American Axle & Manufacturing (AXL) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information - Registrant: AMERICAN AXLE & MANUFACTURING HOLDINGS, INC. (AAM), incorporated in Delaware, IRS Employer Identification No. 38-3161171, located at One Dauch Drive, Detroit, Michigan 48211-1198[2] - Filing Status: AAM is a large accelerated filer, has filed all required reports in the preceding 12 months, and submitted all Interactive Data Files[2][3] Securities Registered | Title of each class | Trading Symbol | Name of each exchange on which registered | | :------------------------ | :------------- | :-------------------------------------- | | Common Stock, par value $0.01 per share | AXL | New York Stock Exchange | - Outstanding Shares: As of August 5, 2025, 118,664,153 shares of Common Stock, par value $0.01 per share, were outstanding[3] - Website Access: AAM's annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K are available free of charge on www.aam.com and www.sec.gov[5](index=5&type=chunk) Table of Contents - The report is structured into Part I (Financial Information) and Part II (Other Information), detailing financial statements, management's discussion, market risk, controls, risk factors, and exhibits[7] Forward-Looking Statements - This section identifies forward-looking statements, which are based on current expectations and beliefs, and are subject to risks and uncertainties that could cause actual results to differ materially[9][10] - Key risk factors include global economic conditions (inflation, recession), reduced purchases by major customers (GM, Stellantis, Ford), technological changes, increased competition, supply chain disruptions, labor shortages, raw material price increases, and risks associated with transitioning to hybrid/electric vehicles[12] - Other risks include the ability to integrate acquisitions, risks in global operations (tariffs, trade agreements, geopolitical conflicts, currency fluctuations), IT system failures (including cyber attacks), and liabilities from warranty claims or legal proceedings[12] Part I. Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for American Axle & Manufacturing Holdings, Inc., including statements of income, comprehensive income (loss), balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining accounting policies, significant transactions, and financial instrument details Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (Three Months Ended June 30, in millions) | Metric | 2025 | 2024 | Change (YoY) | | :--------------------------------- | :------------------ | :------------------ | :------------- | | Net sales | $1,536.2 | $1,632.3 | $(96.1) (-5.9%) | | Cost of goods sold | $1,335.5 | $1,415.0 | $(79.5) (-5.6%) | | Gross profit | $200.7 | $217.3 | $(16.6) (-7.6%) | | Operating income | $55.0 | $86.5 | $(31.5) (-36.4%) | | Income before income taxes | $67.4 | $35.4 | $32.0 (+90.4%) | | Net income | $39.3 | $18.2 | $21.1 (+115.9%) | | Basic earnings per share | $0.32 | $0.15 | $0.17 (+113.3%) | | Diluted earnings per share | $0.32 | $0.15 | $0.17 (+113.3%) | Condensed Consolidated Statements of Income (Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | Change (YoY) | | :--------------------------------- | :------------------ | :------------------ | :------------- | | Net sales | $2,947.5 | $3,239.2 | $(291.7) (-9.0%) | | Cost of goods sold | $2,572.9 | $2,823.4 | $(250.5) (-8.9%) | | Gross profit | $374.6 | $415.8 | $(41.2) (-9.9%) | | Operating income | $97.7 | $163.5 | $(65.8) (-40.2%) | | Income before income taxes | $88.5 | $71.8 | $16.7 (+23.3%) | | Net income | $46.4 | $38.7 | $7.7 (+19.9%) | | Basic earnings per share | $0.38 | $0.32 | $0.06 (+18.8%) | | Diluted earnings per share | $0.38 | $0.32 | $0.06 (+18.8%) | - The significant increase in income before income taxes and net income for both periods is largely driven by a $46.3 million gain on Business Combination Derivative for the three months ended June 30, 2025, and $68.2 million for the six months ended June 30, 2025, which was not present in the prior year[14] Condensed Consolidated Statements of Comprehensive Income (Loss) Condensed Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended June 30, in millions) | Metric | 2025 | 2024 | Change (YoY) | | :--------------------------------- | :------------------ | :------------------ | :------------- | | Net income | $39.3 | $18.2 | $21.1 (+115.9%) | | Other comprehensive income (loss) | $33.4 | $(33.9) | $67.3 (N/A) | | Comprehensive income (loss) | $72.7 | $(15.7) | $88.4 (N/A) | Condensed Consolidated Statements of Comprehensive Income (Loss) (Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | Change (YoY) | | :--------------------------------- | :------------------ | :------------------ | :------------- | | Net income | $46.4 | $38.7 | $7.7 (+19.9%) | | Other comprehensive income (loss) | $58.6 | $(39.0) | $97.6 (N/A) | | Comprehensive income (loss) | $105.0 | $(0.3) | $105.3 (N/A) | - The significant improvement in other comprehensive income (loss) for both periods in 2025 is primarily due to positive foreign currency translation adjustments ($24.8 million for Q2 2025 vs. $(14.3) million for Q2 2024, and $48.1 million for H1 2025 vs. $(29.6) million for H1 2024) and favorable changes in hedges[15] Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (as of June 30, 2025 vs. December 31, 2024, in millions) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------- | :--------------------------- | :------------------------------ | :----- | | Assets | | | | | Cash and cash equivalents | $586.5 | $552.9 | $33.6 | | Total current assets | $2,171.9 | $1,914.8 | $257.1 | | Total assets | $5,273.6 | $5,059.9 | $213.7 | | Liabilities | | | | | Total current liabilities | $1,227.4 | $1,175.2 | $52.2 | | Long-term debt, net | $2,599.8 | $2,576.9 | $22.9 | | Total liabilities | $4,600.6 | $4,497.1 | $103.5 | | Stockholders' Equity | | | | | Total stockholders' equity | $673.0 | $562.8 | $110.2 | - Total assets increased by $213.7 million, driven by a rise in current assets, particularly accounts receivable and prepaid expenses. Total stockholders' equity saw a notable increase of $110.2 million, primarily due to a reduction in accumulated deficit and positive foreign currency translation adjustments[20] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, in millions) | Activity | 2025 | 2024 | Change (YoY) | | :--------------------------------- | :------------------ | :------------------ | :------------- | | Net cash provided by operating activities | $147.8 | $160.6 | $(12.8) (-8.0%) | | Net cash used in investing activities | $(98.6) | $(94.9) | $(3.7) (-3.9%) | | Net cash used in financing activities | $(30.0) | $(58.5) | $28.5 (+48.7%) | | Effect of exchange rate changes on cash | $14.4 | $(7.2) | $21.6 (N/A) | | Net increase in cash and cash equivalents | $33.6 | $0.0 | $33.6 (N/A) | | Cash and cash equivalents at end of period | $586.5 | $519.9 | $66.6 (+12.8%) | - Operating cash flow decreased slightly, while investing activities saw a higher outflow primarily due to increased purchases of property, plant, and equipment. Financing activities used less cash due to lower debt payments and debt issuance costs compared to the prior year[22] - Supplemental cash flow information shows interest paid decreased from $101.7 million in H1 2024 to $83.9 million in H1 2025, while income taxes paid, net, increased from $22.8 million to $27.6 million[22] Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $562.8 million at December 31, 2024, to $673.0 million at June 30, 2025, primarily driven by net income and positive foreign currency translation adjustments[20][23] - Accumulated deficit decreased from $(248.2) million to $(201.8) million, reflecting the net income generated during the period[20][23] - Foreign currency translation adjustments shifted from a loss of $(187.0) million at December 31, 2024, to a loss of $(138.9) million at June 30, 2025, indicating a favorable impact from exchange rate changes[20][23] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering significant accounting policies, recent accounting standard adoptions, acquisitions and dispositions, debt, derivatives, fair value measurements, employee benefits, warranties, revenue recognition, restructuring, income taxes, and segment reporting Note 1. Organization and Basis of Presentation - AAM is a global Tier 1 automotive and mobility supplier, specializing in Driveline and Metal Forming technologies for electric, hybrid, and internal combustion vehicles, with over 75 facilities in 15 countries[26][112] - The interim condensed consolidated financial statements are unaudited and include normal recurring adjustments, prepared in accordance with Form 10-Q instructions[27] - AAM adopted ASU 2023-07 (Improvements to Reportable Segment Disclosures) retrospectively on January 1, 2024 (annual) and January 1, 2025 (interim), and ASU 2023-09 (Improvements to Income Tax Disclosures) on January 1, 2025, which will modify income tax disclosures but is not expected to significantly impact financial statements[31][32] - ASU 2024-03 (Expense Disaggregation Disclosures) will be adopted in fiscal years 2027 (annual) and 2028 (interim), with the impact currently being assessed[33] Note 2. Acquisitions and Dispositions - AAM announced an agreement to acquire Dowlais Group plc (the Business Combination) in Q1 2025, a cash and share offer, unanimously approved by both boards and shareholders, expected to close