Financial overview

in million dollars	FY2006	FY2005	Rate of change	Remarks
Sales	6,326.4	6,286.0	+0.6%	(1), (2)
Net Loss	(549.6)	(334.2)	-	(3)

Sales Results
(1) Consolidated net sales increased by $40 million, or 1%, to $6,326 million for the year ended December 31, 2006, of which $32 million was due to favorable foreign exchange. Acquisition activities, net of divestitures added a further $53 million of net sales, the primary components of which are:
- In May 2006, the Company acquired a controlling interest in Federal-Mogul Goetze which increased sales by $77 million;
- In December 2005, the Company divested the Kilmarnock, Scotland. friction business which reduced sales year over year by $12 million; and
- The transfer during the year ended 2006 of $9 million of sales to a minority held joint venture in Asia, as part of the Company's strategy to increase manufacturing in best cost countries.
Increased customer pricing on replacement parts of $48 million was partly offset by net price reductions to the OEMs of $17 million.
(2) Sales to OEM increased $88 million as follows:
- $40 million in the Americas - representing growth of 3%;
- $43 million in Europe - representing growth of 2%; and
- $5 million in Asia - representing growth of 7%.
In the Americas, the underlying market demand remained fairly flat year over year, with reduced light vehicle production being largely offset by increased demand for heavy duty applications in response to U.S. emissions regulations tightening in 2007. The growth in sales was almost entirely due to new program launches and market share gains in Powertrain, Sealing Systems and Vehicle Safety and Performance.
Although overall light vehicle production rose in Europe, the Company's specific customer base experienced a slight decline in sales, which was only partially offset by increased demand for commercial vehicle applications. New program launches and market share growth in Powertrain and Vehicle Safety and Performance more than offset the reduction in underlying market demand.

(3) Net loss of $549.6 millions is primarily generated by the settlement of U.K. pension plans, and Chapter 11 and U.K. Administration related reorganization expenses, resulting to book $500.4 millions and $95.1 millions in net loss respectively.


Contract
In January 2007, the Company announced to supply components or systems for seven of Ward's "10 Best Engines" for 2007 model year vehicles. Federal-Mogul has designed and manufactured parts for 32 of the 50 engines recognized as the "10 Best" by Ward's in the past five years.

Acquisitions
During May 2006, the Company invested approximately $32 million for the acquisition of additional shares to own the majority stake of its long-standing joint venture, Federal-Mogul Goetze India Limited ("FMG"), a publicly traded leading supplier of automotive pistons, rings, liners, pins and sintered products. The transaction, which increases Federal-Mogul's share in GIL to 50.1 percent, supports the Company's growth strategy by expanding its presence in India. FMG's 2005 net sales exceeded Rupees 4.3 billion (more than $96.8 million USD).


Significant restructuring activities
- The Company announced a global restructuring plan ("Restructuring 2006") and commenced a three-year restructuring plan to streamline the Company's operations and reduce excess capacity. This plan will affect approximately 25 facilities and reduce the Company's workforce by approximately 10% by the end of 2008. The first of the plant closures associated with this plan were announced during December 2005, including the closure of its facilities located in Alpignano, Italy and Upton, United Kingdom. The Company has recorded $18.5 million in restructuring charges associated with Restructuring 2006, and expects to incur additional restructuring charges up to $130 million through 2008. The Company expects to achieve annual cost savings of $120 million subsequent to completion of this restructuring program.

Closure, relocation and transfer of Facilities

North America	engine bearing operations	Transfer certain low volume production with high labor content to best cost geographies, specifically Mexico	Restructuring activities and associated payments are expected to continue into 2006.
LaGrange (GA), USA	piston manufacturing facility	Transfer to existing manufacturing facilities with available capacity or with lower manufacturing costs in the US and Mexico	Restructuring activities and associated payments are expected to continue into 2006.
Alpiginano, Italy	piston operations	Close and relocate the operations to other existing European facilities with available capacity	Restructuring activities and associated payments are expected to be completed in 2006.
Roodeport, South Africa	piston facility	Close and relocate the facility to other facilities with available capacity	The restructuring activity was completed during the fourth quarter of 2005.

Total expenditure for R&D

	FY2006	FY2005	FY2004
in million dollars	162	170	181

R&D Structure
The Company's research and development activities are conducted at the Company's major research centers in Burscheid, Germany; Nuremberg, Germany; Wiesbaden, Germany; Bad Camberg, Germany; Chapel, United Kingdom; Plymouth, Michigan; Skokie, Illinois, Ann Arbor, Michigan and Yokohama, Japan.

Product Development
- In February 2007, ANCO introduced ANCO Contour, an innovative premium profile-type blade that delivers exceptional all-season performance on late-model passenger cars and light trucks. ANCO wiper blades are manufactured and marketed by Federal-Mogul Corporation. The ANCO Contour wiper blade features a next-generation one-piece design.

Capital expenditures

$ in million	FY2006	FY2005	FY2004
Powertrain	120	90	126
Sealing Systems	19	22	33
Vehicle Safety and Performance	39	39	57
Aftermarket Products and Services	32	30	46
Corporate	27	9	6
Total	237	190	268