American Axle & Manufacturing : 2Q 2020 Supplemental Earnings Deck - final

Second Quarter 2020 Earnings Call

Forward-Looking Statements

This supplemental information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. These risks and uncertainties include uncertainty around the duration and effects of the COVID-19 pandemic, and include factors detailed in the reports we file with the SEC, including those described under "Risk Factors" in our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. These forward-looking statements speak only as of the date of this communication. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

It should also be noted that this information contains certain financial measures, including Adjusted EBITDA, Adjusted Earnings per Share, Adjusted Free Cash Flow, Net Leverage Ratio and Liquidity that are not required by, or presented in accordance with, accounting principles generally accepted in the United States, or GAAP. These measures are presented here to provide additional useful measurements to review our operations, provide transparency to investors and enable period-to-period comparability of financial performance. A description of non-GAAP financial measures that we use to evaluate our operations and financial performance, and reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP, can be found in the appendix under "Reconciliation of Non-GAAP Measures".

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2Q 2020 AAM Highlights

$515M

Quarterly

Sales

Launched First

China eDrive

Program at our

Liuzhou AAM JV

($52M)

Quarterly

Adj. EBITDA

Issued

$400 Million

of Unsecured

Senior Notes

> $1.6B

Quarter-end

Liquidity

Awarded GM

Supplier of the

Year for Fourth

Year in a Row

* For definitions and reconciliations of non-GAAP financial measures, please see the attached appendix.

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2Q Financial Results

	Three Months Ended June 30,
	2020		2019
	(dollars in millions, except per share data)		Difference
Net sales	$	515.3		1,704.3	$	(1,189.0)
$
Gross profit (loss)	$	(98.9)	$	248.3	$	(347.2)
Gross margin		-19.2%		14.6%		-33.8%
SG&A	$	73.8	$	91.3	$	(17.5)
SG&A as a % of sales		14.3%		5.4%		9.0%
Amortization of intangible assets	$	21.6	$	24.9	$	(3.3)
Restructuring and acquisition costs	$	11.3	$	12.2	$	(0.9)
Other income (expense)	$	0.1	$	(5.5)	$	5.6
Adjusted EBITDA	$	(52.1)	$	266.0	$	(318.1)
Adjusted EBITDA margin		-10.1%		15.6%		-25.7%
Net interest expense	$	51.6	$	55.7	$	(4.1)
Income tax expense (benefit)	$	(43.9)	$	6.0	$	(49.9)
Effective tax rate		17.1%		10.2%		6.9%
Net income (loss) attributable to AAM	$	(213.2)	$	52.5	$	(265.7)
Diluted EPS	$	(1.88)	$	0.45	$	(2.33)
Adjusted EPS	$	(1.79)	$	0.55	$	(2.34)

Adjusted earnings per share are based on weighted average diluted shares outstanding of 113.1 million and 116.1 million for the three months ended on June 30, 2020 and 2019, respectively.

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* For definitions and reconciliations of non-GAAP financial measures, please see the attached appendix.

2Q 2020 Year-Over-Year Sales Walk

(in millions)

$1,704
$1,533
($171)
		$515
($947)	($40)	($31)

2Q 2019 Sales	Sale of U.S. Casting	2Q 2019 Sales Pro	COVID-19 related	Other Volume & Mix	Metal Market & Fx	2Q 2020 Sales
		forma for Casting Sale

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2Q 2020 Year-over-Year Adjusted EBITDA Walk

(in millions)

$266

$249

($17)

($299)	$22	$6
($52)
	$2
($19)
($7)	($6)

2Q 2019	2Q 2019 U.S.	2Q 2019 Adj.	Lower sales	Other Volume &	Pricing	Metal Market &	COVID-19 start	Cost reduction	Lower Launch	2Q 2020
Adjusted	Casting EBITDA	EBITDA Pro	related to	Mix		Fx	up costs	actions	Costs &	Adjusted
EBITDA		forma for U.S.	COVID-19						Performance	EBITDA
		Casting Sale

