1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended March 31, 1995
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Commission File Number 1-1511
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FEDERAL-MOGUL CORPORATION
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(Exact name of Registrant as specified in its charter)
Michigan 38-0533580
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
26555 Northwestern Highway, Southfield, Michigan 48034
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(Address of principal executive offices) (Zip Code)
(810) 354-7700
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock - 34,988,359 shares as of May 2, 1995
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
Three Months Ended
March 31,
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1995 1994
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(Millions of Dollars,
Except Per Share Amounts)
Net sales $ 524.3 $ 460.3
Cost of products sold 410.6 363.6
Selling, distribution and administrative expenses 78.7 64.7
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Operating earnings 35.0 32.0
Other income (expense):
Amortization of intangible assets (2.9) (2.2)
Interest expense (8.4) (5.2)
Interest income .8 1.7
International currency exchange losses (1.7) (2.7)
Other, net - .6
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Earnings Before Income Taxes 22.8 24.2
Income taxes 8.6 9.2
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Net Earnings 14.2 15.0
Preferred stock dividends, net of tax benefits 2.2 2.3
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Net Earnings Available for Common Shares $ 12.0 $ 12.7
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Earnings Per Common Share
Primary $ .34 $ .39
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Fully Diluted $ .33 $ .36
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See accompanying notes.
/TABLE
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FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
March 31, December 31,
1995 1994
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(Millions of Dollars)
Assets
Current Assets:
Cash and equivalents $ 24.5 $ 25.0
Accounts receivable 342.5 269.5
Inventories 399.1 372.1
Prepaid expenses and income tax benefits 47.1 37.6
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Total Current Assets 813.2 704.2
Property, Plant and Equipment 462.7 437.3
Goodwill 173.5 172.9
Other Intangible Assets 71.1 71.2
Business Investments and Other Assets 111.2 110.5
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Total Assets $1,631.7 $1,496.1
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Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 96.8 $ 74.0
Accounts payable 155.5 136.6
Accrued compensation 38.5 33.3
Other accrued liabilities 101.3 92.0
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Total Current Liabilities 392.1 335.9
Long-Term Debt 377.5 319.4
Postemployment Benefits 205.2 199.8
Other Accrued Liabilities 44.5 43.8
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Total Liabilities 1,019.3 898.9
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 59.0 59.1
Unearned ESOP compensation (39.0) (39.8)
Common stock 174.2 174.9
Additional paid-in capital 278.0 277.8
Retained earnings 89.3 82.0
Currency translation and other (25.7) (33.4)
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Total Shareholders' Equity 612.4 597.2
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Total Liabilities and Shareholders' Equity $1,631.7 $1,496.1
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See accompanying notes.
/TABLE
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FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
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1995 1994
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(Millions of Dollars)
Cash Provided From (Used By) Operating Activities
Net earnings $ 14.2 $ 15.0
Adjustments to reconcile net earnings
to net cash provided from operating activities
Depreciation and amortization 15.5 14.1
Deferred income taxes .9 (2.4)
Postemployment benefits other than pensions 1.0 1.7
Increase in accounts receivable (71.1) (54.8)
(Increase) decrease in inventories,
prepaid expenses and other (36.1) 2.5
Increase in other current liabilities 35.6 23.7
Payments against restructuring reserves (1.1) (2.7)
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Net Cash Used By Operating Activities (41.1) (2.9)
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (19.6) (13.5)
Payments for rationalization of acquired businesses (3.7) (7.6)
Other - 3.8
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Net Cash Used By Investing Activities (23.3) (17.3)
Cash Provided From (Used By) Financing Activities
Proceeds from issuance of common stock - 196.3
Expenditures for purchase of common stock (9.0) -
Net increase (decrease) in debt 77.4 (179.3)
Dividends (5.7) (5.8)
Other 1.2 (.2)
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Net Cash Provided From Financing Activities 63.9 11.0
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Decrease in Cash and Equivalents (.5) (9.2)
Cash and Equivalents at Beginning of Period 25.0 33.8
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Cash and Equivalents at End of Period $ 24.5 $ 24.6
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See accompanying notes.
/TABLE
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FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1995
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-month period ended March 31, 1995 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1995.
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, 1994.
Certain items in the prior period financial statements have been reclassified
to conform with the presentation used in 1995.
2. 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
March 31, 1995, and the number of preferred shares held by the Employee Stock
Ownership Plan (ESOP) that were allocated to participants' accounts as of
March 31 of each of the respective years.
The primary weighted average number of common and equivalent shares outstanding
(in thousands) was 34,918 for the three-month period ended March 31, 1995, and
32,977 for the three-month period ended March 31, 1994. The fully diluted
weighted average number of common and equivalent shares outstanding (in
thousands) was 41,898 for the three-month period ended March 31, 1995 and
39,883 for the three-month period ended March 31, 1994, 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.
