0001062231-19-000055.txt : 20190802 0001062231-19-000055.hdr.sgml : 20190802 20190802130744 ACCESSION NUMBER: 0001062231-19-000055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 93 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190802 DATE AS OF CHANGE: 20190802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN AXLE & MANUFACTURING HOLDINGS INC CENTRAL INDEX KEY: 0001062231 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 383161171 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14303 FILM NUMBER: 19995192 BUSINESS ADDRESS: STREET 1: ONE DAUCH DRIVE CITY: DETROIT STATE: MI ZIP: 48211-1198 BUSINESS PHONE: 3137583600 MAIL ADDRESS: STREET 1: ONE DAUCH DRIVE CITY: DETROIT STATE: MI ZIP: 48211-1198 10-Q 1 axl-q22019x10q.htm JUNE 30, 2019 FORM 10-Q Document
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended
June 30, 2019
 
 
or
 
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from  _____________ to _____________
 
 
Commission File Number:  1-14303
_______________________________________________________________________________

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)

 
Delaware
 
38-3161171
 
 
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
 
 
 
 
 
 
One Dauch Drive,
 Detroit
,
Michigan
 
 
48211-1198
 
 
(Address of Principal Executive Offices)
 
(Zip Code)
 
(313) 758-2000
(Registrant's Telephone Number, Including Area Code)
_______________________________________________________________________________
 
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 July 30, 2019, the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 112,475,824 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 JUNE 30, 2019
TABLE OF CONTENTS 
 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




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:

reduced purchases of our products by General Motors Company (GM), FCA US LLC (FCA), or other customers;
our ability to respond to changes in technology, increased competition or pricing pressures;
our ability to develop and produce new products that reflect market demand;
our ability or our customers' and suppliers' ability to successfully launch new product programs on a timely and cost efficient basis;
lower-than-anticipated market acceptance of new or existing products;
our ability to attract new customers and programs for new products;
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;
reduced demand for our customers' products (particularly light trucks and sport utility vehicles (SUVs) produced by GM and FCA);
risks inherent in our global operations (including tariffs and the potential consequences thereof to us, our suppliers, and our customers and their suppliers, adverse changes in trade agreements, such as NAFTA, or proposed trade agreements, such as the USMCA, immigration policies, political stability, taxes and other law changes, potential disruptions of production and supply, and currency rate fluctuations);
a significant disruption in operations at one or more of our key manufacturing facilities;
global economic conditions;
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;
risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber attack and other similar disruptions;
supply shortages or price increases in raw material and/or freight, utilities or other operating supplies for us or our customers as a result of natural disasters or otherwise;
our ability to successfully integrate the business and information systems of MPG and to realize the anticipated benefits of the merger;
negative or unexpected tax consequences;
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;
our suppliers', our customers' and their suppliers' ability to maintain satisfactory labor relations and avoid work stoppages;
our ability to maintain satisfactory labor relations and avoid work stoppages;
price volatility in, or reduced availability of, fuel;
potential liabilities or litigation relating to, or assumed in, the MPG merger;
potential adverse reactions or changes to business relationships resulting from the completion of the merger with MPG;
our ability to protect our intellectual property and successfully defend against assertions made against us;
our ability to attract and retain key associates;
availability of financing for working capital, capital expenditures, research and development (R&D) or other general corporate purposes including acquisitions, as well as our ability to comply with financial covenants;
our customers' and suppliers' availability of financing for working capital, capital expenditures, R&D or other general corporate purposes;
changes in liabilities arising from pension and other postretirement benefit obligations;
risks of noncompliance with environmental laws and regulations or risks of environmental issues that could result in unforeseen costs at our current and former facilities, or reputational damage;
adverse changes in laws, government regulations or market conditions affecting our products or our customers' products;
our ability or our customers' and suppliers' ability to comply with regulatory requirements and the potential costs of such compliance; 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.


