Federal-Mogul Reports Second Quarter Results
20 July 2000
Federal-Mogul Reports Second Quarter Results
SOUTHFIELD, Mich. - Federal-Mogul Corporation today announced second quarter
sales of $1,593 million compared to $1,687 million in 1999. Excluding the
effects of foreign exchange, sales for the second quarter this year would have
been $1,653 million. In line with analysts' expectations for the second quarter,
the company earned $50 million or $.65 per share, compared to $87 million or
$1.11 per share in 1999. The company generated $14 million free cash flow from
operations in the second quarter.
"As we previously announced, our performance in the second quarter was
impacted by weak sales in the North American aftermarket and significant
weakening of European currencies against the dollar. While we are not where
we would like to be with our operating performance, I'm very pleased with the
internal growth of $135 million net new business gained this quarter -- the
highest quarterly total recorded so far," said Dick Snell, chairman and chief
executive officer.
Federal-Mogul's announcement of $135 million in additional net new
business awards covering the 2000 to 2004 timeframe is the sixth consecutive
quarter of net incremental sales growth bringing the total net new business
awarded for this timeframe to $805 million.
"With our original equipment customers, we've gained over 100 new
contracts during this quarter," said Snell. "Two major automakers have
recently awarded us a total of three contracts for complete power cylinder
systems with estimated revenues to be approximately $900 million over the
contract periods. This new business, in addition to our two previously
announced sealing system awards from Chrysler and Cummins, continues to
increase our content-per-vehicle participation consistent with our strategic
offering of systems to our customers."
Snell added that Federal-Mogul has been awarded several brake friction
applications including the Chevrolet S-10 pick-up, Pontiac Aztec sport utility
vehicle, Saturn minivan, Jeep Cherokee, Ford Crown Victoria, Mercury Grand
Marquis, Lincoln Town Car and Lincoln Navigator. Federal-Mogul was also
awarded 40 business wins in the aftermarket with a significant portion of the
dollars coming in the North American brake lines.
By operating group, Powertrain Systems reported second quarter sales of
$621 million, or $651 million net of foreign exchange, compared to $622
million in 1999. Sealing Systems / Visibility / Systems Protection Products
reported sales of $465 million, or $474 million net of foreign exchange,
compared to $479 million in 1999. Brake / Chassis / Ignition / Fuel reported
sales of $507 million, or $528 million net of foreign exchange, compared to
$586 million in 1999. Federal-Mogul's second quarter original equipment
business increased by three percent from 1999 while aftermarket sales
decreased by eight percent, net of foreign exchange. The original equipment
market represented 56% of the company's global sales. By region, Federal-
Mogul's second quarter sales were 61% in North America, 32% in Europe and 7%
in the rest of the world.
Federal-Mogul's previously announced restructuring plan designed to
improve the company's cost structure and drive out nonproductive assets is
well underway. The company's announced closure of 22 North American
aftermarket branch warehouses and the closure of the oil seal operation in
Milan, Michigan has been completed as scheduled.
"We are on schedule with our activities in The Americas but we are
experiencing some delays with our European initiatives," said Snell. "Our
work on the restructuring plan continues at a vigorous pace but we are keeping
service to our customers the high priority."
Headquartered in Southfield, Michigan, Federal-Mogul is an 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.
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 Six Months Ended
June 30 June 30
2000 1999 2000 1999
Net sales $1,593.2 $1,687.1 $3,236.9 $3,329.3
Cost of products sold 1,181.0 1,204.5 2,390.6 2,397.2
Gross margin 412.2 482.6 846.3 932.1
Selling, general and
administrative expenses 207.9 214.7 418.9 437.2
Amortization of goodwill
and other intangible
assets 31.3 31.1 62.5 63.9
Implementation costs 1.8 - 2.6 -
Restructuring charge - - 68.7 -
Adjustment of assets held
for sale and other long-lived
assets to fair value - - 10.0 -
Integration costs - 13.3 - 23.4
Interest expense 71.4 68.5 142.4 139.4
Interest income (1.0) (1.0) (2.3) (2.0)
International currency
exchange (gains) losses (2.6) 0.4 (2.0) 2.7
Other expense, net 9.2 4.8 16.8 10.1
Earnings Before Income
Taxes, Extraordinary
Item and Cumulative
Effect of Change
in Accounting
Principle 94.2 150.8 128.7 257.4
Income tax expense 44.3 63.5 64.9 108.7
Earnings Before
Extraordinary Item and
Cumulative Effect of
Change in Accounting
Principle 49.9 87.3 63.8 148.7
Extraordinary item -
loss on early retirement
of debt, net of applicable
income tax benefit - - - 23.1
Cumulative effect of change
in accounting for costs of
start-up activities,
net of applicable
income tax benefit - - - 12.7
Net Earnings $49.9 $87.3 $63.8 $112.9
Earnings Per Common Share
Basic
Earnings before
extraordinary item
and cumulative
effect of change in
accounting principle $0.70 $1.24 $0.89 $2.13
