American Axle & Manufacturing Holdings Inc (AXL) 2009 Q1 法說會逐字稿

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

At this time, I would like to welcome everyone to the American Axle & Manufacturing first quarter 2009 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 period.

(Operator Instructions) As a reminder, today's call is being recorded.

I would like to turn the call over to Christopher Son, Director of Investor Relations and Corporate Communications.

Please go ahead, Mr.

Son.

Thank you, and good morning everyone.

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

This morning we released our first quarter of 2009 earnings announcement.

If you had not had an opportunity to the review this announcement, you can review it on the aam.com website or through the PR news wire services.

A replay of the call will be available beginning at 5:00 p.m.

today through 5:00 p.m.

eastern time May 8 by calling 1-800-642-1687, reservation number 92015050.

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, but 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 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 audio webcasting the call through our website, aam.com.

This call will be archived in the investors section of the web site and available there for one year for later listening.

With that, let me turn things over to AAM's Cofounder, 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 first quarter of 2009.

Joining me on the call today are David Dauch, our President and Chief Operating Officer and new member of our Board of Directors, Michael Simonte, our Executive Vice President of Finance and our Chief FInancial Officer.

After i provide some highlights for the quarter, I will make a few comments before turning things over to Mike to discuss the details of our financial performance.

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

Today, AAM is reporting a net loss in the first quarter 2009 of $32.7 million or $0.59 per share.

This compares to a net loss $27 million or $0.50 per share in the first quarter of 2008 year-over-year.

AAM's first quarter of 2009 results reflect the adverse impact of special charges and other non-recurring operating costs of $12.3 million or equivalent of $0.22 per share.

These special items primarily relate to hourly and salaried work force reductions, including the attrition programs and statutory benefits.

These also include costs related to plant closures and other actions to rationalize our capacity, redeploy underutilized assets and align AAM's business to current and projected market requirements.

Over the last year and continuing through the first quarter of 2009, global automotive market conditions have been brutally difficult.

North American light vehicle production, for example, was down approximately 53% in the quarter on a year-over-year basis.

General Motors light truck production was down 49% in that first quarter.

In total, customer production volumes for the North American light truck and SUV programs that AAM currently supports for GM and Chrysler LLC were down approximately 36% in the first quarter of 2009 as compared to the first quarter of 2008.

These factors and others contributed to AAM reporting net sales in the first quarter of 2009 of $402 million.

This compares to $588 million in the first quarter of 2008.

This is a historic and most challenging time for the entire global automotive industry.

The industry is in a tremendous upheaval with new decisions, headlines and announcements coming out each and every day.

Think of what occurred yesterday.

We are actively monitoring these developments on a daily basis and staying closely aligned with all of our stakeholders.

This includes our customers, suppliers our associates, our communities and many others.

We are focusing on managing what we can control.

AAM's comprehensive restructure, resize and profit recovery plan is designed to align our business with current and projected market requirements and is working very well.

This is characterize by lower vehicle sales and massive structural shifts in product mix that we are adjusting to.

Let me take a moment now to update you on AAM's progress on these critical initiatives.

First of all, we continue the process of resizing and realigning AAM's manufacturing capacity globally.

We are now focused on reducing our break even to a US market SAR of 10 million vehicle units.

During the quarter, AAM continued the idling and consolidation of operations at our Detroit manufacturing complex.

This activity will continue and accelerate through the second quarter of 2009, as we adjust to the new market demand and GM's recently announced summer shutdown and the most efficient was for us to produce our product for out customers.

Second, AAM initiated additional structural cost reductions.

They included further hourly and salaried workforce reductions.

We completed the transition of associates who elected to participate in a special separation program which we refer to as SSP in January of 2009.

In addition, AAM instituted numerous salaried, wage and benefit reduction including officer paycuts and cancellation of 2009 officer executive bonus program.

In 2009, AAM expects to reduce its salaried work force by almost 25%.

Third, AAM continues to provide exceptional value to our customers through an outstanding daily track record on product development, quality performance, warranty and reliability performance, delivery,advanced technology and flawless and anonymous watch support for our customer base.

These critical measures of customer satisfaction and operating effectiveness are the cornerstones of AAM's commercial success.

For General Motors, AAM is pleased to support the launch of the all-new, eye-popping 2010 model year Chevrolet Camaro as well as Cadillac SRX vehicles.

Later this year, AAM will support the launch of important new product programs for Volkswagen AG as well as their division Audi, Tata Motors Mac truck.

These new business launches will expand and continue to diversify our revenue base.

Let me now update you on our new and incremental business backlog and quoted business activities.

AAM's new and incremental business backlog for programs launching in the years 2009 through 2013 currently stands at approximately $1.2 billion.

This backlog is reduced from the previous estimates at 2008 year end due to changes in our customers' long range product plan.

Each and every OEM is going through massive changes of their long range product plan offerings.

AAM's expanded product portfolio now includes a full array of drive line and drive train product applications for passenger cars, crossover vehicles, light trucks, SUVs as well as commercial vehicles.

This is creating many new business opportunities for our company throughout the world.

AAM is currently quoting approximately $800 million of potential new business.

Approximately 70% of these new business quotes are scheduled to launch from year 2010 through 2013.

