American Axle & Manufacturing Holdings Inc (AXL) 2002 Q1 法說會逐字稿

Good afternoon, welcome to the American Axle & Manufacturing Holdings, Inc. Q1 2002 Earnings teleconference. This call is being recorded. Time permitting we will be asking questions, taking questions. You may place yourself in the queue by pressing 1 followed by the 4 on your phone. If your question has been answered you can remove yourself by pressing the 1 followed by the 3. I would like to turn the call over to the Vice President at American Axle & Manufacturing Holdings, Inc.. Please go ahead Mr. Krause.

Thanks for joining us today. All of you should have had a chance to review the Q1 2002 Earnings announcement that was released earlier this morning. If you have not you can access it on our website or through the news wire services. A replay of this call will be available beginning at noon today through midnight ET on May 7 by calling 800-633-8284, before I turn the call over to our Co-Founder and Chairman, Richard Dauch I will read a statement. The matters discussed here may contain forward-looking statements based on current plans, expectations, events and financial and industry trends affecting the company's future operating results and financial position. Such statements involve risks and uncertainties which cannot be predicted or quantified and may cause future activity and results of operations to differ materially from those discussed. The historical results achieved are not necessarily indicative of future prospects of the company. For additional information we ask you refer to the company's filings with the Securities and Exchange Commission. It is intended to be in compliance with the regulations, it is open to analysts, news media and other interested parties. We are audio web casting this call through our website and this call will be archived there for later listening. I would like to mention we look forward to seeing many of you at conferences we will attend in the Q2, including the McDonald's Securities conference on June 14th in Boston and the Wachovia Securities conference on June 25th in Nantucket. Let's get to the purpose of today's call. I will turn things over to Richard Dauch, Chairman, CEO.

