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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 March 31, 2021
  
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)
Delaware38-3161171
(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 classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareAXLNew York Stock Exchange

As of May 4, 2021, the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 113,988,342 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, 2021
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:

significant disruptions in production, sales and/or supply as a result of public health crises, including pandemic or epidemic illness such as Novel Coronavirus (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 United States-Mexico-Canada Agreement (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;
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;
supply shortages, such as the semiconductor shortage that the automotive industry is currently experiencing, or price increases in raw material and/or freight, utilities or other operating supplies for us or our customers as a result of pandemics, natural disasters or otherwise;
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;
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;
risks of noncompliance with environmental laws and regulations or risks of environmental issues that could result in unforeseen costs at our facilities, or reputational damage;
adverse changes in laws, government regulations or market conditions affecting our products or our customers' products;
our ability or our customers' and suppliers' ability to comply with regulatory requirements and the potential costs of such compliance;
changes in liabilities arising from pension and other postretirement benefit obligations;
our ability to attract and retain key associates; and
other unanticipated events and conditions that may hinder our ability to compete.

It is not possible to foresee or identify all such factors and any or all of the foregoing factors may be exacerbated by COVID-19. Further, 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 OPERATIONS
(Unaudited)
 
 Three Months Ended
 March 31,
 20212020
 (in millions, except per share data)
 
Net sales$1,425.1 $1,343.5 
 
Cost of goods sold1,198.0 1,148.2 
 
Gross profit227.1 195.3 
 
Selling, general and administrative expenses90.0 90.3 
Amortization of intangible assets21.5 21.8 
Impairment charges (Note 4) 510.0 
Restructuring and acquisition-related costs17.5 17.6 
Loss on sale of business2.6 1.0 
 
Operating income (loss)95.5 (445.4)
 
Interest expense(51.1)(51.5)
 
Interest income2.9 2.8 
 
Other income (expense)
Debt refinancing and redemption costs(1.1)(1.5)
Other income (expense), net1.2 (2.3)
 
Income (loss) before income taxes47.4 (497.9)
 
Income tax expense8.8 3.3 
 
Net income (loss)$38.6 $(501.2)
 
Net income attributable to noncontrolling interests (0.1)
 
Net income (loss) attributable to AAM$38.6 $(501.3)
 
Basic earnings (loss) per share$0.33 $(4.45)
 
Diluted earnings (loss) per share$0.33 $(4.45)

See accompanying notes to condensed consolidated financial statements.
2


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

Three Months Ended
March 31,
20212020
(in millions)
Net income (loss)$38.6 $(501.2)
Other comprehensive income (loss)
Defined benefit plans, net of tax (a)
2.1 1.6 
     Foreign currency translation adjustments(11.0)(48.8)
     Changes in cash flow hedges, net of tax (b)
(0.3)(34.7)
Other comprehensive loss(9.2)(81.9)
Comprehensive income (loss)$29.4 $(583.1)
     Net income attributable to noncontrolling interests (0.1)
     Foreign currency translation adjustments attributable to noncontrolling interests 0.3 
Comprehensive income (loss) attributable to AAM$29.4 $(582.9)

(a)
Amounts are net of tax of $(0.6) million for the three months ended March 31, 2021, and $(0.4) million for the three months ended March 31, 2020, respectively.
(b)
Amounts are net of tax of $(1.3) million for the three months ended March 31, 2021, and $2.3 million for the three months ended March 31, 2020, respectively.

See accompanying notes to condensed consolidated financial statements.                   
3


