使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Good morning my name is Stephanie and I will be your Conference Operator today.
At this time, I would like to welcome everyone to the third quarter 2010 earnings conference call.
All lines have been placed on mute to avoid any background noise.
After the speakers' remarks, there will be a question-and-answer session.
(Operator Instructions) Thank you.
Chris Son, Director of Investor Relations of Corporate Communications, you may begin your conference.
- Director IR, Corporate Communications
All right thank you, Stephanie and good morning, everyone.
Thank you for joining us today and for your interest in American Axle & Manufacturing.
Early this morning we released our third quarter of 2010 earnings announcement.
If you've not had an opportunity to review this announcement, you can access it on the aam.com website or through the PR Newswire services.
To listen to a replay of this call you can dial 1-800-642-1687 reservation number 16648077.
This replay will be available beginning at 5.00 PM today through 5.00 PM Eastern Time November 5.
Before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements 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 our filings with the SEC.
Also during this call we may refer to certain nonGAAP financial measures.
Information regarding these nonGAAP measures as well as our reconciliation of these nonGAAP measures to GAAP financial information is available on the aam.com website.
Over the next several months we will participate in the following conferences.
The Barclays Global Automotive Conference in New York on November 16, the Banc of America Merrill Lynch Credit Conference in New York on November 17 and the 2011 Deutsche Bank Global Auto Industry Conference in Detroit during the North American International Auto Show in January of 2011.
In addition, we are also happy to host investors at any of our facilities.
Please fill free to contact me to schedule a visit.
With that, let me turn things over to AAM's President and COO, David Dauch.
- President, COO
Thank you, Chris and good morning, everyone.
Thank you for joining us today to discuss AAM's financial results for the third quarter of 2010.
Joining me on the call today are Mark Barrett, AAM's Vice President of Engineering and Product Development, John Bellanti, AAM's Executive Vice President of Worldwide Operations, and Mike Simonte, AAM's Executive Vice President of Finance and our Chief Financial Officer.
Today I will start by summarizing the highlights of AAM's third quarter financial results.
I will also update you on the excellent progress we are making a 2010 towards achieving AAM's long-term strategic objectives of properly growing and diversifying the business.
After my comments Michael will review our third quarter results in more detail.
So let's get started.
Today we are pleased to report that AAM achieved strong sales growth, higher earnings and positive free cash flow in the third quarter of 2010.
AAM sales for the third quarter were $618.2 million, this was AAM's highest quarterly sales total in 2010 and over 50% higher when compared to AAM's third quarter 2009 sales.
For the first three months--- or for the first three quarters of 2010, AAM's sales were $1.7 billion.
This amount already exceeds AAM's total sales of $1.5 billion for the full year of 2009.
AAM's net income in the third quarter of 2010 was $38.8 million.
This translates to a diluted earnings per share of $0.52 versus AAM's net earnings of $19.6 million or $0.35 per share in the third quarter of 2009.
For the first three quarters of 2010, AAM has posted net income of $80.5 million, or $1.08 per share.
Gross profit in the third quarter of 2010 was approximately $114 million, or 18.4% of sales.
On a year-to-date basis, AAM has generated gross profit of $300.1 million, or 17.7% of sales.
EBITDA in the third quarter 2010 was $95.4 million, or 15.4% of sales, higher than our target of 14% to 15% for 2010.
On a year-to-date basis, AAM has generated $251.2 million of EBITDA, or 14.8% of sales.
AAM's gross margin and EBITDA margin are both trending to Company records in 2010.
In the third quarter of 2010, AAM generated positive free cash flow of approximately $4 million.
To achieve this positive result, AAM had to overcome two significant cash payment obligations that impacted this quarter.
First we made the third and final annual buy down payment to UAW representative associates at our Detroit Three Rivers and Cheektowaga manufacturing facilities.
This was approximately $18 million in the quarter.
And second, we made approximately $41.6 million of interest payments due to-- that were due in the quarter which represent approximately two thirds of the total interest burden for the entire year.
AAM has now generated $133 million a positive free cash flow on a year-to-date basis in 2010 and nearly $150 million for the past four consecutive quarters.
This has helped us to establish a strong liquidity position, currently in excess of $600 million, and earn multiple credit rating upgrades in 2010.
Mike will have more to say about our efforts to strengthen the balance sheet in a few minutes.
AAM's improve the financial performance in 2010 demonstrates our success in managing the business to achieve our three most critical long-term strategic objectives.
First, achieving impossible global growth.
Second, regaining our balance sheet strength.
And third, accelerating the diversification of our business.
Let me now cover these in further detail.
First, AAM's comprehensive restructuring plan is working and working well.
AAM sales will increase by 45% to 50% in 2010 as compared to 2009.
Capacity utilization has significantly improved.
And AAM is on track to achieve record profit margin performance in 2010.
All of this is occurring at the US SAAR of approximately 11.5 million vehicle units.
AAM's improved financial performance is possible in 2010 because we established sustainable reductions in our fixed cost structure and operating breakeven levels in both 2008 and 2009.
Today AAM benefits from a regionally cost competitive and operationally flexible global manufacturing, engineering and sourcing footprint.
This is a key reason why we have been successful of increasing our new business backlog in 2010.
A significant positive development for AAM in the third quarter of 2010 was the successful extension of a standalone UAW labor agreement covering our hourly associates at our Three Rivers manufacturing facility.
This new labor agreement at the Three Rivers facility now extends to September 2017.
This ensures market cost competitiveness for the next seven years and paves the way for additional investments in new jobs in Three Rivers, now our largest manufacturing facility in the United States.
The focus of our labor cost structure initiative now turns to our Cheektowaga, New York manufacturing facility and our Detroit manufacturing complex.
We have yet to achieve market cost competitiveness at these two locations.