1



PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions, except per share data)
 
 
 
 
 
 
 
 
Net sales
$
1,704.3

 
$
1,900.9

 
$
3,423.5

 
$
3,759.3

 
 
 
 
 
 
 
 
Cost of goods sold
1,456.0

 
1,569.5

 
2,953.0

 
3,111.6

 
 
 
 
 
 
 
 
Gross profit
248.3

 
331.4

 
470.5

 
647.7

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
91.3

 
95.0

 
182.0

 
192.3

 
 
 
 
 
 
 
 
Amortization of intangible assets
24.9

 
24.8

 
49.9

 
49.7

 

 
 
 
 
 
 
Restructuring and acquisition-related costs
12.2

 
36.8

 
24.3

 
55.1

 
 
 
 
 
 
 
 
Gain on sale of business

 
(15.5
)
 

 
(15.5
)
 
 
 
 
 
 
 
 
Operating income
119.9

 
190.3

 
214.3

 
366.1

 
 
 
 
 
 
 
 
Interest expense
(56.2
)
 
(54.4
)
 
(109.6
)
 
(107.6
)
 
 
 
 
 
 
 
 
Investment income
0.5

 
0.5

 
1.2

 
1.0

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Debt refinancing and redemption costs
(2.4
)
 
(4.3
)
 
(2.4
)
 
(14.6
)
Gain on settlement of capital lease

 
15.6

 

 
15.6

     Other income (expense), net
(3.1
)
 
5.6

 
(6.1
)
 
0.2

 
 
 
 
 
 
 
 
Income before income taxes
58.7

 
153.3

 
97.4

 
260.7

 
 
 
 
 
 
 
 
Income tax expense
6.0

 
2.0

 
3.0

 
19.9

 
 
 
 
 
 
 
 
Net income
$
52.7

 
$
151.3

 
$
94.4

 
$
240.8

 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
(0.2
)
 
(0.2
)
 
(0.3
)
 
(0.3
)
 
 
 
 
 
 
 
 
Net income attributable to AAM
$
52.5

 
$
151.1

 
$
94.1

 
$
240.5

 

 

 

 

Basic earnings per share
$
0.45

 
$
1.31

 
$
0.81

 
$
2.09

 

 

 

 

Diluted earnings per share
$
0.45

 
$
1.30

 
$
0.81

 
$
2.08

 
See accompanying notes to condensed consolidated financial statements.

2



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Net income
$
52.7

 
$
151.3

 
$
94.4

 
$
240.8

 
 
 
 
 
 
 
 
Other comprehensive income (loss)

 

 

 

Defined benefit plans, net of tax (a)
1.1

 
12.2

 
1.8

 
13.5

     Foreign currency translation adjustments
4.9

 
(81.0
)
 
2.4

 
(43.1
)
     Changes in cash flow hedges, net of tax (b)
(15.8
)
 
(7.9
)
 
(18.3
)
 
7.2

Other comprehensive loss
(9.8
)
 
(76.7
)
 
(14.1
)
 
(22.4
)
 
 
 
 
 
 
 
 
Comprehensive income
$
42.9

 
$
74.6

 
$
80.3

 
$
218.4

 
 
 
 
 
 
 
 
     Net income attributable to noncontrolling interests
(0.2
)
 
(0.2
)
 
(0.3
)
 
(0.3
)
 
 
 
 
 
 
 
 
Comprehensive income attributable to AAM
$
42.7

 
$
74.4

 
$
80.0

 
$
218.1

(a)
Amounts are net of tax of $(0.2) million and $(0.5) million for the three and six months ended June 30, 2019, and $(4.1) million and $(4.5) million for the three and six months ended June 30, 2018, respectively.
(b)
Amounts are net of tax of $4.7 million and $6.2 million for the three and six months ended June 30, 2019 and $(0.1) million and $(1.2) million for the three and six months ended June 30, 2018, respectively.

See accompanying notes to condensed consolidated financial statements.                   

