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

FORM 10-Q

R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2014
 
 
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 R 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  R 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   R          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  R

As of April 30, 2014 , the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 75,679,151 shares.
 
Internet Website Access to Reports

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



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED  MARCH 31, 2014
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,” "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:

•
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 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;
•
our ability to respond to changes in technology, increased competition or pricing pressures;
•
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;
•
global economic conditions, including the impact of the continued market weakness in the Euro-zone;
•
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);
•
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;
•
price volatility in, or reduced availability of, fuel;
•
our ability to successfully implement upgrades to our enterprise resource planning systems;
•
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 attract and retain key associates;
•
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;
•
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;
•
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);
•
our ability to consummate and integrate acquisitions and joint ventures;
•
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; 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 INCOME
(Unaudited)
 
 
Three Months Ended
 
March 31,
 
2014
 
2013
 
(in millions, except per share data)
 
 

 
 

Net sales
$
858.8

 
$
755.6

 
 
 
 
Cost of goods sold
736.9

 
651.3

 
 
 
 
Gross profit
121.9

 
104.3

 
 
 
 
Selling, general and administrative expenses
57.1

 
59.6

 
 
 
 
Operating income
64.8

 
44.7

 
 
 
 
Interest expense
(25.0
)
 
(29.1
)
 
 
 
 
Investment income
0.3

 
0.1

 
 
 
 
Other income (expense)
 
 
 
     Debt refinancing and redemption costs
—

 
(11.3
)
     Other, net
0.5

 
0.5

 
 
 
 
Income before income taxes
40.6

 
4.9

 
 
 
 
Income tax expense (benefit)
7.0

 
(2.4
)
 
 
 
 
Net income
$
33.6

 
$
7.3

 
 
 
 
Basic earnings per share
$
0.44

 
$
0.10

 
 
 
 
Diluted earnings per share
$
0.44

 
$
0.10

 
See accompanying notes to condensed consolidated financial statements.                   


2


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

 
Three Months Ended
 
March 31,
 
2014
 
2013
 
(in millions)
Net income
$
33.6

 
$
7.3

 
 
 
 
Other comprehensive income (loss), net of tax
 
 
 
     Defined benefit plans, net of tax of $(2.7) million and $0.7 million in 2014 and 2013, respectively
5.1

 
(1.1
)
     Foreign currency translation adjustments
7.8

 
4.9

     Change in derivatives
0.9

 
0.5

Other comprehensive income
13.8

 
4.3

 
 
 
 
Comprehensive income
$
47.4

 
$
11.6


See accompanying notes to condensed consolidated financial statements.                   


3


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
March 31, 2014
 
December 31, 2013
 
 
(Unaudited)
 
 
Assets
 
(in millions)
Current assets
 
 
Cash and cash equivalents
 
$
79.6

 
$
154.0

Accounts receivable, net
 
654.1

 
458.5

Inventories, net
 
258.0

 
261.8

Prepaid expenses and other current assets
 
116.4

 
123.5

Total current assets
 
1,108.1

 
997.8

 
 
 

 
 

Property, plant and equipment, net
 
1,067.6

 
1,058.5

Deferred income taxes
 
338.5

 
341.8

Goodwill
 
156.4

 
156.4

GM postretirement cost sharing asset
 
235.8

 
242.0

Other assets and deferred charges
 
243.3

 
232.5

Total assets
 
$
3,149.7

 
$
3,029.0

 
 
 

 
 

Liabilities and Stockholders’ Equity
 
 

 
 

Current liabilities
 
 

 
 

Accounts payable
 
$
478.8

 
$
445.8

Accrued compensation and benefits
 
88.5

 
110.1

Deferred revenue
 
22.3

 
17.0

Accrued expenses and other current liabilities
 
108.2

 
94.2

Total current liabilities
 
697.8

 
667.1

 
 
 

 
 

Long-term debt
 
1,578.4

 
1,559.1

Deferred revenue
 
106.9

 
76.4

Postretirement benefits and other long-term liabilities
 
683.3

 
692.8

Total liabilities
 
3,066.4

 
2,995.4

 
 
 

 
 

Stockholders' equity
 
 

 
 

Common stock, par value $0.01 per share
 
0.8

 
0.8

Paid-in capital
 
615.4

 
612.8

Accumulated deficit
 
(147.7
)
 
(181.3
)
Treasury stock at cost, 6.1 million shares as of March 31, 2014 and
 
 
 
 

6.0 million shares as of December 31, 2013
 
(182.8
)
 
(182.5
)
Accumulated other comprehensive income (loss), net of tax
 
 
 
 
Defined benefit plans
 
(192.8
)
 
(197.9
)
Foreign currency translation adjustments
 
(10.8
)
 
(18.6
)
Unrecognized gain on derivatives
 
1.2

 
0.3

Total stockholders' equity
 
83.3

 
33.6

Total liabilities and stockholders' equity
 
$
3,149.7

 
$
3,029.0

 
See accompanying notes to condensed consolidated financial statements. 

4


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
 
 
(in millions)
Operating activities
 
 
 
 
Net income
 
$
33.6

 
$
7.3

Adjustments to reconcile net income to net cash used in operating activities
 
 
 
 
Depreciation and amortization
 
46.9

 
41.3

Deferred income taxes
 
(0.7
)
 
(2.6
)
Stock-based compensation
 
2.0

 
1.3

Pensions and other postretirement benefits, net of contributions
 
(0.1
)
 
1.0

(Gain) loss on disposal of property, plant and equipment, net
 
(4.0
)
 
0.2

Debt refinancing and redemption costs
 
—

 
2.6

Changes in operating assets and liabilities
 
 
 
 

Accounts receivable
 
(194.2
)
 
(70.7
)
Inventories
 
5.2

 
(15.5
)
Accounts payable and accrued expenses
 
25.0

 
29.0

Deferred revenue
 
35.7

 
(5.0
)
Other assets and liabilities
 
(4.9
)
 
(15.7
)
Net cash used in operating activities
 
(55.5
)
 
(26.8
)
 
 
 

 
 

Investing activities
 
 

 
 

Purchases of property, plant and equipment
 
(47.9
)
 
(47.9
)
Proceeds from sale of property, plant and equipment
 
7.9

 
0.1

Proceeds from sale-leaseback of equipment
 
—

 
3.9

Net cash used in investing activities
 
(40.0
)
 
(43.9
)
 
 
 

 
 

Financing activities
 
 

 
 

Net short-term borrowings under credit facilities
 
29.0

 
11.3

Payments of long-term debt and capital lease obligations
 
(11.5
)
 
(301.8
)
Proceeds from issuance of long-term debt
 
3.1

 
405.2

Debt issuance costs
 
(0.2
)
 
(6.2
)
Purchase of treasury stock
 
(0.3
)
 
—

Employee stock option exercises
 
0.6

 
—

Net cash provided by financing activities
 
20.7

 
108.5

 
 
 

 
 

Effect of exchange rate changes on cash
 
0.4

 
0.6

 
 
 

 
 

Net increase (decrease) in cash and cash equivalents
 
(74.4
)
 
38.4

 
 
 

 
 

Cash and cash equivalents at beginning of period
 
154.0

 
62.4

 
 
 

 
 

Cash and cash equivalents at end of period
 
$
79.6

 
$
100.8

 
 
 

 
 

Supplemental cash flow information
 
 

 
 

     Interest paid
 
$
14.1

 
$
27.2

     Income taxes paid, net of refunds
 
$
4.5

 
$
2.1

 
See accompanying notes to condensed consolidated financial statements.

5


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(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, 2013 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, 2013 .

Revenue Recognition In the first quarter of 2014, we reached an agreement with General Motors Company (GM) to increase installed capacity and adjust product mix for our largest vehicle program. As a result of this agreement, we received $13.8 million in the first quarter of 2014 and recorded a receivable for $20.6 million that we expect to receive in three equal installments over the remaining three quarters of 2014. We recorded deferred revenue of $34.4 million related to this agreement. We will recognize this deferred revenue into sales over the life of the program on a straight line basis over approximately 5 years, which is the period we expect GM to benefit from this capacity and mix change. In the first quarter of 2014, we recognized revenue of $0.3 million related to this agreement. As of March 31, 2014, we have $7.2 million of deferred revenue that is classified as a current liability and $26.9 million of deferred revenue that is recorded as a noncurrent liability on our Condensed Consolidated Balance Sheet.

Also in the first quarter of 2014, we reached an agreement with GM to recover certain costs related to the delay of another major product program. We received $5.7 million in the first quarter of 2014 and recorded a receivable for $3.6 million that we expect to receive in the second quarter of 2014 related to this agreement. As of March 31, 2014, we recorded deferred revenue of $9.3 million , $1.1 million of which is classified as a current liability and $8.2 million is recorded as a noncurrent liability on our Condensed Consolidated Balance Sheet. We will recognize this deferred revenue into sales over the life of the program on a straight-line basis over approximately 8 years, which is the period we expect GM to benefit from this agreement. We will begin recognizing this deferred revenue as revenue in the second quarter of 2014 when this program is launched in certain markets.

Effect of New Accounting Standards On January 1, 2014, new accounting guidance became effective 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

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

unrecognized tax benefits, as the tabular reconciliation presents the gross amount of unrecognized tax benefits. The adoption of this new guidance has had no impact on our condensed consolidated financial statements.

2. 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: 
 
 
March 31, 2014
 
December 31, 2013
 
 
(in millions)
 
 
 
 
 
Raw materials and work-in-progress
 
$
258.6

 
$
263.4

Finished goods
 
27.8

 
25.7

Gross inventories
 
286.4

 
289.1

Inventory valuation reserves
 
(28.4
)
 
(27.3
)
Inventories, net
 
$
258.0

 
$
261.8

 
3. LONG-TERM DEBT

Long-term debt consists of the following:
 
 
 
March 31, 2014
 
December 31,
2013
 
 
(in millions)
 
 
 
 
 
Revolving credit facility
 
$
—

 
$
—

Term facility
 
148.1

 
150.0

7.75% Notes
 
200.0

 
200.0

6.625% Notes
 
550.0

 
550.0

6.25% Notes
 
400.0

 
400.0

5.125% Notes
 
200.0

 
200.0

Foreign credit facilities
 
75.1

 
53.8

Capital lease obligations
 
5.2

 
5.3

Long-term debt
 
$
1,578.4

 
$
1,559.1


Revolving Credit Facility and Term Facility As of March 31, 2014 , the revolving credit facility provided up to $523.5 million of revolving bank financing commitments through September 13, 2018.  At March 31, 2014 , we had $501.7 million available under the revolving credit facility.  This availability reflects a reduction of $21.8 million for standby letters of credit issued against the facility.

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

In the first quarter of 2014, we made a principal payment of $1.9 million on our term facility.

In the first quarter of 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.


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

5.125% Notes In 2013, we issued $200.0 million of 5.125% senior unsecured notes due 2019 ( 5.125% Notes). Net proceeds from the 5.125% Notes were used to redeem the remaining $190.0 million outstanding under our 9.25% senior secured notes due 2017. We paid remaining debt issuance costs of $0.2 million in the first quarter of 2014 related to the 5.125% Notes.

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). Net proceeds from the 6.25% Notes were used to purchase and redeem the entire $300.0 million outstanding of our 7.875% senior unsecured notes due 2017 ( 7.875% Notes) and for other general corporate purposes. We paid debt issuance costs of $6.2 million in the first quarter of 2013 related to the 6.25% Notes.

In the first quarter of 2013, we expensed $8.5 million related to tender and redemption premiums, $0.2 million of professional fees and unamortized debt issuance costs of $2.1 million related to the purchase and redemption of the 7.875% Notes. We had been amortizing the debt issuance costs for the 7.875% Notes over the expected life of the borrowing.

We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries.  At March 31, 2014 , $75.1 million was outstanding under these facilities and an additional $19.8 million was available.

The weighted-average interest rate of our long-term debt outstanding was 6.3% at both March 31, 2014 and December 31, 2013 .  

4. 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 values 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 March 31, 2014 , are as follows:
 
 
 
March 31, 2014
 
December 31, 2013
 
 
 
 
  Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
Input
 
 
(in millions)
 
  (in millions)
 
 
Balance Sheet Classification
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
7.5

 
$
7.5

 
$
6.1

 
$
6.1

 
Level 1
Prepaid expenses and other current
    assets
 
 

 
 

 
 

 
 

 
 
Currency forward contracts
 
1.1

 
1.1

 
0.7

 
0.7

 
Level 2
Other assets and deferred charges
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
0.2

 
0.2

 
—

 
—

 
Level 2
Other accrued expenses
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
0.1

 
0.1

 
0.4

 
0.4

 
Level 2
 

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

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:
 
 
 
March 31, 2014
 
December 31, 2013
 
 
 
 
Carrying  Amount
 
Fair Value
 
Carrying  Amount
 
Fair Value
 
 
Input
 
 
(in millions)
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility
 
$
—

 
$
—

 
$
—

 
$
—

 
Level 2
Term Facility
 
148.1

 
146.6

 
150.0

 
147.8

 
Level 2
7.75% Notes
 
200.0

 
230.0

 
200.0

 
227.5

 
Level 2
6.625% Notes
 
550.0

 
596.8

 
550.0

 
578.9

 
Level 2
6.25% Notes
 
400.0

 
425.0

 
400.0

 
423.0

 
Level 2
5.125% Notes
 
200.0

 
208.2

 
200.0

 
206.0

 
Level 2

5. 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 among 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 March 31, 2014 , we have currency forward contracts outstanding with a notional amount of $59.7 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 into net income from accumulated other comprehensive income (loss):
 
 
Location of
 
Gain Reclassified During
 
Gain Expected to
 
 
Gain
 
Three Months Ended
 
be Reclassified
 
 
  Reclassified into
 
March 31,
 
During the
 
 
  Net Income
 
2014
 
2013
 
Next 12 Months
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
Cost of goods sold
 
$
—

 
$
1.2

 
$
1.0

 

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

6. EMPLOYEE BENEFIT PLANS

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

 
 
Pension Benefits
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
 
 
(in millions)
 
 
 
 
 
Service cost
 
$
0.9

 
$
0.9

Interest cost
 
9.0

 
8.5

Expected asset return
 
(12.1
)
 
(11.5
)
Amortized loss
 
1.3

 
2.4

Amortized prior service cost
 
—

 
0.3

Net periodic benefit cost (credit)
 
$
(0.9
)
 
$
0.6

 
 
 
 
 
Other Postretirement Benefits
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
 
 
(in millions)
 
 
 

 
 

Service cost
 
$
0.1

 
$
0.1

Interest cost
 
3.8

 
3.3

Amortized loss
 
0.2

 
0.2

Amortized prior service credit
 
(0.7
)
 
(0.4
)
Net periodic benefit cost
 
$
3.4

 
$
3.2


Due to the availability of our prefunding balances (previous contributions in excess of prior required pension contributions), we are not required to make any cash payments in 2014. We expect our cash outlay for other postretirement benefit obligations in 2014 , net of GM cost sharing, to be approximately $17 million .


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

7.
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 take actions 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,
 
 
2014
 
2013
 
 
(in millions)
 
 
 
 
 
Beginning balance
 
$
14.3

 
$
29.1

     Accruals
 
4.2

 
3.2

     Settlements
 
(0.8
)
 
(9.2
)
     Adjustment to prior period accruals
 
0.2

 
(0.2
)
     Foreign currency translation
 
0.1

 
—

Ending balance
 
$
18.0

 
$
22.9



8. 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 (benefit) was expense of $7.0 million in the first quarter of 2014 as compared to a benefit of $2.4 million in the first quarter of 2013.  Our effective income tax rate was 17.3% in the first quarter of 2014 as compared to negative  48.1% in the first quarter of 2013 . Our income tax expense (benefit) and effective tax rates for the three months ended March 31, 2014 and March 31, 2013 primarily reflect favorable foreign tax rates, along with our inability to realize a tax benefit for foreign losses.

Our income tax benefit and effective tax rate for the three months ended March 31, 2013 also reflect 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 benefit of $3.3 million relating to an election we made in the first quarter of 2013 regarding the treatment of foreign exchange gains and losses in a foreign jurisdiction.




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

9. EARNINGS PER SHARE (EPS)

 The following table sets forth the computation of our basic and diluted EPS:
 
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
 
 
(in millions, except per share data)
Numerator
 
 
 
 
Net Income
 
$
33.6

 
$
7.3

 
 
 

 
 

Denominator
 
 

 
 

Basic shares outstanding -
 
 

 
 

   Weighted-average shares outstanding
 
77.0

 
76.2

 
 
 

 
 

Effect of dilutive securities
 
 

 
 

   Dilutive stock-based compensation
 
0.1

 
—

 
 
 

 
 

Diluted shares outstanding -
 
 

 
 

   Adjusted weighted-average shares after assumed conversions
 
77.1

 
76.2

 
 
 

 
 

Basic EPS
 
$
0.44

 
$
0.10

 
 
 

 
 

Diluted EPS
 
$
0.44

 
$
0.10

 
Certain exercisable stock options were excluded in 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 1.1 million at March 31, 2014 and 2.3 million at March 31, 2013 . The ranges of exercise prices related to the excluded exercisable stock options were $19.54 - $40.83 at March 31, 2014 and $15.58 - $40.83 at March 31, 2013 .


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

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

Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss) during the three months ended March 31, 2014 and March 31, 2013 are as follows (in millions) :
 
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
(2.7
)
(a)
4.9

 
1.7

 
3.9

 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss)
1.6

(a)(b)
—

 
(1.2
)
(c)
0.4

 
 
 
 
 
 
 
 
Net current period other comprehensive income (loss)
(1.1
)

4.9

 
0.5

 
4.3

 
 
 
 
 
 
 
 
Balance at March 31, 2013
$
(275.6
)

$
12.5

 
$
2.8

 
$
(260.3
)
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
(197.9
)
 
$
(18.6
)
 
$
0.3

 
$
(216.2
)
 
 
 
 
 
 
 
 
Other comprehensive income before reclassifications
4.5

(a)
7.8

 
0.9

 
13.2

 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss)
0.6

(a)(b)
—

 
—

(c)
0.6

 
 
 
 
 
 
 
 
Net current period other comprehensive income
5.1

 
7.8

 
0.9

 
13.8

 
 
 
 
 
 
 
 
Balance at March 31, 2014
$
(192.8
)
 
$
(10.8
)
 
$
1.2

 
$
(202.4
)
 
 
 
 
 
 
 
 
(a) The amounts are net of tax of $(2.5) million and $(0.2) million for other comprehensive income before reclassifications and the amounts reclassified from AOCI, respectively, for the three months ended March 31, 2014, and $1.5 million and $(0.8) million, respectively, for the three months ended March 31, 2013.
 
(b) The net amount reclassified from AOCI included $0.8 million in cost of goods sold (COGS) and $(0.2) million in selling, general & administrative expenses (SG&A) for the three months ended March 31, 2014 and $1.2 million in COGS and $0.4 million in SG&A for the three months ended March 31, 2013.
 
(c) The amounts reclassified from AOCI are included in COGS.


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

11. 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 7.75% Notes, 6.625% Notes, 6.25% Notes and 5.125% Notes are senior unsecured obligations of AAM Inc.; all of which are fully and unconditionally 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 Income
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
2014
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
External
 
$
—

 
$
227.9

 
$
58.0

 
$
572.9

 
$
—

 
$
858.8

Intercompany
 
—

 
2.8

 
58.1

 
5.9

 
(66.8
)
 
—

Total net sales
 
—

 
230.7

 
116.1

 
578.8

 
(66.8
)
 
858.8

Cost of goods sold
 
—

 
231.9

 
99.6

 
472.2

 
(66.8
)
 
736.9

Gross profit (loss)
 
—

 
(1.2
)
 
16.5

 
106.6

 
—

 
121.9

Selling, general and administrative expenses
 
—

 
48.6

 
0.1

 
8.4

 
—

 
57.1

Operating income (loss)
 
—

 
(49.8
)
 
16.4

 
98.2

 
—

 
64.8

Non-operating income (expense), net
 
—

 
(25.8
)
 
2.7

 
(1.1
)
 
—

 
(24.2
)
Income (loss) before income taxes
 
—

 
(75.6
)
 
19.1

 
97.1

 
—

 
40.6

Income tax expense
 
—

 
0.4

 
—

 
6.6

 
—

 
7.0

Earnings (loss) from equity in subsidiaries
 
33.6

 
54.5

 
(9.2
)
 
—

 
(78.9
)
 
—

Net income (loss) before royalties and dividends
 
33.6

 
(21.5
)
 
9.9

 
90.5

 
(78.9
)
 
33.6

Royalties and dividends
 
—

 
55.1

 
—

 
(55.1
)
 
—

 
—

Net income after royalties and dividends
 
33.6

 
33.6

 
9.9

 
35.4

 
(78.9
)
 
33.6

Other comprehensive income
 
13.8

 
13.8

 
7.8

 
8.9

 
(30.5
)
 
13.8

Total comprehensive income
 
$
47.4

 
$
47.4

 
$
17.7

 
$
44.3

 
$
(109.4
)
 
$
47.4



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

 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
2013
 
 

 
 

 
 

 
 

 
 

 
 

Net sales
 
 

 
 

 
 

 
 

 
 

 
 

External
 
$
—

 
$
200.3

 
$
53.9

 
$
501.4

 
$
—

 
$
755.6

Intercompany
 
—

 
3.4

 
57.6

 
4.9

 
(65.9
)
 
—

Total net sales
 
—

 
203.7

 
111.5

 
506.3

 
(65.9
)
 
755.6

Cost of goods sold
 
—

 
198.5

 
97.2

 
421.5

 
(65.9
)
 
651.3

Gross profit
 
—

 
5.2

 
14.3

 
84.8

 
—

 
104.3

Selling, general and administrative expenses
 
—

 
48.9

 
—

 
10.7

 
—

 
59.6

Operating income (loss)
 
—

 
(43.7
)
 
14.3

 
74.1

 
—

 
44.7

Non-operating income (expense), net
 
—

 
(41.5
)
 
2.7

 
(1.0
)
 
—

 
(39.8
)
Income (loss) before income taxes
 
—

 
(85.2
)
 
17.0

 
73.1

 
—

 
4.9

Income tax benefit
 
—

 
(1.6
)
 
—

 
(0.8
)
 
—

 
(2.4
)
Earnings (loss) from equity in subsidiaries
 
7.3

 
40.4

 
(3.2
)
 
—

 
(44.5
)
 
—

Net income (loss) before royalties and dividends
 
7.3

 
(43.2
)
 
13.8

 
73.9

 
(44.5
)
 
7.3

Royalties and dividends
 
—

 
50.5

 
—

 
(50.5
)
 
—

 
—

Net income after royalties and dividends
 
7.3

 
7.3

 
13.8

 
23.4

 
(44.5
)
 
7.3

Other comprehensive income
 
4.3

 
4.3

 
7.7

 
8.3

 
(20.3
)
 
4.3

Total comprehensive income
 
$
11.6

 
$
11.6

 
$
21.5

 
$
31.7

 
$
(64.8
)
 
$
11.6


 

 


15
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
 
Consolidated
March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
 
    Cash and cash equivalents
 
$
—

 
$
9.5

 
$
—

 
$
70.1

 
$
—

 
$
79.6

    Accounts receivable, net
 
—

 
171.0

 
32.3

 
450.8

 
—

 
654.1

    Inventories, net
 
—

 
67.1

 
33.6

 
157.3

 
—

 
258.0

    Other current assets
 
—

 
42.5

 
3.1

 
70.8

 
—

 
116.4

Total current assets
 
—

 
290.1

 
69.0

 
749.0

 
—

 
1,108.1

Property, plant and equipment, net
 
—

 
230.9

 
82.5

 
754.2

 
—

 
1,067.6

Goodwill
 
—

 
—

 
147.8

 
8.6

 
—

 
156.4

Other assets and deferred charges
 
—

 
665.8

 
45.0

 
106.8

 
—

 
817.6

Investment in subsidiaries
 
406.8

 
1,296.4

 
—

 
—

 
(1,703.2
)
 
—

Total assets
 
$
406.8

 
$
2,483.2

 
$
344.3

 
$
1,618.6

 
$
(1,703.2
)
 
$
3,149.7

Liabilities and stockholders’ equity
 
 

 
 

 
 

 
 

 
 

 
 

Current liabilities
 
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$
—

 
$
133.6

 
$
45.5

 
$
299.7

 
$
—

 
$
478.8

Other current liabilities
 
—

 
108.0

 
4.7

 
106.3

 
—

 
219.0

Total current liabilities
 
—

 
241.6

 
50.2

 
406.0

 
—

 
697.8

Intercompany payable (receivable)
 
323.5

 
(339.7
)
 
(227.0
)
 
243.2

 
—

 
—

Long-term debt
 
—

 
1,498.1

 
5.2

 
75.1

 
—

 
1,578.4

Investment in subsidiaries obligation
 
—

 
—

 
9.3

 
—

 
(9.3
)
 
—

Other long-term liabilities
 
—

 
676.4

 
0.6

 
113.2

 
—

 
790.2

Total liabilities
 
323.5

 
2,076.4

 
(161.7
)
 
837.5

 
(9.3
)
 
3,066.4

Total stockholders' equity
 
83.3

 
406.8

 
506.0

 
781.1

 
(1,693.9
)
 
83.3

Total liabilities and stockholders’ equity
 
$
406.8

 
$
2,483.2

 
$
344.3

 
$
1,618.6

 
$
(1,703.2
)
 
$
3,149.7

 

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
 
    Cash and cash equivalents
 
$
—

 
$
36.9

 
$
—

 
$
117.1

 
$
—

 
$
154.0

    Accounts receivable, net
 
—

 
102.7

 
25.6

 
330.2

 
—

 
458.5

    Inventories, net
 
—

 
62.4

 
34.2

 
165.2

 
—

 
261.8

    Other current assets
 
—

 
43.8

 
3.2

 
76.5

 
—

 
123.5

Total current assets
 
—

 
245.8

 
63.0

 
689.0

 
—

 
997.8

Property, plant and equipment, net
 
—

 
239.8

 
83.0

 
735.7

 
—

 
1,058.5

Goodwill
 
—

 
—

 
147.8

 
8.6

 
—

 
156.4

Other assets and deferred charges
 
—

 
671.7

 
44.8

 
99.8

 
—

 
816.3

Investment in subsidiaries
 
360.5

 
1,233.2

 
—

 
—

 
(1,593.7
)
 
—

Total assets
 
$
360.5

 
$
2,390.5

 
$
338.6

 
$
1,533.1

 
$
(1,593.7
)
 
$
3,029.0

Liabilities and stockholders’ equity
 
 

 
 

 
 

 
 

 
 

 
 

Current liabilities
 
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$
—

 
$
106.2

 
$
44.5

 
$
295.1

 
$
—

 
$
445.8

Other current liabilities
 
—

 
120.4

 
4.1

 
96.8

 
—

 
221.3

Total current liabilities
 
—

 
226.6

 
48.6

 
391.9

 
—

 
667.1

Intercompany payable (receivable)
 
326.9

 
(390.1
)
 
(219.5
)
 
282.7

 
—

 
—

Long-term debt
 
—

 
1,500.0

 
5.3

 
53.8

 
—

 
1,559.1

Investment in subsidiaries obligation
 
—

 
—

 
15.2

 
—

 
(15.2
)
 
—

Other long-term liabilities
 
—

 
693.5

 
0.5

 
75.2

 
—

 
769.2

Total liabilities
 
326.9

 
2,030.0

 
(149.9
)
 
803.6

 
(15.2
)
 
2,995.4

Total stockholders' equity
 
33.6

 
360.5

 
488.5

 
729.5

 
(1,578.5
)
 
33.6

Total liabilities and stockholders’ equity
 
$
360.5

 
$
2,390.5

 
$
338.6

 
$
1,533.1

 
$
(1,593.7
)
 
$
3,029.0

 


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

Condensed Consolidating Statements of Cash Flows
 
 
 
 
 
 
 
 
Three months ended March 31,
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
2014
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
$
—

 
$
(73.6
)
 
$
15.7

 
$
2.4

 
$
—

 
$
(55.5
)
Investing activities
 
 

 
 

 
 

 
 

 
 

 
 

Purchases of property, plant and equipment
 
—

 
(9.3
)
 
(2.7
)
 
(35.9
)
 
—

 
(47.9
)
Proceeds from sale of property, plant and equipment
 
—

 
7.7

 
—

 
0.2

 
—

 
7.9

Net cash used in investing activities
 
—

 
(1.6
)
 
(2.7
)

(35.7
)

—


(40.0
)
Financing activities
 
 

 
 

 
 

 
 

 
 

 
 

Net debt activity
 
—

 
(0.1
)
 
(0.1
)
 
20.8

 
—

 
20.6

Intercompany activity
 
0.3

 
47.5

 
(12.9
)
 
(34.9
)
 
—

 
—

Debt issuance costs
 
—

 
(0.2
)
 
—

 
—

 
—

 
(0.2
)
Purchase of treasury stock
 
(0.3
)
 
—

 
—

 
—

 
—

 
(0.3
)
Employee stock option exercises
 
—

 
0.6

 
—

 
—

 
—

 
0.6

Net cash provided by (used in) financing activities
 
—

 
47.8

 
(13.0
)
 
(14.1
)
 
—

 
20.7

Effect of exchange rate changes on cash
 
—

 
—

 
—

 
0.4

 
—

 
0.4

Net decrease in cash and cash equivalents
 
—

 
(27.4
)
 
—

 
(47.0
)
 
—

 
(74.4
)
Cash and cash equivalents at beginning of period
 
—

 
36.9

 
—

 
117.1

 
—

 
154.0

Cash and cash equivalents at end of period
 
$
—

 
$
9.5

 
$
—

 
$
70.1

 
$
—

 
$
79.6

 

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
2013
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
$
—

 
$
(42.1
)
 
$
(2.0
)
 
$
17.3

 
$
—

 
$
(26.8
)
Investing activities
 
 
 
 
 
 
 
 
 
 

 
 

Purchases of property, plant and equipment
 
—

 
(13.3
)
 
(2.2
)
 
(32.4
)
 
—

 
(47.9
)
Proceeds from sale of property, plant and equipment
 
—

 
0.1

 
—

 
—

 
—

 
0.1

Proceeds from sale-leaseback of equipment
 
—

 
3.9

 
—

 
—

 
—

 
3.9

Net cash used in investing activities
 
—

 
(9.3
)
 
(2.2
)
 
(32.4
)
 
—

 
(43.9
)
Financing activities
 
 

 
 

 
 

 
 

 
 

 
 

Net debt activity
 
—

 
99.0

 
(0.1
)
 
15.8

 
—

 
114.7

Intercompany activity
 
—

 
(22.7
)
 
4.3

 
18.4

 
—

 
—

Debt issuance costs
 
—

 
(6.2
)
 
—

 
—

 
—

 
(6.2
)
Net cash provided by financing activities
 
—

 
70.1

 
4.2

 
34.2

 
—

 
108.5

Effect of exchange rate changes on cash
 
—

 
—

 
—

 
0.6

 
—

 
0.6

Net increase in cash and cash equivalents
 
—

 
18.7

 
—

 
19.7

 
—

 
38.4

Cash and cash equivalents at beginning of period
 
—

 
10.6

 
—

 
51.8

 
—

 
62.4

Cash and cash equivalents at end of period
 
$
—

 
$
29.3

 
$
—

 
$
71.5

 
$
—

 
$
100.8



19


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, 2013 .

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, and (ii) American Axle & Manufacturing, Inc. (AAM, Inc.), a Delaware corporation, and its direct and indirect subsidiaries.  Holdings has no subsidiaries other than AAM, Inc.

COMPANY OVERVIEW

We are 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.

We are the principal supplier of driveline components to General Motors Company (GM) for its full-size rear-wheel drive (RWD) light trucks and SUVs manufactured in North America, supplying substantially all of GM’s rear axle and four-wheel drive and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms.  Sales to GM were approximately 66% of our consolidated net sales in the first quarter of 2014 , as compared to 75% in the first quarter of 2013 and 71% for the full-year 2013 .

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 a Lifetime Program Contract (LPC).  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 5 to 7 years, and require us to remain competitive with respect to technology, design and quality.

We also supply driveline system products for the Chrysler Group LLC’s (Chrysler) heavy-duty Ram full-size pickup trucks and its derivatives, as well as the 2014 AWD Jeep Cherokee.  Sales to Chrysler were approximately 19% of our consolidated net sales in the first quarter of 2014 , as compared to 7% in the first quarter of 2013 and 12% for the full-year 2013 . In addition to GM and Chrysler, we supply driveline systems and other related components to Volkswagen AG, Audi AG, Mack Trucks Inc., PACCAR Inc., Harley-Davidson Inc., Beijing Benz Automotive Co., Ltd., Nissan Motor Co., Ltd., Deere & Company, Scania AB, Tata Motors, Ford Motor Company and other original equipment manufacturers (OEMs) and Tier I supplier companies such as Jatco Ltd. and Hino Motors Ltd. Our consolidated net sales to customers other than GM increased 53% to $287.8 million in the first quarter of 2014 as compared to $188.1 million in the first quarter of 2013 .
 


20


RESULTS OF OPERATIONS –– THREE MONTHS ENDED MARCH 31, 2014 AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2013

Net Sales   Net sales increased by 14% to $858.8 million in the first quarter of 2014 as compared to $755.6 million in the first quarter of 2013 .  The increase in sales in the first quarter of 2014 as compared to the first quarter of 2013 primarily reflects higher sales in support of Chrysler's 2014 AWD Jeep Cherokee and heavy-duty Ram full-size pickup trucks. Sales in the first quarter of 2013 reflected the adverse impact of a labor strike at GM's Rayong factory in Thailand, which we estimated to be approximately $12.5 million.

Our content-per-vehicle (as measured by the dollar value of our products supporting our customers' North American light truck and SUV programs) increased to $1,655 in the first quarter of 2014 as compared to $1,504 in the first quarter of 2013 .  The increase is primarily due to additional content on GM and Chrysler's next generation full-size pickup truck programs. Our 4WD/AWD penetration rate on these vehicle programs increased to 67.5% in the first quarter 2014 as compared to 67.2% in the first quarter of 2013 .

Gross Profit   Gross profit increased to $121.9 million in the first quarter of 2014 as compared to $104.3 million in the first quarter of 2013 .  Gross margin increased to 14.2% in the first quarter of 2014 as compared to 13.8% in the first quarter of 2013 .  The changes in gross profit and margin in the first quarter of 2014 , as compared to the first quarter of 2013 , primarily reflect the benefit of higher contribution margin on increased sales, as well as lower project expense. Gross profit and margin in the first quarter of 2014 were adversely impacted by the timing of customer launch activity, which was partially offset by a gain of $4.1 million related to the sale of our Detroit Manufacturing Complex (DMC).

Selling, General and Administrative Expenses (SG&A)   SG&A (including research and development (R&D)) decreased to $57.1 million or 6.6% of net sales in the first quarter of 2014 as compared to $59.6 million or 7.9% of net sales in the first quarter of 2013 .  R&D was $25.8 million in the first quarter of 2014 , net of customer engineering, design and development (ED&D) recoveries, as compared to $28.5 million in the first quarter of 2013 . The decrease in SG&A in the first quarter of 2014 primarily reflects the favorable impact of lower R&D expense, which includes customer ED&D recoveries.

Operating Income  Operating income increased to $64.8 million in the first quarter of 2014 as compared to $44.7 million in the first quarter of 2013 .  Operating margin was 7.5% in the first quarter of 2014 as compared to 5.9% in the first quarter of 2013 .  The changes in operating income and operating margin were due to factors discussed in Net Sales and Gross Profit above.

Interest Expense and Investment Income Interest expense was $25.0 million in the first quarter of 2014 as compared to $29.1 million in the first quarter of 2013 . The decrease in interest expense reflects the decrease in our weighted-average interest rate in the first quarter of 2014 as compared to the first quarter of 2013 as a result of our refinancing actions taken in 2013. Investment income was $0.3 million in the first quarter of 2014 as compared to $0.1 million in the first quarter of 2013 .  

The weighted-average interest rate of our long-term debt outstanding was 6.3% in the first quarter of 2014 and 7.7% in the first quarter of 2013 .

Other Income (Expense) Following are the components of Other Income (Expense) for the first quarter of 2014 and 2013:

Debt Refinancing and Redemption Costs In the first quarter of 2013, we expensed $11.3 million of unamortized debt issuance costs and prepayment premiums related to the termination of our class C Revolving Credit Facility, the purchase of $172.6 million of our 7.875% Notes pursuant to a tender offer and the subsequent redemption of the remaining $127.4 million of our 7.875% Notes.

Other, Net Other, net, which includes the net effect of our proportionate share of earnings from equity in unconsolidated subsidiaries and foreign exchange gains and losses, was income of $0.5 million in the first quarter of both 2014 and 2013 .

Income Tax Expense (Benefit)   Income tax expense (benefit) was expense of $7.0 million in the first quarter of 2014 as compared to a benefit of $2.4 million in the first quarter of 2013.  Our effective income tax rate was 17.3% in the first quarter of 2014 as compared to negative  48.1% in the first quarter of 2013 . Our income tax expense (benefit) and effective tax rates for the three months ended March 31, 2014 and March 31, 2013 primarily reflect favorable foreign tax rates, along with our inability to realize a tax benefit for foreign losses.

21



Our income tax benefit and effective tax rate for the three months ended March 31, 2013 reflected 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 benefit of $3.3 million relating to an election we made in the first quarter of 2013 regarding the treatment of foreign exchange gains and losses in a foreign jurisdiction.

Net Income and Earnings Per Share (EPS) Net income increased to $33.6 million in the first quarter of 2014 as compared to $7.3 million in the first quarter of 2013 . Diluted EPS increased to $0.44 in the first quarter of 2014 as compared to $0.10 in the first quarter of 2013 . Net income and EPS for the first quarters of 2014 and 2013 were primarily impacted by the factors discussed in Gross Profit and Debt Refinancing and Redemption Costs above.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund capital expenditures, debt service obligations and our working capital requirements.  We believe that operating cash flow, available cash and cash equivalent balances and available committed borrowing capacity under our Revolving Credit Facility will be sufficient to meet these needs. 

Operating Activities   In the first quarter of 2014 , net cash used in operating activities was $55.5 million as compared to $26.8 million in the first quarter of 2013 .  The following factors impacted cash used in operating activities in the first quarter of 2014 as compared to the first quarter of 2013 :

Accounts receivable Accounts receivable was $654.1 million at March 31, 2014 as compared to $535.3 million at March 31, 2013. The increase in March 31, 2014 accounts receivable balance was primarily due to increased sales in February and March 2014 as compared to February and March 2013, the timing of weekly collections from our largest customer and an increase in deferred revenue, as described below.

Deferred revenue In the first quarter of 2014, we reached an agreement with GM to increase installed capacity and adjust product mix for our largest vehicle program. As a result of this agreement, we received $13.8 million in the first quarter of 2014 and recorded a receivable for $20.6 million that we expect to receive in three equal installments over the remaining three quarters of 2014. We recorded deferred revenue of $34.4 million, and in the first quarter of 2014, we recognized revenue of $0.3 million related to this agreement. As of March 31, 2014, we have $7.2 million of deferred revenue that is classified as a current liability and $26.9 million of deferred revenue that is recorded as a noncurrent liability on our Condensed Consolidated Balance Sheet.

Also in the first quarter of 2014, we reached an agreement with GM to recover certain costs related to the delay of another major product program. We received $5.7 million in the first quarter of 2014 and recorded a receivable for $3.6 million that we expect to receive in the second quarter of 2014 related to this agreement. As of March 31, 2014, we recorded deferred revenue of $9.3 million, $1.1 million of which is classified as a current liability and $8.2 million is recorded as a noncurrent liability on our Condensed Consolidated Balance Sheet.

Interest paid Interest paid in the first quarter of 2014 was $14.1 million as compared to $27.2 million in the first quarter of 2013. The decrease primarily relates to the timing of interest payments on our 5.125% Notes, which were issued in 2013 as compared to our 9.25% Notes and 7.875% Notes which were purchased and redeemed in 2013.

Pension and other postretirement benefits   Due to the availability of our prefunding balances (previous contributions in excess of prior required pension contributions), we are not required to make any cash payments in 2014. We expect our cash outlay for other postretirement benefit obligations in 2014 , net of GM cost sharing, to be approximately $17 million .
 
Investing Activities   Capital expenditures were $47.9 million in the first quarter of both 2014 and 2013 .  We expect our capital spending to approximate 6.5% of sales, which includes support for our significant global program launches in 2014 within our new and incremental business backlog.

In the first quarter of 2014, we sold our Detroit Manufacturing Complex and received net proceeds of $9.2 million related to this transaction. For the first quarter of 2014, we have classified $7.2 million of these proceeds, which represents the amount related to the land and building for which we will have no future continuing involvement, in the Investing Activities section of our Condensed Consolidated Statement of Cash Flows.

In the first quarter of 2013, we received proceeds of $3.9 million related to a sale-leaseback transaction for equipment used in production.

22



Financing Activities   In the first quarter of 2014 , net cash provided by financing activities was $20.7 million as compared to $108.5 million in the first quarter of 2013 .  Total long-term debt outstanding increased $19.3 million in the first quarter of 2014 to $1,578.4 million as compared to $1,559.1 million at year-end 2013 , primarily as a result of additional borrowings on our foreign credit facilities during the quarter.

Revolving Credit Facility and Term Facility As of March 31, 2014 , the revolving credit facility provided up to $523.5 million of revolving bank financing commitments through September 13, 2018.  At March 31, 2014 , we had $501.7 million available under the revolving credit facility.  This availability reflects a reduction of $21.8 million for standby letters of credit issued against the facility.

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

In the first quarter of 2014, we made a principal payment of $1.9 million on our term facility.

5.125% Notes In 2013, we issued $200.0 million of 5.125% senior unsecured notes due 2019 (5.125% Notes). Net proceeds from the 5.125% Notes were used to redeem the remaining $190.0 million outstanding under our 9.25% senior secured notes due 2017. We paid remaining debt issuance costs of $0.2 million in the first quarter of 2014 related to the 5.125% Notes.

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). Net proceeds from the 6.25% Notes were used to purchase and redeem the entire $300.0 million outstanding of our 7.875% senior unsecured notes due 2017 (7.875% Notes) and for other general corporate purposes. We paid debt issuance costs of $6.2 million in the first quarter of 2013 related to the 6.25% Notes.

In the first quarter of 2013, we expensed $8.5 million related to tender and redemption premiums, $0.2 million of professional fees and unamortized debt issuance costs of $2.1 million related to the purchase and redemption of the 7.875% Notes. We had been amortizing the debt issuance costs for the 7.875% Notes over the expected life of the borrowing.

We utilize foreign credit facilities and uncommitted lines of credit to finance working capital needs.  At March 31, 2014 , $75.1 million was outstanding with an additional $19.8 million available under these facilities.

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.  Accordingly, our quarterly results may reflect these trends.

LITIGATION AND ENVIRONMENTAL MATTERS

We are involved in various legal proceedings incidental to our business.  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 to make, capital and other expenditures (including recurring administrative costs) to comply with environmental requirements.  Such expenditures were not significant in the first quarter of 2014 , and we do not expect such expenditures to be significant for the remainder of 2014 .



23


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK

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 Exchange Risk   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.  At March 31, 2014 , we had currency forward contracts with a notional amount of $59.7 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 $5.4 million at March 31, 2014 .

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 activities may be adversely affected by changes in currency exchange rates.  If and when appropriate, we intend to manage these risks by 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.  As of March 31, 2014 , there are no interest rate swaps in place.  The pre-tax earnings and cash flow impacts of a one-percentage-point increase in interest rates (approximately 16% of our weighted-average interest rate at March 31, 2014 ) on our long-term debt outstanding at March 31, 2014 would be approximately $2.2 million on an annualized basis.

Item 4.  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 (1) 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 March 31, 2014 , and (2) no change in internal control over financial reporting occurred during the quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


 
 


24


PART II.  OTHER  INFORMATION

Item 1A. Risk Factors

There were no material changes from the risk factors previously disclosed in our December 31, 2013 Form 10-K.

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

In the first quarter of 2014, 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 March, 31, 2014:

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
January 1 - January 31, 2014
 
—

 
$
—

 
—

 
—

February 1 - February 28, 2014
 
—

 
—

 
—

 
—

March 1 - March 31, 2014
 
14,127

 
19.70

 
—

 
—

Total
 
14,127

 
$
19.70

 
—

 
—


Item 6.  Exhibits
 
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index.

 
 


25


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/ Michael K. Simonte
Michael K. Simonte
Executive Vice President & Chief Financial Officer
(also in the capacity of Chief Accounting Officer)
May 2, 2014


26


EXHIBIT INDEX


Number
 
Description of Exhibit
 
 
 
*10.1
 
Form of Restricted Stock Unit Award Agreement for Non-employee Directors under the 2012 Omnibus Incentive Plan
 
 
 
 *31.1
 
Certification of David C. Dauch, President & Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act
 
 
 
 *31.2
 
Certification of Michael K. Simonte, Executive Vice President & Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act
 
 
 
 *32
 
Certifications of David C. Dauch, President & Chief Executive Officer and Michael K. Simonte, Executive 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
 
 
 
**101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
**101.PRE
 
XBRL Extension Presentation Linkbase Document
 
 
 
**101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
**101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
**101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
*    Filed herewith
**    Submitted electronically with this Report

 
 

27
Non-employee directors

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
2012 Omnibus Incentive Plan

Form of
Restricted Stock Unit Award Agreement

You have been selected to receive a grant of Restricted Stock Units (“RSUs”) pursuant to the American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive Plan in accordance with the terms and conditions below:

Participant:
Grant Date:
Number of RSUs:

THIS AWARD AGREEMENT (the “Agreement”) is made effective as of the Grant Date, as specified above, between American Axle & Manufacturing Holdings, Inc., a Delaware corporation (the “Company”), and the Participant.

RECITALS

A. The Company has adopted the American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive Plan (the “Plan”). The Plan is incorporated in and made a part of this Agreement. Capitalized terms that are not defined in this Agreement have the same meanings as in the Plan; and

B. The Compensation Committee of the Board of Directors (the “Committee”) determined that it is in the best interests of the Company and its shareholders to grant RSUs to the Participant, pursuant to the terms of this Agreement and the Plan.
   
The parties agree as follows:

1. Grant of the RSUs . The Company grants to the Participant, on the terms and conditions of this Agreement, the number of RSUs set forth above. Each RSU corresponds to one Share (subject to adjustment pursuant to the Plan) and constitutes a contingent and unsecured promise of the Company to pay the Participant one Share on the vesting date for the RSU, subject to the terms of the Plan and this Agreement.
    
2. Vesting of the RSUs .
              
(a) Vesting Period . Subject to Section 2(c) herein, the RSUs shall vest 100 percent on the first annual anniversary of the Grant Date (“Vesting Period”).

(b) Vesting Date . The date on which the RSUs vest pursuant to Section 2(a) or, if earlier, Section 2(c), is referred to as the “Vesting Date.”






1

Non-employee directors

(c) Earlier Vesting and Forfeiture .

(i) Early Vesting: To the extent not already vested under Section 2(a), the total number of RSUs granted under this Agreement shall fully vest upon the death or Disability of the Participant or the occurrence of a Change in Control.

(ii) Forfeiture: Except as otherwise expressly stated in Section 2(c)(i), if the Participant’s service as a member of the Board terminates for any reason prior to the Vesting Date, the RSUs shall be forfeited and cancelled without consideration.

(d) Definitions .
    
( i ) “Change in Control:” For purposes of this Agreement, “Change in Control” means the occurrence of any of the following:
(1) Any “person” as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as used in Section 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange Act (but excluding the Company and any subsidiary and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee)), directly or indirectly, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), of securities of the Company representing 30 percent or more of the combined voting power of the Company’s then outstanding securities; or

(2) The consummation of any merger or other business combination involving the Company, a sale of more than 50 percent of the Company’s assets, liquidation or dissolution of the Company or a combination of the foregoing transactions (the “Transactions”) other than a Transaction immediately following which the shareholders of the Company immediately prior to the Transaction own, in the same proportion, more than 50 percent of the voting power, directly or indirectly, of (A) the surviving corporation in any such merger or other business combination; (B) the purchaser of or successor to the Company’s assets; (C) both the surviving corporation and the purchaser in the event of any combination of Transactions; or (D) the parent company owning 100 percent of such surviving corporation, purchaser or both the surviving corporation and the purchaser, as the case may be; or

(3) Within any 12 month period, the persons who were directors immediately before the beginning of such period (the “Incumbent Directors”) shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of a successor to the Company. For this purpose, any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who commenced or threatened to commence an election contest or proxy solicitation by or on behalf of a person (other than the Board) or who has entered into an agreement to effect a Change in Control or expressed an intention to cause such a Change in Control).

Notwithstanding the foregoing, to the extent that any Award constitutes a deferral of compensation subject to Section 409A (as defined in Section 16 below), and if that Award

2

Non-employee directors

provides for a change in the time or form of payment upon a Change in Control, then no Change in Control shall be deemed to have occurred upon an event described in subsections (1) through (3) above unless such event shall constitute a “change in ownership” or “change in effective control” of, or a change in the ownership of a substantial portion of the assets of, the Company under Section 409A.
    
(ii) “Disability:” For purposes of this Agreement, “Disability” means either of the following:

(1) Inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or

(2) By reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under     an accident and health plan covering Employees of the Company.
 
3. Settlement of the RSUs . Each vested RSU shall be settled by the delivery of one Share to the Participant. Settlement of the RSUs shall occur on the first business day of the month following the month in which the Vesting Date occurs or as soon as administratively practicable thereafter, but in no event later than March 15th of the calendar year immediately following the calendar year in which the Vesting Date occurs (the “Payment Date”). The Payment Date may be deferred at the election of the Participant in accordance with procedures authorized by the Committee; provided, however, that any such deferral must comply with Section 409A (as defined in Section 16 below).

4. Share Delivery . Delivery of any Shares in connection with settlement of the Award will be by book-entry credit to an account in the Participant’s name established by the Company with its transfer agent.

5. Recapitalization . In the event of any change in the capitalization of the Company such as a stock split or a corporate transaction such as any merger, consolidation, separation, or otherwise, the number of RSUs subject to this Agreement shall be equitably adjusted by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.

6. Beneficiary Designation . The Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Agreement is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and will be effective only when delivered by the Participant in writing to the Corporate Human Resources Department of the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.
             
7. Shareholder Rights . Prior to the Payment Date, the Participant shall not have any rights as a shareholder of the Company in connection with this Award, unless and until the Shares are distributed to Participant. Following delivery of Shares upon the Payment Date, the Participant shall have all rights as a shareholder with respect to such Shares.


3

Non-employee directors

8. Dividend Equivalent s . Upon payment of dividends with respect to the Shares, the Participant shall be entitled to receive Dividend Equivalents with respect to each outstanding RSU. Dividend Equivalents will be paid quarterly as soon as administratively practicable following the payment of dividends with respect to the Shares, but in no event later than March 15 th of the year following the calendar year in which dividends are paid. The Company will determine the form of payment of Dividend Equivalents, which may include cash, Shares or a combination thereof. Upon a forfeiture of the RSUs, further payments of Dividend Equivalents shall be cancelled.

