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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2022
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the transition period from _____________ to
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Commission File Number: 1-14303
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
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38-3161171 |
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(State or Other Jurisdiction of Incorporation or
Organization) |
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(I.R.S. Employer Identification No.) |
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One Dauch Drive, Detroit, Michigan
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48211-1198 |
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(Address of Principal Executive Offices) |
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(313) 758-2000
(Registrant's Telephone Number, Including Area Code)
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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
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
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 ☑
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
|
|
|
|
|
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
|
Common Stock, par value $0.01 per share |
AXL |
New York Stock Exchange |
As of May 3, 2022, the latest practicable date, the number of
shares of the registrant's Common Stock, par value $0.01 per share,
outstanding was 114,486,486 shares.
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 or 15(d) of the Exchange Act
are available free of charge through our website as soon as
reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission
(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.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2022
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form 10-Q (Quarterly 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:
•significant
disruptions in production, sales and/or supply as a result of
public health crises, including pandemic or epidemic illness such
as COVID-19, or otherwise;
•global
economic conditions;
•reduced
purchases of our products by General Motors Company (GM),
Stellantis N.V. (Stellantis), Ford Motor Company (Ford) 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, Stellantis and
Ford);
•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 the United States-Mexico-Canada Agreement (USMCA),
immigration policies, political stability or geopolitical
conflicts, taxes and other law changes, potential disruptions of
production and supply, and currency rate
fluctuations);
•supply
shortages, such as the semiconductor shortage that the automotive
industry is currently experiencing, labor shortages, including
increased labor costs, or price increases in raw material and/or
freight, utilities or other operating supplies for us or our
customers as a result of pandemics, geopolitical conflicts, natural
disasters 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 attacks and other similar disruptions;
•cost
or 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;
•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;
•risks
of environmental issues, including impacts of climate-related
events, that could result in unforeseen issues or costs at our
facilities, or risks of noncompliance with environmental laws and
regulations, including reputational damage;
•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;
•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;
•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 qualified personnel in key positions
and functions; and
•other
unanticipated events and conditions that may hinder our ability to
compete.
It is not possible to foresee or identify all such factors and we
make no commitment to update any forward-looking statement or to
disclose any facts, events or circumstances after the date hereof
that may affect the accuracy of any forward-looking
statement.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
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|
Three Months Ended |
|
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|
March 31, |
|
|
|
|
2022 |
|
2021 |
|
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|
|
|
|
(in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
1,436.2 |
|
|
$ |
1,425.1 |
|
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Cost of goods sold |
1,249.4 |
|
|
1,198.0 |
|
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|
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|
|
Gross profit |
186.8 |
|
|
227.1 |
|
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|
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|
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|
|
|
|
|
|
Selling, general and administrative expenses |
86.1 |
|
|
90.0 |
|
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|
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|
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|
|
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|
|
|
|
|
|
Amortization of intangible assets |
21.5 |
|
|
21.5 |
|
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|
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|
|
|
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|
|
|
|
|
|
Restructuring and acquisition-related costs |
8.9 |
|
|
17.5 |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Loss on sale of business |
— |
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
70.3 |
|
|
95.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Interest expense |
(44.7) |
|
|
(51.1) |
|
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|
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|
|
|
|
|
|
Interest income |
3.0 |
|
|
2.9 |
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Other income (expense) |
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|
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Debt refinancing and redemption costs |
(5.6) |
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|
(1.1) |
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|
Unrealized loss on equity securities |
(18.0) |
|
|
— |
|
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|
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|
Other income (expense), net |
(1.0) |
|
|
1.2 |
|
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|
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|
Income before income taxes |
4.0 |
|
|
47.4 |
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Income tax expense |
3.0 |
|
|
8.8 |
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Net income |
$ |
1.0 |
|
|
$ |
38.6 |
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|
Basic earnings per share |
$ |
0.01 |
|
|
$ |
0.33 |
|
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|
Diluted earnings per share |
$ |
0.01 |
|
|
$ |
0.33 |
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(Unaudited)
|
|
|
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Three Months Ended |
|
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March 31, |
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2022 |
|
2021 |
|
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|
(in millions) |
|
Net income |
$ |
1.0 |
|
|
$ |
38.6 |
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Other comprehensive income (loss) |
|
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Defined benefit plans, net of tax
(a)
|
1.3 |
|
|
2.1 |
|
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|
Foreign currency translation
adjustments |
6.0 |
|
|
(11.0) |
|
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|
Changes in cash flow hedges, net of
tax
(b)
|
15.7 |
|
|
(0.3) |
|
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Other comprehensive income (loss) |
23.0 |
|
|
(9.2) |
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|
Comprehensive income |
$ |
24.0 |
|
|
$ |
29.4 |
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(a) |
Amounts are net of tax of $(0.5) million for the three months
ended March 31, 2022, and $(0.6) million for the three months
ended March 31, 2021.
|
|
(b) |
Amounts are net of tax of $(2.9) million for the three months
ended March 31, 2022, and $(1.3) million for the three months
ended March 31, 2021.
|
See accompanying notes to condensed consolidated financial
statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
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|
March 31, 2022 |
|
December 31, 2021 |
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(Unaudited) |
|
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|
Assets |
|
(in millions) |
|
Current assets |
|
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|
Cash and cash equivalents |
|
$ |
529.9 |
|
|
$ |
530.2 |
|
|
Accounts receivable, net |
|
928.1 |
|
|
762.8 |
|
|
Inventories, net |
|
412.7 |
|
|
410.4 |
|
|
Prepaid expenses and other |
|
170.2 |
|
|
152.6 |
|
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|
Total current assets |
|
2,040.9 |
|
|
1,856.0 |
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Property, plant and equipment, net |
|
1,947.8 |
|
|
1,996.1 |
|
|
Deferred income taxes |
|
128.5 |
|
|
121.1 |
|
|
Goodwill |
|
183.2 |
|
|
183.8 |
|
|
Other intangible assets, net |
|
676.4 |
|
|
697.2 |
|
|
GM postretirement cost sharing asset |
|
199.1 |
|
|
201.1 |
|
|
Operating lease right-of-use assets |
|
120.0 |
|
|
123.7 |
|
|
Other assets and deferred charges |
|
429.1 |
|
|
456.7 |
|
|
Total assets |
|
$ |
5,725.0 |
|
|
$ |
5,635.7 |
|
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|
Liabilities and Stockholders’ Equity |
|
|
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Current liabilities |
|
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|
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|
|
Current portion of long-term debt |
|
$ |
21.0 |
|
|
$ |
18.8 |
|
|
Accounts payable |
|
754.7 |
|
|
612.8 |
|
|
Accrued compensation and benefits |
|
164.4 |
|
|
195.2 |
|
|
Deferred revenue |
|
30.2 |
|
|
28.1 |
|
|
Current portion of operating lease liabilities |
|
24.4 |
|
|
24.6 |
|
|
Accrued expenses and other |
|
159.0 |
|
|
160.4 |
|
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Total current liabilities |
|
1,153.7 |
|
|
1,039.9 |
|
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Long-term debt, net |
|
3,062.0 |
|
|
3,085.7 |
|
|
Deferred revenue |
|
82.6 |
|
|
94.8 |
|
|
Deferred income taxes |
|
12.7 |
|
|
13.5 |
|
|
Long-term portion of operating lease liabilities |
|
96.5 |
|
|
99.9 |
|
|
Postretirement benefits and other long-term liabilities |
|
833.0 |
|
|
844.1 |
|
|
Total liabilities |
|
5,240.5 |
|
|
5,177.9 |
|
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|
Stockholders' equity |
|
|
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|
|