3



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 
 
June 30, 2019
 
December 31, 2018
 
 
(Unaudited)
 
 
Assets
 
(in millions)
Current assets
 
 
Cash and cash equivalents
 
$
248.8

 
$
476.4

Accounts receivable, net
 
1,138.0

 
966.5

Inventories, net
 
459.9

 
459.7

Prepaid expenses and other
 
130.0

 
127.2

Total current assets
 
1,976.7

 
2,029.8

 
 
 

 
 

Property, plant and equipment, net
 
2,544.4

 
2,514.4

Deferred income taxes
 
51.9

 
45.5

Goodwill
 
1,140.9

 
1,141.8

Other intangible assets, net
 
1,063.1

 
1,111.1

GM postretirement cost sharing asset
 
224.1

 
219.4

Other assets and deferred charges
 
546.8

 
448.7

Total assets
 
$
7,547.9

 
$
7,510.7

 
 
 

 
 

Liabilities and Stockholders’ Equity
 
 

 
 

Current liabilities
 
 

 
 

Current portion of long-term debt
 
$
26.0

 
$
121.6

Accounts payable
 
853.4

 
840.2

Accrued compensation and benefits
 
159.6

 
179.0

Deferred revenue
 
33.6

 
44.3

Accrued expenses and other
 
194.5

 
171.7

Total current liabilities
 
1,267.1

 
1,356.8

 
 
 

 
 

Long-term debt, net
 
3,674.2

 
3,686.8

Deferred revenue
 
87.5

 
77.6

Deferred income taxes
 
67.4

 
92.6

Postretirement benefits and other long-term liabilities
 
879.5

 
810.6

Total liabilities
 
5,975.7

 
6,024.4

 
 
 

 
 

Stockholders' equity
 
 

 
 

Common stock, par value $0.01 per share; 150.0 million shares authorized;
 
 
 
 
120.1 million shares issued as of June 30, 2019 and 118.9 million shares issued as of December 31, 2018
 
1.2

 
1.2

Paid-in capital
 
1,303.8

 
1,292.6

Retained earnings
 
827.2

 
703.5

Treasury stock at cost, 7.6 million shares as of June 30, 2019 and 7.2 million shares as of December 31, 2018
 
(209.3
)
 
(201.8
)
Accumulated other comprehensive loss
 
 
 
 
Defined benefit plans, net of tax
 
(239.8
)
 
(213.9
)
Foreign currency translation adjustments
 
(94.2
)
 
(96.6
)
Unrecognized loss on cash flow hedges, net of tax
 
(19.4
)
 
(1.1
)
Total AAM stockholders' equity
 
1,569.5

 
1,483.9

Noncontrolling interests in subsidiaries
 
2.7

 
2.4

Total stockholders' equity
 
1,572.2

 
1,486.3

Total liabilities and stockholders' equity
 
$
7,547.9

 
$
7,510.7

 
See accompanying notes to condensed consolidated financial statements. 

4



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended
 
 
June 30,
 
 
2019
 
2018
 
 
(in millions)
Operating activities
 
 
 
 
Net income
 
$
94.4

 
$
240.8

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
277.3

 
258.0

Impairment of long-lived assets
 

 
23.9

Deferred income taxes
 
(31.8
)
 
38.0

Stock-based compensation
 
11.2

 
13.7

Pensions and other postretirement benefits, net of contributions
 
(9.5
)
 
(0.6
)
Gain on sale of business
 

 
(15.5
)
Loss (Gain) on disposal of property, plant and equipment, net
 
1.1

 
(4.9
)
Debt refinancing and redemption costs and (gain) on settlement of capital lease
 
2.4

 
(0.8
)
Changes in operating assets and liabilities
 
 
 
 
Accounts receivable
 
(170.5
)
 
(225.7
)
Inventories
 

 
(47.4
)
Accounts payable and accrued expenses
 
24.5

 
83.7

Deferred revenue
 
0.1

 
8.1

Other assets and liabilities
 
(62.3
)
 
(81.9
)
Net cash provided by operating activities
 
136.9

 
289.4

 
 
