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, 2022 . 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
As a leading global tier 1 automotive and mobility supplier, AAM designs, engineers and manufactures Driveline and Metal Forming technologies to support electric, hybrid, and internal combustion vehicles. Headquartered inDetroit with over 80 facilities in 18 countries, AAM is bringing the future faster for a safer and more sustainable tomorrow.
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 39% of our consolidated net sales in the first three months of 2023, and 40% for both the first three months of 2022 and the full year 2022. We also supply driveline system products to Stellantis N.V. (Stellantis) for programs including the heavy-duty Ram full-size pickup trucks and its derivatives and the AWD Chrysler Pacifica. In addition, we sell various products to Stellantis from our Metal Forming segment. Sales to Stellantis were approximately 17% of our consolidated net sales in the first three months of 2023, and 18% for both the first three months of 2022 and the full year 2022. We are also a supplier to Ford Motor Company (Ford) for driveline system products on certain vehicle programs including the Bronco Sport, Maverick, Edge, Escape and Lincoln Nautilus, and we also sell various products to Ford from our Metal Forming segment. Sales to Ford were approximately 11% of our consolidated net sales for the first three months of 2023, and 12% for both the first three months of 2022 and the full year 2022.
No other customer represented 10% or more of consolidated net sales during these periods.
Supply Chain Constraints Impacting the Automotive Industry
During the first three months of 2023 and 2022, the automotive industry
experienced significant disruptions in the supply chain, including volatility in
metal, commodity and utility costs, shortages of certain raw materials and
components, including semiconductor chips, increased transportation costs,
higher labor costs and labor shortages. As a result, we have continued to
experience volatility in our production schedules, including manufacturing
downtime, often with limited notice from customers, higher inventory levels and
increased labor costs, which have negatively impacted our results of operations
and cash flows during these periods. We continue to work with customers and
suppliers in our effort to protect continuity of supply as we expect these
challenges to continue throughout 2023. Due to the ongoing uncertainty
associated with the these supply chain constraints, the ultimate impact on our
net sales, results of operations and cash flows is unknown.
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RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 2023 AS COMPARED TO THREE
MONTHS ENDED MARCH 31, 2022
Net Sales
Three Months Ended March 31,
(in millions) 2023 2022 Change Percent Change
Net sales $ 1,493.9 $ 1,436.2 $ 57.7 4.0 %
The increase in the first three months of 2023, as compared to the first three
months of 2022, primarily reflects approximately $101 million as a result of our
acquisition of Tekfor that was completed in the second quarter of 2022,
partially offset by a reduction in sales of approximately $48 million associated
with the effect of metal market pass-throughs to our customers and the impact of
foreign exchange translation.
Cost of Goods Sold
Three Months Ended March 31,
(in millions) 2023 2022 Change Percent Change
Cost of goods sold $ 1,333.3 $ 1,249.4 $ 83.9 6.7 %
The change in cost of goods sold in the first three months of 2023, as compared
to the first three months of 2022, primarily reflects approximately $101 million
as a result of our acquisition of Tekfor. For the three months ended March 31,
2023 , material costs were approximately 56% of total costs of goods sold as
compared to approximately 61% for the three months ended March 31, 2022 . The
decrease in material costs as a percentage of cost of goods sold was primarily
the result of lower metal costs and increased labor costs in the first quarter
of 2023, as compared to the first quarter of 2022.
Gross Profit
Three Months Ended March 31,
(in millions) 2023 2022 Change Percent Change
Gross profit $ 160.6 $ 186.8 $ (26.2) (14.0) %
Gross margin was 10.8% in the first three months of 2023 as compared to 13.0% in
the first three months of 2022. Gross profit and gross margin were impacted by
the factors discussed in Net Sales and Cost of Goods Sold above.
Selling, General and Administrative Expenses (SG&A)
Three Months Ended March 31,
(in millions) 2023 2022 Change Percent Change
Selling, general & administrative
expenses $ 98.3 $ 86.1 $ 12.2 14.2 %
SG&A as a percentage of net sales was 6.6% in the first three months of 2023 as
compared to 6.0% of net sales in the first three months of 2022. Research and
development (R&D) expense, net of engineering, design and development (ED&D)
recoveries, was approximately $42.8 million in the first three months of 2023,
as compared to $34.7 million in the first three months of 2022. The change in
SG&A expense is primarily related to the increase in R&D expense as we continue
to develop technologies to support electric and hybrid vehicles, as well as
higher compensation-related expense.
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Amortization of Intangible Assets Amortization expense related to intangible
assets was $21.4 million for the three months ended March 31, 2023 and $21.5
million for the three months ended March 31, 2022 .
Restructuring and Acquisition-Related Costs Restructuring and
acquisition-related costs were $4.8 million for the three months ended March 31,
2023 , as compared to $8.9 million for the three months ended March 31, 2022 . In
2023, we expect to incur approximately $10 million to $20 million of total
restructuring charges. In addition, we expect to incur up to $10 million of
integration costs in 2023 associated with our acquisition of Tekfor that was
completed in 2022. See Note 2 - Restructuring and Acquisition-Related Costs for
additional detail regarding our restructuring, acquisition and integration
activity.
Operating Income Operating income was $36.1 million in the first three months
of 2023 as compared to $70.3 million in the first three months of
2022. Operating margin was 2.4% in the first three months of 2023, as compared
to 4.9% in the first three months of 2022. The changes in operating income and
operating margin were due primarily to the factors discussed in Net Sales , Cost
of Goods Sold and SG&A above.
Interest Expense and Interest Income Interest expense was $50.5 million in the
first three months of 2023 as compared to $44.7 million in the first three
months of 2022. The weighted-average interest rate of our long-term debt
outstanding was 6.6% for the three months ended March 31, 2023 and 5.6% for the
three months ended March 31, 2022 . We expect our interest expense for the full
year 2023 to be approximately $195 million to $205 million .
Interest income was
Debt Refinancing and Redemption Costs In the first three months of 2022, we amended and restated our existing Credit Agreement. See Note 5 - Long-Term Debt for further detail on the Amended & Restated Credit Agreement. As a result, we incurred$0.2 million of third-party debt refinancing costs during the three months endedMarch 31, 2022 . Also in the first quarter of 2022, we made a voluntary prepayment of$25.0 million on our Term Loan B Facility. As a result, we expensed approximately$0.2 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of this borrowing. In addition, in the first quarter of 2022, we used the proceeds from the upsized Term Loan A Facility to voluntarily redeem a portion of our 6.25% Notes due 2026. This resulted in a principal payment of$220 million and$0.2 million in accrued interest. We also expensed approximately$1.8 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately$3.4 million for the payment of an early redemption premium. Unrealized Loss on Equity Securities We have an investment in the equity securities of REE Automotive, an e-mobility company. These equity securities are measured at fair value each reporting period with changes in fair value reported through an unrealized holding gain or loss within Other income (expense), net in our Condensed Consolidated Statement of Operations. The unrealized loss on our investment in REE shares was$0.3 million for the three months endedMarch 31, 2023 , as compared to$18.0 million for the three months endedMarch 31, 2022 . Other Income (Expense), Net Other income (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 income (expense), net was income of$3.7 million in the first three months of 2023 as compared to expense of$1.0 million in the first three months of 2022. 30 -------------------------------------------------------------------------------- Income Tax Expense We had no income tax expense for the three months endedMarch 31, 2023 , as compared to income tax expense of$3.0 million for the three months endedMarch 31, 2022 . Our effective income tax rate was 0.0% in the first three months of 2023 as compared to 75.0% in the first three months of 2022. During the three months endedMarch 31, 2023 , in computing our estimated annual effective tax rate, we recorded a full valuation allowance against the deferred tax asset on the current year estimated disallowed interest expense in theU.S. In addition, we recorded a valuation allowance against a portion of the deferred tax asset on prior year disallowed interest expense in theU.S. and reduced our liability for unrecognized income tax benefits and related interest and penalties as a result of a change in estimate on previously recorded unrecognized tax benefits in certain jurisdictions, resulting in net tax expense of$3.4 million during the three months endedMarch 31, 2023 . Our effective income tax rate for the three months endedMarch 31, 2023 varies from our effective income tax rate for the three months endedMarch 31, 2022 primarily as a result of the mix of earnings on a jurisdictional basis and the impact of the discrete items noted above. For the three months endedMarch 31, 2023 , our effective income tax rate varies from theU.S. federal statutory rate primarily due to the unfavorable impact related to the disallowed interest expense deductions in theU.S. , net of the impact of the reduction in unrecognized tax benefits, favorable foreign tax rates and the impact of tax credits. For the three months endedMarch 31, 2022 , our effective income tax rate varies from theU.S. federal statutory rate primarily due to the change in jurisdictional