American Axle & Manufacturing (AXL) - 2024 Q2 - Quarterly Report

FORWARD-LOOKING STATEMENTS This section serves as a cautionary statement, identifying forward-looking statements within the report by specific terms and future tense - Forward-looking statements are identified by terms such as 'will,' 'may,' 'could,' 'would,' 'plan,' 'believe,' 'expect,' 'anticipate,' 'intend,' 'project,' 'target,' and similar expressions[7] - Key risk factors that could cause actual results to differ include global economic conditions (inflation, recession), reduced purchases by major customers (GM, Stellantis, Ford), inability to adapt to technological changes or competition, lower market acceptance of new products, risks in global operations (tariffs, supply disruptions, currency fluctuations), and challenges in transitioning to hybrid and electric vehicle products[9] Part I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements and detailed notes for Q2 and H1 2024 and 2023 Condensed Consolidated Statements of Income This statement summarizes the company's revenues, costs, and net income for the three and six months ended June 30, 2024 and 2023 Condensed Consolidated Statements of Income (Unaudited) | Metric (in millions, except per share data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $1,632.3 | $1,570.7 | $3,239.2 | $3,064.6 | | Cost of goods sold | $1,415.0 | $1,392.5 | $2,823.4 | $2,725.8 | | Gross profit | $217.3 | $178.2 | $415.8 | $338.8 | | Operating income | $86.5 | $57.8 | $163.5 | $93.9 | | Net income | $18.2 | $8.0 | $38.7 | $2.9 | | Basic earnings per share | $0.15 | $0.07 | $0.32 | $0.02 | | Diluted earnings per share | $0.15 | $0.07 | $0.32 | $0.02 | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement details net income and other comprehensive income (loss) components for the three and six months ended June 30, 2024 and 2023 Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) | Metric (in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $18.2 | $8.0 | $38.7 | $2.9 | | Other comprehensive income (loss) | $(33.9) | $11.9 | $(39.0) | $22.5 | | Comprehensive income (loss) | $(15.7) | $19.9 | $(0.3) | $25.4 | Condensed Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and equity, as of June 30, 2024 and December 31, 2023 Condensed Consolidated Balance Sheets (Unaudited) | Metric (in millions) | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------ | :---------------- | | Total current assets | $2,105.4 | $2,006.6 | | Property, plant and equipment, net | $1,681.5 | $1,760.9 | | Goodwill | $181.2 | $182.1 | | Other intangible assets, net | $491.8 | $532.8 | | Total assets | $5,336.7 | $5,356.3 | | Total current liabilities | $1,255.1 | $1,201.6 | | Long-term debt, net | $2,694.8 | $2,751.9 | | Total liabilities | $4,727.1 | $4,751.4 | | Total stockholders' equity | $609.6 | $604.9 | Condensed Consolidated Statements of Cash Flows This statement outlines cash flows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023 Condensed Consolidated Statements of Cash Flows (Unaudited) | Metric (in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $160.6 | $164.9 | | Net cash used in investing activities | $(94.9) | $(77.9) | | Net cash used in financing activities | $(58.5) | $(87.4) | | Cash and cash equivalents at end of period| $519.9 | $511.1 | Condensed Consolidated Statements of Stockholders' Equity This statement details changes in stockholders' equity, including net income and other comprehensive income, from January 1 to June 30, 2024 Changes in Stockholders' Equity (Unaudited) | Metric (in millions) | Balance at January 1, 2024 | Net Income | Stock-based Compensation | Purchase of Treasury Stock | Changes in Hedges | Foreign Currency Translation Adjustments | Defined Benefit Plans, net | Balance at June 30, 2024 | | :------------------------------------------------- | :------------------------- | :--------- | :----------------------- | :------------------------- | :---------------- | :--------------------------------------- | :------------------------- | :----------------------- | | Common Stock Par Value | $1.3 | — | — | — | — | — | — | $1.3 | | Paid-in Capital | $1,382.6 | — | $7.8 | — | — | — | — | $1,390.4 | | Accumulated Deficit | $(283.2) | $38.7 | — | — | — | — | — | $(244.5) | | Treasury Stock | $(232.9) | — | — | $(2.8) | — | — | — | $(235.7) | | Accumulated Other Comprehensive Income (Loss) | $(262.9) | — | — | — | $(8.2) | $(29.6) | $(1.2) | $(301.9) | | Total Stockholders' Equity | $604.9 | $38.7 | $7.8 | $(2.8) | $(8.2) | $(29.6) | $(1.2) | $609.6 | Notes to Condensed Consolidated Financial Statements These notes provide essential details and explanations for the financial statements, covering organization, policies, balances, and recent events 1. ORGANIZATION AND BASIS OF PRESENTATION This note describes AAM's business as a global automotive supplier and details the adoption of new accounting standards and upcoming regulatory requirements - AAM is a leading global Tier 1 automotive and mobility supplier, specializing in Driveline and Metal Forming technologies for electric, hybrid, and internal combustion