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:

•a significant disruption in production, sales and/or supply as a result of public health crises, including pandemic or epidemic illness such as Novel Coronavirus (COVID-19);

•global economic conditions;

•reduced purchases of our products by General Motors Company (GM), FCA US LLC (FCA), 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, FCA and ~~FCA)~~Ford);

~~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 respond to changes in technology, increased competition or pricing pressures;~~

~~our ability to attract new customers and programs for new products;~~

~~our ability to successfully integrate the business and information systems of Metaldyne Performance Group, Inc. (MPG) and to realize the anticipated benefits of the merger;~~

•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, ~~tariffs,~~such as NAFTA or USMCA, immigration policies, political stability, taxes and other law changes, potential disruptions of production and supply, and currency rate fluctuations);

•a significant disruption in operations at one or more of our key manufacturing facilities;

•negative or unexpected tax consequences;

•risks related to ~~disruptions to ongoing business operations~~a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber attack and other similar disruptions;

•supply shortages or price increases in raw material and/or freight, utilities or other operating supplies for us or our customers as a result of pandemics, natural disasters or otherwise;

•availability of financing for working capital, capital expenditures, research and development (R&D) or other general corporate purposes including acquisitions, as well as our ability to comply with financial covenants;

•our customers' and suppliers' availability of financing for working capital, capital expenditures, R&D or other general corporate purposes;

•an impairment of our goodwill, other intangible assets, or long-lived assets if our business or market conditions indicate that the ~~merger with MPG, including disruptions to management time;~~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 to achieve the level of cost reductions required to sustain global cost competitiveness;~~

~~supply shortages or price increases in raw materials, utilities or other operating supplies for us or our customers as a result of natural disasters or otherwise;~~

•our ability or our customers' and suppliers' ability to successfully launch new product programs on a timely basis;

~~our ability to realize the expected revenues from our new and incremental business backlog;~~

risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber attack and other similar disruptions;

~~global economic conditions;~~

~~a significant disruption in operations at one or more of our key manufacturing facilities;~~

•our ability to maintain satisfactory labor relations and avoid work stoppages;

•our suppliers', our customers' and their suppliers' ability to maintain satisfactory labor relations and avoid work stoppages;

•our ability to achieve the level of cost reductions required to sustain global cost competitiveness;

•our ability to realize the expected revenues from our new and incremental business backlog;

•price volatility in, or reduced availability of, fuel;

~~potential liabilities or litigation relating to, or assumed in, the MPG merger;~~

~~potential adverse reactions or changes to business relationships resulting from the completion of the merger with MPG;~~

•our ability to protect our intellectual property and successfully defend against assertions made against us;

~~our ability to attract and retain key associates;~~

availability of financing for working capital, capital expenditures, research and development (R&D) or other general corporate purposes including acquisitions, as well as our ability to comply with financial covenants;

~~our customers' and suppliers' availability of financing for working capital, capital expenditures, R&D or other general corporate purposes;~~

~~changes in liabilities arising from pension and other postretirement benefit obligations;~~

•risks of noncompliance with environmental laws and regulations or risks of environmental issues that could result in unforeseen costs at our facilities, or reputational damage;

•adverse changes in laws, government regulations or market conditions affecting our products or our customers' ~~products (such as the Corporate Average Fuel Economy (CAFE) regulations);~~products;

•our ability or our customers' and suppliers' ability to comply with ~~the Dodd-Frank Act and other~~ regulatory requirements and the potential costs of such compliance;

•changes in liabilities arising from pension and other postretirement benefit obligations;

•our ability to attract and retain key associates; and

•other unanticipated events and conditions that may hinder our ability to compete.

It is not possible to foresee or identify all such factors and 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(Unaudited)


	Three Months Ended						Nine Months Ended							Three Months Ended
	September 30,						September 30,							March 31,
	2017			2016			2017			2016				2020		2019
	(in millions, except per share data)													(in millions, except per share data)

Net sales	$	1,724.4		$	1,006.9		$	4,532.1		$	3,001.5		Net sales	$	1,343.5	$	1,719.2

Cost of goods sold	1,426.7			825.7			3,707.3			2,454.9			Cost of goods sold	1,148.2		1,497.0

Gross profit	297.7			181.2			824.8			546.6			Gross profit	195.3		222.2

Selling, general and administrative expenses	102.3			78.6			289.1			231.8			Selling, general and administrative expenses	90.3		90.7

Amortization of intangible assets	24.4			1.3			50.8			3.6			Amortization of intangible assets	21.8		25.0

Impairment charge (Note 3)													Impairment charge (Note 3)	510.0		—

Restructuring and acquisition-related costs	22.8			—			90.5			—			Restructuring and acquisition-related costs	17.6		12.1

Operating income	148.2			101.3			394.4			311.2
Loss on sale of business													Loss on sale of business	1.0		—

Operating income (loss)													Operating income (loss)	(445.4)		94.4

Interest expense	(57.5		)	(23.2		)	(139.9		)	(70.2		)	Interest expense	(51.5)		(53.4)

Investment income	0.8			0.5			2.2			2.6
Interest income													Interest income	2.8		0.7

Other income (expense)													Other income (expense)
Debt refinancing and redemption costs	—			—			(2.7		)	—			Debt refinancing and redemption costs	(1.5)		—
Other income (expense), net	0.5			0.9			(7.4		)	4.0

Income before income taxes	92.0			79.5			246.6			247.6
Other expense, net													Other expense, net	(2.3)		(3.0)

Income tax expense	5.7			17.8			15.6			53.8
Income (loss) before income taxes													Income (loss) before income taxes	(497.9)		38.7

Net income	$	86.3		$	61.7		$	231.0		$	193.8
Income tax expense (benefit)													Income tax expense (benefit)	3.3		(3.0)

Net income (loss)													Net income (loss)	$	(501.2)	$	41.7

Net income attributable to noncontrolling interests	(0.1		)	—			(0.2		)	—			Net income attributable to noncontrolling interests	(0.1)		(0.1)

Net income attributable to AAM	$	86.2		$	61.7		$	230.8		$	193.8
Net income (loss) attributable to AAM													Net income (loss) attributable to AAM	$	(501.3)	$	41.6

Basic earnings per share	$	0.76		$	0.79		$	2.28		$	2.48
Basic earnings (loss) per share													Basic earnings (loss) per share	$	(4.45)	$	0.36

Diluted earnings per share	$	0.75		$	0.78		$	2.27		$	2.47
Diluted earnings (loss) per share													Diluted earnings (loss) per share	$	(4.45)	$	0.36

See accompanying notes to condensed consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended
	March 31,
	2020		2019
	(in millions)
Net income (loss)	$	(501.2)	$	41.7

Other comprehensive income (loss)
Defined benefit plans, net of tax ^(a)	1.6		0.7
Foreign currency translation adjustments	(48.8)		(2.5)
Changes in cash flow hedges, net of tax ^(b)	(34.7)		(2.5)
Other comprehensive income (loss)	(81.9)		(4.3)

Comprehensive income (loss)	$	(583.1)	$	37.4

Net income attributable to noncontrolling interests	(0.1)		(0.1)
Foreign currency translation adjustments attributable to noncontrolling interests	0.3		—

Comprehensive income (loss) attributable to AAM	$	(582.9)	$	37.3

Three Months Ended
Nine Months Ended

September 30,
September 30,

2017
2016
2017
2016

(in millions)
Net income $ 86.3

$ 61.7

$ 231.0

$ 193.8

Other comprehensive income (loss)

Defined benefit plans, net of tax ^(a)
3.1

0.6

3.7

5.3
     Foreign currency translation adjustments 42.8

(0.8 )
79.3

15.0
     Changes in cash flow hedges, net of tax ^(b)
1.1

(4.1 )
21.5

(6.4 )
Other comprehensive income (loss) 47.0

(4.3 )
104.5

13.9

Comprehensive income $ 133.3

$ 57.4

$ 335.5

$ 207.7

     Net income attributable to noncontrolling interests (0.1 )
—

(0.2 )
—

Comprehensive income attributable to AAM $ 133.2

$ 57.4

$ 335.3

$ 207.7



(a)			Amounts are net of tax of ~~$(1.0)~~$(0.4) million and ~~$(1.2)~~$(0.3) million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020 and ~~$(0.1) million and $(2.8) million for the three and nine months ended September 30, 2016,~~March 31, 2019, respectively.
(b)			Amounts are net of tax of ~~$0.7~~$2.3 million and $1.5 million for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2020 and March 31, 2019, respectively.

See accompanying notes to condensed consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2020		December 31, 2019
	(Unaudited)
Assets	(in millions)
Current assets
Cash and cash equivalents	$	682.7	$	532.0
Accounts receivable, net	794.7		815.4
Inventories, net	394.5		373.6
Prepaid expenses and other	171.2		136.8

Total current assets	2,043.1		1,857.8

Property, plant and equipment, net	2,275.2		2,358.4
Deferred income taxes	55.9		64.1
Goodwill	181.1		699.1
Other intangible assets, net	842.8		864.5
GM postretirement cost sharing asset	221.8		223.3
Other assets and deferred charges	566.8		577.4
Total assets	$	6,186.7	$	6,644.6

Liabilities and Stockholders’ Equity
Current liabilities
Borrowings under Revolving Credit Facility	$	200.0	$	—
Current portion of long-term debt	21.7		28.7
Accounts payable	624.7		623.5
Accrued compensation and benefits	142.8		154.4
Deferred revenue	21.3		18.9
Accrued expenses and other	208.2		200.9

Total current liabilities	1,218.7		1,026.4

Long-term debt, net	3,511.7		3,612.3
Deferred revenue	77.5		83.7
Deferred income taxes	45.7		19.6
Postretirement benefits and other long-term liabilities	940.7		922.2
Total liabilities	5,794.3		5,664.2

Stockholders' equity
Common stock, par value $0.01 per share; 150.0 million shares authorized;
121.0 million shares issued as of March 31, 2020 and 120.2 million shares issued as of December 31, 2019	1.2		1.2
Paid-in capital	1,318.5		1,313.9
Retained earnings (Accumulated deficit)	(259.8)		248.6
Treasury stock at cost, 8.0 million shares as of March 31, 2020 and 7.6 million shares as of December 31, 2019	(211.7)		(209.3)
Accumulated other comprehensive loss
Defined benefit plans, net of tax	(258.3)		(259.9)
Foreign currency translation adjustments	(149.7)		(101.2)
Unrecognized loss on cash flow hedges, net of tax	(50.4)		(15.7)
Total AAM stockholders' equity	389.8		977.6
Noncontrolling interests in subsidiaries	2.6		2.8
Total stockholders' equity	392.4		980.4
Total liabilities and stockholders' equity	$	6,186.7	$	6,644.6

September 30, 2017 December 31, 2016
(Unaudited)
Assets (in millions)
Current assets
Cash and cash equivalents $ 549.6

$ 481.2
Accounts receivable, net 1,122.0

560.0
Inventories, net 396.6

182.3
Prepaid expenses and other 144.5

75.8
Total current assets 2,212.7

1,299.3

Property, plant and equipment, net 2,302.7

1,093.7
Deferred income taxes 39.9

369.4
Goodwill 1,654.6

154.0
Intangible assets, net 1,236.6

28.5
GM postretirement cost sharing asset 232.2

236.1
Other assets and deferred charges 379.6

242.9
Total assets $ 8,058.3

$ 3,423.9

Liabilities and Stockholders’ Equity

Current liabilities

Current portion of long-term debt $ 6.8

$ 3.3
Accounts payable 856.4

382.3
Accrued compensation and benefits 200.0

139.3
Deferred revenue 28.5

24.6
Accrued expenses and other 193.3

102.0
Total current liabilities 1,285.0

651.5

Long-term debt, net 4,169.3

1,400.9
Deferred revenue 79.7

70.8
Deferred income taxes 233.5

15.0
Postretirement benefits and other long-term liabilities 854.2

779.9
Total liabilities 6,621.7

2,918.1

Stockholders' equity

Common stock, par value $0.01 per share; 150.0 million shares authorized;
118.2 million shares issued as of September 30, 2017 and 83.0 million shares issued as of December 31, 2016 1.2
0.9
Paid-in capital 1,258.5
660.1
Retained earnings 656.3
425.5
Treasury stock at cost, 6.9 million shares as of September 30, 2017 and 6.5 million shares as of December 31, 2016 (198.1 ) (191.1 )
Accumulated other comprehensive loss
Defined benefit plans, net of tax (239.8 ) (243.5 )
Foreign currency translation adjustments (43.1 ) (122.4 )
Unrecognized loss on cash flow hedges, net of tax (2.2 ) (23.7 )
Total AAM stockholders' equity 1,432.8

505.8
Noncontrolling interests in subsidiaries 3.8

—
Total stockholders' equity 1,436.6

505.8
Total liabilities and stockholders' equity $ 8,058.3

$ 3,423.9

See accompanying notes to condensed consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
	March 31,
	2020		2019
	(in millions)
Operating activities
Net income (loss)	$	(501.2)	$	41.7
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization	129.6		140.8
Impairment charge	510.0		—
Deferred income taxes	36.0		(17.4)
Stock-based compensation	4.6		5.5
Pensions and other postretirement benefits, net of contributions	(1.8)		(3.4)

Loss on disposal of property, plant and equipment, net	5.1		0.2

Debt refinancing and redemption costs	1.5		—
Changes in operating assets and liabilities
Accounts receivable	11.3		(235.0)
Inventories	(27.1)		6.9
Accounts payable and accrued expenses	12.7		40.8
Deferred revenue	(1.9)		(5.3)
Other assets and liabilities	(39.4)		(55.0)
Net cash provided by (used in) operating activities	139.4		(80.2)

Investing activities
Purchases of property, plant and equipment	(69.7)		(124.2)
Proceeds from sale of property, plant and equipment	0.5		0.3







Net cash used in investing activities	(69.2)		(123.9)

Financing activities

Payments of long-term debt	(113.3)		(19.4)
Proceeds from issuance of long-term debt	2.4		5.3


Purchase of treasury stock	(2.4)		(7.3)
Proceeds from Revolving Credit Facility	200.0		—
Other financing activities	1.0		—

Net cash provided by (used in) financing activities	87.7		(21.4)

Effect of exchange rate changes on cash	(7.2)		1.2

Net increase (decrease) in cash, cash equivalents and restricted cash	150.7		(224.3)

Cash, cash equivalents and restricted cash at beginning of period	532.0		478.9

Cash, cash equivalents and restricted cash at end of period	$	682.7	$	254.6

Supplemental cash flow information
Interest paid	$	34.1	$	32.4
Income taxes paid, net of refunds	$	4.2	$	17.0

Nine Months Ended
September 30,
2017 2016
(in millions)
Operating activities
Net income $ 231.0
$ 193.8
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 303.4
150.4
Impairment of property, plant and equipment —
3.4
Deferred income taxes (43.8 ) 32.3
Stock-based compensation 37.2
15.8
Pensions and other postretirement benefits, net of contributions 0.6
(5.7 )
Loss on disposal of property, plant and equipment, net 0.7
2.2
Undistributed earnings in affiliate (2.0 ) (2.2 )
Debt refinancing and redemption costs 2.7
—
Changes in operating assets and liabilities, net of amounts acquired
Accounts receivable (131.0 ) (140.0 )
Inventories (3.3 ) 13.7
Accounts payable and accrued expenses 65.3
98.1
Deferred revenue 10.1
(8.9 )
Other assets and liabilities (50.2 ) (61.9 )
Net cash provided by operating activities 420.7
291.0

Investing activities

Purchases of property, plant and equipment (278.7 ) (158.7 )
Proceeds from sale of property, plant and equipment 1.7
0.7
Proceeds from government grants —
2.8
Purchase buyouts of leased equipment (12.6 ) —
Final distribution of Reserve Yield Plus Fund —
1.0
Proceeds from sale of business, net 5.9
—
Acquisition of business, net of cash acquired (895.5 ) (5.6 )
Net cash used in investing activities (1,179.2 ) (159.8 )

Financing activities

Payments of long-term debt and capital lease obligations (1,944.6 )
(6.2 )
Proceeds from issuance of long-term debt 2,858.1

28.8
Debt issuance costs (90.8 )
—
Purchase of treasury stock (7.0 )
(5.3 )
Employee stock option exercises 0.9

0.3
Net cash provided by financing activities 816.6

17.6

Effect of exchange rate changes on cash 10.3

2.6

Net increase in cash and cash equivalents 68.4

151.4

Cash and cash equivalents at beginning of period 481.2

282.5

Cash and cash equivalents at end of period $ 549.6

$ 433.9

Supplemental cash flow information

     Interest paid $ 108.9
$ 61.3
     Income taxes paid, net of refunds $ 30.2
$ 42.5
     Non-cash investing activities: AAM common shares issued for acquisition of MPG $ 576.7
$ —

See accompanying notes to condensed consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


	Common Stock											Accumulated		Noncontrolling
	Shares	Par		Paid-in		Retained Earnings		Treasury		Other Comprehensive		Interest
	Outstanding	Value		Capital		(Accumulated Deficit)		Stock		Income (Loss)		in Subsidiaries
Balance at January 1, 2019	111.7	$	1.2	$	1,292.6	$	703.5	$	(201.8)	$	(311.6)	$	2.4
Net income	—	—		—		41.6		—		—		0.1
Vesting of restricted stock units and performance shares	1.2	—		—		—		—		—		—
Stock-based compensation	—	—		5.5		—		—		—		—
Modified-retrospective application of ASU 2016-02	—	—		—		1.9		—		—		—
Adoption of ASU 2018-02	—	—		—		27.7		—		(27.7)		—
Purchase of treasury stock	(0.4)	—		—		—		(7.3)		—		—
Changes in cash flow hedges	—	—		—		—		—		(2.5)		—
Foreign currency translation adjustments	—	—		—		—		—		(2.5)		—
Defined benefit plans, net	—	—		—		—		—		0.7		—
Balance at March 31, 2019	112.5	$	1.2	$	1,298.1	$	774.7	$	(209.1)	$	(343.6)	$	2.5





Balance at January 1, 2020	112.6	$	1.2	$	1,313.9	$	248.6	$	(209.3)	$	(376.8)	$	2.8
Net income (loss)	—	—		—		(501.3)		—		—		0.1
Vesting of restricted stock units and performance shares	0.8	—		—		—		—		—		—
Stock-based compensation	—	—		4.6		—		—		—		—
Modified-retrospective application of ASU 2016-13	—	—		—		(7.1)		—		—		—
Purchase of treasury stock	(0.4)	—		—		—		(2.4)		—		—
Changes in cash flow hedges	—	—		—		—		—		(34.7)		—
Foreign currency translation adjustments	—	—		—		—		—		(48.5)		(0.3)
Defined benefit plans, net	—	—		—		—		—		1.6		—

Balance at March 31, 2020	113.0	$	1.2	$	1,318.5	$	(259.8)	$	(211.7)	$	(458.4)	$	2.6

See accompanying notes to condensed consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2017~~MARCH 31, 2020

(Unaudited)


1.	~~ORGANIZATION AND BASIS OF PRESENTATION~~

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization On April 6, 2017, Alpha SPV I, Inc., a wholly-owned subsidiary of American Axle & Manufacturing Holdings, Inc. (Holdings), merged with and into Metaldyne Performance Group, Inc. (MPG), with MPG as the surviving corporation in the merger. Upon completion of the merger, MPG became a wholly-owned subsidiary of Holdings. As a result, weWe are ~~now~~ a global Tier I1 supplier to the automotive ~~commercial and industrial markets.~~industry. We design, engineer ~~validate~~ and manufacture driveline and metal forming ~~powertrain~~products that are making the next generation of vehicles smarter, lighter, safer and ~~casting products, employing~~more efficient. We employ over ~~25,000~~20,000 associates, operating at ~~more than 90~~nearly 80 facilities in 17 countries, to support our customers on global and regional platforms with a continued focus on delivering quality, operational excellence and technology ~~leadership and quality.~~leadership.

Basis of PresentationWe 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, ~~2016~~2019 presented herein has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete consolidated financial statements.

In order to prepare the accompanying interim condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts and disclosures in our interim condensed consolidated financial statements. ~~Actual~~These estimates and assumptions are impacted by risks and uncertainties, including those associated with the Novel Coronavirus (COVID-19) pandemic that began in the first quarter of 2020. While we have made estimates and assumptions based on the facts and circumstances available as of the date of this report, the full impact of COVID-19 cannot be predicted, and actual results could differ materially from those ~~estimates.~~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, ~~2016~~.2019.

~~Change~~Effect of New Accounting Standards and Other Regulatory Pronouncements

Accounting Standard Update 2020-04

On March 12, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2020-04 - Reference Rate Reform (Topic 848). This guidance provides optional expedients and exceptions that are intended to ease the burden of updating contracts to contain a new reference rate due to the discontinuation of the London Inter-Bank Offered Rate (LIBOR). This guidance is available immediately and may be implemented in ~~Accounting Principle~~ ~~Effective April 1, 2017, we changed~~any period prior to the guidance expiration on December 31, 2022. We are currently assessing which of our ~~method~~various contracts will require an update for a new reference rate, and will determine the timing for our implementation of ~~accounting for indirect inventory from capitalizing and recording as expense when the inventory was consumed to now expensing indirect inventory~~this guidance at the ~~time~~completion of ~~purchase. We believe~~ that ~~expensing indirect inventory~~analysis.

Accounting Standard Update 2019-12

On December 18, 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740). This guidance is intended to simplify the accounting and disclosure requirements for income taxes by removing various exceptions, and requires that the effect of an enacted change in tax laws or rates be included in the annual effective tax rate computation in the interim period of the enactment. This guidance becomes effective at the ~~time~~beginning of ~~purchase is preferable as the change (1) aligns purchase patterns of indirect inventory with~~ our current operational strategies, (2) reduces the administrative burden associated with recordkeeping for indirect inventory, and (3) results in a uniform accounting policy across our global operations as MPG's accounting method had been2021 fiscal year. We expect to ~~expense indirect inventory upon purchase.~~

~~Based~~adopt this guidance on ~~the guidance in Accounting Standards Codification (ASC) 250~~ ~~Accounting Changes and Error Corrections~~ we applied this change in accounting principle retrospectively. As a result of the change, we have decreased previously reported inventories, net by $37.2 million, decreased previously reported retained earnings by $24.2 million and increased previously reported deferred tax assets by $13.0 million as of January 1, ~~2016~~2021 and ~~December 31, 2016. The cumulative impact of the change in accounting principle from January 1, 2016 to March 31, 2017, which covers the periods in which~~ we would be required to retrospectively revise our Statements of Income and Balance Sheets, is an increase to income of $2.4 million, net of tax. We have determined that the quarterly impact of this adjustment would not be material in any required prior period nor isare currently assessing the impact of recording the cumulative impact of $2.4 million, net of tax material to the current period. As such, we recorded the $2.4 million, net of tax adjustment related to prior periods in the second quarter of 2017. The impact ofthat this ~~$2.4 million, net of tax adjustment to income resulted in an increase in basic and diluted earnings per share of $0.02 per share for the nine months ended September 30, 2017. The impact~~standard will have on ~~current period income for the quarter ended September 30, 2017 was immaterial in comparison to accounting for indirect inventory under~~ our ~~historical accounting policy. See Note 5 - Inventories for further discussion.~~consolidated financial statements.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Effect of New Accounting Standards~~

Accounting Standards Update ~~2017-12~~2016-13

On ~~August 28, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-12 -~~ ~~Targeted Improvements to Accounting for Hedging Activities (Topic 815)~~. ASU 2017-12 is intended to better align the risk management activities of a company with the company's financial reporting for hedging relationships. This guidance expands and refines several aspects of hedge accounting. The most applicable changes to AAM as a result of the new guidance are as follows: 1) the concept of risk component hedging is introduced in ASU 2017-12, which could allow us to hedge contractually specified components in a contract; 2) the guidance now allows entities to utilize a 31-day period in assessing whether the critical terms of a forecasted transaction match the maturity of the hedging derivative, which could allow for expanded use of hedging instruments for certain sales and purchases; and 3) we may now qualitatively assess hedge effectiveness on a quarterly basis when the facts and circumstances related to the hedging relationship have not changed significantly. This guidance becomes effective at the beginning of our 2019 fiscal year, however early adoption is permitted, and we expect to adopt this guidance effective January 1, 2018. The adoption of this guidance is not expected to have any impact on the measurement or presentation of our existing hedging relationships.

~~Accounting Standards Update 2017-07~~

~~On March 10, 2017, the FASB issued ASU 2017-07 -~~ ~~Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~. The amendments in this update require that an employer disaggregate the service cost component from the other components of defined benefit pension cost and postretirement benefit cost (net benefit cost). The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. This guidance becomes effective at the beginning of our 2018 fiscal year and requires a retrospective transition method for the income statement classification of the net benefit cost components and a prospective transition method for the capitalization of the service cost component in assets. We are currently assessing the impact that this standard will have on our consolidated financial statements.

