Federal-Mogul Announces First Quarter Results and Special Charges Related to Acquisitions and Restructuring
23 April 1998
Federal-Mogul Announces First Quarter Results and Special Charges Related to Acquisitions and Restructuring
. Significant integration actions taken to realize $235 million in annual
synergy for the T&N and Fel-Pro acquisitions.
. Earnings per share from operations at $.63, excluding special charges.
. Cash flow from operations, net of capital expenditures, $33 million
versus $20 million in 1997.
. New dividend philosophy announced and second quarter dividend declared.
SOUTHFIELD, Mich., April 23 -- Federal-Mogul Corporation
today announced first quarter results under its new organizational
structure. The company also announced its integration plan designed to
realize the synergies inherent in the acquisitions of T&N and Fel-Pro, along
with other first quarter special charges.
"We are now well positioned as a world leading consolidator of systems and
modules in our industry," said Dick Snell, chairman and chief executive
officer. "As a stronger, more focused company, we are moving quickly to
integrate and expand to avoid losing our advantage in today's competitive
marketplace."
Integration Plan
The components of the integration plan include: closure of four
manufacturing facilities worldwide; relocation of highly manual manufacturing
product lines to lower cost regions or more suitable locations; consolidation
of overlapping manufacturing, technical and sales facilities and joint
ventures; closure of two aftermarket central warehouses and five in-country
warehouses; consolidation of aftermarket marketing and customer support
functions; and streamlining of administrative, sales, marketing and product
engineering staffs worldwide.
The integration actions include a pre-tax restructuring and impairment
charge related to existing Federal-Mogul businesses totaling $31 million and
special charges related to the T&N acquisition of $17 million. In addition,
opening balance sheet adjustments of $587 million for asbestos reserves and
$377 million for severance, exit costs, asset impairments and other
adjustments for acquired companies were recorded.
The integration actions will extend into 1999 and will result in estimated
integration expenses of $32 million and $10 million for 1998 and 1999,
respectively. An anticipated result from completion of the integration will
be a reduction of approximately 4,200 people from Federal-Mogul's new
worldwide headcount of 41,000. The company expects the total cash
expenditures to be approximately $205 million in order to realize pre-tax
synergy of $51 million in 1998, $182 million in 1999 and $235 million in 2000.
First Quarter Results
Federal-Mogul's first quarter revenues increased to $658 million compared
to $486 million in 1997. The results of operations reflect Fel-Pro sales from
February 24, 1998 and T&N sales from March 6, 1998. Cash flow from
operations, net of capital expenditures and excluding cash received from a
forward contract related to the T&N acquisition, was $33 million up
$13 million from 1997.
For the first quarter, the company earned $29 million or $.63 per share
from operations, compared to $14 million or $.32 per share in 1997. Earnings
per share from operations exclude the effects of restructuring and impairment
charges related to existing Federal-Mogul businesses, and special charges
related to the T&N acquisition. Including these items, the company reported a
net loss of $7 million or ($.20) per share.
As previously announced, Federal-Mogul has organized its new operational
structure around three operating units, Powertrain Systems, Sealing Systems
and General Products, which include both original equipment and aftermarket
customer channels.
Powertrain Systems
Powertrain Systems reported first quarter sales of $279 million compared
to $209 million in 1997. Excluding the acquisition of T&N and powertrain
products previously sold through the divested international aftermarket
businesses, sales were relatively flat compared to 1997.
Federal-Mogul has been awarded new original equipment business including:
engine bearings for BMW's new highly sophisticated V-8 diesel engine; piston
liners for the Daimler Benz M160 Swatch vehicle; piston rings for the Daimler
Benz OM 688 car; the new piston assembly for Opel's Y1.6XE engine and pistons
and piston rings for the Peugeot DW8 engine.
Federal-Mogul has earned an Excellent Delivery Performance Award and a
Certificate of Achievement from Toyota for 100% on-time delivery of engine
bearings manufactured in Greenville, Michigan. Toyota also awarded a
Certificate of Achievement to Federal-Mogul's Manitowoc, Wisconsin piston ring
manufacturing facility.
Sealing Systems
Sealing Systems reported first quarter sales of $163 million compared to
$84 million in 1997. Excluding the acquisitions of T&N and Fel-Pro and
sealing products previously sold through the divested international
aftermarket businesses, sales increased 10% due to strong heavy duty and
industrial sales.
Federal-Mogul was awarded new original equipment business including:
Unipiston(R) bonded pistons for General Motors, multi-layer steel cylinder
head gaskets for Chrysler's 2.7L, 3.2L and 3.5L engines; governor housing
gasket for Ford's AX4S automatic transmission, and front and rear crankshaft
seal assemblies for General Motor's GEN III engine program.
Federal-Mogul's Summerton, South Carolina manufacturing facility has
received a Certificate of EDI and Bar Code Enablement from Honda of America
Manufacturing. EDI transmissions provides Honda and Federal-Mogul valuable,
real time information relating to demand, orders, shipping status and
payments.
General Products
General Products reported first quarter sales of $216 million compared to
$197 million in 1997. Excluding the acquisitions of T&N and general products
previously sold through the divested international aftermarket businesses,
sales decreased 10% primarily due to the extremely soft North American
aftermarket.
In new business awards, Federal-Mogul will supply camshafts for the
all-new 1.6 liter engine for the recently-formed Chrysler/BMW joint venture
project that will build a family of small engines in Brazil. The camshaft
machining contract was awarded in part due to the company's participation in
Chrysler Corporation's Supplier Cost Reduction Effort (SCORE).
Federal-Mogul was also awarded new sintered product business of valve seat
inserts and value guides for General Motor's GEN III engine program.
New Dividend Philosophy Announced and Dividend Declared
With a focus on economic value added (EVA) and a belief that dividends are
not the best way to deliver value to shareowners, the Federal-Mogul Board of
Directors has adopted a new dividend philosophy and today declared a regular
quarterly dividend of $.0025 a share on the common stock of the company.
Second quarter dividends are payable June 10, 1998 to shareowners of record at
the close of business May 29, 1998.
Headquartered in Southfield, Michigan, Federal-Mogul is a $5 billion
automotive parts manufacturer providing innovative solutions and systems to
global customers in the automotive, light trucks, heavy duty, farm and
industrial markets. 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 undertakes no obligation to update any forward looking statement
to reflect events or circumstances after the date of this press release.
F E D E R A L - M O G U L C O R P O R A T I O N
S T A T E M E N T S O F O P E R A T I O N S
(Millions of Dollars, Except Per Share Data)
Unaudited
Three Months Ended
March 31
1998 1997
Net sales $658.0 $485.6
Cost of products sold 496.7 373.5
Gross margin 161.3 112.1
Selling, general and administrative
expenses 108.2 78.4
Purchased research and development charge 18.6 -
Restructuring charges 10.5 -
Adjustment of assets held for sale
to fair value 20.0 -
Interest expense 15.5 9.8
Interest income (6.7) (0.7)
International currency exchange losses 1.1 0.1
Net gain on British pound currency
option and forward contract (13.3) -
Other expense, net 5.8 2.0
Earnings Before Income Taxes 1.6 22.5
Income tax expense 8.8 8.6
Net Earnings (Loss) $(7.2) $13.9
Earnings Per Common Share
Net earnings (loss) $(.20) $.34
Net earnings (loss) assuming dilution $(.20) $.32
Weighted Average Shares (Thousands)
Basic 40,114 34,731
Diluted 40,114 37,159
F E D E R A L - M O G U L C O R P O R A T I O N
B A L A N C E S H E E T S
(Millions of Dollars)
Unaudited
March 31 December 31
1998 1997
Assets
Current assets:
Cash and equivalents $101.5 $541.4
Accounts receivable 728.6 158.9
Investment in accounts receivable
securitization 86.0 48.7
Inventories 697.5 277.0
Prepaid expenses and income tax
benefits 261.0 113.2
Investment in thinwall bearings
and chemical business 443.8 -
Total current assets 2,318.4 1,139.2
Property, plant and equipment 1,469.1 313.9
Goodwill 2,675.9 143.8
Other intangible assets 379.4 48.4
Business investments and other assets 555.9 156.8
Total Assets $7,398.7 $1,802.1
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $317.5 $28.6
Accounts payable 418.2 102.3
Accrued compensation 162.2 36.8
Restructuring and rationalization
reserves 188.6 31.5
Payable to T&N plc shareholders 60.3 -
Current portion of asbestos liability 100.0 -
Other accrued liabilities 445.8 130.4
Total current liabilities 1,692.6 329.6
Long-term debt 2,794.0 273.1
Long-term portion of asbestos liability 1,149.1 -
Postemployment benefits 452.0 190.9
Other accrued liabilities 84.3 50.6
Minority interest in consolidated
subsidiaries 65.7 13.6
Minority interest - preferred
securities of affiliate 575.0 575.0
Shareholders' equity:
Series C ESOP preferred stock 48.1 49.0
Series E preferred stock 225.0 -
Common stock 202.4 201.0
Additional paid-in capital 332.7 332.6
Accumulated deficit (136.2) (123.6)
Unearned ESOP compensation (21.7) (21.8)
Accumulated other comprehensive income (61.5) (65.7)
Other (2.8) (2.2)
Total Shareholders' Equity 586.0 369.3
Total Liabilities and
Shareholders' Equity $7,398.7 $1,802.1
F E D E R A L - M O G U L C O R P O R A T I O N
C A S H F L O W S
(Millions of Dollars)
Unaudited
Three Months Ended
March 31
1998 1997
Cash Provided From (Used By) Operating Activities
Net earnings (loss) $(7.2) $13.9
Adjustments to reconcile net earnings
(loss) to net cash provided from
operating activities
Depreciation and amortization 29.8 14.0
Purchased research and development
charge 18.6 -
Restructuring charges 10.5 -
Adjustment of assets held for
sale to fair value 20.0 -
Deferred income taxes (0.7) 4.6
Postemployment benefits (0.1) (0.4)
Increase in accounts receivable (57.1) (38.0)
Decrease in inventories 36.8 17.1
Increase (decrease) in accounts payable 22.0 (2.4)
Increase in current liabilities and
other 20.0 28.3
Payments against restructuring and
reengineering reserves (4.5) (9.0)
Payments for asbestos liability (5.4) -
Net Cash Provided From Operating Activities 82.7 28.1
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and
equipment (19.5) (8.4)
Proceeds from sale of business
investments 49.3 10.4
Proceeds from sale of Kolbenschmidt
options 39.5 -
Business acquisitions, net of cash
acquired (2,655.8) -
Net Cash Provided From (Used By)
Investing Activities (2,586.5) 2.0
Cash Provided From (Used By) Financing Activities
Issuance of common stock 7.4 0.8
Net increase (decrease) in debt 2,111.7 (23.3)
Fees paid for debt issuance (33.3) -
Investment in accounts receivable
securitization (9.6) -
Dividends (5.4) (5.7)
Other (6.9) (2.0)
Net Cash Provided From (Used By)
Financing Activities 2,063.9 (30.2)
Decrease in Cash and Equivalents (439.9) (0.1)
Cash and Equivalents at Beginning of
Period 541.4 33.1
Cash and Equivalents at End of
Period $101.5 $33.0
SOURCE Federal-Mogul Corporation