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News   August 16, 2010   by Auto Service World

Affinia Reports Higher Sales For The Second Quarter of 2010


Affinia Group Inc., best known for its Raybestos brand brake and chassis parts, has reported sales and gross profit up for the second quarter ended June 30, 2010.
Net sales for the second quarter were $528 million, a 15% increase over the $459 million of net sales in the same period in 2009. The $69 million increase in net sales was mainly due to improved market conditions, including $10 million of new business with new and existing customers and $11 million of favourable currency translation impact.
All figures in U.S. dollars.
Gross profit for the second quarter was $109 million, equating to a gross margin of 20.6%, as compared to $90 million, or a gross margin of 19.6%, for the same period in 2009. The improvement in gross margin was due in part to higher sales volume and continued cost savings realized from the Company’s comprehensive restructuring program. Additionally, gross profit improved by $3 million due to favourable currency translation.
Selling, general and administrative expenses were $79 million for the quarter, an increase of $15 million compared with the same period in 2009. The increase was partially attributable to an increase in restructuring expense of $8 million, of which $4 million was associated with the closure of the Company’s Venezuelan brake manufacturing facility.
Additionally, payroll, advertising and professional fees increased by $5 million over the second quarter of 2009.
Affinia’s net income from continuing operations in the second quarter of 2010 was $10 million, a $5 million reduction from the prior year.
The quarter over quarter reduction was due in part to a one time pre-tax gain of $8 million in the second quarter of 2009 resulting from the extinguishment of debt. Additionally, the $15 million increase in selling, general and administrative costs, driven by higher restructuring expense and $2 million of higher interest expense, contributed to lower net income from continuing operations. These increases were offset by $19 million of improved gross profit in the quarter.
“We are very pleased with our focus on profitable revenue growth which resulted in second quarter improvements in both net sales and gross margins. Our improved performance is attributable to both enhanced market conditions and new business wins with new and existing customers. We will continue to energetically pursue top line growth globally by demonstrating our ability to provide our customers with consistently high quality products and services regardless of geographic location,” stated Terry McCormack, Affinia’s president and chief executive officer.
Net sales were $971 million for the first six months of 2010, an increase of $109 million, or 13%, compared to the same period in 2009. The increase in sales was driven by strong demand in all markets along with $34 million of currency translation gains, primarily in South America.
Commercial Distribution South America sales increased by $67 million due to improved market conditions, the opening of new distribution locations and the introduction of new product applications.
The strengthening of the Brazilian Real also contributed to the increase in sales as compared to the same period in 2009. The Company realized $31 million of increased sales in its Filtration operations as market conditions improved in the US and Canada and it gained market share in Western and Eastern Europe. Brake North America and Asia sales increased by $8 million attributable primarily to favorable currency translation effects. Chassis product sales increased by $6 million as market conditions improved and new business wins were realized. Brake South America sales for the first six months of 2010 decreased by $4 million as compared with the same period in 2009, primarily as a result of the devaluation of the Venezuelan currency.
Gross profit for the first six months of 2010 was $199 million, or a 20.5% gross margin, compared with $167 million, or 19.4% gross margin, for the same period in 2009. The gross profit increase was due to increased sales volume, $10 million of favorable currency effects and continued cost savings from the comprehensive restructuring program.
Selling, general and administrative expenses were $146 million for the first six months of 2010, an increase of $26 million compared with the same period in 2009.
The increase was partially attributable to an increase in restructuring expense of $10 million, of which $6 million was associated with Brake and Chassis operations in North America and $4 million related to the closure of the Company’s Venezuelan brake manufacturing facility. Workers compensation and general liability expenses in the first six months of 2009 were $5 million lower than the first six months of 2010 due to an adjustment based on favourable actuarial studies in 2009. Additionally, payroll, advertising, professional and other selling and administrative costs increased by $11 million over the same period of 2009.
Affinia’s net income from continuing operations in the first six months of 2010 was $16 million, a $3 million reduction from the prior year.
The year over year reduction was due in part to a one time pre-tax gain of $8 million in the second quarter of 2009 resulting from the extinguishment of debt. Additionally, the $26 million increase in selling, general and administrative costs, partly driven by higher restructuring expense and $4 million of higher interest expense, contributed to lower net income from continuing operations. These costs were mostly offset by $32 million of improved gross profit during the first half of 2010.
Total debt outstanding as of June 30, 2010 was $649 million and the Company had $49 million of cash and cash equivalents. Cash from operations for the first six months of 2010 resulted in a use of cash of $46 million compared to a use of cash of $7 million in the same period in 2009.
The $39 million deterioration in year-over-year operating cash flow was mainly due to a net increase in working capital requirements as accounts receivable and inventory levels increased to support higher sales. No financial maintenance covenants exist under the Company’s refinanced capital structure and the Company remained in compliance with all debt covenants at June 30, 2010. 

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