~~Accounting Standards Update 2017-04~~

~~On January 26, 2017, the FASB issued ASU 2017-04 -~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. The amendments in this update modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination, or what is referred to under existing guidance as "Step 2." Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance becomes effective at the beginning of our 2020 fiscal year, however early adoption is permitted. The guidance requires a prospective transition method. We are currently assessing the impact that this standard will have on our consolidated financial statements.

~~Accounting Standards Update 2016-16~~

~~On October 24,~~June 16, 2016, the FASB issued 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU ~~2016-16 -~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers~~2016-13 replaces the incurred loss model under previous guidance, and requires entities to consider expected credit losses, in addition to past events and current conditions when measuring credit losses. This guidance applies to certain of ~~Assets Other Than Inventory. Existing income tax~~our financial instruments, and is primarily applicable to our trade accounts receivable. We adopted this guidance ~~prohibits~~on January 1, 2020, using a modified-retrospective transition method and the ~~recognition~~adoption of ~~current~~this standard did not have a material impact on our condensed consolidated financial statements. See the Statement of Stockholders' Equity for the implementation impact of ASU 2016-13.

Securities and ~~deferred income taxes~~Exchange Commission (SEC) Rule

In the first quarter of 2020, the SEC adopted "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities," a rule that amends the financial disclosure requirements for ~~an intra-entity asset transfer until~~guarantors and issuers of registered guaranteed securities. This rule eliminates the ~~asset has been sold~~previous requirement to ~~an outside party. This existing guidance is deemed an exception~~present guarantor financial statement information in the notes to the ~~principle~~financial statements and allows for the disclosure of ~~comprehensive recognition~~summarized financial information for the most recent year and interim period, as well as expanded non-financial disclosures, in Management's Discussion and Analysis (MD&A). The effective date for this rule is January 4, 2021, however, the SEC permitted voluntary compliance prior to this date and we have elected to adopt the new disclosure requirements in the first quarter of ~~current and deferred income taxes under GAAP. Due~~2020. As such, we no longer present guarantor financial statement information in the notes to the limited authoritative guidance about this exception, diversity in practice exists. ASU 2016-16 eliminates this exception for intra-entity transfers of assets other than inventory and requires that entities recognize the income tax consequences when the transfers occur. This guidance becomes effective at the beginning of our 2018 fiscal year and requires a modified retrospective transition method. We are currently assessing the impact that this standard will have on ourcondensed consolidated financial ~~statements.~~statements in this Quarterly Report on Form 10-Q, but instead present the required information within MD&A.

Coronavirus Aid, Relief, and Economic Security Act

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was enacted on March 27, 2020 in the United States. The key provisions of the CARES Act, as applicable to AAM, include the following:

•The ability to use net operating losses (NOLs) to offset income without the 80% taxable income limitation enacted as part of the Tax Cuts and Jobs Act (TCJA) of 2017, and to carry back NOLs to offset prior year income for five years. These are temporary provisions that apply to NOLs incurred in 2018, 2019 or 2020 tax years.

•The ability to claim a current deduction for interest expense up to 50% of Adjusted Taxable Income (ATI) for tax years 2019 and 2020. This limitation was previously 30% of ATI pursuant to the TCJA, and will revert back to 30% after 2020.

•The ability to defer the payment of the employer portion of social security taxes incurred between March 27, 2020 and December 31, 2020, with 50% of the deferred amount to be paid by December 31, 2021 and the remaining 50% to be paid by December 31, 2022.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. RESTRUCTURING AND ACQUISITION-RELATED COSTS

~~Accounting Standards Update 2016-02~~

In the first quarter of 2019, we initiated a global restructuring program (the 2019 Program). The primary objectives of the 2019 Program were to further the integration of Metaldyne Performance Group, Inc. (MPG), align AAM's product and process technologies, and to achieve efficiencies within our corporate and business unit support teams to reduce cost in our business.

~~On February 25, 2016,~~In the ~~FASB issued ASU 2016-02 -~~ ~~Leases (Topic 842), which~~first quarter of 2020, we initiated a new global restructuring program (the 2020 Program) that supersedes the ~~existing lease accounting guidance and establishes new criteria for recognizing lease assets and liabilities.~~2019 Program. The ~~most significant impact~~primary objectives of the ~~update,~~2020 Program are to ~~AAM, is that~~achieve efficiencies within our corporate and business unit support teams to reduce cost in our business, and to structurally adjust our operations to a lessee will be required to recognize a "right-of-use" asset and lease liability for operating lease agreements that were not previously included on the balance sheet under the existing lease guidance. A lessee will be permitted to make a policy election, excluding recognitionnew level of the right-of-use asset and associated liability for lease terms of 12 months or less. Expense recognition in the statement of income along with cash flow statement classification for both financing (capital) and operating leases under the new standard will not be significantly changed from existing lease guidance. This guidance becomes effective for AAM at the beginning of our 2019 fiscal year and requires transition under a modified retrospective method. We are currently assessing the impact that this standard will have on our consolidated financial statements.

~~Accounting Standards Update 2014-09~~

~~In 2014, the FASB issued ASU 2014-09 -~~ ~~Revenue from Contracts with Customers (Topic 606), and has subsequently issued ASUs 2015-14 -~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, 2016-08 -~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross Versus Net), 2016-10 -~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, 2016-12 -~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and 2016-20 -~~ ~~Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements to Topic 606~~ ~~(collectively, the Revenue Recognition ASUs).~~

The Revenue Recognition ASUs outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersede most current revenue recognition guidance, including industry-specific guidance. The guidance ismarket demand based on the ~~principle that an entity should recognize revenue to depict the transfer~~impact of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. This guidance is effective for AAM beginning on January 1, 2018 and entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard.COVID-19. We expect to ~~adopt this guidance using~~incur costs under the ~~modified retrospective approach.~~2020 Program through 2021.

A summary of our restructuring activity for the first three months of 2020 and 2019 is shown below:


	Severance Charges		Implementation Costs		Total
	(in millions)
Accrual at December 31, 2018	$	2.4	$	1.6	$	4.0
Charges	4.1		4.3		8.4
Cash utilization	(3.7)		(3.7)		(7.4)


Accrual at March 31, 2019	$	2.8	$	2.2	$	5.0

Accrual at December 31, 2019	$	4.8	$	7.4	$	12.2
Charges	2.2		12.5		14.7
Cash utilization	(6.6)		(5.5)		(12.1)


Accrual at March 31, 2020	$	0.4	$	14.4	$	14.8

As part of our restructuring actions, we incurred total severance charges of approximately $2.2 million and $4.1 million during the three months ended March 31, 2020 and 2019, respectively. We ~~are concluding~~also incurred total implementation costs of approximately $12.5 million and $4.3 million during the ~~assessment phase~~three months ended March 31, 2020 and 2019, respectively. Implementation costs in both periods consist of ~~implementing this guidance. We have evaluated each~~plant exit costs, and implementation costs in 2020 also include $6.5 million of the five steps in the new revenue recognition model, which are as follows: 1) Identify the contract with the customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations;contractual wage and 5) Recognize revenue when (or as) performance obligations are satisfied. Our preliminary conclusion is that the impact of implementing the Revenue Recognition ASUs will be immaterial to our financial statements and that our method for recognizing revenue subsequent to the implementation of the Revenue Recognition ASUs will not vary significantly from our revenue recognition practices under current GAAP.

~~There are certain considerations related to internal control over financial reporting that are~~benefit continuation costs associated with implementing the new guidance under Topic 606 and we are currently implementing the necessary changes to our control framework for revenue recognition. Disclosure requirements under the new guidance in Topic 606 have been significantly expanded in comparison to the disclosure requirements under the current guidance. We are currently concluding our assessment of the new disclosure requirements and we are in the process of drafting our disclosures for both interim and annual periods under Topic 606.

~~Share Repurchase Program~~ In 2016, AAM's Board of Directors authorized a share repurchase program of up to $100 million of AAM's common shares through December 31, 2018 as part of AAM's overall capital allocation strategy. The repurchase of shares may be made in the open market or in privately negotiated transactions and will be funded through available cash balances and cash flow from operations. The timing and amount of any share repurchases will be determined based on market and economic conditions, share price, alternative uses of capital and other factors. Approximately $1.5 million of shares have been repurchased under the authorized share repurchase program, leaving approximately $98.5 million available for repurchase. There were no repurchases under the programtemporarily suspending production at certain manufacturing facilities in the first ~~nine~~quarter of 2020.

Approximately $8.7 million of the restructuring costs incurred during the three months ended March 31, 2020 were under the 2020 Program. Approximately $6.8 million and $5.2 million of ~~2017.~~our total restructuring costs for the three months ended March 31, 2020 related to our Driveline and Metal Forming segments, respectively, while the remainder were corporate costs. Additionally, approximately $0.4 million and $4.8 million of our total restructuring costs for the three months ended March 31, 2019 related to our Driveline and Metal Forming segments, respectively, while the remainder were corporate costs. We expect to incur approximately $45 million to $55 million of total restructuring charges in 2020, including costs incurred under the 2020 Program.

During the three months ended March 31, 2020, we incurred the following integration charges primarily related to the integration of MPG:


	Integration Expenses
	(in millions)
Charges for the three months ended March 31, 2020	$	2.9
Charges for the three months ended March 31, 2019	3.7

These integration expenses primarily reflect costs incurred for information technology infrastructure and enterprise resource planning systems, and consulting fees incurred in conjunction with acquisitions. Total restructuring charges and acquisition-related charges of $17.6 million and $12.1 million are presented on a separate line item titled Restructuring and acquisition-related costs in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019, respectively.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. GOODWILL AND OTHER INTANGIBLE ASSETS


2.	~~RESTRUCTURING AND ACQUISITION-RELATED COSTS~~

Goodwill The following table provides a reconciliation of changes in goodwill for the three months ended March 31, 2020:


	Driveline		Metal Forming		Consolidated
	(in millions)
Balance at December 31, 2019	$	398.3	$	300.8	$	699.1



Impairment charge	(210.8)		(299.2)		(510.0)
Foreign currency translation	(6.4)		(1.6)		(8.0)
Balance at March 31, 2020	$	181.1	$	—	$	181.1

In the ~~fourth~~first quarter of ~~2016, AAM initiated actions under a~~2020, the reduction in global ~~restructuring program focused on creating a more streamlined organization~~automotive production volumes caused by the impact of COVID-19 represented an indicator to test our goodwill for impairment. This reduction in ~~addition to reducing~~production volumes began in March of 2020 and resulted in lower forecasted sales volumes in the periods included in our ~~cost structure and preparing for acquisition integration activities. A summary of this activity for~~long-range plan as revised in the first ~~nine months~~quarter of ~~2017 is shown below:~~2020.

Severance Charges Implementation Costs Total
(in millions)
Accrual as of December 31, 2016 $ 0.6
$ 9.2
$ 9.8
Charges 1.7
13.5
15.2
Cash utilization (2.3 ) (17.8 ) (20.1 )
Non-cash utilization —
—
—
Accrual adjustments —
—
—
Accrual as of September 30, 2017 $ —
$ 4.9
$ 4.9

~~As part~~In performing this test, we utilize a third-party valuation specialist to assist management in determining the fair value of our ~~restructuring actions, we incurred severance charges~~reporting units. Fair value of ~~approximately $1.7 million,~~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 ~~well~~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 ~~implementation costs, including professional expenses, of approximately $13.5 million during~~Level 3 within the nine months ended September 30, 2017. Since the inception of our global restructuring program, we have incurred severance charges totaling $2.3 million and implementation costs totaling $23.7 million. We expect to incur up to $5 million of additional charges under our global restructuring program in 2017.fair value hierarchy.

On March 1, 2017, we completed the acquisition of USM Mexico Manufacturing LLC (USM Mexico) and on April 6, 2017, we completed the acquisition of MPG. During the nine months ended September 30, 2017, we incurred the following charges related to these acquisitions:

Acquisition-Related Costs Severance Charges Integration Expenses Total
(in millions)
Charges $ 40.7
$ 5.6
$ 29.0
$ 75.3

Total restructuring and acquisition-related charges $ 90.5

Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional or consulting fees incurred. Also included in acquisition-related costs is a one-time charge of approximately $20 million for MPG stock-based compensation that was accelerated and settled asAs a result of this goodwill impairment test in the ~~acquisition. Integration expenses reflect costs incurred for information technology systems, ongoing operational activities,~~first quarter of 2020, we determined that the carrying values of both our Driveline and ~~consulting fees incurred in conjunction with the acquisitions. Total charges~~Metal Forming reporting units were greater than their respective fair values. As such, we recorded a goodwill impairment charge of $210.8 million associated with our Driveline reporting unit and a goodwill impairment charge of $299.2 million associated with our Metal Forming reporting unit in the first quarter of 2020. The Metal Forming impairment charge represented a full impairment of the goodwill associated with that reporting unit.

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

The reduction in production volumes and changes to macro-economic factors caused by the impact of ~~$22.8 million~~COVID-19 also represented an indicator to test our long-lived assets, including other intangible assets and ~~$90.5 million are shown on a separate line item titled "Restructuring~~property, plant and ~~Acquisition-Related Costs"~~equipment, for impairment. We completed this test in ~~our Condensed Consolidated Statements~~the first quarter of ~~Income for the three~~2020 and ~~nine months ended September 30, 2017, respectively.~~there was no impairment of these assets.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3.	~~BUSINESS COMBINATIONS~~

~~Acquisition of MPG~~

On April 6, 2017, AAM completed its acquisition of 100% of the equity interests of MPG for a total purchase price of approximately $1.5 billion plus the assumption of approximately $1.7 billion in net debt (comprised of approximately $1.9 billion in debt less approximately $0.2 billion of MPG cash and cash equivalents). Under the terms of the agreement and plan of merger (Merger Agreement), each share of MPG common stock (other than MPG excluded shares as defined in the Merger Agreement) was converted into the right to receive (a) $13.50 in cash, without interest, and (b) 0.5 of a share of AAM common stock (Merger Consideration). Further, MPG stock options outstanding immediately prior to the effective time of the merger were accelerated and holders of the stock options received the Merger Consideration less the per share exercise price of the MPG stock options. All MPG restricted shares and restricted stock unit awards outstanding under an MPG equity plan were also accelerated and each holder thereof received the Merger Consideration for each restricted share or restricted stock unit award of MPG common stock.

MPG provides highly-engineered components for use in powertrain and safety-critical platforms for the global light, commercial and industrial markets. MPG produces these components using complex metal-forming manufacturing technologies and processes for a global customer base of OEMs and Tier I suppliers, which help their customers meet fuel economy, performance and safety standards. Our acquisition of MPG contributes significantly to diversifying our global customer base and end markets, while also allowing us to expand our presence as a global Tier I supplier to the commercial and industrial markets, in addition to our existing presence as a global Tier I supplier to the automotive industry.

The aggregate cash consideration for the acquisition of MPG was financed using (i) net proceeds from the issuance in March 2017 by AAM of $1.2 billion of new senior notes consisting of $700.0 million aggregate principal amount of 6.25% senior notes due 2025, and $500.0 million aggregate principal amount of 6.50% senior notes due 2027, and on April 6, 2017: (ii) borrowings by AAM of $100.0 million under a term loan that matures in 2022, (iii) borrowings by AAM of $1.55 billion under a term loan that matures in 2024, and (iv) cash on hand.

~~The acquisition of MPG was accounted for under the acquisition method under Accounting Standards Codification 805~~ ~~Business Combinations~~ ~~(ASC 805) with the purchase price allocated to the identifiable assets and liabilities of the acquired company based on the respective fair values of the assets and liabilities.~~

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~The following represents the preliminary fair values of the assets acquired and liabilities assumed resulting from the acquisition, as well as the calculation of goodwill:~~

(in millions) April 6, 2017
Cash consideration $ 953.5
Share consideration 576.7
Total consideration transferred $ 1,530.2
Fair value of MPG noncontrolling interests 3.6
Total fair value of MPG $ 1,533.8

Cash and cash equivalents $ 202.1
Accounts receivable 403.2
Inventories 199.0
Prepaid expenses and other long-term assets 121.0
Property, plant and equipment 985.7
Intangible assets 1,223.1
Total assets acquired $ 3,134.1
Accounts payable 287.8
Accrued expenses and other 137.2
Deferred income tax liabilities 596.4
Debt 1,918.7
Postretirement benefits and other long-term liabilities 54.5
Net assets acquired $ 139.5
Goodwill $ 1,394.3

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount recognized as goodwill, is based upon estimated information and is subject to change within the measurement period. Under the guidance in ASC 805, the measurement period is a period not to exceed one year from the acquisition date during which we may adjust estimated or provisional amounts recorded during purchase accounting if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. Measurement period adjustments are recorded in the period identified with an offsetting entry to goodwill. Any adjustments to amounts recorded in purchase accounting that do not qualify as measurement period adjustments will be included in earnings in the period identified.

In the third quarter of 2017, we made measurement period adjustments to reflect changes to facts and circumstances that existed as of the acquisition date, which resulted in a net increase in Goodwill of $18.0 million. These adjustments related primarily to Intangible assets and the corresponding offset to Deferred income tax liabilities as a result of changes to our third-party valuation and customary post-closing reviews. The resulting impact to amortization expense in our Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 of adjusting our intangible assets was immaterial.

The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of property, plant and equipment and intangible assets, as well as deferred income tax assets and liabilities, and contingent liabilities. The fair values of the assets acquired and liabilities assumed are based on our preliminary estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While we believe that these preliminary estimates provide a reasonable basis for estimating the fair value of the assets acquired and liabilities assumed, we will continue to evaluate available information prior to finalization of the amounts.

Goodwill resulting from the acquisition is primarily attributable to anticipated synergies and economies of scale from which we expect to benefit as a combined entity. None of the goodwill is expected to be deductible for tax purposes.

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

We recognized $1,223.1 million of amortizable intangible assets for customer platforms, customer relationships, developed technology and licensing agreements as a result of the acquisition of MPG. These intangible assets will be amortized over a period ranging from five to 17 years. The intangible assets were valued using primarily the relief from royalty method or the multi-period excess earnings method, both of which utilize significant unobservable inputs. These inputs are defined in the fair value hierarchy as Level 3 inputs, which require management to make estimates and assumptions regarding certain financial measures using forecasted or projected information.

AAM had an existing accounts payable balance of $12.4 million with MPG as of the date of acquisition. As a result of the acquisition, this pre-existing accounts payable balance was settled and AAM accounted for this settlement separately from the acquisition. This resulted in a $12.4 million reduction in the purchase price and this portion of the cash paid to acquire MPG has been reflected as an operating cash outflow in our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017.

Included in net sales and net income attributable to AAM for the period from the acquisition date on April 6, 2017 through September 30, 2017 was approximately $1,351 million and $42 million, respectively, attributable to MPG.

~~Unaudited Pro Forma Financial Information~~

Unaudited pro forma net sales for AAM, on a combined basis with MPG for the nine months ended September 30, 2017 and September 30, 2016, were $5.3 billion and $5.1 billion, respectively, excluding MPG sales to AAM during those periods. Unaudited pro forma net income amounts for the nine months ended September 30, 2017 and September 30, 2016 were approximately $290 million and $170 million, respectively. Unaudited pro forma earnings per share amounts for the nine months ended September 30, 2017 and September 30, 2016 were $2.57 per share and $1.64 per share, respectively.

The unaudited pro forma net income amounts for the nine months ended September 30, 2017 and September 30, 2016 have been adjusted by approximately $20 million for a one-time charge for MPG stock-based compensation that was accelerated and settled on the date of acquisition, approximately $25 million related to the step-up of inventory to fair value as a result of the acquisition, and approximately $55 million in acquisition-related costs. This adjustment resulted in a reclassification of approximately $65 million, net of tax, from unaudited pro forma net income for the first nine months of 2017 into pro forma net income for the first nine months of 2016, as we are required to disclose the unaudited pro forma amounts as if the acquisition of MPG had been completed on January 1, 2016.

The disclosure of unaudited pro forma net sales and earnings is for informational purposes only and does not purport to indicate the results that would actually have been obtained had the merger been completed on the assumed date for the periods presented, or which may be realized in the future.

~~Acquisition of USM Mexico~~

On March 1, 2017, AAM completed the acquisition of 100% of USM Mexico, a former subsidiary of U.S. Manufacturing Corporation (USM). The purchase price was funded entirely with available cash and the acquisition was accounted for under the acquisition method.

USM Mexico includes USM's operations in Guanajuato, Mexico, which has historically been one of the largest suppliers to AAM's Guanajuato Manufacturing Complex. This acquisition allows AAM to vertically integrate the supply chain and helps ensure continuity of supply for certain parts to our largest manufacturing facility.

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~The following represents the estimated fair value of the assets acquired and liabilities assumed resulting from the acquisition, as well as the calculation of goodwill:~~

(in millions) March 1, 2017
Contractual purchase price $ 162.5
Adjustments to contractual purchase price for capital equipment 4.9
Adjustment to contractual purchase price for settlement of existing accounts payable balance (22.8 )
Cash acquired (0.5 )
Adjusted purchase price, net of cash acquired $ 144.1
Accounts receivable 1.1
Inventories 4.8
Prepaid expenses and other 2.4
Property, plant and equipment 38.4
Intangible assets 31.7
Total assets acquired $ 78.4
Accounts payable 10.8
Accrued expenses and other 2.7
Deferred income tax liabilities 1.2
Net assets acquired $ 63.7
Goodwill $ 80.4

The purchase agreement specifies a period of time subsequent to the acquisition date for calculating the final working capital amount of USM Mexico as of the acquisition date. As a result, the purchase price, working capital and goodwill amounts as included in the table above are considered provisional and are subject to adjustment. We expect these provisional amounts to be finalized in the fourth quarter of 2017. None of the goodwill is expected to be deductible for tax purposes.

AAM had an existing accounts payable balance of $22.8 million with USM Mexico as of the date of acquisition. As a result of the acquisition, this pre-existing accounts payable balance was settled and AAM accounted for this settlement separately from the acquisition. This resulted in a $22.8 million reduction in the purchase price and this portion of the cash paid to acquire USM Mexico has been reflected as an operating cash outflow in our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017.

The operating results of USM Mexico from the acquisition date through September 30, 2017 were insignificant to AAM's Condensed Consolidated Statement of Income for the three months and nine months ended September 30, 2017. Further, we have not included pro forma revenue and earnings for the nine months ended September 30, 2017 and September 30, 2016 as the inclusion of USM Mexico would be insignificant to AAM's consolidated results for these periods.

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~4. GOODWILL AND INTANGIBLE ASSETS~~

~~Goodwill~~ ~~The following table provides a reconciliation of changes in goodwill for the nine months ended September 30, 2017:~~

Driveline Metal Forming Powertrain Casting Consolidated
(in millions)
Balance as of December 31, 2016 $ 130.1
$ 23.9
$ —
$ —
$ 154.0
Acquisition of MPG —
516.0
472.3
406.0
1,394.3
Acquisition of USM Mexico 80.4
—
—
—
80.4
Foreign currency translation 0.4
16.6
8.9
—
25.9
Balance as of September 30, 2017 $ 210.9

$ 556.5

$ 481.2

$ 406.0
$ 1,654.6

Other Intangible Assets As a result of the acquisitions of MPG and USM Mexico, AAM identified and recognized certain intangible assets that are subject to amortization. The weighted-average amortization period for all intangible assets recognized as a result of these acquisitions is 13.6 years. The following table provides a breakout of the major intangible assets acquired by class:

Estimated September 30,
Useful Lives 2017
(years) (in millions)
MPG
Customer platforms 14 $ 950.0
Customer relationships 16-17 151.8
Technology and other 5-13 121.3
Total MPG $ 1,223.1

USM Mexico
Technology 13 $ 29.5
Customer platforms 13 2.2
Total USM Mexico $ 31.7

Total $ 1,254.8

In the third quarter of 2017, we made measurement period adjustments related to the acquisition of MPG to reflect changes to facts and circumstances that existed as of the acquisition date. These adjustments resulted in a decrease to customer platforms of $20.0 million and a decrease in customer relationships of $1.5 million as a result of changes to our third-party valuation and customary post-closing reviews. The impact to amortization expense in our Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 as a result of adjusting our intangible assets was immaterial.

