AXL-Q32013-10Q

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended September 30, 2013
 
 
or
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from  _____________ to _____________
 
 
Commission File Number:  1-14303
_______________________________________________________________________________

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)

 
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)
 
(313) 758-2000
(Registrant's Telephone Number, Including Area Code)
_______________________________________________________________________________
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  þ No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   þ         Accelerated filer  o           Non-accelerated filer   o                Smaller reporting company   o
                                                                                (Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of October 30, 2013, the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 75,565,024 shares.
 
Internet Website Access to Reports

The website for American Axle & Manufacturing Holdings, Inc. is www.aam.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC).  The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2013
TABLE OF CONTENTS 
 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q (Quarterly Report), we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance.  Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 and relate to trends and events that may affect our future financial position and operating results.  The terms such as “will,” “may,” “could,” “would,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “project,” and similar words or expressions, as well as statements in future tense, are intended to identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.  Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and may differ materially from those expressed in or suggested by the forward-looking statements.  Important factors that could cause such differences include, but are not limited to:

•
global economic conditions, including the impact of the continued market weakness in the Euro-zone; 
•
reduced purchases of our products by General Motors Company (GM), Chrysler Group LLC (Chrysler) or other customers;
•
reduced demand for our customers' products (particularly light trucks and sport utility vehicles (SUVs) produced by GM and Chrysler);
•
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;
•
our ability to respond to changes in technology, increased competition or pricing pressures;
•
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;
•
liabilities arising from warranty claims, product recall or field actions, product liability and legal proceedings to which we are or may become a party;
•
our ability to achieve the level of cost reductions required to sustain global cost competitiveness;
•
our ability to attract new customers and programs for new products;
•
price volatility in, or reduced availability of, fuel;
•
our ability to develop and produce new products that reflect market demand;
•
lower-than-anticipated market acceptance of new or existing products;
•
risks inherent in our international operations (including adverse changes in political stability, taxes and other law changes, potential disruptions of production and supply, and currency rate fluctuations);
•
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;
•
availability of financing for working capital, capital expenditures, research and development (R&D) or other general corporate purposes, including 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;
•
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);
•
changes in liabilities arising from pension and other postretirement benefit obligations;
•
our ability to attract and retain key associates;
•
risks of noncompliance with environmental laws and regulations or risks of environmental issues that could result in unforeseen costs at our facilities;
•
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;
•
our ability to consummate and integrate acquisitions and joint ventures; and
•
other unanticipated events and conditions that may hinder our ability to compete.

It is not possible to foresee or identify all such factors and we make no commitment to update any forward-looking statement or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward-looking statement.


  

1


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions, except per share data)
 
 

 
 

 
 

 
 

Net sales
$
820.8

 
$
702.9

 
$
2,376.0

 
$
2,194.2

 
 
 
 
 
 
 
 
Cost of goods sold
695.5

 
612.2

 
2,024.2

 
1,878.5

 
 
 
 
 
 
 
 
Gross profit
125.3

 
90.7

 
351.8

 
315.7

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
57.8

 
60.6

 
177.9

 
177.9

 
 
 
 
 
 
 
 
Operating income
67.5

 
30.1

 
173.9

 
137.8

 
 
 
 
 
 
 
 
Interest expense
(30.0
)
 
(25.3
)
 
(87.9
)
 
(72.7
)
 
 
 
 
 
 
 
 
Investment income
0.1

 
0.2

 
0.4

 
0.6

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Debt refinancing and redemption costs
—

 
(10.1
)
 
(11.2
)
 
(10.1
)
Other, net
0.1

 
(2.2
)
 
(1.4
)
 
(4.0
)
 
 
 
 
 
 
 
 
Income (loss) before income taxes
37.7

 
(7.3
)
 
73.8

 
51.6

 
 
 
 
 
 
 
 
Income tax expense
6.1

 
0.9

 
9.1

 
4.8

 
 
 
 
 
 
 
 
Net income (loss)
31.6

 
(8.2
)
 
64.7

 
46.8

 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
—

 
0.1

 
—

 
1.0

 
 
 
 
 
 
 
 
Net income (loss) attributable to AAM
$
31.6

 
$
(8.1
)
 
$
64.7

 
$
47.8

 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.41

 
$
(0.11
)
 
$
0.84

 
$
0.64

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
$
0.41

 
$
(0.11
)
 
$
0.84

 
$
0.63

 
See accompanying notes to condensed consolidated financial statements.                   


2


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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Net income (loss)
$
31.6

 
$
(8.2
)
 
$
64.7

 
$
46.8

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Defined benefit plans, net of tax of $(7.9) million and $(8.0) million for the three and nine months ended September 30, 2013, respectively
15.1

 
(102.7
)
 
15.7

 
(117.2
)
     Foreign currency translation adjustments
2.5

 
4.9

 
(14.3
)
 
(7.1
)
     Change in derivatives
(0.6
)
 
2.2

 
(2.2
)
 
7.6

Other comprehensive income (loss)
17.0

 
(95.6
)
 
(0.8
)
 
(116.7
)
 
 
 
 
 
 
 
 
Comprehensive income (loss)
48.6

 
(103.8
)
 
63.9

 
(69.9
)
 
 
 
 
 
 
 
 
     Net loss attributable to noncontrolling interests
—

 
0.1

 
—

 
1.0

Foreign currency translation adjustments attributable to noncontrolling interests
—

 
—

 
—

 
0.2

 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to AAM
$
48.6

 
$
(103.7
)
 
$
63.9

 
$
(69.1
)

See accompanying notes to condensed consolidated financial statements.                   