Common stock, par value $0.01 per share; 150.0 million shares
authorized;
|
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|
|
|
123.2 million shares issued as of March 31, 2022 and
122.5 million shares issued as of December 31,
2021
|
|
1.3 |
|
|
1.3 |
|
|
Paid-in capital |
|
1,356.0 |
|
|
1,351.5 |
|
|
Accumulated deficit |
|
(312.9) |
|
|
(313.9) |
|
|
Treasury stock at cost, 8.7 million shares as of
March 31, 2022 and 8.5 million shares as of December 31,
2021
|
|
(218.1) |
|
|
(216.3) |
|
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
Defined benefit plans, net of tax |
|
(240.6) |
|
|
(241.9) |
|
|
Foreign currency translation adjustments |
|
(105.3) |
|
|
(111.3) |
|
|
Unrecognized gain (loss) on cash flow hedges, net of
tax |
|
4.1 |
|
|
(11.6) |
|
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|
|
|
|
Total stockholders' equity |
|
484.5 |
|
|
457.8 |
|
|
Total liabilities and stockholders' equity |
|
$ |
5,725.0 |
|
|
$ |
5,635.7 |
|
See
accompanying notes to condensed consolidated financial
statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
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|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2022 |
|
2021 |
|
|
|
(in millions) |
|
Operating activities |
|
|
|
|
|
Net income |
|
$ |
1.0 |
|
|
$ |
38.6 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities |
|
|
|
|
|
Depreciation and amortization |
|
120.4 |
|
|
142.0 |
|
|
|
|
|
|
|
Deferred income taxes |
|
(8.6) |
|
|
0.8 |
|
|
Stock-based compensation |
|
4.5 |
|
|
5.3 |
|
|
Pensions and other postretirement benefits, net of
contributions |
|
(1.8) |
|
|
(4.3) |
|
|
Loss on sale of business |
|
— |
|
|
2.6 |
|
|
Gain on disposal of property, plant and equipment, net |
|
(2.8) |
|
|
(0.2) |
|
|
Unrealized loss on equity securities |
|
18.0 |
|
|
— |
|
|
Debt refinancing and redemption costs |
|
5.6 |
|
|
1.1 |
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
Accounts receivable |
|
(166.0) |
|
|
(66.4) |
|
|
Inventories |
|
(2.1) |
|
|
(19.6) |
|
|
Accounts payable and accrued expenses |
|
110.2 |
|
|
75.4 |
|
|
Deferred revenue |
|
(8.3) |
|
|
4.9 |
|
|
Other assets and liabilities |
|
(1.6) |
|
|
(1.1) |
|
|
Net cash provided by operating activities |
|
68.5 |
|
|
179.1 |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
Purchases of property, plant and equipment |
|
(28.6) |
|
|
(39.6) |
|
|
Proceeds from sale of property, plant and equipment |
|
4.2 |
|
|
— |
|
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|
Proceeds (payments) for sale of business, net of cash
divested |
|
— |
|
|
(0.8) |
|
|
Acquisition of business |
|
(6.7) |
|
|
— |
|
|
|
|
|
|
|
Other investing activities |
|
(0.2) |
|
|
— |
|
|
Net cash used in investing activities |
|
(31.3) |
|
|
(40.4) |
|
|
|
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|
|
|
|
Financing activities |
|
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|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
220.5 |
|
|
21.8 |
|
|
Payments of long-term debt |
|
(252.1) |
|
|
(107.3) |
|
|
Debt issuance costs |
|
(3.5) |
|
|
— |
|
|
|
|
|
|
|
Purchase of treasury stock |
|
(1.8) |
|
|
(4.0) |
|
|
Other financing activities |
|
(1.8) |
|
|
(1.1) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
(38.7) |
|
|
(90.6) |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
1.2 |
|
|
(3.9) |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
(0.3) |
|
|
44.2 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
530.2 |
|
|
557.0 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
529.9 |
|
|
$ |
601.2 |
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
Interest paid |
|
$ |
38.6 |
|
|
$ |
43.3 |
|
|
Income taxes paid, net |
|
$ |
4.8 |
|
|
$ |
0.2 |
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Accumulated |
Noncontrolling |
|
|
Shares |
Par |
Paid-in |
Retained Earnings |
Treasury |
Other Comprehensive |
Interest |
|
|
Outstanding |
Value |
Capital |
(Accumulated Deficit) |
Stock |
Income (Loss) |
in Subsidiaries |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021 |
113.3 |
|
$ |
1.2 |
|
$ |
1,333.3 |
|
$ |
(319.8) |
|
$ |
(212.0) |
|
$ |
(432.2) |
|
$ |
2.7 |
|
|
Net income |
— |
|
— |
|
— |
|
38.6 |
|
— |
|
— |
|
— |
|
|
Vesting of restricted stock units and performance
shares |
1.0 |
|
0.1 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
Stock-based compensation |
— |
|
— |
|
5.3 |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
(0.4) |
|
— |
|
— |
|
— |
|
(4.0) |
|
— |
|
— |
|
|
Changes in cash flow hedges |
— |
|
— |
|
— |
|
— |
|
— |
|
(0.3) |
|
— |
|
|
Foreign currency translation adjustments |
— |
|
— |
|
— |
|
— |
|
— |
|
(11.0) |
|
— |
|
|
Defined benefit plans, net |
— |
|
— |
|
— |
|
— |
|
— |
|
2.1 |
|
— |
|
|
Sale of business (Note 14) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(2.7) |
|
|
Balance at March 31, 2021 |
113.9 |
|
$ |
1.3 |
|
$ |
1,338.6 |
|
$ |
(281.2) |
|
$ |
(216.0) |
|
$ |
(441.4) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Accumulated |
Noncontrolling |
|
|
Shares |
Par |
Paid-in |
Retained Earnings |
Treasury |
Other Comprehensive |
Interest |
|
|
Outstanding |
Value |
Capital |
(Accumulated Deficit) |
Stock |
Income (Loss) |
in Subsidiaries |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2022 |
114.0 |
|
$ |
1.3 |
|
$ |
1,351.5 |
|
$ |
(313.9) |
|
$ |
(216.3) |
|
$ |
(364.8) |
|
$ |
— |
|
|
Net income |
— |
|
— |
|
— |
|
1.0 |
|
— |
|
— |
|
— |
|
|
Vesting of restricted stock units |
0.7 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
Stock-based compensation |
— |
|
— |
|
4.5 |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
(0.2) |
|
— |
|
— |
|
— |
|
(1.8) |
|
— |
|
— |
|
|
Changes in cash flow hedges |
— |
|
— |
|
— |
|
— |
|
— |
|
15.7 |
|
— |
|
|
Foreign currency translation adjustments |
— |
|
— |
|
— |
|
— |
|
— |
|
6.0 |
|
— |
|
|
Defined benefit plans, net |
— |
|
— |
|
— |
|
— |
|
— |
|
1.3 |
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2022 |
114.5 |
|
$ |
1.3 |
|
$ |
1,356.0 |
|
$ |
(312.9) |
|
$ |
(218.1) |
|
$ |
(341.8) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
As a leading global tier 1 automotive and mobility supplier, AAM
designs, engineers and manufactures Driveline and Metal Forming
technologies to support electric, hybrid, and internal combustion
vehicles. Headquartered in Detroit, with nearly 80 facilities in 17
countries, AAM is bringing the future faster for a safer and more
sustainable tomorrow.
Basis of Presentation
We have prepared the accompanying interim condensed consolidated
financial statements in accordance with the instructions to Form
10-Q under the Securities Exchange Act of 1934. These
condensed consolidated financial statements are unaudited but
include all normal recurring adjustments, which we consider
necessary for a fair presentation of the information set forth
herein. Results of operations for the periods presented are not
necessarily indicative of the results for the full fiscal
year.
The balance sheet at December 31, 2021 presented herein has been
derived from the audited consolidated financial statements at that
date but does not include all of the information and footnotes
required by accounting principles generally accepted in the United
States of America (GAAP) for complete consolidated financial
statements.
In order to prepare the accompanying interim condensed consolidated
financial statements, we are required to make estimates and
assumptions that affect the reported amounts and disclosures in our
interim condensed consolidated financial statements. These
estimates and assumptions are impacted by risks and uncertainties,
including those associated with COVID-19, the semiconductor supply
shortage that is impacting the automotive industry, and the
conflict between Russia and Ukraine. While we have made estimates
and assumptions based on the facts and circumstances available as
of the date of this report, the full impact of these matters cannot
be predicted, and actual results could differ materially from those
estimates and assumptions.
For further information, refer to the audited consolidated
financial statements and notes included in our Annual Report on
Form 10-K for the year ended December 31, 2021.
Effect of New Accounting Standards and Other Regulatory
Pronouncements
Accounting Standard Update 2021-10
On November 17, 2021, the FASB issued ASU 2021-10 - Government
Assistance (Topic 832). This guidance established requirements for
annual disclosures about certain types of material government
assistance, including government grants and tax credits. This
guidance became effective and we prospectively adopted this
guidance on January 1, 2022. The adoption of this standard did not
have a material impact on our condensed consolidated financial
statements.
Coronavirus Aid, Relief, and Economic Security Act
The Coronavirus Aid, Relief, and Economic Security Act (the CARES
Act) was enacted on March 27, 2020 in the United States. The key
provisions of the CARES Act, as they remain applicable to AAM,
include the following:
•The
ability to use net operating losses (NOLs) to offset income without
the 80% taxable income limitation enacted as part of the Tax Cuts
and Jobs Act (TCJA) of 2017, and to carry back NOLs to offset prior
year income for five years. These are temporary provisions that
apply to NOLs incurred in 2018, 2019 or 2020 tax years. We received
income tax refunds of $5.4 million and $6.0 million in
the three months ended March 31, 2022 and 2021, respectively, as a
result of this provision of the CARES Act.
•The
ability to defer the payment of the employer portion of social
security taxes incurred between March 27, 2020 and December 31,
2020, with 50% of the deferred amount paid by December 31, 2021 and
the remaining 50% to be paid by December 31, 2022. At March 31,
2022, we had deferred $7.6 million of social security taxes,
which are expected to be paid in the fourth quarter of
2022.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. RESTRUCTURING AND ACQUISITION-RELATED COSTS
In the first quarter of 2020, we initiated a new global
restructuring program (the 2020 Program). The primary objectives of
the 2020 Program are to achieve efficiencies within our corporate
and business unit support teams to reduce cost in our business, and
to structurally adjust our operations to a new level of market
demand based on the impact of COVID-19. We expect to incur costs
under the 2020 Program into 2023.
In the second quarter of 2021, we completed the acquisition of a
manufacturing facility in Emporium, Pennsylvania (Emporium), and
subsequently determined that we will cease production at the
facility in 2022 and relocate the production capacity to other AAM
manufacturing facilities. As a result, during the three months
ended March 31, 2022, we incurred restructuring charges related to
the anticipated closure of the facility and expect to incur costs
associated with the closure of the facility through
2022.