vehicles[21] - The company adopted ASU 2023-07 (Improvements to Reportable Segment Disclosures) retrospectively on January 1, 2024, for annual requirements and will adopt interim requirements on January 1, 2025[23] - ASU 2023-09 (Improvements to Income Tax Disclosures) becomes effective for AAM's 2025 fiscal year, expanding disclosure requirements for rate reconciliation and disaggregation of income taxes paid[24] - The SEC's new rule on climate-related disclosures (GHG emissions) will require annual disclosures starting in fiscal year 2025 and GHG emissions disclosures starting in fiscal year 2026, subject to limited and reasonable assurance requirements by 2029 and 2033, respectively[27] 2. INVENTORIES This note outlines the company's inventory valuation method and provides a detailed breakdown of inventory balances - Inventories are stated at the lower of cost or net realizable value, using the first-in first-out (FIFO) method[30] Inventories, Net (in millions) | Category | June 30, 2024 | December 31, 2023 | | :------------------------- | :------------ | :---------------- | | Raw materials and work-in-progress | $404.4 | $411.5 | | Finished goods | $97.8 | $103.5 | | Gross inventories | $502.2 | $515.0 | | Inventory valuation reserves | $(33.0) | $(32.1) | | Inventories, net | $469.2 | $482.9 | 3. GOODWILL AND INTANGIBLE ASSETS This note details goodwill and other intangible assets, including amortization expense and estimated future amortization Goodwill (in millions) | Metric | Consolidated | | :------------------------- | :----------- | | Balance at December 31, 2023 | $182.1 | | Foreign currency translation | $(0.9) | | Balance at June 30, 2024 | $181.2 | - All remaining goodwill of $181.2 million is attributable to the Driveline reporting unit, with accumulated goodwill impairment losses totaling $1,435.5 million at June 30, 2024[35] Other Intangible Assets, Net (in millions) | Category | Gross Carrying Amount (June 30, 2024) | Accumulated Amortization (June 30, 2024) | Net Carrying Amount (June 30, 2024) | Gross Carrying Amount (Dec 31, 2023) | Accumulated Amortization (Dec 31, 2023) | Net Carrying Amount (Dec 31, 2023) | | :--------------------------- | :------------------------------------ | :--------------------------------------- | :---------------------------------- | :----------------------------------- | :-------------------------------------- | :--------------------------------- | | Capitalized computer software | $54.5 | $(50.8) | $3.7 | $54.2 | $(49.2) | $5.0 | | Customer platforms | $856.2 | $(459.9) | $396.3 | $856.2 | $(428.2) | $428.0 | | Customer relationships | $53.0 | $(24.8) | $28.2 | $53.0 | $(23.1) | $29.9 | | Technology and other | $154.0 | $(90.4) | $63.6 | $154.3 | $(84.4) | $69.9 | | Total | $1,117.7 | $(625.9) | $491.8 | $1,117.7 | $(584.9) | $532.8 | - Amortization expense for intangible assets was $20.6 million for Q2 2024 (vs. $21.4 million in Q2 2023) and $41.3 million for H1 2024 (vs. $42.8 million in H1 2023). Estimated annual amortization for 2024-2028 is $80 million to $85 million[36] 4. LONG-TERM DEBT This note provides a breakdown of long-term debt, including recent refinancing, redemptions, and weighted-average interest rates Long-Term Debt Composition (in millions) | Debt Type | December 31, 2023 | | :-------------------------------- | :---------------- | | Term Loan A Facility | $484.3 | | Term Loan B Facility | $648.0 | | 6.875% Notes due 2028 | $400.0 | | 6.50% Notes due 2027 | $500.0 | | 6.25% Notes due 2026 | $127.6 | | 5.00% Notes due 2029 | $600.0 | | Foreign credit facilities and other | $51.8 | | Total debt | $2,811.7 | | Less: Current portion of long-term debt | $17.0 | | Long-term debt | $2,794.7 | | Less: Debt issuance costs | $42.8 | | Long-term debt, net | $2,751.9 | - On May 16, 2024, AAM refinanced its Term Loan B Facility, establishing a new $648.0 million facility maturing on December 13, 2029. This involved prepaying the old Term Loan B and incurring $1.7 million in debt refinancing costs[40] - The company voluntarily redeemed $30.0 million of its 6.25% Notes due 2026 in Q2 2024 and an additional $50.0 million in August 2024, incurring associated write-offs of unamortized debt issuance costs[43][175] - The weighted-average interest rate on long-term debt was 7.0% at June 30, 2024, down from 7.1% at December 31, 2023[45] 5. DERIVATIVES This note describes the company's use of foreign currency forward contracts and interest rate swaps to manage market risks - AAM uses foreign currency forward contracts to hedge exposure to exchange rate fluctuations, with notional amounts of $281.7 million at June 30, 2024 (up from $206.9 million at Dec 31, 2023)[49] - In Q2 2024, the company discontinued an existing €200.0 million fixed-to-fixed cross-currency swap and entered a new one for €175.0 million ($187.5 million equivalent) to hedge Euro-based intercompany loans through Q2 2027[50] - Variable-to-fixed interest rate swaps are used to reduce cash flow variability on variable rate debt, with a notional amount of $700.0 million hedged into Q3 2027, and $200.0 million extending into Q4 2029[51] 6. FAIR VALUE This note presents fair value measurements of financial instruments and debt, categorized by valuation input levels Fair Value of Financial Instruments (in millions) | Balance Sheet Classification | June 30, 2024 | December 31, 2023 | Fair Value Input | | :---------------------------------------- | :------------ | :---------------- | :--------------- | | Cash equivalents | $154.0 | $328.3 | Level 1 | | Cash flow hedges - currency forward contracts | $6.9 | $15.9 | Level 2 | | Nondesignated - currency forward contracts | — | $0.8 | Level 2 | | Investment in equity securities | — | $0.8 | Level 1 | | Cash flow hedges - variable-to-fixed interest rate swap | $1.3 | $5.0 | Level 2 | | Fair value hedges - fixed-to-fixed cross-currency swap | $3.4 | — | Level 2 | - AAM sold all remaining equity securities of REE Automotive during Q2 2024, resulting in a $0.2 million loss[58][133] Fair Value of Debt (in millions) | Debt Type | Carrying Amount (June 30, 2024) | Fair Value (June 30, 2024) | Carrying Amount (Dec 31, 2023) | Fair Value (Dec 31, 2023) | Fair Value Input | | :-------------------------------- | :------------------------------ | :------------------------- | :----------------------------- | :------------------------ | :--------------- | | Term Loan A Facility | $484.3 | $483.0 | $484.3 | $483.6 | Level 2 | | Term Loan B Facility | $648.0 | $648.8 | $648.0 | $649.6 | Level 2 | | 6.875% Notes due 2028 | $400.0 | $397.8 | $400.0 | $387.0 | Level 2 | | 6.50% Notes due 2027 | $500.0 | $498.1 | $500.0 | $501.9 | Level 2 | | 6.25% Notes due 2026 | $95.9 | $95.6 | $127.6 | $126.3 | Level 2 | | 5.00% Notes due 2029 | $600.0 | $547.5 | $600.0 | $529.5 | Level 2 | 7. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (AOCI) This note details the net change in AOCI and reclassifications of items from AOCI into net income Net Change in AOCI (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net change in accumulated other comprehensive income (loss) | $(33.9) | $11.9 | $(39.0) | $22.5 | | Balance at June 30, 2024 | $(301.9) | $(252.9) | $(301.9) | $(252.9) | - Reclassifications from AOCI to net income for the three months ended June 30, 2024, included $(5.7) million in cost of goods sold, $(1.1) million in interest expense, and $(2.0) million in other income (expense), net[66] - For the six months ended June 30, 2024, reclassifications included $(10.4) million in cost of goods sold, $(1.4) million in interest expense, and $(7.0) million in other income (expense), net[70] 8. EMPLOYEE BENEFIT PLANS This note provides net periodic benefit cost for pension and postretirement plans, related liabilities, and funding expectations Net Periodic Benefit Cost (Credit) (in millions) | Metric | Three Months Ended June 30, 2024 (Pension) | Three Months Ended June 30, 2023 (Pension) | Six Months Ended June 30, 2024 (Pension) | Six Months Ended June 30, 2023 (Pension) | | :---------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Net periodic benefit cost | $0.6 | $0.1 | $1.2 | $0.2 | | | Three Months Ended June 30, 2024 (Other Postretirement) | Three Months Ended June 30, 2023 (Other Postretirement) | Six Months Ended June 30, 2024 (Other Postretirement) | Six Months Ended June 30, 2023 (Other Postretirement) | | Net periodic benefit cost (credit) | $(0.4) | $0.4 | $(0.9) | $0.7 | - Noncurrent pension liability was $70.5 million at June 30, 2024 (vs. $74.7 million at Dec 31, 2023). Noncurrent other postretirement benefits liability was $267.1 million at June 30, 2024 (vs. $268.9 million at Dec 31, 2023)[73] - Expected regulatory pension funding requirements for 2024 are less than $1.0 million due to pre-funded balances. Expected cash payments for other postretirement benefit obligations in 2024, net of GM cost sharing, are approximately $11.0 million[74] 9. PRODUCT WARRANTIES This note reconciles changes in the company's product warranty liability, including accruals and payments Product Warranty Liability Reconciliation (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance | $67.6 | $61.4 | $66.3 | $54.1 | | Accruals | $3.8 | $3.6 | $7.7 | $12.3 | | Payments | $(2.9) | $(2.5) | $(5.1) | $(4.3) | | Adjustment to prior period accruals | $(0.5) | $(0.4) | $(0.5) | $(0.4) | | Foreign currency translation | $(0.3) | $(0.4) | $(0.7) | — | | Ending balance | $67.7 | $61.7 | $67.7 | $61.7 | 10. REVENUE FROM CONTRACTS WITH CUSTOMERS This note disaggregates net sales by segment and geography, and details contract assets and liabilities Net Sales by Segment and Geographical Location (in millions) | Segment/Region | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Driveline | $1,124.3 | $1,086.4 | $2,230.7 | $2,100.2 | | North America | $849.2 | $827.1 | $1,677.2 | $1,610.1 | | Asia | $143.9 | $118.5 | $286.6 | $224.3 | | Europe | $110.5 | $111.4 | $232.0 | $211.2 | | South America | $20.7 | $29.4 | $34.9 | $54.6 | | Metal Forming| $508.0 | $484.3 | $1,008.5 | $964.4 | | North America | $357.7 | $332.6 | $703.6 | $661.1 | | Asia | $5.2 | $10.5 | $13.2 | $17.2 | | Europe | $123.1 | $119.2 | $247.4 | $242.1 | | South America | $22.0 | $22.0 | $44.3 | $44.0 | | Total | $1,632.3 | $1,570.7 | $3,239.2 | $3,064.6 | Contract Assets and Liabilities (in millions) | Metric | December 31, 2023 | June 30, 2024 | Increase/(decrease) | | :-------------------------- | :---------------- | :------------ | :------------------ | | Accounts Receivable, Net | $818.5 | $935.4 | $116.9 | | Contract Liabilities (Current) | $16.6 | $13.5 | $(3.1) | | Contract Liabilities (Long-term) | $70.4 | $67.2 | $(3.2) | - AAM amortized $8.1 million of previously recorded contract liabilities into revenue for the six months ended June 30, 2024, compared to $21.5 million for the same period in 2023[86] 11. RESTRUCTURING AND ACQUISITION-RELATED COSTS This note details restructuring activities and acquisition-related costs, including expected future charges - AAM initiated a global restructuring program (the 2024 Program) in Q1 2024 to optimize its cost structure, with costs expected through 2026. Restructuring actions also continued for the Tekfor acquisition[89] Restructuring Activity (in millions) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Severance Charges | $4.5 | $1.4 | | Implementation Costs | $1.5 | $9.3 | | Total Restructuring and acquisition-related costs | $7.5 | $12.7 | - Approximately $3.9 million of H1 2024 restructuring costs related to the Driveline segment (primarily Glasgow Manufacturing Facility closure), and $1.7 million to the Metal Forming segment[91] - AAM expects to incur $10 million to $20 million in total restructuring charges and up to $5 million in integration costs in 2024[91][146] 12. INCOME TAXES This note presents income tax expense and effective tax rates, discussing influencing factors and ongoing IRS litigation Income Tax Expense and Effective Rate (Unaudited) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $17.2 | $5.3 | $33.1 | $5.3 | | Effective income tax rate | 48.6% | 39.8% | 46.1% | 64.6% | - The effective tax rate varies primarily due to the mix of earnings on a jurisdictional basis and discrete items, including valuation allowances against disallowed interest expense in the U.S. and tax expense related to GILTI[97][98] - AAM is in litigation with the IRS regarding foreign base company sales income (FBCSI) for tax years 2015-2019. AAM believes its position is defensible, but potential additional tax expense for 2015-2023 could range from $300 million to $350 million if unsuccessful[102][103][104] - A liability for unrecognized income tax benefits and related interest and penalties of $30.4 million was recorded at June 30, 2024 (vs. $38.1 million at Dec 31, 2023)[105] 13. EARNINGS PER SHARE (EPS) This note provides the calculation of basic and diluted earnings per share, including net income and weighted-average shares Earnings Per Share (EPS) (Unaudited) | Metric (in millions, except per share data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to common shareholders | $17.5 | $7.9 | $37.4 | $2.8 | | Weighted-average common shares outstanding | 117.6 | 117.0 | 117.4 | 116.1 | | Basic EPS | $0.15 | $0.07 | $0.32 | $0.02 | | Diluted EPS | $0.15 | $0.07 | $0.32 | $0.02 | 14. SEGMENT REPORTING This note defines the Driveline and Metal Forming segments, presenting their respective net sales and Adjusted EBITDA - AAM operates in two reportable segments: Driveline (front/rear axles, driveshafts, electric/hybrid driveline products) and Metal Forming (engine, transmission, driveline, and safety-critical components for various vehicle architectures and industrial markets)[111][156] - Segment Adjusted EBITDA is used to assess segment performance and allocate resources, defined as EBITDA excluding restructuring, acquisition-related costs, debt refinancing costs, equity security gains/losses, pension charges, and non-recurring items[112][162] Segment Sales and Adjusted EBITDA (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Driveline Net external sales | $1,124.3 | $1,086.4 | $2,230.7 | $2,100.2 | | Metal Forming Net external sales | $508.0 | $484.3 | $1,008.5 | $964.4 | | Total Net external sales | $1,632.3 | $1,570.7 | $3,239.2 | $3,064.6 | | Driveline Segment Adjusted EBITDA | $151.8 | $152.1 | $309.2 | $266.2 | | Metal Forming Segment Adjusted EBITDA | $56.6 | $39.5 | $104.8 | $100.8 | | Total Segment Adjusted EBITDA | $208.4 | $191.6 | $414.0 | $367.0 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial performance, liquidity, capital resources, and operational matters for Q2 and H1 2024 COMPANY OVERVIEW This section provides an overview of AAM's business, major customers, and recent developments in its e-Beam axle program - AAM is a global Tier 1 automotive and mobility supplier, headquartered in Detroit with over 80 facilities in 18 countries, focusing on Driveline and Metal Forming technologies for various vehicle types[120] Major Customer Sales as % of Consolidated Net Sales | Customer | First Six Months 2024 (%) | First Six Months 2023 (%) | Full Year 2023 (%) | | :---------- | :-------------------- | :-------------------- | :------------- | | General Motors Company (GM) | 41% | 39% | 39% | | Stellantis N.V. (Stellantis) | 14% | 17% | 16% | | Ford Motor Company (Ford) | 