Approximately 90% of the new business quotes are with customers other than the General Motors corporation.

While the first quarter of 2009 was most difficult, AAM's entire global management team is totally focused on what is necessary to accelerate and expand reductions to our cost structure, make other improvements to overall market cost competitiveness and return us to profitability.

Before I turn it over to Mike, let me wrap up by making a few closing comments on major industry development.

Under the direction of the United States Treasury Department, General Motors and Chrysler are taking aggressive actions to implement their respective viability plans.

This includes the historic Chapter 11 bankruptcy filing made by Chrysler Motors -- Chrysler Corporation yesterday on April 30.

This also includes GM plans to further remove costs by rationalizing excess capacity, taking an extended summer shutdown, reducing core brands, restructuring dealer networks as well as reducing hourly and salaried workforce.

AAM is working with all of our stakeholders to make the appropriate adjustments to transition to new reduced levels of customer and market requirements.

Our company is taking actions that are difficult , but necessary to insure that AAM emerges from these brutal economic times as a viable, profitable and sustainable company and doing this as humanely as possible.

AAM will vigorously respond to these new market realities with a sense of urgency and immediacy as well as with value added focus.

We will reduce our cost structure and alter our business model in totality.

We will continue to expand and diversify AAM's customer base, product portfolio, serve markets a well as global manufacturing and sourcing footprint position.

These actions will position our company to return to profitability.

I want to thank each and every one of you ladies and gentlemen for your attention today, your vital interest to AAM.

We appreciate it.

Let me now turn the call over to our Executive Vice President of Finance and Chief Financial Officer, Mike Simonte.

Thank you, Dick, and good morning everybody.

I'll get right to it.

Going to start with sales this morning.

Sales in the first quarter of 2009 were $402 million, that's down from $588 million in the first quarter of 2008.

The key driver of this reduction in sales is an approximate 36% reduction in production volumes for the light truck program that we currently support for GM and Chrysler.

In the first quarter of 2009, we produced and shipped approximately 6,000 axles a day for GM and Chrysler.

That's approximately one-third lower than the 9,000 axles a day pace we had in the first quarter of 2008.

Let me give you some context on these build rates.

At the beginning of 2008, our operating break even level was approximately 12,725 axles per day.

Through our efforts to rationalize AAM's installed capacity and harness greater than $300 million of annual structural cost reductions from our new labor agreements we implemented in 2008, we have lowered our break even to approximately 7,500 axles for the 2009 budget.

Now, in the face of even further sales and production declines beyond what we contemplated in our planning for 2009, we need to lower our break even to approximately 6,000 axles a day.

That is approximately equivalent to an ongoing US SAR of approximately 9.5 million to 10 million vehicle units.

We will have that done by year end 2009.

And we will get it done by idling and consolidating, not closing as some have erroneously reported in recent days, significant portions of our Detroit manufacturing complex.

We will also need to reduce our hourly and salaried workforce and implement many other cost cuts and productivity measures.

In the parlance of our industry colleagues, we are going to get this restructuring job done deeper, harder and faster than we had previously anticipated.

So volume was up in the first quarter, I just covered that.

Mix continued to trend favorably in the first quarter of 2009.

Four wheel drive penetration was approximately 62% in the first quarter of 2009.

For the full year 2009, we expect four wheel drive penetration to trend at a similar level.

On its face, that might appear to be down from the 65% rate we reported to you in the prior year.

However, that's going to be a little bit of an apples and oranges comparison.

Let me explain.

In the prior year, heavily contented mid sized SUV programs represented proximately 15% of our total sales.

In the first quarter of 2009, that dropped to 3% due primarily to the cancellation of the GMT 360, 370 program and also significant downtime at GM's Shreveport assembly facility, and remember, that's where GM produces the Hummer H3.

These mid size programs had a much higher than average four wheel drive take rate.

That explains the difference.

For our continuing programs, the four wheel drive mix rate is actually a little stronger than we expected in 2009.

For the first quarter of 2009, our content per vehicle was $1,424, and that compares to $1,326 in the first quarter 2008.

That's a 7% year-over-year increase.

Increased product content was a major driver of this situation.

It was also a little bit of fun with math dynamic here.

The decline of the mid size programs that I just talked about, as a percentage of our total build, has the impact of increasing our reported content per vehicle across the current product portfolio.

In terms of customer mix, our non-GM sales were approximately $95 million in the first quarter of 2009.

That's about 24% of our total sales, down a little bit, but mostly in line with our 26% run rate in calendar year 2008.

So again, our sales in the first quarter of 2009 were $402 million, down 32% in the quarter.

Admittedly not a great trend, but considerably better than year-over-year decline of 53% in the North American light vehicle build rate.

The good news is that we expect our selling rate to pick up a little bit in the second half of this year an into 2010 as we launch new business with General Motors at our Guanajuato Mexico manufacturing complex, including the all new Chevrolet Camaro and Cadillac SRX vehicles that Dick just talked about, the Mac truck program in Three Rivers, Volkswagen in our AAM Brazil subsidiary.

Audi in Poland and Tata Motors in India.

We will also support the launch of the new Dodge Ram Heavy Duty program later this year, Combined with the impact of a continued inventory correction and extended summer shutdowns recently announced by GM and Chrysler, the first half of 2009 should represent the trough in sales for our company during this brutal industry cycle.