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

 March 31, 2021December 31, 2020
 (Unaudited) 
Assets(in millions)
Current assets 
Cash and cash equivalents$601.2 $557.0 
Accounts receivable, net852.8 793.2 
Inventories, net338.1 323.2 
Prepaid expenses and other190.3 203.6 
Total current assets1,982.4 1,877.0 
Property, plant and equipment, net2,115.8 2,163.8 
Deferred income taxes106.7 107.8 
Goodwill184.7 185.7 
Other intangible assets, net759.4 780.7 
GM postretirement cost sharing asset235.1 237.0 
Operating lease right-of-use assets120.0 116.6 
Other assets and deferred charges432.8 447.7 
Total assets$5,936.9 $5,916.3 
Liabilities and Stockholders’ Equity  
Current liabilities  
Current portion of long-term debt$13.7 $13.7 
Accounts payable655.4 578.9 
Accrued compensation and benefits158.3 170.9 
Deferred revenue23.2 23.4 
Current portion of operating lease liabilities22.9 22.6 
Accrued expenses and other168.6 169.8 
Total current liabilities1,042.1 979.3 
Long-term debt, net3,360.9 3,441.3 
Deferred revenue93.0 91.0 
Deferred income taxes12.9 13.2 
Long-term portion of operating lease liabilities97.7 94.4 
Postretirement benefits and other long-term liabilities929.0 923.9 
Total liabilities5,535.6 5,543.1 
Stockholders' equity  
Common stock, par value $0.01 per share; 150.0 million shares authorized;
122.3 million shares issued as of March 31, 2021 and 121.3 million shares issued as of December 31, 2020
1.3 1.2 
Paid-in capital1,338.6 1,333.3 
Accumulated deficit(281.2)(319.8)
Treasury stock at cost, 8.4 million shares as of March 31, 2021 and 8.0 million shares as of December 31, 2020
(216.0)(212.0)
Accumulated other comprehensive loss
Defined benefit plans, net of tax(308.9)(311.0)
Foreign currency translation adjustments(112.1)(101.1)
Unrecognized loss on cash flow hedges, net of tax(20.4)(20.1)
Total AAM stockholders' equity401.3 370.5 
Noncontrolling interests in subsidiaries 2.7 
Total stockholders' equity401.3 373.2 
Total liabilities and stockholders' equity$5,936.9 $5,916.3 
 See accompanying notes to condensed consolidated financial statements. 
4


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended
 March 31,
 20212020
(in millions)
Operating activities  
Net income (loss)$38.6 $(501.2)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization142.0 129.6 
Impairment charges 510.0 
Deferred income taxes0.8 36.0 
Stock-based compensation5.3 4.6 
Pensions and other postretirement benefits, net of contributions(4.3)(1.8)
Loss on sale of business2.6 1.0 
Loss (gain) on disposal of property, plant and equipment, net(0.2)5.1 
Debt refinancing and redemption costs1.1 1.5 
Changes in operating assets and liabilities
Accounts receivable(66.4)11.3 
Inventories(19.6)(27.1)
Accounts payable and accrued expenses75.4 12.7 
Deferred revenue4.9 (1.9)
Other assets and liabilities(1.1)(40.4)
Net cash provided by operating activities179.1 139.4 
Investing activities  
Purchases of property, plant and equipment(39.6)(69.7)
Proceeds from sale of property, plant and equipment 0.5 
Proceeds from sale of business, net of cash divested(0.8) 
Net cash used in investing activities(40.4)(69.2)
Financing activities  
Proceeds from Revolving Credit Facility 200.0 
Proceeds from issuance of long-term debt21.8 2.4 
Payments of long-term debt(107.3)(113.3)
Purchase of treasury stock(4.0)(2.4)
Other financing activities(1.1)1.0 
Net cash provided by (used in) financing activities(90.6)87.7 
Effect of exchange rate changes on cash(3.9)(7.2)
Net increase in cash and cash equivalents44.2 150.7 
Cash and cash equivalents at beginning of period557.0 532.0 
Cash and cash equivalents at end of period$601.2 $682.7 
Supplemental cash flow information
     Interest paid$43.3 $34.1 
     Income taxes paid, net$0.2 $4.2 

See accompanying notes to condensed consolidated financial statements.
5


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

Common StockAccumulatedNoncontrolling
SharesParPaid-inRetained EarningsTreasuryOther ComprehensiveInterest
OutstandingValueCapital(Accumulated Deficit)StockIncome (Loss)in Subsidiaries
(in millions)
Balance at January 1, 2020112.6 $1.2 $1,313.9 $248.6 $(209.3)$(376.8)$2.8 
Net income (loss)— — — (501.3)— — 0.1 
Vesting of restricted stock units and performance shares0.8 — — — — — — 
Stock-based compensation— — 4.6 — — — — 
Modified-retrospective application of ASU 2016-13— — — (7.1)— — — 
Purchase of treasury stock(0.4)— — — (2.4)— — 
Changes in cash flow hedges— — — — — (34.7)— 
Foreign currency translation adjustments— — — — — (48.5)(0.3)
Defined benefit plans, net— — — — — 1.6 — 
Balance at March 31, 2020113.0 $1.2 $1,318.5 $(259.8)$(211.7)$(458.4)$2.6 

Balance at January 1, 2021113.3 $1.2 $1,333.3 $(319.8)$(212.0)$(432.2)$2.7 
Net income   38.6    
Vesting of restricted stock units and performance shares1.0 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 1)      (2.7)
Balance at March 31, 2021113.9 $1.3 $1,338.6 $(281.2)$(216.0)$(441.4)$ 

See accompanying notes to condensed consolidated financial statements.

