Federal-Mogul's 1997 Earnings Rise to $1.61 Per Share
4 February 1998
Federal-Mogul's 1997 Earnings Rise to $1.61 Per Share
* 1997 Cash flow from operations, net of capital expenditures, hit $166
million up $71 million from 1996.
* Inventories were reduced for the eighth consecutive quarter; $140
million in 1997 including $60 million from operations.
* Debt was reduced in 1997 by $188 million.
* Over $100 million improvement in economic value added over 1996.
* Fourth quarter earnings per share at $.40 from operations versus $.(02)
in 1996
* Agreement to acquire Fel-Pro announced.
SOUTHFIELD, Mich., Feb. 4 -- Federal-Mogul Corporation
today announced solid 1997 financial results amid a year of
aggressive restructuring. For the fourth consecutive quarter, the company is
reporting successful financial results and progress towards completion of its
restructuring plan. Federal-Mogul has also announced two major acquisitions
intended to profitably grow the company and expand the company's capability to
offer customers systems and modules.
"The restructuring and margin improvement actions we diligently pursued
have strengthened the core of Federal-Mogul. We have regained credibility
with our employees, our shareholders and customers by delivering on our plan,"
said Dick Snell, chairman and chief executive officer. "Federal-Mogul has a
competent, professional management team clearly focused on growing our
business in powertrain systems and sealing systems while delivering on our
financial goals. We will be the global supplier that can serve our customers
better than anyone else in our product categories."
1997 Year End and Fourth Quarter Results
Following the divestiture of under-performing assets, Federal-Mogul's 1997
revenues decreased to $1,807 million while earnings increased to $69 million.
The company generated in excess of $100 million improvement in economic value
added (EVA) over 1996. 1997 cash flow from operations, net of capital
expenditures, hit $166 million, up $71 million from 1996.
For the full year, Federal-Mogul earned $1.61 per share compared to a loss
of $(6.20) in 1996. From operations, the company earned $1.64 per share in
1997 compared to earnings of $.70 per share in 1996. Earnings per share from
operations excludes the effects of restructuring, reengineering, impairment,
extraordinary items, certain tax adjustments, activities related to the T&N
acquisition, and in 1996, certain changes in estimates.
Federal-Mogul earned $12 million on fourth quarter sales of $415 million
compared to a net loss of $(221) million on sales of $481 million in 1996.
Earnings per share rose to $.28 compared to a loss of $(6.43) in the fourth
quarter of 1996. From operations, fourth quarter earnings per share increased
to $.40 compared to a loss of $.(02) in 1996.
Operating cash flow for the fourth quarter was $58 million up $30 million
compared to 1996.
Restructuring Actions Update
The fourth quarter brought the completion of several items from the
restructuring plan announced on February 6, 1997.
In November, Federal-Mogul announced the closure of aftermarket
distribution centers in Malaysia and Singapore. The company also closed its
distribution center in Taiwan. Federal-Mogul will continue to maintain sales
offices in Singapore and Taiwan and all sales transactions will be in U.S.
dollars.
In December, the U.S. service center network was streamlined to gain
greater value from Federal-Mogul's product distribution capabilities in the
aftermarket. Eleven service centers were closed by December 31, 1997.
Federal-Mogul completed the sale of its four retail stores and one central
distribution center in Chile to Inversiones Federal, S.A., a Chilean
corporation headquartered in Santiago, Chile. Federal-Mogul entered into a
supply and distribution arrangement with the buyer to serve the Chilean market
in the future.
To date in Venezuela, Federal-Mogul has sold six retail stores to local
companies, closed two stores and is in negotiations with buyers for the
remaining seven stores. The company will close any stores that are not sold
by February 28, 1998.
In Ecuador, Federal-Mogul is in discussions with two parties for the sale
of three retail stores. The stores will be sold or closed by February 28,
1998.
The company also withdrew from two retail-related joint venture
initiatives in Russia and Israel during the fourth quarter.
