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Federal-Mogul Reports Third Quarter 2016 Results
  • Third quarter net sales of $1.8 billion, nine months net sales of $5.6 billion
  • Gross profit of $275 million, a nearly 1 percentage point margin improvement over Q3 2015
  • Net income from continuing operations attributable to Federal-Mogul of $15 million compared to net loss of $(63) million in Q3 2015
  • Operational EBITDA of $173 million compared to $156 million in Q3 2015

SOUTHFIELD, Mich., Oct. 26, 2016 (GLOBE NEWSWIRE) -- Federal-Mogul Holdings Corporation (NASDAQ:FDML) today announced financial results for the third quarter ended September 30, 2016.  Net sales for the third quarter were $1,825 million, compared to $1,824 million in Q3 2015.  Higher OE sales in both divisions were offset by lower aftermarket sales and $13 million of negative impact from currency exchange rate fluctuations.  For the nine months ended September 30, 2016, net sales were $5,646 million, a $25 million increase compared with the prior-year period, despite $80 million of negative impact from currency exchange rate fluctuations.  Gross profit for the third quarter was $275 million, or 15.1 percent of sales, a nearly 1 percentage point margin improvement compared with Q3 2015, driven primarily by operational improvements in both divisions.  Net income from continuing operations attributable to Federal-Mogul in the quarter was $15 million, or $0.09 per share, compared with a net loss from continuing operations attributable to Federal-Mogul of $(63) million, or $(0.37) per share, in Q3 2015.  Adjusted net income in Q3 2016 was $26 million, or $0.15 per share.  Operational EBITDA in Q3 2016 was $173 million, compared to $156 million in Q3 2015.  The Company ended the third quarter 2016 with liquidity of over $500 million, including cash of $330 million and $173 million of availability under its primary revolving credit facility.

Division Results

Powertrain Division

Federal-Mogul’s Powertrain division reported third quarter revenue of $1,089 million, compared to $1,079 million in the same prior-year period, driven by an increase in overall sales volume, specifically strengthened sales in Asia Pacific.  The increase in sales was negatively impacted by $6 million in currency exchange rate fluctuations.

At constant exchange rates, Q3 2016 sales were up 1.5 percent over Q3 2015, partially offset by continued production declines in the commercial vehicle and industrial segments and the impact of economic conditions in Brazil. Operational EBITDA in Q3 was $104 million or 9.6 percent of revenue, a $7 million improvement compared to $97 million, or 9 percent of revenue, in Q3 2015.

Through the first nine months of 2016, the Powertrain division reported revenue of $3,389 million, $5 million higher than the same period of 2015. The year-over-year comparison was impacted by $43 million of negative currency exchange. In constant dollars, revenue increased by $48 million or 1.4 percent.  Operational EBITDA for the first nine months of the year was $358 million or 10.6 percent of revenue, compared to $323 million or 9.5 percent of revenue in the prior year, largely driven by improved operational performance in material sourcing, manufacturing and overall cost management.

“Our improved EBITDA during Q3 demonstrates the benefits of the ongoing operational improvements we’ve made throughout 2016, as we continue to improve our cost management structure and manufacturing efficiencies,” said Rainer Jueckstock, Federal-Mogul co-CEO and CEO, Federal-Mogul Powertrain.  “We also benefitted from continued positive light vehicle production in North America, Europe and Asia Pacific, particularly China, where light vehicle production is up over 20 percent compared to Q3 2015. Currency fluctuation remained a challenge in the third quarter, as did the decline in commercial vehicle production and the continued economic conditions in Brazil. However, our sales reflect that we are continuing to perform in line with the market, despite these factors.”  

Motorparts Division

Federal-Mogul’s Motorparts division reported third quarter revenue of $797 million, a $20 million, or 2 percent, decrease from the prior-year period, including $7 million of negative impact from currency exchange rate fluctuations.  North American aftermarket sales decreased by 5 percent in the quarter, at constant exchange, representing most of the year-over-year decline.  The primary drivers of this decline were challenging conditions in the North American commercial vehicle market, lower export sales from North America, primarily to the Middle East, as well as some lost business.  North American sales benefitted from $6 million of incremental sales from the Interfil acquisition in Mexico.  Sales in EMEA increased to $294 million from $292 million in the same period last year.  Stronger OE volume in the region was largely offset by lower aftermarket sales in certain European countries and in the Middle East.  Asia Pacific sales were $64 million compared to $56 million in Q3 2015.  A 31 percent increase in OE business, continued growth in the China aftermarket (up 21 percent), each at constant exchange rates, and solid performance in the India aftermarket were partially offset by the planned downsizing of operations in Australia.  