mix of earnings, as well as favorable foreign tax rates and the impact of tax credits. Due to the uncertainty associated with the extent and ultimate impact of the significant supply chain constraints affecting the automotive industry, including volatility in metal and commodity costs, higher utility costs, increased transportation costs, higher labor costs and labor shortages, we may experience lower than projected earnings in certain jurisdictions in future periods, and as a result, it is reasonably possible that changes in valuation allowances could be recognized in future periods and such changes could be material to our financial statements. Net Income (Loss) and Earnings (Loss) Per Share (EPS) Net loss was$5.1 million in the first three months of 2023 as compared to net income of$1.0 million in the first three months of 2022. Diluted EPS was$(0.04) per share in the first three months of 2023 as compared to$0.01 per share in the first three months of 2022. Net income (loss) and EPS for the first three months of 2023 and 2022 were primarily impacted by the factors discussed above. 31 --------------------------------------------------------------------------------
SEGMENT REPORTING
Our business is organized into Driveline and Metal Forming segments, with each representing a reportable segment under ASC 280 - Segment Reporting. 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 engine, transmission, driveline and safety-critical components for traditional internal combustion engine and electric vehicle architectures including light vehicles, commercial vehicles and off-highway vehicles, as well as products for industrial markets. OnJune 1, 2022 , our acquisition of Tekfor became effective and we began consolidating the results of Tekfor on that date, which are reported in our Metal Forming segment for the three months endedMarch 31, 2023 . In the first quarter of 2023, we moved a plant location that was previously reported under our Driveline segment to our Metal Forming segment in order to better align our product and process technologies. The amounts in the tables below for the three months endedMarch 31, 2022 have been recast to reflect this reorganization.
The following table represents sales by reportable segment for the three months
ended
Three Months Ended March 31,
2023 2022
Driveline $ 1,013.8 $ 1,045.4
Metal Forming 619.1 525.1
Eliminations (139.0) (134.3)
Net sales $ 1,493.9 $ 1,436.2
The change in Driveline sales for the three months ended March 31, 2023 , as
compared to the three months ended March 31, 2022 , is primarily the result of a
reduction in sales of approximately $37 million associated with the effect of
metal market pass-throughs to our customers and the impact of foreign exchange
translation.
The increase in Metal Forming sales for the three months ended March 31, 2023 ,
as compared to the three months ended March 31, 2022 , primarily reflects
approximately $101 million associated with the acquisition of Tekfor, partially
offset by a reduction in sales of approximately $11 million associated with the
effect of metal market pass-throughs to our customers and the impact of foreign
exchange translation.
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. The amounts for Segment Adjusted EBITDA for the three months ended
March 31, 2023 and 2022 are as follows (in millions):
Three Months Ended March 31,
2023 2022
Driveline $ 114.1 $ 122.8
Metal Forming 61.3 73.3
Total segment adjusted EBITDA $ 175.4 $ 196.1
For the three months ended March 31, 2023 , as compared to the three months ended
March 31, 2022 , the change in Segment Adjusted EBITDA for the Driveline segment
was primarily attributable to a net increase in manufacturing costs, including
higher labor, transportation and program launch costs, partially offset by lower
metal costs and the favorable impact of our metal market pass-throughs.
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For the three months ended March 31, 2023 , as compared to the three months ended
March 31, 2022 , the change in Segment Adjusted EBITDA for the Metal Forming
segment was primarily attributable to a net increase in manufacturing costs,
including higher labor and transportation costs, partially offset by lower metal
costs.
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, loss on the sale of a business, pension settlements, unrealized gains or losses on equity securities, 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. EBITDA and Total Segment Adjusted EBITDA are also key metrics used in our calculation of incentive compensation. 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, 2023 2022 (in millions) Net income (loss)$ (5.1) $ 1.0 Interest expense 50.5 44.7 Income tax expense - 3.0 Depreciation and amortization 124.9 120.4 EBITDA$ 170.3 $ 169.1 Restructuring and acquisition-related costs 4.8 8.9 Debt refinancing and redemption costs - 5.6 Unrealized loss on equity securities 0.3 18.0 Non-recurring items: Malvern Fire insurance recoveries, net - (5.5) Total segment adjusted EBITDA$ 175.4 $ 196.1 33
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LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund debt service obligations, capital expenditures, R&D spending, including further development of our electrification product portfolio, 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.
