American Axle & Manufacturing Holdings Inc (AXL) 2013 Q4 法說會逐字稿

Good morning.

My name is Nicole, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the AAM's fourth-quarter and full-year 2013 earnings conference call.

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

After the speakers' remarks, there will be a question-and-answer period.

(Operator Instructions) As a reminder, today's conference 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, Nicole, and good morning, everyone.

And thank you for joining us today and for your interest in AAM.

Early this morning, we released our fourth-quarter and full-year 2013 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.

A replay of this call also be available beginning at 2 PM today through 5 PM Eastern time on February 14 by calling 855-859-2056.

(inaudible) reservation number [34605135].

Before we begin, I would like to remind everyone that the matters discussed on 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 different materially from those discussed.

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

Also, during this call, we may refer to certain non-GAAP financial measures.

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

Over the next several months, we will participate in the following conferences.

The JPMorgan Global High Yield and Leverage Finance conference on February 24 and 25.

And the Bank of America Merrill Lynch New York Automotive Summit on April 16.

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 Chairman, President, and CEO, David Dauch.

Thank you, Chris, and good morning to everyone.

Thank you for joining us today as we discuss AAM's financial results for the fourth quarter and full year of 2013.

Joining me on the call today are Mike Simonte, our Executive Vice President and Chief Financial Officer; and Alberto Satine, our Senior Vice President of Global Driveline Operations.

Following the retirement of John (inaudible) at the end of calendar year 2013, Alberto has taken on a new role running all of AAM's global driveline operations.

We wish John the very best in his retirement and congratulate Alberto on his new important assignment.

To begin my comments today, I will review the highlights of our fourth-quarter and full-year 2013 financial performance.

Next, I will summarize AAM's major business accomplishments in 2013.

I will also update you on the excellent progress we are making to achieve AAM's long-term strategic objectives.

And, finally, I will comment on AAM's 2014 outlook before turning things over to Mike.

After that, we will open it up to calls and questions for you so, let's get started.

As everyone knows, 2013 was an extremely busy year and a productive year for AAM.

AAM's 2013 financial performance was highlighted by sales growth that outpaced the industry and profitability that solidly rebounded versus our 2012 performance.

A quick summary of our 2013 financial performance is as follows.

AAM's fourth-quarter 2013 sales were $831.3 million.

For the full year of 2013, AAM's sales increased by nearly 10% on a year-over-year basis to $3.21 billion.

This compares to a 4.3% increase in the North American light vehicle [builds] and the 7.5% increase in US (inaudible).

Either way you look at it, AAM's top line grew faster than the key industry benchmarks.

AAM's net income in the fourth quarter of 2013 was $29.8 million, or $.39 per share.

AAM's fourth quarter results reflect the impact of $25.6 million of debt refinancing costs, or $0.32 per share.

For the full year of 2013, AAM's net income totaled $94.5 million, or $1.23 per share.

AAM's full-year 2013 results reflect the impact of $36.8 million of debt refinancing costs, or $0.46 percent per share.

AAM's adjusted EBITDA in the fourth quarter of 2013 was $113.7 million, or 13.7% of our sales.

For the full year of 2013, AAM's adjusted EBITDA was $421.8 million, or 13.2% of our sales.

This is up approximately $75 million as compared to the prior year and represents a sequential profit conversion of approximately 27%.

And, finally, AAM closed out the year with a strong cash flow result in the fourth quarter.

On a GAAP [derived] basis, AAM's free cash flow in the fourth quarter of 2013 was $51 million.

AAM's free cash flow results in the fourth quarter of 2013 included the adverse impact of cash payments for debt refinancing activities of almost $30 million.

This strong performance in the fourth quarter was enough to push AAM's full-year 2013 free cash flow to a solidly positive result.

For the full year of 2013, AAM's GAAP derived free cash flow was approximately $4 million.

For the year-end total, we made cash payments of $38.3 million for debt refinancing activity.

If we were to exclude the impact of these items, AAM would have reported an adjusted positive free cash flow of over $42 million in 2013.

Mike will provide you additional information regarding the details of our financial results later on this call.

Let me now shift gears and update you on some major business accomplishments in 2013.

First, from a quality standpoint, we continue to operate at low cost levels.

Many companies talk about quality.

AAM delivers quality to our customers each and every day.

Quality is the foundation of AAM's world-class delivery, warranty, durability, and reliability performance.

In 2013, we finished at 4.4 discrepant parts per million for the year, which is clearly world-class when it comes to driveline in the drive train segment.

Second, with regard to operational excellence, AAM had 28 successful launches in 2013, and three key programs accounted for over 60% of AAM's total sales in 2013 tied to these launches.

The first program was a next-generation Ram Heavy Duty series pickup.

AAM's 10-year relationship with Ram trucks continued to strengthen and grow during calendar year of 2013.

The year started well with AAM's involvement in the launch of a Ram [2500] and 3500 Heavy Duty truck series, and continued with AAM's support of Ram's 2014 model year updates.

These updates included a disconnecting front-steerable beam axle, an 11 1/2 rear-axle multi-link beam axle, and also included the improvement of noise vibration and (inaudible) performance.

The second major program was the 2014 American Truck of the Year, and that was GM's new full-size pickup truck program, or the (inaudible).

This was AAM's biggest launch of the year in 2013 and was successfully supported by our manufacturing operations in (inaudible), Mexico, and Three Rivers, Michigan.

The next stage of this launch will be completed here in the first quarter of 2014 with the launch of the GM's heavy-duty pickup trucks and the full-size SUVs.

And, finally, the third major program was the all-new Jeep Cherokee.

In terms of product innovation, 2013 was an exciting year for AAM.

AAM's EcoTrac disconnecting all-wheel-drive system was featured on an all-new 2014 Jeep Cherokee.

This industry-first technology helped the Jeep Cherokee achieve all-weather traction, superior control, improved field economy, safety, and reduced emissions.

EcoTrac was recently recognized by Automotive News as a Pace Award finalist, which helps put AAM further firmly on the map as a global leader in technology innovation.

Technology is a significant competitive differentiator in the global automotive marketplace today.

In 2013, we made a significant progress in differentiating and demonstrating our ability to be a technology leader, which is really my third major highlight that I want to cover with you today.

And a few examples of this are, as I mentioned earlier, the launch of the EcoTrac disconnecting all-wheel drive system on the Jeep Cherokee.

But building off that industry-first technology, this system will also be featured and offered in Chrysler's 2015 Chrysler 200 program, which was recently announced by Chrysler for 2014 North American International Auto Show.

We also successfully commercialized our EAM technology, having secured a new driveline system contract featuring our hybrid and electric drive systems with a company by the name of [Chorus].

This system is expected to launch at the end of 2015.

And AAM's high-efficiency rear-drive modules designed to optimize performance and improve efficiency are featured on the all new Cadillac CPS, which was recently named the Motor Trend 2014 Car of the Year.

This high-efficiency driveline technology will also be featured on future program launches with Mercedes-Benz and Jaguar Land Rover.

