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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2020
  
or
  
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)
Delaware38-3161171
(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 No
 
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  No 
 
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            Accelerated filer           Non-accelerated filer            Smaller reporting company            Emerging growth company  

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
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareAXLNew York Stock Exchange

As of October 27, 2020, the latest practicable date, the number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding was 113,272,990 shares.
 
Internet Website Access to Reports

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



AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2020
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:

significant disruptions in production, sales and/or supply as a result of public health crises, including pandemic or epidemic illness such as Novel Coronavirus (COVID-19), or otherwise;
global economic conditions;
reduced purchases of our products by General Motors Company (GM), FCA US LLC (FCA), Ford Motor Company (Ford) 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;
lower-than-anticipated market acceptance of new or existing products;
our ability to attract new customers and programs for new products;
reduced demand for our customers' products (particularly light trucks and sport utility vehicles (SUVs) produced by GM, FCA and Ford);
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 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;
negative or unexpected tax consequences;
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 pandemics, natural disasters or otherwise;
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;
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;
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;
our ability or our customers' and suppliers' ability to successfully launch new product programs on a timely basis;
our ability to maintain satisfactory labor relations and avoid work stoppages;
our suppliers', our customers' and their suppliers' ability to maintain satisfactory labor relations and avoid work stoppages;
our ability to 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;
price volatility in, or reduced availability of, fuel;
our ability to protect our intellectual property and successfully defend against assertions made against us;
risks of noncompliance with environmental laws and regulations or risks of environmental issues that could result in unforeseen costs at our 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;
changes in liabilities arising from pension and other postretirement benefit obligations;
our ability to attract and retain key associates; 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 any or all of the foregoing factors may be exacerbated by COVID-19. Further, we make no commitment to update any forward-looking statement or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward-looking statement.

1


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 Three Months EndedNine Months Ended
 September 30,September 30,
 2020201920202019
 (in millions, except per share data)
 
Net sales$1,414.1 $1,677.4 $3,272.9 $5,100.9 
 
Cost of goods sold1,164.3 1,428.7 2,926.7 4,381.7 
 
Gross profit249.8 248.7 346.2 719.2 
 
Selling, general and administrative expenses66.5 92.7 230.6 274.7 
Amortization of intangible assets21.6 23.7 65.0 73.6 
Impairment charges (Note 1 and Note 3) 225.0 510.0 225.0 
Restructuring and acquisition-related costs9.7 11.7 38.6 36.0 
Loss on sale of business  1.0  
 
Operating income (loss)152.0 (104.4)(499.0)109.9 
 
Interest expense(53.9)(54.3)(160.0)(163.9)
 
Interest income3.4 2.2 9.2 3.4 
 
Other income (expense)
Debt refinancing and redemption costs(5.2)(5.1)(6.7)(7.5)
Other expense, net(1.6)(2.9)(3.8)(9.0)
 
Income (loss) before income taxes94.7 (164.5)(660.3)(67.1)
 
Income tax benefit(22.5)(40.4)(63.1)(37.4)
 
Net income (loss)$117.2 $(124.1)$(597.2)$(29.7)
 
Net income attributable to noncontrolling interests (0.1)(0.1)(0.4)
 
Net income (loss) attributable to AAM$117.2 $(124.2)$(597.3)$(30.1)
 
Basic earnings (loss) per share$0.99 $(1.10)$(5.28)$(0.27)
 
Diluted earnings (loss) per share$0.99 $(1.10)$(5.28)$(0.27)