3



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

 
 
September 30, 2013
 
December 31, 2012
 
 
(Unaudited)
 
 
Assets
 
(in millions)
Current assets
 
 
Cash and cash equivalents
 
$
118.6

 
$
62.4

Accounts receivable, net
 
596.9

 
463.4

Inventories, net
 
251.5

 
224.3

Prepaid expenses and other current assets
 
124.7

 
122.0

Total current assets
 
1,091.7

 
872.1

 
 
 

 
 

Property, plant and equipment, net
 
1,041.8

 
1,009.7

Deferred income taxes
 
360.0

 
366.1

Goodwill
 
156.5

 
156.4

GM postretirement cost sharing asset
 
251.2

 
259.7

Other assets and deferred charges
 
217.3

 
202.0

Total assets
 
$
3,118.5

 
$
2,866.0

 
 
 

 
 

Liabilities and Stockholders’ Deficit
 
 

 
 

Current liabilities
 
 

 
 

Accounts payable
 
$
485.0

 
$
396.1

Accrued compensation and benefits
 
102.0

 
84.9

Deferred revenue
 
14.5

 
17.2

Accrued expenses and other current liabilities
 
102.6

 
102.6

Total current liabilities
 
704.1

 
600.8

 
 
 

 
 

Long-term debt
 
1,572.6

 
1,454.1

Deferred revenue
 
76.7

 
82.2

Postretirement benefits and other long-term liabilities
 
811.9

 
849.7

Total liabilities
 
3,165.3

 
2,986.8

 
 
 

 
 

Stockholders' deficit
 
 

 
 

Common stock, par value $0.01 per share
 
0.8

 
0.8

Paid-in capital
 
611.4

 
600.9

Accumulated deficit
 
(211.1
)
 
(275.8
)
Treasury stock at cost, 6.0 million shares as of September 30, 2013 and December 31, 2012
 
(182.5
)
 
(182.1
)
Accumulated other comprehensive income (loss), net of tax
 
 
 
 
Defined benefit plans
 
(258.8
)
 
(274.5
)
Foreign currency translation adjustments
 
(6.7
)
 
7.6

Unrecognized gain on derivatives
 
0.1

 
2.3

Total AAM stockholders' deficit
 
(46.8
)
 
(120.8
)
Noncontrolling interest in subsidiaries
 
—

 
—

Total stockholders’ deficit
 
(46.8
)
 
(120.8
)
Total liabilities and stockholders' deficit
 
$
3,118.5

 
$
2,866.0

 
See accompanying notes to condensed consolidated financial statements. 

4


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended
 
 
September 30,
 
 
2013
 
2012
 
 
(in millions)
Operating activities
 
 
 
 
Net income
 
$
64.7

 
$
46.8

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
 
Depreciation and amortization
 
129.4

 
112.4

Deferred income taxes
 
(1.3
)
 
1.0

Stock-based compensation
 
9.8

 
1.3

Pensions and other postretirement benefits, net of contributions
 
11.0

 
(209.7
)
Loss (gain) on disposal of property, plant and equipment, net
 
(3.7
)
 
0.9

Debt refinancing and redemption costs
 
2.5

 
0.4

Changes in operating assets and liabilities
 
 
 
 
Accounts receivable
 
(135.7
)
 
(133.5
)
Inventories
 
(30.1
)
 
(67.2
)
Accounts payable and accrued expenses
 
111.0

 
97.6

Deferred revenue
 
(7.8
)
 
(19.2
)
Other assets and liabilities
 
(47.5
)
 
(27.4
)
Net cash provided by (used in) operating activities
 
102.3

 
(196.6
)
 
 
 

 
 

Investing activities
 
 

 
 

Purchases of property, plant and equipment
 
(178.2
)
 
(143.7
)
Proceeds from sale of property, plant and equipment
 
5.8

 
2.2

Proceeds from sale-leaseback of equipment
 
23.5

 
—

Net cash used in investing activities
 
(148.9
)
 
(141.5
)
 
 
 

 
 

Financing activities
 
 

 
 

Net short-term repayments under credit facilities
 
(8.0
)
 
(0.9
)
Payments of long-term debt and capital lease obligations
 
(308.6
)
 
(164.3
)
Proceeds from issuance of long-term debt
 
432.4

 
562.2

Debt issuance costs
 
(12.9
)
 
(10.1
)
Purchase of noncontrolling interest
 
—

 
(4.0
)
Purchase of treasury stock
 
(0.4
)
 
(5.9
)
Employee stock option exercises
 
0.8

 
0.1

Net cash provided by financing activities
 
103.3

 
377.1

 
 
 

 
 

Effect of exchange rate changes on cash
 
(0.5
)
 
0.8

 
 
 

 
 

Net increase in cash and cash equivalents
 
56.2

 
39.8

 
 
 

 
 

Cash and cash equivalents at beginning of period
 
62.4

 
169.2

 
 
 

 
 

Cash and cash equivalents at end of period
 
$
118.6

 
$
209.0

 
 
 

 
 

Supplemental cash flow information
 
 

 
 

     Interest paid
 
$
85.8

 
$
79.6

     Income taxes paid, net of refunds
 
$
9.5

 
$
12.4

 
See accompanying notes to condensed consolidated financial statements.