"By the end of February 1998, Federal-Mogul will have successfully exited
all of its retail businesses, except for Puerto Rico where buyer interest at a
reasonable price has been disappointing," said Snell.
In Puerto Rico, two retail stores have been closed and other actions have
been taken to improve this operation's profitability. The company will
continue through 1998 to pursue the sale of this operation while managing it
for positive EVA.
Acquisition Agreement Announced for Fel-Pro
On January 12, 1998, Federal-Mogul announced an agreement to acquire Fel-
Pro Incorporated, a privately-owned manufacturer headquartered in Skokie,
Illinois, for $720 million. The transaction includes $225 million in common
stock and $495 million in cash. The sale is subject to regulatory approval
and is expected to close in the first quarter of 1998.
"Fel-Pro is the premier gasket manufacturer for the North American
aftermarket and OE heavy duty market," said Snell. "We are driven to be a
highly competitive automotive supplier in sealing systems and the addition of
Fel-Pro gaskets to our product line benefits both our aftermarket and OE
customers."
In 1997, Fel-Pro had sales of approximately $500 million. The company has
more than 2,700 employees in 16 locations organized into four business units:
Gaskets, FP Diesel, FP Chemical Products and FP Performance. Gaskets is the
largest business unit with approximately $350 million in sales in 1997 for
products such as cylinder head and molded rubber gaskets, and marine and
performance gaskets.
North American Original Equipment
The North American original equipment business posted full year sales of
$451 million compared to $449 million in 1996. Sales were up 16%, excluding
the sales from the electrical and ball bearing operations, which the company
sold in August 1996 and November 1996, respectively.
The North American original equipment business posted fourth quarter sales
of $114 million compared to $107 million in 1996. Sales were up 15%,
excluding the revenues from the ball bearing operations divestiture from
quarter-to-quarter comparisons.
Federal-Mogul has secured new business with Chrysler Corporation. The
newly redesigned 1999 Grand Cherokee will launch with an all new powertrain,
4.7L V8 engine and the 45RFE electronic transmission. Federal-Mogul will
supply the bearings and washers to the engine group and bushings to the
transmission group. For the 1998 model year, Federal-Mogul began supplying
engine bearings to the new V6 all aluminum engine family (2.7/3.2/3.5L) found
on the new Dodge Intrepid, Chrysler Concorde and Plymouth Prowler.
With General Motors, Federal-Mogul has been selected as the sole source of
engine bearings and bushings for the 3.1L V6 engine significantly upgraded for
the 1999 model year. Federal-Mogul has been contracted to supply bushings for
the new 2.2L 16-valve four-cylinder engine earmarked for the new 2000 model
year Saturn Innovate. The new 1999 light truck line will debut the new Gen
III powertrain currently installed in the 1999 Corvette. This cast iron
version will include Federal-Mogul bearings and bushings. The mid-year 1999
Oldsmobile Intrigue is slated to premier the new Premium 3.5L V6 engine
featuring Federal-Mogul balancer bearings.
With Toyota, Federal-Mogul expects to be awarded the engine bearings in
the new 2000 model year 1.4L/1.6L/1.8L engines to be assembled at the Buffalo,
West Virginia and Deeside, Wales engine plants. The Buffalo facility is
currently under construction. These engines will be installed in the Corolla
and Carina car lines.
During 1997, Federal-Mogul began supplying the main bearings to Nissan's
new engine plant in Decherd, Tennessee which produces the 2.4L engine. During
1998, Federal-Mogul will receive a contract for the rod bearings for this same
engine.
Meritor, formerly Rockwell Automotive, has selected Federal-Mogul to
supply fully unitized pinion seals for their on-highway axles. This design is
unique to the industry. Production is scheduled to begin in the spring of
1998.
The Chrysler/BMW joint venture has awarded Federal-Mogul the front and
rear crankshaft seal on their new 1.4/1.6L engine which will be manufactured
in Brazil. Production is scheduled to begin mid-year 2000 for the 2001 model
year.
