Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing Fourth Quarter and Full Year 2011 Earnings Conference Call. [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, Stephanie, and good morning, everyone. And thank you for joining us today and for your interest in American Axle & Manufacturing. We released our fourth quarter and full year 2011 earnings announcement early this morning. 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 will also be available beginning at 5 p.m. today through 5 p.m. Eastern Time, February 10, by calling (855) 859-2056, reservation number 42077280. Before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements subject to risks and uncertainties, which cannot be predicted or quantified, and which may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to our filings with the 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 a 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: JPMorgan's High Yield & Leveraged Finance Conference on March 1 and the Bank of America Merrill Lynch New York Automotive Summit on April 3. 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, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the fourth quarter and full year of 2011. Joining me on the call today are David C. Dauch, AAM's President and Chief Operating Officer; John Bellanti, AAM's Vice President of Worldwide Operations; along with Mike Simonte, our Executive Vice President and Chief Financial Officer. To begin my comments today, I will cover the highlights of our fourth quarter and full year 2011 financial results. I will also update you on the excellent progress we are making to achieve AAM's long-term strategic objectives of profitably growing and diversifying our business. Finally, I will make a few comments on AAM's 2012 outlook before turning things over to Mike to discuss the details of our financial performance. After that, we will open the call up for any questions that you ladies and gentlemen may have. So let us get started. The fourth quarter of 2011 capped a very successful year for AAM. AAM sales growth was significantly higher than the industry in 2011 and our profitability was very steady and strong throughout the year. In the fourth quarter of 2011, AAM sales were $605.6 million. This marked AAM's eighth straight quarter with a year-over-year sales growth. For the full year of 2011, our sales were nearly $2.6 billion, up 13% on a year-over-year basis. Non-GM sales grew even faster in 2011, up 25% on a year-over-year basis. The gross profit in the fourth quarter was $105.7 million or 17.5% of sales. And for the full year 2011, AAM's gross margin was 17.6% of sales, a new company record. Operating income was $48.5 million in the fourth quarter or 8% of sales. For the full year of 2011, AAM's operating margin was 8.6%. Excluding $4.8…

Thanks, Dick, and good morning, everybody. Happy New Year to those we missed at the Detroit Auto Show Conference. Today, my job is to review with you the highlights of our financial performance in the fourth quarter and full year 2011. Dick covered the basics, so I'll get right into the details starting with sales. AAM sales in the fourth quarter of 2011 were $605.6 million, almost 4% higher than a year ago in the fourth quarter of 2010. And of course, this was right in line with the guidance we provided to you for the whole year 2011. On a sequential basis, AAM sales in the fourth quarter were down $42 million or 6.5% versus the third quarter of 2011. And this was expected and primarily attributable to an expected seasonal fluctuation. In the third quarter of 2011, most of the GM assembly plants we support in the U.S. worked through at least a portion of the customary shutdown period. We talked about that on our third quarter conference call. In the fourth quarter of 2011, there were only 57 production days for these facilities. In addition, some of the programs we support shut down early at year end. AAM's content-per-vehicle in the fourth quarter of 2011 was $1,498, approximately flat as compared to $1,508 in the fourth quarter of 2010. On a sequential basis, our content-per-vehicle was up 2% in the fourth quarter as compared to $1,466 in the third quarter of 2011. On a sequential basis, the increase in content-per-vehicle was due to favorable mix, most notably, shipments supporting the Ram heavy-duty series pickup trucks were up 14% in the quarter. For the full year 2011, content-per-vehicle was $1,487. On a year-over-year basis, this was an increase of $46 or 3%. This increase in AAM's content-per-vehicle was…

All right. Well, thank you, Mike, and thank you, Dick. We've reserved some time to take some questions. [Operator Instructions] So at this time, please feel to proceed with any questions you may have. So Stephanie, if you can open up the queue.

[Operator Instructions] Your first question comes from John Murphy with Bank of America Merrill Lynch.

