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Business Combinations | 9 Months Ended
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Sep. 30, 2018
Business Combinations [Abstract] |
Business Combination Disclosure [Text Block] |
4. | BUSINESS COMBINATIONS
Acquisition of MPG On April 6, 2017, AAM completed its acquisition of 100% of the equity interests of MPG for a total purchase price of approximately $1.5 billion plus the assumption of approximately $1.7 billion in net debt (comprised of approximately $1.9 billion in debt less approximately $0.2 billion of MPG cash and cash equivalents). Under the terms of the agreement and plan of merger (Merger Agreement), each share of MPG common stock (other than MPG excluded shares as defined in the Merger Agreement) was converted into the right to receive (a) $13.50 in cash, without interest, and (b) 0.5 of a share of AAM common stock (Merger Consideration). Further, MPG stock options outstanding immediately prior to the effective time of the merger were accelerated and holders of the stock options received the Merger Consideration less the per share exercise price of the MPG stock options. All MPG restricted shares and restricted stock unit awards outstanding under an MPG equity plan were also accelerated and each holder thereof received the Merger Consideration for each restricted share or restricted stock unit award of MPG common stock. MPG provides highly-engineered components for use in powertrain and safety-critical platforms for the global light, commercial and industrial markets. MPG produces these components using complex metal-forming manufacturing technologies and processes for a global customer base of OEMs and Tier I suppliers, which help their customers meet fuel economy, performance and safety standards. Our acquisition of MPG contributes significantly to diversifying our global customer base and end markets, while also allowing us to expand our presence as a global Tier I supplier to the commercial and industrial markets, in addition to our existing presence as a global Tier I supplier to the automotive industry. The aggregate cash consideration for the acquisition of MPG was financed using (i) net proceeds from the issuance in March 2017 by AAM of $1.2 billion of new senior notes consisting of $700.0 million aggregate principal amount of 6.25% senior notes due 2025, and $500.0 million aggregate principal amount of 6.50% senior notes due 2027, and on April 6, 2017: (ii) borrowings by AAM of $100.0 million under a term loan that matures in 2022, (iii) borrowings by AAM of $1.55 billion under a term loan that matures in 2024, and (iv) cash on hand. The acquisition of MPG was accounted for under the acquisition method under ASC 805 with the purchase price allocated to the identifiable assets and liabilities of the acquired company based on the respective fair values of the assets and liabilities. The following represents the fair values of the assets acquired and liabilities assumed resulting from the acquisition, as well as the calculation of goodwill:
(in millions) | April 6, 2017
Cash consideration | $ | 953.5 |
Share consideration | 576.7 |
Total consideration transferred | $ | 1,530.2 |
Fair value of MPG noncontrolling interests | 3.6 |
Total fair value of MPG | $ | 1,533.8 |
Cash and cash equivalents | $ | 202.1 |
Accounts receivable | 403.1 |
Inventories | 199.0 |
Prepaid expenses and other long-term assets | 119.9 |
Property, plant and equipment | 971.8 |
Intangible assets | 1,223.1 |
Total assets acquired | $ | 3,119.0 |
Accounts payable | 287.8 |
Accrued expenses and other | 137.7 |
Deferred income tax liabilities | 580.2 |
Debt | 1,918.7 |
Postretirement benefits and other long-term liabilities | 54.1 |
Net assets acquired | $ | 140.5 |
Goodwill | $ | 1,393.3 |
Under the guidance in ASC 805, estimated amounts that are designated as provisional may be adjusted during a period referred to as the "measurement period." The measurement period is a period not to exceed one year from the acquisition date during which we may adjust estimated or provisional amounts recorded during purchase accounting if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. Measurement period adjustments are recorded in the period identified with an offsetting entry to goodwill. Any adjustments to amounts recorded in purchase accounting that do not qualify as measurement period adjustments are included in earnings in the period identified. We finalized the valuation of the assets and liabilities of MPG in the first quarter of 2018. In doing so, we made measurement period adjustments to reflect changes to facts and circumstances that existed as of the acquisition date, which resulted in a net increase in Goodwill of $0.9 million. These adjustments related to Property, plant and equipment, as well as the corresponding impact on Deferred income tax liabilities, as a result of customary post-closing reviews. Goodwill resulting from the acquisition is primarily attributable to anticipated synergies and economies of scale from which we expect to benefit as a combined entity. None of