AMERICAN AXLE & MANUFACTURING HOLDINGS, INC. This management's discussion and analysis (MD&A) should be read in conjunction with the unaudited condensed consolidated financial statements and notes appearing elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Unless the context otherwise requires, references to "we," "our," "us" or "AAM" shall mean collectively (i)American Axle & Manufacturing Holdings, Inc. (Holdings), aDelaware corporation, (ii)American Axle & Manufacturing, Inc. (AAM, Inc. ), aDelaware corporation, and its direct and indirect subsidiaries, and, (iii)Metaldyne Performance Group, Inc. (MPG) and its direct and indirect subsidiaries.AAM Inc. and MPG are wholly-owned subsidiaries of Holdings.
COMPANY OVERVIEW
We are a global Tier 1 supplier to the automotive industry. We design, engineer and manufacture driveline and metal forming products that are making the next generation of vehicles smarter, lighter, safer and more efficient. We employ over 20,000 associates, operating at nearly 80 facilities in 17 countries, to support our customers on global and regional platforms with a focus on quality, operational excellence and technology leadership.
Major Customers
We are a primary supplier of driveline components to General Motors Company (GM) for its full-size rear-wheel drive (RWD) light trucks, sport utility vehicles (SUVs), and crossover vehicles manufactured inNorth America , supplying a significant portion ofGM's rear axle and four-wheel drive and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. We also supplyGM with various products from our Metal Forming segment. Sales toGM were approximately 41% of our consolidated net sales in the first three months of 2020, 39% in the first three months of 2019, and 37% for the full year 2019. We also supply driveline system products toFCA US LLC (FCA) for heavy-duty Ram full-size pickup trucks and its derivatives, the AWD Jeep Cherokee, and a passenger car driveshaft program. In addition, we sell various products toFCA from our Metal Forming segment. Sales toFCA were approximately 16% of our consolidated net sales in the first three months of 2020, 12% in the first three months of 2019, and 17% for the full year 2019. We are also a supplier to Ford Motor Company (Ford ) for driveline system products on certain vehicle programs, and we sell various products toFord from our Metal Forming segment. Sales toFord were approximately 12% of our consolidated net sales in the first three months of 2020, and approximately 9% for both the first three months and full year of 2019.
No other customer represented 10% or more of consolidated net sales during these periods.
Impact of Novel Coronavirus (COVID-19)
COVID-19 Operational Impact and AAM Actions
In March of 2020, COVID-19 was designated by theWorld Health Organization as a pandemic illness and began to significantly disrupt global automotive production. In an effort to mitigate the spread of COVID-19, many governmental and public health agencies in locations in which we operate implemented shelter-in-place orders or similar measures. Substantially all of our customers ceased or significantly reduced production, and the decline in production volumes has continued into the second quarter of 2020. As a result, substantially all of our manufacturing facilities have either temporarily suspended production or experienced significant reductions in volumes during this period. By the end of the first quarter of 2020, our manufacturing locations inAsia were beginning to stabilize and return to more normalized levels of production. 27 --------------------------------------------------------------------------------
At AAM, safety is our top responsibility and that includes the health and wellness of our associates globally. In response to COVID-19, we instituted several operational measures to ensure the safety of our associates, which included the following:
•Assembled aCOVID-19 Task Force comprised of AAM's senior leadership working closely with associates across several functions and regions to coordinate decision making and communication related to actions taken by AAM to mitigate the impact of COVID-19; •Suspended or reduced production at manufacturing facilities and directed associates who could do so to work remotely; •Maintained communication with customers, including planning for business resumption and monitoring announcements regarding new program deferrals or other changes; •Initiated thorough cleaning and decontamination procedures at many of our manufacturing facilities in preparation for resuming production; and •Designed additional safety measures to further protect associates once production is restored and our associates resume working in our global facilities. We are currently planning for a staged re-opening of our manufacturing facilities inNorth America andEurope inMay 2020 , though the ultimate timing of re-opening these facilities will depend on future developments, including the potential extension of shelter-in-place orders and the timing of resumption of production by our customers, which are outside of our control. We are also monitoring the impact of COVID-19 on our suppliers, as well as on our customers and their suppliers. As production resumes and volumes begin to ramp-up, we cannot be sure that the supply chain will be adequately prepared and this could adversely impact the timing of a return to increased levels of production.