Second, AAM plans to strengthen the balance sheet is working well also.
AAM has generated approximately $150 million of positive free cash flow in the past four quarters.
AAM's net debt to EBITDA leverage ratio has been reduced to less than two-and-a-half times in the third quarter of 2010.
That's two years ahead of the plan we established with our key stakeholders in 2009.
In addition, AAM's liquidity position currently stands in excess of $600 million.
As a result of our progress in achieving increased profits, higher cash flow and approved credit metrics, AAM earned credit rating upgrades from all three major rating agencies in the third quarter of 2010, two each from S&P and Moody's.
And our third point, AAM plan to diversify the business is also working well.
In this area we are focused on three critical elements of diversification.
First, increase in AAM's exposure in the global growth markets.
Second, expanding the innovating AAM product portfolio.
And third, growing the AAM's customer base.
In support of these initiatives, AAM continues to take actions to align our goal to manufacturing footprint and cost structure with the current projected market requirements.
This includes the completion of our first wholly-owned manufacturing facility in the country of Thailand.
We expect to take occupancy of our newest facility located in Rayong,Thailand in November of 2010, next month.
This first launch in this facility will support the GM's next-generation global pickup program in the 2011/2012 time period.
AAM has also currently expanded operation in several other global growth markets including Brazil China and India.
In the third quarter of 2010, we were successful-- successfully established an important joint venture with Saab that will enhance AAM's position as a global leader in driveline technology innovation.
This new company, e-AAM Driveline Systems AB, or e-AAM, will engineer, develop and commercialize electric all-wheel-drive and hybrid driveline systems for passenger cars and crossover vehicles.
E-AAM is a powerful new partnership based in Trollhattan, Sweden which brings together the global engineering and manufacturing resources of AAM with a team of highly talented and accomplished driveline engineers from Saab.
E-AAM systems will be designed to improve fuel efficiency, reduce emissions and provide all-wheel-drive capability utilizing torque vectoring for vehicle stability.
E-AAM systems will be featured in the next generation of Saab vehicles beginning in 2012.
We expect e-AAM systems to be attractive to many other global OEMs and anticipate multiple additional new business opportunities to result from this important new initiative and joint venture.
In addition to the formation of e-AAM, we also continue to increase investment in R&D to expand and innovate AAM's product portfolio.
On a year-to-date basis, AAM's R&D spending was $58.9 million through the third quarter of 2010.
This represents an increase of 16% as compared to the same period of 20009.
The main thrust of this investment is to develop new, advanced technology for product process and systems to meet changing needs of our global automotive marketplace.
This includes enhancing the fuel efficiency of our current products through mass reduction, high-efficiency axle designs, embedded electronics, advanced metallurgy, improved packaging and other related initiatives.
It also includes investing in processing systems technology to support our continued commitment to build quality products with the highest level of warranty, quality and delivery performance available in the industry.
And it also includes expanded AAM's product portfolio to support the evolving design direction of our customers.
This area of activities is especially focused on fuel-efficient all-wheel-drive applications for passenger cars and crossover vehicles.
With these objectives in mind, we recently announced the introduction of AAM's new EcoTrac brand of fuel-efficient and environmentally friendly driveline products.
The EcoTrac brand includes an all-wheel-drive fuel economy optimization system, e- all-wheel-drive systems and a full range of high-efficiency axles.
These products and technologies are AAM's more powerful response to our customers needs for better fuel efficiency, lower CO2 emissions along with the superior ride and handling performance.
The introduction of AAM's EcoTrac all-wheel-drive systems is a terrific example of providing industry first technology for global passenger car and crossover vehicles.
AAM's EcoTrac all-wheel-drive system allows the vehicle to utilize it's primary drive system, the front wheels, when all-wheel-drive is not required.
Vehicles equipped with this system can automatically transition to all-wheel-drive seamlessly and transparently to the driver when the vehicle senses that all-wheel-drive may be necessary and required.
In the third quarter of 2010, AAM earned a major program award on a global passenger car and crossover vehicle platform to launch the AAM's EcoTrac disconnected all-wheel-drive system in the 2012/2013 time period, it was a huge accomplishment for American Axle.
We are currently showcasing this advanced technology on multiple demonstration vehicles for other global OEMs considering adding innovative products to each of their vehicles in the future.
While we have nothing further to announce today, we expect this new product technology to drive additional profitable growth and customer diversification for AAM.
In the first three quarters of 2010, AAM sales to customers other than GM increased by approximately 70% as compared to the first three quarters of 2009.
This reflects a flawless and anonymous launch of new product programs for many new customers including Volkswagen, Audi, Mack truck, Tata Motors, Mahindra Navistar and John Deere.
We are also supporting the launch of several new axle and gear set initiatives related to our AAM Hefei China joint venture with the JAC Group in 2010.
And in January 2011, the launch of the Nissan USA vans.
AAM is currently quoted on approximately $900 million of road tested new business opportunities most of which relates to customers other than GM.
As we are successful in converting our fair share of these quoting opportunities to purchase orders, we will further advance the growth of our nonGM business.
We are currently targeting nonGM sales to approach or exceed 40% of our total sales in 2012.
All of this supports our previous statement that 2010 is a breakout year for AAM, with respect to our customer diversification and our return to possibility.
Before I turn it over to Mike I have a few closing comments.
The recovery and market demand for full-size pickups and SUVs as well as the impact of our ongoing actions to control operating expenses and sustained reductions in AAM fixed cost structure, has allowed the AAM to outperform our business plan in 2010.
Said simply, our plan is working and we are ahead of schedule.
We expect this momentum to continue to the fourth quarter of this year and beyond.
For 2010, AAM is on track to achieve sales growth of approximately 45% to 50% with profit margins that rank among the best in our Company's history and the top of our automotive supplier peer group.
