Announces $400 million increase in 2008 - 2012 new business backlog
Second Quarter 2007 highlights -- Second quarter sales of $916.5 million -- 3% year-over-year decline in total production volumes as compared to the second quarter of 2006 -- Content-per-vehicle of $1,318, approximately 8% higher than the prior year -- Gross profit of $113.1 million, or 12.3% of sales -- Operating income of $58.9 million, or 6.4% of sales -- Net earnings of $34.0 million or $0.64 per share -- Net cash provided by operating activities of $224.8 million -- Increased 2008 - 2012 new business backlog to approximately $1.2 billion
AAM's earnings in the second quarter of 2007 were $34.0 million or $0.64 per share. This compares to earnings of $20.4 million or $0.40 per share in the second quarter of 2006.
AAM's earnings in the second quarter of 2007 reflect the impact of special charges and other non-recurring operating costs of $7.0 million, or $0.11 per share, primarily related to incremental attrition program activity. AAM's second quarter earnings in 2007 also reflect the impact of an additional $5.5 million charge, or $.09 per share, for the write-off of unamortized debt issuance costs and other costs related to the prepayment of the $250 million term loan due 2010.
AAM's earnings in the second quarter of 2006 included a one-time non-cash charge of $2.4 million, or approximately $.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 in 2024. AAM's earnings in the second quarter of 2006 also reflect the impact of an unfavorable tax adjustment of $2.6 million, or $.05 per share, related to the settlement of foreign jurisdiction tax liabilities.
"Through the first half of 2007, AAM is on track to achieve its annual objectives for sales growth, margin expansion and free cash flow generation," said AAM's Co-Founder, Chairman of the Board & CEO Richard E. Dauch. "Our solid operating performance and strong cash flow in the second quarter of 2007 reflects AAM's continuing emphasis on productivity gains, process efficiencies and structural cost reductions. We will continue to focus on these and other initiatives as part of our long-term strategic commitment to achieving sustainable global cost competitiveness."
Net sales in the second quarter of 2007 were $916.5 million as compared to $874.6 million in the second quarter of 2006. Customer production volumes for the full-size truck and SUV programs AAM currently supports for GM and The Chrysler Group were approximately the same as compared to the prior year. AAM estimates that customer production volumes for its mid-sized truck and SUV programs were down 18% in the quarter on a year-over-year basis. Non-GM sales represented approximately 24% of AAM's total sales in the second quarter of 2007.
AAM's content-per-vehicle is measured by the dollar value of its product sales supporting GM's North American truck and SUV platforms and The Chrysler Group's heavy duty Dodge Ram pickup trucks. In the second quarter of 2007, AAM's content-per-vehicle increased approximately 8% to $1,318 as compared to $1,216 in the second quarter of 2006.
Gross margin in the second quarter of 2007 was 12.3% as compared to 10.3% in the second quarter of 2006. Operating income was $58.9 million or 6.4% of sales in the quarter as compared to $40.5 million or 4.6% of sales in the second quarter of 2006. AAM's improved gross margin and operating income performance in the second quarter of 2007 primarily reflects the impact of higher sales, productivity gains and structural cost reductions resulting from the special attrition program and other ongoing restructuring actions.
Net sales in the first half of 2007 were $1.7 billion, approximately the same as the first half of 2006. Gross margin was 11.5% in the first half of 2007 as compared to 9.0% for the first half of 2006. Operating income for the first half of 2007 was $94.8 million or 5.5% of sales as compared to $55.5 million or 3.2% of sales for the first half of 2006.
AAM's SG&A spending in the second quarter of 2007 was $54.2 million as compared to $49.4 million in the second quarter of 2006. In the first half of 2007, AAM's SG&A spending was $103.1 million or 6.0% of sales as compared to $97.9 million or 5.7% of sales in the first half of 2006. This year-over-year increase in AAM's SG&A expense was primarily attributable to higher profit sharing accruals and higher stock-based compensation expense due to increased profitability and stock price appreciation. AAM's R&D spending in the first half of 2007 was approximately $39.7 million as compared to $40.1 million in the first half of 2006.
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 2007 was $234.6 million as compared to $99.7 million in the first half of 2006. Capital spending in the first half of 2007 was down $80.5 million on a year-over-year basis to $75.5 million. Reflecting the impact of this activity and dividend payments of $15.8 million, AAM's free cash flow of $143.3 million in the first half of 2007 represents an improvement of $215.1 million as compared to the first half of 2006.
2008-2012 New Business Backlog
AAM today announced it has increased its backlog of new and incremental business by approximately $400 million to an estimated $1.2 billion for programs launching in 2008 through 2012.
AAM measures its backlog of new and incremental business ("new business backlog") by the estimated annual sales value of agreements with its customers to provide axles or other driveline or drivetrain products for future product programs, as well as incremental content or volume awards on existing programs including customer requested engineering changes. AAM's new business backlog may be impacted by various assumptions such as production volume estimates, changes in program launch timing and fluctuation in foreign currency exchange rates.
AAM's new business backlog reflects the company's successful efforts to expand its product portfolio by adding all-wheel drive applications for passenger cars and crossover vehicles, expanded electronics integration and new drivetrain components such as transfer cases and power transfer units.
Other highlights of AAM's $1.2 billion new business backlog include: -- Approximately 75% of the new business backlog has been sourced to AAM's non-U.S. facilities. These awards will accelerate the expansion of AAM's low cost, high quality, and highly flexible manufacturing facilities in Guanajuato, Mexico; Changshu, China; Araucaria, Brazil; and Olawa, Poland. These awards may also lead to the construction of new facilities in other foreign markets. -- Approximately half of the new business backlog relates to awards supporting rear-wheel-drive and all-wheel-drive passenger car and crossover vehicle applications. These awards relate to programs to be launched by four different customers launching in at least four major regional markets. -- AAM will launch approximately two-thirds of the new business backlog in the 2008, 2009 and 2010 calendar years. The balance of the backlog will launch in 2011 and 2012. -- AAM has earned its first award from a major European-based global OEM to supply rear axles for a new global vehicle program. -- AAM has earned its first award from Chery Automobile Co., Ltd. to produce rear-drive modules (RDM) for a 2009 model year crossover vehicle.