Federal-Mogul Announces Solid Third Quarter Results
22 October 1998
Federal-Mogul Announces Solid Third Quarter Results
* Earnings per share from operations at $.66, excluding integration
costs, up 65% from 1997.
* Third quarter sales reach $1,121 million, up 164%.
* Cash flow from operations, net of capital expenditures, totaled
$19 million bringing year-to-date total to $118 million.
* Acquisition of Cooper Automotive completed and Tri-Way Machine
announced.
* Successful syndication of $2 billion bank facility.
SOUTHFIELD, Mich., Oct. 22 -- Federal-Mogul Corporation
today announced solid third quarter operating results, continued
progress in its integration plan of T&N and Fel-Pro, and growth through the
acquisitions of Cooper Automotive and Tri-Way Machine.
"The consolidation of our acquisitions into one strong Federal-Mogul
global team continues as planned," said Dick Snell, chairman and chief
executive officer. "We have our new all-star leadership team in place to
begin implementation of integration actions with the Cooper Automotive
businesses."
Integration Actions
Federal-Mogul continued to make good progress on its plan to integrate its
acquisitions of T&N plc and Fel-Pro, Inc. An extensive list of integration
initiatives was detailed in the company's July 22, 1998 second quarter press
release. Those efforts continued into the third quarter with the following
additional actions:
* Restructured our Mexican sealing operations;
* Restructured the Sealing System sales and engineering functions;
* Consolidated raw material and component sourcing activities for Sealing
Systems;
* Increased transfer from "buy" to "make" of aftermarket product;
* Announced closure of the piston liner manufacturing operation in South
Africa;
* Commenced the restructuring of aftermarket distribution facilities in
Spain, Italy and Germany; and
* Rationalized the General Products administrative functions in the
United Kingdom.
Through the third quarter of 1998, more than half of the expected 1998
synergies of $51 million have been attained. The company is confident in
obtaining the remaining balance for the year. In addition, of the total
previously announced employee reduction of 5,300 people by 2001, approximately
1,200 has occurred.
Profitable Growth Through Acquisitions
Federal-Mogul announced an agreement to acquire Tri-Way Machine Limited
and Cooper Automotive.
"We continue to demonstrate the viability of our growth strategy by
negotiating key acquisitions that deliver on our goals," said Snell.
On October 6, Federal-Mogul announced the agreement to acquire Tri-Way
Machine Limited, a privately-owned manufacturer of machines and machining
systems. Tri-Way gives the company the ability to machine connecting rods
enabling Federal-Mogul to be the first true power cylinder systems supplier.
On October 9, Federal-Mogul completed the acquisition of Cooper
Automotive, a business unit of Cooper Industries, Inc. As a result, the
company becomes the world leader in brake friction, the North American market
leader in automotive lighting, and a stronger aftermarket leader adding
premium brand names such as Wagner/Abex brakes and friction; Wagner/Blazer
lighting; Moog chassis; Champion ignition and Anco wiper blades.
"We continue to enhance our position as a leader in the automotive
industry through positive economic value added acquisitions that are
on-strategy," said Snell. "We have gained tremendous potential and talent
with these acquisitions. Our customers will benefit from the efficiencies we
can generate."
Funding for the transaction includes an 18-month $1.6 billion and eight
year $350 million bank facilities. The syndication of these facilities was
oversubscribed and well distributed among 64 lenders. The company also
increased its committed revolving credit facilities to $600 million, which are
at present undrawn.
Third Quarter Results
Federal-Mogul's third quarter revenues increased to $1,121 million
compared to $424 million in 1997. On a pro forma basis, sales for the third
quarter were slightly higher, excluding divestitures. Original equipment
business was up 5% and global aftermarket sales continued to be weak with a
decline of 3%. Cash flow from operations, net of capital expenditures and
before integration and restructuring payments, was $19 million bringing year-
to-date cash flow to $118 million.
For the third quarter, the company earned $40 million or $.66 per share
from operations. Earnings per share from operations excludes, on a pre-tax
basis, $9 million of integration costs, $6 million of charges to cost of
products sold related to the sale of Puerto Rican retail assets, and a
$6 million restructuring benefit primarily related to the liquidation of
retail operations in Puerto Rico. Including these costs, the company reported
net earnings of $35 million or $.58 per share compared to $17 million or $.40
per share in 1997. EVA for the quarter totaled $2 million on invested capital
of approximately $4.8 billion.
Powertrain Systems
Powertrain Systems reported third quarter sales of $459 million compared
to $177 million in 1997. On a pro forma basis, sales increased slightly over
1997. Original equipment sales were up 8% in North America and 13% in Europe,
however, powertrain aftermarket sales in all regions were significantly down.
Federal-Mogul was awarded over $80 million in new powertrain original
equipment business. From General Motors, the company was awarded: engine
bearings in 1998 and pistons in 1999 for the 3.8L engine; engine bearings and
bushings for the GenIII 4.8/5.3L and 5.7/6.0L engines; pistons for the
4.8/5.3L engine, engine bearings for the 2.2L (L850) engine; piston rings for
the 3.5L (PV6) program and beginning in 2001, piston rings for the L-6 engine
program.
From Ford Motor Company, Federal-Mogul was awarded several programs that
will begin in 1999 including: pistons and piston rings for the 2.49L engine,
pistons and piston rings for the 3.0L engine and engine bearings for the 4.0L
engine.
From Chrysler, Federal-Mogul was awarded the engine bearings and washers
for the 3.7L engine with production commencing in 2000 and bushings and
washers for the 45RFE program.
Beginning in 1999, Federal-Mogul will supply engine bearings and piston
rings for Toyota's 1.8L engine and piston rings for the 3.0L engine. The
company was awarded from Nissan the piston rings for the V6 engine to start in
1998.
From PSA, Federal-Mogul was awarded the piston, pin, rings and bearings
for three gasoline engines, the TU1JP+Mod, the TU1+K, and the TU5JP+Mod, and
for the DW8 diesel engine. The DW8 Diesel is found on five vehicles, the
Citroen Xsara, Berlingo, Peugeot Partner, 206 and 306. Federal-Mogul was also
awarded piston rings for Renault's K4M/K4J gasoline engine.
Federal-Mogul was awarded the pistons for the Stage II engine produced by
New Holland. For three Briggs & Stratton engine programs, Raptor, Model 44
and Model 12 OHV, Federal-Mogul was awarded pistons and rings all with a start
of production in 1998. Federal-Mogul was also awarded piston and rings for
Kawasaki's 630 engine program.
In the North American replacement market, Federal-Mogul was awarded
Carquest's engine product business valued at $6.5 million annually.
Sealing Systems
Sealing Systems reported third quarter sales of $239 million compared to
$81 million in 1997. On a pro forma basis, sales were up 6% with strong
volume from both the North and South American aftermarket.
Federal-Mogul Sealing Systems in Europe became the sole supplier for the
new BMW direct injection diesel engines with multi-layer steel cylinder head
gaskets. The company was also awarded the gasket business for the Ford
1.3/1.6L HCS/SOHC engine. In North America, Federal-Mogul was recently
awarded $3 million in oil seals for Ford axle applications.
General Products
General Products reported third quarter sales of $423 million compared to
$166 million in 1997. On a pro forma basis, sales decreased 2% due to
softness in the North and South American aftermarket and weak sales in the
Asia-Pacific region.
Friction Products has been awarded $19 million in new business including:
front disc brake pad for the Dodge Dakota; front disc pad for the Mercedes
Benz/Swatch vehicle, rear drum lining for the MCC (Micro Car); and rear drum
linings for Ford for the Cougar, Contour/Mystique, and Escort vehicles. For
commercial vehicles, Federal-Mogul was awarded the disc pads and half blocks
for Iveco; disc pads for Meritor for new trailer axles; half blocks for MAN
medium/high range trucks and half blocks for Scania buses.
Federal-Mogul was awarded $4 million in new fuel pump business for marine
applications including an in-tank fuel delivery module and a vapor
separator/fuel reservoir module with an integral electric fuel pump.
Fourth 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. Fourth quarter
dividends are payable December 10, 1998 to shareowners of record at the close
of business November 27, 1998.
Headquartered in Southfield, Michigan, Federal-Mogul is a $7 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 56,000 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
under the private Securities Litigation Reform Act of 1995. Actual results,
events and performance could differ materially from those contemplated by
these statements such as the cost and timing of implementing restructuring
actions related to the combination of the businesses of Federal-Mogul and
Cooper Industries' automotive business, conditions in the automotive
components industry and other factors discussed in the company's 1997 Annual
Report on Form 10-K and other filings with the Securities and Exchange
Commission.
FEDERAL-MOGUL CORPORATION
STATEMENTS OF OPERATIONS
(Millions of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
Net sales $1,121.2 $424.2 $2,993.2 $1,391.6
Cost of products sold 828.3 321.4 2,221.6 1,061.4
Gross margin 292.9 102.8 771.6 330.2
Selling, general and
administrative
expenses 152.2 71.4 431.1 218.0
Amortization 25.3 2.6 60.4 7.9
Purchased in-process
research and
development charge - - 18.6 -
Restructuring charges
(benefits) (6.6) - 3.9 -
Adjustment of assets held
for sale to fair value - - 19.0 -
Integration costs 9.0 - 13.7 -
Interest expense 41.3 6.5 107.4 25.3
Interest income (.8) (2.4) (7.5) (4.2)
International currency
exchange losses 3.0 - 5.3 -
Net gain on British
pound currency option
and forward contract - - (13.3) -
Other expense
(income), net 6.0 (2.9) 14.6 (1.3)
Earnings Before Income
Taxes and
Extraordinary Item 63.5 27.6 118.4 84.5
Income tax expense 28.9 10.2 62.6 24.7
Net Earnings Before
Extraordinary
Item 34.6 17.4 55.8 59.8
Extraordinary item - loss on early
retirement of debt, net of
applicable income
tax benefit - - 31.3 2.6
Net Earnings $34.6 $17.4 $24.5 $57.2
Earnings Per Common Share
Basic
Income before
extraordinary item $.63 $.46 $1.17 $1.55
Extraordinary item - loss
on early retirement
of debt, net of
applicable income
tax benefit - - (.69) (.08)
Net earnings $.63 $.46 $.48 $1.47
Diluted
Income before
extraordinary item $.58 $.40 $1.06 $1.39
Extraordinary item - loss
on early retirement
of debt, net of
applicable income
tax benefit - - (.61) (.06)
Net earnings $.58 $.40 $.45 $1.33
Weighted Average Shares (Thousands)
Basic 53,054 36,804 45,557 35,479
Diluted 58,590 42,016 51,272 41,838
FEDERAL-MOGUL CORPORATION
BALANCE SHEETS
(Millions of Dollars)
Unaudited
September 30 December 31
1998 1997
Assets
Current assets:
Cash and equivalents $102.3 $541.4
Accounts receivable 645.0 158.9
Investment in accounts
receivable securitization 119.2 48.7
Inventories 653.7 277.0
Prepaid expenses and income
tax benefits 248.0 113.2
Acquired businesses to be
divested 372.0 -
Total current assets 2,140.2 1,139.2
Property, plant and equipment 1,605.0 313.9
Goodwill 2,620.4 143.8
Other intangible assets 451.9 48.4
Business investments and
other assets 599.9 156.8
Total Assets $7,417.4 $1,802.1
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt, including current
portion of long-term debt $129.0 $28.6
Accounts payable 335.4 102.3
Accrued compensation 189.8 36.8
Restructuring and
rationalization reserves 166.1 31.5
Current portion of asbestos
liability 100.0 -
Other accrued liabilities 466.9 130.4
Total current liabilities 1,387.2 329.6
Long-term debt 2,467.9 273.1
Long-term portion of
asbestos liability 1,192.2 -
Postemployment benefits 445.1 190.9
Other accrued liabilities 83.8 50.6
Minority interest in consolidated
subsidiaries 60.6 13.6
Minority interest - preferred
securities of affiliate 575.0 575.0
Shareholders' equity:
Series C ESOP preferred stock 45.2 49.0
Series E preferred stock 132.7 -
Common stock 266.1 201.0
Additional paid-in capital 953.4 332.6
Accumulated deficit (99.1) (123.6)
Unearned ESOP compensation (18.1) (21.8)
Accumulated other comprehensive
income (68.3) (65.7)
Other (6.3) (2.2)
Total Shareholders'
Equity 1,205.6 369.3
Total Liabilities and
Shareholders'
Equity $7,417.4 $1,802.1
FEDERAL-MOGUL CORPORATION
CASH FLOWS
(Millions of Dollars)
Unaudited Unaudited
3 Months Ended 9 Months Ended
September 30 September 30
1998 1998 1997
Cash Provided From (Used By) Operating Activities
Net earnings $34.6 $24.5 $57.2
Adjustments to reconcile
net earnings to net
cash provided from
operating activities:
Depreciation and amortization 59.4 149.2 40.7
Purchased in-process research
and development charge - 18.6 -
Restructuring charges (6.6) 3.9 -
Adjustment of assets held
for sale to fair value - 19.0 -
Postemployment benefits (6.3) (5.0) 1.1
Decrease (increase) in
accounts receivable 4.3 (25.7) (19.8)
Decrease in inventories 3.2 47.0 48.2
Increase (decrease) in
accounts payable (6.1) (7.4) 1.1
Increase in current
liabilities and other 1.1 51.4 40.2
Payments against restructuring, reengineering
and rationalization
reserves (15.0) (35.7) (15.9)
Loss on early retirement
of debt - 47.1 4.1
Payments against asbestos
liability (26.1) (58.8) -
Net Cash Provided From Operating
Activities 42.5 228.1 156.9
Cash Provided From (Used By) Investing Activities
Expenditures for property,
plant and equipment (48.0) (129.1) (29.9)
Proceeds from sale of business
investments (.5) 53.4 78.7
Proceeds from sale of options - 39.1 -
Business acquisitions, net of
cash acquired 56.3 (2,730.2) -
Net Cash Provided From (Used By)
Investing Activities 7.8 (2,766.8) 48.8
Cash Provided From (Used By) Financing Activities
Issuance of common stock .1 601.5 12.0
Net increase (decrease) in debt (100.5) 1,567.0 (163.6)
Fees paid for debt issuance (5.9) (55.3) (9.4)
Fees for early retirement of debt - (27.4) (4.1)
Investment in accounts receivable
securitization 20.1 30.4 (31.4)
Dividends (1.9) (7.8) (18.2)
Other (2.0) (8.8) (3.6)
Net Cash Provided From (Used By)
Financing Activities (90.1) 2,099.6 (218.3)
Decrease in Cash and Equivalents (39.8) (439.1) (12.6)
Cash and Equivalents at Beginning
of Period 142.1 541.4 33.1
Cash and Equivalents at
End of Period $ 102.3 $102.3 $20.5