AAM is on track to increase sales to approximately $3 billion by 2013, double our sales from 2009.
We believe that AAM is well positioned as a leading global automotive Tier 1 supplier to successfully achieve our long-term strategic objectives of profitably growing and diversifying our business.
In the process, we plan to build a Company that is sustainable for the long term and create significant value for our many stockholders and shareholders.
Thank you, everyone for your time and attention today.
Let me turn the call over to AAM CFO, Mike Simonte.
Mike?
- EVP- Finance, CFO
Thank you, David and good morning, everybody.
David already covered highlights of our earnings release for the third quarter of 2010, so I'm going to get right into the details starting with sales.
AAM's net sales in the third quarter of 2010 were $618.2 million, approximately 50% higher than the third quarter of 2009.
This was also the highest quarterly sales total for our Company in three years.
On a sequential basis, our sales in the third quarter were approximately 10.5% higher versus the second quarter of 2010, and as David said this is the fifth consecutive quarter of strong sales growth for AAM.
We expect our strong sales momentum to continue through the fourth quarter of 2010.
As a result, today we are raising our full year 2010 sales guidance to a range of $2.2 billion to $2.3 billion, and just to clarify we're more focused on the top half of that range.
This translates to full year sales growth of 45% to 50% versus 2009.
As we say here those are boxcar numbers.
Through the first nine months of this year, volume and mix trends continue to be favorable for our Company.
This is due in large part to a recovery in the market demand for pickups and SUVs.
On a year-over-year basis, North American light vehicle builds were up approximately 27% in the third quarter of 2010.
In total, our major North American light truck program volumes were up approximately 40% in the third quarter of 2010 as compared to the third quarter of 2009, and that's we're-- our growth is out stripping the rest of the industry.
These production volume trends of course are a driver in our sales growth in 2010.
In the third quarter of 2010 mix was also a big positive driver.
Our sales content for vehicle in the third quarter of 2010 was $1,458.
That is up approximately $60 on a year-over-year basis, or 4%, and up $50 for vehicles on a sequential basis versus the second quarter of 2010.
As we discussed earlier this year on both of our earlier earnings teleconferences, this increase was expected due to the launch of the GMC 900 heavy-duty series pickups and the new sales content that we are delivering to GM on this critical program.
As David mentioned, AAM is also making excellent progress on improving diversification in terms of customer mix.
AAM's nonGM sales in the third quarter of 2010 nearly doubled on a year-over-year basis to approximately $147 million.
This strong growth in nonGM sales in 2010 fueled by many new product launches with many new customers is just the start of a steep growth curve that will push AAM's nonGM sales to approximately 40% by 2012.
In fact over the next three years as we drive our sales to the $3 billion target we have set for ourselves in 2013, we expect nonGM sales to grow twice as fast as our total sales growth at a CAGR, or compound annual growth rate, of approximately 20%.
Let me just say this.
Our confidence in these endeavors is increasing.
Of the many new business wins AAM has been awarded this year, 2010, which total literally in the hundreds of millions of dollars, substantially all are nonGM business.
And we're talking about a very attractive, high-quality list of new customers including Mercedes, Saab, Chrysler Fiat, Daimler Truck, Scania and Volvo powertrain.
These are very positive developments for our Company.
Let's now turn our attention to profitability.
In the third quarter of 2010, AAM's key profit metrics continue to improve both on a year-over-year basis and sequentially.
Gross profit was $114 million, or 18.4% of sales.
Operating income was approximately $61 million, or 9.8% of sales.
EBITDA was $95.4 million, or 15.4% of sales, and net income was $38.8 million, or 6.3% of sales.
And we do expect to close strong in 2010 from a profitability perspective.
Just as we raised our sales guidance, we are also raising our full year 2010 earnings guidance today.
We now expect our EBITDA margin for the full year 2010 to be in the range of 14.5% to 15%.
Our new guidance translates to a range of $330 million to $345 million of EBITDA in this calendar year 2010.
I have to say I was amused earlier this morning by an analyst headline that indicated our fourth quarter guidance was soft.
First of all, we didn't provide any earnings guidance until right now.
Second, our guidance implies record profit margins for 2010 both gross profit and EBITDA in the second straight quarter for the fourth quarter 2010 in which our EBITDA margins will exceed 15%.
That is not soft, that is industry-leading.
Now just to put this in perspective, we compared our current guidance to the consensus estimates for AAM, our Company, at the beginning of the year.
Just after the 2009 year end earnings announcement for our Company in early February, the seven equity research analyst constituting the Street consensus for our Company, expected sales of $2.16 billion and EBITDA of $291 million for the calendar year 2010.
Our current guidance implies a 15% beat in terms of absolute dollars, a variable contribution margin of approximately 45% from those levels.
Again, we say that is not soft.
It's easy to say that we are other companies should earn higher margins, but it's hard to do it.
2010 is shaping up to be a spectacular year for our Company and the many stakeholders who care and depend about-- or care about and depend on AAM.
Let's move on to our sequential profit margin performance.
On an EBITDA basis our sequential contribution margin performance in the third quarter of 2010 was approximately 21% versus the second quarter of 2010.
On its face, this is a little bit lower than our target of 25% however, as they say, there is more to the story.
There were three items all positive developments for AAM that adversely impacted our third quarter of 2010 financial results, now these are not special charges, these are not restructuring charges.
But if you want to look at or comment on our sequential margin performance you need to understand these issues.
Number one, David already covered the extension of the UAW labor agreement at Three Rivers.
This was a very positive development for AAM and also the UAW represented associates who work at that facility.
In connection with this new agreement, which ensures the market cost competitiveness of our largest US facility for the next seven years and paves the way for new investment and new jobs in our home state of Michigan, we paid a $2 million signing bonus in September.
This was expensed in the third quarter of 2010.