* For definitions and reconciliations of non-GAAP financial measures, please see the attached appendix.	6

Adjusted Free Cash Flow and Credit Profile

Cash Flow and Debt Metrics	2Q 2020

Adjusted Free Cash Flow

($161.8) million

Net Debt	$3.24 billion

Net Leverage Ratio	5.2x

Liquidity	$1.66 billion

* For definitions and reconciliations of non-GAAP financial measures, please see the attached appendix.	7

Debt Maturity Profile

(in millions)

Revolver

No significant debt maturities until 2024

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Downside Protection Playbook

	Sales Decline	0%
Potential Actions	Duration Expected	AND / OR
Short

Reduce Variable Costs

• Direct Material (≈60% of COGS)
• Hourly Headcount
• Variable Overhead

Reduce Semi-fixed Costs

• Salaried headcount, merit and incentive compensation adjustments/deferrals

• Formal spending reduction programs (ex. travel)

• Align future R&D, project and capital expenses to lower sales levels

Select Recapacitating of Facilities

• Align capacity with customers

• Plant loading adjustments to optimize capacity

Structural Capacity and Overhead Reduction

• Global footprint consolidations
• Significant Salaried Reduction in Force programs

Note: This list includes examples for illustrative purposes and does not include all potential actions

25%+
	Restructuring Costs
Longer	Required?
		No

Limited

Moderate

Higher

AAM is analyzing its full playbook and in process with many actions across its global operations

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Supplemental Data

Adjusted Free Cash Flow Breakeven Scenario

(in millions)

As Disclosed on May 8 , 2020

Adj. EBITDA to Adj. FCF Breakeven

Initial 2020 Adj. EBITDA Target (midpoint)	$	945
Impact of 25% to 30% lower sales (midpoint)		≈ (500)
COVID-19start-up & supplier inefficiency costs		≈ (40)
Cost reduction actions		≈ 60
	$	465
Capital Expenditures		≈ (250)
Interest Payments		≈ (205)
Tax Payments		≈ (50)
Inventory and other working capital		≈ 40
Adjusted Free Cash Flow	≈ BREAKEVEN

Initial Adj. FCF Target to Adj. FCF Breakeven

$300

Cash Preservation Actions

≈$65

≈ Breakeven

≈$40

≈$60

≈$75

≈($540)

2020 Initial

Impact of

Cost

Lower

Lower Tax

Working

Adjusted

Lower Sales

Reduction

Capital

Payments

Capital

Free Cash

& COVID-19

Actions

Spending

and other

Flow Target

expenses

* For definitions and reconciliations of non-GAAP financial measures, please see the attached appendix.	11

Reconciliation of Non-GAAP Measures

In addition to the results reported in accordance with accounting principles generally accepted in the United States of America (GAAP) included within this presentation, we have provided certain information, which includes non-GAAP financial measures. Such information is reconciled to its closest GAAP measure in accordance with Securities and Exchange Commission rules and is included in the following slides.

Certain of the forward-looking financial measures included in this earnings release are provided on a non-GAAP basis. A reconciliation of non-GAAPforward-looking financial measures to the most directly comparable forward-looking financial measures calculated and presented in accordance with GAAP has been provided. The amounts in these reconciliations are based on our current estimates and actual results may differ materially from these forward-looking estimates for many reasons, including potential event driven transactional and other non-core operating items and their related effects in any future period, the magnitude of which may be significant.

