American Axle & Manufacturing Holdings Inc (AXL) 2003 Q4 法說會逐字稿

Good morning; my name is Lisa and I will be your conference facilitator today.

At this time I would like to welcome everyone to the American Axle & Manufacturing fourth-quarter and full 2003 conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS) As a reminder, today's call is being recorded.

I would now like to call over to Rick Dauch, Vice President of Investor Relations.

Please go ahead, Mr. Dauch.

Good morning, everyone.

Thank you for joining us today and for your interest in American Axle & Manufacturing.

All of you should have a chance to review our fourth-quarter and full-year 2003 earnings announcement that we released earlier this morning, as well as our press releases announcing the appointment of two new Board members and a share repurchase program last night.

If you have not, you can access them on the AAM.com website or through the PR newswire services.

A replay of this call will also be available beginning at noon today through 5 PM Eastern Standard Time by calling 1-800-642-1687, reservation number 4730552.

Before I turn the call over to our co-founder, Chairman, and CEO Dick Dauch, let me take a few minutes to read a brief statement.

I would like to remind everyone that the matters discussed in this conference call may contain comments and forward-looking statements based on current plans, expectations, events, and financial and industry trends which may affect the company's future operating results and financial position.

Within the meaning of the Private Securities Litigation Reform Act of 1995, forward-looking statements are not guarantees of future results or conditions, but rather are subject to risks and uncertainties which cannot be predicted or quantified and which may cause future activity and results of operations to differ materially from those discussed.

The historical results achieved are not necessarily indicative of future prospects of the company.

For additional information we ask that you refer to the company's filings with the Securities and Exchange Commission and our investor presentation on the AAM.com website under the investor link.

This call is also intended to be in compliance with Regulation FD and is open to institutional investors and securities analysts, news media representatives, and other interested parties.

I would also like to remind you during the call we may refer to certain non-GAAP financial measures.

Information regarding these non-GAAP financial measures, as well as the reconciliation of these non-GAAP measures to GAAP financial information, is also available on the AAM company website.

We are also audio webcasting this call through our website, AAM.com; and this call will be archived in the investor section and will be there for a year for later listening.

We will be appearing at the Planes Trains and Automobiles conference in New York City, sponsored by Prudential on February 18; and the J.P.

Morgan Small Cap conference in Denver on March 11; and at the annual Morgan Stanley (inaudible) Global Automotive conference in New York City on April 5 to 7.

We will also be conducting several investor visits in the first quarter in the mid-Atlantic region, hopefully to the Midwest and to the West Coast later in the month of March.

We certainly look forward to seeing many of you at those conferences or investor visits.

In addition, we are always happy to host investors at our facilities either here in Detroit or at our other locations.

With that said, let's get to the purpose of today's call and let me turn things over to Dick Dauch, AAM's co-founder, Chairman, and CEO.

Thank you, Rick.

Good morning, everyone, and thank you for joining us today to discuss American Axle's financial results for the fourth quarter and full year of 2003.

I am pleased to be joined today by Joel Robinson, our President and Chief Operating Officer;

Robin Adams, our Executive Vice President and Chief Financial Officer; and Patrick Lancaster, our Vice President and Chief Administrative Officer.

After I discuss some of the highlights of today's release, I will turn things over to Robin for the details of our financial performance.

When Robin finishes we will be opening the call for any questions you men and women may have.

Let me start off by saying I'm extremely pleased to report earnings of 96 cents for the fourth quarter, and $3.70 for the full year of 2003.

That is an increase of nearly 10 percent versus 2002.

This is the 20th straight quarter since AAM became a company public that we have delivered strong performance and met or beaten the Wall Street expectations.

For the full year 2003, sales, earnings, and margins were all at record levels for the company as Robin will discuss shortly.

As promised, we continue trend of improving positive free cash flow.

AAM's free cash flow provided by the operations for the quarter was $115 million, a 13 percent increase over the fourth quarter of 2002.

For the year AAM generated nearly $270 million in positive free cash flow after capital expenditures which we used to pay down our debt.

Our net debt to capital now stands at 31 percent, down dramatically from the 51 percent a year earlier.

We are now a rock-solid company, having earned credit rating upgrades to investment grade from both Standard & Poor's and Moody's in the quarter.

With the upgrades in place we are moving quickly to restructure our debt facility and long-term borrowings.

As we announced in our press release yesterday, we can now begin to return capital for our stockholders through a share repurchase program.

This is in line with the commitment we made to you throughout the last year.

We feel that now is an excellent time to be in the market purchasing AAM stock, and with flexibility under our new credit facility we plan on doing just that.

Let me provide you a quick overview of the quarter and also the 2003 year in general.

Starting with the market environment, North American light vehicle production was up nearly 1 percent in the quarter, and down about 3 percent for the full year 2003.

Light trucks and SUVs continue to grow faster than any of the other overall segments of the market.

Light truck production was up 6.5 percent for the quarter and 2.5 percent for the year; while (indiscernible) car trucks was down 7 percent for the quarter, and down almost 10 percent for the year.

AAM's sales in the fourth quarter of 2003 were a fourth-quarter record level of $926 million, up 2 percent from the previous fourth year quarter.

For the full year, our sales were up 6 percent to just under $3.7 billion.

Our sales were again positively impacted by increased General Motors light truck production, strong sales of both the Dodge Ram heavy-duty pickup truck and GM's Hummer 2s.

The most recent launches of the GMC Envoy XUV and the all-new Chevrolet Canyon and GMC Colorado have also been helpful.

Our sales to non-GM customers were up over 8 percent in the fourth quarter and up over 35 percent for the full year.

As a percent of total sales, non-GM customers represented over 18.7 percent of our total sales in 2003, as compared to 14 percent in 2002.

Operating income grew 10 percent in the fourth quarter of 2003, and was up 11.3 percent for the full year 2003 compared to 2002.

This significant improvement is due to the following factors.

First, North American light truck and sport utility production continues to grow and remains strong at our customers.

Second, we successfully executed the complex and global launch of the products that support the new GM midsize trucks, GMC Canyon and Chevrolet Colorado, which are built by GM in their Shreveport, Louisiana, assembly plant.

The AAM driveline products for these all-new and exciting vehicles were launched on time at the planned quality level, cost level, and delivery expectation.

A flawless launch.