Also in the third quarter of 2010, this is our second issue, we settled a protracted dispute with one of our largest field suppliers.
This dispute, which elevated into a court proceeding, was centered on pricing and payment terms among other things.
As part of the settlement, which was amicable and balanced and also protects our Company's continuity of supply with a high-quality supplier of SBQ, Special Bar Quality steel at market pricing, we agreed to what amounts to a retroactive price adjustment.
As a result, we recorded a charge of $1.7 million in the third quarter of 2010.
However, we will also benefit from a return to standard payment terms with this supplier.
All in, this settlement will benefit our cash flow by approximately $7 million in 2010.
The third item that affected our sequential profit margin performance in 2010 third quarter, is a noncash net asset write-off of approximately $1.3 million.
This is actually comprised of two issues.
One resulted in the receipt of $3.4 million of cash proceeds from the sale of Crankshaft assembly line equipment in our Spurrier, England manufacturing facility, which unfortunately will be closed in 2011.
The other issue involved our Detroit manufacturing complex.
In the third quarter of 2010, we decided to list certain parcels of land which we refer to as our south campus for sale.
From an accounting perspective and according to GAAP, we classified these assets as held-for-sale and wrote down the net book value of these assets to their net realizable value.
So the tally on these three issues in total was approximately $5 million of adverse P&L charges in the third quarter of 2010, but $9 million of favorable cash flow for our Company in 2010.
Adjusting our sequential profit margin performance for these three items makes sense.
They were the right things to do and they all provide future benefit to our Company.
In fact, the signing bonus was the best $2 million we spent all year.
Before we move onto cash flow in the balance sheet let me now cover SG&A and taxes.
In the third quarter of 2010, SG&A was approximately $53.2 million, or 8.6% of sales, and remember that includes R&D.
This compares to total SG&A spending of approximately $44 million, or 10.7% of sales in the third quarter of 2009.
When you compare to 2009 I think it's important to note that our third quarter of 2009 SG&A included special charges, and so excluding those charges we had SG&A of about $38 million.
On a year-over-year basis, there are two main drivers of our increased SG&A spend.
Number one is R&D.
Our R&D spending in the third quarter of 2010 was approximately $21 million, an increase of $6 million versus the third quarter of 2009.
The second issue is salaries and wages.
As we have previously discussed, we restored the pay cuts taken by all of our associates in 2009 effective January 1 of this year, 2010.
We have also reinstated our bonus and profit sharing program.
Apart from these two items, there were only modest spending increases on anything else in SG&A.
So is SG&A higher?
Yes.
Is the increase explainable?
Yes.
And more importantly is the increase justified?
Yes.
Look the competition is that we simply return our team to market nothing more.
As to R&D, we are being more aggressive in our efforts to leap-frog our competition and accelerate the diversification of our business, and it's paying off.
In the last 30 days, we made two major technology announcements.
David covered both of these.
I'm referring to number one, the establishment of our e-AAM driveline systems joint venture with Saab.
And number tow, the introduction of the EcoTrac line up of fuel-efficient and environment friendly driveline products, which of course includes our industry first EcoTrac all-wheel-drive system which we'll launch in 2012 at a major global program.
We are also pushing forward in our development of greater product capabilities for the commercial vehicle market and you know that our focus is especially of the fast-growing emerging markets.
This increased investment in R&D supports our objective of expanding and diversifying the business.
The growth in our new business backlog and customer list is all we need to know that this is the right thing to do.
Now on to tax.
AAM's effective tax rate in third quarter of 2010 was approximately 2%.
In this quarter, the third quarter of 2010, we recognized the benefit of a $1.4 million tax refund.
If fact we collected the cash this week.
This refund was in connection with the filing of our Form 1120 annual return in the US for the 2009 tax year in September.
This refund relates to refundable tax credits and brings our total US tax refund in 2010, relating to the tax laws passed by Congress in November of 2009, to approximately $50 million.
Adjusting our third quarter 2010 tax provision for this item would result in an effective tax rate of approximately 6%.
For the full year 2010 we are running a little higher at approximately 7%, a little bit closer to 8% adjusted for the tax refund I just described.
As we have discussed many times before, AAM is benefiting from a lower effective tax rate due to the balance of business in our foreign locations.
We expect this to like to continue for the next several years and still use a 10% to 15% provision assumption in all of our forward planning.
It'll be a little bit lower for the next year or two and pushing higher as we become more profitable around the world.
All right, let's move onto cash flow.
We define free cash flow to be net cash provided by or used in operating activities less capital expenditures, or CapEx, net of proceeds received from the sale of equipment.
GAAP cash provided by operating activities in the third quarter of 2010 was approximately $29 million.
Capital spending net of proceeds from the sale of equipment was approximately $25 million.
Reflecting these two items, AAM generated positive free cash flow of approximately $4 million in the third quarter of 2010.
Now you may see $4 million of positive free cash flow and not be impressed as compared to our first two quarters of 2010.
To us however, this may have been our best quarter all year from a cash flow perspective.
In addition to the normal seasonal trends that we encounter in our industry in the third quarter, we had to overcome approximately $60 million of what we refer to as lumpy cash payments.
This includes first approximately $42 million of interest payments.
And that represents about two thirds of our total cash interest burden for this year.
And second, nearly $20 million of payments related to the third and final annual buy down payment and the Three Rivers signing bonus, both of these, of course, relating to our UAW represented workforce.
That's a total of approximately $60 million of cash flow headwind in the quarter.
The fact that we generated any positive free cash flow is a very good result for our Company.
On a year-to-date basis, AAM has generated over $130 million of free cash flow.
This strong free cash flow performance has increased our total liquidity, our total available liquidity, to more than $600 million.
In addition, AAM's trailing 12 months, or TTM, net debt to EBITDA leverage ratio has been reduced to 2.5 at September 30 of 2010.
