Document
                                                


 

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

FORM 10-Q

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2019
 
 
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer   þ         Accelerated filer  o         Non-accelerated filer   o         Smaller reporting company   o         Emerging growth company   o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
 
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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
AXL
New York Stock Exchange

As of April 30, 2019, the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 112,472,237 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, 2019
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), FCA US LLC (FCA), or other customers;
•
our ability to respond to changes in technology, increased competition or pricing pressures;
•
our ability to develop and produce new products that reflect market demand;
•
our ability or our customers' and suppliers' ability to successfully launch new product programs on a timely basis;
•
lower-than-anticipated market acceptance of new or existing products;
•
our ability to attract new customers and programs for new products;
•
an impairment of our goodwill, other intangible assets, or long-lived assets if our business or market conditions indicate that the carrying values of those assets exceed their fair values;
•
reduced demand for our customers' products (particularly light trucks and sport utility vehicles (SUVs) produced by GM and FCA);
•
risks inherent in our global operations (including tariffs and the potential consequences thereof to us, our suppliers, and our customers and their suppliers, adverse changes in trade agreements, such as NAFTA or USMCA, immigration policies, political stability, taxes and other law changes, potential disruptions of production and supply, and currency rate fluctuations);
•
a significant disruption in operations at one or more of our key manufacturing facilities;
•
global economic conditions;
•
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;
•
risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber attack and other similar disruptions;
•
supply shortages or price increases in raw material and/or freight, utilities or other operating supplies for us or our customers as a result of natural disasters or otherwise;
•
our ability to successfully integrate the business and information systems of MPG and to realize the anticipated benefits of the merger;
•
negative or unexpected tax consequences;
•
our ability to achieve the level of cost reductions required to sustain global cost competitiveness;
•
our ability to realize the expected revenues from our new and incremental business backlog;
•
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;
•
price volatility in, or reduced availability of, fuel;
•
potential liabilities or litigation relating to, or assumed in, the MPG merger;
•
potential adverse reactions or changes to business relationships resulting from the completion of the merger with MPG;
•
our ability to protect our intellectual property and successfully defend against assertions made against us;
•
our ability to attract and retain key associates;
•
availability of financing for working capital, capital expenditures, research and development (R&D) or other general corporate purposes including acquisitions, as well as our ability to comply with financial covenants;
•
our customers' and suppliers' availability of financing for working capital, capital expenditures, R&D or other general corporate purposes;
•
changes in liabilities arising from pension and other postretirement benefit obligations;
•
risks of noncompliance with environmental laws and regulations or risks of environmental issues that could result in unforeseen costs at our current and former facilities, or reputational damage;
•
adverse changes in laws, government regulations or market conditions affecting our products or our customers' products;
•
our ability or our customers' and suppliers' ability to comply with 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,
 
2019
 
2018
 
(in millions, except per share data)
 
 
 
 
Net sales
$
1,719.2

 
$
1,858.4

 
 
 
 
Cost of goods sold
1,497.0

 
1,542.1

 
 
 
 
Gross profit
222.2

 
316.3

 
 
 
 
Selling, general and administrative expenses
90.7

 
97.3

 
 
 
 
Amortization of intangible assets
25.0

 
24.9

 
 
 
 
Restructuring and acquisition-related costs
12.1

 
18.3

 
 
 
 
Operating income
94.4

 
175.8

 
 
 
 
Interest expense
(53.4
)
 
(53.2
)
 
 
 
 
Investment income
0.7

 
0.5

 
 
 
 
Other income (expense)
 
 
 
Debt refinancing and redemption costs
—

 
(10.3
)
     Other expense, net
(3.0
)
 
(5.4
)
 
 
 
 
Income before income taxes
38.7

 
107.4

 
 
 
 
Income tax expense (benefit)
(3.0
)
 
17.9

 
 
 
 
Net income
$
41.7

 
$
89.5

 
 
 
 
Net income attributable to noncontrolling interests
(0.1
)
 
(0.1
)
 
 
 
 
Net income attributable to AAM
$
41.6

 
$
89.4

 

 

Basic earnings per share
$
0.36

 
$
0.78

 

 

Diluted earnings per share
$
0.36

 
$
0.78

 
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,
 
2019
 
2018
 
(in millions)
Net income
$
41.7

 
$
89.5

 
 
 
 
Other comprehensive income (loss)

 

Defined benefit plans, net of tax (a)
0.7

 
1.3

     Foreign currency translation adjustments
(2.5
)
 
37.9

     Changes in cash flow hedges, net of tax (b)
(2.5
)
 
15.1

Other comprehensive income (loss)
(4.3
)
 
54.3

 
 
 
 
Comprehensive income
$
37.4

 
$
143.8

 
 
 
 
     Net income attributable to noncontrolling interests
(0.1
)
 
(0.1
)
 
 
 
 
Comprehensive income attributable to AAM
$
37.3

 
$
143.7

(a)
Amounts are net of tax of $(0.3) million and $(0.4) million for the three months ended March 31, 2019 and March 31, 2018, respectively.
(b)
Amounts are net of tax of $1.5 million and $(1.1) million for the three months ended March 31, 2019 and March 31, 2018, respectively.

See accompanying notes to condensed consolidated financial statements.                   

3


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

 
 
March 31, 2019
 
December 31, 2018
 
 
(Unaudited)
 
 
Assets
 
(in millions)
Current assets
 
 
Cash and cash equivalents
 
$
252.1

 
$
476.4

Accounts receivable, net
 
1,202.1

 
966.5

Inventories, net
 
452.5

 
459.7

Prepaid expenses and other
 
132.2

 
127.2

Total current assets
 
2,038.9

 
2,029.8

 
 
 

 
 

Property, plant and equipment, net
 
2,537.6

 
2,514.4

Deferred income taxes
 
45.6

 
45.5

Goodwill
 
1,138.3

 
1,141.8

Other intangible assets, net
 
1,087.5

 
1,111.1

GM postretirement cost sharing asset
 
221.9

 
219.4

Other assets and deferred charges
 
545.7

 
448.7

Total assets
 
$
7,615.5

 
$
7,510.7

 
 
 

 
 

Liabilities and Stockholders’ Equity
 
 

 
 

Current liabilities
 
 

 
 

Current portion of long-term debt
 
$
118.6

 
$
121.6

Accounts payable
 
882.1

 
840.2

Accrued compensation and benefits
 
155.7

 
179.0

Deferred revenue
 
39.0

 
44.3

Accrued expenses and other
 
196.1

 
171.7

Total current liabilities
 
1,391.5

 
1,356.8

 
 
 

 
 

Long-term debt, net
 
3,678.9

 
3,686.8

Deferred revenue
 
76.7

 
77.6

Deferred income taxes
 
75.1

 
92.6

Postretirement benefits and other long-term liabilities
 
869.5

 
810.6

Total liabilities
 
6,091.7

 
6,024.4

 
 
 

 
 

Stockholders' equity
 
 

 
 

Common stock, par value $0.01 per share; 150.0 million shares authorized;
 
 
 
 
120.1 million shares issued as of March 31, 2019 and 118.9 million shares issued as of December 31, 2018
 
1.2

 
1.2

Paid-in capital
 
1,298.1

 
1,292.6

Retained earnings
 
774.7

 
703.5

Treasury stock at cost, 7.6 million shares as of March 31, 2019 and 7.2 million shares as of December 31, 2018
 
(209.1
)
 
(201.8
)
Accumulated other comprehensive loss
 
 
 
 
Defined benefit plans, net of tax
 
(240.9
)
 
(213.9
)
Foreign currency translation adjustments
 
(99.1
)
 
(96.6
)
Unrecognized loss on cash flow hedges, net of tax
 
(3.6
)
 
(1.1
)
Total AAM stockholders' equity
 
1,521.3

 
1,483.9

Noncontrolling interests in subsidiaries
 
2.5

 
2.4

Total stockholders' equity
 
1,523.8

 
1,486.3

Total liabilities and stockholders' equity
 
$
7,615.5

 
$
7,510.7

 
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,
 
 
2019
 
2018
 
 
(in millions)
Operating activities
 
 
 
 
Net income
 
$
41.7

 
$
89.5

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
 
Depreciation and amortization
 
140.8

 
127.8

Deferred income taxes
 
(17.4
)
 
13.4

Stock-based compensation
 
5.5

 
6.7

Pensions and other postretirement benefits, net of contributions
 
(3.4
)
 
1.6

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

 
0.4

Debt refinancing and redemption costs
 
—

 
10.3

Changes in operating assets and liabilities
 
 
 
 
Accounts receivable
 
(235.0
)
 
(191.0
)
Inventories
 
6.9

 
(8.7
)
Accounts payable and accrued expenses
 
40.8

 
60.8

Deferred revenue
 
(5.3
)
 
(2.1
)
Other assets and liabilities
 
(55.0
)
 
(41.8
)
Net cash provided by (used in) operating activities
 
(80.2
)
 
66.9

 
 
 

 
 

Investing activities
 
 

 
 

Purchases of property, plant and equipment
 
(124.2
)
 
(130.8
)
Proceeds from sale of property, plant and equipment
 
0.3

 
0.4

Purchase buyouts of leased equipment
 
—

 
(0.5
)
Acquisition of business
 
—

 
(1.3
)
Net cash used in investing activities
 
(123.9
)
 
(132.2
)
 
 
 

 
 

Financing activities
 
 

 
 

Payments of long-term debt and finance lease obligations
 
(19.4
)

(396.9
)
Proceeds from issuance of long-term debt
 
5.3


431.4

Debt issuance costs
 
—


(6.8
)
Purchase of noncontrolling interest
 
—

 
(0.9
)
Purchase of treasury stock
 
(7.3
)

(3.5
)
Net cash provided by (used in) financing activities
 
(21.4
)

23.3

 
 
 

 
 

Effect of exchange rate changes on cash
 
1.2


5.9

 
 
 

 
 

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

(36.1
)
 
 
 

 
 

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


376.8

 
 
 

 
 

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


$
340.7

 
 
 

 
 

Supplemental cash flow information
 
 

 
 

     Interest paid
 
$
32.4

 
$
27.2

     Income taxes paid, net of refunds
 
$
17.0

 
$
11.2


See accompanying notes to condensed consolidated financial statements.

5


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

 
Common Stock
 
 
 
Accumulated
Noncontrolling
 
Shares
Par
Paid-in
Retained
Treasury
Other Comprehensive
Interest
 
Outstanding
Value
Capital
Earnings
Stock
Income (Loss)
in Subsidiaries
Balance at January 1, 2018
111.3

$
1.2

$
1,264.6

$
761.0

$
(198.1
)
$
(292.7
)
$
4.0

Net income
—

—

—

89.4

—

—

0.1

Exercise of stock options and vesting of restricted stock units and performance shares
0.6

—

—

—

—

—

—

Stock-based compensation
—

—

6.6

—

—

—

—

Purchase of treasury stock
(0.2
)
—

—

—

(3.5
)
—

—

Changes in cash flow hedges
—

—

—

—

—

15.1

—

Foreign currency translation adjustments
—

—

—

—

—

37.9

—

Defined benefit plans, net
—

—

—

—

—

1.3

—

Purchase of noncontrolling interest
—

—

—

—

—

—

(0.9
)
Balance at March 31, 2018
111.7

$
1.2

$
1,271.2

$
850.4

$
(201.6
)
$
(238.4
)
$
3.2

 
 
 
 
 
 
 
 
Balance at January 1, 2019
111.7

$
1.2

$
1,292.6

$
703.5

$
(201.8
)
$
(311.6
)
$
2.4

Net income
—

—

—

41.6

—

—

0.1

Vesting of restricted stock units and performance shares
1.2

—

—

—

—

—

—

Stock-based compensation
—

—

5.5

—

—

—

—

Modified-retrospective application of ASU 2016-02
—

—

—

1.9

—

—

—

Adoption of ASU 2018-02
—

—

—

27.7

—

(27.7
)
—

Purchase of treasury stock
(0.4
)
—

—

—

(7.3
)
—

—

Changes in cash flow hedges
—

—

—

—

—

(2.5
)
—

Foreign currency translation adjustments
—

—

—

—

—

(2.5
)
—

Defined benefit plans, net
—

—

—

—

—

0.7

—

Balance at March 31, 2019
112.5

$
1.2

$
1,298.1

$
774.7

$
(209.1
)
$
(343.6
)
$
2.5


See accompanying notes to condensed consolidated financial statements.


