Federal-Mogul Reports Second Quarter 2006 Results
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Financial Summary (in millions)
Three Months Ended Six Months Ended
June 30 June 30
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2006 2005 2006 2005
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Net sales $1,632 $1,665 $3,232 $3,299
Gross margin 304 292 589 567
Selling, general and administrative
expenses 218 226 446 476
Income (loss) before income taxes 12 13 (27) (9)
Adjustment of assets to fair value (1) (1) (21) (4)
Restructuring expense, net (17) (5) (42) (8)
Operational EBITDA(a) 175 158 320 286
(a) Operational EBITDA is a non-GAAP measure defined to include
discontinued operations and exclude impairment charges, Chapter 11
and U.K. Administration expenses, restructuring costs, income tax
expense, interest expense, depreciation and amortization
Federal-Mogul reported net sales of $1,632 million for the three month period ended June 30, 2006. Compared with the quarter ended June 30, 2005, sales decreased $33 million largely due to softness in the North American aftermarket. For the six-month period ended June 30, 2006, net sales decreased by $67 million to $3,232 million of which $47 million is due to unfavorable foreign currency.
Gross margin for the three and six month periods ended June 30, 2006, when compared to the same periods of 2005, increased by $12 million and $22 million, respectively. Productivity improvements, net of labor and benefits inflation, more than offset the impact of reduced sales volumes.
Selling, general and administrative expenses for the three and six months ended June 30, 2006, when compared to the same periods of 2005, improved by $8 million and $30 million, respectively.
Federal-Mogul reported income before income taxes for the three-month period ended June 30, 2006 of $12 million, consistent with the comparable period of 2005. For the six month period ended June 30, 2006, the Company reported a loss before income taxes of $27 million compared to a loss of $9 million for the same period of 2005. For the six month period ended June, 30, 2006, the $52 million of improvements in gross margin and selling, general and administrative expenses were more than offset by $72 million for higher average interest rates, restructuring charges and adjustments of assets to fair value.
Management believes that Operational EBITDA most closely approximates the cash flow associated with the operational earnings of the Company and uses Operational EBITDA to measure the performance of its operations. Operational EBITDA is defined to include discontinued operations and exclude impairment charges, Chapter 11 and U.K. Administration expenses, restructuring costs, income tax expense, interest expense, depreciation and amortization.
The Company reported Operational EBITDA of $175 million and $320 million for the three and six month periods ended June 30, 2006, respectively. When compared to the same period of 2005, Operational EBITDA increased by $17 million and $34 million, respectively. A reconciliation of Operational EBITDA to the Company's loss before income taxes for the three and six months ended June 30, 2006 has been included.
During the quarter ended June 30, 2006, the Company invested $31 million for the acquisition of the controlling interest in Goetze India Limited, a pistons and rings manufacturer headquartered in Delhi, India. As a result of this acquisition, the results of Goetze India Limited have been consolidated with those of the Company, including net sales and gross margin of $14 million and $2 million, respectively, and total assets of $166 million.
Combining cash provided from operating activities with cash used by investing activities, including the acquisition of Goetze India Limited, the Company generated positive cash inflows of $30 million for the six months ended June 30, 2006, compared with $3 million for the comparable period of 2005.
"The Company remains committed to its global profitable growth strategy," said Chairman, President and Chief Executive Officer Jose Maria Alapont. "Our recent acquisition and our successful restructuring efforts are important activities supporting this strategy and expanding our capability to provide innovative and quality products at the most competitive cost."
About Federal-Mogul
Federal-Mogul is a global supplier of automotive components, systems, and modules serving the world's original equipment manufacturers and the global 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 global profitable growth to create value for and bring greater satisfaction to its customers, employees, and stakeholders.
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 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
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2006 2005 2006 2005
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Net sales $1,631.6 $1,665.4 $3,231.9 $3,298.6
Cost of products sold 1,327.4 1,373.6 2,642.7 2,731.9
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Gross margin 304.2 291.8 589.2 566.7
Selling, general, and
administrative expenses 218.4 226.3 445.9 476.0
Adjustment of long-lived
assets to fair value 1.1 1.0 21.2 4.0
Interest expense, net 44.3 33.8 83.3 62.6
Chapter 11 and U.K.
Administration related
reorganization expenses 20.8 20.2 41.9 50.2
Equity earnings of
unconsolidated affiliates (7.7) (12.0) (17.1) (21.3)
Restructuring expense, net 16.5 4.8 42.3 7.6
Other (income) expense, net (1.0) 4.7 (1.3) (3.7)
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Income (loss) before income
taxes 11.8 13.0 (27.0) (8.7)
Income tax expense 28.6 24.6 58.2 51.2
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Net loss $ (16.8) $ (11.6) $ (85.2) $ (59.9)
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Basic and diluted loss per
common share:
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Net loss per common share $ (0.19) $ (0.13) $ (0.96) $ (0.67)
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Weighted average shares
outstanding (in millions) 89.1 89.1 89.1 89.1
FEDERAL-MOGUL CORPORATION
BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
June 30 December 31
2006 2005
----------- -----------
Current assets:
Cash and equivalents $ 404.1 $ 387.2
Restricted cash 727.8 700.9
Accounts receivable, net 1,134.5 1,011.1
Inventories, net 907.2 808.1
Prepaid expenses and other current assets 218.2 220.7
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Total current assets 3,391.8 3,128.0
Property, plant and equipment, net 2,030.7 2,003.1
Goodwill and indefinite-lived intangible assets 1,202.8 1,189.5
Definite-lived intangible assets, net 291.6 289.6
Asbestos-related insurance recoverable 809.8 777.4
Prepaid pension costs 54.0 112.2
Other noncurrent assets 265.2 235.3
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$ 8,045.9 $ 7,735.1
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Current liabilities:
Short-term debt, including current portion of
long-term debt $ 598.6 $ 606.7
Accounts payable 503.1 405.0
Accrued liabilities 586.3 536.0
Other current liabilities 136.4 116.9
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Total current liabilities 1,824.4 1,664.6
Liabilities subject to compromise 6,007.5 5,988.8
Long-term debt 81.9 8.1
Post-employment benefits 2,318.9 2,230.8
Deferred income taxes 71.4 62.4
Other accrued liabilities 187.9 181.4
Minority interest in consolidated affiliates 54.4 32.0
Shareholders' deficit:
Series C ESOP preferred stock 28.0 28.0
Common stock 445.3 445.3
Additional paid-in capital 2,158.0 2,154.6
Accumulated deficit (3,687.3) (3,602.1)
Accumulated other comprehensive loss (1,444.5) (1,458.8)
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Total shareholders' deficit (2,500.5) (2,433.0)
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$ 8,045.9 $ 7,735.1
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FEDERAL-MOGUL CORPORATION
STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Six Months Ended
June 30
----------------
2006 2005
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Cash provided from (used by) operating activities
Net loss $ (85.2) $ (59.9)
Adjustments to reconcile net loss to net cash
provided from operating activities:
Depreciation and amortization 159.4 178.6
Adjustment of long-lived assets to fair value 21.2 4.0
Change in postemployment benefits, including
pensions 67.4 68.8
Change in deferred taxes (7.4) 19.1
Changes in operating assets and liabilities:
Increase in accounts receivable (80.7) (114.7)
Increase in inventories (58.6) (2.7)
Increase (decrease) in accounts payable 72.3 (1.9)
Changes in other assets and liabilities 46.3 (13.3)
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Net cash provided from operating activities 134.7 78.0
Cash provided from (used by) investing activities
Expenditures for property, plant and equipment (80.6) (84.9)
Proceeds from the sale of property, plant and
equipment 2.7 10.4
Net proceeds from sale of business 4.0 -
Payments to acquire business (30.5) -
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Net cash used by investing activities (104.4) (74.5)
Cash provided from (used by) financing activities
Proceeds from borrowings on DIP credit facility 164.3 130.1
Principal payments on DIP credit facility (198.0) (45.0)
Increase in short-term debt 0.3 7.2
Net change in restricted cash (26.9) -
Principal payment in other long-term debt (1.0) (1.6)
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Net cash (used by) provided from financing
activities (61.3) 90.7
Effect of foreign currency exchange rate
fluctuations on cash 47.9 (38.7)
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Increase in cash and equivalents 16.9 55.5
Cash and equivalents at beginning of period 387.2 700.6
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Cash and equivalents at end of period $ 404.1 $ 756.1
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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
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2006 2005 2006 2005
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Income (loss) before income taxes $ 11.8 $ 13.0 $ (27.0) $ (8.7)
Depreciation and amortization 80.6 85.6 159.4 178.6
Chapter 11 and Administration
related reorganization expenses 20.8 20.2 41.9 50.2
Interest expense, net 44.3 33.8 83.3 62.6
Adjustment of assets to fair
value 1.1 1.0 21.2 4.0
Restructuring expense, net 16.5 4.8 42.3 7.6
Finalization of 2004 Goodwill
Impairment Charge - - - (7.7)
Other (0.4) (0.2) (0.9) (1.1)
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Operational EBITDA $ 174.7 $ 158.2 $ 320.2 $ 285.5
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Note to Editors: There should be an accent symbol over the "e" in "Jose" above.