Federal-Mogul Announces Solid 1998 Results
4 February 1999
Federal-Mogul Announces Solid 1998 Results
* 1998 Earnings per share from operations of $2.69, excluding integration
costs, up 64% from 1997.
* Cash flow from operations, net of capital expenditures, totals $167
million.
* $13 Million of economic value added for the year.
* Fourth quarter earnings per share at $.78 from operations, up 95%
from $.40 in 1997
* DaimlerChrysler awards total engine sealing package.
* $780 million equity offering completed.
* $1 billion global bond offering completed.
* Acquisition interest expressed for LucasVarity.
SOUTHFIELD, Mich. Feb. 4 -- Federal-Mogul Corporation
today announced solid 1998 financial results, continued profitable
growth through acquisitions and excellent integration progress.
"1998 was an extraordinary year for Federal-Mogul," said Dick Snell,
chairman and chief executive officer. "Last year we announced and completed
ten acquisitions which strengthened our system and module offerings to
original equipment customers around the world. As well, we added global
manufacturing presence and valuable aftermarket brand names to our portfolio."
Federal-Mogul continues on schedule with its integration of acquisitions.
The successful practice of creating an all-star team from the leadership of
all acquired businesses combined with a robust consolidation process has
enabled Federal-Mogul to keep its integration timetable.
"The leadership team of Federal-Mogul is one of the strongest in the
industry," said Snell. "I'm very pleased with the progress we have made."
1998 Year End and Fourth Quarter Results
Federal-Mogul's 1998 revenues increased to $4,469 million, generating
$2.69 of earnings per share from operations, a 64% increase over $1.64 in
1997. Earnings per share from operations exclude: integration costs,
restructuring, reengineering and impairment charges, special charges related
to the T&N and Cooper acquisitions, and extraordinary charges. Including
these items, Federal-Mogul earned $.96 per share compared to $1.61 in 1997.
1998 cash flow from operations, net of capital expenditures and before
integration and restructuring payments, hit $167 million. The company
generated $13 million of economic value added (EVA).
Federal-Mogul earned $29 million on fourth quarter sales of $1,475 million
compared to earning $12 million on sales of $415 million in 1997. Earnings
per share rose to $.48 compared to $.28 in the fourth quarter of 1997. From
operations, fourth quarter earnings per share increased to $.78 compared to
$.40 in 1997.
Federal-Mogul successfully completed a $780 million equity offering and
$1 billion global bond offering using the proceeds to repay debt incurred with
the acquisition of the automotive businesses of Cooper Industries.
On Strategy Acquisitions Bring Profitable Growth
On January 25, 1999, Federal-Mogul announced it is considering a proposal
to acquire LucasVarity, plc and the Company is currently conducting due
diligence. Federal-Mogul will review the information provided and may decide
to revise its earlier proposal and make a formal offer for LucasVarity.
On January 20, Federal-Mogul completed the acquisition of the Camshaft
Machining operations of Crane Technologies Group, Inc., providing Federal-
Mogul with camshaft manufacturing capacity necessary for future growth.
On January 7, Federal-Mogul announced an agreement to acquire the piston
operations from Alcan Aluminium Limited which would strengthen Federal-Mogul's
power cylinder offering in Europe. Alcan's piston division manufactures high
quality pistons for passenger cars and commercial vehicles under the highly
regarded Nural brand name.
On January 6, Federal-Mogul completed the acquisition of Tri-Way Machine
Limited, a Canadian manufacturer of machines and machining systems, and its
subsidiary, J.I.S. Machining Limited, a machiner of powertrain components.
"Our strategy to be a full systems supplier in powertrain and sealing
applications leverages our engineering and design capabilities to add value
for our customers," said Snell. "We will continue on this growth strategy to
further strengthen the value we deliver in partnership with our customers."
Powertrain Systems
Powertrain Systems reported fourth quarter sales of $623 million in 1998
compared to $180 million in 1997, a 246% increase.
Federal-Mogul has secured $15 million in piston ring contracts with:
Renault for the K9K/E 1.0/1.4L engine starting in 2000; DaimlerChrysler's
M271DIG engine starting in 2001; and three Volkswagen engines, the 1.9L TDI,
1.0L 2V RSH, and the 2.5L TDI 113kw.
From PSA, Federal-Mogul was awarded the piston, pin, ring, and bearings
business for two engines, the TU1M+ and TU3JP+K, and ring and bearings for
their DW10 engine totaling $17 million annually.
