Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
COMPANY OVERVIEW
Effective January 26, 2026, American Axle & Manufacturing Holdings, Inc. changed its name to Dauch Corporation. As used in this report, except as otherwise indicated in information incorporated by reference, references to “our Company,” "we," "our," "us" or “Dauch” mean Dauch Corporation and its subsidiaries and predecessors, collectively.
Dauch Corporation is a premier Driveline and Metal Forming supplier serving the global automotive industry with a powertrain-agnostic product portfolio that supports electric, hybrid, and internal combustion vehicles. The company is headquartered in Detroit, Michigan, with operations that span 24 countries and more than 175 locations. Formed through the acquisition of Dowlais Group plc and its subsidiaries - GKN Automotive and GKN Powder Metallurgy, Dauch unites deep engineering roots with global manufacturing capabilities and an entrepreneurial spirit to move mobility forward.
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 (SUV), and crossover vehicles manufactured in North America, supplying a significant portion of GM's rear axle and four-wheel drive and all-wheel drive (4WD/AWD) axle requirements for these vehicle platforms. We also supply GM with various products from our Metal Forming segment. Sales to GM were approximately 44% of our consolidated net sales in 2025, 42% in 2024, and 39% in 2023.
We are also a supplier to Ford Motor Company (Ford) for driveline system products on certain vehicle programs including the Bronco Sport, Maverick, Escape and Lincoln Nautilus, and we also sell various products to Ford from our Metal Forming segment. Sales to Ford were approximately 15% of our consolidated net sales in 2025, 13% in 2024, and 12% in 2023.
We also supply driveline system products to Stellantis N.V. (Stellantis) for programs including the heavy-duty Ram full-size pickup truck and its derivatives. In addition, we sell various products to Stellantis from our Metal Forming segment. Sales to Stellantis were approximately 13% of our consolidated net sales in both 2025 and 2024, and 16% in 2023.
No other customer represented 10% or more of consolidated net sales during these periods.
Acquisition of Dowlais Group plc
On February 3, 2026, we completed our previously announced acquisition of Dowlais Group plc (Dowlais) whereby we acquired the entire issued share capital of Dowlais (the Business Combination). Pursuant to the Business Combination, Dowlais shareholders received for each Dowlais ordinary share: 0.0881 shares of new Company common stock and 43 pence per share in cash (approximately $0.59 per share as of the closing date), resulting in the issuance of approximately 117 million shares (and an increase in authorized shares from 150 million to 375 million shares) and a total purchase price of approximately $1.7 billion. Following the close of the transaction, the combined company is headquartered in Detroit, Michigan and led by the Company's Chairman and CEO.
Disposition of AAM India Manufacturing Corporation Pvt., Ltd.
During 2025, we completed the sale of our commercial vehicle axle business and related assets in India (AAM India Manufacturing Corporation Pvt., Ltd.) to Bharat Forge Limited (BFL) for approximately $65 million, net of closing adjustments (the India Sale Agreement). For the years ended December 31, 2025 and 2024, we recorded impairment charges of $8 million and $12 million, respectively, to reduce the carrying value of this business to fair value less costs to sell.
Uncertainty Associated with Tariffs and Trade Relations
In 2025, the U.S. government implemented tariffs and increased certain existing tariffs on various products including assembled vehicles and automotive parts and components imported into the U.S., and there is considerable uncertainty around the extent, timing and duration of these tariffs. This has resulted in retaliatory tariffs against the U.S. by the governments of various countries, resulting in significant instability and uncertainty in U.S. trade relations with certain countries. Additionally, the expected 2026 review of the United States-Mexico-Canada Agreement (USMCA) could further contribute to this instability and uncertainty in trade relations.
For the year ended December 31, 2025, the net impact on earnings related to the aforementioned tariffs was approximately $10 million and we expect a continuing impact from tariffs in future periods. We are implementing mitigation actions and pursuing recoveries from our customers for the cost increases resulting from the tariffs but have not reached final agreement with all customers and therefore the total amount and timing of such recoveries is unknown. Further, certain of these recoveries may include government issued credits and there is uncertainty about whether we will be able to effectively monetize such credits.
Commercial Matters
In April 2024, one of our largest customers notified the Company that production purchase orders related to a previously announced contract to supply e-Beam axles for a future vehicle program were terminated. We believe that the termination of these purchase orders reflects, in part, the significant uncertainty currently underlying the electric vehicle environment, including volatility in estimated volumes and the timing of production.
In January of 2026, we reached a settlement agreement with the customer on this matter (the Electric Vehicle Cancellation Settlement). As a result, we expect to receive approximately $28 million in the first quarter of 2026 for the reimbursement of the Company's capitalized engineering, design and development costs. In addition, we recorded a charge in the fourth quarter of 2025 of $20 million for the write-off of certain assets that were not recovered under the agreement, and also recorded a write-off of approximately $22 million related to an asset for which there was an offsetting corresponding liability that was also substantially removed. This settlement agreement is final resolution of this matter with the customer and we do not expect any additional impact in future periods.
INDUSTRY TRENDS
There are a number of significant trends affecting the markets in which we compete. Intense competition, volatility in the price and availability of raw materials, certain labor shortages, particularly those associated with skilled trades, increased labor costs, fluctuations in exchange rates and interest rates, and significant pricing pressures remain. At the same time, there is a focus on investing in future products that will incorporate the latest technology and meet evolving customer demands. The ability to respond timely to the continued advancement of technology and product innovation, as well as the ability to enhance cost reduction initiatives and continue to source programs and maintain a resilient supply chain on a global basis, are critical to attracting and retaining business in our global markets.
INDUSTRY UNCERTAINTY REGARDING ADOPTION OF ELECTRIC VEHICLES The automotive industry has experienced lower than anticipated adoption of electric vehicles. Various barriers to end-user acceptance exist, such as higher vehicle cost, limited offerings, safety concerns, regulatory uncertainty, battery range and vehicle performance anxiety and a lack of necessary charging infrastructure. As a result, there is significant uncertainty currently underlying the electric vehicle environment, including volatility in estimated volumes and the timing of program launches and production of electric vehicles. This uncertainty has caused industry participants to reassess capital allocation plans, and has resulted in the extension of certain internal combustion engine (ICE) and hybrid programs.
Additionally, competition to develop and market new and alternative technologies and fuel types, including from new market entrants such as non-traditional automotive companies and technology companies continues to increase. Further, some traditional automotive industry participants are developing strategic partnerships with technology companies as each party seeks to leverage the existing customer relationships and technical knowledge of the partner, and expedite the development and commercialization of new technologies.
We are responding, in part, with ongoing research and development (R&D) activities, reviewing our capital investment plans and continuing to enhance our product portfolio to allow us to meet our customers' needs for high performance vehicles with reduced emissions and reduced environmental impact. We are improving existing products to reduce emissions through lightweighting and efficiency initiatives, such as higher speed transmissions, and downsized engines and continuing to develop new technologies, such as hybrid and electric driveline systems and related subsystems and components. Through lightweight and high-efficiency axles, all-wheel drive systems, high-strength connecting rod technology, refined vibration control systems, and hybrid and electric vehicle components, including our e-drive systems and e-Beam axle technology, we have significantly advanced our efforts to improve ride and handling performance, while reducing emissions and mass. Our efforts have positioned us to compete in the evolving global marketplace.
GLOBAL CONSUMER PREFERENCE AND OEM PRODUCTION FAVORING LIGHT TRUCKS, SPORT UTILITY VEHICLES (SUVs) AND CROSSOVER VEHICLES (CUVs) There has been ongoing demand for light trucks, SUVs and CUVs in certain markets, while demand for passenger cars has decreased. This increase in demand for light trucks, SUVs and CUVs has been driven by changes in consumer preference as technology advancements have made these vehicles lighter and more efficient. Certain OEMs are responding to this change in consumer preference by shifting their focus to developing and manufacturing these types of vehicles, resulting in a significant reduction of passenger car vehicle programs, especially in North America. We have benefited from this trend as a significant portion of our business supports light truck, SUV and CUV programs in North America.
GLOBAL AUTOMOTIVE PRODUCTION AND INCREASED INDUSTRY CONSOLIDATION Our customers continue to design their products to meet demand in global markets and therefore require global support from their suppliers. For this reason, it is critical that suppliers maintain a global presence in these markets in order to compete for new contracts. We have business and engineering offices around the world to support our global locations and provide technical solutions to our customers on a regional basis, including in North America, which represents the largest portion of our core business, as well as in China and Europe where consumer acceptance of electric vehicles has been stronger.
At the same time, in 2025, the U.S. government implemented tariffs and increased certain existing tariffs on various products including assembled vehicles and automotive parts and components imported into the U.S. In response, various other countries have imposed retaliatory tariffs against the U.S. This has resulted in some OEMs and their suppliers shifting focus to producing more products within the U.S.
The cyclical nature of the automotive industry, volatile commodity prices, the shifting demands of consumer preference, regulatory requirements and trade agreements require OEMs and suppliers to remain agile with regard to product development and global capability. A critical objective for OEMs and suppliers is the ability to meet these global demands while effectively managing costs and capital investment. Some OEMs and suppliers may be preparing for these challenges through merger and acquisition activity, restructuring actions, development of strategic partnerships and reduction of vehicle platform complexity. In order to effectively drive technology development, recognize cost synergies, optimize capacity utilization, and efficiently serve global markets, the industry may continue to see consolidation in the supply base as companies recognize and respond to the need for scalability.
In addition to the Company's technology development relationships and organic growth in technology and processes, our acquisition of Dowlais provides a significant opportunity for us to leverage complementary technologies, expand our product portfolio, diversify our global customer base, and strengthen our long-term financial profile through greater scale. The synergies anticipated from this acquisition are expected to enhance our ability to compete in today's technological environment, while remaining cost competitive through increased scale and integration.
ARTIFICIAL INTELLIGENCE TRANSFORMATION OF BUSINESS Artificial intelligence (AI) has seen escalating rates of adoption, driven by increasingly sophisticated technology development and continued investment. As a result, businesses, including OEMs and their suppliers, continue to utilize this technology to identify additional applications for AI to improve efficiency, increase automation and enhance decision making. At the same time, uncertainty exists about the reliability and security of AI, leading various governments and other stakeholders to begin developing laws and regulatory frameworks for AI. We are currently assessing how AI can complement our existing operations, policies and business practices, while acknowledging the risks presented by this emerging technology.
EMERGENCE OF CHINA AS THE LARGEST AUTOMOTIVE MARKET China has established itself as the largest automotive market in the world. In response to the growth of this market, new Chinese entrants to the automotive industry have emerged, first with success within China, and are now beginning to expand into additional markets, particularly where electric and hybrid vehicles have higher acceptance, such as in Europe. This shift has led incumbent OEMs in these markets to compete with the new Chinese market entrants on the basis of cost, vehicle features and innovation. Further, these OEMs typically have an established supply base, also leading to increased competition for suppliers in these regions. We are responding to the growth of the Chinese market, and the expansion of these OEMs into other markets by continuing to establish relationships with these OEMs and continuing to win new business awards from these customers based on our technology innovation and commitment to quality. Additionally, our acquisition of Dowlais provides us with the opportunity to diversify our geographic footprint within China and other regions, expand our product portfolio and customer base and leverage our size and scale to more effectively navigate these changes within the automotive industry.
VOLUMES AND OUTLOOK
Our results of operations, financial condition and cash flows are significantly impacted by fluctuations in production volumes on the vehicle programs that we support. The following table represents historical and forecasted light vehicle production volumes in North America as our business is most significantly impacted by production volume fluctuations in this region. As our business is also dependent on certain automotive segments, primarily the light truck, SUV and CUV segments, production volume fluctuations for the light vehicle market as a whole may not necessarily be indicative of the vehicle programs that we support.
(units in millions, except percentages)
2026 Outlook
% change
% change
North America
Source: S&P Global Mobility, January 2026
We expect production volumes in North America, Europe and China to be approximately 15.0 million units, 16.9 million units and 32.7 million units, respectively, in 2026, all of which are relatively stable as compared to volumes in those same regions in 2025.
The discussion of our Results of Operations, Reportable Segments, and Liquidity and Capital Resources for 2024, as compared to 2023, can be found within "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2024 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 14, 2025, which discussion is incorporated herein by reference.
RESULTS OF OPERATIONS
NET SALES
Year Ended December 31,
(in millions)
Change
Percent Change
Net sales
The change in net sales in 2025, as compared to 2024, primarily reflects lower production volumes on certain vehicle programs that we support and a reduction of approximately $57 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd., which was completed on July 1, 2025. These decreases were partially offset by an increase of approximately $47 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments.
COST OF GOODS SOLD
Year Ended December 31,
(in millions)
Change
Percent Change
Cost of goods sold
The decrease in cost of goods sold in the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily reflects lower production volumes on certain vehicle programs that we support, as well as a reduction of approximately $53 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd., and the impact of improved operating performance. These decreases were partially offset by an increase of approximately $36 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments. For the year ended December 31, 2025, material costs were approximately 54% of total cost of goods sold, as compared to approximately 57% for the year ended December 31, 2024.
GROSS PROFIT
Year Ended December 31,
(in millions)
Change
Percent Change
Gross profit
Gross margin was 12.1% in both 2025 and 2024. 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)
Year Ended December 31,
(in millions)
Change
Percent Change
Selling, general and administrative expenses
SG&A as a percentage of net sales was 6.7% in 2025 as compared to 6.3% in 2024. R&D expense, net of engineering, design and development (ED&D) recoveries, was approximately $147.0 million in 2025, as compared to $159.0 million in 2024. The change in SG&A in 2025, as compared to 2024, was primarily attributable to increased incentive compensation expense, which was substantially offset by the decrease in R&D expense.
AMORTIZATION OF INTANGIBLE ASSETS Amortization expense related to intangible assets was $81.8 million for the year ended December 31, 2025 as compared to $82.9 million for the year ended December 31, 2024.