6


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

1.
ORGANIZATION AND BASIS OF PRESENTATION

Organization We are a global Tier 1 supplier to the automotive industry. We design, engineer and manufacture driveline, metal forming and casting products that are making the next generation of vehicles smarter, lighter, safer and more efficient. We employ over 25,000 associates, operating at nearly 90 facilities in 17 countries, to support our customers on global and regional platforms with a focus on quality, operational excellence and technology leadership.

In the first quarter of 2019, we initiated a new global restructuring program (the 2019 Program) to further streamline our business by consolidating our four existing segments into three segments. This activity occurred through the disaggregation of our Powertrain segment, with a portion moving into our Driveline segment and a portion moving into our Metal Forming segment. See Note 3 - Restructuring and Acquisition-Related Costs for more detail on this reorganization.

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, 2018 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, 2018.

Effect of New Accounting Standards

Accounting Standard Update 2018-15

On August 15, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15 - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (Topic 350-40). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing or hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance becomes effective at the beginning of our 2020 fiscal year and may be applied either retrospectively or prospectively. We expect to adopt this guidance prospectively on January 1, 2020 and we are currently assessing the impact that this standard will have on our consolidated financial statements.

Accounting Standards Update 2018-02

On February 14, 2018, the FASB issued ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). ASU 2018-02 allows companies the option to reclassify disproportionate tax effects in accumulated other comprehensive income (AOCI) caused by the 2017 Tax Cuts and Jobs Act, also known as stranded tax effects, to retained earnings. ASU 2018-02 also requires expanded disclosures related to disproportionate income tax effects from AOCI, some of which are applicable to all companies regardless of whether the option to reclassify the stranded tax effects is exercised. This guidance became effective on January 1, 2019, and we elected to reclassify the stranded tax effects caused by the 2017 Tax Cuts and Jobs Act, resulting in a decrease in Accumulated other comprehensive income (loss) and an increase in Retained earnings of $27.7 million at January 1, 2019.


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

Accounting Standards Update 2016-02

On February 25, 2016, the FASB issued ASU 2016-02 - Leases (Topic 842), and has subsequently issued ASU 2017-13 - Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842) (collectively the Lease ASUs) which supersede the existing lease accounting guidance and establish new criteria for recognizing lease assets and liabilities. The most significant impact of these updates, to AAM, is that a lessee is required to recognize a "right-of-use" asset and lease liability for operating lease agreements that were not previously included on the balance sheet under previous lease guidance. Expense recognition in the statement of income, along with cash flow statement classification for both financing (capital) and operating leases under the new standard is not significantly changed from previous lease guidance. This guidance became effective for AAM on January 1, 2019. See Note 2 - Leasing for additional detail regarding the adoption of ASU 2016-02.




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

2.
LEASING

On January 1, 2019, we adopted new accounting guidance under Accounting Standards Codification Topic 842 (ASC 842) Leases. ASC 842 superseded prior lease accounting guidance and established new criteria for recognizing right-of-use assets and lease liabilities for operating lease arrangements on our Condensed Consolidated Balance Sheet. We elected to adopt this guidance utilizing the optional transition method that allowed us to not retrospectively revise prior period balance sheets to include operating leases, and to only include the disclosures required under ASC 842 for the periods subsequent to adoption.

We have concluded that when an agreement grants us the right to substantially all of the economic benefits associated with an identified asset, and we are able to direct the use of that asset throughout the term of the agreement, we have a lease. We lease certain facilities and furniture under finance leases, and we also lease certain commercial office and production facilities, manufacturing machinery and equipment, vehicles and other assets under operating leases. Some of our leases include options to extend or terminate the leases and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised.

The lease consideration for some of our facilities and machinery and equipment is variable, as it is based on various indices or usage of the underlying assets, respectively. Variable lease payments based on indices have been included in the related right-of-use assets and lease liabilities on our Condensed Consolidated Balance Sheet, while variable lease payments based on usage of the underlying asset have been excluded as they do not represent present rights or obligations.

Lease cost consists of the following:
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
 
(in millions)
 
 
 
Finance lease cost
 
 
     Amortization of right-of-use assets
 
$
0.2

Interest on lease liabilities
 
0.1

Total finance lease cost
 
0.3

 
 
 
Operating lease cost
 
6.7

Short-term lease cost
 
1.7

Variable lease cost
 
1.9

 
 
 
Total lease cost
 
$
10.6


For the three months ended March 31, 2019, $7.8 million and $2.5 million were recorded to Cost of goods sold and Selling, general and administrative expense, respectively, on our Condensed Consolidated Statement of Income, as compared to $7.1 million and $2.6 million, respectively, for the three months ended March 31, 2018.

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

The following table summarizes additional information related to our lease agreements.
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
 
(in millions, except lease term and rate)
 
 
 
Cash paid for amounts included in measurement of lease liabilities
 
 
     Operating cash flows from finance leases
 
$
0.1

Operating cash flows from operating leases
 
6.9

Financing cash flows from finance leases
 
0.2

 
 
 
Weighted-average remaining lease term - finance leases
 
3.1 years

Weighted-average remaining lease term - operating leases
 
5.1 years

 
 


Weighted-average discount rate - finance leases
 
8.2
%
Weighted-average discount rate - operating leases
 
6.3
%

As the rate implicit in the lease is typically unknown, the discount rate used to determine the lease liability for the majority of our leases is the collateralized incremental borrowing rate in the applicable geographic area for a similar term and amount as the lease agreement.

Future undiscounted minimum payments under non-cancelable leases are as follows:
 
 
Finance Leases
 
Operating Leases
 
 
(in millions)
2019 (excluding the three months ended March 31, 2019)
 
$
0.8

 
$
20.1

2020
 
1.1

 
24.5

2021
 
1.0

 
16.4

2022
 
0.8

 
12.8

2023
 
—

 
7.6

Thereafter
 
—

 
19.0

Total future undiscounted minimum lease payments
 
3.7

 
100.4

Less: Impact of discounting
 
(0.5
)
 
(16.6
)
Total
 
$
3.2

 
$
83.8


For the full year 2019, we expect payments for short-term leases to be approximately $5 million.