Third, we continue to expand our product portfolio, manufacturing capacity, and flexibility to handle customer product mix requirements.

Finally, our ability to aggressively focus on ongoing improvements in productivity has been very effective.

Stringent cost controls are in place and we are including the administrative (inaudible) part cost as part of our value-added enterprise.

This has helped improve our financial performance.

In our company, we are committed to supporting our R&D efforts in order to develop new, higher technology products that meet the needs of global customers in the future and also package very well into our customers' vehicle platforms.

It is this commitment and focus on R&D during 2003 and before that has allowed us to generate over 80 percent of our sales from new technology products introduced to the market since 1998.

We're making great progress toward commercializing products such as the following.

New all-wheel-drive systems incorporating PTUs, IRDAs, and advanced drive shafts for crossover vehicles and the all-wheel-drive passenger car segment in all major automotive markets of the world.

And also our independent ride chassis modules for passenger cars and SUV applications.

We have been awarded three development contracts for all-wheel-drive systems and hope to turn those into production purchase orders in the first or second quarter of this year, 2004.

As we mentioned conference session at the Detroit auto analyst conference session, at the Detroit Auto Show, one of those development contracts is with an Asian OEM.

We hope to finalize that contract in the upcoming weeks as our people are in Asia right now.

For the second year extending (ph) 2003, we announced new awarded business of over $100 million in annual sales.

Most importantly, while we are unable to disclose the identity of the customers, a significant portion of these new awards support AAM's efforts to further diversify our customer base and product portfolio.

These awards combined with the other awarded business represent a gross new business backlog of approximately $550 million through year 2006.

After the run out of existing programs, the net new business backlog is approximately one third of a billion dollars.

We are working hard on several additional opportunities to secure new business from existing and prospective customers.

Currently we are actively quoting on a new business of approximately three-fourths of a billion dollars, with about 80 percent of that activity outside of GM, and about 50 percent representing opportunities with foreign and/or their transplant OEMs.

The production launch timing of these programs range from year 2005 through 2008.

We have also identified several emerging opportunities in the marketplace and expect to submit quotes on these opportunities in the next 30 to 60 days.

Let me switch gears and talk about operations.

President Joel Robinson and his team continue to do an excellent job to perform at industry leading levels.

Our company continues to improve its quality performance.

A few (ph) facts to show the differentiation is why we are the world leader.

Our largest customer has just shared our information for the year, showing our quality of AAM improved to them by 63 percent in the year-to-year basis, attaining a world-class twelve-month rolling average of 15 discrepant parts per million, while we actually came in at 4 parts per million in a couple of the months in the fourth quarter of the year.

To be honest, we are striving for perfection.

On the productivity front, we continue to drive waste out of the system by improving both our hours to perform a $1000 of generated sales, and our nonlabor accounts, all through 2003.

This strong operating performance is being translated into much improved financial performance as well.

Before I turn this over to Robin, let me make a few other comments about the Blackstone group and our new Board members that Rick has discussed, and will add a comment or two about what lies ahead for AAM.

In the past quarter Blackstone completed their planned and orderly exit strategy from AAM; and I want to think those of you who participated in the secondary offering in October and December.

They were very effective.

I should also like to thank my friend Bob Friedman and Bret Pearlman for their Board governance and the entire Blackstone group for an excellent partnership that we had for over six years.

It was highly successful for all parties involved and AAM could not have asked for a better financial partner.

We wish them the best of luck in their future endeavors.

Yesterday we announced the appointment of two brand-new Board members, Dr. Henry Yang, Chancellor at the University of California in Santa Barbara; and Mr. Tom Martin, a retired DaimlerChrysler financial executive.

I have known both Henry and Tom for well over 20 years.

They are top-notch people and very accomplished world business professionals.

As we begin the next decade at AAM, their international business experience, financial expertise, and technical acumen will be an excellent fit as we seek to diversify and profitably grow our company on a global basis.

They are excellent additions to our Board of Directors.

I would like to thank them for joining the AAM team.

The first 10 years of AAM is nearly in the history books and has been highly successful.

We respect the past immensely, but we are totally focused on the future for 2004 through 2014.

We feel 2004 will be another breakout year for AAM.

We have already taken our first steps in the future with our plans to return capital to our stockholders in the form of a stock repurchase program and the restructuring of our long-term debt.

Nonetheless we will remain focused on continue our solid operating and financial performance.

Here is what you can expect from your AAM team.

First, we will continue our world-class operating and financial performance.

Second, we will complete our debt restructuring in the first quarter of 2004.

Third, as Rob and I have told you earlier, our guidance is for $4 EPS for the year, full, of 2004; and that excludes the impact of a onetime debt refinancing cost.

Next, we continue our trend of positive cash flow by generating north of 200 million in free cash flow for 2004.

At this point, returning our capital to our investors by our recently announced stock repurchase program and the continuation of reviewing the potential of a dividend payment for our AAM stockholders later this year.

Next we want to aggressively seek to diversify our customer base, product portfolio, and geographical presence through new business wins and strategic bolt-on acquisitions.

Finally, we want to continue to maintain our investment-grade ratings or improve them.

I should like to thank our shareholders for this support and for all their support in 2003.

AAM has proven it can rise to the challenge of oftentimes unforgiving and unrelenting automotive industry. 2004 will be another one of those years of challenge, which we are totally prepared for and thrive on.

We will capitalize upon these opportunities.

AAM is a rock-solid company.

We are ready to accelerate our performance, heading into our second decade as an operating company.

We will continue to differentiate ourselves in the marketplace by offering outstanding values to our customers and our stockholders.

I thank each and every one of you for your attention today.

It is my privilege now to turn it over to our Chief Financial Officer, Robin Adams.

Thank you, Dick.

As you heard, we achieved fourth-quarter 2003 earning results of 96 cents a share, versus 99 cents a share reported in the fourth quarter of last year.

Full-year results for 2003 were $3.70 a share, versus the reported $3.38 a share for the full-year 2002.

If you recall, our fourth quarter and full-year results in 2002 include a $5.5 million non-recurring after-tax gain or 10 cents a share, due to insurance proceeds from a fire at our forge operations in Detroit in the summer of 2002.

Let me share some of the financial highlights of the quarter and the year with you.

We achieved fourth-quarter earnings at $53.4 million, an increase of 2 percent versus last year's reported fourth-quarter earnings, for an increase of 14 percent; again without these forge fire gains.