5


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization  American Axle & Manufacturing Holdings, Inc. (Holdings) and its subsidiaries (collectively, we, our, us or AAM) is a Tier I supplier to the automotive industry. We manufacture, engineer, design and validate driveline and drivetrain systems and related components and chassis modules for light trucks, sport utility vehicles (SUVs), passenger cars, crossover vehicles and commercial vehicles. Driveline and drivetrain systems include components that transfer power from the transmission and deliver it to the drive wheels. Our driveline, drivetrain and related products include axles, chassis modules, driveshafts, power transfer units, transfer cases, chassis and steering components, driveheads, transmission parts and metal-formed products. In addition to locations in the United States (U.S.) (Michigan, Ohio, Indiana and Pennsylvania), we also have offices or facilities in Brazil, China, Germany, India, Japan, Luxembourg, Mexico, Poland, Scotland, South Korea, Sweden and Thailand.

Basis of Presentation  We have prepared the accompanying interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934.  These condensed consolidated financial statements are unaudited but include all normal recurring adjustments, which we consider necessary for a fair presentation of the information set forth herein.  Results of operations for the periods presented are not necessarily indicative of the results for the full fiscal year.

The balance sheet at December 31, 2012 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 results could differ from those estimates.

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, 2012.

Effect of New Accounting Standards On January 1, 2013, new accounting guidance regarding impairment testing of indefinite-lived intangible assets became effective. Under the new guidance, an entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative impairment assessment before calculating the fair value of the asset. We do not believe that the adoption of this new accounting guidance will have a significant effect on our impairment assessments of indefinite-lived intangible assets in the future.

On February 5, 2013, new accounting guidance was issued which requires entities to disclose additional information about items reclassified out of accumulated other comprehensive income (AOCI). The new guidance requires entities to disclose, either on the face of the financial statements or as a separate footnote to the financial statements, additional information regarding changes in AOCI balances by component, either before tax or net-of-tax, and requires entities to disclose significant items reclassified out of AOCI by component. The new guidance does not change the current accounting guidance which states that a total for comprehensive income must be reported in condensed interim financial statements in either a single continuous statement or two separate but consecutive statements. Other than additional disclosure requirements, the adoption of this new guidance has had no impact on our condensed consolidated financial statements.

On July 18, 2013, new accounting guidance was issued regarding financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for an NOL carryforward, a similar tax loss, or a tax credit carryforward, except when one is not available as of the reporting date or the entity does not intend to use the deferred tax asset for this purpose. This guidance does not affect the tabular reconciliation of the total amounts of unrecognized tax benefits, as the tabular reconciliation presents the gross amount of unrecognized tax benefits. This new guidance will be effective for us as of January 1, 2015, with early adoption permitted. Other than a possible change in financial statement disclosure, we do not believe that the adoption of this new guidance will have a significant impact on our condensed consolidated financial statements.


6
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. RESTRUCTURING ACTIONS

We made payments of $0.1 million in the third quarter of 2013 related to our remaining asset retirement obligation of $0.4 million, as of September 30, 2013.

In the nine months ended September 30, 2012, we incurred charges for the redeployment of assets and other related costs associated with the closure of our Detroit Manufacturing Complex (DMC) and Cheektowaga Manufacturing Facility (CKMF). We expensed and paid $22.9 million in the first nine months of 2012, related to these actions.

3. INVENTORIES

We state our inventories at the lower of cost or market.  The cost of our inventories is determined using the FIFO 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: 
 
 
September 30, 2013
 
December 31, 2012
 
 
(in millions)
 
 
 
 
 
Raw materials and work-in-progress
 
$
258.5

 
$
220.3

Finished goods
 
27.6

 
25.0

Gross inventories
 
286.1

 
245.3

Inventory valuation reserves
 
(34.6
)
 
(21.0
)
Inventories, net
 
$
251.5

 
$
224.3

 
4. LONG-TERM DEBT

Long-term debt consists of the following:
 
 
 
September 30, 2013
 
December 31, 2012
 
 
(in millions)
 
 
 
 
 
Amended revolving facility
 
$
—

 
$
—

Term facility
 
—

 
—

9.25% Notes, net of discount
 
337.9

 
337.5

7.875% Notes
 
—

 
300.0

7.75% Notes
 
200.0

 
200.0

6.625% Notes
 
550.0

 
550.0

6.25% Notes
 
400.0

 
—

Foreign credit facilities
 
79.3

 
61.0

Capital lease obligations
 
5.4

 
5.6

Long-term debt
 
$
1,572.6

 
$
1,454.1


6.25% Notes In the first quarter of 2013, we issued $400.0 million of 6.25% senior unsecured notes due 2021 (6.25% Notes). Concurrent with the offering of the 6.25% Notes, we made a tender offer to purchase our 7.875% Notes, of which the aggregate principal amount outstanding at the time of the tender offer was $300.0 million. Net proceeds from the 6.25% Notes were used to fund the purchase pursuant to the tender offer and the subsequent redemption of the entire $300.0 million of the 7.875% Notes and for other general corporate purposes. We paid debt issuance costs of $6.6 million in the first nine months of 2013 related to the 6.25% Notes.