IMPAIRMENT CHARGES In connection with the India Sale Agreement, we recorded impairment charges of $8.0 million and $12.0 million in the years ended December 31, 2025 and December 31, 2024, respectively, to reduce the carrying value of this business to fair value less cost to sell. See Note 2 - Acquisitions and Dispositions for additional detail regarding the India Sale Agreement.
RESTRUCTURING AND ACQUISITION-RELATED COSTS Restructuring and acquisition-related costs were $113.4 million for the year ended December 31, 2025, as compared to $18.0 million for the year ended December 31, 2024. The change in restructuring and acquisition-related costs was primarily related to acquisition-related costs incurred in connection with the Business Combination, as well as increased restructuring costs as we focused on optimizing our cost structure in 2025 ahead of the closing date of the Business Combination.
In 2026, on a Dauch stand-alone basis, we expect to incur approximately $25 million to $45 million of restructuring charges associated with the 2024 Program and our continued restructuring actions associated with Tekfor. We expect total restructuring charges in 2026, inclusive of both Dauch stand-alone costs and costs expected to be incurred under Dowlais restructuring plans, to be approximately $100 million to $140 million.
In addition, we expect to incur approximately $60 million to $70 million of acquisition-related costs, and approximately $100 million to $125 million of integration costs, in 2026 associated with the Business Combination. Acquisition-related costs primarily consist of advisory, legal, accounting, valuation and certain other professional or consulting fees incurred, as well as certain compensation-related items associated with the Business Combination. Integration expenses primarily reflect costs incurred for information technology infrastructure, ongoing operational activities and consulting fees incurred in conjunction with integration activities. See Note 12 - Restructuring and Acquisition-Related Costs for additional detail regarding our restructuring, acquisition and integration activity.
OPERATING INCOME Operating income was $112.3 million in 2025 as compared to $241.4 million in 2024. Operating margin was 1.9% in 2025 as compared to 3.9% in 2024. The changes in operating income and operating margin in 2025, as compared to 2024, were primarily due to the factors discussed in Net Sales, Cost of Goods Sold and Restructuring and Acquisition-Related Costs above.
INTEREST EXPENSE Interest expense was $201.1 million in 2025 and $186.0 million in 2024. The increase in interest expense in 2025, as compared to 2024, was primarily due to the issuance of new indebtedness in the fourth quarter of 2025 in connection to the Business Combination. The weighted-average interest rate of our total debt outstanding was 6.6% in both 2025 and 2024. We expect our interest expense in 2026 to be in the range of $340 million to $360 million.
INTEREST INCOME Interest income was $39.8 million in 2025 and $28.1 million in 2024. In connection with the 6.375% senior secured notes due 2032 (the 6.375% Notes) and 7.75% senior unsecured notes due 2033 (the 7.75% Notes, and together with the 6.375% Notes, the Notes) issued by AAM, Inc. on October 3, 2025, we received approximately $14 million of interest income in the fourth quarter of 2025 on the proceeds from the Notes placed in segregated escrow accounts. See Note 4 - Long-Term Debt for further detail on the financing for the Business Combination and the funds in escrow.
OTHER INCOME (EXPENSE) Following are the components of Other Income (Expense) for 2025 and 2024:
Debt refinancing and redemption costs In 2025, we expensed $3.3 million of fees and unamortized debt issuance costs in connection with the Second Amendment to the Amended and Restated Credit Facility, as well as $2.9 million of unamortized debt issuance costs in connection with the redemption of the 6.50% Notes due 2027 and the partial redemption of the 6.875% Notes due 2028. See Note 4 - Long-Term Debt for further detail on the Second Amendment to the Amended and Restated Credit Facility, the redemption of the 6.50% Notes due 2027 and the partial redemption of the 6.875% Notes due 2028.
In 2024, we amended our existing Amended and Restated Credit Agreement and established a New Term Loan B Facility. As a result, we incurred approximately $0.2 million of debt refinancing and redemption costs during 2024. In addition, in 2024, we voluntarily redeemed the remaining $127.6 million of our then outstanding 6.25% Notes due 2026. This resulted in expense of approximately $0.4 million for the write-off of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing.
Gain (Loss) on Business Combination Derivative In 2025, we recognized an unrealized gain on the Business Combination Derivative of $52.9 million. See Note 5 - Derivatives and Risk Management for additional detail on the Business Combination Derivative.
Loss on equity securities We had previously invested in the equity securities of REE Automotive, which were measured at fair value each reporting period with changes in fair value reported as a gain or loss within Other income (expense), net in our Consolidated Statement of Operations. During 2024, we sold all of our remaining equity securities of REE Automotive, resulting in a loss of $0.1 million.
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 $3.8 million in 2025, as compared to expense of $20.0 million in 2024. The change in other income (expense), net was primarily driven by changes in foreign exchange gains and losses in the year ended December 31, 2025, as compared to the year ended December 31, 2024.
INCOME TAX EXPENSE Income tax expense was $21.2 million in 2025, as compared to $27.8 million in 2024. Our effective income tax rate was 1,413.3% in 2025, as compared to 44.3% in 2024.
On July 4, 2025, H.R. 1 (the One Big Beautiful Bill or the Act) was enacted into law introducing a broad range of U.S. federal tax reform provisions, which included, among other items, extending and modifying certain key Tax Cuts & Jobs Act provisions and expanding certain Inflation Reduction Act incentives while accelerating the phase-out of other incentives. The most impactful provision of the Act for the Company is a permanent modification to the interest expense limitation rules under Internal Revenue Code (IRC) Section 163(j), including an amendment to the Adjusted Taxable Income (ATI) calculation required under IRC Section 163(j)(8)(A). Based on the provisions of the Act, ATI is now computed without regard to any deduction allowable for depreciation and amortization (based on EBITDA as the interest limitation base), which has reduced limitations on the deductibility of our business interest expense and resulted in the realization of additional deferred tax assets related to previously disallowed interest expense carryforwards. During the year ended December 31, 2025 we recognized a full year income tax benefit of $18.4 million as a result of the enactment of the One Big Beautiful Bill.
For the year ended December 31, 2025, our effective income tax rate varies from the U.S. federal statutory rate primarily due to permanent adjustments associated with nondeductible transaction costs incurred in conjunction with the Business Combination, the mix of earnings on a jurisdictional basis and the impact of tax expense from valuation allowances in certain non-U.S. jurisdictions, as well as the impact of certain non-U.S. tax rates and non-U.S. withholding taxes. These increases in our effective tax rate were partially offset by the impact of the enactment of the One Big Beautiful Bill, which resulted in a full year income tax benefit of $18.4 million, and the favorable impact of tax credits.
Our income tax expense and effective income tax rate for the year ended December 31, 2025 vary from our income tax expense and effective income tax rate for the year ended December 31, 2024 primarily as a result of the benefit recognized as a result of enactment of the One Big Beautiful Bill, as well as the mix of earnings on a jurisdictional basis.
