Federal-Mogul Reports Third Quarter 2004 Results
SOUTHFIELD, Mich.--Oct. 2, 20042, 2004--Federal-Mogul Corporation (OTCBB:FDMLQ) today reported its financial results for the three and nine months ended September 30, 2004.
Financial Summary (in millions)
Three Months Nine Months
Ended Ended
September 30 September 30
-------------- --------------
2004 2003 2004 2003
------- ------ ------- ------
Net sales $1,511 $1,338 $4,641 $4,133
Gross margin 280 251 896 818
Earnings (loss) from continuing
operations, before income taxes (4) (14) 7 (14)
Federal-Mogul reported net sales of $1,511 million and $4,641 million for the three and nine month periods ended September 30, 2004 representing an increase of 13% and 12% respectively, over comparable periods of 2003. These increases were driven by favorable foreign currency, new business and increased volumes.
Gross margin increased by $29 million, or 12%, and $78 million, or 10%, during the three and nine month periods ended September 30, 2004, respectively, as compared to the same periods in 2003. Although increased sales volumes favorably impacted gross margins, period to period margins as a percentage of sales decreased as a result of raw material cost inflation and customer price reductions.
Earnings (loss) from continuing operations before income taxes improved by $10 million and $21 million during the three and nine month periods ended September 30, 2004, respectively, as compared to the same periods in 2003. Earnings (loss) from continuing operations before income tax expense benefited from the margin impact of increased volumes during 2004, while asset impairments of $13 million and $36 million recorded during these periods partially offset this impact. Additionally, Chapter 11 and Administration related reorganization expenses decreased during the third quarter of 2004 as a result of a favorable settlement of an outstanding bankruptcy claim.
"New business and increased sales volumes highlighted our financial results during the third quarter. However, difficult market conditions including increased cost of steel and other commodities and ongoing customer pricing challenges continue to pressure our financial results," said Steve Miller, Chairman of the Board and Interim Chief Executive Officer.
Financial Results for the Three Months Ended September 30, 2004
Federal-Mogul reported third quarter 2004 net sales of $1,511 million, an increase of $173 million or 13% when compared to net sales of $1,338 million for the same period in 2003. New business and increased volumes in OE and Aftermarket sectors accounted for $134 million of the year-over-year sales increase. Net sales also benefited from $54 million of favorable foreign currency during this period. Customer pricing partially offset these favorable factors.
Gross margin increased $29 million or 12% during the third quarter of 2004, as compared with the third quarter of 2003. New business and increased volumes contributed $49 million to the gross margin increase and foreign currency added $7 million. Gross margin decreased as a percentage of sales as the impact of raw material cost inflation and customer price reductions exceeded productivity improvements from the Company's ongoing cost reduction and restructuring activities.
The Company reported a loss from continuing operations before income taxes of $4 million during the third quarter of 2004, compared with a loss from continuing operations before income taxes of $14 million for the same period in 2003. This improvement is partially attributable to the gross margin increase related to higher volumes experienced during the third quarter of 2004. Additionally, the Company reached a favorable settlement of an outstanding bankruptcy claim resulting in a $19 million decrease in Chapter 11 and Administration related reorganization expenses for the quarter ended September 30, 2004. These factors were partially offset by $13 million of asset impairments primarily related to the announced closure of one of the Company's U.S. Powertrain manufacturing operations. Selling, general and administrative costs decreased slightly as a percentage of sales, despite unfavorable foreign currency of $9 million during the period.
Cash from operating activities was adversely impacted by increased working capital in the period primarily attributable to increased sales volumes.
Financial Results for the Nine Months Ended September 30, 2004
Net sales increased $508 million or 12% to $4,641 for the nine months ended September 30, 2004 as compared to $4,133 million for the same period in 2003. The increase in net sales was driven by $396 million of new business and increased volumes across OE and Aftermarket sectors. Favorable foreign currency of $196 million was partially offset by customer price reductions and the adverse impact on Aftermarket sales for products serviced by the Company's Smithville, TN distribution center that was destroyed by fire in March 2004.