Financial Impact of COVID-19
We estimate that the impact of COVID-19 on net sales in the first quarter of 2020 was approximately$169 million , and that the impact to gross profit of this reduction in net sales was approximately$47 million . The significant reduction in global automotive production volumes resulting from the impact of COVID-19 has continued into the second quarter of 2020 and we expect the impact on net sales and operating income to be greater in the second quarter of 2020 as compared to the first quarter of 2020. Due to the significant uncertainty associated with the extent of the impact of COVID-19 and the timing of resuming more normalized levels of production, we cannot estimate the impact of COVID-19 on our 2020 results of operations and financial condition. In order to mitigate the financial impact of COVID-19, we have continued our emphasis on cost management, and have implemented additional measures to adjust to our customers' revised production schedules, including:
•Continuing to flex our variable cost structure; •Continuing to manage our controllable expenses; •Reducing the annual cash retainer for each non-employee director by 40%; •Reducing salaries for executive officers by 30% and for certain other associates by various percentages depending on level; •Reducing our projected capital expenditures for the year; and •Pursuing options to defer and reduce tax payments through the CARES Act and similar global initiatives.
The additional measures we are taking to address the impact of COVID-19 are expected to remain in place until further clarity can be achieved regarding the recovery and stabilization of the global economy, as well as the resulting impact of COVID-19 on the global automotive industry.
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RESULTS OF OPERATIONS -- THREE MONTHS ENDED
Net Sales Net sales were$1,343.5 million in the first quarter of 2020, as compared to$1,719.2 million in the first quarter of 2019. Our change in sales in the first quarter of 2020, as compared to the first quarter of 2019, primarily reflects a reduction of approximately$169 million associated with the decline in global automotive production as a result of COVID-19, and a reduction of$182 million as a result of the sale of theU.S. operations of our Casting business that was completed in the fourth quarter of 2019 (the Casting Sale). Net sales in the first quarter of 2020, as compared to the first quarter of 2019, also decreased by approximately$42 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments. Cost of Goods Sold Cost of goods sold was$1,148.2 million in the first quarter of 2020, as compared to$1,497.0 million in the first quarter of 2019. The change in cost of goods sold principally reflects a reduction of approximately$122 million associated with the decline in global automotive production as a result of COVID-19, and a reduction of$175 million as a result of the Casting Sale. Cost of goods sold was also impacted by a decrease of approximately$42 million related to metal market pass-through costs and the impact of foreign exchange, as well as the impact of improved operating performance and lower launch costs.
For both the three months ended
Gross Profit Gross profit was$195.3 million in the first quarter of 2020, as compared to$222.2 million in the first quarter of 2019. Gross margin was 14.5% in the first quarter of 2020, as compared to 12.9% in the first quarter of 2019. Gross profit and gross margin were impacted by the factors discussed inNet Sales and Cost of Goods Sold above. Selling, General and Administrative Expenses (SG&A) SG&A (including research and development (R&D)) was$90.3 million or 6.7% of net sales in the first quarter of 2020, as compared to$90.7 million or 5.3% of net sales in the first quarter of 2019. R&D spending was approximately$36.6 million in the first quarter of 2020, as compared to$34.3 million in the first quarter of 2019. Amortization of Intangible Assets Amortization expense related to intangible assets was$21.8 million for the three months endedMarch 31, 2020 and$25.0 million for the three months endedMarch 31, 2019 . The reduction in amortization expense related to intangible assets reflects the Casting Sale and the disposal of the intangible assets associated with this business. Impairment Charge In the first quarter of 2020, the reduction in global automotive production volumes caused by the impact of COVID-19 represented an indicator to test our goodwill for impairment. As a result of this goodwill impairment test, we determined that the carrying values of our Driveline and Metal Forming reporting units were greater than their respective fair values. As such, we recorded a total goodwill impairment charge of$510.0 million in the first quarter of 2020. See Note 3 -Goodwill and Other Intangible Assets for further detail. Restructuring and Acquisition-Related Costs Restructuring and acquisition-related costs were$17.6 million in the first quarter of 2020 and$12.1 million in the first quarter of 2019. As part of our restructuring actions, we incurred severance charges of approximately$2.2 million , as well as implementation costs of approximately$12.5 million during the three months endedMarch 31, 2020 . This compares to severance charges of$4.1 million and implementation charges of$4.3 million for the three months endedMarch 31, 2019 . We expect to incur approximately$45 million to$55 million of total restructuring charges in 2020. See Note 2 - Restructuring and Acquisition-Related Costs for additional detail regarding our restructuring activity. During the three months endedMarch 31, 2020 , we incurred$2.9 million of integration expenses primarily associated with the ongoing integration of MPG. This compares to$3.7 million of integration expenses incurred during the three months endedMarch 31, 2019 . Integration expenses primarily reflect costs incurred for information technology infrastructure and enterprise resource planning (ERP) systems, and consulting fees incurred in conjunction with acquisitions. We expect to incur additional integration charges of$10 million to$15 million in 2020 as we finalize the integration of ERP systems at legacy MPG locations.