6


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
(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 and metal forming technologies that are making the next generation of vehicles smarter, lighter, safer and more efficient. We employ approximately 20,000 associates, operating at nearly 80 facilities in 17 countries, to support our customers on global and regional platforms with a continued focus on delivering quality, operational excellence and technology leadership.

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, 2020 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 the Novel Coronavirus (COVID-19) pandemic and the semiconductor supply shortage that is impacting the automotive industry. 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 COVID-19 and the semiconductor shortage 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, 2020.

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. 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.

Commencement of Lease of European Headquarters and Engineering Center (EHEC)

In the first quarter of 2021, the lease of our new EHEC in Langen, Germany commenced. This lease has a term of 20 years and is classified as a finance lease. We recognized a right-of-use (ROU) asset and finance lease liability of approximately $49 million upon commencement of this lease. The ROU asset is presented in Property, plant and equipment, net and the finance lease liability is presented in Accrued expenses and other (current portion), and Postretirement benefits and other long-term liabilities (long-term portion) in our Condensed Consolidated Balance Sheet at March 31, 2021.

7

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effect of New Accounting Standards and Other Regulatory Pronouncements

Accounting Standard Update 2020-04

On March 12, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2020-04 - Reference Rate Reform (Topic 848), and has subsequently issued ASU 2021-01 - Reference Rate Reform (Topic 848). This guidance provides optional expedients and exceptions that are intended to ease the burden of updating contracts to contain a new reference rate due to the discontinuation of the London Inter-Bank Offered Rate (LIBOR). This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. We expect to utilize certain of the optional expedients and exceptions available under ASU 2020-04 and ASU 2021-01 and we do not expect the adoption of this guidance to have a material impact on our financial statements.

Accounting Standard Update 2019-12

On December 18, 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740). This guidance is intended to simplify the accounting and disclosure requirements for income taxes by removing various exceptions and requires that the effect of an enacted change in tax laws or rates be included in the annual effective tax rate computation in the interim period of the enactment. This guidance became effective and we adopted this guidance on January 1, 2021. The adoption of this guidance did not have a material impact on our 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 recognized a tax benefit of $14.4 million for the year ended December 31, 2020 related to our ability to carry back prior year losses, as well as projected current year losses, under the CARES Act to years with the previous 35% tax rate. We received an income tax refund of approximately $6.0 million during the first quarter of 2021 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 to be paid by December 31, 2021 and the remaining 50% to be paid by December 31, 2022. At March 31, 2021, we had deferred $15.2 million of social security taxes that will be paid in the fourth quarter of 2021 and the fourth quarter of 2022.
The ability to claim an Employee Retention Credit (ERC), which is a refundable payroll tax credit, for 50% of qualified wages or benefits, subject to certain limitations, that are paid to an employee when they are not providing services due to COVID-19. The ERC applied to qualified wages paid or incurred during the period March 13, 2020 through December 31, 2020 and was available to eligible employers whose operations were fully or partially suspended due to COVID-19, or whose gross receipts declined by more than 50% when compared to the applicable period in the prior year. At March 31, 2021, we have a refundable ERC amount of $6.7 million included in Prepaid expenses and other in our Condensed Consolidated Balance Sheet.

8

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 based on the impact of COVID-19. We expect to incur costs under the 2020 Program into 2022.
A summary of our restructuring activity for the first three months of 2021 and 2020 is shown below:
Severance ChargesImplementation CostsTotal
(in millions)
Accrual at December 31, 2019$4.8 $7.4 $12.2 
Charges2.2 12.5 14.7 
Cash utilization(6.6)(5.5)(12.1)
Accrual at March 31, 2020$0.4 $14.4 $14.8 
Accrual at December 31, 2020$1.7 $9.8 $11.5 
Charges0.5 16.0 16.5 
Cash utilization(2.2)(19.4)(21.6)
Accrual at March 31, 2021$ $6.4 $6.4 