Mike, you outlined on the cash flow a number of items that it sound like you're not going to repeat in 2012, particularly the one-time working capital shift with GM. Are there any unique items or other items we should be thinking about for 2012 that might be different than your typical EBITDA plus -- EBITDA less CapEx, as we think about free cash flow? I'm just trying to understand, it sounds like working capital will be a positive. But is there any other items that will be big swing factors in the year particularly restructuring?

John, our free cash flow profile is impacted by 3 major issues. We've made disclosure around our guidance for CapEx at roughly 6% of sales. We do expect our CapEx to moderate something closer to 5% of sales as we work through the next couple of years. But in 2012, to support the major launches that we have lined up in both 2012 and '13, roughly $750 million of total annual sales launching in those 2 calendar years, we're going to be around 6%. Now the other 2 major drivers of cash flow use for our company relate to the pension funding. We see our pension funding averaging approximately $50 million a year over the next couple of years. We did pull ahead some of our 2012 required payments into 2011, so it might be a little bit less in 2012. We'll see how that plays out. And the other issue is interest expense. Interest expense will be $90 million, $95 million on a cash basis. We see a significant opportunity to improve that as we get out to 2014. We've got a bond maturing at that point in time, another callable, and so that gives us an opportunity. We generate some free cash flow between here and there, and continue to perform, good opportunity from a refinancing perspective to reduce our cash interest expense. But in 2012, John, I think it's going to be a lot of blocking and tackling. The only other issue to note with respect to 2012 cash flow is the continuing burden that we'll have in the first half of the year relative to closing the Detroit Manufacturing Facility and the Cheektowaga Manufacturing Facility, so there will be a little bit of noise in the first half of the year. But otherwise, the fundamentals should be pretty good.

And then that sort of leads me into my second question. As we look at Detroit and Cheektowaga, I mean, just wondering if you could give us a status update on where the transfer of equipment and tooling out of those plants into your other plants is and if there might be an opportunity really to boost margins just based on those being much more productive in other plants.

John, Dick Dauch. Everything that has been planned appropriately for the transitioning from DMC closure is right on schedule. And as you know, for the DMC business... [Technical Difficulty] to our customers at this month. Hello, John?

I'm sorry. I lost the line there for a second.

My answer, or should I repeat it, sir?

No, I heard it. And actually, can I just get one last one? You guys mentioned that you were quoting on $1 billion more of incremental business. Just curious, what time frame that is for? Is that for within 2014? Or is that out for 2015 and 2016?

John, this is David Dauch here. What we're quoting right now is going to be covering the 2013 to 2016 period of time.

Your next question comes from Rod Lache with Deutsche Bank.

Just first of all, just to clarify do you have a number for that first half cash restructuring? And are there -- is there a quantification of that working capital reversal, if there is going to be one in 2012?

Yes, Rod, relative to inventories, I think most of the inventory build -- probably all the inventory build that came on in the fourth quarter is going to flip back out in calendar year 2012 so that's somewhere in the range of $20 million on your second part of that question. The first part of the question, we've got a pretty good handle on the most significant elements of the situation relative to cash restructuring. There are a couple of pieces where we've got obligation to negotiate the effects of the decision to close these facilities with the UAW. Those negotiations are ongoing, and it's not appropriate for us to discuss those really at all today. But as it relates to the redeployment of equipment, we would expect another $20 million, $25 million of cash expense, and that includes a little bit of CapEx as well here in the first half of the year relative to the restructuring. And we'll update you on a quarter-by-quarter basis as we go on that. And then we'll, of course, update you on everything else as it relates to this situation as it develops.

Okay. And can you maybe just be a little bit more specific on -- I heard you say that you're assuming 14% large truck share. But what is your T900 production assumption? And what are generally the factors that are driving that margin forecast of going to 14% to 14.5% from the 14.9% that you did this year? And lastly, if I can fit it in, any just color on the financial implications of this JAC JV? I'm assuming it's unconsolidated.

Rod, Dick Dauch here. As it relates to the full-size truck platform business enjoyed by AAM with GM, we're going to expect to be somewhere 1 million units or more for this particular period this year. There are others that are lower than that, and I personally think that it might be a bit higher than that. So that would be my reaction to the GM900 pickup and SUV-related platform. Other pieces of that issue, I'll let Mike respond to. And then he may want to react on the specifics I've made commentary to. Go right ahead, Mike.

Okay. So I think that your answer on the GMT900 was very clear and direct. We've analyzed this thing 6 ways from Sunday with just about everybody listening to the call today. If you take a look at strong underlying SAAR fundamentals, good solid mix. It's very easy to see where the volumes are going to end up. On the margin, Rod, you might recall in Detroit at your conference, we discussed there was really one significant issue that was going to be affecting our margin performance in 2012 versus 2011, and that was material cost increase. We saw and we discussed this, we see a headwind of roughly 60 to 70 basis points of margin associated with material cost inflation in 2012. So we don't have any different view of that situation than what we discussed with you and others in Detroit. So that's really the most significant element of difference there. And the third question, relative to the JAC or Hefei joint venture, Rod, this joint venture is unconsolidated, you're right about that. Sales are currently running in the neighborhood of $200 million for this enterprise, and we would expect that to grow to an excess of $300 million over the next 3 years. So this is a profitable activity, and we will be recognizing our share of those profits in other income beginning in the month of December 2011, in fact, as we go forward.

Your next question comes from Chris Ceraso with Credit Suisse.

So a couple of things as it relates to the build-up of some extra stock on your end. Can you give us an idea of roughly how many axles you produced in excess of the number of vehicles that you ship to?

Chris, there's not very many finished good axles sitting in our inventory. What we needed to do was mobilize components in certain raw materials in advance of the move. There are some axles in finished goods, and we're not going to be making specific disclosures about this at this point in time. But a good portion of this banking is simply to have the components in place for us to move through this rougher or difficult transition period, where we've got not only higher operating activity levels but some transition of work associated with the closure of the 2 facilities.

Okay. You started down this path, Mike, during your comments. But the very small drop in profit from Q3 and Q4 relative to a pretty meaningful decline in revenue was pretty remarkable. Can you talk about what you did or if there was any commercial settlements or anything in the numbers or if it had to do with building up some extra stock? How did you pull that off?

Yes. Chris, look, I mean, a big part of it, we don't see that significant difference. Quite frankly, quarter-to-quarter, we're talking a few million bucks. But I think you hit it right on the head. There is clearly an advantage to building up some inventory that shows up in margins that did positively impact the fourth quarter. I would say that's a significant issue. There were some commercial activities in the fourth quarter, not significantly different than what there are in any quarter. So I'm not sure I would spike that out as an issue. I think it was just a quarter in which we had some good, solid, steady schedules and good performance.

Okay. And then just lastly, I guess, you already hinted at this, but I just wanted to clarify. Should we expect the earnings pattern for AXL in '12 to be a little bit different than the typical seasonal, given the peculiarities of GM's plan to downtime in '12?

Well, the only thing that's going to be maybe a little bit unusual is the strength, the relative strength of our first quarter because we do have a pretty solid operating schedule. The schedule for the rest of the year is pretty solid and steady, but it will be lower than the first quarter, which is going to help in terms of overall performance and sales growth for our company as the GMT900 is only a part of our business with our new business backlog launching, and that will pick up steam as we work through the rest of the year. We'll have some good strength in other programs as we close out the year, particularly in the third and fourth quarter of this year. And I think you'll see some relatively normal seasonal patterns once we get past this relatively strong first quarter.

Yes, Chris, this is David Dauch. The only thing I would add to that is the fact that we talked about the downtime that GM is going to experience in the 900 program, that's predominately going to be second, third and fourth quarter. We're seeing strong schedules here in the first quarter, that's why there's some of the inventory buildup we're doing. So as Mike said, we'll see a little bit of lumpiness in the thing, but we'll manage it from an operational discipline standpoint to try to level our schedules where we can and adjust to GM's operating pattern.

Your next question comes from Itay Michaeli with Citi.

Just want to round out the cash flow discussion. Mike, you mentioned a lot of items. How about cash taxes? How should we think about that in 2012? Is it pretty similar to your effective tax rate?

Yes, exactly. Our cash tax rate, Itay, we believe will be very minimal for several years as we enjoy the benefits of these net operating losses and tax credit carryforwards that we have, very significant amounts. On an economic value basis, this would be an undiscounted number. But around $150 million worth of these benefits in the U.S. alone. And so we think our cash tax rate will stay in this 5% to 10% level for the next several years.

That's helpful. And then on the 2015 revenue target of $4 billion, how much -- what kind of win rate do think you need on some of the business you're quoting to really gain confidence that you can get there?

Yes, Itay, this is David Dauch. We would be on our normal hit rate from a performance standpoint based on the new business opportunities that we're quoting on right now. So I don't see anything outside of what we've been doing in the past historically.

Excellent. Maybe just a quick one. Any thoughts on the R&D and pension expense for 2012?

Yes. Pension expense will be a little lower in 2012. There was some current service cost being incurred in calendar year 2012 -- or '11, I meant. But there really won't be anything substantial after February due to the closure of these 2 facilities, Detroit and Cheektowaga. So pension expense will be down a little bit. As it relates to -- what was the other? R&D. We talked about this at length on the last call. We expect our research and development expense to be sort of in the range of $27 million to $30 million over the course of the next several quarters. That's pretty much right where we were. I think we're right in the middle of that, $20.5 million roughly in the fourth quarter. And I think as we go forward, you should see some pretty consistent spending in that approximate level.

Your next question comes from Himanshu Patel from JPMorgan.

A couple of questions. Can you talk through the puts and takes on content-per-vehicle for 2012? I mean, you may have discussed this earlier. But do you have a 2011-ending pension funded status number? And then also on the backlog, can you talk a little bit about just kind of the margin profile you're expecting on the backlog? And also specifically for the 2012 backlog, what should be the quarterly cadence on that?

Okay. Well, let me peel this onion one skin at a time. The first issue is the pension funded status. We have not said that yet. I will tell you right now it's about $275 million at the end of 2011. That's based on a 5.1% discount rate, and more or less right in line with what we expected based on the discount rate environment that we anticipated. The backlog, as it relates to margin and content for that matter, is relatively stable compared to our book of business today. If we deal with the content issue first, I would tell you that the content number that we disclose is our North American major truck programs. There's no significant changes anticipated to that suite of programs in calendar year 2012, so we should be relatively consistent. As it relates to the overall content and margin expectations for other types of programs, particularly passenger cars and crossover vehicles and other global programs that we're supporting, we've been very transparent and clear about our overall margin expectations. We expect our business to run in calendar year 2012 on an adjusted EBITDA margin of roughly 14% to 14.5%. We've explained that the significant difference year-over-year is going to be this material cost inflation. And otherwise, Himanshu, as we bring on this business, we would expect the net margin on the growth of our business to be relatively consistent with the ending profit margin of the business. We'll be growing over the course of the next couple of years well in excess of $3 billion of sales. And we expect our margins to hang in there pretty tight, certainly within that range of 12% to 15% guidance that we have provided. We're targeting upper half of that range. And for 2012, we've been a lot more specific, sort of in the midpoint of that upper half.

Okay. And then just the cadence of the backlog for 2012 by quarter?

Well, the biggest program that's launching is the global pickup truck program. That is coming down reasonably strong in the first quarter. So we should see -- that will drive a good portion of stability throughout the course of the year. The second half of the year will be a little bit stronger, but I wouldn't expect a lot of differences, Himanshu, as we look at this.

Your next question comes from Brett Hoselton with KeyBanc.

Dick, according to your opening comment, it sounds like you're optimistic you may win something related to the e-AAM product portfolio that you have. And I guess, I'm wondering what do you think the likelihood of you winning some contracts there might be. Do you have any sense as for the timing as to when that might actually have a revenue impact on your revenue? And then in terms of kind of the amount, would this just be a $10 million program? Or is there a potential for this to be quite a sizable program or 2?

Well, 3 responses your question. First is we have an exceptional capability in this new evolving e-AAM application toward product. Second, we have a multiplicity of lines out there that we're working with different OEMs, like I mentioned, 6 specific, and they all have good opportunities to develop. And third, we do expect this year, by December 2012, to close at least 2 of them to be orders that we would be responsible then to support that customer at an OEM level. And then the specific timing and other things, I'll pass on to David Dauch to have a response on.

Yes, Brett, most of what we're working on right now, just picking up on what my father said, is going to have revenue implications probably in the 2015, 2016 period and beyond. At the same time, some of the programs that we're working on obviously are going to be volume-dependent based on the OEM themselves. But you've got to look at the revenue being probably north of $25 million. But again, that will be dependent on what the program and the volumes are for that specific program and OEM.

Mike, on the tax front, it sounds like you're thinking 5% to 10% effective tax rate in 2012 very roughly. As you continue to diversify your business into '13 and '14 and so forth, would you anticipate that, that tax rate continues to move up maybe 200, 300 basis points a year or something along those lines? Or do you think it kind of caps out at 5% to 10% for some reason?

Okay, Brett, that's a good question. And let me address this. There are some drivers, I mentioned them, Thailand, China, Brazil, in particular, where we'll become taxpayers, or in the case of Brazil, we're already a taxpayer. And so that is driving some growth in our tax rate. And I think you hit it pretty close, sort of couple 300 basis points of increase in locations like that, relative to our total provision, is maybe the impact. It won't carry on like that forever because at some point, you just get to where it's going to be. So maybe a couple of years of that, and then that's it. But let me say this, the major issue that is potentially going to change relative to our tax provision rate out 2012, '13, '14 time period is the fact that we have a full valuation allowance on our U.S. deferred tax assets. Now this was absolutely required and appropriate under U.S. GAAP, given where we were just a couple, 3 years ago. But as we work our way through now, as Dick mentioned in his comments, 10 profitable quarters, good growth prospects and certainly expectations that we're able to use all of those deferred tax assets. We're going to be facing a decision under the accounting rules that are going to require us to reverse those valuation allowances, much like Ford just did here in the fourth quarter of 2011. And when we do that, we'll begin recognizing deferred tax liabilities again through the current provision. Well, really through a deferred provision, but the point is to our expense. So long story short, we've been -- again, we've commented on this, and it's consistent. We would expect our tax provision rate to increase to a range of roughly 15% to 20%. At the point that we flip the valuation allowances and then beyond that, it would have to be again good solid growth in locations where we become a taxpayer. And it's certainly possible that it would grow a little bit from there. But right at this point in time, we think -- call it 20% is the level that we would expect to be at for a period of time.

And then thoughts on timing. Is this a 2013 event?

Yes, I don't know 100%. What I'll tell you is that the accounting rules basically point to a 12-quarter analysis, 12 consecutive profitable quarter analysis of this type of situation and cumulative profits during that time period. For us, it would be around the end of this year where that would occur. And so we will continue to evaluate our situation relative to the GAAP requirements. And we'll make that judgment at the appropriate time. But I would think it would be near the end of this year, which means certainly in 2013, we expect our tax provision rate to increase.

Your next question comes from Joseph Spak with RBC Capital Markets.

Just maybe if you could, do you have roughly what percent of consolidated revenue was attributable to commercial vehicle in the quarter? It sounded like there were a bunch of launches you mentioned early on that maybe started up this quarter?

Yes, Joe, the run rate of our commercial vehicle business right now in terms of consolidated sales is in the range of 6%. We see that growing a little bit. Certainly, on an absolute dollar basis, it will grow over the next several years to a range of $250 million, maybe $300 million. The unconsolidated sales, I mentioned the joint venture sales are running around $200 million right now. Somewhere around 60% of that total is the commercial vehicle portion of the business. And we'll see that growth in the commercial vehicle portion of that unconsolidated subsidiary certainly much faster than the other side of the business through the course of the next couple of years.

And did the launch of some of those programs in the quarter help with that sequential margin performance?

Well, what's helpful about those programs is that we're launching them in facilities where we've got some fixed cost already established. And so we can bring them on and have positive margin contributions right away. So I would say that it was a contributor, although I wouldn't be telling you it was a major contributor.

Okay. And then maybe you mentioned this in the past. But do you have a timetable for when you expect to take full control of the Saab JV?

This is David Dauch. We're in the process of working with the Saab administrator at this point in time. We're hopeful that we can get something resolved here in, let's say, the next 90 days. But that's largely dependent upon the administrator.

Keep in mind, Joe, from operating standpoint, we have a 67% control. And really on an operating basis, we operate completely autonomously from our partner and have effective control on the databases right now.

Okay. And then last one. With the plants closing down, I think that's supposed to finish up this month. So do the savings start up sort of in the second quarter? Or is there a little bit of a lag?

The savings will begin in the month of March 2012. They will be overwhelmed a little bit through the cost associated with redeploying equipment and these restructuring activities that we talked about. But we do expect a run rate of approximately $18 million to $20 million of savings associated with the movement of these programs and this work to other facilities, and that will begin right away. The restructuring activities should be history by the end of the second quarter. And so certainly, the second half of this year, we'd expect a full run rate basis of savings to be evident in our GAAP financial results.

And I think the more important thing is that we then have an ongoing market competitive labor agreement and operating strategy of flexibility at these new locations receiving this equipment, which will help us significantly in perpetuity.

Your last question is from Ravi Shanker with Morgan Stanley.

Mike, I think you said earlier that the light truck global is going to be a pretty big launch for your in 1Q. Can you just remind me what product or products is in that platform? Also, I think you said before that light truck global goes from 3% of revenues to about 9% by 2014. Is that something that happens in 2012? Or is it going to be more of a gradual increase?

Yes. Most of it is coming on in 2012. Let me address some of the financial side of the question. I'll let David talk a little bit more about the development of that portion of our business. But the GM global pickup truck program, this is a compact program known as the Chevy Colorado in numerous markets, this program is the one we're talking about launching.

And that's going to be U.S. and international?

No, let me, Dick Dauch, respond a little bit, and then I'll ask my gentlemen, David Dauch and John Bellanti, further help you on this. This is really the GM mid-size pickup truck program that we produce in both continents, that being South America and Asia, specifically in the countries of Brazil and Thailand. And then GM, of course, has had to adjust their launch and ramp-up and distribution because of other global things that they could not contain, such as floods over in Thailand, et cetera. But we're coming very nicely on that. And David, I'll let you and John respond more to his specific needs.

Yes. And Ravi, you had asked what type of products we're supplying for that. We're supplying the complete driveline system, front axles, rear axles, front-drive shifts, rear-drive shifts, and then also transfer cases for that program.

Got it. And very quickly, was there any Thailand impact in 4Q?

Was there any what, I'm sorry?

Impact from Thailand for the floods in 4Q?

Well, the impact, sure, there was. We had expected to ship more sales in the fourth quarter than what occurred, probably in the range of $5 million to $10 million of sales that got pushed into 2012. We did have our team deployed and hired and working, so we certainly did have a performance less than we had anticipated in the fourth quarter from our Thailand facility.

And it's critical to know it significantly had no impact on our facility or installed capacity infrastructure or workforce. But because of those upstream and downstream, there was a negative impact on shipments, and thus, revenue in that period. And therefore, as we roll into this new year, they will then start to do a recovery process and ramp up probably a little bit more angular up. And we'll have to adapt and adjust to that as reality sets in on that.

All right. Thank you, Ravi. And we thank all of you who have participated on this and appreciate your interest in AAM. We look forward to talking with you in the future.

Thank you. This concludes today's conference call. You may now disconnect.