Loss on Sale of Business In the first quarter of 2020, we finalized certain
customary post-closing calculations associated with the Casting Sale, resulting
in an additional loss on sale of
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Operating Income (Loss) Operating loss was $445.4 million in the first quarter
of 2020, as compared to operating income of $94.4 million in the first quarter
of 2019. Operating margin was (33.2)% in the first quarter of 2020, as compared
to 5.5% in the first quarter of 2019. The changes in operating income (loss) and
operating margin were primarily due to factors discussed in Net Sales , Cost of
Goods Sold, and Impairment Charge above.
Interest Expense and Interest Income Interest expense was $51.5 million in the
first quarter of 2020, as compared to $53.4 million in the first quarter of
2019. Interest income was $2.8 million in the first quarter of 2020, as compared
to $0.7 million in the first quarter of 2019.
The weighted-average interest rate of our long-term debt outstanding was 5.8% in
the first quarter of 2020 and 5.9% in the first quarter of 2019. We expect our
interest expense for the full year 2020 to be $205 million to $215 million .
Debt Refinancing and Redemption Costs In the first quarter of 2020, we
voluntarily redeemed $100 million of our 6.625% Notes due 2022. As a result, we
expensed approximately $0.4 million for the write-off of the unamortized debt
issuance costs that we had been amortizing over the expected life of the
borrowing, and approximately $1.1 million for the payment of an early redemption
premium.
Other Expense, Net Other expense, net includes the net effect of foreign
exchange gains and losses, our proportionate share of earnings from equity in
unconsolidated subsidiaries, and all components of net periodic pension and
postretirement benefit costs other than service cost. Other expense, net was
$2.3 million in the first quarter of 2020, as compared to $3.0 million in the
first quarter of 2019.
Income Tax Expense Income tax was expense of $3.3 million for the three months
ended March 31, 2020 , as compared to a benefit of $3.0 million for the three
months ended March 31, 2019 . Our effective income tax rate was (0.7)% in the
first quarter of 2020, as compared to (7.8)% in the first quarter of 2019.
Our effective income tax rate for the three months ended March 31, 2020 varies
from our effective income tax rate for the three months ended March 31, 2019
primarily as a result of the impact of the goodwill impairment charge recorded
during the first quarter of 2020, which had no corresponding income tax benefit,
and as a result of a net income tax benefit of $7.5 million recognized under the
CARES Act (see Note 1 - Organization and Basis of Presentation for additional
detail regarding the CARES Act). In addition, in the first quarter of 2019, we
recognized an income tax benefit of $9.3 million related to final regulations
issued by the Department of Treasury and Internal Revenue Service in the first
quarter of 2019. The final regulations changed the manner in which we were
required to compute the one-time transition tax under the Tax Cuts and Jobs Act
of 2017 that was imposed on certain foreign earnings for which U.S. income tax
was previously deferred.
For the three months ended March 31, 2020 and 2019, 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 items described above.
