Federal-Mogul Announces Q1 Earnings
23 April 1997
Federal-Mogul First Quarter Earnings Per Share Up 39%
* First quarter earnings per share at $.32; up $.09 over last year.
* Operating margins improve to 6.9% from 5.6% in 1996.
* Cash flow from operations, net of capital expenditures, rose to $20
million from $12 million in 1996.
* Inventories were reduced for the fifth consecutive quarter while fill
rates for the quarter hit a record high.
* Debt was further reduced by $24 million.
* Agreement to sell Australian aftermarket operations announced.
* $125 million debt offering fully subscribed.
SOUTHFIELD, Mich., April 23 -- Federal-Mogul Corporation's
drive to implement its restructuring actions, improve its cost
structure and streamline operations has resulted in a solid first quarter
performance.
Federal-Mogul earned $14 million on first quarter sales of $486 million
compared to net earnings of $11 million on sales of $522 million in 1996.
Earnings per share rose to $.32 compared to $.23 in the first quarter of 1996.
Operating cash flow for the first quarter was $20 million, up $8 million
compared to 1996. Debt was reduced by $24 million.
"The execution of our restructuring plan remains the organization's top
priority for 1997," said Dick Snell, chairman and chief executive officer.
"Our unrelenting efforts to improve our cost structure and focus the
organization on asset returns is providing a solid foundation from which to
grow the company. We remain committed to achieving positive EVA in 1998 and
we are taking significant steps forward in that direction."
Return on invested capital increased in the first quarter to 8.2%, up 3.1
points from 1996.
Federal-Mogul announced that it has a fully subscribed $125 million debt
offering of 10 year 8.8% senior notes. Proceeds from the offering will be
used to reduce the company's short term debt.
"The offering was very well received and better positions Federal-Mogul
for future growth," said Snell. "There are substantial opportunities,
including synergistic acquisitions, that will build on our core product lines.
We want to be strongly positioned to capitalize on those opportunities."
Restructuring Actions Update
On February 6, 1997, Federal-Mogul announced a significant restructuring
plan to realign the company's growth strategy behind its core competencies of
engineering, manufacturing and distribution. Positive progress has been made
toward a 1997 completion.
Federal-Mogul announced today it has entered into an agreement to sell its
Australian aftermarket operations to Automotive Components Limited (ACL), a
private company incorporated in Victoria, Australia. In connection with the
sale of the business the parties will also enter into supply and distribution
arrangements for the Australian and New Zealand replacement markets. With
annual sales of approximately $50 million, the Australian aftermarket
operation of Federal-Mogul employs approximately 200 employees and includes
seven retail stores and six wholesale warehouses. The warehouses are located
in the cities of Adelaide, Brisbane, Melbourne, Newcastle, Perth and Sydney.
As previously announced, Federal-Mogul completed the sale of its
aftermarket branch in Istanbul, Turkey to ADT Otomotive Tic AS. The Turkey
distribution branch had sales of approximately $10 million and employed
approximately 20 people.
Offering memoranda have been distributed to potential buyers regarding
retail operations in Puerto Rico, Venezuela and total aftermarket operations
in Chile, Ecuador, Panama and South Africa. Federal-Mogul expects to receive
indications of interest and begin due diligence activities with serious buyers
during the second quarter.
Federal-Mogul's Juarez, Mexico lighting operation has completed its
relocation into a larger facility to accommodate the consolidation of
operations being moved from Leiters Ford, Indiana. The transfer of product
lines from Leiters Ford to the new 102,000 sq. ft. Juarez facility is
underway. Buyers are being sought for the Leiters Ford facility.
Consolidation of customer support functions currently housed in
Southfield, Michigan and Phoenix, Arizona into Federal-Mogul's Southfield
headquarters is also underway. The consolidation will involve an addition of
approximately 30-40 positions in Southfield and an elimination of 40 full time
and 20 part time positions in Phoenix.
Closure of two of Maysville, Kentucky's three central distribution
warehouses is on target. The fuel and lighting product lines are being
relocated to Federal-Mogul's Jacksonville, Alabama distribution center. This
transition is expected to be completed in June.