7
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7.875% Notes On March 1, 2013, in connection with the cash tender offer, we purchased $172.6 million aggregate principal amount of the 7.875% Notes, and paid accrued interest. Upon purchase, we expensed $5.2 million related to a tender premium, $0.1 million of professional fees and unamortized debt issuance costs of $1.2 million related to this debt. We had been amortizing the debt issuance costs over the expected life of the borrowing.

On March 15, 2013, we voluntarily redeemed the remaining 7.875% Notes outstanding. This resulted in a principal payment of $127.4 million, a payment of $3.3 million related to a redemption premium, as well as payment of accrued interest. Upon redemption, we expensed $0.9 million of unamortized debt issuance costs related to this debt. We had been amortizing the debt issuance costs over the expected life of the borrowing.

Amended Revolving Facility and Term Facility On September 13, 2013, we amended and restated the Credit Agreement dated as of January 9, 2004 (as amended and restated, the Amended and Restated Credit Agreement and the facility thereunder, the Amended Revolving Facility). As of September 30, 2013, the Amended Revolving Facility provided up to $523.5 million of revolving bank financing commitments through September 13, 2018.  We had $23.3 million of standby letters of credit issued against the facility as of September 30, 2013.  

The Amended and Restated Credit Agreement, among other things, increased the aggregate commitments by approximately $158.5 million and extended the maturity date from June 30, 2016 to September 13, 2018. In addition, the Amended and Restated Credit Agreement provides for a senior secured term loan A facility in an aggregate principal amount of $150.0 million (Term Facility). The full amount of the Term Facility must be drawn within thirty days after September 13, 2013. No amount had been drawn on the Term Facility as of September 30, 2013. We paid debt issuance costs of $6.3 million in the third quarter of 2013 associated with the amendments and restatements of our Amended Revolving Facility and Term Facility.

In October 2013, we borrowed $150.0 million under the Term Facility. Net proceeds from the Term Facility were used to to fund the voluntary redemption of $150.0 million of our 9.25% Notes.

Borrowings under the Amended Revolving Facility and the Term Facility bear interest at rates based on adjusted LIBOR or an alternate base rate, plus an applicable margin. The applicable margin for LIBOR-based loans will be between 1.5% and 3.0%.
Under the Amended Revolving Facility, certain negative covenants were revised to provide increased flexibility. In the event AAM achieves investment grade corporate credit ratings from S&P and Moody's, AAM may elect to release all of the collateral from the liens granted pursuant to the Collateral Agreement, subject to notice requirements and other conditions. The Amended Revolving Facility and Term Facility are secured on a first priority basis by all or substantially all of the assets of AAM and each guarantor under the Collateral Agreement dated as of November 7, 2008, as amended and restated as of September 13, 2013.

On March 20, 2013, we terminated our class C loan facility of $72.8 million, which would have matured on June 30, 2013. Upon termination, we expensed $0.5 million of unamortized debt issuance costs related to the class C facility. We had been amortizing the debt issuance costs over the expected life of the borrowing.

The Amended Revolving Facility provides back-up liquidity for our foreign credit facilities.  We intend to use the availability of long-term financing under the Amended Revolving Facility to refinance any current maturities related to such credit facilities that are not otherwise refinanced on a long-term basis in their local markets.

We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries.  At September 30, 2013, $79.3 million was outstanding under these facilities and total capacity under these facilities was $111.4 million.

At September 30, 2013, certain of our secured and local currency credit facilities were limited by the secured indebtedness covenant contained in our 9.25% Notes. This covenant restricts total secured borrowings to 2.5 times the most recently reported trailing twelve months earnings before interest, taxes, depreciation and amortization (TTM EBITDA), as defined in the Indenture relating to the 9.25% Notes. We could borrow a total of $377.0 million on certain of our secured and local currency credit facilities at September 30, 2013. In the fourth quarter of 2013, we expect this restriction will be significantly reduced based upon our September 30, 2013 TTM EBITDA and the redemption of a portion of our outstanding 9.25% Notes as described below. Further, the covenant will be eliminated upon the redemption or purchase of the remaining amount outstanding under our 9.25% Notes.


8
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.25% Notes In October 2013, we voluntarily redeemed $150.0 million of our outstanding 9.25% Notes. This resulted in a principal payment of $150.0 million, a redemption premium of $8.6 million and $3.5 million of accrued interest, pursuant to the terms of the 9.25% Notes. Upon redemption, we will expense $3.0 million of unamortized debt discount and debt issuance costs related to the 9.25% Notes. We had been amortizing the debt discount and debt issuance costs over the expected life of the borrowing.

The weighted-average interest rate of our long-term debt outstanding was 7.5% at September 30, 2013 and 7.9% as of December 31, 2012.  The amount of accrued interest included in accrued expenses and other current liabilities in our Condensed Consolidated Balance Sheets was $31.0 million and $35.1 million as of September 30, 2013 and December 31, 2012, respectively.