We review the likelihood that we will realize the benefit of deferred tax assets
and estimate whether recoverability of our deferred tax assets is "more likely
than not." If, based upon available evidence, it is more likely than not the
deferred tax assets will not be realized, a valuation allowance is recorded. Due
to the uncertainty associated with the extent and ultimate impact of COVID-19 on
global automotive production volumes, we may experience lower than projected
earnings in certain jurisdictions in future periods, and we believe that it is
reasonably possible that additional valuation allowances could be recognized in
the next twelve months as a result.
Net Income (Loss) Attributable to AAM and Earnings (Loss) Per Share (EPS) Net
income (loss) attributable to AAM was a loss of $501.3 million in the first
quarter of 2020, as compared to income of $41.6 million in the first quarter of
2019. Diluted loss per share was $4.45 in the first quarter of 2020, as compared
to diluted earnings per share of $0.36 in the first quarter of 2019. Net income
(loss) attributable to AAM and EPS for the first quarters of 2020 and 2019 were
primarily impacted by the factors discussed above.
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--------------------------------------------------------------------------------SEGMENT REPORTING
Our business is organized into Driveline and Metal Forming segments, with each representing a reportable segment under ASC 280 Segment Reporting. In the fourth quarter of 2019, we completed the Casting Sale. The Casting Sale did not include the entities that conduct AAM's casting operations inEl Carmen, Mexico , which are now included in our Driveline segment. The Casting Sale did not qualify for classification as discontinued operations, as it did not represent a strategic shift in our business that has had, or will have, a major effect on our operations and financial results. As such, we continue to present Casting as a segment in the tables below for the periods prior to the sale, and the reported amounts are now comprised entirely of theU.S. casting operations that were included in the sale. The amounts previously reported in our Casting segment for the retained operations inEl Carmen, Mexico have been reclassified to our Driveline segment for the periods presented.
The results of each segment are regularly reviewed by the chief operating decision maker to assess the performance of the segment and make decisions regarding the allocation of resources 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; and •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.
The following table represents sales by reportable segment for the three months
ended
Three Months Ended March 31,
2020 2019
Driveline $ 1,031.7 $ 1,166.3
Metal Forming 422.3 483.3
Casting - 193.7
Eliminations (110.5) (124.1)
Net Sales $ 1,343.5 $ 1,719.2
The change in Driveline sales for the three months ended March 31, 2020 , as
compared to the three months ended March 31, 2019 , primarily reflects
approximately $137 million associated with the impact of the decline in global
automotive production as a result of COVID-19, and a reduction of approximately
$20 million associated with the effect of metal market pass-throughs to our
customers and the impact of foreign exchange related to translation adjustments.
The change in net sales in our Metal Forming segment in the three months ended
March 31, 2020 , as compared to the three months ended March 31, 2019 , primarily
reflects approximately $32 million associated with the impact of the decline in
global automotive production as a result of COVID-19. Also for the three months
ended March 31, 2020 , as compared to the three months ended March 31, 2019 ,
Metal Forming sales were impacted by a reduction of approximately $22 million
associated with the effect of metal market pass-throughs to our customers and
the impact of foreign exchange related to translation adjustments.
The change in net sales in our Casting segment in the three months ended
March 31, 2020 , as compared to the three months ended March 31, 2019 , is the
result of the Casting Sale that was completed in the fourth quarter of 2019 as
AAM no longer operates in this business.
We use Segment Adjusted EBITDA as the measure of earnings to assess the
performance of each segment and determine the resources to be allocated to the
segments. We define EBITDA to be earnings before interest expense, income taxes,
depreciation and amortization. Segment Adjusted EBITDA is defined as EBITDA for
our reportable segments excluding the impact of restructuring and
acquisition-related costs, debt refinancing and redemption costs, gain (loss) on
the sale of a business, impairment charges, pension settlements, and
non-recurring items.