Streamlining of administration and operational staff functions worldwide
continues on plan. The consolidation of European aftermarket management
functions in Geneva, Switzerland into the Wiesbaden, Germany manufacturing
headquarters continues.
"We are keenly focused on completing the restructuring actions outlined in
February," said Snell. "Our new direction has many opportunities for
profitable growth in areas which Federal-Mogul is more than able to compete on
a world class level. We want to get to that point as soon as possible."
North American Original Equipment
The North American original equipment business posted first quarter sales
of $111 million compared to $113 million in 1996. Sales were up 15%,
excluding the revenues from the electrical products and ball bearing operation
divestitures from quarter to quarter comparisons. Productivity has improved
significantly due to the company's signature constraint management methodology
that redefines the process by which work can be more efficiently done.
Federal-Mogul has recently been awarded new General Motors business
including: all main bearings for the Generation III V8 5.7L engine for the
1997 Corvette, 1998 Camaro and Firebird, and 1999 C/K Truck for which Federal-
Mogul will also produce camshaft bushings; the balance shaft bushing for the
Premium V6 3.5L engine for the 1998 Oldsmobile Intrigue; and the intermediate
shaft bushing for the Northstar V8 4.0/4.6L engine for the 1998 Aurora and
Cadillac models.
In sealing products for General Motors, Federal-Mogul has been awarded
five new Unipistons for the 4T40-E transmission for the Chevrolet Malibu,
Chevrolet Cavalier, Oldsmobile Cutlass and Pontiac Sunfire; two Unipistons on
the 4T65-E transmission for the Buick Park Avenue, Buick Regal, Oldsmobile
Eighty Eight, Chevrolet Lumina, Pontiac Bonneville and Pontiac Grand Prix;
three Unipistons on the 4L80-E transmission for the Chevrolet Suburban, C/K
Truck, vans and school buses; and two Unipistons for the 4L60-E transmission
for the Chevrolet Blazer, Camero, Corvette, Suburban and Pontiac Firebird.
Federal-Mogul has earned new Ford business providing the governor housing
cover transmission gasket for the Ford Taurus, Mercury Sable and Lincoln
Continental.
For Chrysler Corporation, Federal-Mogul has been awarded all main bearings
for the 2.7L V6 engine for the 1998 Dodge Intrepid and Chrysler Concorde; all
main bearings for the 3.2/3.5L V6 engine for the 1998 Eagle Vision and
Chrysler LHS; and eleven bushings for the 45RFE Transmission for the 1999
Dodge Ram and Jeep Cherokee.
"The continued growth of our original equipment business reflects our
ability to provide the custom applications demanded in this competitive
market," said Alan Johnson, executive vice president. "We are suppliers of
world class products with a commitment to being technology leaders."
Federal-Mogul was recently honored for the third consecutive year with an
"Excellent" Award for Delivery Performance from Toyota for its engine bearings
manufactured in Greenville, Michigan. The Greenville facility has also been
recognized by Ford's Cleveland Engine Plant 2 as a zero-defect supplier for
providing 100% perfect parts during the last year. The company's seal
manufacturing operation in Mexico City, Mexico was also honored by Nissan with
a Masters in Quality award.
Federal-Mogul's Puebla, Mexico engine bearing manufacturing facility has
attained the Cleanest Company Award presented directly by the president of
Mexico. Companies earn this recognition after a thorough audit and by
maintaining a continuous improvement program and installing a permanent
environmental protection program.
International Original Equipment
The international original equipment business reported first quarter sales
of $44 million compared to $59 million in 1996. Excluding the sale of heavy
wall bearing operations in Germany and Brazil, completed on January 2, 1997,
as well as the effect of exchange rates, sales increased 7% despite the 2%
decrease in car sales in Europe. The sales increase was attributed to new
projects awarded by Volvo, SKF, Renault, Bertrand Farre, and Saab.
Through tight cost controlling measures and continuous productivity
improvements, first quarter operating earnings have increased significantly
over last year.
The expertise of Federal-Mogul's Glyco operation with its Sputter bearing
technology has earned Federal-Mogul's European operations several new business
awards up to the year 2000. As a partner in the development of major new
engines, Federal-Mogul has been awarded the engine bearing work for the:
Toyota 049F engine, 1.6L, 1.8L and 2.0L; Peugeot .9L to 1.5L new TU engine;
Renault new F engine, 1.4L to 1.9L; new 1.6L, 16 valve aluminum engine for
Fiat; SAAB 117 "next generation engine"; Volvo truck new 7L 3028 engine and
the 9L 3039 engine; 6 cylinder Daewoo XS 625 engine; three new diesel direct
injection BMW engines -- M65 V8 4L, M47 four cylinder, and the M57 six
cylinder; new 1.0L Diesel direct injection engine from Volkswagen; new V8
gasoline Audi engine; new P728 2.5/3.0L V6 diesel direct injection engine for
Isuzu; four new engines for Mercedes: OM 301 LA new four cylinder 3.3L light
truck diesel, OM 622 two cylinder diesel direct injection, and the OM 628 V8
diesel direct injection 4.0L.
North American Replacement
The North American replacement business reported first quarter sales of
$186 million compared to $195 million in 1996. The general market conditions
for replacement parts in the automotive aftermarket have continued to be soft
throughout the industry.
Inventories were reduced in the North American business for the fifth
consecutive quarter, while fill rates for the quarter hit a record high.
Inventories were reduced $13.5 million from 1996 year end while inventory
turns increased 4.8%, despite a year over year sales decline. An intense
focus on the total value chain has yielded lead time and lot size reductions,
as well as delivery frequency increases inside the company's distribution
network.
"We continue to identify opportunities for working capital reductions by
focusing our efforts on the total 'source to delivery' process," said Snell.
"Our continued success at taking inventory out of our North American network
is being complemented by our enhanced customer service levels."
In keeping with the company's continued technological advancements,
Federal-Mogul's Sterling piston facility in Malden, Missouri became the first
U.S. manufacturer to offer friction reducing skirt coating on several critical
replacement and high performance piston applications.
Federal-Mogul achieved the prestigious NAPA 1996 95% Club award for three
product lines. This shipping performance award goes to NAPA suppliers who are
shipping at a 95% or better order fill rate. Federal-Mogul has received this
award for the fifth consecutive year for its National Oil seal products. This
marked the first year Federal-Mogul's lighting and safety products achieved
this honor.
The North American replacement business has had several new accounts with
the most prominent being the Fisher Auto Parts Warehouses. They have changed
to our chassis product line approved by the Federated Group.
International Replacement
The international replacement business reported first quarter sales of
$145 million compared to $155 million in 1996. Excluding the impact of
exchange rates, sales were relatively flat quarter over quarter; however,
Mexico's wholesale business increased 22% and export sales from Europe
increased 14%.
Leading the increase in Mexico were strong orders for two of Federal-
Mogul's manufactured product lines. Orders for oil seals were up 31% and
clutch release bearings were up 38%. Federal-Mogul manufacturers oil seals in
Linan and clutch release bearings in Mexico City. The Federal-Mogul facility
in Mexico City operates under the name RAIMSA, S.A. de C.V.
Headquartered in Southfield, Michigan, Federal-Mogul is a $2 billion
global manufacturer and distributor of a broad range of non-discretionary
parts primarily for automobiles, light trucks, heavy trucks, and farm and
construction vehicles. For more information on Federal-Mogul, visit the
company's web site at http://www.federal-mogul.com.
Information in this press release contains forward-looking statements
which are not historical facts and involve risk and uncertainties. Actual
results, events and performance could differ materially from those
contemplated by these forward-looking statements including, without
limitations, the company's ability to effectively divest certain assets, the
cost and timing of implementing restructuring actions, certain global and
regional economic conditions and other factors discussed in this press release
and those detailed from time to time in the company's filings with the
Securities and Exchange Commission.
FEDERAL-MOGUL CORPORATION
EARNINGS STATEMENT
(Millions of Dollars, Except Per Share Data)
(Unaudited)
Quarter Ended
March 31
1997 1996
Net sales $485.6 $521.9
Cost of products sold 373.5 409.7
Gross margin 112.1 112.2
Selling, general and administrative expenses 78.4 83.0
Operating earnings 33.7 29.2
Other income (expense):
Interest expense (9.8) (11.2)
Interest income .7 .8
International currency exchange losses (.1) (.9)
Other, net (2.0) (.9)
Earnings before income taxes 22.5 17.0
Income tax expense 8.6 6.4
Net Earnings $ 13.9 $ 10.6
Earnings Per Common Share
Primary $ .33 $ .24
Fully Diluted $ .32 $ .23
Weighted Average Shares Used
Primary 35,210,377 35,065,552
Fully Diluted 37,158,674 37,463,784
FEDERAL-MOGUL CORPORATION
BALANCE SHEET
(Millions of Dollars)
(Unaudited)
March 31 December 31
1997 1996
Assets
Current Assets:
Cash and equivalents $ 33.0 $ 33.1
Accounts receivable 255.5 231.3
Inventories 385.7 417.0
Prepaid expenses and income tax benefits 83.0 81.5
Total Current Assets 757.2 762.9
Property, Plant and Equipment 325.3 350.3
Goodwill 149.3 154.0
Other Intangible Assets 61.9 63.1
Business Investments and Other Assets 126.0 124.9
Total Assets $1,419.7 $1,455.2
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 258.7 $ 280.1
Accounts payable 134.1 142.7
Accrued compensation 37.1 37.6
Other accrued liabilities 209.7 203.4
Total Current Liabilities 639.6 663.8
Long-Term Debt 206.9 209.6
Postemployment Benefits 199.8 207.1
Other Accrued Liabilities 63.2 56.2
Total Liabilities 1,109.5 1,136.7
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 51.5 53.1
Unearned ESOP compensation (28.4) (28.4)
Common stock 175.3 175.7
Additional paid-in capital 282.9 283.5
Retained earnings (186.0) (193.0)
Currency translation and other (61.7) (49.0)
Total Shareholders' Equity 310.2 318.5
Total Liabilities and Shareholders'
Equity $1,419.7 $1,455.2
FEDERAL-MOGUL CORPORATION
CASH FLOWS
(Millions of Dollars)
(Unaudited)
Quarter Ended
March 31
1997 1996
Cash Provided From (Used By) Operating Activities
Net earnings $ 13.9 $ 10.6
Adjustments to reconcile net earnings to net
cash provided from (used by) operating activities
Depreciation and amortization 14.0 15.5
Deferred income taxes 4.6 (.7)
Postemployment benefits (.4) 1.4
Increase in accounts receivable (38.0) (15.9)
Decrease in inventories 17.1 3.5
Decrease in accounts payable (2.4) (4.8)
Increase in current liabilities and other 28.3 22.5
Payments against restructuring and reengineering
reserves (9.0) (7.0)
Net Cash Provided From Operating Activities 28.1 25.1
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (8.4) (13.0)
Proceeds from sale of business investments 10.4 -
Purchases of business investments - (.3)
Other - .3
Net Cash Provided From (Used By) Investing
Activities 2.0 (13.0)
Cash Provided From (Used By) Financing Activities
Issuance of common stock .8 .4
Net increase (decrease) in debt (23.3) 13.8
Dividends (5.7) (5.7)
Other (2.0) (.9)
Net Cash Provided From (Used By) Financing
Activities (30.2) 7.6
Increase (Decrease) in Cash and Equivalents (.1) 19.7
Cash and Equivalents at Beginning of Period 33.1 19.4
Cash and Equivalents at End of Period $ 33.0 $ 39.1
SOURCE Federal-Mogul Corporation
CONTACT: Kimberly A. Welch of Federal-Mogul, 810-354-1916