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Federal-Mogul Reports Profitable Second Quarter with Positive Net Income and Cash Flow

Company says profitable second quarter demonstrates success of global restructuring.

Federal-Mogul today reported positive net income and cash flow on improved sales versus the first quarter 2009, as the company's restructuring and cost-reduction initiatives brought improved profits to the bottom line, countering the impact of the global market downturn.

"We are pleased to report a profitable quarter, including stronger gross margin, reduced selling, general and administrative expenses, positive net income, higher operational EBITDA and significantly improved cash flow in second quarter 2009 versus first quarter 2009. We have implemented numerous measures to reduce costs and more closely align our global structure and capacity with current market requirements," said Jose Maria Alapont, Federal-Mogul president and CEO.

"These Q2 2009 results highlight our substantial progress versus Q1 2009, as we strengthen the company to operate more efficiently in the current market environment, while preparing to capitalize on an eventual rebound in vehicle production. The company's performance during the quarter demonstrates the effectiveness of Federal-Mogul's variable cost company strategy to generate sustainable global profitable growth," he said.

Federal-Mogul reported $1.3 billion in sales during the second quarter, a $66 million increase over first quarter 2009, yet the global automotive markets remained challenging in all but a few growth countries. The company's improved sales along with global restructuring measures and strict cost controls resulted in a gross margin of $198 million or 15.2 percent of sales in the second quarter 2009, which is up $40 million and 2.4 percentage points. Net income in the second quarter 2009 was $3 million versus a net loss of $101 million during first quarter 2009. The stronger net income is attributable to operational improvements across all business activities. Operational EBITDA for the second quarter 2009 was $129 million or 9.9 percent, an increase of $59 million over first quarter 2009, when the company reported operational EBITDA of $70 million or 5.7 percent.

Federal-Mogul generated positive cash flow of $7 million in the second quarter compared with negative cash flow of $196 million in first quarter 2009, representing a $203 million improvement in cash flow performance during the quarter. This strong improvement was due to enhanced profitability and improved working capital management. The company maintained its strong cash position of about $700 million with an unused revolver of more than $500 million, providing more than $1.2 billion of liquidity.

On a year-over-year basis, Federal-Mogul reported second quarter sales of $1.3 billion versus $2 billion in the second quarter 2008, which was the last full quarterly reporting period before the global automotive market downturn began, and when the company reported its all-time quarterly sales record. Federal-Mogul's total revenue declined 29 percent in the second quarter 2009 on a constant dollar basis or 35 percent including currency exchange versus the second quarter 2008. Gross margin was $198 million or 15.2 percent in the second quarter 2009 versus $396 million or 19.8 percent in the same period of 2008. Sales, general and administrative (SG&A) expenses were improved by 20 percent to $170 million during the second quarter 2009, versus $212 million during the same period one year ago. Net income was $3 million in the second quarter 2009 versus $90 million in the second quarter 2008. Federal-Mogul's operational EBITDA for the second quarter 2009 was $129 million, compared to $258 million, reported a year ago. The company reported positive cash flow of $7 million for the second quarter 2009 versus $70 million during the second quarter 2008.

For the six-month period ending June 30, Federal-Mogul reported sales of $2.5 billion, compared to $3.9 billion for the same period in 2008. Gross margin was $356 million in the first half of 2009, versus $662 million for the same period in 2008. SG&A costs were improved by $67 million, to $354 million in the first six months of this year from $421 million in the first half of 2008. The company reported a net loss of $98 million for the first half of 2009, compared to $58 million of net income for the first two quarters of 2008. Operational EBITDA was $199 million, or 7.8 percent of sales for the first six months of 2009, compared to $465 million or 12.1 percent of sales during the first half of 2008. The company recorded negative cash flow of $189 million for the six months ending June 30, compared to negative $92 million in the first half of 2008.

The company in the second quarter continued to adjust its global headcount in order to realign its manufacturing capacity to market requirements. As a result of the company's global restructuring plan, Federal-Mogul has reduced its headcount by nearly 11,000 employees, or 22 percent from one year ago.

Federal-Mogul during the three months ending June 30, continued to achieve new business bookings with a high percentage of conquest contracts, evidence of continued demand for Federal-Mogul's leading technology and innovation to increase fuel economy, reduce emissions and improve vehicle safety.

"Federal-Mogul's results demonstrate that our sustainable global profitable growth strategy has been effective in establishing a solid foundation which helps the company withstand extremely difficult market conditions," Alapont said. "We continue to focus on strengthening as well as diversifying our customer base to grow our revenue stream with new technologies, innovations and strong brands that bring value to our customers, especially given the increasingly challenging regulatory requirements for fuel economy, alternative fuels, reduced emissions and improved safety. We are working efficiently in order to continue to improve our global performance," he concluded.