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The amounts for Segment Adjusted EBITDA for the three months ended
Three Months Ended March 31,
2020 2019
Driveline $ 139.3 $ 142.8
Metal Forming 74.0 84.4
Casting - 17.8
Total segment adjusted EBITDA $ 213.3 $ 245.0
For the three months ended March 31, 2020 , as compared to the three months ended
March 31, 2019 , the change in Segment Adjusted EBITDA for the Driveline segment
was primarily attributable to lower net global automotive production volumes as
a result of the impact of COVID-19, which was partially offset by improved
operating performance, lower launch costs and a reduction in net manufacturing
costs.
The change in Metal Forming Segment Adjusted EBITDA for the three months ended
The change in Segment Adjusted EBITDA for our Casting segment in the three
months ended
Reconciliation of Non-GAAP and GAAP Information
In addition to results reported in accordance with accounting principles generally accepted inthe United States of America (GAAP) in this MD&A, we have provided certain non-GAAP financial measures such as EBITDA and Total Segment Adjusted EBITDA. Such information is reconciled to its closest GAAP measure in accordance withSecurities and Exchange Commission rules below. We define EBITDA to be earnings before interest expense, income taxes, depreciation and amortization. Total Segment Adjusted EBITDA is defined as EBITDA for our reportable segments excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, gain (loss) on the sale of a business, impairment charges, pension settlements, and non-recurring items. We believe that EBITDA and Total Segment Adjusted EBITDA are meaningful measures of performance as they are commonly utilized by management and investors to analyze operating performance and entity valuation. Our management, the investment community and the banking institutions routinely use EBITDA and Total Segment Adjusted EBITDA, together with other measures, to measure our operating performance relative to other Tier 1 automotive suppliers and to assess the relative mix of Adjusted EBITDA by segment. We also believe that Total Segment Adjusted EBITDA is a meaningful measure as it is used for operational planning and decision-making purposes. These non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures as presented by AAM may not be comparable to similarly titled measures reported by other companies. Three Months Ended March 31, 2020 2019 Net income (loss)$ (501.2) $ 41.7 Interest expense 51.5 53.4 Income tax expense (benefit) 3.3 (3.0) Depreciation and amortization 129.6 140.8 EBITDA$ (316.8) $ 232.9 Restructuring and acquisition-related costs 17.6 12.1 Debt refinancing and redemption costs 1.5 - Impairment charge 510.0 - Loss on sale of business 1.0 - Total segment adjusted EBITDA$ 213.3 $ 245.0 32
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LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund debt service obligations, capital expenditures and working capital requirements, in addition to advancing our strategic initiatives. We believe that operating cash flow, available cash and cash equivalent balances and available borrowing capacity under our Senior Secured Credit Facilities and foreign credit facilities will be sufficient to meet these needs.
COVID-19 Considerations Related to Liquidity and Capital Resources
In order to mitigate the financial impact of COVID-19, we have implemented measures to conserve cash and protect our liquidity position, including:
•Continuing to flex our variable cost structure; •Continuing to manage our controllable expenses; •Reducing the annual cash retainer for each non-employee director by 40%; •Reducing salaries for executive officers by 30% and for certain other associates by various percentages depending on level; •Reducing our projected capital expenditures for the year; and •Pursuing options to defer and reduce tax payments through the CARES Act and similar global initiatives.
