American Axle & Manufacturing Holdings Inc (AXL) 2008 Q4 法說會逐字稿

Good morning, my name is Rebecca, and I will be your conference facilitator today.

At this time I would like to welcome everyone to the American American Axle & Manufacturing fourth quarter and full year end 2008 earnings 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 session.

(Operator Instructions).

As a reminder, today's call is being recorded.

I would like to now turn the call over to Mr.

Christopher Son, Director of Investor Relations and Corporate Communications.

Please go ahead, Mr.

Son.

Thank you, Rebecca, and good morning everyone.

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

This morning we released our fourth quarter and full year 2008 earnings announcement.

If you have not had an opportunity to review the announcement, you can access it on the AAM.com website or through the PR Newswire services.

A replay of this call will also be available beginning at 5:00 PM today through 5:00 PM Eastern time February 6th by calling 1-800-642-1687, reservation number 77289567.

Before we begin, I would like to remind everyone that the matters discussed in this conference call may contain comments and forward-looking statements that are within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future results or conditions, or rather are subject to risks and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed.

For additional information, we ask that you refer to the filings with the Securities and Exchange Commission.

This information is also available on the AAM.com website.

During the call we may refer to certain non-GAAP financial measures.

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

We are also audio webcasting the call through our website.

This call will be archived in the Investor section of the website and will be available there for one year for later listening.

During the quarter, we are planning on attending the JPMorgan Global High Yield Leverage Finance Conference on February 3rd and the Barclays Capital Industrial Select Conference on February 10th.

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

Please feel free to contact me to schedule a visit.

With that, let me turn things over to AAM's Co-Founder, Chairman, and CEO Dick Dauch.

Thank you Chris and good morning everyone.

Thank you for joining us today to discuss AAM's financial results for the fourth quarter and full year of 2008.

Joining me on the call today are Yogendra Rahangdale, our Vice Chairman and Chief Technology Officer; David Dauch, our President and Chief Operating Officer; and Michael Simonte, our Group Vice President Finance and Chief Financial Officer.

To begin my presentation today, I will provide a brief overview of our financial results for the fourth quarter and the full year 2008.

I will update you on the progress we made on achieving AAM's comprehensive restructuring, resizing, and profit recovery plan.

Finally, I will make a few comments on AAM's 2009 outlook before turning things over to Mike to discuss the details of our financial performance.

After that, we will open the call up for you ladies and gentlemen for your questions that you may have.

Let me open my discussion today by saying 2008 proved to be a brutally difficult and demanding year for the domestic automotive industry and certainly American Axle & Manufacturing.

While the domestic automotive industry has made its share of mistakes in the past, the current problems have been exacerbated by one of the worst economies since the deep recession of 1979 to 1982, which I refer to as Oil Shock [2].

When you add the housing crisis, the credit crunch, the major spikes in commodity pricing to the mix, you have a unprecedented reversal in the business environment that is driving not just the US economy but the markets throughout the world into a synchronized and patterned downturn.

The combination of plunging consumer confidence, a pervasive shortage of credit available to the would-be car buyers, intensifying cost pressures, and increasing global competition is pushing auto sales to their lowest levels in decades.

These factors have pushed the US automotive industry to the verge of a collapse.

For AAM, 2008 was a turbulent and transformational year.

For the full year, our company suffered a $1.2 billion loss.

Sales for AAM declined by 35% as compared to 2007, down to $2.1 billion.

This was caused by numerous market and economic forces, including a sudden and major shift in consumer demand to more fuel-efficient passenger car and crossover vehicles, away from body on frame pickup trucks and SUVs.

These new market conditions caused a further excess of installed capacity of AAM.

This required us to permanently and structurally transform AAM's business model and accelerate our plan to restructure, resize, and recover, which we are very well doing.

Approximately half of AAM's loss in 2008 is attributable to asset impairments, including leased asset impairment and indirect inventories.

Another 25% of AAM's loss in 2008 attributable to the impact of new labor agreements.

This includes hourly and salaried attrition programs and benefit reductions.

During the year, we reduced AAM's worldwide workforce by almost 3,000 men and women.

These actions were very unfortunate, but certainly necessary.

Approximately 7% of AAM's loss in 2008 related to non-cash charges to establish valuation allowances on AAM's US and UK deferred tax assets as required under GAAP.

These three issues alone accounted for approximately $963 million of AAM's $1.2 billion losses in 2008.

Our financial performance in 2008 was also severely impacted by a prolonged and unnecessary strike called by the International UAW against AAM.

The strike started on February 26th, 2008 at our original US location in the state of Michigan and New York, and lasted for an ungodly 87 days.

The international UAW strike, along with other actions our customers took to realign dealer inventory levels with current market demands in 2008, caused a massive imbalance between our production levels and the selling rates of the major vehicle programs that we have the privilege to support in North America.

We estimate this factor reduced AAM's sales in 2008 by more than $300 million and costs our company more than $100 million of profitability.

For the full year 2008, a year we simply refer to as the year from hell -- and it's over -- AAM posted a net loss of $1.2 billion or $23.73 per share loss.

This compares to net earnings the previous year in 2007 of $37 million, or $0.70 per share.

In our company, we have accepted the new market and economic challenges head on, and we're making the hard necessary and structural changes to return our company to profitability.

We are probably one of the first companies into this difficulty and we will certainly be one of the first companies out of it.

We have every confidence and the deepest resolve that AAM will emerge from these brutal economic times as a viable, profitable, and sustainable company.

That's exactly what we had in mind when we developed our comprehensive restructuring, resizing, and profit recovery plan.

In 2008 we made excellent progress on all of these important initiatives.

First of all, we continued to invest in AAM's advance product process and systems technology and global footprint.

We have an outstanding product portfolio.

We have intensified our focus in the commercial vehicle market and expanded our all wheel drive product portfolio throughout the globe.

This is increasing AAM's total global served market by approximately 30%.