In Q3 2016, the Motorparts division recorded Operational EBITDA of $69 million, or 8.7 percent of revenue, compared to $59 million, or 7.2 percent of revenue, in Q3 2015. The increase in Operational EBITDA was largely due to improved operational performance and commercial actions, partially offset by the impact of lower volumes.

Through the first nine months of 2016, the Motorparts division recorded revenue of $2,446 million compared to $2,461 million in the prior-year period, including $37 million of negative impact from currency exchange rate fluctuations.  EBITDA was $204 million, or 8.3 percent of revenue, in the nine months ending September 30, 2016 compared to $157 million, or 6.4 percent of revenue, in the same period last year.

Daniel Ninivaggi, Federal-Mogul co-CEO and CEO, Federal-Mogul Motorparts, commented, “During the third quarter, we continued to execute reasonably well despite challenging conditions in our commercial vehicle segment and generally weak light vehicle aftermarket demand in our primary markets.  Overall, we are encouraged by the operating performance of the business as we continue to execute our strategic plan. Key highlights during the third quarter included the ramp up of our new regional distribution centers in Belgium and China and our announced plan to open a distribution center in Hungary in late 2017.  We continue to enhance our distribution footprint to achieve efficiencies and optimize our supply chain capabilities, while investing in our online presence, ‘Tech First’ initiatives and globally-recognized brands.  In everything we do, we are focused on delivering value to our customers through better products, service and field support.”

Offer from Majority Shareholder

On September 6, 2016, Federal-Mogul Holdings Corporation (“Company”), American Entertainment Properties Corp., a Delaware corporation (“AEP”), and IEH FM Holdings LLC, a Delaware limited liability company (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merger Sub commenced a cash tender offer (the “Offer”) to acquire, subject to the terms and conditions of the Merger Agreement, all of the issued and outstanding shares of the Company’s common stock, par value $0.01 per share, not already owned by AEP, Merger Sub, the Company and their respective affiliates, for a purchase price of $9.25 per share, net to the seller in cash, without interest, less any applicable tax withholding.

The Offer will expire at 12:00 midnight, New York City time, on October 28, 2016 (one minute after 11:59 P.M., New York City Time, on October 28, 2016), unless extended. Complete terms and conditions of the Offer are set forth in AEP and Merger Sub’s Offer to Purchase and Letter of Transmittal and the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 and other materials filed with the Securities and Exchange Commission on September 26, 2016, each as subsequently amended.

Analyst Call

Federal-Mogul will conduct an earnings conference call and audio webcast on Wednesday, October 26 at 9:30 a.m., EDT. To facilitate rapid connection the morning of the call, please click here to pre-register.
To participate in the call:
Domestic calls: (855) 789-8161
International calls: (631) 485-4890
Passcode I.D.: 93402073
Further information is available at www.federalmogul.com/investors.

Reconciliation to GAAP

In addition to GAAP results included within this press release, the Company has provided certain information which is not calculated according to GAAP (“non-GAAP”), such as sales at constant exchange rates, this measure excludes the effect of currency exchange on current year results; Operational EBITDA; and Adjusted Net Income. Management uses these non-GAAP measures to evaluate the operating performance of the Company and its business segments and to forecast future periods.  Management believes that investors will likewise find these non-GAAP measures useful in evaluating such performance. Such measures are frequently used by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry.

Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to similarly titled measures of other companies. For a reconciliation of non-GAAP measures to the most comparable GAAP financial measure, please see the financial schedules that accompany this release.

Forward-Looking Statements

Statements contained in this press release which are not historical fact constitute "Forward-Looking Statements."  Actual results may differ materially due to numerous important factors that are described in Federal-Mogul's most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K as well as the Tender Offer Statement on Schedule TO/Schedule 13E-3 filed by Icahn Enterprises with the SEC and the Solicitation/Recommendation Statement and Schedule 13E-3 filed by Federal-Mogul with the SEC.  Such factors include, but are not limited to, the consummation of the acquisition of Federal-Mogul by Icahn Enterprises, the company’s ability to successfully integrate and achieve the anticipated synergies from recent acquisitions, fluctuations in domestic or foreign vehicle production, fluctuations in the demand for vehicles containing our products, the company's ability to generate cost savings or manufacturing efficiencies to offset or exceed contractually or competitively required price reductions or price reductions to obtain new business, conditions in the automotive industry, and corresponding effects and general global and regional economic conditions. Federal-Mogul does not intend or assume any obligation to update any forward-looking statements.