The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheet as of March 31, 2019 are as follows:
 
 
Finance Leases
 
Operating Leases
 
 
(in millions)
Property, plant and equipment
 
$
3.2

 
$
—

Other assets and deferred charges
 
—

 
84.1

Total
 
$
3.2

 
$
84.1

 
 
 
 
 
Accrued expenses and other
 
$
0.9

 
$
21.9

Postretirement benefits and other long-term liabilities
 
2.3

 
61.9

Total
 
$
3.2

 
$
83.8




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

ASC 842 Adoption of Practical Expedients

We have elected to adopt, for all classes of underlying assets, a package of practical expedients provided under ASC 842 that allow us to 1) not reassess whether existing or expired contracts contain or contained a lease; 2) not reassess the lease classification (operating or financing) of our existing leases at adoption; and 3) not reassess initial direct costs for existing leases.

ASC 842 also provides a practical expedient that allows companies to exclude balance sheet recognition of right-of-use assets and associated liabilities for lease terms of 12 months or less, which we have elected as part of our adoption of ASC 842 for all classes of underlying assets. We do not include right-of-use assets and operating lease liabilities on our Condensed Consolidated Balance Sheet for leases with a term of 12 months or less.

We have also elected to adopt the practical expedient under ASC 842 to not separate lease and non-lease components in contracts that contain both. These lease agreements are accounted for as a single lease component for all classes of underlying assets.

Leases Not Yet Commenced

As of March 31, 2019, we have entered into additional operating leases that have not yet commenced of approximately $25 million, which primarily reflects the lease of a production facility with a term of 15 years that is expected to commence in 2019.




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

3.
RESTRUCTURING AND ACQUISITION-RELATED COSTS

In 2016, AAM initiated actions under a global restructuring program (the 2016 Program) focused on creating a more streamlined organization in addition to reducing our cost structure and preparing for acquisition and integration activities. We incurred severance charges totaling $2.8 million and implementation costs totaling $29.6 million under the 2016 Program. There were no charges incurred under the 2016 Program during the first quarter of 2019 and we do not expect to incur any additional restructuring charges under the 2016 Program in future periods.
In the first quarter of 2019, we initiated a new global restructuring program (the 2019 Program) to further streamline our business by consolidating our four existing segments into three segments. This activity occurred through the disaggregation of our Powertrain segment, with a portion moving into our Driveline segment and a portion moving into our Metal Forming segment. The primary objectives of this consolidation are to finalize the integration of Metaldyne Performance Group, Inc. (MPG), align AAM's product and process technologies, and to achieve efficiencies within our corporate and business unit support teams to reduce cost in our business.
A summary of our restructuring activity for the first three months of 2019 and 2018 is shown below:
 
Severance Charges
 
Implementation Costs
 
Total
 
(in millions)
Accrual as of December 31, 2017
$
0.3

 
$
—

 
$
0.3

Charges
0.2

 
3.9

 
4.1

Cash utilization
(0.4
)
 
(0.5
)
 
(0.9
)
Accrual as of March 31, 2018
$
0.1

 
$
3.4

 
$
3.5

 
 
 
 
 
 
Accrual as of December 31, 2018
$
2.4

 
$
1.6

 
$
4.0

Charges
4.1

 
4.3

 
8.4

Cash utilization
(3.7
)
 
(3.7
)
 
(7.4
)
Accrual as of March 31, 2019
$
2.8

 
$
2.2

 
$
5.0

As part of our restructuring actions, we incurred total severance charges of approximately $4.1 million and $0.2 million, as well as total implementation costs of approximately $4.3 million and $3.9 million, during the three months ended March 31, 2019 and 2018, respectively. We expect to incur approximately $25 million to $35 million of total restructuring charges in 2019, including costs incurred under the 2019 Program.
In 2017, we completed the acquisitions of MPG and USM Mexico Manufacturing LLC (USM Mexico). During the three months ended March 31, 2019, we incurred the following integration charges related to these acquisitions:
 
Integration Expenses
 
(in millions)
Charges for the three months ended March 31, 2019
$
3.7

 
 
Total restructuring and acquisition-related charges
$
12.1

These integration expenses reflect costs incurred for information technology systems and ongoing operational activities incurred in conjunction with the acquisitions. Total restructuring charges and acquisition-related charges of $12.1 million and $18.3 million are shown on a separate line item titled Restructuring and acquisition-related costs in our Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018, respectively.

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

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill The following table provides a reconciliation of changes in goodwill for the three months ended March 31, 2019:
 
Driveline
 
Metal Forming
 
Powertrain
 
Casting
 
Consolidated
 
(in millions)
Balance as of December 31, 2018
$
212.1

 
$
552.4

 
$
377.3

 
$
—

 
$
1,141.8

Reorganization
187.2

 
190.1

 
(377.3
)
 
—

 
—

Foreign currency translation
(0.8
)
 
(2.7
)
 
—

 
—

 
(3.5
)
Balance as of March 31, 2019
$
398.5

 
$
739.8

 
$
—

 
$
—

 
$
1,138.3


In the first quarter of 2019, we initiated a global restructuring program (the 2019 Program) to further streamline our business by consolidating our four existing segments into three segments. See Note 3 - Restructuring and Acquisition-Related Costs for further detail on this reorganization of our segments. Prior to this reorganization, our Powertrain segment was also a reporting unit for purposes of measuring and reporting goodwill. The goodwill that was previously attributable to the Powertrain reporting unit was reallocated to the Driveline and Metal Forming reporting units based on the relative fair value of the respective portions that became attributable to those reporting units.

The initiation of the 2019 Program and the reorganization of our business represented a triggering event in the first quarter of 2019 to test goodwill for impairment prior to reallocating the Powertrain goodwill to Driveline and Metal Forming. No impairment was identified as a result of completing this goodwill impairment test.