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

The following table provides a reconciliation of the gross carrying amount and associated accumulated amortization for AAM's ~~total~~other intangible assets, which are all subject to amortization:


	September 30,							December 31,								March 31,										December 31,
	2017							2016								2020										2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in millions)															(in millions)
Capitalized computer software	$	35.2	$	(12.8	)	$	22.4	$	31.7	$	(8.5	)	$	23.2	Capitalized computer software	$	45.8	$	(29.2)	$	16.6	$	45.8	$	(27.6)	$	18.2
e-AAM in-process research and development	5.9		—			5.9		5.3		—			5.3
Customer platforms	952.2		(35.3		)	916.9		—		—			—		Customer platforms	856.2		(190.3)		665.9		856.2		(174.4)		681.8
Customer relationships	151.8		(4.9		)	146.9		—		—			—		Customer relationships	53.0		(10.3)		42.7		53.0		(9.4)		43.6
Technology and other	150.8		(6.3		)	144.5		—		—			—		Technology and other	155.7		(38.1)		117.6		156.0		(35.1)		120.9
Total	$	1,295.9	$	(59.3	)	$	1,236.6	$	37.0	$	(8.5	)	$	28.5	Total	$	1,110.7	$	(267.9)	$	842.8	$	1,111.0	$	(246.5)	$	864.5

Amortization expense for ~~these~~our intangible assets was ~~$24.4 million and $50.8~~$21.8 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2020, and ~~$1.3 million and $3.6~~$25.0 million for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2019. Estimated amortization expense for each of the ~~next five~~full years 2020 through 2024 is ~~as follows:~~ approximately ~~$75 million in 2017 and approximately $100 million in each of the years 2018 through 2021.~~$87 million.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVENTORIES


5.	~~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, 2020		December 31, 2019
	(in millions)

Raw materials and work-in-progress	$	315.1	$	310.4
Finished goods	102.6		83.7
Gross inventories	417.7		394.1
Inventory valuation reserves	(23.2)		(20.5)
Inventories, net	$	394.5	$	373.6

September 30, 2017 December 31, 2016
(in millions)

Raw materials and work-in-progress $ 331.4
$ 163.3
Finished goods 90.0
33.8
Gross inventories 421.4
197.1
Inventory valuation reserves (24.8 ) (14.8 )
Inventories, net $ 396.6
$ 182.3

Effective April 1, 2017, we changed our method of accounting for indirect inventory from capitalizing and recording as expense when the inventory was consumed to now expensing indirect inventory at the time of purchase. Based on the guidance in ASC 250 ~~Accounting Changes and Error Corrections,~~ we have adjusted retained earnings to reflect the retrospective application of this change in accounting principle. Refer to Note 1 - Organization and Basis of Presentation for further detail. Based on this change in accounting principle, Raw materials and work-in-progress and Inventory valuation reserves, as of December 31, 2016, reflect a decrease of $49.4 million and a decrease of $12.2 million, respectively.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT


6.	~~LONG-TERM DEBT~~

Long-term debt consists of the following:


	March 31, 2020		December 31, 2019
	(in millions)

Revolving Credit Facility	$	200.0	$	—
Term Loan A Facility	340.0		340.0
Term Loan B Facility	1,188.8		1,188.8
6.625% Notes due 2022	350.0		450.0
6.50% Notes due 2027	500.0		500.0
6.25% Notes due 2026	400.0		400.0
6.25% Notes due 2025	700.0		700.0
Foreign credit facilities and other	102.9		113.4
Total debt	3,781.7		3,692.2
Less: Borrowings under Revolving Credit Facility	200.0		—
Less: Current portion of long-term debt	21.7		28.7
Long-term debt	3,560.0		3,663.5
Less: Debt issuance costs	48.3		51.2
Long-term debt, net	$	3,511.7	$	3,612.3

September 30, 2017 December 31, 2016
(in millions)

Revolving Credit Facility $ —
$ —
Term Loan A Facility 93.8
—
Term Loan B Facility 1,530.6
—
7.75% Notes due 2019 200.0
200.0
6.625% Notes due 2022 550.0
550.0
6.50% Notes due 2027 500.0
—
6.25% Notes due 2025 700.0
—
6.25% Notes due 2021 400.0
400.0
5.125% Notes due 2019 200.0
200.0
Foreign credit facilities 52.3
60.4
Capital lease obligations 28.6
5.5
Total debt 4,255.3
1,415.9
Less: Current portion of long-term debt 6.8
3.3
Long-term debt 4,248.5
1,412.6
Less: Debt issuance costs 79.2
11.7
Long-term debt, net $ 4,169.3
$ 1,400.9

~~New~~ Senior Secured Credit Facilities In ~~connection with our acquisition of MPG (the Acquisition) on April 6,~~ 2017, American Axle & Manufacturing Holdings, Inc. (Holdings) and American Axle & Manufacturing, Inc. (AAM, Inc.) entered into a credit agreement (the Credit Agreement), among AAM, Inc., as borrower, Holdings, each financial institution party thereto as a lender (the Lenders) and administrative agent, pursuant to which Holdings and certain of its restricted subsidiaries (including certain subsidiaries of MPG acquired as part of the Acquisition) are required to guarantee the borrowings of AAM, Inc. thereunder and Holdings, AAM, Inc. and certain of their restricted subsidiaries are required to pledge their assets (including, without limitation, after-acquired assets), subject to certain exceptions and limitations.. In connection with the Credit Agreement, Holdings, AAM, Inc. and certain of their restricted subsidiaries entered into a Collateral Agreement and Guarantee Agreement with the financial institutions party ~~thereto as collateral agent and administrative agent.~~

~~Pursuant to the~~thereto. The Credit Agreement ~~the Lenders agreed to provide~~included a $100.0 million term loan A facility (the Term Loan A Facility), a $1.55 billion term loan B facility (the Term Loan B Facility) and a ~~$900~~$932 million multi-currency revolving credit facility (the Revolving Credit Facility, and together with the Term Loan A Facility and the Term Loan B Facility, the ~~New~~ Senior Secured Credit Facilities).

In July 2019, Holdings, AAM, Inc., and certain subsidiaries of Holdings entered into the First Amendment (First Amendment) to the Credit Agreement (as amended by the First Amendment, the Amended Credit Agreement). The ~~proceeds~~First Amendment, among other things, established $340 million in incremental term loan A commitments under the Amended Credit Agreement with a maturity date of ~~the Term~~July 29, 2024 (Term Loan A Facility due 2024), reduced the availability under the Revolving Credit Facility from $932 million to $925 million, and extended the Term Loan B Facility were used to finance a portion of the consideration for the Acquisition, pay transaction costs, redeem in full MPG Holdco I Inc.’s 7.375% Senior Notes due 2022, and repay the existing indebtedness of AAM, Inc. under its Amended and Restated Credit Agreement, dated as of January 9, 2004, amended and restated as of September 13, 2013 and as further amended, among AAM, Inc., as borrower, Holdings, and each financial institution party thereto as a lender and administrative agent, as well as repay existing indebtedness of MPG under its Credit Agreement, dated as of October 20, 2014 and as amended as of May 8, 2015, among MPG Holdco I Inc., as guarantor, MPG, the subsidiary guarantors party thereto, and each financial institution party thereto as a lender and administrative agent. The proceedsmaturity date of the Revolving Credit Facility ~~will be used for general corporate purposes. We paid debt issuance costs of $53.9 million in the first nine months of 2017 related to the New Senior Secured Credit Facilities.~~

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

with respect to ~~any loan~~interest rates under the Term Loan A Facility ~~2.25% with respect to any loan under the Term Loan B Facility,~~due 2024 and ~~between 2.00%~~interest rates and ~~3.00% with respect to any loan~~commitment fees under the Revolving Credit Facility. The applicable margin and the maturity date for ~~loans subject~~the Term Loan B Facility remain unchanged. The proceeds of $340 million were used to ~~alternate base rate will be between 0.25% and 1.25% with respect to any loan~~repay all of the outstanding loans under the existing Term Loan A Facility ~~1.25% with respect to any loan~~and a portion of the outstanding Term Loan B Facility, resulting in no additional indebtedness. This also satisfies all payment requirements under the Term Loan B Facility ~~and between 1.00% and 2.00% with respect to any loan under the Revolving Credit Facility.~~ until maturity in 2024.

The Credit Agreement requires certain mandatory prepayments of outstanding loans under the Term Loan A Facility and the Term Loan B Facility, subject to certain exceptions, based on a percentage of the annual excess cash flow of Holdings and its restricted subsidiaries (with step-downs to 0% based upon the total net leverage ratio, and with no prepayment required if annual excess cash flow is under a specified minimum threshold), the net cash proceeds of certain asset sales and casualty and condemnation events, subject to reinvestment rights and certain other exceptions, and the net cash proceeds of any issuance of debt not otherwise permitted under the Credit Agreement.

The Credit Agreement permits AAM, Inc. to incur incremental term loan borrowings and/or increase commitments under the Revolving Credit Facility, subject to certain limitations and the satisfaction of certain conditions, in an aggregate amount not to exceed (i) $600 million, plus (ii) certain voluntary prepayments, plus (iii) additional amounts subject to pro forma compliance with a first lien net leverage ratio for Holdings and its restricted subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants, including, among others, financial covenants based on total net leverage and cash interest expense coverage ratios and limitations on the ability of Holdings, AAM, Inc. or their restricted subsidiaries to make certain investments, declare or pay dividends or distributions on capital stock, redeem or repurchase capital stock and certain debt obligations, incur liens, incur indebtedness, or merge, make certain acquisitions or certain sales of assets. The Credit Agreement includes customary events of default, the occurrence of which would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. Upon such default, the lenders may also seek customary remedies with respect to the collateral under the Collateral Agreement.

As of September 30, 2017, we have prepaid $5.0 million of the outstanding principal on our Term Loan A Facility and $15.5 million of the outstanding principal on our Term Loan B Facility. These payments satisfy our obligation for principal payments under the Term Loan A Facility and Term Loan B Facility for the next four quarters. As a result, there are no amounts related to the Term Loan A Facility or Term Loan B Facility in the Current portion of long-term debt line item in our Condensed Consolidated Balance Sheet as of September 30, 2017.

At ~~September 30, 2017,~~March 31, 2020, we had ~~$869.1~~$691.4 million available under the Revolving Credit Facility. This availability reflects ~~a reduction~~$200 million of ~~$30.9~~borrowings and $33.6 million for standby letters of credit issued against the facility. Subsequent to the balance sheet date, on April 1, 2020, we borrowed an additional $150 million under the facility. The proceeds of the Revolving Credit Facility are used for general corporate purposes.

The ~~New~~ 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 ~~New~~ 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~~Current portion of long-term debt on our Condensed Consolidated Balance Sheet.

~~6.50% Notes due 2027 and 6.25% Notes due 2025~~ On March 23, 2017, we issued $700.0 million in aggregate principal amount of 6.25% senior notes due 2025 and $500.0 million in aggregate principal amount of 6.50% senior notes due 2027 (the Notes). Proceeds from the Notes were used primarily to fund the cash consideration related to AAM's acquisition of MPG, related fees and expenses, refinancing certain existing indebtedness of MPG and borrowings under our previous revolving credit facility, which has been replaced by our new Revolving Credit Facility, together with borrowings under the New Senior Secured Credit Facilities. We paid debt issuance costs of $36.9 million in the first nine months of 2017 related to the Notes.

~~Repayment of MPG Indebtedness~~ Upon the acquisition of MPG, we assumed approximately $1.9 billion of existing MPG indebtedness, which we repaid in its entirety on the date of acquisition. This indebtedness was comprised of approximately $0.2 billion of a Euro denominated term loan, approximately $1.0 billion of a U.S. dollar denominated term loan and approximately $0.7 billion of outstanding MPG bonds. Upon settlement of the debt, we paid approximately $24.6 million of accrued interest. In addition, we expensed $2.7 million of prepayment premiums related to the extinguishment of MPG's debt, which has been presented in the Debt refinancing and redemption costs line item within our condensed consolidated statements of income for both the three and nine months ended September 30, 2017.

~~Foreign credit facilities~~ We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At September 30, 2017, $52.3 million was outstanding under our foreign credit facilities and an additional $99.9 million was available.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Subsequent Event Related to Senior Secured Credit Facilities

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

Foreign credit facilities We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At March 31, 2020, $102.7 million was outstanding under our foreign credit facilities, as compared to $106.0 million at December 31, 2019. At March 31, 2020, an additional $86.0 million was available under our foreign credit facilities.

Weighted-Average Interest Rate The weighted-average interest rate of our long-term debt outstanding was ~~5.7%~~5.5% at ~~September 30, 2017~~March 31, 2020 and ~~6.6%~~5.8% at December 31, ~~2016.~~ 2019.


7.	~~FAIR VALUE~~

Redemption of 6.625% Notes due 2022 In the first quarter of 2020, we voluntarily redeemed a portion of our 6.625% Notes due 2022. This resulted in a principal payment of $100 million and $2.0 million in accrued interest. We also expensed approximately $0.4 million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately $1.1 million for an early redemption premium.

~~Accounting Standards Codification~~

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, 2020, we have currency forward contracts outstanding with a total notional amount of $169.5 million that hedge our exposure to changes in foreign currency exchange rates for certain payroll expenses into the fourth quarter of 2022 and other items into the fourth quarter of 2020.

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

Also in the first quarter of 2020, we entered into a new fixed-to-fixed cross-currency swap to reduce the variability of functional currency equivalent cash flows associated with changes in exchange rates on certain Euro-based intercompany loans. As of March 31, 2020, the notional amount of the fixed-to-fixed cross-currency swap was $220.5 million, and hedges our exposure to changes in exchange rates on the intercompany loans into the second quarter of 2024.

Variable-to-fixed interest rate swap In 2019, we entered into a variable-to-fixed interest rate swap to reduce the variability of cash flows associated with interest payments on our variable rate debt. We have the following notional amounts hedged in relation to our variable-to-fixed interest rate swap: $1.0 billion through May 2020, $900.0 million through May 2021, $750.0 million through May 2022, $600.0 million through May 2023 and $500.0 million through May 2024.

The following table summarizes the reclassification of derivative gains and losses into net income from accumulated other comprehensive income (loss) for those derivative instruments designated as cash flow hedges under ASC 815 - Derivatives and Hedging:


	Location	Gain (Loss) Reclassified During						Total of Financial		Gain (Loss) Expected
	of Gain (Loss)	Three Months Ended						Statement		to be Reclassified
	Reclassified into	March 31,						Line Item		During the
	Net Income	2020		2019		2020		Next 12 Months
		(in millions)

Currency forward contracts	Cost of Goods Sold	$	1.3	$	0.2	$	1,148.2	$	(9.1)
Fixed-to-fixed cross-currency swap	Other Income (Expense), net	3.7		—		(2.3)		1.7
Variable-to-fixed interest rate swap	Interest Expense	(2.0)		1.2		(51.5)		(15.8)

See Note 12 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (AOCI) for amounts recognized in other comprehensive income (loss) during the three months ended March 31, 2020 and 2019.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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


		Gain (Loss) Recognized During								Total of Financial
	Location of Gain (Loss)		Three Months Ended						Statement Line
	Recognized in		March 31,						Item
	Net Income		2020		2019		2020
		(in millions)

Currency forward contracts	Cost of Goods Sold		$	(8.4)	$	1.2	$	1,148.2
Currency forward contracts	Other Income (Expense), net		(0.4)		(0.2)		(2.3)

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. FAIR VALUE

ASC 820 - Fair Value Measurement defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset. This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:

•Level 1: Observable inputs such as quoted prices in active markets;

•Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Financial instruments The estimated fair value of our financial assets and liabilities that are recognized at fair value on a recurring basis, using available market information and other observable data, are as follows:


	March 31, 2020						December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Input
	(in millions)
Balance Sheet Classification
Cash equivalents	$	158.6	$	158.6	$	271.3	$	271.3	Level 1
Prepaid expenses and other
Cash flow hedges - currency forward contracts	—		—		5.0		5.0		Level 2
Cash flow hedges - variable-to-fixed interest rate swap	4.9		4.9		0.9		0.9		Level 2
Nondesignated - currency forward contracts	0.1		0.1		1.9		1.9		Level 2

Other assets and deferred charges
Cash flow hedges - currency forward contracts	—		—		3.4		3.4		Level 2
Cash flow hedges - fixed-to-fixed cross-currency swap	7.4		7.4		1.1		1.1		Level 2
Cash flow hedges - variable-to-fixed interest rate swap	10.7		10.7		2.2		2.2		Level 2
Accrued expenses and other
Cash flow hedges - currency forward contracts	9.1		9.1		—		—		Level 2
Cash flow hedges - variable-to-fixed interest rate swap	19.0		19.0		7.9		7.9		Level 2
Nondesignated - currency forward contracts	7.0		7.0		—		—		Level 2
Postretirement benefits and other long-term liabilities
Cash flow hedges - currency forward contracts	8.8		8.8		—		—		Level 2
Cash flow hedges - variable-to-fixed interest rate swap	41.7		41.7		18.4		18.4		Level 2

September 30, 2017 December 31, 2016
Carrying Amount Fair Value Carrying Amount Fair Value Input
(in millions)
Balance Sheet Classification
Cash equivalents $ 126.1
$ 126.1
$ 187.2
$ 187.2
Level 1
Prepaid expenses and other

Cash flow hedges - currency forward contracts 1.1
1.1
—
—
Level 2
Nondesignated - currency forward contracts 1.0
1.0
—
—
Level 2
Nondesignated - currency option contracts 1.5
1.5
—
—
Level 2
Other assets and deferred charges
     Cash flow hedges - currency forward contracts 2.1
2.1
—
—
Level 2
     Cash flow hedges - variable-to-fixed interest rate swap 0.3
0.3
—
—
Level 2
Accrued expenses and other
     Cash flow hedges - currency forward contracts 3.8
3.8
12.3
12.3
Level 2
     Cash flow hedges - variable-to-fixed interest rate swap 0.2
0.2
—
—
Level 2
     Nondesignated - currency forward contracts 0.2
0.2
1.4
1.4
Level 2
Postretirement benefits and other long-term liabilities
     Cash flow hedges - currency forward contracts 0.5
0.5
11.4
11.4
Level 2
     Cash flow hedges - variable-to-fixed interest rate swap 2.1
2.1
—
—
Level 2

The carrying values of our cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term maturities of these instruments. The carrying values of our borrowings under the foreign credit facilities approximate their fair value due to the frequent resetting of the interest rates.

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:

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~


	March 31, 2020						December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Input
	(in millions)

Revolving Credit Facility	$	200.0	$	200.0	$	—	$	—	Level 2
Term Loan A Facility	340.0		306.9		340.0		337.9		Level 2
Term Loan B Facility	1,188.8		974.8		1,188.8		1,174.0		Level 2



6.625% Notes due 2022	350.0		294.0		450.0		455.4		Level 2
6.50% Notes due 2027	500.0		372.5		500.0		516.3		Level 2
6.25% Notes due 2026	400.0		300.0		400.0		409.0		Level 2
6.25% Notes due 2025	700.0		525.0		700.0		716.6		Level 2

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

September 30, 2017 December 31, 2016
Carrying Amount Fair Value Carrying Amount Fair Value

Input
(in millions)

Revolving Credit Facility $ —
$ —
$ —
$ —
Level 2
Term Loan A Facility 93.8
93.3
—
—
Level 2
Term Loan B Facility 1,530.6
1,521.1
—
—
Level 2
7.75% Notes due 2019 200.0
219.0
200.0
221.0
Level 2
6.625% Notes due 2022 550.0
567.2
550.0
566.1
Level 2
6.50% Notes due 2027 500.0
502.8
—
—
Level 2
6.25% Notes due 2025 700.0
711.7
—
—
Level 2
6.25% Notes due 2021 400.0
411.0
400.0
412.0
Level 2
5.125% Notes due 2019 200.0
200.5
200.0
201.7
Level 2


8.			~~DERIVATIVES~~

Our business and financial results are affected by fluctuations in world 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 and option contracts to reduce the effects of fluctuations in exchange rates relating to the Mexican Peso, Euro, Brazilian Real, British Pound Sterling, Thai Baht, Swedish Krona, Chinese Yuan, Polish Zloty and Indian Rupee. As of ~~September 30, 2017, we have currency forward and option contracts outstanding with a notional amount of~~ ~~$218.1 million~~ that hedge our exposure to changes in foreign currency exchange rates for certain payroll expenses into the second quarter of 2020 and certain direct and indirect inventory and other working capital items into the second quarter of 2018.

~~Variable-to-fixed interest rate swap~~ In the second quarter of 2017, we entered into a variable-to-fixed interest rate swap to reduce the variability of cash flows associated with interest payments on our variable rate debt. We have the following notional amounts hedged in relation to our variable-to-fixed interest rate swap: $750.0 million through May 2018, $600.0 million through May 2019, $450.0 million through May 2020 and $200.0 million through May 2021.

The following table summarizes the reclassification of derivative losses into net income from accumulated other comprehensive loss for those derivative instruments designated as cash flow hedges under Accounting Standards Codification 815 - ~~Derivatives and Hedging~~ ~~(ASC 815):~~

Loss Reclassified During Loss Expected to
Location of Loss Three Months Ended Nine Months Ended be Reclassified
Reclassified into September 30, September 30, During the
Net Income 2017 2016 2017 2016 Next 12 Months
(in millions)

Currency forward contracts Cost of Goods Sold $ (0.7 ) $ (2.6 ) $ (4.6 ) $ (6.9 ) $ (2.6 )
Variable-to-fixed interest rate swap Interest Expense —
—
—
—
(0.1 )

See Note 13 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (AOCI) for amounts recognized in other comprehensive income (loss) during the three and nine months ended September 30, 2017 and 2016.

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

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. EMPLOYEE BENEFIT PLANS

Gain (Loss) Recognized During
Location of Gain (Loss) Three Months Ended Nine Months Ended
Recognized in September 30, September 30,
Net Income 2017
2016 2017 2016
(in millions)

Currency forward contracts Cost of Goods Sold $ 0.4
$ (1.3 ) $ 6.1
$ (4.0 )
Currency forward contracts Other Income, Net —
—
—
(0.7 )
Currency option contracts Cost of Goods Sold 0.3
—
1.4
—


9.	~~EMPLOYEE BENEFIT PLANS~~

The components of net periodic benefit cost (credit) are as follows:


	Pension Benefits
	Three Months Ended
	March 31,
	2020		2019
	(in millions)

Service cost	$	0.5	$	0.4
Interest cost	5.4		7.1
Expected asset return	(9.6)		(10.3)
Amortized loss	2.1		1.5



Net periodic benefit credit	$	(1.6)	$	(1.3)

	Other Postretirement Benefits
	Three Months Ended
	March 31,
	2020		2019
	(in millions)

Service cost	$	0.1	$	0.1
Interest cost	2.6		3.2
Amortized loss	0.2		—
Amortized prior service credit	(0.4)		(0.4)


Net periodic benefit cost	$	2.5	$	2.9

Pension Benefits
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in millions)

Service cost $ 0.7
$ 0.8
$ 2.6
$ 2.3
Interest cost 7.2
7.3
21.4
21.9
Expected asset return (11.1 ) (10.7 ) (32.7 ) (32.1 )
Amortized loss 1.9
1.3
5.4
4.1
Amortized prior service cost (credit) (0.1 ) —
(0.1 ) —
Settlement 2.9
—
2.9
—
Net periodic benefit cost (credit) $ 1.5
$ (1.3 ) $ (0.5 ) $ (3.8 )

Other Postretirement Benefits
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in millions)

Service cost $ 0.1
$ 0.1
$ 0.3
$ 0.3
Interest cost 3.3
3.5
9.9
10.5
Amortized loss 0.2
0.1
0.5
0.3
Amortized prior service credit (0.8 ) (0.7 ) (2.1 ) (2.0 )
Net periodic benefit cost $ 2.8
$ 3.0
$ 8.6
$ 9.1

The noncurrent liabilities associated with our pension and other postretirement benefit plans are classified as ~~postretirement~~Postretirement benefits and other long-term liabilities on our Condensed Consolidated Balance Sheets. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, we have a noncurrent pension liability of ~~$141.0~~$113.5 million and ~~$113.5~~$118.2 million, respectively. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, we have a noncurrent other postretirement benefits liability of ~~$540.3~~$517.5 million and ~~$542.6~~$520.0 million, respectively.

Due to the availability of our pre-funded pension balances (previous contributions in excess of prior required pension contributions) related to certain of our U.S. pension plans, ~~as well as contributions~~ we ~~made~~expect our regulatory pension funding requirements in ~~2015 for one of our U.K. pension plans, the cash payments~~2020 to ~~our pension trusts will~~ be ~~insignificant in 2017.~~approximately $1.5 million. We expect our cash payments for other postretirement benefit obligations in ~~2017,~~2020, net of GM cost sharing, to be approximately ~~$16~~$17 million.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. PRODUCT WARRANTIES


~~10.~~	~~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 ~~closely~~ 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,
	2020		2019
	(in millions)

Beginning balance	$	62.0	$	57.7
Accruals	4.2		4.4
Payments	(1.3)		(3.7)
Adjustment to prior period accruals	(0.1)		(2.3)
Foreign currency translation	(0.6)		0.1
Ending balance	$	64.2	$	56.2

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in millions)

Beginning balance $ 47.9
$ 37.9
$ 42.9
$ 36.6
     Accruals 4.4
4.4
14.0
12.4
Payments (2.1 ) (3.0 ) (4.5 ) (6.7 )
     Adjustment to prior period accruals (3.7 ) —
(6.3 ) (3.1 )
     Foreign currency translation 0.2
—
0.6
0.1
Ending balance $ 46.7
$ 39.3
$ 46.7
$ 39.3

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INCOME TAXES


~~11.~~	~~INCOME TAXES~~

We ~~are required to~~ adjust our effective tax rate each quarter ~~to estimate~~based on our estimated annual effective tax rate. We ~~must~~ also record the tax impact of certain discrete, unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, 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.

