Good morning. My name is, Jonathan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the AAM's Second Quarter 2016 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 call is being recorded. I would now like to turn the call over to Mr. Jason Parsons, Director of Investor Relations. Please go ahead, Mr. Parsons.

Thank you, Jonathan, and good morning. I would like to welcome everyone who is joining us on AAM's second quarter 2016 earnings call. Earlier this morning, we released our second quarter 2016 earnings announcement and updated full year 2016 outlook. You can access this release on our website, www.aam.com, or through the PR Newswire services. To listen to a replay of this call, you can dial 1-855-859-2056, reservation number 87956019. This replay will be available beginning at 1:00 PM today through the end of the day on August 5. Before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements that are subject to risks and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially 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. During the quarter, we will participate in the following conferences: the 2016 J.P. Morgan Automotive Conference in New York City on August 9th; CLSA's Autos Assembly in New York City on September 7th; and the RBC Capital Markets' Global Industrials Conference in Las Vegas also on September 7th. As always, we are happy to host investors at any of our facilities. Please feel free to contact me in order to schedule a visit. With that, let me turn things over to AAM's Chairman and CEO, David Dauch.

Thank you, Jason, and good morning to everyone. Thank you for joining us today to discuss AAM's financial results for the second quarter of 2016. Joining me on the call today are Mike Simonte, AAM's President; and Chris May, AAM's Vice President and CFO. To begin my comments today, I'll provide an update on AAM's second quarter 2016 results, which I am pleased to announce were highlighted by record sales and record gross profit and EBITDA performance. I’ll also update you on recent positive business developments for the company. And lastly, I’ll provide an update on our full year 2016 outlook before turning things over to Chris. After Chris covers the details of financial results, we’ll open up the call to any questions that you all may have. Let me briefly discuss our second quarter financial results. First, for the second quarter of 2016, AAM sales increased to a quarterly record of 1.25 billion as compared to 1.4 billion in the second quarter of 2015. On a year-over-year basis, we benefited from higher production volumes on our North American light truck program and on our global passenger car and crossover vehicles programs. These production volume increases include the impact of recent successful launched of our new business backlog with Nissan, Mercedes, Land Rover, Fiat Chrysler and General Motors. These increased product volumes in the quarter were partially offset by reduction in sales related to us existing the North American commercial vehicle program, lower metal market pass-throughs and lower sales in Brazil as a result of lower volumes and foreign currency translation. AAM’s non-GM sales in the second quarter of 2016 were approximately 334 million as compared to 343.1 million in the second quarter of 2015. The impact of exiting the commercial vehicle program in North American, which we discussed with…

Thank you, David, and good morning, everyone. Today I will cover the financial details of our second quarter 2016 results. So I am going to go ahead and get started with sales. Net sales in the second quarter of 2016 increased $21 million to $1.25 billion as compared to $1.4 billion in the second quarter of 2015. Production volumes for the North American light truck and SUV programs, we currently support, we’re up nearly 9% in the second quarter of 2016 as compared to the second quarter of 2015. This includes the impact of the recent launch of front and rear axles on Nissan Titan. Volumes for the passenger car and crossover vehicle platforms we support were up approximately 15% and include the impact of recent launches of driveline products for General Motors, Fiat Chrysler, Mercedes Benz in China, and JLR in Europe. As David, sales in the second quarter of 2016 also reflected a year-over-year reduction of approximately $20 million related to exiting a North American commercial vehicle program as well as lower metal market pass-throughs to our customers and lower sales in Brazil due to a reduced customer volumes and FX translation. One additional note on metal market; the change in metal market pricing did have less of a year-over year impact in the second quarter of 2016 that intend in our most recent quarters. This is a result of both recent increases in metal market prices as well as the reduction on year-over-year comparables in the second quarter of 2015. On a sequential basis, AAM’s sales in the second quarter of 2016 were up over $56 million as compared to the first quarter this year. Seasonally higher production volumes related to our North American light truck programs as well as higher production volumes for global crossover vehicles…

Thank you, Chris and David. We’re reserved some time to take questions. I would ask please limit your questions to no more than two. So at the time, please feel free to proceed with any questions you may have.

[Operator Instructions] Your first question comes from the line Itay Michaeli with Citigroup. Your line is open.

Great, thanks. Good morning, everyone.

Good morning, Itay.

Just I wanted to ask first on the pace of new business, it looks like, I think you went from 50% kind of coverage last quarter and 60%, what seems to be a bit of an acceleration from where you were in October of 2015, so I hope you kind of comment on that and maybe perhaps how should think about that pace going forward in terms of what you are seeing bookings, win rates and other customer interest?

Yeah, Itay, this is David. As you indicated and we’ve seen tremendous success in regards to our ability to conquest new business and offset the impact associated with the source of decision. As we indicated last quarter, we were at 50%, this quarter we’re at 60%. So we’re very, very pleased in regards to our ability to conquest new business. And clearly as there is a result of the advance technology that we put together with our EcoTrac Disconnecting all-wheel drive, so work that we are doing with respect to our traditional lightweight axel applications and then also work that we are doing in the area of EAM not to mention what we are doing on the metal form side. So we are very, very confident in our ability as we said before to offset the losses in the future sourcing of the T1XX program and we’re confident with the backlog of new business being where it is today and with the over $1 billion of reporting going forward. That we’ll deliver and continue to realize the success, we realize the date in going forward as well, so.

Great, that’s helpful. Just my follow-up, as we think about kind of margins, even push pack that we’re into 2017, if I think your backlog does kind of bump higher next year, so I think about, some of the SG&A growth this year prepping for launches next year, some of the launch cost for next year’s backlog perhaps occurring this year, so we think about next year’s ramp of backlog to also perhaps include some potential margin headwind as you maybe increase the launch cost next year?

Yeah, Itay, this is Chris. Certainly this year in 2016 you are seeing an increase in some of our R&D spend supporting some of those coding activity that David just mentioned as well as getting prepared for some of these big launches we are facing in ‘17 and ‘18 and beyond. As it relates to getting prepared for these launches for ‘17, you’ll start to see some of the project expense impacted as the second half of ‘16 and of course you’ll encounter that some during 2017 that this come on mind through the year.

Great, that’s very helpful. Thanks so much.

Okay, Itay, thank you.

Your next question comes from the line of Brett Hoselton with KeyBanc. Please go ahead. Your line is on mute, please unmute it. Your next question comes from the line of Brian Johnson with Barclays. Please go ahead.

Yes, good morning. Could just maybe to help to understand the sustainability of some of the margin expansion, maybe bucket the 145 basis points year-over-year expansion into what was metals, I through I heard 20-30 basis point, what was just raw incremental and then where they are either operational or product mix/margin improvements that played out?

Okay. Hey, Brian, this is Chris. Yeah, we’ll talk about year-over-year margin expansion in and some of the buckets that you just mentioned. So certainly year-over-year we’ve had some sales growth, we do get some benefit of contribution margin associated with that. We do get a little bit of benefit as it relates to FX and that comes in two forms, one is that runs through our other income line that we posted here in the second quarter for the - we mentioned in our balance sheet and of course that varies quarter by quarter. And we do have a slight benefit I would say year-over-year as it relates to pace of running through our operating margins but it’s not significant; it’s a slight benefit because we do have our hedges on a rolling basis. So we don’t experience that we spot that you see here in the second quarter. We also have a little bit of favorability to metal, but year-over-year that’s starting to diminish at the scrap rates et cetera are starting to level out on a year-over-year basis and really quite frankly the bulk of what we are seeing in terms of year-over-year improvement is some significant productivity as it relates to material cost, as it relates to logistics cost, as it relates to throughput to our operating factory. They are running quite well in this environment. So we are seeing those type of elements now performing to our margin performance.

And on the material cost, is there going to be payback on those in terms of indexing or the commodity agreements with your customers?

Well certainly we do have - we have those agreements in place of their customer, so as those cost go up or down, we generally pass through 880% plus of that either the benefit of the cost and then obviously we retain residual piece of that. So there is agreement.

Okay, so is that already reflected in that, you reserve for that or is that the come in future quarters?

We don’t reserve for that, so I’ll call it as pace you go as the industries change, we have those through are mechanics associated with that, there is generally a little lag period to how the actual index comes in, the pricing could follow on the following months or following quarter, but there is no reserve for that, it’s just the pace you go faster either direction.

Okay. Second question, you know we’ve all heard Ford’s outlook is - but just hypothetically should - come down, two questions, one you know have you discussed that possibility with your major customer in terms of the balance with that reduction in volumes in utilization which is equally between in-house on American actual facilities or does it start other one or another disproportionally, some like customer like to keep my own folks busy? And then secondly, is it effecting at all the tenor discussions if there are any around further outsourcing in-house actual operations?

Hey Brian, this is David. First and for most as it relates to current volumes and we don’t see any let up in our current schedules with respect to our major customers whether it be GM or Ram on the truck programs and SUV programs that we’re supporting. So as we said we realize this strong performance and demand today and we continue to see that our future schedules going forward. So point one there. Point number two with respect to your point to the T1XX and some of the axle, I am not concerned about that, we understand what our requirements are, we understand the capacity has been put into place and we’re working with our customer again to finalize the overall program buying requirements, the architecture, the designs and the overall pricing. So as soon as we get that solidified, we’ll be able to communicate that to you and the others effectively and timely. And then the last question that you had, I am trying to remember.

Last question was the you know the pace, our discussion in terms of strong industry volumes now someone to have - kind of you know Gorno waiting for outsourcing from BS industry but wondering if there is any update on that and where it pull around the cycles fits into that?

The other point was the outsource that’s like to remember. But on the outsourcing and certain things, we haven’t heard anything different than - FCA still have the axle operations in concept with out there and then Ford still has axle operations at their Sterling facility and then internationally I mean you know that the Japanese for the most part have the majority of their axle operations in-house whether it’s Isuzu, Toyota and Nissan has put some axles out the outsides. And then on the European fronts, JLR moves their axle operations out and BMW and Mercedes have the majority of their operations internally within Western Europe. But as you know we are providing all the axle applications for Mercedes out of China at this point in time. So no further discussions really on that point at this time.

Okay, thank you.

Okay, thanks Brian.

Thanks Brian.

Your next question comes from Ryan Brinkman with JPMorgan. Please go ahead.

Hi, good morning, thanks for talking my question. So really just another one on the U.S. market after Ford’s comments yesterday, you know I see your coming years are estimate like 75 from - a range 75 to 80 I guess Ford is thinking more like 71 to 76, is obviously impacts everyone differently the top line, right. So I think some of Ford’s pressure was on lower demand and pricing for passenger cars, you are little bit less expose there. So when you come in, drill it down more granularly you know what’s happening with the actual vehicles that you expose to, multi, pick-up, SUVs the customer exposure et cetera, is there as much deterioration there or is there is with the total market?

Ryan, as I said earlier, we are not seeing any deterioration in that respect, currently we are seeing very strong schedule. Most of the programs were supporting, I’ve already been through, there are launches and there are accelerating to the higher demand based on the consumer preference at this point in time. I think in Ford’s case, you got to look at some of their launch cadence as they are going forward as it relates to they got some convergences that are taking place and maybe putting some pressure on them. But we’re not impacted by those programs or those volume or downtime associated with that. But - you know back to your question, when the customer program that we’re supporting trucks, SUVs and crossovers are all very strong right now and they continue to look strong going forward for us.

Okay, great. And then just a question on the pace and cadence of repurchases, I know you said in the prepared remarks to be opportunistic but I mean you did about 105 million of FCF in the quarter when we bought a couple of million, where there some restrictions on your ability to buy during the quarter and how should we think about the relative pace going forward?

Yeah, Ryan, this is Chris. Yeah, we purchased 1.5 million in the quarter are we are subject to our earnings blackout restricting which we face this quarter and we’ll face each quarter going forward. As we mentioned we are going to be an opportunistic buyer, we’re going to access the market, we’re going to access the capital needs of our business during that period what we anticipate in the upcoming period and then we purchase accordingly, that’s how I think about the cadence.

Okay, then the last question is, I think you are proactive - really not talk about 2017 to get into even like January, but have you sort of noticed the revenue and EBITDA concusses that’s out there and sort of implies not a lot of sort of incremental margin on the increase in revenue, there is not lot of earnings growth for U.S. for concusses next year. So I don’t expect you talk about earnings next year but how about incremental margin, is there any sort of reason to think that falls off or lot of investments coming on or so how to think about broadly margin - incremental margin going forward from here?

Ryan, I would say that, you know again we expect strong demand for our core business today and you can see the margins that we’re performing at today. At the same time, we’ve got a backlog in new businesses launching at $375 million next year. You know some of that business I s non-GM business and we guided in the street in the path before, the margins will - contribution margin will be a little bit lower in that. So we are expecting strong performance in ‘17 as well.

Okay, congrats on the quarter. Thanks for the color.

Thanks Ryan.

Your next question comes from Rod Lache with Deutsche Bank. Please go head.

[indiscernible] jumping in for Rod.

Good morning.

So maybe just one more follow-up on the margin question, so it sounds like that was an A think extraordinarily call out in the quarter just seems like really strong execution and flow though, you know what other go you guys thinking 13% to 14% normal for this business, has that changed that based on operationally you guys are doing better that you can stay above that range over the kind of mid-term or is this I guess I am just trying to think about I mean it seems like with the backlog coming online next year, the base business holding in, it seems tough to get margins to come down over the next couple of years back to that kind of normalize range previously highlighted?

Yeah, as it relates to our margins I think the one you are referring to you know we mentioned maybe a couple of years back and if you think about the environment for operating in today we’re very strong from a full-size truck segment as you know when that performs, we continue to perform well. But the macro side of the environment we are in today also plays in our favor, think of metal and FX, schedules a little bit of upside. But quite frankly our operations are performing very well. Productivity, year-over-year productivity improvements in almost every class category have is performing and therefore we are performing at the results we are here today.

That’s helpful. And maybe on the other drivers of cash flow, can you maybe discuss CapEx, I mean you are winning, it seems pretty significant amount of new business to replace the GM business to roll off, is there going to be any long dated CapEx that’s going to start rolling in, in ‘17 or ‘18 related to those programs that maybe CapEx stage at this elevated level?

We’ve indicated our CapEx this year will be 6%, we’ll evaluate the new business backlog going forward but our guidance to this street is we’ll stay in the range of 4% to 6%, so we don’t expect to see the 6% level that we are at today even with the new launches that are in our backlog.

That’s very helpful. Thanks guys, good quarter.

Thank you. I appreciate it.

Your next question comes from Emmanuel Rosner with CLSA. Please go ahead.

Hi, good morning, everybody.

Hey, good morning, Emmanuel.

Hey, good morning, Emmanuel.

It’s great to see you know when you win additional business through place, the GM one, can you - apologize I miss it, can you give a little more color on what - how this new win is, how is it with and for which markets and timeframe?

Yeah, Emmanuel, we can’t tell to do the customer at this time, what we can tell you is that we’ll be producing disconnecting all-wheel-drive program or EcoTrac out of our China facility, so I tell you the region is going to be operating it.

Understood. And I guess another two sort of like 60% sort of replacing it the GM business, so I guess you have pretty good visibility in terms of what type of business is coming in, do you have any sort of like early thoughts in terms of how do you think about profitability of the replacement business versus the outgoing one. I mean you’ve always said in the past that from a scale point of view is you know obviously smaller program that you know what this sort of scale you’d get off into the current one, but any further thoughts in terms of how do you think about the year, any long term impact on profitability?

Emmanuel, this is no difference that what we’ve communicated to you and the others in the past is you know contribution margins on the full-size truck have been operating on 30% for us and you know the new business we’re bringing down, we’ve guided the Street at 20% to 25% and we’re seeing that that business come in, in that range and we are pleased with what we are seeing at this point in time.

Alright, that’s good to you. And then just final one, on the launch backlog I mean, can you just remind me directionally how much is non-GM business?

In our overall backlog, non-GM business represents about 60% and you know I would say that’s probably true with respect to next year as well, maybe a little bit higher.

Okay, great, thank you very much.

Thank you, Emmanuel.

Your next question comes from John Murphy with Bank of America. Please go ahead.

Good morning, guys.

Hey, good morning, John.

You know just a triple check, and I hate to beat that horse here, but when we think about the margins I mean really the two big buckets of benefit which are ongoing and sort of you can control the contribution margin and productivity, is that correct, there is nothing else really that big, I mean ForEx and materials very small benefit, but it does seem like this was all within your control and purely execution in contribution margin, is that correct?

That’s correct.

I mean John again, what we’ve said all along is that we’re running high capacity utilization and we’re in a favorable material environment, we can generate some strong profitability and you are seeing that right now.

Yeah, I know it’s great. And then just second question, as we think about the 60% replacement that you have booked to backfill for the lost GM business, I am just curious if you could match the timing for us meaning that you know the truck was it not all going to occur in calendar year ‘18, my understanding is that you probably overrate a two to maybe even three year period. Is there a way to kind of timing match that 60% replacement meaning in your ‘18 you might be fully replaced or I am just trying to understand the timing of the roll off and the roll on of the replacement business?

You know John, you’ll stop out in the fact that you know some of the roll off business will commence in that 2018 period of time but it’s going to take three years for some of FX impact, fully impact us. At the same time the new non-GM business that we’re bringing in, in that period of time overlaps very close to that, I wouldn’t say it’s identical but it’s fairly close in that same period of 2018 to 2020 period of time. So again we’re highly confident that we can offset the business and we are comfortable with where we are with respect to the timing of that replacement business.

Great, thank you very much.

Thank you, John.

Thank you, John.

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

Thanks. Congrats on quarter.

Thanks Joe.

Chris, first question is, did you state how much of the 50 basis point increase in the EBITDA is solely due to metals, I know you mentioned the impact for the quarter, I was wondering for the full year impact?

For the full, how much relates to metal, it was year-over-year peach that was - it was minor.

Higher metal prices or changes in metal prices was through, what you able to sort of pass there and what you [Technical Difficulty]

Can you repeat that Joe, we actually have a difficult?

We have a harder time hearing you Joe; you are breaking up on us.

Can you just remind me how change in metal prices flows through the P&L, what you are to absorb, what you are able to pass?

Okay. So as it relates to metal industries, we pass through again either that price increases or price decreases approximately 80% of that and mechanically it works and it resets either monthly or quarterly depends on the customer based on verity of index, whether it be scrap index, aluminum index, things of those natures that are into our products. A slide away from actual spot rate I will think about but generally speaking 80% or so it’s passed on to the customer.

Okay. And then last one, it looks like you know I know you said you mentioned you launched a bunch of business, it looks like the initial margins on those - on that business is actually coming in pretty good, is anything flip on to there in terms of performance on some of the new launches? Thanks.

All I’d say is we’re having an outstanding performance, all of launches globally around the world from an operational standpoint and we’re seeing good margins that we’re going with that business. At the same time remember we’re also realizing strong margins with our base core business too.

Your next question comes from Matt Stover with SIG. Please go ahead.

I am going to surely beat that horse. I apologize in advance. But in the margin question and thinking about your tax rate, I am wondering if there was some geographic contribution that - contributed to that year-to-year improvement in the margin in the second quarter and if so how we would think about that as we think about the balance of the year?

Yeah, you and trying to get back in the tax rate, clearly we’ve been performing very strong in our North American market as I mentioned in our prepared remarks especially as it relates to translation to our effective tax rate. We’re seeing those programs such as the full-size truck program here in North America and when they run well, we generate high profits in this region and we pay a higher tax rate. So we see with that. So there is some level of cadence associated with those platforms as it relates to our geographic profitability and a tax rate connection.

I was thinking in the flip side though because those programs have been running, you’ve been running well for a little bit here, it’s not they just kind of popped up this quarter, but I am wondering if there’re any deltas outside of North America that would have year-over-year contributed or is that just not factor?

If you follow our effective tax rate, it’s starting to pick up midpoint of last year running closer towards at 20% range on both phases. So you start to see this now transition over the last four quarters.

Okay, I appreciate that. Thank you very much.

Thanks Matt.

[Operator Instructions] Your next question comes from Irina Hodakovsky with KeyBanc. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Irina.

Hi Irina.

I had a question for you - for an update on your deleverage plans in the last, I would say a year ago, I recall you were targeting 2% interest expense as a percentage of sales, and that was around 2016 timeframe where probably not going to get there this year, and wondering if that’s still the goal perhaps with the later timeframe or has that focus changed?

You know our focus continues to be to reduce our interest rate and as you know we’ve taken action in the fourth quarter last year to take out some of our term loan. Right now our primary drivers of our interest expense are 4.4 we have outstanding to which recallable and I would tell you we continue to monitor the market activity and assess those on a go forward basis. At over a bit of time, our objective would be to reduce that fixed cost structure.

Any idea in term of what that period of time could be a year or two year, five, ten?

Two from recallable now, one is not callable and one is start to callable next year, so we are in a period of time in the near future that will just continue to monitor the market activity.

Perfect, thank you. And if you could just overall prioritize your uses of cash between perhaps deleverage in the balance sheet, maybe share buybacks, update on acquisition?

Irina, this is David. Everything is going to be in balanced. As we said before there is four critical areas, the organic growth will continue to support the debt management side and then this year, we bought into effect of whole shareholder activity as well as we indicated the desire in interest in regards to strategic activity. So we’ll keep things in balance and we’ll set the priorities based on how things present themselves.

Wonderful, thank you very much and congratulations on an excellent quarter.

Yeah, thanks Irina.

Thank you, Irina. And we thank all of you who have participated on this call. And I appreciate your interest in AAM. We certainly look forward to talking with you in the future. And ladies and gentlemen, this concludes today’s conference call. You may now disconnect.