American Axle & Manufacturing Holdings Inc (AXL) 2011 Q1 法說會逐字稿

Good morning.

My name is Alicia, and I will be your conference operator today.

At this time, I would like to welcome everyone to the American Axle & Manufacturing first quarter 2011 earnings conference call.

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

After the speakers' remarks there will be a question and answer session.

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

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

Christopher Son, Director of Investor Relations, Corporate Communications and Marketing.

Please go ahead, Mr.

Son.

Thank you Alicia, and good morning everyone.

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

Early this morning, we released our first quarter of 2011 earnings announcement.

If you have 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 dial 1-800-642-1687; the reservation number to provide is 57313607.

This replay will be available beginning at noon today through 5.00 PM eastern time on May 6th.

Before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements that 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 than those discussed.

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

Also, during this 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 our website.

During the quarter, we will participate in the following conferences.

The KeyBanc 2011 Automotive Industrial Conference in Boston on June 1st, and the Deutsche Bank 2011 Industrials Conference in Chicago on June 15th.

In addition, we are always happy to host investors at any of our facilities.

Please feel free to contact me to schedule a visit.

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

Thank you, Chris.

Good morning to everyone.

Thank you for joining us today to discuss AAM's financial results for the first quarter of 2011.

Joining me on the call with you today are David Dauch, our President and Chief Operating Officer, John Bellanti, our Executive Vice President of Worldwide Operations, along with Mike Simonte, our Executive Vice President of Finance and Chief Financial Officer.

To begin my presentation today, I will provide some highlights of AAM's first quarter and 2011 results.

I will also review AAM's critical business initiatives before turning things over to Mike.

After that, we will be very happy to field any questions you ladies and gentlemen may have.

Today I am pleased to report that AAM is off to a very strong start in 2011.

AAM's first quarter of 2011 financial results were significantly better than our plan.

Let me briefly cover three key first quarter financial highlights.

First, for the first quarter of 2011, AAM sales were approximately $646 million.

On a year-over-year basis AAM sales in the quarter were up approximately $124 million.

That's an increase of 24%, about 50% higher than the overall industry in the quarter.

Second point, non-GM sales in the first quarter of 2011 grew even faster than our total sales.

These sales increased approximately 44% on a year-over-year basis to $178.4 million, or 28% of our total sales.

This is a trend we expect to continue over the next three years, as we achieve significant gains in customer diversification and push our non-GM sales to well over 40% higher by 2013.

The third point, AAM's profitability in the first quarter of 2011 was strong.

In fact, AAM's gross margin, EBITDA margin, and net margin performance in the first quarter of 2011 were the best for any first quarter in our Company's history.

First point on that, gross profit increased $28.1 million on a year-over-year basis to $115.4 million, or 17.9% of sales.

The second point on this issue, operating income was $58.7 million, or 9.1% of sales.

The third point on the EBITDA, increased $22.4 million to $95 million in the first quarter of 2011, or 14.7% of sales.

And the final point on this issue, net income and EPS more than doubled on a year-over-year basis to $37.7 million and $0.50 per share, respectively.

AAM's financial results for the first quarter of 2011 continued the positive trend and the momentum of improved profitable performance for our Company.

In addition to the favorable impact of improved global industry conditions, we continued to benefit in the quarter from improved capacity utilization and sustained reductions in our fixed cost structure.

We're especially pleased to start 2011 with such a positive financial report.

Mike will cover more details of our first quarter of the 2011 financial results in a few minutes.

Let me now make a few comments on the broader Auto Industry.

First point.

The US SAR is currently running at annual of approximately 13 million units through the first quarter of 2011.

This compares to an 11 million unit pace in the same period a year ago, and is substantially higher than AAM's operating break-even level of approximately 10 million units, which we have retained.

Second, North American light vehicle production was up approximately 16% in the quarter on the year-over-year basis.

And the third is, while seasonally weak, full-sized pickup and SUV mix was improved on a year-over-year basis in the first quarter of 2011, running at approximately 13.2% compared to 12.6% the year prior.

Now I would like to discuss a topic that is having a major impact on the global Automotive Industry.

That topic is the earthquake that struck off the northeast coast of Japan on March 11 of 2011.

Our heart goes out to all of those men and women of that country on what they're trying to recover from.

This most powerful earthquake churned up a devastating tsunami that swept across the northern part of their country.

This tragic event caused untold misery to the Japanese people, and has resulted in major interruptions to the industry's global supply chain.

Let me first state that none of AAM's manufacturing facilities were directly impacted by this phenomena.

Details regarding the impact on our customers and suppliers continue to evolve and change on a day-to-day basis.

To date, AAM's operations have been only minimally impacted by the events in Japan.