See accompanying notes to condensed consolidated financial statements.
2


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

Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
(in millions)
Net income (loss)$117.2 $(124.1)$(597.2)$(29.7)
Other comprehensive income (loss)
Defined benefit plans, net of tax (a)
1.7 (1.3)5.0 0.5 
     Foreign currency translation adjustments14.0 (37.1)(30.0)(34.7)
     Changes in cash flow hedges, net of tax (b)
6.7 (6.4)(19.3)(24.7)
Other comprehensive income (loss)22.4 (44.8)(44.3)(58.9)
Comprehensive income (loss)$139.6 $(168.9)$(641.5)$(88.6)
     Net income attributable to noncontrolling interests (0.1)(0.1)(0.4)
     Foreign currency translation adjustments attributable to noncontrolling interests  0.3  
Comprehensive income (loss) attributable to AAM$139.6 $(169.0)$(641.3)$(89.0)

(a)
Amounts are net of tax of $(0.4) million and $(1.2) million for the three and nine months ended September 30, 2020, and $0.3 million and $(0.2) million for the three and nine months ended September 30, 2019, respectively.
(b)
Amounts are net of tax of $(0.2) million and $1.6 million for the three and nine months ended September 30, 2020, and $1.1 million and $7.3 million for the three and nine months ended September 30, 2019, respectively.

See accompanying notes to condensed consolidated financial statements.                   
3


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

 September 30, 2020December 31, 2019
 (Unaudited) 
Assets(in millions)
Current assets 
Cash and cash equivalents$537.3 $532.0 
Accounts receivable, net900.8 815.4 
Inventories, net315.8 373.6 
Prepaid expenses and other158.7 136.8 
Total current assets1,912.6 1,857.8 
   
Property, plant and equipment, net2,157.9 2,358.4 
Deferred income taxes104.6 64.1 
Goodwill183.6 699.1 
Other intangible assets, net801.5 864.5 
GM postretirement cost sharing asset221.9 223.3 
Other assets and deferred charges560.0 577.4 
Total assets$5,942.1 $6,644.6 
   
Liabilities and Stockholders’ Equity  
Current liabilities  
Current portion of long-term debt$26.5 $28.7 
Accounts payable622.0 623.5 
Accrued compensation and benefits163.5 154.4 
Deferred revenue22.8 18.9 
Accrued expenses and other189.5 200.9 
Total current liabilities1,024.3 1,026.4 
   
Long-term debt, net3,555.4 3,612.3 
Deferred revenue75.6 83.7 
Deferred income taxes19.7 19.6 
Postretirement benefits and other long-term liabilities923.6 922.2 
Total liabilities5,598.6 5,664.2 
   
Stockholders' equity  
Common stock, par value $0.01 per share; 150.0 million shares authorized;
121.3 million shares issued as of September 30, 2020 and 120.2 million shares issued as of December 31, 2019
1.2 1.2 
Paid-in capital1,328.3 1,313.9 
Retained earnings (Accumulated deficit)(355.8)248.6 
Treasury stock at cost, 8.0 million shares as of September 30, 2020 and 7.6 million shares as of December 31, 2019
(212.0)(209.3)
Accumulated other comprehensive loss
Defined benefit plans, net of tax(254.9)(259.9)
Foreign currency translation adjustments(130.9)(101.2)
Unrecognized loss on cash flow hedges, net of tax(35.0)(15.7)
Total AAM stockholders' equity340.9 977.6 
Noncontrolling interests in subsidiaries2.6 2.8 
Total stockholders' equity343.5 980.4 
Total liabilities and stockholders' equity$5,942.1 $6,644.6 
 See accompanying notes to condensed consolidated financial statements. 
4


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended
 September 30,
 20202019
(in millions)
Operating activities  
Net loss$(597.2)$(29.7)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization393.7 411.5 
Impairment charges510.0 225.0 
Deferred income taxes(38.4)(87.6)
Stock-based compensation14.4 17.5 
Pensions and other postretirement benefits, net of contributions(6.5)(10.4)
Loss on disposal of property, plant and equipment, net16.4 1.3 
Debt refinancing and redemption costs6.7 7.5 
Changes in operating assets and liabilities
Accounts receivable(88.0)(108.4)
Inventories56.9 18.8 
Accounts payable and accrued expenses5.6 8.6 
Deferred revenue(6.6)(12.9)
Other assets and liabilities(20.6)(62.6)
Net cash provided by operating activities246.4 378.6 
  
