AMERICAN AXLE & MANU

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American Axle & Manufacturing : AAM September 2020 Investor Presentation

09/15/2020 | 09:10am

Investor Presentation

September 2020

Forward Looking Statements

This presentation 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 presentation 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".

2

About AAM

2019 SALES

$6.5B

20,000

ASSOCIATES

As a leading, global tier 1 automotive supplier, AAM designs, engineers and manufactures driveline and metal forming technologies that are making the next generation of vehicles smarter, lighter, safer and more efficient

AAM delivers POWER that moves the world

through world-class quality, technology leadership

and operational excellence

Nearly

17 80

COUNTRIESLOCATIONS

Over

60

MANUFACTURING

FACILITIES

16

ENGINEERING CENTERS

3

Business Units and Market Leadership

DRIVELINE

  • 2019 Sales - $4.6B
  • A Global Leader in
    • Full-sizepickup truck and SUV driveline systems
    • AWD systems for crossover vehicles
    • Damped gears, viscous dampers and rubber isolation pulleys
  • Pioneer of disconnecting AWD Systems
  • One of the leaders in hybrid and electric driveline solutions

METAL FORMING

  • 2019 Sales - $1.8B
  • Largest automotive forger in the world
  • A Global Leader in
    • Powdered metal connecting rods
    • Differential gears
    • Axle shafts
    • Hypoid pinions
    • Ring gears
    • Transmission gears
    • CVT pulleys
    • Aluminum valve bodies

*Note: Market leadership based on company estimates as compared to other independent supplier., business unit sales before eliminations of intercompany sales of approximately $0.5 billion.

Growth Opportunities in Electrification

Building a Diverse and Scalable eDrive Business

Several new business

wins for eDrive

components

  • Winning business across multiple regions and vehicle segments
  • New program awards include electric commercial vehicle with a new customer and an electric pickup truck
  • Launching several programs during 2020 - 2022

High performance eDrive

systems for Premium

European OEMs

  • AWD Jaguar I-Pace Crossover launched in 2018
  • Multiple variants of high- performance hybrid to launch in 2021-2022 with second premium European OEM
  • Both programs generating larger content-per-vehicle (CPV) than traditional ICE drive units

Cost-competitive

value-oriented eDrives

for China market

  • Launches in our Liuzhou AAM JV and Changshu Manufacturing facilities in 2020 / 2021
  • Serving FWD passenger cars - previously an under- represented market in
    AAM's portfolio
  • Gaining momentum in the growing new energy vehicle market in China

Expect lifetime revenues for booked eDrive related business to be over $1 billion

6

Electrification Growth Drivers for AAM

Successful

Partnerships

providing new

products in market

business prospects

Scalable design

and product

portfolio

Active new and

Significant electric

emerging business

powertrain

opportunities

component offerings

Expanding served

market and

increasing CPV

Developing

advanced next-

generation product

Participating in

electric truck

market

CPV - content per vehicle

7

2Q 2020 Highlights and COVID-19 Update

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.

9

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

10

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.

11

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.

12

2020 Breakeven Scenario & Capital Structure

Adjusted Free Cash Flow Breakeven Scenario

(in millions)

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. As disclosed on May 8, 2020

14

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

15

Debt Maturity Profile

(in millions)

Revolver

No significant debt maturities until 2024

16

Supplemental Data

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, AAM has provided certain information, which includes non-GAAP financial measures such as Adjusted EBITDA, Adjusted earnings per share and Adjusted free cash flow. Such information is reconciled to its closest GAAP measure in accordance with Securities and Exchange Commission rules and is included in the attached supplemental data.

Management believes that these non-GAAP financial measures are useful to management, investors, and banking institutions in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes.

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.

19

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%

20

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%

21

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.

22

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)

23

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

24

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

25

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.

26

Disclaimer

AAM - American Axle & Manufacturing Holdings Inc. published this content on 15 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 September 2020 13:09:03 UTC

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