Let's move now to the cost side of business.

In the first quarter of 2009, our gross margin was 6.7%.

This compares to gross margin of 2.2% in the prior year.

AAM's EBITDA margin was 4.8% in the first quarter of 2009 versus 3.9% in the prior year.

AAM's operating loss in the first quarter of 2009 was $16.7 million.

That's about $20 million lower than the $36.7 million operating loss we reported in the first quarter of 2008.

The first quarter of 2009 operating loss, again, $16.7 million includes special charges of $12.3 million net.

Said another way, $12.3 million of this operating loss or approximately 75% can be explained by this special charges.

These special charges include the following: First, we had $12.8 million related to additional hourly and salaried workforce reductions, mainly including the cost of attrition programs and related statutory benefits.

Secondly, we had $4.6 million for plant closure costs and asset redeployment.

That's a similar number to what we have seen on a quarterly basis for the last three or four quarters.

And third, we had a $5.1 million curtailment gain to partially offset the impact of these first two items.

The curtailment gain effectively completes our accounting for this special separation program through which 2,126 UAW representative associates at our original US locations elected to leave AAM with a buyout.

For comparison purposes, I want to remind you that we recorded $3.5 million of special charges in the first quarter of 2008.

Last year, that primarily related to asset redeployment.

Let me be clear.

Through the first four months of this year, we are operating below our break even level.

I'm not trying to sugarcoat those facts, but it would will wrong to miss the big story here, and that is our restructuring plan is taking hold and is having a positive tangible and significant impact on our financial results.

On a year-over-year basis, our sales were down approximately $185 million in the first quarter.

The loss margin on that decline in sales was approximately $60 million.

In the first quarter of 2009, we generated productivity gains that were approximately equal and offsetting to this volume headwind.

We did this in the following ways: We had hourly and salaried wage and benefit reductions, including those related to new labor agreements that we implemented in the second half of 2008.

We had hourly and salaried workforce reductions, we had installed capacity rationalization, supplier consolidation and many other cost reductions throughout our entire global cost structure.

Many are unfortunate, but they are necessary.

We are working our plan, and the plan is working.

A key metric we use to measure our manufacturing productivity is the number of hours required to generate $1,000 of sales.

In the first quarter of 2009, we set a new record for our performance on this critical metric, improving upon our full year 2008 performance by 12%.

At the core, this is why we can report such a favorable productivity contribution.

Before we switch to cash flow, let me cover SG&A interest expense and taxes.

SG&A, including R&D, was down approximately $5.6 million or 11%, in the first quarter of 2009 to $43.8 million as compared to $49.4 million in the first quarter of 2008.

For your reference, approximately $1 million of our special charges were recorded in SG&A.

R&D spending was down approximately $1.5 million in the quarter on a year-over-year basis.

Excluding the impact of the special charges, other SG&A cost drivers were down $5 million.

This will continue to be an area of cost cutting emphasis for our company in 2009.

Net interest expense was $19.4 million in the quarter, up $12.7 million -- or up from $12.7 million, I should say,in the first quarter of 2008.

The average interest rate on our borrowings in the first quarter of 2009 was 7.1%, down from 7.7% a year ago.

The increase in interest expense, therefore, was due to higher average borrowings.

Income taxes represented a $4.2 million benefit and that's about 11% effective rate in the first quarter of 2009 versus a $21.9 million benefit provision or 44% effective rate in the first quarter of 2008.

When you compare these tax provisions, remember that we established a full valuation allowance on our US deferred tax assets in the second quarter of 2008.

In the first quarter 2009, the benefit provision was driven by a GAAP requirement and FASB saving 109 that relates to our pension and OPEV valuation.

As a result of updated actuarial valuation, triggered by part by the impact of additional workforce attrition, we reduced our domestic pension and OPEV liabilities by approximately $26 million in the first quarter of 2009.

That reduced our deferred tax assets which in turn, reduced the need for evaluation allowance.

In accordance with GAAP, the adjustment to our pension and OPEV liabilities ran through equity, not P&L, as a component of other accumulated comprehensive income.The valuation allowance adjustment must be run through P&L and included in our tax provision, so that explains most of the tax provision for the first quarter of 2009, It's really just the reduction in our valuation allowance related to the reduction in our pension and OPEV liabilities running through OCI.

So the bottom line for the first quarter of 2009 was a net loss of $32.7 million, or $0.59 per share.

As Dick said, this includes special charges of approximately $0.22 per share.

Let's move onto cash flow.

GAAP cash from operations was a use of $21.3 million in the first quarter of 2009.

Capital spending, including deposits that we paid for the acquisition of property and equipment, net of proceeds from the sale of similar equipment, was $44.3 million in the first quarter of 2009, up from $11 million year-over-year.

Net increase on a year-over-year basis simply reflects the cadence of new business launches and the fact that a significant portion of our new business backlog, and a higher portion than we would have been dealing with a year ago, is set to launch in the second half of 2009 and of course, into 2010.

We define free cash flow to be the net cash provided by, or in this case, used in operating activities less CapEx.

In the first quarter of 2009, free cash flow was a use of almost $66 million.

Included in this result, AAM paid almost $37 million for special charges primarily related to the last portion of the special separation program, and other hourly and salaried attrition programs.

