Federal-Mogul Corporation today reported its financial results for the three- and six-month periods ended June 30, 2007, including a net income of $4 million. That is compared to a net loss of $17 million for the second quarter of 2006. For the six months ended June 30, 2007, the company reported net income of $9 million, compared to a net loss of $85 million for the comparable period of 2006. These results reflect an 8 percent increase in sales, improved gross margin and reduced selling, general and administrative expenses.
Federal-Mogul reported net sales of $1,763 million for the quarter ended June 30, 2007, an increase of $131 million, or 8 percent, compared to the second quarter of 2006. The most significant factors impacting sales were increased volumes of $77 million and favorable foreign currency of $56 million. For the six-month period ended June 30, 2007, net sales increased by $248 million to $3,480 million, of which $119 million is due to increased volumes, $51 million is due to the May 2006 acquisition of Federal-Mogul Goetze India (FMG) and $116 million is due to favorable foreign currency. These favorable impacts were partially offset by customer pricing.
Gross margin for the three and six months ended June 30, 2007 increased by $18 million and $41 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 increased raw materials costs and customer pricing.
Selling, general and administrative (SG&A) expense for the three and six months ended June 30, 2007, improved by $5 million and $26 million, respectively, when compared to the comparable periods of 2006. Reductions in SG&A resulted from a combination of cost reduction actions in excess of labor and benefits inflation, and the settlement of the U.K. pension plans. These favorable impacts were partially offset by increased SG&A from the acquisition of FMG and adverse foreign currency.
Federal-Mogul reported income before income taxes for the three-month period ended June 30, 2007, of $25 million, an improvement of $13 million over the comparable period of 2006. For the six month period ended June 30, 2007, the company's income before income taxes improved by $88 million compared to the same period of 2006, largely derived from the $67 million of improvements in gross margin and selling, general and administrative expenses, and $30 million in reduced impairment and restructuring charges.
Management reports it believes 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 six months ended June 30, 2007, of $212 million and $412 million, respectively, representing improvements of $37 million and $92 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. A reconciliation of Operational EBITDA to the company's earnings before income taxes for the three months ended June 30, 2007, has been provided.
Combining cash provided from operating activities with cash used by investing activities, the company generated positive cash inflows of $79 million for the six months ended June 30, 2007, compared with $30 million for the comparable period of 2006.
"Federal-Mogul remains fully committed to exiting from Chapter 11, while wholly dedicated to our strategy for sustainable global profitable growth, providing our valued customers with service excellence, quality products, leading technology and innovation at competitive cost," says Chairman, President and CEO José Maria Alapont. "The results achieved during the first half of 2007 reflect the company's commitment to consistently improve our operational performance."
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