Federal Mogul Reports Q3 Results
22 October 1997
Federal-Mogul Third Quarter Net Earnings at $17 Million
* Third quarter earnings per share at $.40; up $.26 from operations over
last year
* Cash flow from operations, net of capital expenditures, rose to $48
million up $11 million from 1996.
* Return on invested capital was 9.6%, up 5.3 points from last year.
* Debt was reduced $26 million bringing year-to-date reduction to $169
million.
* Inventories were reduced for the seventh consecutive quarter; $125
million year-to-date including $48 million from operations.
* $2.4 billion cash offer recommended to T & N plc shareholders by their
board.
* Agreement to sell Panamanian aftermarket announced.
SOUTHFIELD, Mich., Oct. 22 -- Federal-Mogul Corporation
is on target this quarter hitting all three major points in its
1997 game plan. The company is reporting successful quarter-over-quarter
financial results, continuing toward the completion of its restructuring plan
by year-end, and has announced an acquisition offer intended to profitably
grow the company.
Federal-Mogul earned $17 million on third quarter sales of $424 million
compared to a net loss of $13 million on sales of $492 million in 1996.
Earnings per share rose to $.40 compared to a loss of $.41 in the third
quarter of 1996. Included in the third quarter of 1996 were special charges
related to changes in accounting estimates, adjustment of assets held for sale
and reengineering and other related charges. Excluding these charges net
earnings and earnings per share were $7 million and $.14, respectively.
Operating cash flow for the third quarter was $48 million before a payment
of $21 million on the accounts receivables securitization, up $11 million
compared to 1996. Debt was reduced by $26 million.
Return on invested capital increased in the third quarter to 9.6%, up
5.3 points from 1996. The ratio of debt to total capital improved to 48% from
61% at the end of 1996.
"The completion of our restructuring plan is only the beginning for us,"
said Dick Snell, chairman and chief executive officer. "Our improved
financial performance and aligned focus to expand our manufacturing business
provides the right foundation to grow this company. The goal of being a
highly competitive automotive supplier in engine and sealing systems is
forefront in our growth strategies. We intend to meet our customers' demand
for superior design and advanced technology in a global marketplace."
Three non-recurring items occurred in the third quarter of 1997. Federal-
Mogul incurred $5 million in expense for additional incentive compensation
accruals and restricted stock which vested due to significantly improved
performance offset by one-time income from its Bruss joint venture of
approximately $3 million and the receipt of approximately $2 million of
interest income related to a tax refund.
During the quarter, all outstanding shares of the Series D Convertible
Exchangeable Preferred Stock were converted into common shares of the company.
The company estimates that this will save approximately $4 million a year in
dividend payments.
Restructuring Actions Update
Federal-Mogul has recently completed several restructuring items ahead of
schedule. Execution of the few remaining items from the restructuring plan,
announced on February 6, 1997, continues to be a high priority for the
organization.
On October 6, Federal-Mogul dedicated its new consolidated customer
service center in Southfield, Michigan. The consolidation of the customer
service operations in Phoenix, Arizona and Southfield into one location was
finished ahead of schedule and under budget. At the ribbon cutting ceremony,
Snell praised the consolidation team for making the changeover without
disrupting service levels to customers.
At an earlier ribbon cutting ceremony, Federal-Mogul dedicated its new
lighting assembly facility in Juarez, Mexico. The new 102,000 sq. ft.
facility houses the product lines from Federal-Mogul's Leiters Ford, Indiana
and original Juarez, Mexico location. The Leiters Ford facility was shut down
ahead of schedule due to the efficient transfer of product lines.
Federal-Mogul announced an agreement to sell its Panamanian aftermarket
operations to Grupo Inversionista Delta, S.A., a Panamanian corporation,
subject to financing and shareholder approval. In connection with the sale of
this business, the parties will also enter into a supply and distribution
arrangement.
The Panamanian aftermarket operations included a warehouse distribution
center, six retail stores and employs approximately 60 people. Including
Panama, in terms of international aftermarket operations involved with the
restructuring, Federal-Mogul has completed the divestiture of 70 retail stores
and 18 warehouse locations accounting for 1,740 employees no longer with the
company. Annual sales for operations sold was approximately $185 million.
The company remains on schedule with the remainder of its divestiture
activities. Federal-Mogul continues its discussions with interested parties
regarding the retail operations in Puerto Rico and Venezuela and total
aftermarket operations in Chile and Ecuador.
Federal-Mogul's consolidation efforts and streamlining of administration
and operational functions worldwide continues on schedule.
"The completion of our restructuring actions ahead of schedule reflects
the professionalism of the Federal-Mogul team. Their diligent efforts to
implement our restructuring plan has improved the base of our company," said
Snell. "We will continue to keep the execution of our plan as our
organization's priority for 1997."
Recommended Cash Offer for T & N plc
On October 16, Federal-Mogul and T & N plc announced they had agreed to
the terms of a recommended cash offer by Federal-Mogul of 260 pence per share
for the entire issued share capital of T & N. The offer values T & N's issued
share capital at $2.4 billion. In addition, Federal-Mogul will assume the
debt of T & N at closing.
T & N plc manufactures and supplies high technology engineered automotive
components and industrial materials including pistons, friction products,
bearings, composites/camshafts and sealing products. In 1996, T & N had sales
of $3.1 billion and operated 200 manufacturing locations in 24 countries
employing 28,000 people.
"The companies are a great fit and we feel this is an excellent
transaction for the shareholders and customers of both companies," said Snell.
"This represents a significant step toward meeting our objectives of achieving
profitable growth through enhanced systems capabilities and international
expansion."
Federal-Mogul's acquisition of T & N will:
* create a highly competitive Tier I automotive supplier worldwide;
* expand its manufactured product portfolio to offer systems and modules;
* enhance Federal-Mogul's position as a supplier of engine and
transmission products worldwide;
* reinforce Federal-Mogul's ability to provide a high quality service to
both its original equipment and aftermarket customers;
* extend Federal-Mogul's international reach and accelerate its worldwide
aftermarket growth;
* create an organization which builds on the strength of the leadership,
expertise and working practices of both companies to further improve
efficiencies.
Federal-Mogul will fund the transaction through a bridge facility provided
by The Chase Manhattan Bank. Federal-Mogul's intention is to put in place a
permanent capital structure that reflects its financial goals. Permanent
financing will be an appropriate combination of equity and debt.
North American Original Equipment
The North American original equipment business posted third quarter sales
of $108 million compared to $111 million in 1996. Sales were up 14%,
excluding the revenues from the electrical products and ball bearing operation
divestitures from quarter to quarter comparisons. Business continues to be
strong in sealing products, especially Unipiston(TM) bonded pistons
manufactured at Federal-Mogul's Frankfort, Indiana plant. The plant hit a
record month in shipments in September primarily due to strong demand from its
original equipment customers.
Federal-Mogul has been awarded a contract to supply diesel fuel lift pumps
to Stanadyne Automotive for application in their Fuel Manager diesel fuel
filtration systems. The company will also supply electric diesel fuel priming
pumps to Cummins Heavy Duty Engine Group beginning in 1998 for use in the
Signature 600 engine for the on-highway heavy duty truck market. Both fuel
pumps will be manufactured at Federal-Mogul's Logansport, Indiana plant.
For the second consecutive year, Federal-Mogul's Blacksburg, Virginia
engine bearing manufacturing facility has been awarded Chrysler Corporation's
Gold Pentastar Award. This award recognizes outstanding manufacturing plant
performance in the areas of quality, delivery and warranty.
Federal-Mogul's St. Johns, Michigan engine bearing manufacturing facility,
which this year is celebrating its 50th anniversary, has been honored with two
prestigious awards from its customers. The Hendrickson Spring Operation in
Stratford, Ontario, Canada presented St. Johns with its World Class Quality
Supplier Award and Deco-Grand, headquartered in Royal Oak, Michigan honored
St. Johns with its Grand Supplier Award.
International Original Equipment
The international original equipment business reported third quarter sales
of $37 million compared to $52 million in 1996. Excluding the effects of
exchange and divestiture of the heavy wall bearing operations in Germany and
Brazil, completed on January 2, 1997, sales increased 13%.
Sputter bearings and Glycodur(R) material products continue to have strong
customer demand. Customers have recognized the sputter bearing process
produces the most durable known bearing material for heavy duty turbocharged
and direct injection turbo diesel applications.
Federal-Mogul's European manufacturing operation, operating under the name
Glyco-Metall-Werke, recently celebrated its 100th year. Founded in 1897,
Glyco's long tradition of innovative development and precision manufacturing
has made it a leading supplier of bearings to many of the world's most
prestigious OEMs.
North American Replacement
The North American replacement business reported third quarter sales of
$177 million compared to $181 million in 1996 reflecting continued weak sales
in engine products. North American inventory was reduced in the third quarter
by $9 million.
Federal-Mogul was voted as the preferred supplier of fuel pumps and
lighting for the AMA/Bumper to Bumper program group. The company was also
elected as the preferred supplier for bearings and seals for the Pronto
program group.
International Replacement
The international replacement business reported third quarter sales of
$101 million compared to $148 million in 1996. Excluding the effects of
exchange and divestiture of Turkey, Australia and South Africa, sales were up
6% quarter-over-quarter.
In Latin America, excluding retail divestitures, sales increased 14%.
Mexico continues to exceed expectations based on strong distribution demand
and increased sales of suspension and anti-friction bearings. Shipments from
Federal-Mogul's Fort Lauderdale, Florida distribution center, which primarily
exports Federal-Mogul manufactured products, achieved record levels in
September. In Europe, aftermarket sales increased in Spain, Greece and Italy.
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. The company was founded in 1899.
For more information on Federal-Mogul, visit the company's web site at
http://www.federal-mogul.com. Federal-Mogul's press releases are available by
fax through Company News On-Call, call 800-758-5804, ext. 306225.
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, the combination of the
businesses of Federal-Mogul and T & N, conditions in the automotive components
industry, 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)
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
Net sales $424.2 $492.4 $1,391.6 $1,551.9
Cost of products sold 321.4 409.2 1,061.4 1,238.0
Gross margin 102.8 83.2 330.2 313.9
Selling, general and administrative
expenses 74.0 79.7 225.9 243.7
Adjustment of assets held for sale to fair
value - 6.4 - 6.4
Reengineering, severance and other related
charges - 5.6 - 5.6
Interest expense 6.5 11.0 25.3 32.8
Interest income (2.4) (.6) (4.2) (2.1)
International currency exchange losses
(gains) - .7 - 3.0
Other expense (income), net (2.9) .3 (1.3) 1.4
Earnings Before Income Taxes
and Extraordinary Item 27.6 (19.9) 84.5 23.1
Income taxes 10.2 (7.3) 24.7 8.6
Net Earnings Before Extraordinary
Item 17.4 (12.6) 59.8 14.5
Extraordinary item - loss on early retirement
of debt, net of applicable income tax
benefit - - 2.6 -
Net Earnings $17.4 $(12.6) $57.2 $14.5
Earnings Per Common Share
Primary
Income before extraordinary
item $.45 $(.41) $1.52 $.23
Extraordinary item - loss on early retirement
of debt, net of applicable income tax
benefit - - (.07) -
Net earnings $.45 $(.41) $1.45 $.23
Fully Diluted
Income before extraordinary
item $.40 $(.41) $1.39 $.23
Extraordinary item - loss on early retirement
of debt, net of applicable income tax
benefit - - (.06) -
Net earnings $.40 $(.41) $1.33 $.23
Weighted Average Shares Used
Primary 37,490,460 35,096,577 36,050,236 35,087,937
Fully Diluted 42,016,185 35,096,577 41,838,571 35,122,148
FEDERAL-MOGUL CORPORATION
BALANCE SHEET
(Millions of Dollars)
(Unaudited)
September 30 December 31
1997 1996
Assets
Current Assets:
Cash and equivalents $20.5 $33.1
Accounts receivable 239.4 231.3
Inventories 291.9 417.0
Prepaid expenses and income tax benefits 92.5 81.5
Total Current Assets 644.3 762.9
Property, Plant and Equipment 312.8 350.3
Goodwill 146.3 154.0
Other Intangible Assets 60.7 63.1
Business Investments and Other Assets 133.0 124.9
Total Assets $1,297.1 $1,455.2
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $42.1 $280.1
Accounts payable 123.0 142.7
Accrued compensation 45.9 37.6
Other accrued liabilities 192.4 203.4
Total Current Liabilities 403.4 663.8
Long-Term Debt 278.5 209.6
Postemployment Benefits 199.3 207.1
Other Accrued Liabilities 67.9 56.2
Total Liabilities 949.1 1,136.7
Shareholders' Equity:
Series D preferred stock - 76.6
Series C ESOP preferred stock 49.7 53.1
Unearned ESOP compensation (25.1) (28.4)
Common stock 200.3 175.7
Additional paid-in capital 350.7 283.5
Accumulated deficit (154.6) (193.0)
Currency translation and other (73.0) (49.0)
Total Shareholders' Equity 348.0 318.5
Total Liabilities and Shareholders'
Equity $1,297.1 $1,455.2
FEDERAL-MOGUL CORPORATION
CASH FLOWS
(Millions of Dollars)
(Unaudited)
Nine Months Ended
September 30
1997 1996
Cash Provided From (Used By) Operating Activities
Net earnings $57.2 $14.5
Adjustments to reconcile net earnings to net
cash provided from (used by) operating activities
Depreciation and amortization 40.7 46.4
Deferred income taxes 5.3 (.7)
Postemployment benefits 1.1 1.8
(Increase) decrease in accounts receivable (51.2) 8.3
Decrease in inventories 48.2 33.3
Increase (decrease) in accounts payable 1.1 (12.4)
Increase in current liabilities and other 34.9 30.2
Adjustment of assets held for sale to fair
value - 6.4
Reengineering, severance and other related
charges - 5.6
Loss on early retirement of debt 4.1 -
Payments against restructuring and reengineering
reserves (15.9) (13.2)
Net Cash Provided From Operating Activities 125.5 120.2
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (29.9) (34.7)
Proceeds from sale of business investments 78.7 11.0
Purchases of business investments - (.3)
Net Cash Provided From (Used By) Investing
Activities 48.8 (24.0)
Cash Provided From (Used By) Financing Activities
Issuance of common stock 12.0 .4
Fees for early retirement of debt (4.1) -
Fees related to the issuance of debt (9.4) -
Net decrease in debt (163.6) (57.6)
Dividends (18.2) (19.4)
Other (3.6) (3.4)
Net Cash Used By Financing Activities (186.9) (80.0)
Increase (Decrease) in Cash and Equivalents (12.6) 16.2
Cash and Equivalents at Beginning of Period 33.1 19.4
Cash and Equivalents at End of Period $20.5 $35.6
SOURCE Federal-Mogul Corporation