SOUTHFIELD, MI -- Federal-Mogul Corp. has reported its financial results for the three and twelve-month periods ended December 31, 2006.
Federal-Mogul, in October 2001, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code and petitions for Administration under the United Kingdom Insolvency Act. In November 2006, the U.K. High Court approved the discharge of the Administration proceedings for those U.K. subsidiaries with activities in the Americas, Europe and Asia-Pacific that entered into company voluntary arrangements (CVAs). The paid approximately $740 million as payment to creditors, debt holders and other claimants, including the settlement of the company’s U.K. pension plans, in accordance with the CVAs. The discharge of U.K. Administration has impacted the company’s reported operations, including gross margin, selling, general and administrative expense and loss before income taxes.
Federal-Mogul reported net sales of $1,546 million for the quarter ended Dec. 31, 2006. Net sales increased $59 million compared to the fourth quarter 2005, of which $51 million is due to favorable foreign currency. Net sales of $6,326 million for the year ended Dec. 31, 2006 increased by $40 million when compared to the same period of 2005, of which $33 million is due to favorable foreign currency.
Gross margin for the three and twelve-month periods ended Dec. 31, 2006, when compared to the same periods of 2005, increased by $14 million and $64 million, respectively. Successful productivity and restructuring initiatives, net of the impact of labor and benefits inflation, have increased gross margin for the three and twelve months ended Dec. 31, 2006 by $21 million and $101 million, respectively. Gross margin for both the three and twelve month periods ended Dec. 31, 2006 was further improved through reduced pension expense of $21 million associated with the settlement of the U.K. pension plans. Raw material costs continued to increase over the prior year, reducing gross margin for both the three and twelve months ended December 31, 2006. Both the three and twelve-month periods ended December 31, 2006 were affected by other factors, primarily volume and product mix. Management continues to identify and implement cost reduction and pricing strategies to mitigate the impact of adverse factors.
Selling, general and administrative expenses for the three and twelve-month periods ended December 31, 2006, when compared to the same periods of 2005, decreased by $2 million and $36 million, respectively.
Included in Federal-Mogul’s loss before income taxes for the year ended December 31, 2006 is a charge of $501 million associated with the settlement of the U.K. pension plans. Excluding this U.K. pension settlement, the company’s loss before income taxes for the year ended December 31, 2006 is $113 million, compared to a loss before income taxes of $203 million for 2005. In addition to those same factors affecting gross margin, results for the fourth quarter and full year were impacted by reduced selling, general and administrative expenses, reduced charges related to asset impairments, reduced costs associated with the company’s Chapter 11 proceedings, and higher average interest rates. 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 Administration expenses, settlement of the U.K pension plans, restructuring costs, income tax expense, interest expense, depreciation and amortization.
The company reported Operational EBITDA of $170 million and $625 million for the three and twelve-month periods ended December 31, 2006, respectively. When compared to the same period of 2005, Operational EBITDA increased by $17 million and $71 million, respectively. A reconciliation of Operational EBITDA to the company’s loss from continuing operations before income taxes for the three and twelve-months ended December 31, 2006 has been provided. Capital expenditures were $237 million for the year ended December 31, 2006, an increase of $47 million from 2005. Total cash flow, excluding cash flows associated with financing activities, acquisitions, and the settlement of the U.K. Administration proceedings, was $115 million for the year ended December 31, 2006, compared with $158 million for the comparable period of 2005.
"We are pleased with the progress achieved in 2006 and the company's improvement in operational performance. We maintain our focus on the implementation of our global profitable growth strategy to provide leading products, services and innovative technology that create value for our customers worldwide while satisfying our employee and stakeholder expectations," said Chairman, President and Chief Executive Officer JosÉ Maria Alapont. “Federal-Mogul reached resolution of the Company Voluntary Arrangements for emergence of the United Kingdom administrated companies with activities in the Americas, Europe and Asia-Pacific, and has received U.S. Bankruptcy Court approval on the supplemental disclosure statement of our plan of reorganization. These are significant milestones toward exit from Chapter 11 and our commitment to confirm, on the hearing date set for May 8, 2007, our restructuring plan to emerge.”
For more information about Federal-Mogul, go to: http://www.federal-mogul.com.
