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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999

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 (IRS Employer I.D. No.)
incorporation or organization)

26555 Northwestern Highway

Southfield, Michigan 48034
(Address of principal executive (Zip code)
offices)

Registrant's telephone number including area code: (248) 354-7700

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
------------------- ---------------------

Common Stock and Rights to Purchase New York Stock Exchange
Preferred Shares

Securities registered pursuant to Section 12(g) of the Act: None.

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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $1,052,105,774 as of March 13, 2000 based on the
reported last sale price as published for the New York Stock Exchange--
Composite Transactions for such date.

The Registrant had 70,511,346 shares of common stock outstanding as of March
13, 2000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders filed with the Securities and Exchange Commission
pursuant to Regulation 14A on March 15, 2000, are incorporated by reference in
Part III (Items 10, 11, 12 and 13) of this Report.

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FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated in this annual report on Form
10-K, which are not statements of historical fact constitute "Forward-Looking
Statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (The "Act"). Such statements are made in good faith by Federal-Mogul
pursuant to the "Safe Harbor" provisions of the Act.

Forward-Looking statements include financial projections, estimates and
statements regarding plans, objectives and expectations of Federal-Mogul and
its management, including, without limitation, plans to integrate the
businesses of T&N, Fel-Pro and Cooper Automotive into Federal-Mogul, plans to
address the issue related to the conversion to the Euro, and the scope of the
effect of T&N and Cooper Automotive asbestos liabilities and insurance
recoverable.

Forward-Looking statements may involve known and unknown risks,
uncertainties and other factors, which may cause the actual results,
performance or achievements of Federal-Mogul to differ materially from any
future results, performance or achievements expressed or implied by such
Forward-Looking statements. Such risks, uncertainties and other factors
include, without limitation, those relating to the combination of Federal-
Mogul's business with those of T&N, Fel-Pro and Cooper Automotive and the
anticipated synergies and operating efficiencies and restructuring charges in
connection with such acquisitions, conditions in the automotive components
industry, certain global and regional economic conditions and other factors
detailed herein and from time to time in the documents incorporated by
reference herein. Moreover, Federal-Mogul's plans, objectives and intentions
are subject to change based on these and other factors, some of which are
beyond Federal-Mogul's control.

PART I

Item 1. Business.

Overview

Federal-Mogul Corporation founded in 1899 and incorporated in Michigan in
1924 (referred to herein as "Federal-Mogul" or the "Company"), is an
automotive parts manufacturer providing innovative solutions and systems to
global customers in the automotive, small engine, heavy-duty and industrial
markets. The Company manufactures engine bearings, sealing systems, fuel
systems, lighting products, pistons, ignition, brake, friction and chassis
products. The Company's principal customers include many of the world's
original equipment ("OE") manufacturers of such vehicles and industrial
products. The Company also manufactures and supplies its products and related
parts to the aftermarket.

The Company has pursued a growth strategy focusing on its core competencies
of manufacturing, engineering and distribution by concentrating efforts and
resources on complimentary acquisitions of manufacturing companies that will
enhance its product base and expand its global reach. Federal-Mogul has made a
commitment to expand its manufactured products to offer OE customers systems
and modules. The Company also intends to expand the global reach of its
manufacturing operations to follow the expansion of OE manufacturers into
Latin America, Eastern Europe and the Asian markets. The Company intends to
couple its expansion of OE business in new geographic markets with growth in
global aftermarket sales.

Federal-Mogul maintains technical centers in Europe and North America to
develop and provide advanced materials, products and manufacturing processes
for all of its manufacturing units.

The following table sets forth the Company's net sales by operating segment
and geographic region as a percentage of total net sales.

Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------

Net Sales by Operating Segment:
Powertrain Systems................................... 38% 47% 43%
Sealing Systems, Visibility and Systems Protection
Products............................................ 29% 28% 19%
Brake, Chassis, Ignition and Fuel Products........... 32% 24% 32%
Divested Activities.................................. 1% 1% 6%
------- ------- -------
100% 100% 100%
======= ======= =======

Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------

Net Sales by Geographic Region:
United States........................................ 61% 52% 62%
Mexico............................................... 2% 3% 5%
Canada............................................... 2% 2% 3%
------- ------- -------
Total North America................................ 65% 57% 70%
------- ------- -------
United Kingdom....................................... 8% 12% 1%
Germany.............................................. 10% 11% 7%
France............................................... 5% 7% 2%
Italy................................................ 4% 4% 4%
Other Europe......................................... 4% 4% 6%
------- ------- -------
Total Europe....................................... 31% 38% 20%
------- ------- -------
Rest of World........................................ 4% 5% 10%
------- ------- -------
100% 100% 100%
======= ======= =======

Operating Divisions

The Company's integrated operations are conducted under three operating
units corresponding to major product areas: Powertrain Systems; Sealing
Systems, Visibility and Systems Protection Products; and Brake, Chassis,
Ignition and Fuel Products. The operating units and the products associated
with each are described as follows:

Powertrain Systems products are used primarily in automotive, light truck,
heavy-duty, industrial, marine, agricultural, power generation and small air-
cooled engine applications. The primary products of this operating unit
include engine bearings, large bearings, pistons, piston pins, rings, cylinder
liners, connecting rods, camshafts and sintered products. These products are
marketed under the brand names Federal-Mogul(R), Glyco(R), AE Goetze(R),
Sterling(R), Sealed Power(R), Weyburn-Bartel(R), Weyburn-Lydmet(R), Brico(R)
and Sintertech(R).

Sealing Systems, Visibility and Systems Protection Products are used in
automotive, light truck, heavy-duty diesel, agricultural, off-highway, marine,
railroad, high performance and industrial applications. The primary products
of this operating unit include dynamic seals, gaskets, lighting products,
wiper blades and systems protection products. These products are marketed
under the brand names National(R), Mather(R), STS(R), Redi-Seal(R), Redi-
Sleeve(R), Unipiston(R), Engine Seal(R), Fel-Pro(R), Payen(R), McCord(R),
Anco(R), Blazer(R), Zanxx(R), Wagner(R), Signal-Stat(R) and Bentley-Harris(R).

Brake, Chassis, Ignition and Fuel Products are used in automotive, light
truck, heavy-duty, agricultural, off-highway, marine and high performance
applications. The primary products of this operating unit include brake and
friction products, chassis products, ignition products and fuel system
components. These products are marketed under the brand names Abex(R),
Wagner(R), Moog(R), Precision(R), Omega(R), Champion(R), PowerPath(R),
Belden(R) and Carter(R).

Customers

Federal-Mogul markets its products to many of the world's major OE
manufacturers. Federal-Mogul also manufactures and supplies its products and
related parts to aftermarket customers for each category of equipment
described above. Among Federal-Mogul's largest customers are BMW, Caterpillar,
Cummins, DaimlerChrysler, Fiat, Ford/Jaguar/Volvo, General Motors,
Peugeot/PSA, Renault and Volkswagen/Audi.

Original Equipment

The Company supplies OE customers with a wide variety of precision
engineered parts including engine bearings, oil seals, fuel system components,
lighting products and pistons. The Company manufactures essentially all of the
products that it sells to OE customers.

The Company's OE customers consist primarily of automotive and heavy-duty
vehicle customers as well as industrial equipment manufacturers, agricultural,
off-highway, marine, railroad, high performance and industrial applications.
The Company has well-established relationships with substantially all major
North American and European automotive OE manufacturers, some pre-existing and
others resulting from the 1998 acquisitions of T&N, Cooper Automotive and Fel-
Pro. In 1999, approximately 16% of the Company's net sales were to the three
major automotive manufacturers in the United States, with General Motors
Corporation accounting for approximately 6% of the Company's net sales, Ford
Motor Company accounting for approximately 5% of the Company's net sales and
DaimlerChrysler accounting for approximately 5% of the Company's net sales. In
addition, the Company sells OE products to most of the major automotive
manufacturers headquartered outside the United States. In addition, management
believes that the 1998 acquisitions of T&N, Cooper Automotive and Fel-Pro have
positioned Federal-Mogul to take advantage of developing OE customer demand
for single supplier systems and modules in the future, particularly in light
of Federal-Mogul's global reach and capabilities.

Aftermarket

Federal-Mogul's domestic customers include independent warehouse
distributors who redistribute products to local parts suppliers called
jobbers, industrial bearing distributors, distributors of heavy-duty vehicular
parts, engine rebuilders and retail parts stores. The breadth of Federal-
Mogul's product lines together with the strength of its brand names and sales
force, are central to the Company's aftermarket operations. Internationally,
the Company sells aftermarket products to jobbers, local retail parts stores
and independent warehouse distributors.

Research and Development

The Company's expertise in engineering and research and development ensures
that the latest technologies, processes and materials are considered in
solving problems for customers and bringing new, innovative products to
market. Federal-Mogul provides its customers with real-time engineering
capabilities and design development in their home countries. Technological
activities are conducted at the Company's major research centers in Cawston,
England; Burscheid, Germany; Plymouth, Michigan; Skokie, Illinois; Ann Arbor,
Michigan; Toledo, Ohio; Bad Camberg, Germany and Wiesbaden, Germany. Each of
the Company's operating units is engaged in various engineering, research and
development efforts working side by side with customers to develop custom
solutions unique to their needs.

Total expenditures for research and development activities were
approximately $128 million in 1999, $85 million in 1998 and $13 million in
1997. Expenditures for research and development have increased due to the
acquisitions of T&N, Cooper Automotive and Fel-Pro.

Recent Acquisitions and Divestitures

Acquisitions

In January 1999, the Company completed its acquisition of the piston
division of Alcan Deutschland GmbH (Alcan) in Germany, a subsidiary of Alcan
Aluminum Ltd. in Canada. The division manufactures pistons for passenger cars
and commercial vehicles under the Nural(R) brand name. The piston division
employs approximately 1,100 people with 1998 annual sales of approximately
$150 million.

Also in January 1999, the Company completed its acquisition of certain
manufacturing operations of Crane Technologies, Inc. (Crane) to increase its
camshaft capacity. The two plants located in Orland, Indiana and Jackson,
Michigan employ approximately 230 people with 1998 annual sales of
approximately $36 million.

Divestitures and Closings

During the second quarter of 1999, the Company sold its South African heat
transfer business. The business had sales of approximately $56 million in 1998
in four South African locations and employed approximately 1,200 people. The
Company did not record a significant gain or loss on this transaction.

During the third quarter of 1999, the Company sold its subsidiary,
Bertolotti Pietro e Figli, S.r.l. (Bertolotti), an Italian aftermarket
operation. In 1998, the Company recognized a $20.0 million charge primarily
associated with the writedown of Bertolotti's assets to the estimated fair
value. In 1999, the Company recognized an additional $7.9 million loss
associated with the writedown of Bertolotti's assets to their fair value
resulting from the sale. Offsetting the loss was a tax benefit of $7.9 million
resulting from the sale.

Raw Materials and Suppliers

The Company purchases various raw materials for use in its manufacturing
processes. The principal raw materials purchased include steel, aluminum,
copper and nickel. In addition, the Company purchases parts manufactured by
other manufacturers for sale in the aftermarket. The Company has not
experienced any shortages of raw materials or finished parts and normally does
not carry inventories of raw materials or finished parts in excess of those
reasonably required to meet its production and shipping schedules. In 1999, no
outside supplier of the Company provided products that accounted for more than
5% of the Company's net sales.

Employee Relations

As of December 31, 1999, the Company had approximately 50,400 full-time
employees, of which approximately 24,400 were employed in the United States.

Various unions represent approximately 35% of the Company's United States
hourly employees and approximately 60% of the Company's foreign hourly
employees. Each of the Company's unionized manufacturing facilities has its
own contract with its own expiration date, and as a result, no contract
expiration date affects more than one facility. The Company believes its labor
relations to be good.

Environmental Regulations

The Company's operations, in common with those of industry generally, are
subject to numerous existing and proposed laws and governmental regulations
designed to protect the environment, particularly regarding plant wastes and
emissions and solid waste disposal. Capital expenditures for property, plant
and equipment for environment control activities did not have a material
impact on the Company's financial position or results of operations in 1999
and are not expected to have a material impact on the Company's financial
position or results of operations in 2000 or 2001.

Backlog

The majority of the Company's products are not on a backlog status. They are
produced from readily available materials and have a relatively short
manufacturing cycle. For products supplied by outside suppliers, the Company
generally purchases products from more than one source. The Company expects to
be capable of handling the anticipated 2000 sales volumes.

Intellectual Property

The Company is committed to protecting its technology investments and market
share through an active and growing international patent portfolio. The
international patent portfolio is composed of a large number of foreign (non-
US) and U.S. patents and pending patent applications that relate to a wide
variety of products and processes. In the aggregate, the Company's
international patent portfolio is of material importance to its business.
However, the Company does not consider any international patent or group of
international patents relating to a particular product or process to be of
material importance when judged from the standpoint of the business as a
whole.

Competition

The global vehicular parts business is highly competitive. The Company
competes with many of its customers that produce their own components as well
as with independent manufacturers and distributors of component parts in the
United States and abroad. In general, competition for such sales is based on
price, product quality, customer service and the breadth of products offered
by a given supplier. The Company has attempted to meet these competitive
challenges through more efficiently integrating its manufacturing and
distribution operations, expanding its product coverage within its core
businesses, and expanding its worldwide distribution network.

Item 2. Properties.

The Company's world headquarters is located in Southfield, Michigan, which
is leased pursuant to a sale/leaseback arrangement. The principal
manufacturing and other materially important physical properties of the
Company at December 31, 1999 are listed below. All properties are owned in fee
simple except where otherwise noted.

At December 31, 1999, the Company had 414 manufacturing, distribution and
sales and administration office facilities worldwide. Approximately 39% of the
facilities are leased, the majority of which are distribution, sales and
administration offices. The Company owns the remainder of the facilities.

North Rest of
Type of Facility America Europe the World Total
---------------- ------- ------ --------- -----

Manufacturing.................................... 92 91 60 243
Distribution..................................... 86 10 10 106
Sales and Administration Offices................. 7 31 27 65
--- --- --- ---
Total............................................ 185 132 97 414
=== === === ===

The facilities range in size from approximately 1,700 square feet to
1,143,000 square feet. Management believes substantially all of the Company's
facilities are in good condition and that it has sufficient capacity to meet
its current and expected manufacturing and distribution needs. No facility is
materially underutilized, except for those being sold or closed in the normal
course of business.

Item 3. Legal Proceedings

ASBESTOS LIABILITY AND LEGAL PROCEEDINGS

T&N Asbestos Litigation

In the United States, the Company's United Kingdom subsidiary, T&N Ltd., and
two former United States subsidiaries of T&N, plc. (the "T&N Companies") are
among many defendants named in numerous court actions alleging personal injury
resulting from exposure to asbestos or asbestos-containing products. T&N is
also subject to asbestos-disease litigation, to a lesser extent, in the United
Kingdom and France. Because of the slow onset of asbestos-related diseases,
management anticipates that similar claims will be made in the future. It is
not known how many such claims may be made nor the expenditures which may
arise therefrom.

As of December 31, 1999, the T&N Companies had approximately 95,000 claims
pending. During 1999, approximately 49,000 new claims were filed and 60,000
claims were settled, dismissed or otherwise resolved. In addition to the
pending cases above, the T&N Companies have approximately 64,000 claims that
have been settled but will be paid over time. There are a number of factors
that could impact the settlement costs into the future, including but not
limited to: changes in legal environment; possible insolvency of co-
defendants; and the establishment of an acceptable administrative (non-
litigation) claims resolution mechanism.

The $1.1 billion total provision held for the T&N Companies is comprised of
an estimate for known claims (pending and settled but not paid) and possible
future claims (IBNR). As of December 31, 1999, the $1.1 billion total
provision is comprised of approximately $520 million related to known claims
and approximately $620 million related to IBNR claims.

In arriving at the IBNR provision for the T&N Companies, assumptions have
been made regarding the total number of claims anticipated to be received in
the future, the typical cost of settlement (which is sensitive to the industry
in which the plaintiff claims exposure, the alleged disease type and the
jurisdiction in which the action is being brought), the rate of receipt of
claims and the timing of settlement and, in the United Kingdom, the level of
subrogation claims brought by insurance companies.

T&N Ltd. has appointed the Center for Claims Resolution (CCR) as its
exclusive representative in relation to all asbestos-related personal injury
claims made against it in the United States. The CCR provides to its member
companies a litigation defense, claims-handling and administration service in
respect to United States asbestos-related disease claims. Pursuant to the CCR
Producer Agreement, T&N Ltd. is entitled to appoint a representative as one of
the five voting directors on the CCR's Board of Directors. Members of the CCR
contribute towards indemnity payments in each claim in which the member is
named. Contributions to such indemnity payments are calculated on a case by
case basis according to sharing agreements among the CCR's members.

Effective January 18, 2000, the two United States subsidiaries withdrew from
the CCR membership and appointed a law firm specializing in asbestos matters
as their claims handling defense and administrative service provider.
Indemnity and defense obligations incurred while members of the CCR will
continue to be honored. This change is intended to create greater economic and
defense efficiencies for the two companies.

In 1996, T&N purchased a (Pounds)500 million (approximately $845 million at
the insurance agreement exchange rate of $1.69/(Pounds)) layer of insurance
which will be triggered should the aggregate costs of claims filed after June
30, 1996, where the exposure occurred prior to that date, exceed (Pounds)690
million (approximately $1,166 million at the $1.69/(Pounds) exchange rate).
The initial reserve provided for the T&N Companies for claims filed after June
30, 1996 approximated the trigger point of the insurance. The Company has
reviewed the financial viability and legal obligations of the three
reinsurance companies involved and has concluded, at this time, that there is
little risk of the reinsurers not being able to meet their obligation to pay,
should the claims filed after June 30, 1996 exceed the (Pounds)690 million
trigger point.

While management believes that reserves are appropriate for anticipated
losses arising from asbestos-related claims against the T&N Companies, given
the nature and complexity of the factors affecting the estimated liability,
the actual liability may differ. No absolute assurance can be given that the
T&N Companies will not be subject to material additional liabilities and
significant additional litigation relating to asbestos. In the possible, but
unlikely event that such liabilities exceed the reserves recorded by the
Company and the additional (Pounds)500 million of insurance coverage, the
Company's results of operations, business, liquidity and financial condition
could be materially adversely affected. The reserve for the T&N Companies is
re-evaluated periodically as additional information becomes available.

During 1999, T&N Ltd. was named in a complaint filed in the United States
District Court for the Eastern District of Texas by Owens-Illinois alleging
that T&N is liable to Owens-Illinois for Owens-Illinois' own indemnity and
defense costs pertaining to asbestos-related personal injury claims. The
Company believes it has meritorious defenses to the claim and has successfully
defended against similar underlying claims in the past.

Cooper Automotive Asbestos Litigation

Former businesses of Cooper Automotive, primarily Abex and Wagner, are
involved as defendants in numerous court actions in the United States alleging
personal injury from exposure to asbestos or asbestos-containing products,
mainly involving friction products. In 1998, the Company acquired the capital
stock of a Cooper Automotive entity resulting in the assumption by a Company
subsidiary of contractual liability, under certain circumstances, for all
claims pending and to be filed in the future alleging exposure to certain
Wagner automotive and industrial friction products and for all claims filed
after August 29, 1998, alleging exposure to certain Abex (non-railroad and
non-aircraft) friction products. As of December 31, 1999, Abex has
approximately 10,500 claims pending and Wagner has approximately 13,700 claims
pending. The Company has completed its assessment of the potential liability
and related potential insurance recoveries related to the Cooper Automotive
acquisition and has recorded a $325.9 million insurance recoverable asset and
a liability of the subsidiaries involved of approximately $400 million. This
is the Company's estimate, after taking into account legal counsel's
evaluation related to amounts expected to be paid or reimbursed by insurers.
In arriving at these provisions, certain assumptions have been made regarding
the total number of claims which may be received in the future against these
two entities and the average costs associated with such claims.

Abex maintained product liability insurance coverage for most of the time
that it manufactured products that contained asbestos. The subsidiary of the
Company that may be liable for the post-August 1998 asbestos claims against
Abex has the benefit of that insurance. Abex has been in litigation since 1982
with the insurance carriers of its primary layer of liability concerning
coverage for asbestos claims. Abex also has substantial excess layer liability
insurance coverage which, barring unforeseen insolvencies of excess carriers
or other adverse events, should provide coverage for asbestos claims against
Abex.

Wagner also maintained product liability insurance coverage for some of the
time that it manufactured products that contained asbestos. The subsidiary of
the Company that may be liable for asbestos claims against Wagner has the
benefit of that insurance. Primary layer liability insurance coverage for
asbestos claims against Wagner is the subject of an agreement with Wagner's
solvent primary carriers. The agreement provides for partial reimbursement of
indemnity and defense costs for Wagner asbestos claims until exhaustion of
aggregate limits. Wagner also has substantial excess layer liability insurance
coverage which, barring unforeseen insolvencies of excess carriers or other
adverse events, should provide coverage for asbestos claims against Wagner.

The ultimate exposure of the Company's subsidiary with respect to claims
against Abex and Wagner will depend upon the extent to which the insurance
described above will be available to cover such claims, the amounts paid for
indemnity and defense, changes in the legal environment and other factors.
While the Company believes that the liability and receivable recorded for
these claims are reasonable and appropriate, given the nature and complexity
of factors affecting the estimated liability and potential insurance recovery,
the actual liability and insurance recovery may differ. In the event that the
actual liability net of insurance proceeds recovered exceeds the reserve net
of insurance receivable recorded by the Company, the Company's results of
operations, business, liquidity and financial condition could be materially
adversely affected. The asbestos reserves for the businesses acquired as part
of the Cooper Automotive acquisition will be re-evaluated periodically as
additional information becomes available.

Federal-Mogul and Fel-Pro Asbestos Litigation

The Company also is sued in its own name as one of a large number of
defendants in a number of lawsuits brought by claimants alleging injury due to
exposure to asbestos. The Company's Fel-Pro subsidiary has been named as a
defendant in a number of product liability cases involving asbestos, primarily
involving gasket or packing products. The Company is defending all such claims
vigorously and believes that it and Fel-Pro have substantial defenses to
liability and adequate insurance coverage for defense and indemnity. While the
outcome of litigation cannot be predicted with certainty, management believes
that asbestos claims pending against the Company and Fel-Pro as of December
31, 1999, will not have a material effect on the Company's financial position.

Aggregate of Asbestos Liability

As of December 31, 1999, the Company has provided a total reserve for all of
its subsidiaries and businesses with potential asbestos liability of
approximately $1.5 billion as its best estimate for future costs related to
resolving asbestos claims. The Company estimates claims will be filed and paid
in excess of the next 20 years. This estimate is based in part on recent and
historical claims experience, medical information and the current legal
environment. The company has a corresponding receivable from certain insurance
carriers of approximately $325.9 million.

For information respecting lawsuits concerning environmental matters to
which the Company is a party, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Litigation and
Environmental Matters".

There were no material legal proceedings that were terminated during the
fourth quarter of 1999.

Item 4. Submission of Matters to Vote of Security Holders.

No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of 1999.

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.

The Company's common stock is listed on the New York Stock Exchange under
the trading symbol FMO. The approximate number of shareholders of record of
the Company's common stock at March 13, 2000 was 21,714 . The following table
sets forth the high and low sales prices of the Company's common stock for
each calendar quarter as reported on the New York Stock Exchange-Composite
Tape for the last two years:

1999 1998
------------- -------------
High Low High Low
Quarter ------ ------ ------ ------

First............................................... $64.88 $40.63 $54.37 $39.00
Second.............................................. $53.81 $41.94 $69.25 $52.62
Third............................................... $55.00 $23.38 $72.00 $46.62
Fourth.............................................. $29.13 $17.56 $63.00 $33.00

The closing price of the Company's common stock as reported on the New York
Stock Exchange-Composite Tape on March 13, 2000 was $15.0625.