Other Intangible Assets The following table provides a reconciliation of the gross carrying amount and associated accumulated amortization for AAM's other intangible assets, which are all subject to amortization:
 
March 31,
 
December 31,
 
2019
 
2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
(in millions)
Capitalized computer software
$
40.6

 
$
(22.9
)
 
$
17.7

 
$
38.0

 
$
(20.1
)
 
$
17.9

Customer platforms
952.2

 
(141.1
)
 
811.1

 
952.2

 
(123.5
)
 
828.7

Customer relationships
147.0

 
(19.0
)
 
128.0

 
147.0

 
(16.5
)
 
130.5

Technology and other
156.0

 
(25.3
)
 
130.7

 
156.2

 
(22.2
)
 
134.0

Total
$
1,295.8

 
$
(208.3
)
 
$
1,087.5

 
$
1,293.4

 
$
(182.3
)
 
$
1,111.1


Amortization expense for our intangible assets was $25.0 million for the three months ended March 31, 2019, and $24.9 million for the three months ended March 31, 2018. Estimated amortization expense for each of the full years 2019 through 2023 is approximately $100 million.

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

5.
INVENTORIES

We state our inventories at the lower of cost or net realizable value.  The cost of our inventories is determined using the first-in first-out method.  When we determine that our gross inventories exceed usage requirements, or if inventories become obsolete or otherwise not saleable, we record a provision for such loss as a component of our inventory accounts.

Inventories consist of the following: 
 
 
March 31, 2019
 
December 31, 2018
 
 
(in millions)
 
 
 
 
 
Raw materials and work-in-progress
 
$
381.0

 
$
375.1

Finished goods
 
89.0

 
99.0

Gross inventories
 
470.0

 
474.1

Inventory valuation reserves
 
(17.5
)
 
(14.4
)
Inventories, net
 
$
452.5

 
$
459.7





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

6.
LONG-TERM DEBT

Long-term debt consists of the following:
 
 
 
March 31, 2019
 
December 31, 2018
 
 
(in millions)
 
 
 
 
 
Revolving Credit Facility
 
$
—

 
$
—

Term Loan A Facility
 
81.3

 
83.8

Term Loan B Facility
 
1,507.4

 
1,511.2

7.75% Notes due 2019
 
100.0

 
100.0

6.625% Notes due 2022
 
450.0

 
450.0

6.50% Notes due 2027
 
500.0

 
500.0

6.25% Notes due 2026
 
400.0

 
400.0

6.25% Notes due 2025
 
700.0

 
700.0

Foreign credit facilities
 
123.0

 
127.1

Capital lease obligations
 
—

 
3.4

Total debt
 
3,861.7

 
3,875.5

    Less: Current portion of long-term debt
 
118.6

 
121.6

Long-term debt
 
3,743.1

 
3,753.9

    Less: Debt issuance costs
 
64.2

 
67.1

Long-term debt, net
 
$
3,678.9

 
$
3,686.8


Senior Secured Credit Facilities In 2017, American Axle & Manufacturing Holdings, Inc. (Holdings) and American Axle & Manufacturing, Inc. (AAM, Inc.) entered into a credit agreement (the Credit Agreement). In connection with the Credit Agreement, Holdings, AAM, Inc. and certain of their restricted subsidiaries entered into a Collateral Agreement and Guarantee Agreement with the financial institutions party thereto as collateral agent and administrative agent. The Credit Agreement includes a $100.0 million term loan A facility (the Term Loan A Facility), a $1.55 billion term loan B facility (the Term Loan B Facility) and a $932 million multi-currency revolving credit facility (the Revolving Credit Facility, and together with the Term Loan A Facility and the Term Loan B Facility, the Senior Secured Credit Facilities). The proceeds of the Revolving Credit Facility are used for general corporate purposes.

As of March 31, 2019 we have prepaid $10.0 million of the outstanding principal on our Term Loan A Facility and $15.5 million of the outstanding principal on our Term Loan B Facility. These payments satisfy our obligation for principal payments under the Term Loan A Facility and Term Loan B Facility through the first quarter of 2020. As such there are no amounts related to the Term Loan A Facility and Term Loan B Facility presented in the Current portion of long-term debt line item in our Condensed Consolidated Balance Sheet as of March 31, 2019.

At March 31, 2019, we had $893.8 million available under the Revolving Credit Facility. This availability reflects a reduction of $38.2 million for standby letters of credit issued against the facility.

The Senior Secured Credit Facilities provide back-up liquidity for our foreign credit facilities.  We intend to use the availability of long-term financing under the Senior Secured Credit Facilities to refinance any current maturities related to such debt agreements that are not otherwise refinanced on a long-term basis in their local markets, except where otherwise reclassified to Current portion of long-term debt on our Condensed Consolidated Balance Sheet.

Foreign credit facilities We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. At March 31, 2019, $123.0 million was outstanding under our foreign credit facilities, as compared to $127.1 million at December 31, 2018. At March 31, 2019, an additional $85.5 million was available under our foreign credit facilities.

The weighted-average interest rate of our long-term debt outstanding was 5.9% at March 31, 2019 and at December 31, 2018.  


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

Capital lease obligations Upon our adoption of ASC 842 Leases, our capital (finance) lease obligations are now presented in Accrued expenses and other and Postretirement benefits and other long-term liabilities on our Condensed Consolidated Balance Sheet. See Note 2 - Leasing for additional detail regarding our adoption of ASC 842.

Redemption of 7.75% Notes due 2019 In April 2019, we issued an irrevocable notice to the holders of our 7.75% Notes due 2019 to voluntarily redeem our 7.75% Notes due 2019 in the second quarter of 2019. This will result in a principal payment of $100 million and $0.3 million in accrued interest. We will also expense approximately $0.1 million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately $2.2 million for an early redemption premium.



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

7.
FAIR VALUE

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

•
Level 1:  Observable inputs such as quoted prices in active markets;
•
Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
•
Level 3:  Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Financial instruments   The estimated fair value of our financial assets and liabilities that are recognized at fair value on a recurring basis, using available market information and other observable data, are as follows:
 
 
 
March 31, 2019
 
December 31, 2018
 
 
 
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
Input
 
 
(in millions)
 
 
Balance Sheet Classification
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
18.8

 
$
18.8

 
$
44.0

 
$
44.0

 
Level 1
Prepaid expenses and other
 
 

 
 

 
 

 
 

 
 
Cash flow hedges - currency forward contracts
 
2.2

 
2.2

 
1.3

 
1.3

 
Level 2
Cash flow hedges - variable-to-fixed interest rate swap
 
0.3

 
0.3

 
0.9

 
0.9

 
Level 2
Nondesignated - currency forward contracts
 
1.3

 
1.3

 
0.6

 
0.6

 
Level 2
Other assets and deferred charges
 
 
 
 
 
 
 
 
 
 
     Cash flow hedges - currency forward contracts
 
1.1

 
1.1

 
0.4

 
0.4

 
Level 2
     Cash flow hedges - variable-to-fixed interest rate swap
 
1.2

 
1.2

 
1.6

 
1.6

 
Level 2
Accrued expenses and other
 
 
 
 
 
 
 
 
 
 
     Cash flow hedges - currency forward contracts
 
0.3

 
0.3

 
0.8

 
0.8

 
Level 2
     Cash flow hedges - variable-to-fixed interest rate swap
 
2.2

 
2.2

 
0.7

 
0.7

 
Level 2
     Nondesignated - currency forward contracts
 
0.2

 
0.2

 
0.4

 
0.4

 
Level 2
Postretirement benefits and other long-term liabilities
 
 
 
 
 
 
 
 
 
 
     Cash flow hedges - currency forward contracts
 
0.1

 
0.1

 
0.9

 
0.9

 
Level 2
     Cash flow hedges - variable-to-fixed interest rate swap
 
10.8

 
10.8

 
6.9

 
6.9

 
Level 2

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

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

We estimated the fair value of the amounts outstanding on our debt using available market information and other observable data, to be as follows:
 
 
 
March 31, 2019
 
December 31, 2018
 
 
 
 
Carrying  Amount
 
Fair Value
 
Carrying  Amount
 
Fair Value
 
 
Input
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility
 
$
—

 
$
—

 
$
—

 
$
—

 
Level 2
Term Loan A Facility
 
81.3

 
79.7

 
83.8

 
79.5

 
Level 2
Term Loan B Facility
 
1,507.4

 
1,469.7

 
1,511.2

 
1,420.6

 
Level 2
7.75% Notes due 2019
 
100.0

 
102.0

 
100.0

 
102.1

 
Level 2
6.625% Notes due 2022
 
450.0

 
459.0

 
450.0

 
444.4

 
Level 2
6.50% Notes due 2027
 
500.0

 
482.5

 
500.0

 
446.3

 
Level 2
6.25% Notes due 2026
 
400.0

 
385.0

 
400.0

 
358.0

 
Level 2
6.25% Notes due 2025
 
700.0

 
679.0

 
700.0

 
636.7

 
Level 2



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

8.
DERIVATIVES

Our business and financial results are affected by fluctuations in world financial markets, including interest rates and currency exchange rates.  Our hedging policy has been developed to manage these risks to an acceptable level based on management’s judgment of the appropriate trade-off between risk, opportunity and cost.  We do not hold financial instruments for trading or speculative purposes.

Currency derivative contracts  From time to time, we use foreign currency forward contracts to reduce the effects of fluctuations in exchange rates relating to certain foreign currencies.  As of March 31, 2019, we have currency forward contracts outstanding with a total notional amount of $203.1 million that hedge our exposure to changes in foreign currency exchange rates for certain payroll expenses into the first quarter of 2022 and other items into the fourth quarter of 2019. 

Variable-to-fixed interest rate swap In 2018, we entered into a variable-to-fixed interest rate swap to reduce the variability of cash flows associated with interest payments on our variable rate debt. We have the following notional amounts hedged in relation to our variable-to-fixed interest rate swap: $900.0 million through May 2019, $750.0 million through May 2020, $500.0 million through May 2021, $400.0 million through May 2022 and $400.0 million through May 2023.

The following table summarizes the reclassification of derivative gains and losses into net income from accumulated other comprehensive income (loss) for those derivative instruments designated as cash flow hedges under ASC 815 - Derivatives and Hedging:
 
 
Location
 
Gain (Loss) Reclassified During
 
Total of Financial
 
Gain Expected
 
 
of Gain (Loss)
 
Three Months Ended
 
Statement
 
to be Reclassified
 
 
  Reclassified into
 
March 31,
 
Line Item
 
During the
 
 
  Net Income
 
2019
 
2018
 
2019
 
Next 12 Months
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
Cost of Goods Sold
 
$
0.2

 
$
(2.0
)
 
$
1,497.0

 
$
1.9

Variable-to-fixed interest rate swap
 
Interest Expense
 
1.2

 
0.4

 
(53.4
)
 
0.4

 

See Note 13 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (AOCI) for amounts recognized in other comprehensive income (loss) during the three months ended March 31, 2019 and 2018.

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

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

2018
 
2019
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
Cost of Goods Sold
 
$
1.2

 
$
4.0

 
$
1,497.0

Currency forward contracts
 
Other Income (Expense), net
 
(0.2
)
 
—

 
(3.0
)


19
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.
EMPLOYEE BENEFIT PLANS

The components of net periodic benefit cost (credit) are as follows:
 
 
Pension Benefits
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
 
 
(in millions)
 
 
 
 
 
Service cost
 
$
0.4

 
$
1.1

Interest cost
 
7.1

 
6.9

Expected asset return
 
(10.3
)
 
(11.5
)
Amortized loss
 
1.5

 
2.2

Curtailment
 
—

 
3.2

Net periodic benefit cost (credit)
 
$
(1.3
)
 
$
1.9

 
 
 
 
 
Other Postretirement Benefits
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
 
 
(in millions)
 
 
 

 
 

Service cost
 
$
0.1

 
$
0.1

Interest cost
 
3.2

 
3.1

Amortized loss
 
—

 
0.2

Amortized prior service credit
 
(0.4
)
 
(0.7
)
Net periodic benefit cost
 
$
2.9

 
$
2.7


The noncurrent liabilities associated with our pension and other postretirement benefit plans are classified as Postretirement benefits and other long-term liabilities on our Condensed Consolidated Balance Sheets. As of March 31, 2019 and December 31, 2018, we have a noncurrent pension liability of $124.1 million and $128.6 million, respectively. As of March 31, 2019 and December 31, 2018, we have a noncurrent other postretirement benefits liability of $504.8 million and $506.5 million, respectively.