5. FAIR VALUE

The fair value accounting guidance 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, as of September 30, 2013 and December 31, 2012, are as follows:
 
 
 
September 30, 2013
 
December 31, 2012
 
 
 
 
  Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
Input
 
 
(in millions)
 
  (in millions)
 
 
Balance Sheet Classification
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
7.2

 
$
7.2

 
$
6.5

 
$
6.5

 
Level 1
Prepaid expenses and other current
    assets
 
 

 
 

 
 

 
 

 
 
Currency forward contracts
 
0.6

 
0.6

 
2.3

 
2.3

 
Level 2
Other assets and deferred charges
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
0.1

 
0.1

 
—

 
—

 
Level 2
Accrued expenses and other current
    liabilities
 
 
 
 
 
 
 
 
 
 
     Currency forward contracts
 
0.5

 
0.5

 
—

 
—

 
Level 2

The carrying values of our cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term maturities of these instruments.  The carrying values of our borrowings under the foreign credit facilities approximate their fair values due to the frequent resetting of the interest rates.  We estimated the fair value of the amounts outstanding on our debt using available market information and other observable data, to be as follows:
 

9
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 
 
September 30, 2013
 
December 31, 2012
 
 
 
 
Carrying  Amount
 
Fair Value
 
Carrying  Amount
 
Fair Value
 
 
Input
 
 
(in millions)
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
9.25% Notes
 
$
337.9

 
$
360.4

 
$
337.5

 
$
377.4

 
Level 2
7.875% Notes
 
—

 
—

 
300.0

 
310.1

 
Level 2
7.75% Notes
 
200.0

 
220.5

 
200.0

 
216.5

 
Level 2
6.625% Notes
 
550.0

 
562.4

 
550.0

 
555.5

 
Level 2
6.25% Notes
 
400.0

 
409.0

 
—

 
—

 
Level 2
 

10
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. 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 forward contracts  From time to time, we use foreign currency forward contracts to reduce the effects of fluctuations in exchange rates, primarily relating to the Mexican Peso, Euro, Swedish Krona, Polish Zloty and Pound Sterling.  As of September 30, 2013, we have currency forward contracts outstanding with a notional amount of $61.7 million that hedge our exposure to changes in foreign currency exchange rates for our payroll expenses, indirect inventory and other working capital items.  

The following table summarizes the reclassification of pre-tax derivative gains (losses) into net income from accumulated other comprehensive income (loss):
 
 
Location of
 
Gain (Loss) Reclassified
 
Gain Expected to
 
 
Gain (Loss)
 
Three Months Ended
 
Nine Months Ended
 
 be Reclassified
 
 
  Reclassified into
 
September 30,
 
September 30,
 
During the
 
 
  Net Income
 
2013
 
2012
 
2013
 
2012
 
Next 12 Months
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
Cost of Goods Sold
 
$
0.5

 
$
(0.2
)
 
$
2.6

 
$
(1.7
)
 
$
0.1

 

11
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. EMPLOYEE BENEFIT PLANS

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

 
 
Pension Benefits
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in millions)
 
 
 
 
 
 
 
 
 
Service cost
 
$
0.8

 
$
0.7

 
$
2.6

 
$
2.3

Interest cost
 
8.5

 
8.9

 
25.5

 
26.5

Expected asset return
 
(11.5
)
 
(8.0
)
 
(34.5
)
 
(24.0
)
Amortized loss
 
2.2

 
1.9

 
7.0

 
5.5

Amortized prior service cost
 
4.8

 
0.1

 
5.4

 
0.1

Net periodic benefit cost
 
$
4.8

 
$
3.6

 
$
6.0

 
$
10.4

 
 
 
 
 
Other Postretirement Benefits
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in millions)
 
 
 

 
 

 
 

 
 

Service cost
 
$
0.1

 
$
0.1

 
$
0.3

 
$
0.3

Interest cost
 
3.3

 
3.8

 
9.9

 
11.6

Amortized loss
 
0.2

 
0.1

 
0.6

 
0.5

Amortized prior service credit
 
(0.4
)
 
(0.3
)
 
(1.3
)
 
(1.3
)
Curtailment gain
 
—

 
—

 
—

 
(21.8
)
Settlement
 
—

 
—

 
—

 
(5.2
)
Net periodic benefit cost (credit)
 
$
3.2

 
$
3.7

 
$
9.5

 
$
(15.9
)

In the third quarter of 2013, we remeasured our AAM Supplemental Executive Retirement Plan (SERP) due to the passing of our Co-Founder and Executive Chairman of the Board of Directors. As a result of this remeasurement, we recorded $4.7 million in selling, general & administrative expense related to the acceleration of prior service cost. This SERP remeasurement also resulted in a decrease in postretirement benefits and other long-term liabilities of $16.4 million and a decrease in our accumulated other comprehensive loss of $13.7 million on our Condensed Consolidated Balance Sheet.

In the first quarter of 2012, we recorded a gain of $21.8 million to cost of goods sold for the curtailment of certain other postretirement benefits (OPEB). This resulted primarily from the reduction in the expected future OPEB related to the DMC and CKMF hourly associates who terminated employment from AAM as a result of our plant closures. These curtailment gains resulted in an increase in our accumulated other comprehensive loss of $21.8 million.

In the second quarter of 2012, we notified hourly associates of the termination of a benefit plan, which provided legal services to certain eligible hourly associates represented by the International UAW. As a result of terminating this plan, we recorded a settlement gain of $5.2 million in cost of goods sold in the second quarter of 2012. Recognition of this settlement gain reduced our postretirement benefits and other long-term liabilities by $4.7 million and also reduced our accumulated other comprehensive loss by $0.5 million.

