AXL-Q32014-10Q/A
                                            

 

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

FORM 10-Q/A
AMENDMENT NO. 1

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended September 30, 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 þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  þ No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

As of October 29, 2014, the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 75,757,139 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.



Explanatory Note

We are filing this Amendment No. 1 on Form 10-Q/A (Form 10-Q/A) to our Quarterly Report on Form 10-Q for the period ended September 30, 2014 as filed with the U.S. Securities and Exchange Commission on October 31, 2014, (the Original Filing) to correct the Condensed Consolidated Financial Statements for the three and nine months ended September 2014 and to revise our previous conclusion on the effectiveness of disclosure controls and procedures.

In connection with the preparation of our consolidated financial statements for the year ended December 31, 2014, we determined that entries recorded in the third quarter of 2014 to reduce certain accrued accounts payable balances by $8.4 million were previously recorded as a reduction of cost of goods sold but should have been recorded as an adjustment to opening accumulated deficit because the amounts giving rise to the correction originated in periods prior to January 1, 2012. See Note 1 - Organization and Basis of Presentation, Item 1. Financial Statements and Notes to Condensed Consolidated Financial Statements, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 4. Controls and Procedures for revisions. This Amendment No. 1 on Form 10-Q/A also includes currently dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

We have amended Part I, Item 4. Controls and Procedures to reflect a material weakness in our internal control over financial reporting that resulted in the restatement of our financial statements on Form 10-Q for the quarter ended September 30, 2014; this material weakness has since been remediated as of February 23, 2015.

Except as described in this Explanatory Note, the Original Filing is unchanged. This Amendment No. 1 should be read in conjunction with the Original Filing, and any of the Company’s other filings with the SEC subsequent to the Original Filing.








AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
FORM 10-Q/A
FOR THE QUARTER ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q/A (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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions, except per share data)
 
(As restated, see Note 1)

 
 
 
(As restated, see Note 1)

 
 
 
 

 
 

 
 

 
 

Net sales
$
950.8

 
$
820.8

 
$
2,756.5

 
$
2,376.0

 
 
 
 
 
 
 
 
Cost of goods sold
810.1

 
695.5

 
2,344.9

 
2,024.2

 
 
 
 
 
 
 
 
Gross profit
140.7

 
125.3

 
411.6

 
351.8

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
64.0

 
57.8

 
182.6

 
177.9

 
 
 
 
 
 
 
 
Operating income
76.7

 
67.5

 
229.0

 
173.9

 
 
 
 
 
 
 
 
Interest expense
(25.1
)
 
(30.0
)
 
(75.2
)
 
(87.9
)
 
 
 
 
 
 
 
 
Investment income
0.7

 
0.1

 
1.3

 
0.4

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Debt refinancing and redemption costs

 

 

 
(11.2
)
Other, net
(0.8
)
 
0.1

 
0.5

 
(1.4
)
 
 
 
 
 
 
 
 
Income before income taxes
51.5

 
37.7

 
155.6

 
73.8

 
 
 
 
 
 
 
 
Income tax expense
7.5

 
6.1

 
25.8

 
9.1

 
 
 
 
 
 
 
 
Net income
$
44.0

 
$
31.6

 
$
129.8

 
$
64.7

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.57

 
$
0.41

 
$
1.68

 
$
0.84

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.57

 
$
0.41

 
$
1.68

 
$
0.84

 
See accompanying notes to condensed consolidated financial statements.                   


2



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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions)
 
(As restated, see Note 1)

 
 
 
(As restated, see Note 1)

 
 
Net income
$
44.0

 
$
31.6

 
$
129.8

 
$
64.7

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Defined benefit plans, net of tax (a)
0.6

 
15.1

 
6.3

 
15.7

     Foreign currency translation adjustments
(23.3
)
 
2.5

 
(11.9
)
 
(14.3
)
     Change in derivatives
(2.5
)
 
(0.6
)
 
(1.1
)
 
(2.2
)
Other comprehensive income (loss)
(25.2
)
 
17.0

 
(6.7
)
 
(0.8
)
 
 
 
 
 
 
 
 
Comprehensive income
$
18.8

 
$
48.6

 
$
123.1

 
$
63.9

 
 
 
 
 
 
 
 
(a)
Amounts are net of tax of $(0.3) million and $(3.2) million for the three and nine months ended September 30, 2014, respectively, and $(7.9) million and $(8.0) million for the three and nine months ended September 30, 2013, respectively.

