Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing First Quarter 2012 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, Melissa, and good morning to everyone. I'd like to welcome everyone, who is joining us on AAM's first quarter of 2012 earnings call. Earlier this morning, we released our first quarter earnings announcement. You can access this announcement on the aam.com website or through the PR Newswire services. To listen to a replay of this call, you can dial 1 (877) 278-1452, providing a reservation number 69159478. This replay will be available beginning at noon today through 5 p.m. Eastern Time May 6. 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 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 the reconciliation of these non-GAAP measures to GAAP financial information is available on our website. During the quarter, we will participate in the following conferences: the KeyBanc 2012 Automotive & Industrial Conference in Boston on May 30 and 31 and the Deutsche Bank Industrial Conference in Chicago on June 13. In addition, we're 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 Cofounder, Chairman and CEO, Dick Dauch.

Thank you, Chris, and good morning to everyone. Thank you for joining us today to discuss AAM's financial results for the first quarter of 2012. Joining me on this call today are David C. Dauch, our President and Chief Operating Officer; John Bellanti, our Executive Vice President, Worldwide Operations; and Mike Simonte, our Executive Vice President and Chief Financial Officer. To begin my presentation today, I will provide some highlights of AAM's first quarter of 2012 results. I'll also review the status of AAM's key business initiatives before turning things over to Mike. After that, we'll open the call up for any questions you, ladies and gentlemen, may have. Today, AAM is reporting solid financial results in the first quarter of 2012 with strong sales growth and higher earnings. Let me briefly cover 3 key first quarter financial highlights. First, for the first quarter of 2012, AAM sales were approximately $752 million. On a year-over-year basis, AAM sales in the quarter were up approximately $106 million. That is an increase of 16% and AAM's highest sales in the quarter since the year 2007. Second point, non-GM sales increased approximately 8.5% on a year-over-year basis to $193.6 million. Our company continues to achieve significant gain and customer diversification. And we expect non-GM sales to reach 40% or higher by next year 2013. Third point, AAM's profitability in the first quarter of 2012 was AAM's highest profitability in the quarter since the year 2004. Gross profit increased over 31% when compared to the fourth quarter of 2011 to $139.2 million or 18.5% of sales. Operating income was $77.4 million or 10.3% of sales, a sequential increase of over 59%. Adjusted EBITDA increased 20% sequentially to $108.8 million in the first quarter of 2012 or 14.5% of sales. Net income and earnings per…

Thank you, Dick, and good morning, everybody. Dick already covered the highlights on this quarter, our first quarter of 2012. So I'll get right into the details, starting with sales. Net sales in the first quarter of 2012 increased 16.4% to approximately to $751.5 million and compared to $646 million in the first quarter of 2011. This increase of 16.4% on a year-over-year basis with higher than the 13% increase in U.S. light vehicle sales or the SAAR and approximately the same as the year-over-year growth in North American light vehicle sales. On a sequential basis, AAM sales in the first quarter of 2012 were up $146 million, that's a 24% gain as compared to fourth quarter of 2011. Three major factors account for this increase. The first is seasonality. In the first quarter of 2012, there were 7 more straight-time production days in the U.S. than as compared to first quarter of 2011. This is a typical seasonal trend, and of course, that benefited our sales in the first quarter versus the fourth quarter. The second issue is a widely reported and expected increase in GMT900 production volumes. In the first quarter of 2012, GM produced approximately 290,000 vehicles in this program. This compares to 226,000 in the fourth quarter of 2011. The third and final issue is the launch of new business in 2012. For example, in the first quarter of 2012, AAM's supported production of 23,000 vehicle units in GM's global pick-up program, known as the GMI700, and we did this in Arcadia, Brazil and Rayong, Thailand . This compares to only 3,000 in the fourth quarter of 2011. This launch and others drove a nearly $30 million increase in our sale outside of North America on a year-over-year basis. And as Dick mentioned, keep in mind…

Great. Thank you, Mike, and thank you, Dick. We reserved some time to take some questions. [Operator Instructions]

[Operator Instructions] Your first question comes from the line of Rod Lache from Deutsche Bank.

