Federal-Mogul Corporation Business Report FY ended Dec. 2012

Business Highlights

Financial Overview

(in million dollars)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 Rate of
change (%)
Factors
Sales 6,664 6,910 (3.6) 1)
EBITDA 483 683 (29.3) -
Powertrain
Sales 4,118 4,316 (4.6) 2)
Vehicle Components Solutions
Sales 2,937 3,033 (3.2) 3)

Factors
1) Overall
-Consolidated net sales decreased by 246 million dollars, or 3.6%, to 6,664 million dollars for the year ended December 31, 2012. Over 60% of the Company's sales originate outside the United States; therefore the impact of the U.S. dollar strengthening, primarily against the euro, decreased sales by 288 million dollars.

2) Powertrain
-Sales decreased by 198 million dollars, or 4.6%, to 4,118 million dollars for the year ended December 31, 2012. The Powertrain segment generates approximately 70% of its revenue outside the United States and the resulting currency movements decreased sales by 191 million dollars. Customer pricing decreased sales by 4 million dollars. A decrease in inter-segment sales volumes caused a 44 million dollars. These decreases partially offset by an increase in external sales volumes of 21 million dollars, and by a 20 million dollars increase in sales directly related to the acquisition of BERU.

3) Vehicle Components Solutions
-Sales decreased by 96 million dollars, or 3.2%, to 2,937 million dollars for the year ended December 31, 2012. The Vehicle Components Solutions segment generates approximately 50% of its revenue outside the United States and the resulting currency movements decreased reported sales by 97 million dollars. Otherwise, sales were largely flat to the prior year, although there was a significant shift in the mix of products away from premium towards mid-grade in North America.

Contracts

-The Company is supplying products for eight of Ward's 10 Best Engines for 2013 model year vehicles. 2013 award-winning engines featuring it's technologies include:
 - BMW 2.0L I4 N20 Turbo (BMW "328i")
 - BMW 3.0L I6 N55 Turbo (BMW "135is coupe")
 - Chrysler 3.6L V6 Pentastar ("Ram 1500")
 - Ford 2.0L I4 EcoBoost (Ford "Focus ST/Taurus")
 - Ford 5.8L V8 Supercharged (Ford "Shelby GT500")
 - GM 2.0L I4 Turbo ("Cadillac ATS")
 - Subaru 2.0L H4 FA Boxer (Subaru "BRZ")
 - VW 3.0L V6 TFSI Supercharged (Audi "S5")
The Company provides a wide range of powertrain technologies including pistons, rings, liners, spark plugs, valve seats and guides, sliding bearings, intake and exhaust manifold gaskets, dynamic seals, thermal management and abrasion protection sleeves. (From a press release on December 17, 2012)

-The Company announced that it is supplying technology for the 2012 Hyundai "Elantra", such as pistons, piston rings and engine bearings. On the 2012 "Range Rover Evoque", the Company provides pistons, piston rings, engine bearings, dynamic seals and sintered products. The Company also supplies thermal and mechanical protection coverings for several "Evoque" engine components. (From a press release on January 10, 2012)

Acquisitions

-The Company announced a definitive agreement to purchase the spark plug business from BorgWarner Inc. The spark plug business was a segment of the BERU operations acquired by BorgWarner in 2005. The purchase includes manufacturing sites at Chazelles sur Lyon, France and Neuhaus, Germany. The newly acquired sites, which employ approximately 500 personnel, currently manufacture a product line of BERU branded spark plugs sold to European original equipment manufacturers and the automotive aftermarket. The acquired units will add approximately 80 million USD annualized sales and increase Federal-Mogul's annual spark plug production capacity to more than 350 million. The Company will integrate the acquired facilities into its ignition business, which includes the Champion ignition product line. The Champion brand portfolio includes spark plugs for combustion engines including small garden equipment, motor-sports, automotive, commercial vehicles and industrial machinery. The Company today operates six manufacturing sites and three technical centers within its ignition product line at facilities in the U.S., China, India and Mexico. BorgWarner will continue its focus on expanding the core BERU Systems products of glow plugs, diesel cold start systems and other gasoline ignition technologies. (From a press release on July 2, 2012)

New Company

-TPR Co., Ltd. announced on April 24 that the company and Federal-Mogul will establish TPR Federal-Mogul Tennessee, Inc., a joint venture to manufacture cylinder liners in the U.S. The new production company will be capitalized at 20 million dollars (approximately 1.6 billion yen), of which 53.9 percent will be invested by TPR America Inc., and 46.1 percent by Federal-Mogul Powertrain, Inc. Production is scheduled to begin in May 2013 with a plan to manufacture 12 million units in 2014. (From an article in the Nikkan Jidosha Shimbun on April 25, 2012)

Restructuring

-The Company announced the Company has begun operating with two business segments, Powertrain and Vehicle Components, effective on September 1, 2012. The Company's powertrain segment focuses on original equipment products, such as pistons, piston rings, cylinder liners, valve seats, valve guides, bearings, spark plugs, bushings, for automotive, heavy duty and industrial applications. The vehicle components segment sells a broad portfolio of products in the vehicle aftermarket, while also serving original equipment (OE/OES) manufacturers with vehicle products including brake friction, chassis, wipers and other vehicle components. The Company has 79 manufacturing plants and 12 engineering centers for powertrain, and owns 31 manufacturing plants, 8 engineering centers and 20 distribution centers for vehicle component solutions worldwide. (From a press release on September 4, 2012)

-The Company began a restructuring program in the second quarter of 2012 to further shift production of brake friction and wiper products to lower-cost locations within the Company's global manufacturing network, including a recently acquired brake friction facility in Mexico. The restructuring program involves the closure or substantial downsizing of selected brake friction and wiper manufacturing sites over the next 18 months. The restructuring program is expected to cost a total of 60 million USD. An initial charge of 7 million USD for restructuring actions related to the program was recorded during the second quarter of 2012. (From a press release on July 26, 2012)

R&D

R&D Expenditure

(in million dollars)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 FY ended Dec. 31, 2010
Overall 179 172 156
% of Sales 2.7% 2.5% 2.5%

R&D Facilities

(As of December 31, 2012)
  U.S. and Canada Europe Rest of World
Technical centers 8 6 2

<USA>
-Plymouth, Michigan; Skokie, Illinois; Ann Arbor, Michigan; and Exton, Pennsylvania.

<Outside USA>
-Germany: Burscheid, Nuremberg, Wiesbaden, Bad Camberg
-UK: Chapel
-France: Crepy
-China: Shanghai
-India: Bangalore
-Japan: Yokohama

Product Developments

Piston
-The Company has developed a lightweight, high-strength aluminium piston, the Advanced Elastoval II piston, that enables engine manufacturers to increase the power density and efficiency of direct injected gasoline engines. The Advanced Elastoval II piston architecture is up to 20 percent lighter than previous generation pistons. Whereas previous wall sections measured 4mm, the latest piston achieves wall sections as thin as 2.5mm. The Advanced Elastoval II piston enters series production later this year in a new European passenger car. (From a press release on July 10, 2012)

-The Company has developed an aluminium piston that meets the higher strength and thermal performance demands of very high-power diesel engines. BMW is the first to use the piston in its triple-turbo 3.0-litre diesel (N57D30S1) engine, which with a specific power output of 93kW/litre (124bhp/litre) is a powerful light diesel. The aluminium piston's design uses the Company's Durabowl process to create a reinforced combustion bowl rim to withstand the high mechanical and thermal loads. The piston was developed at Federal-Mogul's centre for aluminium piston development and production in Nuremberg, Germany. The Company produces steel and aluminium pistons for light and heavy-duty diesel engines. (From a press release on June 19, 2012)

Friction
-The Company has developed a range of zero-copper and low-copper brake pad formulations using a new tribological fingerprinting process. As companies work to introduce alternative materials ahead of legal deadlines, Federal-Mogul's Eco-Friction is already achieving excellent results in customer trials. Federal-Mogul's tribological fingerprinting process develops data-sets for each of the raw materials that make up a brake pad. The Company's scientists then used knowledge of copper's tribological fingerprint, and how its function changes as the brake pad heats and cools, to screen 1,500 raw materials and identify alternative materials with the same wear and friction pattern across the same temperature range. There is no single material that can replace copper. Brake pads are a formulation of 20 to 30 different materials, each with different functions. Federal-Mogul's Eco-Friction range uses a variety of metal sulphides, minerals, abrasives, fibers, ceramic particles and types of graphite to achieve the same wear and friction characteristics as brake pads containing copper. Legislation in certain states of the U.S. requires the phase-out of copper from brake pads, initially limiting copper content to less than 5% of total pad weight and eventually requiring levels of less than 0.5%. (From a press release on June 25, 2012)

Systems protections
-The Company has enhanced its line of Thermflex exhaust insulating sleeves. The optimized design can now be tailored to fit any combination of exhaust pipe and tube geometries. Federal-Mogul's Thermflex insulating sleeve traps heat within the exhaust system, allowing for greater efficiency of the emissions control systems. The Thermflex product line is constructed with basalt yarns, designed to withstand temperatures up to 750 degrees Celsius, which reduces the radiation of heat to nearby components. The Thermflex design allows for the sleeve diameter to expand up to 1.5 times and can accommodate flanges and bends, common on exhaust system components. Once the prototype design has been validated, it can be instantly transferred into production at a Federal-Mogul's Systems Protection manufacturing facility. (From a press release on May 23, 2012)

Light

-The Company developed new LED ambient lighting technology that can be designed to display and is easily packaged using the Company's light pipe, which provides a homogeneous appearance and larger areas of illumination with fewer light sources. The lighting can be integrated throughout the vehicle or in select areas, such as the instrument panel, center stack, console, door panels, speakers and cup holders. The Company also offers new LED metalized lighting technology. This technology provides interior ambient lighting surfaces with a metallic appearance when the light source is "off" and a lighted appearance when it is "on." The Company's metalized lighting is available in several finishes, including aluminum, copper, nickel, chrome and titanium, among others. (From a press release on January 4, 2012)

Investment Activities

Capital Expenditures

(in million dollars)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 FY ended Dec. 31, 2010
Powertrain 285 266 175
Vehicle Components Solutions 86 68 58
Corporate 16 14 18
Total 387 348 251

Investment in USA

-TPR Co., Ltd. announced on April 24 that the company and Federal-Mogul will establish TPR Federal-Mogul Tennessee, Inc., a joint venture to manufacture cylinder liners in the U.S. The new production company will be capitalized at 20 million dollars (approximately 1.6 billion yen), of which 53.9 percent will be invested by TPR America Inc., and 46.1 percent by Federal-Mogul Powertrain, Inc. Production is scheduled to begin in May 2013 with a plan to manufacture 12 million units in 2014. (From an article in the Nikkan Jidosha Shimbun on April 25, 2012)