10-Q 1 axl-20230331.htm MARCH 31, 2023 FORM 10-Q axl-20230331
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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, 2023
  
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 2, 2023, the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 117,019,709 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, 2023
TABLE OF CONTENTS 
 
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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:

•global economic conditions, including the impact of inflation, recession or recessionary concerns, or slower growth in the markets in which we operate;
•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 and the availability of natural gas or other fuel and utility sources in certain regions, 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 pandemic or epidemic illness such as COVID-19, 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, including cloud-based applications, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber attacks and other similar disruptions;
•our suppliers', our customers' and their suppliers' ability to maintain satisfactory labor relations and avoid work stoppages;
•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 ability to consummate and successfully integrate acquisitions and joint ventures;
•our ability to achieve the level of cost reductions required to sustain global cost competitiveness or our ability to recover certain cost increases from our customers;
•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.
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,
 20232022
 (in millions, except per share data)
 
Net sales$1,493.9 $1,436.2 
 
Cost of goods sold1,333.3 1,249.4 
 
Gross profit160.6 186.8 
 
Selling, general and administrative expenses98.3 86.1 
Amortization of intangible assets21.4 21.5 
Restructuring and acquisition-related costs4.8 8.9 
Operating income36.1 70.3 
 
Interest expense(50.5)(44.7)
 
Interest income5.9 3.0 
 
Other income (expense)
Debt refinancing and redemption costs— (5.6)
Unrealized loss on equity securities(0.3)(18.0)
Other income (expense), net3.7 (1.0)
 
Income (loss) before income taxes(5.1)4.0 
 
Income tax expense— 3.0 
 
Net income (loss)$(5.1)$1.0 
 
Basic earnings (loss) per share$(0.04)$0.01 
 
Diluted earnings (loss) per share$(0.04)$0.01 

See accompanying notes to condensed consolidated financial statements.
2

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
20232022
(in millions)
Net income (loss)$(5.1)$1.0 
Other comprehensive income (loss)
Defined benefit plans, net of tax (a)
(0.7)1.3 
     Foreign currency translation adjustments8.8 6.0 
     Changes in cash flow hedges, net of tax (b)
2.5 15.7 
Other comprehensive income10.6 23.0 
Comprehensive income$5.5 $24.0 
(a)
Amounts are net of tax of $0.5 million for the three months ended March 31, 2023 and $(0.5) million for the three months ended March 31, 2022.
(b)
Amounts are net of tax of $1.8 million for the three months ended March 31, 2023 and $(2.9) million for the three months ended March 31, 2022.