In 2024, our effective income tax rate varied from the U.S. federal statutory rate primarily due to tax expense related to global intangible low-taxed income, as well as the impact of certain non-U.S. tax rates and non-U.S. withholding tax, partially offset by the impact of tax credits. Additionally, during the year ended December 31, 2024, we recognized an income tax benefit of $7.9 million as a result of elections made as part of a prior year income tax return.
Due to the uncertainty associated with the potential impact of geopolitical conflicts or events, as well as macroeconomic factors, including sustained or increased inflation, renegotiated trade agreements, and tariffs or import restrictions, 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 $19.7 million in 2025 as compared to net income of $35.0 million in 2024. Diluted loss per share was $0.17 in 2025 as compared to diluted earnings per share of $0.29 in 2024. Net income (loss) and EPS were primarily impacted by the factors discussed above.
SEGMENT REPORTING
Our business is organized into Driveline and Metal Forming segments, with each representing a reportable segment under Accounting Standards Codification (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, CUVs, 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.
The following tables outline our sales and Segment Adjusted EBITDA for each of our reportable segments for the years ended December 31, 2025 and 2024 (in millions) :
Year Ended December 31, 2025
Driveline
Metal Forming
Total
Sales
Less: Intersegment sales
Net external sales
Segment adjusted EBITDA
Year Ended December 31, 2024
Driveline
Metal Forming
Total
Sales
Less: Intersegment sales
Net external sales
Segment adjusted EBITDA
The change in Driveline sales for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily reflects lower production volumes on certain vehicle programs that we support, as well as a reduction of approximately $57 million as a result of the sale of AAM India Manufacturing Corporation Pvt., Ltd. These decreases were partially offset by the impact of certain commercial pricing and other recoveries from customers and an increase of approximately $32 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments.
The change in Metal Forming sales for the year ended December 31, 2025, as compared to the year ended December 31, 2024, reflects lower production volumes on certain vehicle programs that we support, partially offset by an increase of approximately $15 million associated with the effect of metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments.
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. For the year ended December 31, 2025, as compared to the year ended December 31, 2024, Segment Adjusted EBITDA for the Driveline segment reflects the impact of lower production volumes on certain vehicle programs that we support, partially offset by a reduction of SG&A expense of approximately $7 million, which was primarily the result of lower R&D expense, as well as the impact of certain commercial pricing and other recoveries from customers. Segment Adjusted EBITDA for the Driveline segment also reflects approximately $15 million of favorability in other segment income related to the change in
foreign exchange gains and losses during year ended December 31, 2025, as compared to the year ended December 31, 2024.
For the year ended December 31, 2025, as compared to the year ended December 31, 2024, the change in Segment Adjusted EBITDA for the Metal Forming segment reflects the impact of lower production volumes on certain vehicle programs that we support, partially offset by improved operating performance. Segment Adjusted EBITDA for the Metal Forming segment also reflects approximately $12 million of favorability in other segment income related to the change in foreign exchange gains and losses during year ended December 31, 2025, as compared to the year ended December 31, 2024.
Reconciliation of Non-GAAP and GAAP Information
In addition to results reported in accordance with accounting principles generally accepted in the 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 with Securities 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, gain or losses on the derivative associated with our Business Combination with Dowlais, interest income on debt held in escrow, gains or losses on equity securities, pension curtailment and settlement charges, impairment charges 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 the Company may not be comparable to similarly titled measures reported by other companies.
Year Ended December 31,
(in millions)
Net income (loss)
Interest expense
Income tax expense
Depreciation and amortization
EBITDA
Restructuring and acquisition-related costs
Debt refinancing and redemption costs
Impairment charges
Loss on equity securities
Pension curtailment and settlement charges
Gain on Business Combination Derivative
Interest income on debt held in escrow
Non-recurring items:
Impact of the Electric Vehicle Cancellation Settlement
Total Segment Adjusted EBITDA
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund debt service obligations, capital expenditures, R&D spending, 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 non-U.S. credit facilities, as well as cash held in escrow and committed financing associated with the Business Combination, will be sufficient to meet these needs.
At December 31, 2025 we had over $1.7 billion of liquidity consisting of approximately $709 million of cash and cash equivalents, approximately $898 million of available borrowings under our Revolving Credit Facility and approximately $99 million of available borrowings under non-U.S. credit facilities. We have no significant debt maturities before 2028.
OPERATING ACTIVITIES Net cash provided by operating activities was $411.6 million in 2025 as compared to $455.4 million in 2024. The following factors impacted cash provided by operating activities in 2025 as compared to 2024:
Accounts receivable For the year ended December 31, 2025, we experienced a decrease in cash flow from operating activities of approximately $93 million related to the change in our accounts receivable balance from December 31, 2024 to December 31, 2025, as compared to the change in our accounts receivable balance from December 31, 2023 to December 31, 2024. This change was primarily the result of increased sales to customers in the applicable periods, partially offset by the impact of timing of collections on customer receivables due, in part, to our participation in an early payment program offered by our largest customer. This program allows us to sell certain of our North American receivables from this customer to a third party at our discretion, and we utilize this program from time to time.
Accounts payable and accrued expenses For the year ended December 31, 2025, we experienced an increase in cash flow from operating activities of approximately $158 million related to the change in our accounts payable and accrued expenses balance from December 31, 2024 to December 31, 2025, as compared to the change in our accounts payable and accrued expenses balance from December 31, 2023 to December 31, 2024. This change was primarily the result of the timing of payments to suppliers in the applicable periods. In addition, the change in accounts payable and accrued expenses for the year ended December 31, 2025 reflects the impact of accrued acquisition-related costs as of December 31, 2025 associated with the Business Combination.
Interest paid Interest paid was $175.7 million for the year ended December 31, 2025, as compared to $184.6 million for the year ended December 31, 2024. The decrease in interest paid was the result of lower interest rates on certain of our variable-rate debt, as well as lower outstanding indebtedness in the year ended December 31, 2025, as compared to the year ended December 31, 2024. See Note 4 - Long-Term Debt for additional detail.
Restructuring and acquisition-related costs Cash payments associated with restructuring costs were approximately $17 million and $12 million for the years ended December 31, 2025 and 2024, respectively. In 2026, we expect restructuring payments in cash flows from operating activities to be between $110 million and $150 million for the full year, which includes both Dauch stand-alone payments and payments expected under Dowlais restructuring plans.
Further, in connection with the Business Combination, we paid approximately $49 million for acquisition-related costs in 2025, consisting of, among other items, advisory, legal, accounting, valuation and other professional or consulting services. In 2026, we expect acquisition-related payments in cash flows from operating activities to be between $130 million and $150 million, including certain compensation-related items associated with the Business Combination, and we expect payments for integration costs to be between $100 million and $125 million for the full year.
Pension and other postretirement benefits (OPEB) Our cash payments for OPEB, net of GM cost sharing, were $10.1 million in 2025 and $8.7 million in 2024. 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 2026 to be approximately $2.5 million. We expect our cash payments for OPEB obligations in 2026, net of GM cost sharing, to be approximately $12.3 million. These expected future payment amounts are on a Company stand-alone basis, and do not include expected future payments for Dowlais' plans.
