Federal-Mogul Reports Solid 2008 Sales and Financial Performance


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Company Realizes Benefits of Moving Rapidly to Offset Impact of Global Market Decline in Fourth Quarter

SOUTHFIELD, Mich., February 24, 2009: Federal-Mogul Corporation today reported full year 2008 sales of $6.9 billion, in line with 2007, despite a drop in sales of $430 million in the fourth quarter of 2008 versus the prior year due to an unprecedented decline in the automotive market. The company implemented aggressive global restructuring and cost reductions which helped offset the impact of the sales decline in the fourth quarter.

"Federal-Mogul's sales and operating performance in the first three quarters of the year, combined with actions to manage the impact of the global market downturn resulted in solid sales, annual gross margin and operational EBITDA, coupled with strong cash flow in the fourth quarter and for the full year," said Jose Maria Alapont**, President and CEO.

The company recorded year-over-year cumulative sales growth of 7 percent in the first three quarters of 2008 versus the same period in 2007. Federal-Mogul experienced the impact of a significant drop in sales during the fourth quarter and finished the year with sales of $6.9 billion, as in 2007. The company's diverse customer and geographic base resulted in over 60 percent of sales from outside the United States, with no single customer accounting for more than 6 percent of total sales. Federal-Mogul recorded sales in Q4 2008 of $1.3 billion, a 25 percent reduction versus $1.7 billion for the same quarter of 2007.

"We have experienced an unprecedented global automotive market decline. Federal-Mogul is facing the challenge of crossing the desert of this downturn with efficient action plans, urgency, strength and relentless execution," said Alapont.

"Federal-Mogul implemented numerous measures to reduce both variable and fixed costs in order to offset the anticipated sales decline during the fourth quarter. We have implemented a variable cost company strategy where our global sites have eliminated premium shifts, modified shift patterns, established short workweek schedules and reduced headcount. These measures drove a 23 percent reduction in total operating costs during the quarter. This global effort to make Federal-Mogul's cost base vary in line with sales fluctuations limited the impact of this major downturn and helped the company to report solid sales, financial performance and cash generation in 2008. We are facing the challenge of the difficult market downturn and we expect to become leaner, stronger and more competitive after successfully crossing the desert," he continued.

Federal-Mogul during the second half of 2008 announced restructuring actions designed to adjust global capacity and company infrastructure in line with reductions in current market demand. The restructuring will include the closure of manufacturing plants and distribution centers, flexing global capacity, along with several actions to streamline support staffs and is expected to reduce company headcount by approximately 26 percent in comparison to the July 31, 2008 level.

Gross margin for 2008 was $1.12 billion, or 16.4 percent of sales, as compared to $1.18 billion, or 17.1 percent of sales, for 2007. Adjusting for the first quarter fresh start reporting inventory adjustment of $68 million, gross margin rose slightly. The rapidly implemented cost reduction initiatives in the fourth quarter allowed Federal-Mogul to report a gross margin of $183 million or 13.9 percent of sales, compared to $275 million or 15.7 percent of sales in 2007.

SG&A expenses were reduced to 11.3 percent of sales, or $774 million, for 2008, compared to 12 percent of sales, or $828 million in 2007, demonstrating the company's ongoing efforts to streamline global support activities. The company realized a reduction in SG&A expense of $40 million in the fourth quarter due to its global restructuring plan and other cost reduction initiatives.

Operational EBITDA* was $754 million or 11.0 percent of sales in 2008, compared to $763 million, also 11.0 percent of sales in 2007. Operational EBITDA* in Q4 2008 was $114 million, or 8.7 percent of sales, compared to $186 million, or 10.5 percent of sales during the same period in 2007.

The company reported for the full year a net loss of $468 million compared to net income of $1.4 billion in 2007. However net income during both periods contains significant one-time items that are not indicative of the ongoing results of the company. During 2008, the company recorded a restructuring charge of $132 million relating to severance payments and other restructuring actions as part of previously announced global restructuring plans. The company recorded impairment charges during the fourth quarter of $451 million, primarily on intangible assets, associated with the market downturn. These non-cash impairment charges negatively impact 2008 net income, but does not impact the ongoing operating results of the business. The $1.7 billion bankruptcy emergence gains* recognized in 2007 are due to a favorable one-time gain on settlement of liabilities and fresh start reporting adjustments required as a result of the company's emergence from Chapter 11.

When adjusting net income for the items described above, the company realized an adjusted net income of $113 million in 2008 versus an adjusted net income of $75 million in 2007 on consistent sales levels. The company in Q4, 2008 realized an adjusted net loss of $24 million, compared to an adjusted net income of $11 million in 2007.

The company reported positive cash flow* of $321 million for 2008, which compares favorably to negative cash flow* of $228 million for 2007. The company recorded positive cash flow* of $180 million in the fourth quarter of 2008, which compares favorably to a negative cash flow* of $193 million during the same period in 2007.

Federal-Mogul is also consolidating the company's business unit segments in 2009. The move is designed to better align the company's business structure with customers and markets served and will further reduce overhead and balance the company's support staffs to current revenue expectations. The product lines in the Automotive Products unit will be integrated into the company's other business segments. Federal-Mogul will report in 2009 company operating results of four business segments: Powertrain Energy, Powertrain Sealing and Bearings, Vehicle Safety & Protection and Global Aftermarket.

"Federal-Mogul continues its drive for sustainable global profitable growth. We are focused on the long-term and expect that the current downturn will result in consolidation opportunities. Our more than $1.3 billion of available liquidity and the flexible terms of our long-term debt will provide the resources to make acquisitions to enhance our original equipment and aftermarket businesses," said Alapont.

"We have a globally diverse, industry leading OE activity and a strong aftermarket business with widely recognized brands and a strong global distribution network. Current financial and automotive market dynamics are increasing the average age of vehicles on the road and increasing repair activity. We believe Federal-Mogul is well positioned to take advantage of these market trends.

"Federal-Mogul is adapting to successfully compete in difficult market conditions. We believe our proactive restructuring and consistent implementation of our plans will allow us to prepare the company for growth as consumers regain confidence and vehicle demand increases.

"We are ready to support OE and aftermarket customer requirements; developing leading technology and innovation to facilitate improved fuel economy, reduced emissions, the migration to alternative energies and the requirement for safer vehicle performance. Finally, we continue to expand our presence with customers in the industrial, energy and transport markets which today account for about 10 percent of sales. We believe there is further opportunity to apply our technologies to capitalize on growth with these important customers.

"Federal-Mogul's 2008 results demonstrate our strong foundation and ability to respond to the difficult environment in the automotive industry. We remain committed to our Sustainable Global Profitable Growth strategy and have reinforced it with proactive restructuring to adapt to the current market downturn to gain market share through leading technology and innovation," said Alapont.

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