1
THE PURPOSE OF THIS AMENDMENT IS FOR REFORMATTING PURPOSES
ONLY TO OUR 10-Q FILED ON AUGUST 10, 1995. THERE HAVE BEEN
NO SUBSTANTIVE CHANGES TO THIS AMENDMENT.
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 June 30, 1995
----------------------------------------------------
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 I.D. No.)
incorporation or organization)
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, 34,993,359 shares as of August 8, 1995
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
-------------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
(Millions of Dollars, Except Per Share Amounts)
Net sales $ 506.3 $ 474.8 $1,030.6 $ 935.1
Cost of products sold 392.6 369.9 803.2 733.6
Selling, distribution
and administrative expenses 80.7 64.9 159.4 129.6
------- ------- ------- -------
Operating earnings 33.0 40.0 68.0 71.9
Other income (expense):
Amortization of intangible assets (3.0) (2.3) (5.9) (4.5)
Interest expense (8.2) (4.2) (16.6) (9.3)
Interest income 1.1 2.1 1.9 3.8
International currency
exchange gains (losses) .1 (2.7) (1.6) (5.4)
Other, net (.3) - (.3) .6
------- ------- ------- -------
Earnings Before Income Taxes 22.7 32.9 45.5 57.1
Income taxes 8.5 12.5 17.1 21.7
------- ------- ------- -------
Net Earnings 14.2 20.4 28.4 35.4
Preferred stock dividends,
net of tax benefits 2.2 2.3 4.4 4.6
------- ------- ------- -------
Net Earnings Available
for Common Shares $ 12.0 $ 18.1 $ 24.0 $ 30.8
------- ------- ------- -------
------- ------- ------- -------
Earnings Per Common Share
Primary $ .35 $ .50 $ .69 $ .89
------- ------- ------- -------
------- ------- ------- -------
Fully Diluted $ .33 $ .47 $ .66 $ .83
------- ------- ------- -------
------- ------- ------- -------
See accompanying notes.
3
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Millions of Dollars)
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
Assets
Current Assets:
Cash and equivalents $ 23.6 $ 25.0
Accounts receivable 349.6 269.5
Inventories 438.1 372.1
Prepaid expenses and income tax benefits 40.8 37.6
------- -------
Total Current Assets 852.1 704.2
Property, Plant and Equipment 461.6 437.3
Goodwill 192.4 172.9
Other Intangible Assets 69.8 71.2
Business Investments and Other Assets 111.9 110.5
------- -------
Total Assets $1,687.8 $1,496.1
------- -------
------- -------
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 92.5 $ 74.0
Accounts payable 160.0 136.6
Accrued compensation 40.8 33.3
Other accrued liabilities 93.3 92.0
------- -------
Total Current Liabilities 386.6 335.9
Long-Term Debt 421.4 319.4
Postemployment Benefits 206.2 199.8
Other Accrued Liabilities 50.5 43.8
------- -------
Total Liabilities 1,064.7 898.9
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 59.0 59.1
Unearned ESOP compensation (37.1) (39.8)
Common stock 174.9 174.9
Additional paid-in capital 278.9 277.8
Retained earnings 96.7 82.0
Currency translation and other (25.9) (33.4)
------- -------
Total Shareholders' Equity 623.1 597.2
------- -------
Total Liabilities and Shareholders' Equity $1,687.8 $1,496.1
------- -------
------- -------
See accompanying notes.
4
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
1995 1994
-------- --------
(Millions of Dollars)
Cash Provided From (Used By) Operating Activities
Net earnings $ 28.4 $ 35.4
Adjustments to reconcile net earnings
to net cash provided from operating activities
Depreciation and amortization 31.0 27.6
Gain on sale of business investment (7.8) -
Restructuring charge 7.8 -
Deferred income taxes .3 (6.2)
Postemployment benefits other than pensions 2.0 3.3
Increase in accounts receivable (54.0) (64.3)
(Increase) decrease in inventories,
prepaid expenses and other (49.2) 5.6
Increase in other current liabilities 8.1 40.4
Payments against restructuring reserves (6.3) (6.4)
----- -----
Net Cash Provided From (Used By) Operating Activities (39.7) 35.4
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (40.7) (34.2)
Payments for rationalization of acquired businesses (5.9) (13.7)
Proceeds from sale of business investment 28.0 -
Purchase of business investments (20.3) -
Other - 3.3
----- -----
Net Cash Used By Investing Activities (38.9) (44.6)
Cash Provided From (Used By) Financing Activities
Proceeds from issuance of common stock .2 196.8
Expenditures for purchase of common stock (9.0) -
Net increase (decrease) in debt 98.5 (185.3)
Dividends (13.7) (13.8)
Other 1.2 .3
----- -----
Net Cash Provided From (Used By) Financing Activities 77.2 (2.0)
----- -----
Decrease in Cash and Equivalents (1.4) (11.2)
Cash and Equivalents at Beginning of Period 25.0 33.8
----- -----
Cash and Equivalents at End of Period $ 23.6 $ 22.6
----- -----
----- -----
See accompanying notes.