INVESTING ACTIVITIES For the year ended December 31, 2025, net cash used in investing activities was $169.6 million as compared to $254.8 million for the year ended December 31, 2024. Capital expenditures were $256.5 million in 2025 and $248.0 million in 2024. We expect our capital spending in 2026 to be approximately 4.5% to 5.0% of sales.
In the first quarter of 2025, we exited our 50% ownership of both Hefei AAM Automotive Driveline & Chassis System Co., Ltd. and Liuzhou AAM Automotive Driveline System Co., Ltd. As a result, we collected approximately $30 million in cash, which approximated the carrying value of our investments in these joint ventures at the time of disposition.
In July 2025, we completed the sale of AAM India Manufacturing Corporation Pvt., Ltd., and in October 2025, we reached agreement on the final settlement amount associated with the post-closing adjustments, including the final working capital true-up. As a result, total cash proceeds from the sale were approximately $65 million, net of closing adjustments.
On February 3, 2026, we completed our acquisition of Dowlais for a total purchase price of approximately $1.7 billion, of which approximately $780 million was paid in cash. In January 2025, in connection with the Business Combination, we entered into a foreign currency forward contract (the Business Combination Derivative). At the closing date of the acquisition, we settled the Business Combination Derivative and received net cash proceeds of approximately $65 million, which will be presented separately from the cash paid to acquire Dowlais in our first quarter of 2026 consolidated financial statements.
FINANCING ACTIVITIES Net cash provided by financing activities was $1,395.5 million in 2025, compared to net cash used in financing activities of $156.2 million in 2024. Total debt outstanding, net of debt issuance costs, was $4,049.5 million at year-end 2025 and $2,624.8 million at year-end 2024. The change in total debt outstanding, net of issuance costs, at year-end 2025, as compared to year-end 2024, was primarily due to the factors noted below.
Senior Secured Credit Facilities Dauch Corporation (Dauch) and American Axle & Manufacturing, Inc. (AAM, Inc.) are parties to an amended and restated credit agreement that was entered into on March 11, 2022 and has been subsequently amended (as so amended, the Amended and Restated Credit Agreement) which provides for a term loan A facility (the Term Loan A Facility), term loan B facility (the Term Loan B Facility), incremental tranche C term facility (the Tranche C Term Facility) and a multi-currency revolving credit facility (the Revolving Credit Facility and together with the Term Loan A Facility, the Term Loan B Facility and Tranche C Term Facility, the Senior Secured Credit Facilities). The Senior Secured Credit Facilities are secured by a first priority security interest in substantially all of the assets of AAM, Inc., Dauch and AAM, Inc.'s wholly owned domestic subsidiaries, subject to certain thresholds, exceptions and permitted liens.
On February 24, 2025, we entered into the Second Amendment to the Amended and Restated Credit Agreement and the Incremental Facility Agreement (the Second Amendment). The Second Amendment, among other things, a) increased the maximum under the Revolving Credit Facility from $925.0 million to $1,495.0 million, effective upon closing of the Business Combination, b) provided for an incremental $843.0 million Tranche C Term Facility in connection with the Business Combination, which was subsequently decreased by AAM, Inc. to $835.0 million and c) extended the maturity of the Revolving Credit Facility and Term Loan A Facility for five years from the date of the Second Amendment, resetting for another five years upon the closing of the Business Combination. In connection with the Second Amendment, we paid $11.6 million of debt issuance costs, and expensed $3.3 million of fees and a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of these borrowings. The maturity date of the Term Loan B Facility in the fourth quarter of 2029 was not changed by the Second Amendment.
In 2024, we paid $1.7 million of debt issuance costs and paid accrued interest of $0.5 million relating to previous amendments to the Senior Secured Credit Facilities. Additionally, in 2023, we paid debt issuance costs of $3.2 million related to previous amendments to the Amended and Restated Credit Agreement.
At December 31, 2025, we had $897.7 million available under the Revolving Credit Facility. This availability reflects a reduction of $27.3 million primarily for standby letters of credit issued against the facility. The proceeds of the Revolving Credit Facility are used for general corporate purposes.
As of December 31, 2025, we have prepaid $6.8 million of the outstanding principal on our Term Loan B Facility. These payments satisfy our obligation for principal payments under the Term Loan B Facility through the end of 2026.
In 2023, we made voluntary prepayments totaling $26.0 million on our Term Loan A Facility and $20.2 million on our Term Loan B Facility. As a result, we expensed approximately $1.1 million for the write-off of a portion of the unamortized debt issuance costs that we had been amortizing over the expected life of these borrowings.
The Senior Secured Credit Facilities provide back-up liquidity for our non-U.S. 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 Consolidated Balance Sheet.
Financing Related to the Business Combination, Redemption of the 6.50% Notes Due 2027 and Partial Redemption of the 6.875% Notes Due 2028 On October 3, 2025, AAM, Inc. issued $850 million of 6.375% senior secured notes due 2032 (the 6.375% Notes) and $1,250 million of 7.75% senior unsecured notes due 2033 (the 7.75% Notes, and together with the 6.375% Notes, the Notes). The 6.375% Notes are governed by an indenture that contains covenants, that, among other things, restrict with certain exceptions, our ability to incur additional debt, make restricted payments, incur debt secured by liens, dispose of assets and engage in consolidations and mergers or sell or transfer all or substantially all of our assets. The 7.75% Notes are governed by an indenture that contains covenants that, among other things, restrict, with certain exceptions, our ability to engage in consolidations and mergers or sell or transfer all or substantially all of our assets, incur debt secured by liens and engage in certain sale and leaseback transactions. In connection with the issuance of the Notes, we paid $16.6 million of debt issuance costs.
In the fourth quarter of 2025, we used a portion of the proceeds from the Notes to complete a redemption of all $500 million aggregate principal amount outstanding of 6.50% Notes due 2027 and a partial redemption of $150 million principal amount of 6.875% Notes due 2028. These redemptions resulted in payment of $5.5 million in accrued interest and $2.9 million for the write-off of the unamortized debt issuance costs that we had been amortizing over the expected life of these borrowings. The remaining proceeds of the Notes, together with certain amounts of prefunded interest, were deposited into segregated escrow accounts which are presented as Restricted cash on our Consolidated Balance Sheet as of December 31, 2025.
On February 3, 2026, upon completion of the Business Combination, $1,450 million, together with certain interest, was released from escrow, and was used, together with borrowings under our Tranche C Term Facility and cash on hand, to (a) pay the cash consideration payable in connection with the Business Combination and related fees and expenses and (b) repay in full all outstanding borrowings under the credit facilities of Dowlais and to pay related fees, expenses and premiums, after which all the credit facilities of Dowlais were terminated. We intend to use any remaining proceeds of the Notes to fund a change in control offer for certain outstanding notes of Dowlais, or for general corporate purposes, which may include, among other things, repayment of other outstanding indebtedness. The 6.375% Notes are secured by a first priority security interest in substantially all of the assets of AAM, Inc., Dauch and Dauch's wholly owned domestic subsidiaries (other than AAM, Inc.) that guarantee the Senior Secured Credit Facilities, subject to certain thresholds, exceptions and permitted liens.