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3. SUBSEQUENT EVENTS
On April 18, 1995, the Company signed an agreement to acquire Bertolotti
S.r.I., a distributor of premium brand European auto and truck parts
throughout Italy. The sale is expected to close during the 1995 second
quarter, subject to approval by the Italian government and various other
conditions. Bertolotti, with 1994 sales of approximately $53 million,
operates one central warehouse in Milan and 16 wholesale branches throughout
Italy. Its 235 employees and independent sales agents service approximately
5,000 customers.
On April 27, 1995, the Company completed the previously announced sale of
the operations and substantially all of the operating assets of its Precision
Forged Products Division to Borg-Warner Automotive, Inc. in a transaction
valued at approximately $45 million. The Company received approximately
$30 million in cash at closing and retained the division's customer
receivables, which will be converted to cash over the next 30 to 45 days.
Additionally, Borg-Warner assumed certain operating liabilities. The
proceeds from the sale will be used to fund the purchase of Bertolotti
and pay down debt.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1994
First quarter 1995 sales increased by 13.9 percent to $524.3 from
$460.3 million in the same 1994 quarter. Almost 50 percent of the increase
is in the replacement market. The international replacement sales increased
$38.2 million over the 1994 first quarter largely attributable to the
acquisition of Varex Corporation in South Africa. Excluding Varex, the
international sales increased approximately 9 percent. North American
replacement sales decreased 3 percent due to overall sluggishness in the
market and particular softness in the Mexican border area. The economic
crisis in Mexico caused by the devaluation of the peso is severely limiting
consumer spending both in Mexico and in the border areas of the United States.
Worldwide sales of original equipment products were up nearly 19 percent over
the 1994 first quarter. North American sales increased more than 9 percent,
reflecting a stronger North American auto and light truck build and increased
penetration of the Company's sealing products. European original equipment
sales advanced 50 percent as a result of increased auto builds and favorable
currency translation.
The Company's operating earnings increased $3.0 million to $35.0 million when
compared to the first quarter of 1994. The operating margin decreased slightly
from the 1994 first quarter to 6.7 percent. The Company attributes this
decrease to a change in sales mix as the 1995 first quarter had a larger mix
of lower margin original equipment sales.
Pretax earnings decreased to $22.8 million for the 1995 first quarter compared
to $24.2 million for the same 1994 quarter. The decrease in earnings is
attributable to additional interest expense due to rising interest rates and
higher levels of debt. In addition, amortization increased $.7 million
primarily as a result of the acquisition of Varex. Net earnings decreased to
$14.2 million or $.33 per common share on a fully diluted basis in the 1995
first quarter compared to earnings of $15.0 million or $.36 per common share
for the first quarter of 1994.
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LIQUIDITY AND CAPITAL RESOURCES
Working capital was impacted by an increase of $71.1 million in accounts
receivable during the first quarter of 1995 compared to an increase of
$54.8 million in 1994. This increase is attributable to higher sales in
1995. Working capital was also affected by an increase in inventory in the
first quarter of 1995 that did not occur in the first quarter of 1994. The
1995 increase in inventory was intended to increase product availability in
anticipation of increased sales in the second quarter. The Company expects
that available cash and existing short-term lines of credit will be
sufficient to meet its normal operating requirements.
Net cash used for investing activities consists primarily of capital
expenditures for property, plant and equipment to implement process
improvements and new product introductions. In both years, the Company
incurred payments for the rationalization of acquired businesses. These
payments will decrease in the future as the integrations are completed.
Net cash provided from financing activities reflects an increase in both long
and short-term debt. These borrowings were used to repurchase common stock
and fund capital expenditures and other net cash requirements. In February
1994, the Company issued 5.75 million shares of common stock in a public
offering which generated net proceeds of $191 million. The proceeds were
used to repay outstanding debt resulting from the acquisition of the Sealed
Power Replacement business in October 1993.
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PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
3.2 The Company's Bylaws, as amended (filed herewith and
incorporated herein by reference).
10.6 Amended Federal-Mogul Corporation Executive Severance
Agreement (filed herewith and incorporated herein by
reference).
11.1 Statement Re Computation of Per Share Earnings for
the three months ended March 31, 1995 (filed herewith
and incorporated herein by reference).
The Company will furnish upon request any exhibit described above
upon payment of the Company's reasonable expenses for furnishing
such exhibit.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the three
months ended March 31, 1995.
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: (Michael J. Viola)
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Michael J. Viola
Vice President and Controller,
Chief Accounting Officer
Dated: May 15, 1995