9.  No Right to Continued Service as a Director .  Neither the Plan nor this Agreement shall (i) be construed as giving the Participant the right to be retained as a member of the Board or (ii) confer on the Participant any right to receive another grant of RSUs or any other equity-based award at any time in the future or in respect of any future period.

10. Transferability .
    
(a) The RSUs shall not be transferable other than by will, the laws of descent and distribution, pursuant to a domestic relations order entered by a court of competent jurisdiction or to a Permitted Transferee for no consideration pursuant to the Plan. Any RSU transferred to a Permitted Transferee shall be further transferable only by will, the laws of descent and distribution, pursuant to a domestic relations order entered by a court of competent jurisdiction, or, for no consideration, to another Permitted Transferee of the Participant. The Shares delivered to the Participant on the Payment Date shall not be subject to transfer restrictions and shall be fully paid, non-assessable and registered in the Participant’s name.

(b) Except as set forth in the Plan, a Participant’s rights under the Plan shall be exercisable during the Participant’s lifetime only by the Participant, or in the event of the Participant’s legal incapacity, the Participant’s legal guardian or representative.

11. Responsibility for Taxes. Regardless of any action by the Company with respect to any or all tax obligations of the Participant with respect to the RSUs, the Participant acknowledges responsibility for payment of all such taxes. The Company makes no representations regarding the treatment of any tax obligations in connection with the grant or vesting of the RSUs, any subsequent sale of Shares and the receipt of dividends, if any. The Company makes no commitment to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate the Participant’s liability for such tax.

12. Securities Laws .   This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required, or the Committee determines are advisable. The Participant agrees to take all steps the Company determines are necessary to comply with all applicable provisions of federal and state securities law in exercising Participant’s rights under this Agreement. The Committee may impose such restrictions on any Shares acquired by a Participant pursuant to the RSUs as it may deem necessary or advisable, under applicable federal securities laws, the requirements of any stock exchange or market upon which such Shares are then listed or traded or any blue sky or state securities laws applicable to such Shares. In addition, the Shares shall be subject to any trading restrictions, stock holding requirements or other policies in effect from time to time as determined by the Committee.

    

4

Non-employee directors



13. Notices .   Notice under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive offices of the Company and to the Participant at the address appearing in the records of the Company for the Participant, or to either party at another address that the party designates in writing to the other. Notice shall be effective upon receipt.

14. Governing Law . The interpretation, performance and enforcement of the RSUs and this Agreement shall be governed by the laws of the State of Delaware without regard to principles of conflicts of law. To the extent any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall remain in full force and effect.

15. RSUs Subject to Plan .
    
(a) The RSUs are granted subject to the Plan and to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee is authorized to administer, construe, and make all determinations necessary or appropriate to administer the Plan and this Agreement, all of which shall be binding upon the Participant.

(b) To the extent of any inconsistencies between the Plan and this Agreement, the Plan shall govern. This Agreement and the Plan constitute the entire agreement between the parties regarding the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written, express or implied) that relate to the subject matter hereof.

(c) The Committee may, at any time, terminate, amend, modify or suspend the Plan and amend or modify this Agreement; provided, however, that no termination, amendment, modification or suspension shall materially and adversely alter or impair the rights of the Participant under this Agreement, without the Participant’s written consent.
    
16. Section 409A . The RSUs are intended to satisfy the requirements of Section 409A of the U.S. Internal Revenue Code and the final regulations promulgated thereunder (“Section 409A”). This Agreement shall be interpreted, administered and construed in a manner consistent with that intent. Notwithstanding the forgoing, if the Company determines that any provision of this Agreement or the Plan contravenes Section 409A or could cause the Participant to incur any tax, interest or penalties under Section 409A, the Committee may, in its sole discretion and without the Participant’s consent, modify such provision to (i) comply with, or avoid being subject to, Section 409A, or to avoid the incurrence of any taxes, interest and penalties under Section 409A, and/or (ii) maintain, to the maximum extent practicable, the original intent and economic benefit to the Participant of the applicable provision without materially increasing the cost to the Company or contravening the provisions of Section 409A. This Section 16 does not create an obligation of the Company to modify the Plan or this Agreement and does not guarantee that the RSUs will not be subject to taxes, interest and penalties under Section 409A.

17. Recoupment . The RSUs, the underlying Shares and any gains received in connection with the sale of the Shares shall be subject to any clawback, recoupment or similar policy as

5

Non-employee directors

permitted or mandated by applicable law, rules, regulations or any Company policy as enacted, adopted or modified from time to time.

18. Personal Data Privacy . The Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data by and among, as applicable, the Company and its subsidiaries for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that the Company may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social security number (or any other social or national identification number), salary, nationality, job title and number of RSUs for the purpose of implementing, administering and managing the Participant’s Award (the “Data”). The Participant understands that the Data may be transferred to the Company or to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Participant’s country or elsewhere, and that any recipient’s country may have different data privacy laws and protections than the Participant’s country. The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Participant’s participation in the Plan. Furthermore, the Participant acknowledges and understands that the transfer of the Data to the Company or to any third parties is necessary for the Participant’s participation in the Plan. The Participant may view the Data, request information about the storage and processing of Data, request any corrections to Data, or withdraw the consents herein (in any case, without cost to the Participant) by contacting Corporate Human Resources in writing. The withdrawal of any consent by the Participant may affect the Participant’s participation in the Plan. The Participant may contact Corporate Human Resources for further information about the consequences of any withdrawal of consents herein.
19. Headings . The headings of sections and subsections are included solely for convenience of reference and shall not affect the meaning of the provisions of this Agreement.

20. Successor . All obligations of the Company under the Plan and this Agreement, with respect to the RSUs, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

21. Signature in Counterparts . This Agreement may be signed in counterparts. Each counterpart shall be an original, with the same effect as if the signatures were on the same
instrument.












6

Non-employee directors



22. Enforceability . To the extent any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

                 AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.

By:    __________________________________
Authorized Officer

Agreed and acknowledged
as of the Date of Grant:

__________________________

7




EXHIBIT 31.1 - CERTIFICATION PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT

 
I, David C. Dauch, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of American Axle & Manufacturing Holdings, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


 
Date: May 2, 2014

/s/ David C. Dauch
David C. Dauch
Chairman of the Board,
President & Chief Executive Officer
(Principal Executive Officer) 




EXHIBIT 31.2 - CERTIFICATION PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT
 
 
I, Michael K. Simonte, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of American Axle & Manufacturing Holdings, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


 
Date: May 2, 2014

/s/ Michael K. Simonte
Michael K. Simonte
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)





EXHIBIT 32 - CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 
 
 
In connection with the Quarterly Report of American Axle & Manufacturing Holdings, Inc. (Issuer) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (Report), I, David C. Dauch, Chairman of the Board, President & Chief Executive Officer of the Issuer, and I, Michael K. Simonte, Executive Vice President & Chief Financial Officer of the Issuer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

 

 

/s/ David C. Dauch
 
 
/s/  Michael K. Simonte
 
David C. Dauch
 
 
Michael K. Simonte
 
Chairman of the Board, President &  
 
 
Executive Vice President &
 
Chief Executive Officer   
 
 
Chief Financial Officer
 
May 2, 2014
 
 
May 2, 2014