in Q4 2025[34][35][117][118] - AAM entered into a definitive agreement in October 2024 to sell its commercial vehicle axle business in India (AAM India Manufacturing Corporation Pvt., Ltd.) for $65.0 million. The sale was completed in July 2025, with $58.0 million collected at closing[36][37][119] - An impairment charge of $8.0 million was recorded for the three and six months ended June 30, 2025, to reduce the carrying value of the India business to fair value less costs to sell[38][120] - In Q1 2025, AAM exited its 50% ownership in two Chinese joint ventures (Hefei AAM Automotive Driveline & Chassis System Co., Ltd. and Liuzhou AAM Automotive Driveline System Co., Ltd.), collecting $30.1 million in cash[39][182] Note 3. Inventories - Inventories are stated at the lower of cost or net realizable value, using the first-in-first-out (FIFO) method[40] Inventories, Net (in millions) | Category | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Raw materials and work-in-progress | $379.4 | $362.0 | | Finished goods | $101.0 | $108.4 | | Gross inventories | $480.4 | $470.4 | | Inventory valuation reserves | $(31.3) | $(27.9) | | Inventories, net | $449.1 | $442.5 | Note 4. Goodwill and Other Intangible Assets Goodwill Reconciliation (in millions) | Metric | Amount | | :------------------------ | :----- | | Balance at December 31, 2024 | $172.0 | | Foreign currency translation | $2.8 | | Balance at June 30, 2025 | $174.8 | - All remaining goodwill of $174.8 million is attributable to the Driveline reporting unit. Accumulated goodwill impairment losses were $1,435.5 million at June 30, 2025[43] - Goodwill of $8.3 million associated with the AAM India Manufacturing Corporation Pvt., Ltd. business was classified as held-for-sale[43] Other Intangible Assets, Net (in millions) | Category | June 30, 2025 (Net Carrying Amount) | December 31, 2024 (Net Carrying Amount) | | :------------------------ | :--------------------------------- | :------------------------------------ | | Capitalized computer software | $6.8 | $8.3 | | Customer platforms | $332.9 | $364.6 | | Customer relationships | $24.8 | $26.5 | | Technology and other | $51.4 | $57.3 | | Total | $415.9 | $456.7 | - Amortization expense for intangible assets was $20.4 million for Q2 2025 (vs. $20.6 million in Q2 2024) and $41.0 million for H1 2025 (vs. $41.3 million in H1 2024). Estimated annual amortization is approximately $80 million through 2029, excluding the Business Combination impact[44][128][147] Note 5. Long-Term Debt Long-Term Debt (in millions) | Debt Type | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Term Loan A Facility | $484.3 | $484.3 | | Term Loan B Facility | $648.0 | $648.0 | | 6.875% Notes due 2028 | $400.0 | $400.0 | | 6.50% Notes due 2027 | $500.0 | $500.0 | | 5.00% Notes due 2029 | $600.0 | $600.0 | | Non-U.S. credit facilities and other | $23.8 | $27.6 | | Total debt | $2,656.1 | $2,659.9 | | Less: Current portion of long-term debt | $(21.9) | $(47.9) | | Long-term debt, net | $2,599.8 | $2,576.9 | - In February 2025, AAM entered into the Second Amendment to its credit facility, increasing the Revolving Credit Facility to $1,495.0 million (effective upon Business Combination closing) and providing an $843.0 million incremental Term Loan B Facility for the Business Combination. It also extended maturities for the Revolving Credit Facility and Term Loan A Facility[46][187] - In January 2025, AAM entered into bridge credit agreements (Amended and Restated First Lien Bridge Credit Agreement for $843.0 million and Second Lien Bridge Credit Agreement for $500.0 million) to finance the Dowlais Business Combination[47][188] - The weighted-average interest rate on long-term debt increased to 6.7% at June 30, 2025, from 6.5% at December 31, 2024[54] Note 6. Derivatives - AAM uses foreign currency forward contracts to hedge payroll expenses and working capital purchases, with total notional amounts of $234.6 million at June 30, 2025[56][207] - In January 2025, AAM entered into a non-designated foreign currency forward contract (Business Combination Derivative) with a notional amount of £571.0 million ($783.8 million) to hedge cash flow variability related to the Dowlais Business Combination. This resulted in a $46.3 million gain for Q2 2025 and $68.2 million for H1 2025[57][61][135][155][184][208] - A fixed-to-fixed cross-currency swap (notional €175.0 million or $206.3 million at June 30, 2025) hedges Euro-based intercompany loans, and a variable-to-fixed interest rate swap (notional $700.0 million) hedges variable rate debt interest payments[58][59][209][211] Reclassification of Derivative Gains and Losses into Net Income (Three Months Ended June 30, in millions) | Derivative Type | Location in Net Income | 