See accompanying notes to condensed consolidated financial statements.
3

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31, 2023December 31, 2022
 (Unaudited) 
Assets(in millions)
Current assets 
Cash and cash equivalents$465.7 $511.5 
Accounts receivable, net892.1 820.2 
Inventories, net464.6 463.9 
Prepaid expenses and other182.1 197.8 
Total current assets2,004.5 1,993.4 
Property, plant and equipment, net1,864.7 1,903.0 
Deferred income taxes135.0 119.0 
Goodwill181.7 181.6 
Other intangible assets, net595.1 616.2 
GM postretirement cost sharing asset129.5 127.6 
Operating lease right-of-use assets106.3 107.2 
Other assets and deferred charges436.1 421.4 
Total assets$5,452.9 $5,469.4 
Liabilities and Stockholders’ Equity  
Current liabilities  
Current portion of long-term debt$49.6 $75.9 
Accounts payable771.3 734.0 
Accrued compensation and benefits167.4 186.6 
Deferred revenue26.9 28.1 
Current portion of operating lease liabilities21.2 21.1 
Accrued expenses and other161.6 153.6 
Total current liabilities1,198.0 1,199.3 
Long-term debt, net2,847.7 2,845.1 
Deferred revenue68.5 73.4 
Deferred income taxes11.0 10.7 
Long-term portion of operating lease liabilities86.4 87.2 
Postretirement benefits and other long-term liabilities619.6 626.4 
Total liabilities4,831.2 4,842.1 
Stockholders' equity  
Common stock, par value $0.01 per share; 150.0 million shares authorized;
127.3 million shares issued as of March 31, 2023 and 123.3 million shares issued as of December 31, 2022
1.3 1.3 
Paid-in capital1,372.6 1,369.2 
Accumulated deficit(254.7)(249.6)
Treasury stock at cost, 10.3 million shares as of March 31, 2023 and 8.7 million shares as of December 31, 2022
(232.7)(218.2)
Accumulated other comprehensive income (loss)
Defined benefit plans, net of tax(147.6)(146.9)
Foreign currency translation adjustments(140.9)(149.7)
Unrecognized gain on cash flow hedges, net of tax23.7 21.2 
Total stockholders' equity621.7 627.3 
Total liabilities and stockholders' equity$5,452.9 $5,469.4 
 See accompanying notes to condensed consolidated financial statements. 
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended
 March 31,
 20232022
(in millions)
Operating activities  
Net income (loss)$(5.1)$1.0 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization124.9 120.4 
Deferred income taxes(15.4)(8.6)
Stock-based compensation3.4 4.5 
Pensions and other postretirement benefits, net of contributions(4.0)(1.8)
Loss (gain) on disposal of property, plant and equipment, net0.5 (2.8)
Unrealized loss on equity securities0.3 18.0 
Debt refinancing and redemption costs— 5.6 
Changes in operating assets and liabilities
Accounts receivable(68.4)(166.0)
Inventories2.9 (2.1)
Accounts payable and accrued expenses25.2 110.2 
Deferred revenue(6.9)(8.3)
Other assets and liabilities(25.3)(1.6)
Net cash provided by operating activities32.1 68.5 
Investing activities  
Purchases of property, plant and equipment(46.6)(28.6)
Proceeds from sale of property, plant and equipment0.4 4.2 
Acquisition of business, net of cash acquired(0.6)(6.7)
Proceeds from insurance claim (Note 15) 17.0 — 
Other investing activities(0.7)(0.2)
Net cash used in investing activities(30.5)(31.3)
Financing activities  
Payments of Revolving Credit Facility(25.0)— 
Proceeds from issuance of long-term debt5.4 220.5 
Payments of long-term debt(11.3)(252.1)
Debt issuance costs— (3.5)
Purchase of treasury stock(14.5)(1.8)
Other financing activities(3.7)(1.8)
Net cash used in financing activities(49.1)(38.7)
Effect of exchange rate changes on cash1.7 1.2 
Net decrease in cash and cash equivalents(45.8)(0.3)
Cash and cash equivalents at beginning of period511.5 530.2 
Cash and cash equivalents at end of period$465.7 $529.9 
Supplemental cash flow information
     Interest paid$41.6 $38.6 
     Income taxes paid, net$26.0 $4.8 
See accompanying notes to condensed consolidated financial statements.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common StockAccumulated
SharesParPaid-inRetained EarningsTreasuryOther Comprehensive
OutstandingValueCapital(Accumulated Deficit)StockIncome (Loss)
(in millions)
Balance at January 1, 2022114.0 $1.3 $1,351.5 $(313.9)$(216.3)$(364.8)
Net income— — — 1.0 — — 
Vesting of stock-based compensation0.7 — — — — — 
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, 2022114.5 $1.3 $1,356.0 $(312.9)$(218.1)$(341.8)

Common StockAccumulated
SharesParPaid-inRetained EarningsTreasuryOther Comprehensive
OutstandingValueCapital(Accumulated Deficit)StockIncome (Loss)
(in millions)
Balance at January 1, 2023114.6 $1.3 $1,369.2 $(249.6)$(218.2)$(275.4)
Net loss— — — (5.1)— — 
Vesting of stock-based compensation4.0 — — — — — 
Stock-based compensation— — 3.4 — — — 
Purchase of treasury stock(1.6)— — — (14.5)— 
Changes in cash flow hedges— — — — — 2.5 
Foreign currency translation adjustments— — — — — 8.8 
Defined benefit plans, net— — — — — (0.7)
Balance at March 31, 2023117.0 $1.3 $1,372.6 $(254.7)$(232.7)$(264.8)

See accompanying notes to condensed consolidated financial statements.
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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(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 over 80 facilities in 18 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, 2022 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 significant disruptions in the supply chain that continue to impact the automotive industry, including volatility in metal, commodity and utility costs, shortages of certain raw materials and components, including semiconductor chips, increased transportation costs, higher labor costs and labor shortages. 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, 2022.



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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 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 complete restructuring actions under the 2020 Program in 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 and relocate the production capacity to other AAM manufacturing facilities. As a result, during the three months ended March 31, 2023, we incurred restructuring charges related to the anticipated closure of the facility and we expect to complete restructuring actions associated with the closure of the facility in 2023.
In 2022, we completed our acquisition of Tekfor Group (Tekfor) and have initiated certain restructuring actions associated with the acquired entities in the first quarter of 2023. We expect to incur restructuring costs associated with the acquired entities through 2023.
A summary of our restructuring activity for the first three months of 2023 and 2022 is shown below:
Severance ChargesImplementation CostsTotal
(in millions)
Accrual at December 31, 2021$0.7 $2.7 $3.4 
Charges1.3 5.9 7.2 
Cash utilization(0.8)(6.6)(7.4)
Accrual at March 31, 2022$1.2 $2.0 $3.2 
Accrual at December 31, 2022$2.4 $1.4 $3.8 
Charges0.3 3.7 4.0 
Cash utilization(0.7)(2.5)(3.2)
Accrual at March 31, 2023$2.0 $2.6 $4.6 
As part of our restructuring actions, we incurred total severance charges of approximately $0.3 million and $1.3 million during the three months ended March 31, 2023 and 2022, respectively. We also incurred total implementation costs of approximately $3.7 million and $5.9 million during the three months ended March 31, 2023 and 2022, respectively. Implementation costs consist primarily of plant exit costs. We incurred $1.6 million of restructuring costs under the 2020 Program, $2.1 million of costs associated with the anticipated closure of Emporium, and $0.3 million of costs related to restructuring actions associated with Tekfor in the three months ended March 31, 2023. We have incurred $102.2 million of total restructuring costs under the 2020 Program since inception and have incurred $14.2 million of total costs related to the anticipated closure of Emporium.
Substantially all of our total restructuring costs for the three months ended March 31, 2023 related to our Metal Forming segment. 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. We expect to incur approximately $10 million to $20 million of total restructuring charges in 2023 associated with the 2020 Program, our closure of Emporium and restructuring actions related to Tekfor.
The following table represents a summary of acquisition-related charges incurred primarily related to our acquisition of Tekfor, as well as integration costs incurred for acquisitions:
Acquisition-Related CostsIntegration ExpensesTotal
(in millions)
Charges for the three months ended March 31, 2023$— $0.8 $0.8 
Charges for the three months ended March 31, 20221.1 0.6 1.7 
Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional or consulting fees incurred. Integration expenses primarily reflect costs incurred for information technology infrastructure and enterprise resource planning systems, and consulting fees incurred in conjunction with 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 Operations and totaled $4.8 million for the three months ended March 31, 2023 and $8.9 million for the three months ended March 31, 2022.
8
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, 2023December 31, 2022
 (in millions)
   
Raw materials and work-in-progress$407.8 $398.9 
Finished goods88.5 92.5 
Gross inventories496.3 491.4 
Inventory valuation reserves(31.7)(27.5)
Inventories, net$464.6 $463.9 

9
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, 2023:
Consolidated
(in millions)
Balance at December 31, 2022$181.6 
Foreign currency translation0.1 
Balance at March 31, 2023$181.7 

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.

At March 31, 2023, 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,
20232022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
(in millions)
Capitalized computer software$52.4 $(44.6)$7.8 $52.2 $(43.2)$9.0 
Customer platforms856.2 (380.6)475.6 856.2 (364.7)491.5 
Customer relationships53.0 (20.5)32.5 53.0 (19.7)33.3 
Technology and other154.1 (74.9)79.2 154.1 (71.7)82.4 
Total$1,115.7 $(520.6)$595.1 $1,115.5 $(499.3)$616.2 

Amortization expense for our intangible assets was $21.4 million for the three months ended March 31, 2023 and $21.5 million for the three months ended March 31, 2022. Estimated amortization expense for the years 2023 through 2027 is expected to be in the range of approximately $80 million to $85 million per year.
10
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, 2023December 31, 2022
 (in millions)
   
Revolving Credit Facility$— $25.0 
Term Loan A Facility520.0 520.0 
Term Loan B Facility673.3 675.0 
6.875% Notes due 2028400.0 400.0 
6.50% Notes due 2027500.0 500.0 
6.25% Notes due 2026180.0 180.0 
5.00% Notes due 2029600.0 600.0 
Foreign credit facilities and other73.6 72.7 
Total debt2,946.9 2,972.7 
    Less: Current portion of long-term debt49.6 75.9 
Long-term debt2,897.3 2,896.8 
    Less: Debt issuance costs49.6 51.7 
Long-term debt, net$2,847.7 $2,845.1 