Income tax was expense ~~was~~ ~~$5.7~~of $3.3 million ~~in the~~ ~~three~~ ~~months ended~~ ~~September 30, 2017~~ ~~as compared to~~ ~~$17.8 million~~ ~~in the~~ ~~three~~ ~~months ended~~ ~~September 30, 2016. Our effective income tax rate was 6.2% in the~~ ~~third~~ ~~quarter of~~ ~~2017~~ ~~as compared to 22.4% in the~~ ~~third~~ ~~quarter of~~ ~~2016~~. Income tax expense was $15.6 million in the nine months ended September 30, 2017 as compared to $53.8 million in the nine months ended September 30, 2016. Our effective income tax rate was 6.3% in the first nine months of 2017 as compared to 21.7% in the first nine months of 2016.

~~Our effective income tax rate for the~~ ~~three~~ ~~months ended September 30, 2017 is lower than our effective income tax rate for the~~ ~~three~~ months ended September 30, 2016 as a result of an increase in the proportionate share of income attributable to lower tax rate jurisdictions. In addition, subsequent to the acquisition of MPG, we re-evaluated our valuation allowance position with regard to jurisdictions in which consolidated state tax returns are filed and recorded an income tax benefit for the three months ended ~~September 30, 2017.~~March 31, 2020, an effective income tax rate of (0.7)%, as compared to a benefit of $3.0 million for the three months ended March 31, 2019, an effective income tax rate of (7.8)%.

During the three months ended March 31, 2020, we recognized a net tax benefit of approximately $7.5 million related to our ability to carry back losses from prior years under the CARES Act. Additionally, we expect to recognize a net tax benefit of approximately $10.1 million during 2020 related to our ability to carry back projected current year losses under the CARES Act. This current year tax benefit is included as part of our overall effective tax rate, and will be recognized throughout the year. The income tax benefits noted above are the result of our ability to carry back losses to tax years with the higher 35% corporate income tax rate that existed prior to the TCJA. See Note 1 - Organization and Basis of Presentation for additional detail regarding the CARES Act.

Our effective income tax rate for the ~~nine~~three months ended ~~September 30, 2017 is lower than~~March 31, 2020 varies from our effective income tax rate for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2019, primarily as a result of ~~an increase~~the impact of the goodwill impairment charge recorded during the first quarter of 2020, which had no corresponding income tax benefit, and as a result of the net income tax benefit recognized under the CARES Act. In addition, in the ~~proportionate share~~first quarter of ~~income attributable to lower tax rate jurisdictions. In addition, subsequent to the acquisition of MPG,~~2019, we ~~re-evaluated our valuation allowance position with regard to jurisdictions in which consolidated state tax returns are filed and recorded~~recognized an income tax benefit of $9.3 million related to final regulations issued by the Department of Treasury and Internal Revenue Service in the first quarter of 2019. The final regulations changed the manner in which we were required to compute the one-time transition tax under the TCJA that was imposed on certain foreign earnings for which U.S. income tax was previously deferred.

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~Our~~2019, our effective income tax ~~expense and effective tax~~rates vary from the U.S. federal statutory rate ~~for the~~ ~~three~~ ~~and nine months ended September 30, 2017, and September 30, 2016, reflect the impact of~~primarily due to favorable foreign tax rates, ~~partially offset~~the impact of tax credits, and the effect of the discrete items described above.

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." If, based upon available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. Due to the uncertainty associated with the extent and ultimate impact of COVID-19 on global automotive production volumes, we may experience lower than projected earnings in certain jurisdictions in future periods, and we believe that it is reasonably possible that additional valuation allowances could be recognized in the next twelve months as a result.

We operate in multiple jurisdictions throughout the world and the income tax returns of several subsidiaries in various tax jurisdictions are currently under examination. We are currently under a U.S. federal income tax examination for the years 2015 through 2017. Generally, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2013. During the next 12 months, we may finalize an advance pricing agreement in a foreign jurisdiction, which would result in a cash payment to the relevant tax authorities and a reduction of our ~~inability~~liability for unrecognized tax benefits and related interest and penalties. Although it is difficult to ~~realize a~~estimate with certainty the amount of any audit settlement, we do not expect any potential settlement to be materially different from what we have recorded in unrecognized tax ~~benefit for current foreign losses.~~

benefits. Based on the status of ongoing tax audits, ~~outside the U.S.,~~ and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the ~~timing or~~ impact of changes, if any, to previously recorded uncertain tax ~~positions.~~positions.We will continue to monitor the progress and conclusions of all ongoing audits and other communications with tax authorities, and will adjust our estimated liability as necessary. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, we have recorded a liability for unrecognized income tax benefits and related interest and penalties of ~~$54.4~~$47.5 million and ~~$30.7~~$52.6 million, respectively. In January 2016, we completed negotiations with the Mexican tax authorities to settle transfer pricing audits. Including these settlements, we made payments of $26.1 million in the first nine months of 2016 to the Mexican tax authorities related to transfer pricing matters.

Although it is difficult to estimate with certainty the amount of our tax liabilities for the years that remain subject to audit, we do not expect the settlements will be materially different from what we have recorded in unrecognized tax benefits. We will continue to monitor the progress and conclusions of current and future audits and will adjust our estimated liability as necessary.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


~~12.~~	~~EARNINGS PER SHARE (EPS)~~

11. EARNINGS (LOSS) PER SHARE (EPS)

We present ~~earnings per share~~EPS using the two-class method. This method allocates undistributed earnings between common shares and non-vested share based payment awards that entitle the holder to non-forfeitable dividend rights. Our participating securities include non-vested restricted stock units.

The following table sets forth the computation of our basic and diluted EPS available to shareholders of common stock (excluding participating securities):


	Three Months Ended
	March 31,
	2020		2019
	(in millions, except per share data)
Numerator
Net income (loss) attributable to AAM	$	(501.3)	$	41.6
Less: Net income attributable to participating securities	—		(1.2)


Net income (loss) attributable to common shareholders - Basic and Dilutive	$	(501.3)	$	40.4

Denominators
Basic common shares outstanding -
Weighted-average shares outstanding	116.4		115.3
Less: Participating securities	(3.7)		(3.4)
Weighted-average common shares outstanding	112.7		111.9

Effect of dilutive securities -
Dilutive stock-based compensation	—		0.5

Diluted shares outstanding -
Adjusted weighted-average shares after assumed conversions	112.7		112.4

Basic EPS	$	(4.45)	$	0.36

Diluted EPS	$	(4.45)	$	0.36

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in millions, except per share data)
Numerator
Net income attributable to AAM $ 86.2
$ 61.7
$ 230.8
$ 193.8
    Less: Net income attributable to participating securities (1.9 ) (1.4 ) (5.1 ) (4.4 )
Net income attributable to common shareholders - Basic and Dilutive $ 84.3
$ 60.3
$ 225.7
$ 189.4

Denominators

Basic common shares outstanding -

   Weighted-average shares outstanding 113.9
78.3
101.5
78.2
        Less: Participating securities (2.6 ) (1.8 ) (2.3 ) (1.8 )
    Weighted-average common shares outstanding 111.3
76.5
99.2
76.4

Effect of dilutive securities -

   Dilutive stock-based compensation 0.4
0.5
0.4
0.4

Diluted shares outstanding -

   Adjusted weighted-average shares after assumed conversions 111.7
77.0
99.6
76.8

Basic EPS $ 0.76
$ 0.79
$ 2.28
$ 2.48

Diluted EPS $ 0.75
$ 0.78
$ 2.27
$ 2.47

Certain exercisable stock options were excluded from the computations of diluted EPS because the exercise price of these options was greater than the average period market prices. There were no stock options excluded from the calculation of

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (AOCI)

~~diluted EPS at September 30, 2017. The number of stock options outstanding, which were not included~~

Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss) during the three months ended March 31, 2020 and March 31, 2019 are as follows (in ~~the calculation of diluted EPS, was 0.2 million, with an exercise price of $26.02, at~~ ~~September 30, 2016~~.millions):


	Defined Benefit Plans			Foreign Currency Translation Adjustments		Unrecognized Gain (Loss) on Cash Flow Hedges			Total
Balance at December 31, 2019	$	(259.9)		$	(101.2)	$	(15.7)		$	(376.8)

Other comprehensive income (loss) before reclassifications	—			(48.5)		(34.0)			(82.5)

Income tax effect of other comprehensive income (loss) before reclassifications	—			—		1.9			1.9

Amounts reclassified from accumulated other comprehensive loss	2.0		(a)	—		(3.0)		(b)	(1.0)

Income taxes reclassified into net income	(0.4)			—		0.4			—

Net change in accumulated other comprehensive loss	1.6			(48.5)		(34.7)			(81.6)

Balance at March 31, 2020	$	(258.3)		$	(149.7)	$	(50.4)		$	(458.4)


	Defined Benefit Plans			Foreign Currency Translation Adjustments		Unrecognized Gain (Loss) on Cash Flow Hedges			Total
Balance at December 31, 2018	$	(213.9)		$	(96.6)	$	(1.1)		$	(311.6)

Other comprehensive income (loss) before reclassifications	(27.9)		(c)	(2.5)		(2.6)			(33.0)

Income tax effect of other comprehensive income (loss) before reclassifications	—			—		1.2			1.2

Amounts reclassified from accumulated other comprehensive income (loss)	1.2		(a)	—		(1.4)		(b)	(0.2)

Income taxes reclassified into net income	(0.3)			—		0.3			—

Net change in accumulated other comprehensive income (loss)	(27.0)			(2.5)		(2.5)			(32.0)

Balance at March 31, 2019	$	(240.9)		$	(99.1)	$	(3.6)		$	(343.6)


(a)			These amounts were reclassified from AOCI to Other income (expense), net for the three months ended March 31, 2020 and March 31, 2019.

(b)			The amounts reclassified from AOCI included $(1.3) million in COGS, $2.0 million in interest expense and $(3.7) million in Other income (expense), net for the three months ended March 31, 2020 and $(0.2) million in COGS and $(1.2) million in interest expense for the three months ended March 31, 2019.

(c)			ASU 2018-02 became effective on January 1, 2019, and we elected to reclassify the stranded tax effects caused by the 2017 Tax Cuts and Jobs Act, resulting in a decrease in Accumulated other comprehensive income (loss) of $27.7 million at January 1, 2019.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. REVENUE FROM CONTRACTS WITH CUSTOMERS


~~13.~~	~~RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (AOCI)~~

~~Reclassification adjustments~~Net sales recognized from contracts with customers, disaggregated by segment and ~~other activity impacting accumulated other comprehensive income (loss) during~~geographical location, are presented in the following table for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016~~2019. Net sales are attributed to regions based on the location of production. Intersegment sales have been excluded from the table.

In the fourth quarter of 2019, we completed the sale of the U.S operations of our former Casting segment (the Casting Sale). The Casting Sale did not include the entities that conduct AAM's casting operations in El Carmen, Mexico, which are now included in our Driveline segment. The Casting Sale did not qualify for classification as ~~follows~~ (discontinued operations, as it did not represent a strategic shift in ~~millions)~~:our business that has had, or will have, a major effect on our operations and financial results. As such, we continue to present Casting as a segment in the table below for the three months ended March 31, 2019, and the reported amounts are now comprised entirely of the U.S. casting operations that were included in the sale. The amounts previously reported in our Casting segment for the retained operations in El Carmen, Mexico have been reclassified to our Driveline segment for the three months ended March 31, 2019.



















	Three Months Ended March 31, 2020
	Driveline		Metal Forming		Casting		Total
North America	$	791.3	$	261.6	$	—	$	1,052.9
Asia	103.1		6.1		—		109.2
Europe	98.9		61.2		—		160.1
South America	18.7		2.6		—		21.3
Total	$	1,012.0	$	331.5	$	—	$	1,343.5

	Three Months Ended March 31, 2019
	Driveline		Metal Forming		Casting		Total
North America	$	868.0	$	305.4	$	182.4	$	1,355.8
Asia	153.3		7.5		—		160.8
Europe	101.6		72.7		—		174.3
South America	25.8		2.5		—		28.3
Total	$	1,148.7	$	388.1	$	182.4	$	1,719.2

Contract Assets and Liabilities

The following table summarizes our beginning and ending balances for accounts receivable and contract liabilities associated with our contracts with customers:



	Accounts Receivable, Net		Contract Liabilities (Current)		Contract Liabilities (Long-term)
December 31, 2019	$	815.4	$	18.9	$	83.7
March 31, 2020	794.7		21.3		77.5
Increase/(decrease)	$	(20.7)	$	2.4	$	(6.2)

Contract liabilities relate to deferred revenue associated with various settlements and commercial agreements for which we have a future performance obligation to the customer. We recognize this deferred revenue into revenue over the life of the associated program as we satisfy our performance obligations to the customer. We do not have contract assets as defined in ASC 606. During the three months ended March 31, 2020, we amortized $6.7 million of previously recorded contract liabilities into revenue as we satisfied performance obligations with our customers.

Defined Benefit Plans Foreign Currency Translation Adjustments Unrecognized Loss on Cash Flow Hedges Total
Balance at June 30, 2017 $ (242.9 ) $ (85.9 ) $ (3.3 ) $ (332.1 )

Other comprehensive income before reclassifications —
42.8
0.4
43.2

Income tax effect of other comprehensive income before reclassifications —
—
—
—

Amounts reclassified from accumulated other comprehensive loss 4.1
(a) —
0.7
(b) 4.8

Income tax benefit reclassified into net income (1.0 ) —
—
(1.0 )

Net current period other comprehensive income 3.1
42.8
1.1
47.0

Balance at September 30, 2017 $ (239.8 ) $ (43.1 ) $ (2.2 ) $ (285.1 )

Defined Benefit Plans Foreign Currency Translation Adjustments Unrecognized Loss on Cash Flow Hedges Total
Balance at June 30, 2016 $ (219.2 ) $ (103.4 ) $ (15.7 ) $ (338.3 )

Other comprehensive loss before reclassifications —
(0.8 ) (6.7 ) (7.5 )

Income tax effect of other comprehensive loss before reclassifications —
—
—
—

Amounts reclassified from accumulated other comprehensive loss 0.7
(a) —
2.6
(b) 3.3

Income tax benefit reclassified into net income (0.1 ) —
—
(0.1 )

Net current period other comprehensive income (loss) 0.6
(0.8 ) (4.1 ) (4.3 )

Balance at September 30, 2016 $ (218.6 ) $ (104.2 ) $ (19.8 ) $ (342.6 )



~~(a)~~	The amount reclassified from AOCI included $4.2 million in cost of goods sold (COGS) and $(0.1) million in selling, general & administrative expenses (SG&A) for the three months ended September 30, 2017 and $1.0 million in COGS and $(0.3) million in SG&A for the three months ended September 30, 2016.

~~(b)~~	~~The amounts reclassified from AOCI are included in COGS.~~

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SEGMENT REPORTING

~~Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss) during the~~ ~~nine~~ ~~months ended September 30, 2017 and September 30, 2016 are as follows~~ ~~(in millions)~~:

Defined Benefit Plans Foreign Currency Translation Adjustments Unrecognized Loss on Cash Flow Hedges Total
Balance at December 31, 2016 $ (243.5 ) $ (122.4 ) $ (23.7 ) $ (389.6 )

Other comprehensive income (loss) before reclassifications (1.7 ) 79.3
16.2
93.8

Income tax effect of other comprehensive income (loss) before reclassifications 0.6
—
0.7
1.3

Amounts reclassified from accumulated other comprehensive loss 6.6
(a) —
4.6
(b) 11.2

Income tax benefit reclassified into net income (1.8 ) —
—
(1.8 )

Net current period other comprehensive income 3.7
79.3
21.5
104.5

Balance at September 30, 2017 $ (239.8 ) $ (43.1 ) $ (2.2 ) $ (285.1 )

Defined Benefit Plans Foreign Currency Translation Adjustments Unrecognized Loss on Cash Flow Hedges Total
Balance at December 31, 2015 $ (223.9 ) (119.2 ) $ (13.4 ) $ (356.5 )

Other comprehensive income (loss) before reclassifications 5.7
15.0
(13.3 ) 7.4

Income tax effect of other comprehensive income (loss) before reclassifications (2.0 ) —
—
(2.0 )

Amounts reclassified from accumulated other comprehensive loss 2.4
(a) —
6.9
(b) 9.3

Income tax benefit reclassified into net income (0.8 ) —
—
(0.8 )

Net current period other comprehensive income (loss) 5.3
15.0
(6.4 ) 13.9

Balance at September 30, 2016 $ (218.6 ) $ (104.2 ) $ (19.8 ) $ (342.6 )



~~(a)~~	The amount reclassified from AOCI included $7.0 million in COGS and $(0.4) million in SG&A for the nine months ended September 30, 2017 and $3.3 million in COGS and $(0.9) million in SG&A for the nine months ended September 30, 2016.

~~(b)~~	~~The amounts reclassified from AOCI are included in COGS.~~

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~


~~14.~~	~~SEGMENT REPORTING~~

Prior to the acquisition of MPG on April 6, 2017, we operated in one reportable segment: the manufacture, engineer, design and validation of driveline systems and related components and chassis modules for light trucks, sport utility vehicles (SUVs), crossover vehicles, passenger cars and commercial vehicles. Subsequent to the acquisition of MPG, ourOur business ~~was~~is organized into ~~four business units,~~Driveline and Metal Forming segments, with each representing a reportable segment under ASC 280 Segment Reporting. In the fourth quarter of 2019, we completed the Casting Sale, which did not include the entities that conduct AAM's casting operations in El Carmen, Mexico, which are now included in our Driveline segment. The ~~four segments~~Casting Sale did not qualify for classification as discontinued operations, as it did not represent a strategic shift in our business that has had, or will have, a major effect on our operations and financial results. As such, we continue to present Casting as a segment in the table below for the three months ended March 31, 2019, and the reported amounts are now comprised entirely of the U.S. casting operations that were included in the sale. The amounts previously reported in our Casting segment for the retained operations in El Carmen, Mexico have been reclassified to our Driveline ~~Metal Forming, Powertrain and Casting.~~ segment for the three months ended March 31, 2019.

The results of each segment are regularly reviewed by the chief operating decision maker to assess the performance of the segment and make decisions regarding the allocation of resources to the segments.

Our product offerings by segment are as follows:

•Driveline products consist primarily of front and rear axles, driveshafts, ~~power transfer units, rear drive~~differential assemblies, clutch modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline products and systems for light trucks, ~~SUVs,~~sport utility vehicles (SUVs), crossover vehicles, passenger cars and commercial vehicles; and

•Metal Forming products consist primarily of axle and transmission shafts, ring and pinion gears, differential gears ~~transmission gears and shafts and suspension components for OEMs and Tier 1 automotive suppliers;~~

~~The Powertrain segment products consist primarily of transmission module and differential assemblies, transmission valve bodies, connecting rod forging~~ and assemblies, ~~torsional vibration dampers,~~connecting rods and variable valve timing products for ~~OEMs~~Original Equipment Manufacturers and Tier I1 automotive ~~suppliers; and~~suppliers.

The Casting segment produces both thin wall castings and high strength ductile iron castings, as well as differential cases, steering knuckles, control arms, and turbo charger housings for the global light, commercial and industrial markets.

We use Segment Adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. ~~Segment Adjusted~~We define EBITDA ~~is defined as~~to be earnings before interest expense, income taxes, depreciation and ~~amortization~~amortization. Segment Adjusted EBITDA is defined as EBITDA for our reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gain (loss) on the sale of a business, impairment charges, pension settlements and non-recurring items.

The following tables represent information by reportable segment for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019 (in millions):


	Three Months Ended March 31, 2020
	Driveline		Metal Forming		Casting		Total
Sales	$	1,031.7	$	422.3	$	—	$	1,454.0
Less: intersegment sales	19.7		90.8		—		110.5
Net external sales	$	1,012.0	$	331.5	$	—	$	1,343.5

Segment Adjusted EBITDA	$	139.3	$	74.0	$	—	$	213.3

	Three Months Ended March 31, 2019
	Driveline		Metal Forming		Casting		Total
Sales	$	1,166.3	$	483.3	$	193.7	$	1,843.3
Less: intersegment sales	17.6		95.2		11.3		124.1
Net external sales	$	1,148.7	$	388.1	$	182.4	$	1,719.2

Segment Adjusted EBITDA	$	142.8	$	84.4	$	17.8	$	245.0

Three Months Ended September 30, 2017

Driveline
Metal Forming
Powertrain
Casting
Total
Sales
$ 1,007.9

$ 368.2

$ 260.9

$ 226.6

$ 1,863.6
Less: intersegment sales
0.2

106.8

3.8

28.4

139.2
Net external sales $ 1,007.7

$ 261.4

$ 257.1

$ 198.2

$ 1,724.4

Segment Adjusted EBITDA $ 181.4
$ 70.7
$ 36.8
$ 8.8
$ 297.7

Three Months Ended September 30, 2016

Driveline
Metal Forming
Powertrain
Casting
Total
Sales
$ 956.1

$ 137.2

$ —

$ —

$ 1,093.3
Less: intersegment sales
0.1

86.3

—

—

86.4
Net external sales $ 956.0

$ 50.9

$ —

$ —

$ 1,006.9

Segment Adjusted EBITDA $ 134.4
$ 22.3
$ —
$ —
$ 156.7

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~The following tables represent information by reportable segment for the nine months ended September 30, 2017 and 2016:~~

Nine Months Ended September 30, 2017

Driveline
Metal Forming
Powertrain
Casting
Total
Sales
$ 3,028.7

$ 887.5

$ 544.5

$ 452.2

$ 4,912.9
Less: intersegment sales
1.1

315.1

6.0

58.6

380.8
Net external sales $ 3,027.6

$ 572.4

$ 538.5

$ 393.6

$ 4,532.1

Segment Adjusted EBITDA $ 513.5
$ 170.5
$ 88.7
$ 34.3
$ 807.0

Nine Months Ended September 30, 2016

Driveline
Metal Forming
Powertrain
Casting
Total
Sales
$ 2,840.4

$ 414.4

$ —

$ —

$ 3,254.8
Less: intersegment sales
3.8

249.5

—

—

253.3
Net external sales $ 2,836.6
$ 164.9
$ —
$ —
$ 3,001.5

Segment Adjusted EBITDA $ 391.9
$ 79.4
$ —
$ —
$ 471.3

~~Total assets by reportable segment as of September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017
Driveline Metal Forming Powertrain Casting Corporate and Eliminations Total
Total assets $ 2,362.7
$ 2,155.8
$ 1,825.1
$ 1,018.0
$ 696.7
$ 8,058.3
December 31, 2016
Driveline Metal Forming Powertrain Casting Corporate and Eliminations Total
Total assets $ 2,183.9
$ 410.3
$ —
$ —
$ 829.7
$ 3,423.9

~~Assets included in the Corporate and Eliminations column in the table above represent AAM corporate assets, as well as eliminations of intercompany assets.~~

The following table represents a reconciliation of Total Segment Adjusted EBITDA to consolidated income (loss) before income taxes for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016.~~2019 (in millions):


	Three Months Ended March 31,
	2020		2019
Total segment adjusted EBITDA	$	213.3	$	245.0
Interest expense	(51.5)		(53.4)
Depreciation and amortization	(129.6)		(140.8)
Restructuring and acquisition-related costs	(17.6)		(12.1)

Loss on sale of business	(1.0)		—

Debt refinancing and redemption costs	(1.5)		—
Impairment charge	(510.0)		—


Income (loss) before income taxes	$	(497.9)	$	38.7

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Three Months Ended September 30,
Nine Months Ended September 30,

2017
2016
2017
2016
Segment Adjusted EBITDA $ 297.7
$ 156.7
$ 807.0
$ 471.3
Interest expense (57.5 ) (23.2 ) (139.9 ) (70.2 )
Depreciation and amortization (122.6 ) (49.9 ) (303.4 ) (150.4 )
Restructuring and acquisition-related costs (22.8 ) —
(90.5 ) —
Pension settlement (2.9 ) —
(2.9 ) —
Acquisition-related fair value inventory adjustment —
—
(24.9 ) —
Impact of change in accounting principle —
—
3.7
—
Debt refinancing and redemption costs —
—
(2.7 ) —
Asset impairment charge —
(3.4 ) —
(3.4 )
Investment gain related to the final distribution of the Reserve Yield Plus Fund —
—
—
1.0
Other 0.1
(0.7 ) 0.2
(0.7 )
Income before income taxes $ 92.0
$ 79.5
$ 246.6
$ 247.6

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~


~~15.~~	~~SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

Holdings has no significant assets other than its 100% ownership in AAM, Inc. and Metaldyne Performance Group, Inc. (MPG Inc.), and no direct subsidiaries other than AAM, Inc. and MPG Inc. The 7.75% Notes, 6.625% Notes, 6.50% Notes, 6.25% Notes (due 2025), 6.25% Notes (due 2021) and 5.125% Notes are senior unsecured obligations of AAM, Inc.; all of which are fully and unconditionally guaranteed, on a joint and several basis, by Holdings and substantially all domestic subsidiaries of AAM, Inc. and, as of May 17, 2017, MPG Inc, and substantially all domestic subsidiaries of MPG Inc.