 

 
 

Investing activities
 
 

 
 

Purchases of property, plant and equipment
 
(237.5
)
 
(273.0
)
Proceeds from sale of property, plant and equipment
 
1.7

 
0.9

Investment in joint venture
 
(2.2
)
 

Purchase buyouts of leased equipment
 

 
(0.5
)
Proceeds from sale of business, net
 

 
47.1

Acquisition of business
 

 
(1.3
)
Net cash used in investing activities
 
(238.0
)
 
(226.8
)
 
 
 

 
 

Financing activities
 
 

 
 

Payments of long-term debt and finance lease obligations
 
(128.2
)

(528.7
)
Proceeds from issuance of long-term debt
 
8.0


461.9

Debt issuance costs
 


(6.8
)
Purchase of noncontrolling interest
 

 
(2.2
)
Purchase of treasury stock
 
(7.5
)

(3.6
)
Net cash used in financing activities
 
(127.7
)

(79.4
)
 
 
 

 
 

Effect of exchange rate changes on cash
 
1.2


(4.3
)
 
 
 

 
 

Net decrease in cash, cash equivalents and restricted cash
 
(227.6
)

(21.1
)
 
 
 

 
 

Cash, cash equivalents and restricted cash at beginning of period
 
478.9


376.8

 
 
 

 
 

Cash, cash equivalents and restricted cash at end of period
 
$
251.3


$
355.7

 
 
 

 
 

Supplemental cash flow information
 
 

 
 

     Interest paid
 
$
102.1

 
$
104.4

     Income taxes paid, net of refunds
 
$
34.6

 
$
19.6


See accompanying notes to condensed consolidated financial statements.

5



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

 
Common Stock
 
 
 
Accumulated
Noncontrolling
 
Shares
Par
Paid-in
Retained
Treasury
Other Comprehensive
Interest
 
Outstanding
Value
Capital
Earnings
Stock
Income (Loss)
in Subsidiaries
Balance at January 1, 2018
111.3

$
1.2

$
1,264.6

$
761.0

$
(198.1
)
$
(292.7
)
$
4.0

Net income



89.4



0.1

Exercise of stock options and vesting of restricted stock units and performance shares
0.6







Stock-based compensation


6.6





Purchase of treasury stock
(0.2
)



(3.5
)


Changes in cash flow hedges





15.1


Foreign currency translation adjustments





37.9


Defined benefit plans, net





1.3


Purchase of noncontrolling interest






(0.9
)
Balance at March 31, 2018
111.7

$
1.2

$
1,271.2

$
850.4

$
(201.6
)
$
(238.4
)
$
3.2

Net income



151.1



0.2

Stock-based compensation


7.1





Purchase of treasury stock




(0.1
)


Changes in cash flow hedges





(7.9
)

Foreign currency translation adjustments





(81.0
)

Defined benefit plans, net





12.2


Purchase of noncontrolling interest






(1.4
)
Balance at June 30, 2018
111.7

$
1.2

$
1,278.3

$
1,001.5

$
(201.7
)
$
(315.1
)
$
2.0

 
 
 
 
 
 
 
 
Balance at January 1, 2019
111.7

$
1.2

$
1,292.6

$
703.5

$
(201.8
)
$
(311.6
)
$
2.4

Net income



41.6



0.1

Vesting of restricted stock units and performance shares
1.2







Stock-based compensation


5.5





Modified-retrospective application of ASU 2016-02



1.9




Adoption of ASU 2018-02



27.7


(27.7
)

Purchase of treasury stock
(0.4
)



(7.3
)


Changes in cash flow hedges





(2.5
)

Foreign currency translation adjustments





(2.5
)

Defined benefit plans, net





0.7


Balance at March 31, 2019
112.5

$
1.2

$
1,298.1

$
774.7

$
(209.1
)
$
(343.6
)
$
2.5

Net income



52.5



0.2

Stock-based compensation


5.7





Purchase of treasury stock




(0.2
)


Changes in cash flow hedges





(15.8
)

Foreign currency translation adjustments





4.9


Defined benefit plans, net





1.1


Balance at June 30, 2019
112.5

$
1.2

$
1,303.8

$
827.2

$
(209.3
)
$
(353.4
)
$
2.7


See accompanying notes to condensed consolidated financial statements.