As a result of our election to apply the provisions of Moving Ahead for Progress in the 21st Century Act (MAP-21), in addition to certain actions we took during the third quarter of 2012, we agreed to provide pension and postretirement benefits to certain eligible UAW associates whose employment had been terminated in connection with the DMC and CKMF plant closures. In the nine months ended September 30, 2012, we recorded $28.7 million in cost of goods sold for these pension and postretirement benefits.

12
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Due to our significant pension contributions made in 2012, we will not make any cash payments in 2013 to satisfy our regulatory funding requirements. We expect our cash outlay for other postretirement benefit obligations in 2013, net of GM cost sharing, to be approximately $15 million.

Deferred Compensation Plan Certain of our U.S. associates are eligible to participate in a non-qualified deferred compensation plan. As of September 30, 2013 and December 31, 2012, our deferred compensation liability was $5.9 million and $11.3 million, respectively. Upon the passing of our Co-Founder and Executive Chairman of the Board of Directors, we made a deferred compensation payment of $5.6 million to the beneficiary of the plan in the third quarter of 2013. This payment resulted in a $5.6 million reduction in postretirement benefits and other long-term liabilities on our Condensed Consolidated Balance Sheet. This payment was partially offset by proceeds of $5.0 million, which AAM received as the beneficiary of a key man life insurance policy in the third quarter of 2013.


8.
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 our contractual arrangements with our customers, existing customers warranty terms and internal and external warranty data, which includes a determination of our responsibility for potential warranty issues or claims and estimates of repair costs. We actively study trends of our warranty claims and take actions to improve product quality and minimize warranty claims. We continue to re-evaluate these estimates, our customer's administration of their warranty programs and monitor actual warranty claim data as our programs become more mature. On a quarterly basis, we adjust the liability as necessary.

The following table provides a reconciliation of changes in the product warranty liability:

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in millions)
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
23.2

 
$
24.5

 
$
29.1

 
$
13.4

     Accruals
 
3.2

 
2.8

 
8.9

 
17.2

     Settlements
 
(0.1
)
 
(0.3
)
 
(10.6
)
 
(0.7
)
     Adjustment to prior period accruals, net
 
(6.9
)
 
(0.7
)
 
(7.8
)
 
(3.5
)
     Foreign currency translation and other
 
—

 
0.1

 
(0.2
)
 
—

Ending balance
 
$
19.4

 
$
26.4

 
$
19.4

 
$
26.4



9. INCOME TAXES

 We are required to adjust our effective tax rate each quarter to estimate our 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 expense was $6.1 million in the three months ended September 30, 2013 as compared to $0.9 million in the three months ended September 30, 2012.  Our effective income tax rate was 16.1% in the third quarter of 2013 as compared to negative 12.9% in the third quarter of 2012.  

Income tax expense was $9.1 million in the first nine months of 2013 as compared to $4.8 million in the first nine months of 2012.  Our effective income tax rate was 12.3% in the first nine months of 2013 as compared to 9.3% in the first nine months of 2012. 


13
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Our income tax expense and effective tax rate for the three and nine months ended September 30, 2013 reflect favorable foreign tax rates, along with our inability to realize a tax benefit for current foreign losses. For the three months ended September 30, 2013, we recorded tax expense of $2.2 million relating to certain changes in estimates in a foreign jurisdiction. Additionally, in the first quarter of 2013, we recorded a tax benefit of $1.5 million relating to the release of a prior year unrecognized tax benefit due to the expiration of the applicable statute of limitations and a tax benefit of $3.3 million relating to an election we made in the first nine months of 2013 regarding the treatment of foreign exchange gains and losses in a foreign jurisdiction.

In the three months ended June 30, 2013, we settled a transfer pricing examination of our 2006 income tax return with the Mexican tax authorities. This settlement resulted in a reduction of our liability for unrecognized income tax benefits and a cash payment of $4.7 million.

Our income tax expense and effective tax rate for the three and nine months ended September 30, 2012 reflect the effect of recognizing a net operating loss benefit against our taxable income in the U.S. Our income tax expense and effective tax rate for the nine months ended September 30, 2012 also reflect a net tax expense of $1.3 million related to the amendment of state income tax returns as a result of the settlement of federal income tax audits for the years 2004 through 2007.

10. EARNINGS PER SHARE (EPS)

 The following table sets forth the computation of our basic and diluted EPS:
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in millions, except per share data)
Numerator
 
 
 
 
 
 
 
 
Net income (loss) attributable to AAM
 
$
31.6

 
$
(8.1
)
 
$
64.7

 
$
47.8

 
 
 

 
 

 
 

 
 

Denominator
 
 

 
 

 
 

 
 

Basic shares outstanding -
 
 

 
 

 
 

 
 

   Weighted-average shares outstanding
 
76.9

 
74.9

 
76.6

 
75.2

 
 
 

 
 

 
 

 
 

Effect of dilutive securities
 
 

 
 

 
 

 
 

   Dilutive stock-based compensation
 
0.1

 
—

 
0.1

 
—

 
 
 

 
 

 
 

 
 

Diluted shares outstanding -
 
 

 
 

 
 

 
 

   Adjusted weighted-average shares after assumed conversions
 
77.0

 
74.9

 
76.7

 
75.2

 
 
 

 
 

 
 

 
 

Basic EPS
 
$
0.41

 
$
(0.11
)
 
$
0.84

 
$
0.64

 
 
 

 
 

 
 

 
 

Diluted EPS
 
$
0.41

 
$
(0.11
)
 
$
0.84

 
$
0.63

 
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. The number of stock options outstanding, which were not included in the calculation of diluted EPS, was 2.0 million at September 30, 2013 and 3.3 million at September 30, 2012. The range of exercise prices related to the excluded exercisable stock options was $19.54 - $40.83 at September 30, 2013 and $15.58 - $40.83 at September 30, 2012.