Quarterly dividends of $.0025 per common share were declared during each
quarter of 1999 and for the second, third and fourth quarters of 1998. A
quarterly dividend of $.12 per common share was declared for the first quarter
of 1998. The Company, consistent with its growth strategy, intends to retain
future earnings in the business and therefore anticipates paying dividends at
a comparable level in the foreseeable future.

Item 6. Selected Financial Data

The following table presents information from the Company's consolidated
financial statements for the five years ended December 31, 1999. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the "Financial
Statements and Supplemental Data."

1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Millions of Dollars, Except Per Share
Amounts)

Consolidated Statement
of Operations Data
Net sales............... $6,487.5 $4,468.7 $1,806.6 $2,032.7 $1,999.8
Costs and expenses...... (6,006.2)(1) (4,266.9)(2) (1,703.7)(3) (2,258.0)(4) (2,000.7)(5)
Other expense........... (21.4) (16.3) (3.4) (3.4) (2.4)
Income tax (expense)
benefit................ (180.9) (93.6) (27.5) 22.4 (2.5)
-------- -------- -------- -------- --------
Earnings (loss) before
extraordinary items and
net effect of
cumulative effect of
change in accounting
principle.............. 279.0 91.9 72.0 (206.3) (5.8)
Extraordinary items --
loss on early
retirement of debt, net
of applicable income
tax benefits........... (23.1) (38.2) (2.6) -- --
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income tax
benefit................ (12.7) -- -- -- --
-------- -------- -------- -------- --------
Net earnings (loss)..... $ 243.2 $ 53.7 $ 69.4 $ (206.3) $ (5.8)
======== ======== ======== ======== ========
Common Share Summary
(Diluted)
Average shares and
equivalents outstanding
(in thousands)......... 84,206 53,748 41,854 34,659 34,642
Earnings (loss) per
share:
Before extraordinary
items and cumulative
effect of a change in
accounting principle.. $ 3.59 $ 1.67 $ 1.67 $ (6.20) $ (.42)
Extraordinary items --
loss on early
retirement of debt,
net of applicable
income tax benefits... (.28) (.71) (.06) -- --
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income tax
benefit............... (.15) -- -- -- --
-------- -------- -------- -------- --------
Net earnings (loss) per
share.................. $ 3.16 $ .96 $ 1.61 $ (6.20) $ (.42)
======== ======== ======== ======== ========
Dividends declared per
share.................. $ .01 $ .1275 $ .48 $ .48 $ .48
======== ======== ======== ======== ========
Consolidated Balance
Sheet Data
Total assets............ $9,945.2 $9,940.1 $1,802.1 $1,455.2 $1,701.1
Short-term debt(6)...... 190.8 211.0 28.6 280.1 111.9
Long-term debt.......... 3,020.0 3,130.7 273.1 209.6 481.5
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trust
holding solely
convertible
subordinated debentures
of the Company......... 575.0 575.0 575.0 -- --
Shareholders' equity.... 2,075.2 1,986.2 369.3 318.5 550.3
Other Financial
Information
Net cash provided from
(used by) operating
activities............. $ 562.4 $ 325.5 $ 215.7 $ 149.0 $ (34.7)
Expenditures for
property, plant,
equipment and other
long-term assets....... 395.2 228.5 49.7 54.2 78.5
Depreciation and
amortization expense... 354.9 228.0 51.5 61.9 59.2

- - -----------------
(1) Includes a $46.9 million charge for integration costs and a $7.9 million
charge for adjustment of assets held for sale and other long-lived assets
to fair value.
(2) Includes a $7.3 million net restructuring charge, a $19.0 million net
charge for adjustment of assets held for sale and other long-lived assets
to fair value, an $18.6 million charge for purchased in-process research
and development, a $22.4 million charge for integration costs and a $13.3
million net gain related to the British pound currency option and forward
contract.
(3) Includes a $1.1 million net restructuring credit, a $2.4 million charge
for adjustment of assets held for sale and other long-lived assets to fair
value, a $1.6 million credit for reengineering and other related charges,
and a $10.5 million charge related to the British pound currency option
and forward contract.
(4) Includes a $57.6 million restructuring charge, a $151.3 million charge for
adjustment of assets held for sale and other long-lived assets to fair
value, and $11.4 million relating to reengineering and other related
charges.
(5) Includes a $26.9 million restructuring charge, a $51.8 million charge for
adjustment of assets held for sale and other long-lived assets to fair
value, and $13.9 million relating to reengineering and other related
charges.
(6) Includes current maturities of long-term debt (see Note 6 to the
consolidated financial statements).

MANAGEMENT'S DISCUSSION AND ANALYSIS

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

Federal-Mogul Corporation is an automotive parts manufacturer providing
innovative solutions and systems to global customers in the automotive, small
engine, heavy-duty and industrial markets. The Company manufactures engine
bearings, sealing systems, fuel systems, lighting products, pistons, ignition,
brake, friction and chassis products. The Company's principal customers
include many of the world's original equipment ("OE") manufacturers of such
vehicles and industrial products. The Company also manufactures and supplies
its products and related parts to the aftermarket.

Results of Operations

Net Sales

Sales by operating segment were:

1999 1998 1997
---- ---- ----
(Millions of Dollars)

Powertrain Systems................................. $ 2,459 $ 2,107 $ 782
Sealing Systems, Visibility and Systems Protection
Products.......................................... 1,887 1,252 333
Brake, Chassis, Ignition and Fuel Products......... 2,123 1,036 577
Divested Activities................................ 19 74 115
------- ------- -------
Total Sales...................................... $ 6,488 $ 4,469 $ 1,807
======= ======= =======

Powertrain Systems

Sales increased 17% from 1998 to 1999 primarily due to the full-year effect
of the 1998 acquisitions of T&N and Triway, the 1999 acquisitions of Alcan and
Crane and higher North American OE sales. These increase were partially offset
by the impact of foreign exchange rates, lower European OE sales due mainly to
softness in the U.K. markets and lower aftermarket sales due to an overall
decrease in the engine parts market size due to improved OE quality.

Sales increased 169% from 1997 to 1998 primarily due to the acquisition of
T&N and certain OE volume increases, partially offset by lower aftermarket
sales and the impact of foreign exchange rates. Sales in the aftermarket were
impacted by an overall decrease in the engine parts market size due to
improved OE quality and the bankruptcy of a major customer in the North
American aftermarket.

Sealing Systems, Visibility and Systems Protection Products

Sales increased 51% from 1998 to 1999 primarily due to the full-year effect
of the 1998 acquisitions of Cooper Automotive, T&N and Fel-Pro, and higher
North American OE sales. These increases were partially offset by the impact
of foreign exchange rates and lower European sales.

Sales increased 276% from 1997 to 1998 primarily due to the acquisitions of
Cooper Automotive, T&N and Fel-Pro and OE sales increases due to certain model
volume increases. These increases were partially offset by aftermarket sales
decreases primarily due to the bankruptcy of a major customer in the North
American aftermarket.

Brake, Chassis, Ignition and Fuel Products

Sales increased 105% from 1998 to 1999 primarily due to the full-year effect
of the 1998 acquisitions of Cooper Automotive and T&N and higher North
American OE sales. These increases were partially offset by the loss of
certain domestic aftermarket business and the impact of foreign exchange
rates.

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

Sales increased 80% from 1997 to 1998 primarily due to the acquisitions of
T&N and Cooper Automotive and certain OE volume increases. These increases
were partially offset by the impact of foreign exchange rates and the
bankruptcy of a major customer in the North American aftermarket.

Operational EBIT

The accounting policies of the business segments are consistent with those
described in Note 1, "Accounting Policies." Operational EBIT is defined as
earnings before interest, income taxes, extraordinary items and certain
nonrecurring items such as certain acquisition-related adjustments and
integration costs associated with new acquisitions.

1999 1998 1997
---- ---- ----
(Millions of Dollars)

Powertrain Systems............................... $ 262 $ 248 $ 68
Sealing Systems, Visibility and Systems
Protection Products............................. 297 154 26
Brake, Chassis, Ignition and Fuel Products....... 277 104 44
Divested Activities.............................. (1) (4) 1
------- ------- -------
Operational EBIT............................... $ 835 $ 502 $ 139
======= ======= =======

Powertrain Systems

Operational EBIT increased 6% in 1999 from 1998. This increase was due to
higher OE sales from the full-year effect of the 1998 acquisitions of T&N and
Triway, the 1999 acquisitions of Alcan and Crane, reduced administrative
costs, material sourcing savings and other synergies as a result of the
acquisitions. This increase was partially offset by productivity issues in the
camshaft operations and lower aftermarket sales. Operational EBIT increased
265% in 1998 from 1997 due to the increase in sales noted above as well as the
streamlining of product engineering costs and the implementation of the
Company's constraint management programs across the combined companies.

Sealing Systems, Visibility and Systems Protection Products

Operational EBIT increased 93% in 1999 from 1998. This increase was due to
higher sales from the full- year effect of the 1998 acquisitions of Cooper
Automotive and T&N reduced administrative costs and material sourcing savings
as a result of the acquisitions. Operational EBIT increased 492% in 1998 from
1997 due to higher sales as noted above, reduced administrative costs and
material sourcing savings as a result of the acquisitions.

Brake, Chassis, Ignition and Fuel Products

Operational EBIT increased 166% in 1999 from 1998. This increase was due to
higher sale from the full year effect of the 1998 acquisitions of Cooper
Automotive and T&N, reduced administrative costs and material sourcing savings
as a result of the acquisitions. This increase was partially offset by the
loss of certain aftermarket customers. Operational EBIT increased 136% in 1998
from 1997 due to increased sales, material sourcing savings and implementation
of constraint management practices as a result of the acquisitions.

Purchased In-Process Research and Development Charge

In connection with the T&N acquisition, the Company recognized an $18.6
million charge in the first quarter of 1998 associated with the estimated fair
value of purchased in-process research and development for which technological
feasibility had not been established and the in-process technology had no
future alternative uses.

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

Rationalization of Acquired Businesses

In connection with the T&N, Cooper Automotive and Fel-Pro acquisitions in
1998 the Company recognized $216.8 million as acquired liabilities related to
the rationalization and integration of acquired businesses. The
rationalization reserves provided for $180.0 million in relocation and
severance costs and $36.8 million in exit costs, and were recorded as a
component of goodwill in the purchase price allocation.

The components of the integration plan included closure of certain
manufacturing facilities worldwide; relocation of highly manual manufacturing
product lines to more suitable locations; consolidation of overlapping
manufacturing, technical and sales facilities and joint ventures;
consolidation of overlapping aftermarket warehouses; consolidation of
aftermarket marketing and customer support functions; and streamlining of
administrative, sales, marketing and product engineering staffs worldwide.

The Company paid $72.2 million and $61.6 million related to these
rationalization reserves in 1999 and 1998, respectively. Also during 1999, the
Company made adjustments to reduce the rationalization reserves, with an
offsetting amount to goodwill, by $47.9 million. These adjustments related to
the finalization of rationalization plans. As of December 31, 1999, remaining
rationalization reserves were $30.3 million, primarily relating to the closure
of several Powertrain Systems facilities in Europe and the consolidation of
aftermarket warehouses in Europe. These costs are expected to be paid in 2000.

Restructuring Charges (Credits)

In 1999, the Company recognized $13.2 million of restructuring charges
related to severance and exit costs. Employee severance costs of $11.1 million
resulted from planned terminations in certain European operations of the
Company, employees at the Company's Milan, Michigan plant, and certain
executive severances. The severance costs were based on the estimated amounts
that will be paid to the affected employees pursuant to the Company's
workforce reduction policies and certain governmental regulations. Total
headcount reductions are expected to be approximately 250 employees. Exit
costs of $2.1 million were related to the closing of the Company's Milan plant
and French bearing operations. These actions are expected to be primarily
completed in 2000.

Also in 1999, the Company recognized $13.2 million of reversals of
restructuring charges recorded in previous years. These reversals resulted
primarily from lower than expected employee severance costs principally
associated with the reduction of the aftermarket sales force and consolidation
of certain operations in the Americas. In 1999, the Company paid $3.3 million
relating to these reserves.

In 1998, as a result of the T&N, Cooper Automotive and Fel-Pro acquisitions,
the Company recognized $16.3 million of restructuring charges related to
restructuring the Company's operations in place prior to these acquisitions.
The restructuring charges were primarily for employee severance costs, which
resulted from planned terminations in various business operations of the
Company. The severance costs were based on the estimated amounts that will be
paid to the affected employees pursuant to the Company's workforce reduction
policies and certain foreign governmental regulations.

Also in 1998, the Company recognized restructuring credits of $9.0 million
for a reversal of charges recorded in previous years. The Company was able to
sell, rather than liquidate, its retail operations in Puerto Rico, causing
this reversal.

Adjustment of Assets Held for Sale and Other Long-Lived Assets to Fair Value

In 1999, the Company sold its subsidiary, Bertolotti Pietro e Figli, S.r.l.
(Bertolotti), an Italian aftermarket operation. In 1998, the Company
recognized a $20.0 million charge primarily associated with their writedown of
Bertolotti's assets to their estimated fair value. In 1999, the Company
recognized an additional $7.9 million loss associated with the writedown of
Bertolotti's assets to their fair value resulting from the sale. Offsetting
the loss was a tax benefit of $7.9 million resulting from the sale.

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

Integration Costs

The Company recognized $46.9 million and $22.4 million of integration costs
in 1999 and 1998, respectively, in connection with the acquisitions of T&N,
Cooper Automotive and Fel-Pro. These expenses included one-time items such as
brand integration, costs to pack and move productive inventory and fixed
assets from one location to another, and costs to change the identity of
entities acquired.

Interest Expense

Interest expense increased $69.5 million in 1999 to $273.5. The increase is
primarily attributable to the full-year effect of the issuance of new debt to
finance the acquisitions of Cooper Automotive and other businesses, offset
slightly by debt reductions from cash flow generated from operations and the
Company's increased accounts receivable securitizations.

Interest expense increased $170.7 million in 1998 to $204.0 million due to
debt financing of the T&N, Cooper Automotive, Fel-Pro and other acquisitions,
offset slightly by debt reductions from cash flow generated from operations.

Interest Income

Interest income decreased $6.0 million in 1999 to $4.6 million in 1998. The
decrease in interest income is due to the Company using the proceeds of the
Company-obligated mandatorily redeemable preferred securities for the purchase
of T&N and improved cash management.

Interest income increased $3.5 million in 1998 to $10.6 million due to
interest earned on the proceeds of the December 1997 sale of Company-obligated
mandatorily redeemable preferred securities, which were used in March 1998 to
finance a portion of the T&N acquisition.

Net (Gain) Loss on British Pound Currency Option and Forward Contract

In the fourth quarter of 1997, in anticipation of the then pending T&N
acquisition, the Company purchased a British pound currency option for $28.1
million with a notional amount of $2.5 billion. The cost of the option and its
change in fair value has been reflected in the results of operations in the
fourth quarter of 1997. At December 31, 1997, the Company had recognized a net
loss of $10.5 million on the transaction. In January 1998, the Company settled
the option and recognized an additional loss of $17.3 million.

Also in January 1998, in anticipation of the then pending T&N acquisition,
the Company entered into a forward contract to purchase (Pounds)1.5 billion
for approximately $2.45 billion. As a result of favorable fluctuations in the
British pound/United States dollar exchange rate during the contract period,
the Company recognized a $30.6 million gain.

The Company entered into the above transactions to serve as economic hedges
for the purchase of T&N. Such transactions, however, do not qualify for hedge
accounting under GAAP, and therefore both the loss on the British pound
currency option and the gain on the British pound forward contract are
reflected in the consolidated statement of operations caption "Net (gain) loss
on British pound currency option and forward contract."

Income Taxes

The effective tax rates for 1999, 1998 and 1997 were 39.3%, 50.5% and 27.6%,
respectively. The decrease in 1999 was primarily due to the reduction in
valuation allowances and the dilutive effect of the increase in pretax
earnings on non-deductible goodwill. The Company reduced its valuation
allowance related to deferred tax assets in 1999 as a result of regulatory
approvals and other events establishing that it is more likely than not that
certain deferred tax assets related to foreign tax attributes will be
realized. Also, to the extent the Company utilized pre-

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

acquisition net operating loss carryforwards during the year, the related
valuation allowance was reduced with a corresponding reduction to goodwill.
The increase in 1998 was primarily due to non-deductible goodwill, a one-time
charge for purchased in-process research and development and foreign tax rate
differences.

Extraordinary Items

As a result of certain financing transactions (see Liquidity and Capital
Resources), the Company incurred extraordinary losses on the early retirement
of debt of $23.1 million and $38.2 million, net of related tax benefits of
$13.5 million and $19.9 million, in 1999 and 1998, respectively.

Cumulative Effect of Change in Accounting Principle

In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, Reporting the Costs of Start-Up Activities.
SOP 98-5 was effective January 1, 1999 and requires that start-up costs
capitalized prior to January 1, 1999 be written off and any future start-up
costs be expensed as incurred. The Company adopted SOP 98-5 on January 1, 1999
and subsequently wrote off, as a cumulative effect of change in accounting
principle, the unamortized balance of start-up costs totaling $12.7 million,
net of applicable income tax benefits of $6.8 million, in the quarter ended
March 31, 1999.

Effect of Accounting Pronouncements

In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the effective date of SFAS
No. 133 was delayed by one year to January 1, 2001. The statement requires the
Company to recognize all derivatives on the balance sheet at fair value. The
effect of adoption of this statement on the Company's earnings or financial
position has not been finalized.

In 1999, the Emerging Issues Task Force ("EITF") of the FASB reached
consensus on issue No. 99-5, Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements. The EITF addresses the accounting for pre-
production costs relating to design and development of production parts and
tooling. The EITF is required to be applied beginning January 1, 2000. The
Company does not believe the adoption of this pronouncement will have a
material effect on the Company's financial position or financial operations as
its current accounting practices are consistent with the pronouncement.

Liquidity and Capital Resources

Cash Flow Provided from Operating Activities

Cash flow provided from operating activities was $562.4 million in 1999.
Cash flows were generated primarily from net earnings plus depreciation and
amortization. Additional cash flow was generated primarily from an increase in
accounts payable of $149.7 million, a decrease in inventories of $117.2
million, and certain non-recourse sales of foreign accounts receivables of
$115.0 million. These items were offset by payments related to restructuring
and rationalization reserves of $80.6 million and asbestos payments of $178.2
million.

Cash Flow Used by Investing Activities

Cash flow used by investing activities was $713.1 million in 1999. The
Company used $371.2 million to fund business acquisitions, including the
piston division of Alcan, Crane and the final payments of $154.9 million
related to its 1998 acquisition of Cooper Automotive. Capital expenditures of
$395.2 million were to implement process improvements, increase manufacturing
capacity, information technology, integration of acquired businesses and new
product introductions.

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

Cash Flow Provided from Financing Activities

Cash flow provided from financing activities was $138.0 million in 1999,
primarily arising from proceeds of $2,123.0 million from the issuance of long-
term debt and $304.3 provided by the investment in accounts receivable
securitization. This was offset primarily by principal payments on long-term
debt of $2,251.5 million.

In July 1999, the Company entered into a new $450 million accounts
receivable securitization agreement replacing the existing $150 million
agreement. The facility maturity date is June 28, 2000. Net proceeds were used
to repay borrowings under the Senior Credit Agreement's multicurrency
revolving credit facility.

The Company believes the cashflows from operations, together with borrowings
available under the Company's multicurrency revolving credit facility, will
continue to be sufficient to meet its ongoing working capital requirements.

Litigation and Environmental Matters

T&N Asbestos Litigation

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

member companies a litigation defense, claims-handling and administration
service in respect to United States asbestos-related disease claims. Pursuant
to the CCR Producer Agreement, T&N Ltd. is entitled to appoint a
representative as one of the five voting directors on the CCR's Board of
Directors. Members of the CCR contribute towards indemnity payments in each
claim in which the member is named. Contributions to such indemnity payments
are calculated on a case by case basis according to sharing agreements among
the CCR's members.

Cooper Automotive Asbestos Litigation

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

Federal-Mogul and Fel-Pro Asbestos Litigation

Aggregate of Asbestos Liability

Environmental Matters

The Company is a defendant in lawsuits filed in various jurisdictions
pursuant to the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980 (CERCLA) or other similar federal or state

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

environmental laws which require responsible parties to pay for cleaning up
contamination resulting from hazardous wastes which were discharged into the
environment by them or by others to which they sent such wastes for
disposition. In addition, the Company has been notified by the United States
Environmental Protection Agency and various state agencies that it may be a
potentially responsible party (PRP) under such law for the cost of cleaning up
certain other hazardous waste storage or disposal facilities pursuant to
CERCLA and other federal and state environmental laws. PRP designation
requires the funding of site investigations and subsequent remedial
activities. At most of the sites that are likely to be costliest to clean up,
which are often current or former commercial waste disposal facilities to
which numerous companies sent waste, the Company's exposure is expected to be
limited. Despite the joint and several liability which might be imposed on the
Company under CERCLA and some of the other laws pertaining to these sites, the
Company's share of the total waste is usually quite small; the other companies
which also sent wastes, often numbering in the hundreds or more, generally
include large, solvent publicly owned companies; and in most such situations
the government agencies and courts have imposed liability in some reasonable
relationship to contribution of waste. In addition, the Company has identified
certain present and former properties at which it may be responsible for
cleaning up environmental contamination. The Company is actively seeking to
resolve these matters. Although difficult to quantify based on the complexity
of the issues, the Company has accrued the estimated cost associated with such
matters based upon current available information from site investigations and
consultants. The environmental reserve was approximately $74.5 million at
December 31, 1999, and $50.0 million at December 31, 1998. The 1999 increase
results from a number of factors, including retaining liabilities from the
divestiture of the T&N Bearings Business. Management believes that such
accruals will be adequate to cover the Company's estimated liability for its
exposure in respect of such matters.

Market Risk

In the normal course of business, the Company is subject to market exposure
from changes in foreign exchange rates, interest rates and raw material
prices. To manage a portion of these inherent risks, the Company purchases
various derivative financial instruments and commodity futures contracts. The
Company does not hold or issue derivative financial instruments for trading
purposes.

Foreign Currency Risk

A substantial portion of the Company's operations consist of manufacturing
and sales activities in foreign jurisdictions. The Company manufactures and
sells its products in North America, Europe, South America, Africa and Asia.
As a result, the Company's financial results could be significantly affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company distributes its
products. The Company's operating results are primarily exposed to changes in
exchange rates between the United States dollar and European currencies.

As currency exchange rates change, translation of the statements of
operation of the Company's international businesses into United States dollars
affects year-over-year comparability of operating results. The Company does
not generally hedge operating translation risks because cash flows from
international operations are generally reinvested locally.

As of December 31, 1999 and 1998, the Company's net current assets (defined
as current assets less current liabilities) subject to foreign currency
translation risk were $187.4 million and $146.8 million, respectively. The
potential decrease in net assets from a hypothetical 10% adverse change in
quoted foreign currency exchange rates would be approximately $18.7 million
and $14.7 million respectively.

The sensitivity analysis presented assumes a parallel shift in foreign
currency exchange rates. Exchange rates rarely move in the same direction.
This assumption may overstate the impact of changing exchange rates on
individual assets and liabilities denominated in a foreign currency.

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

The Company manages certain aspects of its foreign currency activities and
larger transactions through the use of foreign currency options or forwards.
The Company generally tries to utilize natural hedges within its foreign
currency activities, including the matching of revenues and costs.