5
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 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
and six-month periods ended June 30, 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. SALE OF PFPD
On April 26, 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. (Borg-Warner) in
a transaction valued at approximately $45 million. The Company received
$28 million in cash, retained the division's customer receivables, and
recognized a pretax gain of $7.8 million. Additionally, Borg Warner
assumed certain operating liabilities. The results of operations of the
Precision Forged Products Division have been included in the Company's
consolidated statement of earnings through the date of sale.
3. PURCHASE OF BERTOLOTTI
On June 28, 1995, the Company completed its acquisition of Bertolotti Pietro e
Figli S.r.l. (Bertolotti), a distributor of premium brand European auto and
truck parts throughout Italy. The purchase price of $35 million includes
assumption of debt of $17 million and cash of $18 million. The acquisition
has been accounted for as a purchase and, accordingly, the purchase price was
allocated to the acquired assets and assumed liabilities based on their
estimated fair values as of the acquisition date. Annual sales of Bertolotti
are approximately $60 million. Results of operations of Bertolotti will begin
to be reflected in the consolidated statement of earnings beginning July 1,
1995.
6
4. RESTRUCTURING CHARGE
During the second quarter of 1995, the Company recorded a restructuring charge
of $7.8 million applicable to employee termination payments, closed operations,
lease termination costs and other write-downs of assets. The charge is
comprised of $4.9 million to pay terminated employees primarily in Argentina,
the United States and Europe, $1.7 million to write down impaired assets in
Italy to their net realizable value, and $1.2 million for location closings
and lease terminations.
5. 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, 1995, 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.
The primary weighted average number of common and equivalent shares outstanding
(in thousands) was 34,987 and 34,952 for the three- and six-month periods ended
June 30, 1995, and 35,855 and 34,428 for the three- and six-month periods ended
June 30, 1994. The fully diluted weighted average number of common and
equivalent shares outstanding (in thousands) was 41,928 and 41,901 for the
three- and six-month periods ended June 30, 1995, and 42,730 and 41,309 for
the three- and six-month periods ended June 30, 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.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1994
Second quarter 1995 sales increased by 6.6 percent to $506.3 million from
$474.8 million for the second quarter of 1994, with the entire increase
occurring in the replacement market. The increase in international
replacement sales of $40.3 million over the second quarter of 1994 is
largely attributable to the acquisition of Varex Corporation in South Africa.
Excluding Varex, international replacement sales increased 9.7 percent.
North American replacement sales decreased 4.0 percent. Of the Company's five
major product segments in the North American replacement market, engine parts
account for a majority of the sales decline. Engine part sales were negatively
impacted primarily by a conscious reduction in engine part inventories at the
customer level and brand consolidation within the marketplace of the Company's
Federal-Mogul, TRW and Sealed Power branded engine parts. Worldwide sales of
original equipment products were equal to sales in the second quarter of 1994.
North American original equipment sales decreased 9.7 percent due primarily to
the sale of the Company's Precision Forged Products Division (PFPD). Excluding
the operations of PFPD, sales for the second quarter of 1995 were flat compared
to sales for the second quarter of 1994. European original equipment sales
advanced 28.0 percent as a result of market penetration of engine bearings
and favorable currency translation. Excluding the impact of exchange rates,
European original equipment sales increased 9.0 percent.
The Company's operating earnings decreased to $33.0 million from $40.0 million
for the second quarter of 1994 due primarily to a change in the sales mix as
described above and an increase in certain corporate administrative expenses.