A summary of our restructuring activity for the first three months
of 2022 and 2021 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Charges |
|
Implementation Costs |
|
|
|
Total |
|
|
(in millions) |
|
Accrual at December 31, 2020 |
$ |
1.7 |
|
|
$ |
9.8 |
|
|
|
|
$ |
11.5 |
|
|
Charges |
0.5 |
|
|
16.0 |
|
|
|
|
16.5 |
|
|
Cash utilization |
(2.2) |
|
|
(19.4) |
|
|
|
|
(21.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual at March 31, 2021 |
$ |
— |
|
|
$ |
6.4 |
|
|
|
|
$ |
6.4 |
|
|
|
|
|
|
|
|
|
|
|
Accrual at December 31, 2021 |
$ |
0.7 |
|
|
$ |
2.7 |
|
|
|
|
$ |
3.4 |
|
|
Charges |
1.3 |
|
|
5.9 |
|
|
|
|
7.2 |
|
|
Cash utilization |
(0.8) |
|
|
(6.6) |
|
|
|
|
(7.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual at March 31, 2022 |
$ |
1.2 |
|
|
$ |
2.0 |
|
|
|
|
$ |
3.2 |
|
As part of our restructuring actions, we incurred total severance
charges of approximately $1.3 million and $0.5 million during the
three months ended March 31, 2022 and 2021, respectively. We
also incurred total implementation costs of approximately $5.9
million and $16.0 million during the three months ended
March 31, 2022 and 2021, respectively. Implementation costs
consist primarily of professional fees and plant exit
costs.
We incurred $5.4 million of restructuring costs under the 2020
Program and incurred $1.8 million of costs associated with the
anticipated closure of Emporium in the three months ended
March 31, 2022. We have incurred $92.7 million of total
restructuring costs under the 2020 Program since inception and have
incurred $5.5 million of total costs related to the
anticipated closure of Emporium.
Approximately $0.7 million and $3.4 million of our total
restructuring costs for the three months ended March 31, 2022
related to our Driveline and Metal Forming segments, respectively,
while the remainder were corporate costs. Approximately
$1.2 million and $0.5 million of our total restructuring
costs for the three months ended March 31, 2021 related to our
Driveline and Metal Forming segments, respectively, while the
remainder were corporate costs. We expect to incur approximately
$20 million to $30 million of total restructuring charges in 2022
under the 2020 Program and associated with our closure of
Emporium.
In April 2022, we announced our acquisition of Tekfor Group and we
also continue to incur integration costs related to acquisitions
completed in prior years. The following table represents a summary
of charges incurred in the three months ended March 31, 2022
and 2021 associated with acquisition and integration
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-Related Costs |
|
|
|
Integration Expenses |
|
Total |
|
|
(in millions) |
|
Charges for the three months ended March 31, 2022 |
$ |
1.1 |
|
|
|
|
$ |
0.6 |
|
|
$ |
1.7 |
|
|
Charges for the three months ended March 31, 2021 |
— |
|
|
|
|
1.0 |
|
|
1.0 |
|
Acquisition-related costs primarily consist of advisory, legal,
accounting, 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
integration activities. Total restructuring charges and
acquisition-related charges are presented on a separate line item
titled Restructuring and acquisition-related costs in our Condensed
Consolidated Statements of Income and totaled $8.9 million and
$17.5 million for the three months ended March 31, 2022 and
2021 respectively.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. INVENTORIES
We state our inventories at the lower of cost or net realizable
value. The cost of our inventories is determined using the
first-in first-out method. When we determine that our gross
inventories exceed usage requirements, or if inventories become
obsolete or otherwise not saleable, we record a provision for such
loss as a component of our inventory accounts.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
Raw materials and work-in-progress |
|
$ |
359.0 |
|
|
$ |
339.7 |
|
|
Finished goods |
|
75.5 |
|
|
89.3 |
|
|
Gross inventories |
|
434.5 |
|
|
429.0 |
|
|
Inventory valuation reserves |
|
(21.8) |
|
|
(18.6) |
|
|
Inventories, net |
|
$ |
412.7 |
|
|
$ |
410.4 |
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table provides a reconciliation of changes in
goodwill for the three months ended March 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
(in millions) |
|
Balance at December 31, 2021 |
|
|
|
|
$ |
183.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
|
|
(0.6) |
|
|
Balance at March 31, 2022 |
|
|
|
|
$ |
183.2 |
|
We conduct our annual goodwill impairment test in the fourth
quarter of each year, as well as whenever adverse events or changes
in circumstances indicate a possible impairment. 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.
At March 31, 2022, accumulated goodwill impairment losses were
$1,435.5 million. All remaining goodwill is attributable to
our Driveline reporting unit.
Other Intangible Assets
The following table provides a reconciliation of the gross carrying
amount and associated accumulated amortization for AAM's other
intangible assets, which are all subject to
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2022 |
|
2021 |
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
|
(in millions) |
|
Capitalized computer software |
$ |
48.1 |
|
|
$ |
(38.6) |
|
|
$ |
9.5 |
|
|
$ |
47.3 |
|
|
$ |
(37.0) |
|
|
$ |
10.3 |
|
|
Customer platforms |
856.2 |
|
|
(317.2) |
|
|
539.0 |
|
|
856.2 |
|
|
(301.3) |
|
|
554.9 |
|
|
Customer relationships |
53.0 |
|
|
(17.1) |
|
|
35.9 |
|
|
53.0 |
|
|
(16.2) |
|
|
36.8 |
|
|
Technology and other |
155.9 |
|
|
(63.9) |
|
|
92.0 |
|
|
156.1 |
|
|
(60.9) |
|
|
95.2 |
|
|
Total |
$ |
1,113.2 |
|
|
$ |
(436.8) |
|
|
$ |
676.4 |
|
|
$ |
1,112.6 |
|
|
$ |
(415.4) |
|
|
$ |
697.2 |
|
Amortization expense for our intangible assets was
$21.5 million for both the three months ended March 31,
2022 and March 31, 2021. Estimated amortization expense for
the years 2022 through 2026 is expected to be in the range of
approximately $80 million to $85 million per
year.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
Revolving Credit Facility |
|
$ |
— |
|
|
$ |
— |
|
|
Term Loan A Facility |
|
520.0 |
|
|
301.8 |
|
|
Term Loan B Facility |
|
825.0 |
|
|
850.0 |
|
|
6.875% Notes due 2028 |
|
400.0 |
|
|
400.0 |
|
|
|
|
|
|
|
6.50% Notes due 2027 |
|
500.0 |
|
|
500.0 |
|
|
6.25% Notes due 2026 |
|
180.0 |
|
|
400.0 |
|
|
|
|
|
|
|
5.00% Notes due 2029 |
|
600.0 |
|
|
600.0 |
|
|
Foreign credit facilities and other |
|
88.9 |
|
|
86.1 |
|
|
Total debt |
|
3,113.9 |
|
|
3,137.9 |
|
|
|
|
|
|
|
Less: Current portion of long-term
debt |
|
21.0 |
|
|
18.8 |
|
|
Long-term debt |
|
3,092.9 |
|
|
3,119.1 |
|
|
Less: Debt issuance costs |
|
30.9 |
|
|
33.4 |
|
|
Long-term debt, net |
|
$ |
3,062.0 |
|
|
$ |
3,085.7 |
|
Senior Secured Credit Facilities
In 2017, American Axle & Manufacturing Holdings, Inc.
(Holdings) and American Axle & Manufacturing, Inc. (AAM, Inc.)
entered into a credit agreement which was amended on July 29, 2019
and further amended on April 28, 2020, and June 11, 2021 (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
originally included a $340 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 $925 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 March 2022, Holdings and AAM, Inc. entered into the Amended
& Restated Credit Agreement. The Amended & Restated Credit
Agreement, among other things, increased the principal amount of
the Term Loan A Facility to $520.0 million, extended the
maturity date of the Term Loan A Facility and the Revolving Credit
Facility each to March 11, 2027, and established the use under the
Term Loan A Facility and Revolving Credit Facility of the Secured
Overnight Financing Rate (SOFR) and the minimum Adjusted Term SOFR
Rate for Eurodollar-based loans denominated in US Dollars and the
Sterling Overnight Index Average (SONIA) and the minimum adjusted
daily simple SONIA for loans denominated in Sterling. The Amended
& Restated Credit Agreement also removed the senior secured net
leverage ratio covenant, increased the maximum levels of the total
net leverage ratio covenant for certain periods, modified the cash
interest expense coverage ratio covenant, and modified certain
covenants restricting the ability of Holdings, AAM and certain
subsidiaries of Holdings to create, incur, assume or permit to
exist certain additional indebtedness and liens, to make
investments and to make or agree to pay or make certain restricted
payments, voluntary payments and distributions. We expensed
$0.2 million of debt refinancing costs, paid accrued interest
of $1.0 million, and paid debt issuance costs of
$3.5 million in the three months ended March 31, 2022 related
to the Amended & Restated Credit Agreement.
The terms of the Term Loan B Facility, including the maturity date,
interest rates and applicable margin with respect to such interest
rates, under the Amended & Restated Credit Agreement remain
unchanged. There are no current maturities under the Term Loan A
Facility and there are no scheduled payments due under the Term
Loan B Facility until maturity in 2024.
In the first quarter of 2022, we made a voluntary prepayment of
$25.0 million on our Term Loan B Facility. As a result, we
expensed approximately $0.2 million for the write-off of a
portion of the unamortized debt issuance costs that we had been
amortizing over the expected life of this borrowing.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In the first quarter of 2021, we made a voluntary prepayment of
$100.0 million on our Term Loan B Facility and
$4.3 million on our Term Loan A Facility. As a result, we
expensed approximately $1.1 million for the write-off of a
portion of the unamortized debt issuance costs that we had been
amortizing over the expected life of these borrowings.
At March 31, 2022, we had $893.2 million available under the
Revolving Credit Facility. This availability reflects a reduction
of $31.8 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 Condensed Consolidated
Balance Sheet.
Redemption of 6.25% Notes due 2026
In the first quarter of 2022, we used the proceeds from the upsized
Term Loan A Facility to voluntarily redeem a portion of our 6.25%
Notes due 2026. This resulted in a principal payment of
$220.0 million and $0.2 million in accrued interest. We
also expensed approximately $1.8 million for the write-off of
a portion of the unamortized debt issuance costs that we had been
amortizing over the expected life of the borrowing, and
approximately $3.4 million for the payment of an early
redemption premium.