Extraordinary item -
loss on early retirement
of debt, net of
applicable income
tax benefit - - - (0.34)
Cumulative effect of
change in accounting
for costs of
start-up activities,
net of applicable
income tax benefit - - - (0.18)
Net Earnings $0.70 $1.24 $0.89 $1.61
Diluted
Earnings before
extraordinary item
and cumulative
effect of change in
accounting principle $0.65 $1.11 $0.84 $1.91
Extraordinary item -
loss on early
retirement of debt,
net of applicable
income tax benefit - - - (0.27)
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income
tax benefit - - - (0.15)
Net Earnings $0.65 $1.11 $0.84 $1.49
Weighted Average Shares (Thousands)
Basic 70,276 70,230 70,269 69,307
Diluted 85,832 83,622 74,681 83,749
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)
June 30 December 31
2000 1999
Assets
Cash and equivalents $56.7 $64.5
Accounts receivable 539.6 514.6
Investment in accounts
receivable securitization 251.9 232.2
Inventories 889.8 883.6
Prepaid expenses and
income tax benefits 335.5 331.6
Total current assets 2,073.5 2,026.5
Property, plant and
equipment, net 2,428.6 2,503.7
Goodwill 3,369.7 3,547.8
Other intangible assets 754.4 796.3
Asbestos-related insurance
recoverable 325.4 325.9
Other noncurrent assets 656.3 745.0
Total Assets $9,607.9 $9,945.2
Liabilities and Shareholders' Equity
Short-term debt, including
current portion of long-term debt $181.5 $190.8
Accounts payable 517.7 621.9
Accrued compensation 163.7 182.9
Restructuring and
rationalization reserves 86.4 46.0
Current portion of
asbestos liability 240.0 180.0
Income taxes payable 75.5 72.3
Other accrued liabilities 399.6 488.7
Total current liabilities 1,664.4 1,782.6
Long-term debt 3,194.3 3,020.0
Long-term portion of
asbestos liability 1,101.3 1,335.3
Postemployment benefits 643.8 661.9
Other accrued liabilities 472.1 454.9
Minority interest in
consolidated subsidiaries 60.9 40.3
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 42.1 41.5
Common stock 352.1 352.1
Additional paid-in capital 1,780.1 1,782.4
Retained earnings 232.1 170.3
Unearned ESOP compensation (4.0) (7.9)
Accumulated other
comprehensive income (505.7) (262.1)
Other (0.6) (1.1)
Total Shareholders' Equity 1,896.1 2,075.2
Total Liabilities and
Shareholders' Equity $9,607.9 $9,945.2
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 O F C A S H F L O W S
(Millions of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
Cash Provided From (Used By)
Operating Activities
Net earnings $49.9 $87.3 $63.8 $112.9
Adjustments to reconcile
net earnings to net cash
provided from (used by)
operating activities:
Depreciation and
amortization 93.5 94.0 192.6 182.8
Restructuring charge - - 68.7 -
Adjustment of assets
held for sale and other
long-lived assets of
fair value - - 10.0 -
Loss on early retirement
of debt - - - 36.6
Cumulative effect of
change in accounting
principle - - - 19.5
Postemployment benefits (5.5) (4.3)
Decrease (increase) in
accounts receivable 3.4 22.1 (81.4) (124.0)
Decrease (increase)
in inventories (8.5) 22.0 (39.8) 36.1
Increase (decrease) in
accounts payable 8.9 33.8 (90.7) 32.0
Increase in current
liabilities and other 39.4 62.8 13.9 57.5
Payments against
restructuring and
rationalization
reserves (12.4) (31.1) (27.1) (62.1)
Payments against
asbestos liability (84.1) (33.5) (159.5) (65.8)
Net Cash Provided
From (Used By)
Operating Activities 84.6 257.4 (53.8) 225.5
Cash Provided From (Used By)
Investing Activities
Expenditures for property,
plant and equipment and
other long-term assets, net (70.4) (99.7) (143.2) (174.9)
Business acquisitions,
net of cash acquired - (126.5) - (239.4)
Other 9.4 22.7 14.1 28.6
Net Cash Used By
Investing Activities (61.0) (203.5) (129.1) (385.7)
Cash Provided From (Used By)
Financing Activities
Issuance of common stock - 0.6 - 0.7
Net increase (decrease)
in debt (64.8) (82.2) 179.2 156.8
Fees paid for debt
issuance and other
securities - - - (25.5)
Sale (repurchase) of
accounts receivable
under securitization 29.5 31.7 (1.5) 44.1
Dividends (1.0) (0.7) (2.0) (2.3)
Other (2.7) (2.5) (0.6) (4.3)
Net Cash Provided From
(Used By)
Financing Activities (39.0) (53.1) 175.1 169.5
Increase (Decrease)
in Cash and
Equivalents (15.4) 0.8 (7.8) 9.3
Cash and equivalents
at beginning of period 72.1 85.7 64.5 77.2
Cash and Equivalents
at End of Period $56.7 $86.5 $56.7 $86.5
F E D E R A L - M O G U L C O R P O R A T I O N
N E T E A R N I N G S R E C O N C I L A T I O N
(Millions of Dollars, Except Per Share Data)
(Unaudited)
Six Months Ended June 30, 2000
Adjustments
As Restructuring Impairment From
Reported Charge Costs Operations
Net sales $3,236.9 $ - $ - $3,236.9
Cost of products sold 2,390.6 - - 2,390.6
Gross margin 846.3 - - 846.3
Selling, general
and administrative
expenses 418.9 - - 418.9
Amortization of
goodwill and other
intangible assets 62.5 - - 62.5
Implementation costs 2.6 - - 2.6
Restructuring charges 68.7 (68.7) - -
Adjustment of assets
held for sale and
other long-lived
assets to fair value 10.0 - (10.0) -
Interest expense 142.4 - - 142.4
Interest income (2.3) - - (2.3)
International currency
exchange losses (2.0) - - (2.0)
Other expense, net 16.8 - - 16.8
Earnings Before
Income Taxes 128.7 68.7 10.0 207.4
Income tax expense 64.9 22.8 3.6 91.3
Net Earnings $63.8 $45.9 $6.4 $116.1
Diluted Earnings Per
Common Share $0.84 $0.58 $0.07 $1.49