the goodwill is deductible for tax purposes. We recognized $1,223.1 million of amortizable intangible assets for customer platforms, customer relationships, developed technology and licensing agreements as a result of the acquisition of MPG. These intangible assets will be amortized over a period ranging from five to 17 years. The intangible assets were valued using primarily the relief from royalty method or the multi-period excess earnings method, both of which utilize significant unobservable inputs. These inputs are defined in the fair value hierarchy as Level 3 inputs, which require management to make estimates and assumptions regarding certain financial measures using forecasted or projected information. AAM had an existing accounts payable balance of $12.4 million with MPG as of the date of acquisition. As a result of the acquisition, this pre-existing accounts payable balance was settled and AAM accounted for this settlement separately from the acquisition. This resulted in a $12.4 million reduction in the purchase price. For the nine months ended September 30, 2018, net sales and net income attributable to AAM included approximately $2,170 million and $110 million, respectively, attributable to MPG. For the period April 6, 2017 through September 30, 2017, net sales and net income attributable to AAM included approximately $1,351 million and $42 million, respectively, attributable to MPG. Unaudited Pro Forma Financial Information Unaudited pro forma net sales for AAM, on a combined basis with MPG for the nine months ended September 30, 2017 were approximately $5.3 billion, excluding MPG sales to AAM during this period. Unaudited pro forma net income for the nine months ended September 30, 2017 was approximately $290 million. Unaudited pro forma earnings per share for the nine months ended September 30, 2017 were approximately $2.57 per share. The unaudited pro forma net income amount for the nine months ended September 30, 2017 has been adjusted by approximately $65 million, net of tax, for acquisition-related costs reclassified from 2017 to 2016 as we are required to disclose the pro forma amounts as if our acquisition of MPG had been completed on January 1, 2016. The disclosure of unaudited pro forma net sales and earnings is for informational purposes only and does not purport to indicate the results that would actually have been obtained had the merger been completed on the assumed date for the periods presented, or which may be realized in the future. Acquisition of USM Mexico On March 1, 2017, AAM completed the acquisition of 100% of USM Mexico, a former subsidiary of U.S. Manufacturing Corporation (USM). The purchase price was funded with available cash and the acquisition was accounted for under the acquisition method. USM Mexico includes USM's operations in Guanajuato, Mexico, which has historically been one of the largest suppliers to AAM's Guanajuato Manufacturing Complex. This acquisition allows AAM to vertically integrate the supply chain and helps ensure continuity of supply for certain parts to our largest manufacturing facility. The following represents the fair value of the assets acquired and liabilities assumed resulting from the acquisition, as well as the calculation of goodwill:
(in millions) | March 1, 2017
Contractual purchase price | $ | 162.5 |
Adjustment to contractual purchase price for working capital settlement | 2.5 |
Adjustment to contractual purchase price for capital equipment | 4.9 |
Adjustment to contractual purchase price for settlement of existing accounts payable balance | (22.8 | )
Cash acquired | (0.5 | )
Adjusted purchase price, net of cash acquired | $ | 146.6 |
Accounts receivable | 1.1 |
Inventories | 4.8 |
Prepaid expenses and other | 3.6 |
Property, plant and equipment | 38.4 |
Intangible assets | 31.7 |
Total assets acquired | $ | 79.6 |
Accounts payable | 10.8 |
Accrued expenses and other | 2.7 |
Deferred income tax liabilities | 1.2 |
Net assets acquired | $ | 64.9 |
Goodwill | $ | 81.7 |
The purchase agreement specified a period of time subsequent to the acquisition date for calculating the final working capital amount of USM Mexico as of the acquisition date, which was finalized in the first quarter of 2018. None of the goodwill is deductible for tax purposes. AAM had an existing accounts payable balance of $22.8 million with USM Mexico as of the date of acquisition. As a result of the acquisition, this pre-existing accounts payable balance was settled and AAM accounted for this settlement separately from the acquisition. This resulted in a $22.8 million reduction in the purchase price. The operating results of USM Mexico were insignificant to AAM's Condensed Consolidated Statements of Income for the nine months ended September 30, 2018 and September 30, 2017. Further, we have not included pro forma revenue and earnings for the nine months ended September 30, 2017 as the inclusion of USM Mexico would be insignificant to AAM's consolidated results for this period.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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