See accompanying notes to condensed consolidated financial statements.                   

3




AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
September 30, 2014
 
December 31, 2013
 
 
(Unaudited)
 
 
 
 
(As restated, see Note 1)
 
(As restated, see Note 1)
Assets
 
(in millions)
Current assets
 
 
Cash and cash equivalents
 
$
219.0

 
$
154.0

Accounts receivable, net
 
600.2

 
458.5

Inventories, net
 
249.2

 
261.8

Prepaid expenses and other current assets
 
110.8

 
122.0

Total current assets
 
1,179.2

 
996.3

 
 
 

 
 

Property, plant and equipment, net
 
1,066.7

 
1,058.5

Deferred income taxes
 
327.7

 
341.8

Goodwill
 
155.6

 
156.4

GM postretirement cost sharing asset
 
233.9

 
242.0

Other assets and deferred charges
 
264.8

 
232.5

Total assets
 
$
3,227.9

 
$
3,027.5

 
 
 

 
 

Liabilities and Stockholders’ Equity
 
 

 
 

Current liabilities
 
 

 
 

Current portion of long-term debt
 
$
17.1

 
$

Accounts payable
 
496.3

 
437.4

Accrued compensation and benefits
 
102.7

 
110.1

Deferred revenue
 
22.2

 
17.0

Accrued expenses and other current liabilities
 
100.2

 
94.2

Total current liabilities
 
738.5

 
658.7

 
 
 

 
 

Long-term debt
 
1,525.5

 
1,559.1

Deferred revenue
 
101.4

 
76.4

Postretirement benefits and other long-term liabilities
 
690.9

 
692.8

Total liabilities
 
3,056.3

 
2,987.0

 
 
 

 
 

Stockholders' equity
 
 

 
 

Common stock, par value $0.01 per share
 
0.8

 
0.8

Paid-in capital
 
621.1

 
612.8

Accumulated deficit
 
(44.6
)
 
(174.4
)
Treasury stock at cost, 6.1 million shares as of September 30, 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
 
(191.6
)
 
(197.9
)
Foreign currency translation adjustments
 
(30.5
)
 
(18.6
)
Unrecognized gain (loss) on derivatives
 
(0.8
)
 
0.3

Total stockholders’ equity
 
171.6

 
40.5

Total liabilities and stockholders' equity
 
$
3,227.9

 
$
3,027.5

 
See accompanying notes to condensed consolidated financial statements. 

4



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended
 
 
September 30,
 
 
2014
 
2013
 
 
(in millions)
 
 
(As restated, see Note 1)
 
 
Operating activities
 
 
 
 
Net income
 
$
129.8

 
$
64.7

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
146.1

 
129.4

Deferred income taxes
 
6.8

 
(1.3
)
Stock-based compensation
 
7.1

 
9.8

Pensions and other postretirement benefits, net of contributions
 
0.6

 
11.0

Gain on disposal of property, plant and equipment, net
 
(4.0
)
 
(3.7
)
Debt refinancing and redemption costs
 

 
2.5

Changes in operating assets and liabilities
 
 
 
 
Accounts receivable
 
(142.5
)
 
(135.7
)
Inventories
 
12.3

 
(30.1
)
Accounts payable and accrued expenses
 
68.4

 
111.0

Deferred revenue
 
31.1

 
(7.8
)
Other assets and liabilities
 
(24.1
)
 
(47.5
)
Net cash provided by operating activities
 
231.6

 
102.3

 
 
 

 
 