2025 Gain (Loss) | 2024 Gain (Loss) | | :------------------------ | :--------------------- | :--------------- | :--------------- | | Currency forward contracts | Cost of Goods Sold | $(1.9) | $5.7 | | Fixed-to-fixed cross currency swap | Other Income (Expense), net | $(17.0) | $2.0 | | Variable-to-fixed interest rate swap | Interest Expense | $0.4 | $1.1 | Note 7. Fair Value - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[63] - Cash equivalents are classified as Level 1. All derivative instruments (currency forward contracts, fixed-to-fixed cross-currency swap, variable-to-fixed interest rate swap) are classified as Level 2[62] Fair Value of Debt (in millions) | Debt Type | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | Input Level | | :------------------------ | :-------------------------- | :----------------------------- | :---------- | | Revolving Credit Facility | $0.0 | $0.0 | Level 2 | | Term Loan A Facility | $484.3 | $486.1 | Level 2 | | Term Loan B Facility | $648.0 | $652.9 | Level 2 | | 6.875% Notes due 2028 | $400.0 | $395.0 | Level 2 | | 6.50% Notes due 2027 | $500.0 | $493.5 | Level 2 | | 5.00% Notes due 2029 | $600.0 | $544.5 | Level 2 | Note 8. Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (AOCI) - AOCI balance improved from $(352.2) million at December 31, 2024, to $(293.6) million at June 30, 2025, primarily due to positive foreign currency translation adjustments and unrecognized gains on hedges[23][67] - For the six months ended June 30, 2025, $6.4 million from foreign currency translation adjustments related to the exited Chinese joint ventures was reclassified from AOCI to Other income (expense), net[69] Note 9. Employee Benefit Plans Net Periodic Benefit Cost (Credit) (in millions) | Benefit Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Pension Benefits (Cost) | $0.6 | $1.8 | $3.6 | $1.2 | | Other Postretirement Benefits (Credit) | $(0.3) | $(0.4) | $(0.5) | $(0.9) | - Noncurrent pension liability was $78.8 million at June 30, 2025, and noncurrent other postretirement benefits liability was $265.0 million[71] - Expected regulatory pension funding requirements for 2025 are approximately $1.1 million, and cash payments for other postretirement benefit obligations are expected to be $11.6 million[72][180] Note 10. Product Warranties - Product warranty liability is estimated at the time of sale based on sales volumes and historical claims data, and is continuously evaluated and adjusted quarterly[74] Product Warranty Liability Reconciliation (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Beginning balance | $62.6 | $67.6 | $60.6 | $66.3 | | Accruals | $3.5 | $3.8 | $7.6 | $7.7 | | Payments | $(2.7) | $(2.9) | $(5.2) | $(5.1) | | Adjustment to prior period accruals | $(1.9) | $(0.5) | $(1.9) | $(0.5) | | Foreign currency translation | $1.0 | $(0.3) | $1.4 | $(0.7) | | Ending balance | $62.5 | $67.7 | $62.5 | $67.7 | Note 11. Revenue from Contracts with Customers Net Sales by Segment and Geographical Location (Three Months Ended June 30, in millions) | Region | Driveline (2025) | Metal Forming (2025) | Total (2025) | Driveline (2024) | Metal Forming (2024) | Total (2024) | | :------------------------ | :----------------- | :------------------- | :----------- | :----------------- | :------------------- | :----------- | | North America | $822.7 | $317.8 | $1,140.5 | $849.2 | $357.7 | $1,206.9 | | Asia | $142.9 | $2.7 | $145.6 | $143.9 | $5.2 | $149.1 | | Europe | $88.6 | $111.5 | $200.1 | $110.5 | $123.1 | $233.6 | | South America | $27.1 | $22.9 | $50.0 | $20.7 | $22.0 | $42.7 | | Total | $1,081.3 | $454.9 | $1,536.2 | $1,124.3 | $508.0 | $1,632.3 | Net Sales by Segment and Geographical Location (Six Months Ended June 30, in millions) | Region | Driveline (2025) | Metal Forming (2025) | Total (2025) | Driveline (2024) | Metal Forming (2024) | Total (2024) | | :------------------------ | :----------------- | :------------------- | :----------- | :----------------- | :------------------- | :----------- | | North America | $1,537.2 | $636.3 | $2,173.5 | $1,677.2 | $703.6 | $2,380.8 | | Asia | $280.6 | $6.1 | $286.7 | $286.6 | $13.2 | $299.8 | | Europe | $172.5 | $222.7 | $395.2 | $232.0 | $247.4 | $479.4 | | South America | $48.2 | $43.9 | $92.1 | $34.9 | $44.3 | $79.2 | | Total | $2,038.5 | $909.0 | $2,947.5 | $2,230.7 | $1,008.5 | $3,239.2 | - Contract liabilities (deferred revenue) increased from $14.2 million (current) and $37.0 million (long-term) at December 31, 2024, to $27.4 million (current) and $38.4 million (long-term) at June 30, 2025[78] - AAM amortized $10.9 million of previously recorded contract liabilities into revenue for the six months ended June 30, 2025, compared to $8.1 million in the prior year[78] Note 