Federal-Mogul Reports Q2 Results
22 July 1998
Federal-Mogul Announces Strong Second Quarter Results
* Earnings per share from operations at $.60, excluding early
extinguishment of debt and integration costs.
* Second quarter sales hit record high of $1,214 million.
* Cash flow from operations, net of capital expenditures, hits $62
million bringing year-to-date total to $99 million.
* Implementation of integration actions underway.
* Second quarter economic value added generation of $2 million.
* Placed $600 million equity offering.
* Placed $1 billion global bond offering.
SOUTHFIELD, Mich., July 22 -- Federal-Mogul Corporation
today announced strong second quarter operating results and
significant progress in its integration plan designed to realize the synergies
inherent in the acquisitions of T&N and Fel-Pro.
"Our leadership team has stepped up to the consolidation challenge and we
are meeting the very aggressive schedule we laid out in April," said Dick
Snell, chairman and chief executive officer. "I was extremely pleased by the
positive response to our equity and bond offering by the financial community.
We are encouraged to continue our growth strategy with future funding on this
proven template."
Integration Actions
In April, 1998, Federal-Mogul announced a plan to integrate its
acquisitions of T&N plc and Fel-Pro, Inc. into one consolidated company.
Integration actions to date include:
* Announced closure of Ringwood, England manufacturing facility of diesel
piston rings and liners;
* Announced closure of Salisbury, England manufacturing facility of
piston rings;
* Announced closure of Bad Hamburg, Germany manufacturing facility of
machined camshafts;
* Announced closure of Tepotzoltan, Mexico manufacturing facility of
sealing products;
* Announced closure of Buxton, England manufacturing facility of friction
products;
* Consolidating two piston facilities in Argentina into one;
* Consolidating European powertrain product engineering and marketing;
* Consolidating four technical centers in Michigan into Plymouth,
Michigan technical center;
* Downsized the Bridgwater, England manufacturing facility of heavy duty
diesel pistons;
* Downsized the Pont'l Eveque, France manufacturing facility of friction
products;
* Announced closure of Burscheid, Germany distribution center,
consolidating into Kontich, Belgium distribution center;
* Consolidating Chapel-en-le-Frith, England friction distribution center
into Bradford, England distribution center;
* Announced closure of structural bearings operation in Ilminster,
England;
* Fel-Pro administrative headquarters in Skokie, Illinois has been
eliminated and assimilated into Federal-Mogul world headquarters in
Southfield, Michigan;
* T&N's U.S. headquarters in Ann Arbor, Michigan has been closed;
* T&N's Manchester, England office has been closed as a headquarters
site;
* Fel-Pro export function has been consolidated into Federal-Mogul's Fort
Lauderdale, Florida distribution center;
* Consolidation of Federal-Mogul and Fel-Pro sales and marketing staffs;
and
* Consolidation and reduction of administrative and support functions
worldwide.
Second Quarter Results
Federal-Mogul's second quarter revenues increased to $1,214 million
compared to $482 million in 1997. The results of operations reflect full
quarter sales from Fel-Pro and T&N. On a pro forma basis, sales for the
second quarter were essentially flat. Original equipment business was up 8%
and global aftermarket sales continued to be weak with a decline of 11%. Cash
flow from operations, net of capital expenditures, and before integration and
restructuring payments, was $62 million bringing year-to-date cash flow to $99
million.
For the second quarter, the company earned $31 million or $.60 per share
from operations, compared to $26 million or $.61 per share in 1997. Earnings
per share from operations excludes early extinguishment of debt and
integration costs. Including these items, the company reported a net loss of
$3 million or $(.09) per share. EVA for the quarter totaled $2 million on
invested capital of approximately $4.7 billion.
The General Motors strike in North America had a very mild effect on the
company of approximately $5 million in lost sales. Going forward into the
third quarter, sales will be negatively affected by $750,000 a day for the
duration of the strike.
Federal-Mogul successfully completed a $600 million equity offering and $1
billion global bond offering to replace a portion of the debt in the form of a
bridge facility used to support the T&N and Fel-Pro acquisitions.
Powertrain Systems
Powertrain Systems reported second quarter sales of $532 million compared
to $222 million in 1997. On a pro forma basis, sales increased 2% over 1997.
Original equipment demand in Europe has been high. Sputter bearings have
shown a double-digit increase with key customers including BMW, Mercedes, GM
Opel, Volkswagen and Peugeot. OE light vehicle piston sales have also shown
strong demand.
Federal-Mogul has new original equipment business in 1998 including: the
piston, pin, ring set, rod bearing, main bearing, thrust washer and flange
bearing for Peugeot's DW8 1.8L engine; piston ring sets on Renault's K4M 1.6L
engine; piston rings for the Daimler-Benz diesel A-class DM 668 engine; and
assembled flange bearing for Ford's Sigma 1.6 engine.