Investing activities
 
 

 
 

Purchases of property, plant and equipment
 
(156.2
)
 
(178.2
)
Proceeds from sale of property, plant and equipment
 
8.5

 
5.8

Proceeds from sale-leaseback of equipment
 

 
23.5

Net cash used in investing activities
 
(147.7
)
 
(148.9
)
 
 
 

 
 

Financing activities
 
 

 
 

Net short-term repayments under credit facilities
 
(3.1
)
 
(8.0
)
Payments of long-term debt and capital lease obligations
 
(16.4
)
 
(308.6
)
Proceeds from issuance of long-term debt
 
2.8

 
432.4

Debt issuance costs
 
(0.3
)
 
(12.9
)
Purchase of treasury stock
 
(0.3
)
 
(0.4
)
Employee stock option exercises
 
1.2

 
0.8

Net cash provided by (used in) financing activities
 
(16.1
)
 
103.3

 
 
 

 
 

Effect of exchange rate changes on cash
 
(2.8
)
 
(0.5
)
 
 
 

 
 

Net increase in cash and cash equivalents
 
65.0

 
56.2

 
 
 

 
 

Cash and cash equivalents at beginning of period
 
154.0

 
62.4

 
 
 

 
 

Cash and cash equivalents at end of period
 
$
219.0

 
$
118.6

 
 
 

 
 

Supplemental cash flow information
 
 

 
 

     Interest paid
 
$
63.7

 
$
85.8

     Income taxes paid, net of refunds
 
$
9.0

 
$
9.5

 
See accompanying notes to condensed consolidated financial statements.

5



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

Restatement of Prior Period Financial Statements In connection with the preparation of our consolidated financial statements for the year ended December 31, 2014, we determined that entries recorded in the third quarter of 2014 to reduce certain accrued accounts payable balances by $8.4 million were originally recorded as a reduction of cost of goods sold but should have been recorded as an adjustment to opening accumulated deficit because the amounts giving rise to the correction originated in periods prior to January 1, 2012. While management determined that it was necessary to restate the September 30, 2014 interim period, the effect of correcting these errors was not material to opening accumulated deficit as of January 1, 2012.

As shown in the tables below, the effect of the correction of this error was a decrease of $6.9 million in opening accumulated deficit as of January 1, 2012, which resulted from a reduction in accounts payable of $8.4 million and a decrease in deferred tax assets of $1.5 million. The impact of the correction of this error for the three and nine months ended September 30, 2014 was an increase in cost of goods sold of $8.4 million, a decrease in income tax expense of $3.8 million and a decrease in net income of $4.6 million.

6

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


The following tables present the effects of the restatement on the previously issued financial statements presented herein.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2014
 
September 30, 2014
 
 
(in millions, except per share data)
 
 
As previously reported
 
Adjustment
 
As restated
 
As previously reported
 
Adjustment
 
As restated
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
$
801.7

 
$
8.4

 
$
810.1

 
$
2,336.5

 
$
8.4

 
$
2,344.9

Gross profit
 
149.1

 
(8.4
)
 
140.7

 
420.0

 
(8.4
)
 
411.6

Operating income
 
85.1

 
(8.4
)
 
76.7

 
237.4

 
(8.4
)
 
229.0

Income before income taxes
 
59.9

 
(8.4
)
 
51.5

 
164.0

 
(8.4
)
 
155.6

Income tax expense
 
11.3

 
(3.8
)
 
7.5

 
29.6

 
(3.8
)
 
25.8

Net income
 
48.6

 
(4.6
)
 
44.0

 
134.4

 
(4.6
)
 
129.8

Basic earnings per share
 
$
0.63

 
$
(0.06
)
 
$
0.57

 
$
1.74

 
$
(0.06
)
 
$
1.68

Diluted earnings per share
 
$
0.63

 
$
(0.06
)
 
$
0.57

 
$
1.74

 
$
(0.06
)
 
$
1.68

 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
48.6

 
$
(4.6
)
 