On January 29, 2025, in connection with the announcement of the Business Combination, we entered into a credit agreement (the Backstop Credit Agreement), the First Lien Bridge Credit Agreement (the First Lien Bridge Facility), and the Second Lien Bridge Credit Agreement (the Second Lien Bridge Facility and together with the First Lien Bridge Facility, the Bridge Facilities). Following our entry into the Second Amendment, the Backstop Credit Agreement was terminated. Additionally, in connection with entry into the Second Amendment on February 24, 2025, we entered into the Amended and Restated First Lien Bridge Credit Agreement (the Amended and Restated First Lien Bridge Facility), and the Amended and Restated Second Lien Bridge Credit Agreement (the Amended and Restated Second Lien Facility, and together with the Amended and First Lien Facility, the Amended and Facilities). Following the issuance of the Notes on October 3, 2025, the Amended and Facilities were .
Redemption of 6.25% Notes Due 2026 During the year ended December 31, 2024, we voluntarily redeemed and repurchased the remaining portion of our then-outstanding 6.25% Notes due 2026. This resulted in principal payments totaling $127.6 million and $2.2 million in accrued interest. We also expensed approximately $0.4 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.
In the fourth quarter of 2023, we voluntarily redeemed a portion of our then-outstanding 6.25% Notes due 2026. This resulted in a principal payment of $50.0 million and $0.9 million in accrued interest. We also 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 the borrowing. In the fourth quarter of 2023, we also completed an open market repurchase of our 6.25% Notes due 2026 of $2.4 million.
Non-U.S. Credit Facilities We utilize local currency credit facilities to finance the operations of certain non-U.S. subsidiaries. These credit facilities, some of which are guaranteed by Dauch and/or AAM, Inc., expire at various dates through September 2028. At December 31, 2025, $10.7 million was outstanding under our non-U.S. credit facilities and an additional $99.2 million was available. At December 31, 2024, $27.6 million was outstanding under these facilities and an additional $78.2 million was available.
Treasury stock Treasury stock increased by $2.8 million in 2025 to $238.5 million, as compared to $235.7 million at year-end 2024, due to the withholding and repurchase of shares of Company stock to satisfy employee tax withholding obligations due upon the vesting of stock-based compensation.
Credit ratings To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to our securities as an indicator of credit quality for fixed income investors. A credit rating agency may change or withdraw its ratings based on its assessment of our current and future ability to meet interest and principal repayment obligations. Credit ratings may affect our cost of borrowing and/or our access to debt capital markets. The credit ratings and outlook currently assigned to our securities by the rating agencies are as follows:
Corporate Family Rating
Senior Unsecured Notes Rating
Senior Secured Notes Rating
Outlook
Standard & Poor's
Negative
Moody's Investors Services
Stable
Fitch
Stable
Dividend program We have not declared or paid any cash dividends on our common stock in 2025 or 2024.
Contractual obligations Our contractual obligations consist primarily of: 1) current and long-term debt; 2) operating and finance lease obligations; 3) obligated purchase commitments for capital expenditures and related project expense; 4) pension and other postretirement benefit obligations, net of GM cost sharing; and 5) interest obligations. Information regarding expected payments by period can be found in Item 8, "Financial Statements and Supplementary Data" in this Form 10-K at Note 4 - Long-Term Debt for our current and long-term debt obligations, Note 15 - Leasing for our operating and finance lease obligations, Note 10 - Commitments and Contingencies for purchase commitments related to capital expenditures and project expense, and Note 8 - Employee Benefit Plans for pension and other postretirement benefit obligations.
The expected future interest obligations associated with our current and long-term debt and finance lease obligations are approximately as follows: $336 million in 2026, $336 million in 2027, $325 million in 2028, $304 million in 2029, $239 million in 2030, and $497 million in 2031 and thereafter.
Subsidiary Guarantees of Registered Debt Securities Our 6.875% Notes and 5.00% Notes (collectively, the Notes) are senior unsecured obligations of AAM, Inc. (Issuer); all of which are fully and unconditionally guaranteed, on a joint and several basis, by Dauch and substantially all domestic subsidiaries of AAM, Inc. and MPG Inc. (Subsidiary Guarantors). Dauch has no significant assets other than its 100% ownership in AAM, Inc. and MPG Inc., and no direct subsidiaries other than AAM, Inc. and MPG Inc.
Each guarantee by Dauch 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 Standard & Poor's Ratings Group, Inc. and Moody's Investors Service, Inc.
The following represents summarized financial information of Dauch, AAM, Inc. and the Subsidiary Guarantors (collectively, the Combined Entities). The information has been prepared on a combined basis and excludes any investments of Dauch, 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)
Year Ended December 31, 2025
Year Ended December 31, 2024
Net sales
Gross profit
Income from operations
Net loss
Balance Sheet Information
(in millions)
December 31, 2025
December 31, 2024
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Redeemable preferred stock
Noncontrolling interest
At December 31, 2025 and December 31, 2024, amounts owed by the Combined Entities to non-guarantor entities totaled approximately $20 million and $15 million, respectively, and amounts owed to the Combined Entities from non-guarantor entities totaled approximately $400 million and $380 million, respectively.
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 for program changeovers. Accordingly, our quarterly results may reflect these trends.
LEGAL PROCEEDINGS
See Note 13 - Income Taxes and Note 10 - Commitments and Contingencies in Item 8, "Financial Statements and Supplementary Data" for discussion of legal proceedings and the effect on the Company.
EFFECT OF NEW ACCOUNTING STANDARDS
See Note 1 - Organization and Summary of Significant Accounting Policies in Item 8, "Financial Statements and Supplementary Data" for discussion of new accounting standards and the effect on the Company.
CRITICAL ACCOUNTING ESTIMATES
In order to prepare consolidated financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts and disclosures in our consolidated financial statements. These estimates are subject to an inherent degree of uncertainty and actual results could differ from our estimates.
Other items in our consolidated financial statements require estimation. In our judgment, they are not as critical as those disclosed below. We have discussed and reviewed our critical accounting estimates disclosure with the Audit Committee of our Board of Directors.
VALUATION OF DEFERRED TAX ASSETS AND OTHER TAX LIABILITIES Because we operate in many different geographic locations, including several non-U.S., state and local tax jurisdictions, the evaluation of our ability to use all recognized deferred tax assets is complex. In accordance with ASC 740 - Income Taxes , we review the likelihood that we will realize the benefit of deferred tax assets and estimate whether recoverability of our deferred tax assets is “more likely than not,” based on forecasts of taxable income in the related tax jurisdictions. In determining the requirement for a valuation allowance, the historical results, projected future operating results based upon approved business plans, eligible carry forward periods, and tax planning opportunities are considered, along with other relevant positive and negative evidence. If, based upon available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded.