We had record fourth-quarter sales of $926.1 million, an increase of nearly 2 percent; and record full-year sales of approximately $3.7 billion, an increase of nearly 6 percent versus 2002.

As Dick mentioned, we continue to diversify our customer base, with non-GM sales representing nearly 19 percent of our total sales for the quarter and equaling nearly 87 percent of our total sales growth for the year.

We have significantly improved our generation of free cash flow, improving to $115 million in the fourth quarter of 2003; and nearly $270 million for the full-year 2003.

We continue to reduce our net debt to capital ratio.

It is now at 31 percent, versus 51 percent at the end of 2002.

We have also maintained our after-tax returns on invested capital above the 15 percent target level, achieving 16.1 percent at the end of 2003, putting us once again at the top of our industry peer group.

As Dick mentioned, we received a two-notch credit rating upgrade to investment grade from Standard & Poor's in November and a one-notch credit rating upgrade to investment grade from Moody's in December; and we're very proud of those actions.

Let me now review the company's continued strong financial performance in the fourth quarter and in the full year in more detail, starting with sales.

Our sale levels were a fourth-quarter record.

Sales were up $15 million or nearly 2 percent, as I said, to $926 million for the quarter.

This compared to North American light vehicle builds, were up an estimated 1 percent in the quarter.

Our sales in the quarter were driven mainly by our non-GM sales growth, of close to 8 percent.

This non-GM sales growth represented 81 percent of our total growth for the quarter; and as a percent of our total revenue our non-GM sales were approximately 19 percent for the quarter.

Our content per vehicle was $1182 for the quarter, and consistent with the fourth-quarter levels of 2002.

The shift in product mix to midsize SUVs and pickup trucks from the full-size SUVs and pickups affected our quarterly content per vehicle comparison versus last year.

AAM continues to benefit from GM's (inaudible) a strong marketshare presence in its light truck business.

Light trucks continue to represent nearly 60 percent of GM's builds in the quarter versus 57 percent in the fourth quarter of 2002.

In addition, the four-wheel-drive and all-wheel-drive penetration on the vehicles we supply increased to 63 percent in the quarter, versus 62 percent in the fourth quarter of last year.

For the full year 2003, our sales were up approximately $203 million to almost $3.7 billion.

A 6 percent increase versus last year.

This 6 percent increase compared to North American light vehicle builds, which were down 3 percent last year.

So we continue to outperform the industry growth rate last year.

We outperformed the growth rate by 9 percentage points.

Sales to other customers, customers other than General Motors, increased by 35 percent for the year.

Overall our non-GM sales represented 87 percent of our total sales growth in 2003.

Content per light truck on the vehicles we supply increased 3 percent for the full year to an estimated $1173 versus $1140 for the full year of 2002.

For the full year, four-wheel-drive and all-wheel-drive (inaudible) was approximately 62 percent versus a full-year 59 percent in 2002.

Gross margin for the quarter was 14.9 percent, versus 14.2 in the fourth-quarter last year.

This is a 70 basis point improvement versus last year.

And for the full year, gross margin was 14.7 percent, up 60 basis points when compared to the 14.1 percent achieved last year.

The improvement at the gross margin line and the gross margin percentage were a result of higher production volumes and, as Dick mentioned, increased focus on productivity and plant cost control.

Selling, general, and administrative expenses for the fourth quarter were 46.9 million or 5.1 percent of sales, and were consistent when compared to last year's fourth-quarter levels.

For the full-year 2003, SG&A expenses were at 5.3 percent of sales, compared to 5.2 percent of sales in 2002.

This slight increase represents higher spending in R&D.

Our R&D spending as a percent of sales in 2003 was 1.6 percent, versus 1.5 percent in 2002.

That explains the SG&A difference.

Dick mentioned our commitment to support our customers' needs as well as focus on targeting key growth segments for the driveline system market.

As a result our R&D spending increased by 12 percent in 2003 to nearly $61 million.

Operating income increased 10 percent in the quarter to 91.5 million or 9.9 percent of sales, versus 83 million or 9.1 percent of sales for the fourth-quarter last year, an 80 basis point improvement.

For the full-year 2003, operating income was $346 million, an 11 percent increase versus last year.

Operating margins increased to 9.4 percent in 2003, up 50 basis points, 0.5 percent, versus 8.9 percent in 2002.

We generated approximately 17 cents of incremental operating income for every incremental sales dollar generated year-over-year.

These improvements continue to be driven by our ability to break new technology products to market, our continued advancement in world class process technology, and our new manufacturing programs.

We are a company focused, intensely focused on improvements in engineering and manufacturing technology, which also has to generate excellent financial results.

Our EBITDA margin in the quarter was 14.6 percent, slightly down from the reported 14.8 percent in the fourth quarter of 2002; but remember the effects of that forge fire gain, a nonrecurring item, positively affected our 2002 fourth-quarter EBITDA margin by 90 basis points.

So in effect, on a comparable basis, our margin improved dramatically in the quarter.

For the full year of 2003 EBITDA margin was 14 percent, up 50 basis points from what we reported last year, 13.5 percent; and once again the effects of the forge fire positively affected our 2002 EBITDA margin by 20 basis points.

We continue to show margin improvement at the EBITDA level, getting us closer to our commitment that we made to approach the 15 percent EBITDA margin level by the end of 2004.

Further down the income statement, net interest expense for the quarter was $11.1 million, down from 13.6 million in the fourth quarter of last year; and for the year our net interest expense was 46.8 million, down from 50.6 million in 2002.

The decrease in interest expense continues to reflect the use of our strong cash flow to pay down debt in the quarter and the year.

As I will talk a little bit later in the call, we expect our interest expense to continue to decrease into 2004.

For the quarter and the year our tax rate continues to be 35 percent level, versus 35 percent in the fourth quarter last year and 35.7 percent for the full-year 2002.

As we have previously mentioned, a decrease in our effective tax rates in 2002 was due to realization of some state tax credits.

We expect the tax rate in 2004 to remain at that 35 percent level.

Net income for the quarter 2 percent as we said previously; and as a percent of sales represented 5.8 percent of sales, versus 5.7 percent of sales in the fourth quarter last year.

For the full year, net income increased 12 percent to just under $200 million or 5.4 percent of sales, compared to approximately $175 million or 5.1 percent of sales in 2002.