$
44.0

 
$
134.4

 
$
(4.6
)
 
$
129.8

Comprehensive income
 
23.4

 
(4.6
)
 
18.8

 
127.7

 
(4.6
)
 
123.1

 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 


 
$
134.4

 
$
(4.6
)
 
$
129.8

Deferred income taxes
 
 
 
 
 
 
 
10.5

 
(3.8
)
 
6.7

Accounts payable and accrued expenses
 
 
 
 
 


 
60.0

 
8.4

 
68.4

 
 
September 30, 2014
 
 
As previously reported
 
Adjustment
 
As restated
 
 
(in millions)
Condensed Consolidated Balance Sheet (Unaudited)
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$
108.5

 
$
2.3

 
$
110.8

Total current assets
 
1,176.9

 
2.3

 
1,179.2

Total assets
 
3,225.6

 
2.3

 
3,227.9

Accumulated deficit
 
(46.9
)
 
2.3

 
(44.6
)
Total stockholders' equity
 
169.3

 
2.3

 
171.6

Total liabilities and stockholders' equity
 
3,225.6

 
2.3

 
3,227.9

 
 
 
 
 
 
 

7

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


 
 
December 31, 2013
 
 
As previously reported
 
Adjustment
 
As restated
 
 
(in millions)
Condensed Consolidated Balance Sheet
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$
123.5

 
$
(1.5
)
 
$
122.0

Total current assets
 
997.8

 
(1.5
)
 
996.3

Total assets
 
3,029.0

 
(1.5
)
 
3,027.5

Accounts payable
 
445.8

 
(8.4
)
 
437.4

Total current liabilities
 
667.1

 
(8.4
)
 
658.7

Total liabilities
 
2,995.4

 
(8.4
)
 
2,987.0

Accumulated deficit
 
(181.3
)
 
6.9

 
(174.4
)
Total stockholders' equity
 
33.6

 
6.9

 
40.5

 
 
 
 
 
 
 

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 $27.5 million in the first nine months of 2014 and recorded a receivable for the remaining $6.9 million that we expect to receive in the fourth quarter of 2014. We initially 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 nine months of 2014, we recognized revenue of $3.9 million related to this agreement. As of September 30, 2014, we have $7.2 million of deferred revenue that is classified as a current liability and $23.3 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 $9.3 million in the first nine months of 2014 related to this agreement and initially recorded deferred revenue of $9.3 million. 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 began recognizing this deferred revenue as revenue in the third quarter of 2014 when this program launched in certain markets. In the first nine months of 2014, we recognized revenue of $0.3 million related to this agreement. As of September 30, 2014 we have recorded deferred revenue of $9.0 million, $1.1 million of which is classified as a current liability and $7.9 million which is recorded as a noncurrent liability on our Condensed Consolidated Balance Sheet.

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 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.

In May 2014, new accounting guidance was issued that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract.  Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard.  This guidance becomes effective for AAM at the beginning of our 2017 fiscal year and early adoption is not permitted.  We are currently assessing the impact that this standard will have on our consolidated financial statements.


8

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

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: 
 
 
September 30, 2014
 
December 31, 2013
 
 
(in millions)
 
 
 
 
 
Raw materials and work-in-progress
 
$
252.4

 
$
263.4

Finished goods
 
29.1

 
25.7

Gross inventories
 
281.5

 
289.1

Inventory valuation reserves
 
(32.3
)
 
(27.3
)
Inventories, net
 
$
249.2

 
$
261.8

 
3. LONG-TERM DEBT

Long-term debt consists of the following:
 
 
 
September 30, 2014
 
December 31, 2013
 
 
(in millions)
 
 
 
 
 
Revolving Credit Facility
 
$

 
$

Term Facility
 
144.4

 
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
 
43.2

 
53.8

Capital lease obligations
 
5.0

 
5.3

Debt
 
1,542.6

 
1,559.1

    Less: Current portion of long-term debt
 
17.1

 

Long-term debt
 
$
1,525.5

 
$
1,559.1


Revolving Credit Facility and Term Facility As of September 30, 2014, the revolving credit facility provided up to $523.5 million of revolving bank financing commitments through September 13, 2018.  At September 30, 2014, we had $505.5 million available under the revolving credit facility.  This availability reflects a reduction of $18.0 million for standby letters of credit issued against the facility. We paid remaining debt issuance costs of $0.1 million in the first nine months of 2014 related to the revolving credit facility and term 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, except where otherwise reclassified to current portion of long-term debt on our Condensed Consolidated Balance Sheet.