Thank you. Good morning, Ladies and Gentlemen. And thanks for joining us to discuss our financial results for the Q1 of year 02. We are pleased to report Q1 earnings per share increased 47% to 75 cents per share, versus the 51 cents earned in the Q1 of 01. On March 8, we were the first auto supplier to raise earnings guidance for the quarter. At this time we indicated that earnings would increase 40% from the 51 cents earned in the Q1 of 2001. Our company delivered earnings that were slightly ahead of that guidance. The 75 cents we reported were 2 cents ahead of the first call consensus estimate of 73 cents per share. This is our company's 13th straight quarter since becoming a public company that we have delivered strong earnings performance. I am joined this morning by our President and CFO Robin Adams, along with your Chief Officer and Patrick Lancaster. After I discuss today's release I will turn things over to Robin for further details in the financial performance of the company. When Robin finishes we will open the call for questions that you may have. I trust you have had the opportunity to review the earnings press release we made available over news and wire services earlier this morning. The Q1 North American Light Vehicle production was up approximately 4% including Light Truck production up almost 8% in the Q1 as the OEM's continue to use incentives to sell vehicles and cars were basically flat in the quarter and inventories were being restored. Am sales in the Q1 of 02 were a record level and were up 13% from last year's quarter to $859 million. Light Truck production to GM increased approximately 17% in the quarter and sales to GM comprise about 89% of the company's total revenues in the Q1 of 02. AM sales were impacted by a shift in product mix and declines in products sold to non-GM customers. Our company enjoyed a 1.5% increase in content for Light Truck in the Q1. That content grew to $1,135 per truck in the Q1. Operating income grew 36% to $72.5 million in the Q1 of 2002, versus 53.5 million in the same period a year ago. The increase is a result of the volume and content increases coupled with significant productivity improvements and our continued focus on tight cost controls throughout the company. We continue the investments in research and development with a major focus on our company's exciting new I Ride chassis modules features Power Light, independent drive axles with front and rear steering. We also are concentrating on our company's Power Transfer unit, PTUS, a key component in the cross-over vehicle line strategy. We expect to introduce our new modules during this summer and these modules will offer significant advantages over anyone else's and from the beam strategy presently applied. Research and development spending rose about 7% for this Q1 of 2002. As a result of this research and development, our company increased the percentage of new technology products introduced since mid-1998 to 72.5%. Remember, that was only 3% in 1994. As compared to 69.6% for the period of 2001. I am pleased we had a significant improvement in cash flow. Net cash used after capital expenditures improved $156 million in the Q1 of 2002, versus the same quarter of year 2001. We project to be cash-flow positive from operations for the entire 2002 calendar year. Am has continued to improve its quality performance. Our quality measurements have improved well in excess of 99% since 1994, and we further improved to only 16 parts per million for the six-months that just finished. This is data as measured by our customers. For March alone, we were down to less than 10 parts per million, specifically 8. This is absolutely the best in the world, nobody can compete with this. Additionally over 90% of our companies shippable parts have been at zero parts per million for in excess of six months. From a growth perspective, we are busy creating a new and exciting Driveline products and modules, tied to our 2001 award for the Driveline system and module supplier for a major future GM product program. We will be the tier 1 systems integrator and systems supplier with responsibility for the entire Driveline system, module and component design. This award also gives our company sourcing control. This is the largest one Driveline system program awarded to any OEM in the world auto business. During the Q1, AM won several contracts totaling in excess of $165 million. The majority of these contracts are for model years 200432006. Approximately 75% of those wins are new business and about 25% are replacement business. Additionally, in April, last month, 2002, our AM joint venture was awarded a contract to produce precision components for the new Ford Amazon. We are pleased to work with Ford South America and it supports our continuing customer diversification strategy. We have other opportunities and are working hard to secure additional business from existing and perspective customers. We are encouraged about these opportunities. Currently we are quoting new business