As of December 31, 1999, the Company had entered into foreign currency
forward contracts to hedge the British pound against the United States dollar
and the Euro against the United States dollar in the amount of $41.3 million
and $45.1 million, respectively, with an average contract rate of
$1.62/(Pounds) and $1.01/Euro. The Company had also entered into foreign
currency forward contracts to hedge the British pound against the Euro, French
franc and Italian lira in the amounts of $28.4 million, $25.7 million and
$41.8 million with average contract rates of 1.58 Euro/(Pounds), 10.06
franc/(Pounds), 2,982.93 lira/(Pounds), respectively. At December 31, 1999,
the unrealized gains or losses on these contracts were not material.

As of December 31, 1999, the Company had also entered into foreign currency
forward contracts to hedge foreign currency debt exposures from the British
pound to the Australian dollar, Belgium franc, Czech koruna, Dutch guilder,
Danish krone, German mark, Irish punt, Japanese yen, South African rand and
Spanish peseta whose notional amounts and related unrealized gains or losses
were not material.

As of December 31, 1998, the Company had entered into foreign currency
forward contracts to hedge the British pound against the United States dollar
in the amount of $66 million with an average contract rate of $1.62/(Pounds)
and an unrealized loss of $3.5 million at December 31, 1998. The Company had
also entered into foreign currency forward contracts to hedge the British
pound against the South African rand in the amount of $19 million with an
average contract rate of 9.99 rand/(Pounds) and an unrealized loss of $4.3
million at December 31, 1998.

As of December 31, 1998 the Company had also entered into foreign currency
forward contracts to hedge foreign currency debt exposures from the British
pound to the Australian dollar, Swiss franc, German mark, Danish krone,
Spanish peseta, French franc, Hong Kong dollar, Italian lira, Japanese yen and
Swedish krona whose notional amounts and related unrealized gains or losses
were not material.

All foreign currency forward contracts purchased will expire within the next
twelve months.

Interest Rate Risk

The Company's variable interest expense is sensitive to changes in the
general level of United States interest rates. Most of the Company's interest
expense is fixed through long-term borrowings to mitigate the impact of such
potential exposure. The following table provides information about the
Company's financial instruments that are sensitive to changes in interest
rates. The table presents principal cash flows and related weighted-average
interest rates by expected maturity dates. Weighted-average variable rates are
based upon spot rate observations as of the reporting date.

Interest Rate Sensitivity
Principal Amount by Expected Maturity
As of December 31, 1999
(Millions of Dollars)

Fair Value at
2000 2001 2002 2003 2004 Thereafter Total December 31, 1999
---- ---- ---- ---- ---- ---------- ----- -----------------

Liabilities
Long-term debt,
including current
portion
Fixed rate............. $33.0 $ 44.8 $ 5.8 $ 20.9 $250.5 $1,885.0 $2,240.0 $2,040.0
Average interest rate.. 7.71% 7.70% 7.70% 7.68% 7.68% 7.69% 7.69%
Variable rate.......... $57.8 $111.6 $118.7 $134.5 $261.5 $ 186.7 $ 870.8 $ 870.8
Average interest rate.. 7.32% 7.37% 7.38% 7.37% 7.36% 7.43% 7.37%

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

Interest Rate Sensitivity
Principal Amount by Expected Maturity
As of December 31, 1998
(Millions of Dollars)

Fair Value at
1999 2000 2001 2002 2003 Thereafter Total December 31, 1998
---- ---- ---- ---- ---- ---------- ----- -----------------

Liabilities
Long-term debt,
including current
portion
Fixed rate............. $ 52.1 $ 65.2 $52.7 $ 10.8 $ 23.7 $1,141.1 $1,345.6 $1,381.2
Average interest rate.. 7.80% 7.84% 7.88% 7.86% 7.86% 7.85% 7.85%
Variable rate.......... $ 56.4 $409.9 $86.4 $115.9 $116.0 $1,109.0 $1,893.6 $1,893.6
Average interest rate.. 7.33% 7.33% 7.33% 7.33% 7.33% 7.33% 7.33%

Rate sensitive
derivative financial
instruments
Interest rate locks
purchased.............. $300.0 -- -- -- -- -- $ 300.0 $ (0.9)
Average strike rate.... 4.69% -- -- -- -- -- -- --
Forward rate........... 4.66% -- -- -- -- -- -- --

Commodity Price Risk

The Company is dependent upon the supply of certain raw materials in the
production process and has entered into firm purchase commitments for copper,
aluminum and nickel. The Company uses forward contracts to hedge against the
changes in certain specific commodity prices of the purchase commitments
outstanding. As of December 31, 1999, the Company had net unrealized gains for
commodity contracts of $0.7 million. As of December 31, 1998, the Company had
net unrealized losses for commodity contracts of $1.4 million.

Other Matters

Impact of Year 2000

In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 compliant. In late 1999, the Company completed its
remediation and testing of systems.

As a result of those planning and implementation efforts, the Company
experienced no significant disruptions in mission-critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
As of December 31, 1999, the Company incurred and expensed approximately $12.1
million and capitalized $7.7 million. Year 2000 program costs incurred during
2000 are not expected to be material and will be funded from operations. The
Company will continue to monitor its mission-critical computer applications
and those of its suppliers and vendors throughout 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.

Euro Conversion

On January 1, 1999, certain member countries of the European Union
irrevocably fixed the conversion rates between their national currencies and a
common currency, the "Euro," which became their legal currency on that date.
The participating countries' former national currencies continue to exist as
denominations of the Euro until January 1, 2002. The Company has established a
steering committee that is monitoring the business implications of conversion
to the Euro, including the need to adapt internal systems to accommodate Euro-
denominated transactions. The acquisition of T&N has provided the Company with
a strong knowledge base in which to assist with the conversion. While the
Company is still in various stages of assessment and implementation, the
Company does not expect the conversion to the Euro to have a material effect
on its financial condition or results of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued

Status of Lighting, Wiper and Fuel Businesses

During the third quarter of 1999, the Company announced plans to sell its
lighting, wiper blade and fuel systems businesses. Accordingly, the Company
accounted for these businesses as held for sale in its press release on
February 2, 2000, and did not include pretax depreciation and amortization
totaling $5.2 million related to these businesses in its operating results at
such time. Subsequent to the Company's February 2, 2000 press release relative
to fourth quarter and total year financial results, the Company, in
recognition of the market price available for the businesses held for sale and
the continued profitability of these businesses, decided to retain its
lighting, wiper blade and fuel systems businesses. As a result, the $5.2
million of depreciation and amortization is reflected in the fourth quarter
and total year 1999 financial results.

2000 Restructuring Program

On February 23, 2000, the Board of Directors of the Company approved a
restructuring plan to reduce costs in the Company's aftermarket and OE
businesses. Under the restructuring plan, the Company expects to incur
restructuring charges of approximately $100 million which it expects to incur
over the next two years, the majority of which will be recognized in 2000 when
specific actions are finalized. The Company will also incur an additional $100
million in incremental expenses and capital expenditures associated with this
plan that will be expensed or capitalized as incurred. The majority of these
expenses will occur in 2000 with the remainder over the subsequent two years.
As a result of this restructuring plan, the Company may also take a non-cash
asset writedown of approximately $35 million to adjust certain assets to their
fair value. The Company anticipates recognizing the first of these charges in
the first quarter of 2000. It is possible the Company may identify additional
areas of potential improvements requiring further restructuring plans.

Item 8. Financial Statements and Supplemental Data

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31
----------------------------
1999 1998 1997
---- ---- ----
(Millions of Dollars,
Except Per Share Amounts)

Net sales........................................ $6,487.5 $4,468.7 $1,806.6
Cost of products sold............................ 4,709.1 3,290.2 1,381.8
-------- -------- --------
Gross margin.................................... 1,778.4 1,178.5 424.8
Selling, general and administrative expenses..... 848.9 640.8 276.0
Amortization of goodwill and other intangible
assets.......................................... 127.2 83.8 8.9
Purchased in-process research and development
charge.......................................... -- 18.6 --
Restructuring charges (credits).................. -- 7.3 (1.1)
Reengineering and other related credits.......... -- -- (1.6)
Adjustment of assets held for sale and other
long-lived assets to fair value................. 7.9 19.0 2.4
Integration costs................................ 46.9 22.4 --
Interest expense................................. 273.5 204.0 33.3
Interest income.................................. (4.6) (10.6) (7.1)
International currency exchange (gains) losses... (2.7) 4.7 0.6
Net (gain) loss on British pound currency option
and forward contract............................ -- (13.3) 10.5
Other expense, net............................... 21.4 16.3 3.4
-------- -------- --------
Earnings before income taxes, extraordinary
items and cumulative effect of change in
accounting principle........................ 459.9 185.5 99.5
Income tax expense............................... 180.9 93.6 27.5
-------- -------- --------
Earnings before extraordinary items and
cumulative effect of change in accounting
principle................................... 279.0 91.9 72.0
Extraordinary items--loss on early retirement of
debt, net of applicable income tax benefits..... 23.1 38.2 2.6
Cumulative effect of change in accounting for
costs of start-up activities, net of applicable
income tax benefit.............................. 12.7 -- --
-------- -------- --------
Net earnings................................. 243.2 53.7 69.4
Preferred dividends, net of related tax benefit.. 2.4 3.6 5.5
-------- -------- --------
Net Earnings Available for Common Shareholders... $ 240.8 $ 50.1 $ 63.9
======== ======== ========
Earnings Per Common Share:
Basic
Earnings before extraordinary items and
cumulative effect of change in accounting
principle..................................... $ 3.96 $ 1.84 $ 1.81
Extraordinary items--loss on early retirement
of debt, net of applicable income tax
benefits...................................... (.34) (.80) (.07)
Cumulative effect of change in accounting for
costs of start-up activities, net of
applicable income tax benefit................. (.18) -- --
-------- -------- --------
Net Earnings Available for Common
Shareholders................................ $ 3.44 $ 1.04 $ 1.74
======== ======== ========
Diluted
Earnings before extraordinary items and
cumulative effect of change in accounting
principle..................................... $ 3.59 $ 1.67 $ 1.67
Extraordinary items--loss on early retirement
of debt, net of applicable income tax
benefits...................................... (.28) (.71) (.06)
Cumulative effect of change in accounting for
costs of start-up activities, net of
applicable income tax benefit................. (.15) -- --
-------- -------- --------
Net Earnings Available for Common
Shareholders................................ $ 3.16 $ .96 $ 1.61
======== ======== ========

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED BALANCE SHEETS

December 31
----------------------
1999 1998
---- ----
(Millions of Dollars)

ASSETS
Cash and equivalents................................... $ 64.5 $ 77.2
Accounts receivable.................................... 514.6 1,025.0
Investment in accounts receivable securitization....... 232.2 91.1
Inventories............................................ 883.6 1,068.6
Prepaid expenses and income tax benefits............... 331.6 337.7
---------- ----------
Total Current Assets................................. 2,026.5 2,599.6
Property, plant and equipment, net..................... 2,503.7 2,477.5
Goodwill............................................... 3,547.8 3,398.4
Other intangible assets................................ 796.3 886.4
Asbestos-related insurance recoverable................. 325.9 --
Other noncurrent assets................................ 745.0 578.2
---------- ----------
Total Assets......................................... $ 9,945.2 $ 9,940.1
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt, including current portion of long-term
debt.................................................. $ 190.8 $ 211.0
Accounts payable....................................... 621.9 498.4
Accrued compensation................................... 182.9 200.3
Restructuring and rationalization reserves............. 46.0 178.9
Current portion of asbestos liability.................. 180.0 125.0
Income taxes payable................................... 72.3 142.2
Other accrued liabilities.............................. 488.7 673.7
---------- ----------
Total Current Liabilities............................ 1,782.6 2,029.5
Long-term debt......................................... 3,020.0 3,130.7
Long-term portion of asbestos liability................ 1,335.3 1,176.7
Postemployment benefits................................ 661.9 660.9
Other accrued liabilities.............................. 454.9 343.1
Minority interest in consolidated subsidiaries......... 40.3 38.0
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
convertible subordinated debentures of the
Company(1)............................................ 575.0 575.0
Shareholders' Equity:
Series C ESOP preferred stock......................... 41.5 44.4
Series E preferred stock.............................. -- 132.7
Common stock.......................................... 352.1 336.8
Additional paid-in capital............................ 1,782.4 1,665.8
Retained earnings (accumulated deficit)............... 170.3 (69.9)
Unearned ESOP compensation............................ (7.9) (15.1)
Accumulated other comprehensive income................ (262.1) (106.0)
Other................................................. (1.1) (2.5)
---------- ----------
Total Shareholders' Equity........................... 2,075.2 1,986.2
---------- ----------
Total Liabilities and Shareholders' Equity........... $ 9,945.2 $ 9,940.1
========== ==========

- - ------------------
(1) The sole assets of the Trust are convertible subordinated debentures of
Federal-Mogul with an aggregate principal amount of $575.0 million, which
bear interest at a rate of 7% per annum and mature on December 1, 2027.
Upon repayment, the Company-obligated mandatorily redeemable preferred
securities of subsidiary trust will be mandatorily redeemed.

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31
-----------------------------
1999 1998 1997
--------- --------- -------
(Millions of Dollars)

Cash Provided From (Used By) Operating
Activities
Net earnings................................... $ 243.2 $ 53.7 $ 69.4
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization................. 354.9 228.0 51.5
Purchased in-process research and development
charge....................................... -- 18.6 --
Restructuring charges (credits)............... -- 7.3 (1.1)
Reengineering and other related credits....... -- -- (1.6)
Adjustment of assets held for sale and other
long-lived assets to fair value.............. 7.9 19.0 2.4
Loss on early retirement of debt.............. 36.6 58.1 4.1
Cumulative effect of change in accounting
principle.................................... 19.5 -- --
Vesting of restricted stock................... 1.4 0.7 9.0
Postemployment benefits....................... (18.8) 10.9 (7.7)
(Increase) decrease in accounts receivable.... (33.4) 37.5 7.6
Decrease in inventories....................... 117.2 55.9 59.9
Increase (decrease) in accounts payable....... 149.7 5.4 (19.5)
Increase (decrease) in current liabilities and
other........................................ (57.0) (2.4) 67.9
Payments against restructuring and
rationalization reserves..................... (80.6) (78.0) (26.2)
Payments against asbestos liability........... (178.2) (89.2) --
--------- --------- -------
Net Cash Provided From Operating Activities.. 562.4 325.5 215.7
Cash Provided From (Used By) Investing
Activities
Expenditures for property, plant and equipment
and other long-term assets.................... (395.2) (228.5) (49.7)
Proceeds from sale of business investments..... 53.3 53.4 73.6
Proceeds from sale of options.................. -- 39.1 --
Business acquisitions, net of cash acquired.... (371.2) (4,225.2) (30.5)
Other.......................................... -- -- 1.1
--------- --------- -------
Net Cash Used By Investing Activities........ (713.1) (4,361.2) (5.5)
Cash Provided From (Used By) Financing
Activities
Issuance of common stock....................... 1.2 1,382.2 14.2
Proceeds from issuance of long-term debt....... 2,123.0 6,197.5 179.6
Principal payments on long-term debt........... (2,251.5) (3,927.6) (127.4)
Increase (decrease) in short-term debt......... (3.0) 0.5 (235.8)
Fees paid for debt issuance and other
securities.................................... (25.5) (76.6) (42.8)
Fees for early retirement of debt.............. -- (27.4) (4.1)
Sale (repurchase) of accounts receivable under
securitization................................ 304.3 42.6 (31.8)
Issuance of Company-obligated mandatorily
redeemable preferred securities............... -- -- 575.0
Dividends...................................... (4.3) (10.4) (24.8)
Other.......................................... (6.2) (9.3) (4.0)
--------- --------- -------
Net Cash Provided From Financing Activities.. 138.0 3,571.5 298.1
--------- --------- -------
Increase (Decrease) in Cash and Equivalents.. (12.7) (464.2) 508.3
Cash and equivalents at beginning of year....... 77.2 541.4 33.1
--------- --------- -------
Cash and Equivalents at End of Year.......... $ 64.5 $ 77.2 $ 541.4
========= ========= =======

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Series C Retained Accumulated
ESOP Series D & E Additional Earnings Unearned Other
Preferred Preferred Common Paid-In (Accumulated ESOP Comprehensive
Stock Stock Stock Capital Deficit) Compensation Income Other Total
--------- ------------ ------ ---------- ------------ ------------ ------------- ----- --------
(Millions of Dollars)

Balance at January 1,
1997................. $53.1 $ 76.6 $175.7 $ 283.5 $(193.0) $(28.4) $ (40.1) $(8.9) $ 318.5
Net earnings.......... 69.4 69.4
Currency translation.. (27.4) (27.4)
Other................. 1.8 1.8
--------
Total Comprehensive
Income.............. 43.8
Conversion of Series D
preferred stock...... (76.6) 22.3 54.3 --
Issuance of stock..... 3.0 14.7 6.7 24.4
Retirement of Series C
ESOP preferred
stock................ (4.1) (4.1)
Amortization of
unearned ESOP
compensation......... 6.6 6.6
Dividends............. (24.8) (24.8)
Preferred dividend tax
benefits............. 4.9 4.9
----- ------- ------ -------- ------- ------ ------- ----- --------
Balance at December
31, 1997............. 49.0 -- 201.0 332.6 (123.6) (21.8) (65.7) (2.2) 369.3
Net earnings.......... 53.7 53.7
Currency translation.. (36.7) (36.7)
Other................. (3.6) (3.6)
--------
Total Comprehensive
Income.............. 13.4
Issuance of Series E
preferred stock...... 225.0 225.0
Issuance of stock..... (92.3) 135.8 1,338.4 (0.3) 1,381.6
Retirement of Series C
ESOP preferred
stock................ (4.6) (4.6)
Amortization of
unearned ESOP
compensation......... 6.7 6.7
Dividends............. (10.4) (10.4)
Preferred dividend tax
benefits............. 5.2 5.2
----- ------- ------ -------- ------- ------ ------- ----- --------
Balance at December
31, 1998............. 44.4 132.7 336.8 1,665.8 (69.9) (15.1) (106.0) (2.5) 1,986.2
Net earnings.......... 243.2 243.2
Currency translation.. (149.7) (149.7)
Other................. (6.4) (6.4)
--------
Total Comprehensive
Income.............. 87.1
Conversion of Series E
preferred stock...... (132.7) 15.2 117.5 --
Issuance of stock,
net.................. 0.1 (1.1) 1.4 0.4
Retirement of Series C
ESOP preferred
stock................ (2.9) (2.9)
Amortization of
unearned ESOP
compensation......... 7.2 7.2
Dividends............. (1.3) (3.0) (4.3)
Preferred dividend tax
benefits............. 1.5 1.5
----- ------- ------ -------- ------- ------ ------- ----- --------
Balance at December
31, 1999............. $41.5 -- $352.1 $1,782.4 $ 170.3 $ (7.9) $(262.1) $(1.1) $2,075.2
===== ======= ====== ======== ======= ====== ======= ===== ========

See accompanying Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Accounting Policies

Organization: Federal-Mogul is an automotive parts manufacturer providing
innovative solutions and systems to global customers in the automotive, small
engine, heavy-duty and industrial markets. The Company manufactures engine
bearings, sealing systems, fuel systems, lighting products, pistons, ignition,
brake, friction and chassis products. The Company's principal customers
include many of the world's original equipment ("OE") manufacturers of such
vehicles and industrial products. The Company also manufactures and supplies
its products and related parts to the aftermarket.

Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.

Cash and Equivalents: The Company considers all highly liquid investments
with maturities of 90 days or less from the date of purchase to be cash
equivalents.

Inventories: Inventories are stated at the lower of cost or market. Cost
determined by the last-in, first-out (LIFO) method was used for 50% and 53% of
the inventory at December 31, 1999 and 1998, respectively. The remaining
inventories are recorded using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost, amounts reported would have been
increased by $45.0 million and $39.0 million as of December 31, 1999 and 1998,
respectively.

Inventory quantity reductions resulting in liquidations of certain LIFO
inventory layers increased net earnings by $3.2 million, $3.4 million and $3.2
million ($.04, $.06 and $.08 per diluted share) in 1999, 1998 and 1997,
respectively.

At December 31, inventories consisted of the following:

1999 1998
---------- -----------
(Millions of Dollars)

Finished products.................................... $ 638.9 $ 737.9
Work-in-process...................................... 133.1 147.1
Raw materials........................................ 138.1 208.5
--------- -----------
910.1 1,093.5
Reserve for inventory valuation...................... (26.5) (24.9)
--------- -----------
$ 883.6 $ 1,068.6
========= ===========

Goodwill and Other Intangible Assets: At December 31, goodwill and other
intangible assets, which result principally from acquisitions, consisted of
the following:

Estimated
Useful Life 1999 1998
----------- ---------- ----------
(Millions of Dollars)

Goodwill................................. 40 years $ 3,725.7 $ 3,481.8
Accumulated amortization................. (177.9) (83.4)
---------- ----------
Total Goodwill......................... $ 3,547.8 $ 3,398.4
========== ==========
Trademarks............................... 40 years $ 415.7 $ 417.6
Developed technology..................... 12-30 years 368.1 390.1
Assembled workforce...................... 15 years 76.9 88.1
Other.................................... 5-20 years 14.4 39.9
---------- ----------
875.1 935.7
Accumulated amortization................. (78.8) (49.3)
---------- ----------
Total Other Intangible Assets.......... $ 796.3 $ 886.4
========== ==========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

Intangible assets are periodically reviewed for impairment based on an
assessment of future cash flows or fair value for assets held for sale.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives. Impairment charges recorded in 1999, 1998 and 1997 related
primarily to assets held for sale.

Revenue Recognition: The Company recognizes revenue and estimated returns
from product sales and the related customer incentive and warranty expense
when goods are shipped to the customer.

Research and Development and Advertising Costs: The Company expenses
research and development costs as incurred. Research and development expense
was $128.0 million, $85.0 million and $13.1 million for 1999, 1998 and 1997,
respectively.

Costs associated with advertising and promotion are expensed as incurred.
Advertising and promotion expense was $59.8 million, $45.9 million, $31.8
million for 1999, 1998 and 1997, respectively.

Currency Translation: Exchange adjustments related to international currency
transactions and translation adjustments for subsidiaries whose functional
currency is the United States dollar (principally those located in highly
inflationary economies) are reflected in the consolidated statements of
operations. Translation adjustments of international subsidiaries for which
the local currency is the functional currency are reflected in the
consolidated financial statements as a component of accumulated other
comprehensive income.

Environmental Liabilities: The Company recognizes environmental liabilities
when a loss is probable and estimable. Such liabilities are generally not
subject to insurance coverage. Engineering and legal specialists within the
Company, based on current law and existing technologies, estimate each
environmental obligation. Such estimates are based primarily upon the
estimated cost of investigation and remediation required and the likelihood
that other potentially responsible parties will be able to fulfill their
commitments at the sites where the Company may be jointly and severally liable
with such parties (refer to Note 16, "Litigation and Environmental Matters").

The Company regularly evaluates and revises its estimates for environmental
obligations based on expenditures against established reserves and the
availability of additional information.

Integration Costs: These are incremental direct costs associated with
integrating material acquisitions and include such one-time items as brand
integration, costs to pack and move productive inventory and fixed assets from
one location to another, and costs to change the identity of entities
acquired. Such costs are expensed as incurred.

Derivative Financial Instruments: The Company has used interest rate lock
agreements to synthetically manage the interest rate characteristics of
certain outstanding debt to a more desirable fixed rate basis or to limit the
Company's exposure to rising interest rates, and uses forward foreign exchange
contracts to minimize and lock the amount of currency payments for certain
transactions that are denominated in certain foreign currencies, and forward
contracts to hedge against the changes in certain specific commodity prices of
the purchase commitments outstanding (collectively "derivative contracts").

Interest rate differentials to be paid or received as a result of settled
interest rate lock agreements are accrued and recognized as an adjustment of
interest expense related to the designated debt. Recorded amounts related to
derivative contracts are included in other assets or liabilities. The fair
values of interest rate lock agreements and forward contracts are not
recognized in the financial statements.

Realized and unrealized gains or losses at the time of maturity,
termination, sale or repayment of a derivative contract or designated item are
recorded in a manner consistent with the original designation of the
derivative in view of the nature of the termination, sale or repayment
transaction. Amounts related to interest

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

rate locks are deferred and amortized as an adjustment to interest expense
over the original period of interest exposure, provided the designated
liability continues to exist or is probable of occurring. Realized and
unrealized changes in fair value of derivatives designated with items that no
longer exist or are no longer probable of occurring are recorded as a
component of the gain or loss arising from the disposition of the designated
item.

Comprehensive Income: The Company displays comprehensive income in the
Consolidated Statements of Shareholders' Equity. At December 31, 1999 and
1998, comprehensive income consisted of $252.0 million and $102.3 million of
foreign currency translation adjustments, respectively, and $10.1 million and
$3.7 million of other comprehensive income, primarily minimum pension funding,
respectively.

Reclassifications: Certain items in the prior year financial statements have
been reclassified to conform with the presentation used in 1999.

Effect of Accounting Pronouncements: Effective January 1, 1999, the Company
adopted AICPA Statement of Position (SOP) 98-5, Reporting the Costs of Start-
Up Activities. SOP 98-5 requires that start-up costs capitalized prior to
January 1, 1999 be written off and any future start-up costs be expensed as
incurred. The unamortized balance of start-up costs written off as a
cumulative effect of an accounting change was approximately $12.7 million, net
of tax.

The following table summarizes the pro forma net earnings and per share
amounts for each period presented. Pro forma amounts assume the change in
application of accounting principle was applied retroactively (unaudited):

1999 1998 1997
------ ----- -----
(Millions of
Dollars, Except
Per Share Amount)

Net earnings as reported................................. $243.2 $53.7 $69.4
Pro forma................................................ $255.9 $45.3 $65.1
Basic earnings per share as reported..................... $ 3.44 $1.04 $1.74
Pro forma................................................ $ 3.63 $ .87 $1.62
Diluted earnings per share as reported................... $ 3.16 $ .96 $1.61
Pro forma................................................ $ 3.31 $ .80 $1.51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

2. Acquisitions of Businesses

1999 Acquisitions:

Also in January 1999, the Company completed its acquisition of certain
manufacturing operations of Crane Technologies, Inc. (Crane) to increase its
camshaft capacity. Its two plants, located in Orland, Indiana and Jackson,
Michigan, employ approximately 230 people with 1998 annual sales of
approximately $36 million.

1998 Acquisitions:

T&N

In March 1998, the Company acquired T&N plc (T&N), a manufacturer of high
technology engineered automotive components and industrial materials, based in
Manchester, England for consideration (including direct costs of the
acquisition) of approximately $2.4 billion. The Company also assumed cash of
approximately $185 million and debt of approximately $745 million.

The Company recognized an $18.6 million charge in the first quarter of 1998
associated with the estimated fair value of purchased in-process research and
development for which technological feasibility had not been established and
the in-process technology had no future alternative uses.

Cooper Automotive

In October 1998, the Company acquired the automotive division of Cooper
Industries, Inc. (Cooper Automotive), headquartered in St. Louis, Missouri,
for initial consideration of approximately $1.9 billion. The Cooper Automotive
purchase agreement included a price adjustment based upon acquired net assets,
as defined in the agreement, under which the Company made additional cash
payments of $154.9 million in 1999. Cooper is a leading supplier of
aftermarket parts for repair and maintenance and serves OE automobile
manufacturers worldwide.

Fel-Pro

In February 1998, the Company acquired Fel-Pro, Incorporated and certain
affiliated entities which constitute the operating businesses of the Fel-Pro
group of companies (Fel-Pro), a privately owned gasket manufacturer
headquartered in Skokie, Illinois, for a total consideration of approximately
$722 million, which included 1,030,326 shares of Federal-Mogul Series E Stock
with an imputed value of $225 million and approximately $497 million in cash.
Fel-Pro is a leading gasket manufacturer in the North American aftermarket and
OE heavy-duty market.

The Alcan, Crane, T&N, Cooper Automotive and Fel-Pro acquisitions have been
accounted for as purchases and, accordingly, the total consideration was
allocated to the acquired assets and assumed liabilities based on estimated
fair values as of the acquisition dates. The consolidated statements of
operations for the years ended December 31, 1999 and 1998 include the
operating results of the acquired businesses, exclusive of the T&N Bearings
Business and the Fel-Pro Chemical Business (refer to "Divestiture of Acquired
Businesses" below) from their respective acquisition dates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

Rationalization of Acquired Businesses

In connection with the T&N, Cooper Automotive and Fel-Pro acquisitions in
1998 the Company recognized $216.8 million as acquired liabilities related to
the rationalization and integration of acquired businesses. The
rationalization reserves provided for $180.0 million in relocation and
severance costs, and $36.8 million in exit costs, and were recorded as a
component of goodwill in the purchase price allocation.

The components of the integration plan included: closure of certain
manufacturing facilities worldwide; relocation of highly manual manufacturing
product lines to more suitable locations; consolidation of overlapping
manufacturing, technical and sales facilities and joint ventures;
consolidation of overlapping aftermarket warehouses; consolidation of
aftermarket marketing and customer support functions; and streamlining of
administrative, sales, marketing and product engineering staffs worldwide.

Divestitures of Acquired Businesses

In connection with securing regulatory approvals for the acquisition of T&N,
the Company executed an Agreement Containing Consent Order with the Federal
Trade Commission on February 27, 1998. Pursuant to this agreement, the Company
divested of the T&N Bearings Business and provided for independent management
of those assets pending such divestiture. The agreement stipulated that the
T&N Bearings Business be maintained as a viable, independent competitor of the
Company and that the Company not attempt to direct the activities of, or
exercise control over, the T&N Bearings Business or have contact with the T&N
Bearings Business outside of normal business activities.

In December 1998, the Company sold the T&N Bearings Business, consisting of
the Glacier Vandervell Bearings Group and the AE Clevite North American non-
bearing aftermarket engine hard parts business, to Dana Corporation for $430
million. These proceeds were subsequently used to pay down debt. Furthermore,
the Company realized additional net proceeds of approximately $13 million from
the collection of receivables of the business sold. Prior to the sale of the
T&N Bearings Business to Dana Corporation, a portion of the business was sold
for approximately $12 million in August 1998.

In July 1998, the Company sold the Fel-Pro Chemical Business to Loctite
Corporation, a part of Henkel KGaA, a global specialist in applied chemistry
headquartered in Dusseldorf, Germany, for $57 million.

Operating results for the T&N Bearings and Fel-Pro Chemical Businesses
(which include interest expense of $30 million relating to the holding costs
of the businesses) have been excluded from the consolidated statement of
operations for the year ended December 31, 1998.

Pro Forma Results

The following unaudited pro forma financial information for the years ended
December 31, 1998 and 1997 assume the T&N, Cooper Automotive and Fel-Pro
acquisitions occurred as of the beginning of the respective periods, after
giving effect to certain adjustments, including the amortization of intangible
assets, interest expense on acquisition debt, divestitures of the T&N Bearings
Business and Fel-Pro Chemical Business, 1998 equity offerings and income tax
effects. The pro forma results (in millions of dollars, except per share data)
have been

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

prepared for comparative purposes only and are not necessarily indicative of
the results of operations which may occur in the future or that would have
occurred had the acquisitions of T&N, Cooper Automotive and Fel-Pro been
consummated on the dates indicated, nor are they necessarily indicative of the
Company's future results of operations.

Unaudited Pro Forma Financial Information
(Millions of Dollars, Except Per Share Amounts)

Year Ended December 31
-----------------------
1998 1997
----------- -----------

Net sales.......................................... $ 6,444.1 $ 6,644.7
Net earnings (loss)................................ $ 152.0 $ (4.9)
Earnings (loss) per share.......................... $ 2.12 $ (.19)
Earnings (loss) per share assuming dilution........ $ 1.95 $ (.19)

3. Sales of Businesses

In 1999, the Company sold its subsidiary, Bertolotti Pietro e Figli, S.r.l.
(Bertolotti), an Italian aftermarket operation. In 1998, the Company
recognized a $20.0 million charge primarily associated with the writedown of
Bertolotti's assets to their estimated fair value. In 1999, the Company
recognized an additional $7.9 million loss associated with the writedown of
Bertolotti's assets to their fair value resulting from the sale. Offsetting
the loss was a tax benefit of $7.9 million resulting from the sale.

Also during 1999, the Company sold its South African heat transfer business.
The business had sales of approximately $56 million in 1998 in four South
African locations and employed approximately 1,200 people. The Company did not
realize a significant gain or loss on this transaction.

In February 1998, the Company divested its minority interest in G. Bruss
GmbH & Co. KG (Bruss), a German manufacturer of seals and gaskets. As part of
the divestiture agreement, the Company increased its ownership to 100% in its
Summerton, South Carolina gasket manufacturing plant. The Company received net
proceeds of approximately $46 million related to the divestiture agreement and
recognized a gain on the divestiture of $6.0 million. The gain on the
divestiture is included as a component of other expense. In addition, the
Company closed or sold substantially all its remaining retail aftermarket
operations during 1998.

During 1997, the Company received $73.6 million in net cash proceeds from
the sale of its aftermarket operations in South Africa, Australia and Chile,
and its heavy wall bearing operations in Germany and Brazil.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

4. Restructuring Charges

The following is a summary of restructuring charges and related activity for
1997, 1998 and 1999 (in millions of dollars):

1995 and 1996
Restructuring 1997 Restructuring 1998 Restructuring 1999 Restructuring
Provisions Provision Provision Provision
--------------- ---------------------- ---------------------- ----------------------
Severance Exit Severance Exit Severance Exit Severance Exit Total
--------- ----- ----------- --------- ----------- --------- ----------- --------- ------

Balance of restructuring
reserves at
January 1, 1997........ $ 38.0 $17.2 $ 55.2
1997 restructuring
charge................ -- -- $ 16.7 $ 5.3 22.0
Adjustment to
restructuring
reserves.............. (20.8) (2.3) -- -- (23.1)
------ ----- --------- --------- ------
1997 restructuring
charges (net).......... (20.8) (2.3) 16.7 5.3 (1.1)
Payments against
restructuring
reserves............... (11.6) (5.4) (0.1) -- (17.1)
------ ----- --------- --------- ------
Balance of restructuring
reserves at
December 31, 1997...... 5.6 9.5 16.6 5.3 37.0
1998 restructuring
charges............... -- -- -- -- $ 16.0 $ 0.3 16.3
Adjustment to
restructuring
reserves.............. -- (2.4) (4.6) (2.0) -- -- (9.0)
------ ----- --------- --------- --------- --------- ------
1998 restructuring
charges (net).......... -- (2.4) (4.6) (2.0) 16.0 0.3 7.3
Payments against
restructuring
reserves............... (1.1) (5.8) (6.1) (0.1) (3.3) -- (16.4)
------ ----- --------- --------- --------- --------- ------
Balance of restructuring
reserves at
December 31, 1998...... 4.5 1.3 5.9 3.2 12.7 0.3 27.9
1999 restructuring
charges............... $ 11.1 $ 2.1 13.2
Adjustment to
restructuring
reserves.............. (0.9) (0.6) (3.1) (2.3) (6.1) (0.2) -- -- (13.2)
------ ----- --------- --------- --------- --------- --------- --------- ------
1999 restructuring
charges (net).......... (0.9) (0.6) (3.1) (2.3) (6.1) (0.2) 11.1 2.1 --
Payments and charges
against restructuring
reserves............... (3.6) (0.7) (2.8) (0.9) (0.8) (0.1) (3.1) (0.2) (12.2)
------ ----- --------- --------- --------- --------- --------- --------- ------
Balance of restructuring
reserves at
December 31, 1999...... $ -- $ -- $ -- $ -- $ 5.8 $ -- $ 8.0 $ 1.9 $ 15.7
====== ===== ========= ========= ========= ========= ========= ========= ======

1999 Restructuring Provision

1998 Restructuring Provision

In 1998, as a result of the T&N, Cooper Automotive and Fel-Pro acquisitions,
the Company recognized $16.3 million of restructuring charges related to
restructuring the Company's operations in place prior to these acquisitions.
Employee severance costs resulted from planned terminations of approximately
1,800 employees in various business operations of the Company. The severance
costs were based on the estimated and actual

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

amounts that will be paid to the affected employees pursuant to the Company's
workforce reduction policies and certain foreign governmental regulations. The
Company anticipates that the remaining actions related to the 1998
restructuring plan will be completed in 2000.

1997 Restructuring Provision

Results of operations in 1997 include a $22.0 million charge for 1997
severance and exit costs. The restructuring actions were designed to improve
the Company's cost structure, streamline operations and divest the Company of
under performing assets.

Employee severance costs for 1997 resulted from the planned and actual
termination of approximately 500 employees in various business operations of
the Company. The severance costs were based on the minimum levels that will be
paid to the affected employees pursuant to the Company's workforce reduction
policies and certain foreign governmental regulations.

Exit costs for 1997 principally include lease termination costs for certain
North American distribution service branches and retail aftermarket operations
in Puerto Rico, and the consolidation of certain European distribution, and
North American and European manufacturing operations. The 1997 restructuring
actions were completed during 1999.

5. British Pound Currency Option and Forward Contract

The Company entered into the above transactions to serve as economic hedges
for the purchase of T&N. Such transactions, however, did not qualify for hedge
accounting under GAAP, and therefore both the loss on the British pound
currency option and the gain on the British pound forward contract are
reflected in the consolidated statement of operations caption "Net (gain) loss
on British pound currency option and forward contract."

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

6. Debt

Long-term debt at December 31 consists of the following:

1999 1998
---------- ----------
(Millions of Dollars)

Senior Credit Agreements:
Term loans......................................... $ 750.0 $ 1,893.6
Multi-currency revolving credit facility........... 65.0 --
Notes due 2004 -- 7.5%, issued in 1998............... 249.6 249.5
Notes due 2006 -- 7.75%, issued in 1998.............. 399.9 399.9
Notes due 2006 -- 7.375%, issued in 1999............. 398.6 --
Notes due 2009 -- 7.5%, issued in 1999............... 597.6 --
Notes due 2010 -- 7.875%, issued in 1998............. 349.2 349.2
Medium-term notes -- due between 2000 and 2005,
average rate of 8.8%, issued in 1994 and 1995....... 104.0 125.0
Senior notes -- due in 2007, rate of 8.8%, issued in
1997................................................ 124.7 124.7
ESOP obligation -- due in 2000, average rate of
7.19%............................................... 7.9 14.7
Other................................................ 64.3 82.6
---------- ----------
3,110.8 3,239.2
Less current maturities included in short-term debt.. 90.8 108.5
---------- ----------
$ 3,020.0 $ 3,130.7
========== ==========

In February 1999, the Company entered into a new $1.75 billion Senior Credit
Agreement at variable interest rates, which contains a $1.0 billion
multicurrency revolving credit facility and two term loan components. The
revolving credit facility has a five-year maturity. The term loan components
of $400 million and $350 million mature in five and six years, respectively.
The proceeds of this Senior Credit Agreement were used to refinance the prior
Senior Credit Agreements entered into in connection with the T&N and Cooper
Automotive acquisitions as well as the $400 million multi-currency revolving
credit facility related to the T&N acquisition. As a result of these
transactions, the Company recognized an extraordinary charge in the first
quarter of 1999 of approximately $14.6 million, net of tax, related to the
early extinguishment of debt. The Company had $815.0 million outstanding under
these Senior Credit Agreements as of December 31, 1999, which were due from
2000 to 2005 with an average interest rate of 7.36%.

In January 1999, the Company issued $1.0 billion of bonds with maturities
ranging from seven to ten years, a weighted average yield of 7.53% and a
weighted average coupon of 7.45%. Proceeds were used to repay borrowings under
the Senior Credit Agreements. As a result of this transaction, the Company
recognized an extraordinary charge in the first quarter of 1999 of
approximately $8.5 million, net of tax, related to early extinguishment of
debt.

In 1998, in connection with the acquisitions of T&N and Cooper Automotive,
the Company entered into Senior Credit Agreements. The Company had $1,893.6
million outstanding under these Senior Credit Agreements as of December 31,
1998, which were due from 1999 to 2005 with an average interest rate of 7.33%.
These Agreements were replaced with the 1999 Senior Credit Agreements
discussed above.

The proceeds from the 2004, 2006 and 2010 notes were used to repay amounts
previously outstanding under the Senior Credit Agreements. Such repayments and
other repayments resulting from the proceeds of equity offerings (refer to
Note 9, "Capital Stock and Preferred Share Purchase Rights") and the early
retirement of private placement debt assumed in the T&N acquisition and
related make-whole payment resulted in the extraordinary loss on the early
retirement of debt in 1998 of $38.2 million, net of applicable income tax
benefits of $19.9 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

The Company has pledged 100% of the capital stock of certain United States
subsidiaries, 65% of capital stock of certain foreign subsidiaries and certain
intercompany loans to secure the Senior Credit Agreements of the Company;
certain of such pledges also extend to the Notes, Medium-Term Notes and Senior
Notes. In addition, certain subsidiaries of the Company have guaranteed the
senior debt (refer to Note 18, "Consolidating Condensed Financial Information
of Guarantor Subsidiaries").

The ESOP obligation represents the unpaid principal balance on an 11-year
loan entered into by the Company's ESOP in 1989. Proceeds of the loan were
used by the ESOP to purchase the Company's Series C ESOP preferred stock.
Payment of principal and interest on the notes is unconditionally guaranteed
by the Company, and therefore, the unpaid principal balance of the borrowing
is classified as long-term debt. Company contributions and dividends on the
preferred shares held by the ESOP are used to meet semi-annual principal and
interest obligations. The original ESOP obligation bore an annual interest
rate of 11.5%. The obligation was refinanced on June 30, 1995 at a fixed
interest rate of 7.2%. The ESOP obligation matures in December 2000.

The weighted average interest rate for the Company's short-term debt was
approximately 7.42% and 7.75% as of December 31, 1999 and 1998, respectively.

Aggregate maturities of long-term debt for each of the years following 2000
are, in millions: 2001 -- $156.4; 2002 -- $124.5; 2003 -- $155.4; 2004 --
$512.0 and thereafter $2,071.7.

Interest paid in 1999, 1998 and 1997 was $240.3 million, $173.4 million and
$30.7 million, respectively.

7. Financial Instruments

Foreign Exchange Risk and Commodity Price Management

The Company is subject to exposure to market risks from changes in foreign
exchange rates and raw material price fluctuations. Derivative financial
instruments are utilized by the Company to reduce those risks. Except for the
British pound currency option and forward contract discussed in Note 5, the
Company does not hold or issue derivative financial instruments for trading
purposes.

As of December 31, 1999, the Company has foreign exchange forward contracts
principally for British pound exposures relating to the United States dollar,
Euro, French franc, and Italian lira. The Company also has foreign exchange
forward contracts for United States dollar exposure relating to the Euro. At
December 31, 1999, the unrealized gains or losses relating to these contracts
were not material.

The Company enters into copper, aluminum and nickel contracts to hedge
against the risk of price increases. These contracts are expected to offset
the effects of price changes on the firm purchase commitments for copper,
aluminum and nickel. Under the agreements, the Company was committed to
purchase approximately 3.6, 6.4 and 0.5 million pounds of copper, aluminum,
and nickel respectively. The net unrealized gain on these firm purchase
commitments were not material.

Deferred gains and losses are included in other assets and liabilities and
recognized in operations when the future purchase, sale or payment (in the
case of the asbestos liability) occurs, or at the point in time when the
purchase, sale or payment is no longer expected to occur.

Accounts Receivable Securitization

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

On an ongoing basis, the Company sells certain accounts receivable to
Federal-Mogul Funding Corporation (FMFC), a wholly-owned subsidiary of the
Company, which then sells such receivables, without recourse, to a financial
conduit. Amounts excluded from the balance sheets under these arrangements
were $410.1 million and $105.8 million at December 31, 1999 and 1998,
respectively. The Company's retained interest in the accounts receivable sold
to FMFC is included in the consolidated balance sheet caption "Investment in
Accounts Receivable Securitization."

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of accounts receivable and
cash investments. The Company's customer base includes virtually every
significant global automotive manufacturer and a large number of distributors
and installers of automotive aftermarket parts. The Company's credit
evaluation process, reasonably short collection terms and the geographical
dispersion of sales transactions help to mitigate any concentration of credit
risk. The Company requires placement of investments in financial institutions
evaluated as highly creditworthy.

The Company does not generally require collateral for its trade accounts
receivable or those assets included in the investment in accounts receivable
securitization. The allowance for doubtful accounts of $69.3 million and $60.4
million at December 31, 1999 and 1998, respectively, is based upon the
expected collectibility of trade accounts receivable.

Fair Value of Financial Instruments

The carrying amounts of certain financial instruments such as cash and
equivalents, accounts receivable, accounts payable and short-term debt
approximate their fair values. The carrying amounts and estimated fair values
of the Company's long-term debt, including the current portion were $3,110.8
million and $2,910.8 million, respectively, at December 31, 1999. The carrying
amounts and estimated fair values of the Company's long-term debt, including
the current portion were $3,239.2 million and $3,274.8 million, respectively,
at December 31, 1998. The fair value of the long-term debt is estimated using
discounted cash flow analysis and the Company's current incremental borrowing
rates for similar types of arrangements.

8. Property, Plant and Equipment

Property, plant and equipment are stated at cost and include expenditures
that materially extend the useful lives of existing buildings, machinery and
equipment.

Depreciation is computed principally by the straight-line method for
financial reporting purposes and by accelerated methods for income tax
purposes. Depreciation expense for the years ended December 31, 1999, 1998 and
1997, was $221.4 million, $144.2 million and $42.6 million, respectively.

At December 31, property, plant and equipment consisted of the following:

Estimated
Useful Life 1999 1998
----------- ---------- ----------
(Millions of Dollars)

Land.................................... -- $ 145.7 $ 139.4
Buildings and building improvements..... 24-40 years 496.1 560.1
Machinery and equipment................. 3-12 years 2,402.9 2,097.6
---------- ----------
3,044.7 2,797.1
Accumulated depreciation................ (541.0) (319.6)
---------- ----------
$ 2,503.7 $ 2,477.5
========== ==========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

Future minimum payments under noncancelable operating leases with initial or
remaining terms of more than one year are, in millions: 2000 -- $41.7; 2001 --
$33.1; 2002 -- $27.1; 2003 -- $21.6, 2004 -- $19.8 and thereafter $45.2.

Total rental expense under operating leases was $52.6 million in 1999, $46.5
million in 1998 and $29.1 million in 1997, exclusive of property taxes,
insurance and other occupancy costs generally payable by the Company.

9. Capital Stock and Preferred Share Purchase Rights

The Company's articles of incorporation authorize the issuance of
260,000,000 shares of common stock, of which 70,422,525 shares, 67,233,216
shares and 40,196,603 shares were outstanding at December 31, 1999, 1998 and
1997, respectively.

In December 1998, the Company completed an equity offering of 14.1 million
shares of common stock. The net proceeds from the sale of the common stock of
$781.2 million were used to reduce the Senior Credit Agreements associated
with the acquisition of Cooper Automotive.

In June 1998, the Company issued 12.7 million shares of common stock,
including 2.1 million shares which were converted from Series E Stock. The net
proceeds from the sale of the common stock of $592 million were used to prepay
the entire outstanding principal amount under the Senior Subordinated Credit
Agreement and partially repay the Senior Credit Agreement (refer to Note 2,
"T&N" in "1998 Acquisitions").

In February 1998, in connection with the Fel-Pro acquisition, the Company
issued 1,030,326 shares Series E Stock with an imputed value of $225 million.
The shares of Series E Stock were exchangeable into shares of the Company's
common stock at a rate of five shares of common stock per share of Series E
Stock. In conjunction with the June 1998 common stock offering described
above, the Company converted 422,581 shares of Series E Stock into
approximately 2.1 million shares of common stock. On February 24, 1999, the
remaining 607,745 shares of the Company's Series E Stock were exchanged into
shares of the Company's common stock.

In August 1997, the Company announced a call for the redemption of all its
outstanding $3.875 Series D Convertible Exchangeable Preferred Stock. These
preferred stockholders elected to convert each preferred share into 2.778
shares of common stock. The Company issued 4.4 million shares of common stock
in exchange for all the outstanding Series D Convertible Exchangeable
Preferred Stock.

The Series C ESOP Convertible Preferred Stock shares of stock are used to
fund a portion of the Company's matching contributions within the Salaried
Employees' Investment Program. The Series C ESOP preferred stock is
convertible into shares of the Company's common stock at a rate of two shares
of common stock for each share of preferred stock. There were 701,758, 724,644
and 762,939 shares of Series C ESOP preferred stock outstanding at December
31, 1999, 1998 and 1997, respectively. The Series C ESOP preferred shares pay
dividends at a rate of 7.5%. The Company repurchased and retired 28,549,
38,295 and 72,959 Series C ESOP preferred shares valued at $2.9 million, $4.6
million and $4.1 million during 1999, 1998 and 1997, respectively. All of the
repurchases represent plan distributions or fund transfers for participants in
the plan.

The charge to operations for the cost of the ESOP was $5.5 million in 1999,
$5.2 million in 1998 and $5.2 million in 1997. The Company made cash
contributions to the plan of $8.2 million in 1999, $8.2 million in 1998 and
$8.1 million in 1997, including preferred stock dividends of $3.4 million in
1999, $3.6 million in 1998 and $3.8 million in 1997. ESOP shares are released
as principal and interest on the debt is paid. The ESOP Trust uses the
preferred dividends not allocated to employees to make principal and interest
payments on the debt. Compensation expense is measured based on the fair value
of shares committed to be released to employees. Dividends on ESOP shares are
treated as a reduction of retained earnings in the period declared. The number
of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

allocated shares and suspense shares held by the ESOP were 621,088 and 80,670
at December 31, 1999, 563,995 and 160,649 at December 31, 1998, and 512,147
and 250,792 at December 31, 1997, respectively. There were no committed-to-be-
released shares at December 31, 1999, 1998 and 1997. Any repurchase of the
ESOP shares is strictly at the option of the Company.

The Company's common stock is subject to a Rights Agreement under which each
share has attached to it a Right to purchase one one-thousandth of a share of
a new series of Preferred Stock, at a price of $250 per Right. In the event an
entity acquires or attempts to acquire 10% (20% in the case of an
institutional investor) or more of the then outstanding shares, each Right
would entitle the holder to purchase a number of shares of common stock
pursuant to a formula contained in the Agreement. These Rights will expire on
April 30, 2009, but may be redeemed at a price of $.01 per Right at any time
prior to a public announcement that the above event has occurred. The Board
may amend the Rights at any time without shareholder approval.

10. Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Convertible Subordinated Debentures of the
Company

In December 1997, the Company's wholly owned financing trust ("Affiliate")
completed a $575 million private issue of 11.5 million shares of 7.0% Trust
Convertible Preferred Securities ("TCP Securities") with a liquidation value
of $50 per convertible security. The net proceeds from the TCP Securities were
used to purchase an equal amount of 7.0% Convertible Junior Subordinate
Debentures ("Debentures") of the Company. The TCP Securities represent an
undivided interest in the Affiliate's assets, with a liquidation preference of
$50 per security.

Distributions on the TCP Securities are cumulative and will be paid
quarterly in arrears at an annual rate of 7.0%, and are included in the
consolidated statements of operations as a component of "Other Expense, Net."
The Company has the option to defer payment of the distributions for an
extension period of up to 20 consecutive quarters if the Company is in
compliance with the terms of the TCP Securities.

The shares of the TCP Securities are convertible, at the option of the
holder, into the Company's common stock at an equivalent conversion price of
approximately $51.50 per share, subject to adjustment in certain events. The
TCP Securities and the Debentures will be redeemable, at the option of the
Company, on or after December 6, 2000 at a redemption price, expressed as a
percentage of principal which is added to accrued and unpaid interest. The
redemption price range is from 104.2% on December 6, 2000 to 100.0% after
December 1, 2007. All outstanding TCP Securities and Debentures are required
to be redeemed by December 1, 2027.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

11. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings
per share (in millions, except per share data):

1999 1998 1997
------ ----- -----

Numerator:
Net earnings........................................... $243.2 $53.7 $69.4
Extraordinary items -- loss on early retirement of
debt, net of applicable tax benefits.................. 23.1 38.2 2.6
Cumulative effect of change in accounting for costs of
start-up activities, net of applicable income tax
benefit............................................... 12.7 -- --
------ ----- -----
Earnings before extraordinary items and cumulative
effect change in accounting principle................. 279.0 91.9 72.0
Series C preferred dividend requirement................ (2.2) (2.3) (2.4)
Series D preferred dividend requirement................ -- -- (3.1)
Series E preferred dividend requirement................ (0.2) (1.3) --
------ ----- -----
Numerator for basic earnings per share -- income
available to common shareholders before extraordinary
items and cumulative effect of change in accounting
principle............................................. $276.6 $88.3 $66.5
Effect of dilutive securities:
Series C preferred dividend requirement.............. 2.2 2.3 2.4
Series D preferred dividend requirement.............. -- -- 3.1
Series E preferred dividend requirement.............. 0.2 1.3 --
Minority interest -- preferred securities of an
affiliate........................................... 25.4 -- --
Additional required ESOP contribution................ (2.2) (2.1) (1.9)
------ ----- -----
Numerator for diluted earnings per share -- income
available to common shareholders after assumed
conversions, before extraordinary items and cumulative
of effect change in accounting principle.............. $302.2 $89.8 $70.1
Numerator for basic earnings per share -- income
available to common shareholders after extraordinary
items and cumulative effect of change in accounting
principle............................................. $240.8 $50.1 $63.9
Numerator for diluted earnings per share -- income
available to common shareholders after extraordinary
items and cumulative effect change in accounting
principle............................................. $266.4 $51.6 $67.5
Denominator:
Denominator for basic earnings per share -- weighted
average shares........................................ 69.8 48.1 36.6
Effect of dilutive securities:
Dilutive stock options outstanding................... 0.5 0.8 0.4
Nonvested stock...................................... 0.1 0.1 0.3
Conversion of Series C preferred stock............... 1.4 1.5 1.6
Conversion of Series D preferred stock............... -- -- 3.0
Conversion of Series E preferred stock............... 0.5 3.2 --
Conversion of Company-obilgated mandatorily
redeemable preferred securities..................... 11.2 -- --
Contingently issuable shares of common stock......... 0.7 -- --
------ ----- -----
Dilutive potential common shares....................... 14.4 5.6 5.3
------ ----- -----
Denominator for dilutive earnings per share -- adjusted
weighted average shares and assumed conversions....... 84.2 53.7 41.9
====== ===== =====
Basic earnings per share before extraordinary items and
cumulative effect of change in accounting principle..... $ 3.96 $1.84 $1.81
====== ===== =====
Basic earnings per share after extraordinary items and
cumulative effect of change in accounting principle..... $ 3.44 $1.04 $1.74
====== ===== =====
Diluted earnings per share before extraordinary items and
cumulative effect of change in accounting principle..... $ 3.59 $1.67 $1.67
====== ===== =====
Diluted earnings per share after extraordinary items and
cumulative effect of change in accounting principle..... $ 3.16 $ .96 $1.61
====== ===== =====

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

For additional disclosures regarding the Series C, Series D and Series E
preferred stock, the employee stock options and non-vested stock shares, refer
to Note 9, "Capital Stock and Preferred Share Purchase Rights," and Note 12,
"Incentive Stock Plans".

Convertible preferred securities (refer to Note 10, "Company-Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely
Convertible Subordinated Debentures of the Company") redeemable for 11.2
million shares of common stock were outstanding for 1998 and a portion of 1997
but were not included in the computation of diluted earnings per share because
the effect would be antidilutive. These shares were dilutive in 1999 and
therefore included in the computation of earnings per share.

12. Incentive Stock Plans

The Company's shareholders adopted stock option plans in 1976 and 1984 and
performance incentive stock plans in 1989 and 1997. These plans provide
generally for awarding restricted shares or granting options to purchase
shares of the Company's common stock. Restricted shares entitle employees to
all the rights of common stock shareholders, subject to certain transfer
restrictions and to forfeiture in the event that the conditions for their
vesting are not met. Options entitle employees to purchase shares at an
exercise price not less than 100% of the fair market value on the grant date
and expire after a five- or ten-year period as determined by the Board of
Directors.

Under the plans, awards vest from six months to five years after their date
of grant, as determined by the Board of Directors at the time of grant. At
December 31, 1999, there were 513,836 shares available for future grants under
the plans.

In October 1997, the Company met certain share price performance criteria
under the 1989 Long-Term Incentive Plan which resulted in the recognition of
$5.4 million in compensation expense relating to the vesting of restricted
stock awards. The total compensation cost that has been charged to operations
for vesting of restricted stock awards was $1.4 million, $0.7 million and $9.0
million in 1999, 1998 and 1997, respectively.

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock awards. Accordingly, no
compensation cost has been recognized for its stock option grants, as the
exercise price of the Company's employee stock options equals the underlying
stock price on the date of grant. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of
Statement of Financial Accounting Standards No. 123 (SFAS 123) Accounting for
Stock Based Compensation, the Company's net earnings, in millions, and
earnings per share would have been adjusted to the pro forma amounts indicated
below:

1999 1998 1997
------ ----- -----
(Millions of
Dollars, Except
Per Share Amounts)

Net earnings as reported................................. $243.2 $53.7 $69.4
Pro forma................................................ $230.3 $48.3 $70.7
Basic earnings per share as reported..................... $ 3.44 $1.04 $1.74
Pro forma................................................ $ 3.27 $ .93 $1.78
Diluted earnings per share as reported................... $ 3.16 $ .96 $1.61
Pro forma................................................ $ 3.01 $ .86 $1.64

Pro forma information regarding net income and earnings per share is
required by SFAS 123 as if the Company had accounted for its employee stock
options under the fair value method. The fair value for options is estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1999, 1998 and 1997, respectively:
risk-free interest rates of 6.2%; dividend yields of 0.03%, 0.2% and 1.5%;
volatility factors of the expected market price of the Company's common stock
of 48.0%,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

30.1%, and 27.2% and a weighted average expected life of the option of five
years. The fair value of nonvested stock awards is equal to the market price
of the stock on the date of the grant.

The weighted-average fair value and the total number (in millions) of
options granted was $16.81, $22.36 and $9.99, and 2.7, 1.1 and 0.9 for 1999,
1998 and 1997, respectively. The weighted-average fair value and total number
(in millions) of nonvested stock awards granted was $53.52 and $24.47 and 0.1
and 0.1 for 1998 and 1997, respectively. There were no stock awards granted in
1999. All options and stock awards that are not vested at December 31, 1999,
vest solely on employees' rendering additional service.

The following table summarizes the activity relating to the Company's
incentive stock plans:

Weighted-
Number Average
of Shares Price
------------- ---------
(In Millions)

Outstanding at January 1, 1997....................... 2.5 $22.03
Options/stock granted.............................. 1.0 31.74
Options exercised/stock vested..................... (1.0) 21.94
Options/stock lapsed or canceled................... (0.3) 22.29
---- ------
Outstanding at December 31, 1997..................... 2.2 $26.46
Options/stock granted.............................. 1.2 57.94
Options exercised/stock vested..................... (0.5) 21.85
Options/stock lapsed or canceled................... (0.1) 31.49
---- ------
Outstanding at December 31, 1998..................... 2.8 $40.50
Options granted.................................... 2.7 33.85
Options exercised/stock vested..................... (0.1) 25.98
Options/stock lapsed or canceled................... (0.3) 41.86
---- ------
Outstanding at December 31, 1999..................... 5.1 $37.14
==== ======
Options exercisable at December 31, 1999........... 0.9 $31.04
==== ======
Options exercisable at December 31, 1998........... 0.6 $30.11
==== ======
Options exercisable at December 31, 1997........... 0.9 $23.07
==== ======

The following is a summary of the range of exercise prices for stock options
that are outstanding and the amount of nonvested stock awards at December 31,
1999:

Weighted-Average
Outstanding ---------------------
Range Awards Price Remaining Life
----- ------------- ------ --------------
(In Millions)

Options:
$15.69-$23.50.......................... 1.8 $20.18 4 years
$23.51-$35.25.......................... 0.6 $27.98 2 years
$35.26-$52.87.......................... 1.6 $46.17 4 years
$52.88-$70.69.......................... 1.0 $59.15 4 years
Nonvested stock.......................... 0.1
---
Total................................ 5.1
===

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

13. Postemployment Benefits

The Company sponsors several defined benefit pension plans (Pension
Benefits) and health care and life insurance benefits (Other Benefits) for
certain employees and retirees around the world. The Company funds the Pension
Benefits based on the funding requirements of federal and international laws
and regulations in advance of benefit payments and the Other Benefits as
benefits are provided to the employees.

Components of net periodic benefit cost for the year ended December 31:

United States Plans
-------------------------------------------- International Plans
Pension Benefits Other Benefits Pension Benefits
---------------------- -------------------- ----------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ----- ----- ------- ------- ----
(Millions of Dollars)

Service cost............ $ 26.4 $ 16.4 $ 7.8 $ 4.7 $ 4.4 $ 2.5 $ 26.8 $ 26.7 $0.3
Interest cost........... 51.0 29.9 14.0 31.0 19.2 10.5 112.0 100.7 1.9
Expected return on plan
assets................. (79.8) (48.1) (24.2) -- -- -- (144.8) (123.6) --
Net amortization and
deferral............... (3.0) (4.3) (4.2) (2.7) (0.6) (0.5) 9.2 -- --
Curtailment loss
(gains)................ 0.1 1.6 -- (12.5) -- -- (3.1) -- --
------ ------ ------ ------ ----- ----- ------- ------- ----
Net periodic (benefit)
cost................... $ (5.3) $(4.5) $ (6.6) $ 20.5 $23.0 $12.5 $ 0.1 $ 3.8 $2.2
====== ====== ====== ====== ===== ===== ======= ======= ====

Change in benefit obligation:

United States Plans
------------------------------------ International Plans
Pension Benefits Other Benefits Pension Benefits
------------------ ---------------- --------------------
1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- --------- ---------
(Millions of Dollars)

Benefit obligation at
beginning of year...... $ 717.5 $ 197.2 $ 468.9 $ 150.4 $ 2,099.3 $ 26.6
Service cost............ 26.4 16.4 4.7 4.4 26.8 26.7
Interest cost........... 51.0 29.9 31.0 19.2 112.0 100.7
Acquisitions............ -- 496.7 2.9 297.3 (0.2) 1,895.0
Employee contributions.. -- -- -- -- 9.3 13.3
Benefits paid........... (60.2) (26.0) (39.6) (15.0) (139.9) (124.3)
Plan amendments......... 12.3 9.9 -- -- -- --
Actuarial (gains) and
losses and changes in
actuarial assumptions.. (31.8) 4.8 (28.5) 12.6 19.8 161.3
Settlements and
curtailments........... -- (11.4) (12.5) -- (3.3) --
Prior service cost...... -- -- (2.0) -- -- --
Currency translation
adjustment............. -- -- -- -- (63.6) --
-------- -------- ------- ------- --------- ---------
Benefit obligation at
end of year............ $ 715.2 $ 717.5 $ 424.9 $ 468.9 $ 2,060.2 $ 2,099.3
======== ======== ======= ======= ========= =========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

Change in plan assets:

Fair value of plan
assets at beginning of
year................... $ 775.4 $ 293.7 $ -- $ -- $ 2,034.5 $ --
Actual return on plan
assets................. 83.9 25.3 -- -- 325.3 157.6
Acquisitions............ -- 487.1 -- -- 1,979.8
Company contributions... 6.5 7.9 -- -- 19.1 21.4
Benefits paid........... (60.2) (26.0) -- -- (139.9) (124.3)
Settlements and
curtailments........... -- (12.6) -- -- -- --
Currency translation
adjustment............. -- -- -- -- (54.0) --
-------- -------- ------- ------- --------- ---------
Fair value of plan
assets at end of year.. $ 805.6 $ 775.4 $ -- $ -- $ 2,185.0 $ 2,034.5
======== ======== ======= ======= ========= =========
Funded status of the
plan................... $ 90.4 $ 57.9 $(424.9) $(468.9) $ 124.8 $ (64.8)
Unrecognized net asset
at transition.......... 0.3 0.3 -- -- -- --
Unrecognized net
actuarial (gain) loss.. (60.9) (30.1) (19.5) 8.9 (46.3) 128.9
Unrecognized prior
service cost........... 27.6 17.6 (2.4) (2.9) -- --
-------- -------- ------- ------- --------- ---------
Prepaid (accrued)
benefit cost........... $ 57.4 $ 45.7 $(446.8) $(462.9) $78.5 $ 64.1
======== ======== ======= ======= ========= =========

Weighted-average assumptions as of December 31:

United States Plans
--------------------------------- International Plans
Pension Benefits Other Benefits Pension Benefits
----------------- --------------- --------------------
1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- ---------- ---------
(Millions of Dollars)

Discount rate........... 7.75% 7.25% 7.75% 7.25% 6.25-6.5% 5.5-6%
Expected return on plan
assets................. 10% 10% -- -- 6.5-8.5% 7.5%
Rate of compensation
increase............... 4-4.75% 4.25-5% -- -- 3-4.4% 2.5-3.9%

Amounts applicable to the Company's pension plans with accumulated benefit
obligations in excess of plan assets are as follows:

United States Plans 1999 1998
- - ------------------- ---------- ----------
(Millions of Dollars)

Projected benefit obligation............................. $ 362.8 $ 138.1
Accumulated benefit obligation........................... 359.1 137.9
Fair value of plan assets................................ 336.8 126.6

International Plans 1999 1998
- - ------------------- ---------- ----------

Projected benefit obligation............................. $ 157.4 $ 180.0
Accumulated benefit obligation........................... 156.9 171.0
Fair value of plan assets................................ 0.2 --

Amounts recognized in the balance sheet consist of:

Pension Benefits Other Benefits
------------------ ----------------
1999 1998 1999 1998
-------- -------- ------- -------
(Millions of Dollars)

Prepaid (accrued) benefit cost........... $ 135.9 $ 109.8 $(446.8) $(462.9)
Accrued benefit liability................ (20.5) (12.7) -- --
Intangible asset......................... 7.2 7.3 -- --
Accumulated other comprehensive income... 10.1 3.4 -- --
-------- -------- ------- -------
Net amount recognized.................... $ 132.7 $ 107.8 $(446.8) $(462.9)
======== ======== ======= =======

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

At December 31, 1999, the assumed annual health care cost trend used in
measuring the APBO approximated 6.7% in 1999, declining to 6.5% in 2000 and to
an ultimate annual rate of 5.5% estimated to be achieved in 2010. Increasing
the assumed cost trend rate by 1% each year would have increased the APBO by
approximately 9.5% and 11.5% at December 31, 1999 and 1998, respectively.
Aggregate service and interest costs would have increased by approximately
10.4%, 13.3% and 9.4% for 1999, 1998 and 1997, respectively.

During 1999, the Company decided to curtail retiree healthcare benefits for
approximately 4,000 employees. As a result, the Company reduced its
postretirement liability and recognized a one-time benefit of approximately
$8.0 million, net of applicable taxes.

14. Income Taxes

Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
components of earnings before income taxes, extraordinary items and cumulative
effect changes consisted of the following:

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Domestic........................................... $ 237.8 $ (73.4) $50.1
International...................................... 222.1 258.9 49.4
------- ------- ------
$ 459.9 $ 185.5 $ 99.5
======= ======= ======

Significant components of the provision for income taxes (tax benefit) are
as follows:

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Current:
Federal......................................... $ 49.3 $ (12.1) $ 9.6
State and local................................. 11.6 10.0 0.2
International................................... 45.7 65.4 6.6
------- ------- ------
Total current................................. 106.6 63.3 16.4
Deferred:
Federal......................................... 29.2 33.0 6.1
State and local................................. (2.1) 2.1 0.7
International................................... 47.2 (4.8) 4.3
------- ------- ------
Total deferred................................ 74.3 30.3 11.1
------- ------- ------
$ 180.9 $ 93.6 $ 27.5
======= ======= ======

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

The reconciliation of income taxes computed at the United States federal
statutory tax rate to income tax expense is:

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Income taxes at United States statutory rate..... $ 161.0 $ 64.9 $ 34.9
Tax effect from:
State income taxes............................. 9.5 7.9 0.8
Foreign operations, net of foreign tax
credits....................................... 6.4 5.6 (2.7)
Sale of international retail/wholesale
operations.................................... (4.7) (11.5) (6.8)
Goodwill amortization.......................... 28.1 19.7 --
Purchased in-process research and development.. -- 6.5 --
Valuation allowance reductions................. (21.4) -- --
Tax credits and other.......................... 2.0 0.5 1.3
------- ------- ------
$ 180.9 $ 93.6 $ 27.5
======= ======= ======

The following table summarizes the Company's total provision for income
taxes/(tax benefit) by component:

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Income tax expense............................... $ 180.9 $ 93.6 $ 27.5
Extraordinary items and cumulative effect of
change in accounting principle.................. (20.3) (19.8) (1.5)
T&N Bearings Divestiture......................... -- 56.1 --
Allocated to equity:
Currency translation........................... -- 15.3 (3.6)
Preferred dividends............................ (1.2) (1.2) (1.3)
Incentive stock plans.......................... (0.3) (3.9) (3.4)
Investment securities.......................... (0.1) -- (0.6)
Pension........................................ (4.5) 0.2 (0.9)
Other.......................................... -- -- 2.1
------- ------- ------
$ 154.5 $ 140.3 $ 18.3
======= ======= ======

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:

1999 1998
---------- ----------
(Millions of Dollars)

Deferred tax assets:
Asbestos......................................... $ 399.1 $ 429.1
Postemployment benefits.......................... 178.2 165.2
Net operating loss carryforwards of international
subsidiaries.................................... 103.0 110.9
Restructuring and rationalization reserves....... 20.9 98.8
Inventory basis.................................. 19.9 34.2
Allowance for doubtful accounts.................. 25.6 15.2
Other temporary differences...................... 105.5 117.6
---------- ----------
Total deferred tax assets...................... 852.2 971.0
Valuation allowance for deferred tax assets........ (54.5) (77.0)
---------- ----------
Net deferred tax assets.......................... 797.7 894.0
Deferred tax liabilities:
Fixed asset basis differences.................... (351.1) (379.4)
Intangible asset basis differences............... (289.5) (326.2)
Deferred gains................................... (130.0) (130.0)
Pension.......................................... (33.3) (6.9)
---------- ----------
Total deferred tax liabilities................. (803.9) (842.5)
---------- ----------
$ (6.2) $ 51.5
========== ==========

Deferred tax assets and liabilities are recorded in the consolidated balance
sheets as follows:

1999 1998
---------- ----------
(Millions of Dollars)

Assets:
Prepaid expenses and income tax benefits........... $ 128.2 $ 187.3
Other noncurrent assets............................ 148.8 --
Liabilities:
Other current accrued liabilities.................. (24.3) --
Other long-term accrued liabilities................ (258.9) (135.8)
---------- ----------
$ (6.2) $ 51.5
========== ==========

Income taxes paid in 1999, 1998 and 1997 were $87.5 million, $34.7 million
and $2.6 million, respectively.