In the first nine months of 2014, we made principal payments of $5.6 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.


9

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

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 $6.6 million in the first nine months of 2013 related to the 6.25% Notes.

7.875% Notes In the first quarter of 2013, we expensed $8.5 million related to tender and redemption premiums, $0.1 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.

5.125% Notes In the fourth quarter of 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 nine months of 2014 related to the 5.125% Notes.

We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries.  At September 30, 2014, $43.2 million was outstanding under these facilities and an additional $49.2 million was available.

The weighted-average interest rate of our long-term debt outstanding was 6.4% at September 30, 2014 and 6.3% as of 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 value of our financial assets and liabilities that are recognized at fair value on a recurring basis, using available market information and other observable data, as of September 30, 2014, are as follows:
 
 
 
September 30, 2014
 
December 31, 2013
 
 
 
 
  Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
Input
 
 
(in millions)
 
  (in millions)
 
 
Balance Sheet Classification
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
33.7

 
$
33.7

 
$
6.1

 
$
6.1

 
Level 1
Prepaid expenses and other current
    assets
 
 

 
 

 
 

 
 

 
 
Currency forward contracts
 
0.3

 
0.3

 
0.7

 
0.7

 
Level 2
Other accrued expenses
 
 
 
 
 
 
 
 
 
 
     Currency forward contracts
 
1.0

 
1.0

 
0.4

 
0.4

 
Level 2
Other long-term liabilities
 
 
 
 
 
 
 
 
 
 
     Currency forward contracts
 
0.3

 
0.3

 

 

 
Level 2

10

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 value 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:
 
 
 
September 30, 2014
 
December 31, 2013
 
 
 
 
Carrying  Amount
 
Fair Value
 
Carrying  Amount
 
Fair Value
 
 
Input
 
 
(in millions)
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility
 
$

 
$

 
$

 
$

 
Level 2
Term Facility
 
144.4

 
142.9

 
150.0

 
147.8

 
Level 2
7.75% Notes
 
200.0

 
221.0

 
200.0

 
227.5

 
Level 2
6.625% Notes
 
550.0

 
577.1

 
550.0

 
578.9

 
Level 2
6.25% Notes
 
400.0

 
412.0

 
400.0

 
423.0

 
Level 2
5.125% Notes
 
200.0

 
198.5

 
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 between risk, opportunity and cost.  We do not hold financial instruments for trading or speculative purposes.

Currency forward contracts  From time to time, we use foreign currency forward contracts to reduce the effects of fluctuations in exchange rates, primarily relating to the Mexican Peso, Euro, Swedish Krona, Polish Zloty and Pound Sterling.  As of September 30, 2014, we have currency forward contracts outstanding with a notional amount of $89.7 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
 
Loss Expected to be
 
 
Gain
 
Three Months Ended
 
Nine Months Ended
 
Reclassified
 
 
  Reclassified into
 
September 30,
 
September 30,
 
During the
 
 
  Net Income
 
2014
 
2013
 
2014
 
2013
 
Next 12 Months
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
Cost of Goods Sold
 
$
0.5

 
$
0.5

 
$
0.7

 
$
2.6

 
$
(0.5
)
 

11

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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(in millions)
 
 
 
 
 
 
 
 
 
Service cost
 
$
0.9

 
$
0.8

 
$
2.7

 
$
2.6

Interest cost
 
9.0

 
8.5

 
27.0

 
25.5

Expected asset return
 
(12.1
)
 