At
Operating Activities In the first three months of 2023, net cash provided by operating activities was$32.1 million as compared to$68.5 million in the first three months of 2022. The following factors impacted cash from operating activities in the first three months of 2023, as compared to the first three months of 2022: Impact of Supply Chain Constraints During the first three months of 2023 and 2022, the automotive industry experienced significant disruptions in the supply chain, including volatility in metal, commodity and utility costs, shortages of certain raw materials and components, including semiconductor chips, increased transportation costs, higher labor costs and labor shortages. We expect these supply chain constraints and the associated volatility in our operations to continue through 2023. Accounts receivable For the three months endedMarch 31, 2023 , we experienced an increase in cash flow from operating activities of approximately$98 million related to the change in our accounts receivable balance fromDecember 31, 2022 toMarch 31, 2023 , as compared to the change in our accounts receivable balance fromDecember 31, 2021 toMarch 31, 2022 . This change was primarily attributable to the timing of sales to customers in the applicable periods. Accounts payable and accrued expenses For the three months endedMarch 31, 2023 , we experienced a decrease in cash flow from operating activities of approximately$85 million related to the change in our accounts payable and accrued expenses balance fromDecember 31, 2022 toMarch 31, 2023 , as compared to the change in our accounts payable and accrued expenses balance fromDecember 31, 2021 toMarch 31, 2022 . This change was primarily attributable to the timing of production and the associated purchases from suppliers within the applicable periods. Income taxes Income taxes paid, net was$26.0 million in the first three months of 2023, as compared to$4.8 million in the first three months of 2022. During the first three months of 2023, we paid$10.1 million as a result of the Notice of Tax Due that was received from the Internal Revenue Service in the fourth quarter of 2022. See Note 10 - Income Taxes for additional detail regarding the Notice of Tax Due. In the first three months of 2022, we received an income tax refund of$5.4 million related to the utilization of net operating losses under the provisions of the CARES Act. Interest paid Interest paid was$41.6 million for the three months endedMarch 31, 2023 , as compared to$38.6 million for the three months endedMarch 31, 2022 . The change in interest paid was primarily the result of increased interest rates on our variable rate debt partially offset by lower interest payments on our 6.25% Notes due 2026 as a result of voluntarily redeeming a portion of the principal amount related to the 6.25% Notes due 2026 inMarch 2022 .Malvern Fire In the first three months of 2023 and 2022, we received$24.0 million and$3.6 million of cash, respectively, as reimbursements and advances under our insurance policies, of which$7.0 million and$3.6 million , respectively, were associated with operating expenses incurred as a result of the Malvern Fire and have been presented as operating cash inflows in our Condensed Consolidated Statement of Cash Flows for these periods. See Note 15 - Manufacturing Facility Fire and Insurance Recovery for additional detail. Restructuring and acquisition-related costs For the full year 2023, we expect restructuring and acquisition-related payments in cash flows from operating activities to be between$20 million and$30 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), we expect our regulatory pension funding requirements in 2023 to be less than$1 million . We expect our cash payments for other postretirement benefit obligations in 2023, net ofGM cost sharing, to be approximately$14.6 million . 34 -------------------------------------------------------------------------------- Investing Activities In the first three months of 2023, net cash used in investing activities was$30.5 million as compared to$31.3 million for the three months endedMarch 31, 2022 . Capital expenditures were$46.6 million in the first three months of 2023 as compared to$28.6 million in the first three months of 2022. We expect our capital spending in 2023 to be 3.5% to 4% of sales. In the first three months of 2023, in addition to the$7.0 million of cash reimbursements received under our insurance policies associated with operating expenses incurred as a result of the Malvern Fire, we received$17.0 million of cash associated with machinery and equipment that was damaged or destroyed as a result of the Malvern Fire. This cash received has been classified as an investing cash flow based on the nature of the associated loss incurred. In the first three months of 2022, we made payments for the acquisition of a supplier inMexico and began to pay the deferred consideration associated with our acquisition of Emporium that was completed in 2021. These payments totaled$6.7 million in the three months endedMarch 31, 2022 . Financing Activities In the first three months of 2023, net cash used in financing activities was$49.1 million , as compared to$38.7 million in the first three months of 2022. The following factors impacted cash from financing