Federal-Mogul Reports Second Quarter 2005 Results
SOUTHFIELD, Mich.--July 25, 2005--Federal-Mogul Corporation (OTCBB:FDMLQ) today reported its financial results for the three and six-month periods ended June 30, 2005.
Financial Summary (in millions)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2005 2004 2005 2004
--------- -------- ------- --------
Net sales $1,665 $1,571 $3,299 $3,118
Gross margin 292 320 567 617
Earnings (loss) from continuing
operations before income taxes 13 15 (9) 15
Federal-Mogul reported net sales of $1,665 million for the three-month period ended June 30, 2005, representing an increase of $94 million or 6% over the comparable period of 2004. For the six-month period ended June 30, 2005 net sales increased by $181 million or 6% to $3,299 million when compared to the same period of 2004. Increases during these periods resulted primarily from new business and favorable foreign currency.
Gross margin for the three and six-month periods ended June 30, 2005, when compared to the same periods of 2004, decreased by $28 million and $50 million, respectively. These decreases resulted primarily from raw material inflation and increased pension costs. Management continues to identify and implement cost reduction and pricing strategies to mitigate the impact of these adverse factors.
Federal-Mogul reported earnings from continuing operations before income taxes for the three-month period ended June 30, 2005 of $13 million compared with $15 million for the same period of 2004. When compared with the three-month period ended March 31, 2005, earnings from continuing operations before income taxes improved by $35 million. The quarter over quarter improvement during 2005 was achieved primarily through higher gross margin and lower selling, general and administrative expenses following from improved sales volumes and management's continued focus on cost reduction activities.
"While our second quarter earnings reflect an improvement over our first quarter results, several challenging industry-wide issues, such as escalating raw material and pension costs, continue to impact our financial performance," said Chairman, President and Chief Executive Officer Jose Maria Alapont. "We are committed to mitigating the impact of these issues on our business by focusing on strategies for driving global profitable growth."
Financial Results for the Three Months Ended June 30, 2005
Second quarter 2005 net sales of $1,665 million represent an increase of $94 million or 6% when compared to net sales of $1,571 million for the same period in 2004. New business in the OE and Aftermarket sectors accounted for $46 million of this increase, while foreign currency contributed $37 million and increased volumes from North American Aftermarket customers and European OEM's, contributed $18 million. These factors were partially offset by customer price reductions of $7 million.
Gross margin for the three-months ended June 30, 2005, when compared to the same period of 2004, decreased by $28 million. Raw material cost inflation of $17 million and increased pension costs of $16 million were partially offset by the favorable impact of new business and productivity in excess of inflation of $5 million. Increased raw material costs are primarily associated with steel, non-ferrous metals and hydrocarbon based materials.
The Company reported earnings from continuing operations before income taxes of $13 million during the second quarter of 2005, representing a $2 million decrease from the same period of 2004. When compared to the three-month period ended March 31, 2005 earnings from continuing operations before income taxes increased by $35 million. Gross margin improvements and decreased selling, general and administrative costs were the primary factors driving this quarter over quarter increase.
Including discontinued operations and excluding impairment charges, Chapter 11 and Administration expenses, restructuring costs, income tax expense, interest expense, depreciation and amortization, the Company reported Operational EBITDA of $158 million for the three month period ended June 30, 2005. When compared to the same period of 2004, Operational EBITDA decreased by $14 million due to a $28 million decrease in gross margin, partially offset by an $8 million decrease in selling, general and administrative expenses and the favorable Operational EBITDA impact of productivity and foreign exchange. Operational EBITDA increased by $31 million as compared to the three-months ended March 31, 2005 primarily due to the quarter over quarter improvements in gross margin and selling, general and administrative costs. Management believes that Operational EBITDA provides useful information as it most closely approximates the cash flow associated with the operational earnings of the Company. Additionally, management uses Operational EBITDA to measure the profitability performance of its operations. A reconciliation of Operational EBITDA to the Company's loss from continuing operations before income taxes for the three and six-months ended June 30, 2005 has been provided.
Financial Results for the Six Months Ended June 30, 2005
Net sales of $3,299 million for the first six months of 2005 represent an increase of $181 million or 6% when compared to net sales of $3,118 million for the same period in 2004. New business in the OE and Aftermarket sectors of $82 million, foreign currency of $76 million and increased volumes of $28 million contributed to the increase and were partially offset by customer price reductions of $5 million.