AtMarch 31, 2020 , we had over$1.4 billion of liquidity consisting of approximately$683 million of cash and cash equivalents, approximately$691 million of available borrowings under our Revolving Credit Facility and approximately$86 million of available borrowings under foreign credit facilities. Further, we have no significant debt maturities beforeOctober 2022 . Based on our liquidity profile and no significant debt maturities in 2020, as well as the measures that we are taking to conserve cash, we believe that we will have sufficient funds available to continue operating with no significant changes to our capital structure until such time as production returns to more normalized levels. Operating Activities In the first three months of 2020, net cash provided by operating activities was$139.4 million as compared to net cash used in operating activities of$80.2 million in the first three months of 2019. The following factors impacted cash from operating activities in the first three months of 2020, as compared to the first three months of 2019: Accounts receivable For the three months endedMarch 31, 2020 , we experienced an increase in cash flow from operating activities of approximately$246 million related to the change in our accounts receivable balance fromDecember 31, 2019 toMarch 31, 2020 , as compared to the change in our accounts receivable balance fromDecember 31, 2018 toMarch 31, 2019 . This change was primarily attributable to the timing of receipts related to customer receivables, as well as the impact of a reduction in sales at the end of the first quarter of 2020 due to the onset of COVID-19. Inventories For the three months endedMarch 31, 2020 , we experienced a decrease in cash flow from operating activities of approximately$34 million related to the change in our inventories balance fromDecember 31, 2019 toMarch 31, 2020 , as compared to the change in our inventories balance fromDecember 31, 2018 toMarch 31, 2019 . This change was primarily attributable to increased finished goods inventory atMarch 31, 2020 as a result of a sharp reduction in sales at the end of the first quarter of 2020 due to the onset of COVID-19. Accounts payable and accrued expenses For the three months endedMarch 31, 2020 , we experienced a decrease in cash flow from operating activities of approximately$28 million related to the change in our accounts payable and accrued expenses balance fromDecember 31, 2019 toMarch 31, 2020 , as compared to the change fromDecember 31, 2018 toMarch 31, 2019 . This change was primarily attributable to the timing of payments to suppliers, as well as the impact of reduced sales and purchasing activity at the end of the first quarter of 2020 due to the onset of COVID-19. Restructuring and acquisition-related costs For the full year 2020, we expect restructuring and acquisition-related payments in cash flows from operating activities to be between$55 million and$70 million , and we expect the timing of cash payments to approximate the timing of charges incurred. Pension and other postretirement benefits Due to the availability of our pre-funded pension balances (previous contributions in excess of prior required pension contributions) related to certain of ourU.S. pension plans, we expect our regulatory pension funding requirements in 2020 to be approximately$1.5 million . We expect our cash payments for other postretirement benefit obligations in 2020, net ofGM cost sharing, to be approximately$17 million . 33 --------------------------------------------------------------------------------
Income taxes Based on the status of ongoing tax audits, and the protocol of
finalizing audits by the relevant tax authorities, it is not possible to
estimate the impact of changes, if any, to previously recorded uncertain tax
positions. As of
During the next 12 months, we may finalize an advance pricing agreement in a foreign jurisdiction, which would result in a cash payment to the relevant tax authorities and a reduction of our liability for unrecognized tax benefits and related interest and penalties. Although it is difficult to estimate with certainty the amount of any audit settlement, we do not expect any potential settlement to be materially different from what we have recorded in unrecognized tax benefits. In the first quarter of 2020, we recognized a refundable income tax asset of approximately$35 million related to income tax for which we expect to receive a refund based on the utilization of net operating losses under the provisions of the CARES Act. This amount is presented in Prepaid expenses and other in our Condensed Consolidated Balance Sheet as ofMarch 31, 2020 . See Note 1 - Organization and Basis of Presentation for additional detail regarding the CARES Act. Investing Activities In the first three months of 2020, net cash used in investing activities was$69.2 million as compared to$123.9 million for the three months endedMarch 31, 2019 . Capital expenditures were$69.7 million in the first three months of 2020 as compared to$124.2 million in the first three months of 2019. We expect our capital spending in 2020 to be approximately$250 million . Financing Activities In the first three months of 2020, net cash provided by financing activities was$87.7 million , as compared to net cash used in financing activities of$21.4 million in the first three months of 2019. The following factors impacted cash from financing activities in the first three months of 2020 as compared to the first three months of 2019: Senior Secured Credit Facilities In 2019, Holdings,AAM, Inc. , and certain subsidiaries of Holdings entered into the First Amendment (First Amendment) to the Credit Agreement (as amended by the First Amendment, the Amended Credit Agreement). The First Amendment, among other things, established$340 million in incremental term loan A commitments under the Amended Credit Agreement with a maturity date ofJuly 29, 2024 (Term Loan A Facility due 2024), reduced the availability under the Revolving Credit Facility from$932 million to$925 million and extended the maturity date of the Revolving Credit Facility fromApril 6, 2022 toJuly 29, 2024 , and modified the applicable margin with respect to interest rates under the Term Loan A Facility due 2024 and interest rates and commitment fees under the Revolving Credit Facility. The applicable margin and the maturity date for the Term Loan B Facility remained unchanged. The proceeds of$340 million were used to repay all of the outstanding loans under the existing Term Loan A Facility and a portion of the outstanding Term Loan B Facility, resulting in no additional indebtedness. This also satisfies all payment requirements under the Term Loan B Facility until maturity in 2024. 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. AtMarch 31, 2020 , we had$691.4 million available under the Revolving Credit Facility. This availability reflects$200.0 million associated with a draw on the Revolving Credit Facility that occurred inMarch 2020 , and$33.6 million for standby letters of credit issued against the facility. Further, inApril 2020 , we drew an additional$150.0 million on the Revolving Credit Facility. The borrowings under the Revolving Credit Facility are used for general corporate purposes.