Foreign credit facilities
We utilize local currency credit facilities to finance the
operations of certain foreign subsidiaries. At March 31, 2022,
$88.9 million was outstanding under our foreign credit facilities,
as compared to $86.1 million at December 31, 2021. At
March 31, 2022, an additional $62.4 million was available
under our foreign credit facilities.
Weighted-Average Interest Rate
The weighted-average interest rate of our long-term debt
outstanding was 5.4% at March 31, 2022 and 5.6% at December
31, 2021.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. DERIVATIVES
Our business and financial results are affected by fluctuations in
global financial markets, including interest rates and currency
exchange rates. Our hedging policy has been developed to
manage these risks to an acceptable level based on management’s
judgment of the appropriate trade-off between risk, opportunity and
cost. We do not hold financial instruments for trading or
speculative purposes.
Currency derivative contracts From
time to time, we use foreign currency forward contracts to reduce
the effects of fluctuations in exchange rates relating to certain
foreign currencies. As of both March 31, 2022 and
December 31, 2021, we had currency forward contracts outstanding
with a total notional amount of $164.7 million, that hedge our
exposure to changes in foreign currency exchange rates for certain
payroll expenses into the third quarter of 2024 and the purchase of
certain direct and indirect inventory and other working capital
items into the fourth quarter of 2022.
Fixed-to-fixed cross-currency swap
In 2020, 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. The notional amount of the fixed-to-fixed
cross-currency swap is €200.0 million, which was equivalent to
$221.3 million and $226.9 million at March 31, 2022 and
December 31, 2021, respectively. The fixed-to-fixed cross-currency
swap 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 2019, 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. We have the following notional
amounts hedged in relation to our variable-to-fixed interest rate
swap: $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 and losses into net income from accumulated other
comprehensive income (loss) for those derivative instruments
designated as cash flow hedges under ASC 815 -
Derivatives and Hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
Gain (Loss) Reclassified During |
|
Total of Financial |
|
Gain (Loss) Expected |
|
|
|
of Gain (Loss) |
|
Three Months Ended |
|
|
|
Statement |
|
to be Reclassified |
|
|
|
Reclassified into |
|
March 31, |
|
|
|
Line Item |
|
During the |
|
|
|
Net Income |
|
2022 |
|
2021 |
|
|
|
|
|
2022 |
|
Next 12 Months |
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts |
|
Cost of Goods Sold |
|
$ |
1.2 |
|
|
$ |
2.3 |
|
|
|
|
|
|
$ |
1,249.4 |
|
|
$ |
5.9 |
|
|
Fixed-to-fixed cross-currency swap |
|
Other Income (Expense), net |
|
6.0 |
|
|
10.1 |
|
|
|
|
|
|
(1.0) |
|
|
1.7 |
|
|
Variable-to-fixed interest rate swap |
|
Interest Expense |
|
(2.9) |
|
|
(4.2) |
|
|
|
|
|
|
(44.7) |
|
|
(2.0) |
|
See Note 12 - Reclassifications Out of Accumulated Other
Comprehensive Income (Loss) (AOCI) for amounts recognized in other
comprehensive income (loss) during the three months ended
March 31, 2022 and 2021.
The following table summarizes the amount and location of gains and
losses recognized in the Condensed Consolidated Statements of
Income for those derivative instruments not designated as hedging
instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized During |
|
Total of Financial |
|
|
|
Location of Gain (Loss) |
|
Three Months Ended |
|
|
|
Statement Line |
|
|
|
Recognized in |
|
March 31, |
|
|
|
Item |
|
|
|
Net Income |
|
2022 |
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts |
|
Other Income (Expense), net |
|
$ |
1.0 |
|
|
$ |
(0.1) |
|
|
|
|
|
|
$ |
(1.0) |
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. FAIR VALUE
ASC 820 -
Fair Value Measurement
defines fair value as “the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.” The
definition is based on an exit price rather than an entry price,
regardless of whether the entity plans to hold or sell the
asset. This guidance also establishes a fair value hierarchy
to prioritize inputs used in measuring fair value as
follows:
•Level 1: Observable
inputs such as quoted prices in active markets;
•Level 2: Inputs,
other than quoted prices in active markets, that are observable
either directly or indirectly; and
•Level 3: Unobservable
inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
Financial instruments The
estimated carrying value of our financial assets and liabilities
that are recognized at fair value on a recurring basis, using
available market information and other observable data, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
|
|
|
|
|
Fair Value |
|
|
|
Fair Value |
|
|
|
Input |
|
|
|
(in millions) |
|
|
|
Balance Sheet Classification |
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
226.2 |
|
|
|
|
$ |
196.5 |
|
|
|
|
Level 1 |
|
Prepaid expenses and other |
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - currency forward contracts |
|
5.9 |
|
|
|
|
2.2 |
|
|
|
|
Level 2 |
|
Cash flow hedges - variable-to-fixed interest rate swap |
|
0.6 |
|
|
|
|
1.9 |
|
|
|
|
Level 2 |
|
Nondesignated - currency forward contracts |
|
1.0 |
|
|
|
|
0.2 |
|
|
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred charges |
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - currency forward
contracts |
|
2.0 |
|
|
|
|
1.4 |
|
|
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - variable-to-fixed
interest rate swap |
|
0.5 |
|
|
|
|
2.2 |
|
|
|
|
Level 2 |
|
Investment in equity securities |
|
9.4 |
|
|
|
|
27.4 |
|
|
|
|
Level 1 |
|
Accrued expenses and other |
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - currency forward
contracts |
|
— |
|
|
|
|
0.3 |
|
|
|
|
Level 2 |
|
Cash flow hedges - variable-to-fixed
interest rate swap |
|
0.1 |
|
|
|
|
9.6 |
|
|
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefits and other long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges - currency forward
contracts |
|
— |
|
|
|
|
0.6 |
|
|
|
|
Level 2 |
|
Cash flow hedges - fixed-to-fixed cross-currency swap |
|
2.1 |
|
|
|
|
3.7 |
|
|
|
|
Level 2 |
|
Cash flow hedges - variable-to-fixed
interest rate swap |
|
2.1 |
|
|
|
|
12.7 |
|
|
|
|
Level 2 |
The carrying values of our cash, accounts receivable, accounts
payable and accrued liabilities approximate their fair values due
to the short-term maturities of these instruments. The
carrying values of our borrowings under the foreign credit
facilities approximate their fair value due to the frequent
resetting of the interest rates.
We have an investment in the equity securities of REE Automotive,
an e-mobility company. These equity securities are measured at fair
value each reporting period with changes in fair value reported
through an unrealized gain or loss within Other income (expense),
net in our Condensed Consolidated Statement of Income. As of
March 31, 2022, our investment in REE shares was valued at
$9.4 million based on a closing price on that date of $1.90
per share.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
We estimated the fair value of the amounts outstanding on our debt
using available market information and other observable data, to be
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
|
|
|
|
|
Carrying Amount |
|
Fair Value |
|
Carrying Amount |
|
Fair Value |
|
Input
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Level 2 |
|
Term Loan A Facility |
|
520.0 |
|
|
512.9 |
|
|
301.8 |
|
|
301.8 |
|
|
Level 2 |
|
Term Loan B Facility |
|
825.0 |
|
|
818.8 |
|
|
850.0 |
|
|
847.9 |
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.875% Notes due 2028 |
|
400.0 |
|
|
399.0 |
|
|
400.0 |
|
|
430.0 |
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
6.50% Notes due 2027 |
|
500.0 |
|
|
492.5 |
|
|
500.0 |
|
|
519.4 |
|
|
Level 2 |
|
6.25% Notes due 2026 |
|
180.0 |
|
|
180.5 |
|
|
400.0 |
|
|
408.5 |
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
5.00% Notes due 2029 |
|
600.0 |
|
|
550.5 |
|
|
600.0 |
|
|
588.0 |
|
|
Level 2 |
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost (credit) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Three Months Ended |
|
|
|
|
|
March 31, |
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
0.5 |
|
|
$ |
0.5 |
|
|
|
|
|
|
Interest cost |
|
4.2 |
|
|
4.3 |
|
|
|
|
|
|
Expected asset return |
|
(8.0) |
|
|
(9.7) |
|
|
|
|
|
|
Amortized loss |
|
1.9 |
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit credit |
|
$ |
(1.4) |
|
|
$ |
(2.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits |
|
|
|
Three Months Ended |
|
|
|
|
|
March 31, |
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
|
|
|
|
Interest cost |
|
2.1 |
|
|
2.1 |
|
|
|
|
|
|
Amortized loss |
|
0.1 |
|
|
0.4 |
|
|
|
|
|
|
Amortized prior service credit |
|
(0.2) |
|
|
(0.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2.1 |
|
|
$ |
2.2 |
|
|
|
|
|
The noncurrent liabilities associated with our pension and other
postretirement benefit plans are classified as Postretirement
benefits and other long-term liabilities on our Condensed
Consolidated Balance Sheets. As of March 31, 2022 and December
31, 2021, we have a noncurrent pension liability of $117.6 million
and $121.3 million, respectively. As of March 31, 2022 and
December 31, 2021, we have a noncurrent other postretirement
benefits liability of $479.3 million and $481.2 million,
respectively.
Due to the availability of our pre-funded pension balances
(previous contributions in excess of prior required pension
contributions), we expect our regulatory pension funding
requirements in 2022 to be less than $1 million. We expect our cash
payments for other postretirement benefit obligations in 2022, net
of GM cost sharing, to be approximately $16.5 million.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. 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
monitor actual warranty claim data and adjust the liability, as
necessary, on a quarterly basis.