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Supplemental Data

EBITDA and Adjusted EBITDA Reconciliation

($ in millions)

		Three Months Ended			Six Months Ended
		June 30,				June 30,
		2020			2019			2020			2019
Net income (loss)
$	(213.2)	$	52.7	$	(714.4)	$	94.4
Interest expense		54.6			56.2			106.1			109.6
Income tax expense (benefit)		(43.9)			6.0			(40.6)			3.0
Depreciation and amortization		139.1			136.5			268.7			277.3
EBITDA
	(63.4)			251.4			(380.2)			484.3
Restructuring and acquisition-related costs		11.3			12.2			28.9			24.3
Debt refinancing and redemption costs		-			2.4			1.5			2.4
Impairment charge		-			-			510.0			-
Loss on sale of business		-			-			1.0			-
Adjusted EBITDA
$	(52.1)	$	266.0	$	161.2	$	511.0
Sales		515.3			1,704.3			1,858.8			3,423.5
as % of net sales		-10.1%			15.6%			8.7%			14.9%

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Supplemental Data

EBITDA and Adjusted EBITDA for the Trailing Twelve Months Ended June 30, 2020

($ in millions)

				Trailing
				Twelve
	Quarter Ended		Months Ended
September 30,	December 31,	March 31,	June 30,	June 30,
2019	2019	2020	2020	2020

Net income (loss)	$	(124.1)	$
Interest expense		54.3
Income tax expense (benefit)		(40.4)
Depreciation and amortization		134.2
EBITDA		24.0
Restructuring and acquisition-related costs		11.7
Debt refinancing and redemption costs		5.1
Impairment charges		225.0
Pension settlement		-
Loss on sale of business		-
Non-recurring items:
Gain on bargain purchase of business		-
Other		-
Adjusted EBITDA	$	265.8	$
as % of net sales		15.8%

(454.4)	$	(501.2)	$	(213.2)	$	(1,292.9)
53.4		51.5			54.6			213.8
(11.5)		3.3			(43.9)			(92.5)
125.4		129.6			139.1			528.3
(287.1)		(316.8)			(63.4)			(643.3)
21.8		17.6			11.3			62.4
0.9		1.5			-			7.5
440.0		510.0			-			1,175.0
9.8		-			-			9.8
21.3		1.0			-			22.3
(10.8)		-			-			(10.8)
(2.4)		-			-			(2.4)
193.5	$	213.3	$	(52.1)	$	620.5
13.5%		15.9%			-10.1%			12.5%

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Supplemental Data

Adjusted Earnings (Loss) Per Share Reconciliation

	Three Months Ended				Six Months Ended
		June 30,				June 30,
	2020		2019				2020			2019
Diluted earnings (loss) per share	$	(1.88)	$	0.45	$	(6.33)	$	0.81
Restructuring and acquisition-related costs		0.10			0.11			0.26			0.21
Debt refinancing and redemption costs		-			0.02			0.01			0.02
Impairment charge		-			-			4.52			-
Loss on sale of business		-			-			0.01			-
Non-recurring items:
Adjustment to liability for unrecognized tax benefits		(0.06)			-			(0.06)			-
Tax adjustments related to the CARES Act and Tax Cuts and Jobs Act		-			-			(0.07)			(0.08)
Other		0.08			-			0.14			-
Tax effect of adjustments		(0.03)			(0.03)			(0.07)			(0.05)
Adjusted earnings (loss) per share	$	(1.79)		$	0.55		$	(1.59)		$	0.91

Adjusted earnings (loss) per share are based on weighted average diluted shares outstanding of 113.1 million and 116.1 million for the three months ended on June 30, 2020 and 2019, respectively, and 112.9 million and 116.0 million for the six months ended on June 30, 2020 and 2019, respectively.