13% | 11% | 12% | - A major customer terminated purchase orders for a future e-Beam axle program in April 2024, reflecting uncertainty in the EV market. AAM has submitted a cancellation claim to recover approximately $70 million in associated assets[124] RESULTS OF OPERATIONS –– THREE MONTHS ENDED JUNE 30, 2024 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2023 AAM reported increased net sales, gross profit, operating income, and net income for Q2 2024, driven by higher volumes and new program launches Net Sales This section analyzes the 3.9% increase in Q2 2024 net sales, driven by higher production volumes and new program launches Net Sales (in millions) | Period | 2024 | 2023 | Change | Percent Change | | :---------------------- | :-------- | :-------- | :-------- | :------------- | | Three Months Ended June 30 | $1,632.3 | $1,570.7 | $61.6 | 3.9% | - The increase in net sales was primarily due to increased production volumes on certain vehicle programs and new program launches, partially offset by a $20 million reduction from metal market pass-throughs and foreign exchange translation[127] Cost of Goods Sold This section examines the 1.6% increase in Q2 2024 cost of goods sold, reflecting higher production volumes and material costs Cost of Goods Sold (in millions) | Period | 2024 | 2023 | Change | Percent Change | | :---------------------- | :-------- | :-------- | :-------- | :------------- | | Three Months Ended June 30 | $1,415.0 | $1,392.5 | $22.5 | 1.6% | - The change in COGS reflects increased production volumes, partially offset by an $18 million reduction from metal market pass-through costs and foreign exchange translation. Material costs were approximately 58% of total COGS in both periods[128] Gross Profit This section highlights the 21.9% increase in Q2 2024 gross profit and improved gross margin to 13.3% Gross Profit (in millions) | Period | 2024 | 2023 | Change | Percent Change | | :---------------------- | :-------- | :-------- | :-------- | :------------- | | Three Months Ended June 30 | $217.3 | $178.2 | $39.1 | 21.9% | - Gross margin increased to 13.3% in Q2 2024 from 11.3% in Q2 2023[129] Selling, General and Administrative Expenses (SG&A) This section discusses the 15.5% increase in Q2 2024 SG&A expenses, primarily due to higher R&D and compensation costs SG&A Expenses (in millions) | Period | 2024 | 2023 | Change | Percent Change | | :---------------------- | :-------- | :-------- | :-------- | :------------- | | Three Months Ended June 30 | $105.2 | $91.1 | $14.1 | 15.5% | - SG&A as a percentage of net sales increased to 6.4% in Q2 2024 from 5.8% in Q2 2023, primarily due to increased R&D expense ($44.5 million vs. $37.1 million) and compensation-related expense[130] Amortization of Intangible Assets This section notes a slight decrease in Q2 2024 amortization expense for intangible assets compared to the prior year - Amortization expense was $20.6 million in Q2 2024, slightly down from $21.4 million in Q2 2023[131] Restructuring and Acquisition-Related Costs This section reports a decrease in Q2 2024 restructuring and acquisition-related costs compared to the prior year - Restructuring and acquisition-related costs decreased to $5.0 million in Q2 2024 from $7.9 million in Q2 2023[131] Operating Income This section highlights a significant increase in Q2 2024 operating income and improved operating margin - Operating income increased to $86.5 million in Q2 2024 from $57.8 million in Q2 2023. Operating margin improved to 5.3% from 3.7%[131] Interest Expense and Interest Income This section details a decrease in Q2 2024 interest expense and an increase in interest income, with a higher weighted-average interest rate on debt - Interest expense decreased to $47.9 million in Q2 2024 from $50.2 million in Q2 2023. Interest income increased to $6.1 million from $5.9 million[132] - The weighted-average interest rate on long-term debt was 7.0% in Q2 2024, up from 6.7% in Q2 2023[132] Debt Refinancing and Redemption Costs This section outlines Q2 2024 debt refinancing and redemption costs related to the Term Loan B Facility and Notes redemption - AAM incurred $0.2 million in debt refinancing and redemption costs in Q2 2024 due to the new Term Loan B Facility and expensed $0.1 million for the write-off of debt issuance costs from the voluntary redemption of 6.25% Notes due 2026[132][133] Gain (Loss) on Equity Securities This section reports a loss from the sale of equity securities in Q2 2024, contrasting with a gain in the prior year - A loss of $0.2 million was recognized in Q2 2024 from the sale of all remaining REE Automotive equity securities, compared to a gain of $0.3 million in Q2 2023[133] Other Income (Expense), Net This section notes a significant increase in Q2 2024 other expense, net, primarily due to foreign exchange fluctuations - Other income (expense), net was an expense of $8.8 million in Q2 2024, significantly higher than the $0.5 million expense in Q2 2023, primarily due to changes in foreign exchange gains and losses[134] Income Tax Expense This section details the increase in Q2 2024 income tax expense