As of December 31, 2025, we have a valuation allowance of approximately $313.6 million related to net deferred tax assets in several non-U.S. jurisdictions and U.S. federal, state and local jurisdictions. As of December 31, 2024 and 2023, our valuation allowance was $288.8 million and $267.1 million, respectively.
If, in the future, we generate taxable income on a sustained basis in non-U.S. and U.S. federal, state and local jurisdictions for which we have recorded valuation allowances, our current estimate of the recoverability of our deferred tax assets could change and result in the future reversal of some or all of the valuation allowance. While we believe we have made appropriate valuations of our deferred tax assets, unforeseen changes in tax legislation, regulatory activities, audit results, operating results, financing strategies, organization structure and other related matters may result in material changes in our deferred tax asset valuation allowances or our tax liabilities.
Further, due to the uncertainty associated with the potential impact of geopolitical conflicts or events, as well as macroeconomic factors, including sustained or increased inflation, renegotiated trade agreements, and tariffs or import restrictions, 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.
Unrecognized Income Tax Benefits
We record uncertain tax positions on the basis of a two-step process whereby: (1) we determine whether it is "more likely than not" that the tax positions will be sustained based on the technical merits of the position: and (2) for those positions that meet the "more likely than not" recognition threshold, we recognize the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. We record interest and penalties on uncertain tax positions in income tax expense (benefit). As of December 31, 2025 and 2024, we had a liability for unrecognized income tax benefits and related interest and penalties of $32.6 million and $34.2 million, respectively. We continue to monitor the progress and conclusions of all ongoing audits and other communications with tax authorities and adjust our estimated liability as necessary.
Other Income Tax Matters - Pending Tax Litigation
We operate in multiple jurisdictions throughout the world and the income tax returns of several subsidiaries in various tax jurisdictions are currently under examination. During their examination of our 2015 U.S. federal income tax return, the Internal Revenue Service (IRS) asserted that income earned by a Luxembourg subsidiary from its Mexican branch operations should be categorized as foreign base company sales income (FBCSI) under Section 954(d) of the Internal Revenue Code and recognized currently as taxable income on our 2015 U.S. federal income tax return. As a result of this assertion, the IRS issued a Notice of Proposed Adjustment (NOPA). The Company disagreed with the NOPA, believes that the proposed adjustment is without merit and contested the matter through the IRS's administrative appeals process. No resolution was reached in the appeals process and, in September 2022, the IRS issued a Notice of Deficiency. The IRS subsequently issued a Notice of Tax Due in December 2022 and we paid the assessed tax and interest of $10.1 million in January 2023. We filed a claim for refund for the amount of tax and interest paid related to this matter for the 2015 tax year and, in December 2023, we filed suit in the U.S. Court of Federal Claims. We have a trial date set to begin court proceedings on this matter in 2026.
We believe, after consultation with tax and legal counsel, that it is more likely than not that our structure did not give rise to FBCSI, and it's likely that we will be successful in ultimately defending our position. As such, we have not recorded any impact of the IRS’s proposed adjustment in our consolidated financial statements as of, and for the years ended, December 31, 2025, December 31, 2024 and December 31, 2023, with the exception of the cash payment and associated income tax receivable of $10.1 million paid by the Company to the IRS in 2023. As of December 31, 2025, in the event the Company is not successful in defending its position, the potential additional income tax expense, including estimated interest charges, related to tax years 2015 through 2023, is estimated to be in the range of approximately $335 million to $385 million.
The IRS has subsequently issued to the Company additional NOPAs for this matter for each of the tax years 2016 through 2022. The issuance of these NOPAs does not impact the aforementioned estimated range of potential income tax expense and interest charges and does not alter our belief that it is more likely than not that our structure did not give rise to FBCSI and that it’s likely that we will be successful in ultimately defending our position.
PENSION AND OTHER POSTRETIREMENT BENEFITS In calculating our assets, liabilities and expenses related to pension and OPEB, key assumptions include the discount rate, expected long-term rates of return on plan assets, mortality projections and rates of increase in health care costs.
The discount rates used in the valuation of our U.S. pension and OPEB obligations were based on an actuarial review of a hypothetical portfolio of long-term, high quality corporate bonds matched against the expected payment stream for each of our plans. In 2025, the weighted-average discount rates determined on that basis were 5.35% for the valuation of our pension benefit obligations and 5.45% for the valuation of our OPEB obligations. The discount rates used in the valuations of our non-U.S. pension obligations were based on hypothetical yield curves developed from corporate bond yield information within each regional market. In 2025, the weighted-average discount rate determined on that basis was 5.15% for our non-U.S. plans. The expected weighted-average long-term rates of return on our plan assets were 6.75% for our U.S. plans, and 5.80% for our non-U.S. plans in 2025.
We developed these rates of return assumptions based on future capital market expectations for the asset classes represented within our portfolio and a review of long-term historical returns. The asset allocation for our plans was developed in consideration of the demographics of the plan participants and expected payment stream of the liability. Our investment policy allocates approximately 25% - 35% of the U.S. plan assets to equity securities, with the remainder invested in fixed income securities, hedge fund investments and cash. The rates of increase in health care costs are based on current market conditions, inflationary expectations and historical information.
All of our assumptions were developed in consultation with our actuarial service providers. While we believe that we have selected reasonable assumptions for the valuation of our pension and OPEB obligations at year-end 2025, actual trends could result in materially different valuations. The effect on our pension plans of a 0.5% decrease in both the discount rate and expected return on assets is shown below as of December 31, 2025, our valuation date.
Expected
Discount
Return on
Rate
Assets
(in millions)
Decline in funded status
Increase in 2025 expense
No changes in benefit levels or in the amortization of gains or losses have been assumed.
For 2026, we assumed a weighted-average annual increase in the per-capita cost of covered health care benefits of 7.0% for OPEB. The rate is assumed to decrease gradually to 5.0% by 2036 and remain at that level thereafter. A 0.5% decrease in the discount rate for our OPEB would have increased total expense in 2025 and the postretirement obligation, net of GM cost sharing, at December 31, 2025 by $0.4 million and $8.1 million, respectively. A 1.0% increase in the assumed health care trend rate would have increased total service and interest cost in 2025 and the postretirement obligation, net of GM cost sharing, at December 31, 2025 by $0.7 million and $12.5 million, respectively.
The Company and GM share in the cost of OPEB for eligible retirees proportionally based on the length of service an employee had with the Company and GM. We estimate the future cost sharing payments and present it as an asset on our Consolidated Balance Sheet. As of December 31, 2025, we estimated $125.3 million in future GM cost sharing. If, in the future, GM were unable to fulfill this financial obligation, our OPEB obligations could be different than our current estimates.
GOODWILL We record goodwill when the purchase price of acquired businesses exceeds the value of their identifiable net tangible and intangible assets acquired. We periodically evaluate goodwill for impairment in accordance with the accounting guidance for goodwill and other indefinite-lived intangibles that are not amortized. We review our goodwill for impairment annually during the fourth quarter. In addition, we review goodwill for impairment whenever adverse events or changes in circumstances indicate a possible impairment.