Subsequent Event Related to Senior Secured Credit Facilities
InApril 2020 , Holdings,AAM, Inc. , and certain subsidiaries of Holdings entered into the Second Amendment (Second Amendment) to the Credit Agreement (as amended, the Second Amended Credit Agreement). For the period fromApril 1, 2020 throughMarch 31, 2022 (the Amendment Period), the Second Amendment, among other things, replaced the total net leverage ratio covenant with a new senior secured net leverage ratio covenant, reduced the minimum levels of the cash interest expense coverage ratio covenant, and modified certain covenants restricting the ability of Holdings, AAM and certain subsidiaries of Holdings to create, incur, assume or permit to exist certain additional indebtedness and liens and to make certain restricted payments, voluntary payments and distributions. The Second Amendment also increased the maximum levels of the total net leverage ratio covenant after the Amendment Period, modified the applicable margin with respect to interest rates under the Term Loan A Facility due 2024 and interest rates and commitment fees under the Revolving Credit Facility, and increased the minimum adjusted London Interbank Offered Rate for Eurodollar-based loans under the Term Loan A Facility due 2024 and Revolving Credit Facility. The applicable margin for the Term Loan B Facility remains unchanged. 34 -------------------------------------------------------------------------------- Redemption of 6.625% Notes due 2022 In the first quarter of 2020, we voluntarily redeemed a portion of our 6.625% Notes due 2022. This resulted in a principal payment of$100.0 million and$2.0 million in accrued interest. We expensed approximately$0.4 million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately$1.1 million for the payment of an early redemption premium.
Foreign credit facilities We utilize local currency credit facilities to finance
the operations of certain foreign subsidiaries. At
Treasury stockTreasury stock increased by$2.4 million in the first three months of 2020 to$211.7 million as compared to$209.3 million at year-end 2019, due to the withholding and repurchase of shares of AAM stock to satisfy employee tax withholding obligations due upon the vesting of performance shares and restricted stock units. Subsidiary Guarantees of Registered Debt Securities Our 6.625% Notes, 6.50% Notes, 6.25% Notes (due 2026), and 6.25% Notes (due 2025) (collectively, the Notes) are senior unsecured obligations ofAAM, Inc. (Issuer); all of which are fully and unconditionally guaranteed, on a joint and several basis, by Holdings and substantially all domestic subsidiaries ofAAM, Inc. andMPG Inc (Subsidiary Guarantors). Holdings has no significant assets other than its 100% ownership inAAM, Inc. andMPG Inc. , and no direct subsidiaries other thanAAM, Inc. andMPG Inc.
Each guarantee by Holdings and/or any of the Subsidiary Guarantors is:
•a senior obligation of the relevant Subsidiary Guarantors; •the unsecured and unsubordinated obligation of the relevant Subsidiary Guarantors; and •of equal rank with all other existing and future unsubordinated and unsecured indebtedness of the relevant Subsidiary Guarantors.