These Condensed Consolidating Financial Statements are prepared under the equity method of accounting whereby the investments in subsidiaries are recorded at cost and adjusted for the parent’s share of the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other equity changes.

Condensed Consolidating Statements of Income
Three Months Ended September 30,
(in millions)
Holdings AAM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Elims Consolidated
2017
Net sales
External $ —
$ 250.0
$ 529.0
$ 945.4
$ —
$ 1,724.4
Intercompany —
0.2
80.0
7.0
(87.2 ) —
Total net sales —
250.2
609.0
952.4
(87.2 ) 1,724.4
Cost of goods sold —
229.6
546.3
738.0
(87.2 ) 1,426.7
Gross profit —
20.6
62.7
214.4
—
297.7
Selling, general and administrative expenses —
57.8
24.7
19.8
—
102.3
Amortization of intangible assets —
1.5
22.3
0.6
—
24.4
Restructuring and acquisition-related costs —
21.6
—
1.2
—
22.8
Operating income (loss) —
(60.3 ) 15.7
192.8
—
148.2
Non-operating income (expense), net —
(60.8 ) 5.5
(0.9 ) —
(56.2 )
Income (loss) before income taxes —
(121.1 ) 21.2
191.9
—
92.0
Income tax expense (benefit) —
(29.0 ) 17.8
16.9
—
5.7
Earnings from equity in subsidiaries 86.2
29.9
25.5
—
(141.6 ) —
Net income (loss) before royalties 86.2
(62.2 ) 28.9
175.0
(141.6 ) 86.3
Royalties —
84.9
1.3
(86.2 ) —
—
Net income after royalties 86.2
22.7
30.2
88.8
(141.6 ) 86.3
Net income attributable to noncontrolling interests —
—
—
(0.1 ) —
(0.1 )
Net income attributable to AAM $ 86.2
$ 22.7
$ 30.2
$ 88.7
$ (141.6 ) $ 86.2
Other comprehensive income, net of tax 47.0
16.7
42.6
51.3
(110.6 ) 47.0
Comprehensive income attributable to AAM $ 133.2
$ 39.4
$ 72.8
$ 140.0
$ (252.2 ) $ 133.2

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Holdings AAM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Elims Consolidated
2016

Net sales

External $ —
$ 274.7
$ 49.9
$ 682.3
$ —
$ 1,006.9
Intercompany —
3.7
62.7
4.4
(70.8 ) —
Total net sales —
278.4
112.6
686.7
(70.8 ) 1,006.9
Cost of goods sold —
265.4
94.9
536.2
(70.8 ) 825.7
Gross profit —
13.0
17.7
150.5
—
181.2
Selling, general and administrative expenses —
71.3
—
7.3
—
78.6
Amortization of intangible assets —
1.3
—
—
—
1.3
Operating income (loss) —
(59.6 ) 17.7
143.2
—
101.3
Non-operating income (expense), net —
(24.9 ) 2.9
0.2
—
(21.8 )
Income (loss) before income taxes —
(84.5 ) 20.6
143.4
—
79.5
Income tax expense —
7.9
0.1
9.8
—
17.8
Earnings (loss) from equity in subsidiaries 61.7
87.4
(7.1 ) —
(142.0 ) —
Net income (loss) before royalties 61.7
(5.0 ) 13.4
133.6
(142.0 ) 61.7
Royalties —
66.7
—
(66.7 ) —
—
Net income after royalties 61.7
61.7
13.4
66.9
(142.0 ) 61.7
Net income attributable to noncontrolling interests —
—
—
—
—
—
Net income attributable to AAM $ 61.7
$ 61.7
$ 13.4
$ 66.9
$ (142.0 ) $ 61.7
Other comprehensive income (loss), net of tax (4.3 ) (4.3 ) 1.0
(3.3 ) 6.6
(4.3 )
Comprehensive income attributable to AAM $ 57.4
$ 57.4
$ 14.4
$ 63.6
$ (135.4 ) $ 57.4

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Condensed Consolidating Statements of Income
Nine Months Ended September 30,
(in millions)
Holdings AAM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Elims Consolidated
2017
Net sales
External $ —
$ 806.9
$ 1,139.8
$ 2,585.4
$ —
$ 4,532.1
Intercompany —
2.4
214.7
19.9
(237.0 ) —
Total net sales —
809.3
1,354.5
2,605.3
(237.0 ) 4,532.1
Cost of goods sold —
752.2
1,188.0
2,004.1
(237.0 ) 3,707.3
Gross profit —
57.1
166.5
601.2
—
824.8
Selling, general and administrative expenses —
196.0
45.7
47.4
—
289.1
Amortization of intangible assets —
4.3
45.0
1.5
—
50.8
Restructuring and acquisition-related costs —
87.0
—
3.5

90.5
Operating income (loss) —
(230.2 ) 75.8
548.8
—
394.4
Non-operating income (expense), net —
(148.7 ) 14.9
(14.0 ) —
(147.8 )
Income (loss) before income taxes —
(378.9 ) 90.7
534.8
—
246.6
Income tax expense (benefit) —
(62.2 ) 42.0
35.8
—
15.6
Earnings from equity in subsidiaries 230.8
202.9
41.4
—
(475.1 ) —
Net income (loss) before royalties 230.8
(113.8 ) 90.1
499.0
(475.1 ) 231.0
Royalties —
253.6
2.6
(256.2 ) —
—
Net income after royalties 230.8
139.8
92.7
242.8
(475.1 ) 231.0
Net income attributable to noncontrolling interests —
—
—
(0.2 ) —
(0.2 )
Net income attributable to AAM $ 230.8
$ 139.8
$ 92.7
$ 242.6
$ (475.1 ) $ 230.8
Other comprehensive income, net of tax 104.5
55.3
74.7
94.8
(224.8 ) 104.5
Comprehensive income attributable to AAM $ 335.3
$ 195.1
$ 167.4
$ 337.4
$ (699.9 ) $ 335.3

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Holdings AAM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Elims Consolidated
2016

Net sales

External $ —
$ 866.3
$ 161.4
$ 1,973.8
$ —
$ 3,001.5
Intercompany —
8.1
185.7
12.2
(206.0 ) —
Total net sales —
874.4
347.1
1,986.0
(206.0 ) 3,001.5
Cost of goods sold —
833.5
284.3
1,543.1
(206.0 ) 2,454.9
Gross profit —
40.9
62.8
442.9
—
546.6
Selling, general and administrative expenses —
206.8
—
25.0
—
231.8
Amortization of intangible assets —
3.5
—
0.1
—
3.6
Operating income (loss) —
(169.4 ) 62.8
417.8
—
311.2
Non-operating income (expense), net —
(72.7 ) 8.4
0.7
—
(63.6 )
Income (loss) before income taxes —
(242.1 ) 71.2
418.5
—
247.6
Income tax expense —
28.9
0.3
24.6
—
53.8
Earnings (loss) from equity in subsidiaries 193.8
266.6
(28.0 ) —
(432.4 ) —
Net income (loss) before royalties 193.8
(4.4 ) 42.9
393.9
(432.4 ) 193.8
Royalties —
198.2
—
(198.2 ) —
—
Net income after royalties 193.8
193.8
42.9
195.7
(432.4 ) 193.8
Net income attributable to noncontrolling interests —
—
—
—
—
—
Net income attributable to AAM $ 193.8
$ 193.8
$ 42.9
$ 195.7
$ (432.4 ) $ 193.8
Other comprehensive income, net of tax 13.9
13.9
23.2
16.9
(54.0 ) 13.9
Comprehensive income attributable to AAM $ 207.7
$ 207.7
$ 66.1
$ 212.6
$ (486.4 ) $ 207.7

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Condensed Consolidating Balance Sheets
(in millions)
Holdings AAM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Elims/Reclassifications Consolidated
September 30, 2017
Assets
Current assets
    Cash and cash equivalents $ —
$ 188.5
$ 0.1
$ 361.0
$ —
$ 549.6
    Accounts receivable, net —
134.4
320.2
667.4
—
1,122.0
    Intercompany receivables —
3,559.1
465.9
8.0
(4,033.0 ) —
    Inventories, net —
34.0
151.2
211.4
—
396.6
    Prepaid expenses and other —
27.4
12.1
105.0
—
144.5
Total current assets —
3,943.4
949.5
1,352.8
(4,033.0 ) 2,212.7
Property, plant and equipment, net —
234.1
788.5
1,280.1
—
2,302.7
Goodwill —
—
1,220.2
434.4
—
1,654.6
Intangible assets, net —
21.9
1,178.1
36.6
—
1,236.6
Intercompany notes and accounts receivable 14.6
—
260.9
—
(275.5 ) —
Other assets and deferred charges —
717.4
137.2
129.8
(332.7 ) 651.7
Investment in subsidiaries 2,735.0
1,917.2
708.9
—
(5,361.1 ) —
Total assets $ 2,749.6
$ 6,834.0
$ 5,243.3
$ 3,233.7
$ (10,002.3 ) $ 8,058.3
Liabilities and Stockholders’ Equity

Current liabilities

Current portion of long-term debt $ —
$ —
$ —
$ 6.8
$ —
$ 6.8
Accounts payable —
130.2
238.2
488.0
—
856.4
Intercompany payables 1,313.0
499.7
2,010.2
210.1
(4,033.0 ) —
Accrued expenses and other —
183.0
56.3
182.5
—
421.8
Total current liabilities 1,313.0
812.9
2,304.7
887.4
(4,033.0 ) 1,285.0
Intercompany notes and accounts payable —
76.9
—
198.6
(275.5 ) —
Long-term debt, net —
4,096.3
4.6
68.4
—
4,169.3
Other long-term liabilities —
742.2
594.0
163.9
(332.7 ) 1,167.4
Total liabilities 1,313.0
5,728.3
2,903.3
1,318.3
(4,641.2 ) 6,621.7
Total AAM Stockholders’ equity 1,432.8
1,105.7
2,340.0
1,911.6
(5,357.3 ) 1,432.8
Noncontrolling interests in subsidiaries 3.8
—
—
3.8
(3.8 ) 3.8
Total stockholders’ equity 1,436.6
1,105.7
2,340.0
1,915.4
(5,361.1 ) 1,436.6
Total liabilities and stockholders’ equity $ 2,749.6
$ 6,834.0
$ 5,243.3
$ 3,233.7
$ (10,002.3 ) $ 8,058.3

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Holdings AAM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Elims Consolidated
December 31, 2016
Assets
Current assets
    Cash and cash equivalents $ —
$ 84.3
$ 1.6
$ 395.3
$ —
$ 481.2
    Accounts receivable, net —
126.7
21.9
411.4
—
560.0
    Intercompany receivables —
442.6
326.0
9.1
(777.7 ) —
    Inventories, net —
31.3
21.5
129.5
—
182.3
    Prepaid expenses and other —
29.4
0.5
45.9
—
75.8
Total current assets —
714.3
371.5
991.2
(777.7 ) 1,299.3
Property, plant and equipment, net —
213.7
102.9
777.1
—
1,093.7
Goodwill —
—
147.8
6.2
—
154.0
Intangible assets, net —
22.8
—
5.7
—
28.5
Intercompany notes and accounts receivable —
343.9
242.2
—
(586.1 ) —
Other assets and deferred charges —
644.9
39.8
163.7
—
848.4
Investment in subsidiaries 827.6
1,544.4
—
—
(2,372.0 ) —
Total assets $ 827.6
$ 3,484.0
$ 904.2
$ 1,943.9
$ (3,735.8 ) $ 3,423.9
Liabilities and Stockholders’ Equity

Current liabilities

Current portion of long-term debt $ —
$ —
$ —
$ 3.3
$ —
$ 3.3
Accounts payable —
80.6
35.8
265.9
—
382.3
Intercompany payables —
324.8
153.4
299.5
(777.7 ) —
Accrued expenses and other —
142.2
4.3
119.4
—
265.9
Total current liabilities —
547.6
193.5
688.1
(777.7 ) 651.5
Intercompany notes and accounts payable 321.8
14.6
7.5
242.2
(586.1 ) —
Long-term debt, net —
1,339.7
4.1
57.1
—
1,400.9
Investment in subsidiaries obligation —
—
124.7
—
(124.7 ) —
Other long-term liabilities —
754.5
0.6
110.6
—
865.7
Total liabilities 321.8
2,656.4
330.4
1,098.0
(1,488.5 ) 2,918.1
Total stockholders’ equity 505.8
827.6
573.8
845.9
(2,247.3 ) 505.8
Total liabilities and stockholders’ equity $ 827.6
$ 3,484.0
$ 904.2
$ 1,943.9
$ (3,735.8 ) $ 3,423.9

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30,
(in millions)
Holdings AAM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Elims Consolidated
2017
Net cash provided by operating activities $ —
$ 276.4
$ 9.0
$ 135.3
$ —
$ 420.7
Investing activities

Purchases of property, plant and equipment —
(43.1 ) (73.3 ) (162.3 ) —
(278.7 )
Proceeds from sale of property, plant and equipment —
0.3
0.3
1.1
—
1.7
Purchase buyouts of leased equipment —
(12.6 ) —
—
—
(12.6 )
Proceeds from sale of business, net —
7.5
(1.6 ) —
—
5.9
Acquisition of business, net of cash acquired —
(953.5 ) 64.6
(6.6 ) —
(895.5 )
Net cash used in investing activities —
(1,001.4 ) (10.0 ) (167.8 ) —
(1,179.2 )
Financing activities

Net debt activity —
926.1
(0.5 ) (12.1 ) —
913.5
Debt issuance costs —
(90.8 ) —
—
—
(90.8 )
Employee stock option exercises —
0.9
—
—
—
0.9
Purchase of treasury stock (7.0 ) —
—
—
—
(7.0 )
Intercompany activity 7.0

(7.0 ) —
—
—
—
Net cash provided by (used in) financing activities —
829.2
(0.5 ) (12.1 ) —
816.6
Effect of exchange rate changes on cash —
—
—
10.3
—
10.3
Net increase (decrease) in cash and cash equivalents —
104.2
(1.5 ) (34.3 ) —
68.4
Cash and cash equivalents at beginning of period —
84.3
1.6
395.3
—
481.2
Cash and cash equivalents at end of period $ —
$ 188.5
$ 0.1
$ 361.0
$ —
$ 549.6

~~AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Holdings AAM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Elims Consolidated
2016
Net cash provided by operating activities $ —
$ 114.8
$ 20.9
$ 155.3
$ —
$ 291.0
Investing activities

Purchases of property, plant and equipment —
(25.9 ) (12.0 ) (120.8 ) —
(158.7 )
Proceeds from sale of property, plant and equipment —
—
0.3
0.4
—
0.7
Proceeds from government grants —
—
—
2.8
—
2.8
Final distribution of Reserve Yield Plus Fund —
1.0
—
—
—
1.0
Acquisition of business, net of cash acquired —
—
(5.6 ) —
—
(5.6 )
Intercompany activity —
—
(2.0 ) —
2.0
—
Net cash used in investing activities —
(24.9 ) (19.3 ) (117.6 ) 2.0
(159.8 )
Financing activities

Net debt activity —
(0.4 ) (0.3 ) 23.3
—
22.6
Employee stock option exercises —
0.3
—
—
—
0.3
Purchase of treasury stock (5.3 ) —
—
—
—
(5.3 )
Intercompany activity 5.3
(5.3 ) —
2.0
(2.0 ) —
Net cash provided by (used in) financing activities —
(5.4 ) (0.3 ) 25.3
(2.0 ) 17.6
Effect of exchange rate changes on cash —
—
—
2.6
—
2.6
Net increase in cash and cash equivalents —
84.5
1.3
65.6
—
151.4
Cash and cash equivalents at beginning of period —
52.0
—
230.5
—
282.5
Cash and cash equivalents at end of period $ —
$ 136.5
$ 1.3
$ 296.1
$ —
$ 433.9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This management’s discussion and analysis (MD&A) should be read in conjunction with the unaudited condensed consolidated financial statements and notes appearing elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2019.

Unless the context otherwise requires, references to "we," "our," "us" or "AAM" shall mean collectively (i) American Axle & Manufacturing Holdings, Inc. (Holdings), a Delaware corporation, (ii) American Axle & Manufacturing, Inc. (AAM, Inc.), a Delaware corporation, and its direct and indirect subsidiaries, and, ~~as of April 6, 2017,~~ (iii) Metaldyne Performance Group, Inc. (MPG) and its direct and indirect subsidiaries. AAM Inc. and MPG are wholly-owned subsidiaries of Holdings.

COMPANY OVERVIEW

On April 6, 2017, Alpha SPV I, Inc., a wholly-owned subsidiary of Holdings, merged with and into MPG, with MPG as the surviving corporation in the merger. Upon completion of the merger, MPG became a wholly-owned subsidiary of Holdings. As a result, weWe are ~~now~~ a global Tier I1 supplier to the automotive ~~commercial and industrial markets.~~industry. We design, engineer ~~validate~~ and manufacture driveline and metal forming ~~powertrain~~products that are making the next generation of vehicles smarter, lighter, safer and ~~casting products, employing~~more efficient. We employ over ~~25,000~~20,000 associates, operating at ~~more than 90~~nearly 80 facilities in 17 countries, to support our customers on global and regional platforms with a ~~continued~~ focus on ~~delivering~~quality, operational excellence and technology ~~leadership and quality.~~leadership.

Major Customers

We are ~~the principal~~a primary supplier of driveline components to General Motors Company (GM) for its full-size rear-wheel drive (RWD) light trucks, sport utility vehicles (SUVs), and ~~SUVs~~crossover vehicles manufactured in North America, supplying ~~substantially all~~a significant portion of GM’s rear axle and four-wheel drive and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. We also supply GM with various products from our Metal Forming ~~and Powertrain segments.~~segment. Sales to GM were approximately ~~49%~~41% of our consolidated net sales in the first ~~nine~~three months of ~~2017, 68% of our consolidated net sales~~2020, 39% in the first ~~nine~~three months of ~~2016~~2019, and ~~67% of our consolidated net sales~~37% for the full year ~~of 2016.~~2019.

We are the sole-source supplier to GM for certain axles and other driveline products for the life of each GM vehicle program covered by Lifetime Program Contracts and Long Term Program Contracts (collectively, LPCs). Substantially all of our sales to GM are made pursuant to the LPCs. The LPCs have terms equal to the lives of the relevant vehicle programs or their respective derivatives, which typically run five to seven years, and require us to remain competitive with respect to technology, design, quality and cost.

We also supply driveline system products to FCA US LLC (FCA) for heavy-duty Ram full-size pickup trucks and its derivatives, the AWD Jeep Cherokee, and a passenger car driveshaft program. In addition, we sell various products to FCA from ~~each of~~ our Metal Forming ~~Powertrain and Casting segments.~~segment. Sales to FCA were approximately ~~14%~~16% of our consolidated net sales in the first ~~nine~~three months of ~~2017, 19%~~2020, 12% in the first three months of 2019, and 17% for the full year 2019.

We are also a supplier to Ford Motor Company (Ford) for driveline system products on certain vehicle programs, and we sell various products to Ford from our Metal Forming segment. Sales to Ford were approximately 12% of our consolidated net sales in the first ~~nine~~three months of ~~2016~~2020, and ~~18%~~approximately 9% for both the first three months and full year of ~~our~~2019.

No other customer represented 10% or more of consolidated net sales during these periods.

Impact of Novel Coronavirus (COVID-19)

COVID-19 Operational Impact and AAM Actions

In March of 2020, COVID-19 was designated by the World Health Organization as a pandemic illness and began to significantly disrupt global automotive production. In an effort to mitigate the spread of COVID-19, many governmental and public health agencies in locations in which we operate implemented shelter-in-place orders or similar measures. Substantially all of our customers ceased or significantly reduced production, and the decline in production volumes has continued into the second quarter of 2020. As a result, substantially all of our manufacturing facilities have either temporarily suspended production or experienced significant reductions in volumes during this period. By the end of the first quarter of 2020, our manufacturing locations in Asia were beginning to stabilize and return to more normalized levels of production.

At AAM, safety is our top responsibility and that includes the health and wellness of our associates globally. In response to COVID-19, we instituted several operational measures to ensure the safety of our associates, which included the following:

•Assembled a COVID-19 Task Force comprised of AAM's senior leadership working closely with associates across several functions and regions to coordinate decision making and communication related to actions taken by AAM to mitigate the impact of COVID-19;

•Suspended or reduced production at manufacturing facilities and directed associates who could do so to work remotely;

•Maintained communication with customers, including planning for business resumption and monitoring announcements regarding new program deferrals or other changes;

•Initiated thorough cleaning and decontamination procedures at many of our manufacturing facilities in preparation for resuming production; and

•Designed additional safety measures to further protect associates once production is restored and our associates resume working in our global facilities.

We are currently planning for a staged re-opening of our manufacturing facilities in North America and Europe in May 2020, though the ~~full year~~ultimate timing of ~~2016.~~re-opening these facilities will depend on future developments, including the potential extension of shelter-in-place orders and the timing of resumption of production by our customers, which are outside of our control. We are also monitoring the impact of COVID-19 on our suppliers, as well as on our customers and their suppliers. As production resumes and volumes begin to ramp-up, we cannot be sure that the supply chain will be adequately prepared and this could adversely impact the timing of a return to increased levels of production.

~~In addition to GM and FCA, we are a supplier to several major automotive Original Equipment Manufacturers (OEMs) and Tier 1 suppliers. Our consolidated~~Financial Impact of COVID-19

We estimate that the impact of COVID-19 on net sales ~~to customers other than GM increased to $2,327.5 million~~ in the first ~~nine~~ ~~months~~quarter of ~~2017~~2020 was approximately $169 million, and that the impact to gross profit of this reduction in net sales was approximately $47 million. The significant reduction in global automotive production volumes resulting from the impact of COVID-19 has continued into the second quarter of 2020 and we expect the impact on net sales and operating income to be greater in the second quarter of 2020 as compared to ~~$964.8 million in~~ the first ~~nine~~ ~~months~~quarter of ~~2016.~~2020. Due to the significant uncertainty associated with the extent of the impact of COVID-19 and the timing of resuming more normalized levels of production, we cannot estimate the impact of COVID-19 on our 2020 results of operations and financial condition.

In order to mitigate the financial impact of COVID-19, we have continued our emphasis on cost management, and have implemented additional measures to adjust to our customers’ revised production schedules, including:

•Continuing to flex our variable cost structure;

•Continuing to manage our controllable expenses;

•Reducing the annual cash retainer for each non-employee director by 40%;

•Reducing salaries for executive officers by 30% and for certain other associates by various percentages depending on level;

•Reducing our projected capital expenditures for the year; and

•Pursuing options to defer and reduce tax payments through the CARES Act and similar global initiatives.

The additional measures we are taking to address the impact of COVID-19 are expected to remain in place until further clarity can be achieved regarding the recovery and stabilization of the global economy, as well as the resulting impact of COVID-19 on the global automotive industry.

RESULTS OF OPERATIONS –– THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2020 AS COMPARED TO THREE MONTHS ENDED ~~SEPTEMBER 30, 2016~~MARCH 31, 2019

Net Sales Net sales ~~increased to~~ ~~$1,724.4~~were $1,343.5 million in the ~~third~~first quarter of ~~2017~~2020, as compared to ~~$1,006.9~~$1,719.2 million in the ~~third~~first quarter of ~~2016. The impact of the MPG acquisition on net sales for the third quarter 2017 was approximately $667 million. Excluding the impact of the MPG acquisition, our~~2019. Our change in sales in the ~~third~~first quarter of ~~2017,~~2020, as compared to the ~~third~~first quarter of ~~2016, reflect~~2019, primarily reflects a reduction of approximately $169 million associated with the ~~impact~~decline in global automotive production as a result of ~~program launches from~~COVID-19, and a reduction of $182 million as a result of the sale of the U.S. operations of our ~~new~~Casting business ~~backlog,~~that was completed in the fourth quarter of 2019 (the Casting Sale). Net sales in the first quarter of 2020, as ~~well as an increase in~~compared to the first quarter of 2019, also decreased by approximately $42 million associated with the effect of metal market pass-throughs to our customers ~~partially offset by lower production volumes on a light truck program that we currently support.~~and the impact of foreign exchange related to translation adjustments.