Gross margin for the nine month period ended September 30, 2004 increased by $78 million or 10% as compared to the same period in 2003. New business and increased OE and Aftermarket sales volumes of $143 million and favorable foreign currency of $31 million were partially offset by customer price reductions and increased raw material costs.
Earnings (loss) from continuing operations before income taxes increased by $21 million during the nine month period ended September 30, 2004 as compared with the same period in 2003. The improvement is attributable to the increased gross margin associated with higher sales volumes and the bankruptcy claim settlement recognized in the third quarter of 2004, offset by asset impairments. Selling, general and administrative costs decreased as a percentage of sales, despite unfavorable foreign currency of $29 million.
The Company has generated positive cash from operating activities during the nine months ended September 30, 2004, providing $260 million for the year to date period.
About Federal-Mogul
Federal-Mogul is a global supplier of automotive components, sub-systems, modules and systems serving the world's original equipment manufacturers and the aftermarket. The company utilizes its engineering and materials expertise, proprietary technology, manufacturing skill, distribution flexibility and marketing power to deliver products, brands and services of value to its customers. Federal-Mogul is focused on the globalization of its teams, products and processes to bring greater opportunities for its customers and employees, and value to its constituents.
Headquartered in Southfield, Michigan, Federal-Mogul was founded in Detroit in 1899 and today employs approximately 45,000 people and conducts operations in 31 countries. On October 1, 2001, Federal-Mogul decided to separate its asbestos liabilities from its true operating potential by voluntarily filing for financial restructuring under Chapter 11 of the Bankruptcy Code in the United States and Administration in the United Kingdom. For more information on Federal-Mogul, visit the company's Web site at http://www.federal-mogul.com.
Forward-Looking Statements
FEDERAL-MOGUL CORPORATION
STATEMENTS OF OPERATIONS
(Millions of Dollars, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net sales $1,511.1 $1,337.6 $4,640.6 $4,133.1
Cost of products sold 1,231.0 1,087.0 3,745.1 3,315.5
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Gross margin 280.1 250.6 895.5 817.6
Selling, general and
administrative expenses 235.5 211.8 713.5 664.9
Adjustment of long-lived
assets to fair value 12.9 0.9 36.0 4.5
Interest expense, net 23.2 23.1 73.1 74.4
Chapter 11 and Administration
reorganization expenses 6.4 25.7 66.8 85.4
Equity earnings of
unconsolidated affiliates (8.2) (6.3) (28.4) (20.7)
Other expense, net 13.9 9.7 27.9 22.7
-------- -------- -------- --------
Earnings (loss) from
continuing operations
before income taxes (3.6) (14.3) 6.6 (13.6)
Income tax expense 30.6 12.7 70.2 51.2
-------- -------- -------- --------
Loss from continuing
operations (34.2) (27.0) (63.6) (64.8)
Loss from discontinued
operations, net of
income taxes - (2.5) - (4.0)
-------- -------- -------- --------
Net loss $ (34.2) $ (29.5) $ (63.6) $ (68.8)
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Basic and diluted loss per
common share:
Loss from continuing
operations $ (0.39) $ (0.31) $ (0.73) $ (0.74)
Loss from discontinued
operations, net of
income taxes - (0.03) - (0.05)
-------- -------- -------- --------
Net loss per common share $ (0.39) $ (0.34) $ (0.73) $ (0.79)
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Weighted average shares
outstanding 87.1 87.1 87.1 87.1
FEDERAL-MOGUL CORPORATION
BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
September 30 December 31
2004 2003
----------- -----------
Current assets
Cash and equivalents $ 597.6 $ 472.4
Accounts receivable, net 1,083.5 976.5
Inventories, net 927.8 834.4
Prepaid expenses and other current assets 239.2 257.5
----------- -----------
Total current assets 2,848.1 2,540.8
Property, plant and equipment, net 2,277.9 2,404.8
Goodwill and indefinite-lived
intangible assets 1,518.7 1,517.1
Definite-lived intangible assets, net 336.8 348.0
Asbestos-related insurance recoverable 815.7 806.1
Prepaid pension costs 270.1 309.2
Other noncurrent assets 197.9 190.7
----------- -----------
$ 8,265.2 $ 8,116.7
=========== ===========
Current liabilities
Short-term debt, including
current portion of long-term debt $ 377.2 $ 14.8
Accounts payable 410.5 332.3
Accrued liabilities 521.5 486.6
Other current liabilities 188.3 185.1
----------- -----------
Total current liabilities 1,497.5 1,018.8
Liabilities subject to compromise 6,092.8 6,087.8
Long-term debt 10.8 331.2
Postemployment benefits 1,737.3 1,716.6
Deferred income taxes 87.1 70.4
Other accrued liabilities 235.1 214.4
Minority interest in consolidated affiliates 36.1 54.4
Shareholders' deficit
Series C ESOP preferred stock 28.0 28.0
Common stock 435.6 435.6
Additional paid-in capital 2,061.0 2,060.5
Accumulated deficit (2,997.0) (2,933.4)
Accumulated other comprehensive loss (959.1) (967.6)
----------- -----------
Total shareholders' deficit (1,431.5) (1,376.9)
----------- -----------
$ 8,265.2 $ 8,116.7
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FEDERAL-MOGUL CORPORATION
STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
2004 2003 2004 2003
------- ------- ------- -------
Cash Provided From (Used By)
Operating Activities
Net loss $ (34.2) $ (29.5) $ (63.6) $ (68.8)
Adjustments to reconcile
net loss to net cash
provided from operating
activities:
Depreciation and amortization 84.7 77.9 251.4 227.5
Adjustment of long-lived
assets to fair value 12.9 0.9 36.0 4.5
Postemployment benefits,
including pensions 11.0 29.4 56.8 87.0
Deferred taxes 6.9 11.2 18.8 26.0
Changes in operating assets and
liabilities:
(Increase)/decrease in
accounts receivable (20.8) 7.0 (112.5) 11.7
(Increase)/decrease in
inventories (50.4) 1.0 (141.7) 19.0
Increase/(decrease) in
accounts payable (9.7) (16.2) 78.5 (2.0)
Changes in other assets and
liabilities (21.3) (13.5) 81.2 (42.3)
Insurance proceeds 0.5 - 55.5 -
------- ------- ------- -------
Net cash provided
from (used by)
operating activities (20.4) 68.2 260.4 262.6
Cash provided from (used by)
investing activities
Expenditures for property,
plant and equipment and
other long-term assets (57.9) (74.1) (190.0) (214.8)
Proceeds from the sale of
property, plant and equipment - - 13.0 6.5
Net proceeds from sale of
businesses - 2.1 - 23.6
------- ------- ------- -------
Net cash used by
investing activities (57.9) (72.0) (177.0) (184.7)
Cash provided from (used by)
financing activities
Proceeds from borrowings on DIP
credit facility 90.0 30.5 90.0 105.5
Principal payments on DIP credit
facility (10.0) (10.0) (51.7) (110.2)
Increase/(decrease) in
short-term debt 7.9 2.2 4.4 (17.1)
Increase/(decrease) in
other long-term debt 1.5 0.9 (0.2) (2.5)
------- ------- ------- -------
Net cash provided
from (used by)
financing activities 89.4 23.6 42.5 (24.3)
Effect of foreign
currency exchange rate
fluctuations on cash (4.4) 1.6 (0.7) 24.1
------- ------- ------- -------
Increase in cash and equivalents 6.7 21.4 125.2 77.7
Cash and equivalents at
beginning of period 590.9 451.4 472.4 395.1
------- ------- ------- -------
Cash and equivalents at
end of period $ 597.6 $ 472.8 $ 597.6 $ 472.8
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