This is Dan Galves in for Rod. I just wanted to ask about the cadence of GMT900 production. I think you had talked about 290,000 in the first quarter, and I think you've made some comments in the past that it would move to 240 per quarter in the last 3, which would get you to about flat year-over-year. When I take away the 50,000 unit sequentially, having trouble getting to your guidance for the year. Are there parts of the business that should see sequential improvements through the course of 2012 that will offset lower profitability from the T900 versus Q1?

So Dan, so I understand your question. Are you speaking to our guidance for profit margins?

Basically on revenue and the implications for EBITDA based on your revenue and the margin guidance.

Okay. Well, we do see this cadence in GMT900 production ramping down a little bit. But keep in mind that we're launching approximately $350 million of new business this year. That got started in the first quarter with the strong launch on the GMI700 products in Arcadia, Brazil, in Rayong, Thailand. But as we work our way through the rest of the calendar year, we're going to be ramping up with Mercedes in China. We're going to be launching with Mack additional models here in North America. We're launching with Daimler Truck in India and our other GM programs that are launching second, third and fourth quarters as well, Dan. So we've got a very strong expectation this year for our sales through the rest of the year. The other thing to keep in mind is that while the GMT900 may be ramping down just a little bit to work for the rest of this year, the Dodge Ram Heavy Duty series pick-up truck program is expected to be very strong, and GM's full-size vans should have good year-over-year growth as well in production. And so these are providing some support, Dan, to our business as we work through the rest of the year.

Can you give us your current expectation for the year-over-year revenue tailwind from new business backlog in 2012, and what it was in Q1? And then I just wanted to ask about the material cost in freight projections of $35 million year-over-year? How does that compare to when you first gave your guidance this year?

Okay, I'm not sure I understand your first question. I'll answer it this way. You're asking for revenue tailwind from our new business backlog. It's about $350 million for the year. The first quarter was a pretty strong quarter of launch relative to the GMI700 program. But many of the other programs are going to be coming later in the year. So we are probably closer to 20% of that total, maybe a little less than that in the first quarter, and of course, a little greater than that run rate as we work through the rest of the year. As to the second part of that question, the material cost inflation, the net material cost inflation is trending a little higher than what we had anticipated 3 to 6 months ago. But keep in mind that the number we're disclosing today is the combination -- and this is the way we look at it internally, so we thought it makes sense to share it this way, externally as well. It's the combination of material and freight cost inflation. We're seeing some growth in either. So the majority of the increase and this cost driver that we're discussing today or a significant portion anyway deals with the freight cost inflation. And we are seeing some modest increase in our expectation for material cost inflation as compared to where we were 3 to 6 months ago.

Your next question comes from the line of John Murphy from Bank of America Merrill Lynch.

Just a follow-up, I apologize, Mike, on this material and freight cost inflation. I just want to make sure that I've got my thought process here straight. You talked about 100 basis point hit year-over-year or weight year-over-year from '12 versus '11 and then $35 million of a headwind on an absolute basis. I'm just curious, how much of that was in the first quarter and how much of that will we see hit in the second, third and fourth I'm just trying to understand this version or the cadence of the course of the year of that?

Yes, John. And I mentioned, although we covered a lot here in our comments, we emphasized something here. The impact is greater in the first quarter of 2012 because we started to experience some of these material cost inflation pressures in the second half of 2011. So of the roughly $35 million of total material and freight cost inflation, we've seen about, not quite 1/3, but maybe 30% of that impacting our earnings in the first quarter of 2012. So the impact will be lesser, particularly in the second half of the year as we work through the rest of this year.

So as we're looking at this 14.5% adjusted EBITDA margin for the first quarter, you are actually getting a bigger hit from that in the first quarter. That should ease. I mean it just seems like, obviously, your GMT900 slows down a bit. But I mean, it seems like you're actually really outperforming your expectation on the EBITDA margins in the first quarter. Is that a correct characterization?

That's exactly the way we are looking at it from a budget management and internal management perspective. We got hit with a little bit higher material cost inflation. We knew about some of the other issues, such as the fact that we'd operate well above our contractual capacity levels and that we would have to do that using some premium labor costs in our own system. Some of our suppliers needed some premium freight and logistics arrangements in order to meet this very high demand -- this bubble, if you will, in the first quarter of 2012. And we knew that we were going to have the reduction in revenue associated with the recognition of that deferred revenue with General Motors. So yes, we overcame a bigger issue on material cost inflation, and we feel very good about what we did here in this first quarter, and we expect to continue throughout the rest of this year.

That's very helpful. And then just a second question. The GM payment terms changes that occurred. I'm just curious how much of a surprise those were to you because it sounds like that's a new development. I'm just curious if GM is trying to take any other actions on payable extensions or anything else on price downs or anything like that and your business arrangement with them that would be incrementally, sort of more negative going forward because it sounds like they've gotten a little bit more aggressive.

No, John. I wouldn't read it that way. This is an administration of a "GM's standard payment term." John, I'll tell you that we have the same pay on receipt language in the purchase orders we let to our suppliers. In 2011 and prior periods, GM had administered this term according to the pay on shipments arrangement. They've adjusted their systems and their procedures in 2012 and our understanding is that they're doing this with other suppliers as well to simply adjust to the pay-and-received terms, which has been in the purchase orders for some time. We do not view this as an AAM-specific issue, nor do we think you should be concerned about this having bleed across to other aspects of our customer relationships.

That's incredibly helpful. And then just one last one. On the $1 billion of new business that you guys are quoting on, it sounds like a lot of that's non-GM. I'm also just curious if you can sort of highlight really what regions that new business you're quoting on is in? What the timeframe of that rolling on and sort of your historic win rate as you're quoting on business like this?

John, David Dauch here. As you said, we're quoting over $1 billion. Really it's spread across all the various regions of the world. Now we've got opportunities here in the Americas. We have plenty of opportunities in Europe and vast opportunities in the Asia corridor. So we think we can land business in all those regions based on what we're actively quoting at this point in time. And to address your last part of that question, our typical hit rates are in the 25% to 30% range.

I'm sorry, and the timeframe. Is this stuff that's 3 to 5 years out or next 2 years? Just curious of sort of the timeframe...

Some of the foraging things, John, that we're working on are probably in the next 2 to 3 years, mostly drive line things that we're talking about are '14 and beyond, mainly '15 and beyond.

Your next question comes from the line of Chris Ceraso from Credit Suisse.

Okay. So just a couple of things here. I think you've covered a lot of it. Going back to your discussion about working capital, Mike, which is helpful. You may have mentioned this already, but you should get some release from working capital just as the truck production comes down in Q2 anyway, right? Any magnitude you want to put on that?

Yes, Chris, we will get some release of working capital in the second quarter. What I would tell you is that right now our second quarter sales are trending very strongly. So we wouldn't -- we expect more of that working capital release to affect our second half of the year cash flow results. But we do see the sales in the months of May and June trending $15 million or so less than the month of February and March. So at the baseline, we should expect some working capital release. But again, I think as we work our way through the third quarter, particularly the fourth quarter -- if you go back in history and look at when our sales where at these levels in the past 2003, '04, '05, you can see trends that we feel are going to repeat themselves in terms of a very strong working capital releases in the fourth quarter of each year due to the shutdown at Thanksgiving and Christmas time period. And so we would expect more of that release, Chris, to be a little bit later in the year.

Right, seasonally. Okay. This comes back to one of the earlier questions, too. The 290,000 units coming down to 240,000 per quarter. That's pretty consistent with what CSM is calling for from Q1 to Q2. Is that consistent with the schedules that you're seeing, call it a 15% to 20% step-down in the build rate from Q1 to Q2?

Okay. A couple of things I want to make very clear. What I'm saying is that we would expect the quarterly cadence of production to be in average of approximately 240,000 units second, third and fourth quarter. We don't see a lot of variability quarter-to-quarter, but don't be surprised if one's a little bit higher and one's a little bit lower. Particularly again, as you look at that fourth quarter, which had such a substantial number of the holiday shutdown time period, that one is probably a little bit less than average depending on what happens with sales between here and there. I would tell you flat out, the production schedules are higher. They're higher than the 240,000 unit expectations for the second quarter. We'll see what transpires here to the next couple of months. But to be very clear, they are higher than what CSM is calling for, and they in fact, could be higher than our average. Just have to wait and see.

Okay. And then just the last thing to make sure I was clear on the math on the profit headwind from the expiration of that GM 2008 deal. If I followed your math right, should we see a step-up in the profit headwind from Q1 to Q2 of about $7.5 million? Did I get that math right?

That is exactly right. Now keep in mind, we planned on this. We discussed this. There are other aspects of our business that are helping to offset that. But I think it's important for everybody to recognize that's an important issue in terms of comparing our margin and performance year-over-year.

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

A couple of questions. Since the inventory you carry until it reaches GM is in a sale until it reaches GM, are there any other things that when we get to the income statement and we ought to be aware of timing of the GMT900 production scales versus booking of revenue for American Axle? I maybe...

Brian, first of all, good morning. Second of all, you said something inaccurate. I want to clarify that immediately. The sale of our product to General Motors occurs on our DAC, okay? Title transfers, nothing has changed in that regard. GM's responsible to arrange mode of transportation, and they have the risk of ownership and loss during that time period. So we continue to record a sale on our DAC. The only difference is that GM is administering that 47 paid weekly beginning on the date of which those goods hit their DAC. From a practical standpoint, Brian, what you can assume is our payment terms went up from approximately 50 days to approximately 57 days. But the sale itself occurs on our DAC.

And in terms of other timing, in terms of would you be building ahead or behind given how variable production's going to be through the year? For example, in fourth quarter, did you build more axles, put them into the transit system and therefore, you didn't have to build quite at the pace of their high production this quarter?

That's an excellent question. When a customer anticipates higher production volume, they do put more inventory in the system, in the channel, if you will. So we saw a modest -- not a very big number in the fourth quarter. But over the last couple of quarters, as GM prepared for this higher inventory allowance, our higher production activity, our sales were a little bit higher on a unit basis than their end production. That turned a little bit in the first quarter, and we expect that will turn again here as we work through the next couple of quarters. But nothing material, Brian. The one issue that I would mention in this regard does not have to do with our customers, but has to do with our suppliers because one of the things that we're looking at and have to evaluate, and of course, work with our supply base is that if our payment terms from our customers are going to be taken up to about 57 days, then we need to evaluate whether it's appropriate for us to make any changes to the supply and payment terms that we have with our own supply chain. So that's the one issue that I would comment on.

I was going to ask you that question, but when I thought it was inventory, it would be more round, are there further ways to optimize inventory? The second question is when we get to this $350 million of launch activity, how much is -- and I recognize it's global. But how much is commercial truck versus light vehicle and then how comfortable are you with the $350 million given all the noise in the market around Chinese truck, commercial vehicle builds, Brazilian commercial vehicle builds and so forth?

Okay, Chris. I'm just going to get you the good accurate number on the amount of our new business backlog this year and commercial vehicles. Again, Daimler Truck, Mack and MNAL are the primary launches in our consolidated sales. And there's going to be about $60 million, Chris tells me. 6, 0, $60 million of the $350 million in our commercial vehicle business. We are now particularly exposed to the Brazilian commercial truck market in that issue. We're launching in the country of India. And of course, in China, our joint venture is exposed to China in this regard, but we do not see significant issues to be concerned with in China. Recall that we're focused on the light commercial vehicle truck market in China, and we're not seeing the same trends that, that market has maybe seen in the heavier duty class A market there.

So would that $60 million include Chinese LCVs or that's...

No.

Of the other 290, is it -- how would you split between car and light truck and light commercial vehicle?

Most of that, it's probably closer to a 50-50 split between light truck programs led by the GMI 700 program, foreign and global light truck programs and then the rest is passenger car. We've got the Mercedes C and E class launching, the Cadillac ATS the global small vehicle program at General Motors. Those are the biggest issues that we're supporting. And so it's going to be a more balanced mix of light global truck and pass car, all-wheel drive and rear-wheel drive here in 2012.

Your next question comes from the line of Brett Hoselton from KeyBanc.

Mike, I was hoping you could speak to your expectation for the cadence of margins throughout the remainder of the year. Your guidance 14 to 14.5, you did 14.5 in the first quarter. Is your expectation with lower GMT900 production that you may start to see EBITDA start to drift down into that lower end of that range? Or do you think there are some offsets that may allow you to stay closer to that upper end of that range?

Brett, this is an interesting question, a good question. We did perform at the high end of the range in the first quarter. And no question, we do expect some lower GMT900 production contribution going forward. But keep in mind from a margin performance standpoint that we expect stronger contributions in some of our foreign operations that, to this point in time, had been cost centers for our company. And we are going to be turning these operations into profit-generating facilities. So in places like Thailand and even in Brazil, where we are significantly expanding Brazil, we expect stronger profit contributions from some of these operations that will help to offset the GMT900 issue. The other thing I mentioned in response to another question earlier in this call was that the Dodge Ram Heavy Duty or Ram heavy duty series pick-up truck program and the GM full-sized van are expected to run at levels at/or slightly higher than what we had the first quarter. So that will also be a favorable issue for us as we work through this year. If we see some weakness in the third quarter for example, which is, sometimes occurs, we may very well be at the lower end of our guidance range. But we're very confident in our guidance range for this calendar year. And I think you know when we set a range internally, externally, it's in our nature to focus on the top end of that range. And we're going to do everything we can to do that throughout this year.

Your next question comes from the line of Ravi Shanker from Morgan Stanley.

First of all, I want to thank you for all that detail in the call. It was really helpful. But also a little hard to keep up, so I may be asking something you've already just spoken about. I know, Mike, you referred to mix not being an issue, either in 1Q or the rest of the year. Can you just help me understand why -- when GMT900 structure was much higher in 1Q as probably stepping down for the rest of the year?

Okay. When I was speaking to trucks, truck mix, Ravi, I was speaking only to sales not production. So quite the opposite we think is going to happen, trend wise throughout this year. We expect truck sales to improve as we work through the rest of this calendar year. That is somewhere between 52% and 55% of truck sales typically occur in the second half of the calendar year as compared to the first half of the year. So that comment that we made had only to do with the sales in, if you will, the macro environment, not the production cadence.

Got it, understood. And did you say anything about the cadence of your backlog coming on for non-GM sales? Was that particular -- was that weak at all in 1Q? And is that going to step up for this year?

On a relative basis compared to the rest of the year, our non-GM sales launch was weaker or lesser in the first quarter as compared to the rest of the year. The major launch we had in the first quarter of 2012 was the GMI700 global pick-up truck program, and we're expecting some of these other programs that I've already mentioned to be launching second, third and fourth quarter this year. So yes, we expect non-GM launches to be a higher percentage of our launch activity the rest of this year.

Your next question comes from the line of Peter Nesvold from Jefferies.

Actually, I think the comments upfront, were very thorough, very helpful. I think we're probably all set. I'd like to follow-up with you offline, maybe just to go over modeling question, make sure I understand a couple of things.

No problem, we'll do that.

Your next question comes from the line of Emmanuel Rosner from CLSA.

Just wanted to follow-up on the pace of your gross in non-GM revenues this quarter. I understand that most of your strong launch activity for the year hasn't happened yet in the first quarter. But was there anything else in terms of either the manufacturers or the geographies you supply that would explain why non-GM sales grew by about 8%? I mean much softer than the type of growth rates we've seen from you guys over the past couple of years.

Yes, yes. There is. It's pretty straightforward and simple. The GMT900 program went from 226,000 units to 290,000 units in 1 quarter. I haven't done the specific math, but that's right around 25% growth. We have the GMI 700 launch on top of that. So it's just math, Emmanuel, there's nothing...

I understand that from a mix point of view. I'm talking about pure units. Your non-GM revenues were just up 8% basically. We've seen a very strong double-digit, actually much more than that growth from you guys in terms of pure non-GM revenues. Is it just an issue of the cadence of your non-GM backlog this year or are you supplying to a certain geographies that didn't really grow all that fast this quarter?

We see nothing significant to note in this regard. Recognize your comment, but there's nothing remarkable about this programs or what's happening to comment on at this time.

Okay. And then regarding GM's compact pick-ups that are -- I mean the terminating the program later this year. Can you please update us on, I guess, the expected timing on that? And what sort of impact we could see from the end of this program for you guys?

Yes. So Emmanuel, we believe you're commenting on the GMT-355 program. That is produced in Shreveport, Louisiana by General Motors. GM has announced that the facility will build out at the end of August of this calendar year. And so we expect to support their requirements through August. And then have no sales contributions from that program after August.

So what sort of impact, financial impact are we talking about in terms of the sequential decline in revenues from there?

Yes, the program has been running in the range of 50,000 units over the past couple of years. It might be a little bit higher this year on an annualized basis. But of course, we're only getting 8 months of that. So we expect production in that program to be in the range of 35,000, 40,000 units. That's maybe 12,000 units a quarter, and we'll lose maybe 3,000 or 4,000 units in September, maybe 12,000 in the fourth quarter on a comparable basis. And that might be around $12 million of revenue per quarter and may be $3 million of profit contribution. But that's basically the cadence in terms of our guidance and expectations for this year. We've known about this for some time.

And Emmanuel, the only thing [Audio Gap] and this is David Dauch. To begin, the GMI-7xx and the 31 UX, as that volume accelerates up, will clearly offset and add going forward to -- which is contemplated in our overall guidance, as Mike indicated.

Your last question comes from Joseph Spak from RBC Capital Markets.

Just to, I guess, synthesize some of the comments you made and given what the supply base or your supply base and sort of the high GMT and under volume, is it fair to say that from a profit contribution point of view around that 240,000 units, a quarter is the sweet spot for you guys?

I wouldn't say that, but certainly 240,000 units is very close to in line with our expectation for the year. We can handle more volume, Joe. There's no question as we did here this first quarter. We like more volume, but 240,000 is certainly in the range. Let me say this, it's in the range of the sweet spot. It's certainly a good base, foundational volume for us to deal with, but we're happy with higher volumes.

And Joe, probably what's more important is, is that the 3 quarters are consistent. The 240,000, 240,000, 240,000 on top of the 290,000. So they're in a slip or dip, up and down as they're preparing for the K2XX cadence after the GM 900 is phasing down. I got some more important points. And obviously, the numbers are what they are.

And Joe, this is David Dauch. The only thing I would say is, clearly, the supply chain system was tested with the 290,000 units in the first quarter. Clearly, we had capacity to support that on our own operations, but we did incur some premiums, as Mike indicated earlier, with some premium freight and distant supplier issues, whether there are some bottlenecks as the system's being tested.

So I guess one level down from you at the suppliers, and it seems like they're better able to operate at a level more around that 240,000, is that fair?

Joe, I would say that -- this is John Bellanti. Because this was a 1-quarter phenomenon, we incurred some special premium clause, as David indicated. With those types of volumes, we're going to continue for a longer period. We would certainly make adjustments in capacity at the supply base, which could be done rather rapidly. It wasn't the right economic decision, nor we had a one quarter phenomenon to work through.

Okay, fair enough. And then just one quick one on working capital. I'm just curious, is there -- are there any meaningfully different changes in terms of payment or receivable terms as you move more into the commercial truck business or even more internationally?

Yes, Joe, that's an excellent question. I'll tell you this. I think with the change that General Motors is making to administer the payment terms on a pay-on-receipt basis, we're actually moving or GM is moving the U.S. norm closer to the international or foreign norm. Most of our operations around the world have payment terms that average around 60 days. So that has been approximately 10 days wider than what we were experiencing here in the U.S. And now, of course, we're getting closer, at least with GM, to prepare you with that issue. So yes, there'll be a little bit of a adjustment as we work through a more balanced revenue stream, U.S. versus non-U.S. Or maybe I should say North America versus non-North America. But we don't expect this to be much wider, any different than around 60 days, which from our observations, they are consistent with our peers and competitors.

We thank all of you, who have participated on this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.