Investing activities  
Purchases of property, plant and equipment(146.3)(335.3)
Proceeds from sale of property, plant and equipment1.6 2.0 
Investment in joint venture (2.2)
Purchase buyouts of leased equipment(0.1) 
Final settlement on sale of business(4.4) 
Net cash used in investing activities(149.2)(335.5)
   
Financing activities  
Proceeds from Revolving Credit Facility350.0  
Payments of Revolving Credit Facility(350.0) 
Proceeds from issuance of long-term debt408.9 348.4 
Payments of long-term debt(482.2)(477.7)
Debt issuance costs(11.0)(3.3)
Purchase of treasury stock(2.7)(7.5)
Other financing activities(0.6) 
Net cash used in financing activities(87.6)(140.1)
   
Effect of exchange rate changes on cash(4.3)(4.3)
   
Net increase (decrease) in cash, cash equivalents and restricted cash5.3 (101.3)
   
Cash, cash equivalents and restricted cash at beginning of period532.0 478.9 
   
Cash, cash equivalents and restricted cash at end of period$537.3 $377.6 
   
Supplemental cash flow information  
     Interest paid$138.0 $136.3 
     Income taxes paid (refunds received), net$(5.2)$45.7 

See accompanying notes to condensed consolidated financial statements.
5


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

Common StockAccumulatedNoncontrolling
SharesParPaid-inRetained EarningsTreasuryOther ComprehensiveInterest
OutstandingValueCapital(Accumulated Deficit)StockIncome (Loss)in Subsidiaries
Balance at January 1, 2019111.7 $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 shares1.2 — — — — — — 
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, 2019112.5 $1.2 $1,298.1 $774.7 $(209.1)$(343.6)$2.5 
Net income— — — 52.5 — — 0.2 
Stock-based compensation— — 5.7 — — — — 
Purchase of treasury stock — — — (0.2)— — 
Changes in cash flow hedges— — — — — (15.8)— 
Foreign currency translation adjustments— — — — — 4.9 — 
Defined benefit plans, net— — — — — 1.1 — 
Balance at June 30, 2019112.5 $1.2 $1,303.8 $827.2 $(209.3)$(353.4)$2.7 
Net income (loss)— — — (124.2)— — 0.1 
Stock-based compensation— — 6.3 — — — — 
Changes in cash flow hedges— — — — — (6.4)— 
Foreign currency translation adjustments— — — — — (37.1)— 
Defined benefit plans, net— — — — — (1.3)— 
Balance at September 30, 2019112.5 $1.2 $1,310.1 $703.0 $(209.3)$(398.2)$2.8 

6


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

Common StockAccumulatedNoncontrolling
SharesParPaid-inRetainedTreasuryOther ComprehensiveInterest
OutstandingValueCapitalEarningsStockIncome (Loss)in Subsidiaries
Balance at January 1, 2020112.6 $1.2 $1,313.9 $248.6 $(209.3)$(376.8)$2.8 
Net income (loss)    (501.3)  0.1 
Vesting of restricted stock units and performance shares0.8       
Stock-based compensation  4.6     
Modified-retrospective application of ASU 2016-13   (7.1)   
Purchase of treasury stock(0.4)   (2.4)  
Changes in cash flow hedges     (34.7) 
Foreign currency translation adjustments     (48.5)(0.3)
Defined benefit plans, net     1.6  
Balance at March 31, 2020113.0 $1.2 $1,318.5 $(259.8)$(211.7)$(458.4)$2.6 
Net loss   (213.2)   
Vesting of restricted stock units and performance shares0.3       
Stock-based compensation  4.7     
Purchase of treasury stock    (0.3)  
Changes in cash flow hedges     8.7  
Foreign currency translation adjustments     4.8  
Defined benefit plans, net     1.7  
Balance at June 30, 2020113.3 $1.2 $1,323.2 $(473.0)$(212.0)$(443.2)$2.6 
Net income   117.2    
Stock-based compensation  5.1     
Changes in cash flow hedges     6.7  
Foreign currency translation adjustments     14.0  
Defined benefit plans, net     1.7  
Balance at September 30, 2020113.3 $1.2 $1,328.3 $(355.8)$(212.0)$(420.8)$2.6 

See accompanying notes to condensed consolidated financial statements.