Due to the availability of our pre-funded pension balances (previous contributions in excess of prior required pension contributions) related to certain of our U.S. pension plans, we expect our regulatory pension funding requirements in 2019 to be approximately $2.2 million. We expect our cash payments for other postretirement benefit obligations in 2019, net of GM cost sharing, to be approximately $17.7 million.


20
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.
PRODUCT WARRANTIES

We record a liability for estimated warranty obligations at the dates our products are sold. These estimates are established using sales volumes and internal and external warranty data where there is no payment history and historical information about the average cost of warranty claims for customers with prior claims. We estimate our costs based on the contractual arrangements with our customers, existing customer warranty terms and internal and external warranty data, which includes a determination of our warranty claims and actions taken to improve product quality and minimize warranty claims. We continuously evaluate these estimates and our customers' administration of their warranty programs. We closely monitor actual warranty claim data and adjust the liability, as necessary, on a quarterly basis.

The following table provides a reconciliation of changes in the product warranty liability:
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
 
 
(in millions)
 
 
 
 
 
Beginning balance
 
$
57.7

 
$
49.5

     Accruals
 
4.4

 
4.3

Payments
 
(3.7
)
 
(0.5
)
     Adjustment to prior period accruals
 
(2.3
)
 
—

     Foreign currency translation
 
0.1

 
0.3

Ending balance
 
$
56.2

 
$
53.6




21
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.
INCOME TAXES

Tax Provision for the Three Months Ended March 31, 2019 and 2018

We adjust our effective tax rate each quarter based on our estimated annual effective tax rate. We also record the tax impact of certain discrete, unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.

Income tax was a benefit of $3.0 million for the three months ended March 31, 2019, an effective income tax rate of (7.8)%, as compared to expense of $17.9 million for the three months ended March 31, 2018, an effective income tax rate of 16.7%. As part of the Tax Cuts and Jobs Act in 2017, a one-time transition tax (Transition Tax) was imposed on certain foreign earnings for which U.S. income tax was previously deferred. The Department of Treasury and Internal Revenue Service issued final regulations on February 5, 2019 regarding the Transition Tax, which changed the manner in which we are required to compute the Transition Tax when it is recognized over a two-year period. The application of the final regulations resulted in a $9.3 million income tax benefit, which has been recorded in the first quarter of 2019, the period in which the final regulations were issued.

Our effective income tax rate for the three months ended March 31, 2019 is lower than our effective income tax rate for the three months ended March 31, 2018 as a result of the discrete item described above. For the three months ended March 31, 2019 and 2018, our effective income tax rates vary from the U.S. federal statutory rate of 21% primarily due to favorable foreign tax rates, as well as the impact of tax credits and the effect of the discrete item described above.

We operate in multiple jurisdictions throughout the world and the income tax returns of several subsidiaries in various tax jurisdictions are currently under examination. We are currently under a U.S. federal income tax examination for the years 2014 and 2015. We are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years prior to 2012. Based on the status of ongoing tax audits, and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. As of March 31, 2019 and December 31, 2018, we have recorded a liability for unrecognized income tax benefits and related interest and penalties of $47.2 million and $45.6 million, respectively.

During the next 12 months, we may finalize an advance pricing agreement in a foreign jurisdiction, which could result in a cash payment to the relevant tax authorities and a reduction of our liability for unrecognized tax benefits and related interest and penalties. Although it is difficult to estimate with certainty the amount of any audit settlement, we do not expect any potential settlement to be materially different from what we have recorded in unrecognized tax benefits. We will continue to monitor the progress and conclusions of all ongoing audits and other communications with tax authorities, and will adjust our estimated liability as necessary.



22
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.
EARNINGS PER SHARE (EPS)

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

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

 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
 
 
(in millions, except per share data)
Numerator
 
 

 
 
Net income attributable to AAM
 
$
41.6

 
$
89.4

    Less: Net income attributable to participating securities
 
(1.2
)
 
(2.2
)
Net income attributable to common shareholders - Basic and Dilutive
 
$
40.4

 
$
87.2

 
 
 
 
 
Denominators
 
 

 
 

Basic common shares outstanding -
 
 

 
 

   Weighted-average shares outstanding
 
115.3

 
114.2

        Less: Participating securities
 
(3.4
)
 
(2.8
)
    Weighted-average common shares outstanding
 
111.9

 
111.4

 
 
 
 
 
Effect of dilutive securities -
 
 

 
 

   Dilutive stock-based compensation
 
0.5

 
0.5

 
 


 


Diluted shares outstanding -
 
 

 
 

   Adjusted weighted-average shares after assumed conversions
 
112.4

 
111.9

 
 
 

 
 

Basic EPS
 
$
0.36

 
$
0.78

 
 
 

 
 

Diluted EPS
 
$
0.36

 
$
0.78

 


23
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Reclassification adjustments and other activity impacting accumulated other comprehensive income (loss) during the three months ended March 31, 2019 and March 31, 2018 are as follows (in millions):

 
Defined Benefit Plans
 
Foreign Currency Translation Adjustments
 
Unrecognized Gain (Loss) on Cash Flow Hedges
 
Total
Balance at December 31, 2018
$
(213.9
)
 
$
(96.6
)
 
$
(1.1
)
 
$
(311.6
)
 
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications
(27.9
)
(a)
(2.5
)
 
(2.6
)
 
(33.0
)
 
 
 
 
 
 
 
 
Income tax effect of other comprehensive loss before reclassifications
—

 
—

 
1.2

 
1.2

 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive loss
1.2

(b)
—

 
(1.4
)
(c)
(0.2
)
 
 
 
 
 
 
 
 
Income taxes reclassified into net income
(0.3
)
 
—

 
0.3

 
—

 
 
 
 
 
 
 
 
Net change in accumulated other comprehensive loss
(27.0
)
 
(2.5
)
 
(2.5
)
 
(32.0
)
 
 
 
 
 
 
 
 
Balance at March 31, 2019
$
(240.9
)
 
$
(99.1
)
 
$
(3.6
)
 
$
(343.6
)