and effective tax rate, influenced by disallowed interest and GILTI tax - Income tax expense increased to $17.2 million in Q2 2024 from $5.3 million in Q2 2023. The effective income tax rate was 48.6% in Q2 2024, up from 39.8% in Q2 2023[136] - The higher effective tax rate in Q2 2024 was primarily due to the unfavorable impact of disallowed interest expense deductions in the U.S. and GILTI tax expense, partially offset by foreign tax rates and tax credits[137] Net Income and Earnings Per Share (EPS) This section reports a substantial increase in Q2 2024 net income and diluted EPS compared to the prior year - Net income increased to $18.2 million in Q2 2024 from $8.0 million in Q2 2023. Diluted EPS rose to $0.15 per share from $0.07 per share[138] RESULTS OF OPERATIONS –– SIX MONTHS ENDED JUNE 30, 2024 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2023 AAM experienced growth in net sales and a significant increase in gross profit, operating income, and net income for H1 2024 Net Sales This section analyzes the 5.7% increase in H1 2024 net sales, driven by higher production volumes and new program launches Net Sales (in millions) | Period | 2024 | 2023 | Change | Percent Change | | :---------------------- | :-------- | :-------- | :-------- | :------------- | | Six Months Ended June 30 | $3,239.2 | $3,064.6 | $174.6 | 5.7% | - The increase in net sales was primarily due to increased production volumes and new program launches, partially offset by a $14 million reduction from metal market pass-throughs and foreign exchange translation[140] Cost of Goods Sold This section examines the 3.6% increase in H1 2024 cost of goods sold, reflecting higher production volumes and material costs Cost of Goods Sold (in millions) | Period | 2024 | 2023 | Change | Percent Change | | :---------------------- | :-------- | :-------- | :-------- | :------------- | | Six Months Ended June 30 | $2,823.4 | $2,725.8 | $97.6 | 3.6% | - The change in COGS primarily reflects increased production volumes. Material costs were approximately 58% of total COGS in H1 2024, up from 57% in H1 2023[141] Gross Profit This section highlights the 22.7% increase in H1 2024 gross profit and improved gross margin to 12.8% Gross Profit (in millions) | Period | 2024 | 2023 | Change | Percent Change | | :---------------------- | :-------- | :-------- | :-------- | :------------- | | Six Months Ended June 30 | $415.8 | $338.8 | $77.0 | 22.7% | - Gross margin increased to 12.8% in H1 2024 from 11.1% in H1 2023[142] Selling, General and Administrative Expenses (SG&A) This section discusses the 7.4% increase in H1 2024 SG&A expenses, primarily due to higher compensation-related costs SG&A Expenses (in millions) | Period | 2024 | 2023 | Change | Percent Change | | :---------------------- | :-------- | :-------- | :-------- | :------------- | | Six Months Ended June 30 | $203.5 | $189.4 | $14.1 | 7.4% | - SG&A as a percentage of net sales was 6.3% in H1 2024, up from 6.2% in H1 2023, primarily due to increased compensation-related expense[143] Amortization of Intangible Assets This section notes a slight decrease in H1 2024 amortization expense for intangible assets compared to the prior year - Amortization expense was $41.3 million in H1 2024, down from $42.8 million in H1 2023[144] Restructuring and Acquisition-Related Costs This section reports a decrease in H1 2024 restructuring and acquisition-related costs, with expected future charges - Restructuring and acquisition-related costs decreased to $7.5 million in H1 2024 from $12.7 million in H1 2023[146] - AAM expects to incur $10 million to $20 million in total restructuring charges and up to $5 million in integration costs in 2024[146] Operating Income This section highlights a significant increase in H1 2024 operating income and improved operating margin - Operating income increased significantly to $163.5 million in H1 2024 from $93.9 million in H1 2023. Operating margin improved to 5.0% from 3.1%[146] Interest Expense and Interest Income This section details a decrease in H1 2024 interest expense and an increase in interest income, with a higher weighted-average interest rate on debt - Interest expense decreased to $96.9 million in H1 2024 from $100.7 million in H1 2023. Interest income increased to $14.4 million from $11.8 million[147] - The weighted-average interest rate on long-term debt was 7.1% in H1 2024, up from 6.7% in H1 2023. Full-year 2024 interest expense is expected to be $185 million to $195 million[147] Debt Refinancing and Redemption Costs This section outlines H1 2024 debt refinancing and redemption costs related to the Term Loan B Facility and Notes redemption - AAM incurred $0.2 million in debt refinancing and redemption costs in H1 2024 due to the new Term Loan B Facility and expensed $0.1 million for the write-off of debt issuance costs from the voluntary redemption of 6.25% Notes due 2026[147][148] Gain (Loss) on Equity Securities This section reports a loss from the sale of equity securities in H1 2024, with no significant change in fair value in the prior year - A loss of $0.1 million was recognized in H1 2024 