As a result of various parts shortages, our customers have recently made some adjustments to their production schedules.

At this time, we expect any lost sales, which currently total less than $5 million to AAM, to be made up during the course of the whole year of 2011.

AAM is closely monitoring the operations of several suppliers affected by this crisis.

To date, AAM has not experienced any supply shortages.

We continue to work with our supply base to make appropriate adjustments to production plans, sourcing strategies, and other operational procedures to ensure an uninterrupted continuity of quality supplies.

Let me shift gears and update you on how AAM is building value for our many key stakeholders.

First point, AAM's improved financial performance is a critical element of our plans to reduce leverage, strengthen the balance sheet, and increase stockholder value.

Over the course of the past seven quarters, all profitable for AAM, we have made steady progress toward our goal of returning to investment-grade credit metrics by 2013.

AAM's adjusted net debt to EBITDA leverage ratio was reduced to 2.6 times at March 31, 2011.

AAM's EBIT interest coverage ratio was improved to 2.5 times as of March 31, 2011.

These important credit metrics are both improved by 10 to 20 basis points from year end 2010.

We expect each will continue to improve over the next several quarters.

Second point, during the quarter, AAM successfully launched new drive line system products for the all new 2012 Model Year Nissan Commercial Van built in Canton, Mississippi.

This important new program for Nissan showcases AAM's expertise in designing and manufacturing premium drive line systems for light duty commercial applications.

We look forward to supporting Nissan on this program and others for many years to come.

AAM's new Nissan products also improve our customer diversification focus.

AAM's non-GM sales increased, as I said 44%, in the first quarter of 2011 to nearly $180 million, or 28% of our total sales.

In addition to Nissan, this improvement is driven by new program launches and expanded orders from critical customers such as Chrysler, Volkswagen, Audi, Ford, Tata, Mack Truck, Scania, Caterpillar, John Deere, and others.

Third point, as global OEMs race to meet tighter fuel efficiency and carbon emission standards, the industry is entering a new phase of innovation and design.

This encompasses independent drive vehicles, hybrid, electric vehicles, advanced power train applications, and other equally sophisticated technologies.

AAM is meeting these challenges head on, with an aggressive plan to increase investment in new technology, designed to supply manufacturers with products that address these new and emerging market demands and requirements.

In support of this plan, AAM's R&D spending in the first quarter of 2011 was $27.2 million, representing an increase of over 40% as compared to the first quarter of 2010.

Our Company is developing many new and innovative products, many on the leading edge in the world, with a focus on enhancing the fuel efficiency of our current products through mass reduction, axle efficiency, advanced metallurgy,, packagability, and advanced engineering, as well as other related initiatives.

And supporting the rapidly evolving design direction of our customers by focusing on emerging drive line technologies.

This includes AAM's innovative EcoTrac disconnecting all-wheel drive system.

This system enables a vehicle manufacturer to offer a fuel efficient, environmentally friendly option that provides the safety, ride, and handling performance of an all-wheel drive system for passenger car and/or crossover vehicles.

AAM's EcoTrac disconnecting all-wheel drive system is an industry first and provides leadership in this technology.

AAM's focus on advanced driveline system development also includes electric and hybrid all-wheel-drive systems or e-All-Wheel-Drive.

In this area, we're leveraging AAM's recent strategic investment in our e-AAM Driveline System joint venture in Trollhattan, Sweden.

AAM's e-All-Wheel-Drive systems are designed to improve fuel efficiency, as compared to conventional all-wheel-drive systems by a whopping 30%.

AAM's e-All-Wheel-Drive systems are also designed to significantly reduce CO2 emissions and enhance vehicle stability, through the use of proprietary torque vectoring attributes.

In the first quarter of 2011 AAM completed many successful winter test drives in the US and Europe with potential customers to this new sophisticated technology.

AAM's products performed extremely well, and our customers were blown away by the comparison of our technology to competitive offerings.

We're very proud of that, and we'll make it commercial.

We are currently working with several global OEMs to further develop the engineering requirements to include AAM's E-All-Wheel-Drive systems on numerous global vehicle platforms.

We look forward to booking new business awards with these exciting new product capabilities in the near future.

The fourth highlight of AAM's successful efforts to build value for our many stakeholders is the growth of our new business backlog.

On a year-to-date basis AAM has been awarded an additional $100 million of new business.

Again, we are off to a fine start.

As a result, AAM's new business backlog for the years 2011 to 2013 now stands just short of $1 billion, at over $950 million.

AAM's success in building the new business backlog demonstrates the critical importance of our continued R&D investments that I previously discussed with you.

The increase in AAM's new business backlog will also further diversify our business.