We recently announced a major new customer relationship with Mack Truck, product of the Volvo Powertrain World Group.

That will be in the United States.

We sharpened the focus of our metal form products business by exchanging our hub and spindle business for FormTech's differential gear, pinion and ring-gear forging business.

As part of this transaction, we acquired new forging process technology, creating a newly formed subsidiary called AccuGear Inc, and this will enhance our ability to compete in the transmission drivetrain forging market segments.

We also recently announced that AAM has entered into an important new agreement to form a 50/50 joint venture with a subsidiary of the JAC group in China.

This will further expand our content on passenger car vehicles, and that will officially start February 1, 2009.

Second, we developed and implemented plans designed to realign AAM's global manufacturing footprint and cost structure with current and projected market requirements.

These initiatives are designed to increase capacity utilization and accelerate AAM's participation in the world's fastest growing automotive markets.

We are resizing AAM's US operations to compete effectively in a US market with total light vehicle sales of approximately a SAR of 10 million to 12 million units.

We are reducing our installed US [process] capacity by a whopping 70% to align with lower production levels.

At the same time, we are expanding rapidly AAM's global installed capacity by approximately 150%.

AAM is also continuing to invest in the United States.

We are in the process of successfully launching three new businesses in the US.

Oxford Forge of Oxford, Michigan; [Diatronic] of Auburn Hills, Michigan; and AccuGear in Fort Wayne, Indiana.

Each of these businesses are market cost competitive and provide AAM and its customers with outstanding forging and machining capabilities.

These companies have a bright future for our company.

Third, we achieved historic gains in the labor market cost competitive and operating flexibility of AAM's US manufacturing base.

Our new labor agreement at the original US location converted the former fixed legacy labor loaded cost structure to a highly flexible variable labor cost structure that is competitive.

Structural and permanent changes to previously uncompetitive OEM style healthcare, pension, and OPEB plan design took effect January 1, 2009.

These changes reduced AAM's pension and OPEB obligations by more than $200 million.

AAM took steps to eliminate 350 salary positions in 2008 and we were successful at doing that, as well as cancelling the officer and executive bonus program and trimming other SG&A costs.

AAM took these actions because they were necessary, given the circumstances and the hand we were dealt.

If market conditions deteriorate further 2009, we will continue to realign all of AAM's costs, including hourly labor, salaried labor, material cost, overhead as well as SG&A to levels that are commensurate with our customer order schedules.

This is a highly dynamic situation and we will continue to proactively adjust our plan as we need to.

Fourth, we continued to provide exceptional value to our customers through AAM's outstanding daily performance on product development, quality performance, reliability, warranty performance, delivery and launched support.

This helped us to enhance customers' relationships throughout the world.

More importantly, this is helping us to grow AAM's new business backlog to over $1.4 billion for business launching in 2009 through year 2013.

The main objective of this initiative is to improve the balance of AAM's revenue strength.

AAM's new business backlog will accelerate the expansion of AAM's market cost competitive high quality and highly flexibility manufacturing facilities throughout the world, specifically Guanajuato, Mexico; Changshu, China; Araucaria, Brazil; as well as Olawa, Poland.

These awards will support the launch of new facilities in Rayong, Thailand and two new facilities in India at Pantnagar and Pune.

AAM's new business backlog will also help us boost our company's earnings power and provide a solid return on our investment in the new products and facilities as we start to rebuild our balance sheet.

Fifth, we have made adjustments to our debt capital structure, working capital position, and investment strategy to ensure that we continue to have the financial resources and flexibility to successfully implement the business plan I shared with you.

We have cut AAM's inventory levels by over $80 million in the second half of 2008, and we reduced AAM's full year 2008 capital expenditures to approximately $140 million -- that's about 6.5% or 6% of sales -- and developed a plan to limit future capital spending to a lower level of sales approximately 4% to 6%.

Our Executive Vice President John Bellanti is leading that program, doing an excellent job.

This will be accomplished by aggressively redeploying existing underutilized capacity to support the new business backlog and avoid future investment.

Effective November 7th, 2008, some two months ago, we successfully amended and extended AAM's revolving credit facility.

This amendment extends the maturity of a portion of the facility through year 2011 and provides additional financial covenant flexibility.

All of these actions position our company AAM to successfully manage through the most difficult period and emerge as a stronger, more balanced, and flexible company for the future.

Ladies and gentlemen, let me now address AAM's 2009 outlook, starting with our dividend policy.

Today we are announcing that AAM is suspending the quarterly cash dividend program in 2009.

In the current environment, we believe our liquidity is best used to support AAM's comprehensive restructuring, resizing, and profit recovery plan.

The dividend policy will be reevaluated as business conditions improve quarterly.

For the full year 2009, we are planning on US light vehicle sales to approximately around 10.5 million to 11 million vehicle units.

We see 10 million units as a downside scenario, and upside would be very limited in our view.

We are encouraged by signs that demand for our critical vehicle programs are not only stabilizing, but for American Axle in fact slightly improving.

We expect the industry to show some signs of life in the spring and summer of this year, and this should be enhanced in a significant way by the massive government stimulus and support that is going through legislative in Washington DC right now.

We expect 2009 to be a most difficult year for all of the auto industries, not only here in the US but globally as well.

The radical restructuring and transformation of the domestic automotive industrial will continue well into 2010.

AAM's new, highly flexible, and transforming variable labor cost structure will incredibly help our company and our workforce to rapidly transition through the difficult conditions that are inherent in the volatile domestic and global auto industry we are presently in.

Our company AAM is expanding global manufacturing, sourcing, and engineering footprint as we open up many new revenue opportunities for our company.

The entire AAM management team is driven, competitive, and dedicated and unified to keep our company's business plan on track and ahead of schedule.

The current strategy positions AAM to survive this brutal market downturn and thrive when the market eventually and inevitably recovers.

I would like to thank each and every one of you men and women for your attention today and your vital interest in our company.

We appreciate it.

Let me now turn the call over to our Group Vice President of Finance, our Chief Financial Officer, Michael Simonte.