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Supplemental Data

Free Cash Flow and Adjusted Free Cash Flow Reconciliation

($ in millions)

		Three Months Ended			Six Months Ended
		June 30,				June 30,
		2020			2019			2020			2019
Net cash provided by (used in) operating activities	$	(142.5)	$	217.1	$	(3.1)	$	136.9
Less: Capital expenditures net of proceeds from sale of property,
plant and equipment		(35.0)			(111.9)			(104.2)			(235.8)
Free cash flow		(177.5)			105.2			(107.3)			(98.9)
Cash payments for restructuring and acquisition-related costs		15.7			14.1			28.8			29.7
Adjusted Free Cash Flow	$	(161.8)	$	119.3	$	(78.5)	$	(69.2)

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Supplemental Data

Net Debt and Net Leverage Ratio
($ in millions)
		June 30,
		2020
Current portion of long-term debt	$	573.7
Long-term debt, net		3,561.4
Total debt, net		4,135.1
Less: Cash and cash equivalents		893.3
Net debt at end of period		3,241.8
Adjusted LTM EBITDA	$	620.5
Net Leverage Ratio		5.2

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Supplemental Data

	Segment Financial Information
		($ in millions)
		Three Months Ended		Six Months Ended
		June 30,			June 30,
		2020		2019		2020		2019
Segment Sales
Driveline	$	403.7	$	1,181.5	$	1,435.4	$	2,347.8
Metal Forming		150.3		484.2		572.6		967.5
Casting		-		179.7		-		373.4
Total Sales		554.0		1,845.4		2,008.0		3,688.7
Intersegment Sales		(38.7)		(141.1)		(149.2)		(265.2)
Net External Sales	$	515.3	$	1,704.3	$	1,858.8	$	3,423.5
Segment Adjusted EBITDA
Driveline	$	(31.2)	$	162.1	$	108.1	$	304.9
Metal Forming		(20.9)		86.5		53.1		170.9
Casting		-		17.4		-		35.2
Total Segment Adjusted EBITDA	$	(52.1)	$	266.0	$	161.2	$	511.0

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Definition of Non-GAAP Measures

EBITDA and Adjusted EBITDA

We define EBITDA to be earnings (loss) before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs, loss on sale of a business, impairment charges and non-recurring items. We believe that EBITDA and 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 Adjusted EBITDA, together with other measures, to measure our operating performance relative to other Tier 1 automotive suppliers. We also 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. EBITDA and Adjusted EBITDA should not be construed as income from operations, net income or cash flow from operating activities as determined under GAAP. Other companies may calculate EBITDA and Adjusted EBITDA differently.

Adjusted Earnings (Loss) Per Share

We define Adjusted earnings (loss) per share to be diluted earnings per share excluding the impact of restructuring and acquisition related costs, debt refinancing and redemption costs, loss on sale of a business, impairment charges, and non-recurring items, including the tax effect thereon. We believe Adjusted earnings (loss) per share is a meaningful measure as it is commonly utilized by management and investors in assessing ongoing financial performance that provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of core operating performance and which may obscure underlying business results and trends. Other companies may calculate Adjusted earnings (loss) per share differently.

Free Cash Flow and Adjusted Free Cash Flow

We define free cash flow to be net cash provided by (used in) operating activities less capital expenditures net of proceeds from the sale of property, plant and equipment. Adjusted free cash flow is defined as free cash flow excluding the impact of cash payments for restructuring and acquisition-related costs. We believe free cash flow and Adjusted free cash flow are meaningful measures as they are commonly utilized by management and investors to assess our ability to generate cash flow from business operations to repay debt and return capital to our stockholders. Free cash flow and Adjusted free cash flow are also key metrics used in our calculation of incentive compensation. Other companies may calculate free cash flow and Adjusted free cash flow differently.

Net Debt and Net Leverage Ratio

We define net debt to be total debt, net less cash and cash equivalents. We define Net Leverage Ratio to be net debt divided by the trailing 12 months of Adjusted EBITDA. We believe that Net Leverage Ratio is a meaningful measure of financial condition as it is commonly used by management, investors and creditors to assess capital structure risk. Other companies may calculate Net Leverage Ratio differently.

Liquidity

We define Liquidity as cash on hand plus amounts available on our revolving credit facility and foreign credit facilities.

US SAAR

We define US SAAR as the seasonally adjusted annual rate of light vehicle sales in the United States.

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