For 1999 and beyond, Federal-Mogul has been awarded new engine bearing
business including: BMW's 2.0L, 4-cylinder inline and V-engine family;
Daewoo's 2.5L 6-cylinder engines; Fiat Auto's torque aluminum, B and D engine
family; Renault's F9Q732 and G9T engines; eight engines for Peugeot and four
engines for Audi.
Federal-Mogul Powertrain Systems' McConnelsville, Ohio manufacturing
facility was recognized by General Motors as a Supplier of the Year. This was
the second consecutive year that the heavywall bearing facility received this
prestigious honor.
The company's piston ring manufacturing facility in Wausau, Wisconsin was
also recognized as a Supplier of the Year from Ryobi Outdoor Products for
shipping 5.5 million parts with zero defects and on-time delivery over the
last three years. Federal-Mogul's St. Johns, Michigan manufacturing facility
was honored to earn Saturn's Quality Recognition Award for exceeding Saturn's
stringent quality criteria. The company's Greenville, Michigan manufacturing
facility earned an Excellent Delivery Performance Award from Toyota.
Sealing Systems
Sealing Systems reported second quarter sales of $256 million compared to
$74 million in 1997. On a pro forma basis, sales were down slightly.
Federal-Mogul was awarded new original equipment business including:
gaskets and seals for three Cummins engines, the S600 and the B and C encore;
and transmission seals for John Deere. Sealing Systems was awarded the
aftermarket gasket business with all Western Auto / Parts America company-
owned stores; and received preferred membership votes for the sealing business
with automotive program groups Parts Plus and Pronto and industrial buying
group ID One.
Federal-Mogul's Frankfort, Indiana manufacturing facility was honored to
earn Saturn's Quality Recognition Award for exceeding Saturn's stringent
quality criteria. The company's Skokie, Illinois gasket manufacturing
facility received top ranking from John Deere's Achieving Excellence Award
Program.
General Products
General Products reported second quarter sales of $426 million compared to
$186 million in 1997. On a pro forma basis, sales declined 3% due to the
softness in the North American aftermarket business.
Federal-Mogul has been awarded new original equipment business for
camshafts including: Fiat's Fire 16V 1.0L and 1.2L, and Fire 1.0L 8V engines
that will be manufactured at Federal-Mogul's greenfield site in Araras,
Brazil; Isuzu's V8 engine, and Rover's K-series engines.
Friction Products has been awarded new OE business including: the front
and rear disc pads and rear drum lining for the Ford Focus; front and rear
disc pads for the Land Rover Discovery and Freelander; front disc pads and
rear drum lining for Renault; and disc brakes for Mercedes. In the
aftermarket, Federal-Mogul has gained Nissan's disc brake pad business after
being the only U.S. friction manufacturer to meet the stringent OE Nissan test
requirements for their aftermarket "Key Value" program.
Federal-Mogul's Fuel System Components operation in Logansport, Indiana
earned the prestigious Preferred Quality Supplier Award from Cummins Engine.
Third Quarter Dividend Declared
The Federal-Mogul Board of Directors has declared a regular quarterly
dividend of $.0025 a share on the common stock of the company. Third quarter
dividends are payable September 10, 1998 to shareowners of record at the close
of business August 28, 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 and has 41,000 employees
worldwide. 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.
Federal-Mogul Corporation
Statement of Operations
(Millions of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
Net sales $1,214.0 $481.8 $1,872.0 $967.4
Cost of products sold 896.6 366.5 1,393.3 740.0
Gross margin 317.4 115.3 478.7 227.4
Selling, general and
administrative expenses 180.8 70.8 278.9 146.7
Amortization 25.0 2.7 35.1 5.2
Purchased in-process research
and development charge - - 18.6 -
Restructuring charges - - 10.5 -
Adjustment of assets held
for sale to fair value (1.0) - 19.0 -
Integration costs 4.7 - 4.7 -
Interest expense 52.7 9.0 66.1 18.8
Interest income (2.1) (1.1) (6.7) (1.8)
International currency
exchange losses (gains) 1.2 (.1) 2.3 -
Net gain on British pound currency option
and forward contract - - (13.3) -
Other expense, net 2.8 (.4) 8.6 1.6
Earnings Before Income Taxes
and Extraordinary Item 53.3 34.4 54.9 56.9
Income tax expense 24.9 5.9 33.7 14.5
Net Earnings Before
Extraordinary Item 28.4 28.5 21.2 42.4
Extraordinary item - loss on early retirement
of debt, net of applicable
income tax benefit 31.3 2.6 31.3 2.6
Net Earnings (Loss) $ (2.9) $ 25.9 $ (10.1) $ 39.8
Earnings Per Common Share
Basic
Income before
extraordinary item $ .63 $ .74 $ .47 $1.08
Extraordinary item - loss on early retirement
of debt, net of applicable
income tax benefit (.72) (.07) (.75) (.07)
Net earnings (Loss) $(.09) $ .67 $(.28) $1.01
Diluted
Income before
extraordinary item $ .55 $ .67 $ .42 $ .99
Extraordinary item - loss on early retirement
of debt, net of applicable
income tax benefit (.64) (.06) (.70) (.06)
Net earnings (Loss) $(.09) $ .61 $(.28) $ .93
Weighted Average Shares (Thousands)
Before Extraordinary Item
Basic 43,263 35,414 41,710 35,297
Diluted 50,514 41,576 47,561 41,537
After Extraordinary Item
Basic 43,263 35,414 41,710 35,297
Diluted 43,263 41,576 41,710 41,537
Federal-Mogul Corporation
Balance Sheets
(Millions of Dollars)
Unaudited
June 30 December 31
1998 1997
Assets
Current assets:
Cash and equivalents $ 142.1 $ 541.4
Accounts receivable 624.9 158.9
Investment in accounts
receivable securitization 131.7 48.7
Inventories 650.2 277.0
Prepaid expenses and income tax benefits 230.2 113.2
Acquired businesses to be divested 456.7 -
Total current assets 2,235.8 1,139.2
Property, plant and equipment 1,554.7 313.9
Goodwill 2,619.8 143.8
Other intangible assets 457.7 48.4
Business investments and other assets 585.1 156.8
Total Assets $7,453.1 $1,802.1
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt, including
current portion of long-term debt $ 169.7 $ 28.6
Accounts payable 337.9 102.3
Accrued compensation 182.9 36.8
Restructuring and rationalization reserves 178.9 31.5
Current portion of asbestos liability 100.0 -
Other accrued liabilities 430.5 130.4
Total current liabilities 1,399.9 329.6
Long-term debt 2,526.0 273.1
Long-term portion of asbestos liability 1,208.7 -
Postemployment benefits 441.0 190.9
Other accrued liabilities 88.9 50.6
Minority interest in consolidated subsidiaries 61.3 13.6
Minority interest - preferred
securities of affiliate 575.0 575.0
Shareholders' equity:
Series C ESOP preferred stock 46.5 49.0
Series E preferred stock 132.7 -
Common stock 266.0 201.0
Additional paid-in capital 954.5 332.6
Accumulated deficit (133.7) (123.6)
Unearned ESOP compensation (21.5) (21.8)
Accumulated other comprehensive income (88.1) (65.7)
Other (4.1) (2.2)
Total Shareholders' Equity 1,152.3 369.3
Total Liabilities
and Shareholders' Equity $7,453.1 $1,802.1
Federal-Mogul Corporation
Cash Flows
(Millions of Dollars)
Unaudited
Six Months Ended
June 30
1998 1997
Cash Provided From (Used By) Operating Activities
Net earnings (loss) $ (10.1) $ 39.8
Adjustments to reconcile net earnings (loss) to net
cash provided from operating activities:
Depreciation and amortization 89.8 27.3
Purchased in-process research
and development charge 18.6 -
Restructuring charges 10.5 -
Adjustment of assets held
for sale to fair value 19.0 -
Deferred income taxes .2 5.2
Postemployment benefits 1.3 2.0
Increase in accounts receivable (30.0) (19.9)
Decrease in inventories 43.8 40.5
Increase (decrease)
in accounts payable (1.3) (1.0)
Increase in current liabilities
and other 50.1 15.3
Payments against restructuring, reengineering
and rationalization reserves (20.7) (12.5)
Loss on early retirement
of debt 47.1 4.1
Payments against
asbestos liability (32.7) -
Net Cash Provided
From Operating Activities 185.6 100.8
Cash Provided From (Used By) Investing Activities
Expenditures for property,
plant and equipment (81.1) (20.8)
Proceeds from sale of
business investments 53.9 66.6
Proceeds from sale of options 39.1 -
Business acquisitions,
net of cash acquired (2,786.5) -
Net Cash Provided From (Used By)
Investing Activities (2,774.6) 45.8
Cash Provided From (Used By) Financing Activities
Issuance of common stock 601.4 9.7
Net increase (decrease) in debt 1,667.5 (138.8)
Fees paid for debt issuance (49.4) -
Fees for early retirement of debt (27.4) (4.1)
Investment in accounts
receivable securitization 10.3 (11.0)
Dividends (5.9) (13.5)
Other (6.8) (2.4)
Net Cash Provided From (Used By)
Financing Activities 2,189.7 (160.1)
Decrease in Cash and Equivalents (399.3) (13.5)
Cash and Equivalents
at Beginning of Period 541.4 33.1
Cash and Equivalents
at End of Period $ 142.1 $ 19.6