The 1999 provision includes the estimated U.S. federal income tax effects of
retained earnings of subsidiaries expected to be distributed to the Company.
No provision was made with respect to $417.3 million of undistributed earnings
at December 31, 1999, since these earnings are considered by the Company to be
permanently reinvested. Upon distribution of these earnings, the Company would
be subject to United States income taxes and foreign withholding taxes.
Determining the unrecognized deferred tax liability on the distribution of
these earnings is not practicable as such liability, if any, is dependent on
circumstances existing when remittance occurs.

At December 31, 1999, the Company has $162 million in net operating loss
carryforwards in the United Kingdom with no expiration date or valuation
allowance. Also, the Company has $155 million of additional

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

foreign net operating loss carryforwards with a full valuation allowance and
various expiration dates. Included in the previous amounts are $168 million of
net operating loss carryforwards acquired with the purchases of T&N, Cooper
Automotive and Fel-Pro. A valuation allowance was recorded on $90 million of
these purchased net operating loss carryforwards, and to the extent such
benefits are ever realized, such benefits will be recorded as a reduction of
goodwill.

15. Operations By Industry Segment and Geographic Area

During 1999, the Company reorganized its operating segments. Prior to the
internal reorganization, the Company's three operating segments were
Powertrain Systems; Sealing Systems and General Products. As a result of the
Company's internal reorganization, integrated operations are conducted under
three operating segments corresponding to major product areas: Powertrain
Systems; Sealing Systems, Visibility and Systems Protection Products; and
Brake, Chassis, Ignition and Fuel Products. The segment information to follow
has been restated to reflect the internal reorganization changes announced in
1999.

Sealing Systems, Visibility and Systems Protection Products are used in
automotive, light truck, heavy-duty, agricultural, off-highway, marine,
railroad, high performance and industrial applications. The primary products
of this operating unit include dynamic seals, gaskets, lighting products,
wiper blades and systems protection products.

Divested Activities include the historical operating results and assets of
aftermarket operations in South Africa, Australia, Chile and heavy wall
bearing operations in Germany and Brazil which were sold or closed in 1997.

The accounting policies of the business segments are consistent with those
described in the summary of significant accounting policies. The Company
evaluates segmental performance based on several factors, including both
Economic Value Added (EVA) and Operational EBIT. Operational EBIT is defined
as earnings before interest, income taxes, extraordinary items and certain
nonrecurring items such as certain acquisition related adjustments and
integration costs associated with new acquisitions. Operational EBIT for each
segment is shown below, as it is most consistent with the measurement
principles used in measuring the corresponding amounts in the consolidated
financial statements.

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Net Sales:
Powertrain Systems............................... $ 2,459 $ 2,107 $ 782
Sealing Systems, Visibility and Systems
Protection Products............................. 1,887 1,252 333
Brake, Chassis, Ignition and Fuel Products....... 2,123 1,036 577
Divested Activities.............................. 19 74 115
------- ------- -------
Total.......................................... $ 6,488 $ 4,469 $ 1,807
======= ======= =======

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Operational EBIT:
Powertrain Systems............................. $ 262 $ 248 $ 68
Sealing Systems, Visibility and Systems
Protection Products........................... 297 154 26
Brake, Chassis, Ignition and Fuel Products..... 277 104 44
Divested Activities............................ (1) (4) 1
------- ------- -------
Total........................................ $ 835 $ 502 $ 139
======= ======= =======

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Reconciliation:
Total segments operational EBIT................ $ 835 $ 502 $ 139
Net interest and other financing costs......... (309) (233) (29)
Restructuring, impairment and other special
charges....................................... (8) (20) (10)
Acquisition-related costs...................... (58) (63) --
------- ------- -------
Earning before income taxes, extraordinary
items and cumulative effect change in
accounting principle........................ $ 460 $ 186 $ 100
======= ======= =======

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Assets:
Powertrain Systems............................. $ 3,526 $ 3,467 $ 786
Sealing Systems, Visibility and Systems
Protection Products........................... 3,000 2,925 382
Brake, Chassis, Ignition and Fuel Products..... 3,419 3,471 508
Divested Activities............................ -- 77 126
------- ------- -------
Total........................................ $ 9,945 9,940 $ 1,802
======= ======= =======

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Capital Expenditures:
Powertrain Systems............................. $ 229 $ 153 $ 28
Sealing Systems, Visibility and Systems
Protection Products........................... 79 41 13
Brake, Chassis, Ignition and Fuel Products..... 87 35 9
------- ------- -------
Total........................................ $ 395 $ 229 $ 50
======= ======= =======

1999 1998 1997
------- ------- -------
(Millions of Dollars)

Depreciation and Amortization:
Powertrain Systems............................. $ 151 $ 115 $ 28
Sealing Systems, Visibility and Systems
Protection Products........................... 94 50 11
Brake, Chassis, Ignition and Fuel Products..... 109 62 12
Divested Activities............................ 1 1 1
------- ------- -------
Total........................................ $ 355 $ 228 $ 52
======= ======= =======

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

Included in the consolidated financial statements are amounts relating to
geographic locations listed below. This geographic information is based on the
location of Federal-Mogul operations.

Net Property, Plant
Net Sales and Equipment
-------------------- ----------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------- ------- ------
(Millions of Dollars)

United States..................... $3,922 $2,345 $1,111 $ 1,492 $ 1,422 $ 166
Mexico............................ 153 124 87 28 30 7
Canada............................ 162 76 58 43 39 1
------ ------ ------ ------- ------- -----
Total North America............. 4,237 2,545 1,256 1,563 1,491 174
United Kingdom.................... 533 516 21 305 312 9
Germany........................... 630 478 126 344 318 105
France............................ 303 327 33 79 113 9
Italy............................. 252 200 71 77 77 9
Other Europe...................... 295 188 117 55 62 3
------ ------ ------ ------- ------- -----
Total Europe.................... 2,013 1,709 368 860 882 135
Rest of World..................... 238 215 183 81 104 5
------ ------ ------ ------- ------- -----
Total........................... $6,488 $4,469 $1,807 $ 2,504 $ 2,477 $ 314
====== ====== ====== ======= ======= =====

16. Litigation and Environmental Matters

T&N Asbestos Litigation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

Cooper Automotive Asbestos Litigation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

Federal-Mogul and Fel-Pro Asbestos Litigation

Aggregate of Asbestos Liability

Environmental Matters

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

17. Quarterly Financial Data (Unaudited)

First(1) Second(2) Third(3) Fourth(4) Year
--------- ---------- --------- ---------- ---------
(Millions of Dollars, Except Per Share Amounts)

Year ended December 31,
1999:
Net sales.............. $ 1,642.2 $ 1,687.1 $ 1,583.9 $ 1,574.3 $ 6,487.5
Gross margin........... 449.5 482.6 441.2 405.1 1,778.4
Earnings before
extraordinary items
and cumulative effect
of change in
accounting principle.. 61.4 87.3 70.1 60.2 279.0
Extraordinary items --
loss on early
retirement of debt,
net of applicable
income tax benefit.... 23.1 -- -- -- 23.1
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income tax
benefit............... 12.7 -- -- -- 12.7
Net earnings........... 25.6 87.3 70.1 60.2 243.2
Diluted earnings per
share................. .38 1.11 .91 .79 3.16
Stock price
High................... $ 64.88 $ 53.81 $ 55.00 $ 29.13
Low.................... $ 40.63 $ 41.94 $ 23.38 $ 17.56
Dividend per share..... $ .0025 $ .0025 $ .0025 $ .0025

First(5) Second(6) Third(7) Fourth(8) Year
--------- ---------- --------- ---------- ---------
(Millions of Dollars, Except Per Share Amounts)

Year ended December 31,
1998:
Net sales.............. $ 658.0 $ 1,214.0 $ 1,121.2 $ 1,475.5 $ 4,468.7
Gross margin........... 161.3 317.4 292.9 406.9 1,178.5
Net earnings before
extraordinary items... (7.2) 28.4 34.6 36.1 91.9
Extraordinary items --
loss on early
retirement of debt,
net of tax benefit.... -- (31.3) -- (6.9) (38.2)
Net earnings........... (7.2) (2.9) 34.6 29.2 53.7
Diluted earnings per
share................. (.20) (.07) .58 .48 .96
Stock price
High................... $ 54.37 $ 69.25 $ 72.00 $ 63.00
Low.................... $ 39.00 $ 52.62 $ 46.62 $ 33.00
Dividend per share..... $ .12 $ .0025 $ .0025 $ .0025

- - ------------------
(1) Includes $10.1 million of integration costs.

(2) Includes $13.3 million of integration costs.

(3) Includes $13.2 million of integration costs and a $7.9 million charge for
adjustment of assets held for sale and other long-lived assets to fair
value.

(4) Includes $10.3 million of integration costs.

(5) Includes $1.0 million of integration costs, an $18.6 million charge for
purchased in-process research and development, a $10.5 million
restructuring charge, a $19.0 million net charge for an adjustment of
assets held for sale and other long-lived assets to fair value.

(6) Includes $3.7 million of integration costs.

(7) Includes $9.0 million of integration costs and a $6.6 million
restructuring credit.

(8) Includes $8.7 million of integration costs, and a $3.4 million net
restructuring charge.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

18. Consolidating Condensed Financial Information of Guarantor Subsidiaries

Certain subsidiaries of the Company (as listed below, collectively the
"Guarantor Subsidiaries") have guaranteed fully and unconditionally, on a
joint and several basis, the obligation to pay principal and interest under
the Company's Senior Credit Agreement with the Chase Manhattan Bank, NA
("Chase").

T&N Holding Companies
Federal-Mogul Dutch Holdings Inc.
Federal-Mogul UK Holdings Inc.
F-M UK Holdings Limited
Federal-Mogul Global Inc.

Federal-Mogul Subsidiaries
Federal-Mogul Venture Corporation
Federal-Mogul Global Properties Inc.
Carter Automotive Company
Federal-Mogul Worldwide Inc.

Cooper Automotive Subsidiaries
Federal-Mogul Ignition Company
Federal-Mogul Products, Inc.
Federal-Mogul Aviation, Inc.

The Company issued notes in 1999 and 1998 which are guaranteed by the
Guarantor Subsidiaries. The Guarantor Subsidiaries also guarantee the
Company's previously existing publicly registered Medium-term notes and Senior
notes.

The T&N Holding Companies (as listed above) are wholly owned subsidiaries of
the Company and were incorporated in January 1998 in order to effectuate the
Company's acquisition of T&N plc. These subsidiaries have no operations and
act solely as holding companies of subsidiaries which have guaranteed fully
and unconditionally on a joint and several basis, the obligation to pay
principal and interest of the Notes, Medium-term notes and Senior notes. (the
"Guarantees").

In addition, certain other wholly owned subsidiaries of the Company, the
Federal-Mogul Subsidiaries (as listed above), will provide the Guarantees. The
Federal-Mogul Subsidiaries are included in the Company's consolidated
financial statements for all periods.

The Cooper Automotive Subsidiaries (as listed above) acquired on October 9,
1998, are wholly owned subsidiaries of the Company and also will provide the
Guarantees.

In lieu of providing separate audited financial statements for the Guarantor
Subsidiaries, the Company has included the accompanying audited consolidating
condensed financial statements based on the Company's understanding of the
Securities and Exchange Commission's interpretation and application of Rule 3-
10 of the Securities and Exchange Commission's Regulation S-X and Staff
Accounting Bulletin 53. Management does not believe that separate financial
statements of the Guarantor Subsidiaries are material to investors. Therefore,
separate financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented.

FEDERAL-MOGUL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

December 31, 1999
(Millions of Dollars)

(Unconsolidated)
------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------

Net sales............... $1,540.3 $1,687.5 $3,704.8 $(445.1) $6,487.5
Cost of products sold... 1,099.8 1,205.7 2,848.7 (445.1) 4,709.1
-------- -------- -------- ------- --------
Gross margin.......... 440.5 481.8 856.1 -- 1,778.4
Selling, general and
administrative
expenses............... 331.7 151.8 365.4 -- 848.9
Amortization of goodwill
and other intangible
assets................. 6.7 38.1 82.4 -- 127.2
Adjustment of assets
held for sale and other
long-lived assets to
fair value............. 7.9 -- -- -- 7.9
Integration costs....... 18.1 8.3 20.5 -- 46.9
Interest expense........ 260.3 0.7 280.1 (267.6) 273.5
Interest income......... (1.4) (1.1) (269.7) 267.6 (4.6)
International currency
exchange (gains)
losses................. (0.1) 2.3 (4.9) -- (2.7)
Other expense (income),
net.................... 52.3 (148.4) 117.5 -- 21.4
-------- -------- -------- ------- --------
Earnings (loss) before
income taxes,
extraordinary items
and cumulative effect
of change in
accounting
principle............ (235.0) 430.1 264.8 -- 459.9
Income tax expense
(benefit).............. (87.0) 159.1 108.8 -- 180.9
-------- -------- -------- ------- --------
Earnings (loss) before
extraordinary items
and cumulative effect
of change in
accounting
principle............ (148.0) 271.0 156.0 -- 279.0
Extraordinary item --
loss on early
retirement of debt, net
of applicable income
tax benefit............ 23.1 -- -- -- 23.1
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income tax
....................... 12.7 -- -- -- 12.7
-------- -------- -------- ------- --------
Net earnings (loss)
before equity in
earnings (loss) of
subsidiaries......... $ (183.8) $ 271.0 $ 156.0 $ -- $ 243.2
Equity in earnings
(loss) of
subsidiaries........... 427.0 251.8 -- (678.8) --
-------- -------- -------- ------- --------
Net Earnings............ $ 243.2 $ 522.8 $ 156.0 $(678.8) $ 243.2
======== ======== ======== ======= ========

FEDERAL-MOGUL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

December 31, 1998
(Millions of Dollars)

(Unconsolidated)
------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------

Net sales............... $1,285.7 $437.4 $2,896.2 $(150.6) $4,468.7
Cost of products sold... 907.8 309.1 2,223.9 (150.6) 3,290.2
-------- ------ -------- ------- --------
Gross margin.......... 377.9 128.3 672.3 -- 1,178.5
Selling, general and
administrative
expenses............... 293.9 74.8 272.1 -- 640.8
Amortization of goodwill
and other intangible
assets................. 21.5 9.1 53.2 -- 83.8
Purchased in-process
research and
development charge..... -- -- 18.6 -- 18.6
Restructuring charge.... 7.3 -- -- -- 7.3
Adjustment of assets
held for sale and other
long-lived assets to
fair value............. 19.0 -- -- -- 19.0
Integration costs....... 5.5 -- 16.9 -- 22.4
Interest expense........ 215.0 1.5 221.4 (233.9) 204.0
Interest income......... (60.8) (107.2) (76.5) 233.9 (10.6)
International currency
exchange losses........ 1.0 1.1 2.6 -- 4.7
Net gain on British
pound currency option
and forward contract... (13.3) -- -- -- (13.3)
Other expense (income),
net.................... (1.4) (22.2) 39.9 -- 16.3
-------- ------ -------- ------- --------
Earnings (loss) before
income taxes and
extraordinary items.. (109.8) 171.2 124.1 -- 185.5
Income tax expense...... 20.6 1.3 71.7 -- 93.6
-------- ------ -------- ------- --------
Net earnings (loss)
before extraordinary
item................. (130.4) 169.9 52.4 -- 91.9
Extraordinary items --
loss on early
retirement of debt, net
of applicable income
tax benefits........... 19.3 -- 18.9 -- 38.2
-------- ------ -------- ------- --------
Net earnings (loss)
before equity in
earnings (loss) of
subsidiaries......... $ (149.7) $169.9 $ 33.5 $ -- $ 53.7
Equity in earnings
(loss) of
subsidiaries........... 203.4 74.7 -- (278.1) --
-------- ------ -------- ------- --------
Net Earnings............ $ 53.7 $244.6 $ 33.5 $(278.1) $ 53.7
======== ====== ======== ======= ========

FEDERAL-MOGUL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

December 31, 1997
(Millions of Dollars)

(Unconsolidated)
------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------

Net sales............... $1,092.4 $ -- $776.3 $(62.1) $1,806.6
Cost of products sold... 839.4 -- 604.5 (62.1) 1,381.8
-------- ----- ------ ------ --------
Gross margin.......... 253.0 -- 171.8 -- 424.8
Selling, general and
administrative
expenses............... 178.8 (0.2) 97.4 -- 276.0
Amortization of goodwill
and other intangible
assets................. 7.8 -- 1.1 -- 8.9
Restructuring credit.... (1.1) -- -- -- (1.1)
Reengineering and other
related (credits)...... (1.6) -- -- -- (1.6)
Adjustment of assets
held for sale and other
long-lived assets to
fair value............. 2.4 -- -- 2.4
Interest expense........ 27.5 9.8 (4.0) 33.3
Interest income......... (11.1) 4.0 (7.1)
International currency
exchange losses........ 9.7 -- (9.1) -- 0.6
Net gain on British
pound currency option
and forward contract... 10.5 -- -- -- 10.5
Other expense (income),
net.................... 16.1 (15.5) 2.8 -- 3.4
-------- ----- ------ ------ --------
Earnings before income
taxes and
extraordinary items.. 14.0 15.7 69.8 -- 99.5
Income tax expense...... 5.8 5.3 16.4 -- 27.5
-------- ----- ------ ------ --------
Net earnings before
extraordinary item... 8.2 10.4 53.4 -- 72.0
Extraordinary item--loss
on early retirement of
debt, net of applicable
income tax benefit..... 2.6 -- -- -- 2.6
-------- ----- ------ ------ --------
Net earnings before
equity in earnings of
subsidiaries......... $ 5.6 $10.4 $ 53.4 $ -- $ 69.4
Equity in earnings
(loss) of
subsidiaries........... 63.8 -- -- (63.8) --
-------- ----- ------ ------ --------
Net Earnings............ $ 69.4 $10.4 $ 53.4 $(63.8) $ 69.4
======== ===== ====== ====== ========

FEDERAL-MOGUL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED BALANCE SHEET

December 31, 1999
(Millions of Dollars)

(Unconsolidated)
------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------

ASSETS
Cash and equivalents.... $ 54.1 $ 20.3 $ (9.9) $ -- $ 64.5
Accounts receivable..... 18.1 73.3 423.2 -- 514.6
Investment in accounts
receivable
securitization......... -- -- 232.2 -- 232.2
Inventories............. 187.9 328.0 367.7 -- 883.6
Prepaid expenses and
income tax benefits.... 100.8 121.2 109.6 -- 331.6
-------- -------- -------- --------- --------
Total Current Assets.. 360.9 542.8 1,122.8 -- 2,026.5
Property, plant and
equipment.............. 292.9 619.7 1,591.1 -- 2,503.7
Goodwill................ 558.4 810.9 2,178.5 -- 3,547.8
Other intangible
assets................. 38.4 396.0 361.9 -- 796.3
Investment in
subsidiaries........... 4,912.7 1,641.8 -- (6,554.5) --
Intercompany accounts,
net.................... (498.3) 1,821.3 (1,323.0) -- --
Asbestos-related
insurance recoverable.. -- 325.9 -- -- 325.9
Other noncurrent
assets................. 233.2 53.1 458.7 -- 745.0
-------- -------- -------- --------- --------
Total Assets.......... $5,898.2 $6,211.5 $4,390.0 $(6,554.5) $9,945.2
======== ======== ======== ========= ========
LIABILITIES
Short-term debt,
including current
portion of long-term
debt................... $ 127.7 $ 6.0 $ 57.1 $ -- $ 190.8
Accounts payable........ 152.8 152.0 317.1 -- 621.9
Accrued compensation.... 46.3 28.5 108.1 -- 182.9
Restructuring and
rationalization
reserves............... -- -- 46.0 -- 46.0
Current portion of
asbestos liability..... -- -- 180.0 -- 180.0
Income taxes payable.... 16.0 12.2 44.1 -- 72.3
Other accrued
liabilities............ 151.9 85.7 251.1 -- 488.7
-------- -------- -------- --------- --------
Total Current
Liabilities.......... 494.7 284.4 1,003.5 -- 1,782.6
Long-term debt.......... 2,977.0 -- 43.0 -- 3,020.0
Long-term portion of
asbestos liability..... -- 408.9 926.4 -- 1,335.3
Postemployment
benefits............... 188.0 219.7 254.2 -- 661.9
Other accrued
liabilities............ 157.2 162.8 134.9 -- 454.9
Minority interest in
consolidated
subsidiaries........... 6.1 2.1 32.1 -- 40.3
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary holding
solely convertible
subordinated debentures
of the Company......... -- -- 575.0 -- 575.0
Shareholders' Equity.... 2,075.2 5,133.6 1,420.9 (6,554.5) 2,075.2
-------- -------- -------- --------- --------
Total Liabilities and
Shareholders'
Equity............... $5,898.2 $6,211.5 $4,390.0 $(6,554.5) $9,945.2
======== ======== ======== ========= ========

FEDERAL-MOGUL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED BALANCE SHEET

December 31, 1998
(Millions of Dollars)

(Unconsolidated)
------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------

ASSETS
Cash and equivalents.... $ 25.3 $ 20.7 $ 31.2 $ -- $ 77.2
Accounts receivable..... 13.9 395.9 615.2 -- 1,025.0
Investment in accounts
receivable
securitization......... -- -- 91.1 -- 91.1
Inventories............. 186.8 441.2 440.6 -- 1,068.6
Prepaid expenses and
income tax benefits.... 52.9 174.9 109.9 -- 337.7
-------- -------- -------- --------- --------
Total Current Assets.. 278.9 1,032.7 1,288.0 -- 2,599.6
Property, plant and
equipment.............. 230.0 684.7 1,562.8 -- 2,477.5
Goodwill................ 589.4 676.4 2,132.6 -- 3,398.4
Other intangible
assets................. 44.6 423.6 418.2 -- 886.4
Investment in
subsidiaries........... 5,114.7 1,666.7 -- (6,781.4) --
Intercompany accounts,
net.................... (515.2) 1,208.2 (693.0) -- --
Other noncurrent
assets................. 103.0 51.9 423.3 -- 578.2
-------- -------- -------- --------- --------
Total Assets.......... $5,845.4 $5,744.2 $5,131.9 $(6,781.4) $9,940.1
======== ======== ======== ========= ========
LIABILITIES
Short-term debt,
including current
portion of long-term
debt................... $ 90.7 $ 16.0 $ 104.3 $ -- $ 211.0
Accounts payable........ 82.0 149.5 266.9 -- 498.4
Accrued compensation.... 71.9 117.0 11.4 -- 200.3
Restructuring and
rationalization
reserves............... 5.8 -- 173.1 -- 178.9
Current portion of
asbestos liability..... -- -- 125.0 -- 125.0
Income taxes payable.... 21.7 24.3 96.2 -- 142.2
Other accrued
liabilities............ 271.4 115.7 286.6 -- 673.7
-------- -------- -------- --------- --------
Total Current
Liabilities.......... 543.5 422.5 1,063.5 -- 2,029.5
Long-term debt.......... 3,077.2 1.2 52.3 -- 3,130.7
Long-term portion of
asbestos liability..... -- 20.0 1,156.7 -- 1,176.7
Postemployment
benefits............... 218.2 207.6 235.1 -- 660.9
Other accrued
liabilities............ 12.2 255.0 75.9 -- 343.1
Minority interest in
consolidated
subsidiaries........... 8.1 1.5 28.4 -- 38.0
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary holding
solely convertible
subordinated debentures
of the Company......... -- -- 575.0 -- 575.0
Shareholders' Equity.... 1,986.2 4,836.4 1,945.0 (6,781.4) 1,986.2
-------- -------- -------- --------- --------
Total Liabilities and
Shareholders'
Equity............... $5,845.4 $5,744.2 $5,131.9 $(6,781.4) $9,940.1
======== ======== ======== ========= ========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