Senior Secured Credit Facilities Our Senior Secured Credit Facilities are comprised of the Revolving Credit Facility, Term Loan A Facility and Term Loan B Facility. The Revolving Credit Facility and Term Loan A Facility mature in the first quarter of 2027 and the Term Loan B Facility matures in the fourth quarter of 2029. At March 31, 2023, we had $891.2 million available under the Revolving Credit Facility. This availability reflects a reduction of $33.8 million for standby letters of credit issued against the facility. In the first quarter of 2023, we paid $25.0 million on our Revolving Credit Facility that had been drawn in the fourth quarter of 2022.

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 U.S. Dollars and the Sterling Overnight Index Average (SONIA) and the minimum adjusted daily simple SONIA for loans denominated in Sterling. 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.

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.

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.


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AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Foreign credit facilities and Other We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At March 31, 2023, $73.6 million was outstanding under our foreign credit facilities, as compared to $72.7 million at December 31, 2022. At March 31, 2023, an additional $63.7 million was available under our foreign credit facilities.

Weighted-Average Interest Rate The weighted-average interest rate of our long-term debt outstanding was 6.6% at both March 31, 2023 and December 31, 2022.
12
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, 2023 and December 31, 2022, we had currency forward contracts outstanding with a total notional amount of $192.3 million and $179.9 million, respectively, that hedge our exposure to changes in foreign currency exchange rates for certain payroll expenses into the fourth quarter of 2025 and the purchase of certain direct and indirect inventory and other working capital items into the fourth quarter of 2023.

Fixed-to-fixed cross-currency swap In 2022, 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. We had notional amounts outstanding under fixed-to-fixed cross-currency swaps of €200.0 million at both March 31, 2023 and December 31, 2022, which were equivalent to $216.6 million and $213.9 million, 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 swaps In 2022, and in the first quarter of 2023, we entered into variable-to-fixed interest rate swaps to reduce the variability of cash flows associated with interest payments on our variable rate debt. As of March 31, 2023, we have $700.0 million notional amount hedged in relation to our variable-to-fixed interest rate swaps into the third quarter of 2027, $200.0 million of which continues into the fourth quarter of 2029.

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 Accounting Standards Codification (ASC) 815 - Derivatives and Hedging:
 LocationGain (Loss) Reclassified DuringTotal of Financial Gain Expected
 of Gain (Loss)Three Months EndedStatement to be Reclassified
   Reclassified intoMarch 31,Line ItemDuring the
   Net Income202320222023Next 12 Months
  (in millions)
Currency forward contractsCost of Goods Sold$3.3 $1.2 $1,333.3 $14.3 
Fixed-to-fixed cross-currency swapOther Income (Expense), net(2.7)6.0 3.7 0.3 
Variable-to-fixed interest rate swapInterest Expense0.6 (2.9)(50.5)0.8 

See Note 12 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (AOCI) for amounts recognized in other comprehensive income during the three months ended March 31, 2023 and 2022.

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:
 LocationGain Recognized DuringTotal of Financial
 of GainThree Months EndedStatement
  Recognized in March 31,Line Item
   Net Income202320222023
  (in millions)
Currency forward contractsOther Income (Expense), net$2.1 $1.0 $3.7 
13
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:
 
 Fair Value 
March 31, 2023December 31, 2022Input
 (in millions) 
Balance Sheet Classification   
Cash equivalents$306.2 $363.6 Level 1
Prepaid expenses and other   
Cash flow hedges - currency forward contracts14.3 8.2 Level 2
Cash flow hedges - variable-to-fixed interest rate swap1.1 2.4 Level 2
Nondesignated - currency forward contracts1.2 0.5 Level 2
Other assets and deferred charges
     Cash flow hedges - currency forward contracts6.2 3.0 Level 2
     Cash flow hedges - variable-to-fixed interest rate swap3.5 8.5 Level 2
     Investment in equity securities1.6 1.9 Level 1
Accrued expenses and other
     Cash flow hedges - variable-to-fixed interest rate swap0.3 — Level 2
Postretirement benefits and other long-term liabilities
Cash flow hedges - fixed-to-fixed cross-currency swap4.7 1.5 Level 2
     Cash flow hedges - variable-to-fixed interest rate swap1.5 — 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 Operations. As of March 31, 2023, our investment in REE shares was valued at $1.6 million based on a closing price on that date of $0.33 per share.
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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, 2023December 31, 2022 
 Carrying  AmountFair ValueCarrying  AmountFair Value
 