14
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCK-BASED COMPENSATION

In the third quarter of 2013, we recorded $5.1 million of expense for the accelerated vesting of restricted stock units and stock options as a result of the passing of our Co-Founder and Executive Chairman of the Board of Directors.

On March 6, 2013, we granted approximately 0.8 million restricted stock units with a grant-date fair value of $12.71. The unearned compensation will be expensed over the vesting period of three years.

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

Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss) (AOCI) during the three and nine months ended September 30, 2013 are as follows (in millions):
 
Defined Benefit Plans
 
Foreign Currency Translation Adjustments
 
Unrecognized Gain on Derivatives
 
Total
Balance at June 30, 2013
$
(273.9
)
 
$
(9.2
)
 
$
0.7

 
$
(282.4
)
 
 
 
 
 
 
 
 
Other comprehensive income before reclassifications
10.7

(a)
2.5

 
(0.1
)
 
13.1

 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss)
4.4

(a)(b)
—

 
(0.5
)
(c)
3.9

 
 
 
 
 
 
 
 
Net current period other comprehensive income (loss)
15.1

 
2.5

 
(0.6
)
 
17.0

 
 
 
 
 
 
 
 
Balance at September 30, 2013
$
(258.8
)
 
$
(6.7
)
 
$
0.1

 
$
(265.4
)

 
Defined Benefit Plans
 
Foreign Currency Translation Adjustments
 
Unrecognized Gain on Derivatives
 
Total
Balance at December 31, 2012
$
(274.5
)
 
$
7.6

 
$
2.3

 
$
(264.6
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
8.0

(a)
(14.3
)
 
0.4

 
(5.9
)
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss)
7.7

(a)(b)
—

 
(2.6
)
(c)
5.1

 
 
 
 
 
 
 
 
Net current period other comprehensive income (loss)
15.7

 
(14.3
)
 
(2.2
)
 
(0.8
)
 
 
 
 
 
 
 
 
Balance at September 30, 2013
$
(258.8
)
 
$
(6.7
)
 
$
0.1

 
$
(265.4
)
 
 
 
 
 
 
 
 
(a) These amounts are net of tax of $(5.6) million and $(2.3) million for the other comprehensive income before reclassifications and the amounts reclassified from AOCI, respectively, for the three months ended September 30, 2013. For the nine months ended September 30, 2013, these amounts are net of tax of $(4.0) million for both the other comprehensive income before reclassifications and the amounts reclassified from AOCI.
 
 
 
 
 
 
 
 
(b) The net amount reclassified from AOCI included $1.2 million in cost of goods sold (COGS) and $3.2 million in selling, general & administrative expenses (SG&A) for the three months ended September 30, 2013. For the nine months ended September 30, 2013, the net amount reclassified from AOCI included $3.5 million in COGS and $4.2 million in SG&A.
 
 
 
 
 
 
 
 
(c) The amounts reclassified from AOCI are included in COGS.
  



15
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Holdings has no significant assets other than its 100% ownership in AAM, Inc. and no direct subsidiaries other than AAM, Inc.  The 9.25% Notes are senior secured obligations of AAM Inc. and the 7.75% Notes, 6.625% Notes and 6.25% Notes are senior unsecured obligations of AAM Inc.; all of which are fully and unconditionally and joint and severally, guaranteed by Holdings and substantially all domestic subsidiaries of AAM, Inc., which are 100% indirectly owned by Holdings.

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 Operations
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
2013
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
External
 
$
—

 
$
162.6

 
$
57.8

 
$
600.4

 
$
—

 
$
820.8

Intercompany
 
—

 
5.0

 
55.2

 
1.7

 
(61.9
)
 
—

Total net sales
 
—

 
167.6

 
113.0

 
602.1

 
(61.9
)
 
820.8

Cost of goods sold
 
—

 
170.1

 
97.2

 
490.1

 
(61.9
)
 
695.5

Gross profit (loss)
 
—

 
(2.5
)
 
15.8

 
112.0

 
—

 
125.3

Selling, general and administrative expenses
 
—

 
48.1

 
—

 
9.7

 
—

 
57.8

Operating income (loss)
 
—

 
(50.6
)
 
15.8

 
102.3

 
—

 
67.5

Non-operating income (expense), net
 
—

 
(30.6
)
 
2.5

 
(1.7
)
 
—

 
(29.8
)
Income (loss) before income taxes
 
—

 
(81.2
)
 
18.3

 
100.6

 
—

 
37.7

Income tax expense
 
—

 
0.9

 
—

 
5.2

 
—

 
6.1

Earnings (loss) from equity in subsidiaries
 
31.6

 
50.7

 
(1.5
)
 