Pretax earnings decreased to $22.7 million from $32.9 million for the second
quarter of 1994. The decrease in pretax earnings is attributable to the
decrease in operating earnings and additional interest expense due to higher
levels of debt incurred to finance the Varex acquisition, the repurchase of
common stock and increased levels of working capital. In addition, amortization
increased $.7 million due primarily to the acquisition of Varex. Net earnings
decreased to $14.2 million or $.33 per common share on a fully diluted basis
for the second quarter of 1995 compared to net earnings of $20.4 million or
$.47 per common share for the second quarter of 1994.
8
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1994
Sales for the six-month period ended June 30, 1995 increased by 10.2 percent
to $1,030.6 million from $935.1 million for the six-month period ended
June 30, 1994. Approximately two-thirds of this increase is in the
international replacement market. The increase in international replacement
sales of $78.5 million over the six-month period ended June 30, 1994 is largely
attributable to the acquisition of Varex Corporation in South Africa.
Excluding Varex, international replacement sales increased 9.3 percent. North
American replacement sales decreased 3.5 percent. Of the Company's five major
product segments in the North American replacement market, engine parts account
for a majority of the sales decline. Engine part sales were negatively impacted
primarily by a conscious reduction in engine part inventories at the customer
level and brand consolidation within the marketplace of the Company's
Federal-Mogul, TRW and Sealed Power branded engine parts. Worldwide sales of
original equipment products increased 9.4 percent. North American original
equipment sales were essentially flat, and European original equipment sales
increased 38.3 percent as a result of market penetration of engine bearings
and favorable currency translation. Excluding the impact of exchange rates,
European original equipment sales increased 15.4 percent.
The Company's operating earnings decreased to $68.0 million from $71.9 million
for the six-month period ended June 30, 1994 due primarily to a change in the
sales mix as described above and an increase in certain corporate
administrative expenses.
Pretax earnings decreased to $45.5 million from $57.1 million for the six-month
period ended June 30, 1994. The decrease in pretax earnings is attributable to
the decrease in operating earnings and additional interest expense due to
higher levels of debt incurred to finance the Varex acquisition, a stock
repurchase program completed in January 1995 and increased levels of working
capital. In addition, amortization expense increased $1.4 million due primarily
to the acquisition of Varex. Net earnings decreased to $28.4 million or $.66
per common share on a fully diluted basis for the six-month period ended
June 30, 1995 compared to net earnings of $35.4 million or $.83 per common
share for the six-month period ended June 30, 1994.
9
LIQUIDITY AND CAPITAL RESOURCES
Working capital was impacted by an increase of $49.2 million in inventories,
prepaid expenses and other during the six-month period ended June 30, 1995
compared to a decrease of $5.6 million during the six-month period ended
June 30, 1994. This increase is due primarily to an inventory build which
enhanced product availability at various locations throughout the world.
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 periods, the Company
incurred payments for the rationalization of acquired businesses. These
payments were $7.8 million less during the six-month period ended June 30,
1995 than during the six-month period ended June 30, 1994 as integrations
are near completion.
Net cash provided from financing activities reflects an increase in both
long and short-term debt. These borrowings were used to finance the Varex
acquisition, repurchase common stock and fund increased levels of working
capital. 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.
10
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Corporation held its Annual Meeting of Shareholders on April 26, 1995, at
which the shareholders considered and voted on (i) the election of seven
directors, and (ii) the approval of the appointment of Ernst & Young LLP as
independent accountants for 1995.
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 votes
for and withheld with respect to each nominee:
Nominee Votes For Votes Withheld
- ----------------- ---------- --------------
D. J. Gormley 29,234,632 1,737,303
J. J. Fannon 29,316,327 1,655,608
R. M. Hills 29,351,404 1,620,531
A. Madero 29,317,710 1,654,225
R. S. Miller, Jr. 29,321,858 1,650,077
J. C. Pope 29,317,391 1,654,544
H. M. Sekyra 29,333,136 1,638,799
The appointment of Ernst & Young LLP as independent accountants for 1995 was
approved. The results of the voting were as follows:
For Against Abstain
- ---------- ------- -------
29,724,449 351,959 895,527
11
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
10.29 Second Amendment to Note Agreement dated December 1,
1990 among the Company and various financial
institutions listed therein (filed with this report).
11.1 Statement Re Computation of Per Share Earnings for
the three months ended June 30, 1995 (filed with
this report).
11.2 Statement Re Computation of Per Share Earnings for
the six months ended June 30, 1995 (filed with this
report).
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 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: (Michael J. Viola)
------------------------------
Michael J. Viola
Vice President and Controller,
Chief Accounting Officer
Dated: August 10, 1995