Announces 2007 Earnings and Cash Flow Guidance
Full Year 2006 Results - Full year sales of $3.2 billion, reflecting a 9% year-over-year decline in AAM production volumes - Non-GM sales of $758.5 million, or 24% of total net sales - Special charges of $181.4 million for a special attrition program (SAP) accepted by approximately 1,500 UAW represented associates at AAM's master agreement facilities and other related restructuring actions - Asset impairment charges of $196.5 million primarily associated with plans to idle AAM production capacity in the U.S. dedicated to the mid- size light truck product range - Net loss of $222.5 million, or $4.42 per share
AAM's results in the fourth quarter of 2006 were a net loss of $188.6 million or $3.74 per share. This compares to earnings of $4.5 million or $0.09 per share in the fourth quarter of 2005. Full year 2006 results were a net loss of $4.42 per share as compared to earnings of $1.10 per share in 2005. AAM's results in 2006 reflect an overall 9% year-over-year decline in production volumes for the major North American light truck programs AAM currently supports. This includes an estimated 30% decrease in customer production volumes for AAM's mid-sized light truck product range as compared to 2005. Production volumes for the major full-size pickup truck and SUV programs AAM currently supports for General Motors and the Chrysler Group were relatively unchanged in 2006 as compared to 2005.
In the fourth quarter of 2006, AAM recorded special charges relating to a special attrition program (SAP) accepted by approximately 1,500 UAW represented associates at AAM's master agreement facilities. AAM also recorded a special charge in 2006 for supplemental unemployment benefits (SUB) estimated to be payable to UAW associates who are expected to be permanently idled through the end of the current collective bargaining agreement that expires in February 2008. AAM recorded additional special charges associated with salaried workforce reductions and other attrition programs offered to its associates. In total, these special charges increased AAM's operating costs in 2006 by $181.4 million. AAM estimates that the future structural cost benefit resulting from the SAP and other related restructuring actions will exceed $100 million annually.
In addition to these special charges, AAM also recorded asset impairment charges of $196.5 million in the fourth quarter of 2006 associated with plans to idle a portion of AAM's production capacity in the U.S. dedicated to its mid-size light truck product range and other capacity reduction initiatives.
"As the domestic automotive industry continues its rapid and unprecedented structural transformation, AAM took difficult, but necessary actions in 2006 to adjust our workforce and production capacity in the U.S. to meet the realities of the new global automotive market," said American Axle & Manufacturing Co-Founder, Chairman of the Board & CEO, Richard E. Dauch. "In 2006, we made significant progress on AAM's long-term strategic goals with the expansion of our product portfolio and new business backlog to support the growing all-wheel-drive passenger car and crossover vehicle market segment. We also launched important new products for General Motors, the Chrysler Group, SsangYong Motors, Hino, Jatco, Koyo and Harley-Davidson, while expanding our served markets and global manufacturing footprint into mainland Europe and Asia."
2007 Outlook - AAM expects full year 2007 sales to increase to approximately $3.3 billion - AAM expects production volumes for the major North American light truck programs AAM currently supports to be approximately 2% lower as compared to 2006 - AAM expects earnings to range from approximately $1.25 to $1.50 per share in 2007 - AAM expects capital spending to range from $240 million to $250 million in 2007 - AAM expects free positive cash flow to exceed $100 million in 2007
AAM's 2007 earnings outlook is based on the assumption that its customers' production volumes for the major North American light truck programs it currently supports will be approximately 2% lower as compared to 2006. Based on this production assumption, the anticipated timing of new program launches and higher content on GM's all-new, award winning full-size SUV and pickup truck program, AAM expects 2007 sales to increase to approximately $3.3 billion. AAM expects content per vehicle to increase approximately 5% in 2007, off a base of $1,225 in 2006.
AAM's 2007 earnings outlook also reflects its plans to incur an additional $25 million of additional special charges and other non-recurring operating costs related to incremental attrition program activity, the redeployment of machinery and equipment and other steps to rationalize underutilized capacity. Including capital expenditures related to this activity and payments due to associates pursuant to the SAP and other attrition programs expensed in 2006, AAM expects to incur a net use of cash approximating $100 million in 2007 in support of these attrition obligations and restructuring activities.
Reflecting the impact of AAM's 2007 earnings outlook, a reduction in AAM's capital spending to a range of $240 million to $250 million and the continuation of its quarterly cash dividend program, AAM expects its free positive cash flow to exceed $100 million in 2007. AAM defines free cash flow to be net cash provided by (or used in) operating activities less capital expenditures and dividends paid.
AAM expects depreciation and amortization expense to increase approximately $20 million in 2007 as compared to 2006. Although the asset impairments recorded in 2006 reduce the annual rate of depreciation and amortization expense for certain of these assets in 2007, the impact of depreciation on new machinery and equipment almost entirely offsets that reduction. AAM also accelerated useful life estimates for various assets as a result of its asset impairment assessment in 2006. These changes in useful life estimates increase the annual rate of depreciation for these assets beginning in 2007.
Taking all of these factors into account, AAM expects its earnings to range from $1.25 to $1.50 per share in 2007.
"In 2007, we expect to strengthen AAM's position in terms of sales growth, margin expansion and free cash flow generation," said Mr. Dauch. "AAM's plan to generate more than $100 million of free cash flow in 2007 will enhance our ability to invest in the continuing diversification of our product portfolio, customer base and global manufacturing footprint. We will remain focused on these long-term strategic goals in 2007, while at the same time reducing debt levels, improving our balance sheet strength and enhancing stockholder value."
A conference call to review AAM's fourth quarter and full year 2006 results is scheduled today at 10:00 a.m. EST. 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 12:00 p.m. EST on February 2, 2007 until 5:00 p.m. EST February 9, 2007 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 5211203.
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 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.