(11.5
)
 
(36.3
)
 
(34.5
)
Amortized loss
 
1.3

 
2.2

 
3.9

 
7.0

Amortized prior service cost
 

 
4.8

 

 
5.4

Net periodic benefit cost (credit)
 
$
(0.9
)
 
$
4.8

 
$
(2.7
)
 
$
6.0

 
 
 
 
 
Other Postretirement Benefits
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(in millions)
 
 
 

 
 

 
 

 
 

Service cost
 
$
0.1

 
$
0.1

 
$
0.3

 
$
0.3

Interest cost
 
3.8

 
3.3

 
11.4

 
9.9

Amortized loss
 
0.2

 
0.2

 
0.6

 
0.6

Amortized prior service credit
 
(0.7
)
 
(0.4
)
 
(2.1
)
 
(1.3
)
Net periodic benefit cost
 
$
3.4

 
$
3.2

 
$
10.2

 
$
9.5


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 payments for other postretirement benefit obligations in 2014, net of GM cost sharing, to be approximately $17 million.
    
In the third quarter of 2013, we remeasured our AAM Supplemental Executive Retirement Plan (SERP) due to the passing of our Co-Founder and Executive Chairman of the Board of Directors. As a result of this remeasurement, we recorded $4.7 million in selling, general & administrative expense related to the acceleration of prior service cost.


12

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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(in millions)
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
18.2

 
$
23.2

 
$
14.3

 
$
29.1

     Accruals
 
0.9

 
3.2

 
7.3

 
8.9

     Settlements
 
(0.2
)
 
(0.1
)
 
(1.2
)
 
(10.6
)
     Adjustment to prior period accruals, net
 
(2.2
)
 
(6.9
)
 
(3.8
)
 
(7.8
)
     Foreign currency translation
 
(0.2
)
 

 
(0.1
)
 
(0.2
)
Ending balance
 
$
16.5

 
$
19.4

 
$
16.5

 
$
19.4



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 was $7.5 million in the three months ended September 30, 2014 as compared to $6.1 million in the three months ended September 30, 2013.  Our effective income tax rate was 14.6% in the third quarter of 2014 as compared to 16.1% in the third quarter of 2013.  

Income tax expense was $25.8 million in the first nine months of 2014 as compared to $9.1 million in the first nine months of 2013.  Our effective income tax rate was 16.6% in the first nine months of 2014 as compared to 12.3% in the first nine months of 2013

Our income tax expense and effective tax rate for the three and nine months ended September 30, 2014 and September 30, 2013 primarily reflect favorable foreign tax rates, along with our inability to realize a tax benefit for current foreign losses. For the three months ended September 30, 2013, we recorded tax expense of $2.2 million relating to certain changes in estimates in a foreign jurisdiction. Additionally, in the first quarter of 2013, we recorded a tax benefit of $1.5 million relating to the release of a prior year unrecognized tax benefit due to the expiration of the applicable statute of limitations and a tax benefit of $3.3 million relating to an election we made in the first nine months of 2013 regarding the treatment of foreign exchange gains and losses in a foreign jurisdiction.

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


13

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

Based on the status of audits outside the U.S., and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. Although it is not possible to predict the timing of the conclusion of all ongoing audits with certainty, we anticipate that the current 2007 and 2008 audits with the Mexican tax authorities will be completed before 2016. It is possible that a change in the unrecognized tax benefits may occur as a result of the completion of this audit; however, quantification of an estimated range cannot be made at this time.