This positive margin improvement year-over-year continues to demonstrate our strength and ability to achieve consistent and improved financial results.

As mentioned earlier, our full-year earnings were $3.70 a share versus the reported $3.38 a share for 2002.

Nearly a 10 percent increase; or, again, when excluding the forge fire nonrecurring gain in 2002, a year-over-year increase of 13 percent.

Moving on to our credit statistics, our net interest at the end of the year was 7.5 times, versus 6.4 times at the end of 2002.

EBITDA coverage was up over 10 times, close to 11, versus 9.3 times at the end of 2002.

Our net debt to trailing 12-month EBITDA leverage ratio at the end of the quarter was under 1 time; 0.85 was our net debt to EBITDA leverage ration, versus 1.5 times at the end of 2002.

These are very solid investment-grade statistics.

Now let's look at our cash flow for the quarter and the year.

Cash provided by operating activities in the fourth quarter of 2003 was a source of approximately $171 million, an increase of 20 million versus the fourth quarter of 2002.

For the full year of 2003, our cash provided by operating activities was just shy of $0.5 billion, 497 million.

Our improved operating performance and working capital improvements contributed to this increase in cash provided by operating activities.

Capital spending in 2003 was 56.2 million in the quarter, and 229 million for the year.

This compared to 208 million in capital spending for 2002 and is in line with our guidance of capital spending for the year of between 225 and 250.

As a result we generated positive free cash flow of approximately 115 million for the quarter, versus 100 million in the fourth quarter of 2002; and for the full year we generated nearly $270 million in free cash flow.

This strong free cash flow allowed us to pay down debt ahead of our forecast and improve our capital structure significantly ahead of our previous guidance.

Our objectives of improving quality and productivity, coupled with our strong and consistent earnings performance, continues to result in our ability to sustain an after-tax return on invested capital above our target level of 15 percent.

As I mentioned earlier, at the end of the year our after-tax return on invested capital was 15.1 percent, up 140 basis points from the year 2002.

Now let's go through some of the balance sheet items in a little bit more detail.

Receivables were relatively flat year-over-year in line with year-over-year business volumes.

Prepays and other assets decreased approximately $13 million due to the collection of some state tax credits.

Inventories, again, relatively flat year-over-year, in line with business levels; but from a turn perspective, our turns improved dramatically, to 19.4 times versus 17.2 times at year-end 2002.

Current liabilities up about $19 million; again, not much of an increase and primarily in line with the business level comparisons year-over-year.

Postretirement benefits, if you look at that other long-term liability line on our balance sheet, other long-term liabilities are up 55 million; and as we have said before, that is due to an increase in pension liabilities and accrued postretirement healthcare cost; those accrued postretirement healthcare costs are not funded from a cash perspective.

Getting to our pension plan, which we do fund on a cash basis, the funded status on a PBO basis was 133 million underfunded at year end, versus 125 million underfunded at year-end 2002; not much of a change.

Consistent with prior years, we use a September 30 valuation date for our pension plans, and the value of our pension assets is up $73 million versus last year's measurement.

The 8 million increase in the underfunded position, given our asset growth, is really primarily the result of reducing the discount rate we use to value our liabilities from 6 3/4 percent in 2002 to 6 1/4 percent in 2003, or a 50 basis point reduction which resulted in the increase in the present value of our liabilities.

As a result of asset performance of our pension plans, our FA-7 (ph) equity charge, that is a shareholders equity, was up slightly from 2002, at 59 million versus 52 million.

Now let me focus on our debt to capital structure.

Our total debt at the end of the fourth quarter was approximately $450 million, a $284 million reduction or 39 percent from the $734 million at the end of 2002.

Our book equity continued to grow rapidly.

It is now nearly $955 million, approaching 1 billion, up over $250 million from the $704 million at the end of 2002.

And remember, this company had only $40 million dollars in book equity in 1998, just less than six years ago.

Our book equity has grown 36 percent since the end of last year, and over 20 times since the end of 1998 or when we went public.

Our net debt to capitalization on a book basis continues to improve.

As we discussed last quarter, we had targeted to reduce our net debt to capital ratio to below 40 percent by the end of 2003, and achieved this key financial target three months early, by achieving 38.6 percent at the end of the third quarter.

At the end of the 2003 period, our net debt to capital ratio ended at 31.4 percent.

We clearly beat our target, and based upon our current operating performance we expect to further improve this ratio by growing our equity base through strong earnings performance and continuing to reduce our debt levels through the strong generation of free cash flow.

We have met or exceeded virtually every financial commitment we made to our stockholders in 2003.

Let's review the major items of guidance we gave for the year 2003 over a year ago.

Most of these items we gave to you in January of 2002.

North American light vehicle sales we estimated 16 million; actual builds were approximately 15.9.

Full-year earnings per share, over a year ago we said we would earn $3.65; our actual earnings were $3.70.

Free cash flow, we indicated we would generate in excess of $200 million of free cash flow in 2003; we generated nearly $270 million of free cash flow.

Debt to capital ratio, as I mentioned, our target was to get below 40 percent by the end of 2003; and I would say 31 percent is pretty far below that target.

We successfully achieved that.

EBITDA margins, we said our margins would continue to improve in 2003, and they did just that.

They improved 70 basis points, from 13.3 percent to 14 percent.

Our R&D spending, we committed to increase our R&D spending 10 percent; and it actually increased 12 percent year-over-year.

There were also some non-financial commitments we made to you.

Again, for those of you who were in New York last year in January, we made a presentation at the annual show here in Detroit, and we made some non-financial commitments.

The first one was achieving investment-grade credit rating.

We indicated we would earn upgrades from both S&P and Moody's by the end of 2003.

We achieved that.

In fact S&P gave us two-notch upgrade and Moody's upgraded us to investment-grade.

We also indicated that we intended to refinance our bank debt to provide the flexibility to grow strategically as well as to return some capital to our shareholders.

On January 9 of this year we entered into a new $600 million credit facility providing just that flexibility.

We also indicated that in early 2004 we'd be calling those 9 3.4 notes to reduce our interest expense and increase our earnings.

On January 22, we issued a press release calling those notes.

And finally, as Dick mentioned earlier, throughout last year we continually talked about, once we restructured our debt portfolio, being able to return some capital to our shareholders.