7


AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(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 and metal forming products that are making the next generation of vehicles smarter, lighter, safer and more efficient. We employ approximately 20,000 associates, operating at nearly 80 facilities in 17 countries, to support our customers on global and regional platforms with a continued focus on delivering quality, operational excellence and technology leadership.

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, 2019 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. These estimates and assumptions are impacted by risks and uncertainties, including those associated with the Novel Coronavirus (COVID-19) pandemic that began in the first quarter of 2020. While we have made estimates and assumptions based on the facts and circumstances available as of the date of this report, the full impact of COVID-19 cannot be predicted, and actual results could differ materially from those estimates and assumptions.

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, 2019.

Manufacturing Facility Fire and Insurance Recovery

On September 22, 2020, a significant industrial fire occurred at our Malvern Manufacturing Facility in Ohio (Malvern Fire). All associates were evacuated safely and without injury. We continue to focus on managing this disruption and protecting continuity of supply to our customers, including utilizing production capacity and resources at other AAM facilities.

Our insurance policies are expected to cover the repair, replacement or actual cash value of the assets that incurred loss or damage, less our applicable deductible of $1 million. In addition, our insurance policies are expected to provide coverage for interruption to our business, including lost or reduced profits and reimbursement for certain expenses and costs that are incurred relating to the fire. In the third quarter of 2020, we recorded $28.4 million of charges primarily related to the write-down of property, plant and equipment (PP&E) as a result of damage from the fire. We also recorded an insurance recovery receivable primarily associated with the write-down of PP&E of $19.8 million in the third quarter of 2020, which is included in Prepaid expenses and other in our Condensed Consolidated Balance Sheet as of September 30, 2020. This resulted in a net pre-tax impact to our Condensed Consolidated Statement of Operations of approximately $8.6 million in Cost of goods sold for the three and nine months ended September 30, 2020, which includes our applicable deductible. We continue to assess the extent of the damage caused by the fire. As such, we cannot estimate the total impact, including potential insurance recoveries, on our results of operations, financial position or cash flows, or the timing of such impact.

Sale of U.S. Casting - Classification of Assets and Liabilities as Held-for-Sale

In the fourth quarter of 2019, we completed the sale of the U.S operations of our former Casting segment (the Casting Sale). In conjunction with the Casting Sale, the assets and liabilities associated with this business met the criteria to be classified as held-for-sale in our Condensed Consolidated Balance Sheet as of September 30, 2019. Upon reclassification to held-for-sale in the third quarter of 2019, we recorded a pre-tax impairment charge of $225.0 million to reduce the carrying value of this business to fair value less cost to sell.


8

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effect of New Accounting Standards and Other Regulatory Pronouncements

Accounting Standard Update 2020-04

On March 12, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2020-04 - Reference Rate Reform (Topic 848). This guidance provides optional expedients and exceptions that are intended to ease the burden of updating contracts to contain a new reference rate due to the discontinuation of the London Inter-Bank Offered Rate (LIBOR). This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. We are currently assessing which of our various contracts will require an update for a new reference rate and will determine the timing for our implementation of this guidance at the completion of that analysis.

Accounting Standard Update 2019-12

On December 18, 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740). This guidance is intended to simplify the accounting and disclosure requirements for income taxes by removing various exceptions and requires that the effect of an enacted change in tax laws or rates be included in the annual effective tax rate computation in the interim period of the enactment. This guidance becomes effective at the beginning of our 2021 fiscal year. We expect to adopt this guidance on January 1, 2021 and we do not expect that this standard will have a material impact on our consolidated financial statements.