In the first quarter of 2008, our free cash flow use was $33 million.

For the past three years, our average free cash flow use was approximately $50 million.

For the past five years, the average free cash flow use in the first quarter was approximately $60 million.

My point here is that we control our free cash flow use in the first quarter, including or excluding special charges reasonably well within historical levels of seasonal expectations for the first quarter.

Let me anticipate some of your questions and address our liquidity position and covenant compliance.

First, as of March 31, 2009, we had a total committed liquidity position, and by this I mean available cash, short-term investments and committed borrowing capacity under the revolving credit facility of approximately $330 million.

Second, as it relates to the debt covenants, I can simply say that we are currently in compliance with the terms and conditions of our debt agreements, and of course, importantly, that includes the financial covenants.

Third, we currently have sufficient liquidity to operate our business.

Let me close by making a few comments about the current operating environment and our path ahead in 2009.

As Dick mentioned, this year is proven to be very tough for the entire domestic automotive industry.

That certainly is true for our company.

We are not going to provide any detailed earnings or cash flow guidance this morning.

There is way too much uncertainty and event risk to do that with any confidence or credibility right now.

What we can say is that we going to continue to do what we do best, and that is to control and manage those things that we can control and manage.

We are totally focused on completing AAM's comprehensive restructure, resize and process recovery plan.

We have been and we will continue to work with all of our stakeholders to adjust our business to lower current and projected market requirements for our products.

We believe that our first quarter of 2009 results demonstrate that we are making considerable and rapid progress in our plan to restructure the business.

We are committed to making the hard, necessary and structural changes to return AAM to profitability.

We are focused on accomplishing this goal as quickly as possible.

In recent days, we have been notified by GM and Chrysler that they will take extended summer shutdowns in 2009.

Although this situation is still very dynamic, we are working to finalize our plans to adjust our operations to these lower market requirements.

The GM and Chrysler extended summer shutdowns will have a significant adverse impact on our sales and profits in the second quarter of 2009 and into the third quarter of 2009.

We currently estimate that these shutdowns will drive our sales lower by approximately $250 million in this time period and negatively impact our operating results by approximately $80 million to $85 million, again, in this second and third quarter time period.

We expect to make up some of that loss later in the year, but it's too early to say how much.

Keep in mind that these losses, and again, we estimate the losses related to the extended summer shutdowns to be in the range of $80 million to $85 million, compared to our committed liquidity position of approximately $330 million at March 31, 2009.

I should also note another thing relating to these shutdowns and the significant operating changes that are resulting from Chrysler and GM's additional focus on their viability plans.

It is possible, and in fact, it is likely that we may have additional material impairment charges or other special charges yet in 2009.

We just received notification that week of the volume expectations from our customers, and as quickly as we received those notifications, they are changing.

Also, you know that Chrysler is just finalizing their plans in bankruptcy and General Motors has 30 days to work out their viability plan -- their final viability plan with the US Treasury.

We will adapt and modify our plans to these issues as they arise.

And again, it is likely that we will take additional restructuring actions, and if and when we do, we will make the appropriate accounting entries.

One last comment.

Of course, yesterday, we witnessed a major event in the history of our industry when Chrysler filed for Chapter 11 bankruptcy protection.

I want you to know that, our balance sheet exposure to that proceeding is minimal.

AAM's Chrysler trade receivables in the US were less than $3 million on April 30 of 2009.

Our net exposure, after giving consideration to the administrative claim, is much less than that.

Most of our sales to Chrysler are from our Mexican subsidiary to their Mexican subsidiary.

So that's it for this morning.

Thank you for your time and attention.

I'm going to stop here and turn the call back to Chris so that we can start the q-and-a.

Thank you Mike, and thank you, Dick.

We have 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 you may have.

(Operator Instructions) We will pause for just a moment to compile the q-and-a roster.

Our first question comes from the line of Richard Kwas from Wachovia.

Your like is open, sir.

HI, good morning, guys.

Good morning, Rich.

Mike, just a clarification on the $250 million.

Is that off of first quarter run rates, or is that on a year-over-year basis?

No Rich, what that represents is our best estimate based on notification provided by our customers of the sales value of the units that will not be produced during the summer shutdowns.

Okay.

And Rich, that will extend over the second and third quarters.

It will begin here very early if the month of May and extend through mid July or so, and so that's what that $250 million represents.

Great.

Thanks for clarifying on the receivables the Chrysler receivables, appreciate that.

The other question I had was on your suppliers, tier twos and threes, what was the -- was there any cash impact in the quarter or expense impact in the quarter in terms of supporting those suppliers, either from a cash standpoint or just supporting them overall?

Rich, two aspects to that question, first from a, P&L perspective, there was no material variances on the -- from a P&L perspective different from any other recent quarters.

So I don't think there is anything to talk about there.

In terms of the cash flow, there is a minimal impact associated with some things we are doing for suppliers who are in tough shape, but that is less than $10 million is not a material issue for us at this time.

Okay.

Then in terms of the tax rate, should we assume a tax shield for the rest of the year as you book this quarter?

Rich, given our tax situation, particularly here in the US, on a going forward basis, our tax provision should be -- the income tax that we incur in Mexico, where we are generating operating profitability or pretax profitability, in the US, unless we have the unusual adjustments to the valuation allowance and again, here in the first quarter, that related to adjustment that affected our deferred tax assets, but because of adjustment we made to OCI, not to the P&L.

We really shouldn't see any significant tax expense or benefit in the US.

So yes, there shouldn't be too much activity on tax, and it should be limited to some expense we record in our foreign operations.

Okay.

Then final question, Dick or Mike, as you look at the break even level and your goal to get this to a $10 million break even level by year end, what are the chances that can be accelerated?

What kind of needs to go right?

Could you do that -- could you achieve that level before year end?

First of all, we have had a three year plus plan on restructure, resize, refocus, we continue to expand it.

We continue, as Mike said, to accelerate it and most recently, as Mike indicated, our two key customers, GM and Chrysler, giving us major unprecedented long summer shutdowns is giving us a reason to accelerate our idling and consolidation phase, and also adjusting our break even phase and lots of other other elements to get our cost structure in line.

So we're doing about as rapid as can be done humanely and remember the other thing is you have to prepare for model buildout which occurs in late June, which is next month and then be prepared after the two week shutdown in July, which is normal, to then ramp up your brand new model year.

So all that has to be put into perspective to balance the capacity, idling and other things we still are not going to lose our basic parameters of operations and giving anonymous support to our customers.

David, anything you want to add to that, please go ahead.

No, we are going to continue to right size our capacities to market demands and the realities of the demands in the customer schedules.

We're going to utilize the appropriate assets that we have available to us and make the necessary adjustments manpower-wise and facility-wise, continue with the rationization plans that we've put into effect.

And we're doing this on all three basic products, Rich, that being our axle families as well as our drive shaft families as well as Metal formed drive shaft families as well as our metal formed product families.

Great, thank you.

You're welcome, sir.

Have a great day.

Our next question comes from the line of Brian Johnson from Barclays Capital.

Your line is open.

Good morning.

A question on the lowering of the break even, what's the headcount involved with the idling of the remaining Detroit facility, and what's the benefit in timing?

Brian, we've got approximately 1,100 associates at our Detroit site.

Based on what we understand the customers' schedules to be at this point in time, many of those associates will go on temporary or indefinite layoff.

And then based on once we get final confirmation what the customers' schedules will be, it looks like we will probably be bringing back about 25% of those associates.

Okay.

So there would be some ongoing activity then in Detroit ,or does that include --

Yes, yes, to answer your question.

Okay.

So a portion is idled.

Second set of questions around the cash flow statement.

A few questions, one, you mentioned the $37 million of FSB charges.

Do you have a receivable from GM, and when is that slated to be paid with connection to those?

No -- well, Brian the receivables from GM consist, of course, of trade receivables, which were just about $104 million at the end of the quarter and have largely been collected now.

We have the OPEV receivable or cost sharing asset, which approximates $216 million relative to the AAM,GM agreement, under which they provided us assistance to support the transition of legacy labor, we received $175 million of cash by the end of the first quarter.

The additional support that they're providing to us will occur over time, because it relates to the waiver of the liability that we originally had to GM for the share of their own OPEV liability that related to service provided to associates at our company.

So I think cutting through this, your question probably is, did you receive the $60 million, due on or before April 1 in the first quarter?

The answer is yes.

Okay, so what does that mean the remaining OPEV cost sharing balance is?

Well, the OPEV cost sharing balance from our company to GM is zero.

From GM to you.

The OPEV cost sharing asset from GM to our company, $216 million.

Okay.

Brian, that's something that will play out over many, many years.

Right.

And we're at roughly -- what was the cadence on that as a receivable?

$10 million to $15 million a year.

Okay.

Remember, that number is an actuarily determined number, so it will be reduced by the amount of cash we receive and of course, it will be adjusted for present value calculations and those types of things going forward too.

Right, I was surprised that it hasn't gone down after the receipt of the $60 million.

Are you saying --

There was an additional separate receivable of $60 million, a current asset on our balance sheet at the end of the year that was collected.

I think that's what you are referring to.

But in terms of if GM were hypothetically to renounce that payable, it would be $10 million to $15 million cash, not 216 per year, not 216 million.

That's correct.

It would be $10 million to $15 million, closer to $10 million.

In calendar year 2009 for example, it will ramp up over time, but it will be a gradual ramp up, not a sudden ramp up, and that's exactly right, it's a $10 million to $15 million issue for the next few years.

Right, and then could you then, in your next contract, address if you are not getting that support from the customer, address those OPEV issues going forward, I would assume?.

Well, there is a whole lot of things that may or may not happen with respect to that.

I think we'll just not comment on that right now and wait for those contingencies, if they occur, to be addressed.

Second question on the reclass of short-term investments, could you give color around that?

Brian, remember back in September, we were investing in the reserve.

This was the money market fund that many people were using and unfortunately, this is one that broke a buck.

So we had some assets some short-term investments that were held up in the process of that fund, making an orderly liquidation and being able to distribute asset back to the holders.

We -- in the third quarter of last year, we incurred a $5 million charge to mark those assets to what we thought our ultimate recovery rate would be, and then we, of course, we've been recovering assets as we go.

In the first quarter of 2009, we recovered approximately $59 million of those assets, so it's simply a conversion of our short-term investment holdings to cash and on the cash flow statement, just due to the intricicies of conforming with GAAP, it gets reported as an investing activity converting back to operating cash.

Okay, and is there any remaining debt, short-term -- you have $18 million in short-term investment (inaudible) will that be coming into cash?

Yes, $18 million yet to convert to cash, and at this point, we see that occurring in an orderly manner over the rest of the year.

Okay.

And I I assume the $10.2 million was elated to investments in China and other places.

Yes, the $10.2 million was our capital contribution to the AAM/Hefei joint venture with a subsidiary of the JAC Group in China, that's correct.

Okay, thank you.

Thank you, Brian.

Our next question comes from line of Rod Lache with Deutsche Bank.

Can you you hear me?

Good morning, Rod.

Could you just, I guess first of all, maybe elaborate a little bit more on the cadence of production on your platforms for this year?

And what you are expecting for the full year at this point?

Okay.

Couple of things.

I'll say the obvious quickly and move on.

The significant portion of our relationship with General Motors and Chrysler, substantially all will be shutdown here for the next couple of months, so that is a significant issue as it relates to our second quarter certainly, and will affect the beginning of our third quarter.

And Rod, I mentioned that would be about a $250 million sales hit and probably $80 million to $85 million of operating margin loss.

When we ramp up, we would expect General Motors to take their inventories down very significantly during this time period we started the year with about 295,000, I should say General Motors to take their inventories down very significantly during this time period.

We started the year with about 295,000 --- or I should say General Motors started the year with about 295,000units of inventory in the programs that we support.

We would expect that be less than 200,000 by the end of the second quarter based on the fact that they're not going to be producing and they'll continue to sell.

So those are very low inventory levels and equate with the selling levels that are in the marketplace say in February and March, not necessarily what most people would expect to see happening at the end of the year.

So we would expect to stabilize production at a level consistent with the selling rate that's in the marketplace.

We don't see a major uptick in demand, but if we are traveling in the $10 million to $11 million SAR rate later in the year, then that will be certainly stronger than the production rate that we will have seen in the first half of the year.

Okay, and the --basically, the production that you are expecting for this quarter is roughly one month's worth of production out of GM, is that fair?

Little bit more than that, Rod, because the shutdown is beginning --

They're really shutting it down May 11 through July 20 as it impacts the products that we service their vehicles.

So you can take that period and see where it overlaps into one quarter or the other.

And then of course, as everybody knows, Chrysler is basically shutting down their operations Monday of next week for some indefinite period of time that nobody yet knows.

Right.

Can you remind us about the P&L impact of the GM support payments and just how does that affect the numbers now?

How does that look going forward?

Yes.

Rod, the GM support payments are recognized in revenue over the period of the new labor agreements to which they relate.

So that's -- to answer your question quickly and succinctly, it's about $14.5 million of revenue each quarter.

And then we are amortizing the buydown obligations in a similar manner over the period of the labor agreement, and the amortization on that is roughly half in each quarter, roughly half of the 14.

So roughly $7 million.

Okay, the reduction in the break even point, can you just -- you mentioned it's something like 1,500 units per day declined to 6,000 per day.

What is your production dates at this point?

Production dates, about 236 production dates in the US this year.

It will range between 236 and 237, depending on the calendar.

And just lastly, are you participating in the guarantee, (inaudible) guarantee program?

And what's -- can you tell us also what your revolver balance was as of the end of the quarter?

First question is no.

The revolver balance at the end of the quarter, let me get that specific number.

We had $175 million of availability under the revolver at the end of the first quarter, our outstanding balance was $250 million, and then there's an additional $52 million of that facility reserve for letters of credit.

Thank you very much.

Yes, sir.

Our next question comes from the line of Brett Hoselton with KeyBanc, your line is open.

Good morning, Dick, David, Mike.

Brett, how are you?

Good morning, Brett.

Just fine.

Mike, I wanted to ask you about your covenants and I'm going to ask you about the future of your covenants I know that you are probably not going to want to answer this, but as you think about that 80 million to $85 million hit that you are thinking that you may take in the next couple of quarters, I would have to believe that you kind of considered that with respect to your covenants, and my question is simply, do you still have plenty of room on your covenants to access the majority of your credit facility during that period of time?

Okay, Brett.

Listen, a couple of things.

We are not going to provide any guidance today, and I've already told you the reasons why.

Fortunately or unfortunately, that includes our covenants.

Listen, here is the bottom line.

As always, we are going to monitor our situation, the industry and market conditions, our own financial position and we are going to make the appropriate adjustments to our capital structure.

If necessary, we will work with our lenders as we have in recent years to modify our existing agreements in a fair and cooperative manner.

I'm simply not to comment on the amount of margin and compliance or anything else related to the covenants at this time.

Understood.

Cash outflow related to buyouts, asset relocations and so forth.

Moving forward, can you give me a sense of what that might look like related to your restructuring activities over the next few quarters?

Yes, yes When we started the year, Brett, we had anticipated approximately $100 million of cash requirement to fund these special payments in calendar year 2009.

Roughly half of that was to finish the job, so to speak, on the buyouts, relating to the special separation program and other related programs.