Yesterday as Dick mentioned, we announced a 2.5 million stock repurchase program.

We are proud that we consistently have met or exceeded every one of our commitments to you, our shareholders in 2003, just as we have in each of the first five years of being a public company.

In addition to meeting our commitments we were honored to be named by PriceWaterhouseCoopers and Automotive News recently as the top performing auto supplier in the world for generating shareholder value of nearly 410 percent for the last three years.

That was nearly double our closest competitor for that time period.

I think looking back you can say that was quite a year for American Axle.

Now let's put 2003 behind us; it is over; and turn our expectations to 2004 and beyond.

On October 30 of 2003, we released guidance for the full-year 2004, as Dick mentioned, of approximately $4 per share.

And this again excludes the impact of expected onetime debt refinancing costs of approximately $22 million or 26 cents a share that we will incur in the first quarter of 2004.

This $4 per share earnings guidance reflects a projected earnings growth rate of over 8 percent.

Our outlook is based upon a North American light vehicle build assumption of approximately 16.3 vehicles; and this represents a slight increase when compared to the 15.9 million vehicle builds for 2003.

Despite that, we anticipate that first-quarter production in 2004 will be down slightly compared to the first three months of 2003.

More importantly, our largest customer, General Motors, publicly released production schedules in early January for the first quarter of 2004 that project approximately 50,000 less light trucks and SUVs built versus the first quarter of 2003.

This will obviously impact our top-line and bottom-line comparisons in the quarter.

At this point in time it doesn't appear to be reflected in the few earnings estimates that are out on the street.

These lower first-quarter production levels are not inconsistent with our full-year view of earnings of $4 per share in our guidance to you.

In 2004, we expect to continue to generate positive free cash flow of at least $200 million after investing approximately $250 million in capital spending.

Our projected strong earnings growth and positive free cash flow generation will allow us to further improve our net debt to capital ratios to below 25 percent and enable us to maintain our financial strength despite the cyclical and competitive challenges of this automotive industry.

We have now built a world-class financial structure to support our world-class operations, and we feel we are currently positioned better than almost any other supplier in our sector to take advantage of strategic opportunities that may present themselves to the marketplace.

As Dick said, we are committed to accelerate our performance in 2004 as we look to position AAM financially, to pursue continued strategic growth initiatives, and also return capital to our shareholders.

For AAM, 2004 will be another opportunity to continue to differentiate our company from the rest of the automotive sector.

Finally, as Dick mentioned earlier, we want to thank those investors who participated in the October and December secondary offerings last year.

When you think about it, we sold 28 percent our company's equity in a 60 day period, in two overnight transactions, without any negative impact on the stock price.

That's quite a statement by the investment community about the confidence they have in this company's prospects, and we very much appreciate that statement of the confidence you have in us.

Thank you, everyone, for your time.

Let me stop here and turn the call back over to Rick for the question-and-answer period.

Thank you, Robin, and thank you, Dick.

We have reserved some time to take questions.

So at this time please feel free to proceed with any questions you may have.

(OPERATOR INSTRUCTIONS) Jackie Weiss, Merrill Lynch,

A couple of questions.

First, can you talk a little about your top-line growth in the quarter?

The GMT-800, 360, 360, and Dodge Ram production looked fairly strong.

So I was wondering if there were any offsetting programs to make your top-line grow around 2 percent.

Our GM overall light truck SUV production was actually down in the quarter year-over-year.

The ST and the MO (ph) programs were two instances where production was down.

When you look at the overall equation, vehicle production was down slightly.

Again, we are being impacted by the product mix, as we talked earlier.

GM in the fourth quarter launched new midsize SUVs, the Envoy XUV as well as the two new midsize pickup trucks, the Canyon and Colorado; and certainly the increased growth of those programs impacted our product mix.

Volumes were up on those programs, but again the content per vehicle for those particular vehicles are lower than our corporate average.

Actually my second question was about content per vehicle.

Was the performance in the quarter and for the year in line with your expectations?

How should we think about this going forward?

And also relatedly, can you discuss the drivers of your margin improvement in the quarter, given the relatively mild top-line growth?

Let me answer the growth question first.

As we have said before, and I think we talked about this a little bit in the earnings conference call for the third quarter, we expect very little content per vehicle growth in 2004 relative to 2003 because of this product mix shift.

We have told you before that we expect an increased production activity on a unit volume basis in 2004 versus 2003, a slight increase.

But we are expecting sales growth to be flat at best.

Again the driver of that is the significant mix increase we are seeing here with the launch of these new midsize products.

So content per vehicle will be flat at best year-over-year, could decline slightly.

Driven by product mix and nothing else.

Now as far as what's driven our profitability in the quarter, I think what has driven it quarter to quarter up, it is the productivity --

Increased productivity is a dramatic enhancer in an industrial manufacturing company.

We certainly (inaudible) the leader of the pack, Jackie, on that performance.

If you coupled that with tight cost controls at the SG&A level, again if you look at our SG&A spending basically the only increase you are seeing there is in the R&D line item.

We try to be as productive as we can in the office as they are in the factory.

Thanks a lot.

Jon Rogers, Wachovia Securities.

I just have a couple of questions.

Robin, it looks like interest expense was pretty much flat sequentially, although debt was down about $125 million.

I assume that's just the timing of the payment.

Its two things, Jon.

It's the timing of the cash flow; but just as importantly is, with reduced capital spending levels and a good portion of our capital spending that was construction and process, has been installed.

We are recording less capitalized interest.

So our gross interest expense actually declined more dramatically than our net.

How should we think about interest expense going forward, Robin, maybe for 2004?

Let me talk on an annualized basis.

You'll have to work out the timing yourself.

As we said all last year, we are going to call those 9 3/4 notes March 1.

So from March 1 going on we are taking $300 million of debt out of the equation.

As we put it out in our press release on the call, we have all the capability and financial liquidity to do that under our existing bank facility revolver, which we put in place in January.

A $600 million credit facility.

However, we may look at other alternatives in the marketplace.

But currently we have the capability and do intend to take those out.

But you are looking at $300 million in debt that (technical difficulty) 10 percent being replaced at some level.

Again, if we use our revolver it's less than 5 percent.

If you look at comparative interest rates in the marketplace on a long-term basis, should we choose to do something in that level you might be looking something north of there.