So turning to AAM's fourth major business accomplishment, in 2013 we also made great strides in executing our diversification initiatives while also expanding and broadening our relationship with General Motors.

In 2013, AAM select successfully launched an important new business award with customers other than GM.

The impact of these new program awards, as well as strong production [buy-ins] and other existing programs, helped increase AAM's non-GM sales over $900 million in 2013.

In the fourth quarter of 2013, AAM's non-GM sales reached a new quarterly record pace of approximately $280 million.

Including the impact of AAM's joint venture in Hefei, China, which is not in our consolidated financial results, AAM's non-GM sales were approximately 37% of total sales in the fourth quarter of 2013.

Another key driver of AAM's diversification is our new and incremental business backlog.

AAM's new business backlog currently stands at over $900 million for the three-year period covering 2014 through 2016.

The new business award, including this backlog, should help sustain AAM's compounded annual growth rate of over 10% through calendar year 2015.

This has approximately doubled the rate of the industry growth expected over the same time period.

And in 2014 alone, we expect AAM's sales to grow by approximately 18% on a year-over-year basis.

The diversification attributes of AAM's new and incremental business backlogs are quite noteworthy.

Approximately 70% of AAM's new and incremental business backlogs covering the 2014 through 2016 period of time is for new and expanded orders supporting multiple program vehicle manufacturers, including the Chrysler Group, Daimler Trucks, Ford, Honda, Jaguar Land Rover, Mercedes-Benz, Nissan, Tata Motors, and many others.

Approximately 2/3 of AAM's $900 million new and incremental business backlog is for passenger car and crossover vehicle programs.

And approximately 70% of AAM's new and incremental business in the backlog is for programs sourced outside of the United States.

These awards support AAM's continued expansion in the growing global markets of Brazil, China, India, and Thailand.

In addition to this book business, AAM's [quarterly] and emerging new business opportunities is over $1 billion.

This should help drive further business diversification as we convert many of these opportunities in the book business.

And our fifth major business accomplishment I will highlight for 2013 is that we continue to expand AAM's cost-competitive global, manufacturing, engineering, and sourcing footprint.

In May 2013, AAM's joint venture with GDC in China saw the launch of a new state-of-the-art hypoid gear manufacturing facility in Hefei, China.

This investment increased Hefei AAM's full range of product offerings; and with AAM's Changshu manufacturing facility, AAM is now able to provide world-class gear manufacturing solutions to multiple customers in China and the Asian market.

In AAM's Rayong manufacturing facility in Thailand, we also expanded the facility and its capabilities by adding hypoid gear manufacturing in this facility as well, becoming the first hypoid gear manufacturer in the country of Thailand.

AAM continues to grow in India also.

With expansions at all three of our facilities in Chennai, Pune, as well as Pantnagar for various machining, assembly, and sequencing programs.

And AAM is bringing exciting new processes and technologies to this region for the customer base there.

AAM also expanded its North American manufacturing footprint with the opening of a (inaudible) manufacturing facility in Mexico, which will complement our Guanajuato manufacturing complex with machining and assembly operations.

And, lastly, we made excellent progress on the critical balance sheet initiatives in 2013.

During the year, AAM successfully completed over $1.25 billion in new and amended financing arrangements.

As a result, we reduced our weighted average interest cost of our debt capital structure by more than 150 basis points as compared to year-end 2012.

Reflecting the new terms and conditions of our critical financial arrangements, we now have no significant funded debt maturities until 2018 and beyond.

We are pleased to have taken advantage of favorable capital markets and market conditions to help improve AAM's flexibility to manage and grow the business to support the execution of AAM's long-term strategic objectives.

Before I turn it over to Mike, let me wrap up by making a few closing remarks regarding AAM's 2014 performance targets and long-term outlook.

We believe that the trend in the global automotive market conditions will continue to be positive in calendar year 2014.

For the full year of 2014, we expect total US light-vehicle sales to increase from approximately 15.6 million vehicles in 2013 to approximately 16 million units in 2014.

Based on these industry sales assumptions and the anticipated launch time of AAM's new business backlog, AAM is targeting full-year sales in the range of $3.75 billion to $3.8 billion in calendar year 2014.

This represents year-over-year sales increase, as I said earlier, of approximately 18% versus an expected 3% growth rate for the US (inaudible).

In other words, AAM continues to grow significantly faster than the industry.

As we announced in January at the 2014 North American International Auto Show held here in Detroit, Michigan, we are targeting even in the range of 13.5% to 14% of sales in calendar year 2014.

The big story for AAM in 2014 and 2015, however, is cash flow.

In 2014, AAM is targeting positive free cash flow of approximately $100 million.

In 2015, AAM is targeting full-year sales to exceed $4 billion and free cash flow in the range of $175 million to $200 million.

As we look to the future, we remain very focused in optimizing our profitable growth opportunities through our global expansion, improving the diversification of our business, and achieving solid financial performance by executing our aligned business strategy.

We are committed to achieving excellence in everything we do with the ultimate goal of making AAM a leader in every market that we serve globally around the world.

I would like to thank each and every one of you for your time and attention today.

Let me now turn the call over to Mike Simonte.

Mike?

Thank you, David.

And good morning, everybody.

And happy new year to those that we missed at the Detroit Auto Show.

Today, I will review with you our financial performance in the fourth quarter, touch on the full year of 2013 as well.

We have already covered the highlights in David's comments, so I will get right into the details starting with sales.

AAM's sales in the fourth quarter of 2013 were $831 million, up approximately $95 million, or 13%, and compared to the fourth quarter of 2012.

On a sequential basis, AAM's sales in the fourth quarter of 2013 were up approximately $10 million versus the third quarter of 2013.

Now, keep in mind, there are fewer production days in the fourth quarter due to holiday downtime.

So when I am telling you that our daily rate of shipments -- and production, for that matter -- was [up] much more than 3% in the quarter.

For the full year of 2013, AAM's sales topped $3,207,000,000, up almost 10% on a year-over-year basis.

In the fourth quarter of 2013, non-GM sales increased over 37% on a year-over-year basis to approximately $280 million.

This quarterly rate of non-GM sales activity bested our previous quarterly record by more than $50 million.

Including the impact of our Hefei, China, joint venture, which is not included in our consolidated financial results, non-GM sales represented approximately 37% of our total sales in the fourth quarter of 2013.

There were two major drivers for this step-function increase in our non-GM sales activity.

The first one is the launch of AAM's EcoTrac disconnecting all-wheel drive systems for Chrysler's all-new Jeep Cherokee.

The second item relates to new content that we are providing to Ram for its 2014 model year Heavy Duty series pickup program.

For the full year of 2013, AAM's non-GM sales increased to more than $926 million; that is up 17% on a year-over-year basis.

As we disclosed at the Detroit Auto Show on January 15 of this year, 2014, we expect the compounded annual growth rate of our total business -- what I mean by that is AAM's total sales -- to trend around 11%, 12% through 2015.

We expect AAM's non-GM sales to grow at least twice as fast in this time period.

One of our critical strategic objectives is to improve the diversification of our business.

