Good morning. My name is Mike, and I will be your conference facilitator today. At this time, I would like to welcome everyone to AAM's Third Quarter 2015 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.

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..

the Barclays Global Automotive Conference in New York on November 19; the Credit Suisse Industrial Conference in Florida on December 2; the Bank of America 2015 Leveraged Finance Conference in Florida on December 3; and the Deutsche Bank Global Auto Industry Conference in Detroit, Michigan on January 13.

Finally, we are also happy to host investors at any of our facilities. Please feel free to contact either me or Vitalie Stelea 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 third quarter of 2015. Joining me on the call today are Mike Simonte, our President, and Chris May, our Vice President and Chief Financial Officer.

To begin our discussions today, let me provide you a few highlights on the third quarter of 2015. I'll then review some of the quarterly developments before turning things over to Chris. After Chris covers the details of our quarterly results, we'll then open it up to Q&A as we normally do.

Let me first state that our financial results in the third quarter of 2015 were highlighted by strong cash flow generation and profitability, driven by solid production volumes and continued operational excellence, something that AAM has been known for. Our third quarter financial results include the following.

First, our sales in the third quarter of 2015 were $971.6 million, up 2.2% on a year-over-year basis. On a year-to-date basis, AAM sales for the first nine months of 2015 were $2.94 billion compared to $2.76 billion in the first nine months of 2014. This year-to-date sales growth of approximately 7% compared to growth rates of 4.5% on the U.S.

dollar and 3% for the North American light vehicle production. Second, in the third quarter 2015, our non-GM sales increased by 8.4% on a year-over-year basis to $321.6 million.

The key drivers that continues to support our non-GM sales growth in 2015 were strong production volumes in the Jeep Cherokee, increased revenue related to Mercedes in China and the FCA driveshaft program here in North America. In addition, we launched programs for Ford in Thailand, as well as Jaguar Land Rover in Europe.

Third, our net income increased over 38% on a year-over-year basis to $60.9 million or $0.78 per share in the third quarter of 2015. Fourth, we continued to achieve significant year-over-year performance gains in key operating metrics.

Our gross profit increased $17.6 million to $158.3 million in the third quarter of 2015 as compared to the third quarter of 2014. Our gross margin was 16.3% in the third quarter of 2015 as compared to 14.8% in the third quarter of 2014.

And our EBITDA increased to $149.2 million in the third quarter of 2015, which represents a new quarterly record for American Axle. This compares to $127.7 million in the third quarter of 2014. And our EBITDA margin was 15.4% in the third quarter of 2015 which is compared to 13.4% on a year-over-year basis.

And fifth, AAM generated over $73 million of positive free cash flow in the third quarter of 2015. On a trailing 12-month basis, we've generated $175 million of positive free cash flow and are on track to deliver approximately that same amount for the full-year 2015.

As a result of the free cash flow generated in the third quarter of 2015, we've been able to lower our adjusted EBITDA leverage ratio to two times, which is meeting our long-term objective that we had for this year, which was targeted to be done by the end of the year, and we actually completed it one quarter ahead of time.

This has been a longstanding goal for AAM, and we're very pleased to have accomplished this one quarter early.

Chris will cover additional details on our third quarter financial results in just a few minutes here, but before I turn it over to him, let me share with you some highlights for the quarter in the areas of quality, operational excellence and technology leadership. First, in the area of quality.

In today's fast paced-automotive business world, quality is on everyone's mind. For AAM, quality is a key differentiator in the marketplace. And for the third quarter of 2015, we had seven AAM facilities with a perfect quality performance or zero parts per million. This is a great accomplishment for these locations.

And on an overall basis, AAM has and continues to operate at levels less than five discrepant parts per million across the board. Our focus on quality doesn't end at just achieving world-class PPM levels.

As we strive to stay ahead of the customer's changing expectations, we are taking our best-of-the-best techniques and have developed what we're referring to internally as AAM's (7:21) quality assurance system and are reading it across our entire global enterprise.

We continue to meet and exceed the stringent quality standards and warranty metrics that are demanded by our customers, year-over-year, while providing the highest level of quality performance in the industry. We believe our quality performance is and will continue to be a competitive advantage for AAM.