9. EARNINGS PER SHARE (EPS)

The following table sets forth the computation of our basic and diluted EPS:
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(in millions, except per share data)
Numerator
 
 
 
 
 
 
 
 
Net income
 
$
44.0

 
$
31.6

 
$
129.8

 
$
64.7

 
 
 

 
 

 
 

 
 

Denominator
 
 

 
 

 
 

 
 

Basic shares outstanding -
 
 

 
 

 
 

 
 

   Weighted-average shares outstanding
 
77.4

 
76.9

 
77.2

 
76.6

 
 
 

 
 

 
 

 
 

Effect of dilutive securities
 
 

 
 

 
 

 
 

   Dilutive stock-based compensation
 
0.2

 
0.1

 
0.2

 
0.1

 
 


 


 


 


Diluted shares outstanding -
 
 

 
 

 
 

 
 

   Adjusted weighted-average shares after assumed conversions
 
77.6

 
77.0

 
77.4

 
76.7

 
 
 

 
 

 
 

 
 

Basic EPS
 
$
0.57

 
$
0.41

 
$
1.68

 
$
0.84

 
 
 

 
 

 
 

 
 

Diluted EPS
 
$
0.57

 
$
0.41

 
$
1.68

 
$
0.84

 
Certain exercisable stock options were excluded from the computations of diluted EPS because the exercise price of these options was greater than the average period market prices. The number of stock options outstanding, which were not included in the calculation of diluted EPS, was 0.5 million at September 30, 2014 and 2.0 million at September 30, 2013. The range of exercise prices related to the excluded exercisable stock options was $19.54 - $26.65 at September 30, 2014 and $19.54 - $40.83 at September 30, 2013.

14

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 September 30, 2014 and September 30, 2013 are as follows (in millions):

 
Defined Benefit Plans
 
Foreign Currency Translation Adjustments
 
Unrecognized Gain on Derivatives
 
Total
Balance at June 30, 2014
$
(192.2
)
 
$
(7.2
)
 
$
1.7

 
$
(197.7
)
 
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications

(a)
(23.3
)
 
(2.0
)
 
(25.3
)
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss)
0.6

(a)(b)

 
(0.5
)
(c)
0.1

 
 
 
 
 
 
 
 
Net current period other comprehensive income (loss)
0.6

 
(23.3
)
 
(2.5
)
 
(25.2
)
 
 
 
 
 
 
 
 
Balance at September 30, 2014
$
(191.6
)
 
$
(30.5
)
 
$
(0.8
)
 
$
(222.9
)


 
Defined Benefit Plans
 
Foreign Currency Translation Adjustments
 
Unrecognized Gain on Derivatives
 
Total
Balance at June 30, 2013
$
(273.9
)
 
$
(9.2
)
 
$
0.7

 
$
(282.4
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
10.7

(a)
2.5

 
(0.1
)
 
13.1

 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss)
4.4

(a)(b)

 
(0.5
)
(c)
3.9

 
 
 
 
 
 
 
 
Net current period other comprehensive income (loss)
15.1

 
2.5

 
(0.6
)
 
17.0

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

 
$
(265.4
)

(a)
The amounts are net of tax of $0.0 million and $(0.3) million for the other comprehensive loss before reclassifications and the amounts reclassified from AOCI, respectively, for the three months ended September 30, 2014, and $(5.6) million and $(2.3) million, respectively, for the three months ended September 30, 2013.
 
 
(b)
The net amount reclassified from AOCI included $0.8 million in cost of goods sold (COGS) and $(0.3) million in selling, general & administrative expenses (SG&A) for the three months ended September 30, 2014 and $1.2 million in COGS and $3.2 million in SG&A for the three months ended September 30, 2013.
 
 
(c)
The amounts reclassified from AOCI are included in COGS.
 
 






15

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


Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss) during the nine months ended September 30, 2014 and September 30, 2013 are as follows (in millions):
 
Defined Benefit Plans
 
Foreign Currency Translation Adjustments
 
Unrecognized Gain on Derivatives
 
Total
Balance at December 31, 2013
$
(197.9
)
 
$
(18.6
)
 
$
0.3

 
$
(216.2
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
4.5

(a)
(11.9
)
 
(0.4
)
 
(7.8
)
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss)
1.8

(a)(b)

 
(0.7
)
(c)
1.1

 
 
 
 
 
 
 
 
Net current period other comprehensive income (loss)
6.3

 
(11.9
)
 