As part of our restructuring actions, we incurred total severance charges of approximately $0.5 million and $2.2 million during the three months ended March 31, 2021 and 2020, respectively. We also incurred total implementation costs of approximately $16.0 million and $12.5 million during the three months ended March 31, 2021 and 2020, respectively. Implementation costs consist primarily of professional fees and plant exit costs.
Substantially all of the restructuring costs incurred during the three months ended March 31, 2021 were under the 2020 Program. 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. Approximately $6.8 million and $5.2 million of our total restructuring costs for the three months ended March 31, 2020 related to our Driveline and Metal Forming segments, respectively, while the remainder were corporate costs. We expect to incur approximately $50 million to $65 million of total restructuring charges in 2021, including costs incurred under the 2020 Program.
During the three months ended March 31, 2021 and 2020, we incurred the following integration charges primarily related to the integration of MPG:
Integration Expenses
(in millions)
Charges for the three months ended March 31, 2021$1.0 
Charges for the three months ended March 31, 20202.9 
These integration expenses primarily reflect costs incurred for information technology infrastructure and enterprise resource planning systems. 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 Operations, and totaled $17.5 million for the three months ended March 31, 2021 and $17.6 million for the three months ended March 31, 2020.
9

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, 2021December 31, 2020
 (in millions)
   
Raw materials and work-in-progress$296.3 $276.2 
Finished goods65.6 70.4 
Gross inventories361.9 346.6 
Inventory valuation reserves(23.8)(23.4)
Inventories, net$338.1 $323.2 



10

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, 2021:
Consolidated
(in millions)
Balance at December 31, 2020$185.7 
Foreign currency translation(1.0)
Balance at March 31, 2021$184.7 

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.

In the first quarter of 2020, the reduction in global automotive production volumes caused by the impact of COVID-19 represented an indicator to test our goodwill for impairment. This reduction in production volumes began in March of 2020 and resulted in lower forecasted sales volumes in the periods included in our long-range plan as revised in the first quarter of 2020.

As a result of this goodwill impairment test in the first quarter of 2020, we determined that the carrying values of both our Driveline and Metal Forming reporting units were greater than their respective fair values. As such, we recorded a goodwill impairment charge of $510.0 million in the first quarter of 2020, of which $210.8 million was associated with our Driveline reporting unit and $299.2 million was associated with our Metal Forming reporting unit. The Metal Forming impairment charge represented a full impairment of the goodwill associated with that reporting unit. As a result, all remaining goodwill is attributable to our Driveline reporting unit.

These impairment charges were primarily the result of a decline in the projected cash flows of these reporting units under our revised long-range plan completed in the first quarter of 2020. The revision to our long-range plan was driven by lower forecasted sales volumes in the internal and external data sources used to form our projections primarily due to the reduction in global automotive production volumes caused by the impact of COVID-19. The impairment charges were also the result of changes in certain market-related inputs to the analysis to reflect macro-economic changes caused by the impact of COVID-19, including increased discount rates and lower pricing multiples for comparable public companies. At March 31, 2021, accumulated goodwill impairment losses were $1,435.5 million.

The reduction in production volumes and changes to macro-economic factors caused by the impact of COVID-19 also represented an indicator to test our long-lived assets, including other intangible assets and property, plant and equipment, for impairment. We completed this test in the first quarter of 2020 and there was no impairment of these assets.


11

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

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,
20212020
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
(in millions)
Capitalized computer software$47.9 $(35.3)$12.6 $47.6 $(33.9)$13.7 
Customer platforms856.2 (253.7)602.5 856.2 (237.9)618.3 
Customer relationships53.0 (13.7)39.3 53.0 (12.8)40.2 
Technology and other156.3 (51.3)105.0 156.7 (48.2)108.5 
Total$1,113.4 $(354.0)$759.4 $1,113.5 $(332.8)$780.7 

Amortization expense for our intangible assets was $21.5 million for the three months ended March 31, 2021, and $21.8 million for the three months ended March 31, 2020, respectively. Estimated amortization expense for the years 2021 through 2025 is expected to be in the range of approximately $80 million to $85 million per year.
12

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, 2021December 31, 2020
 (in millions)
   