Now moving onto my second item, operational excellence.

AAM's third quarter 2015 gross profit, EBITDA and cash flow performance reflect high capacity utilization rates in our North American facilities, combined with continued operational stability and the implementation of significant productivity initiatives at our Three Rivers, Michigan plant, and our Guanajuato manufacturing complex in Mexico.

We've also been able to reduce our inventories in 2015, while at the same time implementing our new business backlog and growing our top line sales. Most importantly, we continue to demonstrate the ability to profitably grow while operating and generating positive cash flows.

In the third quarter of 2015, we continued to flawlessly and anonymously launch programs in our new business backlog with important customers that include Ford, Jaguar, Land Rover, Mercedes, Fiat Chrysler and Nissan, again continuing to support our diversification initiatives. The last item I'd like to cover today is our technology leadership.

The most important business focus for AAM is continued advancement in the area of technology leadership, as we position ourselves and continue to lead in a global driveline industry.

We are confident that our engineering initiatives such as the development of AAM's next generation EcoTrac Disconnecting axle technology, and our e-AAM electrification strategies will continue to drive AAM's sales growth and diversification.

AAM's quoted and emerging new business opportunities currently exceeds $1 billion of opportunity, and a significant portion of these new business opportunities relate to these innovative driveline solutions. In the third quarter 2015, we began the initial move-in phase for our Advanced Technology Development Center, what we're referring to as ATDC.

The ATDC will be the center of acceleration of innovation, collaboration and development of advanced product, process and systems technologies.

It will enable us to expand our benchmarking capabilities and accelerate the development of many of our critical competencies needed to successfully address the dominant industry trends that are changing forever quickly and are affecting the future of driveline systems.

These systems include improved efficiency, lightweighting, or mass reduction, and also enhanced vehicle performance. We expect to complete the initial phases of the new technology center by the end of 2015, and we look forward to showcasing our latest commitment to technology leadership to you in the near future.

In addition to this key investment in the heart of the North American automotive industry right here at Motown, we are also planning to increase our investment in technical resources abroad over the next few years.

As we continue to solidify our global manufacturing footprint in diverse product portfolio, we look to enhance and expand our capabilities in order to provide more improved and stronger capabilities in the area of technology solutions to our customers in those regional areas.

And with respect to AAM's 2015 outlook, we are now estimating our full-year sales for 2015 at $3.9 billion. We are raising our full-year 2015 EBITDA margin target by 25 basis points to a range of 14.5% to 14.75% of sales. We are also confirming our full-year 2015 free cash flow target to be approximately $175 million.

Before I turn over to Chris, let me address one last update that I know you are all interested in. In our last earnings call in July, we referenced one specific program that was in the final stages of the quoting process. Recently, we were notified that we have been selected as a supplier for this program.

We are currently in the process of finalizing the documentation of this new business award, and we expect to include it in AAM's new business backlog that we'll communicate to you in early 2016.

This new program supports our key business diversification goals and has the potential to offset approximately 35% to 40% of the impact of the GM's next-generation full-size truck program sourcing decision as we communicated to you earlier in the last earnings call.

This is fantastic news and great news for AAM and further demonstrates our ability to competitively win new business, and we're extremely confident that over time we can continue to close the remaining sales gap resulting from the GM sourcing decision, but again, a great victory and great news for AAM.

In summary, we're pleased with AAM's operational and financial performance in the first nine months of 2015. We are confident in our ability to finish the year strong while delivering on our 2015 key performance objectives.

And as we look towards 2016, we'll sustain our focus on organically growing our business and reducing our debt through positive free cash flow generation, just like we've done in the past.

We will also continue to assess strategic opportunities that will complement our core strengths, supplement our diversification strategies and be accretive while providing future profitable growth prospects. That concludes my comments for this morning. I thank everyone for your attention today and for your support of AAM.

Let me now turn the call over to our Vice President and Chief Financial Officer, Chris May.

Chris?.

cash flow. We define free cash flow to be net cash provided by operating activities, less capital expenditures, net of proceeds received from the sale of PP&E. GAAP provided – GAAP cash provided by operating activities in the third quarter of 2015 was $113.8 million. Net capital spending in the third quarter of 2015 was approximately $40.6 million.

Reflecting this operating activity and CapEx, AAM's positive free cash flow in the third quarter of 2015 was a solid $73.2 million. On a year-to-date basis, we have generated $136.2 million of free cash flow. On a trailing 12-month basis, we have generated $175 million of free cash flow.

Our free cash flow results year-to-date in 2015 positions us in a good spot to deliver on our target of approximately $175 million of free cash flow for the full year of 2015. Next, I will cover a few items on the balance sheet.

AAM's EBITDA leverage or ratio of net debt-to-EBITDA was down approximately 2 times at September 30, 2015 on an adjusted basis. This represents achieving our targeted ratio for the end of 2015, a full quarter ahead of schedule.

AAM's EBIT coverage or the ratio of EBIT to interest expense was approximately 3.8 times at September 30, 2015 also on an adjusted basis. Both of these credit metrics were calculated on a trailing 12-month basis.

Final note on the balance sheet, AAM ended up the third quarter of 2015 with total available liquidity of approximately $924 million, consisting of available cash and borrowing capacity on AAM's global credit facilities. We view this as a healthy level of liquidity for the company in order to meet all our objectives.

Before we start Q&A, I will close my remarks this morning by commenting on AAM's 2015 outlook. First, as David mentioned we are estimating our full-year 2015 sales guidance to be approximately $3.9 billion.

This tracks to the lower end of the range that was provided to you in the previous earnings call and further reflects our estimate of the impact of lower metal market pass-throughs and foreign currency translation for the balance of 2015. Today, we've also raised our full-year 2015 EBITDA margin target to be in the range of 14.5% to 14.75% of sales.

And lastly, we confirmed our full year 2015 free cash flow target of approximately $175 million, which would represent a robust 11% free cash flow yield compared to our market capitalization. In summary, we are pleased to have delivered another solid performing quarter and look forward to closing the year out strong.

That wraps up our prepared comments for our third quarter of 2015. Jason, back to you..

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

Your first question is from Itay Michaeli with Citigroup..

Great. Thanks. Good morning, and congrats, everyone..

Thanks, Itay. Good morning to you..

So just – I know that you're not disclosing or updating the backlog today, but hoping just given, I think, your prior target of growing top line I think about 5% a year through 2017, so give us maybe a rough update of how you're feeling about that target as you look at the world today?.

We're not changing those targets going forward, Itay. We're reaffirming those targets. The good news for us is the fact that the program that we had identified as an opportunity to offset some of the lost T1XX business that we've been successful in regards to earning that business. We want to communicate that to you guys effectively here today..

Great.

And can you describe when that program would begin production?.

Right now, the sharing of the details, timing wise, or the overall program at the appropriate time, we'll do that. We're just not at liberty to do it at this time..

Great.

Then just a second question on the free cash flow progress, first, maybe just talk about what's driving the CapEx, I think, a little bit lower than your prior outlook? And then, maybe David, as you're generating all this free cash flow, if you could perhaps update us on kind of what you're seeing in terms of cash deployment opportunities for the company over the next year or so..

Yeah. I mean, just from a cash availability standpoint, I mean, clearly, we're going to continue to balance our priorities, which is the organic growth which we've consistently been doing year-over-year. We've been strengthening the balance sheet.

And obviously, we achieved an important goal for us as far as getting to that 2 times levered position by the end of the third quarter instead of the end of the fourth quarter. So we're one quarter ahead of schedule. That doesn't mean that we're going to stop there.

So we'll continue to look at how we continue to pay down debt and do the appropriate thing there to strengthen and solidify the balance sheet.

And as we've said all along, we're obviously going to start looking more at some of the inorganic or strategic growth opportunities and we're assessing some capabilities and opportunities at this point in time. So we feel very good about where we stand from a liquidity standpoint right now, very healthy position. We're strengthening our balance sheet.

At the same time, we continue to grow our new business backlog..

Yeah, I think just to kind of reemphasize our strong liquidity position at the end of the quarter, actually subsequent to the end of the quarter we had started some pay down activity in our term loan albeit small, we've taken up essentially the next five quarters of amortization payments.

And then, of course, it's top of our mind here as well as aligning some of these other priorities..

Great. Perfect, thanks. That's very helpful. Thank you..

Yeah. Thanks, Itay..

Your next question comes from Ryan Brinkman from JPMorgan..

Hi. Thanks. Thanks for taking my question. Good morning..

Hi, Ryan..

Good morning..

So congrats, of course, on the new award win. I guess, the ink is not dry yet, but – and I know you're not in a position to identify the customer or the product.

But now that we are closer, I was curious if there's anything you can say about the general nature of the program whether by geography, vehicle type, or the product or components that you're going to supply.

I asked because obviously this helps you with your customer diversification goals, but I'm just curious if it helps you with any of your other goals like geographic diversification, et cetera..

Yeah, Ryan, great question. Yes, it is global in nature. It supports our EcoTrac Disconnecting All Wheel Drive type systems. So it's right in our core business that we do today. As we mentioned it's a non-GM customer, and I just can't get in the specifics of the product itself or the programs.

But at the same time, it should give you enough indication that it's going to support all of our diversification initiatives, support our global initiatives, at the same time leverage our latest and greatest technology. So we're very, very excited and happy about the program..

Okay. Great. Thanks. Then just my last question, one of your competitors reported – I would say, it was Dana, they had some execution issues or went through some supply chain issues, and basically they lost market share to some of their competitors on the commercial vehicle side.

I was just curious if – because you mentioned that your execution has recently been very strong, if there's been any sort of opportunity, if you've been picking up market share..

Well, I mean we continue to not only hold but grow our business going forward here, and what we effectively communicated to you today is the fact that we've got solid operating execution in our facility.

We're achieving the productivity commitments, and we're leveraging the strength that American Axle has always had when it comes to operational excellence.

In addition to that, we continue to invest in our technology leadership with ATD2 (26:45) that we put in the place, and we're continuing to elevate and enhance our quality on warranty systems and programs going forward.

And that's really the three-legged stool that we're really competing on, on a global basis, and with that we've been able to protect and support our business, at the same time profitably grow our business going forward, not only today but also our backlog, especially with this new big award that we just received..

Okay. Thanks, and congrats again on that award..

Yeah. Thanks, Ryan..

Your next question comes from Rod Lache with Deutsche Bank..

Good morning, everybody..

Good morning, Rod..

Hi, Rod..

A couple questions. One is you made a comment on this new program offsetting 35% to 40% of the GM change.

Are you kind of referring to the earnings impact or the revenue impact of that?.

The revenue side, Rod..

Okay. All right.

Because I thought the GM changes around $500 million maybe that was – that's incorrect?.

No. It's not outlined in regards to what we had talked to you about before. Again, we're still working with both GM and we're also working with this new customer in regard to the final program definition. So based on what we know at this point in time, we just updated things appropriately..

Okay. And....

And what I will say is, as things progress going forward on both customer front, as well as on some of our other new business opportunities that we're working on, we'll obviously update you appropriately..

And it looks like you're raising the low end of your EBITDA guidance for the year, just based on the margins and the revenue. Their free cash flow is coming in at the lower end.

Is there any change that's occurring, working capital-wise, that has any longer-term implications?.

No, Rod. In terms of the free cash flow guidance, it's consistent with what we shared with you a quarter ago. We're expecting a good solid fourth quarter as well.

On a positive note, as it relates to working capital to your question, demand for crossover vehicle that we support in the China market which we export here from North America has been very strong, which has sort of a temporary kind of a longer working capital draw for us, but that's part of the support of the total package to get to $175 million..

Okay. And that's one of the reasons why it's at the lower end, I suppose. Just lastly, obviously, there's been quite a bit of talk in the market about increasing truck production as we look out to 2016 and beyond. GM has been making some changes at Arlington. Chrysler, just this week suggested that they'd like to grow their body-on-frame truck business.

Do you have any insights into sort of the magnitude of what the growth opportunity is? And any color on timing or magnitude of acquisitions?.

With respect to the activity in regards to truck-type production and all that, I mean, it's again in that range of the 1.2, 1.235 (29:46) type area, that's in line kind of with where IHS is at this point in time. And we're seeing strong schedules from our customers in that respect, not only just GM but also the Ram program that we're working on.

So we feel very good about where we are with truck volumes and production. We think those volumes are going to remain strong going forward and if anything potentially go up.

So we're pleased with that, and the outlook for the truck and SUV and crossover market continues to be very strong, especially when you see their earnings that just came out from the OEMs and what they're emphasizing in those earnings calls and their profits.

So on the strategic front, we're not in a position right now to identify or communicate anything to you. All I will say is the fact that – and we've said it earlier that we're actively looking at appropriate things from a strategic standpoint.

And when the time is right for us to do something, clearly, we'll do that and we'll communicate that effectively. But again, the main thing we want to emphasize, the last several years we've been very focused on organic growth and strengthening the balance sheet. We've been able to successfully do that. We'll continue to do that.

We're now just being much more aggressive in regards to looking at our strategic opportunities based on the health of the company..

Great. Thank you..

Yes. Thanks, Rod..

Thank you, Rod..

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

Good morning, guys..

Hi, John..

Good morning, John..

Good morning, John..

Just a first question, I mean particularly on the quarter but also year-to-date. We're looking at non-GM revenue outstripping GM revenue pretty significantly certainly in the third quarter, yet you're getting pretty big grosses.

And I think the general perception outside the company is that non-GM business is going to be a whole lot less profitable, but we're seeing big growth in non-GM business and we're also seeing margin expansion.

So I'm just curious if you can help us understand why you're getting this margin expansion, even though you're getting what looks like to be a lower mix of business, and how we should think about that going forward? Because the results so far are pretty good with this non-GM growth..

Yes. We continue to demonstrate strong results as you indicated, John, but what I would tell you as it relates to the non-GM business, we will continue to expect that to grow very consistent with what we have shared with you in the past.

However, as it relates to the GM business, volumes have been strong in North America, especially in the full-size truck programs and especially in some of the products as I mentioned earlier that we ship over into Asia on our crossover vehicles.

Some of the dynamic you were seeing from a revenue perspective is the softening of our metal market reimbursement. And if you look through the course of the year, we are now reaching some of the lowest points for some of those various metal indices for which we pass on through to the customers.

So our revenue in excess of $100 million is down just related to that issue as well as some FX in particular out of Brazil. So you are seeing that dynamic as it relates to our margin, and most of that falls into the GM programs due to their size..

But, Chris, even if we adjust for that, I mean, you're still looking at outgrowth in the non-GM business and you're still seeing margin expansion.

Is a lot of this purely execution on both the GM and non-GM business because it does seem when you adjust for that that your grosses are pretty strong?.

Yes, John, that's what I was going to say. I mean, let's give credit to our operating guys in regards to the operational efficiency and stability that we're getting, the productivity initiatives that we're getting. We have a better profit conversion in regard to some of the program opportunities that we have out there.

So again, I really think the operating guys have done a hell of a job here this past quarter and quite honestly throughout the year. Once we get through getting all the capacity and mix aligned with where the customers need it to be and where the market demand was at..

Okay. That's helpful. And then a second question, as we think about capital allocation, you're going to have our real high class problem of being below this two times net debt-to-EBITDA at the end of the year.

Just curious as you're thinking about being freed up here on allocating capital a little bit more easily outside of the core business and debt pay down, David, how do you think about that? I mean, it looks like maybe you could institute a dividend or maybe you could do buybacks or you'll have room to do acquisitions.

And also just curious as we think about this new program rolling on that's going to replace the GM fall-off here, will you need to ramp up capacity in any way, or could you potentially.

I know it's going to sound like it's a different product, reuse some of the tooling capacity that you have in place right now?.

one, be in a position that we can do strategic activities; or, two, deal with any business cycle turn that may or may not happen in the near future. And then as far as the shareholder side of things, obviously we always look at the shareholder side of things from an activity, whether it be a dividend or a stock buyback.

But right now, our priority is lying more with the first three, that being organic growth, strengthen the balance sheet, or paying down the debt, and then now starting to look heavily into the strategic side..

Great. That's very helpful. Thank you..

Thanks, John..

The next question comes from Brian Johnson with Barclays..

Yes. Hi. Good morning, team. This is actually Steven Hempel on for Brian Johnson..

Hi, Steven..

Hi, Steve..

Hey. Just wanted to drill down on your Brazil operations. Clearly, some weakness down there overall in the markets. I know it's less than 5% of your business overall right now, but just wanted to get a better understanding on that.

I believe you mentioned in the past you might be in a position to restructure and move some of that capacity elsewhere, potentially exporting capacity to other regions and then also how you're thinking about VW's decision to delay its redesign of its truck platform for that markets, and then any impact you're seeing on production schedules from the truck recall related to Volkswagen's Amarok truck..

Lot of questions in there, but let me start with Brazil and South America. Obviously a very extremely difficult market to be operating in, not only for AAM but all OEMs as well as the supply base.

With respect to AAM, I mean, clearly, we've restructured our business to the point that we're continuing to stay healthy in that market, but not at the level that we would expect it to be there. We've gotten economic recovery from several of our customers, but not all of our customers. We continue to work on that right now.

We're evaluating what we need to do with regards to the fixed asset or fixed cost investments that are there from a capacity standpoint.

Depending on where volumes go in the future, we'll have to make some decisions to do we produce product out of that market and export it based on where exchange rates are right now, or do we look at redeploying capital outside of that market to other markets to minimize some future CapEx in other areas.

The most important thing with respect to us right now is getting the proper capacity utilization in the market and understand where the volumes are. And we don't see Brazil turning around anytime soon or the South American market turning around anytime soon. Shifting over to your questions on VW. VW is a very small part of our overall business.

We haven't seen any adjustments in our schedules as it relates to the Amarok truck, to your question earlier. The fact that they're delaying that program only supports our continued production of that product today which, as I said, we haven't seen in those volumes adjustment.

So we feel fine about where we are with VW, and we're not feeling the impact that maybe many other suppliers are a result of the VW decisions..

Great. That's helpful.

And then just turning to your e-AAM business, clearly in light of the diesel emissions issue here right now, any update on new business quoting activity, how that's been trending? Have you seen accelerations in that trend overall? And then remind us if any of that is in the backlog right now or potential timing of some business flowing to the backlog..

Yes. We see a stronger interest in regards to hybridization and electrification initiatives across multiple customers right now. Yes, we do have a program in our backlog, a new business in the outer years that have backlog at this point in time. Yes, we are seeing a significant increase in regards to interest from a new business opportunity.

Some are still in the emerging stages, others are in the quoting stages right now. But we feel that we're very well-positioned with multiple OEMs to be able to capitalize and capture some of that business going forward that we'll hopefully continue to profitably grow our backlog as we move forward..

Great. Thanks for taking my questions..

Thank you..

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

Hey. Good morning, everyone..

Hey. Hi, Joe..

Good morning, Joe..

First question, I just want to get a better sense if you're able to.

How much of the higher margin for the year is really just a result of the lower metal market pass-through? Maybe how much the commodities helped you in the quarter? And then I guess, if we see those commodities remain at these levels, does that change your view for that margin opportunities to next year or that 13% to 14% you guided to for the 2015 to 2017 timeframe?.

Hey, Joe. This is Chris. As it relates to margin impact and the dynamic of the metal market reduction, we typically have seen about a 25 basis points to 40 basis points just on the math associated with that margin as the sales have declined. However, our cost structure remains essentially the same excluding that metal cost.

So that's the benefit that we would typically see through that..

Okay.

So the raise in the guidance for this year, it sounds like a decent amount (40:24) will happen?.

I mean, all-in, it's included, certainly a piece of that from a margin perspective. From a dollar perspective, as you know, it didn't change..

Right..

We've got (40:33).

Right. Okay. And then, just for the fourth quarter specifically, typically though I guess the way I think about you guys and the way I think you've portrayed the company is that some of the margin swings are most related to volume. But it looks like the volume is at this point pretty much set for the fourth quarter or close to it given where we are.

So what are some of the other sort of puts and takes that could cause that little bit of a swing in, in how the EBITDA comes in for the fourth quarter?.

We have a couple items that will work for us in terms of the fourth quarter. Certainly, our production days are down, so our fixed costs are spread over a narrower sales base. You do have some impact on that.

As a comparison, the third quarter, as I stated earlier in some of the prepared remarks, we have sizeable FX gain in other income to the tune of about $6 million. We also have some additional project expense for some of our launches coming in next year, a little bit around the edges in terms of that.

And then just from a timing perspective, SG&A up slightly versus this quarter. We had some positive kind of arrangements with some of our customers for ED&D recoveries that worked overall for us in the third quarter. So that will blend in for probably a full-year SG&A run-rate of around 7%..

Okay. Thanks..

(41:59)..

Thanks a lot..

Yes. Thanks, Joe..

Your next question comes from Matt Stover with SIG..

Thank you very much for taking my question..

Sure. Good morning, Matt..

Two things.

If I look at the new program, is there a timeframe which we should think about that layering into the revenue expectations?.

Yes. Matt, this is David. Look in the 2018 to 2020 period of time..

Okay.

And then, two, when I look at the quarter, did I hear you correctly when you said that the FX revaluation gain in the other line was $6 million?.

Correct. It's about 90% to 95% of our other income for the quarter. That's right..

Okay. Okay.

So when we look at the guidance, should we include that in the first three quarters' EBITDA when we sort of back into what the fourth quarter guidance is? Because if I do that math, it looks like the margin range on the fourth quarter is like 12.5% to 14.5%, and I'm just trying to understand if I'm doing something wrong or what would be the things that would imply the lower end of that range?.

Yes. No, that's a little bit lower than I would have calculated here. I would have calculated the lower end of the ranges more around 13.7%..

Okay..

However, that is not something that we're anticipating repeating at this point in the fourth quarter as it relates to other income, in the FX gain or loss....

Okay..

... it might have (43:37)..

Okay. Okay. Well, thank you very much..

Okay. Thanks, Matt..

Thanks. We have time for one last question..

Thank you, gentlemen. Your last question comes from Emmanuel Rosner with Crédit Agricole Securities..

Hi. Good morning, everybody..

Hi, Emmanuel..

First of all, congrats on the new awards. And also David, very good hearing your stronger affirmation obviously of your quality performance, that's very, very good to hear. My question is on the K2XX replacements.

I guess, do you have any sort of new color you could share with us in terms of what the CPV may look like for you guys, or maybe the margin profile? And then I guess more in terms of the mechanics of that replacement.

Can you share whether you'll be basically supplying one plant and someone else the other ones or will it be based on trim levels, like how will be the sharing of the revenue work?.

Yes. Emmanuel, we're not in a position to share that information at this point in time. All I can say is that we're going to be significantly involved in the T1XX program like we've communicated to you in the past. We have a very strong relationship and partnership with General Motors that we've had for 20 plus years.

We're going to continue to have that relationship and partnership going forward. They're a valued customer of ours. You all understand the fact that we're not being awarded 100% of the next-generation product, that a portion of that product would be resourced elsewhere separately. Really GM needs to answer those questions as to what their plans are.

But all I will say is that we'll play a significant role like we continue to do today..

Okay. And then secondly on China, obviously it's a meaningful portion of your backlog and it seems like you're executing very well there.

Can you maybe give us an update in terms of have you seen any pressure on the backlog maybe in the coming years there, either from volume coming in lower than previously expected or customer pushing back any programs?.

No, Emmanuel, we're quite the opposite. We're seeing increases in the products that we're supporting for the China market. We're seeing the expansion in our backlog and new business, we're seeing expansion in our current production schedules as well as future production schedules.

As we indicated to you guys before, we have some additional investments going into China to support localization and growth in the market. So we feel very good about where we are and what our strategy is for China and, quite honestly, all of Asia at this time..

And that's impressive.

Is that a function of your focus on SUV, which is obviously a hot segment there?.

Especially in that SUV/TUV type of market, absolutely..

Okay. Great. Thank you..

Yes. Thank you..

Thank you..

Thank you, Emmanuel. And 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..

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