Mike?

Thank you, Dick, and good morning, everybody.

My job this morning is to review the fourth quarter 2008 and full year 2008 financial results, so let's get right to it.

Let me start with a few summary highlights.

First, as Dick mentioned, today we reported a net loss of $112.1 million or $2.17 per share in the fourth quarter of 2008.

That's higher than what many of you were expecting.

Let me explain that.

This loss included approximately $60 million in non-cash charges to establish and adjust valuation allowances on AAM's UK and US deferred taxed assets in accordance with the FAS-B Statement Number 109, Accounting For Income Taxes.

I will explain the tax adjustments in further detail later in the call.

Also included in the fourth quarter was a $26 million post retirement healthcare curtailment gain.

This gain is related to the UAW representative associates who left the company in the fourth quarter through the special separation program.

This gain was recognized and accumulated other comprehensive income in the third quarter, but ran through the income statement in the fourth quarter.

This was appropriate because the gain relates to associates who actually left the company in the fourth quarter.

Offsetting the curtailment gain was an approximately equal amount of special charges and other nonoperating costs associated with plant closures and asset redeployments.

What I'm saying is that the impact of special items other than the tax adjustments was approximately nil in the quarter.

In the fourth quarter, approximately two-thirds of the expense related special charges were adjustments on asset impairments.

As industry conditions deteriorated in the fourth quarter, we updated our asset impairment models and adjusted our estimates as appropriate.

Excluding the impact of the tax charges, and remember that the other special charges offset each other, AAM's fourth quarter of 2008 results look a lot like our third quarter 2008 results on a volume adjusted basis.

Volume or net revenue for our company was $25 million less in the fourth quarter than the third quarter, and that's what I'm referring to.

The second of our highlighted points here is that our free cash flow in the fourth quarter of 2008 was a use of approximately $110 million.

This reflects the funding impact of approximately $110 million of special charges, primarily buyouts paid to hourly and salaried associates in the US.

Remember also that the $100 million payment we received from General Motors -- financial assistance payment that was due on or before October 1, 2008 -- that received in the third quarter, and therefore was not an element of our fourth quarter results.

We define free cash flow as GAAP cash from operating activity, and by this I mean the top one-third of the cash flow statement, less CapEx and dividends paid.

We also net deposits and proceeds from the sale of PP&E in free cash flow if they are made in the normal course of business.

If GAAP permitted us to report free cash flow figures excluding the special charges, we would be talking about a breakeven quarter from running the business.

Third, at December 31, 2008, AAM had approximately $400 million of committed liquidity, which we define as the sum of available cash, short-term investments, and additional committed borrowing capacity under the revolving credit facility.

Our fourth summary point, and this is similar to what we reported two weeks ago at the Detroit Auto Show Conference, we are in compliance with the financial covenants specified in the revolving credit facility.

You may be surprised by that.

We are not.

In fact, our adjusted EBITDA performance for the year was slightly ahead of the projections we provided to our bank group in the fall when we successfully amended and extended the revolving credit facility.

So we are in good shape there.

Before I get in to further details about the full year report, let me comment on the fourth quarter 2008 results.

In the fourth quarter AAM generated sales of $503 million, down $252 million or 33% versus the fourth quarter 2007.

Our major program production volumes, which are comprised of the various light truck and SUV programs that we currently support for GM and Chrysler in North America, were down 43% on a year-over-year basis.

On a sequential basis, volumes in these same programs in the fourth quarter were reasonably flat versus the third quarter, down only 1%.

The weakness we saw in our fourth quarter sales was concentrated in Europe through our Albion Automotive subsidiary; in Brazil; and in the metal form products activities of the company.

Favorable mix helped to partially offset the impact of our weaker customer orders.

In the fourth quarter of 2008, content per vehicle was up nearly 15% year-over-year to $1,493.

This was a new quarterly record for our company.

For the full year 2008, AAM's content per vehicle was up 8% to $1,391.

This was a new annual record for our company.

Two significant drivers are affecting this increase.

Number one, we have new content that was introduced on the GMT 900 light duty truck applications in the second half of 2008.

That's where you saw our content per vehicle increase.

Number two, we had much higher pricing passthroughs in 2008.

We discussed that at length in the third quarter.

In the fourth quarter, our four wheel drive penetration was 65%.

That's approximately the same as it was in 2007 and also for the full year 2008 -- somewhat coincidental, but reflects trends that are impacting our business.

The four wheel drive penetration was 65%, also approximately same as the year earlier period.

So very consistent four wheel drive performance and penetration rates in these programs.

Let me also update you on other significant factor affecting our financial results in 2008.

This is what we refer to as our GM inventory correction.

What I mean by this is the significant imbalance between our production schedules in 2008 and the selling rates of the major product programs we support for GM and Chrysler North America, and I'm focused on GM in these comments.

During the calendar year 2008, we estimated GM reduced its dealer inventories for the programs we support by approximately 235,000 vehicles.

Said another way, our daily production rate in 2008 calendar year was 21% lower than the rate at which GM sold these same vehicles.

For the year in total, we estimate this inventory correction accounted for approximately $325 million of our year-over-year sales decline.

At a contribution margin of up to 35% on these products, we estimate that this issue cost us at least $100 million in earnings and cash flow in the calendar year 2008.

The good news, and we had to look hard to find the good news, but the good news here is that GM's inventory position in these programs was substantially normalized by year end 2008 -- what many other OEMs and suppliers are scrambling to do the same thing, especially in popular passenger car and crossover vehicle program.

We are pleased to have most if not all of this necessary but painful headwind behind us.

As Dick mentioned, we're seeing signs of stabilization in the demand level for our products.

Although sales are still at relatively depressed levels, being able to match our production schedule to our customer's selling rates will be a big improvement for us in 2009.

I might even get to use the word tailwind to describe the dynamic as the year progresses.

Non GM sales were $109 million in the fourth quarter of 2008.

For the full year 2008, AAM's non GM sales represented 26% of our total sales.

That's up from 22% a year ago, and 26% is a new annual high for our company if you're keeping score at home.

Gross margin in the fourth quarter of 2008 was 5.6%.

SG&A was relatively flat year-over-year at approximately $48 million.

However, R&D was up $3 million on a year-over-year basis.

Our backlog is real, the orders are launching this year, and we've got a full court press on to ensure that's successful.

We also incurred costs and expenses, including professional fees related to the AccuGear forging acquisition, the Hefei/AAM JV in China, and other corporate activities that are associated with the worsening industry conditions.

These types of activities and costs simply did not exist in the fourth quarter of 2007.

From a cost performance standpoint, a couple of other things I'd point out -- we have a relationship with Ssangyong in Korea.

While we do not anticipate any significant receivables writedown associated with their receivership situation, because we sell subject to letters of credit, we do have inventory on hand.

It's unclear what will happen to the inventory, and we took a charge in the third quarter or fourth quarter I should say for this inventory and some related activity of about $3.5 million.

So that's another item that wasn't in the press release that helps you to understand our fourth quarter cost performance.

Another item I would point out, and this is available in the press release if you look at the cash flow statement, we had $5 million of non-cash losses associated with the retirement of assets that are not considered asset impairments.

This is ordinary course activity for our company and we had to incur that expense.

So this is a little bit of extra color for you in terms of our margin performance in the fourth quarter of 2008.

For the full year of 2008, our net interest expense was $62.4 million as compared to $52.3 million in 2007.

Most of the increase relates to higher average borrowings in 2007.

Of course, that's correlated to the free cash flow use in 2008.

Interest rates were lower for us in 2008, approximately 7.2% on a weighted average basis, down about 90 basis points on a year-over-year basis -- of course reflecting the reduction in base rates during the year.

For the fourth quarter of 2008, net interest expense was $19.9 million.

Really, net interest expense is what you have to look at, given that we and many other companies now are holding higher levels of cash and short-term investments.

That level of run rate should be in the ballpark in terms of a quarterly run rate for us in 2009 -- maybe a little higher, but in the ballpark.

Other expenses in the fourth quarter of 2008 was $3 million.

This line item was unusually high in the quarter due to the significant devaluation of certain currencies in which our foreign subsidiaries operate -- for example, in Poland and Brazil.

This drove some larger than ordinary remeasurement losses for us under the provisions of FAS-B Statement Number 52.

By in large, at least in the current period, these were non-cash events.

The last income statement comment I have relates to our tax provisions of $69.5 million in the fourth quarter of 2008.

As I said a few minutes ago, our fourth quarter results include approximately $60 million in non-cash charges to establish and adjust valuation allowances on AAM's UK and US deferred tax assets in accordance with FAS-B Statement Number 109.

That GAAP standard requires our company and all other companies to assess whether the recoverability of deferred tax assets is more likely than not based on forecasts of taxable income on a quarterly basis or whenever events indicate that a review is required.

The impairment indicators that we've addressed during 2008 caused us to make a updated analysis of our US deferred tax assets in the second quarter of 2008, which we discussed, and the UK deferred tax assets in the fourth quarter of 2008.

Based on this updated analysis and with emphasis on the past three years of operating results as the primary evidence required under GAAP, AAM concluded it was appropriate to write off the net US and UK deferred tax asset position.

It's important to note this valuation allowance is a non-cash charge and has no effect on our ability to utilize the underlying positive tax attributes in our future tax filings.

We believe that we have options available to us to monetize these assets in the future, and continue to view these tax attributes as a important asset for the company.

However, it was necessary and appropriate to record evaluation allowance at this time.

When you have a full valuation allowance on your tax assets, the accounting from quarter to quarter can be very volatile.

In the fourth quarter 2008 we adjusted and increased the valuation allowance related to the US deferred tax assets, and this resulted from the year end actuary valuation of our pension and OPEB obligations.

As of year end 2008, AAM's underfunded pension liability stands at approximately $250 million.

This compares to $80 million at the beginning of the year.

This increase in the under funded pension liability was primarily caused by two factors, one -- and the first that I will speak that affected nearly every pension plan in America.

First, we suffered an investment loss of approximately $140 million in 2008.

This loss represents approximately 27% of our pension asset values at 2007 year end.

The second factor is that we paid approximately $30 million of SSP or special separation program buyouts from the domestic pension trust for associates over the age of 55 in 2008.

We did not make any contributions to the trust in 2008 to cover these benefit payments.

It's a big issue for our company, and as I said in many others.

A recovery in the financial markets will improve our funding status over the next few years.

That's our assumption and our belief.

Unlike some pension funds that have large current benefit payment obligations, most of our asset and investment positions will remain invested over the next few years.

This gives us a chance to earn back some of the losses if not all the losses we incurred in 2008.

We will also be required to make contributions to the trust.

This will help improve our funded status.

In 2009 we estimate that our minimum pension funding requirement will be approximately $16 million in the US, and in total on a global basis, $20 million.

We have the ability to make discretionary contributions above these minimum requirements and we will consider doing so as business conditions improve and our situation dictates.

Our goal, as it has been for many years is to increase the funding status of our plan.

We made excellent progress on this in recent years and we will get right back to it now.

So the bottom line on the fourth quarter of 2008 was a loss of $112.1 million.

With a full year 2008 reflecting approximately $1 billion -- that's billion with a B -- of special charges and another $100 million or so relating to the GM inventory correction, AAM posted a $1.2 billion loss.

Let's turn our attention now to cash flow.

GAAP cash used in operating activities of 2008 was a use of $163 million.

CapEx was less than 7% of sales, as we are making progress moving towards our goal, our objective, and our plan of 4% to 6% range for capital spending.

Dividends paid in 2008 were $18.3 million.

Incorporating these details, free cash flow was a use of approximately $325 million in calendar year 2008.

For the full year 2008, we paid out approximately $264 million for buyouts and other restructuring costs.