Gross margin decreased by $50 million from $617 million to $567 million during the six-month period ended June 30, 2005, as compared with the same period of 2004. Raw material cost inflation of $38 million and increased pension costs of $29 million were partially offset by $17 million in new business and increased volumes.
The Company reported a loss from continuing operations before income taxes of $(9) million during the six-month period ended June 30, 2005, compared with earnings from continuing operations before income taxes of $15 million for the same period in 2004. The decrease is primarily the result of lower gross margin during 2005 partially offset by the non-recurrence of a 2004 impairment charge. Including discontinued operations and excluding impairment charges, Chapter 11 and Administration expenses, restructuring costs, income tax expense, interest expense, depreciation and amortization, the Company reported Operational EBITDA of $286 million, representing a decrease of $25 million when compared to the same period of 2004.
The Company recorded income tax expense of $51 million on a loss from continuing operations before income taxes of $(9) million. Income tax expense resulted primarily from taxable income generated by certain international subsidiaries, non-recognition of income tax benefits on United Kingdom operating losses and certain non-deductible items in various jurisdictions.
About Federal-Mogul
Federal-Mogul is a global supplier of automotive components, sub-systems, modules and systems serving the world's original equipment manufacturers and the aftermarket. The company utilizes its engineering and materials expertise, proprietary technology, manufacturing skill, distribution flexibility and marketing power to deliver products, brands and services of value to its customers. Federal-Mogul is focused on the globalization of its teams, products and processes to bring greater opportunities for its customers and employees, and value to its constituents.
Headquartered in Southfield, Michigan, Federal-Mogul was founded in Detroit in 1899. On October 1, 2001, Federal-Mogul decided to separate its asbestos liabilities from its true operating potential by voluntarily filing for financial restructuring under Chapter 11 of the Bankruptcy Code in the United States and Administration in the United Kingdom. For more information on Federal-Mogul, visit the company's Web site at http://www.federal-mogul.com.
FEDERAL-MOGUL CORPORATION
STATEMENTS OF OPERATIONS
(Millions of Dollars, Except Share and Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
Net sales $1,665.4 $1,571.2 $3,298.6 $3,117.7
Cost of products sold 1,373.6 1,251.2 2,731.9 2,501.2
-------- -------- -------- --------
Gross margin 291.8 320.0 566.7 616.5
Selling, general and
administrative expenses 226.3 234.0 476.0 475.8
Adjustment of long-lived
assets to fair value 1.0 20.0 4.0 23.1
Interest expense, net 33.8 24.3 62.6 49.9
Chapter 11 and Administration
related reorganization
expenses 20.2 34.4 50.2 60.4
Equity earnings of
unconsolidated affiliates (12.0) (10.7) (21.3) (20.2)
Other expense, net 9.5 3.4 3.9 12.1
-------- -------- -------- --------
Earnings (loss) from
continuing operations before
income taxes 13.0 14.6 (8.7) 15.4
Income tax expense 24.6 20.6 51.2 40.6
-------- -------- -------- --------
Loss from continuing
operations (11.6) (6.0) (59.9) (25.2)
Loss from discontinued
operations, net of income
tax benefit - (3.0) - (4.2)
-------- -------- -------- --------
Net Loss $ (11.6) $ (9.0) $ (59.9) $ (29.4)
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Basic and diluted loss per
common share:
-----------------------------
Loss from continuing
operations $ (0.13) $ (0.07) $ (0.67) $ (0.29)
Loss from discontinued
operations, net of income
tax benefit - (0.04) - (0.05)
-------- -------- -------- --------
Net loss per common share $ (0.13) $ (0.11) $ (0.67) $ (0.34)
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Weighted average shares
outstanding (in millions) 89.1 87.1 89.1 87.1
FEDERAL-MOGUL CORPORATION
BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
June 30 December 31
2005 2004
------------ ------------
Current assets:
Cash and equivalents $ 756.1 $ 700.6
Accounts receivable, net 1,115.5 1,049.5
Inventories, net 908.8 952.9
Prepaid expenses and other current assets 230.0 230.9
----------- -----------
Total current assets 3,010.4 2,933.9
Property, plant and equipment, net 2,143.5 2,363.9
Goodwill and indefinite-lived intangible
assets 1,278.7 1,283.7
Definite-lived intangible assets, net 312.4 335.3
Asbestos-related insurance recoverable 810.2 853.8
Prepaid pension costs 178.6 257.4
Other noncurrent assets 214.1 237.2
----------- -----------
$ 7,947.9 $ 8,265.2
=========== ===========
Current liabilities:
Short-term debt, including current portion of
long-term debt $ 398.2 $ 309.6
Accounts payable 407.4 435.9
Accrued liabilities 539.1 559.7
Other current liabilities 136.6 145.6
----------- -----------
Total current liabilities 1,481.3 1,450.8
Liabilities subject to compromise 5,999.8 6,018.5
Long-term debt 7.5 10.1
Postemployment benefits 2,239.9 2,355.9
Long-term portion of deferred income taxes 107.9 102.0
Other accrued liabilities 210.2 221.2
Minority interest in consolidated
subsidiaries 31.2 32.4
Shareholders' deficit:
Series C ESOP preferred stock 28.0 28.0
Common stock 445.3 445.3
Additional paid-in capital 2,150.7 2,148.0
Accumulated deficit (3,327.8) (3,267.9)
Accumulated other comprehensive loss (1,426.1) (1,279.1)
----------- -----------
Total shareholders' deficit (2,129.9) (1,925.7)
----------- -----------
$ 7,947.9 $ 8,265.2
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FEDERAL-MOGUL CORPORATION
STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Six Months Ended
June 30
----------------
2005 2004
------- -------
Cash provided from (used by) operating activities
Net loss $ (59.9) $ (29.4)
Adjustments to reconcile net loss to net cash (used
by) provided from operating activities:
Depreciation and amortization 178.6 166.7
Adjustment of long-lived assets to fair value 4.0 23.1
Change in postemployment benefits, including
pensions 68.8 45.8
Change in deferred taxes 19.1 11.9
Changes in operating assets and liabilities:
Increase in accounts receivable (114.7) (91.7)
Increase in inventories, net of involuntary
conversion in 2004 (2.7) (91.3)
Increase (decrease) in accounts payable (1.9) 88.2
Changes in other assets and liabilities, net of
involuntary conversion in 2004 (13.3) 102.5
Insurance proceeds on involuntary conversion - 55.0
------- -------
Net cash provided from operating activities 78.0 280.8
Cash provided from (used by) investing activities
Expenditures for property, plant and equipment (84.9) (132.1)
Net proceeds from the sale of property, plant and
equipment 10.4 13.0
------- -------
Net cash used by investing activities (74.5) (119.1)
Cash provided from (used by) financing activities
Proceeds from borrowings on DIP credit facility 85.1 -
Principal payments on DIP credit facility - (41.7)
Increase (decrease) in short-term debt 7.2 (3.5)
Decrease in other long-term debt (1.6) (1.7)
------- -------
Net cash provided from (used by) financing
activities 90.7 (46.9)
Effect of foreign currency exchange rate
fluctuations on cash (38.7) 3.7
------- -------
Increase in cash and equivalents 55.5 118.5
Cash and equivalents at beginning of period 700.6 472.4
------- -------
Cash and equivalents at end of period $ 756.1 $ 590.9
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FEDERAL-MOGUL CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
(Millions of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
2005 2004 2005 2004
-------- --------- -------- --------
Earnings (loss) from continuing
operations before income taxes $ 13.0 $ 14.6 $ (8.7) $ 15.4
Depreciation and amortization 85.6 82.0 178.6 166.7
Chapter 11 and Administration
related reorganization
expenses 20.2 34.4 50.2 60.4
Interest expense, net 33.8 24.3 62.6 49.9
Adjustment of assets to fair
value 1.0 20.0 4.0 23.1
Restructuring expense 4.8 - 7.5 -
Finalization of 2004 Goodwill
Impairment Charge - - (7.7) -
Discontinued operations and
other (0.2) (2.9) (1.0) (4.7)
-------- --------- -------- --------
Operational EBITDA $ 158.2 $ 172.4 $ 285.5 $ 310.8
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