from the sale of all remaining REE Automotive equity securities. The fair value of REE shares was principally unchanged in H1 2023[148] Other Income (Expense), Net This section notes a shift from other income to other expense, net for H1 2024, primarily due to foreign exchange fluctuations - Other income (expense), net was an expense of $8.8 million in H1 2024, compared to income of $3.2 million in H1 2023, primarily driven by changes in foreign exchange gains and losses[149] Income Tax Expense This section details the increase in H1 2024 income tax expense and effective tax rate, influenced by disallowed interest and GILTI tax - Income tax expense increased to $33.1 million in H1 2024 from $5.3 million in H1 2023. The effective income tax rate was 46.1% in H1 2024, down from 64.6% in H1 2023[151] - The effective tax rate in H1 2024 was primarily impacted by disallowed interest expense deductions in the U.S. and GILTI tax expense. H1 2023 included a $3.2 million tax benefit from a valuation allowance release and a $3.4 million net tax expense from a valuation allowance against prior year disallowed interest expense and reduced unrecognized tax benefits[152][153] Net Income and Earnings Per Share (EPS) This section reports a substantial increase in H1 2024 net income and diluted EPS compared to the prior year - Net income increased significantly to $38.7 million in H1 2024 from $2.9 million in H1 2023. Diluted EPS rose to $0.32 per share from $0.02 per share[154] SEGMENT REPORTING This section analyzes the performance of Driveline and Metal Forming segments, detailing changes in sales and Adjusted EBITDA Segment Sales (in millions) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Driveline | $1,124.5 | $1,086.5 | $2,230.9 | $2,100.3 | | Metal Forming | $653.1 | $634.2 | $1,297.2 | $1,253.3 | | Net sales | $1,632.3 | $1,570.7 | $3,239.2 | $3,064.6 | - Driveline sales increased due to higher production volumes and new program launches, partially offset by metal market pass-throughs and foreign exchange translation (approx. $14 million reduction for both Q2 and H1 2024)[157] - Metal Forming sales increased primarily due to the timing of commercial recoveries for inflationary costs, partially offset by metal market pass-throughs and foreign exchange translation (approx. $6 million reduction for Q2 2024)[158] Segment Adjusted EBITDA (in millions) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Driveline | $151.8 | $152.1 | $309.2 | $266.2 | | Metal Forming | $56.6 | $39.5 | $104.8 | $100.8 | | Total segment adjusted EBITDA | $208.4 | $191.6 | $414.0 | $367.0 | - Driveline Segment Adjusted EBITDA for H1 2024 increased by $33 million, primarily from higher production volumes, improved operating performance, and lower launch costs, despite increased R&D expense in Q2[159] - Metal Forming Segment Adjusted EBITDA increased due to commercial recoveries for inflationary costs, partially offset by higher manufacturing costs (labor) and production inefficiencies[160] Reconciliation of Non-GAAP and GAAP Information This section reconciles non-GAAP financial measures, such as EBITDA and Total Segment Adjusted EBITDA, to comparable GAAP measures - EBITDA and Total Segment Adjusted EBITDA are non-GAAP measures used by management and investors to analyze operating performance and valuation, and for operational planning and incentive compensation[162] Reconciliation of Non-GAAP to GAAP (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $18.2 | $8.0 | $38.7 | $2.9 | | Interest expense | $47.9 | $50.2 | $96.9 | $100.7 | | Income tax expense | $17.2 | $5.3 | $33.1 | $5.3 | | Depreciation and amortization | $119.6 | $120.5 | $237.4 | $245.4 | | EBITDA | $202.9 | $184.0 | $406.1 | $354.3 | | Restructuring and acquisition-related costs | $5.0 | $7.9 | $7.5 | $12.7 | | Debt refinancing and redemption costs | $0.3 | — | $0.3 | — | | Loss (gain) on equity securities | $0.2 | $(0.3) | $0.1 | — | | Total segment adjusted EBITDA | $208.4 | $191.6 | $414.0 | $367.0 | LIQUIDITY AND CAPITAL RESOURCES AAM maintains strong liquidity with nearly $1.5 billion available, funding debt, capital, R&D, and working capital, with robust operating cash flow Liquidity Position This section details AAM's liquidity, including cash, equivalents, and available credit facilities, with no significant debt maturities before 2026 - At June 30, 2024, AAM had nearly $1.5 billion in liquidity, comprising $520 million in cash and cash equivalents, $892 million available under its Revolving Credit Facility, and $83 million available under foreign credit facilities[165] - The company has no significant debt maturities before 2026[165] Operating Activities This section analyzes net cash provided by operating activities, noting changes in working capital, income taxes, and interest paid - Net cash provided by operating activities was $160.6 million in H1 2024, slightly down from $164.9 million in H1 2023[166] - Cash flow from operating activities decreased by approximately $30 million due to changes in accounts receivable and by $54 million due to changes in accounts payable and accrued expenses in