12. Restructuring and Acquisition-Related Costs Restructuring Activity Accrual (in millions) | Metric | December 31, 2024 | June 30, 2025 | | :------------------------ | :---------------- | :------------ | | Accrual at period end | $2.8 | $2.3 | | Charges (H1 2025) | N/A | $6.3 | | Cash utilization (H1 2025) | N/A | $(6.8) | - Total restructuring and acquisition-related costs were $16.5 million for Q2 2025 (vs. $5.0 million in Q2 2024) and $36.2 million for H1 2025 (vs. $7.5 million in H1 2024), primarily due to acquisition-related costs for the Dowlais Business Combination[84][130][149] - For H1 2025, $3.5 million of restructuring costs related to the 2024 Program and $2.8 million to Tekfor. Driveline segment incurred $2.0 million and Metal Forming $3.4 million of restructuring costs[82][83] - AAM expects to incur $30 million to $40 million in total restructuring charges and $60 million to $70 million in acquisition-related costs in 2025, with a significant portion of acquisition-related payments expected at the Business Combination closing[83][150][179] Note 13. Income Taxes Income Tax Expense and Effective Income Tax Rate | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income tax expense (in millions) | $28.1 | $17.2 | $42.1 | $33.1 | | Effective income tax rate | 41.7% | 48.6% | 47.6% | 46.1% | - Effective tax rates vary primarily due to the mix of earnings on a jurisdictional basis, unfavorable impact of disallowed interest expense deductions in the U.S., non-U.S. tax rates, and valuation allowances, partially offset by tax credits[87][88][140][141][160][161] - AAM is involved in pending tax litigation with the IRS regarding foreign base company sales income for tax years 2015-2020. AAM believes its position is defensible and has not recorded an impact beyond a $10.1 million receivable paid in 2023. Potential additional income tax expense for 2015-2024 is estimated at $315 million to $365 million if unsuccessful[90][91][92] - Recently enacted H.R. 1 (the One Big Beautiful Bill) on July 4, 2025, permanently modifies IRC Section 163(j) interest expense limitation rules, potentially reducing future limitations and allowing realization of additional deferred tax assets. The impact will be reflected in Q3 2025 financial statements[94][95][163][164] Note 14. Earnings Per Share (EPS) Basic and Diluted EPS (Three Months Ended June 30) | Metric | 2025 | 2024 | | :--------------------------------- | :--- | :--- | | Net income attributable to common shareholders (in millions) | $37.7 | $17.5 | | Weighted-average common shares outstanding (in millions) | 118.6 | 117.6 | | Basic EPS | $0.32 | $0.15 | | Diluted EPS | $0.32 | $0.15 | Basic and Diluted EPS (Six Months Ended June 30) | Metric | 2025 | 2024 | | :--------------------------------- | :--- | :--- | | Net income attributable to common shareholders (in millions) | $44.5 | $37.4 | | Weighted-average common shares outstanding (in millions) | 118.2 | 117.4 | | Basic EPS | $0.38 | $0.32 | | Diluted EPS | $0.38 | $0.32 | Note 15. Segment Reporting - AAM operates in two reportable segments: Driveline (front/rear axles, driveshafts, electric/hybrid driveline products) and Metal Forming (engine, transmission, driveline, safety-critical components for various vehicle architectures and industrial markets)[103][170] - Segment Adjusted EBITDA is the key measure for assessing segment performance and resource allocation, defined as EBITDA excluding restructuring, acquisition-related costs, debt refinancing, derivative gains/losses, equity security gains/losses, pension charges, impairment charges, and non-recurring items[100][174] Segment Adjusted EBITDA (Three Months Ended June 30, in millions) | Segment | 2025 | 2024 | Change (YoY) | | :------------------------ | :--- | :--- | :----------- | | Driveline | $148.9 | $151.8 | $(2.9) (-1.9%) | | Metal Forming | $53.3 | $56.6 | $(3.3) (-5.8%) | | Total Segment Adjusted EBITDA | $202.2 | $208.4 | $(6.2) (-3.0%) | Segment Adjusted EBITDA (Six Months Ended June 30, in millions) | Segment | 2025 | 2024 | Change (YoY) | | :------------------------ | :--- | :--- | :----------- | | Driveline | $274.2 | $309.2 | $(35.0) (-11.3%) | | Metal Forming | $105.3 | $104.8 | $0.5 (+0.5%) | | Total Segment Adjusted EBITDA | $379.5 | $414.0 | $(34.5) (-8.3%) | - Driveline Segment Adjusted EBITDA decreased due to lower production volumes, partially offset by reduced SG&A (primarily lower R&D expense). Metal Forming Segment Adjusted EBITDA was relatively stable for the six-month period, reflecting improved operating performance offsetting lower production volumes[171][172] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive analysis of AAM's financial condition and results of operations for the three and six months