Accounting Standards Update 2016-13

On June 16, 2016, the FASB issued 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss model under previous guidance, and requires entities to consider expected credit losses, in addition to past events and current conditions when measuring credit losses. This guidance applies to certain of our financial instruments and is primarily applicable to our trade accounts receivable. We adopted this guidance on January 1, 2020, using a modified-retrospective transition method and the adoption of this standard did not have a material impact on our condensed consolidated financial statements. See the Statement of Stockholders' Equity for the implementation impact of ASU 2016-13.

Securities and Exchange Commission (SEC) Rule

In the first quarter of 2020, the SEC adopted "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities," a rule that amends the financial disclosure requirements for guarantors and issuers of registered guaranteed securities. This rule eliminates the previous requirement to present guarantor financial statement information in the notes to the financial statements and allows for the disclosure of summarized financial information for the most recent year and interim period, as well as expanded non-financial disclosures, in Management's Discussion and Analysis (MD&A). The effective date for this rule is January 4, 2021, however, the SEC permitted voluntary compliance prior to this date and we elected to adopt the new disclosure requirements in the first quarter of 2020. As such, we no longer present guarantor financial statement information in the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, but instead present the required information within MD&A.


9

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Coronavirus Aid, Relief, and Economic Security Act

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was enacted on March 27, 2020 in the United States. The key provisions of the CARES Act, as applicable to AAM, include the following:

The ability to use net operating losses (NOLs) to offset income without the 80% taxable income limitation enacted as part of the Tax Cuts and Jobs Act (TCJA) of 2017, and to carry back NOLs to offset prior year income for five years. These are temporary provisions that apply to NOLs incurred in 2018, 2019 or 2020 tax years.
The ability to claim a current deduction for interest expense up to 50% of Adjusted Taxable Income (ATI) for tax years 2019 and 2020. This limitation was previously 30% of ATI pursuant to the TCJA, and will revert to 30% after 2020.
The ability to defer the payment of the employer portion of social security taxes incurred between March 27, 2020 and December 31, 2020, with 50% of the deferred amount to be paid by December 31, 2021 and the remaining 50% to be paid by December 31, 2022.
The ability to claim an Employee Retention Credit (ERC), which is a refundable payroll tax credit, for 50% of qualified wages or benefits, subject to certain limitations, that are paid to an employee when they are not providing services due to COVID-19. The ERC applies to qualified wages paid or incurred during the period March 13, 2020 through December 31, 2020 and is available to eligible employers whose operations were fully or partially suspended due to COVID-19, or whose gross receipts declined by more than 50% when compared to the applicable period in the prior year.
10

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRUCTURING AND ACQUISITION-RELATED COSTS

In the first quarter of 2019, we initiated a global restructuring program (the 2019 Program). The primary objectives of the 2019 Program were to further 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.
In the first quarter of 2020, we initiated a new global restructuring program (the 2020 Program) that supersedes the 2019 Program. The primary objectives of the 2020 Program are to achieve efficiencies within our corporate and business unit support teams to reduce cost in our business, and to structurally adjust our operations to a new level of market demand based on the impact of COVID-19. We expect to incur costs under the 2020 Program into 2022.
A summary of our restructuring activity for the first nine months of 2020 and 2019 is shown below:
Severance ChargesImplementation CostsTotal
(in millions)
Accrual at December 31, 2018$2.4 $1.6 $4.0 
Charges10.4 13.1 23.5 
Cash utilization(11.7)(9.9)(21.6)
Accrual at September 30, 2019$1.1 $4.8 $5.9 
Accrual at December 31, 2019$4.8 $7.4 $12.2 
Charges19.9 11.9 31.8 
Cash utilization(19.9)(11.0)(30.9)
Accrual at September 30, 2020$4.8 $8.3 $13.1 