The following table provides a reconciliation of changes in the
product warranty liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
March 31, |
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
59.5 |
|
|
$ |
66.7 |
|
|
|
|
|
|
Accruals |
|
4.0 |
|
|
4.3 |
|
|
|
|
|
|
Payments |
|
(3.1) |
|
|
(0.8) |
|
|
|
|
|
|
Adjustment to prior period
accruals |
|
— |
|
|
(0.7) |
|
|
|
|
|
|
Foreign currency
translation |
|
— |
|
|
(0.4) |
|
|
|
|
|
|
Ending balance |
|
$ |
60.4 |
|
|
$ |
69.1 |
|
|
|
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. INCOME TAXES
We adjust our effective tax rate each quarter based on our
estimated annual effective tax rate. We also record the tax impact
of certain discrete, unusual or infrequently occurring items,
including changes in judgment about valuation allowances and the
effects of changes in tax laws or rates on deferred tax balances,
in the interim period in which they occur. In addition,
jurisdictions with a projected loss for the year or a year-to-date
loss where no tax benefit can be recognized are excluded from the
estimated annual effective tax rate. The impact of such an
exclusion could result in a higher or lower effective tax rate
during a particular quarter, based upon the mix and timing of
actual earnings versus annual projections.
Our income tax expense and effective income tax rate for the three
months ended March 31, 2022 and 2021 are as follows:
|
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Three Months Ended |
|
|
|
|
|
March 31, |
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
3.0 |
|
|
$ |
8.8 |
|
|
|
|
|
|
Effective income tax rate |
|
75.0 |
% |
|
18.6 |
% |
|
|
|
|
Our effective income tax rate for the three months ended March 31,
2022 varies from our effective income tax rate for the three months
ended March 31, 2021 primarily as a result of the mix of earnings
on a jurisdictional basis. For the three months ended March 31,
2022 and 2021, our effective income tax rates vary from the U.S.
federal statutory rate of 21% primarily due to the change in
jurisdictional mix of earnings, as well as favorable foreign tax
rates and the impact of tax credits.
In accordance with the guidance in ASC 740 -
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 the
available evidence.
Due to the uncertainty associated with the extent and ultimate
impact of the significant supply chain constraints affecting the
automotive industry, including COVID-19, the semiconductor shortage
and resulting impact on global automotive production volumes, and
the conflict between Russia and Ukraine, we may experience lower
than projected earnings in certain jurisdictions in future periods,
and as a result, it is reasonably possible that changes in
valuation allowances could be recognized in future periods and such
changes could be material to our financial statements.
Other Income Tax Matters
We operate in multiple jurisdictions throughout the world and the
income tax returns of several subsidiaries in various tax
jurisdictions are currently under examination. During their
examination of our 2015 U.S. federal income tax return, the
Internal Revenue Service (IRS) asserted that income earned by a
Luxembourg subsidiary from its Mexican branch operations should be
categorized as foreign base company sales income (FBCSI) under
Section 954(d) of the Internal Revenue Code and recognized
currently as taxable income on our 2015 U.S. federal income tax
return. As a result of this assertion, the IRS issued a Notice of
Proposed Adjustment (NOPA). AAM believes that the proposed
adjustment is without merit and we have contested the matter, which
is currently under review in the IRS’s administrative appeals
process. We believe it is likely that we will be successful in
ultimately defending our position. As such, we have not recorded
any impact of the IRS’s proposed adjustment in our condensed
consolidated financial statements. In the event AAM is not
successful in defending its position, the potential additional
income tax expense, including estimated interest charges, related
to tax years 2015 through 2021, is estimated to be in the range of
approximately $275 million to $325 million. The cash flow impact in
2022 related to this issue is not expected to be significant as a
result of available net operating losses and income tax
credits.
In a matter of related interest, on May 5, 2020, the U.S Tax Court
ruled against another U.S. corporation, finding that the income it
earned through a Mexican branch of its Luxembourg subsidiary
corporation was FBCSI. In that situation, the taxpayer appealed the
U.S. Tax Court decision to the U.S. Court of Appeals for the Sixth
Circuit. On December 6, 2021, the U.S. Court of Appeals affirmed,
in a split decision, the Tax Court decision in favor of the IRS. In
January 2022, the taxpayer in the above referenced matter filed a
petition for rehearing and this petition was denied by the U.S.
Court of Appeals for the Sixth Circuit in March 2022.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Notwithstanding the decisions rendered thus far in that case, and
because our position is based upon different facts and
circumstances, including but not limited to, differences in
structure, and different income tax regulations in effect for our
tax years under examination, we continue to believe, after
consultation with tax and legal counsel that it is more likely than
not that our structure does not give rise to FBCSI. We intend to
continue to vigorously contest the conclusions reached in the NOPA
through the IRS’s administrative appeals process, and, if
necessary, through litigation.
Negative or unexpected outcomes of tax examinations and audits, and
any related litigation, could have a material adverse impact on our
results of operations, financial condition and cash flows. 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. As of March 31,
2022 and December 31, 2021, we have recorded a liability for
unrecognized income tax benefits and related interest and penalties
of $23.7 million and $23.4 million, respectively.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. EARNINGS PER SHARE (EPS)
We present EPS using the two-class method. This method allocates
undistributed earnings between common shares and non-vested
share-based payment awards that entitle the holder to
non-forfeitable dividend rights. Our participating securities are
our 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):
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|
|
|
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|
Three Months Ended |
|
|
|
|
|
March 31, |
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
(in millions, except per share data) |
|
Numerator |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.0 |
|
|
$ |
38.6 |
|
|
|
|
|
|
Less: Net income attributable to
participating securities |
|
— |
|
|
(1.6) |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders - Basic and
Dilutive |
|
$ |
1.0 |
|
|
$ |
37.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators |
|
|
|
|
|
|
|
|
|
Basic common shares outstanding - |
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
118.8 |
|
|
118.3 |
|
|
|
|
|
|
Less: Participating
securities |
|
(4.6) |
|
|
(4.8) |
|
|
|
|
|
|
Weighted-average common shares
outstanding |
|
114.2 |
|
|
113.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities - |
|
|
|
|
|
|
|
|
|
Dilutive stock-based compensation |
|
0.5 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding - |
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares after assumed
conversions |
|
114.7 |
|
|
113.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
0.01 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
0.01 |
|
|
$ |
0.33 |
|
|
|
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS) (AOCI)
Reclassification adjustments and other activity impacting
accumulated other comprehensive income (loss) during the three
months ended March 31, 2022 and March 31, 2021 are as
follows
(in millions):
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|
|
|
|
|
Defined Benefit Plans |
|
Foreign Currency Translation Adjustments |
|
Unrecognized Gain (Loss) on Cash Flow Hedges |
|
Total |
|
Balance at December 31, 2021 |
$ |
(241.9) |
|
|
$ |
(111.3) |
|
|
$ |
(11.6) |
|
|
$ |
(364.8) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassifications |
— |
|
|
6.0 |
|
|
22.9 |
|
|
28.9 |
|
|
|
|
|
|
|
|
|
|
|
Income tax effect of other comprehensive income before
reclassifications |
— |
|
|
— |
|
|
(3.5) |
|
|
(3.5) |
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income
(loss) |
1.8 |
|
(a) |
— |
|
|
(4.3) |
|
(b) |
(2.5) |
|
|
|
|
|
|
|
|
|
|
|
Income taxes reclassified into net income |
(0.5) |
|
|
— |
|
|
0.6 |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive income
(loss) |
1.3 |
|
|
6.0 |
|
|
15.7 |
|
|
23.0 |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2022 |
$ |
(240.6) |
|
|
$ |
(105.3) |
|
|
$ |
4.1 |
|
|
$ |
(341.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans |
|
Foreign Currency Translation Adjustments |
|
Unrecognized Gain (Loss) on Cash Flow Hedges |
|
Total |
|
Balance at December 31, 2020 |
$ |
(311.0) |
|
|
$ |
(101.1) |
|
|
$ |
(20.1) |
|
|
$ |
(432.2) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before
reclassifications |
— |
|
|
(11.5) |
|
|
9.2 |
|
|
(2.3) |
|
|
|
|
|
|
|
|
|
|
|
Income tax effect of other comprehensive income (loss) before
reclassifications |
— |
|
|
— |
|
|
(2.5) |
|
|
(2.5) |
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive
loss |
2.7 |
|
(a) |
0.5 |
|
|
(8.2) |
|
(b) |
(5.0) |
|
|
|
|
|
|
|
|
|
|
|
Income taxes reclassified into net income |
(0.6) |
|
|
— |
|
|
1.2 |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss |
2.1 |
|
|
(11.0) |
|
|
(0.3) |
|
|
(9.2) |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021 |
$ |
(308.9) |
|
|
$ |
(112.1) |
|
|
$ |
(20.4) |
|
|
$ |
(441.4) |
|
|
|
|
|
|
|
|
(a) |
These amounts were reclassified from AOCI to Other income
(expense), net for the three months ended March 31, 2022 and
March 31, 2021.
|
|
|
|
(b) |
The amounts reclassified from AOCI included $(1.2) million in
cost of goods sold (COGS), $2.9 million in interest expense
and $(6.0) million in Other income (expense), net for the
three months ended March 31, 2022 and $(2.3) million in COGS,
$4.2 million in interest expense and $(10.1) million in Other
income (expense), net for the three months ended March 31,
2021.
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13. REVENUE FROM CONTRACTS WITH CUSTOMERS
Net sales recognized from contracts with customers, disaggregated
by segment and geographical location, are presented in the
following table for the three months ended March 31, 2022 and
2021. Net sales are attributed to regions based on the location of
production. Intersegment sales have been excluded from the
table.
|
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|
|
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|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
|
Driveline |
|
Metal Forming |
|
|
|
Total |
|
North America |
|
$ |
823.9 |
|
|
$ |
303.3 |
|
|
|
|
$ |
1,127.2 |
|
|
Asia |
|
117.0 |
|
|
10.5 |
|
|
|
|
127.5 |
|
|
Europe |
|
105.8 |
|
|
59.2 |
|
|
|
|
165.0 |
|
|
South America |
|
14.0 |
|
|
2.5 |
|
|
|
|
16.5 |
|
|
Total |
|
$ |
1,060.7 |
|
|
$ |
375.5 |
|
|
|
|
$ |
1,436.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021 |
|
|
|
Driveline |
|
Metal Forming |
|
|
|
Total |
|
North America |
|
$ |
773.8 |
|
|
$ |
320.4 |
|
|
|
|
$ |
1,094.2 |
|
|
Asia |
|
121.2 |
|
|
12.8 |
|
|
|
|
134.0 |
|
|
Europe |
|
110.0 |
|
|
64.2 |
|
|
|
|
174.2 |
|
|
South America |
|
20.0 |
|
|
2.7 |
|
|
|
|
22.7 |
|
|
Total |
|
$ |
1,025.0 |
|
|
$ |
400.1 |
|
|
|
|
$ |
1,425.1 |
|
|
|
|
|
|
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|
Contract Assets and Liabilities
The following table summarizes our beginning and ending balances
for accounts receivable and contract liabilities associated with
our contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable, Net |
Contract Liabilities (Current) |
Contract Liabilities (Long-term) |
|
December 31, 2021 |
$ |
762.8 |
|
$ |
28.1 |
|
$ |
94.8 |
|
|
March 31, 2022 |
928.1 |
|
30.2 |
|
82.6 |
|
|
Increase/(decrease) |
$ |
165.3 |
|
$ |
2.1 |
|
$ |
(12.2) |
|
Contract liabilities relate to deferred revenue associated with
various settlements and commercial agreements for which we have a
future performance obligation to the customer. We recognize this
deferred revenue into revenue over the life of the associated
program as we satisfy our performance obligations to the customer.
We do not have contract assets as defined in ASC 606. We amortized
previously recorded contract liabilities into revenue as we
satisfied performance obligations with our customers of
approximately $7.9 million and $5.0 million for the three
months ended March 31, 2022 and 2021,
respectively.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. ACQUISITIONS AND DISPOSITIONS
Subsequent Event - AAM Acquisition of Tekfor Group
In April 2022, AAM announced that we had entered into a definitive
agreement to acquire Tekfor Group for an estimated US GAAP purchase
price of approximately €90 million (estimated enterprise value
of approximately €125 million after net adjustment for cash
and debt-like items), subject to certain customary closing
adjustments. We expect to fund the entire purchase price with cash
on hand and the transaction is expected to close in the second
quarter of 2022, subject to regulatory approval and other customary
closing requirements.
Tekfor Group manufactures high-performance components, modules and
fasteners, including traditional powertrain and driveline
components (for both internal combustion and hybrid applications),
and e-mobility components. Headquartered in Hausach, Germany,
Tekfor Group has eight sites and employs approximately 2,000
associates in Europe and the Americas.
Sale of Interest in Consolidated Joint Venture
In the first quarter of 2021, we completed the sale of
substantially all of our ownership interest in a consolidated joint
venture and received cash proceeds of approximately
$2.4 million. As a result of the sale and deconsolidation of
this joint venture, we recognized a loss of $2.6 million in
the first quarter of 2021. Subsequent to the sale of this joint
venture, we no longer present noncontrolling interest in our
condensed consolidated financial statements as all consolidated
entities are wholly owned.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15.
MANUFACTURING FACILITY FIRE AND INSURANCE RECOVERY
On September 22, 2020, a significant industrial fire occurred at
our Malvern Manufacturing Facility in Ohio (Malvern Fire). All
associates were evacuated safely and without injury and we were
able to maintain continuity of supply to our customers without any
significant disruptions.
Our insurance policies are expected to cover the repair,
replacement or actual cash value of the assets that incurred loss
or damage, less our applicable deductible of $1.0 million. In
addition, our insurance policies are expected to provide coverage
for interruption to our business, including lost or reduced profits
and reimbursement for certain expenses and costs that are incurred
relating to the fire. In the three months ended March 31,
2022, we recorded $0.7 million of charges primarily related to
transportation and freight and other costs incurred to resume or
relocate operations and ensure continuity of supply to our
customers. We also recorded an estimated insurance recovery of
$6.2 million and received reimbursements and advances under
our insurance policies of approximately $3.6 million, which is
presented as an operating cash flow in our Condensed Consolidated
Statement of Cash Flows. This resulted in net pre-tax income in our
Condensed Consolidated Statement of Income of approximately
$5.5 million in Cost of goods sold for the three months ended
March 31, 2022. At March 31, 2022, $13.9 million of
insurance recovery receivable is included in Prepaid expenses and
other in our Condensed Consolidated Balance Sheet.
Since the date of the Malvern Fire and the establishment of the
insurance claim, we have incurred $53.1 million of total
charges primarily related to site services and clean-up,
transportation and freight, asset repairs and other costs incurred
to resume or relocate operations and ensure continuity of supply to
our customers. In addition, we have recorded a total of
$27.0 million of costs primarily associated with the
write-down of property, plant and equipment as a result of damage
from the fire. We have recorded total estimated insurance
recoveries of $87.7 million and have received total
reimbursements and advances under our insurance policies of
$73.8 million, of which $11.1 million was received in
2020, $59.1 million was received in 2021 and $3.6 million
in the first three months of 2022.
In the fourth quarter of 2020, we determined that we will cease
production at the Malvern Manufacturing Facility and relocate
production capacity to other AAM manufacturing facilities. As such,
we cannot estimate the total claim eligible costs that we will
incur as a result of the Malvern Fire and the associated relocation
of production capacity to other AAM manufacturing facilities. At
March 31, 2022, we have estimated the amount of expected
insurance proceeds recoverable in consideration of the policy
provisions, estimated repair costs or actual cash value of damaged
assets, and claim eligible expenses incurred from the date of the
fire. We expect the claim settlement process to continue through
2022 based on the provisions of the policy. We will update our
estimates as additional information becomes available, however, the
actual impact on our results of operations, financial position or
cash flows, or the timing of such impact, could differ from our
estimates.
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
16. SEGMENT REPORTING
Our business is 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 to the
segments.
Our product offerings by segment are as follows:
•Driveline
products consist primarily of front and rear axles, driveshafts,
differential assemblies, clutch modules, balance shaft systems,
disconnecting driveline technology, and electric and hybrid
driveline products and systems for light trucks, sport utility
vehicles (SUVs), crossover vehicles, passenger cars and commercial
vehicles; and
•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.
We use Segment Adjusted EBITDA as the measure of earnings to assess
the performance of each segment and determine the resources to be
allocated to the segments. We define EBITDA to be earnings before
interest expense, income taxes, depreciation and amortization.
Segment Adjusted EBITDA is defined as EBITDA for our reportable
segments excluding the impact of restructuring and
acquisition-related costs, debt refinancing and redemption costs,
loss on the sale of a business, impairment charges, pension
settlements, unrealized gains or losses on equity securities, and
non-recurring items.
The following tables represent information by reportable segment
for the three months ended March 31, 2022 and 2021
(in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
|
Driveline |
|
Metal Forming |
|
|
|
|
|
Total |
|
Sales |
|
$ |
1,061.8 |
|
|
$ |
481.8 |
|
|
|
|
|
|
$ |
1,543.6 |
|
|
Less: Intersegment sales |
|
1.1 |
|
|
106.3 |
|
|
|
|
|
|
107.4 |
|
|
Net external sales |
|
$ |
1,060.7 |
|
|
$ |
375.5 |
|
|
|
|
|
|
$ |
1,436.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA |
|
$ |
132.5 |
|
|
$ |
63.6 |
|
|
|
|
|
|
$ |
196.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021 |
|
|
|
Driveline |
|
Metal Forming |
|
|
|
|
|
Total |
|
Sales |
|
$ |
1,026.1 |
|
|
$ |
489.3 |
|
|
|
|
|
|
$ |
1,515.4 |
|
|
Less: Intersegment sales |
|
1.1 |
|
|
89.2 |
|
|
|
|
|
|
90.3 |
|
|
Net external sales |
|
$ |
1,025.0 |
|
|
$ |
400.1 |
|
|
|
|
|
|
$ |
1,425.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA |
|
$ |
170.5 |
|
|
$ |
92.4 |
|
|
|
|
|
|
$ |
262.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following table represents a reconciliation of Total Segment
Adjusted EBITDA to consolidated income before income taxes for the
three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Total segment adjusted EBITDA |
$ |
196.1 |
|
|
$ |
262.9 |
|
|
|
|
|
|
Interest expense |
(44.7) |
|
|
(51.1) |
|
|
|
|
|
|
Depreciation and amortization |
(120.4) |
|
|
(142.0) |
|
|
|
|
|
|
Restructuring and acquisition-related costs |
(8.9) |
|
|
(17.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of business |
— |
|
|
(2.6) |
|
|
|
|
|
|
Unrealized loss on equity securities |
(18.0) |
|
|
— |
|
|
|
|
|
|
Debt refinancing and redemption costs |
(5.6) |
|
|
(1.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring items: |
|
|
|
|
|
|
|
|
Malvern Fire charges, net of recoveries |
5.5 |
|
|
(1.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
$ |
4.0 |
|
|
$ |
47.4 |
|
|
|
|
|
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This management’s discussion and analysis (MD&A) should be read
in conjunction with the unaudited condensed consolidated financial
statements and notes appearing elsewhere in this Quarterly Report
and our Annual Report on Form 10-K for the year ended December 31,
2021.
Unless the context otherwise requires, references to "we," "our,"
"us" or "AAM" shall mean collectively (i) American Axle &
Manufacturing Holdings, Inc. (Holdings), a Delaware corporation,
(ii) American Axle & Manufacturing, Inc. (AAM, Inc.), a
Delaware corporation, and its direct and indirect subsidiaries,
and, (iii) Metaldyne Performance Group, Inc. (MPG) and its direct
and indirect subsidiaries. AAM Inc. and MPG are wholly owned
subsidiaries of Holdings.
COMPANY OVERVIEW
As a leading global tier 1 automotive and mobility supplier, AAM
designs, engineers and manufactures Driveline and Metal Forming
technologies to support electric, hybrid, and internal combustion
vehicles. Headquartered in Detroit, with nearly 80 facilities in 17
countries, AAM is bringing the future faster for a safer and more
sustainable tomorrow.
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 (SUVs), 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 40% of our consolidated net sales in the
first three months of 2022, and 37% in the first three months of
2021 and the full year 2021.
We also supply driveline system products to Stellantis N.V.
(Stellantis) for programs including the heavy-duty Ram full-size
pickup trucks and its derivatives, the AWD Chrysler Pacifica and
the AWD Jeep Cherokee. In addition, we sell various products to
Stellantis from our Metal Forming segment. Sales to Stellantis
were approximately 18% of our consolidated net sales in the first
three months of 2022, and 19% in the first three months of 2021 and
the full year 2021.
We are also a supplier to Ford Motor Company (Ford) for driveline
system products on certain vehicle programs including the Ford
Bronco Sport, Ford Edge, Ford Escape and Lincoln Nautilus, and we
sell various products to Ford from our Metal Forming segment. Sales
to Ford were approximately 12% of our consolidated net sales in the
first three months of 2022 and were also 12% for both the first
three months of 2021 and the full year 2021.
No other customer represented 10% or more of consolidated net sales
during these periods.
Supply Chain Constraints Impacting the Automotive
Industry
During the first three months of 2022, the automotive industry has
continued to experience significant disruptions in the supply
chain, including a shortage of semiconductor chips used by our
customers, increased metal and commodity costs, higher utility
costs, increased transportation costs, higher labor costs and labor
shortages. As a result, we have experienced increased volatility in
our production schedules, including manufacturing downtime, often
with little notice from customers, higher inventory levels and
increased labor costs, which have negatively impacted our results
of operations and cash flows during this period. We continue to
work with customers and suppliers in our effort to protect
continuity of supply as we expect these challenges to continue
throughout 2022. Due to the ongoing uncertainty associated with the
impact of the COVID-19 pandemic, the conflict between Russia and
Ukraine and other factors causing, or exacerbating, these supply
chain constraints, the ultimate impact on our net sales, results of
operations and cash flows is unknown.
RESULTS OF OPERATIONS –– THREE MONTHS ENDED MARCH 31, 2022 AS
COMPARED TO THREE MONTHS ENDED MARCH 31, 2021
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2022 |
|
2021 |
|
Change |
|
Percent Change |
|
Net Sales |
|
$ |
1,436.2 |
|
|
$ |
1,425.1 |
|
|
$ |
11.1 |
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
The increase in the first quarter of 2022, as compared to the first
quarter 2021, primarily reflects approximately $39 million
associated with the effect of metal market pass-throughs to our
customers and the impact of foreign exchange related to translation
adjustments. These increases in sales were partially offset by a
reduction in production volumes on certain vehicle programs that we
support, which was primarily the result of the semiconductor
shortage that is impacting the automotive industry, the impact of
which we estimate to be approximately $31 million for the three
months ended March 31, 2022 as compared to the three months ended
March 31, 2021.
Cost of Goods Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2022 |
|
2021 |
|
Change |
|
Percent Change |
|
Cost of Goods Sold |
|
$ |
1,249.4 |
|
|
$ |
1,198.0 |
|
|
$ |
51.4 |
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
The change in cost of goods sold in the first quarter of 2022, as
compared to the first quarter of 2021, primarily reflects
approximately $46 million related to metal market costs and the
impact of foreign exchange, as well as the impact of increased net
manufacturing costs, including metal and commodity costs, utility
costs and transportation costs. These increases in cost of goods
sold were partially offset by a reduction in production volumes,
which was primarily the result of the semiconductor shortage, which
we estimate reduced costs by approximately $24 million for the
three months ended March 31, 2022 as compared to the three months
ended March 31, 2021. For the three months ended March 31,
2022, material costs were approximately 61% of total costs of goods
sold as compared to approximately 59% for the three months ended
March 31, 2021.
In the first quarter of 2021, one of our Major Customers announced
its intention to cease production operations in Brazil in 2021 as
part of their restructuring actions. This decision impacted certain
of the programs that we supported and, as a result, we accelerated
depreciation on certain property, plant and equipment beginning in
the first quarter of 2021. The impact on cost of goods sold of this
acceleration was approximately $11 million in the first quarter of
2021.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2022 |
|
2021 |
|
Change |
|
Percent Change |
|
Gross Profit |
|
$ |
186.8 |
|
|
$ |
227.1 |
|
|
$ |
(40.3) |
|
|
(17.7) |
% |
|
|
|
|
|
|
|
|
|
|
Gross margin was 13.0% in the first three months of 2022 as
compared to 15.9% in the first three months of 2021. 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2022 |
|
2021 |
|
Change |
|
Percent Change |
|
Selling, General & Administrative Expenses |
|
$ |
86.1 |
|
|
$ |
90.0 |
|
|
$ |
(3.9) |
|
|
(4.3) |
% |
|
|
|
|
|
|
|
|
|
|
SG&A as a percentage of net sales was 6.0% in the first three
months of 2022 as compared to 6.3% of net sales in the first three
months of 2021. Research and development (R&D)
expense, net of ED&D recoveries, was approximately $34.7
million in the first three months of 2022 as compared to $31.7
million in the first three months of 2021. The change in SG&A
in the first three months of 2022, as compared to the first three
months of 2021, was primarily attributable to lower incentive
compensation accruals, partially offset by an increase in R&D
expense.
Amortization of Intangible Assets
Amortization expense related to intangible assets was $21.5 million
for both the three months ended March 31, 2022 and
March 31, 2021.
Restructuring and Acquisition-Related Costs
Restructuring and acquisition-related costs were $8.9 million for
the three months ended March 31, 2022, as compared to $17.5
million for the three months ended March 31, 2021. We expect
to incur approximately $20 million to $30 million of total
restructuring charges in 2022. See Note 2 - Restructuring and
Acquisition-Related Costs for additional detail regarding our
restructuring, acquisition and integration activity.
Loss on Sale of Business
In the first quarter of 2021, we completed the sale of
substantially all of our ownership interest in a consolidated joint
venture. As a result of the sale and deconsolidation of this joint
venture, we recognized a loss of $2.6 million.
Operating Income
Operating income was $70.3 million in the first three months
of 2022 as compared to $95.5 million in the first three months of
2021. Operating margin was 4.9% in the first three
months of 2022 as compared to 6.7% in the first three months of
2021. The changes in operating income and operating
margin were due primarily to the factors discussed in Net Sales,
Cost of Goods Sold and SG&A above.
Interest Expense and Interest Income
Interest expense was $44.7 million in the first three months
of 2022 as compared to $51.1 million in the first three months of
2021. The decrease in interest expense was primarily the
result of our ongoing debt reduction initiatives and our previous
refinancing actions. The weighted-average interest rate of our
long-term debt outstanding was 5.6% for the three months ended
March 31, 2022 and 5.9% for the three months ended
March 31, 2021. We expect our interest expense for the full
year 2022 to be approximately $170 million to $180
million.
Interest income was $3.0 million in the first three months of 2022
as compared to $2.9 million in the first three months of
2021.
Debt Refinancing and Redemption Costs
In the first quarter of 2022, we amended and restated our existing
Credit Agreement. See Note 5 - Long Term Debt for further detail on
the Amended & Restated Credit Agreement. As a result, we
incurred $0.2 million of third-party debt refinancing costs during
the three months ended March 31, 2022.
Also in the first quarter of 2022, we made a voluntary prepayment
of $25.0 million on our Term Loan B Facility. As a result, we
expensed approximately $0.2 million for the write-off of a
portion of the unamortized debt issuance costs that we had been
amortizing over the expected life of this borrowing.
In addition, in the first quarter of 2022 we used the proceeds from
the upsized Term Loan A Facility to voluntarily redeem a portion of
our 6.25% Notes due 2026. This resulted in a principal payment of
$220 million and $0.2 million in accrued interest. We
also expensed approximately $1.8 million for the write-off of
a portion of the unamortized debt issuance costs that we had been
amortizing over the expected life of the borrowing, and
approximately $3.4 million for the payment of an early
redemption premium.
In the first quarter of 2021, we made voluntary prepayments of
$100.0 million on our Term Loan B Facility and
$4.3 million on our Term Loan A Facility. As a result, we
expensed approximately $1.1 million for the write-off of a
portion of the unamortized debt issuance costs that we had been
amortizing over the expected life of these borrowings.
Unrealized Loss on Equity Securities
We have an investment in the equity securities of REE Automotive,
an e-mobility company. These equity securities are measured at fair
value each reporting period with changes in fair value reported
through an unrealized holding gain or loss within Other income
(expense) in our Condensed Consolidated Statement of Income. As of
March 31, 2022, our investment in REE shares was valued at
$9.4 million resulting in an unrealized loss of $18.0 million
for the three months ended March 31, 2022.
Other Income (Expense), Net
Other income (expense), net includes the net effect of foreign
exchange gains and losses, our proportionate share of earnings from
equity in unconsolidated subsidiaries, and all components of net
periodic pension and postretirement benefit costs other than
service cost. Other income (expense), net was expense of $1.0
million in the first three months of 2022 as compared to income of
$1.2 million in the first three months of 2021.
Income Tax Expense
Income tax expense was $3.0 million for the three months ended
March 31, 2022 as compared to $8.8 million for the three
months ended March 31, 2021. Our effective income
tax rate was 75.0% in the first three months of 2022 as compared to
18.6% in the first three months of 2021.
Our effective income tax rate for the three months ended March 31,
2022 varies from our effective income tax rate for the three months
ended March 31, 2021 primarily as a result of the mix of earnings
on a jurisdictional basis. For the three months ended March 31,
2022 and 2021, our effective income tax rates vary from the U.S.
federal statutory rate of 21% primarily due to the change in
jurisdictional mix of earnings, as well as favorable foreign tax
rates and the impact of tax credits.
Due to the uncertainty associated with the extent and ultimate
impact of the significant supply chain constraints affecting the
automotive industry, including COVID-19, the semiconductor shortage
and resulting impact on global automotive production volumes, and
the conflict between Russia and Ukraine, we may experience lower
than projected earnings in certain jurisdictions in future periods,
and as a result, it is reasonably possible that changes in
valuation allowances could be recognized in future periods and such
changes could be material to our financial statements.
Net Income and Earnings Per Share (EPS)
Net income was $1.0 million in the first three months of 2022 as
compared to $38.6 million in the first three months of 2021.
Diluted EPS was $0.01 per share in the first three months of 2022
as compared to $0.33 per share in the first three months of 2021.
Net income and EPS for the first three months of 2022 and 2021 were
primarily impacted by the factors discussed above.
SEGMENT REPORTING
Our business is 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 to the
segments.
Our product offerings by segment are as follows:
•Driveline
products consist primarily of front and rear axles, driveshafts,
differential assemblies, clutch modules, balance shaft systems,
disconnecting driveline technology, and electric and hybrid
driveline products and systems for light trucks, SUVs, crossover
vehicles, passenger cars and commercial vehicles; and
•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.
The following table represents sales by reportable segment for the
three months ended March 31, 2022 and 2021
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
Driveline |
$ |
1,061.8 |
|
|
$ |
1,026.1 |
|
|
|
|
|
|
|
|
|
|
Metal Forming |
481.8 |
|
|
489.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations |
(107.4) |
|
|
(90.3) |
|
|
|
|
|
|
|
|
|
|
Net Sales |
$ |
1,436.2 |
|
|
$ |
1,425.1 |
|
|
|
|
|
|
|
|
|
The increase in Driveline sales for the three months ended
March 31, 2022, as compared to the three months ended
March 31, 2021, primarily reflects approximately $28 million
associated with the effect of metal market pass-throughs to our
customers and the impact of foreign exchange related to translation
adjustments.
The change in Metal Forming sales for the three months ended
March 31, 2022, as compared to the three months ended
March 31, 2021, primarily reflects a reduction in production
volumes as a result of the semiconductor shortage, the impact of
which we estimate to be approximately $37 million for the three
months ended March 31, 2022. These reductions were partially
offset by approximately $11 million associated with the effect of
metal market pass-throughs to our customers and the impact of
foreign exchange related to translation adjustments, and sales
related to our acquisition of a manufacturing facility in Emporium,
Pennsylvania (Emporium) which was completed in the second quarter
of 2021.
We use Segment Adjusted EBITDA as the measure of earnings to assess
the performance of each segment and determine the resources to be
allocated to the segments. We define EBITDA to be earnings before
interest expense, income taxes, depreciation and amortization.
Segment Adjusted EBITDA is defined as EBITDA for our reportable
segments excluding the impact of restructuring and
acquisition-related costs, debt refinancing and redemption costs,
loss on the sale of a business, impairment charges, pension
settlements, unrealized gains or losses on equity securities, and
non-recurring items.
The amounts for Segment Adjusted EBITDA for the three months ended
March 31, 2022 and 2021 are as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
Driveline |
$ |
132.5 |
|
|
$ |
170.5 |
|
|
|
|
|
|
|
|
|
|
Metal Forming |
63.6 |
|
|
92.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment adjusted EBITDA |
$ |
196.1 |
|
|
$ |
262.9 |
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2022, as compared to the
three months ended March 31, 2021, the change in Segment
Adjusted EBITDA for the Driveline segment was primarily
attributable to the impact of increased net manufacturing costs,
including higher metal and commodity costs, higher utility costs
and increased transportation costs.
For the three months ended March 31, 2022, as compared to the
three months ended March 31, 2021, the change in Segment
Adjusted EBITDA for the Metal Forming segment was primarily
attributable to the net reduction in production volumes as a result
of the semiconductor shortage, as well as the impact of increased
net manufacturing costs, including higher metal and commodity
costs, higher utility costs and increased transportation
costs.
Reconciliation of Non-GAAP and GAAP Information
In addition to results reported in accordance with accounting
principles generally accepted in the United States of America
(GAAP) in this MD&A, we have provided certain non-GAAP
financial measures such as EBITDA and Total Segment Adjusted
EBITDA. Such information is reconciled to its closest GAAP measure
in accordance with Securities and Exchange Commission rules
below.
We define EBITDA to be earnings before interest expense, income
taxes, depreciation and amortization. Total Segment Adjusted EBITDA
is defined as EBITDA for our reportable segments excluding the
impact of restructuring and acquisition-related costs, debt
refinancing and redemption costs, loss on the sale of a business,
impairment charges, pension settlements, unrealized gains or losses
on equity securities, 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. EBITDA and Total Segment Adjusted EBITDA are also key
metrics used in our calculation of incentive compensation. These
non-GAAP financial measures are not and should not be considered a
substitute for any GAAP measure. Additionally, non-GAAP financial
measures as presented by AAM may not be comparable to similarly
titled measures reported by other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
Net income |
$ |
1.0 |
|
|
$ |
38.6 |
|
|
|
|
|
|
|
|
|
|
Interest expense |
44.7 |
|
|
51.1 |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
3.0 |
|
|
8.8 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
120.4 |
|
|
142.0 |
|
|
|
|
|
|
|
|
|
|
EBITDA |
$ |
169.1 |
|
|
$ |
240.5 |
|
|
|
|
|
|
|
|
|
|
Restructuring and acquisition-related costs |
8.9 |
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
Debt refinancing and redemption costs |
5.6 |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of business |
— |
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
Unrealized loss on equity securities |
18.0 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Non-recurring items: |
|
|
|
|
|
|
|
|
|
|
|
|
Malvern Fire charges, net of recoveries |
(5.5) |
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
Total segment adjusted EBITDA |
$ |
196.1 |
|
|
$ |
262.9 |
|
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund debt service obligations,
capital expenditures and working capital requirements, in addition
to advancing our strategic initiatives. We believe that
operating cash flow, available cash and cash equivalent balances
and available borrowing capacity under our Senior Secured Credit
Facilities and foreign credit facilities will be sufficient to meet
these needs.
At March 31, 2022, we had nearly $1.5 billion of liquidity
consisting of approximately $530 million of cash and cash
equivalents, approximately $893 million of available borrowings
under our Revolving Credit Facility and approximately $62 million
of available borrowings under foreign credit facilities. We have no
significant debt maturities before 2024.
Operating Activities In
the first three months of 2022, net cash provided by operating
activities was $68.5 million as compared to $179.1 million in the
first three months of 2021. The following factors impacted
cash from operating activities in the first three months of 2022,
as compared to the first three months of 2021:
Impact of Supply Chain Constraints
We experienced lower earnings and cash flows from operating
activities as a result of the significant supply chain constraints
that continued to impact the automotive industry during the three
months ended March 31, 2022, including the impact of lower
production volumes due to the semiconductor chip shortage,
increased metal and commodity costs, higher utility costs,
increased transportation costs, higher labor costs and labor
shortages. We expect these supply chain constraints to continue
through 2022.
Accounts receivable
For the three months ended March 31, 2022, we experienced a
decrease in cash flow from operating activities of approximately
$100 million related to the change in our accounts receivable
balance from December 31, 2021 to March 31, 2022, as compared
to the change in our accounts receivable balance from December 31,
2020 to March 31, 2021. This change was primarily attributable
to the timing of sales to customers in the applicable
periods.
Inventories
For the three months ended March 31, 2022, we experienced an
increase in cash flow from operating activities of approximately
$18 million related to the change in our inventories balance from
December 31, 2021 to March 31, 2022, as compared to the change
in our inventories balance from December 31, 2020 to March 31,
2021. In the three months ended March 31, 2021, we began to
increase inventory levels as a result of volatility in production
schedules and unexpected downtime at certain of our manufacturing
facilities as a result of the semiconductor chip shortage that has
impacted the automotive industry. This increase in inventory levels
in the first quarter of 2021 was more significant than the increase
in the first quarter of 2022.
Accounts payable and accrued expenses
For the three months ended March 31, 2022, we experienced an
increase in cash flow from operating activities of approximately
$3