Cost of Goods Sold Cost of goods sold was ~~$1,426.7~~$1,148.2 million in the ~~third~~first quarter of ~~2017~~2020, as compared to ~~$825.7 million~~ ~~in the third quarter of 2016. The impact on cost of goods sold of the MPG acquisition was approximately $583~~$1,497.0 million in the ~~third~~first quarter ~~2017.~~

~~Excluding the impact~~ of ~~the MPG acquisition, the~~2019. The change in cost of goods sold principally reflects ~~approximately $10 million related to increased production volumes and an increase~~a reduction of approximately ~~$15~~$122 million associated with the decline in global automotive production as a result of COVID-19, and a reduction of $175 million as a result of the Casting Sale. Cost of goods sold was also impacted by a decrease of approximately $42 million related to metal market pass-through costs ~~partially offset by approximately $7 million associated with lower net manufacturing costs, including~~and the impact of foreign exchange, as well as the impact of improved operating performance and ~~productivity initiatives.~~ lower launch costs.

For both the three months ended ~~September 30, 2017,~~March 31, 2020 and March 31, 2019, material costs were approximately ~~60%~~57% of total costs of goods ~~sold~~sold.

Gross Profit Gross profit was $195.3 million in the first quarter of 2020, as compared to ~~approximately 68% for the three months ended September 30, 2016.~~

~~Gross Profit~~ ~~Gross profit increased to $297.7~~$222.2 million in the ~~third~~first quarter of ~~2017~~2019. Gross margin was 14.5% in the first quarter of 2020, as compared to ~~$181.2 million~~12.9% in the ~~third~~first quarter of ~~2016. Gross margin was~~ ~~17.3%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2017~~ ~~as compared to~~ ~~18.0%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2016. The impact on gross profit of the MPG acquisition was approximately $84 million in the~~ ~~third~~ ~~quarter 2017.~~2019. Gross profit and gross margin were ~~also~~ impacted by the ~~other~~ factors discussed in Net Sales and Cost of Goods Sold above.

Selling, General and Administrative Expenses (SG&A) SG&A (including research and development (R&D)) was ~~$102.3~~$90.3 million or ~~5.9%~~6.7% of net sales in the ~~third~~first quarter of ~~2017~~2020, as compared to ~~$78.6~~$90.7 million or ~~7.8%~~5.3% of net sales in the ~~third~~first quarter of ~~2016.~~2019. R&D spending was approximately ~~$41.0~~$36.6 million in the ~~third~~first quarter of ~~2017~~2020, as compared to ~~$36.2~~$34.3 million in the ~~third~~first quarter of ~~2016. The change in SG&A in the~~ ~~third~~ quarter of 2017, as compared to the third quarter of 2016, reflects an increase of approximately $30 million associated with the acquisition of MPG, which was partially offset by the achievement of synergies as a result of the acquisition of MPG.2019.

Amortization of Intangible Assets ~~As a result of the USM Mexico acquisition on March 1, 2017 and the MPG acquisition on April 6, 2017, we recognized $1,254.8 million of intangible assets.~~ Amortization expense ~~for the three months ended September 30, 2017~~related to intangible assets was ~~$24.4 million as compared to $1.3~~$21.8 million for the three months ended ~~September 30, 2016.~~March 31, 2020 and $25.0 million for the three months ended March 31, 2019. The ~~increase~~reduction in amortization expense ~~was attributable~~related to ~~the increase in~~ intangible assets asreflects the Casting Sale and the disposal of the intangible assets associated with this business.

Impairment Charge In the first quarter of 2020, the reduction in global automotive production volumes caused by the impact of COVID-19 represented an indicator to test our goodwill for impairment. As a result of ~~these acquisitions.~~this goodwill impairment test, we determined that the carrying values of our Driveline and Metal Forming reporting units were greater than their respective fair values. As such, we recorded a total goodwill impairment charge of $510.0 million in the first quarter of 2020. See Note 3 - Goodwill and Other Intangible Assets for further detail.

Restructuring and Acquisition-Related Costs Restructuring and acquisition-related costs were ~~$22.8~~$17.6 million in the ~~third~~first quarter of ~~2017~~2020 and ~~we did not incur any such costs~~$12.1 million in the ~~third~~first quarter of 2016. In the fourth quarter of 2016, AAM initiated actions under a global restructuring program focused on creating a more streamlined organization in addition to reducing our cost structure and preparing for upcoming acquisition integration activities.2019. As part of our restructuring actions, we incurred severance charges of approximately ~~$0.2~~$2.2 million, as well as implementation costs ~~including professional expenses,~~ of approximately ~~$6.5~~$12.5 million during the three months ended ~~September 30, 2017.~~March 31, 2020. This compares to severance charges of $4.1 million and implementation charges of $4.3 million for the three months ended March 31, 2019. We expect to incur approximately $45 million to $55 million of total restructuring charges in 2020. See Note 2 - Restructuring and Acquisition-Related Costs for additional detail regarding our restructuring activity.

~~On March 1, 2017, we completed the acquisition of 100% of USM Mexico Manufacturing LLC (USM Mexico) and on April 6, 2017, we completed the acquisition of 100% of the equity interests of MPG.~~ During the three months ended ~~September 30, 2017,~~March 31, 2020, we incurred ~~$1.0 million of acquisition-related costs, $1.4 million of acquisition-related severance charges and $13.7~~$2.9 million of integration expenses primarily associated with ~~these acquisitions. Acquisition-related costs primarily consist~~the ongoing integration of ~~advisory, legal, accounting, valuation and certain other professional or consulting fees incurred.~~MPG. This compares to $3.7 million of integration expenses incurred during the three months ended March 31, 2019. Integration expenses primarily reflect costs incurred for information technology infrastructure and enterprise resource planning (ERP) systems, ~~ongoing operational activities,~~ and consulting fees incurred in conjunction with acquisitions. We expect to incur additional integration charges of $10 million to $15 million in 2020 as we finalize the ~~acquisitions.~~integration of ERP systems at legacy MPG locations.

Loss on Sale of Business In the first quarter of 2020, we finalized certain customary post-closing calculations associated with the Casting Sale, resulting in an additional loss on sale of $1.0 million.

Operating Income (Loss) Operating ~~income increased to $148.2~~loss was $445.4 million in the ~~third~~first quarter of ~~2017~~2020, as compared to ~~$101.3~~operating income of $94.4 million in the ~~third~~first quarter of ~~2016.~~2019. Operating margin was ~~8.6%~~(33.2)% in the ~~third~~first quarter of ~~2017~~2020, as compared to ~~10.1%~~5.5% in the ~~third~~first quarter of ~~2016~~.2019. The changes in operating income (loss) and operating margin were primarily due to factors discussed in Net Sales, Cost of Goods Sold, ~~SG&A, Amortization of Intangible Assets~~ and ~~Restructuring and Acquisition-Related Costs~~Impairment Charge above.

Interest Expense and ~~Investment~~Interest Income Interest expense was ~~$57.5 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2017~~ ~~as compared to~~ ~~$23.2 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2016. Investment income was~~ ~~$0.8 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2017~~ ~~as compared to $0.5 million in the~~ ~~third~~ ~~quarter of~~ ~~2016~~.

~~The change in interest expense in the~~ ~~third~~ ~~quarter of 2017, as compared to the~~ ~~third~~ quarter of 2016, primarily reflects interest expense incurred on borrowings under our New Senior Secured Credit Facilities on April 6, 2017 (as defined and described in Liquidity and Capital Resources in this MD&A), as well as on $700.0 million in aggregate principal amount of 6.25% senior notes and $500.0 million in aggregate principal amount of 6.50% senior notes (the Notes), which were issued on March 23, 2017.

~~The weighted-average interest rate of our long-term debt outstanding was~~ ~~5.6%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2017~~ ~~and 6.7% in the third quarter of 2016.~~

~~Other Income (Expense), Net~~ Other income (expense), net, which includes the net effect of foreign exchange gains and losses and our proportionate share of earnings from equity in unconsolidated subsidiaries, was income of $0.5 million in the third quarter of 2017 as compared to income of $0.9 million in the third quarter of 2016.

~~Income Tax Expense~~ ~~Income tax expense was $5.7 million in the~~ ~~three~~ ~~months ended September 30, 2017 as compared to $17.8 million in the~~ ~~three~~ ~~months ended September 30, 2016. Our effective income tax rate was 6.2% in the~~ ~~third~~ ~~quarter of 2017 as compared to 22.4% in the~~ ~~third~~ quarter of 2016. Our effective income tax rate for the three months ended September 30, 2017 is lower than our effective income tax rate for the three months ended September 30, 2016 as a result of an increase in the proportionate share of income attributable to lower tax rate jurisdictions. In addition, subsequent to the acquisition of MPG, we re-evaluated our valuation allowance position with regard to jurisdictions in which consolidated state tax returns are filed and recorded an income tax benefit for the three months ended September 30, 2017. Our income tax expense and effective tax rate for the three months ended September 30, 2017, and September 30, 2016, reflect the impact of favorable foreign tax rates, partially offset by our inability to realize a tax benefit for current foreign losses.

~~Net Income Attributable to AAM and Earnings Per Share (EPS)~~ ~~Net income attributable to AAM increased to $86.2 million in the~~ ~~third~~ ~~quarter of 2017 as compared to $61.7 million in the~~ ~~third~~ ~~quarter of 2016. Diluted EPS was $0.75 per share in the~~ ~~third~~ ~~quarter of 2017 as compared to $0.78 per share in the~~ ~~third~~ quarter of 2016. As a result of the issuance of AAM common shares in conjunction with the acquisition of MPG, our EPS denominator was greater by approximately 35 million shares in the third quarter of 2017 as compared to the third quarter of 2016.

~~Net income attributable to AAM and EPS for the~~ ~~third~~ quarters of 2017 and 2016 were primarily impacted by the factors discussed in Net Sales, Cost of Goods Sold, SG&A, Amortization of Intangible Assets, Restructuring and Acquisition-Related Costs and Income Tax Expense above, as well as the issuance of the additional shares as a result of the acquisition of MPG.

~~RESULTS OF OPERATIONS –– NINE MONTHS ENDED SEPTEMBER 30, 2017 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2016~~

~~Net Sales~~ ~~Net sales increased to $4,532.1~~$51.5 million in the first ~~nine months~~quarter of ~~2017~~2020, as compared to ~~$3,001.5~~$53.4 million in the first ~~nine months~~quarter of ~~2016. The impact of the MPG acquisition on net sales in the first nine months of 2017~~2019. Interest income was approximately $1,351 million. Excluding the impact of the MPG acquisition, our sales in the first nine months of 2017, as compared to the first nine months of 2016, reflect an increase in production volumes for the light truck and SUV programs we currently support, as well as the impact of program launches from our new business backlog and an increase in metal market pass-throughs to our customers, partially offset by the impact of annual productivity price-downs for certain programs.

~~Cost of Goods Sold~~ ~~Cost of goods sold was $3,707.3~~$2.8 million in the first ~~nine months~~quarter of ~~2017~~2020, as compared to ~~$2,454.9~~$0.7 million in the first ~~nine months~~quarter of 2016. The impact on cost of goods sold of the MPG acquisition was approximately $1,177 million in the first nine months of 2017, which includes $24.9 million for the step-up of inventory to fair value as a result of purchase accounting.2019.

Excluding the impact of the MPG acquisition, the change in cost of goods sold principally reflects approximately $60 million related to increased production volumes and an increase of approximately $55 million related to metal market pass-through costs, partially offset by approximately $30 million associated with lower net manufacturing costs, including the impact of foreign exchange, and productivity initiatives. For the nine months ended September 30, 2017, material costs were approximately 63% of total costs of goods sold as compared to approximately 69% for the nine months ended September 30, 2016.

~~Gross Profit~~ Gross profit increased to $824.8 million in the first nine months of 2017 as compared to $546.6 million in the first nine months of 2016. Gross margin was 18.2% in the first nine months of 2017 and the first nine months of 2016. The impact of the MPG acquisition on gross profit in the first nine months of 2017 was approximately $174 million. Excluding the impact of the MPG acquisition, the change in gross profit in the first nine months of 2017, as compared to the first nine months of 2016, reflects the benefit of increased contribution margin on higher production volumes for the light truck and SUV programs that we support. Gross profit and gross margin were also impacted by the other factors discussed in Net Sales and Cost of Goods Sold above.

~~Selling, General and Administrative Expenses (SG&A)~~ SG&A (including research and development (R&D)) was $289.1 million or 6.4% of net sales in the first nine months of 2017 as compared to $231.8 million or 7.7% of net sales in the first nine months of 2016. R&D spending was approximately $123.0 million in the first nine months of 2017 as compared to $102.3 million in the first nine months of 2016. The change in SG&A for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, reflects an increase of approximately $60 million associated with the acquisition of MPG. SG&A expense also reflects the increase in R&D spending in the first nine months of 2017, as compared to the first nine months of 2016, which was partially offset by the achievement of synergies as a result of the acquisition of MPG.

~~Amortization of Intangible Assets~~ As a result of the USM Mexico acquisition on March 1, 2017 and the MPG acquisition on April 6, 2017, we recognized $1,254.8 million of intangible assets. Amortization expense for the nine months ended September 30, 2017 was $50.8 million as compared to $3.6 million for the nine months ended September 30, 2016. The increase in amortization expense was attributable to the increase in intangible assets as a result of these acquisitions.

~~Restructuring and Acquisition-Related Costs~~ Restructuring and acquisition-related costs were $90.5 million in the first nine months of 2017 and we did not incur any such costs in the first nine months of 2016. We incurred severance charges of approximately $1.7 million, as well as implementation costs, including professional expenses, of approximately $13.5 million during the nine months ended September 30, 2017. Since inception of the global restructuring program, we have incurred severance charges totaling $2.3 million and implementation costs totaling $23.7 million. We expect to incur up to $5 million of additional charges under our global restructuring program in 2017.

On March 1, 2017, we completed the acquisition of 100% of USM Mexico Manufacturing LLC (USM Mexico) and on April 6, 2017, we completed the acquisition of 100% of the equity interests of MPG. During the nine months ended September 30, 2017, we incurred $40.7 million of acquisition-related costs, acquisition-related severance charges of $5.6 million and $29.0 million of integration expenses associated with these acquisitions. Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional or consulting fees incurred. Also included in acquisition-related costs is a one-time charge of approximately $20 million for MPG stock-based compensation that was accelerated and settled as a result of the acquisition. Integration expenses reflect costs incurred for information technology systems, ongoing operational activities, and consulting fees incurred in conjunction with the acquisitions. We expect to incur additional integration charges of approximately $20 to $25 million in 2017.

~~Operating Income~~ Operating income increased to $394.4 million in the first nine months of 2017 as compared to $311.2 million in the first nine months of 2016. Operating margin was 8.7% in the first nine months of 2017 as compared to 10.4% in the first nine months of 2016. The changes in operating income and operating margin were due to factors discussed in Net Sales, Cost of Goods Sold, SG&A, Amortization of Intangible Assets and Restructuring and Acquisition-Related Costs above.

~~Interest Expense and Investment Income~~ Interest expense was $139.9 million in the first nine months of 2017 as compared to $70.2 million in the first nine months of 2016. Investment income was $2.2 million in the first nine months of 2017 as compared to $2.6 million in the first nine months of 2016.

The change in interest expense in the first nine months of 2017, as compared to the first nine months of 2016, primarily reflects interest expense incurred on borrowings under our New Senior Secured Credit Facilities on April 6, 2017 (as defined and described in Liquidity and Capital Resources in this MD&A), as well as on $700.0 million in aggregate principal amount of 6.25% senior notes and $500.0 million in aggregate principal amount of 6.50% senior notes (the Notes), which were issued on March 23, 2017. We expect our interest expense, after considering the borrowings under our New Senior Secured Credit Facilities and the issuance of the Notes, to be approximately $235.0 million on an annual basis.

The weighted-average interest rate of our long-term debt outstanding was 5.8% in the first quarter of 2020 and 5.9% in the first quarter of 2019. We expect our interest expense for the ~~first nine months of 2017 and 6.7% for the first nine months of 2016.~~full year 2020 to be $205 million to $215 million.

Debt Refinancing and Redemption Costs In the first ~~nine months~~quarter of ~~2017,~~2020, we voluntarily redeemed $100 million of our 6.625% Notes due 2022. As a result, we expensed ~~$2.7~~approximately $0.4 million for the write-off of ~~prepayment premiums related to~~ the ~~extinguishment~~unamortized debt issuance costs that we had been amortizing over the expected life of ~~MPG's existing debt at~~ the ~~date~~borrowing, and approximately $1.1 million for the payment of ~~acquisition.~~an early redemption premium.

Other ~~Income (Expense),~~Expense, Net Other ~~income (expense),~~expense, net ~~which~~ includes the net effect of foreign exchange gains and losses, ~~and~~ our proportionate share of earnings from equity in unconsolidated subsidiaries, and all components of net periodic pension and postretirement benefit costs other than service cost. Other expense, net was ~~expense of $7.4~~$2.3 million in the first ~~nine months~~quarter of ~~2017~~2020, as compared to ~~income of $4.0~~$3.0 million in the first ~~nine months~~quarter of ~~2016. The change in other income (expense), net in~~2019.

Income Tax Expense Income tax was expense of $3.3 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, as compared to a benefit of $3.0 million for the ~~nine~~three months ended ~~September 30, 2016, primarily relates to foreign exchange remeasurement losses as a result of the U.S. dollar weakening against the Mexican Peso and Euro.~~

~~Income Tax Expense~~ ~~Income tax expense was $15.6 million in the nine months ended September 30, 2017 as compared to $53.8 million in the nine months ended September 30, 2016.~~March 31, 2019. Our effective income tax rate was ~~6.3%~~(0.7)% in the first ~~nine months~~quarter of ~~2017~~2020, as compared to ~~21.7%~~(7.8)% in the first ~~nine months~~quarter of ~~2016.~~ 2019.

Our effective income tax rate for the ~~nine~~three months ended ~~September 30, 2017 is lower than~~March 31, 2020 varies from our effective income tax rate for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2019 primarily as a result of ~~an increase~~the impact of the goodwill impairment charge recorded during the first quarter of 2020, which had no corresponding income tax benefit, and as a result of a net income tax benefit of $7.5 million recognized under the CARES Act (see Note 1 - Organization and Basis of Presentation for additional detail regarding the CARES Act). In addition, in the ~~proportionate share~~first quarter of ~~income attributable to lower tax rate jurisdictions. In addition, subsequent to the acquisition of MPG,~~2019, we ~~re-evaluated our valuation allowance position with regard to jurisdictions in which consolidated state tax returns are filed and recorded~~recognized an income tax benefit of $9.3 million related to final regulations issued by the Department of Treasury and Internal Revenue Service in the first quarter of 2019. The final regulations changed the manner in which we were required to compute the one-time transition tax under the Tax Cuts and Jobs Act of 2017 that was imposed on certain foreign earnings for which U.S. income tax was previously deferred.

For the ~~nine~~three months ended ~~September 30, 2017. This was partially offset by a discrete tax adjustment related to certain non-deductible transaction~~March 31, 2020 and ~~acquisition-related costs. Our~~2019, our effective income tax ~~expense and effective tax~~rates vary from the U.S. federal statutory rate ~~for the nine months ended September 30, 2017, and September 30, 2016, reflect the impact~~ of 21% primarily due to favorable foreign tax rates, ~~partially offset by~~as well as the impact of tax credits and the effect of the discrete items described above.

We review the likelihood that we will realize the benefit of deferred tax assets and estimate whether recoverability of our ~~inability~~deferred tax assets is "more likely than not." If, based upon available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. Due to ~~realize~~the uncertainty associated with the extent and ultimate impact of COVID-19 on global automotive production volumes, we may experience lower than projected earnings in certain jurisdictions in future periods, and we believe that it is reasonably possible that additional valuation allowances could be recognized in the next twelve months as a ~~tax benefit for current foreign losses.~~result.

Net Income (Loss) Attributable to AAM and Earnings (Loss) Per Share (EPS) Net income (loss) attributable to AAM ~~increased to $230.8~~was a loss of $501.3 million in the first ~~nine months~~quarter of ~~2017~~2020, as compared to ~~$193.8~~income of $41.6 million in the first ~~nine months~~quarter of ~~2016.~~2019. Diluted ~~EPS~~loss per share was ~~$2.27 per share~~$4.45 in the first ~~nine months~~quarter of ~~2017~~2020, as compared to ~~$2.47~~diluted earnings per share of $0.36 in the first ~~nine months~~quarter of 2016. As a result of the issuance of AAM common shares in conjunction with the acquisition of MPG, our EPS denominator was greater by approximately 23 million shares for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.

2019. Net income (loss) attributable to AAM and EPS for the ~~nine months ended 2017~~first quarters of 2020 and ~~2016~~2019 were primarily impacted by the factors discussed in Net Sales, Cost of Goods Sold, SG&A, Amortization of Intangible Assets, Restructuring and Acquisition-Related Costs, Other Income (Expense), Net and Income Tax Expense above, as well as the issuance of the additional shares as a result of the acquisition of MPG.above.

SEGMENT REPORTING

Prior to the acquisition of MPG on April 6, 2017, we operated in one reportable segment: the manufacture, engineer, design and validation of driveline systems and related components and chassis modules for light trucks, sport utility vehicles (SUVs), crossover vehicles, passenger cars and commercial vehicles. Subsequent to the acquisition of MPG, ourOur business ~~was~~is organized into ~~four operating~~Driveline and Metal Forming segments, with each representing a reportable segment under ASC 280 Segment Reporting. In the fourth quarter of 2019, we completed the Casting Sale. The ~~four segments~~Casting Sale did not include the entities that conduct AAM's casting operations in El Carmen, Mexico, which are now included in our Driveline ~~Metal Forming, Powertrain~~segment. The Casting Sale did not qualify for classification as discontinued operations, as it did not represent a strategic shift in our business that has had, or will have, a major effect on our operations and ~~Casting.~~ financial results. As such, we continue to present Casting as a segment in the tables below for the periods prior to the sale, and the reported amounts are now comprised entirely of the U.S. casting operations that were included in the sale. The amounts previously reported in our Casting segment for the retained operations in El Carmen, Mexico have been reclassified to our Driveline segment for the periods presented.

The results of each segment are regularly reviewed by the chief operating decision maker to assess the performance of the segment and make decisions regarding the allocation of ~~resources.~~resources to the segments.

Our product offerings by segment are as follows:

•Driveline products consist primarily of front and rear axles, driveshafts, ~~power transfer units, rear drive~~differential assemblies, clutch modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline products and systems for light trucks, SUVs, crossover vehicles, passenger cars and commercial vehicles; and

~~The Powertrain segment products consist primarily of transmission module and differential assemblies, transmission valve bodies, connecting rod forging~~ and assemblies, ~~torsional vibration dampers,~~connecting rods and variable valve timing products for Original Equipment Manufacturers and Tier I1 automotive ~~suppliers; and~~suppliers.

The following table represents sales by reportable segment for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019 (in millions):


	Three Months Ended March 31,
	2020		2019
Driveline	$	1,031.7	$	1,166.3
Metal Forming	422.3		483.3
Casting	—		193.7
Eliminations	(110.5)		(124.1)
Net Sales	$	1,343.5	$	1,719.2

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Driveline $ 1,007.9
$ 956.1
$ 3,028.7
$ 2,840.4
Metal Forming 368.2
137.2
887.5
414.4
Powertrain 260.9
—
544.5
—
Casting 226.6
—
452.2
—
Eliminations (139.2 ) (86.4 ) (380.8 ) (253.3 )
Net Sales $ 1,724.4
$ 1,006.9
$ 4,532.1
$ 3,001.5

The ~~increase~~change in Driveline sales for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, as compared to the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2019, primarily ~~reflect~~reflects approximately $137 million associated with the impact of ~~program launches from our new business backlog,~~the decline in global automotive production as ~~well as an increase in~~a result of COVID-19, and a reduction of approximately $20 million associated with the effect of metal market pass-throughs to our customers ~~which was partially offset by~~and the impact of annual productivity price-downs for certain programs. Driveline sales for the nine months ended September 30, 2017 was also positively impacted by increased production volumes on the light truck and SUV programs we currently support.foreign exchange related to translation adjustments.