 
Defined Benefit Plans
 
Foreign Currency Translation Adjustments
 
Unrecognized Gain (Loss) on Cash Flow Hedges
 
Total
Balance at December 31, 2017
$
(252.0
)
 
$
(34.1
)
 
$
(6.6
)
 
$
(292.7
)
 
 
 
 
 
 
 
 
Other comprehensive income before reclassifications
—

 
37.9

 
14.6

 
52.5

 
 
 
 
 
 
 
 
Income tax effect of other comprehensive income before reclassifications
—

 
—

 
(1.1
)
 
(1.1
)
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive loss
1.7

(b)
—

 
1.6

(c)
3.3

 
 
 
 
 
 
 
 
Income taxes reclassified into net income
(0.4
)
 
—

 
—

 
(0.4
)
 
 
 
 
 
 
 
 
Net current period other comprehensive income
1.3

 
37.9

 
15.1

 
54.3

 
 
 
 
 
 
 
 
Balance at March 31, 2018
$
(250.7
)
 
$
3.8

 
$
8.5

 
$
(238.4
)
(a)
ASU 2018-02 became effective on January 1, 2019, and we elected to reclassify the stranded tax effects caused by the 2017 Tax Cuts and Jobs Act, resulting in a decrease in Accumulated other comprehensive income (loss) of $27.7 million at January 1, 2019. See Note 1 - Organization and Basis of Presentation for further detail.
 
 
(b)
The amount reclassified from AOCI included $1.2 million in cost of goods sold (COGS) for the three months ended March 31, 2019 and $1.5 million in COGS and $0.3 million in SG&A for the three months ended March 31, 2018.
 
 
(c)
The amounts reclassified from AOCI included $(0.2) million in COGS and $(1.2) million in interest expense for the three months ended March 31, 2019 and $2.0 million in COGS and $(0.4) million in interest expense for the three months ended March 31, 2018.

24
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.
REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Net Sales

Net sales recognized from contracts with customers, disaggregated by segment and geographical location, are presented in the following table for the three months ended March 31, 2019 and 2018. Net sales are attributed to regions based on the location of production. Intersegment sales have been excluded from the table.

In the first quarter of 2019, we reorganized our business to disaggregate our former Powertrain business unit, with a portion moving to our Driveline business unit and a portion moving to our Metal Forming business unit. As a result, the Powertrain amounts previously reported for the three months ended March 31, 2018 have been reclassified to Driveline and Metal Forming.
 
 
Three Months Ended March 31, 2019
 
 
Driveline
 
Metal Forming
 
Casting
 
Total
North America
 
$
853.1

 
$
305.4

 
$
197.3

 
$
1,355.8

Asia
 
153.3

 
7.5

 
—

 
160.8

Europe
 
101.6

 
72.7

 
—

 
174.3

South America
 
25.8

 
2.5

 
—

 
28.3

Total
 
$
1,133.8

 
$
388.1

 
$
197.3

 
$
1,719.2

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
 
Driveline
 
Metal Forming
 
Casting
 
Total
North America
 
$
961.2

 
$
339.6

 
$
209.8

 
$
1,510.6

Asia
 
143.0

 
12.3

 
—

 
155.3

Europe
 
76.8

 
81.5

 
—

 
158.3

South America
 
33.3

 
0.9

 
—

 
34.2

Total
 
$
1,214.3

 
$
434.3

 
$
209.8

 
$
1,858.4


Contract Assets and Liabilities

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

 
 
 
 
 
Accounts Receivable, Net
Contract Liabilities (Current)
Contract Liabilities (Long-term)
December 31, 2018
$
966.5

$
44.3

$
77.6

March 31, 2019
1,202.1

39.0

76.7

Increase/(decrease)
$
235.6

$
(5.3
)
$
(0.9
)

Contract liabilities relate to deferred revenue associated with various settlements and commercial agreements for which we have a future performance obligation to the customer. We recognize this deferred revenue into revenue over the life of the associated program as we satisfy our performance obligations to the customer. We do not have contract assets as defined in ASC 606.

During the three months ended March 31, 2019, we amortized $12.9 million of previously recorded contract liabilities into revenue as we satisfied performance obligations with our customers.


25
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15.
SEGMENT REPORTING

Subsequent to the acquisition of MPG in 2017, our business was organized into four segments: Driveline, Metal Forming, Powertrain and Casting. In the first quarter of 2019, we reorganized our business to disaggregate our former Powertrain segment, with a portion moving to our Driveline segment and a portion moving to our Metal Forming segment. As a result, our business is now organized into Driveline, Metal Forming and Casting segments, with each representing a reportable segment under ASC 280 Segment Reporting. The Powertrain Sales and Segment Adjusted EBITDA amounts previously reported for the three months ended March 31, 2018, as well as the Total Assets previously reported for Powertrain as of December 31, 2018, have been reclassified to Driveline and Metal Forming in the tables below.

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

Our product offerings by segment are as follows:

•
Driveline products consist primarily of front and rear axles, driveshafts, differential assemblies, clutch modules, balance shaft systems, disconnecting driveline technology, and electric and hybrid driveline products and systems for light trucks, SUVs, crossover vehicles, passenger cars and commercial vehicles;
•
Metal Forming products consist primarily of axle and transmission shafts, ring and pinion gears, differential gears and assemblies, connecting rods and variable valve timing products for Original Equipment Manufacturers and Tier 1 automotive suppliers; and
•
The Casting segment produces both thin wall castings and high strength ductile iron castings, as well as transmission pump bodies, steering knuckles, control arms, brake anchors and calipers, and ball joint housings for the global light vehicle, commercial and industrial markets.

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

The following tables represent information by reportable segment for the three months ended March 31, 2019 and 2018 (in millions):


Three Months Ended March 31, 2019


Driveline

Metal Forming

Casting

Total
Sales

$
1,134.7


$
483.3


$
225.3


$
1,843.3

Less: intersegment sales

0.9


95.2


28.0


124.1

Net external sales
 
$
1,133.8


$
388.1


$
197.3

 
$
1,719.2

 
 
 
 
 
 
 
 
 
Segment Adjusted EBITDA
 
$
137.2

 
$
85.3

 
$
22.5