Almost half, but maybe $45 million additional was required -- anticipated to be required for the buydown program, and then another $5 million to $10 million for the the other ongoing asset redeployment that we had visibility to at that time.

Now, of course there are some new dynamics in play.

We may trigger an acceleration of a portion of the buydown cashouts that would otherwise -- or buydown payments that would otherwise be paid in 2010, I use the word cashout because that's the terminology in the agreement.

If our hourly UAW representative associates are on indefinite layoff for more thatn 30 days, they have a right to request an accelerated cashout under buydown obligation.

So some of that may be triggered -- some, in fact, has been triggered, but it's a relatively immaterial amount at this point in time.

But some of that may come from 2010 into 2009.

That's undetermined yet at this point in time, Brett.

So as I think about the cashout so far, that was the, what, $37 million that you provided here in the first quarter.

Is that -- am I correct in that?

That's a separate item.

In -- the buydown program is going to consist of payments between $140 million and $150 million bucks, and we paid roughly $52 million in August of 2008.

We paid a very nominal amount of cashouts in the first quarter.

We have approximately $45 million due to pay in August of 2009 and another $40 million or so, I think it's $42 million due to pay in the third quarter of 2010, notwithstanding the possibility for these cashouts.

That makes sense.

The change in Detroit axle plant, kind of the shutdown and then the rebound up to 25%, is that considering the cadence of production that you are currently thinking you might see in the back half of the year?

Does that 25% accommodate that?

The answer is yes, Brett, this is David Dauch.

Okay, thank you David.

And then just, very simply, maybe you talked about this before, I was kind of late to call here.

Share count, 52 million to 55 million?

Brett, there is a new accounting standard that changes the calculation of earnings per share.

Long story short, in -- under the previous standard, our restricted shares, because they were anti-dilutive, the restricted shares were excluded from the EPS denominator in periods in which we had a lost.

Now, with this new accounting standard, the restricted shares are included no matter what.

Great, thank you very much, gentlemen.

Have a great day.

Next question comes from the line of Chris Ceraso with Credit Suisse.

Your line is open.

Thanks, good morning.

Good morning, Chris.

A couple of things, Mike, I just wanted to revisit a comment that you made to make sure that I got the numbers right here.

I think you said in the first quarter, sales were down $180 million and the contribution on that was about $60 million The profit was actually up year to year, though.

So does that mean that your total cost savings and other efforts that you've taken contributed a favorable $90 million year to year?

Chris, couple of things.

The productivity initiatives were pretty well in line with $60 million loss we saw in the volume.

The other thing, and I did not mention this, so your question is a good one.

The other thing, remember, is in first quarter of 2008, we had a strike.

And there were abnormal costs incurred in that first quarter of 2008 that exceeded normal contribution margin loss on sales.

So I excluded that portion of the dynamic from the measurement of our productivity gains in calendar year 2009.

Maybe -- what I'm trying to get at is what was the total, in your estimation, of the cost saves of all of the activities that you've done?

How much of that hit in the first quarter of 2009?

.

It's going to be in the $80 million to $90 million range, somewhere in that -- maybe closer to $80 million, and that reflects the $60 million of productivity initiatives that we were able to get to the bottom line, so to speak, But also, a portion of structural cost reduction that's simply necessary to adjust to a lower operating level.

Okay, and then based on actions that you have taken here in the first quarter with additional headcount reductions and so forth, what's the step up on that run rate of cost saves as we get in to Q2?

These numbers are getting pretty big, Chris.

We have probably another $100 million of structural cost reduction on the table now that we are working to implement.

This includes the impact of additional capacity rationization.

Of course, a lot of this, or some of it, approximately half will be non-cash future adjustments and things like depreciation and amortization, but the other portion, a very significant portion, will be cash savings on workforce costs and other fixed costs.

So that is really the increment that we are chasing after here to adjust our business to the 6,000 per day break even level.

Okay.

What would you say, Mike, is the minimum level of cash that you need on hands to run the business?

Chris, that's going to be somewhere in the $125 million to $175 million range depending on time of year and as -- time of year and the volume of activity.

Okay.

Then revisiting a comment you made also on the tax thing, I know you had a detailed explanation there, but I don't think I caught what the aggregate amount was.

So it sounded like you got to shrink the valuation allowance a little bit which showed up a favorable item on the tax line.

What was the amount of that?

Well, the net reduction in the OPEV and pension liabilities that really drove the change of OCI was about $26 million, and so -- I guess about 24 actually went through OCI, so it's roughly 6, 6.5 which is not quite 35% of it, but it's roughly that relationship.

Okay.

That's helpful.

And then just the last one, you mentioned a number of programs that are launching new business in the second half of '09.

What is the rough number in terms of the annualized amount of revenues that you'll be launching in the second half of '09 on those programs?

Chris, it's the $200 million to $250 million range, and that's current estimate.

We had previously anticipated that to be higher, but given the current market conditions, we have marked that expectation down.

And on these current programs, that expectation will probably get deferred, but as Dick mentioned, we marked down our overall expectation for the backlog for the same reason.

That's great.

Thank you very much.

Have a great day.

You too.

Next question is from John Murphy with Merrill Lynch.

Your line is open, sir.

Good morning.

Good morning, John.

