Second Quarter 2006 highlights * Second quarter sales of $874.6 million versus $867.7 million in the second quarter of 2005 * 2% year-over-year decline in production volumes, offset by a 3% increase in content per vehicle * Non-GM sales increased by 10.5% to $204.5 million, totaling 23% of net sales * Net earnings of $20.4 million or $0.40 per share * Year-to-date improvement of $52 million in free cash flow * Increased available liquidity by successfully closing on a $200 million unsecured term loan
AAM's earnings in the second quarter of 2006 were $20.4 million or $0.40 per share. This compares to earnings of $18.9 million or $0.37 per share in the second quarter of 2005.
AAM's second quarter earnings in 2006 reflect the impact of a one-time non-cash charge of $2.4 million, or approximately $0.03 per share, to write off unamortized debt issuance costs related to the cash conversion of approximately $128.4 million of AAM's Senior Convertible Notes due 2024. An additional $21.6 million of these Notes remain outstanding as of June 30, 2006. AAM's second quarter earnings in 2006 also reflect the impact of an unfavorable tax adjustment of $2.6 million, or $0.05 per share, related to the settlement of prior year foreign jurisdiction tax liabilities.
AAM's earnings in the second quarter of 2005 included a charge of $8.9 million, or $0.12 per share, related to voluntary lump-sum separation payments accepted by 162 hourly associates.
Net sales in the second quarter of 2006 were $874.6 million as compared to $867.7 million in the second quarter of 2005. Non-GM sales in the quarter were $204.5 million and now represent 23% of AAM's total sales. On a year-to- date basis through the second quarter of 2006, AAM's non-GM sales have increased $53.9 million or 15% over the prior year.
"In the second quarter of 2006, AAM benefited from strong demand for GM's full-size utility vehicles and the increase in our content appearing on these outstanding new vehicles. We look forward to supporting the launch of GM's new full-size pick-ups later this year," said American Axle & Manufacturing Co-Founder, Chairman of the Board & CEO, Richard E. Dauch. "AAM is also looking forward to the launch of production at our new regional manufacturing facilities in Changshu, China and Olawa, Poland. With the addition of these new low-cost manufacturing facilities, as well as the continuing development of our products supporting passenger car and crossover vehicle applications, AAM is well positioned for profitable growth and diversification in 2007 and beyond."
AAM sales in the quarter reflect an estimated 5% increase in customer production volumes for the major full-size truck and SUV programs it currently supports for GM and The Chrysler Group as compared to the second quarter of 2005. AAM estimates that customer production volumes for its mid-sized pick- up truck and SUV programs were down approximately 23% in the quarter on a year-over-year basis.
AAM's content per vehicle increased by approximately 3% to $1,216 in the second quarter of 2006 as compared to $1,185 in the second quarter of 2005. This increase is due primarily to the impact of new AAM content appearing on GM's full-size utility vehicles, as well as production mix shifts favoring AAM's axles and driveline systems for the Dodge Ram heavy-duty series pick-ups and the four-wheel-drive HUMMER H3 in the mid-size SUV segment.
Gross margin in the second quarter of 2006 was 10.3% as compared to 9.8% in the second quarter of 2005. Operating income was $40.5 million or 4.6% of sales in the quarter as compared to $36.4 million or 4.2% of sales in the second quarter of 2005.
Net sales in the first half of 2006 were $1.7 billion, approximately the same as the first half of 2005. Gross margin was 9.0% in the first half of 2006 as compared to 9.4% for the first half of 2005. Operating income for the first half of 2006 was $55.5 million or 3.2% of sales as compared to $62.1 million or 3.7% of sales for the first half of 2005.
AAM's gross margin and operating margin performance in the first half of 2006 reflects the impact of higher non-cash expenses related to depreciation, amortization, pension and postretirement benefits and stock-based compensation. Higher fringe benefit costs, including supplemental unemployment benefits paid to certain of AAM's hourly associates, also pressured margins in the first half of 2006.
AAM's SG&A spending in the second quarter of 2006 was $49.4 million as compared to $49.0 million in the second quarter of 2005. In the first half of 2006, AAM's SG&A spending was $97.9 million or 5.7% of sales as compared to $95.6 million or 5.7% of sales in the first half of 2005. AAM increased its R&D spending in the first half of 2006 by $3.6 million on a year-over-year basis. AAM has also increased SG&A spending in 2006 to support its expanded foreign business and technical offices.
AAM defines free cash flow to be net cash provided by (or used in) operating activities less capital expenditures and dividends paid. Net cash provided by operating activities in the first half of 2006 was $99.7 million as compared to $52.4 million in the first half of 2005. Capital spending in the first half of 2006 was down $5.2 million on a year-over-year basis to $156.0 million. Reflecting the impact of this activity and dividend payments of $15.5 million, AAM's free cash flow in the first half of 2006 improved by $52 million as compared to the first half of 2005.
A conference call to review AAM's second quarter 2006 results is scheduled today at 10:00 a.m. EDT. Interested participants may listen to the live conference call by logging onto AAM's investor web site at http://investor.aam.com or calling (877) 278-1452 from the United States or (706) 643-3736 from outside the United States. A replay will be available from Noon EDT on July 28, 2006 until 5:00 p.m. EDT August 4, 2006 by dialing (800) 642-1687 from the United States or (706) 645-9291 from outside the United States. When prompted, callers should enter conference reservation number 2270427.
On June 8, 2006, AAM announced that it had received financing commitments for a $200 million senior unsecured term loan. Proceeds from this financing, which closed on June 28, 2006, will be used for general corporate purposes and to finance payments made upon the cash conversion of American Axle & Manufacturing Holdings, Inc. Senior Convertible Notes due 2024.
AAM also announced on June 8, 2006 that it expects its full year 2006 earnings to be in the range of $1.00 - $1.10 per share to reflect the anticipated impact of the term loan financing.
On May 31, 2006, AAM announced that it had purchased a manufacturing building in Olawa, Poland. In addition, AAM purchased approximately 75 acres of land in an industrial park adjacent to the building for future development. AAM has designed a new 170,000 square-foot, state-of-the-art manufacturing plant for that site, to accommodate future manufacturing requirements. Operations will begin in late 2006.
Non-GAAP Financial Information
In addition to the results reported in accordance with accounting principles generally accepted in the United States of America (GAAP) included within this press release, AAM has provided certain information, which includes non-GAAP financial measures. Such information is reconciled to its closest GAAP measure in accordance with the Securities and Exchange Commission (SEC) rules and is included in the attached supplemental data.
Management believes that these non-GAAP financial measures are useful to both management and its stockholders in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes.