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Federal-Mogul Corporation (



Q4 2011 Earnings Call

February 28, 2012 10:00 a.m. ET


Jose Maria Alapont - President and CEO

Alan Haughie - SVP & CFO

David Pouliot - Director IR


Patrick Archambault - Goldman Sachs

Brian Sponheimer - Gabelli



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Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Federal-Mogul Corporation Earnings Conference Call. My name is Anne, and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. [Operator Instructions]

I would now like to turn the presentation over to Mr. David Pouliot, Director of Investor Relations. Please proceed, sir.

David Pouliot

Thank you, operator. Good morning, and thanks to all of you for joining Federal-Mogul's Fourth Quarter and Full Year 2011 Earnings Conference Call. Before I begin I would like to refer you to the company's Safe Harbor statement shown on this page of the presentation and included in the earnings press release filed this morning. Please consider my reference to this statement as notification of the applicability of these Safe Harbor provisions to today's call and the documents referenced during the call. Please turn to the Agenda Slide.

Mr. Alapont will begin this morning's call by providing a brief overview of the company's record sales and strong operating results for the fourth quarter and full year 2011. Following this overview, Alan Haughie will cover the detailed quarterly company and business segment financial results along with a recap of our full year financial performance. We will finish with closing remarks and then open up the call for your Q&A.

Mr. Alapont?

Jose Maria Alapont

Thank you, David. Good morning, everyone. Federal-Mogul's performance in the fourth quarter and for 2011 was strong as we drove increased profitability on record revenue levels. Sales continued strong on the fourth quarter due to the demand for our leading technology and innovation as the automakers maintained high global production. Our total sales in the quarter were up 5% with OE sales up 8% in constant dollar basis.

For the full year, total sales were up 11% at record levels. OE sales were as well at record level of $4.6 billion, up 18% versus a global market growth rate of 5%. We performed significantly above market growth rates in all regions and our growth in emerging markets during 2011 has further diversified our revenue base, with sales in China up 24% and in India 22%.

Sales outside the US and in Europe now account for 90% of the revenue. The company also experienced a strong aftermarket growth with the BRIC up 10%, China 18% up, India 12%. And Europe had a good growth of 6% with North America gaining momentum as a result of the several strategies to be discussed later on.

Full year operating margin and EBITDA remained strong on the year and we experienced significant increase in demand in our global operations. Operating margin improved by $76 million or 24% to 5.8% of sales and EBITDA increased to $702 million or 10.2% of sales. Our performance demonstrates the company's ability to generate greater revenue and profitability through higher operating and SG&A efficiency while also offsetting costs associated with higher volumes and material price increases.

During 2011, we introduced products in more than 100 new customer programs with more than 20 of those programs in China and India. We expect this strong pace to continue for the coming years due to increased global customer demand for our leading technology and innovation to meet (inaudible) requirements combined with (other) industry expansion.

In response to this growth, Federal-Mogul in 2011 invested $348 million to increase manufacturing capacity in existent and greenfield sites drive higher operational efficiency and develop and launch new technology with customers. This is (inaudible) the investment of two years ago.

Let's move to Page 5. Federal-Mogul sales in 2011 as I said were a record level of $6.9 billion. Gross margin improved by $81 million or 8% more than $1 billion. Operating margin was up by 0.6% to 5.8%. SG&A was an all-time low at 10% of sales and EBITDA increased to $702 million, up $31 million versus the previous year.

Federal-Mogul recorded a net loss in the fourth quarter of $239 million and a $90 million net loss for the full year reflecting a Q4 2011 impairment charge of $304 million, primarily due to a difference in the evaluation on selected product lines versus the value established in 2007 and at the time of the Fresh-Start reporting in connection with the Federal-Mogul Chapter 11.

The company's 2011 annual goodwill analysis indicate a decline in the fair value of selected product lines that have been impacted by factor in the US aftermarket. The company believes, however, that increases in its other reporting units such as powertrain, would largely offset the decline. But United States GAAP rules do not permit the recognition of gains in the value of one of the reporting units to offset impairment charges in another reporting unit.

When eliminating the impact of the goodwill impairment, adjusted net income was up for 2011 by $69 million to $203 million and the fourth quarter adjusted net income was $51 million, up from the $38 million in the fourth quarter of last year.

Thermal continues to transform its business to include a broader global portfolio of innovative leading products with higher technology content that improve fuel economy, reduce emissions and enhance vehicle safety. The company believes that this transformation a fundamental part of our sustainable global profitable growth strategy has and will continue to improve operating performance thereby increasing the company's fair value and overall shareholders' value.

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