The ~~increase~~change in net sales in our Metal Forming segment in ~~both~~ the three months ~~and nine months~~ ended ~~September 30, 2017,~~March 31, 2020, as compared to the three ~~and nine~~ months ended ~~September 30, 2016, was~~March 31, 2019, primarily ~~attributable to~~reflects approximately $32 million associated with the ~~purchase~~impact of ~~MPG.~~

~~For both~~the decline in global automotive production as a result of COVID-19. Also for the three ~~and nine~~ months ended ~~September 30, 2017, the increase in sales in both the Powertrain and Casting segments,~~March 31, 2020, as compared to the three ~~and nine~~ months ended ~~September 30, 2016, was entirely attributable~~March 31, 2019, Metal Forming sales were impacted by a reduction of approximately $22 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments.

The change in net sales in our Casting segment in the three months ended March 31, 2020, as compared to the ~~acquisition~~three months ended March 31, 2019, is the result of ~~MPG~~the Casting Sale that was completed in the fourth quarter of 2019 as AAM ~~did not operate~~no longer operates in ~~these segments prior to the acquisition.~~this business.

We use Segment Adjusted EBITDA as the measure of earnings to assess the performance of each segment and determine the resources to be allocated to the segments. We define EBITDA to be earnings before interest expense, income taxes, depreciation and amortization. Segment Adjusted EBITDA is defined as EBITDA for our reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gain (loss) on the sale of a business, impairment charges, pension settlements, and non-recurring items.

The amounts for Segment Adjusted EBITDA for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 are as ~~follows:~~follows (in millions):


	Three Months Ended March 31,
	2020		2019
Driveline	$	139.3	$	142.8
Metal Forming	74.0		84.4
Casting	—		17.8
Total segment adjusted EBITDA	$	213.3	$	245.0

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Driveline $ 181.4
$ 134.4
$ 513.5
$ 391.9
Metal Forming 70.7
22.3
170.5
79.4
Powertrain 36.8
—
88.7
—
Casting 8.8
—
34.3
—
Segment adjusted EBITDA $ 297.7
$ 156.7
$ 807.0
$ 471.3

~~Segment Adjusted EBITDA in the Driveline segment for~~For the three months ended ~~September 30, 2017,~~March 31, 2020, as compared to the three months ended ~~September 30, 2016, was positively impacted by productivity initiatives and~~March 31, 2019, the ~~reorganization to four reportable segments subsequent to the acquisition of MPG. The positive impact of these factors was partially offset by an increase in metal market pass-through costs.~~

~~For the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, the increase~~change in Segment Adjusted EBITDA for the Driveline segment was primarily attributable to ~~contribution margin on increased~~lower net global automotive production volumes ~~for light truck and SUV programs we currently support,~~ as ~~well as~~a result of the impact of ~~productivity initiatives and the reorganization to four reportable segments subsequent to the acquisition of MPG. The positive impact of these factors~~COVID-19, which was partially offset by ~~an increase~~improved operating performance, lower launch costs and a reduction in ~~metal market pass-through~~net manufacturing costs.

The change in Metal Forming ~~experienced an increase~~Segment Adjusted EBITDA for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily attributable to the impact of the decline in global automotive production as a result of the impact of COVID-19.

The change in Segment Adjusted EBITDA for ~~both~~our Casting segment in the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, as compared to the three ~~and nine~~ months ended ~~September 30, 2016, primarily attributable to~~March 31, 2019, was the ~~MPG acquisition.~~

~~For both~~result of the ~~three and nine months ended September 30, 2017,~~Casting Sale that was completed in the ~~increase in Segment Adjusted EBITDA in both the Powertrain and Casting segments, as compared to the three and nine months ended September 30, 2016, was entirely attributable to the acquisition~~fourth quarter of ~~MPG~~2019 as AAM ~~did not operate~~no longer operates in ~~these segments prior to the acquisition.~~this business.

Reconciliation of Non-GAAP and GAAP Information

In addition to results reported in accordance with accounting principles generally accepted in the United States of America (GAAP) in this MD&A, we have provided certain non-GAAP financial measures such as EBITDA and Total Segment Adjusted EBITDA. Such information is reconciled to its closest GAAP measure in accordance with Securities and Exchange Commission rules below.

We define EBITDA to be earnings before interest expense, income taxes, depreciation and amortization. Total Segment Adjusted EBITDA is defined as EBITDA for our reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gain (loss) on the sale of a business, impairment charges, pension settlements, and non-recurring items. We believe that EBITDA ~~is a~~and Total Segment Adjusted EBITDA are meaningful ~~measure~~measures of performance as ~~it is~~they are commonly utilized by management and investors to analyze operating performance and entity valuation. Our management, the investment community and the banking institutions routinely use EBITDA and Total Segment Adjusted EBITDA, together with other measures, to measure our operating performance relative to other Tier 1 automotive ~~suppliers.~~suppliers and to assess the relative mix of Adjusted EBITDA by segment. We also believe that Total Segment Adjusted EBITDA is a meaningful measure as it is used ~~to assess business and operating performance of the segments, and~~ for operational planning and decision-making purposes. ~~Non-GAAP~~These non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures as presented by AAM may not be comparable to similarly titled measures reported by other companies.


	Three Months Ended March 31,
	2020		2019
Net income (loss)	$	(501.2)	$	41.7
Interest expense	51.5		53.4
Income tax expense (benefit)	3.3		(3.0)
Depreciation and amortization	129.6		140.8
EBITDA	$	(316.8)	$	232.9
Restructuring and acquisition-related costs	17.6		12.1
Debt refinancing and redemption costs	1.5		—
Impairment charge	510.0		—
Loss on sale of business	1.0		—






Total segment adjusted EBITDA	$	213.3	$	245.0

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income attributable to AAM $ 86.2
$ 61.7
$ 230.8
$ 193.8
Interest expense 57.5
23.2
139.9
70.2
Income tax expense 5.7
17.8
15.6
53.8
Depreciation and amortization 122.6
49.9
303.4
150.4
EBITDA $ 272.0
$ 152.6
$ 689.7
$ 468.2
Restructuring and acquisition-related costs 22.8
—
90.5
—
Debt refinancing and redemption costs —
—
2.7
—
Asset impairment —
3.4
—
3.4
Non-recurring items:
Pension settlement 2.9
—
2.9
—
Acquisition-related fair value inventory adjustment —
—
24.9
—
Impact of change in accounting principle —
—
(3.7 ) —
Other non-recurring items —
0.7
—
(0.3 )
Segment Adjusted EBITDA $ 297.7
$ 156.7
$ 807.0
$ 471.3

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund debt service obligations, capital expenditures and working capital ~~requirements.~~requirements, in addition to advancing our strategic initiatives. We believe that operating cash flow, available cash and cash equivalent balances and available ~~committed~~ borrowing capacity under our ~~New~~ Senior Secured Credit Facilities ~~(as defined below)~~and foreign credit facilities will be sufficient to meet these needs.

COVID-19 Considerations Related to Liquidity and Capital Resources

In order to mitigate the financial impact of COVID-19, we have implemented measures to conserve cash and protect our liquidity position, including:

•Continuing to flex our variable cost structure;

•Continuing to manage our controllable expenses;

•Reducing the annual cash retainer for each non-employee director by 40%;

•Reducing salaries for executive officers by 30% and for certain other associates by various percentages depending on level;

•Reducing our projected capital expenditures for the year; and

•Pursuing options to defer and reduce tax payments through the CARES Act and similar global initiatives.

At March 31, 2020, we had over $1.4 billion of liquidity consisting of approximately $683 million of cash and cash equivalents, approximately $691 million of available borrowings under our Revolving Credit Facility and approximately $86 million of available borrowings under foreign credit facilities. Further, we have no significant debt maturities before October 2022. Based on our liquidity profile and no significant debt maturities in 2020, as well as the measures that we are taking to conserve cash, we believe that we will have sufficient funds available to continue operating with no significant changes to our capital structure until such time as production returns to more normalized levels.

Operating Activities In the first ~~nine~~three months of ~~2017~~,2020, net cash provided by operating activities ~~increased to~~ ~~$420.7~~was $139.4 million as compared to ~~$291.0~~net cash used in operating activities of $80.2 million in the first ~~nine~~three months of ~~2016~~.2019. The following factors impacted cash ~~provided by~~from operating activities in the first ~~nine~~three months of ~~2017~~2020, as compared to the first ~~nine~~three months of ~~2016:~~2019:

~~Net income~~ ~~Net income was $231.0 million~~Accounts receivable For the three months ended March 31, 2020, we experienced an increase in ~~the first~~ ~~nine~~ ~~months of 2017 as compared to~~ ~~$193.8 million~~ ~~in the first~~ ~~nine~~ ~~months of 2016. The change in net income in the first~~ ~~nine~~ ~~months of 2017, as compared to the first~~ ~~nine~~ ~~months of 2016, was the result of the factors discussed in the Results of Operations - Nine Months Ended September 30, 2017 as Compared to Nine Months Ended September 30, 2016 section of this MD&A.~~

~~Accounts payable~~ ~~As a result of the USM Mexico and MPG acquisitions, we settled accounts payable balances with USM Mexico and MPG totaling approximately $35 million, which was reflected as a reduction of~~ cash flow from operating activities of approximately $246 million related to the change in our ~~Condensed Consolidated Statement~~accounts receivable balance from December 31, 2019 to March 31, 2020, as compared to the change in our accounts receivable balance from December 31, 2018 to March 31, 2019. This change was primarily attributable to the timing of ~~Cash Flows for~~receipts related to customer receivables, as well as the ~~nine~~impact of a reduction in sales at the end of the first quarter of 2020 due to the onset of COVID-19.

Inventories For the three months ended ~~September 30, 2017. See Note 3 - Business Combinations for further detail.~~March 31, 2020, we experienced a decrease in cash flow from operating activities of approximately $34 million related to the change in our inventories balance from December 31, 2019 to March 31, 2020, as compared to the change in our inventories balance from December 31, 2018 to March 31, 2019. This change was primarily attributable to increased finished goods inventory at March 31, 2020 as a result of a sharp reduction in sales at the end of the first quarter of 2020 due to the onset of COVID-19.

Accounts payable and accrued expenses For the three months ended March 31, 2020, we experienced a decrease in cash flow from operating activities of approximately $28 million related to the change in our accounts payable and accrued expenses balance from December 31, 2019 to March 31, 2020, as compared to the change from December 31, 2018 to March 31, 2019. This change was primarily attributable to the timing of payments to suppliers, as well as the impact of reduced sales and purchasing activity at the end of the first quarter of 2020 due to the onset of COVID-19.

Restructuring and acquisition-related costs For the ~~remainder of 2017,~~full year 2020, we expect restructuring and acquisition-related payments in cash flows from operating activities to ~~incur cash charges under our global restructuring program, as well as acquisition~~be between $55 million and ~~integration related cash charges, totaling approximately $25 to $30 million.~~

~~Income taxes~~ ~~Based on the status of audits outside the U.S.,~~$70 million, and ~~the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate~~we expect the timing ~~or impact~~ of ~~changes, if any,~~cash payments to ~~previously recorded uncertain tax positions. As~~approximate the timing of September 30, 2017 and December 31, 2016, we have recorded a liability for unrecognized income tax benefits and related interest and penalties of $54.4 million and $30.7 million, respectively. In January 2016, we completed negotiations with the Mexican tax authorities to settle transfer pricing audits. Including these settlements, we made payments of $26.1 million in the first ~~nine~~ ~~months of 2016 to the Mexican tax authorities related to transfer pricing matters.~~charges incurred.

Pension and ~~Other Postretirement Benefits (OPEB)~~other postretirement benefitsDue to the availability of our pre-funded pension balances (previous contributions in excess of prior required pension contributions) related to certain of our U.S. pension plans, ~~as well as contributions~~ we ~~made~~expect our regulatory pension funding requirements in ~~2015 for one of our U.K. pension plans, the cash payments~~2020 to ~~our pension trusts will~~ be ~~insignificant in 2017.~~approximately $1.5 million. We expect our cash payments for other postretirement benefit obligations in ~~2017,~~2020, net of GM cost sharing, to be approximately ~~$16~~$17 million.

~~Investing Activities~~

Income taxes Based on the status of ongoing tax audits, and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. As of March 31, 2020 and December 31, 2019, we have recorded a liability for unrecognized income tax benefits and related interest and penalties of $47.5 million and $52.6 million, respectively.

During the next 12 months, we may finalize an advance pricing agreement in a foreign jurisdiction, which would result in a cash payment to the relevant tax authorities and a reduction of our liability for unrecognized tax benefits and related interest and penalties. Although it is difficult to estimate with certainty the amount of any audit settlement, we do not expect any potential settlement to be materially different from what we have recorded in unrecognized tax benefits.

In the first ~~nine~~quarter of 2020, we recognized a refundable income tax asset of approximately $35 million related to income tax for which we expect to receive a refund based on the utilization of net operating losses under the provisions of the CARES Act. This amount is presented in Prepaid expenses and other in our Condensed Consolidated Balance Sheet as of March 31, 2020. See Note 1 - Organization and Basis of Presentation for additional detail regarding the CARES Act.

Investing Activities In the first three months of ~~2017, we completed our acquisitions of MPG and USM Mexico. The purchase price~~2020, net cash used in investing activities was $69.2 million as compared to $123.9 million for MPG was approximately $1.5 billion, which included a cash portion of approximately $750 million, net of cash acquired. We acquired USM Mexico for a purchase price of $144.1 million, net of cash acquired, which was funded entirely with available cash.

the three months ended March 31, 2019. Capital expenditures were ~~$278.7~~$69.7 million in the first ~~nine~~three months of ~~2017~~2020 as compared to ~~$158.7~~$124.2 million in the first ~~nine~~three months of ~~2016.~~2019. We expect our capital spending ~~inclusive of the impact of the MPG acquisition,~~in 2020 to be approximately ~~8% of sales in 2017, which includes support for our global program launches within our new and incremental business backlog.~~$250 million.

Financing Activities In the first ~~nine~~three months of ~~2017,~~2020, net cash provided by financing activities was ~~$816.6~~$87.7 million, as compared to ~~$17.6~~net cash used in financing activities of $21.4 million in the first ~~nine~~three months of ~~2016~~.2019. The following factors impacted cash ~~provided by~~from financing activities in the first ~~nine~~three months of ~~2017~~2020 as compared to the first ~~nine~~three months of ~~2016:~~2019:

~~New~~ Senior Secured Credit Facilities In ~~connection with our acquisition of MPG (the Acquisition) on April 6, 2017,~~2019, Holdings, ~~and American Axle & Manufacturing, Inc. (AAM, Inc.) entered into a credit agreement (the Credit Agreement), among~~ AAM, Inc., ~~as borrower, Holdings, each financial institution party thereto as a lender (the Lenders)~~ and ~~administrative agent, pursuant to which Holdings and certain of its restricted subsidiaries (including~~ certain subsidiaries of ~~MPG acquired as part of the Acquisition) are required to guarantee the borrowings of AAM, Inc. thereunder and~~ Holdings ~~AAM, Inc. and certain~~

of their restricted subsidiaries are required to pledge their assets (including, without limitation, after-acquired assets), subject to certain exceptions and limitations. In connection with the Credit Agreement, Holdings, AAM, Inc. and certain of their restricted subsidiaries entered into ~~a Collateral Agreement and Guarantee Agreement with~~ the ~~financial institutions party thereto as collateral agent and administrative agent.~~

~~Pursuant~~First Amendment (First Amendment) to the Credit Agreement (as amended by the ~~Lenders agreed to provide a $100.0~~First Amendment, the Amended Credit Agreement). The First Amendment, among other things, established $340 million in incremental term loan A ~~facility (the Term~~commitments under the Amended Credit Agreement with a maturity date of July 29, 2024 (Term Loan A ~~Facility)~~Facility due 2024), ~~a $1.55 billion term loan B facility (the Term Loan B Facility) and a $900 million multi-currency revolving credit facility (the~~reduced the availability under the Revolving Credit Facility from $932 million to $925 million and ~~together with~~extended the Term Loan A Facility and the Term Loan B Facility, the New Senior Secured Credit Facilities). The proceeds of the Term Loan A Facility and the Term Loan B Facility were used to finance a portion of the consideration for the Acquisition, pay transaction costs, redeem in full MPG Holdco I Inc.’s 7.375% Senior Notes due 2022, and repay the existing indebtedness of AAM, Inc. under its Amended and Restated Credit Agreement, dated as of January 9, 2004, amended and restated as of September 13, 2013 and as further amended, among AAM, Inc., as borrower, Holdings, and each financial institution party thereto as a lender and administrative agent, as well as repay existing indebtedness of MPG under its Credit Agreement, dated as of October 20, 2014 and as amended as of May 8, 2015, among MPG Holdco I Inc., as guarantor, MPG, the subsidiary guarantors party thereto, and each financial institution party thereto as a lender and administrative agent. The proceedsmaturity date of the Revolving Credit Facility ~~will be used for general corporate purposes. We paid debt issuance costs of $53.9 million in the first nine months of 2017 related to the New Senior Secured Credit Facilities.~~

~~The Term Loan A Facility and the Revolving Credit Facility will mature on~~from April 6, 2022 to July 29, 2024, and ~~the Term Loan B Facility will mature on April 6, 2024. Borrowings under the New Senior Secured Credit Facilities bear interest at rates based on~~modified the applicable ~~Eurodollar rate or alternate base rate, as AAM may elect, in each case plus an applicable~~ margin determined based on AAM’s total net leverage ratio. The alternate base rate is the greatest of (a) the prime rate of a major United States financial institution, (b) the Federal Reserve Bank of New York rate plus 0.50% and (c) the adjusted Eurodollar rate plus 1.00%. The applicable margin for Eurodollar-based loans under the New Senior Secured Credit Facilities will be between 1.25% and 2.25% with respect to ~~any loan~~interest rates under the Term Loan A Facility ~~2.25% with respect to any loan under the Term Loan B Facility,~~due 2024 and ~~between 2.00%~~interest rates and ~~3.00% with respect to any loan~~commitment fees under the Revolving Credit Facility. The applicable margin and the maturity date for ~~loans subject~~the Term Loan B Facility remained unchanged. The proceeds of $340 million were used to ~~alternate base rate will be between 0.25% and 1.25% with respect to any loan~~repay all of the outstanding loans under the existing Term Loan A Facility ~~1.25% with respect to any loan~~and a portion of the outstanding Term Loan B Facility, resulting in no additional indebtedness. This also satisfies all payment requirements under the Term Loan B Facility ~~and between 1.00% and 2.00% with respect to any loan under the Revolving Credit Facility.~~ until maturity in 2024.

At September 30, 2017, we had $869.1 million available under the Revolving Credit Facility. This availability reflects a reduction of $30.9 million for standby letters of credit issued against the facility.

~~The New~~ 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 ~~New~~ 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~~Current portion of long-term debt on our Condensed Consolidated Balance Sheet.

~~6.50% Notes due 2027 and 6.25% Notes due 2025~~ OnAt March ~~23, 2017,~~31, 2020, we ~~issued $700.0~~had $691.4 million ~~in aggregate principal amount of 6.25% senior notes due 2025 and $500.0~~available under the Revolving Credit Facility. This availability reflects $200.0 million ~~in aggregate principal amount of 6.50% senior notes due 2027 (the Notes). Proceeds from~~associated with a draw on the Notes were used primarily to fund the cash consideration related to AAM's acquisition of MPG, related fees and expenses, refinancing certain existing indebtedness of MPG and borrowings under our previous revolving credit facility, which has been replaced by our new Revolving Credit Facility ~~together with~~that occurred in March 2020, and $33.6 million for standby letters of credit issued against the facility. Further, in April 2020, we drew an additional $150.0 million on the Revolving Credit Facility. The borrowings under the ~~New~~Revolving Credit Facility are used for general corporate purposes.

Subsequent Event Related to Senior Secured Credit ~~Facilities.~~Facilities

Redemption of 6.625% Notes due 2022 In the first quarter of 2020, we voluntarily redeemed a portion of our 6.625% Notes due 2022. This resulted in a principal payment of $100.0 million and $2.0 million in accrued interest. We ~~paid~~expensed approximately $0.4 million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of ~~$36.9 million in~~ the ~~first nine months of 2017 related to the Notes.~~

~~Repayment of MPG Indebtedness~~ Upon the acquisition of MPG, we assumed approximately $1.9 billion of existing MPG indebtedness, which we repaid in its entirety on the date of acquisition. This indebtedness was comprised of approximately $0.2 billion of a Euro denominated term loan, approximately $1.0 billion of a U.S. dollar denominated term loanborrowing, and approximately ~~$0.7 billion~~$1.1 million for the payment of outstanding MPG bonds. Upon settlement of the debt, we paid approximately $24.6 million of accrued interest. In addition, we also incurred and paid approximately $2.7 million of fees, which have been presented in the Debt refinancing andan early redemption ~~costs line item within our condensed consolidated statements of income for both the three and nine months ended September 30, 2017.~~premium.

Foreign credit facilities We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At ~~September 30, 2017, $52.3~~March 31, 2020, $102.7 million was outstanding under our foreign credit facilities, ~~and~~as compared to $106.0 million at December 31, 2019. At March 31, 2020, an additional ~~$99.9~~$86.0 million was ~~available.~~available under our foreign credit facilities.

Treasury stock Treasury stock increased by ~~$7.0~~$2.4 million in the first ~~nine~~three months of ~~2017~~2020 to ~~$198.1~~$211.7 million as compared to ~~$191.1~~$209.3 million at year-end ~~2016,~~2019, due to the withholding and repurchase of shares of AAM stock to satisfy employee tax withholding obligations ~~as part of the merger consideration paid for the acquisition of Metaldyne Performance Group, Inc. as well as tax withholding obligations~~ due upon the vesting of performance shares and restricted stock units.

Subsidiary Guarantees of Registered Debt Securities Our 6.625% Notes, 6.50% Notes, 6.25% Notes (due 2026), and 6.25% Notes (due 2025) (collectively, the Notes) are senior unsecured obligations of AAM, Inc. (Issuer); all of which are fully and unconditionally guaranteed, on a joint and several basis, by Holdings and substantially all domestic subsidiaries of AAM, Inc. and MPG Inc (Subsidiary Guarantors). Holdings has no significant assets other than its 100% ownership in AAM, Inc. and MPG Inc., and no direct subsidiaries other than AAM, Inc. and MPG Inc.

Each guarantee by Holdings and/or any of the Subsidiary Guarantors is:

•a senior obligation of the relevant Subsidiary Guarantors;

•the unsecured and unsubordinated obligation of the relevant Subsidiary Guarantors; and

•of equal rank with all other existing and future unsubordinated and unsecured indebtedness of the relevant Subsidiary Guarantors.

Each guarantee by a Subsidiary Guarantor provides by its terms that it will be automatically, fully and unconditionally released and discharged upon:

•Any sale, exchange or transfer (by merger or otherwise) of the Capital Stock of such Subsidiary Guarantor, or the sale or disposition of all the assets of such Subsidiary Guarantor, which sale, exchange, transfer or disposition is made in compliance with the applicable provisions of the indentures;

•the exercise by the Issuer of its legal defeasance option or covenant defeasance option or the discharge of the Issuer’s obligations under the indentures in accordance with the terms of the indentures;

•the election of the Issuer to affect such a release following the date that such guaranteed Notes have an investment grade rating from both Standard & Poor's Ratings Group, Inc, and Moody's Investors Service, Inc.

The following represents summarized financial information of AAM Holdings, AAM Inc. and the Subsidiary Guarantors (collectively, the Combined Entities). The information has been prepared on a combined basis and excludes any investments of AAM Holdings, AAM Inc., or the Subsidiary Guarantors in non-guarantor subsidiaries. Intercompany transactions and amounts between Combined Entities have been eliminated.


Statement of Operations Information	(in millions)
	Three Months Ended March 31, 2020		Year Ended December 31, 2019
Net sales	$	1,054.4	$	3,043.3
Gross profit	92.1		192.0
Loss from operations	(380.8)		(793.3)
Net loss	(401.7)		(718.0)

Balance Sheet Information	(in millions)
	March 31, 2020		December 31, 2019
Current assets	$	1,245.2	$	699.5
Noncurrent assets	2,853.6		3,120.4

Current liabilities	1,162.4		551.9
Noncurrent liabilities	4,226.8		4,281.3

Redeemable preferred stock	—		—
Noncontrolling interest	—		—

At March 31, 2020 and December 31, 2019, amounts owed by the Combined Entities to non-guarantor entities totaled approximately $510 million and $125 million, respectively, and amounts owed to the Combined Entities from non-guarantor entities totaled approximately $725 million and $630 million, respectively.

CRITICAL ACCOUNTING ESTIMATES

Subsequent to the goodwill impairment charge that was recorded for our Driveline reporting unit in the first quarter of 2020, the fair value of this reporting unit approximated its carrying value. Fair value of the 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 the 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 unit, and appropriate discount and long-term growth rates.