Rather than give you a sense of where we think our long-term interest rates would be relative to that 9 3/4, certainly it would be down dramatically.

I think that is a big driver for a reduction in interest expense this year.

Again, you end up with $475 million net debt at the end of the year; 300 of that at 9 3/4; and the other 175 million is short-term floating rate interest rates, and there won't be much of improvement from an interest rate perspective there.

But again strong cash flow generated throughout the year should help reduce the expense on that portion of our interest.

That's helpful.

Dick, you mentioned some, I think you called them emerging opportunities that you are going to be quoting on in the next couple of months.

Can you describe them?

Are those new customers or new products?

Can you give us a little bit more color?

We will have our President Joel respond your questions.

Let me see if I can put a little clarification on that.

As Dick mentioned, we have $754 million out on quote.

But real importantly is our ability now to attract new customers and do some development contracts with some of these new customers.

If you take a look at the quoted plus the emerging opportunities, we are looking at a market basket with about $2 billion.

That represents about 29 global opportunities throughout the world, and working with 12 different OEMs to achieve that.

Importantly that is split up pretty significantly; where we are seeing a lot of activity in South America on that $2 billion; about 104 million in South America; about 0.5 billion in Europe; and about 100 million in Asia.

We have to put these things into our market basket because we are actually doing some development work with many of these OEMs.

And in fact we have two development contracts with exclusivity for all-wheel-drive vehicles both in Europe and South America, and a prototype in development contract with an Asian OEM.

So even though we haven't finalized all the quoting on these, we do have some major product developments going on with many OEMs.

In addition, if you take a look at the first quarter, we are looking at decisions in the first quarter that represent approximately $500 million.

So that is kind of the way you need to take a look at it.

Thank you very much.

David Leiker, Robert W. Baird.

A couple of small questions here.

Robin, what is your incremental cost of borrowing on your revolver?

It is a LIBOR-based facility, and I think most investment-grade companies would borrow somewhere at LIBOR plus 75 to 125 over.

I am not going to tell you where we borrowed, but certainly that is going to give you an idea of where we will end up.

75 to 125?

That would be a good solid investment-grade company, would be borrowing at those levels.

Is that credit agreement all in place right now?

That credit agreement closed on January 9.

It's in place.

We are currently living under that credit agreement, and that is what enabled us to call those 9 3/4 notes as well as announce the stock repurchase program last evening.

The share count is creeping up here.

Where do you think that -- obviously it's stock price dependent, but what are you thinking that should be for '04?

The share count?

Obviously with a 225 million share repurchase program we are looking to work that diluted share count down.

Lastly, on the first-quarter numbers, you didn't comment on the earnings number.

I'm inferring from your comments that earnings will be down year-over-year.

Do you think you're earnings are down more than 10 percent?

We're not giving guidance on the first quarter right now, David.

I think we gave some general indications of where the industry is.

From our perspective the first-quarter industry activity is consistent with our full view of the year, of earning $4 per share.

Thanks.

Ron Tadross, Banc of America Securities.

Could you just go through either the rate or the dollar amount of the cost reductions you saw for the year maybe?

Materials, structural, maybe somehow how you think about that?

If you feel like you want to.

One of the things we always to talk to the investment community about is our productivity improvement.

We typically target double digits; and historically we've been 7 percent or so.

Obviously we continue to make inroads on the productivity side.

In other words, also a separate question on your gross profit margin.

Were there lower launch costs this quarter versus a year ago on the Ram?

Ron, when we were talking about launch costs, I would like to point out the third quarter of 2002, when we had probably two of the largest launches.

We had the (inaudible) the Dodge Ram as well as the Hummer project.

And we had record margins in the quarter.

So we never like to complain or make excuses for financial performance because of launch costs.

They are just part of doing business for us, and therefore it's just part of our everyday life for us.

So we don't anticipate any improved performance from launching or the lack of launching activities; nor do we build in any expectations of negative performance.

As we have said before, our launch costs are spread over a period of time.

One of the advantages we think we have as a company is we don't launch a product the day before it is due to launch.

We spend a significant amount of time beforehand working on getting ready to launch.

That is where most of our costs are, spread out over a period of time.

On this share repurchase, I apologize if you went through this, but how do you think about where you will buy back stock?

What metrics are you looking at?

From a valuation perspective, is that what you are talking about, Ron?

Accretion.

Do you want to see a certain amount of accretion?

Or valuation, I guess that would be better.

Or if you want to just tell me the price, that would be wonderful.

Let me give you some sense of value.

It is a great question.

The stock is below $40 a share.

And obviously at these levels, as Dick mentioned, we feel this is a very buy.

You are all experts.

You get paid to assess the value of a company.

I'll try a number of different metrics and you pick one of them.

Let's look at EBITDA valuations.

EBITDA last year was in excess of $0.5 billion, 0.515.

Our peer group EBITDA multiple approaches 7 times, 6.7.

That would put our enterprise value at $3.5 billion.

We had less than $0.5 billion of net debt at year end.

That would put enterprise value of equity of about $3 billion, divided by about 50 million shares.

You get $60 a share value.

You want to look -- I'll throw out some multiples. (inaudible) BorgWarner (inaudible) multiples.

BorgWarner 7.2, Dana 7.6, Del point 6 7, and Lyric (ph) with 6.2.

You want to use a discounted cash flow model?

We take our $4 earnings which currently equates to $200 million plus of free cash flow.

I don't know what your growth rate assumption is.

And I don't know what your cost of capital is.

But using a 50 percent cost of capital, we have historically grown our earnings in excess of 10 percent.

But I'll give you 8 percent.

Gives you 7 percent discount rate capitalized at $4; it gets you $60 a share.

You can go to PE multiples.

I have two or three different selling (inaudible).

So basically you like it from a valuation perspective here at these prices?

Definitely.

Thank you very much.

Robert Hinchliffe, UBS Warburg.

Robin, on cash flow.

Real good quarter, obviously.

Do we get any kind of payback from this kind of quarter to start out the year?

Or similar statistics throughout the year?

As we've talked before, our cash flow was typical.

Typically typical in the industry.

And quarter in quarter out, this is a very simple thing to understand.

You're really looking at primarily sales activity in the last month of the quarter, versus sales activity in the last month of the next quarter.

Let me give you an example, sales in December versus March.

March sales are typically 100 to $159 stronger than they were in December.

Obviously there is a shutdown period and you're ramping down.

That results in a significant increase in receivables on the balance sheet quarter to quarter, and obviously if you increase the receivables it means less cash flow.

The other thing that occurs in the industry in the first quarter is, I would say, most companies, but maybe this year I can't say most, some companies pay profit sharing in bonuses in the quarter.

Obviously a company successful as we are, we have profit sharing and bonus payments to pay in the first quarter.

We accrue that expense throughout the year and pay that out on a cash basis in the first quarter.

So that is another nonroutine expense throughout the year that occurs in the first quarter that puts a drag on first-quarter cash flows.

So typically in this industry, first quarter is a negative cash flow quarter.

And it has been for us historically.

Negative to breakeven.

When you get into the second and fourth quarters, you usually have very favorable comparisons.

Again you look at June sales, probably a little bit weaker as people start to pare down a little bit, getting ready for shutdown.

So you've got a reduction in balance sheet receivables from March to June, which provides a cash inflow.

And you can do the same comparison from September to December.

So from a cash flow perspective, second and fourth quarters are typically the strongest quarters.

First is obviously one of the weakest quarters.

September can be a tough quarter as well.

Typically you have your final pension contribution requirement and your final tax payment for the prior year due in September.

Does that help you?

Yes, it sure does.

In fourth quarter, then, that largely came in as you expected.

No timing issues or anything made it that strong?

Right, we expected cash flow at those levels.

With the stock repurchase, assuming you use it all at these levels, it is about $100 million you would have to spend to buy back 2.5 million shares. 200 million in cash flow this year.

For practical purposes assume flat for '05.

That is a quarter of your free cash flow.

How much room is left for a dividend payment?

Obviously there is room left for a dividend payment.

We are going to balance that off against some of the strategic opportunities that Dick and Joel talked about.

Obviously we talked about returning capital to our shareholders.

We made a commitment a year ago that we were going to be in a position to do that; and we've done that.

We also need to make sure we've got the capability to support the strategic growth opportunities that both Dick and Joel talked about.

And we want to make sure are prepared to do that.

We think we are capable of doing both.

Switching gears a little bit.

GMT-800, I know they are not running as much overtime currently as they have in the past.

What are you seeing?

Have they told you when they are going to start ramping back up there?

We still have strong schedules and we're open 16 weeks out.

There is some overtime being put in right now that impacts late first quarter.

And second quarter is starting to look reasonably consistently strong.

That's about all I can say right now on that.

Robin, I am trying to remember the contribution margin on an incremental dollar revenue, up or down, given your comments earlier.

Is 20 to 30 percent sort of the number you have talked about in the past?

Exactly right. 30 cents on the dollar on the down side.

You can't shift some of those fixed costs.

And on the upside it's close to 20 cents.

Again if you look at our 2003 performance it was 17 cents on the dollar of incremental operating income for every incremental dollar of sales versus 2002.

Thanks, everybody.

Domenic Martilotti, Bear Stearns.

Just want to follow up on the share buyback, in terms of how do you guys evaluate, in terms of which one of those options you are going to pursue, the share buyback or paying the dividend?

Obviously, Dominic, we have made one decision already.

At least one step.

We have announced the share buyback program.

So obviously that was our first priority and we move forward on that.

As Dick said, we are still evaluating the potential of a dividend payment in 2004, but we have not made a decision on that.

Following up on the idea of trying to eliminate the dilution, is that part of the motivation in terms of doing that first?

In terms of you have had some dilution here with the share appreciation.

Is that the idea there?

I think frankly from both my perspective and Dick's perspective, with the stock trading where it is at, we would like to buy as much as possible.

We think it's a great value.

Following up on some of the backlog in terms of what you're biding on out there.

We still haven't seen something with the all-wheel-drive.

From my understanding that is coming.

But as far as from the customer's standpoint, is it a matter of buying off on it and getting the final development there?

Or are they just still hesitant about pursuing on something of that nature?

Let me talk about the development contracts.

We went out ahead and did all of design, the engineering, and actually put together the all-wheel-drive systems for three of these different vehicles.

They have been evaluated by the engineering departments; the OEMs have tested and validated and operate they want them to operate.

It is now their business decision about if and when they're going to market.

And if they do we have exclusivity on those contracts.

Is your feeling it's more a matter of when than if?

Yes.

Lastly, just looking at the acquisition opportunities out there, I know your intention is to get a better position in Europe.

What are you seeing out there?

And is there anything imminent or possibly in 2004 on that front?

Obviously, we've not said anything public about a transaction so therefore we have got nothing to say about transactions. (inaudible) imminent or not imminent.

Joel mentioned some of the programs that we're looking, and the activity both in Europe and in Asia.

And obviously those are going to drive our decisions for strategic opportunities.

We certainly want to be able to manufacture in the region where we sell product.

So those are natural drivers of a strategy to either enter into joint ventures or acquire some bolt-on acquisitions that provide us the opportunity to get on the ground running in manufacturing products for these new programs.

So you would say it's more a function of winning the business and going there to support that business?

Or would you look at an opportunity where you could essentially buy into a relationship with a customer business and perhaps win business down the road?

Let me just say this.

It is our policy not to comment on our potential acquisitions.

But we're continually reviewing certain targets where we need strategic fit, geographical expansion, potential impact on our financial performance, and let's just say we're very active at doing that.

We're currently serving an excellent market, excellent customer base.

We're going to continually profitably grow.

There are two ways to do that, and we've been doing it very very effectively here internally, and we have done in the past acquisitions.

So stay tuned.

That's all I had; thanks.

Chris Ceraso, CSFB.

A few quick ones.

Robin, can you run through the pension expense expectations for '04 versus '03 for both pension and healthcare?

Our pension and healthcare expense for 2003 was approximately $90 million.

We expect double-digit growth in that expense in 2004 as well, as we experience growth in 2003.

From a cash perspective, we have funded our pension plan to the tune of about 40 to $45 million a year for the last couple of years, and expect to do that again in 2004.

That is helpful.

To get back to the contribution margin question, 17 cents, I found it a touch light to me.

Was that hurt at all by currency this year?

No, not at all.

So 17 cents is kind of close enough to the 20 cents?

Or was there anything that would make that less than the 20 cents?

From my perspective 17 is pretty darn close to 20.

I would like to see the other suppliers to the industry get close to that.

Fair enough.