As part of our restructuring actions, we incurred total severance charges of approximately $19.9 million and $10.4 million during the nine months ended September 30, 2020 and 2019, respectively. We also incurred total implementation costs of approximately $11.9 million and $13.1 million during the nine months ended September 30, 2020 and 2019, respectively. Implementation costs in both periods consist primarily of plant exit costs.
Approximately $22.9 million of the restructuring costs incurred during the nine months ended September 30, 2020 were under the 2020 Program. Approximately $14.4 million and $13.1 million of our total restructuring costs for the nine months ended September 30, 2020 related to our Driveline and Metal Forming segments, respectively, while the remainder were corporate costs. Approximately $2.0 million, $14.4 million and $0.7 million of our total restructuring costs for the nine months ended September 30, 2019 related to our Driveline, Metal Forming and former Casting segments, respectively, while the remainder were corporate costs. We expect to incur approximately $70 million to $80 million of total restructuring charges in 2020, including costs incurred under the 2020 Program.
During the nine months ended September 30, 2020 and 2019, we incurred the following integration charges primarily related to the integration of MPG:
Integration Expenses
(in millions)
Charges for the nine months ended September 30, 2020$6.8 
Charges for the nine months ended September 30, 201912.5 
These integration expenses primarily reflect costs incurred for information technology infrastructure and enterprise resource planning systems. Total restructuring charges and acquisition-related charges are presented on a separate line item titled Restructuring and acquisition-related costs in our Condensed Consolidated Statements of Operations, and totaled $9.7 million and $38.6 million for the three and nine months ended September 30, 2020, respectively, and $11.7 million and $36.0 million for the three and nine months ended September 30, 2019, respectively.
11

AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill The following table provides a reconciliation of changes in goodwill for the nine months ended September 30, 2020:
DrivelineMetal FormingConsolidated
(in millions)
Balance at December 31, 2019$398.3 $300.8 $699.1 
Impairment charge(210.8)(299.2)(510.0)
Foreign currency translation(3.9)(1.6)(5.5)
Balance at September 30, 2020$183.6 $ $183.6 

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. This reduction in production volumes began in March of 2020 and resulted in lower forecasted sales volumes in the periods included in our long-range plan as revised in the first quarter of 2020.

In performing this test, we utilize a third-party valuation specialist to assist management in determining the fair value of our reporting units. Fair value of each 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 each 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 units, and appropriate discount and long-term growth rates. This fair value determination is categorized as Level 3 within the fair value hierarchy.

As a result of this goodwill impairment test in the first quarter of 2020, we determined that the carrying values of both our Driveline and Metal Forming reporting units were greater than their respective fair values. As such, we recorded a goodwill impairment charge of $210.8 million associated with our Driveline reporting unit and a goodwill impairment charge of $299.2 million associated with our Metal Forming reporting unit in the first quarter of 2020. The Metal Forming impairment charge represented a full impairment of the goodwill associated with that reporting unit.

These impairment charges were primarily the result of a decline in the projected cash flows of these reporting units under our revised long-range plan completed in the first quarter of 2020. The revision to our long-range plan was driven by lower forecasted sales volumes in the internal and external data sources used to form our projections primarily due to the reduction in global automotive production volumes caused by the impact of COVID-19. The impairment charges were also the result of changes in certain market-related inputs to the analysis to reflect macro-economic changes caused by the impact of COVID-19, including increased discount rates and lower pricing multiples for comparable public companies. At September 30, 2020, accumulated goodwill impairment losses were $1,435.5 million.

The reduction in production volumes and changes to macro-economic factors caused by the impact of COVID-19 also represented an indicator to test our long-lived assets, including other intangible assets and property, plant and equipment, for impairment. We completed this test in the first quarter of 2020 and there was no impairment of these assets.


12

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

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: