UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 1994
Commission File Number 1-1511
FEDERAL-MOGUL CORPORATION
(Exact name of Registrant as specified in its charter)
Michigan 38-0533580
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26555 Northwestern Highway, Southfield, Michigan 48034
(Address of principal executive offices) (Zip Code)
(810) 354-7700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock: 35,536,910 shares as August 8, 1994
2
PART I - FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
(Millions of Dollars, Except Per Share Amounts)
Net sales $474.8 $401.8 $935.1 $812.3
Cost of products sold 369.9 323.0 733.6 654.6
Selling, distribution and 64.9 56.6 129.6 113.7
administrative expenses ------ ------ ------ ------
Operating earnings 40.0 22.2 71.9 44.0
Other income (expense):
Amortization of
intangible assets (2.3) (2.2) (4.5) (4.2)
Interest expense (4.2) (5.8) (9.3) (14.3)
Interest income 2.1 1.6 3.8 3.6
International currency
exchange losses (2.7) (.7) (5.4) (1.8)
Gain on sale of business - 4.9 - 4.9
Other, net - 2.4 .6 2.7
------ ------ ------ ------
Earnings Before Income Taxes 32.9 22.4 57.1 34.9
Income taxes 12.5 7.1 21.7 12.1
------ ------ ------ ------
Net Earnings 20.4 15.3 35.4 22.8
Preferred stock dividends,
net of tax benefits 2.3 2.3 4.6 4.6
------ ------ ------ ------
Net Earnings Available
for Common Shares $ 18.1 $ 13.0 $ 30.8 $ 18.2
====== ====== ====== ======
Earnings Per Common Share
Primary $ .50 $ .47 $ .89 $ .72
====== ====== ====== ======
Fully Diluted $ .47 $ .43 $ .84 $ .69
====== ====== ====== ======
See accompanying notes.
3
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Millions of Dollars)
June 30, December 31,
1994 1993
-------- ------------
(Unaudited)
Assets
- - ------
Current Assets:
Cash and equivalents $ 22.6 $ 24.2
Accounts receivable 255.1 186.9
Inventories 318.6 322.3
Prepaid expenses and income tax benefits 42.2 40.6
Total Current Assets 638.5 574.0
Property, Plant and Equipment 422.6 399.8
Intangible Assets 202.2 199.3
Business Investments and Other Assets 118.5 118.7
-------- --------
Total Assets $1,381.8 $1,291.8
Liabilities and Shareholders' Equity
- - ------------------------------------
Current Liabilities:
Short-term debt $ 42.5 $ 39.2
Accounts payable 128.3 94.5
Accrued compensation 39.2 31.7
Other accrued liabilities 117.7 117.9
Total Current Liabilities 327.7 283.3
Long-Term Debt 192.8 382.5
Postretirement Benefits Other than Pensions 153.2 149.9
Other Accrued Liabilities 94.7 92.0
Deferred Income Taxes 9.5 13.0
Total Liabilities 777.9 920.7
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 60.2 60.2
Unearned ESOP compensation (41.5) (44.6)
Common stock 177.6 147.5
Additional paid-in capital 284.6 117.2
Retained earnings 67.9 46.4
Currency translation and other (21.5) (32.2)
------- -------
Total Shareholders' Equity 603.9 371.1
------- -------
Total Liabilities and Shareholders'
Equity $1,381.8 $1,291.8
======== ========
See accompanying notes.
4
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
1994 1993
---- ----
(Millions of Dollars)
Cash Provided From Operating Activities $ 31.3 $ 18.9
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (34.2) (23.0)
Proceeds from sale of business investment .4 16.4
Business investments and other 2.9 (6.6)
------ ------
Net Cash Used By Investing Activities (30.9) (13.2)
Cash Provided From (Used By) Financing Activities
Issuance of common stock 196.8 116.7
Net decrease in debt (185.3) (148.8)
Sale of accounts receivable - 39.6
Dividends (13.8) (11.6)
Other .3 1.4
------ ------
Net Cash Used By Financing Activities (2.0) (2.7)
------ ------
Increase (Decrease) in Cash and Equivalents (1.6) 3.0
Cash and Equivalents at Beginning of Period 24.2 19.1
------ ------
Cash and Equivalents at End of Period $ 22.6 $ 22.1
====== ======
See accompanying notes.
5
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1994
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three and six month periods ended June 30, 1994 are not
necessarily indicative of the results that may be expected for
the year ended December 31, 1994. For further information,
refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 1993.
Certain items in the prior period financial statements have
been reclassified to conform with the presentation used in
1994.
2. ISSUANCE OF COMMON STOCK
------------------------
In February 1994, Federal-Mogul sold in a public offering
5,750,000 shares of its common stock which generated net
proceeds of $191 million. The Company used approximately $190
million of the net proceeds from the offering to repay bank
debt outstanding, including debt incurred for the acquisition
of SPX Corporation's automotive aftermarket business in
October 1993.
3. EARNINGS PER COMMON SHARE
-------------------------
The computation of primary earnings per share is based on the
weighted average number of outstanding common shares during
the period plus, when their effect is dilutive, common stock
equivalents consisting of certain shares subject to stock
options. Fully diluted earnings per share additionally
assumes the conversion of outstanding Series C ESOP and Series
D preferred stock and the contingent issuance of common stock
to satisfy the Series C ESOP preferred stock redemption price
guarantee. The number of contingent shares used in the fully
diluted calculation is based on the common stock market price
on June 30, 1994, and the number of preferred shares held by
the Employee Stock Ownership Plan (ESOP) that were allocated
to participants' accounts as of June 30 of each of the
respective years.
6
The primary weighted average number of common and equivalent
shares outstanding (in thousands) was 35,855 and 34,428 for
the three and six month periods ended June 30, 1994, and
27,809 and 25,105 for the three and six month periods ended
June 30, 1993. The fully diluted weighted average number of
common and equivalent shares outstanding (in thousands) was
42,241 and 40,820 for the three and six month periods ended
June 30, 1994 and 34,271 and 31,602 for the three and six
month periods ended June 30, 1993, respectively.
Net earnings used in the computations of primary earnings per
share are reduced by preferred stock dividend requirements.
Net earnings used in the computation of fully diluted earnings
per share are reduced by amounts representing the additional
after-tax contribution that would be necessary to meet ESOP
debt service requirements under an assumed conversion of the
Series C ESOP preferred stock.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
THREE MONTHS ENDED JUNE 30, 1994 COMPARED WITH THREE MONTHS
ENDED JUNE 30, 1993
Sales for the quarter ended June 30, 1994 totalled $474.8
million as compared to $401.8 million for the same 1993
quarter. The 18.2 percent increase was largely attributable
to increased aftermarket sales due to the Company's
acquisition of Sealed Power Replacement ("SPR") automotive
aftermarket business in October, 1993. Base North American
aftermarket sales were relatively flat on a quarter-to-quarter
basis. Domestic original equipment sales increased as a
result of continued strength in North American auto builds and
better than expected European vehicle production. Overall,
1994 second quarter sales to original equipment customers
increased approximately $26 million over the same quarter in
1993.
Operating earnings for the quarter increased $17.8 million
over the same 1993 quarter to $40 million, or 8.4 percent of
sales. The 80 percent improvement resulted primarily from
higher than average F-M margins on product lines obtained as
part of the SPR acquisition, and cost savings from the
integration of aftermarket businesses acquired during the last
two years. Global sourcing activities and manufacturing
productivity gains also favorably impacted margins.
Pretax earnings for the 1994 second quarter were $32.9
million, an improvement from the $22.4 million level achieved
in the same 1993 period. Net earnings amounted to $20.4
million or $.47 per common share for 1994 as compared to $15.3
million or $.43 per common share for the second quarter of
1993.
The 1993 second quarter was enhanced by the Company's sale of
the net assets and business of its non-strategic Westwind Air
Bearings Ltd. (Westwind) subsidiary. The sale of Westwind
resulted in a second quarter gain of $4.7 million or $.15 per
common share, on a fully diluted basis.
7
SIX MONTHS ENDED JUNE 30, 1994 COMPARED WITH SIX MONTHS ENDED
JUNE 30, 1993
Sales for the six month period ended June 30, 1994 were $935.1
million compared to $812.3 million for the first half of 1993.
Nearly all product lines contributed to the 15.1 percent sales
improvement, with the largest increases the result of the SPR
aftermarket business acquisition. Aftermarket sales in the
first half of 1994 exceeded comparable 1993 sales in excess of
$85 million, or 17 percent.
Net earnings were $35.4 million, or $.84 per common share for
the first half of 1994, as compared to 1993 earnings of $22.8
million, or $.69 per common share.
LIQUIDITY AND SOURCES OF CAPITAL
- - --------------------------------
Cash flows from operations were $31.3 million for the six
month period ended June 30, 1994 as compared to $18.9 million
in the comparable period of 1993. Comparative year-to-year
changes include the six month net earnings increase offset by
an increase in accounts receivable as a result of the higher
sales volume attained in 1994 and the seasonally low level of
accounts receivable at December 31. Spending against
rationalization reserves totaled approximately $21 million in
1994 and $9 million in 1993.
Net cash used by investing activities in 1994 included
significant property, plant and equipment expenditures
incurred to facilitate the change process in manufacturing,
the continuing consolidation of former SPR facilities, and new
product introduction in original equipment markets. The
Company believes cash from operations will fund all capital
expenditures in 1994.
In February 1994, the Company issued 5.75 million shares of
common stock which generated net proceeds of $191 million.
The proceeds were used to repay debt outstanding. In 1993,
the sale of 6.25 shares of common stock, the disposition of
the Westwind business and the $40 million sale and
securitization of certain trade receivables enabled the
Company to reduce its debt outstanding by $148.8 million from
December 31, 1992.
8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders.
The Corporation held its Annual Meeting of Shareholders
on May 11, 1994, at which the shareholders considered and
voted on (i) the election of eight directors, (ii) the
approval of certain amendments to the Corporation's
Supplemental Compensation Plan, (iii) the approval of the
Corporation's Non-Employee Director Stock Award Plan, and
(iv) the approval of the appointment of Ernst & Young as
independent accountants for 1994.
Each of the nominees for director at the meeting was an
incumbent and all nominees were elected. The following
table sets forth the number of shares voted for and
withheld with respect to each nominee:
Nominee Votes For Votes Withheld
D. J. Gormley 33,940,376 181,827
J. J. Fannon 33,902,771 181,827
R. M. Hills 33,912,488 172,110
A. Madero 33,905,513 179,085
W. J. McCarthy, Jr. 33,917,500 167,098
Robert S. Miller, Jr. 33,913,952 170,646
J. C. Pope 33,890,561 194,037
H. M. Sekyra 33,884,745 199,853
The amendment to the 1977 Supplemental Compensation Plan
was approved. The results of the voting were as follows:
For Against Abstain
30,170,170 1,564,221 442,730
The Federal-Mogul Corporation Non-Employee Director Stock
Award Plan was approved. The results of the voting were
as follows:
For Against Abstain
29,493,973 2,113,898 569,250
The appointment of Ernst & Young LLP as independent
accountants for 1994 was approved. The results of the
voting were as follows:
For Against Abstain
33,726,597 140,441 217,560
9
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.11 Revolving Credit and Competitive Advance
Facility Agreement dated as of June 30,
1994 among the Corporation, various banks
and Chemical Bank, as administrative
agent, filed as Exhibit 4.11 to a Pre-
Effective Amendment No. 1 to a
Registration Statement on Form S-3, No.
33-54717 dated as of August 3, 1994.
10.27 Federal-Mogul Corporation 1977
Supplemental Compensation Plan, as
amended, filed herewith.
10.28 Federal-Mogul Corporation Non-Employee
Director Stock Plan, filed as Exhibit 4 to
the Corporation's Registration Statement
on Form S-8, No. 33-54301 dated June 24,
1994 and incorporated herein by reference.
11.1 Statement Re: Computation of Per Share
Earnings for the three months ended June
30, 1994, filed herewith.
11.2 Statement Re: Computation of Per Share
Earnings for the six months ended June 30,
1994, filed herewith.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for
which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FEDERAL-MOGUL CORPORATION
By: /s/ James B. Carano
--------------------------
James B. Carano
Vice President and Controller,
Chief Accounting Officer
Dated: August 11, 1994