Revolving Credit Facility$ $ 
Term Loan A Facility due 2024318.8 323.0 
Term Loan B Facility due 2024988.8 1,088.8 
6.875% Notes due 2028400.0 400.0 
6.50% Notes due 2027500.0 500.0 
6.25% Notes due 2026400.0 400.0 
6.25% Notes due 2025700.0 700.0 
Foreign credit facilities and other109.0 88.8 
Total debt3,416.6 3,500.6 
    Less: Current portion of long-term debt13.7 13.7 
Long-term debt3,402.9 3,486.9 
    Less: Debt issuance costs42.0 45.6 
Long-term debt, net$3,360.9 $3,441.3 

Senior Secured Credit Facilities In 2017, American Axle & Manufacturing Holdings, Inc. (Holdings) and American Axle & Manufacturing, Inc. (AAM, Inc.) entered into a credit agreement (the Credit Agreement). In connection with the Credit Agreement, Holdings, AAM, Inc. and certain of their restricted subsidiaries entered into a Collateral Agreement and Guarantee Agreement with the financial institutions party thereto. The Credit Agreement, as amended in July 2019 (First Amendment), includes a $340 million term loan A facility (the Term Loan A Facility due 2024), a $1.55 billion term loan B facility (the Term Loan B Facility due 2024) and a $925 million multi-currency revolving credit facility (the Revolving Credit Facility, and together with the Term Loan A Facility due 2024 and the Term Loan B Facility due 2024, the Senior Secured Credit Facilities). The Term Loan A Facility due 2024 and the Term Loan B Facility due 2024 have been paid down from the original amounts through both scheduled and voluntary payments. There are no scheduled payments under the Term Loan B due 2024 until maturity.

In April 2020, Holdings, AAM, Inc., and certain subsidiaries of Holdings entered into the Second Amendment (Second Amendment) to the Credit Agreement. For the period from April 1, 2020 through March 31, 2022 (the Amendment Period), the Second Amendment, among other things, replaced the total net leverage ratio covenant with a new senior secured net leverage ratio covenant, reduced the minimum levels of 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 and to make certain restricted payments, voluntary payments and distributions. The Second Amendment also increased the maximum levels of the total net leverage ratio covenant after the Amendment Period, modified the applicable margin with respect to interest rates under the Term Loan A Facility due 2024 and interest rates and commitment fees under the Revolving Credit Facility, and increased the minimum adjusted London Interbank Offered Rate for Eurodollar-based loans under the Term Loan A Facility due 2024 and Revolving Credit Facility. The applicable margin for the Term Loan B Facility remains unchanged.

In February 2021, we made a voluntary prepayment of $100.0 million on our Term Loan B Facility due 2024 and $4.3 million on our Term Loan A Facility due 2024. 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, 2021, we had $894.1 million available under the Revolving Credit Facility. This availability reflects a reduction of $30.9 million for standby letters of credit issued against the facility. The proceeds of the Revolving Credit Facility are used for general corporate purposes.


13

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Senior Secured Credit Facilities provide back-up liquidity for our foreign credit facilities. We intend to use the availability of long-term financing under the Senior Secured Credit Facilities to refinance any current maturities related to such debt agreements that are not otherwise refinanced on a long-term basis in their local markets, except where otherwise reclassified to Current portion of long-term debt on our Condensed Consolidated Balance Sheet.

Subsequent Event In April 2021, we made a voluntary prepayment of $88.8 million on our Term Loan B Facility due 2024. As a result, we expect to expense approximately $0.9 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.

Redemption of 6.625% Notes due 2022 In the first quarter of 2020, we voluntarily redeemed a portion of our 6.625% Notes due 2022. This resulted in a principal payment of $100.0 million and $2.0 million in accrued interest. We also expensed approximately $0.4 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 $1.1 million for an early redemption premium.

Foreign credit facilities We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At March 31, 2021, $109.0 million was outstanding under our foreign credit facilities, as compared to $88.8 million at December 31, 2020. At March 31, 2021, an additional $58.6 million was available under our foreign credit facilities.

Weighted-Average Interest Rate The weighted-average interest rate of our long-term debt outstanding was 5.8% at both March 31, 2021 and December 31, 2020. 
14

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 March 31, 2021 and December 31, 2020, we had currency forward contracts outstanding with a total notional amount of $171.3 million and $178.2 million, respectively, that hedge our exposure to changes in foreign currency exchange rates for certain payroll expenses into the fourth quarter of 2023 and the purchase of certain direct and indirect inventory and other working capital items into the fourth quarter of 2021. 