Last one.

Both GM and Ford yesterday seemed to report some pretty healthy numbers in some of the heavier commercial type trucks.

Are you feeling that in your Ram business?

What kind of upside do you think there is.

Do you have enough capacity if they decide to dial up there?

I just made a comment earlier, Christ, that we're seeing added volumes from our customer base, the ones that you've just mentioned, and it sort of hit, let's say, around March on through the rest of the first two quarters of this year.

We feel good about it, and if you take a look at inventory stock, they've moved an awful lot of product over the curb.

Therefore, there is plenty of room for them to make some decisions to expand that if they need, and we have the capability, the capacity and the flexibility to certainly meet all of their requirements.

Thanks a lot.

Richard Hilgert with Oppenheimer.

Wanted to follow up with you on your comments about net new business coming up.

Using the numbers through 2006, is there any reason why you don't want to go longer out than that, because I think you do have some business that you've already gotten commitments from maybe in the '07-08 timeframe?

Well, obviously, there is the GMC 900 program, which is half of our sales.

I've kind of excluded that from any of the numbers because it's replacement for what we have, although we do see that there's some possibility of some upside in volumes and content on those vehicles.

That's right, because you're going to be the complete program integrator, so you've got supply chain control, right?

That's absolutely accurate.

But as you say, the key programs that are coming up for 2005 and 2006 are the ones we are expecting imminent decisions on.

In the outlying years, could we reasonably expect similar types of amounts of incremental revenue similar to the '05-06 numbers that you are talking about?

I think that's a very fair assumption.

Thank you.

Gary Lapidus with Goldman Sachs.

You guys wouldn't be interested in talking about your backlog for 2020, would you?

No, we would not.

Neither would I. Question, on the cash flow, Robin, just quickly sketching down some of the numbers for '04, it would look like -- and you didn't give a precise number, but you said something just over 200 from operations.

So just looking at that, it looks like the big swing variable would be other, which was a pretty big swing variable moving from '02 to '03, jumping from like 62 to 137.

Then it looks like maybe to meet your low 200 number, it would sort of drop back down to the 80 or 90 range.

I guess it's just kind of prompting a question which is what's in there to cause that swing?

It sounds like you mentioned pension would be about 45 or $50 million of that number.

I assume there is OPEB, and then the difference between your OPEB expense and your cash payments, and then I guess working capital.

If you could just talk about what's causing that to swing as much as it looks like it will be, or am I just off base?

Let me tell you why it swung in 2003, and you're right, it kind of translates into 2004.

First of all, the big driver in there is the OPEB number, pension and retiree healthcare costs, and it is a non-cash item.

The year-over-year change from 2002 to 2003 was significant.

It will be a little bit less of a change 2003 versus 2004.

The other driver we had in 2003 versus 2002 was, in fact, working capital, particularly receivables.

There was a significant -- not receivables -- inventory.

There is a big improvement year-over-year in 2003 versus 2002.

We don't expect that to occur at the end of 2004.

And some deferred taxes as well.

So a more normal sort of rate for that other being a gap in your pension and healthcare would be sort of upwards of this at sort of 80 or 90 million level?

Is that the right way to think about for that line you label as other on your cash flow statement here?

It's approximately $50 million.

For pension and healthcare.

Yes.

Because I thought you mentioned pension was 90 and then 40, so that's 50?

I'm sorry, pension and retire healthcare costs total.

Oh, that's combined.

Okay, sorry.

We fund on a cash basis about 40, 45 million related to the pension.

Oh, okay.

So the gap for the two of them together is about 50.

That's essentially your other, other than in '03, which was sort of a working capital effect.

So a more normal level of free cash flow, at least right now, is in the low 200s.

As we have said, we expect to generate net plus the $200 million of free cash flow.

Thank you much.

We are going to two more questions, okay?

Darren Kimball, Lehman Brothers.

It's Andrew Maney (ph).

There has been a lot in the news recently about the three-tier wage and benefit structure at one of your U.S. facilities.

Do see this happening at any of your other U.S. facilities any time soon?

I think the importance here is that the AAM UAW new agreement demonstrates that our company and the UAW understand the changes required from our parties that are involved to remain economically competitive globally.

So we can provide employment, provide a good industrial base long-term.

And is excellent leadership and excellent contribution been done (ph) by that.

As others have to react to their issues, that is certainly up to them.

I won't speculate.

Your negotiations with the UAW for your contract are in progress right now?

Yes, sir, they are in process right now.

And we will be working with our people as it relates to contract expiration which is February 25, at one minute the prior to midnight.

I think the important thing is that we've got nearly ten years now that we've worked together as stakeholders, AAM and the UAW and the other unions that represent our people.

We've worked 160 million man-hours; never lost a second to the labor management strike.

We have an absolutely excellent relationship.

We were work well together.

We know what the realities are of business, and we will keep you posted as things are unfolding.

Thanks very much.

Last question.

Jonathan Steinmetz, Morgan Stanley.

A couple of quick ones.

Let me try to ask this contribution margin question a different way.

Your sales were up 15.1 million in the quarter; the operating income was up 8.5 million.

Was there some specific type of productivity improvement that accelerated, versus what we saw in the prior year?

Or is there some cost we're not taking into account in the fourth quarter of last year that would have caused this contribution margin to be so high this quarter?

It's a little tough to look sometimes quarter over quarter.

The incremental margin in the quarter was dramatic.

Certainly as have we said before, not an indication of what we have done historically or what we expect to.

If you look over a longer period of time, again about 20 cents on the dollar is a true incremental operating income here; we did 17 cents for the year.

You get variations quarter in quarter out;

SG&A type things, pension type accounting things.

A number of different changes.

But obviously when you look in the quarter, SG&A was a big driver of some of that incremental margin improvement.

Real quickly, the 1.8 million in other income, what specifically was that?

Someone mentioned operating income margin benefits from currency.

The only really impact we had in our (indiscernible) came from currency.

Our intercompany loans we have with some of our foreign subsidiaries.

And that reflects the change in the value of those loans from a U.S. dollar perspective.

Thank you.

Thank you, Jonathan.

Have a great day.

Thanks Jonathan, and we thank all of you who have participated on this call and appreciate your interest in American Axle.

We certainly look forward to talking to you in the near future.

Thank you and have a great day.

Again, thank you for participating; you may now disconnect.