Caterpillar, Inc. has awarded Federal-Mogul the oil seal and wear ring for
the differential gear used in their model 797 off-highway truck. Production
is scheduled for the summer of 1998.
In the heavy duty and industrial applications, Federal-Mogul has been
awarded by Trane Compressors the bushing business for Trane's 7.5 ton
Cornerstone compressor.
Allison Transmission, a division of General Motors, has awarded Federal-
Mogul bushing business for their light commercial truck transmission program.
The production build is scheduled for March 1999.
Outboard Marine Corporation has awarded Federal-Mogul the vapor separator
with integral electric fuel pump business for their V4 and V6 Johnson(R) and
Evinrude(R) outboard motors with FICHT(TM) fuel injection systems.
Federal-Mogul's Blacksburg, Virginia engine bearing manufacturing facility
was awarded the Gold Pentastar Award from Chrysler Corporation for the second
consecutive year. Chrysler presents this award to suppliers that exhibit
outstanding manufacturing performance in the areas of quality, delivery and
warranty.
Nissan awarded Federal-Mogul's Linan seal manufacturing plant in Mexico
its Zero Defects quality recognition award. This high honor is given to
suppliers with 1997 production year shipments delivered to Nissan without
defects.
Federal-Mogul's Frankfort, Indiana seal manufacturing facility was awarded
the 1997 State of Indiana Quality Improvement Award in recognition of its
outstanding achievement in such areas as customer satisfaction, product
quality and environmental compliance.
International Original Equipment
The international original equipment business reported full year sales of
$170 million compared to $219 million in 1996. Sales were up $27 million
excluding currency exchange and the divestitures of the company's BHW heavy
wall bearing business and GAT engineering firm, both German non-automotive
businesses, completed on January 2, 1997.
The international original equipment business reported fourth quarter
sales of $44 million compared to $53 million in 1996. Excluding currency
exchange and the divestiture of the heavy wall bearing business, sales
increased 29%.
Since the second quarter 1997, the production schedules of Volkswagen,
BMW, Mercedes Benz, Renault and Peugeot have increased due to strong export
demands of popular models. Federal-Mogul has significant participation of
bearing applications on these vehicles. In particular, turbo-charged direct
injected diesel engines require Federal-Mogul sputter bearings. In the fourth
quarter, Federal-Mogul shipped record levels of sputter bearings, up 30% over
fourth quarter 1996. Sputter bearing orders in-hand for 1998 are at an all-
time high. Federal-Mogul Germany reports sputter bearing growth of over 60%
with GM/Opel, over 55% with Mercedes Benz cars and over 40% with Mercedes Benz
trucks.
Business continues to strengthen with seat manufacturer Betrand Faure, as
Federal-Mogul now exclusively supplies bushings for the most popular
Volkswagen seat.
Federal-Mogul's German operation has been selected by Cummins USA as its
exclusive supplier of Sputter rod bearings for the Signature 600 engine
program with a March 1998 production build. Cummins India, Ltd. has awarded
Federal-Mogul main and rod bearings for the Cummins V-12 engine.
Atlantis Diesel (Mercedes Benz South Africa) has awarded Federal-Mogul
with additional orders for truck bearings.
Business with European Formula One engine manufacturers is developing very
well. Federal-Mogul received new orders from Mecachrome (formerly Renault
Sport), Ilmor, and Cosworth Racing.
North American Replacement
The North American replacement business reported full year sales of $699
million compared to $760 million in 1996. Cash of $48 million was generated
from a reduction of North American inventories while inventory turns rose 26%.
Over 250,000 sq. ft. was made available due to inventory reductions, prior to
any service center closures.
The North American replacement business reported fourth quarter sales of
$150 million compared to $171 million in 1996 reflecting continued weak sales
in this market for engine products. Inventories in North America were reduced
by $15 million.
International Replacement
The international replacement business reported full year sales of $486
million compared to $604 million in 1996. Sales were essentially flat when
excluding the 1997 divestitures of the Turkey aftermarket operation in March,
Australia retail and wholesale operation in May, South Africa retail and
wholesale operation in June, and the Chile retail and wholesale operation in
December.
The international replacement business reported fourth quarter sales of
$107 million compared to $149 million in 1996. Excluding the effects of
currency exchange and divestitures of Turkey, Australia, South Africa and
Chile, sales were up 9% quarter-over-quarter.
Sales were strong to the Middle East and Eastern Europe as overall trade
sales from Federal-Mogul's European aftermarket operation were up 5% in 1997
compared to 1996, excluding exchange and divestiture of Turkey. Sales of
engine bearings were particularly strong into export markets.
Fourth quarter sales in the Latin American aftermarket from continuing
businesses were 22% above the prior year. Business was especially strong in
Mexico representing an increase of 15%. Export sales of manufactured engine
bearings and pistons out of Federal-Mogul's Fort Lauderdale distribution
center exceeded 1996 levels by over 20%.
In November, Federal-Mogul's Geneva, Switzerland and Kontich, Belgium
locations obtained certification for ISO 9002 with the German certification
company TuV. Certification provides an opportunity to gain more market share
in developing areas such as Eastern Europe.
Headquartered in Southfield, Michigan, Federal-Mogul is a global
manufacturer 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, T&N, and Fel-Pro, 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
STATEMENTS OF OPERATIONS
(Millions of Dollars, Except Per Share Data)
(Unaudited)
Three Months Ended Year Ended
December 31 December 31
1997 1996 1997 1996
Net sales $ 415.0 $ 480.8 $1,806.6 $2,032.7
Cost of products sold 320.4 422.5 1,381.8 1,660.5
Gross margin 94.6 58.3 424.8 372.2
Selling, general and
administrative expenses 60.3 90.1 286.2 333.8
Restructuring charges
(benefits) (1.1) 57.6 (1.1) 57.6
Reengineering and other
related charges (benefits) (1.6) 5.8 (1.6) 11.4
Adjustment of assets held
for sale to fair value 2.4 144.9 2.4 151.3
Interest expense 6.7 9.8 32.0 42.6
Interest income (2.9) (0.8) (7.1) (2.9)
International currency
exchange losses 0.6 0.7 0.6 3.7
British pound currency option 28.1 - 28.1 -
Unrealized gain on British
pound currency option (17.6) - (17.6) -
Other expense, net 4.7 2.0 3.4 3.4
Earnings (Loss) Before
Income Taxes and
Extraordinary Item 15.0 (251.8) 99.5 (228.7)
Income tax expense (benefit) 2.8 (31.0) 27.5 (22.4)
Net Earnings (Loss)
Before Extraordinary Item 12.2 (220.8) 72.0 (206.3)
Extraordinary item - loss on early retirement
of debt, net of applicable
income tax benefit - - 2.6 -
Net Earnings (Loss) $ 12.2 $(220.8) $ 69.4 $ (206.3)
Earnings Per Common Share
Basic
Income (loss) before
extraordinary item $ .29 $(6.43) $1.81 $(6.20)
Extraordinary item - loss
on early retirement of
debt, net of applicable
income tax benefit - - (.07) -
Net earnings (loss) $ .29 $(6.43) $1.74 $(6.20)
Diluted
Income (loss) before
extraordinary item $ .28 $(6.43) $1.67 $(6.20)
Extraordinary item - loss
on early retirement of debt,
net of applicable
income tax benefit - - (.06) -
Net earnings (loss)
assuming dilution $ .28 $(6.43) $1.61 $(6.20)
Weighted Average Shares (Thousands)
Basic 39,923 34,678 36,647 34,659
Diluted 42,394 34,678 41,854 34,659
FEDERAL-MOGUL CORPORATION
BALANCE SHEET
(Millions of Dollars)
December 31
1997 1996
Assets
Current assets:
Cash and equivalents $ 541.4 $ 33.1
Accounts receivable 158.9 204.3
Investment in accounts receivable
securitization 48.7 27.0
Inventories 277.0 417.0
Prepaid expenses and income tax benefits 113.2 81.5
Total current assets 1,139.2 762.9
Property, plant and equipment 313.9 350.3
Goodwill 143.8 154.0
Other intangible assets 48.4 63.1
Business investments and other assets 156.8 124.9
Total Assets $1,802.1 $1,455.2
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 28.6 $ 280.1
Accounts payable 102.3 142.7
Accrued compensation 36.8 37.6
Accrued customer incentives 22.4 20.3
Restructuring reserves 31.5 55.2
Other accrued liabilities 108.0 127.9
Total current liabilities 329.6 663.8
Long-term debt 273.1 209.6
Postemployment benefits 190.9 207.1
Other accrued liabilities 64.2 56.2
Total Liabilities 857.8 1,136.7
Minority interest - preferred
securities of affiliates 575.0 -
Shareholders' equity:
Series D preferred stock - 76.6
Series C ESOP preferred stock 49.0 53.1
Common stock 201.0 175.7
Additional paid-in capital 357.4 283.5
Accumulated deficit (148.4) (193.0)
Unearned ESOP compensation (21.8) (28.4)
Currency translation and other (67.9) (49.0)
Total Shareholders' Equity 369.3 318.5
Total Liabilities and Shareholders' Equity $1,802.1 $1,455.2
FEDERAL-MOGUL CORPORATION
CASH FLOWS
(Millions of Dollars)
Year Ended
December 31
1997 1996
Cash Provided From (Used By) Operating Activities
Net earnings (loss) $ 69.4 $(206.3)
Adjustments to reconcile net earnings
(loss) to net cash provided from
operating activities
Depreciation and amortization 52.8 63.7
Restructuring charges (benefits) (1.1) 57.6
Reengineering and other related
charges (benefits) (1.6) 11.4
Adjustment of assets held for sale
to fair value 2.4 151.3
Vesting of restricted stock 9.0 0.4
Loss on early retirement of debt 4.1 -
Unrealized gain on British pound
currency option (17.6) -
Payment for British pound currency option 28.1 -
Deferred income taxes 13.0 (27.8)
Postemployment benefits (7.7) (2.0)
Decrease in accounts receivable 7.6 46.5
Decrease in inventories 59.9 54.5
Decrease in accounts payable (19.5) (25.5)
Payments against restructuring and
reengineering reserves (26.2) (17.6)
Increase in current liabilities and other 43.1 42.8
Net Cash Provided From Operating Activities 215.7 149.0
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (49.7) (54.2)
Proceeds from sale of business investments 73.6 42.0
Fees paid in anticipation of business
acquisition (30.5) -
Other 1.1 (0.3)
Net Cash Used By Investing Activities (5.5) (12.5)
Cash Provided From (Used By) Financing Activities
Issuance of common stock 14.2 .6
Proceeds from issuance of long-term debt 179.6 -
Principal payments on long-term debt (127.4) (29.4)
Decrease in short-term debt (235.8) (61.4)
Fees paid for early retirement of debt (4.1) -
Fees paid for debt issuance (25.6) -
Investment in accounts receivable
securitization (31.8) -
Issuance of preferred securities to
affiliates 575.0 -
Fees paid for issuance of preferred
securities to affiliates (17.2) -
Dividends (24.8) (26.9)
Other (4.0) (5.7)
Net Cash Provided From (Used By)
Financing Activities 298.1 (122.8)
Increase in Cash and Equivalents 508.3 13.7
Cash and Equivalents at Beginning of Period 33.1 19.4
Cash and Equivalents at End of Period $ 541.4 $ 33.1
SOURCE Federal-Mogul Corporation