ended June 30, 2025, compared to the prior year periods. It covers company overview, major customers, pending acquisitions and dispositions, the impact of tariffs, commercial matters, detailed financial performance by line item, segment results, liquidity, capital resources, and other operational considerations Company Overview - AAM is a global Tier 1 automotive and mobility supplier, headquartered in Detroit, Michigan, with over 75 facilities in 15 countries, focusing on Driveline and Metal Forming technologies for various vehicle types[112] Major Customer Sales as % of Consolidated Net Sales | Customer | H1 2025 | H1 2024 | Full Year 2024 | | :------------------------ | :------ | :------ | :------------- | | General Motors Company (GM) | 44% | 41% | 42% | | Stellantis N.V. (Stellantis) | 13% | 14% | 13% | | Ford Motor Company (Ford) | 15% | 13% | 13% | - AAM is acquiring Dowlais Group plc through a cash and share offer, expected to close in Q4 2025, forming a combined company headquartered in Detroit[117][118] - The sale of AAM India Manufacturing Corporation Pvt., Ltd. for $65 million was completed in July 2025, with an $8 million impairment charge recorded in H1 2025[119][120] - Tariffs incurred approximately $10 million in costs for H1 2025, with an anticipated full-year impact of $10 million to $15 million after mitigation. Uncertainty remains regarding future tariffs and trade relations[122] - AAM submitted a cancellation claim to a major customer for a terminated e-Beam axle contract, seeking to recover approximately $70 million in associated assets[123] Results of Operations – Q2 2025 vs. Q2 2024 Key Financial Performance (Q2 2025 vs. Q2 2024, in millions) | Metric | 2025 | 2024 | Change (YoY) | | :--------------------------------- | :--- | :--- | :----------- | | Net Sales | $1,536.2 | $1,632.3 | $(96.1) (-5.9%) | | Cost of Goods Sold | $1,335.5 | $1,415.0 | $(79.5) (-5.6%) | | Gross Profit | $200.7 | $217.3 | $(16.6) (-7.6%) | | Selling, General and Administrative Expenses | $100.8 | $105.2 | $(4.4) (-4.2%) | | Operating Income | $55.0 | $86.5 | $(31.5) (-36.4%) | | Net Income | $39.3 | $18.2 | $21.1 (+115.9%) | | Diluted EPS | $0.32 | $0.15 | $0.17 (+113.3%) | - Net sales decreased primarily due to lower production volumes on certain vehicle programs, partially offset by metal market pass-throughs and foreign exchange impacts[124] - Gross margin slightly decreased from 13.3% to 13.1%. SG&A expenses decreased mainly due to lower R&D expense ($36.1 million in Q2 2025 vs. $44.5 million in Q2 2024)[126][127] - Operating income declined significantly due to lower sales, an $8.0 million impairment charge, and increased restructuring and acquisition-related costs ($16.5 million in Q2 2025 vs. $5.0 million in Q2 2024)[129][130][131] - Net income and EPS increased substantially, primarily driven by a $46.3 million unrealized gain on the Business Combination Derivative and favorable changes in foreign exchange gains and losses[135][137][142] Results of Operations – H1 2025 vs. H1 2024 Key Financial Performance (H1 2025 vs. H1 2024, in millions) | Metric | 2025 | 2024 | Change (YoY) | | :--------------------------------- | :--- | :--- | :----------- | | Net Sales | $2,947.5 | $3,239.2 | $(291.7) (-9.0%) | | Cost of Goods Sold | $2,572.9 | $2,823.4 | $(250.5) (-8.9%) | | Gross Profit | $374.6 | $415.8 | $(41.2) (-9.9%) | | Selling, General and Administrative Expenses | $191.7 | $203.5 | $(11.8) (-5.8%) | | Operating Income | $97.7 | $163.5 | $(65.8) (-40.2%) | | Net Income | $46.4 | $38.7 | $7.7 (+19.9%) | | Diluted EPS | $0.38 | $0.32 | $0.06 (+18.8%) | - Net sales decreased due to lower production volumes and a reduction of approximately $17 million from metal market pass-throughs and foreign exchange[143] - Cost of goods sold decreased, reflecting lower production volumes, improved operating performance, and a reduction in material costs as a percentage of COGS (55% in H1 2025 vs. 58% in H1 2024) due to lower steel prices[144] - SG&A expenses decreased primarily due to lower R&D expense ($72.4 million in H1 2025 vs. $81.2 million in H1 2024)[146] - Operating income declined significantly due to lower sales, an $8.0 million impairment charge, and substantially higher restructuring and acquisition-related costs ($36.2 million in H1 2025 vs. $7.5 million in H1 2024)[148][149][151] - Net income and EPS increased, largely driven by a $68.2 million unrealized gain on the Business Combination Derivative and lower interest expense ($86.0 million in H1 2025 vs. $96.9 million in H1 2024)[152][155][165] Segment Reporting (MD&A) Net Sales by Reportable Segment (in millions) | Segment | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------ | :------ | :------ | :------ | :------ | | Driveline | $1,082.1 | $1,124.5 | $2,039.9 | $2,230.9 | | Metal Forming | $598.4 | $653.1 | $1,174.2 | $1,297.2 | | Eliminations | $(144.3) | $(145.3) | $(266.6) | $(288.9) | | Net sales | $1,536.2 | $1,632.3 | $2,947.5 | $3,239.2 | - Driveline sales decreased for both Q2 and H1 2025 primarily due to lower production volumes, partially offset by metal market pass-throughs and foreign exchange impacts[167] - Metal Forming sales also decreased due to lower production volumes, partially offset by metal market pass-throughs and foreign exchange impacts[168] Segment Adjusted EBITDA (in millions) | Segment | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------ | :------ | :------ | :------ | :------ | | Driveline | $148.9 | $151.8 | $274.2 | $309.2 | | Metal Forming | $53.3 | $56.6 | $105.3 | $104.8 | | Total Segment Adjusted EBITDA | $202.2 | $208.4 | $379.5 | $414.0 | - Driveline Segment Adjusted EBITDA decreased due to lower production volumes, partially offset by reduced SG&A (lower R&D). Metal Forming Segment Adjusted EBITDA was stable for H1 2025, with improved operating performance offsetting lower volumes[171][172] Liquidity and Capital Resources - As of June 30, 2025, AAM had over $1.5 billion in liquidity, comprising $587 million in cash and cash equivalents, $897 million available under the Revolving Credit Facility, and $78 million from non-U.S. credit facilities[177] - Net cash provided by operating activities was $147.8 million for H1 2025, a decrease from $160.6 million in H1 2024. Interest paid decreased to $83.9 million from $101.7 million due to lower interest rates and outstanding debt[178] - Net cash used in investing activities was $98.6 million for H1 2025, up from $94.9 million in H1 2024, primarily due to increased capital expenditures ($126.6 million vs. $96.8 million). Capital spending for 2025 is projected at approximately 5% of sales[181] - Net cash used in financing activities decreased to $30.0 million for H1 2025 from $58.5 million in H1 2024, driven by lower debt payments and debt issuance costs[186] - The Dowlais Business Combination involves approximately $784 million in cash consideration, which will be financed through an $843.0 million incremental Term Loan B Facility and a $500.0 million interim loan facility[183][188] Summarized Financial Information of Combined Entities (AAM Holdings, AAM Inc., and Subsidiary Guarantors, in millions) | Metric | Six Months Ended June 30, 2025 | Year Ended December 31, 2024 | | :------------------------ | :--------------------------------------- | :--------------------------------------- | | Net sales | $2,090.1 | $4,268.4 | | Gross profit | $280.5 | $537.9 | | Income from operations | $20.5 | $73.9 | | Net income (loss) | $12.6 | $(27.2) | | Current assets | $1,267.0 | $1,038.5 | | Noncurrent assets | $2,436.0 | $2,480.8 | | Current liabilities | $563.8 | $497.7 | | Noncurrent liabilities | $3,150.5 | $3,098.0 | Cyclicality and Seasonality - AAM's operations are cyclical, directly tied to worldwide automotive production and general economic conditions[200] - The business is moderately seasonal, with major OEM customers typically having extended shutdowns in conjunction with model year changeovers and in December, which can impact quarterly results[200] Litigation and Environmental Matters - 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 financial results[201] - The company is subject to tax examinations and audits globally, with potential negative outcomes impacting financial results. A liability for unrecognized income tax benefits and related interest/penalties of $39.0 million was recorded at June 30, 2025[93][202] - AAM complies with environmental and occupational safety laws, making capital and other expenditures for compliance, which were not significant in Q2 2025. No material adverse climate-related events occurred in Q2 2025[203][204] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details AAM's exposure to market risks, specifically currency exchange rates and interest rates, and the strategies employed to manage these risks through hedging instruments, without engaging in speculative trading Currency Exchange Risk - AAM uses foreign currency forward contracts to hedge exposure to exchange rate fluctuations for payroll and working capital, with a total notional amount of $234.6 million at June 30, 2025. A 10% adverse change would result in a $21.3 million decrease in fair value[207] - A non-designated foreign currency forward contract (Business Combination Derivative) with a notional amount of £571.0 million ($784 million) was entered into in January 2025 to reduce cash flow variability for the Dowlais Business Combination. A 10% adverse change would result in a $78.4 million decrease in