December 31, 1999
(Millions of Dollars)

(Unconsolidated)
-------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------

Net Cash Provided From
(Used By) Operating
Activities............. $ (254.3) $ 319.0 $ 497.7 $ -- $ 562.4
Expenditures for
property, plant and
equipment and other
long-term assets....... (55.8) (64.4) (275.0) -- (395.2)
Proceeds from sale of
business investments... 3.9 -- 49.4 -- 53.3
Business acquisitions,
net of cash acquired... (97.0) (1.9) (272.3) -- (371.2)
--------- ------- ------- ------ ---------
Net Cash Used By
Investing
Activities........... (148.9) (66.3) (497.9) -- (713.1)
Issuance of common
stock.................. 1.2 -- -- -- 1.2
Proceeds from issuance
of long-term debt...... 2,123.0 -- -- -- 2,123.0
Principal payments on
long-term debt......... (2,223.2) (2.0) (26.3) -- (2,251.5)
Increase (decrease) in
short-term debt........ 44.2 (11.7) (35.5) -- (3.0)
Fees paid for debt
issuance and other
securities............. (25.5) -- -- -- (25.5)
Change in intercompany
accounts............... 216.1 (239.4) 23.3 -- --
Sale of accounts
receivable under
securitization......... 304.3 -- -- -- 304.3
Dividends............... (4.3) -- -- -- (4.3)
Other................... (3.8) -- (2.4) -- (6.2)
--------- ------- ------- ------ ---------
Net Cash Provided From
(Used By) Financing
Activities........... 432.0 (253.1) (40.9) -- 138.0
--------- ------- ------- ------ ---------
Net Increase
(Decrease) in Cash... $ 28.8 $ (0.4) $ (41.1) $ -- $ (12.7)
========= ======= ======= ====== =========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

December 31, 1998
(Millions of Dollars)

Net Cash Provided From
Operating Activities... $ 131.5 $ 122.0 $ 72.0 $ -- $ 325.5
Expenditures for
property, plant and
equipment and other
long-term assets....... (37.4) (7.6) (183.5) -- (228.5)
Proceeds from sale of
business investments... 3.8 -- 49.6 -- 53.4
Proceeds from sale of
options................ -- -- 39.1 -- 39.1
Business acquisitions,
net of cash acquired... (2,369.7) -- (1,855.5) -- (4,225.2)
--------- --------- --------- --------- ---------
Net Cash Used By
Investing
Activities........... (2,403.3) (7.6) (1,950.3) -- (4,361.2)
Issuance of common
stock.................. 1,382.2 -- -- -- 1,382.2
Proceeds from issuance
of long-term debt...... 6,197.5 -- -- -- 6,197.5
Principal payments on
long-term debt......... (3,678.7) (0.3) (248.6) -- (3,927.6)
Increase (decrease) in
short-term debt........ 73.9 10.5 (83.9) -- 0.5
Fees paid for debt
issuance and other
securities............. (76.6) -- -- -- (76.6)
Fees for early
retirement of debt..... -- -- (27.4) -- (27.4)
Change in intercompany
accounts............... 16.4 (1,689.2) 1,672.8 -- --
Contributions paid to
affiliates............. (2,150.1) (565.4) -- 2,715.5 --
Contributions received
from affiliates........ -- 2,150.1 565.4 (2,715.5) --
Sale of accounts
receivable under
securitization......... 42.6 -- -- -- 42.6
Dividends............... (10.4) -- -- -- (10.4)
Other................... (4.6) 0.5 (5.2) -- (9.3)
--------- --------- --------- --------- ---------
Net Cash Provided From
(Used By)
Financing
Activities........... 1,792.2 (93.8) 1,873.1 -- 3,571.5
--------- --------- --------- --------- ---------
Net Increase
(Decrease) in Cash... $ (479.6) $ 20.6 $ (5.2) $ -- $ (464.2)
========= ========= ========= ========= =========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

December 31, 1997
(Millions of Dollars)

(Unconsolidated)
-----------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------- ------------ ------------- ------------

Net Cash (Used By) Provided
From Operating Activities.... $ (23.2) $ 5.9 $ 233.0 $ 215.7
Expenditures for property,
plant and equipment and other
long-term assets............. (24.7) -- (25.0) (49.7)
Proceeds from sale of business
investments.................. 61.5 -- 12.1 73.6
Business acquisitions, net of
cash acquired................ -- -- (30.5) (30.5)
Other......................... -- -- 1.1 1.1
------- ----- ------- -------
Net Cash Provided From (Used
By) Investing Activities... 36.8 -- (42.3) (5.5)
Issuance of common stock...... 14.2 -- -- 14.2
Proceeds from issuance of
long-term debt............... 179.6 -- -- 179.6
Principal payments on long-
term debt.................... (97.8) -- (29.6) (127.4)
Decrease in short-term debt... (227.4) -- (8.4) (235.8)
Fees paid for debt issuance
and other securities......... (42.8) -- -- (42.8)
Fees for early retirement of
debt......................... -- -- (4.1) (4.1)
Change in intercompany
accounts..................... 675.2 2.6 (677.8) --
Repurchase of accounts
receivable under
securitization............... (31.8) -- -- (31.8)
Issuance of Company-obligated
mandatorily redeemable
preferred securities......... -- -- 575.0 575.0
Dividends..................... (12.0) (8.5) (4.3) (24.8)
Other......................... -- -- (4.0) (4.0)
------- ----- ------- -------
Net Cash Provided From (Used
By) Financing Activities... 457.2 (5.9) (153.2) 298.1
------- ----- ------- -------
Net Increase in Cash........ $ 470.8 $ -- $ 37.5 $ 508.3
======= ===== ======= =======

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

To Our Shareholders:

The management of Federal-Mogul has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity. The
financial statements were prepared in accordance with generally accepted
accounting principles and include amounts based on the best estimates and
judgments of management. Management also prepared the other financial
information in this report and is responsible for its accuracy and consistency
with the financial statements. Federal-Mogul has retained independent
auditors, ratified by election by the shareholders, to audit the financial
statements.

Federal-Mogul maintains internal accounting control systems which are
adequate to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and which produce records adequate for preparation of
financial information. The systems controls and compliance are reviewed by a
program of internal audits. There are limits inherent in all systems of
internal accounting control based on the recognition that the cost of such a
system not exceed the benefits derived. We believe Federal-Mogul's system
provides this appropriate balance.

The Audit Committee of the Board of Directors, comprised of five outside
directors, performs an oversight role related to financial reporting. The
Committee periodically meets jointly and separately with the independent
auditors, internal auditors and management to review their activities and
reports and to take any action appropriate to their findings. At all times,
the independent auditors have the opportunity to meet with the Audit
Committee, without management representatives present, to discuss matters
related to their audit.

/s/ Dick Snell
Dick Snell
Chairman and Chief Executive Officer

/s/ Kenneth P. Slaby
Kenneth P. Slaby
Vice President and Controller

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors, Federal-Mogul Corporation:

We have audited the accompanying consolidated balance sheets of Federal-
Mogul Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Federal-Mogul Corporation and subsidiaries at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements, taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Ernst and Young, LLP
Detroit, Michigan
February 16, 2000

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None

PART III

Item 10. Directors and Executive Officers of the Registrant.

The information required by this item will appear (a) under the caption
"Election of Directors" in the Company's definitive Proxy Statement dated
March 15, 2000 relating to its 2000 Annual Meeting of Shareholders (the "2000
Proxy Statement") (except for the information appearing under the caption
"Compensation of Directors"), which information is incorporated herein by
reference; (b) under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 2000 Proxy Statement, which information is incorporated
herein by reference; and (c) under the caption "Executive Officers of the
Company" at the end of Part I of this Annual Report.

Item 11. Executive Compensation.

The information required by this item will appear under the caption
"Executive Compensation" in the 2000 Proxy Statement (excluding the
information appearing under the caption "Compensation Committee Report on
Executive Compensation") and under the caption "Compensation of Directors" in
the 2000 Proxy Statement, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information required by this item will appear under the caption
"Information on Securities -- Directors' and Officers' Ownership of Stock" and
"Ownership of Stock by Principal Owners" in the 2000 Proxy Statement and is
incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

The information required by this item will appear under the caption "Certain
Related Transactions" in the 2000 Proxy Statement and is incorporated herein
by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are filed as part of this report:

1. Financial Statements: Financial statements filed as part of this
Annual Report on Form 10-K are listed under Part II, Item 8 hereof.

2. Financial Statement Schedules:

Schedule II -- Valuation and Qualifying Accounts

Financial Statements and Schedules Omitted:

Schedules other than those listed above are omitted because they
are not required or applicable under instructions contained in
Regulation S-X or because the information called for is shown in the
financial statements and notes thereto.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES

(Millions of Dollars)

Column A Column B Column C Column D Column E
-------- --------- -------------------- ---------- --------
Additions
--------------------
Balance Charged Charged to Balance
At to Costs Other Deductions at End
Beginning and Accounts -- -- of
Description of Period Expenses Describe Describe Period
----------- --------- -------- ----------- ---------- --------

Year Ended December 31,
1999:
Valuation allowance for
trade receivable......... $60.4 $5.2 $ 5.1(2) $ 1.4(3) $69.3
Reserve for inventory
valuation................ 24.9 1.6 26.5
Valuation allowance for
deferred tax assets...... 77.0 22.5(1) 54.5

Year Ended December 31,
1998:
Valuation allowance for
trade receivable......... 18.7 7.6 34.1(2) -- 60.4
Reserve for inventory
valuation................ 15.1 1.6 8.2(2) -- 24.9
Valuation allowance for
deferred tax assets...... 44.4 3.9 28.7(4) -- 77.0

Year Ended December 31,
1997:
Valuation allowance for
trade receivable......... 16.3 3.5 -- 1.1(3) 18.7
Reserve for inventory
valuation................ 48.0 1.5 -- 34.4(5) 15.1
Valuation allowance for
deferred tax assets...... 89.4 -- 45.0(6) 44.4

- - ------------------
(1) Decrease due to a $21.4 million reduction of the valuation reserve which
was reversed to the statement of operations and a $1.1 million utilization
of pre-acquisition net operating loss carryforwards the effect of which
reduces goodwill.

(2) Amounts related to the acquisition of businesses.

(3) Uncollectable accounts charged off net of recoveries.

(4) Increase due to purchased foreign net operating loss carryforwards.

(5) Decrease due to the disposal of certain foreign subsidiaries and the
disposal of slow-moving and obsolete inventory that was fully reserved.

(6) Disposition of certain international retail operations plus utilization of
foreign net operating loss carryforwards.

3. Exhibits:

The Company will furnish upon request any of the following exhibits
upon payment of the Company's reasonable expenses for furnishing such
exhibit.

2.1 Recommended Cash Offer for T&N plc, dated as of November 13, 1997.
(Incorporated by reference to Exhibit 2.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (the "1997 10-
K".)

2.2 Equity Purchase Agreement between the Company and The Sellers with
respect to the acquisition of Fel-Pro Incorporated, dated as of January
9, 1998. (Incorporated by reference to Exhibit 2.2 to the Company's
1997 10-K.)

2.3 Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation, dated August 17, 1998. (Incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed October 26, 1998.)

*3.1 The Company's Restated Articles of Incorporation.

3.2 The Company's Bylaws, as amended. (Incorporated by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. (the "1998 10-K".)

4.1 Rights Agreement dated as of February 24, 1999, between the Company and
The Bank of New York, as Rights Agent. (Incorporated by reference to
Exhibit 4 to the Company's Current Report on Form 8-K filed February
25, 1999.)

4.2 Purchase Agreement for 10,000,000 Trust Convertible Preferred
Securities of Federal-Mogul Financing Trust, dated as of November 24,
1997. (Incorporated by reference to Exhibit 4.6 to the Company's 1997
10-K.)

4.3 Registration Rights Agreement, dated as of December 1, 1997, by and
among the Company, Federal-Mogul Financing Trust and Morgan Stanley &
Co. Inc. as Initial Purchaser. (Incorporated by reference to Exhibit
4.7 to the Company's 1997 10-K.)

4.4 Indenture between the Company and The Bank of New York, dated as of
December 1, 1997, with respect to the Subordinated Debentures.
(Incorporated by reference to Exhibit 4.8 to the Company's 1997 10-K.)

4.5 First Supplemental Indenture between the Company and The Bank of New
York, dated as of December 1, 1997, with respect to the Subordinated
Debentures. (Incorporated by reference to Exhibit 4.9 to the Company's
1997 10-K.)

4.6 Indenture among Federal-Mogul Corporation and The Bank of New York,
dated as of January 20, 1999. (Incorporated by reference to Exhibit 4.8
to the Company's 1998 10-K.)

4.7 Indenture among Federal-Mogul Corporation and Continental Bank, dated
as of August 12, 1994. (Incorporated by reference to Exhibit 4.14 to
the Company's Current Report on Form 8-K filed August 19, 1994.)

*4.8 Indenture among Federal-Mogul Corporation and The Bank of New York,
dated as of June 29, 1998.

*4.9 First Supplemental Indenture among Federal-Mogul Corporation and The
Bank of New York, dated as of June 30, 1998.

10.1 Federal-Mogul Corporation 1997 Amended and Restated Long-Term Incentive
Plan, as adopted by the Shareholders of the Company on May 20, 1998.
(Incorporated by reference to the Company's 1998 Definitive Proxy
Statement on Form 14A.)

10.2 Amended and Restated Deferred Compensation Plan for Corporate
Directors. (Incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1990 (the
"1990 10-K".)

10.3 Supplemental Executive Retirement Plan, as amended. (Incorporated by
reference to Exhibit 10.10 to the Company's 1992 10-K.)

10.4 Description of Umbrella Excess Liability Insurance for the Senior
Management Team. (Incorporated by reference to Exhibit 10.11 to the
Company's 1990 10-K.)

10.5 Federal-Mogul Corporation Non-Employee Director Stock Plan.
(Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form S-8 (Registration No. 33-54301.)

10.6 Amended and Restated Declaration of Trust of Federal-Mogul Financing
Trust, dated as of December 1, 1997. (Incorporated by reference to
Exhibit 10.34 to the Company's 1997 10-K.)

10.7 Common Securities Guarantee Agreement, dated as of December 1, 1997,
among the Company and Federal-Mogul Financing Trust. (Incorporated by
reference to Exhibit 10.35 to the Company's 1997 10-K.)

10.8 Third Amended and Restated Credit Agreement, dated as of February 24,
1999, in the amount of $1,750,000,000 among the Company, The Foreign
Subsidiary Borrowers, the Lenders and The Chase Manhattan Bank.
(Incorporated by reference to Exhibit 10.13 to the Company's 1998 10-
K.)

*10.9 Amended and Restated Receivables Sale and Contribution Agreement, dated
as of July 1, 1999, among the Company and Federal-Mogul Funding
Corporation.

*10.10 Amended and Restated Receivable Interest Purchase Agreement, dated as
of July 1, 1999, in the amount of $450,000,000 among the Company,
Federal-Mogul Funding Corporation, Falcon Asset Securitization
Corporation and International Securitization Corporation.

*10.11 Federal-Mogul Supplemental Key Executive Pension Plan dated January 1,
1999.

*21 Subsidiaries of the Registrant.

*23.1 Consent of Ernst & Young LLP.

*24 Powers of Attorney.

*27 Financial Data Schedule.
- - ------------------

* Filed Herewith

(b) Reports on Form 8-K:

1) Financial statements of Federal-Mogul Products, Inc. and
subsidiaries (formerly owned by Cooper Industries and the Moog
Automotive division of Cooper Industries, Inc., its predecessor)
including consolidated balance sheets as of December 31, 1999 and
1998, and the related statements of operations and comprehensive
income and cash flows for the year ended December 31, 1999, for the
periods January 1, 1998 through October 9, 1998, October 10, 1998
through December 31, 1998 and for the year ended December 31, 1997.

2) Financial statements of Federal-Mogul Ignition Company and
subsidiaries (and the Cooper Automotive division of Cooper
Industries, Inc., its predecessor) including consolidated balance
sheets as of December 31, 1999 and 1998, and the related statements
of operations and comprehensive income and cash flows for the year
ended December 31, 1999, for the periods January 1, 1998 through
October 9, 1998, October 10, 1998 through December 31, 1998 and for
the year ended December 31, 1997.

On December 20, 1999, the Company filed a Current Report on Form 8-K to
report a default judgment entered against the Company in favor of Owens-
Illinois, Inc.

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Federal-Mogul Corporation

We have audited the accompanying consolidated balance sheets of Federal-
Mogul Products, Inc. and subsidiaries and the Moog Automotive Division of
Cooper Industries (the Predecessor) as of December 31, 1999 and 1998,
respectively, and the related consolidated statements of operations and
comprehensive income and cash flows for the year ended December 31, 1999, for
the period October 10, 1998 through December 31, 1998 and for the Predecessor
for the period January 1, 1998 through October 9, 1998 and the year ended
December 31, 1997. These financial statements are the responsibility of the
respective Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Federal-Mogul
Products, Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1999, the period October 10, 1998 through December 31, 1998
and for the Predecessor for the period January 1, 1998 through October 9,
1998, and for the year ended December 31, 1997, in conformity with accounting
principles generally accepted in the United States.

/s/ Ernst & Young LLP

Detroit, Michigan
February 16, 2000

FEDERAL-MOGUL PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Millions of Dollars)

Predecessor
-----------------------
Period
Period January 1,
October 10, 1998
Year ended 1998 through through Year ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------

Net sales................... $724.2 $170.2 $666.7 $842.0
Cost of products sold....... 521.6 120.1 458.8 611.2
Selling, general and
administrative expenses.... 119.5 28.5 106.4 158.1
Amortization of goodwill and
other intangible assets.... 16.0 2.9 11.9 15.1
Integration costs........... 3.5 -- -- --
Nonrecurring charges........ -- -- -- 27.3
Other expense, net.......... 11.7 1.9 1.6 1.9
Interest expense............ 20.1 15.1 -- 0.4
------ ------ ------ ------
Earnings before income
taxes.................... 31.8 1.7 88.0 28.0
Income tax expense.......... 15.1 1.0 38.4 16.0
------ ------ ------ ------
Net earnings............ 16.7 0.7 49.6 12.0
Components of Comprehensive
Income (Loss):
Minimum pension liability,
net of tax............... (4.2) -- -- (1.6)
Translation adjustments,
net of tax............... -- (0.8) (1.6) 2.0
------ ------ ------ ------
Comprehensive Income
(Loss)................. $ 12.5 $ (0.1) $ 48.0 $ 12.4
====== ====== ====== ======

See accompanying Notes to Consolidated Financial Statements.

FEDERAL-MOGUL PRODUCTS, INC.

CONSOLIDATED BALANCE SHEETS

(Millions of Dollars)

December 31,
------------------
1999 1998
-------- --------

ASSETS
Cash...................................................... $ 17.0 $ 7.7
Accounts receivable (net of allowance for doubtful
accounts of $16.7 million in 1998)....................... -- 183.5
Inventories............................................... 161.2 208.0
Other..................................................... 19.8 15.4
-------- --------
Total Current Assets.................................. 198.0 414.6
Property, plant and equipment, net........................ 254.0 294.3
Intangible assets, net.................................... 553.4 339.8
Asbestos-related insurance recoverable.................... 325.9 --
Other assets.............................................. 47.9 19.2
-------- --------
Total Assets.......................................... $1,379.2 $1,067.9
======== ========
LIABILITIES AND NET PARENT INVESTMENT
Accounts payable.......................................... $ 67.6 $ 77.1
Accrued liabilities....................................... 60.8 107.9
-------- --------
Total Current Liabilities............................. 128.4 185.0
Long-term debt............................................ -- 0.8
Long-term portion of asbestos liability................... 408.8 20.0
Other long-term liabilities............................... 3.3 51.6
Net Parent Investment
Accumulated other comprehensive income.................. (5.0) (0.8)
Intercompany transactions............................... 843.7 811.3
-------- --------
Net Parent Investment................................. 838.7 810.5
-------- --------
Liabilities and Net Parent Investment................. $1,379.2 $1,067.9
======== ========

See accompanying Notes to Consolidated Financial Statements.

FEDERAL-MOGUL PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Millions of Dollars)

Predecessor
-----------------------
Period Period
October 10, January 1,
Year 1998 1998
Ended through through Year Ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------

Cash flows from operating
activities:
Net income................ $ 16.7 $ 0.7 $ 49.6 $ 12.0
Adjustments to reconcile to
net cash provided by (used
in) operating activities:
Depreciation and
amortization............. 41.0 10.1 29.8 40.3
Nonrecurring asset write-
down..................... -- -- -- 36.2
Changes in assets and
liabilities:
Accounts receivable..... -- 16.7 (43.2) 11.5
Inventories............. 48.3 31.0 (18.7) (18.1)
Accounts payable and
accrued liabilities.... (40.5) (12.2) (28.6) (14.1)
Other assets and
liabilities, net....... (72.0) 0.5 (9.5) 14.9
------ ------ ------ ------
Net cash provided by
(used in) operating
activities........... (6.5) 46.8 (20.6) 82.7
Cash flows from investing
activities:
Capital expenditures...... (34.3) (4.9) (18.8) (36.3)
Proceeds from sales of
property, plant and
equipment................ -- 4.9 5.8 2.2
------ ------ ------ ------
Net cash used in
investing
activities........... (34.3) -- (13.0) (34.1)
Cash flows from financing
activities:
Repayments of long-term
debt..................... (0.8) (0.3) (2.4) (3.5)
Transfers from (to)
parent................... 50.9 (40.6) 37.8 (45.1)
------ ------ ------ ------
Net cash provided by
(used in) financing
activities........... 50.1 (40.9) 35.4 (48.6)
------ ------ ------ ------
Increase in cash and cash
equivalents................ 9.3 5.9 1.8 --
Cash, beginning of
period............... 7.7 1.8 -- --
------ ------ ------ ------
Cash, end of period... $ 17.0 $ 7.7 $ 1.8 $ --
====== ====== ====== ======

See accompanying Notes to Consolidated Financial Statements.

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying financial statements reflect the consolidated assets,
liabilities and operations of Federal-Mogul Products, Inc. and its
subsidiaries ("Products"). Products is a wholly-owned subsidiary of Federal-
Mogul Corporation ("Federal-Mogul"). Products' Predessor was previously known
as the Moog Automotive Division of Cooper Industries, Inc., hereafter also
referred to as "Products." Federal-Mogul purchased the automotive divisions of
Cooper, including Products, on October 9, 1998 for approximately $2.0 billion
of which approximately $1.1 billion is attributable to Products. The assets
and liabilities of Products have been adjusted to their fair values as of
October 9, 1998. All related purchase accounting adjustments as recorded by
Federal-Mogul and related to Products have been reflected herein.