I had two questions, Mike, specifically on cash flow cadence through the course of the year, as we look at this severe pull back in production over the next two quarters, just thinking about working capital, it should be a bit of an inflow probably here.

But when we ramp back up, hopefully when brighter days come towards the end of this year, how do you think about cash flow or cash use there?

And is that when you could start bumping up against this minimum cash as we ramp back up in production, hopefully at the end of the year?

John, you got it right.

I think based on the learning experience we all had a year ago, with what happened in a major contraction in volume, it will be a favorable working capital movement for most suppliers during this time period of shutdown.

Then just as you pointed out, later in the year beginning in the July, August, September time frame, the supply base will be required to reinvest in their working capital to support the higher level of operating activity.

Do you feel comfortable with the tier two guys, the suppliers, that they are in sufficient liquidity position to withstand that whip song in working capital?

John, this is David Dauch.

Obviously, we are assessing our supply base on a daily basis.

We've had some issues with some suppliers, but we worked with them.

At the same time, we continue to look at rationalizing,g consolidating and localizing the supply base globally to line up with our manufacturing footprint.

But we are continuing to assess the supply base to see if the summer shutdown -- these announced summer shutdowns will have any further impact on our suppliers.

And then lastly, Dick, it's a much bigger question in looking through the next year or two or even maybe three.

Where do you see the company structurally?

Obviously, you've got two big customers, that are really in a lot of trouble, are probably going to be by hook or crook, a lot smaller.

Where do you see the mix of business and the profitability really going in the long run as we work through this really tough patch right now?

I think one has to look ahead in a short-term, maybe five years, and you see a significant diversity of our customer base, a significant change in our product offering.

You see a significant geographic change of our revenue streams, and we obviously have a solid base with GM, but with the adjustments that's going through with their structural change, we still have the solid base with Chrysler, as they become a Fiat/Chrysler alliance, we will have to work our way through that.

We have the evolving Volkswagen situation, we have the evolving Nissan situation, we have the stabilizing PACCAR situation and we have others that are evolving from John Deere, Harley Davidson, Mac truck, et cetera.

So it's a quite a diversity of customer change in the next five year period for us, and then we see in the next four or five years ourselves getting our top line back up where it was at peak back in 2003 or so.

When you think of that diversification of business away from autos specifically, is the profitability -- I'm not asking for specific numbers, but generally you view is more profitable than what you're seeing -- you've seen in the auto business historically, there's more profit opportunity outside of the direct light vehicle business and more in commercial vehicle and maybe in really the motorcycle business too?

Well, I think I would put it differently that our financial metrics that are required here will be accomplished with all these programs that we have decided to pursue and vigorously launch, and as a reminder, next month is when we launch the Mac truck program, that's June, and it's right on schedule, and our guys are over there today making sure it's all locked and loaded and ready to go.

So we are very excited to be moving into certain heavier commercial vehicle as well as certain agricultural (inaudible) But that's a small potato compared to our big picture, but still, it's all comprehensively part of our recovery program and our globalization program.

So we are real pleased with it, and it would certainly meet our financial metrics.

Great, thank you very much.

Thanks John, we got time for one last question.

Our final question comes from the line of Ryan Brinkman with JPMorgan.

Your line is open.

Hi, good morning.

Good morning, Ryan.

John just asked my question related to cash flow, so I guess I would ask, I suppose this is a longer term question, but do you see changes to GM or Chrysler product portfolio resulting from the government's new role if the companies?

And have you given any thought as to how this might affect American Axle?

For example, yesterday we saw in the Fiat agreement with the US Treasury that they could only increase their equity stake in Chrysler after meeting certain hurdles related to, specifically, small car investment in the US, et cetera.

Certainly, they are saying, they being the government, they don't want to run the company, but they are.

They don't want to influence the product offerings, but they are.

Let's not believe all this rhetoric that's going out there.

The long range product plans, as I said earlier, are changing dramatically for each and every OEM who participates in this very, very important North American market.

GM had staggering changes that are long range product plan.

There will be more staggering changes coming quickly once we better understand the alliance between Chrysler and Fiat.

There is certainly remarkable changes being done by the Ford Motor Company as they homologate three of the past cars of their Ford subsidiary in Europe to the North American requirements here over the next two or three year period.

Those are just three simple examples.

As you get into the brand new plant that is going to be launching in 2011 for Volkswagen here in Chattanooga Tennessee, obviously, they are going to changing their product offerings here.

And of course the Euros have a much more high complexity of diesel application.

So whether it's VW, whether it's GM, Chrysler, Fiat or whatever, they are going to have to find a way to meet the regulatory requirements which are mandated on fuel efficiency, as well as emission compliance, and it's going to walk right into our product portfolio because of having our all new, madernity is the right word, all wheel drive systems and robustness and mass reduction.

So American Axle is absolutely locked and loaded and ready with the right product offering to these different customers whether they past car, focus or whether they be focused yet on a truck mix, or whether they be going into the heavier commercial vehicle operations or all the way into the specialty transportation such as Harley Davidson or John Deere applications that we just discussed.

Thank you very much.

You're welcome.

Thank you Ryan, and we thank all of you who have participated on this call and appreciate your interest in American Axle & Manufacturing, We look forward to talking with you in the future.

This concludes today's conference call, you may now all disconnect