—

 
(80.8
)
 
—

Net income (loss) before royalties and dividends
 
31.6

 
(31.4
)
 
16.8

 
95.4

 
(80.8
)
 
31.6

Royalties and dividends
 
—

 
63.0

 
—

 
(63.0
)
 
—

 
—

Net income after royalties and dividends
 
31.6

 
31.6

 
16.8

 
32.4

 
(80.8
)
 
31.6

Net loss attributable to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
—

Net income attributable to AAM
 
$
31.6

 
$
31.6

 
$
16.8

 
$
32.4

 
$
(80.8
)
 
$
31.6

Other comprehensive income (loss)
 
17.0

 
17.0

 
(0.8
)
 
(1.7
)
 
(14.5
)
 
17.0

Comprehensive income attributable to AAM
 
$
48.6

 
$
48.6

 
$
16.0

 
$
30.7

 
$
(95.3
)
 
$
48.6



16
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
2012
 
 

 
 

 
 

 
 

 
 

 
 

Net sales
 
 

 
 

 
 

 
 

 
 

 
 

External
 
$
—

 
$
162.2

 
$
55.4

 
$
485.3

 
$
—

 
$
702.9

Intercompany
 
—

 
3.5

 
54.4

 
10.1

 
(68.0
)
 
—

Total net sales
 
—

 
165.7

 
109.8

 
495.4

 
(68.0
)
 
702.9

Cost of goods sold
 
—

 
164.3

 
97.7

 
418.2

 
(68.0
)
 
612.2

Gross profit
 
—

 
1.4

 
12.1

 
77.2

 
—

 
90.7

Selling, general and administrative expenses
 
—

 
50.0

 
—

 
10.6

 
—

 
60.6

Operating income (loss)
 
—

 
(48.6
)
 
12.1

 
66.6

 
—

 
30.1

Non-operating income (expense), net
 
—

 
(35.7
)
 
0.1

 
(1.8
)
 
—

 
(37.4
)
Income (loss) before income taxes
 
—

 
(84.3
)
 
12.2

 
64.8

 
—

 
(7.3
)
Income tax expense
 
—

 
0.1

 
—

 
0.8

 
—

 
0.9

Earnings (loss) from equity in subsidiaries
 
(8.1
)
 
34.5

 
(14.7
)
 
—

 
(11.7
)
 
—

Net income (loss) before royalties and dividends
 
(8.1
)
 
(49.9
)
 
(2.5
)
 
64.0

 
(11.7
)
 
(8.2
)
Royalties and dividends
 
—

 
41.8

 
—

 
(41.8
)
 
—

 
—

Net income (loss) after royalties and dividends
 
(8.1
)
 
(8.1
)
 
(2.5
)
 
22.2

 
(11.7
)
 
(8.2
)
Net loss attributable to noncontrolling interests
 
—

 
—

 
—

 
0.1

 
—

 
0.1

Net income (loss) attributable to AAM
 
$
(8.1
)
 
$
(8.1
)
 
$
(2.5
)
 
$
22.3

 
$
(11.7
)
 
$
(8.1
)
Other comprehensive income (loss)
 
(95.6
)
 
(95.6
)
 
4.1

 
5.8

 
85.7

 
(95.6
)
Comprehensive income (loss) attributable to AAM
 
$
(103.7
)
 
$
(103.7
)
 
$
1.6

 
$
28.1

 
$
74.0

 
$
(103.7
)

17
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidating Statements of Operations
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
2013
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
External
 
$
—

 
$
574.2

 
$
170.5

 
$
1,631.3

 
$
—

 
$
2,376.0

Intercompany
 
—

 
13.0

 
169.1

 
9.0

 
(191.1
)
 
—

Total net sales
 
—

 
587.2

 
339.6

 
1,640.3

 
(191.1
)
 
2,376.0

Cost of goods sold
 
—

 
566.3

 
293.3

 
1,355.7

 
(191.1
)
 
2,024.2

Gross profit
 
—

 
20.9

 
46.3

 
284.6

 
—

 
351.8

Selling, general and administrative expenses
 
—

 
149.3

 
—

 
28.6

 
—

 
177.9

Operating income (loss)
 
—

 
(128.4
)
 
46.3

 
256.0

 
—

 
173.9

Non-operating income (expense), net
 
—

 
(101.4
)
 
7.9

 
(6.6
)
 
—

 
(100.1
)
Income (loss) before income taxes
 
—

 
(229.8
)
 
54.2

 
249.4

 
—

 
73.8

Income tax expense (benefit)
 
—

 
(13.0
)
 
—

 
22.1

 
—

 
9.1

Earnings (loss) from equity in subsidiaries
 
64.7

 
115.6

 
(14.4
)
 
—

 
(165.9
)
 
—

Net income (loss) before royalties and dividends
 
64.7

 
(101.2
)
 
39.8

 
227.3

 
(165.9
)
 
64.7

Royalties and dividends
 
—

 
165.9

 
—

 
(165.9
)
 
—

 
—

Net income after royalties and dividends
 
64.7

 
64.7

 
39.8

 
61.4

 
(165.9
)
 
64.7

Net loss attributable to noncontrolling interests
 
—

 
—