6



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization We are a global Tier 1 supplier to the automotive industry. We design, engineer and manufacture driveline, metal forming and casting products that are making the next generation of vehicles smarter, lighter, safer and more efficient. We employ over 25,000 associates, operating at nearly 90 facilities in 17 countries, to support our customers on global and regional platforms with a focus on quality, operational excellence and technology leadership.

In the first quarter of 2019, we initiated a new global restructuring program (the 2019 Program) to further streamline our business by consolidating our four existing segments into three segments. This activity occurred through the disaggregation of our Powertrain segment, with a portion moving into our Driveline segment and a portion moving into our Metal Forming segment. See Note 3 - Restructuring and Acquisition-Related Costs for more detail on this reorganization.

Basis of Presentation We have prepared the accompanying interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934.  These condensed consolidated financial statements are unaudited but include all normal recurring adjustments, which we consider necessary for a fair presentation of the information set forth herein. Results of operations for the periods presented are not necessarily indicative of the results for the full fiscal year.

The balance sheet at December 31, 2018 presented herein has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete consolidated financial statements.
 
In order to prepare the accompanying interim condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts and disclosures in our interim condensed consolidated financial statements.  Actual results could differ from those estimates.

For further information, refer to the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Effect of New Accounting Standards

Accounting Standard Update 2018-15

On August 15, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15 - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (Topic 350-40). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing or hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance becomes effective at the beginning of our 2020 fiscal year and may be applied either retrospectively or prospectively. We expect to adopt this guidance prospectively on January 1, 2020 and we are currently assessing the impact that this standard will have on our consolidated financial statements.

Accounting Standards Update 2018-02

On February 14, 2018, the FASB issued ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). ASU 2018-02 allows companies the option to reclassify disproportionate tax effects in accumulated other comprehensive income (AOCI) caused by the 2017 Tax Cuts and Jobs Act, also known as stranded tax effects, to retained earnings. ASU 2018-02 also requires expanded disclosures related to disproportionate income tax effects from AOCI, some of which are applicable to all companies regardless of whether the option to reclassify the stranded tax effects is exercised. This guidance became effective on January 1, 2019, and we elected to reclassify the stranded tax effects caused by the 2017 Tax Cuts and Jobs Act, resulting in a decrease in Accumulated other comprehensive income (loss) and an increase in Retained earnings of $27.7 million at January 1, 2019.


7

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accounting Standards Update 2016-02

On February 25, 2016, the FASB issued ASU 2016-02 - Leases (Topic 842), and has subsequently issued ASU 2017-13 - Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842) (collectively the Lease ASUs) which supersede the existing lease accounting guidance and establish new criteria for recognizing lease assets and liabilities. The most significant impact of these updates, to AAM, is that a lessee is required to recognize a "right-of-use" asset and lease liability for operating lease agreements that were not previously included on the balance sheet under previous lease guidance. Expense recognition in the statement of income, along with cash flow statement classification for both financing (capital) and operating leases under the new standard are not significantly changed from previous lease guidance. This guidance became effective for AAM on January 1, 2019. See Note 2 - Leasing for additional detail regarding the adoption of ASU 2016-02.




8

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. LEASING

On January 1, 2019, we adopted new accounting guidance under Accounting Standards Codification Topic 842 (ASC 842) Leases. ASC 842 superseded prior lease accounting guidance and established new criteria for recognizing right-of-use assets and lease liabilities for operating lease arrangements on our Condensed Consolidated Balance Sheet. We elected to adopt this guidance utilizing the optional transition method that allowed us to not retrospectively revise prior period balance sheets to include operating leases, and to only include the disclosures required under ASC 842 for the periods subsequent to adoption.