A decline in the actual cash flows of the Driveline reporting unit in future periods, as compared to the projected cash flows used in the valuation, could result in the carrying value of this reporting unit exceeding its fair value. Further, a change in market comparables, discount rate or long-term growth rate, as a result of a change in economic conditions or otherwise, including those resulting from the impact of COVID-19, could result in the carrying value of this reporting unit exceeding its fair value, which would result in an additional impairment charge.

AAM's critical accounting estimates are included in our Annual Report on Form 10-K for the year ended December 31, 2019 and did not materially change during the three months ended March 31, 2020.

CYCLICALITY AND SEASONALITY

Our operations are cyclical because they are directly related to worldwide automotive production, which is itself cyclical and dependent on general economic conditions and other factors. Our business is also moderately seasonal as our major OEM customers historically have an extended shutdown of operations (typically 1-2 weeks) in conjunction with their model year changeover and an approximate one-week shutdown in December. Our major OEM customers also occasionally have longer shutdowns of operations (up to six weeks) for program changeovers. Accordingly, our quarterly results may reflect these trends.

LITIGATION AND ENVIRONMENTAL MATTERS

We are involved in, or potentially subject to, various legal proceedings or claims incidental to our business. These include, but are not limited to, matters arising out of product warranties, tax or contractual matters, and environmental obligations. Although the outcome of these matters cannot be predicted with certainty, we do not believe that any of these matters, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows.

We are subject to various federal, state, local and foreign environmental and occupational safety and health laws, regulations and ordinances, including those regulating air emissions, water discharge, waste management and environmental cleanup. We will continue to closely monitor our environmental conditions to ensure that we are in compliance with all laws, regulations and ordinances. We have made, and ~~will continue~~anticipate continuing to make, capital and other expenditures (including recurring administrative costs) to comply with environmental ~~requirements.~~requirements at our current and former facilities. Such expenditures were not significant in the ~~third~~first quarter of ~~2017~~.2020.

On April 6, 2017, we completed our acquisition of MPG. A subsidiary of MPG, Grede Wisconsin Subsidiaries LLC (Grede Wisconsin), had been under investigation by the U.S. Department of Justice and the Environmental Protection Agency for alleged Clean Air Act violations and alleged obstruction of justice relating to the January 2012 removal of debris from the roof of a heat treat oven that was purported to contain asbestos at a now closed Grede facility in Berlin, Wisconsin. The United States Attorney, Eastern District of Wisconsin, indicted Grede LLC and Grede II LLC, the parent company of Grede Wisconsin, in connection with this matter. We are defending this matter.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK

Our business and financial results are affected by fluctuations in ~~world~~global financial markets, including ~~interest~~currency exchange rates and ~~currency exchange~~interest 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 Exchange Risk From time to time, we use foreign currency forward ~~and option~~ contracts to reduce the effects of fluctuations in exchange rates relating to ~~the Mexican Peso, Euro, Brazilian Real, British Pound Sterling, Thai Baht, Swedish Krona, Chinese Yuan, Polish Zloty and Indian Rupee.~~certain foreign currencies. At ~~September 30, 2017,~~March 31, 2020, we had currency forward ~~and option~~ contracts with a notional amount of ~~$218.1~~$169.5 million outstanding. The potential decrease in fair value of foreign exchange contracts, assuming a 10% adverse change in the foreign currency exchange rates, would be approximately ~~$19.9~~$15.5 million at ~~September 30, 2017~~March 31, 2020 and was approximately ~~$14.2~~$16.5 million at December 31, ~~2016.~~2019.

In 2019, we entered into a fixed-to-fixed cross-currency swap to reduce the variability of functional currency equivalent cash flows associated with changes in exchange rates on certain Euro-based intercompany loans. In the first quarter of 2020, we discontinued this cross-currency swap, which was in an asset position of $9.8 million on the date that it was discontinued. Also in the first quarter of 2020, we entered into a new fixed-to-fixed cross-currency swap to reduce the variability of functional currency equivalent cash flows associated with changes in exchange rates on certain Euro-based intercompany loans. At March 31, 2020, the notional amount of the fixed-to-fixed cross-currency swap was $220.5 million. The potential decrease in fair value of the fixed-to-fixed cross-currency swap, assuming a 10% adverse change in the foreign currency exchange rates, would be approximately $22.0 million at March 31, 2020 and was approximately $22.4 million at December 31, 2019.

Future business operations and opportunities, including the expansion of our business outside North America, may further increase the risk that cash flows resulting from these global operations may be adversely affected by changes in currency exchange rates. If and when appropriate, we intend to manage these risks by creating natural hedges in the structure of our global operations, utilizing local currency funding of these expansions and various types of foreign exchange contracts.

Interest Rate Risk We are exposed to variable interest rates on certain credit facilities. From time to time, we have used interest rate hedging to reduce the effects of fluctuations in market interest rates. In ~~the second quarter of 2017,~~2019, we entered into a variable-to-fixed interest rate swap to reduce the variability of cash flows associated with interest payments on our variable rate debt. ~~As of September 30, 2017, we~~We have the following notional amounts hedged in relation to our variable-to-fixed interest rate swap: $1.0 billion through May 2020, $900.0 million through May 2021, $750.0 million through May ~~2018,~~2022, $600.0 million through May ~~2019, $450.0~~2023 and $500.0 million through May ~~2020 and $200.0 million through May 2021.~~ 2024.

The pre-tax earnings and cash flow impact of a one-percentage-point increase in interest rates (approximately 18% of our weighted-average interest rate at ~~September 30, 2017~~)March 31, 2020) on our long-term debt outstanding, would be approximately ~~$9.3~~$8.3 million at ~~September 30, 2017~~March 31, 2020 and was approximately ~~$0.6~~$6.3 million at December 31, ~~2016,~~2019, on an annualized basis.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) were effective as of ~~September 30, 2017.~~March 31, 2020.

Changes in Internal Control over Financial Reporting

~~In conjunction with~~On January 1, 2019, we began the implementation of our ~~recent acquisition activity,~~global enterprise resource planning (ERP) systems at certain of the locations that were acquired as part of the MPG acquisition. As part of these implementations, we ~~completed~~have modified the design and ~~implementation~~documentation of our internal controls over financial reporting specific to business combinations. The implemented controls address the various elements of a business combination, including but not limited to: 1) calculation of the consideration transferred; 2) identifying and properly accounting for transactions that are separate from the business combination; 3) use and oversight of competent and qualified personnel in performing the valuation of assets acquired and liabilities assumed; 4) review of inputs and outputs to the valuation models; 5) identifying and disclosing provisional amounts; and 6) tracking measurement period adjustments.

~~Our acquisition of MPG was completed on April 6, 2017. We are currently integrating policies,~~ processes and ~~operations for the combined company and~~procedures, where appropriate. We will continue to ~~evaluate~~implement these ERP systems at certain locations throughout the remainder of 2020.

As a result of temporarily closing many of our global facilities due to the impact of COVID-19, a significant number of our associates began to work remotely in March 2020. This did not have a material effect on our internal control over financial reporting as we ~~develop~~maintained our existing controls and ~~execute~~procedures over financial reporting during this period.

Except as described above with regard to implementation of ERP systems at certain legacy MPG locations, there were no changes in our ~~integration plans. Until such time as~~internal control over financial reporting during the ~~companies~~quarter ended March 31, 2020 that have materially affected, or are ~~fully integrated, we will maintain the operational integrity of each company's legacy~~reasonably likely to materially affect, our internal ~~controls~~control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

~~There were no material changes from~~In addition to the risk factors ~~previously~~that are included in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019, the following was identified as a significant risk to AAM during the three months ended March 31, 2020.

Our business and financial condition have been, and may continue to be, adversely affected by the impact of COVID-19.

Our business is subject to risks associated with public health issues, including pandemics such as COVID-19. COVID-19 has disrupted global economic markets and has led to significant reductions in global automotive production volumes. As a result of COVID-19, governmental and public health officials in substantially all of the locations in which we operate have mandated certain precautions to mitigate the spread of the disease, including shelter-in-place orders or similar measures. As such, we have temporarily suspended production, or experienced a significant reduction in production volumes, in substantially all of our manufacturing facilities.

Our results of operations and financial condition have been, and may continue to be, adversely impacted by the actions taken to contain the impact of COVID-19, and the ultimate extent of such impact will depend on future developments, such as the duration and extent of the pandemic, its impact on: consumers and sales of the vehicles we support, our customers and our and their suppliers, how quickly normal economic conditions and our and our customers’ operations can resume, and whether the pandemic leads to recessionary conditions. In addition, government sponsored economic stimulus programs in response to the pandemic may not be available to our customers, our suppliers or us or achieve their economic goals. Our supply chain also may be disrupted due to supplier closures or bankruptcies. Our operations may also be impacted by interruptions due to the direct impact of, or precautionary measures associated with, COVID-19 at our locations or those of our customers or suppliers.

Further, COVID-19 could exacerbate other risks disclosed in Item 1A. "Risk Factors" as included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~ ~~Form 10-K.~~2019. These risks include, but are not limited to, dependency on certain customers, dependency on certain global automotive market segments, risks and uncertainties associated with our company’s global operations, dependency on certain key manufacturing facilities, cyclicality in the automotive industry, and disruptions in our supply chain and our customers’ supply chain.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In 2016, AAM's Board of Directors authorized a share repurchase program of up to $100 million of AAM's common shares through December 31, 2018 as part of AAM's overall capital allocation strategy. The repurchase of shares may be made in the open market or in privately negotiated transactions and will be funded through available cash balances and cash flow from operations. The timing and amount of any share repurchases will be determined based on market and economic conditions, share price, alternative uses of capital and other factors. There were no repurchases under the authorized share repurchase program during the third quarter of 2017 and there is approximately $98.5 million available for repurchase.

~~In the third quarter of 2017, we withheld and repurchased shares of AAM stock to satisfy employee tax withholding obligations due upon the vesting of restricted stock units.~~ The following table provides information about our equity security purchases during the quarter ended ~~September 30, 2017:~~March 31, 2020:

ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
					(in millions)
January 1 - January 31, 2020	22,442	$	10.66	—	$	—
February 1 - February 29, 2020	329,283	6.33		—	—
March 1 - March 31, 2020	—	—		—	—
Total	351,725	$	6.61	—	$	—

Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
(in millions)

July 1 - July 31, 2017 2,845
$ 15.61
—
$ —

August 1 - August 31, 2017 —
—
—
—

September 1 - September 30, 2017 —
—
—
—

Total 2,845
$ 15.61
—
$ —

Item 6. Exhibits


Number						Description of Exhibit

~~Number~~ *10.1						~~Description~~ Form of ~~Exhibit~~Performance Share Award Agreement: Free Cash Flow (Officers) under the 2018 Omnibus Incentive Plan

*10.2						Form of Performance Unit Award Agreement: Free Cash Flow (Officers) under the 2018 Omnibus Incentive Plan

*10.3						Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) under the 2018 Omnibus Incentive Plan

*22						Subsidiary Guarantors and Issuers of Guaranteed Securities

*31.1						Certification of David C. Dauch, Chairman of the Board & Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act

*31.2						Certification of Christopher J. May, Vice President & Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act

*32						Certifications of David C. Dauch, Chairman of the Board & Chief Executive Officer and Christopher J. May, Vice President & Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

**101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

**101.SCH						XBRL Taxonomy Extension Schema Document

**101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

**101.LAB						XBRL Taxonomy Extension Label Linkbase Document

**101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

**101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith

Submitted electronically with this Report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

(Registrant)

/s/ ~~Christopher J. May~~James G. Zaliwski

~~Christopher J. May~~James G. Zaliwski

~~Vice President &~~ Chief ~~Financial~~Accounting Officer

~~(also in the capacity of Chief Accounting Officer)~~May 8, 2020

~~November 3, 2017~~



Delaware		~~Delaware~~		38-3161171
		(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

	One Dauch Drive, Detroit, Michigan		48211-1198
		(Address of Principal Executive Offices)	(Zip Code)


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



	September 30, 2017			December 31, 2016
	(Unaudited)
Assets	(in millions)
Current assets
Cash and cash equivalents	$	549.6		$	481.2
Accounts receivable, net	1,122.0			560.0
Inventories, net	396.6			182.3
Prepaid expenses and other	144.5			75.8
Total current assets	2,212.7			1,299.3

Property, plant and equipment, net	2,302.7			1,093.7
Deferred income taxes	39.9			369.4
Goodwill	1,654.6			154.0
Intangible assets, net	1,236.6			28.5
GM postretirement cost sharing asset	232.2			236.1
Other assets and deferred charges	379.6			242.9
Total assets	$	8,058.3		$	3,423.9

Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt	$	6.8		$	3.3
Accounts payable	856.4			382.3
Accrued compensation and benefits	200.0			139.3
Deferred revenue	28.5			24.6
Accrued expenses and other	193.3			102.0
Total current liabilities	1,285.0			651.5

Long-term debt, net	4,169.3			1,400.9
Deferred revenue	79.7			70.8
Deferred income taxes	233.5			15.0
Postretirement benefits and other long-term liabilities	854.2			779.9
Total liabilities	6,621.7			2,918.1

Stockholders' equity
Common stock, par value $0.01 per share; 150.0 million shares authorized;
118.2 million shares issued as of September 30, 2017 and 83.0 million shares issued as of December 31, 2016	1.2			0.9
Paid-in capital	1,258.5			660.1
Retained earnings	656.3			425.5
Treasury stock at cost, 6.9 million shares as of September 30, 2017 and 6.5 million shares as of December 31, 2016	(198.1		)	(191.1		)
Accumulated other comprehensive loss
Defined benefit plans, net of tax	(239.8		)	(243.5		)
Foreign currency translation adjustments	(43.1		)	(122.4		)
Unrecognized loss on cash flow hedges, net of tax	(2.2		)	(23.7		)
Total AAM stockholders' equity	1,432.8			505.8
Noncontrolling interests in subsidiaries	3.8			—
Total stockholders' equity	1,436.6			505.8
Total liabilities and stockholders' equity	$	8,058.3		$	3,423.9



	Acquisition-Related Costs		Severance Charges		Integration Expenses		Total
	(in millions)
Charges	$	40.7	$	5.6	$	29.0	$	75.3

Total restructuring and acquisition-related charges							$	90.5



(in millions)	April 6, 2017
Cash consideration	$	953.5
Share consideration	576.7
Total consideration transferred	$	1,530.2
Fair value of MPG noncontrolling interests	3.6
Total fair value of MPG	$	1,533.8

Cash and cash equivalents	$	202.1
Accounts receivable	403.2
Inventories	199.0
Prepaid expenses and other long-term assets	121.0
Property, plant and equipment	985.7
Intangible assets	1,223.1
Total assets acquired	$	3,134.1
Accounts payable	287.8
Accrued expenses and other	137.2
Deferred income tax liabilities	596.4
Debt	1,918.7
Postretirement benefits and other long-term liabilities	54.5
Net assets acquired	$	139.5
Goodwill	$	1,394.3



(in millions)	March 1, 2017
Contractual purchase price	$	162.5
Adjustments to contractual purchase price for capital equipment	4.9
Adjustment to contractual purchase price for settlement of existing accounts payable balance	(22.8		)
Cash acquired	(0.5		)
Adjusted purchase price, net of cash acquired	$	144.1
Accounts receivable	1.1
Inventories	4.8
Prepaid expenses and other	2.4
Property, plant and equipment	38.4
Intangible assets	31.7
Total assets acquired	$	78.4
Accounts payable	10.8
Accrued expenses and other	2.7
Deferred income tax liabilities	1.2
Net assets acquired	$	63.7
Goodwill	$	80.4



	Driveline		Metal Forming		Powertrain		Casting		Consolidated
	(in millions)
Balance as of December 31, 2016	$	130.1	$	23.9	$	—	$	—	$	154.0
Acquisition of MPG	—		516.0		472.3		406.0		1,394.3
Acquisition of USM Mexico	80.4		—		—		—		80.4
Foreign currency translation	0.4		16.6		8.9		—		25.9
Balance as of September 30, 2017	$	210.9	$	556.5	$	481.2	$	406.0	$	1,654.6



	Estimated	September 30,
	Useful Lives	2017
	(years)	(in millions)
MPG
Customer platforms	14	$	950.0
Customer relationships	16-17	151.8
Technology and other	5-13	121.3
Total MPG		$	1,223.1

USM Mexico
Technology	13	$	29.5
Customer platforms	13	2.2
Total USM Mexico		$	31.7

Total		$	1,254.8



		Loss Reclassified During												Loss Expected to
	Location of Loss	Three Months Ended						Nine Months Ended						be Reclassified
	Reclassified into	September 30,						September 30,						During the
	Net Income	2017			2016			2017			2016			Next 12 Months
		(in millions)

Currency forward contracts	Cost of Goods Sold	$	(0.7	)	$	(2.6	)	$	(4.6	)	$	(6.9	)	$	(2.6	)
Variable-to-fixed interest rate swap	Interest Expense	—			—			—			—			(0.1		)



	Defined Benefit Plans				Foreign Currency Translation Adjustments			Unrecognized Loss on Cash Flow Hedges				Total
Balance at June 30, 2017	$	(242.9	)		$	(85.9	)	$	(3.3	)		$	(332.1	)

Other comprehensive income before reclassifications	—				42.8			0.4				43.2

Income tax effect of other comprehensive income before reclassifications	—				—			—				—

Amounts reclassified from accumulated other comprehensive loss	4.1			(a)	—			0.7			(b)	4.8

Income tax benefit reclassified into net income	(1.0		)		—			—				(1.0		)

Net current period other comprehensive income	3.1				42.8			1.1				47.0

Balance at September 30, 2017	$	(239.8	)		$	(43.1	)	$	(2.2	)		$	(285.1	)



	Three Months Ended September 30, 2017
	Driveline		Metal Forming		Powertrain		Casting		Total
Sales	$	1,007.9	$	368.2	$	260.9	$	226.6	$	1,863.6
Less: intersegment sales	0.2		106.8		3.8		28.4		139.2
Net external sales	$	1,007.7	$	261.4	$	257.1	$	198.2	$	1,724.4

Segment Adjusted EBITDA	$	181.4	$	70.7	$	36.8	$	8.8	$	297.7
	Three Months Ended September 30, 2016
	Driveline		Metal Forming		Powertrain		Casting		Total
Sales	$	956.1	$	137.2	$	—	$	—	$	1,093.3
Less: intersegment sales	0.1		86.3		—		—		86.4
Net external sales	$	956.0	$	50.9	$	—	$	—	$	1,006.9

Segment Adjusted EBITDA	$	134.4	$	22.3	$	—	$	—	$	156.7



	Nine Months Ended September 30, 2017
	Driveline		Metal Forming		Powertrain		Casting		Total
Sales	$	3,028.7	$	887.5	$	544.5	$	452.2	$	4,912.9
Less: intersegment sales	1.1		315.1		6.0		58.6		380.8
Net external sales	$	3,027.6	$	572.4	$	538.5	$	393.6	$	4,532.1

Segment Adjusted EBITDA	$	513.5	$	170.5	$	88.7	$	34.3	$	807.0
	Nine Months Ended September 30, 2016
	Driveline		Metal Forming		Powertrain		Casting		Total
Sales	$	2,840.4	$	414.4	$	—	$	—	$	3,254.8
Less: intersegment sales	3.8		249.5		—		—		253.3
Net external sales	$	2,836.6	$	164.9	$	—	$	—	$	3,001.5

Segment Adjusted EBITDA	$	391.9	$	79.4	$	—	$	—	$	471.3



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Segment Adjusted EBITDA	$	297.7		$	156.7		$	807.0		$	471.3
Interest expense	(57.5		)	(23.2		)	(139.9		)	(70.2		)
Depreciation and amortization	(122.6		)	(49.9		)	(303.4		)	(150.4		)
Restructuring and acquisition-related costs	(22.8		)	—			(90.5		)	—
Pension settlement	(2.9		)	—			(2.9		)	—
Acquisition-related fair value inventory adjustment	—			—			(24.9		)	—
Impact of change in accounting principle	—			—			3.7			—
Debt refinancing and redemption costs	—			—			(2.7		)	—
Asset impairment charge	—			(3.4		)	—			(3.4		)
Investment gain related to the final distribution of the Reserve Yield Plus Fund	—			—			—			1.0
Other	0.1			(0.7		)	0.2			(0.7		)
Income before income taxes	$	92.0		$	79.5		$	246.6		$	247.6




	Holdings			AAM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Elims			Consolidated
2016
Net sales
External	$	—		$	274.7		$	49.9		$	682.3		$	—		$	1,006.9
Intercompany	—			3.7			62.7			4.4			(70.8		)	—
Total net sales	—			278.4			112.6			686.7			(70.8		)	1,006.9
Cost of goods sold	—			265.4			94.9			536.2			(70.8		)	825.7
Gross profit	—			13.0			17.7			150.5			—			181.2
Selling, general and administrative expenses	—			71.3			—			7.3			—			78.6
Amortization of intangible assets	—			1.3			—			—			—			1.3
Operating income (loss)	—			(59.6		)	17.7			143.2			—			101.3
Non-operating income (expense), net	—			(24.9		)	2.9			0.2			—			(21.8		)
Income (loss) before income taxes	—			(84.5		)	20.6			143.4			—			79.5
Income tax expense	—			7.9			0.1			9.8			—			17.8
Earnings (loss) from equity in subsidiaries	61.7			87.4			(7.1		)	—			(142.0		)	—
Net income (loss) before royalties	61.7			(5.0		)	13.4			133.6			(142.0		)	61.7
Royalties	—			66.7			—			(66.7		)	—			—
Net income after royalties	61.7			61.7			13.4			66.9			(142.0		)	61.7
Net income attributable to noncontrolling interests	—			—			—			—			—			—
Net income attributable to AAM	$	61.7		$	61.7		$	13.4		$	66.9		$	(142.0	)	$	61.7
Other comprehensive income (loss), net of tax	(4.3		)	(4.3		)	1.0			(3.3		)	6.6			(4.3		)
Comprehensive income attributable to AAM	$	57.4		$	57.4		$	14.4		$	63.6		$	(135.4	)	$	57.4



Condensed Consolidating Balance Sheets
(in millions)
	Holdings		AAM Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Elims/Reclassifications			Consolidated
September 30, 2017
Assets
Current assets
Cash and cash equivalents	$	—	$	188.5	$	0.1	$	361.0	$	—		$	549.6
Accounts receivable, net	—		134.4		320.2		667.4		—			1,122.0
Intercompany receivables	—		3,559.1		465.9		8.0		(4,033.0		)	—
Inventories, net	—		34.0		151.2		211.4		—			396.6
Prepaid expenses and other	—		27.4		12.1		105.0		—			144.5
Total current assets	—		3,943.4		949.5		1,352.8		(4,033.0		)	2,212.7
Property, plant and equipment, net	—		234.1		788.5		1,280.1		—			2,302.7
Goodwill	—		—		1,220.2		434.4		—			1,654.6
Intangible assets, net	—		21.9		1,178.1		36.6		—			1,236.6
Intercompany notes and accounts receivable	14.6		—		260.9		—		(275.5		)	—
Other assets and deferred charges	—		717.4		137.2		129.8		(332.7		)	651.7
Investment in subsidiaries	2,735.0		1,917.2		708.9		—		(5,361.1		)	—
Total assets	$	2,749.6	$	6,834.0	$	5,243.3	$	3,233.7	$	(10,002.3	)	$	8,058.3
Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt	$	—	$	—	$	—	$	6.8	$	—		$	6.8
Accounts payable	—		130.2		238.2		488.0		—			856.4
Intercompany payables	1,313.0		499.7		2,010.2		210.1		(4,033.0		)	—
Accrued expenses and other	—		183.0		56.3		182.5		—			421.8
Total current liabilities	1,313.0		812.9		2,304.7		887.4		(4,033.0		)	1,285.0
Intercompany notes and accounts payable	—		76.9		—		198.6		(275.5		)	—
Long-term debt, net	—		4,096.3		4.6		68.4		—			4,169.3
Other long-term liabilities	—		742.2		594.0		163.9		(332.7		)	1,167.4
Total liabilities	1,313.0		5,728.3		2,903.3		1,318.3		(4,641.2		)	6,621.7
Total AAM Stockholders’ equity	1,432.8		1,105.7		2,340.0		1,911.6		(5,357.3		)	1,432.8
Noncontrolling interests in subsidiaries	3.8		—		—		3.8		(3.8		)	3.8
Total stockholders’ equity	1,436.6		1,105.7		2,340.0		1,915.4		(5,361.1		)	1,436.6
Total liabilities and stockholders’ equity	$	2,749.6	$	6,834.0	$	5,243.3	$	3,233.7	$	(10,002.3	)	$	8,058.3