Fixed-to-fixed cross-currency swap In 2019, we entered into a fixed-to-fixed cross-currency swap to reduce the variability of functional currency equivalent cash flows associated with changes in exchange rates on certain Euro-based intercompany loans. In the first quarter of 2020, we discontinued this fixed-to-fixed cross-currency swap, which was in an asset position of $9.8 million on the date that it was discontinued.

Also in the first quarter of 2020, we entered into a new fixed-to-fixed cross-currency swap to reduce the variability of functional currency equivalent cash flows associated with changes in exchange rates on certain Euro-based intercompany loans. As of March 31, 2021 and December 31, 2020, the notional amount of the fixed-to-fixed cross-currency swap was $234.6 million and $244.2 million, respectively, and hedges our exposure to changes in exchange rates on the intercompany loans into the second quarter of 2024.

Variable-to-fixed interest rate swap In 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: $900.0 million through May 2021, $750.0 million through May 2022, $600.0 million through May 2023 and $500.0 million through May 2024.

The following table summarizes the reclassification of pre-tax derivative gains 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:
 LocationGain (Loss) Reclassified DuringTotal of Financial Gain (Loss) Expected
 of Gain (Loss)Three Months EndedStatement to be Reclassified
   Reclassified intoMarch 31,Line ItemDuring the
   Net Income202120202021Next 12 Months
  (in millions)
   
Currency forward contractsCost of Goods Sold$2.3 $1.3 $1,198.0 $3.0 
Fixed-to-fixed cross-currency swapOther Income (Expense), net10.1 3.7 1.2 1.7 
Variable-to-fixed interest rate swapInterest Expense(4.2)(2.0)(51.1)(13.8)

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, 2021 and 2020.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the amount and location of gains and losses recognized in the Condensed Consolidated Statements of Operations for those derivative instruments not designated as hedging instruments under ASC 815:

 Gain (Loss) Recognized DuringTotal of Financial
 Location of Gain (Loss)Three Months EndedStatement Line
  Recognized in March 31,Item
   Net Income202120202021
  (in millions)
  
Currency forward contractsCost of Goods Sold$ $(8.4)$1,198.0 
Currency forward contractsOther Income (Expense), net(0.1)(0.4)1.2 

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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 fair value of our financial assets and liabilities that are recognized at fair value on a recurring basis, using available market information and other observable data, are as follows:
 
 March 31, 2021December 31, 2020 
Carrying AmountFair ValueCarrying AmountFair ValueInput
 (in millions) 
Balance Sheet Classification     
Cash equivalents$227.6 $227.6 $206.7 $206.7 Level 1
Prepaid expenses and other     
Cash flow hedges - currency forward contracts3.5 3.5 5.8 5.8 Level 2
Cash flow hedges - variable-to-fixed interest rate swap4.0 4.0 4.9 4.9 Level 2
Nondesignated - currency forward contracts0.1 0.1 0.2 0.2 Level 2
Other assets and deferred charges
     Cash flow hedges - currency forward contracts1.6 1.6 3.3 3.3 Level 2
     Cash flow hedges - variable-to-fixed interest rate swap6.3 6.3 8.6 8.6 Level 2
Accrued expenses and other
     Cash flow hedges - currency forward contracts0.5 0.5 0.1 0.1 Level 2
     Cash flow hedges - variable-to-fixed interest rate swap15.3 15.3 17.8 17.8 Level 2
Postretirement benefits and other long-term liabilities
     Cash flow hedges - currency forward contracts0.5 0.5 0.1 0.1 Level 2
Cash flow hedges - fixed-to-fixed cross-currency swap11.2 11.2 20.6 20.6 Level 2
     Cash flow hedges - variable-to-fixed interest rate swap25.5 25.5 32.1 32.1 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.  
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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, 2021December 31, 2020 
 Carrying  AmountFair ValueCarrying  AmountFair Value
 
Input
 (in millions) 
     
Revolving Credit Facility$ $ $ $ Level 2
Term Loan A Facility due 2024318.8 316.8 323.0 318.6 Level 2
Term Loan B Facility due 2024988.8 980.2 1,088.8 1,071.1 Level 2
6.875% Notes due 2028400.0 416.0 400.0 426.0 Level 2
6.50% Notes due 2027500.0 516.3 500.0 523.8 Level 2
6.25% Notes due 2026400.0 408.0 400.0 411.0 Level 2
6.25% Notes due 2025700.0 721.0 700.0 724.3 Level 2


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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: