ANN ARBOR, Mich. — Affinia Group Inc. reported its financial results for the third quarter ended Sept. 30, 2011.
Net sales for the third quarter were $557 million, a 7.3 percent increase over the $519 million of net sales in the same period in 2010. The $38 million increase in net sales was led by a $17 million increase in net sales in Filtration products, which experienced higher revenues both domestically and internationally, the company said. Commercial Distribution South America products increased revenues by $13 million, of which $8 million was attributable to favorable currency effects. A $7 million increase in net sales was reported in Chassis products, primarily due to new business with existing customers. Of the $38 million increase in net sales, $13 million was attributed to favorable movements in currency exchange rates.
Gross profit for the third quarter was $112 million, equating to a gross margin of 20.1 percent, as compared to $109 million, or a gross margin of 21.0 percent, for the same period in 2010. The decrease in gross margin related to higher inventory carrying costs in the quarter. Additionally, in order to fulfill a significant amount of new orders for remanufactured brake calipers, the company incurred additional start-up costs associated with the purchase of used brake caliper cores.
Selling, general and administrative expenses were $70 million for the quarter, a decrease of $4 million compared with the same period in 2010. The decrease was mostly a result of lower restructuring costs, lower legal and other professional fees and lower selling expenses related to converting customer stores to Affinia products.
Affinia’s net income in the third quarter of 2011 was $19 million, an $8 million increase over the prior year. The improvement was largely attributable to a $3 million increase in gross profit and a $4 million reduction in selling, general and administrative expenses. Additionally, the company recorded a $2.5 million gain in the quarter as part of a $10 million settlement with Satisfied Brake Products Inc. related to the illegal use and procurement of Affinia’s brake pad formulas.
Nine Months Ended Sept. 30, 2011
Net sales were $1.62 billion for the first nine months of 2011, an increase of $134 million, or 9 percent, compared to the same period in 2010. The improvement in year-over-year sales was attributable to increased sales to new and existing customers along with $48 million of favorable foreign currency translation, predominantly due to the strengthening of the Brazilian Real and Polish Zloty during the period.
Gross profit for the first nine months of 2011 was $313 million, an increase of $5 million over the same period in 2010. Gross margin was 19.3 percent compared to 20.7 percent in the prior year. The company said the decrease in gross margin was mainly attributed to increases in material and freight costs, higher inventory carrying costs and an increase in the purchase of brake caliper cores to support a higher level of demand for remanufactured brake calipers.
Selling, general and administrative expenses were $219 million for the first nine months of 2011, a decrease of $1 million compared with the same period in 2010. The decrease was a result of lower restructuring costs offset by an increase in advertising costs in the period.
Affinia’s net income in the first nine months of 2011 was $31 million, a $6 million increase over the same period in the prior year. The year over year increase was largely attributable to improvements of $5 million in gross profit, $2.5 million of income from the Satisfied Brake Products Inc. settlement and a $3 million reduction in the company’s tax provision.
Further increasing year over year net income was $4 million of income attributable to non-controlling interest that was not fully reflected in the first nine months of 2010 as the company’s Chinese and Indian operations were not fully consolidated during the entire nine months of 2010. Offsetting these items was a $6 million decrease in other income, due to a higher level of expense associated with the factoring of trade receivables, and a $2 million increase in interest expense attributable to higher levels of borrowing in the first nine months of 2011 compared to the same period in 2010.
Total debt outstanding as of Sept. 30, 2011, was $775 million and the company had $78 million of cash and cash equivalents with an additional $8 million of restricted cash. Cash from operations for the first nine months of 2011 resulted in a use of cash of $26 million compared to a source of cash of $31 million in the same period in 2010. The $57 million year over year change in cash from operations was largely attributable to an increase in trade working capital to support sales growth.