This includes the special separation program, the Buffalo separation program, the special attrition program from 2006 -- we are still paying out [growth] into retirement payments.

It also includes lump sum signing bonuses and plant closure costs.

We paid out another $51 million -- this is in addition to the $264 million -- to UAW representative associates in August of 2008 for the BDP, or buy down program.

If you add the impact of the GM financial assistance, which was a good guy, and the inventory correction which was a bad guy to this mix, it's easy to understand the drivers of our free cash flow performance in 2008 as compared to a much stronger 2007.

Under the surface, there were other things that happened that were positive.

Dick mentioned to you we were able to reduce our inventory balances on a cash basis by approximately $80 million.

The balance sheet impact that you see is more than $80 million.

That reflects also some impairment charges associated with indirect inventories, and the fact that as we monitored and carefully scrutinized the indirect inventory we had remaining after we significantly culled this activity, we moved some of it to a noncurrent asset classification other than inventories because we think it will take a little bit longer to burn through this activity than a year.

So when you take all that into consideration, the bottom line is $80 million cash flow improvement in the second half of 2008, on track with our goals in inventory.

Trading accounts receivable at year end stood at $187 million, as compared to $264 million at December 31st, 2007.

The year-over-year decline in accounts receivable is almost entirely explained by the reduction in selling levels year-over-year.

It's important to note we state these receivables on the assumption that GM and Chrysler continue to make timely payments to AAM.

That's not a crazy assumption, because as I speak to you today, we have already collected damn near 75% of these receivables in the month of January.

As it relates to GM and Chrysler, it's business as usual for this process -- no delays and no surprises at this time.

We have seen a slight deterioration in the aging of other receivables, particularly in Europe, Brazil, and our metal form products customer base here in the US.

While this is is not a material issues, and by that I mean it impacted less than $5 million, we are working to clean up that as quickly as we can and our balance sheet reflects that.

Stockholders equity finished up at a deficit of $432 million at the end of 2008.

As compared to the third quarter of 2008, two items account for most the activity in the fourth quarter.

Number one, our net loss of $112 million.

Number two, the increase in our unfunded pension liability.

A third important but lesser significant item was the effective currency translation.

If you need more information about all this, just ask the question and we can get into further details.

Let me close with some comments on 2009.

We are not going to provide any detailed earnings or cash flow guidance today for 2009.

There are too many material uncertainties surrounding the economy, our industry, our customers' restructuring plans, and the government's role in the process of assisting our customers to do so at this time.

We don't know what is going to happen, and neither does anybody else.

We are not going to speculate on these outcomes.

What we can say is that we understand the risks we face.

We have quantified the issues.

We have sought prudent counsel from our advisors.

We are monitoring developments on a daily basis and we are constantly adjusting our plans.

We are managing while we control.

AAM has a plan to return to profitability this year.

Let me repeat what we said before -- this is not earnings guidance for 2009 or any other time period, but it is a simple honest statement of our commitment to achieve a rapid turnaround in our business.

You may think we are crazy -- that's okay.

We are not going to be distracted by sensational headlines or uninformed opinions.

We are making massive adjustments to our cost structure.

Many of the cost reductions -- for example, the benefit reductions negotiated with the UAW in 2008 and the cost reductions associated with the incredible exodus of associates from our company -- rather unfortunate, but necessary exodus of associates from our company in 2008.

Those items are just now taking effect on January 1st, 2009 from a cost reduction standpoint.

Other issues that we have not discussed publicly are also going to be helpful as we work through 2009.

We are launching many new programs in 2009.

Our backlog of new business this year is robust.

We are very busy meeting with our existing customer base and new customers to discuss new business quotes and inquiries about quote packages that should arrive [imminently].

We are grateful for the confidence our customers are displaying about AAM in these discussion, and the cold hard POs that have been left.

Not just talk.

It's real stuff.

We also appreciate the outstanding support we receive from our suppliers on a daily basis.

It's important that all of you understand we expect to have the financial resources and flexibility to continue meeting obligations to these and other stakeholders and also to successfully implement our restructuring plan.

Our success is not assured, but we are focused on it.

The bottom line is this -- Dick and I and David and Yogen and Chris and everybody else here -- we work with a determined and [greedy] global team of automotive-savvy engineers, managers, and other very important roleplayers.

We are optimistic, we're positive, we're focused on what we can do to improve our situation.

I guess you can say this is our game of the century, and we are ready to play.

Thank you for your time and attention this morning.

I'm going to stop here and turn the call back over to Chris Son so we can start the Q&A.

Let me make a quick common about Chris.

Many of you know Chris -- Chris served in our Director of Investor Relations role for a few years up until about two years ago.

He has returned to this role in a new and expanded capacity.

Chris is now the Director of Investor Relations and Corporate Communications.

We welcome Chris back and I hope you will all engage with Chris as you need information about our company.

Chris, that's it for me right now.

Thank you, Mike, and thank you, Dick.

We've reserved some time to take some questions.

I would ask that you please limit your questions to no more than two.

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

(Operator Instructions).

Your first question comes from the line of Ron Lache from Deutsche Bank.

Ron?

Hold one moment please.

Can you guys hear me?

Yes.

Okay, great, sorry about that.

Congratulations on making it through the year from hell.

This is Dan [Gauss] in for Rod.

I had questions around the cadence of the cost savings.

Can you talk to approximately what level of savings dropped to the bottom line from the buy down program and the attrition program during this quarter?

And can you confirm that the savings from the Buffalo program is incremental to the $350 million restructuring savings you have been talking about?

Dan, that Buffalo program was actually a 2006 and 2007 activity.

It is part of the $350 million total cost reduction.

My comment this morning was simply there was a relatively small portion, but a portion of the cash burden associated with buyouts in 2008 that are related to that program.

Got it.

The incremental cost savings, we have discussed many times that $300 million of cost reductions that relate to the UAW agreements we negotiated in 2008 that these would start to kick in in the third and fourth quarter of 2008.