In pistons, Powertrain Systems was awarded $1 million in new business from
General Motors' SAAB division for the 3.0 Turbo V6 engine and $2 million in
new business from Volvo Truck for the D7 Series engine.
From BMW, Powertrain Systems was awarded $1.5 million in engine bearing
business for the 4 and 6 cylinder diesel and V8 diesel engines.
Sealing Systems
Sealing Systems reported fourth quarter sales of $267 million in 1998
compared to $95 million in 1997, a 181% increase.
DaimlerChrysler awarded Sealing Systems with its first total engine
sealing package scheduled to launch in model year 2003. The estimated
contract value is approximately $30 million annually and contains 25 different
applications which Federal-Mogul will be responsible for sealing.
Sealing Systems was awarded approximately $10 million in new business from
Cummins, supplying the gaskets and shaft seals for the S600 engine, gaskets
for fuel systems, and gaskets for the ISC and Chrysler 2000 engine.
From John Deere, Sealing Systems was awarded new business in heat shields
for the 8000 and 9000 Series tractors.
Federal-Mogul Sealing Systems-Europe will be the sole supplier for all new
BMW direct injection diesel engines. These highly sophisticated 2.0L/3.0L
engines will be made for both BMW and Rover models. Federal-Mogul multi-layer
steel cylinder head gaskets will also be used on BMW's new V8 engine.
General Products
General Products reported fourth quarter sales of $585 million in 1998
compared to $140 million in 1997, a 318% increase.
Friction Products was awarded over $27 million in new original equipment
business including: Ford F150 front and rear disc pads and the front disc pads
for the Ford four-door ranger for Robert Bosch; the Dodge Durango rear drum
brake lining and the rear disc pad for the Lincoln LS8, LS6 and Jaquar 200
series for LucasVarity; rear disc pad for the Ford Excursion for AMAK, and MAC
and Freightliner Axle friction applications for Dana/Meritor.
Lighting Products was awarded over $7 million in new business including:
Dakota and Durango foglamps for DaimlerChrysler, bulb and socket assemblies
for various Ford Motor Company platforms; and foglamps for the STS Cadillac
Seville for General Motors.
Sintered Products received over $10 million in new business with various
American car manufacturers for the supply of valve seats and valve guides. In
Europe, this division was awarded $1 million in new business with PSA for
valve seats and valve guides on the TU engine family.
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. 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.
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 Year Ended
December 31 December 31
1998 1997 1998 1997
Net sales $1,475.5 $415.0 $4,468.7 $1,806.6
Cost of products sold 1,068.6 320.4 3,290.2 1,381.8
Gross margin 406.9 94.6 1,178.5 424.8
Selling, general and
administrative expenses 209.7 57.9 640.8 276.0
Amortization 29.9 2.2 83.8 8.9
Purchased in-process
research and development
charge - - 18.6 -
Restructuring charges
(credits) 3.4 (1.1) 7.3 (1.1)
Reengineering and other
related credits - (1.6) - (1.6)
Adjustment of assets held
for sale to fair value - 2.4 19.0 2.4
Integration costs 8.7 - 22.4 -
Interest expense 88.4 6.9 204.0 33.3
Interest income (1.0) (2.9) (10.6) (7.1)
International currency
exchange (gains) losses (0.6) 0.6 4.7 0.6
Net loss (gain) on British
pound currency option
and forward contract - 10.5 (13.3) 10.5
Other expense, net 1.3 4.7 16.3 3.4
Earnings Before Income
Taxes and
Extraordinary Item 67.1 15.0 185.5 99.5
Income tax expense 31.0 2.8 93.6 27.5
Net Earnings Before
Extraordinary Item 36.1 12.2 91.9 72.0
Extraordinary item - loss on
early retirement of debt,
net of applicable income
tax benefit 6.9 - 38.2 2.6
Net Earnings $29.2 $12.2 $53.7 $69.4
Earnings Per Common Share
Basic
Income before
extraordinary item $.63 $.29 $1.84 $1.81
Extraordinary item - loss
on early retirement
of debt, net of applicable
income tax benefit (.12) - (.80) (.07)
Net earnings $.51 $.29 $1.04 $1.74
Diluted
Income before
extraordinary item $.58 $.28 $1.67 $1.67
Extraordinary item - loss
on early retirement
of debt, net of applicable
income tax benefit (.10) - (.71) (.06)
Net earnings $.48 $.28 $.96 $1.61
Weighted Average Shares (Thousands)
Basic 55,674 39,923 48,107 36,647
Diluted 72,257 42,394 53,748 41,854
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)
December 31
1998 1997
Assets
Current assets:
Cash and equivalents $77.2 $541.4
Accounts receivable 1,025.0 158.9
Investment in accounts
receivable securitization 91.1 48.7
Inventories 1,068.6 277.0
Prepaid expenses and
income tax benefits 337.7 113.2
Total current
assets 2,599.6 1,139.2
Property, plant and equipment 2,477.5 313.9
Goodwill 3,398.4 143.8
Other intangible assets 886.4 48.4
Business investments and
other assets 578.2 156.8
Total Assets $9,940.1 $1,802.1
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt, including
current portion of
long-term debt $179.7 $28.6
Accounts payable 498.4 102.3
Accrued compensation 200.3 36.8
Restructuring and
rationalization reserves 178.9 31.5
Current portion of
asbestos liability 125.0 -
Other accrued liabilities 815.9 130.4
Total current
liabilities 1,998.2 329.6
Long-term debt 3,162.0 273.1
Long-term portion of
asbestos liability 1,176.7 -
Postemployment benefits 677.0 190.9
Other accrued liabilities 327.0 50.6
Minority interest in
consolidated subsidiaries 38.0 13.6
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trust holding
solely convertible subordinated
debentures of the Company 575.0 575.0
Shareholders' equity:
Series C ESOP preferred stock 44.4 49.0
Series E preferred stock 132.7 -
Common stock 336.8 201.0
Additional paid-in capital 1,665.8 332.6
Accumulated deficit (69.9) (123.6)
Unearned ESOP compensation (15.1) (21.8)
Accumulated other
comprehensive income (106.0) (65.7)
Other (2.5) (2.2)
Total Shareholders'
Equity 1,986.2 369.3
Total Liabilities and
Shareholders' Equity $9,940.1 $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 Year Ended
December 31 December 31
1998 1998 1997
Cash Provided From (Used By) Operating Activities
Net earnings $29.2 $53.7 $69.4
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and
amortization 78.8 228.0 52.8
Purchased in-process
research and development
charge - 18.6 -
Restructuring charges
(credits) 3.4 7.3 (1.1)
Reengineering and other
related credits - - (1.6)
Adjustment of assets
held for sale to fair value - 19.0 2.4
Vesting of restricted stock - 0.7 9.0
Postemployment benefits 15.9 10.9 (7.7)
Decrease in accounts
receivable 63.2 37.5 7.6
Decrease in inventories 8.9 55.9 59.9
Increase (decrease) in
accounts payable 12.8 5.4 (19.5)
(Decrease) increase in
current liabilities
and other (52.9) 8.1 56.1
Payments against restructuring,
reengineering and
rationalization reserves (42.3) (78.0) (26.2)
Loss on early
retirement of debt 11.0 58.1 4.1
Net loss (gain) on British
pound currency option and
forward contract - (10.5) 10.5
Payments against asbestos
liability (30.4) (89.2) -
Net Cash Provided From
Operating Activities 97.6 325.5 215.7
Cash Provided From (Used By) Investing Activities
Expenditures for property,
plant and equipment (99.4) (228.5) (49.7)
Proceeds from sale of
business investments - 53.4 73.6
Proceeds from sale of options - 39.1 -
Business acquisitions,
net of cash acquired (1,495.0) (4,225.2) (30.5)
Other - - 1.1
Net Cash Used By
Investing Activities (1,594.4) (4,361.2) (5.5)
Cash Provided From (Used By) Financing Activities
Issuance of common stock 780.7 1,382.2 14.2
Net increase (decrease) in debt 703.4 2,270.4 (183.6)
Fees paid for debt issuance (21.3) (76.6) (25.6)
Fees for early retirement of debt - (27.4) (4.1)
Investment in accounts
receivable securitization 12.2 42.6 (31.8)
Issuance of company-obligated
mandatorily redeemable
preferred securities - - 575.0
Fees paid for issuance of
company-obligated mandatorily
redeemable preferred securities - - (17.2)
Dividends (2.6) (10.4) (24.8)
Other (0.7) (9.3) (4.0)
Net Cash Provided From
Financing Activities 1,471.7 3,571.5 298.1
Increase (Decrease) in Cash
and Equivalents (25.1) (464.2) 508.3
Cash and Equivalents at Beginning
of Period 102.3 541.4 33.1
Cash and Equivalents at
End of Period $77.2 $77.2 $541.4