This review is performed at the reporting unit level, and involves a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess carrying value over fair value.
In performing goodwill impairment testing, 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. A decline in the actual cash flows of our reporting units in future periods, as compared to the projected cash flows used in our valuations, could result in the carrying value of the reporting units exceeding their respective fair values. Further, a change in market comparables, discount rate or long-term growth rate, as a result of a change in economic conditions or otherwise, could result in the carrying values of the reporting units exceeding their respective fair values.
Our business is organized into two segments: Driveline and Metal Forming. Under the goodwill guidance, we determined that each of our segments represents a reporting unit. The determination of our reporting units and impairment indicators also require us to make significant judgments. At December 31, 2025 and 2024, all goodwill was associated with our Driveline reporting unit. As a result of our goodwill impairment test completed in the fourth quarter of 2024, we determined that the fair value of our Driveline reporting unit exceeded its carrying value by approximately 40%.
For our goodwill impairment test in the fourth quarter of 2025, we utilized a Step 0 qualitative analysis, as permitted under the guidance in ASC 350, and concluded that it is more-likely-than-not that the fair value of Driveline exceeded its carrying value as of the testing date. We concluded that a Step 0 analysis was appropriate based on the significant excess of fair value over carrying value for Driveline resulting from our 2024 goodwill impairment test, and further as a result of relative stability in our operating environment. In addition, financial results of Driveline for 2025 were comparable to 2024, as were Driveline's projected financial results in our current long-range plan, as compared to the plan utilized in the 2024 goodwill impairment test. See Note 3 - Goodwill and Other Intangible Assets for further detail regarding our goodwill.
IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, excluding goodwill, to be held and used are reviewed for impairment whenever adverse events or changes in circumstances indicate a possible impairment. Recoverability of each “held for use” asset group affected by impairment indicators is determined by comparing the forecasted undiscounted cash flows of the operations to which the assets relate to their carrying amount. If the carrying amount of an asset group exceeds the undiscounted cash flows and is therefore not recoverable, the assets in this group are written down to their estimated fair value. We estimate fair value based on market prices, when available, or on a discounted cash flow analysis. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. Significant judgments and estimates used by management when evaluating long-lived assets for impairment include:
• An assessment as to whether an adverse event or circumstance has triggered the need for an impairment review;
• Determination of asset groups, the primary asset within each group, and the primary asset's average estimated useful life;
• Undiscounted future cash flows generated by the assets; and
• Determination of fair value when an impairment is deemed to exist, which may require assumptions related to future general economic conditions, future expected production volumes, product pricing and cost estimates, working capital and capital investment requirements, discount rates and estimated liquidation values.
PRODUCT WARRANTY We record a liability and related charge to cost of goods sold for estimated warranty obligations at the dates our products are sold or when specific warranty issues are identified. Product warranties not expected to be paid within one year are recorded as a noncurrent liability on our Consolidated Balance Sheet. Our estimated warranty obligations for products sold are based on significant management estimates, with input from our warranty, sales, engineering, quality and legal departments. For products and customers with actual warranty payment experience, we estimate warranty costs principally based on past claims history. For certain products and customers, actual warranty payment experience does not exist or is not mature. In these cases, we estimate our costs based on the contractual arrangements with our customers, existing customers' warranty program terms and internal and external warranty data, which includes a determination of our responsibility for potential warranty issues or claims and estimates of repair costs. We actively study trends of our warranty claims and take action to improve product quality and minimize warranty claims. We continuously evaluate these estimates and our customers' administration of their warranty programs. We closely monitor actual warranty claim data and adjust the liability, as necessary, on a quarterly basis.
Our warranty accrual was $63.3 million as of December 31, 2025 and $60.6 million as of December 31, 2024. During 2025 and 2024, we made adjustments to our warranty accrual to reflect revised estimates regarding our projected future warranty obligations. Actual experience could differ from the amounts estimated requiring adjustments to these liabilities in future periods. It is possible that changes in our assumptions or future warranty issues could materially affect our financial position and results of operations.
ACCOUNTING FOR ACQUISITIONS On February 3, 2026, we completed our acquisition of Dowlais and are therefore subject to the accounting guidance as prescribed by ASC 805 - Business Combinations. In accordance with this guidance, we are required to allocate the purchase price of an acquired business to its identifiable assets and liabilities based on fair value. The excess purchase price over the fair value of identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair values of assets acquired and liabilities assumed, especially with regard to intangible assets, requires significant levels of estimates and assumptions made by management. In order to assist management, we utilize third party valuation experts in determining the fair values.
If the initial accounting for an acquisition is incomplete by the end of the reporting period in which the acquisition occurs, we record provisional amounts for the incomplete items. We have the ability to make measurement period adjustments, as necessary, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized on the date of acquisition. The measurement period ends once we receive the information that was not obtainable as of the acquisition date, and should not exceed one year from the acquisition date.
Forward-Looking Statements
In this MD&A and elsewhere in this Form 10-K (Annual 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:
• global economic conditions, including the impact of inflation, recession or recessionary concerns, or slower growth in the markets in which we operate;
• reduced purchases of our products by General Motors Company (GM), Ford Motor Company (Ford), Stellantis N.V. (Stellantis) or other customers;
• reduced demand for our customers' products (particularly light trucks and sport utility vehicles (SUVs) produced by GM, Ford and Stellantis);
• our ability to consummate strategic initiatives and successfully integrate acquisitions and joint ventures;
• 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;
• 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 the United States-Mexico-Canada Agreement (USMCA), compliance with customs and trade regulations, immigration policies, political stability or geopolitical conflicts, taxes and other law changes, potential disruptions of production and supply, and currency rate fluctuations);
• supply shortages and the availability of natural gas or other fuel and utility sources in certain regions, labor shortages, including increased labor costs, or price increases in raw material and/or freight, utilities or other operating supplies for us or our customers as a result of pandemic or epidemic illness, geopolitical conflicts, natural disasters or otherwise;
• a significant disruption in operations at one or more of our key manufacturing facilities;
• risks inherent in transitioning our business from internal combustion engine vehicle products to hybrid and electric vehicle products;
• our ability to realize the expected revenues from our new and incremental business backlog;
• negative or unexpected tax consequences, including those resulting from tax litigation;
• risks related to a failure of our information technology systems and networks, including cloud-based applications, and risks associated with current and emerging technology threats, and damage from computer viruses, unauthorized access, cyber attacks, including increasingly sophisticated cyber attacks incorporating use of artificial intelligence, and other similar disruptions;
• our suppliers', our customers' and their suppliers' ability to maintain satisfactory labor relations and avoid or minimize work stoppages;
• cost or 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;
• risks of environmental issues, including impacts of climate-related events, that could result in unforeseen issues or costs at our facilities, or risks of noncompliance with environmental laws and regulations, including reputational damage;
• our 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 or our ability to recover certain cost increases from our customers;
• price volatility in, or reduced availability of, fuel;
• our ability to protect our intellectual property and successfully defend against assertions made against us;
• 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 qualified personnel in key positions and functions; 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 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.