Our estimates are that we saw approximately $15 million of the savings associated with that.

I'm talking about net bottom line savings associated with that agreement come in to the P&L base in the second half of 2008.

The balance of the net bottom line savings and probably on the order of $60 million to $70 million of additional savings, will kick almost immediately here in the first quarter of 2009.

Now the biggest driver of that aside from the fact that many of the associates that left the company through the special separation program in fact left the company during the fourth quarter.

Aside from that, the benefit reductions, the elimination of post retirement healthcare at Three Rivers, the caps on post retirement healthcare at Detroit and Cheektowaga, the elimination of a defined benefit pension plan, and of course the new defined contribution plan for a pension.

All these benefit changes, including contributory amounts on healthcare from our associates -- these became effective on January 1 of 2009, and that's why they do not affect our business in 2008.

Thanks, Mike.

So you said that the benefit in the second half of '08 was $15 million.

Yes, about $15 million -- around $5 million or so in the third quarter, and another $5 million to $10 million -- closer to $10 million in the fourth quarter.

Thanks.

On the salary separation side, were there any lump sum payments to the people who took that program and when did those people exit the company?

The answer to your question is yes.

There were lump payments made to our salaried retirement incentive program, to our layoff severance program.

Those payments were included in the $110 million that I mentioned was out the door in the fourth quarter for these items.

And those associates were leaving the company at various times during the second half of the year, including right up until the end of the year.

Do you have any estimate for the savings from that in terms of and whether that will be mostly in SG&A line?

It will be both in the cost of goods sold activity as well as our SG&A activity, salaried associates ranging from all of our corporate departments to our plant environments that are shrinking their operations, idling and consolidating activity, these types of things.

So it's across the board.

One more quick one.

You guys didn't repeat expectations of profit in 2009.

Has that expectation changed?

We certainly did.

We stated several times --

We said that AAM is targeting a return to profitability in 2009.

I apologize for missing that, thanks.

That's all right, glad you asked.

Thank you, sir

Our next question comes from Mr.

David Leiker from Robert W.

Baird.

Good morning, everybody.

Mike, I want to try and walk through -- some of what you went through, and I'm not sure I captured it all, but if we look at the revenue side of the equation, we go from Q1 to Q4 to Q1 in the production rates on your primary vehicles.

Do you expect those to be comparable in the first quarter versus the fourth quarter?

No.

Up or down?

No, down.

In the first quarter, listen -- the first quarter 2009 as I know you understand is going to be very difficult for everybody in this industry.

In our situation, we are facing approximately 35 down weeks at the major customer facility that we ship to.

It would be very much more if I included some of the other facilities to which we ship lesser significant content.

In terms of the major North American light truck programs we support, we are looking at about 35 down weeks.

That's as many concentrated in one quarter that I can ever remember.

So the first quarter is getting off to a pretty slow start.

Things are stabilizing, as we look at the schedules today and as Dick mentioned.

It's simply an honest statement that the schedules we have today are stronger than the schedules we had at the first of January.

But they are certainly less than what we saw in the fourth quarter.

How many down weeks would you have had in the fourth quarter?

Would have been in the neighborhood of half.

I don't have that specific number.

But it would have been much less.

About half of that number, you think?

Probably about half.

Something like that.

Maybe less than half.

It'd be right around that level.

On the savings side, the $60 million to $70 million you are talking -- about that's headcount reduction?

This is the same activity we talked about now since we negotiated our UAW contract -- it's the net bottom line savings associated with taking our fully loaded all in labor costs from roughly $73.48 prior to negotiation of the new labor contract to a blended all in rate of approximately $34 an hour for all the portfolio of work that was conducted in those facilities at that time.

It includes wage and benefit reductions.

It includes the impact of headcount reductions and consolidating -- the whole shooting match as it relates to the new UAW labor contract.

And does not include the salaries, does it?

It does not.

The $300 million number is specific to the UAW agreements.

We added another $10 million roughly from our new IAM labor agreement and another $40 million roughly associated with the salary, headcount, and workforce reductions, and that is how we get to the total structural labor cost reductions of $350 million that we are working towards in our plan.

Of that $350 million, how much of it was running through the P&L in Q4?

Annualized?

There would be a substantial portion of that.

Again, as we talked about, this $60 million to $70 million that doesn't even take effect in 2009 obviously would have been excluded from that run rate, so -- but the balance of the cost reductions, most of which dealing in the fourth quarter, David, as I said with the volume and capacity reductions required to adjust to the market.

That was all running through our cost structure in the fourth quarter.

Salaries, was that in there in the fourth quarter?

A portion was.

A more significant portion will be impacting us favorably beginning in the first quarter.

Anything on the material side here we should be thinking about?

That's a pretty broad question.

Obviously, the commodity markets have recovered a little bit.

That's providing a little bit of an easing some of the cost pressures we face in this area, but I don't think there is anything significantly different from comments we made in recent weeks, including at the Detroit Auto Show Conference.

Great.

Thank you very much.

Thank you, David

Our new next question comes from Rich Kwas from Wachovia.

Can you hear me?

Good morning.

Good morning.

Mike, on the covenants, looking out a few quarters, couple of weeks ago I think Dick mentioned 800,000 to 900,000 is the T-900 build expectation for 2000.

Should we think about the covenants assuming that type of level for 2009?

If that's the case, what downside or portion have you build in?

So the question is really just want to cushion, if those builds don't play out, say it's less than 800,000, is there a lot of cushion under the covenants as you look out over the next few quarters?

Rich, when we negotiated the covenants we didn't simply look out to our plan, assume no variances, or contingencies and negotiate from there.

We did build some cushion.

I'm not going to make comments about how much it is.

I've already told you that we're not providing guidance going forward.

But I have said and will continue to say that we do expect to have the financial resources and flexibility to manage through this situation.

There are a number of moving parts.