Approximately 60% of the new awards are non-GM business.

Substantially all of the new awards are for passenger cars, crossover vehicles, as well as commercial vehicle programs.

The majority of these new programs are expected to launch in the years 2012 and 2013.

Ladies and gentlemen, 2012 and 2013 will be huge launch years for AAM, and we're locked and loaded and ready for them.

In addition to this booked business, AAM is currently quoting approximately $1 billion of potential business.

This provides us with an excellent opportunity to further advance our profitable growth and diversification objectives in the coming months, as these quotes mature to sourcing decisions.

Before I turn it over to Mike, let me wrap up by making a few closing remarks beginning with AAM's 2011 outlook.

For the full year 2011, we expect total US light vehicle sales to be very close to $13 million vehicle units.

It is a little higher than our initial plans for the year.

Based on the industry sales assumptions and the anticipated launch timing of AAM's new business backlog, we expect AAM's full year of 2011 range of sales to range on top line $2.4 billion to $2.5 billion revenue.

Vehicle mix is the major variable defining this range.

If the percentage of the US SAR, represented by full-size pickup and SUV trends the 2010 levels, we should be able to achieve the top end of the range.

The lower end of the range is reflective of a weaker mix, similar to what we experienced in 2009.

In terms of profitability, we continue to expect AAM's EBITDA margin to range from 14.5% to 15% of sales.

This is at the upper range of our long-term EBITDA target we have shared with you in the past.

In closing, let me emphasize that AAM's top priority right now is to make effective preparations for the many new product launches we scheduled later this year, and continuing through the following year.

During this time period, we expect to profitably grow AAM sales to in excess of $3 billion, and to significantly improve AAM's business diversification in terms of product mix, customer base, and served markets.

We have the right management team with depth and maturity, global workforce in place to achieve these goals.

Our [regionally cost], competitive, high quality and operationally flexible manufacturing footprint is firmly established and ready to take anybody on.

AAM's Advanced Product Processing Systems Technology positions us as a world leader in product innovation and operational performance.

And finally, AAM is making excellent progress diversifying our business profile.

With a dual focus on driving performance in our daily operations and building value for many our key stakeholders, we're excited about AAM's plans for continued profitable global growth, improving our balance sheet strength, and accelerating our business diversification efforts.

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

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

Michael?

Thank you Dick, and good morning everybody.

Again this quarter, our earnings release was a relatively clean, straightforward report from a financial perspective, so I am going to get right to it and my comments should be brief.

Dick already covered the highlights, so I am going to get into the sales details.

Net sales in the first quarter of 2011 increased 24% to approximately $646 million, as compared to $522 million in the first quarter of 2010.

Customer production volumes for the major North American Light Truck and SUV programs that we currently support, and that now includes Nissan, were up approximately 13% in the first quarter of 2011, as compared to the first quarter of 2010.

In addition to higher volumes, mix was also favorable in the first quarter of 2011.

This helped to drive gains in our content per vehicle.

AAM's content per vehicle in the first quarter of 2011 increased $88.00 or 6%, to $1,478, up from $1,390 in the first quarter of 2010.

Now on a year-over-year basis, this increase in content per vehicle was expected, and is consistent with the trends for the past couple quarters due to, number one, higher metal market pass throughs, and we're pretty much lapping that now, so that shouldn't be an issue going into the second quarter, but number two, the launch of GMT-900 Heavy Duty Series pickups.

Remember, this important part of the GMT-900 program launched in June of 2010, and the first quarter of 2010 was skewed more to the light duty portion of the program because they were not building the diesel engine versions of that heavy duty product.

We also benefited in this first quarter of 2011 from increased production on the Dodge Ram Heavy Duty Series pickup truck program, and as both Dick and I already mentioned, the all new Nissan commercial van program.

In addition to strong North American sales and production activity, we also posted strong sales gains in our foreign operations.

Our sales outside of North America, led by Brazil, were up approximately $20 million on a year-over-year basis in the quarter.

Now let's talk about customer diversification, which is rapidly improving.

AAM's non-GM sales in the first quarter of 2011 increased approximately 44% on a year-over-year basis to $178.4 million.

As a percentage of total sales, AAM's non-GM sales were 28% of total sales in this first quarter.

Adjusting for the impact of the unconsolidated joint venture in Hefei, China that we have with the JAC group, a very fine partner, we're running at nearly 30% non-GM sales on a year-to-date basis in 2011.

That's a very solid improvement versus 25% for the full year 2010, and 22% for the full year 2009.

Remember, it is our expectation that AAM's non-GM sales will grow about twice as fast as our total sales for the next few years, as we push to 40% or higher in 2013.

In 2011, over 70% of our new business backlog launch in this year is non-GM business.

This improved diversification is a very positive development for all who care about our Company, and particularly our key stakeholders.

All in all, this was a strong sales performance for AAM in the first quarter of 2011, up 24% on a year-over-year basis, as compared to a 16% increase in North American light vehicle builds.

Okay, let's move to our profitability, which was solidly improved on a year-over-year basis.

Gross profit was up $28 million to $115.4 million, or 17.9% of sales.

EBIT, or earnings before interest and taxes, was up $20 million to $61.1 million, or 9.5% of sales.

Net income in the quarter was $37.7 million, or 5.8% of sales, and diluted EPS was $0.50 per share.

EBITDA improved $22 million in the quarter to $95 million, or 14.7% of sales.

As Dick said, we're off to a very strong start in this calendar year 2011.

Now, let me anticipate some questions and make a few comments on our sequential profit performance.

As compared to the fourth quarter of 2010, our sequential operating income and EBITDA profit margins were approximately 13% and 9% respectively so that's short of our target of a 25% improvement.

The primary reason why we did not achieve a better sequential margin, and we have talked about this before, I just want to make sure everybody understands, is the impact of the financial concessions that we provided to GM in the commercial agreements we jointly negotiated in September of 2009.

These concessions included, among other things, product price downs, expanded warranty cost sharing, and changes to our metal market pass through provisions.

None of these concessions, and we've previously disclosed this on numerous occasions, had any impact on our financial statements in 2009 or '10.

The first quarter of 2011 was the first quarter affected by these concessions.

In total, this impacted our profitability in the first quarter of 2011 by $5.5 million, or approximately 85 basis points of sales.

If we adjusted our first quarter of 2011 results, or the fourth quarter of 2010 results, for a clean apples-and-apples comparison, our profitability in the first quarter of 2011 was a little stronger than where we ended 2010.

It is important to keep this in mind when evaluating our sequential profit performance in the quarter.

Now, before reviewing cash flow, let me quickly address SG&A, other income, and taxes, starting with SG&A.

In the first quarter of 2011, SG&A, and importantly, this includes research and development spending, was approximately $56.7 million or 8.8% of sales.

This compares to 8.7% of sales in both the first quarter of 2010 and the fourth quarter of 2010, so pretty close, but a little bit higher.

AAM's R&D spending in the first quarter of 2011 was approximately $27.2 million.

This is approximately $8 million higher than the first quarter of 2010, and $3.6 million higher than the fourth quarter of 2010.

Now, as Dick mentioned, the increase in R&D spending is due to our plan to aggressively increase investment and new technology designed to address new and emerging market trends, especially those related to safety, fuel efficiency, and emissions reductions.

This includes AAM's EcoTrac brand of fuel efficient and environment friendly products, such as our industry-first Disconnecting All-Wheel-Drive Technology for passenger cars and crossover vehicles.

We'll launch that product first in the industry next year in 2012.

This also includes an expanded lineup of commercial vehicle applications and our e-AAM joint venture in Sweden, which is focused on the development and commercialization of hybrid and electric driveline products.

Through our focus on developing innovative new driveline technology, we are quickly transforming AAM's product portfolio and market positioning.

We are proud of our legacy in rear beam axles, and we're certainly going to continue to lead that segment, but we are also very excited about the profitable growth opportunities we have by increasing our exposure to the passenger car, crossover vehicle, and commercial vehicle markets.

This will drive our growth for the next several years.

In the first quarter of 2011 other income was approximately $1 million.

Now, not a very big number, but I noticed last quarter that one of our research analysts adjusted our earnings to exclude the contribution classified as other income on our income statement.

We do not believe that is appropriate.

The most significant element of this line item is the profitability of our China joint venture, a very important and strategic part of our business.

I think you would all agree.

We expect this joint venture to continue to grow and prosper, and therefore other income should grow a little bit as we work through the next couple years, and that should be, in our judgment, considered part of our very strong operating earnings.

And finally, taxes.

AAM's effective tax rate was approximately 5.4% in the first quarter of 2011.

The tax provision in dollar terms was approximately $2 million.

Now this is in line with our expected provision rate for the full year, and we're tweaking this a little bit for you, to 5% to 10%.

So our effective tax rate 2011 should be approximately 5% to 10%.

We continue to benefit from a substantial amount of net operating losses and tax credit carry forwards in the US.

In total, these tax attributes represent nearly $200 million, I want to repeat that, nearly $200 million of net economic value to our Company.

This is a substantial, and we believe under-appreciated, asset for AAM stakeholders.

Okay, 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 net of proceeds received from the sale of equipment.

In the first quarter of 2011, GAAP cash provided by operating activities was $1 million.