That is great progress on one of our most critical objectives.
Before we move onto Q&A, let me just quickly summarize, I have five quick points.
Number one, the third quarter of 2010 was a strong, positive quarter were AAM, the fifth consecutive quarter of strong sales growth, profitability and positive free cash flow.
Number two, adjusted for the three positive developments affecting our third quarter of 2010 financial results, which includes the extension of the Three Rivers labor agreements through 2017, a very favorable development for our Company, our EBITDA margin would have been in excess of 16% and that would reflect a 30% sequential profit margin performance.
Number three.
Over the past four quarters, AAM has generated approximately $150 million of free cash flow.
This has put us two years ahead of plan in terms of our efforts to strengthen the balance sheet.
At quarter end we had more than $600 million of total available liquidity and we have reduced our EBITDA leverage ratio to 2.5 times.
This is major, positive progress for our Company.
Number four, we are raising AAM's sales and earnings guidance again for the full year 2010.
We now expect sales to be in the range of $2.2 billion to $2.3 billion.
EBITDA for the full year 2010 should be in the range of $330 million to $345 million, or 14.5% to 15% of sales.
That'll be a Company record.
Number five, AAM is making excellent progress on diversification in 2010.
In the third quarter of 2010 we were awarded more than $200 million of new business, including an industry first order for the EcoTrac all-wheel-drive systems and the first orders, and I mean more than one, from AAM's lineup of electric and hybrid driveline system, and I meant e-AAM on that last point.
We are excited to share this news with you and now we're ready for Q&A.
Thanks for being with us this morning.
Let me now turn over to Chris Son so that we can start.
- Director IR, Corporate Communications
Thank you, Mike and thank you, David.
We've reserved some time for some questions.
I would ask that you please try to limit your questions to no more than two.
So at this time I'll turn the call back over to Stephanie to begin the Q&A.
Operator
(Operator Instructions) Your first question comes from Himanshu Patel from JPMorgan.
Please go ahead.
- Analyst
Hi, good morning, guys.
Can you hear me?
- President, COO
Yes, hi, Himanshu.
- EVP- Finance, CFO
Yes,good morning, Himanshu.
- Analyst
You mentioned there were some additional labor cost work at Cheektowaga and Detroit, could you elaborate on this opportunity and really kind of what are you specifically trying to do at these facilities?
Is an effort to get some extensions and existing contract terms or are you looking to actually change some of the existing economics there?
- President, COO
Well Himanshu, this is David Dauch.
As you know after our 2008 labor negotiations, that we had a couple of plants that did not achieve market competitiveness from a labor contract standpoint, that being in the fully loaded labor cost as well as on the work rule flexibility and some had attendance and absenteeism issues.
Those plants specifically were our Cheektowaga facility and our Detroit facility.
So we are always in active discussions with our important stakeholder at the UAW.
They clearly understand what our desires are and our intentions are at those facilities and we're having discussions with them to try to improve their cost structure so we can have sustainable facilities at each of those facilities moving forward.
- Analyst
And did these-- can this stuff be done inside of the current contract period or would only be effective presumably with the next contract change?
- President, COO
Well we have a contract that runs through February 2012 but both parties can adjust that contract if we choose to do so.
And as I said we're in discussions with them with respect to those facilities and we're hopeful that we can get some improvement to sustain the market competitiveness for those facilities going forward.
- Analyst
Okay.
And then the-- we've just seen a lot of other suppliers fee benefits from reinstatement of previously deferred OEM programs or delayed programs.
Are you guys benefiting from that or seeing that sort of stuff in sort of in your quoting activity right now?
- President, COO
So from a new business standpoint, as Mike said and we're really having a breakout year in regards to the new business wins that we've been able to accomplish with a lot of diverse customers, the Daimler, the Volvo, Scania, Mercedes, Saab and Chrysler Fiat.
So as we said, 2009 was a difficult year for all of us.
There weren't many contracts that weren't sourced during that period of time and those contracts are now being allowed to-- or we're allowed to quote on those things here in 2010 and we're winning our fair share of those contracts going forward and we think we're well positioned to capitalize on future growth and new business also.
- Analyst
Okay.
Thank you.
- President, COO
Thank you, Himanshu.
- EVP- Finance, CFO
Thanks, Himanshu.
Operator
Your next question comes from John Murphy with Bank of America.
- Analyst
Good morning guys.
- President, COO
Hi, John, how are you?
- Analyst
First question just the new programs and sort of the R&D expense it's ranged for the P&L right now.
I mean you guys are doing a good job of managing those costs in your sort of ongoing expense so it's not really pressuring your margins at all.
But I was just wondering as we think forward and as those programs roll in will they be at lower margins and will they pressure your margin?
And then also what kind of capital commitments would we expect from these new programs going forward?
I mean would they change your CapEx curve as we step forward into those programs launching in the next couple years?
- EVP- Finance, CFO
Okay, John, good morning, it's Mike.
Listen, our CapEx guidance for the future in a range of roughly 4% to 6% contemplates a sales growth that we anticipate in the business.
So I would simply say that our growth and the wins that we're experiencing are contemplated in our CapEx guidance.
As relates to SG&A and the actual programs that we're launching, in many cases, John, the margin potential that we have for new business is just as attractive as it is on our existing business because we've been able to deploy underutilized capacity to support those programs.
Now, there are some lower margin activities in our new business backlog particularly as it relates to some of our programs in emerging markets.
The CapEx intensity on those programs is typically less than the sort of 50% level that we've experienced in what I would refer to as the mature markets our whole market here in the US for sure.
So we're making lower investment.
There are in some cases lower margin potential due to market pricing.
But we can do just fine on those business cases because of our investment is lower and so we anticipate good returns, maybe lower margins, but good returns on that business.
- Analyst
That's great.
And then just a second question on steel pricing.