(1.1
)
 
(6.7
)
 
 
 
 
 
 
 
 
Balance at September 30, 2014
$
(191.6
)
 
$
(30.5
)
 
$
(0.8
)
 
$
(222.9
)

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

 
$
2.3

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

(a)
(14.3
)
 
0.4

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

(a)(b)

 
(2.6
)
(c)
5.1

 
 
 
 
 
 
 
 
Net current period other comprehensive income (loss)
15.7

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

 
$
(265.4
)
  
(a)
The amounts are net of tax of $(2.4) million and $(0.8) million for other comprehensive income before reclassifications and the amounts reclassified from AOCI, respectively, for the nine months ended September 30, 2014, and $(4.0) million each for both line items, for the nine months ended September 30, 2013.
 
 
(b)
The net amount reclassified from AOCI included $2.5 million in COGS and $(0.8) million in SG&A for the nine months ended September 30, 2014 and $3.5 million in COGS and $4.2 million in SG&A for the nine months ended September 30, 2013.
 
 
(c)
The amounts reclassified from AOCI are included in COGS.
 
 



16

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

11. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Amounts have been revised for the effects of the error as discussed in Note 1 - Organization and Basis of Presentation.

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 September 30,
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Holdings
 
AAM Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elims
 
Consolidated
2014
 
(a)
 
(b)
 
 
 
(c)
 
 
 
 
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
External
 
$

 
$
300.9

 
$
56.9

 
$
593.0

 
$

 
$
950.8

Intercompany
 

 
2.7

 
64.1

 
5.3

 
(72.1
)
 

Total net sales
 

 
303.6

 
121.0

 
598.3

 
(72.1
)
 
950.8

Cost of goods sold
 

 
291.9

 
100.5

 
489.8

 
(72.1
)
 
810.1

Gross profit
 

 
11.7

 
20.5

 
108.5

 

 
140.7

Selling, general and administrative expenses
 

 
55.0

 

 
9.0

 

 
64.0

Operating income (loss)
 

 
(43.3
)
 
20.5

 
99.5

 

 
76.7

Non-operating income (expense), net
 

 
(25.8
)
 
2.0

 
(1.4
)
 

 
(25.2
)
Income (loss) before income taxes
 

 
(69.1
)
 
22.5

 
98.1

 

 
51.5

Income tax expense
 

 
6.6

 
0.1

 
0.8

 

 
7.5

Earnings (loss) from equity in subsidiaries
 
44.0

 
63.9

 
(9.1
)
 

 
(98.8
)
 

Net income (loss) before royalties and dividends
 
44.0

 
(11.8
)
 
13.3

 
97.3

 
(98.8
)
 
44.0

Royalties and dividends
 

 
55.8

 

 
(55.8
)
 

 

Net income after royalties and dividends
 
44.0

 
44.0

 
13.3

 
41.5

 
(98.8
)
 
44.0

Other comprehensive loss
 
(25.2
)
 
(25.2
)
 
(19.0
)
 
(22.2
)
 
66.4

 
(25.2
)
Comprehensive income (loss)
 
$
18.8

 
$
18.8

 
$
(5.7
)
 
$
19.3

 
$
(32.4
)
 
$
18.8


(a)
Earnings (loss) from equity in subsidiaries as previously reported was $48.6 million and was adjusted by $4.6 million due to the error as disclosed in Note 1.
(b)
Earnings (loss) from equity in subsidiaries as previously reported was $68.5 million and was adjusted by $4.6 million due to the error as disclosed in Note 1.
(c)
Cost of goods sold as previously reported was $481.4 million and increased by $8.4 million due to the error disclosed in Note 1. Income tax expense as previously reported was $4.6 million and decreased by $3.8 million due to the error disclosed in Note 1.






17

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
 
$

 
$
162.6

 
$
57.8

 
$
600.4

 
$

 
$
820.8

Intercompany
 

 
5.0

 
55.2

 
1.7

 
(61.9
)
 

Total net sales