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5. American Axle & Manufacturing Holdings, Inc. Business Report FY ended Dec. 2017

American Axle & Manufacturing Holdings, Inc. Business Report FY ended Dec. 2017

Factors
1) Net Sales
-The Company’s net sales in the fiscal year ended December 31, 2017 increased by 58.7% over the previous year to USD 6,266.0 million. The increase in sales is primarily due to the acquisition of MPG during the fiscal year. Excluding the effects of the MPG acquisition, the Company’s sales increased due to an increase in production volumes in light truck and SUV programs supported by the Company, new program launches, and an increase in metal market pass-throughs to the Company’s customers. These gains were partially offset by annual productivity price-downs for specific programs.

2) Operating Income
-The Company’s operating income increased by 42.6% in the fiscal year ended December 31, 2017 to USD 543.0 million. The increase in operating income was primarily driven by the acquisition of MPG and supplemented by higher production volumes on higher margin vehicles in the light truck and SUV segments.

3) Driveline
-The Driveline segment had sales of USD 4,039.7 million in the fiscal year ended December 31, 2017, an increase of 8.3% over the previous year. The increase in sales was caused by program launches from new business backlog, an increase in metal market pass-through prices to the Company’s customers and increased production volumes in light truck and SUV programs. These gains were partially offset by annual productivity price-downs for specific programs.

4) Metal Forming
-The Company’s Metal Forming segment’s sales in the fiscal year ended December 31, 2017 increased by 282.0% to USD 830.0 million. The main contributing factor to the increase in the segment’s sales was the acquisition of MPG.

5) Powertrain and Casting
-In the fiscal year ended December 31, 2017, the Company’s sales in the Powertrain and Casting segments were USD 806.6 million and USD 589.7 million, respectively. These segments are entirely attributable to the acquisition of MPG, as the Company did not operate in the segments prior to the acquisition in April 2017.

Acquisition of Metaldyne Performance Group

-The Company and Metaldyne Performance Group (MPG) announced that both parties have entered into a definitive merger agreement under which the Company will acquire MPG for approximately USD 1.6 billion in cash and stock, plus the assumption of USD 1.7 billion in net debt. The combination integrates highly complementary businesses and forms a global Tier 1 supplier with broad capabilities across powertrain, drivetrain, and driveline product lines. On a pro forma basis, the combined entity will represent nearly USD 7 billion of annual sales and have the potential to generate over USD 1.2 billion of EBITDA and USD 400 million of free cash flow. The merger is expected to deliver between USD 100 million and USD 120 million in annual cost synergies. Upon closing of the transaction, Company shareholders will own approximately 70% of the combined company while MPG's shareholders will own approximately 30%. The Company has entered into a voting agreement with the controlling stockholder of MPG, American Securities LLC, which will own approximately 23% of the combined company. The transaction is anticipated to close in the first half of 2017. (From a press release on November 3, 2016)

-The Company completed the acquisition of Metaldyne Performance Group Inc. (MPG), for approximately USD 1.6 billion in cash and stocks, which is now a wholly owned subsidiary of the Company. David C. Dauch will remain Chairman and Chief Executive Officer of the Company. The Company’s Board of Directors will be expanded to include three designees of American Securities LLC – George Thanopoulos, MPG’s Chief Executive Officer prior to the acquisition, along with former MPG board members Kevin Penn and Loren Easton. (From a press release on April 6, 2017)

Awards

-In 2017, a number of the Company’s individual facilities won awards from automakers, including:

• The GM Supplier Quality Excellence Award awarded to facilities in: Auburn Hills, Michigan, U.S.; Bulffton, Indiana, U.S.; Chicago, Illinois, U.S.; Colfor, Ohio, U.S.; Changshu, China; Pyeongtaek, South Korea
• The Rayong Manufacturing Facility in Thailand received Ford’s Q1 Certification
• The Twinsburg Manufacturing Facility in Ohio earned the highest possible score for GM’S Built in Quality Supply Base audit
• The Ramos Manufacturing Facility in Mexico won the FCA Outstanding Quality Award
• The Swidnica Manufacturing Facility in Poland received the Jaguar Land Rover Q Award
• The Oxford Manufacturing Facility in Michigan received the Hino Quality Achievement Award.

-The Company announced that it was named a GM Supplier of the Year by General Motors. (From a press release on April 3, 2017)

Outlook

-The Company expects its net sales in the fiscal year ending December 31, 2018 to be approximately USD 7 billion.

R&D Facilities

-As of December 31, 2017, the Company has 15 engineering centers.

-The Company celebrated the opening of a new R&D facility focused on lightweight metals and advanced composites in downtown Detroit’s Corktown neighborhood. The Institute for Advanced Composites Manufacturing Innovation (IACMI) and Lightweight Innovations for Tomorrow (LIFT) invested nearly USD 50 million in the 100,000-square-foot facility, which allows member companies and partners the opportunity to conduct projects in both lightweight metals and advanced composites onsite. The Company is a member of LIFT and will use the facility to help further lightweighting activities. (From a press release on October 11, 2017)

R&D Activities

-The focus of the Company's R&D investment includes the following:

• Electronic integration in existing and future products to improve their performance
• Development of hybrid and electric vehicle systems
• Development of products which enhance fuel efficiency, reduce emissions, or improve NVH, power density, or traction control

Product Development

Second-generation EcoTrac disconnecting AWD system
-The Company’s second-generation EcoTrac disconnecting all-wheel drive (AWD) system features greater system efficiency and packaging gains compared to the original. Originally launched on the 2014 Jeep Cherokee, the EcoTrac Disconnecting AWD gives drivers the performance of an AWD vehicle with the fuel economy of a front-wheel drive vehicle by automatically and seamlessly using only the front wheels when AWD is not required. The Company has supplied more than 600,000 EcoTrac AWD units to customers since its introduction. The next-generation EcoTrac will launch on a global vehicle in 2018. By the end of 2019, EcoTrac will represent approximately USD 700 million of revenue across global markets. (From a press release on March 30, 2017)

-The Company’s capital expenditures in the fiscal year ended December 31, 2017 was used to support significant global program launches from the Company’s new and incremental business backlog.

-The Company expects that its capital expenditures in the fiscal year ending December 31, 2018 will be approximately 8% of its net sales.