Input
 (in millions) 
     
Revolving Credit Facility$— $— $25.0 $25.0 Level 2
Term Loan A Facility520.0 509.6 520.0 510.3 Level 2
Term Loan B Facility673.3 668.3 675.0 658.1 Level 2
6.875% Notes due 2028400.0 359.9 400.0 355.4 Level 2
6.50% Notes due 2027500.0 456.4 500.0 452.5 Level 2
6.25% Notes due 2026180.0 172.8 180.0 165.7 Level 2
5.00% Notes due 2029600.0 499.5 600.0 474.9 Level 2

15
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,
 20232022
 (in millions)
 
Service cost$0.3 $0.5 
Interest cost6.0 4.2 
Expected asset return(7.2)(8.0)
Amortized loss1.0 1.9 
Net periodic benefit cost (credit)$0.1 $(1.4)
 
 Other Postretirement Benefits
 Three Months Ended
 March 31,
 20232022
 (in millions)
 
Service cost$— $0.1 
Interest cost2.5 2.1 
Amortized loss (gain)(2.1)0.1 
Amortized prior service credit(0.1)(0.2)
Net periodic benefit cost$0.3 $2.1 

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, 2023 and December 31, 2022, we have a noncurrent pension liability of $71.7 million and $73.5 million, respectively. As of March 31, 2023 and December 31, 2022, we have a noncurrent other postretirement benefits liability of $303.3 million and $304.8 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 2023 to be less than $1.0 million. We expect our cash payments for other postretirement benefit obligations in 2023, net of GM cost sharing, to be approximately $14.6 million.
16
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,
 20232022
 (in millions)
 
Beginning balance$54.1 $59.5 
     Accruals8.7 4.0 
Payments(1.8)(3.1)
     Foreign currency translation0.4 — 
Ending balance$61.4 $60.4 


17
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, 2023 and 2022 are as follows:

 Three Months Ended
March 31,
20232022
 (in millions)
 
Income tax expense$— $3.0 
Effective income tax rate— %75.0 %

During the three months ended March 31, 2023, in computing our estimated annual effective tax rate, we recorded a full valuation allowance against the deferred tax asset on the current year estimated disallowed interest expense in the U.S. In addition, we recorded a valuation allowance against a portion of the deferred tax asset on prior year disallowed interest expense in the U.S. and reduced our liability for unrecognized income tax benefits and related interest and penalties as a result of a change in estimate on previously recorded unrecognized tax benefits in certain jurisdictions, resulting in net tax expense of $3.4 million during the three months ended March 31, 2023.

Our effective income tax rate for the three months ended March 31, 2023 varies from our effective income tax rate for the three months ended March 31, 2022 primarily as a result of the mix of earnings on a jurisdictional basis and the impact of the discrete items noted above. For the three months ended March 31, 2023, our effective income tax rate varies from the U.S. federal statutory rate primarily due to the unfavorable impact related to the disallowed interest expense deductions in the U.S., net of the impact of the reduction in unrecognized tax benefits, favorable foreign tax rates and the impact of tax credits. For the three months ended March 31, 2022, our effective income tax rate varies from the U.S. federal statutory rate 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 volatility in metal and commodity costs, higher utility costs, increased transportation costs, higher labor costs and labor shortages, 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.


18
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other Income Tax Matters

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 disagreed with the NOPA, believes that the proposed adjustment is without merit and contested the matter through the IRS's administrative appeals process. No resolution was reached in the appeals process and in September 2022, the IRS issued a Notice of Deficiency. The IRS subsequently issued a Notice of Tax Due in December 2022 and AAM paid the assessed tax and interest of $10.1 million in January 2023. We have filed a claim for refund for the amount of tax and interest paid related to this matter for the 2015 tax year and, if necessary, will file suit in the U.S. Court of Federal Claims. 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 as of, and for the three months ended, March 31, 2023, with the exception of the cash payment and associated income tax receivable of $10.1 million paid by AAM to the IRS in the first quarter of 2023. As of March 31, 2023, 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 2022, is estimated to be in the range of approximately $285 million to $