Customer diversification is not the only measure of diversification, but it is important, and we are pleased to report on our progress in this area.

AAM's content per vehicle is measured as the dollar value of our product sales, supporting our customers' North American light-truck and SUV programs.

In the fourth quarter of 2013, AAM's content per vehicle was $1579, up $65 on a unit basis, or 4.3% on a year-over-year basis as compared to $1514 in the fourth quarter of 2012.

This was also up $19 on a unit basis as compared to $1560 in the third quarter of 2013.

So up $65 on a year-over-year basis; up $19 on a sequential basis.

AAM's content per vehicle increased in 2013 and will continue to increase in 2014, due primarily to new content we are providing to GM and Chrysler for their North American full-size truck programs, that being the K2XX and the RAM Heavy Duty series pickups.

We expect content per vehicle to exceed $1600 in 2014.

Let's move on to profitability.

Now, the key operating profit metrics in the third quarter of 2013 reflect strong year-over-year improvement.

Growth profit was $43 million as compared to the fourth quarter -- I'm sorry, was up $43 million as compared with the fourth quarter of 2012; $126.9 million, or 15.3% of sales in the fourth quarter.

Operating income was up $48 million on a year-over-year basis to $66.4 million; that is 8% of sales in the quarter.

Excluding the impact of debt refinancing costs, which totaled $25.6 million in the quarter, adjusted EBIT, or earnings before interest and taxes, more than doubled on a year-over-year basis to $66.1 million in the fourth quarter of 2013 as compared to $24.7 million in the fourth quarter of 2012.

The adjusted EBIT margin was 8% in the fourth quarter of 2013.

AAM's adjusted EBITDA, earnings before interest, taxes, depreciation, and amortization, was up approximately $49 million in the quarter on a year-over-year basis to $113.7 million.

The adjusted EBITDA margin was 13.7% of sales.

For the full year of 2013, AAM's key operating profit metrics also reflected big improvements versus the prior year.

Gross profit, almost $480 million, or 14.9% of sales; operating income, $240 million, or 7.5% of sales.

Excluding the impact of debt refinancing costs, which totaled $36.8 million for the year and $5.8 million of other special items booked in the third quarter of 2013, adjusted EBIT was $245 million in 2013 as compared to $195 million in 2012.

The adjusted EBIT margin for the full year was 7.6%.

AAM's adjusted EBITDA was up approximately $75 million on a year-over-year basis to $421.8 million, and we already made that comment to you at the Detroit Auto Show.

This translates, as David pointed out, to a net incremental profit margin measured on an EBITDA basis of approximately 27% in 2013.

Let me now cover SG&A and interest.

Now, SG&A expense -- and this includes AAM's R&D spending -- in the fourth quarter of 2013 was $60.5 million.

That represents 7.3% of sales.

This compares to $65.4 million, or 8.9% of sales in the fourth quarter of 2012.

For the full year 2013, SG&A decreased on a year-over-year basis approximately $5 million to $238.4 million; that is 7.4% of sales, as compared to $243 million, or 8.3% of sales in the full year of 2012.

AAM's net R&D spending for the full year 2013 decreased $20 million as compared to 2012, and we finished the year 2013 at $103.4 million of R&D expense.

There were two primary reasons for the reduction in R&D expense, and these are consistent with what we have spoken about all year.

The first was the timing of product validation and prototype requirements to support the launch of new business awards.

This activity was more concentrated in 2012, particularly in the back half of 2012, as compared to 2013, and that is just due to the launch timing requirements.

The second issue was higher customer recoveries of ED&D -- or engineering, design, and development costs -- in 2013.

We discussed this at some length in the third quarter call.

If you have got questions about it, please ask.

But basically these are the two reasons why SG&A declined in 2013 as compared to 2012.

In 2014, we expect R&D to pick up again on an expense basis and increase in the range of 10% to 15% as compared to the full year 2013.

Both to support the engineering design and validation requirements associated with new business launches in the next couple of years, as well as to support an expanded focus on advanced engineering initiatives.

You know, we have had a lot of success introducing new AAM product technology to support customer demand for high-efficiency driveline products, improved fuel economy, reduced emissions, and enhance safety ride and handling performance.

EcoTrac is a great example of this, and so are the rear-wheel drive (inaudible) we are providing on a number of premium passenger car products.

We see opportunities to double down on these investments and accelerate the development of further product process and systems technologies to strengthen AAM's position and expand our product offerings.

Now, coming back to SG&A in total, SG&A was down $5 million; R&D was down $20 million.

The reduction in R&D expense in 2013, including an SG&A, was partially offset by two other factors.

The first was increased variable compensation expense, which was driven by improved profitability and the accelerating compensation charge we incurred due to the passing of our co-founder and former Executive Chairman of the Board in the fourth quarter of 2013.

The second item was increased spending on IT.

At the Detroit Auto Show, in addition to the discussion we had on our R&D spending and how that would increase in 2014, we explained that we are also increasing our investment in information systems technologies, including a major focus in upgrading the ERP systems, or enterprise resource planning, that we utilize to run our business.

The process of upgrading these and other critical enterprise systems we use to manage engineering, manufacturing, and administrative systems ramped up in 2013 and will further increase over the next two years.

In some cases, we are making long-term -- and what I want you to do is think about the 10- to 15-year time period -- refresh investments.

For example, we haven't had a major upgrade of our primary ERP system since 1998.

In other cases, such as product engineering and manufacturing engineering, we are implementing new capabilities.

While we won't commit a sizable portion of our CapEx and expense budget to these initiatives over the next few years, we are targeting improvements in procurement (inaudible), supply chain efficiency, material control, among other areas, to pay back these investments.

So the bottom line on SG&A trends is this.

We expect to increase our SG&A expense in 2014 by as much as $25 million due to higher R&D expense, higher IT costs, and, in some areas of our business, particularly overseas, higher staffing levels to support these initiatives and effectively manage an expected 18% increase in sales activities.

Now, I'm covering this in detail for the first time on an earnings call; but, again, this was all covered, and there is nothing different from that which we communicated at the Detroit Auto Show just a few weeks ago.

We do not expect SG&A to increase as a percentage of sales in 2014.

Net interest expense in the fourth quarter of 2013 was $27.8 million.

This compared to $28.9 million in the fourth quarter of 2012.

For the full year 2013, net interest expense was approximately $150 million as compared to $101 million in 2012.

As a result of the debt refinancing actions we completed in 2013, the weighted average interest rate of our debt capital structure at year-end 2013 was reduced to approximately 6.3%.

This will help us reduce net interest expense by at least $8 million to $10 million in 2014.

Taking all these items into account, net income was $29.8 million, or $.39 per share in the fourth quarter of 2013.

Excluding the impact of debt refinancing costs in the quarter, which totaled $25.6 million or $.32 per share, AAM's adjusted net income was $54.2 million, approximately $.70 per share.

For the full year of 2013, AAM's net income was $94.5 million, $1.23 per share.

Again, excluding the impact of debt refinancing costs, which for the full year totaled $36.8 million, or 46% -- $0.46 per share -- and also that $5.8 million of special items we booked in the third quarter, AAM's adjusted net income was approximately $135 million, or $1.76 per share.

Before we address cash flow on the balance sheet, let me say a few things about our cash accounting in the fourth quarter of 2013.

In the fourth quarter of 2013, the country of Mexico passed new income tax laws that are effective in 2014.

Now to make a long story short, the net effect of these changes is an increase in the tax rate applicable to (inaudible) companies, and that is what we operate in Mexico, from 17.5% to approximately 30%.

As a result of this change, which increased the effective tax rate in Mexico, the future cash reductions represented by our net deferred tax asset in Mexico, became valuable.

This drove an $8.5 million non-cash gain in the fourth quarter of 2013 -- that was $.11 per share -- and this was required to market the value of our deferred tax assets in Mexico to the newly enacted tax rates.

Also in the fourth quarter, we reduced our liabilities; and this is what they're referred to under GAAP, they're called unrecognized tax benefits to reflect the favorable settlement of the tax audit.

What that means is we had expected to incur costs to settle a tax audit that were greater than what we actually had to incur.

Our tax provision also benefited in the fourth quarter from the reduction in taxable income related to the debt refinancing costs, which we incurred in the fourth quarter of 2013.

Reflecting all of this activity, our fourth-quarter tax provision was a benefit of $17.3 million.

Notwithstanding the noise related to these discrete items, quote/unquote, as they are referred to in the accounting standards, we continue to expect our effective tax rate -- and what I mean by this is the book tax provision based on tax laws that are currently in effect -- to range from 15% to 20% over the next few years.

For the full year 2013, AAM's cash tax provision was approximately 13%.

You should calculate it by the dividing total cash payments of approximately $12 million by pretax income of $86.3 million.

As we have previously disclosed, this included approximately $5 million, or a tax audit settlement we paid in the first quarter.

[Also] a year ago we talked about this, but we paid $5 million for a tax audit settlement in the first quarter of 2013.

So our run rate of tax cash provision was a little bit less than the 13% we incurred on a total basis.

Alright.

Let me now [turn] to cash flow and the balance sheet.

AAM defines free cash flow to be net cash provided by operating activities, less CapEx, net of proceeds from the sale of assets.

Net cash provided by operating activities for the full year of 2013 was $223 million.

Capital spending for the full year of 2013 -- again, net of proceeds from the sale of property, (inaudible), and equipment, including the proceeds from the sale leaseback of equipment, net CapEx was $218.7 million.

Reflecting the impact of this activity, AAM generated positive free cash flow in 2013 of approximately $4.2 million.

AAM's cash flow results for 2013 includes cash payments for debt refinancing and reduction activities of approximately $38.3 million.

Excluding the impact of these cash-basis debt refinancing costs, AAM generated over $40 million of adjusted positive free cash flow in 2013.

Improving AAM's free cash flow results is a major priority for us for the next couple of years.

In the fourth quarter, and for that matter the full year of 2013, was moving in the right direction.

I will have more to say about that in a few minutes.

A couple of other things to cover on the balance sheet.

The first is our pension funded status.

At December 31, 2013, our unfunded pension liability was reduced to approximately $42 million.

However, it is important to understand that substantially all of this remaining unfunded pension liabilities -- or liability, I should say -- relates to the (inaudible), which by its nature is a non-qualified plan for our Company.

Non-qualified plan in an unfunded liability; that is the key point.

If you were only to qualify the [funds] benefit pension plans we sponsored for hourly and salaried associates in the US and the UK, AAM's pension funded status under US GAAP is approximately 99.8% at the end of the year.

As a result, we don't expect any significant pension funding requirements until the calendar year of 2016 or later.

Second point on the balance sheet is working capital.

In the fourth quarter 2013, AAM's cash flow results benefited from an improved net working capital position.

This was driven primarily by accounts receivable, which ended 2013 approximately $5 million lower than at year-end 2012.

Let me now address key credit metrics in our year-end liquidity position.

AAM's EBITDA leverage, or the ratio of EBITDA to net debt, was approximately 3.3 times at 2013 year end; that is prepared on an adjusted basis.

That is inside the 3.5 target we set for this year.

AAM's EBIT coverage, or the ratio of EBIT to interest expense, was 2.1 times in 2013 year end also on an adjusted basis.

The target this year was 2, and we got there.

We expect both the leverage ratio and the coverage ratio to improve again in 2014, approaching 2.5 times and 3 times, respectively.

As to liquidity, AAM ended 2013 with total available liquidity in excess of $700 million, which consists of available cash and borrowing capacity on our global credit facilities.

With all that said about 2013, let me close my comments with a few key discussion topics here on 2014.

Our core guidance for 2014 is very simple.

We are targeting full-year sales in 2014 to increase 17.18% to a range of $3.75 billion to $3.8 million.

Our base assumption for 2014 was that the US SAAR will approximate 16 million light-vehicle units.

AAM is targeting EBITDA margins for 2014 in the range of 13.5% to 14%.

AAM is targeting $100 million of positive free cash flow in 2013.

Let me take a minute to add some color to this summary outlook.

First of all, for the first full year of 2014, AAM's sales will also be driven by the launch of approximately $400 million of new business, including our backlog of new and incremental business awards.

We also expect higher sales related to our support of GM's K2XX program and Chrysler's Ram Heavy Duty series pickups.

With respect to the K2XX program, our outlook assumes that GM will build a total of 1,150,000 vehicle units in 2014.

That is both light-duty and heavy-duty pickups and SUVs.

This approximates GM's annual straight-time capacity for the four separate plants dedicated to this program.

This also correlates to a volume and mix scenario based on the following key attributes.

US SAAR, 16 million units.

Full-size pickup and SUV mix in the range of 14% to 14.5% of the US SAAR, approximately the same as calendar year 2013.

And finally, on (inaudible) 200 basis point improvement in GM's full-size pickup market shares compared to calendar year 2013.

The final point I will make about 2014 relates to the first quarter.

We built out the GMT 900 program for GM in December.

Our capacity for GM's full-size products is now exclusively supporting the K2XX program.

While we expect production volume to ramp up significantly during the month of March and in -- in February, I meant to say, but also into March, for both the SUV heavy-duty pickups, the month of January was significantly impacted by downtime at GM's Flint and Arlington assembly plants.

From our perspective, the K2XX transition is progressing well and is very much consistent with our expectations and, of course, the communications that GM has made to the supplier base over a long time about the timing of this launch.

However, from a financial perspective, you need to understand that our shipments to General Motors for the K2XX program will be weaker in the first quarter of 2014 and is compared to the underlying sales trend for the full year.

Our current expectation is that K2XX production volumes in the first quarter of 2014 will be slightly less than the fourth quarter of 2013.

Even though there are more production days, the impact of the downtime should drive a lower shipment total for GM the first quarter of 2014.

If you compared the run rate we expect for the full year of 2014, production volumes in the first quarter should be the lowest for any quarter this year.

Now, this seasonality was specifically contemplated in our guidance for the full year of 2014 in terms of sales, profitability, and cash flow.

While we are not providing any detailed quarterly earnings guidance today, you should understand that, due to the impact of this launch activity, we do expect our profitability in the first quarter of 2014 to be weaker than the run rate we expect for the full year.

And, just to be clear, the launch of the K2XX SUVs and heavy-duty pickups will complete a very successful, major launch for our customer, General Motors, AAM, and the entire K2XX supply chain.

We are now just weeks away from completing this launch and returning our operations to, quote/unquote, normal state.

This positions us well to focus on harvesting the productivity improvements and other benefits associated with the investments that we have made to support this and other critical launch programs.

2014 and 2015 are shaping up to be breakout years for our Company.

We are targeting significant cash flow generation and debt reduction.

We expect to grow our top line by more than 10% on a compound annual basis in this time period; I was specific about a range of 11% to 12% earlier on this call.

And we also expect a significant improvement of the diversification of our business in all three key areas -- product, geography, and customer.

We are excited about these opportunities and look forward to updating you on our progress as we go.

Thank you for your time and participation on the call today.

We will stop here and turn the call back over to Chris so we can have some Q&A time.

Great.

Thank you, Mike, and thank you, David.

We have reserved some time for some questions, so at this time I am going to turn it over back to Nicole so we can start with the Q&A.

Rod Lache, Deutsche Bank.

Just one clarification.

Did you say that you are still expecting your GAAP tax rate to be maintained at 15% to 20% going forward even with this Mexico change?

Yes, Rod, that's right.

The range of 15% to 20%, we had expected a portion -- actually expected the subsequent portion of what happened in Mexico when we set out our expectations for tax rates over the next few years.

During the course of the legislative process in Mexico, there were other considerations made by the Mexican government, some which would have driven the effective tax rate in Mexico to even much higher levels.

Now, that did not occur.

And so the 15% to 20% range of expectations for book tax provisions we have contemplates exactly what did happen in Mexico.

So the answer to your question, Rod, is yes.

Okay.

And do you see any changes to the outlook for truck production, just given where the inventory is, maybe the shape of this year?

Is that likely to look any different?

Rod, this is David.

And, right now, we are still planning 1.15 million units for the K2XX program as we move forward, so we don't see any changes at this point in time.

And no changes to the Ram expectations?

No.

They are staying strong at this point in time for the Heavy Duty, as far as what we are affiliated with.

Okay.

And then, you give us some color on this year's margins, kind of suggesting that lower launch costs and volume will offset this higher SG&A.

Can you give us some thoughts on how we should be thinking about margins, looking beyond 2014 into 2015, some of the positives and negatives?

How should we be thinking about the SG&A, things like R&D and IT?

Does the lower backlog mixture help your margins?

And, just directionally, are you thinking up, down, or flat in terms of margins?

Rod, this is Mike.

Listen, we are -- as we look out to 2014 and 2015, we see these as years to earn very strong profit margins.

As you know, we were distracted, but in a good way, an important way, a necessary way, by a significant launch activity in the last couple of years.

And during 2013, in particular, we had situation where we were supporting two different programs in the same plant and, in some cases, on the same equipment.

This resulted in some of these launch inefficiencies that we've discussed.

And just the basic process of launch caused us to incur project expenses and start-up costs and higher validation expenses than what we would consider a normal rate of activity.

So as you look at 2014 and 2015, I think you hit on the key points that the launch-related activity, the start-up expense, should be down.

Project expense should be moderated.

We do expect a very strong production environment, and what I mean by that is a strong demand environment for these new light-truck programs in North America.

And so we expect very strong capacity utilization.

And, as a result, we do expect an excellent profit conversion opportunity in 2014 and 2015.

Now, we are very busy and focused on the details of 2014.

We are not going to say a whole lot more about 2015.

But to repeat that our expectation is to be able to generate $175 million to $200 million of positive free cash flow in 2015.

And in order to get that done, Rod, we are going to have a good, positive margin performance.

Should we be thinking that SG&A stays at roughly this level or on a percentage basis?

Yes.

On a percentage basis, our goal is to drive it down a little bit over time.

We are in that 7% to 7.5% range right now.

That is down from something more like 8% to 8.5% over the last couple of years.

The significant reason for that reduction is the fact that we have been incurring costs to support a much larger business footprint.

And now, of course, we are gaining the sales footprint from the hard work we have put in the last couple of years.

So I would not -- we do not expect our SG&A expense to increase as a percentage of sales, so we do see some opportunity to be more efficient in that area.

Itay Michaeli, Citigroup.

Just wanted -- Mike, the comments around the cadence were very helpful for the first quarter.

Any more you could share in terms of how much better Q2 could be as the truck platforms start to ramp?

And perhaps any color on how we should think about the cadence for revenue throughout 2014, just given the backlog and some of the timings of the launches?

Yes.

Itay, the production outlook for the K2XX program -- you know, our base outlook is around 1,150,000 units.

That translates to an average quarterly run rate of just under 290,000 units.

The first quarter should be lighter than that -- maybe 25,000, 30,000 units lighter.

The second and third quarter look to be very strong.

Seasonally, production and sales ramp up that time of year.

There are somewhere in the neighborhood of 62 to 64 production days calculated on a US basis in that time period.

And so we would anticipate, right now, the middle two quarters of this year to be very strong from a unit of production and shipment basis and probably drive our sales to the highest levels we will see all year during those quarters.

So in terms of a little color, that is what we see right now.

That's very helpful.

And then two quick housekeeping questions.

Anything you could share in terms of the outlook for D&A in 2014?

I suspect that is probably going to go up and maybe your EBITDA margins probably lies a bit faster in 2014 than your EBITDA margins.

And then, on the taxes, any change to the thinking around cash taxes for the next couple of years?

Okay.

Let me address the first question first, and that is D&A.

So, Itay, you know that we are spending in the range of $210 million to $220 million over, say, 2012 to 2014.

Our average useful life for equipment we are launching right now is in that 8- to 9-, maybe 10-year time period.

So D&A did go up about $25 million in calendar year 2013; we see something similar in 2014.

And that is simply the result of putting the equipment in place to support the launches at the level of capital spending that we are incurring right now.

The second question had to do with cash taxes.

Well, hey, I told you that the all-in cash tax rate for 2013 was around 13%.

We excluded that audit settlement, which those types of payment don't happen every year.

We would have had significantly lower.

Our expectation is for cash taxes to be about half of our book tax rate over the next couple of years.

So we are pushing near 20% on a book provision rate; we should be -- add just a little bit under 10% on a cash tax provision rate.

So really, the answer to your question is no, we don't have any changed expectation with respect to cash tax rate.

We will have some increased payments associated with Mexico, but that should be fairly commensurate with the increase in our overall profitability.

Great.

Then, just lastly, David, I think you mentioned quoting about $1 billion of new business.

Any color around the timeframe of those potential wins for you?

Is it a couple years out or further than that?

Well, as far as the source into the business, we expect it to be probably second half of the year, this year as far as the programs that we are working on.

But most of the programs we are working on right now, some have some implications in 2016, but most are 2017 and beyond.

John Murphy, Bank of America Merrill Lynch.

First simple question.

Could you just remind us what the content difference is on the light-duty versus the HD K2XX program for you?

Yes.

We are not going to be too terribly specific, but the average -- portfolio average, as you know, it is in the upper 1500s up to about 1600.

There is a couple, $300 difference between the light duty and the heavy duties.

It depends a little bit on four-wheel drive penetration.

Obviously, the most heavily contented trucks we sell, the Heavy Duty series all-wheel drive, those content-per-vehicle vehicle total of over $2000.

And we are selling just a single axle on a light duty.

You might see as little as $800, $900, depending on the specific axle configuration.

So there is a wide variance from top to bottom.

But in terms of the portfolio concentration light duty to heavy duty, the variability is hundreds of dollars (inaudible) closer to $1000 variance top to bottom.

But it is fair to say that those trucks are launching in the second, third, and fourth quarter.

We could see some content per vehicle mix that is positive.

Absolutely.

You know, what -- the main driver of the increase in content per vehicle this year, we finished just under $1580 a year ago.

We should be significantly over $1600 this year.

The main driver is the new content we are providing, as I said, heavy-duty pickup trucks both for the Ram program and, importantly, for GM on the K2XX.

That's very helpful.

Just a second question.

Given the relationship with Chrysler seems to be improving as far as your penetration -- and I'm sure it's always been good -- but as far as revenue opportunity, is there the potential for the light-duty Ram to open up to you in next-generation?

John, this is David.

Right now, it's business as contained within that (inaudible) and the partnership that they have with Chrysler.

We are not having any discussion with them specifically regarding the next-generation product.

It really depends on what their commodity strategy is and what their longer-term interest is in regards to working with American Axle.

But, to your earlier point, we have had a very strong relationship with Chrysler; it's a growing relationship with Chrysler.

We have had tremendous success over the last 10 years on the Ram Heavy Duty.

You can now see what we are doing with them with the advanced technology with EcoTrac on the Cherokee, and that is now expanding into the Chrysler 200.

And we expect other opportunities to present themselves there as well.

So we see better days ahead of us working with Chrysler.

Are those assets potentially something you would be interested in, though?

Well, as we have said before to everybody, I mean, we will always look at strategic opportunities, and we just have to balance that with our other priorities of the business at this point time.

But clearly if there is an interest in regards to some, you know, Chrysler and/or (inaudible) in that business, we would definitely evaluate that.

Okay.

And then, just lastly, as we look at the changes in the Mexico tax rate, does that change your view on how you are allocating capital between the US and Mexico?

I mean, almost a doubling in the tax rate there; seems that you might change your mind on how you are allocating capital.

Hey, John.

That's a great question.

Let me provide a little bit more color on that.

Keep in mind that our global holding company structure owns and operates a substantial portion of the assets -- the profit-making assets we have in Mexico.

So while that rate increase did increase rather substantially, a significant portion of the profits we make in Mexico are not actually taxed in Mexico.

Those will eventually be taxed in the US when we repatriate those earnings.

So, yes, it has an impact on our decision-making process relative to making investments in Mexico.

But the impact is not nearly as significant as you might think because it only relates to the income of tax in the country of Mexico.

Okay.

That's very helpful.

And one just last one.

I mean, everybody keeps focusing on the negative side on the K2XX.

But if the [blind] surprise to the upside, and they do [$1.3 million], what is your capacity to support real upside in the K2XX program in aggregate?

And what is your view on where GM could go on that capacity as well?

John, GM has got a straight-time capacitor of about 1.1 million units and, obviously, they can price that up to probably about the [$1.3 million] within the -- with the operating changes and [Alliance fee] changes within the four facilities that they operate.

And as Mike and I said, we are expecting the K2XX volumes to be about 1.15 million units this year.

We've got installed capacity that will support that and also be able to flex.

The biggest thing that we have been spending time with General Motors on this past year, 2013, and also into this year, is just making sure that we align our capacity and mix with the new market demand.

And we have been very forthright and transparent with everybody with respect to that.

And our team has done a Herculean job in regards to addressing the buy-in requirements and the shift in demand that has been out there from a mix standpoint in 2013, and we will continue to support our largest customer going forward in 2014 as well.

Brett Hoselton, KeyBanc.

First, just a quick number.

The unfunded pension, did I write it $42 million?

Was that the number?

And I know you had said that that is actually largely the non-qualified plan.

But was that the correct number?

Yes.

That's right.

$42 million, and roughly $41 million of that is (inaudible).

Okay.

And then, secondly, as we think about your free cash flow guidance from 2014 -- $100 million; that's about $100 million improvement over what you did in 2013 -- can you just kind of bucket the major components of that improvement?

Yes.

Brett, on an adjusted basis, it is about a $55 million, $60 million increase year-over-year.

So the underlying operating cash flow performance in 2013, we do expect to carry over.

But the cash flow situation for our Company is pretty simple.

The incremental profit margin conversion opportunity we have in 2014 is really the main driver for improved cash flow performance.

CapEx is going to be around the same on a dollar basis.

We indicated at the Detroit Auto Show it would be around 6% of sales; and if you run the math on that, it is pretty much flat year-over-year.

We do expect an increased working capital investment in 2014.

Our sales are going to grow almost $600 million.

We will probably need $60 million, maybe $70 million to cover that.

So we are going to use some of the profit -- incremental profit, if you will, to cover up that number.

But interest expense or cash payments (inaudible) will be down.

Our refinancing payments will be down, of course, on an adjusted basis.

That's not an issue.

But we expect basically to build off what we started in 2013.

We have got to cover slightly elevated CapEx and working capital in 2014.

We clear that stuff up, and really that is going to allow a bigger stair step in 2015.

Okay.

And as we think about 2015, it would seem that your revenue is going to grow for any number of regions reasons.

Margins, it sounds like they may tread water or something.

So, obviously, your profitability grows.

Are there any major pluses or minuses beyond that incremental profitability that you see impacting your 2015 cash flow?

The answer is no.

I mean, like I said, we expect a big difference between 2015 and 2014 from a cash flow perspective.

There will be a [little] moderation in our capital spending, little moderation in our working capital requirements because we do expect the dollar value of our sales growth to be higher in 2014 than what we see currently in 2015.

So beyond that, the profitability opportunities and some additional reduction in interest expense, that is going to be the primary driver of improved cash flow performance in 2015.

Joe Spak, RBC Capital Markets.

Just real quickly, heading back to the quarter.

I mean, if we look at the GM and non-GM business sequentially, it looks like GM was down; obviously, that 6% -- non-GM strong.

Yet the gross margins were flat.

So I guess that implies some pretty decent operating performance on some of the Cherokee business.

Is that basically what sort of kept the gross margins flat?

And are we at the right run rate on that program yet?

On a quarter-over-quarter basis, you did point out the reduction in overall GM revenue and also, rightfully, pointed out the increase in sales, including the Cherokee program.

All that business, as we pointed out before, the overall profit profile of our driveline business, there is not a heck of a lot of difference.

The K2XX program does stand out because of the operating leverage we are able to gain on the volume that we have in that program.

But, basically, our guys did a good job.

If we get more totally concentrated on a single program as we've built out the GMT 900 program, as we return our operations to more of a normalized state, as we get better on the efficiency of launching new equipment that has come on during our launch, all those factors played into our ability in 2014 fourth quarter -- I'm sorry, 2015 fourth quarter to hold margins pretty much where they were in the third quarter.

So I think, Joe, it is not really just -- certainly not just the Cherokee program, but a variety of those issues we have been working on to sustain our profitability.

Okay.

And then if we think about 2015 a little bit, towards the end of last year you guys have sort of hinted that there wouldn't be that steep of a margin drop-off in 2015 versus 2014.

So even if we just take your, call it, 13.5% to 14% guidance for 2014 and rolled that forward to 2015, obviously the price-downs get a little bit steeper.

So is the main offset we should be thinking about just improved productivity, or is there something else going on there?

Yes.

I appreciate -- we appreciate very much everybody's interest in 2015.

We are very much more focused on 2014.

The big job to do this year is set ourselves up for 2015.

But let me make what I hope is the final comment about 2015 profit margins this morning.

You are right, Joe, that we are going to step up to a higher level of productivity (inaudible) or price concession over the course of 2014 and 2015.

And what we have said before, what we will repeat today, is that our best opportunity in this time period, 2014 and 2015, to offset the negative impact on standalone basis of the price-down is going to be productivity.

And it is going to be productivity associated with returning our operations to a normalized state to, again, getting smarter and better and more efficient in utilizing the new equipment that we installed to support these launches.

We expect we will have very strong capacity utilization during this time period.

And so those factors are what we expect to be able to offset the impact of that productivity.

Brian Johnson, Barclays.

This is Stephen (inaudible) for Brian Johnson.

Just had a quick question.

You guys mentioned earlier on the call that you are looking to provide additional content on the Ram Heavy Duty.

I just wondered if you could quantify that additional content and whether or not that is included in the backlog of roughly $400 million for 2014.

Yes.

Definitely.

The additional content we are providing on the Ram Heavy Duty program is included in the backlog.

The only aspect of any existing program we have that ends up in the backlog ever is new content.

So if we win the successor content on an existing program, none of that is included in the backlog.

But when we do have an opportunity to have net content, net new and incremental content provided for our customers, that could support it in that backlog.

So yes, it is in there, and we don't provide specific disclosure about the amounts of sales for any of these individual programs.

But, yes, it is in the backlog.

Okay.

Great.

That's helpful.

And then, in terms of leverages in regard to 2015 and beyond, I believe before you have mentioned you are targeting to get that below 2 times.

And rough calculations here of fiscal year 2015 and timeframe, we are looking at around 2 X. Could you just provide us an update on capital allocation priorities moving forward past 2015, 2016, and beyond?

Yes.

So, Steve, let me just summarize.

I think you have got it right.

The near-term goal, I would call it -- it is not necessarily the ultimate objective of the Company, but near-term goal is to return our leverage ratio to 2 times by 2015, coverage ratio over 3 times.

And we would like to see a mix of debt equity capital such that that represents about 1/3 third of our total capital base and equity about 2/3.

That is really our objective that we laid out first in 2009 and hope to accomplish by 2015.

Now, in terms of capital allocation, again, there is really nothing new here.

We are dedicating capital to two primary objectives and priorities right now -- that is the growth and diversification of our business, and debt reduction.

There are other things we would like to consider in the future.

We think the playbook opens up for things such as additional strategic investments, returning cash to shareholders, those types of things.

But that is more of a 2015-and-beyond type consideration in terms of magnitude at this point in time.

Our focus in terms of capital allocation is clearly on the first two objectives I laid out.

Okay.

And then just one quick last one on the -- I just want to get your thoughts on expanding in Europe.

I look at your backlog, and it looks like it went up to around 7% of the backlog as opposed to 2% prior.

Just given the -- that that market is basically a 20-year low, do you see any opportunities moving forward for that to increase?

Or just could you supply some thoughts on that market outlook in potential opportunities or expansion in that market?

Yes.

Europe only makes up around 3% of our sales today.

And we have been working very hard the last several years in regards to putting our manufacturing footprint in a very competitive position while also advancing our product technologies.

And we have secured some great business for Jaguar Land Rover, as we mentioned earlier.

And we have got good business with a number of other customers there.

And if the market recovers there and the relationships that we developing over there, we clearly expect our European business to be able to generate more sales and profits for the overall business moving forward.

Ravi Shanker, Morgan Stanley.

So when we met back in December, you had said that you were trying to pursue reimbursement of some of the costs for both the Thailand production change as well as the K2XX (inaudible) from GM.

Has there been any progress with that?

Yes, Ravi, this is David.

You asked me about resolution to the issues with respect to the Thailand site.

That is a closed matter and [has] been contemplated in our 2013 financials.

At the same time with respect to some of the operating premiums, yes, we have worked out our relationship to support the new market demand requirements and [unanticipated] mix change.

And as I indicated earlier, we are continuing to work with General Motors to make sure we get complete alignment, both volume and mix, as we go forward across light-duty pickup, light-duty SUV, and heavy-duty pickup.

(inaudible) will already be in the 2013 numbers or (inaudible) 2014 guidance?

Yes.

Right.

The Thailand situation was resolved in the fourth quarter, cash received, and, yes, in the numbers.

Got it.

A couple of clarifications.

Earlier, when you were talking about D&A in 2014, did you say that the increase in D&A in 2014 would be the same as the increase in 2013 were (inaudible)?

Yes, pretty much the same, Ravi.

That the amount of capital that we are going to place in service in 2014 is pretty similar to what we are doing in 2013.

And, as a result, the increase in D&A will be about the same.

All right.

And just finally, again, back in December, if I am not mistaken, I think you said that one of the drivers of a weaker margin in the fourth quarter versus third quarter would be an R&D true-up in Q4, which didn't seem to happen.

I am wondering if there is something there that either can move 2014 or if you were just more efficient (inaudible).

What we spoke to, Ravi, in total was increase G&A expense.

On an adjusted basis, if you exclude that special item we booked in the third quarter, our SG&A was around $52.5 million.

In the fourth quarter, SG&A was back to about [$60 million].

And so, all in, SG&A, the effective R&D, and other costs came back to the sort of run rate we had for the full year and the fourth quarter, and that was in line with our expectations.

Understood.

Thank you.

Thanks, Ravi.

And R&D was up a little bit, Ravi, just not as much as you might have expected.

Ryan Brinkman, JPMorgan.

Most of my questions have been answered, but just one, and it has been touched on some.

But, GM's full-size pickup trucks sales have been softer over the past couple months.

Hopefully, this is just related to winter weather and we will see a snap-back soon.

But it also seems like there is some element there emphasizing price over volume a little bit more than maybe the sales side or investors had presumed.

This was discussed on GM's earnings call yesterday.

I'm curious if the balance of price versus volume that the Company is pursuing has tracked any differently than maybe you would expect it.

Ryan, our volumes with General Motors and K2XX are staying very strong right now.

At the same time, GM clearly has their own strategy in regards what they want to do with the transaction price.

We were not involved with that.

All we care about right now and what we see right now is very strong schedules for all products, both the pickup truck, light-duty, and heavy-duty as well as SUV going forward.

As Mike indicated, as we are going through the ramp and launch of the SUV and heavy-duty pickup, our production and sales will be down a little bit in the first quarter compared to the full year of 2014.

Hey, Ryan, let me comment just briefly on some aspect of what you said.

I think somebody else maybe commented earlier about there being some negativity about the pace of K2XX sales for some reason.

We don't understand that line of thinking at all.

And what you said about sales being weak for a couple of months is not true.

Sales were weak in January; that is one month.

If you take a look at what happened in the fourth quarter, there was tremendous momentum.

The sales in December were very strong.

And I am not want to make a lot of excuses about weather interrupting sales activity, but I don't know what the heck polar vortex means, but I think it means is it is a huge inconvenience for everybody; and all you want to do in this part of the country is go into your house and stay there.

And so we think there is clearly a little bit of aberration in that one-month statistic.

And so before we all run around like Chicken Little -- I am not ascribing this to you, but sort of in general, the commentary I have heard in public in recent month -- weeks and reading in the newspapers, before we run around and over-exaggerate about a one-month trend, let's see where we end up in February and March.

Seasonally, January is a very tough month for sales of pickups, and we are not at all concerned about what we see at this point in time.

We see a great truck program with a very competitive market position, and we expect GM to have a lot of success selling this truck in 2014.

Great.

That's really reassuring to hear.

And a lot of companies have pointed out -- Starbucks, a lot of companies -- the winter weather impact.

I guess just one final one, then.

On working capital, it was discussed on and I am looking at the bridge from $4 million of free cash flow to $100 million next year.

It looks like you could get there -- a lot of the way there with the increase in your -- the EBITDA that is implied by the midpoint of your guidance, like [519], I think, versus [422] in 2013.

[Don't] paid a lot of tax, even less cash taxes.

Then you are going to have a step down in cash interest.

CapEx should be a little bit of a help; that's kind of midpoint of your guidance, I think.

So that does imply that there is another sort of offset in there somewhere I guess on working capital.

Is there any reason to think that working capital might work a little bit differently than we are used to going forward, maybe as you expand overseas more, have any long supply chains there?

Anything to think about there?

Yes.

Ryan, I think you have got a good handle on the basic put and takes relative to the cash flow.

On working capital, I do expect 2014 to be a little unusual, only in the sense of magnitude, not really the basic underlying issues.

We have already stepped up, I think, to the changes that we would experience in relation to supply chains in 2012 and 2013.

In 2014, again, we expect our sales to grow by almost $600 million.

Our net working capital requirement is around 12% of sales -- net incremental sales is what I am speaking to.

So I expect maybe a $60 million, $70 million increase in working capital investment.

And what I mean by that specifically is accounts receivable, inventory, and payables, net, in 2014.

Now, our inventory levels jumped up a little bit at the end of 2013.

So while our receivables performance was very strong, payables sort of normal, we did leave some opportunity to take some inventory out of the system.

And so the offset we are looking for in 2014 that we hope to offset some of this working capital investment is to normalize some inventory levels, particularly in Mexico.

So big picture, the answer to your question is no.

I don't see fundamental difference in terms of payment terms or supply chains or anything like that.

I think it's just going to be a matter of performance at this point.

Great.

Thanks, Ryan, and we have got time for one more question.

Emmanuel Rosner, CLSA.

Wanted to follow up, actually, on Ryan's question a little bit more on the K2XX.

And no negativity at all on this side.

Maybe quite the opposite.

But, just I guess objectively, the market share of GM in the full-size pickup trucks was something like 32%, 33% for the past three months.

So the weather is certainly something that is impacting all the players in here.

But in terms of just pure market share, it was like 32%, 33% in each of the past three months.

That compares to about maybe 35%, 36% for the full year, which, admittedly, at the beginning was taking advantage of a sell-down of the old model.

Now, you were mentioning at the beginning of the call with a lot of granularity that we really appreciate that, embedded in your estimates, you are looking at about a 2-point share gain for GM's pickup -- full-size pickups in 2014.

Can you maybe tell us how you would expect the market share trends to happen to sort of like reach your target and maybe talk a little bit about the sensitivity of volumes to serve this assumption, if you can?

Yes.

Okay.

Emmanuel, let me (inaudible) a couple issues.

As you know, from time to time, we provide sensitivity analyses that take a look at the SAAR and the expected mix in market share and build up from a market analysis standpoint what we expect volumes to be.

We agree with your trends.

We don't -- we calculate the market share a little bit differently.

Our estimate of market share in 2013 of the pickup for the full-size, General Motors was around 37%.

And we do see a couple -- 3% decline in the month of January.

We have already addressed that.

But, during the month -- during the calendar year 2013, we saw a relatively consistent performance right around that 37% of the market.

If you want to square up that for the call, exactly the metrics, you get these metrics from (inaudible), so it is not anything we are doing other than compiling the data and calculating the share.

Look, I think from our perspective, we think GM gets stronger as the year goes on.

We think that matches their production cadence because of the launch activity in the first quarter.

They did not build inventory in the first month of the year.

They are pretty flat with where they were at the end of the year.

Again, relating to the downtime.

So even though sales were down, so were production.

We would expect GM to build momentum as this year rolls on.

We think as they introduce both the SUVs and Heavy Duty pickup trucks, they are going to be in a very strong position to capture sales from customers who are waiting for those products.

And so my only comment would be, we are expecting 38%, maybe 39% market share this year up from 37% last year.

38% is what is sort of embedded in our assumption in terms of GM building run rate 150,000 units.

So if they get to 39% or even 40%, that would be upside.

And 1% of the market is somewhere in the neighborhood of 15,000, 20,000, 25,000 trucks, depending on whether you are talking about just light-duty or light-duty and heavy-duty.

So good opportunity for our Company should GM be able to convert on that.

Great.

I appreciate the granularity.

And then just one question on your commercial vehicle business.

Can you maybe remind us what portion of your business it represents now and where you see that trending over the next few years and where the opportunity is there?

The commercial vehicle business represents less than 10% of our business today.

We clearly have some growth in our backlog, so you will see some of that increase over time.

Most of the growth as we proactively communicate with you all is in the Asian markets, particularly India and China, for us.

Partly with our joint venture partner and other diversified customers in China.

But, clearly, as volumes grow with Daimler in India and we continue to support other requirements in that market.

So that's really where we are at with commercial vehicles.

Thanks, Emmanuel.

And we thank all of you who have participated on this call and appreciate your interest in AAM.

We look forward to talking with you in the future.

This concludes today's conference call.

You may now disconnect.