You're right to point out to assumption on the GM T-900 as an important one, but there are many other levers including our own cost structure that we are evaluating, and we will take it day by day.

What I will say about the GM T-900 is we see nothing to dissuade us from that level of volume expectation.

The inventories were rightsized by the end of the year.

The production plans are solid with respect to our assumptions.

We feel good about that part of of our plan.

I would say three things different, or additive I should say.

One is the month of December, they actually ran an annualized rate of over 1 million units.

That's point one.

Point two, you already heard Mike say from our early January full schedule from GM to us, they've actually added units, which contribute to added axles for us to support that segment.

Point two.

Point three, we are simply giving the facts.

I hope you want to analyze the facts.

That's helpful.

Then the backlog, I think it's $800 million hitting between now and 2011, what's the cadence of that, can you remind us?

Heavy this year.

That's exactly right, Rich.

In 2009 it's going to be solidly more than $200 million coming online.

It could very well be pushing $250 million depending on the economic environment and the car buying mood as the year progresses.

There are numerous programs here, not just one or two.

We are launching the full size van for General Motors, the Volkswagen program in Brazil -- that's a significant global program for our company -- the Tata business in India, the Audi transmission differentials which we will support in Poland, the Mack Truck order which we will support in Three Rivers, and of course early in the year with General Motors the rearwheel drive program -- the Camaro nameplate.

So we've got a whole lot of activity here, a very busy year, and that is going to help to counter balance weakness we might see in other parts of the business.

As well as the Theta Epsilon, which dips into the Cadillac SRX, and componentry like that.

So we've got a very busy, aggressive, and all those programs are on schedule, not being delayed.

They are all in good shape, and if you been to the Auto Show lately, they are outstanding looking vehicles.

On the bottom line savings that you talked about earlier, the $60 million to $70 million, in the fourth quarter you said you were running about $15 million -- is that just a quarter benefit?

Should we annualize that to get to a number?

I'm trying to get to a total savings that you expect to book on the $350 million for 2009.

Rich, the $15 million number related to the third and fourth quarter.

The $60 million to $70 million relates to the incremental change in 2009.

So add them up.

Okay.

That's just going to be the number to date through the end of this year.

The expectation.

Yes.

Okay.

Thanks so much.

Thank you, Rich.

Our next question comes from Brett Hoselton from KeyBanc.

Can you hear me okay?

Good morning.

we can now.

Sorry about that.

Chris, hopefully welcome back and hopefully you bottom tick this thing.

I guess first question, you broadly defined our target to return to profitability.

Is the thought there that possibly by the fourth quarter 2009, you're targeting profitability?

Or is the thought that you might actually potentially be profitable for the entire year?

Brett, excellent question and I've already answered.

We are not in a position to provide guidance.

I'm not going to provide more color.

I think I've been very clear.

It's our objective and intent and plan to return to profitability in 2009.

I have told you that the first quarter is going to be rough -- it's going to be rough.

So maybe we need to look past the first 90 days of the year.

No different than the Super Bowl this week.

They play four quarters.

The first quarter doesn't term how you will end.

We said very clearly and simply our company is targeting a return to profit in 2009.

That's what we mean.

Very fair.

Second question, I'm not sure how you necessarily going to handle this one here.

But obviously there is the potential at some point in time in the future that General Motors may file for Chapter 11 bankruptcy, prepackaged or otherwise.

Do you have any sense of how that may affect your business either from a covenant standpoint or otherwise?

We are not going to go in to speculation.

Obviously General Motors has a very strong plan.

You know as well as we do our government requires them to go back February 17th on liability, sustainability.

You also know as well as we do the infusion -- only the second time in 100 years that the government in the auto industry sector, first [price since 1983].

Secondly, now GM and Chrysler, and not only those parent companies with their affiliate financing arm.

So it sounds like people want the auto industry domestically to be here.

Sounds like they got great products, as I've been to the Auto Show, the finest products down there were the GM group, along with Ford -- a very powerful group.

So we think the auto domestic has good products.

We think this thing will recover.

We indicated before with the new $800 billion or $900 billion, whatever the Obama administration puts in, that will be almost $2 trillion infusion to get the economy rolling again by this time in the second quarter of this particular year.

We got the product, we got the orders, and the pricing, and we think they are going to have a good successful run.

As far as speculation, if you want to talk about that with GM, you should call GM.

Very fair.

Thirdly, commercial vehicles -- in the past you haven't talked as -- let's say aggressively about your commercial vehicle business as you are now.

And it seems like, at least my impression is there is a significant shift in that direction.

My question is, is that a business that you intend to grow organically or is there some point in time in the future when your cash flow increases you might try to make some acquisitions.

The point of the question is simply how aggressively do you intend to try to grow that business?

Brett, this is Dick Dauch.

11 years ago in 1998, we made the decision to expand from GBW [1234] to GBW 8.

We did that with a wholly owned securing of our Albion automotive division.

It continues to be an effective operating division.

We have expanded its capability now into the North American and other areas of the world.

We already indicated to you with the excellent engineering and product availability, we have secured the Mack Truck product which I think launches around June of this year at our Three Rivers, Michigan operation.

We have several others throughout the world -- opportunities that we are not prepared to announce on today, but we are definitely going the expand that arena with our CVO group -- commercial vehicle operations group.

I'll have David Dauch give you a little bit more light on that.

David?

Brett, obviously we are looking at growing the business organically.

But at the same time, like all of our businesses, the right strategic opportunity present themselves, and we will evaluate them based on the strategic direction of the organization.

Great.

Thank you very much.

Thank you.

Have a good day.

Your next question comes from Chris Ceraso with Credit Suisse.

Good morning.

Good morning, Chris.

I got on a little bit late to so I apologize.

No need to apologize.

We are happy to have you with us.

Thanks.

I think we talked about this in Detroit a little bit.

As plans start to come back online after being down for several weeks here, that will create a bit of a working capital drain.

Can you talk about the implications of that for you and for your suppliers and are folks prepared to deal with this?