of approximately $900 million. More than 800 million is new potential business and approximately 80 million is in replacement business. We feel confident we will win our share of this potential business due to the advantages we provide to our customers. Some of those advantages include the following -- advanced and superior technology. World class quality. Delivery, warranty performance and excellent packaging. I would like to thank our Investors for making the secondary stock offering that we completed on March 21 of 2002 a success. We welcome all the new Investors and also our previous Investors who supported us. We remember very glad you made the commit to American Axle. This offering is significantly helped the daily trading volume in Axle stock. The average daily trading volume of our stock has increased from less than 20,000 shares per day, prior to August 2001, to in excess of 150,000 shares per day following that offer. We have now seen our daily trading volume nearly double to 300,000 shares per day, in the month of April, following our latest offering in March. We are also pleased to announce that the Fortune Magazine included AM in the Fortune 500 listing. During the year 2002, we will be launching many major new products and programs for our customers. 14 of these launches will be in the major category and those launches are including in the following production. Item 1, the GM 370, the Driveline products for the extended long wheel-base midsize Sport Utility Vehicle that was launched successfully in February of 2002 and is flat and running hard. Item two, Ford, the net shape differential gears for automatic transmissions in selected front-wheel drive vehicles, that could be passenger cars or minivans, program launched successfully in our Cheektowaga operation from February through April 2002. The launch is behind us and was successful. Three, the start of operations of our brand-new Ford facility in Mexico, which supports our Driveline operations that is contiguous to it. Several launches occurred from 01 and they will continue through July 2002. It is going very well. Fourth is Hummer, the Hummer 2 or known as the Baby Hummer by GM, the Driveline products including front and rear axles and front and rear driveshafts. That launch began in March and is continuing right now in May and going well. Some of the other launches that our company is readying for production later is the huge one, Dodge Ram, series 25 and 3500, front and rear driveshafts, launches occur in July of 2002, we are in excellent shape. Item two, on that, that -- we are producing the 11.5 inch axle now in our Three Rivers facility for the first time. That will supplement our 11.5 that we do in Mexico, as well as what we do in Scotland. Our World Axle is working well for our company. Third point is the electronically controlled 8.6 axle which features advanced vehicle stability systems to be used on the GM full-size utilities, that launch will begin July of 2002. And finally, the GM 610, the full-size rear-wheel drive van better known as the Express and Savannah will utilize our front and rear axles and 7 1/4 front axles. That will occur in July of 2002. Ladies and Gentlemen, we are in excellent shape to meet all our customers' launch dates which I have discussed with you. We are up to the challenges in 2002 and will demonstrate our leadership position. We are committed to further increasing the value of Axle stock by following on the following seven items. First, continued research and development with major concentration on new product development, which includes our state-of-the-art rear or front steerable modules. Secondly, -- introduction of more new products by the end of the year, we will be close to 80% of new products, up from 72.5% that I am reporting today. Third, our world class quality and warranty performance continues to get stronger. Fourth our 100% consistent ontime delivery, our continuing customer diversification, our consistent financial earnings performance such as the 13th straight quarter and finally delivering free positive cash flow. In summary, I believe that our company is well-positioned for continued growth in the auto parts supplier sector. We expect to continue to deliver increasing margins, free positive cash flow as we implement these many new product launches while existing new customers utilizing our high-tech [INAUDIBLE] -based products and new business. Finally I would like to say I participated in the recent secondary stock offering for estate planning purposes for my family, investment diversification, as well as helping my company's increase float which has worked out well. I am committed to the long-term success of the company. I remain a significant minority investor with over 14% of the shares of this company, some 7.3 million shares of stock, I have an employment contract which I expect to honor through 2006, I am passionate about the company, our strong prospects for value and growth. I would like to turn it over to Robin Adams.

As you just heard from Dick, we achieved Q1 earnings per share of 75 cents, an increase of 40% versus Q1 last year. This is 2 cents ahead of the latest Wall Street expectations. It also exceeded expectations prior to our March 8th guidance, by 14 cents a share or 23%. Our margins increased by over 1% in the quarter consistent with our view for the year. We also generated $156 million year-over-year improvement in cash flow versus Q1 last year. We continued our commitment to meet the financial expectations of our Investors. Now, let me go over some of the details to help you understand the company's strong Q1 financial performance. Sales in the Q1 are an all-time record for the company. Sales increased nearly $100 million, or 13%, to $859 million in the quarter. This compares to North American builds up approximately 4%. We continue on to out perform the auto industry growth by 9% this quarter. Our major customer, General Motors had builds up in excess of 10% in the quarter. Now, that increased in builds at 10% by GM was driven by a 17% increase in light truck production. As Dick mentioned our content light truck increased 1.5% in the quarter to $1135 versus the Q1 last year. Now, this increased light truck penetration by our major customer and the content for light truck increase was offset by product mix shifts in GM-like trucks and reductions in non-GM customer sales. GM trucks represented more than 55% of GM's builds in the quarter as they continue to focus on increasing light truck market penetration. As we said before they talked about taking that concentration up to 60% of their vehicle build. The four-wheel drive and all-wheel drive on vehicles we supply was approximately 59% in the Q1. Versus 54% in the Q1 of last year. Product mix as I said was a big factor in the quarter and primarily why our sales growth, even at record levels, was slightly below that of GM overall light truck production, and our content per vehicle growth was slower than it has been in previous quarters. The majority of our volume growth in the quarter was on GM midsized trucks and SUV. Our content per vehicle on midsized SUVs and pickups are approximately $300 per vehicle less than full size trucks and SUV. You can understand why our growth in the mid-size and SUV mix ratio kept our overall growth down relative to light trucks. If you remember GM's new midsized SUV, known as the GMC Envoy, the Trailblazer and BravadO were launched in the Q1 of 2001 and now in 2002 are in full production. The 370, the extended wheelbase version of the SUV, the Envoy XL and Trailblazer XT was launched in the Q1 of this year, in GM's Oklahoma City facility, which a year ago was not building sport utility vehicles. That is why the strong production move in the Q1 for midsized SUV and trucks for the company. Now, the percentage of total revenue our sales to GM were 89% concentration level versus 86% for the Q1 of last year. While we experienced strong sales increases with General Motors, we experienced declines in the quarter and sales with non-GM customers impacting the topline sales growth by 2 percentage points. Margin was part of the story as well for us in the quarter, gross margin was 13.8% versus 12.6% in the Q1 last year. That is a 1.2% improvement in the quarter and that was as a result of not only higher production volumes, but significant productivity improvements including a focus on purchasing efforts and continued tight cost controls. We generated $23 million of gross profit in the quarter on incremental sales of close to $100 million or basically [INAUDIBLE] cents on the dollar incremental gross profit for the bottom line. SG&A expenses were at 5.4% of sales and in line with the the previous year's levels of 5.4%. On a dollar basis, SG&A spending increased 4.8 million in the quarter, of which approximately 1 million was related to investment in research and development. 800,000 related to our March secondary offering, and the remainder related to increased profit sharing expense that we incurred in the Q1 this year versus last year. Our traditional SG&A costs remain flat year-over-year on a dollar basis as we remained focus on tight administrative cost controls. Research and development spending was up 7% in the quarter. Our operating income increased 36% in the quarter to $72.5 million. In our margin increased 140 bases points to 8.4% versus 7% in the Q1 last year. We earned 19 cents on the dollar in operating income on our incremental sales in the quarter. We stopped amortizing goodwill in -- 02 in line with the new FAS 142. We will complete the full [INAUDIBLE] of FAS 142 with a review of investment in goodwill by the end of the Q2. EBITDA increased 24% in the quarter to $104.5 million. Margin at the EBITDA level was 12.2%, up over 1% from the the 11.1% in the Q1 of 01. We stated previously and continuously we expect to grow EBITDA margins approximately 1% or 100 bases points this year and the Q1 got us off to a good start. EBITDA was up close to 20 million in the quarter versus the same quarter last year and translated to an incremental 20 cents on the dollar for incremental sales. As you look at interest expense, there was a decrease of approximately $4 million in the quarter. We were at 11 .$6 million, this is due to lower average interest rates. Our short-term borrowing rates are approximately 3% lower than last year at this time. We continue to improve our credit statistics from an operating perspective. Net interest coverage at the end of the quarter was 4.7 times on a trailing 12-month basis versus 4.1 times at the end of the year, EBITDA [INAUDIBLE] was up to seven times on a trail 12-month basis versus 6.2 times at the end of the year. Our tax rate in the quarter remained unchanged at approximately 36%. Net income increased 62% in the quarter to close to $39 million, or 4.5% of sales, versus a 3.2% of sales in the Q1 of 01 or a margin increase at the net income line item of 1.3 percentage points. Fully diluted shares in the quarter increased over 5 million. Shares primarily as a result of our 3 million share offering last August and the impact of American Axle's current higher stock price on the overall dilution calculation. The net result is diluted earnings per share of 75 cents in the quarter, and represents as Dick said an increase of 47% versus the Q1 last year. We had good strong year-over-year comparisons to the quarter on every line item of the income statement and improved margins by over 100 bases points at the gross profit operating income, net income and EBITDA line items. You can't ask for other better quarter. Let me turn to cash flow. Cash provided by operations in the Q1 of 2002 was a source of $48 million versus a use of $68 million in the Q1 of 2001. This improvement of $160 million is a result of $15 million of higher earnings and also improved working capital. If you remember that working capital improvement reflects the final change in contractual payment terms we had with GM in Q1 of 01. That negatively impacted our cash flow last year in the Q1 by $90 million. Those change in payment terms are finally behind us now in the Q1. Capital spending was $65 million in the quarter versus 104 million in the year earlier period in line with our expectations of lower capital spending. This resulted, the capital spending and cash flow from operations resulted in improvement of $156 million in net cash after capital spending versus the Q1 last year. We had a use of $16 million in the quarter, versus a use of 172 in the Q1 last year. As I said, the capital spending in the quarter is line with our guidance of lower capital spending for the year 2002 in the range of 250 to $275 million. If you annualize Q1 you get close to that number. It reflecting our lower capital spending in the future that we expect, as we have substantially completed the rebuilding of our facilities to support our new higher technology products we are bringing to market. I want to remind you, and we have told you this for of the last six months, the Q1 of each year is traditionally a heavy outflow for cash. We saw this in our performance a slight use of cash, due to the increased capital investments in the Q1 resulting from the level of business activity in December which is much lower versus the higher level of activity in March. Let me give you an example. Our sales in March were approximately $75 million higher than they were in the month of December, 2001. And with current industry payment terms of -- means that difference of $75 million approximately sits on the balance sheet at the end of the quarter as an increased investment and working capital. As we previously indicated we spent $5 million in the quarter of our free cash flow to buy out off-balance sheet operating leased equipment. Now, let's talk about our debt and capital structure. Total debt was $888 million up $10 million versus year end 2001, net debt, or gross debt less cash increased only 18 million in the quarter despite the seasonally related 64 -- I'm sorry, $46 million increase in working capital. Our debt-to-capital ratio was 60% in the quarter versus 71% quarter a year ago. Our book equity has grown to $582 million from only $40 billion at year end 1998. Our net-to-capital has improved from 95% to 60% during that same time period. This is a dramatic improvement despite over $1 billion capital spending in the period, three acquisitions in 1998 and 1999 and an increase in debt related to the three-year transition with General Motors to normal payment terms. We will continue to grow our equity base through earnings performance. We will reduce debt levels through generation of positive free cash flow resulting in a projected debt-to-capital ratio at 55% by the end of the year and below 50% by the end of 2003. Our guidance on this has remained unchanged for the past two years and we remain committed to the targets. Looking at our -- further at credit stats in the quarter net debts trailing 12 month EBITDA ratio was below 2.3 times, versus 2.35 times at the end of 2001. We are within traditional investment grade levels with these stats. We feel comfortable with the financial flexibility of our current capital structure at March 31st, we have total borrowing capacity in excess of $350 million through our existing credit facilities and we have no major debt maturities coming due. Let me focus on the rest of 2002. We gave guidance on March 8th of this year for Q2 earnings growth of approximately 15% versus the 72 cents a share we earned in the Q2 last year, that translates to a raping of approximately 83 to 85 cents a share for this year. We want to re-confirm that guidance today. Our guidance for the full year on March 8 was earnings growth of 20% versus the 236 a share we earned last year putting you in $2.80 to $2.85 range. That guidance was based a North American life build assumption of approximately 16 million vehicles. We are reconfirming that guidance as well today, the guidance for the full year. Some analysts have recently become more bullish for build assumptions on the year than our 16 million assumption, therefore are projecting earnings for the year for American Axle in excess of guidance. With higher build rates we would project higher earnings. We prefer to remain cautious on the last half of 02 until we get a more definitive read on the growth prospects for the economy and the impact of that on the auto industry. I want to encourage all of you when you look at analysts earnings estimate for American Axle for the last half of 02 to understand the underlying industry build assumptions that those estimates are based on. Now, going from earnings to a cash flow perspective, we would today, however, like to provide more definitive guidance on cash flow for this year. With the Q1 behind us, in 20% year-over-year earnings growth guidance for the full year we would expect to generate free cash flow of approximately $100 million this year. This is double our previous guidance of approximately $50 million. As we previously mentioned, we expect to use approximately $45 million of our 2002 free cash flow to exercise our buyout option and equipment currently being leased. And as I mentioned earlier, we used $5 million of that to buy out leases in the Q1. We have 40 million left to go this year. The remaining available free cash flow generated will be used to reduce outstanding debt and further improve capital structure. We view our Q1's performance as another confirmation of our financial strength and leadership and our focus to continue to deliver on commitments we have made to shareholders. Despite the continued strong performance in stock price we trade at a sizable discount to our peer group of other suppliers, whether on an EPS basis or enterprise value to EBITDA basis. We traded at least a 20% discount. The skepticism regarding commitment to reduce capital spending levels and ability to generate cash flow should be behind us. Our expectation is that over time we will be rewarded for continued strong consistent strong financial performance with valuation multiples that are at the average of our peer group which remains at 15 times year 2002 estimated earnings. Our Q1, strong financial performance at every line item in the income statement is just another step in that process. Thank you for your attention. I would like to turn the call back over to Bob Krause.

Thank you. We have reserved time to take questions. We have received instructions from Leanne on how to get into the queue. Feel free to proceed with questions.

Ladies and Gentlemen, to register for a question, please press the 1 followed by the 4 on your telephone. Our first question will come from Steve Haggerty with Merrill Lynch.

Good morning. A couple of quick questions. Can you talk more about the non-GM revenue portion and what affected the change there, what drove the decline there? And also on that, when should we start to see non-GM portion of revenue start to pick up specifically with regard to the Dodge Ram pickup contract?

Steve, the non-GM revenue reduction was approximately $15 million in the quarter and it was related to some programs that we anticipated running off and the remainder related to passenger car and commercial vehicle programs that were on the continue to be weak relative to rest of the sector, particularly relative to GM light trucks. As far as the change in that dynamic, as Dick mentioned we are launching the biggest program we have in July of 2002 with that Dodge Ram program. As we said earlier that is in excess of $300 million worth of sales on an annualized basis. That will increase non-GM business by 10%. For this year, 02, it will be well in excess of $100 million yet this year, on a full annual basis in 03, it will be $350 million.

That should pick up in q3?

Yes.

Two follow-up questions, you took a charge in Q4 for UK operations, how is that restructuring over there proceeding?

It is right on track, Steve.

Finally, health care cost assumptions, we are hearing a lot about the rising health care costs and how it impacts all the companies that we follow. Can you give us a sense of what you assume for the increase in health care costs for 02?

Let me tell you what our assumptions are and I will let Joel tell you how we are dealing with it. Our assumption is from a cost perspective we will have double digit increases in health care costs this year. Let me tell you what we have done. We are looking to review our providers, go to single source providers to try to manage costs. We have also capped our liability for retiree health care costs, new hires, are not covered in the traditional plan, there is a new program with respect to new hires. Those are two activities we have taken to reduce the high costs of health care we experienced this year. Let me have Joel have answer really how we are offer setting the costs.

Good morning, Steve. What we have got now is a very mature productivity program. We continue to add refinements to it and we identify every cost increment prior to our -- doing our final budget for the next calendar year. We put in all the market basket of ideas we need to offset all of those incremental cost increases that were subject to and we are tracking something in the order of 4,000 productivity improvement suggestions that encompass every account in Manufacturing and go to every level of management within the company.

Thank you.

One thing, too. Despite the double digit increases in health care costs we improved margins over a hundred bases points in the quarter. We expect to improve them for the full year. Thanks to Joel, we are more than able to offset those costs through productivity improvements.

Thank you.

Our next question comes from Steve Girski.

I just have a question, Robin, on the margins. Looking sequentially it looks like revenues were up versus Q4, yet margins were done, is there something that makes the comparison not apples to apples?

One is product mix, the other is -- as you know, a lot of costs increase at the first of the year, wages increase in the Q1, we have fundamental costs that go up in the Q1. We expect to see full year-over-year improvements in margin every quarter this year versus last year.

And the -- this -- just another question on this four-wheel steer product. There is a lot of confusion in the market as to what is this product versus what is on the market now. Of course the people in the market now say you can't be on this product kind of thing. Can you just [INAUDIBLE] and clear some of that up for us?

On the four-wheel steer we have a superior product. Number two, we have it in five different vehicles ride now that are roadable, drivable, for our customers and their engineers and decision makers to decide what they want to apply it to and when. Point three, ours is a boatable problem, it can be done without any disruption to the present customers' assembly plant or process. Next, ours is on a multilink product, not a beam live axle giving it a far superior ride and handling. Next we have a much better cost control and therefore price elasticity on it.

Are you saying you are in the market by the middle of the year with something?

No, we have a superior product, it is available, it is being tested and we will secure purchase orders in the future. We have nothing to announce on that right now. We want to have a superior product to what is out there now and we do because what is out there is a beam axle and very pricey.

I am with you. Just one thing on the backlog, you said you are bidding on 900 million of business currently. I think last quarter was a billion, is just the change in that the 165 that you want?

Steve, I will have Pat Lancaster respond to you.

Basically that is correct. It is the 165 we have wanted. Of course there is always different opportunities that arise, and others are resolved.

Is there a lot of four-wheel steer business in that 900 billion or will that be incremental?

That is incremental.

Thank you.

Our next question comes from Wendy Needham with CS First Boston.

Good morning. A quick one. The payables number, Robin, do you have the actual number at the end of the quarter?

Yes, I do. Let me dig that out for you. Accounts payable will be approximately $343 million, an increase of $40 million in the quarter. Again related to the business activity. In March 1st versus December.

On the content per vehicle, does it say -- I know it is hard to predict precisely, does it stay around this level on the GM products for the rest of the year because you have got the 370s coming in or does it go down more?

We expect, as we said before, we expect tighter content per vehicle growth this year. About the 5% level, maybe slightly below that. We are seeing content for vehicle growth on individual products greater than that 1.5% in the quarter. What is happening is that it is the mid-size SUV and trucks that are becoming a bigger part of the share. Having said that, giving the Dodge Ram that launches in the last part of the year, that should offset some of this mix shut and product greater content for vehicle growth in the back half of the year. We are not looking for the double digit growth in the last year. We averaged 7% a year. When you take last year and this year, this year we will be closer to 5%, averaging in excess of that 7% again.

One thing I would add is that the Hummer is coming in -- coming in also. That is all four-wheel drive, the Dodge Ram as Robin indicated and then we still have the strong and slightly upgrade on four-wheel drive application for the full-size. There is a good penetration for the midsize.

The 5% includes the Dodge Ram?

Yes. And the Hummer.

And the Hummer. I think you said before, Dick the Hummer is over 2,000 a vehicle?

That's pretty pricey. A hell of a buy. You ought to buy one.

You can't drive it on the roads where I live.

I will take you for a ride.

Our next question comes from David Leiker with Robert W. Baird & Company. Please go ahead.

First, a little cleanup question here, the tax rate going forward, shall we use 36% or -- that seems to move around by quarter.

We expect to be 36% for the year, David. That is a good number to use for this year.

And then going through, in your comments, Dick, I missed this, the 165 million in new business for 04 through 06, is that --

What is your question?

Is that what you were awarded recently or is that the revenue flow in that time period?

Pat, do you want to respond on that $155 million for David?

That is for programs with model years in 04 through 06.

That is a cumulative number over the three-year period?

Yes.

And then in the 800 million of new business that you are talking about that you are working on, is there one or two large programs in there or 2, $300 million, or are they a bunch of programs under 100 million?

There is at least one very substantial one and there is a number of others in the 100 million-plus category.

Caller: That is substantial, is that on a sale of the Ram?

Let me answer it a bit differently. We have 35 specific different actions going on and they range anywhere from a dribble, $2 million, up to $225 million on an annual basis. So we are fishing in a lot of ponds, a lot of different OEMs, GM, Ford, Daimler-Chrysler, world programs, forging programs, Asian programs, et cetera, and we will earn our fair share of it.

Thank you.

David, Bob Krause has another comment.

I wanted to clarify the 165 million in new business is an annual rate, 75% of that is new, 25% is replacement. It is not cumulative over the three years, it would be on a run rate fully launched basis.

Thank you.

Our next question comes from Richard Hilgert with Fahnestock & Company, please go ahead.

Good morning. Okay, I wanted more clarification on the non-gm business, the 15 million that we were down versus year-ago. It was program run-off, and passenger car weakness, can you quantify between the two where the 15 million is?

Richard, it is all over the place. I mean, it is such a small number relative to $800 million of sales in the quarter, that it is just all over the place. It is a little bit of everything.

Caller: Was some of this the Ford business?

It is a dribble of this and other things. It is a compilation.

Okay. On the margin, should we expect the same kind of magnitude of improvement in the Q2 year-over-year that we saw in the Q1 year-over-year?

Richard, as we said, we expect our margins to improve over 1% this year. We did it in the Q1, I think you can expect consistent performance throughout the rest of the year in order to achieve that 1%. Some quarters might be stronger, some weaker. Generally it will be in that direction quarter by quarter.

Okay. When you had given us backlog information before, you had pre-qualified the 150 million for 02 with a down year in production. Can you update us on where you are on that 150 million for backlog for the full year on 02?

I am not sure of your specific question. Would you repeat it please?

When we had gone over your backlog before you had broken down the years and given us a backlog number at the beginning of the year for 02 of a total of $150 million. That was predicated on a down year in build rates, so I am wondering, you know, with the higher-than-anticipated demand we have seen so far this year where you stand on that number for the full year in 02 now?

We are confident in that number. We think it is a good number.

You don't want to update it and make it higher now that we have seen higher build rates in the Q1?

We have responded.

Okay. And last, on the crossover driveline product you mentioned in the press release, the way that is worded -- I am not too familiar with the I Ride chassis module, is that part of the crossover?

We should make sure you get a chance to ride them. They are fabulous.

Is that part of the cross-over driveline you are talking about?

It is not. It is a different application. What we are trying to do here is respond to the market and the customers' needs of having more friendly ride, more car-type qualities, and also to be able to differentiate brands. Let's use our strategic partner and big customer GM has a lot of different brands to differentiate, GMC, Cadillac and others. If up want to go to the extreme, Hummer. We want to be sure we have different kinds of suspension and ride, adapt into existing platforms and be adaptable to the existing process of production at the assembly plants. It is marvelous and it is patentable to us.

Okay, great, thanks, everybody.

Thank you, richard.

Our next question comes from Darren Kimball with Lehman Brothers. Go ahead.

Can you hear me?

Yes, good morning.

Good morning. Can you clarify a couple of things for me? Robin, on your commentary about the full-year earnings guidance versus a build expectation of 16 million, can you clarify what you mean by build? I mean are you referring to U.S. Sales? I don't think a 16 million build is conservative relative to consensus estimates.

I am talking about North American vehicle builds. As we put out guidance in March we expect North American vehicle builds to inch up to the 15.8 to 16 million vehicle build level. Some analysts and I can't speak for you personally, some analysts have increased earnings estimates for the company based on stronger expectations of vehicle builds in the market. I want people to understand that. And what I want to encourage people to do is to talk to the analysts or at least understand what is driving their earnings guidance rather than just assuming we are all working off the same vehicle assumption build.

Can I just further clarify, I mean, is yours a light vehicle comment or are you wrapping in medium and heavy-duty production?

Ours is a light vehicle comment.

Okay. And secondly, maybe I missed this in the call, but can you update us on our full year Cap-x expectations?

Joel Robinson will give you an update.

We are looking at 250 to $275 million range for this calendar year.

Part of the underspend in the Q1 may persist and wind up being an underspend forth -- for the year?

If you take the first quarter and annualize it, it is fairly in line with what we would expect for a run rate for this year. If you look back at what we spent in the last six months of 01 it is consistent with those spending levels as well [INAUDIBLE] Darren, we said the reduced capital spending is in line with previous guidance, it is right where it should be, and remember, you have to recall over the last five years, we spent a billion and a half in capital to rebuild manufacturing facilities, we rebuilt the product portfolio, our systems, and we said this would drop dramatically and it did this past quarter, and we are on that run rate for the rest of the year.

Okay, and another clarification, when you talked about introducing the steer system this summer I heard your answer to Steve, so the -- the way to interpret is you are introducing it to customers, not to the market?

That is correct.

Okay. And my last question is just on the leases, could you speak to the rationale for buying out the equipment leases versus other uses for the proceeds?

Darren, this equipment is critical and integral to our Manufacturing processes. We have the option to extend the lease. It was just a financing decision as we looked at what the alternative costs would be to extend the lease we determine the that our best alternative from a capital perspective would be to repurchase the assets under the lease. Basically it is a cost-to-financing decision, whether you want to borrow or continue to pay the financing costs under the lease. It is cheaper for us to borrow the money and repay than lease and buy it out.

Okay, that is helpful. Great quarter.

Thank you.

Our next question comes from UBS Warburg, go ahead.

I wanted to clarify that I Ride would that be putting an independent rear on the Escalade versus the Tahoe?

It would fit well on that platform.

Are there any I guess those products would be included in the $900 million you guys are bidding right now?

That would have nothing to do with that. This is business that we want to differentiate present products, and it would be a replacement for existing business, and obviously it would have an enhanced content and it would help them differentiate their product and meet the consumers' needs and market competition.

Okay. On that 900 still that you are quoting, can you give any kind of breakout, if you would, GM versus non-GM or car versus truck?

Yeah, I will have Pat Lancaster respond to you.

In terms of the $900 million we are quoting on, about 25% of that is GM and 75% non-GM. Hopefully that will be helpful.

Sure.

I don't have it broken out any further.

Okay. And then on the content per vehicle, I understand the mix issues with the midsize issue, can you comment on how much higher your content on the 360 is versus the old Blazer?

I am not going to give you a dollar amount. I can tell you there is an increase in content.

Okay. Is it a similar increase on the new small pickup coming out, I 190 versus the S-10?

In that range, yes.

Thank you.

I understand that was our last question, so no other questions are in the queue. We would like to thank all of you for participating on the call today. And look forward to talking to you in the future and seeing you at investor conferences. Thank you for your interest in American Axle.

Ladies and Gentlemen, that does conclude your conference for today. We thank you for your participation.