Capital spending, net of proceeds from the sales of equipment in the first quarter of 2011, was $30 million.

Reflecting this operating activity and CapEx spending level, AAM free cash flow in the first quarter of 2011 was the use of approximately $29 million.

It is not unusual for an automotive supplier to use cash in the first quarter.

Seasonal working capital trends often drive this type of result.

To help you understand our first quarter cash flow performance, we thought it made sense to provide a summary walk down versus the fourth quarter of 2010, a quarter in which we generated approximately $4 million of positive free cash flows, and there are only four items you need to know to make this sequential walk versus the fourth quarter.

Number one, EBITDA was approximately $6 million higher in the first quarter of 2011.

Number two, interest payments were approximately $38 million higher in the first quarter of 2011.

Remember that we paid substantially all of our interest costs in the first quarter and third quarter of 2011.

That's just due to the timing of our public coupon payments.

Number three, profit sharing and other incentive compensation accruals pay out in the first quarter of 2011, and this is the first year in three years that they actually paid out.

This represented approximately $19 million of variance versus the fourth quarter of 2010.

And finally, number four, CapEx was $15 million higher in the fourth quarter of 2010.

That's just a timing issue.

Our CapEx will ramp up a little bit as we work through this year and spend close to $150 million to $160 million in calendar year 2011.

At March 31st of 2011 AAM's net debt was approximately $790 million.

Total available liquidity was approximately $590 million at quarter end.

As Dick said, we are continuing to make steady progress toward regaining investment grade credit metrics by 2013.

That's one of our significant financial priorities for the Company.

A couple other things to mention.

AAM's adjusted net debt to EBITDA leverage ratio was reduced to 2.6 times at March 31st of 2011.

Dick mentioned that.

What I wanted to confirm is that we call this adjusted because we include the working capital benefit of the accelerated payment terms with GM as debt in this calculation.

Effectively, this is a form of working capital financing.

Otherwise, our GAAP EBITDA leverage ratio would be much better, around 2.2 times.

Our goal for this metric is to be solidly below two times by 2013, and we are well on our way to accomplishing that objective.

Okay, coverage ratio.

Our EBIT coverage ratio was improved to 2.5 times at March 31st of 2011.

In the first quarter of 2011, on an annualized basis just for this quarter, it was about 2.75 times.

Our goal for this is to be solidly above three times by 2013, and again, we're on track.

Our third key credit metric is our net debt to market capitalization ratio.

This was approximately 45%, and our goal is to maintain this ratio below 40%, and that's achievable in our business plan by 2013.

Now before we start the Q&A, let me close my comments today with a couple of remarks about our guidance and outlook for calendar year 2011.

What I want to do first is level set our macro assumptions.

For the full year of 2011, we expect total US light vehicle sales to be in the range of 12.5 million to 13 million vehicle units.

Based on the strength of our first quarter, the anticipated launch timing of our new business backlog, and the strength of our current production outlook, and what I mean by this is the feedback we get from our customers, we are raising our 2011 sales guidance to a range of $2.4 billion to $2.5 billion.

As Dick said, vehicle mix is the major variable defining this range, and for this purpose we define mix as the percentage of the US SAR, represented by full-size pickups and SUVs.

In the first quarter of 2011, mix was improved on a year-over-year basis.

Let me repeat that.

Mix was improved on a year-over-year basis, and ran at levels that were approximately the same as 2009, which was the low point in the last 10 years of history, around 13%.

On an LPM basis, last 12 months basis, through the first quarter of 2011, full size mix was a little higher at 14%.

While there remains some uncertainty about the impact of the recent run-up in fuel prices, the bottom line is that the full-size pickups and SUVs offer a fundamental utility that is needed by many drivers.

There is a strong foundational demand for these vehicles, and we believe that foundation is around 13% to 14% of the US SAR.

For this and other reasons, including the feedback we're getting from our customers, who continue to increase capacity for these programs, in the case of Chrysler, and who continue to increase production schedules and generally prepare for higher sales and production levels, for example our friends at GM, our expectation is that mix will trend between 13% to 14%.

This is what defines the low end and top end of our sales guidance, again, $2.4 billion to $2.5 billion for this calendar year 2011.

We are currently tracking to the high-end of the range, and that would imply total annual sales growth of around 10% for this year.

In terms of profitability, we continue to expect AAM's EBITDA margin to range from 14.5% to 15% of sales in 2011.

We are executing well and expect to continue to do so.

So the bottom line on the first quarter of 2011 for our Company, AAM, is this, EPS of $0.50 a share on revenue growth of approximately 24%, solid progress on business diversification, with non-GM sales up 44%, and our new business backlog increasing by $100 million.

Year-over-year profit margins, and I am speaking here of EBIT and operating income, these margins expanded 100 basis points on a year-over-year basis, and continued steady improvement in our credit metrics.

We are doing what we said we would.

We are delivering what we committed.

And to close, let me remind you what we intend to deliver over the next 3 years.

First, sales growth in excess of 10% per year, we expect that to lead the industry to $3 billion or higher by 2013.

Number 2, EBITDA margins, at the high-end of our long-term guidance range of 12% to 15%.

In dollar terms this means EBITDA should be in the range of $400 million to $450 million by 2013, and we'll probably get there sooner.

Number 3, measurable progress on business diversification, with non-GM sales growing twice as fast as our total sales growth to 40% or more by 2013.

Number 4, investment grade credit metrics by 2013, EBITDA leverage should be solidly below 2 times, EBIT coverage, solidly higher than 3 times, net debt-to-cap sustained a 40% or lower, and positive stockholders equity.

We expect all this to drive significant enterprise value creation, with a much larger share of that enterprise value reserved for our stockholders.

That's all I have this morning.

Thank you for your attention, and, Chris, we're ready for the Q&A.

All right.

Thank you, Mike, and thank you, Dick.

We reserve some time for some questions.

I would ask that you please try to limit your questions to no more than 2, so at this time please feel free to proceed with any questions you may have.

Alicia, we're ready for the Q&A.

Thank you.

Our first question comes from John Murphy with Bank of America Merrill Lynch.

Your line is open.

Good morning, guys.

Good morning, John.

You had great non-GM sales growth in the quarter, and yet you eluded to some of the auto makers that you're supplying to the drove that growth, but I am just wondering, are there any specific programs other than Dodge Ram or the launch of the Nissan van that really drove that big growth?

Any other big chunky programs out there, or is it just growth across the board with non-GM?

John, this is Mike speaking.

Those are the two highlights for this quarter, but I would comment that our sales are up year-over-year with Volkswagen and Audi, with Scania in Brazil.

Brazil was really a key driver, not just of our foreign sales growth, but also of our non-GM growth outside of the Chrysler program and the Nissan program.

So I think these were the significant elements in our driving our non-GM growth, not just in this first quarter, but also as we work our way through the year.

Okay, and then a second question.

As we look at the sales line and the growth overall there, just wondering what level you're rubbing at on your capacity utilization, and how much higher can you go before you start running into maybe some new hiring, some new costs that come in, and just trying to get an idea of how high you can get this revenue line on your existing base of assets?

John, this is David Dauch.

Some of our existing facilities we're running more in the 85% to 90%, range as far as the well established facilities.

Some of the new facilities on the international locations that we're putting investments in to support future programs, clearly the capacity is running lower than what we desire at this time, but that will be made up very quickly here as we launch programs this year and next year.

As we have guided in the past, we can definitely support a higher volume than what's being produced today at the 12.5 million to 13 million unit [GAR] without a lot of incremental investment from a CapEx standpoint.

Our guidance range is in that 4% to 6% of sales from a CapEx standpoint to not only to support our backlog of new business, which includes the increment up to the 950 level that we just highlighted today.

Great.

Just lastly, one housekeeping, Mike, you mentioned $5.5 million of incremental cost from the change in the contract terms with GM in the first quarter.

Is that the kind of run rate we should be thinking about in the second, third, and fourth, or does anything change as we progress through the year on that?

John, that should be relatively similar.

The major elements of that are the warranty cost share and the price down on the GMT-900 program of 50 basis points.

There will be a little variability on the price down based on seasonal trends and production volumes, but the warranty should be relatively straightforward, so, yes, it should be similar to that $5 million to $6 million range.

Great.

Thank you very much.

Keep it up, guys.

Thanks, John.

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

Your line is open.

Thank you.

Good morning, gentlemen.

Good morning, Brian.

Continuing on the theme of gross [beyond] of revenue, what do you expect the cadence of backlog to be through the year?

Brian, the cadence of the backlog should be relatively straightforward, similar to the first quarter.

Again, the major elements of that backlog for this year, the Nissan van program, some incremental volume associated with Audi, and VW.

There is also a little bit of higher volume expectation with Tata, and good solid launch with our Metal Form Products division, and that should be relatively constant through the year.

The one thing that should pick up a little bit in the fourth quarter is the launch of GM's Global Pickup Truck Program, the GMI-700 Program, so that should provide a little bit of a lift in the fourth quarter versus the third quarter, but otherwise things should run pretty well and pretty steady through the year.

And second topic is, in the face of obvious pressures on gas prices and a couple of the forecasters cutting their forecast for your customers' largest platform, where are you on the kind of overall question of mix, what that might imply for production schedules over the course of the year on the large pickups and SUVs?

Good morning Brian, this is Dick Dauch.

One of the things I think we have to take a look at is our key customer on the full size platform and on the heavy duty has a planned third shift to be put on this July, and they are still bullish on doing that, because, let's face it, the heavy duty pickup is a work truck, and those units are needed, and they are old, and they need to be replaced, so we still see a very strong segment on that even with $4.00 or $5.00 gasoline.

Okay.

Thank you.

You're welcome, sir.

Our next question comes from the line of Unidentified Participant.

Your line is open.

Good morning, guys, this is Dan in for Rod.

How are you doing?

Congratulations on continuing to deliver as you said.

Just had a question on the cash flow.

Can you give us an update on any kind of discreet cash flow items that we should be looking for throughout the year.

I know that the receivables looked like they went up quite a bit.

Was there any kind of early move to take away the GM payment terms on that?

No, Dan.

The receivables growth is primarily representative of growth with other customers.

But keep in mind with General Motors on net ten day terms, at the end of calendar year 2010 there isn't as much activity in the back half of December as there is in the back half of March, so there is some lift in the GM receivables, just based on seasonality.

There is also strong growth in our non-GM sales, and that drives increase in receivables as .

The only real significant discreet cash flow item we have this year, because the major restructuring outflows are behind us, so the major discreet item this year is the anticipated, we haven't committed to this, and we'll just monitor the situation and see what happens, but the anticipated change of those payment terms with General Motors in the third quarter, and we've disclosed that as about $150 million.

It is going to show up as a cash flow item.

It is really a financing activity, but it is going to show up as a use of cash, and that's the major discreet item for this

And that's $150 million from current receivables levels?

Yes.

We expect that to be, well, we expect that to be the impact in the third quarter, so technically it is from where we end the second quarter but, yes, we expect that to be materially the same.

Can you give us any indication of what working capital could be for the full year in total, including that?

Well, that's going to be the major driver.

We do expect a little bit of inventory growth, not too much, but reflective of good turn performance and higher sales, and then we see our non-GM receivables up.

We see total sales up this year around 10% at the high-end of our guidance range, our non-GM sales are growing twice as fast, maybe a little faster than that this year, and then our working capital growth and receivables will reflect that as well.

Got it, and one additional question.

On the 10% sales growth for the next couple years, it looks like the backlog itself could be above 10%, could drive above 10% growth.

Should we just be looking at that target as a very achievable one, or are you forecasting fairly slow growth in kind of the core historical traditional programs of American Axle?

Dan, a couple things.

First of all, we are being somewhat conservative.

I don't want to over state the case.

It could very well be higher, number one.

Number two, we expect to continue growing our backlog, and so that should allow the chance to out perform our 3 billion target in 2013, and we are being a little bit conservative.

Remember, our backlog is a gross backlog.

We have one major program due to expire, the GMT-355 program.

We talked about that before.

So that's an element of that situation.

And we are planning, in terms of our current financial models, not really our operating models because David told you we're ready to handle SARs much higher than we are today, but from a financial modeling perspective, we do have our GMT-900 volumes leveling off at a little bit lower than where we were in 2010.

So, yes, we may be conservative.

We'll be happy to outperform that if the circumstances allow us that chance.

Okay, sounds good.

Thank you.

Thank you.

Our 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 items.

You mentioned the backlog and that it's a gross number.

Is any of the $100 million that you just picked up replacement, or is all of that net new?

No, that's all net new.

All net new.

So the 950 is the gross number.

Is it still just about 100 million delta so it would be about 850 on a net basis?

Well, the GMT-355 program is about $55 million.

That's the only major takedown, and 100 is probably not too far off, but maybe a little conservative.

Okay.

And then a question about the Saab joint venture.

Saab has had some pretty well reported financial and ownership issues.

Is there anything going on there that threatens your e-AAM JV?

No, this is David Dauch, Chris.

There is nothing that threatens our joint venture there.

In the event that anything did happen to Saab going forward, we would put the proper necessary terms and conditions in our joint venture agreement, that [we have protected] technology in our relationship.

Just lastly real quick, you mentioned $5 million of loss revenues so far around supply issues.

Can you give us a feel for what you think that might be in Q2?

Chris, first of all we said it was less than $5 million.

Less than $5 million, okay.

We have no visibility to any reduction in the second quarter of any magnitude.

In fact, a portion of that less than $5 million was the month of April, so we're probably close to $3 million in total, and maybe half of that roughly is April, and some of a this might have to be made up in the second quarter.

Okay.

Thank you.

Thank you, sir.

Thanks, Chris.

Our next question comes from the line of Unidentified Participant 2.

Your line is open .

Good morning, guys.

Good morning.

Hello.

Hi.

[This is Amy Carol in for Himanshu Patel].

Just a quick question.

Can you update us on the restructuring actions at the Detroit and Cheektowaga plants?

This is David Dauch.

As everybody knows we have a contract in place with the UAW that represents our Detroit and Cheektowaga sites.

That contract expires in February 25 of 2012.

We're having some preliminary discussions or early discussions with the UAW with respect to those sites.

Clearly, and we have guided in the past, that we need these two sites to be market competitive.

They're not market competitive sites today, [in] that we're working with our stakeholder, the UAW, to try to get those facilities in line.

In the event that we can't get them in line, then we have also identified alternative plans, that if we need to exercise, then we will exercise as an organization going forward.

But that's about all I really want to say today, as those discussions are still ongoing with the UAW.

Okay.

Then the second question I had is just from our conversations with other suppliers, a lot of them, a few of them have raised their expectation on the potential commodity hit in 2011 related to steel.

What are your thoughts on that, and how should we think about commodity hit for you guys for the full year?

Again, this is David Dauch.

Last year, we saw moderate inflation with respect to material costs.

We have also indicated that we see that same thing happening this year for us.

With respect to steel, we're a big user of steel as you know, but we use a special bar quality steel called SBQ steel.

We tend to work in advance with our critical and strategic suppliers, and we have secured a lot of that supply going forward from a proactive standpoint, so again we're still guiding to moderate commodity inflation for the year.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Peter Nesvold with Jefferies & Company.

Your line is open.

Good morning.

Good morning.

Good morning, Peter.

I think a lot of my questions have been handled, so maybe just a bigger picture strategic question.

In the Commercial Vehicle Segment, which you have spoken to in the past, can you maybe just walk briefly through how do you get into those programs?

I suspect is it is a different process than going into the Light Duty Segment.

And I guess the reason I am asking is that now that we have the 2010 equipment, generally specked, do you have to wait until some other major model change before you can increase your penetration materially in that segment?

Again, this is David Dauch.

On the Commercial Vehicle side, we have been in the business since 1998 with the acquisition of Albion Automotive, that was the foundation of our business and our technology.

We made a conscious decision a couple years back to expand our entry into the Commercial Vehicle space.

Our primary focus is, one, to maintain the business that we have in Europe, specifically with Packer and ( indiscernible ) Organization, within two to grow that outside of Europe with the major focus on the Asian corridor, specifically China and India.

That is a booming market; both those markets are growing.

There is not enough capacity to support the growth forecasted in those markets, so therefore we're having the opportunities right now on new business in those two specific countries.

With respect to North America, again, we haven't put a major focus on North America.

However, we were successful in winning some Mack Truck and Volvo power train business here in the US.

We leveraged some of our existing equipment and facilities and capacity.

That allowed us to have acceptable business cases, but there is plenty of opportunity on the Commercial Vehicle business.

Our backlog of new business is reflective of about 15% of new wins on the Commercial Vehicle side, and we're quoting over $1 billion worth of business today, and there is Commercial Vehicle activity within that as well.

Great.

Okay.

Thank you.

Thank you, Peter.

Thank you, Peter.

We have time for one last question.

Thank you.

Our final question comes from the line of Brett Hoselton from KeyBanc.

Your line is open.

Thank you and good morning.

It is Matt Mishan in for Brad Hoselton.

Good morning, Matt.

Just two quick questions on the quoting activity.

Can you give us an update on what percentage of the quoting you would expect to win, and of the percentage quoting how much of that is Ford business?

We have always said that based on the new business that we're quoting on, our target hit rates in that 25% to 30% range, clearly we're $100 million towards that goal already based on what we have announced here today, so we feel confident that we can hit the targeted hit range.

With respect to Ford Motor Company, we have a smaller amount of business that we're quoting with them at this time, but important business that we're quoting with them, some here for North America.

But the real opportunities for us with Ford initially are going to be on the international front, and we're very confident that we can win some business in that respect.

And to get your specific questions, probably around 10% of what we're actually quoting is Ford-related business.

And lastly, you mentioned that you are a big buyer of SBQ steel, special bar quality.

From our understanding, SBQ is extraordinarily tight right now, and if volumes were to improve if production volumes were to improve above current expectations, would you potentially see below average contribution margins on those additional volumes, because SBQ just extraordinarily tight?

No.

We've protected a certain level of capacity above and beyond the current demand today to support higher demand in the event that it comes.

At the same time, we're developing other SBQ suppliers in the global marketplace to support increased demand over the future years.

Great.

Thank you very much.

Thank you.

Have a great day.

All right.

Thank you, Matt, 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 disconnect.