Chris, I say clearly we are prepared to deal with with it.

The first quarter is always a tough quarter from a cash flow perspective.

We had anticipated some weakness here in the fourth quarter, you recall to our expectations back in the fall when we negotiated the covenants.

So we've got the liquidity to handle what we think is here.

The key answer to your question is yes, we are prepared to deal with it.

What about your suppliers?

We are very comfortable with the supply base.

Our team is intimately involved daily in the dynamics of their health, durability.

And right now we have nothing of significance that would be of negative.

And therefore how we are handling it is up to us.

But we have good support supply system base and we are totally committed to supporting our customer base.

Therefore we're ready to lock and load and ready to go when this starts to recover.

We told you the first quarter will be hard and tough -- it will be.

We also can handle it.

In the second quarter, things will start to break loose.

Obviously in the second half of the year, we contemplate improvements, and you'll know that as quick as we will.

Just to confirm, I think you covered this last quarter, but in the fourth quarter, were there payments from GM that were part of the wage deal last year or did that all happen in Q3?

There were no payments from GM of that nature in the fourth quarter.

Is there anything left on that in 2009?

There is one more situation and then that will conclude that arrangement and that will be on or before April 1, 2009.

What's the dollar amount on it?

$60 million.

Okay.

Is that the $60 million you keep talking about on the call or is that a cost saving thing?

No, those are two different things.

This is just the portion of the $175 million in cash that GM will pay to us associated with that agreement.

That's, as Dick said, due on or before April 1st.

Mike, have you done the math on the pension?

What do you think pension expense does 2009 versus 2008?

Give me a second.

It's going to be down, all in all, because of the changes that we made in the programs.

Of course the significant special charges that we took in 2008.

So it looks to me like we will exclude -- there's probably about $50 million or so of special termination benefits and other similar charges that we took running through the pension expense line in calendar year 2008.

If you remove those, then our pension expense will be a little bit less on a year over year basis in 2008.

Maybe $35 million lower.

But that would have been called out last year as a charge, right?

That was called out -- yes, called out in 2008 as we incurred them each quarter.

It's part of the total cost of the new labor contracts.

Remember on the pension side, we typically had special termination benefits associated with accelerating certain pension benefits for hourly associates that might not have otherwise qualified for them at the time we entered into the agreement.

On the OPEB side, it was largely curtailment gains, because associates who were leaving the company left behind some of their OPEB.

So we had expense on the pension side, gains on the OPEB side -- in total the gains were much more than the expense as our total pension and OPEB obligations were down by about $200 million for these issues of course at the end of the year, and subject to the investment losses.

The unfunded liability is something different.

The last question -- what content do you have on the new SRX?

We have significant content on the new SRX, and we get into -- John Bellanti, do you want to handle that?

We have three major components on the SRX.

I'm having fun with John here, Chris, because he's launching it right now.

He's doing an excellent job of launching.

So what are the three, John?

Rear drive module.

That's RDM, rear drive module.

Multiple piece, three piece driveshaft.

Multiple piece, three piece driveshaft.

And a power transfer unit.

And a PTU unit.

If you put that all together, that's probably somewhere in the neighborhood of $1,000 per unit.

Does that help you?

That's terrific, thank you.

We will take good care of you Mr.

Chris.

Thanks, Chris.

We've got time for one last question.

Your last question comes from the line of Itay Michaeli from Citi.

What were the covenants at year end?

I don't know if you mentioned that earlier.

Good morning.

I couldn't hear your question.

Could you repeat it?

Can you share where the covenants stood actual versus what you had to submit at the year end?

First of all, we haven't submitted that, because we submit them when we file the 10-K.

But listen, we do not disclose the specific covenant calculations.

What I've said and I'll say again is that we are in compliance with the financial covenants that are specified in the revolver, and in fact the EBITDA that we will report to the banks as part of that calculation was ahead of the projections we made back in the fall when we negotiated the [amend and extend] agreement.

That's helpful.

Question on the pension, I think you mentioned $20 million contributions in '09 -- do you have a sense of where that can go in 2010?

Yes.

What's difficult to say about 2010 -- I know you understand that, I will say it quickly and give you color.

There is this new Pension Relief Act that was signed into law in December.

There is still some chatter that there may be additional move in that area for 2010.

But assuming that doesn't happen, if we live where we're at now from a regulatory perspective, it could close to double in 2010, assuming we don't see a recovery in asset values this year.

Okay, that helps.

Which by the way, and I don't know the extent you and I talked about this before.

But that's not too terribly different from the expectations and thoughts we had about this over the last couple of years.

We have had very little in the way of pension contributions to our domestic trust over the last couple of years, and we always anticipated the need to ramp that up as we work through 2010 and 2011.

The improving cash flow profile of our business in that time period will of course be helpful to fund that.

Great, just lastly Mike, can you share for 2008 what the total net cash restructuring was, so we have the right number -- including the GM payment as well as what you think the specific direct cost of the strike were in terms of ramping things back up?

Sure can.

In 2008 for the full year, we had about $264 million of cash funding on quote unquote special charges.

So that's the buyouts, and all the other things that get encompassed in there.

If you add another $51 million on the BDP, you're at roughly $350 million.

We received $150 million from General Motors pursuant to the AAM/GM Assistance Agreement.

So obviously that was available to offset a portion of the special charges in the BDP, and what I'm going to answer your question a little differently.

You mentioned the strike.

I think the appropriate way to look at it is the net inventory correction that we experienced in the GM programs, and that was about $100 million EBITDA hit for us in 2008.

So if you add up those items, you will get to almost all of the total free cash flow use that we reported for calendar year 2008.

The other thing to put in perspective with that is that therefore AAM substantially completed the transition of all UAW representative legacy labor at these original US locations.

That's behind us and booked.

Absolutely.

Thank you so much.

Have a great day.

We thank all of you that participated on the call and appreciate your interest in American Axle & Manufacturing.

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

That concludes today's conference call.

At this time you may disconnect.