SOUTHFIELD, MI — Federal-Mogul has reported its financial results for the three and nine month periods ended Sept. 30.
Federal-Mogul reported net income of $14 million for the quarter ended Sept. 30, compared to net income of $3 million for the third quarter of 2006. For the nine months ended Sept. 30, the company reported net income of $22 million, compared to a net loss of $83 million for the comparable period of 2006. The year-to-date results reflect an 8 percent increase in sales, improved gross margin and reduced selling, general and administrative expenses.
Federal-Mogul reported net sales of $1,686 million for the quarter, an increase of $137 million, or 9 percent, compared to the third quarter of 2006. The company said the most significant factors impacting sales were increased volumes of $91 million and favorable foreign currency of $62 million. For the nine month period ended Sept. 30, net sales increased by $384 million to $5,165 million, of which $210 million is due to increased volumes, $51 million is due to the May 2006 acquisition of Federal-Mogul Goetze India (FMG) and $178 million is due to favorable foreign currency. These favorable impacts were partially offset by customer pricing.
Gross margin for the three and nine months increased by $17 million and $58 million, respectively, over the comparable periods of 2006. Improvements in gross margin resulted from a combination of the October 2006 settlement of the U.K. pension plans, productivity in excess of labor and benefits inflation, increased volumes, and favorable foreign currency. These favorable impacts were partially offset by costs associated with plant rationalizations, customer pricing and increased material costs, including commodity price inflation of $15 million and $50 million for the three and nine months, respectively.
Selling, general and administrative (SG&A) expense for the three and nine months improved by $5 million and $32 million, respectively, when compared to the comparable periods of 2006. As a percentage of sales, SG&A expenses were 12.1 percent for the nine months, compared to 13.8 percent for the comparable period of 2006.
Federal-Mogul reported income before income taxes for the three month period of $7 million, an improvement of $31 million over the comparable period of 2006. For the nine month period, the company’s income before income taxes improved by $119 million compared to the same period of 2006, largely derived from the $90 million of improvements in gross margin and selling, general and administrative expenses, and $26 million in reduced impairment and restructuring charges.
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 for the three and nine months of $166 million and $578 million, respectively, representing improvements of $32 million and $123 million, respectively, over the comparable periods of 2006. This improvement is largely due to the improvements reported within gross margin and reduced SG&A expenses.
Combining cash provided from operating activities with cash used by investing activities, the company had cash outflows of $35 million for the nine months ended Sept. 30, compared with cash inflows $32 million for the comparable period of 2006. The 2007 change in free cash flow is largely driven by increased capital expenditures of $81 million in support of increased global volumes and future new business, and a voluntary contribution to the company’s U.S. pension plans of $34 million made in September 2007.
"The Federal-Mogul team is dedicated to our strategy for sustainable global profitable growth. The results achieved during the first three quarters of 2007 reflect the company’s commitment to continuously improve performance while creating value for our customers through world-class products, services and innovative technology," said Chairman, President and Chief Executive Officer Jose Maria Alapont. "We are also hopeful that our Plan of Reorganization will be confirmed, enabling emergence from Chapter 11."
For more information about Federal-Mogul, visit: www.federal-mogul.com.