantially all of the remaining benefits
from, the products. This typically occurs upon shipment to the customer in accordance with purchase orders and
delivery releases issued by our customers. There is judgment involved in determining when the customer obtains
control of the products and we have utilized the following indicators of control in our assessment:
• We have the present right to payment for the asset;
• The customer has legal title to the asset;
• We have transferred physical possession of the asset;
• The customer has the significant risks and rewards of ownership of the asset; and
• The customer has accepted the asset.
Our product offerings by segment are as follows:
• Driveline products consist primarily of front and rear axles, driveshafts, differential assemblies, clutch
modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline
products and systems for light trucks, sport utility vehicles (SUVs), crossover vehicles, passenger cars and
commercial vehicles;
• Metal Forming products consist primarily of axle and transmission shafts, ring and pinion gears, differential
gears and assemblies, connecting rods and variable valve timing products for Original Equipment
Manufacturers and Tier 1 automotive suppliers; and
• Prior to the sale of the U.S. operations, the Casting segment produced both thin wall castings and high
strength ductile iron castings, as well as transmission pump bodies, steering knuckles, control arms, brake
anchors and calipers, and ball joint housings for the global light vehicle, commercial and industrial markets.
Our contracts with customers, which are comprised of purchase orders and delivery releases issued by our
customers, generally state the terms of the sale, including the quantity and price of each product purchased. Trade
accounts receivable from our customers are generally due approximately 50 days from the date our customers
receive our product. Our contracts typically do not contain variable consideration as the contracts include stated
prices. We provide our customers with assurance type warranties, which are not separate performance obligations
and are outside the scope of ASC 606. Refer to Note 13 - Commitments and Contingencies for further information
on our product warranties.
81
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Disaggregation of Net Sales
Net sales recognized from contracts with customers, disaggregated by segment and geographical location, are
presented in the following table for the years ended December 31, 2019, December 31, 2018 and December 31,
2017. Net sales are attributed to regions based on the location of production. Intersegment sales have been
excluded from the table.
In the first quarter of 2019, we reorganized our business to disaggregate our former Powertrain segment, with a
portion moving to our Driveline segment and a portion moving to our Metal Forming segment. As a result, the
Powertrain amounts previously reported for the years ended December 31, 2018 and December 31, 2017 have
been reclassified to Driveline and Metal Forming.
Additionally, in the fourth quarter of 2019, we finalized the Casting Sale. The Casting Sale did not include the
entities that conduct AAM's casting operations in El Carmen, Mexico, which are now included in our Driveline
segment. The amounts previously reported in our Casting segment for the retained operations in El Carmen,
Mexico have been reclassified to our Driveline segment for the years presented.
Twelve Months Ended December 31, 2019
Driveline
Metal
Forming
Casting
Total
North America ............................................................ $
Asia ...........................................................................
Europe .......................................................................
South America ...........................................................
Total ........................................................................... $
3,466.3 $
533.6
351.0
98.8
1,153.1 $
627.7 $
5,247.1
37.6
256.3
6.5
—
—
—
571.2
607.3
105.3
4,449.7 $
1,453.5 $
627.7 $
6,530.9
Twelve Months Ended December 31, 2018
North America ............................................................ $
3,823.1 $
1,275.9 $
741.3 $
Driveline
Metal
Forming
Casting
Total
5,840.3
678.3
622.1
129.7
634.4
329.0
124.9
43.9
293.1
4.8
—
—
—
4,911.4 $
1,617.7 $
741.3 $
7,270.4
Twelve Months Ended December 31, 2017
Driveline
Metal
Forming
Casting
3,676.1 $
472.5
220.6
132.7
975.8 $
546.9 $
40.0
200.9
0.5
—
—
—
Total
5,198.8
512.5
421.5
133.2
4,501.9 $
1,217.2 $
546.9 $
6,266.0
Asia ...........................................................................
Europe .......................................................................
South America ...........................................................
Total ........................................................................... $
North America ............................................................ $
Asia ...........................................................................
Europe .......................................................................
South America ...........................................................
Total ........................................................................... $
82
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Contract Assets and Liabilities
The following table summarizes our beginning and ending balances for accounts receivable and contract
liabilities associated with our contracts with customers:
December 31, 2018 ................................................................ $
December 31, 2019 ................................................................
Increase/(decrease) ................................................................ $
966.5 $
815.4
(151.1) $
44.3 $
18.9
(25.4) $
77.6
83.7
6.1
Accounts
Receivable, Net
Contract
Liabilities
(Current)
Contract
Liabilities
(Long-term)
Contract liabilities relate to deferred revenue associated with various settlements and commercial agreements
for which we have future performance obligations to the customer. We recognize this deferred revenue into revenue
over the life of the associated program as we satisfy our performance obligations to the customer. We do not have
contract assets as defined in ASC 606.
During the twelve months ended December 31, 2019 and December 31, 2018 we amortized $48.6 million and
$47.9 million, respectively, of previously recorded contract liabilities into revenue as we satisfied performance
obligations with our customers.
Sales and Other Taxes
ASC 606 provides a practical expedient that allows companies to exclude from the transaction price any
amounts collected from customers for all sales (and other similar) taxes. We do not include sales and other taxes in
our transaction price and thus do not recognize these amounts as revenue.
83
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. BUSINESS COMBINATIONS
Acquisition of Mitec
On December 2, 2019, AAM completed our acquisition of certain operations of Mitec Automotive AG (Mitec),
under which we acquired $20.2 million of net assets for a purchase price of $9.4 million, which was funded entirely
with available cash. We recognized a gain on bargain purchase of $10.8 million, which was primarily the result of
Mitec's insolvency prior to the acquisition. This gain is presented in the Gain on bargain purchase of business line
item in our Consolidated Statement of Operations for the year ended December 31, 2019.
The operating results of Mitec for the period from our acquisition date through December 31, 2019, were
insignificant to AAM's Consolidated Statement of Operations for this period. Further, we have not disclosed pro
forma revenue and earnings for the years ended December 31, 2019 and December 31, 2018, as the operating
results of Mitec would be insignificant to AAM's consolidated results for these periods.
Acquisition of MPG
On April 6, 2017, AAM completed our acquisition of 100% of the equity interests of MPG for a total purchase
price of approximately $1.5 billion plus the assumption of approximately $1.7 billion in net debt (comprised of
approximately $1.9 billion in debt less approximately $0.2 billion of MPG cash and cash equivalents). Under the
terms of the agreement and plan of merger (Merger Agreement), each share of MPG common stock (other than
MPG excluded shares as defined in the Merger Agreement) was converted into the right to receive (a) $13.50 in
cash, without interest, and (b) 0.5 of a share of AAM common stock (Merger Consideration). Further, MPG stock
options outstanding immediately prior to the effective time of the merger were accelerated and holders of the stock
options received in cash the Merger Consideration less the per share exercise price of the MPG stock options. All
MPG restricted shares and restricted stock unit awards outstanding under an MPG equity plan were also
accelerated and each holder thereof received the Merger Consideration for each restricted share or restricted stock
unit award of MPG common stock.
MPG provides highly-engineered components for use in powertrain and safety-critical platforms for the global
light, commercial and industrial markets. MPG produces these components using complex metal-forming
manufacturing technologies and processes for a global customer base of OEMs and Tier I suppliers, which help
their customers meet fuel economy, performance and safety standards. Our acquisition of MPG has contributed
significantly to diversifying our global customer base and end markets.
Our acquisition of MPG was accounted for under the acquisition method under Accounting Standards
Codification 805 Business Combinations (ASC 805) with the purchase price allocated to the identifiable assets and
liabilities of the acquired company based on the respective fair values of the assets and liabilities.
84
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following represents the final fair values of the assets acquired and liabilities assumed resulting from the
acquisition, as well as the calculation of goodwill:
(in millions)
Cash consideration ................................................................................................................................... $
Share consideration ..................................................................................................................................
Total consideration transferred ................................................................................................................. $ 1,530.2
3.6
Fair value of MPG noncontrolling interests ...............................................................................................
Total fair value of MPG ............................................................................................................................. $ 1,533.8
953.5
576.7
April 6,
2017
403.1
202.1
Cash and cash equivalents ...................................................................................................................... $
Accounts receivable .................................................................................................................................
Inventories ................................................................................................................................................
Prepaid expenses and other long-term assets .........................................................................................
Property, plant and equipment ..................................................................................................................
Intangible assets ......................................................................................................................................
Total assets acquired ........................................................................................................................... $ 3,119.0
287.8
Accounts payable .....................................................................................................................................
Accrued expenses and other ....................................................................................................................
Deferred income tax liabilities ...................................................................................................................
Debt ..........................................................................................................................................................
Postretirement benefits and other long-term liabilities ..............................................................................
Net assets acquired ............................................................................................................................. $
140.5
Goodwill .................................................................................................................................................... $ 1,393.3
1,918.7
1,223.1
580.2
199.0
971.8
137.7
119.9
54.1
Goodwill resulting from the acquisition is primarily attributable to anticipated synergies and economies of scale
from which we expect to benefit as a combined entity. None of the goodwill is deductible for tax purposes.
We recognized $1,223.1 million of amortizable intangible assets for customer platforms, customer relationships,
developed technology and licensing agreements as a result of our acquisition of MPG. These intangible assets
were assigned useful lives ranging from five to 17 years. The intangible assets were valued using primarily the relief
from royalty method or the multi-period excess earnings method, both of which utilize significant unobservable
inputs. These inputs are defined in the fair value hierarchy as Level 3 inputs, which require management to make
estimates and assumptions regarding certain financial measures using forecasted or projected information.
AAM had an existing accounts payable balance of $12.4 million with MPG as of the date of acquisition. As a
result of the acquisition, this pre-existing accounts payable balance was settled and AAM accounted for this
settlement separately from the acquisition. This resulted in a $12.4 million reduction in the purchase price and this
portion of the cash paid to acquire MPG has been reflected as an operating cash outflow in our Consolidated
Statement of Cash Flows for the year ended December 31, 2017.
Included in Net sales and Net income attributable to AAM for the period from the acquisition date on April 6,
2017 through December 31, 2017 was $2,022 million and approximately $320 million, respectively, attributable to
MPG. The $320 million of Net income attributable to MPG in 2017 included a tax benefit of approximately $227
million as a result of remeasuring our net deferred tax liabilities in the U.S. subsequent to the enactment of the Tax
Cuts and Jobs Act. For the year ended December 31, 2017, AAM's consolidated income before income taxes was
$340.0 million, of which $93.5 million related to MPG.
85
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited Pro Forma Financial Information
Pro forma net sales for AAM, on a combined basis with MPG for the years ended December 31, 2017 and
December 31, 2016, were $7.0 billion and $6.6 billion, respectively, excluding MPG sales to AAM during those
periods. Pro forma net income amounts for the years ended December 31, 2017 and December 31, 2016 were
approximately $400 million and $220 million, respectively. Pro forma earnings per share amounts for the years
ended December 31, 2017 and December 31, 2016 were $3.51 per share and $1.95 per share, respectively.
The pro forma net income amounts for the years ended December 31, 2017 and December 31, 2016 have
been adjusted by approximately $20 million for a one-time charge for MPG stock-based compensation that was
accelerated and settled on the date of acquisition, approximately $25 million related to the step-up of inventory to
fair value as a result of the acquisition, and approximately $55 million in acquisition-related costs. This adjustment
resulted in a reclassification of approximately $65 million, net of tax, from pro forma net income for 2017 into pro
forma net income for 2016, as we are required to disclose the pro forma amounts as if our acquisition of MPG had
been completed on January 1, 2016.
The disclosure of pro forma net sales and earnings is for informational purposes only and does not purport to
indicate the results that would actually have been obtained had the merger been completed on the assumed date
for the periods presented, or which may be realized in the future.
Acquisition of USM Mexico
On March 1, 2017, AAM completed our acquisition of 100% of USM Mexico, a former subsidiary of U.S.
Manufacturing Corporation (USM). The purchase price was funded with available cash and the acquisition was
accounted for under the acquisition method.
USM Mexico includes USM's operations in Guanajuato, Mexico, which has historically been one of the largest
suppliers to AAM's Guanajuato Manufacturing Complex. This acquisition allowed AAM to vertically integrate the
supply chain and helped ensure continuity of supply for certain parts to our largest manufacturing facility.
86
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following represents the final fair value of the assets acquired and liabilities assumed resulting from the
acquisition, as well as the calculation of goodwill:
March 1,
2017
(in millions)
Contractual purchase price ....................................................................................................................... $
Adjustment to contractual purchase price for working capital settlement ..................................................
Adjustments to contractual purchase price for capital equipment .............................................................
Adjustment to contractual purchase price for settlement of existing accounts payable balance ...............
Cash acquired ...........................................................................................................................................
Adjusted purchase price, net of cash acquired .......................................................................................... $
Accounts receivable ..................................................................................................................................
Inventories .................................................................................................................................................
Prepaid expenses and other .....................................................................................................................
Property, plant and equipment ..................................................................................................................
Intangible assets .......................................................................................................................................
Total assets acquired ............................................................................................................................ $
Accounts payable ......................................................................................................................................
Accrued expenses and other .....................................................................................................................
Deferred income tax liabilities ...................................................................................................................
Net assets acquired ............................................................................................................................. $
Goodwill .................................................................................................................................................... $
162.5
2.5
4.9
(22.8)
(0.5)
146.6
1.1
4.8
3.6
38.4
31.7
79.6
10.8
2.7
1.2
64.9
81.7
None of the goodwill is deductible for tax purposes. AAM had an existing accounts payable balance of $22.8
million with USM Mexico as of the date of acquisition. As a result of our acquisition, this pre-existing accounts
payable balance was settled and AAM accounted for this settlement separately from our acquisition. This resulted in
a $22.8 million reduction in the purchase price and this portion of the cash paid to acquire USM Mexico has been
reflected as an operating cash outflow in our Consolidated Statement of Cash Flows for the year ended
December 31, 2017.
The operating results of USM Mexico for the period from our acquisition date through December 31, 2017, were
insignificant to AAM's Consolidated Statement of Income for this period. Further, we have not disclosed pro forma
revenue and earnings for the years ended December 31, 2017 and December 31, 2016, as the operating results of
USM Mexico would be insignificant to AAM's consolidated results for these periods.
87
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SEGMENT AND GEOGRAPHIC INFORMATION
In the first quarter of 2019, we reorganized our business to disaggregate our former Powertrain segment, with a
portion moving to our Driveline segment and a portion moving to our Metal Forming segment. The Powertrain
amounts previously reported for the years ended December 31, 2018 and 2017 have been reclassified to Driveline
and Metal Forming accordingly.
Additionally, in the fourth quarter of 2019, we completed the Casting Sale. The Casting Sale did not include the
entities that conduct AAM's casting operations in El Carmen, Mexico, which are now included in our Driveline
segment.