activities in the first three months of 2023, as compared to the first three months of 2022: Senior Secured Credit Facilities Our Senior Secured Credit Facilities, which are comprised of our Revolving Credit Facility, our Term Loan A Facility, and our Term Loan B Facility, 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, 2023 , we had$891.2 million available under the Revolving Credit Facility. This availability reflects a reduction of$33.8 million for standby letters of credit issued against the facility. In the first quarter of 2023, we paid$25.0 million on our Revolving Credit Facility that had been drawn in the fourth quarter of 2022. InMarch 2022 , Holdings, andAAM, Inc. entered into the Amended & Restated Credit Agreement. The Amended & Restated Credit Agreement, among other things, increased the principal amount of the Term Loan A Facility to$520 million , extended the maturity date of the Term Loan A Facility and the Revolving Credit Facility, and established the use under the Term Loan A Facility and Revolving Credit Facility of updated reference rates. See Note 5 - Long-Term Debt for further detail on the Amended & Restated Credit Agreement. As a result, we expensed$0.2 million of debt refinancing costs, paid accrued interest of$1.0 million , and paid debt issuance costs of$3.5 million in the three months endedMarch 31, 2022 related to the Amended & Restated Credit Agreement. In the first quarter of 2022, we made a voluntary prepayment of$25.0 million on our Term Loan B Facility. As a result, we expensed approximately$0.2 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of this borrowing. Redemption of 6.25% Notes due 2026 In the first quarter of 2022, we used the proceeds from the upsized Term Loan A Facility to voluntarily redeem a portion of our 6.25% Notes due 2026. This resulted in a principal payment of$220.0 million and$0.2 million in accrued interest. We also expensed approximately$1.8 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing, and approximately$3.4 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. AtMarch 31, 2023 ,$73.6 million was outstanding under our foreign credit facilities, as compared to$72.7 million atDecember 31, 2022 . AtMarch 31, 2023 , an additional$63.7 million was available under our foreign credit facilities.Treasury stockTreasury stock increased by$14.5 million in the first three months of 2023 to$232.7 million as compared to$218.2 million at year-end 2022, due to the withholding and repurchase of shares of AAM stock to satisfy employee tax withholding obligations due upon the vesting of stock-based compensation. 35 -------------------------------------------------------------------------------- Subsidiary Guarantees of Registered Debt Securities Our 6.875% Notes, 6.50% Notes, 6.25% Notes, and 5.00% Notes (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; or •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. 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 Year Ended December March 31, 2023 31, 2022 Net sales $ 1,101.6 $ 4,429.5 Gross profit 95.5 445.2 Income (loss) from operations (19.9) 25.1 Net loss (38.9) (59.7) Balance Sheet Information (in millions) March 31, 2023 December 31, 2022 Current assets $ 1,029.6 $ 1,061.9 Noncurrent assets 2,317.8 2,317.9 Current liabilities 1,401.6 1,360.4 Noncurrent liabilities 3,328.1 3,345.3 Redeemable preferred stock - - Noncontrolling interest - - AtMarch 31, 2023 andDecember 31, 2022 , amounts owed by the Combined Entities to non-guarantor entities totaled approximately$1,010 million and$945 million , respectively, and amounts owed to the Combined Entities from non-guarantor entities totaled approximately$625 million and$620 million , respectively. 36 --------------------------------------------------------------------------------
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. Typically, our business is also moderately seasonal as our major OEM customers historically have an extended shutdown of operations (normally 1-2 weeks) in conjunction with their model year changeover and an approximate one-week shutdown in the month of 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.
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, contractual matters, and environmental obligations. Although the outcome of these matters cannot be predicted with certainty, at this time 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 fileU.S. federal, state and local income tax returns, as well as foreign income tax returns in jurisdictions throughout the world. We are also subject to examinations of these tax returns by the relevant tax authorities. Negative or unexpected outcomes of these examinations and audits, and any related litigation, could have a material adverse impact on our results of operations, financial condition and 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 2023. We are subject to risks of environmental issues, including impacts of climate-related events, that could result in unforeseen disruptions or costs to our operations. We did not experience any climate-related events in the first quarter of 2023 that we believe could have a material adverse impact on our results of operations, financial condition and cash flows. 37
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