About Federal-Mogul

Federal-Mogul Holdings Corporation (NASDAQ:FDML) is a leading global supplier of products and services to the world’s manufacturers and servicers of vehicles and equipment in the automotive, light, medium and heavy-duty commercial, marine, rail, aerospace, power generation and industrial markets. The company’s products and services enable improved fuel economy, reduced emissions and enhanced vehicle safety.

Federal-Mogul operates two independent business divisions, each with a chief executive officer reporting to Federal-Mogul's Board of Directors.

Federal-Mogul Powertrain designs and manufactures original equipment powertrain components and systems protection products for automotive, heavy-duty, industrial and transport applications.

Federal-Mogul Motorparts sells and distributes a broad portfolio of products through more than 20 of the world’s most recognized brands in the global vehicle aftermarket, while also serving original equipment vehicle manufacturers with products including braking, wipers and a range of chassis components. The company’s aftermarket brands include ANCO® wipers; BERU®* ignition systems; Champion® lighting, spark plugs, wipers and filters; Interfil® filters; AE®, Fel-Pro®, FP Diesel®, Goetze®, Glyco®, Nüral®, Payen® and Sealed Power® engine products; MOOG® chassis components; and Ferodo®, Jurid® and Wagner® brake products and lighting.

Federal-Mogul was founded in Detroit in 1899 and maintains its worldwide headquarters in Southfield, Michigan. The Company has more than 53,000 employees globally.

*BERU is a registered trademark of BorgWarner Ludwigsburg GmbH

For more information, please visit www.federalmogul.com or contact:

Investor Relations   Media
Jim Zabriskie     Susan Fisher
Federal-Mogul Holdings Corporation   Federal-Mogul Holdings Corporation
+1 (248) 354-8673   +1 (248) 354-0926


FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(in millions, except per share amounts)
         
    Three Months Ended   Nine Months Ended
    September 30   September 30
    2016   2015   2016   2015
                 
Net sales   $ 1,825     $ 1,824     $ 5,646     $ 5,621  
Cost of products sold   (1,550 )   (1,561 )   (4,779 )   (4,817 )
                 
Gross profit   275     263     867     804  
                 
Selling, general and administrative expenses   (203 )   (193 )   (616 )   (596 )
Goodwill and intangible impairment expense, net       (56 )   (6 )   (50 )
Restructuring charges and asset impairments, net   (8 )   (24 )   (32 )   (67 )
Amortization expense   (15 )   (16 )   (44 )   (45 )
Other income (expense), net   3         15     (3 )
Operating income (loss)   52     (26 )   184     43  
                 
Interest expense, net   (37 )   (36 )   (110 )   (103 )
Equity earnings of nonconsolidated affiliates   11     9     44     37  
Income (loss) from continuing operations before income taxes   26     (53 )   118     (23 )
Income tax (expense) benefit   (10 )   (9 )   (33 )   (32 )
Income (loss) income from continuing operations   16     (62 )   85     (55 )
Gain from discontinued operations, net of income tax               7  
Net income (loss)   16     (62 )   85     (48 )
                 
Net (income) attributable to noncontrolling interests   (1 )   (1 )   (4 )   (4 )
Net income (loss) attributable to Federal-Mogul   $ 15     $ (63 )   $ 81     $ (52 )
                 
Amounts attributable to Federal-Mogul:                
Net income (loss) from continuing operations   $ 15     $ (63 )   $ 81     $ (59 )
Gain from discontinued operations, net of income tax               7  
Net income (loss)   $ 15     $ (63 )   $ 81     $ (52 )
                 
Net income (loss) per common share attributable to Federal-Mogul                
Basic and diluted:                
Net income (loss) from continuing operations   $ 0.09     $ (0.37 )   $ 0.48     $ (0.36 )
Gain from discontinued operations, net of income tax               0.04  
Net income (loss)   $ 0.09     $ (0.37 )   $ 0.48     $ (0.32 )
                                 


FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
(in millions)
         
    September 30   December 31
    2016   2015
ASSETS        
Current assets:        
Cash and cash equivalents   $ 330     $ 194  
Accounts receivable, net   1,341     1,374  
Inventories, net   1,339     1,342  
Prepaid expenses and other current assets   206     188  
Total current assets   3,216     3,098  
         
Property, plant and equipment, net   2,400     2,353  
Goodwill and other indefinite-lived intangible assets   907     903  
Definite-lived intangible assets, net   360     404  
Investments in nonconsolidated affiliates   275     296  
Other noncurrent assets   159     174  
TOTAL ASSETS   $ 7,317     $ 7,228  
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Short-term debt, including current portion of long-term debt   $ 174     $ 138  
Accounts payable   899     901  
Accrued liabilities   571     582  
Current portion of pensions and other postemployment benefits liability   41     40  
Other current liabilities   145     159  
Total current liabilities   1,830     1,820  
         
Long-term debt   2,937     2,914  
Pensions and other postemployment benefits liability   1,101     1,123  
Long-term portion of deferred income taxes   367     367  
Other accrued liabilities   91     102  
         
Shareholders’ equity:        
Preferred stock ($0.01 par value; 90,000,000 authorized shares; none issued)        
Common stock ($0.01 par value; 450,100,000 authorized shares; 170,636,151 issued shares and 169,040,651 outstanding shares as of September 30, 2016 and December 31, 2015)   2     2  
Additional paid-in capital   2,899     2,899  
Accumulated deficit   (715 )   (796 )
Accumulated other comprehensive loss   (1,319 )   (1,318 )
Treasury stock, at cost   (17 )   (17 )
Total Federal-Mogul shareholders’ equity   850     770  
Noncontrolling interests   141     132  
Total shareholders’ equity   991     902  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 7,317     $ 7,228  
                 

 

FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions)
     
    Nine Months Ended
    September 30
    2016   2015
Cash Provided From (Used By) Operating Activities        
Net income (loss)   $ 85     $ (48 )
Adjustments to reconcile net income to net cash provided from (used by) operating activities:        
Depreciation and amortization   275     254  
Restructuring charges and asset impairments, net   32     67  
Payments against restructuring liabilities   (38 )   (48 )
Goodwill and intangible asset impairment expense, net   6     50  
Equity earnings of nonconsolidated affiliates   (44 )   (37 )
Cash dividends received from nonconsolidated affiliates   71     6  
Change in pensions and postemployment benefits   (27 )   (61 )
Deferred tax expense (benefit)   4     (4 )
Loss on sale of equity method investment       11  
Gain from discontinued operations       (7 )
Gain from sales of property, plant and equipment   (8 )   (4 )
Unrealized foreign currency transaction losses   1      
Changes in operating assets and liabilities:        
Accounts receivable   45     (80 )
Inventories   20     (175 )
Accounts payable   8     40  
Other assets and liabilities   (36 )   11  
Net Cash Provided From (Used by) Operating Activities   394     (25 )
         
Cash Provided From (Used By) Investing Activities        
Expenditures for property, plant and equipment   (283 )   (326 )
Payments to acquire businesses, net of cash acquired   (24 )   (365 )
Net proceeds from sale of equity method investment       15  
Net proceeds from sales of property, plant and equipment   12     8  
Transfer of cash balances upon disposition of operations held for sale   (12 )    
Net proceeds from sale of shares in consolidated subsidiary   2      
Capital investment in nonconsolidated affiliates   (1 )    
Net Cash Provided From (Used By) Investing Activities   (306 )   (668 )
         
Cash Provided From (Used By) Financing Activities        
Proceeds from equity rights offering net of related fees       250  
Proceeds from borrowings on revolving lines of credit   350     543  
Payments on revolving lines of credit   (272 )   (208 )
Proceeds from term loans, net of original issue discount   54      
Principal payments on term loans   (74 )   (20 )
Decrease in other long-term debt       (3 )
Increase in short-term debt   1     19  
Net remittances on servicing of factoring arrangements       (2 )
Net Cash Provided From (Used By) Financing Activities   59     579  
         
Effect of foreign currency exchange rate fluctuations on cash   (23 )   2  
         
Cash and equivalents at beginning of period   194     332  
Cash from operations held for sale at January 1   12      
Increase (decrease) in cash and equivalents   124     (112 )
Cash and equivalents at end of period   $ 330     $ 220  
         
Supplementary Disclosures:        
Non-cash financing and investing activities:        
Change in accrued property and equipment additions   $ (15 )   $ (12 )
                 


FEDERAL-MOGUL HOLDINGS CORPORATION
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(In millions)
       
Reconciliation of Operational EBITDA to Net Income (loss):      
  Three Months Ended
September 30
  Nine Months Ended
September 30
  2016   2015   2016   2015
Powertrain $ 104     $ 97     $ 358     $ 323  
Motorparts 69     59     204     157  
Total Operational EBITDA 173     156     562     480  
               
Items required to reconcile Operational EBITDA to EBITDA:              
Restructuring charges and asset impairments (a) (8 )   (24 )   (32 )   (67 )
Goodwill and intangible impairment expense, net     (56 )   (6 )   (50 )
Loss on sale of equity method investment             (11 )
Financing charges (2 )   (3 )   (9 )   (7 )
Discontinued operations             7  
Transaction related costs (2 )   (1 )   (4 )   (7 )
Segmentation costs     (1 )       (3 )
Other (b) (3 )       (8 )   (1 )
EBITDA 158     71     503     341  
               
Items required to reconcile EBITDA to net income (loss):              
Depreciation and amortization (95 )   (88 )   (275 )   (254 )
Interest expense, net (37 )   (36 )   (110 )   (103 )
Income tax (expense) benefit (10 )   (9 )   (33 )   (32 )
Net income (loss) $ 16     $ (62 )   $ 85     $ (48 )
                               


    Three Months Ended
September 30
  Nine Months Ended
September 30
Footnotes:   2016   2015   2016   2015
(a) Restructuring charges and asset impairments, net:      
Restructuring charges related to severance and other charges, net   $ (7 )   $ (18 )   $ (28 )   $ (58 )
Asset impairments, including impairments related to restructuring activities   (1 )   (6 )   (4 )   (9 )
Total restructuring charges   (8 )   (24 )   (32 )   (67 )
                 
(b) Other reconciling items:                
Non-service cost components associated with U.S. based funded pension plans   (3 )   1     (9 )   1  
Stock appreciation rights               1  
Other       (1 )   1     (3 )
Total other reconciling items   $ (3 )   $     $ (8 )   $ (1 )
                                 

Management utilizes Operational EBITDA as the key performance measure of segment profitability and uses the measure in its financial and operational decision making processes; for internal reporting; and for planning and forecasting purposes to effectively allocate resources. Operational EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization), as adjusted for additional amounts. Examples of these adjustments include impairment charges related to goodwill, other long-lived assets and investments; restructuring charges, certain gains or losses on the settlement/extinguishment of obligations; and receivable financing charges. During 2015, the Company modified its definition of Operational EBITDA to adjust for financing charges related to certain receivable financing programs. Comparable periods have been adjusted to conform to this definition.

Operational EBITDA presents a performance measure exclusive of capital structure and the method by which net assets were acquired, disposed of, or financed. Management believes this measure provides additional transparency into its core operations and is most reflective of the operational profitability or loss of the Company’s operating segments and reporting units. The measure also allows management and investors to view operating trends, perform analytical comparisons and benchmark performance between periods and among operating segments.

FEDERAL-MOGUL HOLDINGS CORPORATION
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(In millions)
         
ADJUSTED NET INCOME        
    Three Months Ended   Nine Months Ended
    September 30   September 30
    2016   2015   2016   2015
                 
Net income (loss)   $ 16     $ (62 )   $ 85     (48 )
Restructuring and impairment charges, net   8     80     38     117  
Loss on sale of equity method investment               11  
Legal separation and acquisition related costs   2     2     4     10  
Discontinued Operations               (7 )
Net tax impact on above.       (2 )   (2 )   (6 )
Adjusted net income from continuing operations   $ 26     $ 18     125     $ 77  
                                 

Adjusted net income is defined as net income (loss) less restructuring, impairment charges, loss on extinguishment of debt, OPEB curtailment gains or losses, gains or losses on the sales of businesses, costs associated with acquisitions, legal separation and headquarters relocation, certain project and integration costs and related tax impact on these items.  Within 2015, we modified our definition of adjusted net income to remove the exclusion of strategic costs (distribution footprint initiatives, IS strategic initiatives, other strategic costs, and integration costs).  Prior periods have been adjusted accordingly.  Adjusted net income reported for Q3 2015 was $28 million.

Federal-Mogul Holdings Corporation