And really it seems like the environment has gotten more benign as far as steel pricing and sort of the market expectations for where steel pricing will go.
I was just wondering what you were seeing, I mean it sounds like you worked out those contract, but I mean as you look forward over the next couple of quarters to the next couple of years I mean it seems like it's gotten more benign, what are you seeing and what's sort of your expectation for steel pricing going forward?
- President, COO
Well as you said, John we actually came to a good resolution with one of our key steel suppliers which is critical to protect continuity of supply for our business going forward.
We also have long-term agreements in place with some of our other critical steel suppliers to maintain a market competitive price structure that we need to have from a materials standpoint.
Yes, there's going to be pressure in regards to steel especially when you get into supply and demand and some of the capacity reduction that took place over the last couple of years the marketplace.
Some of our critical suppliers from SBQ steel standpoint lost all their (inaudible) at a couple of the plants during the 2008/2009 time period.
They've all actually brought back some of those plants and the capacity there.
So therefore we think there's going to be some moderate pressure there but at the same time we've got that market agreements that are in place that we can accommodate with our OEM as well as the appropriate agreements in place at our supply base.
- Analyst
Great.
Thank you very much.
- President, COO
Thank you.
Operator
Your next question comes from Brian Johnson with Barclays Capital.
Please go ahead.
- Analyst
Yes, a couple questions.
The first is if you take your remainder of 2010 guidance and go into 2011, are you prepared to kind of comment on where you think 2011 might go?
- EVP- Finance, CFO
Yes, Brian.
Good morning.
We're not ready to--
- Analyst
Good morning, (inaudible).
- EVP- Finance, CFO
We're not ready to talk about 2011 quite yet.
But we are certainly feeling good about the plans that we're developing for 2011.
We see the growth in some of our existing programs as was the launch of new business helping us in 2011.
So we would just simply say that the progress that we're making, the momentum we're building here 2010, we'd expect 2011 to be a good year for our Company but it's going to probably be until January that we say too much about that details.
- Analyst
Okay.
And then a couple questions around your core customer platform.
One, are you seeing anything out of the GM truck month this month?
And that-- and what are you seeing in terms of their production schedules on the GMT 900?
- President, COO
Well we're seeing solid and strong buy-ins and production schedules from GM going forward on the 900 program.
Clearly there's been a recovery in the full-sized truck and SUV market this year and American Axle is benefiting from some of that.
So we're comfortable with what we see from a schedule standpoint for the balance of this year and going into next year.
- Analyst
And then strategically, we all know there's new programs coming out 2012/2013 in the light truck bigger end of the light truck space.
We know they're going to involve [b weighting] at least at Ford made very clear downsized engines.
How do you view your, again GM competitiveness in a more fuel-efficient pickup truck SUV environment sort of 2013, 2014, 2015, A?
B, what role will the axle play and driveshaft in that and does that involve expensive CapEx?
And C, when real trucks need these kind of requirements in 2014 in the US for fuel economy, is that a market you're looking at as well?
- President, COO
Yes, I mean first of all GM has a strong market position in the marketplace today and I don't expect them to forgo that and give that up, so they're going to fight for that and try to earn new market share just like Ford and Chrysler and the other competitors that are out there.
With respect to their next generation program, clearly they're going to make the adjustments to have best-in-class just like they've always done when they've upgraded their models, and AAM will be an integral part of design to solutions for that from a driveline standpoint.
And as it relates to the fuel efficiency and all that, I mean clearly they'll do what they need to do from an engine, transmission, powertrain, driveline standpoint to accommodate the requirements from the government standpoint, but also to address some of the competitive offerings from Ford and some of the other OEMs that are out there.
And again we'll be instrumental in regards to developing products through our EcoTrac brand and our other engineering initiatives and just support wherever that direction may go to support the Cap A requirements that are out there also.
And Brian, I think one additional comment.
- Analyst
Go ahead.
- EVP- Finance, CFO
In the question you asked what implication might this have on our CapEx going forward.
We do not expect the next generation GMC 900 programs to have a material impact on our CapEx.
I answer your question early on this call, but we do see our forward capital spending in the range of 4% to 6%, that's inclusive not just of our new business wins but also managing the next-generation turnover of our existing book of business.
We will, as David said, certainly make changes.
We will spend money on the GMC 900 program but the majority of the spend that we've had, 400 to 800, 800 to 900 has been capacity driven for certain types of axles and requirements there.
We simply do not see major spending along the lines of what we've had the last two program changeovers that would have this time around.
- Analyst
And just going back to the short term, CSM has GMC900 down sequentially based probably on the sort of anemic selling rate in September in inventories.
What are you seeing in terms of the production schedules around sequential production of the core platform?
- EVP- Finance, CFO
Brian, first of all I can't explain what CSM is doing with the production forecast on the GMC900.
They are way off of (inaudible) the supply chain is being told to expect from the customer and what all of the capacity planning and sell through rates suggest.
What we're seeing sequentially, the third quarter of 2010 effectively had about 64 production days for the GMC900 program because we go through the summer shutdown.
In the fourth quarter, we would expect that to moderate to around 57 days, so that's more or less a 10% reduction in aggregate production.
But what I would tell you is that the daily production rates are consistent with the third quarter, those of course, are elevated from what we saw on a daily basis first and second quarter and we see very similar production requirements being scheduled now into the first quarter of next year and plan for our customer for the balance of 2010 and 2011.
- Analyst
All right so just typical December seasonality which in the recovery mode people may have forgotten about but there is Christmas in there is Thanksgiving.
- EVP- Finance, CFO
Yes, right it's really bold.
It's really both.
And October is a solid month about 22 production days.
November and December take down to 17 or 18 each I forget exactly, but in total we're around 57 days for the three months.
- Analyst
Okay.
Thank you.
- EVP- Finance, CFO
Thanks, Brian.
Operator
Your next question comes from Rod Lache with Deutsche Bank.
Please go ahead.
- Analyst
Good morning, guys.
- President, COO
Good morning, Rod.
- EVP- Finance, CFO
Good morning, Rod.
- Analyst
Just a couple of follow ups.
Could you just be-- can you give us an outlook for SG&A levels prospectively?
And you also commented on commodity pressure.
It sounded like you think it's going to be modest.
can you just put some bookends around that?
- EVP- Finance, CFO
Okay, Rod, the SG&A spending run rate that we're going to experience for the next few quarters is probably through 2011.
It's going to be similar to where we are in the third quarter of 2010.
We ran it about $53 million this quarter.
We might be a little bit higher as we work through 2011 mostly because we're going to be picking up and our consolidated financial results 100% of the e-AAM driveline systems activity.
Of course we'll recognize a minority interest offset working down to net income, but we will pick up 100% of that on a quarterly basis and that should add a couple million dollars of expense as we work through 2011, and beginning in the fourth quarter of 2010.
So it's a little bit higher than where we've been, but most of the increase really is for R&D and it should be pretty similar maybe a little bit higher than where we are in the third quarter.
- Analyst
Okay.
And on the commodities?
- EVP- Finance, CFO
The commodity pricing, we've experienced fairly moderate inflation as David indicated today and we've talked about throughout the year.
We really don't see anything more but moderate inflationary trends, very similar to what we saw this year.
Our task, Rod, is to overcome that with productivity in terms of our own operations and, of course, in our global purchasing activities.
So we would not expect any major headwind, or tailwind for that matter, heading into 2011.
- Analyst
Okay.
Thank you.
And can you give us an estimate of your prospective restructuring cash spend, whatever you have left?
And do you have an estimate of what you're gap to competitiveness is in Detroit and Cheektowaga, you've mentioned that it's not competitive, but what does that mean exactly?
- EVP- Finance, CFO
Yes Rod, a couple things.
We have continuing into 2011 probably somewhere in the range of $10 million of restructuring cash payments to make.
These relate primarily to the final, not so much the buy down anymore, but remaining grow-in buyout payments that were scheduled over a period of four to five years in various programs that we initiated 2006 through 2009.
- President, COO
Rod, in respect to the union discussions I mean those are between us, and I really don't want to get into the competitiveness issue there.
But clearly the UAW and AAM have been communicating what we think that gap is and we want to work between the two parties to bring that to resolution and at the appropriate time, we'll communicate that accordingly.
- Analyst
Okay.
Thank you.
- President, COO
Thank you.
Operator
Your next question comes from Chris Ceraso with Credit Suisse.
Please go ahead.
- Analyst
Good morning.
- President, COO
Hi, Chris.
- Analyst
As I think about on a go forward basis how much more volume you might be able to accommodate, can you help me in terms of if we group your plants into three categories, US that's not cost competitive, US that is cost competitive and Mexico, what is your current rate of utilization in each one of those categories?
- Director IR, Corporate Communications
Yes, I would say, this is Chris here.
In our what we would call our established operations, our productive capacity right now it is greater than 85% approaching 90% in those facilities.
In some of our emerging operations globally there we're operating at much lower levels than that, but as we redeploy still idle existing capacity and based on our book of current business year, those facilities over the next two to three years will be approaching the same level.
We can continue to add incremental capacity through the redeployment of assets that exists in our facilities.
- Analyst
Okay.
But if I'm thinking specifically just about North America and looking at say Detroit and Cheektowaga, what's their capability of producing axles on an annualized basis versus how many are producing there?
And then by comparison Three Rivers and then Mexico?
- President, COO
Yes, Chris, this is David Dauch.
I mean we're not going to get into all the details of our capacity there, but Three Rivers and Mexico clearly are benefiting on the higher end of our capacity utilization.
Detroit's clearly is on the lower end.
As we said, we're not putting in any new work on any new investments into the Detroit site until we get a more competitive type agreement.
So there's some idle capacity that's sitting in Detroit, which we've communicated to you earlier.
Cheektowaga is running at a higher level at this point in time, there were cost issues that we just did the working through with respect to Cheektowaga.
- Analyst
Okay.
And then maybe you can help me just a little bit on the technicals of EcoTrac because the way you described it, it sounds like stuff that's all ready in the market where you've got an all-wheel drive system that can run just on the front two unless you need it then it shifts torque to the back.
So what-- maybe a little more specifics about what's different on your program in particular?
- President, COO
Let me first kind of frame it out, I'll ask Mark Barrett, our Head of Engineering , to speak to it.
EcoTrac is the brand name for our fuel-efficient type products.
On sort of our existing products today we were making improvements in mass reduction and efficiency.
Two, in regards to the crossover vehicle business specifically everyone is familiar with the conventional all-wheel-drive systems which we're supplying and other competitors are supplying today.
We will now be supplying this (inaudible) new business awards industry-leading disconnected all-wheel-drive systems.
And then with the e-AAM, that takes it to the next evolution in regards to electronic all-wheel-drive systems, our electric all-wheel-drive system.
So, Mark, I'll turn it over to you any questions-- or comments you may want to
- VP- Engineering g & Product Development
Yes, Chris.
Just a couple on the disconnecting, the EcoTrac disconnecting all-wheel-drive, that is not used in the market today.
We will be the first to launch that in the 2012/2013 timeframe.
That is as you described a--allow the vehicle to run front-wheel-drive and has the all-wheel drive system disconnected until it's needed and electronically controls and then you have all-wheel-drive functionality.
So that is a first for us.
And then the E all-wheel-drive there are some low volume electric driven rear axles today.
But this is a much more sophisticated system, have a lot more capability that influences not only fuel economy but compliments some of the other vehicle systems, traction and vehicle stability.
So it's a much more advanced system that is not in the market and we will be the first to launch that product.
- Analyst
Okay.
Thanks for clarifying.
- VP- Engineering g & Product Development
Thank you.
- President, COO
Thanks, Chris.
Operator
Your next question comes from Joe Amaturo from Buckingham Research.
Please go ahead.
- Analyst
Good morning guys.
- President, COO
Good morning, Joe.
- Analyst
Quick question.
I was wondering if you could provide a little more detail with respect to the nonGM revenue growth sequentially?
Because according to CSM there was a pretty significant decline in Dodge Ram heavy duty, so I was just wondering if you could give us a couple of anecdotal data points there?
- President, COO
Yes, Joe first-- this is Dave.
Let me take a shot at it first.
I mean-- and clearly we've launched business with Volkswagen, we've got other business with Mack, we've got other business with Audi, we've got business with Mahindra Navistar, we're starting to see-- and other customers-- we're starting to see the benefit of higher buying with them and increased sales with them.
As we go forward in our backlog of new business with other nonGM related business that's in that backlog that we'll realize the benefit of that moving forward as well.
And as we communicated in our presentation here today, we expect to get the nonGM sales up over or around the 40% level by the 2012 period of time.
- Analyst
Okay.
And then Mike, I know you don't have 2011 guidance or expectations out there yet, but could you just discuss what your expectation is for pension and OPEB expense in 2011 given where expected rates of return are likely to go and discount rates?
- EVP- Finance, CFO
Yes,, Joe, yes we can comment on that.
Our aggregate pension in post retirement and healthcare expense in calendar 2010 approximates $25 million.
As you pointed out the discount rate is expected to go lower.
At this point I do not see any other actuarial assumptions that should change a whole lot relative to our Company, but discount rate should have an impact, it will have an impact.
We'd expect that aggregate expense to go up $5 million maybe $6 million year-over-year.
It's not more pronounced than that because we have essentially cut off all current service costs in those programs, there's a very small remaining service cost element to each.
But basically what we're dealing with here is interest expense on the liability and with a lower discount rate that does go up somewhat.
- Analyst
And then could you just remind us about any mandatory contributions you may or may not have for 2010 and 2011?
- EVP- Finance, CFO
Yes,, we are---we funded all of our mandatory contributions for calander year 2010 in the first quarter of 2010.
We continue to evaluate whether it makes sense for us to do a little bit more in that area here yet in calendar 2010 mostly because we're sitting on a bunch of cash and it's not really earning much in the money markets right now.
So putting those assets to work was a good idea for us in the first quarter of 2010 and may still make sense for us yet this year or next year.
So this year we had about $25 million of required payments, we expect that to be higher next year somewhere in the range of $40 million to $45 million roughly.
And that's consistent with the guidance we provided to you and others earlier this year.
We expect over the next couple three years the mandatory required funding levels to go up a little bit because for the last several years we really haven't had too much to do there to allowable credits.
- Analyst
Okay.
All right, thank you, guys.
Take care.
- President, COO
All right thanks, Joe.
- EVP- Finance, CFO
Thanks, Joe.
We've got time for one last question.
Operator
Your last question comes from Brett Hoselton with KeyBanc.
Please go ahead.
- Analyst
Good morning, David, Mike, Chris.
- President, COO
Good morning, Brett.
- Director IR, Corporate Communications
Good morning.
- Analyst
Let's see, Mike, as we look out into 2011, I'm wondering beyond production going up or down, are there any significant margin drivers positive or negative that you think that'll drive margins?
- EVP- Finance, CFO
I think the answer to that question is no.
We see moderate cost inflation.
We've made significant adjustments to our cost structure as you know in 2008 and 2009, we are benefiting from that in 2010 and we will continue to in 2011.
So in terms of significant cost drivers, no.
We're going to be managing our book of business very similar, of course growing, but similar to what we have right now and the same can be said about our cost structure.
- Analyst
And then as you think about the new business that you're launching over the next couple of years, can you just kind of characterize the profitability of that business and how you see it potentially impacting your overall profitability kind of, again, just generally characterize it?
- EVP- Finance, CFO
Yes, that's fine.
We'll answer this question as many times as you all what to answer it.
We provided EBITDA guidance, long-term EBITDA guidance, that we expect to generate in our business through at least 2013/2014 timeframe at roughly 12% to 15%.
12% of the lower end would be characterized by lower capacity utilization rates, lower volumes.
That's not the situation we have today.
Today we have higher capacity utilization, higher-- or lower, I should say, cost inflation pressures and that's driving our margins to the top end of that region, and then the second half of this year above that range.
As we look forward we have full contemplation of our new business in the forward guidance that we're providing in this 12% to 15% range.
I already mentioned earlier this call that there are some programs particularly relating to emerging markets and in some cases commercial vehicle programs where we do have lower margins than this 15% level we're running at this year.
But those business cases are still good investments for our Company because in many cases we're able to use existing capacity that we redeployed to support this program, or the investment capacity and intensity is simply lower.
So we're getting a good return on capital for those facets.
So we do expect to operate certainly we said for this year 14.5% to 15%.
We feel very good about following up with a strong performance in 2011.
And as we go out 2012, 2013 and 2014 our EBITDA margins will be very strong and quite frankly would appear to be much higher than where the Street is discounting our stock price right now.
So we see that as good news for those people who are supporting our Company and our shareholders and we think we'll be able to grow from a very good performance going forward.
- Analyst
Very good.
Thank you very much, Mike.
- President, COO
Okay, Brett, thank you.
- Director IR, Corporate Communications
Thanks, Brett.
And we thank all of you participate in this call and appreciate your interest in AAM.
We look forward to talking with you in the future.
Operator
Thank you.
This concludes today's conference call.
You may now disconnect.