We have concluded that when an agreement grants us the right to substantially all of the economic benefits associated with an identified asset, and we are able to direct the use of that asset throughout the term of the agreement, we have a lease. We lease certain facilities and furniture under finance leases, and we also lease certain commercial office and production facilities, manufacturing machinery and equipment, vehicles and other assets under operating leases. Some of our leases include options to extend or terminate the leases and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised.

The lease consideration for some of our facilities and machinery and equipment is variable, as it is based on various indices or usage of the underlying assets, respectively. Variable lease payments based on indices have been included in the related right-of-use assets and lease liabilities on our Condensed Consolidated Balance Sheet, while variable lease payments based on usage of the underlying asset have been excluded as they do not represent present rights or obligations.

Lease cost consists of the following:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2019
 
 
(in millions)
 
 
 
 
 
Finance lease cost
 
 
 
 
     Amortization of right-of-use assets
 
$
0.2

 
$
0.4

Interest on lease liabilities
 

 
0.1

Total finance lease cost
 
0.2

 
0.5

 
 
 
 
 
Operating lease cost
 
6.7

 
13.4

Short-term lease cost
 
1.7

 
3.4

Variable lease cost
 
2.3

 
4.2

 
 
 
 
 
Total lease cost
 
$
10.9

 
$
21.5



For the three months ended June 30, 2019, $8.2 million and $2.5 million were recorded to Cost of goods sold and Selling, general and administrative expense, respectively, on our Condensed Consolidated Statement of Income, as compared to $7.2 million and $2.4 million, respectively, for the three months ended June 30, 2018. For the six months ended June 30, 2019, $16.0 million and $5.0 million were recorded to Cost of goods sold and Selling, general and administrative expense, respectively, on our Condensed Consolidated Statement of Income, as compared to $14.3 million and $5.0 million, respectively for the six months ended June 30, 2018.

9

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes additional information related to our lease agreements.
 
 
Six Months Ended
 
 
June 30,
 
 
2019
 
 
(in millions, except lease term and rate)
 
 
 
Cash paid for amounts included in measurement of lease liabilities
 
 
     Operating cash flows from finance leases
 
$
0.1

Operating cash flows from operating leases
 
13.6

Financing cash flows from finance leases
 
0.4

 
 
 
Weighted-average remaining lease term - finance leases
 
3.1 years

Weighted-average remaining lease term - operating leases
 
5.1 years

 
 


Weighted-average discount rate - finance leases
 
8.1
%
Weighted-average discount rate - operating leases
 
6.3
%


As the rate implicit in the lease is typically unknown, the discount rate used to determine the lease liability for the majority of our leases is the collateralized incremental borrowing rate in the applicable geographic area for a similar term and amount as the lease agreement.

Future undiscounted minimum payments under non-cancelable leases are as follows:
 
 
Finance Leases
 
Operating Leases
 
 
(in millions)
2019 (excluding the six months ended June 30, 2019)
 
$
0.5

 
$
13.0

2020
 
1.1

 
24.0

2021
 
1.0

 
16.8

2022
 
0.9

 
12.8

2023
 
0.9

 
7.9

Thereafter
 

 
19.0

Total future undiscounted minimum lease payments
 
4.4

 
93.5

Less: Impact of discounting
 
(1.4
)
 
(14.1
)
Total
 
$
3.0

 
$
79.4



For the full year 2019, we expect payments for short-term leases to be approximately $5.0 million.

The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheet as of June 30, 2019 are as follows:
 
 
Finance Leases
 
Operating Leases
 
 
(in millions)
Property, plant and equipment, net
 
$
3.0

 
$

Other assets and deferred charges
 

 
79.4

Total
 
$
3.0

 
$
79.4

 
 
 
 
 
Accrued expenses and other
 
$
0.8

 
$
22.0

Postretirement benefits and other long-term liabilities
 
2.2

 
57.4

Total