The Casting Sale did not qualify for classification as discontinued operations, as it did not represent a strategic
shift in our business that has had, or will have, a major effect on our operations and financial results. As such, we
continue to present Casting as a segment in the tables below, which is now comprised entirely of the U.S. casting
operations that were included in the Casting Sale. The amounts previously reported in our Casting segment for the
retained operations in El Carmen, Mexico have been reclassified to our Driveline segment for the years presented.
As a result of these activities, our business is now organized into Driveline and Metal Forming segments, with
each representing a reportable segment under ASC 280 Segment Reporting. The results of each segment are
regularly reviewed by the chief operating decision maker to assess the performance of the segment and make
decisions regarding the allocation of resources.
Our product offerings by segment are as follows:
• Driveline products consist primarily of front and rear axles, driveshafts, differential assemblies, clutch
modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline
products and systems for light trucks, sport utility vehicles (SUVs), crossover vehicles, passenger cars and
commercial vehicles;
• Metal Forming products consist primarily of axle and transmission shafts, ring and pinion gears, differential
gears and assemblies, connecting rods and variable valve timing products for Original Equipment
Manufacturers and Tier 1 automotive suppliers; and
• Prior to the Casting Sale, the Casting segment produced both thin wall castings and high strength ductile
iron castings, as well as transmission pump bodies, steering knuckles, control arms, brake anchors and
calipers, and ball joint housings for the global light vehicle, commercial and industrial markets.
We use Segment Adjusted EBITDA as the measure of earnings to assess the performance of each segment
and determine the resources to be allocated to the segments. Segment Adjusted EBITDA is defined as earnings
before interest expense, income taxes, depreciation and amortization for our reportable segments, excluding the
impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gain (loss) on the sale
of a business, impairment charges, pension settlements, and non-recurring items.
88
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31, 2019
Driveline
Metal
Forming
Casting
(in millions)
Corporate
and
Eliminations
Total
Sales ......................................................... $ 4,550.2 $ 1,845.2 $
Less: Intersegment sales...........................
Net external sales ...................................... $ 4,449.7 $ 1,453.5 $
391.7
100.5
669.2 $
41.5
627.7 $
— $ 7,064.6
—
533.7
— $ 6,530.9
Segment adjusted EBITDA........................ $
610.8 $
316.5 $
43.0 $
— $
970.3
Depreciation and amortization ................... $
307.7 $
186.9 $
42.3 $
— $
536.9
Capital expenditures .................................. $
283.8 $
105.5 $
28.5 $
15.5 $
433.3
Total assets ............................................... $ 3,778.8 $ 1,900.0 $
— $
965.8 $ 6,644.6
Year Ended December 31, 2018
Driveline
Metal
Forming
Casting
Corporate
and
Eliminations
Total
Sales ......................................................... $ 5,001.2 $ 2,046.0 $
Less: Intersegment sales..........................
Net external sales ...................................... $ 4,911.4 $ 1,617.7 $
428.3
89.8
780.6 $
39.3
741.3 $
— $ 7,827.8
—
557.4
— $ 7,270.4
Segment adjusted EBITDA........................ $
754.5 $
376.5 $
52.9 $
— $ 1,183.9
Depreciation and amortization ................... $
272.0 $
192.6 $
64.2 $
— $
528.8
Capital expenditures .................................. $
339.4 $
138.3 $
35.0 $
12.0 $
524.7
Total assets ............................................... $ 3,796.6 $ 2,607.2 $
521.5 $
585.4 $ 7,510.7
Year Ended December 31, 2017
Driveline
Metal
Forming
Casting
Corporate
and
Eliminations
Total
Sales ......................................................... $ 4,567.8 $ 1,634.9 $
Less: Intersegment sales..........................
Net external sales ...................................... $ 4,501.9 $ 1,217.2 $
417.7
65.9
576.1 $
29.2
546.9 $
— $ 6,778.8
—
512.8
— $ 6,266.0
Segment adjusted EBITDA........................ $
762.3 $
305.7 $
34.7 $
— $ 1,102.7
Depreciation and amortization ................... $
237.3 $
147.8 $
43.4 $
— $
428.5
Capital expenditures .................................. $
340.2 $
97.7 $
24.7 $
15.1 $
477.7
Total assets ............................................... $ 3,507.0 $ 2,731.1 $
926.0 $
718.7 $ 7,882.8
89
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assets included in the Corporate and Eliminations column of the tables above represent AAM corporate assets,
as well as eliminations of intercompany assets.
The following table represents a reconciliation of Segment Adjusted EBITDA to consolidated income (loss)
before income taxes for the years ended December 31, 2019, 2018 and 2017:
Year Ended December 31,
2019
2018
(in millions)
2017
Segment adjusted EBITDA......................................
Interest expense ......................................................
Depreciation and amortization .................................
Impairment charges .................................................
Restructuring and acquisition-related costs.............
Pension settlement ..................................................
Gain (loss) on sale of business ...............................
Gain on bargain purchase of business ....................
Gain on settlement of capital lease .........................
Acquisition-related fair value inventory adjustment .
Impact of change in accounting principle ................
Debt refinancing and redemption costs ...................
Other .......................................................................
Income (loss) before income taxes..........................
$
970.3
$
1,183.9
$
(217.3)
(536.9)
(665.0)
(57.8)
(9.8)
(21.3)
10.8
—
—
—
(8.4)
2.4
(533.0) $
$
(216.3)
(528.8)
(485.5)
(78.9)
—
15.5
—
15.6
—
—
(19.4)
—
(113.9) $
1,102.7
(195.6)
(428.5)
—
(110.7)
(3.2)
—
—
—
(24.9)
3.7
(3.5)
—
340.0
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 production. Long-lived assets exclude deferred income
taxes.
Net sales
United States ............................................................................ $
Mexico ......................................................................................
South America ..........................................................................
China ........................................................................................
All other Asia ............................................................................
Europe .....................................................................................
Total net sales .......................................................................... $
2019
2,894.0
2,353.1
105.3
315.4
255.8
607.3
December 31,
2018
(in millions)
2017
$
3,293.2
$
2,742.7
2,547.1
2,456.1
129.7
373.4
304.9
622.1
133.2
318.6
193.9
421.5
6,530.9
$
7,270.4
$
6,266.0
Long-lived assets
United States ............................................................................ $
Mexico ......................................................................................
South America ..........................................................................
China ........................................................................................
All other Asia ............................................................................
Europe .....................................................................................
Total long-lived assets .............................................................. $
2,805.8
1,117.4
61.9
191.4
106.8
439.4
$
3,612.3
$
4,253.8
1,117.9
70.6
177.6
101.0
356.0
993.8
61.4
180.9
103.4
307.4
4,722.7
$
5,435.4
$
5,900.7
90
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. UNAUDITED QUARTERLY FINANCIAL DATA
Three Months Ended,
March 31
June 30
September 30
December 31
(in millions, except per share data)
2019
Net sales ................................................. $
Gross profit .............................................
Net income (loss) ....................................
Net income (loss) attributable to AAM.....
Basic EPS (1) ........................................... $
Diluted EPS (1) ......................................... $
2018
Net sales ................................................. $
Gross profit .............................................
Net income (loss) ....................................
Net income (loss) attributable to AAM .....
Basic EPS (1) ........................................... $
Diluted EPS (1) ......................................... $
1,719.2 $
1,704.3 $
1,677.4
$
222.2
41.7
41.6
0.36 $
0.36 $
248.3
52.7
52.5
248.7
(124.1) (2)
(124.2) (2)
0.45 $
0.45 $
(1.10) (2) $
(1.10) (2) $
1,858.4 $
1,900.9 $
1,817.0
$
316.3
89.5
89.4
0.78 $
0.78 $
331.4
151.3
151.1
1.31 $
1.30 $
267.4
64.0
63.8
0.55
0.55
$
$
1,430.0
183.4
(454.4) (3)
(454.4) (3)
(4.04) (3)
(4.04) (3)
1,694.1
225.3
(361.6) (4)
(361.8) (4)
(3.24) (4)
(3.24) (4)
(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 2019, we recorded an impairment charge of approximately $178 million, net of tax, to
reduce the carrying value of our U.S. Casting operations to fair value less cost to sell upon reclassification of
the assets and liabilities to held-for-sale.
(3) In the fourth quarter of 2019, we recorded a goodwill impairment charge of $440 million, that was not subject
to tax effect, associated with the annual goodwill impairment test for our Metal Forming reporting unit. We
also recorded a loss on the Casting Sale of approximately $17 million, net of tax, recognized a gain on
bargain purchase of approximately $10.8 million, which was not subject to tax effect, associated with the
acquisition of Mitec, and recognized a loss of approximately $8 million, net of tax, related to pension
settlements.
(4) In the fourth quarter of 2018, we recorded a goodwill impairment charge of approximately $400 million, net of
tax, associated with the annual goodwill impairment test for our Casting and former Powertrain reporting
units.
91
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Holdings has no significant assets other than its 100% ownership in AAM, Inc. and Metaldyne Performance Group,
Inc. (MPG Inc.), and no direct subsidiaries other than AAM, Inc. and MPG Inc. The 6.625% Notes, 6.50% Notes, 6.25%
Notes (due 2026) and 6.25% Notes (due 2025) are senior unsecured obligations of AAM Inc.; all of which are fully and
unconditionally guaranteed, on a joint and several basis, by Holdings, and substantially all domestic subsidiaries of AAM,
Inc. and MPG Inc.
These Condensed Consolidating Financial Statements are prepared under the equity method of accounting whereby
the investments in subsidiaries are recorded at cost and adjusted for the parent's share of the subsidiaries' cumulative
results of operations, capital contributions and distributions, and other equity changes.
Condensed Consolidating Statements of Operations and Other Comprehensive Income (Loss)
2019
Net sales
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
(in millions)
Elims
Consolidated
External .............................................................. $
— $
902.0
$
1,992.0
$
3,636.9
$
— $
6,530.9
(324.3)
(324.3)
(324.3)
—
6,530.9
5,628.3
902.6
364.7
95.4
665.0
57.8
21.3
(301.6)
(231.4)
(533.0)
(48.9)
—
(484.1)
—
(484.1)
(0.4)
(484.5)
(37.5)
(522.0)
Intercompany ......................................................
Total net sales ........................................................
Cost of goods sold ..................................................
Gross profit .............................................................
Selling, general and administrative expenses ........
Amortization of intangible assets ............................
Impairment charges ................................................
Restructuring and acquisition-related costs ............
Loss on sale of business ........................................
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 ................................................................
—
—
—
—
—
—
—
—
—
—
—
—
—
(484.5)
(484.5)
—
Net income (loss) after royalties .............................
(484.5)
Net income attributable to noncontrolling interests .
—
1.9
903.9
913.2
(9.3)
232.5
5.9
—
24.3
—
(272.0)
(247.0)
(519.0)
(76.5)
(218.3)
(660.8)
224.4
(436.4)
—
274.7
2,266.7
2,065.4
201.3
27.7
85.8
566.1
21.7
21.3
(521.3)
7.7
(513.6)
(10.7)
14.5
(488.4)
3.0
(485.4)
—
47.7
3,684.6
2,974.0
710.6
104.5
3.7
98.9
11.8
—
491.7
7.9
499.6
38.3
—
461.3
(227.4)
233.9
(0.4)
—
—
—
—
—
—
—
—
—
—
688.3
688.3
—
688.3
—
Net income (loss) attributable to AAM .................... $
(484.5) $
(436.4) $
(485.4) $
233.5
$
688.3
$
Other comprehensive loss, net of tax .....................
(37.5)
(28.3)
(18.3)
(12.1)
58.7
Comprehensive income (loss) ................................ $
(522.0) $
(464.7) $
(503.7) $
221.4
$
747.0
$
92
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2018
Net sales
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Elims
Consolidated
External .............................................................. $
— $
1,088.4
$
2,204.8
$
3,977.2
$
— $
7,270.4
Intercompany ......................................................
Total net sales ........................................................
Cost of goods sold ..................................................
Gross profit .............................................................
Selling, general and administrative expenses ........
Amortization of intangible assets ............................
Impairment charges ................................................
Restructuring and acquisition-related costs ............
Gain on sale of business ........................................
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 (loss) after royalties .............................
Net income attributable to noncontrolling interests .
—
—
—
—
—
—
—
—
—
—
—
—
—
(57.5)
(57.5)
—
(57.5)
—
4.2
1,092.6
1,033.8
58.8
210.3
5.1
—
34.2
—
(190.8)
(260.6)
(451.4)
(34.2)
(168.3)
(585.5)
276.6
(308.9)
—
294.8
2,499.6
2,249.0
250.6
81.4
90.8
485.5
40.4
(15.5)
(432.0)
15.6
(416.4)
(55.4)
168.0
(193.0)
3.4
(189.6)
—
41.9
4,019.1
3,188.1
831.0
94.0
3.5
—
4.3
—
729.2
24.7
753.9
32.5
—
721.4
(280.0)
441.4
(0.7)
(340.9)
(340.9)
(340.9)
—
—
—
—
—
—
—
—
—
—
57.8
57.8
—
57.8
—
Net income (loss) attributable to AAM .................... $
(57.5) $
(308.9) $
(189.6) $
440.7
$
57.8
$
Other comprehensive income (loss), net of tax ......
(18.9)
9.4
(51.6)
(44.2)
86.4
Comprehensive income (loss) ................................ $
(76.4) $
(299.5) $
(241.2) $
396.5
$
144.2
$
—
7,270.4
6,130.0
1,140.4
385.7
99.4
485.5
78.9
(15.5)
106.4
(220.3)
(113.9)
(57.1)
—
(56.8)
—
(56.8)
(0.7)
(57.5)
(18.9)
(76.4)
2017
Net sales
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Elims
Consolidated
External ............................................................... $
— $
1,074.6
$
1,668.2
$
3,523.2
$
— $
6,266.0
Intercompany .......................................................
Total net sales ........................................................
Cost of goods sold ..................................................
Gross profit .............................................................
Selling, general and administrative expenses ........
Amortization of intangible assets ............................
Restructuring and acquisition-related costs ............
Operating income (loss) .........................................
Non-operating income (expense), net ....................
Income (loss) before income taxes .........................
Income tax expense (benefit) .................................
Earnings from equity in subsidiaries .......................
Net income (loss) before royalties ..........................
Royalties ................................................................
Net income (loss) after royalties .............................
Net income attributable to noncontrolling interests .
—
—
—
—
—
—
—
—
—
—
—
337.1
337.1
—
337.1
—
2.4
1,077.0
996.6
80.4
223.2
5.6
105.2
(253.6)
(210.0)
(463.6)
194.1
289.5
(368.2)
317.3
(50.9)
—
285.2
1,953.4
1,730.9
222.5
63.9
67.5
1.9
89.2
18.6
107.8
(247.0)
76.1
430.9
3.6
434.5
—
27.5
3,550.7
2,734.5
816.2
103.0
2.2
3.6
707.4
(11.6)
695.8
55.4
—
640.4
(320.9)
319.5
(0.4)
(315.1)
(315.1)
(315.1)
—
—
—
—
—
—
—
—
(702.7)
(702.7)
—
(702.7)
—
Net income (loss) attributable to AAM .................... $
337.1
$
(50.9) $
434.5
$
319.1
$
(702.7) $
Other comprehensive income, net of tax ................
96.9
40.1
87.3
102.6
(230.0)
Comprehensive income (loss) ................................ $
434.0
$
(10.8) $
521.8
$
421.7
$
(932.7) $
—
6,266.0
5,146.9
1,119.1
390.1
75.3
110.7
543.0
(203.0)
340.0
2.5
—
337.5
—
337.5
(0.4)
337.1
96.9
434.0
93
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Balance Sheets
2019
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 .......................................................................
Other intangible assets, net .........................................
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 .....................................................
Other long-term liabilities .............................................
Total liabilities ..............................................................
Total AAM stockholders' equity ....................................
Noncontrolling interests in subsidiaries ........................
Total stockholders' equity .............................................
Total liabilities and stockholders' equity ....................... $
— $
—
—
—
—
—
—
—
—
—
—
2,294.0
2,294.0
$
— $
—
—
—
—
1,313.6
—
—
1,313.6
977.6
2.8
980.4
2,294.0
$
168.7
87.1
4,603.4
36.6
47.6
4,943.4
287.3
—
18.1
1,829.2
408.3
1,773.3
9,259.6
4.2
85.2
3,652.1
158.8
3,900.3
11.5
3,523.4
475.4
7,910.6
1,349.0
—
1,349.0
9,259.6
$
$
$
$
(in millions)
0.2
176.4
4,024.5
114.1
4.2
4,319.4
543.9
377.9
817.9
161.4
123.8
1,491.6
7,835.9
7.4
142.7
5,033.8
31.0
5,214.9
98.9
—
282.5
5,596.3
2,239.6
—
2,239.6
7,835.9
$
$
$
$
363.1
551.9
122.6
222.9
85.0
1,345.5
1,527.2
321.2
28.5
—
332.7
—
3,555.1
17.1
395.6
64.6
184.4
661.7
566.6
88.9
267.6
1,584.8
1,967.5
2.8
1,970.3
3,555.1
$
— $
—
(8,750.5)
—
—
(8,750.5)
—
—
—
(1,990.6)
—
(5,558.9)
$ (16,300.0) $
$
— $
—
(8,750.5)
—
(8,750.5)
(1,990.6)
—
—
(10,741.1)
(5,556.1)
(2.8)
(5,558.9)
$ (16,300.0) $
532.0
815.4
—
373.6
136.8
1,857.8
2,358.4
699.1
864.5
—
864.8
—
6,644.6
28.7
623.5
—
374.2
1,026.4
—
3,612.3
1,025.5
5,664.2
977.6
2.8
980.4
6,644.6
2018
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 .......................................................................
Other intangible assets, net .........................................
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 .....................................................
Other long-term liabilities .............................................
Total liabilities ..............................................................
Total AAM stockholders' equity ....................................
Noncontrolling interests in subsidiaries ........................
Total stockholders' equity .............................................
Total liabilities and stockholders' equity ....................... $
— $
—
—
—
—
—
—
—
—
—
—
2,790.5
2,790.5
$
— $
—
—
—
—
1,304.2
—
—
1,304.2
1,483.9
2.4
1,486.3
2,790.5
$
439.5
556.1
93.5
259.5
86.8
1,435.4
1,480.0
422.8
32.9
—
267.4
—
3,638.5
21.6
499.5
121.3
190.2
832.6
144.6
105.5
200.2
1,282.9
2,353.2
2.4
2,355.6
3,638.5
$
— $
—
(5,787.0)
—
—
(5,787.0)
—
—
—
(1,461.3)
—
(6,780.7)
$ (14,029.0) $
$
— $
—
(5,787.0)
—
(5,787.0)
(1,461.3)
—
—
(7,248.3)
(6,778.3)
(2.4)
(6,780.7)
$ (14,029.0) $
476.4
966.5
—
459.7
127.2
2,029.8
2,514.4
1,141.8
1,111.1
—
713.6
—
7,510.7
121.6
840.2
—
395.0
1,356.8
—
3,686.8
980.8
6,024.4
1,483.9
2.4
1,486.3
7,510.7
0.2
287.7
2,356.3
157.7
6.0
2,807.9
758.6
719.0
1,059.6
144.5
126.4
1,748.7
7,364.7
$
$
— $
246.5
3,615.7
35.8
3,898.0
—
3.0
271.7
4,172.7
3,192.0
—
3,192.0
7,364.7
$
$
$
$
$
36.7
122.7
3,337.2
42.5
34.4
3,573.5
275.8
—
18.6
1,316.8
319.8
2,241.5
7,746.0
100.0
94.2
2,050.0
169.0
2,413.2
12.5
3,578.3
508.9
6,512.9
1,233.1
—
1,233.1
7,746.0
94
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Statements of Cash Flows
2019
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Elims
Consolidated
Net cash provided by operating activities.......... $
— $
230.7
$
(in millions)
42.3
$
286.6
$
— $
559.6
Investing activities
Purchases of property, plant and equipment ..........
Proceeds from sale of property, plant and
equipment ..............................................................
Purchase buyouts of leased equipment..................
Proceeds from sale of business .............................
Acquisition of business, net of cash acquired .........
Investment in affiliates ............................................
Intercompany activity ..............................................
Net cash provided by (used in) investing activities .
Financing activities
Net debt activity ......................................................
Debt issuance costs ...............................................
Purchase of treasury stock .....................................
Intercompany activity ..............................................
Net cash provided by (used in) financing activities .
Effect of exchange rate changes on cash...............
Net increase (decrease) in cash, cash equivalents
and restricted cash .................................................
Cash, cash equivalents and restricted cash at
beginning of period .................................................
—
—
—
—
—
—
—
—
—
—
(7.5)
7.5
—
—
—
—
(58.7)
(119.9)
(254.7)
—
—
141.2
—
—
—
82.5
(167.7)
(3.3)
—
(10.2)
(181.2)
—
132.0
36.7
4.5
—
—
—
—
(12.0)
(127.4)
(1.1)
—
—
83.7
82.6
—
(2.5)
2.7
0.5
(0.9)
—
(9.4)
(9.2)
12.0
(261.7)
(20.4)
—
—
(81.0)
(101.4)
0.1
(76.4)
439.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(433.3)
5.0
(0.9)
141.2
(9.4)
(9.2)
—
(306.6)
(189.2)
(3.3)
(7.5)
—
(200.0)
0.1
53.1
478.9
Cash, cash equivalents and restricted cash at end
of period ................................................................. $
— $
168.7
$
0.2
$
363.1
$
— $
532.0
2018
Holdings
AAM Inc.
Guarantor
Subsidiaries
Net cash provided by operating activities.......... $
— $
262.0
$
145.5
Non-
Guarantor
Subsidiaries
364.0
$
Elims
Consolidated
$
— $
771.5
Investing activities
Purchases of property, plant and equipment ..........
Proceeds from sale of property, plant and
equipment ..............................................................
Purchase buyouts of leased equipment..................
Proceeds from sale of business .............................
Acquisition of business, net of cash acquired .........
Investment in affiliates ............................................
Intercompany activity ..............................................
Net cash used in investing activities .......................
Financing activities
Net debt activity ......................................................
Debt issuance costs ...............................................
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, cash equivalents
and restricted cash .................................................
Cash, cash equivalents and restricted cash at
beginning of period .................................................
—
—
—
—
—
—
—
—
—
—
(3.7)
—
3.7
—
—
—
—
(63.2)
(163.8)
(297.7)
—
—
—
—
(3.0)
—
(66.2)
(240.4)
(6.9)
—
—
(3.7)
(251.0)
—
(55.2)
91.9
4.3
(0.5)
42.7
—
—
(44.1)
(161.4)
(0.7)
—
—
(2.3)
21.5
18.5
—
2.6
0.1
0.6
—
4.4
(1.3)
(0.7)
44.1
(250.6)
69.5
—
—
—
(21.5)
48.0
(6.7)
154.7
284.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(524.7)
4.9
(0.5)
47.1
(1.3)
(3.7)
—
(478.2)
(171.6)
(6.9)
(3.7)
(2.3)
—
(184.5)
(6.7)
102.1
376.8
Cash, cash equivalents and restricted cash at end
of period ................................................................. $
— $
36.7
$
2.7
$
439.5
$
— $
478.9
95
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2017
Holdings
AAM Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Elims
Consolidated
Net cash provided by operating activities.......... $
— $
410.4
$
33.1
$
203.5
$
— $
647.0
Investing activities
Purchases of property, plant and equipment ..........
Proceeds from sale of property, plant and
equipment ..............................................................
Purchase buyouts of leased equipment..................
Proceeds from sale of business .............................
Acquisition of business, net of cash acquired .........
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 (decrease) in cash, cash equivalents
and restricted cash .................................................
Cash, cash equivalents and restricted cash at
beginning of period .................................................
—
—
—
—
—
—
—
—
—
(7.0)
7.0
—
—
—
—
(69.1)
0.3
(13.3)
7.5
(953.5)
(1,028.1)
725.6
(91.0)
0.9
—
(10.2)
625.3
—
7.6
84.3
(100.4)
(308.2)
0.3
—
(1.6)
64.6
(37.1)
1.9
—
—
(6.6)
(312.9)
(0.7)
(12.2)
—
—
—
3.2
2.5
—
(1.5)
1.6
—
—
—
—
(12.2)
11.1
(110.5)
395.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(477.7)
2.5
(13.3)
5.9
(895.5)
(1,378.1)
712.7
(91.0)
0.9
(7.0)
—
615.6
11.1
(104.4)
481.2
Cash, cash equivalents and restricted cash at end
of period ................................................................. $
— $
91.9
$
0.1
$
284.8
$
— $
376.8
96
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of American Axle and Manufacturing Holdings, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of American Axle and Manufacturing Holdings,
Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of
operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the
period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively
referred to as the "financial statements"). We also have audited the Company’s internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, 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 an opinion on the Company’s internal control over
financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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.
97
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill - Metal Forming and Driveline Reporting Units - Refer to Notes 1 and 5 to the consolidated
financial statements
Critical Audit Matter Description
The Company conducts its annual goodwill impairment test in the fourth quarter each year. In performing this test,
management utilizes a third-party valuation specialist to assist in determining the fair value of the Company’s
reporting units. Fair value of each reporting unit is estimated based on a combination of discounted cash flows and
the use of pricing multiples derived from an analysis of comparable public companies multiplied against historical
and/or anticipated financial metrics of each reporting unit. These calculations contain uncertainties as they require
management to make assumptions including, but not limited to, market comparables, future cash flows of the
reporting units, and appropriate discount and long-term growth rates.
As a result of the Company’s annual goodwill impairment test in the fourth quarter of 2019, management
determined that the carrying value of the Metal Forming reporting unit (Metal Forming) was greater than its fair
value. As such, the Company recorded a non-cash goodwill impairment charge of $440.0 million in 2019 associated
with this reporting unit. Also, during the Company’s annual goodwill impairment test in the fourth quarter 2019,
management determined that the fair value of the Driveline reporting unit (Driveline) exceeded its carrying value by
approximately 7% and the carrying value of Metal Forming approximated fair value after the impairment charge. A
decline in the actual cash flows of Driveline or Metal Forming in future periods, as compared to the projected cash
flows used in the valuation, could result in the carrying value of the reporting units exceeding their respective fair
values. Further, a change in market comparables, the discount rate or long-term growth rate, as a result of a
change in economic conditions or otherwise, could result in the carrying values of the reporting units exceeding
their respective fair values.
The consolidated goodwill balance was $699.1 million as of December 31, 2019, of which $300.8 million was
attributed to Metal Forming and $398.3 million was attributed to Driveline. The annual impairment tests require
management to make assumptions to estimate the fair value of the reporting units. Performing audit procedures to
evaluate the reasonableness of management’s assumptions related to market comparables, future cash flows, and
discount and long-term growth rates required a high degree of auditor judgment and an increased extent of effort,
including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to market comparables, future cash flows and discount and long-term growth rates for
Metal Forming and Driveline included the following, among others:
• We tested the effectiveness of controls over the Company’s annual goodwill impairment test and determination
of related assumptions, including those over market comparables, future cash flows and discount and long-
term growth rates.
• We evaluated management’s ability to accurately forecast future cash flows within the annual goodwill
impairment test by comparing actual reporting unit results to management’s historical forecasts.
• We evaluated the reasonableness of management’s forecast of future cash flows by comparing the projected
cash flows to (1) historical results, (2) internal communications to management and the Board of Directors, and
(3) forecasted information included in Company press releases, analyst and industry reports of the Company
and companies in its peer group. With the assistance of our fair value specialists, we tested the underlying
source information, and the mathematical accuracy of the forecasted cash flows within the fair value
98
calculations.
• With the assistance of our fair value specialists, we evaluated the market comparables and discount and long-
term growth rates, including testing the underlying source information and the mathematical accuracy of the
calculations, and developed a range of independent estimates and compared those to the rates selected by
management.
Sale of Business - U.S. Casting Operations - Refer to Note 2 to the consolidated financial statements
Critical Audit Matter Description
On December 16, 2019, the Company completed the sale of the U.S. casting operations (Casting). The sales price
of $245.0 million consisted of $185.0 million in cash and a $60.0 million deferred payment obligation, which will
accrue interest at an annual rate of 6% beginning on January 1, 2020 for a period of twelve years. Upon closing the
sale, the Company received net cash proceeds of $141.2 million subsequent to customary closing adjustments.
Upon reclassification of Casting to held-for-sale in the third quarter of 2019, the Company recorded a pre-tax
impairment charge of $225.0 million to reduce the carrying value of this business to its fair value less costs to sell.
The sale of Casting did not qualify for classification as discontinued operations, as the sale did not represent a
strategic shift in the Company’s business that has had, or will have, a major effect on operations and financial
results. Upon finalizing the sale, the Company recorded a loss on deconsolidation of Casting of $21.3 million for the
year ended December 31, 2019.
We identified the sale of Casting as a critical audit matter because of the significant judgments made by
management to determine the appropriate accounting treatment for the transaction as held-for-sale, but not
discontinued operations, and the related presentation and disclosure of the transaction in the consolidated financial
statements. This required a high degree of auditor judgment and an increased extent of effort, when performing
audit procedures to evaluate the reasonableness of management’s accounting conclusions, and the related
presentation and disclosure of the sale of Casting in the consolidated financial statements.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to our evaluation of the accounting conclusions and related presentation and
disclosure of the sale of Casting in the consolidated financial statements included the following, among others:
• We tested the effectiveness of controls over the accounting and reporting for significant non-recurring
transactions, which includes the sale of Casting.
• We read the sale and purchase agreement (the “Agreement”) and assessed the significant terms and
provisions for the appropriate accounting treatment, including the accounting for the deferred payment
obligation.
• We evaluated management’s conclusion that the sale qualified as held-for-sale but not discontinued operations
presentation in the consolidated financial statements.
• We tested the completeness and accuracy of management’s identification of assets and liabilities included in
the disposal group as defined in the Agreement and the underlying data supporting the calculation of the
carrying value and fair value of the disposal group.
• We recalculated the $225.0 million impairment charge recorded upon the reclassification of Casting to held-for-
sale and the $21.3 million adjustment recorded at the closing of the Casting sale by comparing the selling price
less costs to sell to the carrying value of the disposal group.
• We evaluated the completeness and accuracy of the presentation and disclosure of the sale of Casting in the
consolidated financial statements.
/s/ Deloitte & Touche LLP
Detroit, Michigan
February 14, 2020
We have served as the Company's auditor since 1998.
99
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, 2019.
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,
2019. 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, 2019, 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
On January 1, 2019, we began the implementation of our global enterprise planning (ERP) systems at certain
locations that were acquired as part of the MPG acquisition. As part of these implementations, we have modified
the design and documentation of our internal controls processes and procedures, where appropriate. We will
continue to implement these ERP systems at certain locations throughout 2020.
Also on January 1, 2019, we adopted new accounting guidance under Accounting Standards Codification Topic
842 (ASC 842) Leases. As part of the adoption of ASC 842, we implemented changes to our internal controls
including the implementation of a new software system for lease accounting and reporting. Other changes to
internal controls related to ASC 842 included updating our company policy associated with leases, determining the
term of lease agreements, including whether options to extend or terminate a lease are reasonably certain to be
exercised, and establishing the appropriate discount rates to calculate our lease liabilities.
Except as described above, there were no changes in our internal control over financial reporting during the
fourth quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information
None
100
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 26, 2020.
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 9(e) of Schedule 14A is incorporated by reference from our Proxy Statement.
101
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 Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statement 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, 2019, 2018
and 2017 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
2.01
2.02
3.01
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.)
Unit Purchase Agreement, dated as of September 18, 2019, by and among American Axle &
Manufacturing Holdings, Inc., Grede AcquisitionCo, Inc. and, for certain limited purposes, Grede
TopCo, Inc.
(Incorporated by reference to Exhibit 2.1 of Current Report on Form 8-K dated September 18,
2019)
Amended and Restated Certificate of Incorporation of American Axle & Manufacturing Holdings,
Inc.
(Incorporated by reference to Exhibit 3.2 filed with American Axle & Manufacturing Holdings,
Inc. Registration Statement on Form S-8 (Registration No. 333-220300).)
3.02
Third Amended and Restated Bylaws of American Axle & Manufacturing Holdings, Inc.
(Incorporated by reference to Exhibit 3.04 filed of Current Report on Form 8-K dated February
13, 2018.)
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.)
102
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 6.25% Notes due 2025
(Incorporated by Reference to Exhibit 4.2 of Current Report on Form 8-K dated March 23,
2017.)
4.08
Form of 6.50% Notes due 2027
4.09
4.10
4.11
4.12
4.13
(Incorporated by Reference to Exhibit 4.3 of Current Report on Form 8-K dated March 23,
2017.)
First Supplemental Indenture, dated March 23, 2017 among American Axle & Manufacturing, Inc.,
Alpha SPV I, Inc., American Axle & Manufacturing Holdings, Inc., certain subsidiary guarantors
and U.S. Bank National Association, as trustee
(Incorporated by reference to Exhibit 4.1 of Current Report on Form 8-K dated March 23,
2017.)
Second Supplemental Indenture, dated May 17, 2017 among American Axle &
Manufacturing, Inc., Metaldyne Performance Group Inc., American Axle & Manufacturing
Holdings, Inc. certain subsidiary guarantors and U.S. Bank National Association, as trustee
(Incorporated by reference to Exhibit 4.1 of Current Report on Form 8-K dated May 17, 2017.)
Registration Rights Agreement, dated as of March 23, 2017, among American Axle &
Manufacturing, Inc., certain subsidiary guarantors and J.P. Morgan Securities LLC, as
representative of the Initial Purchasers, in respect of the 6.25% Senior Notes due 2025
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated March 23,
2017.)
Registration Rights Agreement, dated as of March 23, 2017, among American Axle &
Manufacturing, Inc., certain subsidiary guarantors and J.P. Morgan Securities LLC, as
representative of the Initial Purchasers, in respect of the 6.50% Senior Notes due 2027
(Incorporated by reference to Exhibit 10.2 of Current Report on Form 8-K dated March 23,
2017.)
Third Supplemental Indenture, dated March 23, 2018 among American Axle & Manufacturing,
Inc., American Axle & Manufacturing Holdings, Inc., certain subsidiary guarantors signatory
thereto and U.S. Bank National Association, as trustee
(Incorporated by reference to Exhibit 4.1 of Current Report on Form 8-K dated March 26,
2018.)
4.14
Form of 6.25% Notes due 2026
(Incorporated by reference to Exhibit 4.1 of Current Report on Form 8-K dated March 27,
2018.)
103
Number
Description of Exhibit
*4.15
10.01
Description of Registered Securities
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
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.)
10.05
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.)
++10.06
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.)
‡10.07
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.)
‡10.08
Amended and Restated American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive
Plan
(Incorporated by reference to Exhibit 4.1 filed with American Axle & Manufacturing
Holdings, Inc. Registration Statement on Form S-8 (Registration No. 333-220300).)
‡10.09
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.)
‡10.10
Voting Agreement
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated November 8,
2016.)
10.11
Credit Agreement dated as of April 6, 2017 among American Axle & Manufacturing Holdings, Inc.,
American Axle & Manufacturing, Inc., each financial institution party thereto as a lender and
JPMorgan Chase Bank, N.A., as Administrative Agent
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated April 12,
2017.)
104
Number
Description of Exhibit
10.12
10.13
Collateral Agreement dated as of April 6, 2017 among American Axle & Manufacturing
Holdings, Inc., American Axle & Manufacturing, Inc., certain subsidiaries of American Axle &
Manufacturing Holdings, Inc. identified therein and JPMorgan Chase Bank, N.A., as Collateral
Agent
(Incorporated by reference to Exhibit 10.2 of Current Report on Form 8-K dated April 12,
2017.)
Guarantee Agreement dated as of April 6, 2017 among American Axle & Manufacturing
Holdings, Inc., American Axle & Manufacturing, Inc., certain subsidiaries identified therein and
JPMorgan Chase Bank, N.A., as Administrative Agent
(Incorporated by reference to Exhibit 99.1 of Current Report on Form 8-K dated April 12,
2017.)
10.14
Stockholders' Agreement, dated as of April 6, 2017, among American Axle & Manufacturing
Holdings, Inc., ASP MD Investco L.P. and American Securities LLC
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated April 6, 2017).
‡10.15
Amended and Restated American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive
Plan - 2018 Incentive Compensation Program for Executive Officers
(Incorporated by reference to Exhibit 10.39 of Annual Report on Form 10-K dated February 16,
2018.)
‡10.16
Amendment to American Axle & Manufacturing Holdings, Inc. Executive Deferred Compensation
Plan (as amended and restated effective January 1, 2005, and as further amended prior to the
date hereof)
(Incorporated by reference to Exhibit 10.2 of Current Report on Form 8-K dated April 16,
2018.)
‡10.17
Amendments to the Amended and Restated Employment Agreement dated February 15, 2015 by
and between the Company and David C. Dauch
(Incorporated by reference to Exhibit 10.5 of Current Report on Form 8-K dated April 16,
2018.)
‡10.18
Amendment to the Employment Agreement dated August 1, 2015 by and between the Company
and Michael K. Simonte
(Incorporated by reference to Exhibit 10.6 of Current Report on Form 8-K dated April 16,
2018.)
‡10.19
Form of Performance Share Award (Relative TSR) for Executive Officers under the 2012
Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.1 of Quarterly Report on Form 10-Q dated May 4,
2018.)
‡10.20
Form of Performance Share Award (Free Cash Flow) for Executive Officers under the 2012
Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.2 of Quarterly Report on Form 10-Q dated May 4,
2018.)
‡10.21
Form of Restricted Stock Unit Award Agreement (Cliff Vesting) for Executive Officers under the
2012 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.3 of Quarterly Report on Form 10-Q dated May 4,
2018.)
‡10.22
American Axle & Manufacturing Holdings, Inc. 2018 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 4.1 filed with American Axle & Manufacturing Holdings,
Inc. Registration Statement on Form S-8 (Registration No. 333-225468).)
‡10.23
American Axle & Manufacturing Holdings, Inc. Change in Control Plan
(Incorporated by reference to Exhibit 10.1 of Quarterly Report on Form 10-Q dated August 3,
2018.)
105
Number
Description of Exhibit
‡10.24
American Axle & Manufacturing, Inc. Amended and Restated Supplemental Executive Retirement
Program Document
(Incorporated by reference to Exhibit 10.29 of Annual Report on Form 10-K dated February 15,
2019)
‡10.25
American Axle & Manufacturing Holdings, Inc. Executive Retirement Savings Plan
(Incorporated by reference to Exhibit 10.30 of Annual Report on Form 10-K dated February 15,
2019)
‡10.26
American Axle & Manufacturing Holdings, Inc. Executive Officer Severance Plan
(Incorporated by reference to Exhibit 10.31 of Annual Report on Form 10-K dated February 15,
2019)
‡10.27
Form of Performance Unit Award (Free Cash Flow) for Executive Officers under the 2018
Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated March 8,
2019)
‡10.28
Form of Performance Share Award (Relative TSR) for Executive Officers under the 2018
Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.2 of Current Report on Form 8-K dated March 8,
2019)
‡10.29
Form of Restricted Stock Unit Award Agreement (Cliff Vesting) for Executive Officers under the
2018 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.3 of Current Report on Form 8-K dated March 8,
2019)
10.30
*21
*23
*31.1
*31.2
*32
First Amendment dated as of July 29, 2019, among American Axle & Manufacturing Holdings,
Inc., American Axle & Manufacturing, Inc., certain subsidiaries of American Axle & Manufacturing
Holdings, Inc. identified therein, each financial institution party thereto as a lender and JPMorgan
Chase Bank, N.A., as Administrative Agent
(Incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K dated August 1,
2019)
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
106
Number
Description of Exhibit
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document
**101.SCH
XBRL Taxonomy Extension Schema Document
**101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
**101.LAB
XBRL Taxonomy Extension Label Linkbase Document
**101.PRE
XBRL Extension Presentation 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
107
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning of
Period
Additions -
Charged to
Costs and
Expenses
Acquisitions
and
Disposals (a)
(in millions)
Deductions -
See Notes
Below
Balance
At End of
Period
Year Ended December 31, 2017:
Allowance for doubtful accounts ......... $
3.1
$
4.6
$
2.1
$
2.8
(1)
$
7.0
Allowance for deferred taxes ..............
164.8
Inventory valuation allowance ............
14.8
Year Ended December 31, 2018:
Allowance for doubtful accounts .........
7.0
Allowance for deferred taxes ..............
180.4
Inventory valuation allowance ............
17.3
Year Ended December 31, 2019:
Allowance for doubtful accounts .........
8.4
Allowance for deferred taxes ..............
183.3
Inventory valuation allowance ............
14.4
26.6
39.1
6.6
12.9
22.2
13.2
25.4
31.0
13.7
9.2
—
—
—
24.7
(3)
180.4
45.8
(2)
17.3
5.2
(1)
8.4
10.0
(4)
183.3
25.1
(2)
14.4
(0.8)
12.8
(1)
8.0
—
1.4
12.7
(5)
196.0
26.3
(2)
20.5
(a) Amounts represent reserves recognized in conjunction with our acquisitions in 2019 and 2017, as well as
reserves derecognized in conjunction with the Casting Sale in 2019.
(1) Uncollectible accounts charged off, net of recoveries.
(2) Primarily relates to write-offs of excess and obsolete inventories, as well as adjustments for physical quantity
discrepancies.
(3) Reflects an increase related to valuation allowances of MPG that existed as of the acquisition date and the
impact of tax reform resulting from the 2017 Act. This was partially offset by the reversal of certain state
valuation allowances as a result of re-evaluating our state valuation allowances subsequent to the acquisition of
MPG.
(4) Primarily reflects a reduction in deferred tax assets at various foreign locations due to foreign currency
translation.
(5) Primarily reflects the reversal of a valuation allowance against certain deferred tax assets in foreign locations,
as well as changes due to foreign currency translation.
108
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/ James G. Zaliwski
James G. Zaliwski
Chief Accounting Officer
Date: February 14, 2020
109
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/ Herbert K. Parker
Herbert K. Parker
/s/ Sandra Pierce
Sandra Pierce
/s/ John F. Smith
John F. Smith
/s/ Samuel Valenti III
Samuel Valenti III
February 14, 2020
February 14, 2020
February 14, 2020
February 14, 2020
February 14, 2020
February 14, 2020
February 14, 2020
February 14, 2020
February 14, 2020
February 14, 2020
February 14, 2020
Chairman of the Board &
Chief Executive Officer
Vice President &
Chief Financial Officer
Director
Director
Director
Director
Director
Director
Director
Director
Director
110
STOCKHOLDER
INFORMATION
Stockholders
As of March 12, 2020, there were 182 stockholders of record.
Stock Performance
Comparison of cumulative total return of AAM with the cumulative
return of our competitor peer group (Adient plc, Autoliv Inc.,
BorgWarner Inc., Dana Incorporated, Delphi Technologies PLC,
Lear Corporation, Magna International Inc., Meritor Inc. and
Tenneco Inc.) and the Standard & Poor’s 500 Composite Index
assuming $100 invested on December 31, 2014 through
December 31, 2019.
In 2019, AAM updated its peer group to include Adient plc and
Delphi Technologies PLC and remove Visteon Corporation. AAM
included both the new and old peer group in the chart below.
The closing price of AXL as of December 31, 2019, was $10.76.
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 2020 Annual Meeting of Stockholders will be held on
May 7, 2020, 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 2019, 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) 758-2977
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
462 South 4th Street, Suite 1600
Louisville, KY 40202
Telephone: (877) 282-1168
Internet: www.computershare.com/investor
Stock Listing
The New York Stock Exchange is the principal market for AAM
common stock. Ticker Symbol: AXL
4