fair value[208] - A fixed-to-fixed cross-currency swap (notional €175.0 million or $206.3 million) hedges Euro-based intercompany loans. A 10% adverse change would result in a $20.6 million decrease in fair value[209] Interest Rate Risk - AAM is exposed to variable interest rates on certain credit facilities and uses a variable-to-fixed interest rate swap to reduce cash flow variability on $700.0 million notional amount of variable rate debt[211] - A one-percentage-point increase in interest rates would result in an approximate $4.3 million pre-tax earnings and cash flow impact on an annualized basis[212] Item 4. Controls and Procedures This section confirms the effectiveness of AAM's disclosure controls and procedures as of June 30, 2025, and reports no material changes in internal control over financial reporting during the quarter Disclosure Controls and Procedures - AAM's disclosure controls and procedures were evaluated under the direction of the CEO and CFO and concluded to be effective as of June 30, 2025[213] Changes in Internal Control over Financial Reporting - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, AAM's internal control over financial reporting[214] Part II. Other Information Item 1A. Risk Factors This section updates previously disclosed risk factors, with a primary focus on the significant risks associated with the pending Business Combination with Dowlais Group plc. These risks include integration challenges, failure to realize anticipated benefits, substantial new debt, unanticipated liabilities, restrictions on business activities, increased exposure to currency fluctuations, and potential delays or failure to complete the transaction Risks Related to the Pending Business Combination with Dowlais (Business Combination) - AAM may fail to realize anticipated benefits and operating synergies from the Dowlais Business Combination, and integration could be complex, costly, and disrupt operations, potentially leading to less significant benefits or longer realization times than expected[217][218][219] - The Business Combination will incur approximately $2.2 billion in additional indebtedness, leading to a combined company debt of about $4.8 billion (excluding undrawn revolving credit), which could increase financial vulnerability and limit business flexibility[220][222] - AAM is subject to restrictions on business activities under the Co-operation Agreement until the closing of the Business Combination, limiting amendments to organizational documents, acquisitions, equity issuance, and dividend payments[225] - The combined company will have increased exposure to currency exchange rate fluctuations due to a higher proportion of assets, liabilities, and earnings denominated in foreign currencies[226] - Dowlais has identified material weaknesses in its internal control over financial reporting related to management review controls and deferred tax liability, which the combined company will need to remediate to comply with Sarbanes-Oxley Act Section 404, potentially incurring significant costs and management time[229][231][232][233] - The issuance of approximately 117 million new AAM shares for the Business Combination will significantly reduce existing stockholders' ownership (AAM stockholders expected to own ~51%, Dowlais shareholders ~49%) and voting interest[234] - The Business Combination is subject to various closing conditions, including governmental and regulatory approvals, and may be delayed or not occur, potentially leading to a $50 million break fee payment in certain circumstances[237][239] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds during the quarterly period ended June 30, 2025 - There were no unregistered sales of equity securities or use of proceeds during the quarterly period ended June 30, 2025[242] Item 5. Other Information This section states that AAM's directors and officers did not adopt, terminate, or modify any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 - During the quarter ended June 30, 2025, AAM's directors and officers did not adopt, terminate, or modify any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements[243] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various plans, certifications from executive officers, and XBRL interactive data files - The report includes various exhibits, such as the Amended and Restated 2018 Omnibus Incentive Plan, certifications from the CEO and CFO (Rule 13a-14(a) and 18 U.S.C. Section 1350), and XBRL interactive data files[244] Signatures This section contains the official signatures for the Form 10-Q report - The report was duly signed on behalf of American Axle & Manufacturing Holdings, Inc. by James G. Zaliwski, Chief Accounting Officer, on August 8, 2025[248]