Each guarantee by a Subsidiary Guarantor provides by its terms that it will be automatically, fully and unconditionally released and discharged upon:
•Any sale, exchange or transfer (by merger or otherwise) of the Capital Stock of such Subsidiary Guarantor, or the sale or disposition of all the assets of such Subsidiary Guarantor, which sale, exchange, transfer or disposition is made in compliance with the applicable provisions of the indentures; •the exercise by the Issuer of its legal defeasance option or covenant defeasance option or the discharge of the Issuer's obligations under the indentures in accordance with the terms of the indentures; •the election of the Issuer to affect such a release following the date that such guaranteed Notes have an investment grade rating from both Standard & Poor'sRatings Group, Inc , andMoody's Investors Service, Inc. 35 -------------------------------------------------------------------------------- The following represents summarized financial information ofAAM Holdings ,AAM Inc. and the Subsidiary Guarantors (collectively, the Combined Entities). The information has been prepared on a combined basis and excludes any investments ofAAM Holdings ,AAM Inc. , or the Subsidiary Guarantors in non-guarantor subsidiaries. Intercompany transactions and amounts between Combined Entities have been eliminated. Statement of Operations Information
(in millions)
Three Months Ended March Year Ended December
31, 2020 31, 2019
Net sales $ 1,054.4 $ 3,043.3
Gross profit 92.1 192.0
Loss from operations (380.8) (793.3)
Net loss (401.7) (718.0)
Balance Sheet Information (in millions)
March 31, 2020 December 31, 2019
Current assets $ 1,245.2 $ 699.5
Noncurrent assets 2,853.6 3,120.4
Current liabilities 1,162.4 551.9
Noncurrent liabilities 4,226.8 4,281.3
Redeemable preferred stock - -
Noncontrolling interest - -
At March 31, 2020 and December 31, 2019 , amounts owed by the Combined Entities
to non-guarantor entities totaled approximately $510 million and $125 million ,
respectively, and amounts owed to the Combined Entities from non-guarantor
entities totaled approximately $725 million and $630 million , respectively.
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--------------------------------------------------------------------------------CRITICAL ACCOUNTING ESTIMATES
Subsequent to the goodwill impairment charge that was recorded for our Driveline reporting unit in the first quarter of 2020, the fair value of this reporting unit approximated its carrying value. Fair value of the reporting unit is estimated based on a combination of discounted cash flows and the use of pricing multiples derived from an analysis of comparable public companies multiplied against historical and/or anticipated financial metrics of the reporting unit. These calculations contain uncertainties as they require management to make assumptions including, but not limited to, market comparables, future cash flows of the reporting unit, and appropriate discount and long-term growth rates. A decline in the actual cash flows of the Driveline reporting unit in future periods, as compared to the projected cash flows used in the valuation, could result in the carrying value of this reporting unit exceeding its fair value. Further, a change in market comparables, discount rate or long-term growth rate, as a result of a change in economic conditions or otherwise, including those resulting from the impact of COVID-19, could result in the carrying value of this reporting unit exceeding its fair value, which would result in an additional impairment charge. AAM's critical accounting estimates are included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and did not materially change during the three months endedMarch 31, 2020 .
CYCLICALITY AND SEASONALITY
Our operations are cyclical because they are directly related to worldwide
automotive production, which is itself cyclical and dependent on general
economic conditions and other factors. Our business is also moderately seasonal
as our major OEM customers historically have an extended shutdown of operations
(typically 1-2 weeks) in conjunction with their model year changeover and an
approximate one-week shutdown in December. Our major OEM customers also
occasionally have longer shutdowns of operations (up to six weeks) for program
changeovers. Accordingly, our quarterly results may reflect these trends.
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--------------------------------------------------------------------------------LITIGATION AND ENVIRONMENTAL MATTERS
We are involved in, or potentially subject to, various legal proceedings or claims incidental to our business. These include, but are not limited to, matters arising out of product warranties, tax or contractual matters, and environmental obligations. Although the outcome of these matters cannot be predicted with certainty, we do not believe that any of these matters, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows.
We are subject to various federal, state, local and foreign environmental and occupational safety and health laws, regulations and ordinances, including those regulating air emissions, water discharge, waste management and environmental cleanup. We will continue to closely monitor our environmental conditions to ensure that we are in compliance with all laws, regulations and ordinances. We have made, and anticipate continuing to make, capital and other expenditures (including recurring administrative costs) to comply with environmental requirements at our current and former facilities. Such expenditures were not significant in the first quarter of 2020.
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