H1 2024 compared to H1 2023[166][167] - Income taxes paid, net, decreased to $22.8 million in H1 2024 from $40.6 million in H1 2023, which included a $10.1 million payment related to an IRS Notice of Tax Due[167] - Interest paid increased to $101.7 million in H1 2024 from $88.8 million in H1 2023, primarily due to higher interest rates on variable rate debt[168] - Expected restructuring and acquisition-related payments in 2024 are $15 million to $25 million. Expected cash payments for other postretirement benefit obligations in 2024 are approximately $11.0 million[168] Investing Activities This section discusses net cash used in investing activities, primarily driven by increased capital expenditures - Net cash used in investing activities was $94.9 million in H1 2024, up from $77.9 million in H1 2023[170] - Capital expenditures increased to $96.8 million in H1 2024 from $90.7 million in H1 2023. Capital spending for full year 2024 is expected to be approximately 4% of sales[170] Financing Activities This section details net cash used in financing activities, including debt refinancing, redemptions, and share repurchases - Net cash used in financing activities was $58.5 million in H1 2024, down from $87.4 million in H1 2023[171] - AAM refinanced its Term Loan B Facility in May 2024, establishing a new $648.0 million facility maturing in December 2029, and prepaid $13.0 million on Term Loan A and $16.9 million on Term Loan B, satisfying principal payments through 2024 and 2026, respectively[172][174] - The company redeemed $30.0 million of its 6.25% Notes due 2026 in Q2 2024 and an additional $50.0 million in August 2024. It also repaid $6.6 million of Tekfor Group indebtedness in H1 2024[175][176] - Treasury stock increased by $2.8 million in H1 2024 due to share repurchases for employee tax withholding obligations[176] CYCLICALITY AND SEASONALITY This section describes AAM's operations as cyclical, tied to automotive production, and moderately seasonal due to OEM shutdowns - AAM's operations are cyclical, directly tied to worldwide automotive production, and moderately seasonal due to major OEM customer shutdowns for model year changeovers (1-2 weeks) and in December (approx. one week)[183] LITIGATION AND ENVIRONMENTAL MATTERS This section addresses AAM's legal proceedings and environmental compliance, including ongoing IRS examinations and potential tax liabilities - AAM is involved in various legal proceedings, including product warranties, contractual matters, and environmental obligations, but does not currently believe any will have a material adverse effect on its financial condition, results of operations, or cash flows[184] - The company is subject to ongoing IRS examinations and audits, with potential negative outcomes having a material adverse impact. (Refer to Note 12 for details on the FBCSI dispute)[185] - AAM complies with environmental and occupational safety laws, making capital and other expenditures as needed. No climate-related events in Q2 2024 are believed to have a material adverse impact[186][187] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details AAM's exposure to market risks, specifically currency exchange and interest rates, and outlines hedging strategies Currency Exchange Risk This section describes AAM's use of foreign currency forward contracts and cross-currency swaps to hedge exchange rate fluctuations - AAM uses foreign currency forward contracts to reduce exchange rate fluctuations, with a total notional amount of $281.7 million at June 30, 2024 (vs. $206.9 million at Dec 31, 2023)[190] - The potential decrease in fair value of foreign exchange contracts, assuming a 10% adverse change in exchange rates, would be approximately $25.6 million at June 30, 2024[190] - A new fixed-to-fixed cross-currency swap for €175.0 million ($187.5 million equivalent) was entered in Q2 2024 to hedge Euro-based intercompany loans. A 10% adverse change in exchange rates would result in a potential $18.7 million decrease in its fair value[191] Interest Rate Risk This section outlines AAM's exposure to variable interest rates and its use of interest rate swaps to manage cash flow variability - AAM is exposed to variable interest rates on certain credit facilities and uses variable-to-fixed interest rate swaps to reduce cash flow variability, with a $700.0 million notional amount hedged into Q3 2027, and $200.0 million extending into Q4 2029[193] - A one-percentage-point increase in interest rates would result in an approximate $4.3 million annualized pre-tax earnings and cash flow impact on long-term debt at June 30, 2024[193] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and reports no material changes in internal control over financial reporting for Q2 2024 Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2024 - The company's disclosure controls and procedures were evaluated and concluded to be effective as of June 30, 2024[195] Changes in Internal Control over Financial Reporting This section states no material changes occurred in internal control over financial reporting during Q2 2024 - There were no changes in