Products operates with financial and operational staff on a decentralized
basis. Federal-Mogul provides certain centralized services for employee
benefits administration, cash management, risk management, legal services,
public relations, domestic tax reporting and internal and external audit.
Federal-Mogul bills Products for all direct costs incurred on its behalf.
General corporate, accounting, tax, legal and other administrative costs, such
as centralized aftermarket advertising, selling and marketing expenses, that
are not directly attributable to the operations of Products have been
allocated based on management's estimates, primarily driven by sales.
Management believes that this allocation method is reasonable.

The accompanying consolidated financial statements include the accounts of
Products as described above. These statements are presented as if Products had
existed as an entity separate from its parent during the period presented and
include the assets, liabilities, revenues and expenses that are directly
related to Products' operations.

Products' separate domestic debt and related interest expense have been
included in the consolidated financial statements. Because Products is fully
integrated into its parent's worldwide cash management system, all of their
cash requirements are provided by its parent and any excess cash generated by
Products is transferred to its parent.

Note 2: Summary of Significant Accounting Policies

Principles of Consolidation: The consolidated financial statements include
the accounts of Products, and its subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Inventories: Inventories are stated at the lower of cost or market. Prior to
Federal-Mogul's acquisition of Products, cost was determined using the first-
in, first-out (FIFO) method. Subsequent to Federal-Mogul's acquisition of
Products, cost is determined using the last-in, first-out method (LIFO).
Approximately 88% and 89% of the inventory at December 31, 1999 and 1998,
respectively was accounted for using the LIFO method. The remaining
inventories are recorded using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost, amounts reported would have been
increased by $8.3 million as of December 31, 1999. LIFO approximated cost at
December 31, 1998.

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At December 31, inventories consisted of the following:

1999 1998
------- ------
(Millions of
Dollars)

Raw materials.............................................. $ 30.4 $ 59.0
Work-in-process............................................ 14.3 19.0
Finished goods............................................. 116.5 130.0
------- ------
$ 161.2 $208.0
======= ======

Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is computed over the estimated useful lives of the related
assets using primarily the straight-line method. This method is applied to
group asset accounts, which in general have the following lives: buildings--10
to 40 years and machinery and equipment--3 to 12 years. At December 31,
property, plant and equipment consisted of the following:

1999 1998
------- ------
(Millions of
Dollars)

Property, plant and equipment:
Land and land improvements............................. $ 11.4 $ 10.4
Buildings.............................................. 82.8 89.4
Machinery and equipment................................ 192.0 201.7
------- ------
286.2 301.5
Accumulated depreciation............................... (32.2) (7.2)
------- ------
$ 254.0 $294.3
======= ======

Goodwill and Other Intangible Assets: At December 31, goodwill and other
intangible assets, which result principally from acquisitions, consisted of
the following:

Estimated
Useful Life 1999 1998
----------- ------ ------
(Millions of
Dollars)

Goodwill...................................... 40 years $422.5 $195.5
Accumulated amortization...................... (10.0) (1.1)
------ ------
412.5 194.4
Trademarks.................................... 40 years 66.2 66.2
Developed technology.......................... 12-30 years 67.4 67.4
Assembled workforce........................... 15 years 13.3 13.6
Other......................................... 20 years 2.9 --
------ ------
149.8 147.2
Accumulated amortization...................... (8.9) (1.8)
------ ------
140.9 145.4
------ ------
Net Intangible Assets..................... $553.4 $339.8
====== ======

During 1999, Federal-Mogul completed its allocation of the purchase price of
Products, including completing valuations of certain assets and liabilities.
The net effect of such analysis resulted in increasing goodwill $227 million.

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Intangible assets are periodically reviewed for impairment based on an
assessment of future cash flows to ensure that they are appropriately valued.
There were no impairment charges during 1999 or 1998. Intangible assets are
amortized on a straight-line basis over their estimated useful lives.

Net Parent Investment: The Net Parent Investment account reflects the
balance of Products' historical earnings, intercompany debt, accrued and
deferred income taxes, other transactions between Products and Federal-Mogul,
foreign currency translations and equity pension adjustments.

Revenue Recognition: Products recognizes revenue and estimated returns from
product sales and the related customer incentive and warranty expense when
goods are shipped to the customer.

Currency Translation: Exchange adjustments related to international currency
transactions and translation adjustments for subsidiaries whose functional
currency is the United States dollar (principally those located in highly
inflationary economies) are reflected in the consolidated statements of
operations. Translation adjustments of Canadian subsidiaries for which the
Canadian dollar is the functional currency are reflected in the consolidated
financial statements as a component of accumulated other comprehensive income.

Fair Value of Financial Instruments: The carrying amounts of certain
financial instruments such as cash and equivalents, accounts receivable and
accounts payable approximate their fair value.

Effect of Accounting Pronouncements: In 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
In June 1999, the effective date of SFAS No. 133 was delayed by one year to
January 1, 2001. The statement requires Products to recognize all derivatives
on the balance sheet at fair value. The effect of adoption of this statement
on Products earnings or financial position has not been finalized.

In 1999, the Emerging Issues Task Force ("EITF") of the FASB reached
consensus on issue No. 99-5, Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements. The EITF addresses the accounting for pre-
production costs relating to design and development of production parts and
tooling. The EITF is required to be applied beginning January 1, 2000.
Products does not believe the adoption of this pronouncement will have a
material effect on Products financial position or financial operations as its
current accounting practices are consistent with the pronouncement.

Note 3: Nonrecurring Charges

During 1997, Products incurred charges of $14.7 million for actions
management committed to during the period after concluding an evaluation of
certain sales, marketing and distribution activities and information systems
relating to year 2000 compliance efforts. The 1997 charges include adjustments
to the carrying value of assets of $23.8 million and expenditures for
replacing systems of $3.5 million.

During 1997, Cooper Industries, Inc. ("Cooper") began negotiations with
Standard Motor Products, Inc. ("SMP") to exchange their temperature control
business for the brake products business owned by SMP. The 1997 nonrecurring
charge includes adjustments to the carrying value of the assets of the
remanufacturing businesses, including a portion of the temperature control
business, which were in the process of being divested. On March 28, 1998,
Products exchanged the automotive temperature control business for the brake
products business of Standard Motor Products. For accounting purposes, the
exchange transaction is recorded as the sale of Products' temperature control
business and the purchase of the Standard Motor Products' brake business. The
fair market values of the temperature control business assets were equal to
the net book value of the assets after the write-down of the assets in 1997.
The acquisition cost of the brake business assets was approximately $81
million. In February 1998, Products also completed the sale of the constant
velocity joint remanufacturing business for approximately $4 million.

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During 1997, the impact of existing system capabilities to function at the
turn of the century was assessed. Products is implementing new enterprise
systems to be year 2000 compliant. The rollout of new enterprise-wide software
began in 1997 and was completed during 1998. Products recorded a $11.3 million
charge in 1997 primarily related to the adjustment in the carrying value of
abandoned hardware and software.

Note 4: Commitments and Contingencies

Asbestos Litigation

Current businesses of Products, primarily Abex and Wagner, are involved as
defendants in numerous court actions in the United States alleging personal
injury from exposure to asbestos or asbestos-containing products,
mainly involving friction products. In 1998, Federal-Mogul acquired Products
resulting in the assumption by Federal-Mogul of contractual liability, under
certain circumstances, for all claims pending and to be filed in the future
alleging exposure to certain Wagner automotive and industrial friction
products and for all claims filed after August 29, 1998, alleging exposure to
certain Abex (non-railroad and non-aircraft) friction products. As of December
31, 1999, Abex has approximately 10,500 claims pending and Wagner has
approximately 13,700 claims pending. Federal-Mogul has completed its
assessment of the potential liability and related potential insurance
recoveries related to the Products acquisition and has recorded a $325.9
million insurance recoverable asset and a liability of the subsidiaries
involved of $408.8 million. This is Federal-Mogul's estimate, after taking
into account legal counsel's evaluation related to amounts expected to be paid
or reimbursed by insurers. In arriving at these provisions, certain
assumptions have been made regarding the total number of claims which may be
received in the future against these two entities and the average costs
associated with such claims.

Abex maintained product liability insurance coverage for most of the time
that it manufactured products that contained asbestos. The subsidiary of
Federal-Mogul that may be liable for the post-August 1998 asbestos claims
against Abex has the benefit of that insurance. Abex has been in litigation
since 1982 with the insurance carriers of its primary layer of liability
concerning coverage for asbestos claims. Abex also has substantial excess
layer liability insurance coverage which, barring unforeseen insolvencies of
excess carriers or other adverse events, should provide coverage for asbestos
claims against Abex.

Wagner also maintained product liability insurance coverage for some of the
time that it manufactured products that contained asbestos. The subsidiary of
Federal-Mogul that may be liable for asbestos claims against Wagner has the
benefit of that insurance. Primary layer liability insurance coverage for
asbestos claims against Wagner is the subject of an agreement with Wagner's
solvent primary carriers. The agreement provides for partial reimbursement of
indemnity and defense costs for Wagner asbestos claims until exhaustion of
aggregate limits. Wagner also has substantial excess layer liability insurance
coverage which, barring unforeseen insolvencies of excess carriers or other
adverse events, should provide coverage for asbestos claims against Wagner.

The ultimate exposure of Federal-Mogul's subsidiary with respect to claims
against Abex and Wagner will depend upon the extent to which the insurance
described above will be available to cover such claims, the amounts paid for
indemnity and defense, changes in the legal environment and other factors.
While Federal-Mogul believes that the liability and receivable recorded for
these claims are reasonable and appropriate, given the nature and complexity
of factors affecting the estimated liability and potential insurance recovery,
the actual liability and insurance recovery may differ. In the event that the
actual liability net of insurance proceeds recovered exceeds the reserve net
of insurance receivable recorded by the Federal-Mogul, the Federal-Mogul's
results of operations, business, liquidity and financial condition could be
materially adversely affected. The asbestos reserves for the businesses
acquired as part of the Products acquisition will be re-evaluated periodically
as additional information becomes available.

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Environmental Liabilities

At December 31, 1999, Products had accruals of $6.0 million with respect to
potential environmental liabilities, including $4.0 million classified as a
long-term liability, based on Products' current estimate of the most likely
amount of losses that it believes will be incurred.

Environmental remediation costs are accrued based on estimates of known
environmental remediation exposures. Such accruals are adjusted as information
develops or circumstances change.

Products has not utilized any form of discounting in establishing its
environmental liability accruals. While environmental liability accruals
involve estimates that can have wide ranges of potential liability, Products
has taken a proactive approach and has managed the costs in these areas over
the years. Products does not believe that the nature of their products,
production processes, or materials or other factors involved in the
manufacturing process subject Products to unusual risks or exposures for
environmental liability. Products' greatest exposure to inaccuracy in their
estimates is with respect to the constantly changing definitions of what
constitutes an environmental liability or an acceptable level of cleanup.

Future minimum payments under noncancelable operating leases with initial or
remaining terms of more than one year are, in millions: 2000--$3.1; 2001--
$2.8; 2002--$2.1; 2003--$1.7; 2004--$1.7 and thereafter $3.2.

Note 5: Restructuring

In connection with acquisitions accounted for using the purchase method of
accounting, Products recorded accruals for the costs of closing duplicate
facilities and severing redundant personnel as part of integrating the
acquired business into existing operations. Significant accruals include plant
shut-down and realignment costs, and personnel relocations, and aggregated
$25.0 million at December 31, 1998. Substantially all payments related to
December 31, 1998 accruals were made in 1999.

Note 6: Long-Term Debt and Other Borrowing Arrangements

Products' cash and indebtedness is managed on a worldwide basis by Federal-
Mogul. The majority of the cash provided by or used by a particular division,
including Products, is provided through this consolidated cash and debt
management system. As a result, the amount of cash or debt historically
related to Products is not determinable. For purposes of Products' historical
financial statements, identifiable debt was allocated to Products during each
year with all of Products' positive or negative cash flows being treated as
cash transferred to or from Cooper. The specifically identifiable industrial
revenue bonds (the "IRB") and specifically identifiable international debt was
assigned to Products.

Products has an inter-company loan with Federal-Mogul in the amount of
$311.2 million, which is included in the net parent investment balance at
December 31, 1999 and 1998. In 1999 and 1998 Federal-Mogul charged interest on
this balance based on its incremental borrowing rate, which approximated 7.36%
and 7.75, respectively.

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For purposes of Products' historical financial statements, interest expense
has been computed using the actual interest rate with respect to the IRB and
Canadian short-term borrowings. Total interest related to long-term debt and
short-term debt paid during 1999, 1998 and 1997 was $0.1 million, $0.5 million
and $0.5 million, respectively.

Federal-Mogul has pledged 100% of Products' capital stock to secure certain
outstanding debt of Federal-Mogul. In addition, Products has guaranteed fully
and unconditionally, on a joint and several basis, the obligation to pay
principal and interest under Federal-Mogul's Senior Credit Agreement and its
publicly registered debt which approximates $3.1 billion and $3.2 billion at
December 31, 1999 and 1998, respectively. Such pledges and guarantees have
also been made by other subsidiaries of Federal-Mogul.

In July 1999, Products began participating in Federal-Mogul's accounts
receivable securitization program. On an ongoing basis, Products sells certain
accounts receivable to Federal-Mogul Funding Corporation (FMFC), a wholly
owned subsidiary of Federal-Mogul, which then sells such receivables, without
recourse, to a financial conduit. The transfers of these receivables are
charged to the Net Parent Investment account. Products does not retain any
interest in these receivables

Note 7: Net Parent Investment

Changes in net parent investment were as follows:

(Million of Dollars)

Balance at January 1, 1997......................... $872.1
Comprehensive income............................. 12.4
Intercompany transactions, net................... (32.1)
------
Balance at December 31, 1997....................... 852.4
Comprehensive income for the period January 1,
1999 through October 9, 1998.................... 48.0
Intercompany transactions, net................... 53.1
------
Balance at October 9, 1998......................... $953.5
======
Federal-Mogul initial investment in Products....... $833.2
Comprehensive income for the period October 10,
1998 through December 31, 1998.................. (0.1)
Intercompany transactions, net................... (22.6)
------
Balance at December 31, 1998....................... 810.5
Comprehensive income............................. 12.5
Intercompany transactions, net................... 15.7
------
Balance at December 31, 1999....................... $838.7
======

Intercompany transactions are principally cash transfers and non-cash
charges between Products and its parent. The Company includes comprehensive
income in net parent investment. At December 31, 1999 accumulated other
comprehensive income included $0.8 million of foreign currency translation
adjustments and $4.2 million of minimum pension funding. At December 31, 1998
accumulated other comprehensive income included $0.8 million of foreign
currency translation adjustments.

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 8: Income Taxes

Products files a consolidated return with Federal-Mogul for U.S. federal
income tax purposes. Federal income tax expense is calculated on a separate-
return basis for financial reporting purposes.

Period
Period January 1,
October 10, 1998
1998 through through
December 31, October 9,
1999 1998 1998 1997
----- ------------ ---------- -----
(Millions of Dollars)

Components of income tax expense
(benefit):
Current............................... $18.6 $1.0 $ 55.3 $24.6
Deferred.............................. (3.5) -- (16.9) (8.6)
----- ---- ------ -----
Income tax expense.................... $15.1 $1.0 $ 38.4 $16.0
===== ==== ====== =====

A reconciliation between the statutory federal income tax rate and the
effective tax rate is as follows:

Period
Period January 1,
October 10, 1998
1998 through through
December 31, October 9,
1999 1998 1998 1997
---- ------------ ---------- ----

U.S. Federal statutory rate............ 35% 35% 35% 35%
State and local taxes.................. 4 4 4 5
Nondeductible goodwill................. 8 24 5 15
Foreign / other........................ -- (6) -- 2
--- --- --- ---
Effective tax rate..................... 47% 57% 44% 57%
=== === === ===

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the related amounts used for income tax purposes. Significant
components of the Company's net deferred tax asset are non-deductible accruals
and depreciation timing differences.

1999 1998
---------- -----------
(Millions of Dollars)

Current deferred tax assets..................... $ 19.6 $ 76.6
Long-term deferred tax liabilities.............. (53.5) (115.4)
---------- -----------
Net deferred liabilities........................ $ (33.9) $ (38.8)
========== ===========

As Products files a consolidated tax return with Federal-Mogul, the net
deferred tax liability at December 31, 1999 and 1998 is a component of the net
parent investment.

Note 9: Pension Plans

In 1997, as part of Cooper, employees of Products participated in numerous
pension plans covering substantially all domestic employees and pension and
similar arrangements in accordance with local customs covering employees at
foreign locations. The assets of the various domestic and foreign plans were
maintained in various trusts and consisted primarily of equity and fixed-
income securities. Funding policies range from five to thirty years. Pension
benefits for salaried employees were generally based upon career earnings.
Benefits for hourly employees were generally based on a dollar unit,
multiplied by years of service. The amount of expense

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and the funded status with respect to the defined benefit pension plans of
Products, exclusive of the Cooper Salaried Employee Benefit Plan, is set forth
in the table below. In addition, most U.S. salaried employees of Products
participated in the Cooper Salaried Employee Benefit Plan. The amount of
expense allocated to Products for this plan was $0.3 million for the year
ended December 31, 1997. During 1997, Products' expense with respect to
domestic and foreign defined contribution plans (primarily related to various
groups of hourly employees) and Product's aggregate pension expense amounted
to $2.2 million and $3.4 million, respectively.

Year Ended
December 31,
1997
---------------------
(Millions of Dollars)

Components of defined benefit plan net pension
expense:
Service cost--benefits earned during the year.. $ 0.8
Interest cost on projected benefit obligation.. 1.4
Actual return on assets........................ (1.8)
Net amortization and deferral.................. 0.8
-----
Net pension expense.......................... $ 1.2
=====
Actuarial assumptions used:
Discount rate.................................. 7 1/2%
Rate of compensation increase.................. 4 3/4%
Expected long-term rate of return on assets.... 8 1/2%

During 1998, the various pension plans of Products were merged into other
plans of Cooper. As such, the related pension liabilities were recorded to net
parent investment. These multiple-employer plans were assumed by Federal-Mogul
in its acquisition of the automotive divisions of Cooper. Such plans were
required to be fully funded by Cooper prior to the acquisition by Federal-
Mogul. The expense charged to Products by Cooper during the period January 1,
1998 to October 9, 1998 was $2.2 million. The credit to Products from Federal-
Mogul for the period October 10, 1998 to December 31, 1998 was approximately
$0.4 million. Such plans were required to be fully funded by Cooper prior to
the acquisition by Federal-Mogul.

For the year ended December 31, 1999, the credit to Products from Federal-
Mogul was approximately $1.0 million. The fully funded aggregated projected
benefit obligation of such plans of $345.6 million was based upon a discount
rate of 7.75% at December 31, 1999. The fair value of the plan's assets at
December 31, 1999 was $327.0 million. Company contributions for 1999 were $0.5
million.

Note 10: Postretirement Benefits Other Than Pensions

As part of Cooper and subsequently Federal-Mogul, benefits provided to
employees of Products under various multiple-employer postretirement plans
other than pensions, all of which are unfunded, include retiree medical care,
dental care, prescriptions and life insurance, with medical care accounting
for approximately 90% of the total. The majority of participants under such
plans are retirees. The expense related to such plans approximated $2.5
million, $1.7 million, $.6 million and $1.0 million, for 1999, the period
January 1, 1998 to October 9, 1998, the period October 10, 1998 to December
31, 1998 and 1997, respectively. The unfunded projected benefit obligation of
these plans aggregated approximately $34.9 million at December 31, 1999, based
upon a discount rate of 7.75%.

Note 11: Domestic and International Operations

Products operates in a single business segment. Products manufactures and
distributes brake friction materials and other products for use by the
automotive aftermarket and in automobile assemblies. In addition,

FEDERAL-MOGUL PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Products manufactures and distributes suspension, steering drive-line and
brake system components and material for the automotive aftermarket. No single
customer accounted for 10% or more of revenues in 1999, 1998 or 1997. All
revenues and assets of Products reside in North America, principally in the
United States.

Note 12: Concentrations of Credit Risk

Products grants credit to their customers, which are primarily in the
automotive industry. Credit risk with respect to trade receivables is
generally diversified due to the large number of entities comprising Products'
customer base and their dispersion across many different countries. Products
performs periodic credit evaluations of their customers and generally does not
require collateral.

During the first quarter of 1998, a large customer filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Products had receivables from
the customer of approximately $12.5 million at the time of the filing which
were written off in 1997.

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Federal-Mogul Corporation

We have audited the accompanying consolidated balance sheets of Federal-
Mogul Ignition Company and subsidiaries and the Cooper Automotive Division of
Cooper Industries (the Predecessor) as of December 31, 1999 and 1998,
respectively and the related consolidated statements of operations and
comprehensive income and cash flows for the year ended December 31, 1999, for
the period October 10, 1998 through December 31, 1998 and for the Predecessor
for the period January 1, 1998 through October 9, 1998 and for the year ended
December 31, 1997. These financial statements are the responsibility of the
respective Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Federal-Mogul
Ignition Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1999, for the period October 10, 1998 through December 31,
1998 and for the Predecessor for the period January 1, 1998 through October 9,
1998, and for the year ended December 31, 1997, in conformity with accounting
principles generally accepted in the United States.

/s/ Ernst & Young LLP

Detroit, Michigan
February 16, 2000

FEDERAL-MOGUL IGNITION COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Millions of Dollars)

Net sales................... $963.8 $233.1 $782.8 $1,031.3
Cost of products sold....... 687.6 169.1 589.7 759.5
Selling, general and
administrative expenses.... 124.8 40.1 100.6 132.9
Amortization of goodwill and
other intangibles.......... 18.6 4.4 13.7 17.6
Integration costs........... 5.0 -- -- --
Nonrecurring charges........ -- -- -- 16.2
Other expense, net.......... 15.9 2.8 15.4 12.6
Interest expense............ 34.3 15.1 1.5 0.6
------ ------ ------ --------
Earnings before income
taxes.................... 77.6 1.6 61.9 91.9
Income tax expense.......... 33.7 1.0 26.8 38.3
------ ------ ------ --------
Net earnings.............. 43.9 0.6 35.1 53.6
Components of comprehensive
income (loss):
Minimum pension liability,
net of tax................. (4.1) -- -- 5.6
Translation adjustments, net
of tax..................... (13.0) (2.4) 6.0 (23.0)
------ ------ ------ --------
Comprehensive income
(loss)................... $ 26.8 $ (1.8) $ 41.1 $ 36.2
====== ====== ====== ========

See accompanying Notes to Consolidated Financial Statements

FEDERAL-MOGUL IGNITION COMPANY

CONSOLIDATED BALANCE SHEETS

(Millions of Dollars)

December 31,
------------------
1999 1998
-------- --------

ASSETS
Cash....................................................... $ 3.3 $ 13.1
Accounts receivable (net of allowance for doubtful accounts
of $0.8 million and
$6.0 million)............................................. 91.4 212.6
Inventories................................................ 166.8 210.4
Other...................................................... 41.2 46.0
-------- --------
Total Current Assets................................... 302.7 482.1
-------- --------
Property, plant and equipment, net......................... 363.9 410.2
Intangibles, net........................................... 649.2 741.3
Other assets............................................... 48.2 19.7
-------- --------
Total Assets........................................... $1,364.0 $1,653.3
======== ========
LIABILITIES AND NET PARENT INVESTMENT
Short-term debt............................................ $ 6.0 $ 16.0
Accounts payable........................................... 84.4 75.8
Accrued compensation....................................... 7.3 21.7
Restructuring and rationalization reserves................. 10.2 32.9
Other accrued liabilities.................................. 54.9 69.9
-------- --------
Total Current Liabilities.............................. 162.8 216.3
Other long-term liabilities................................ 17.0 28.8
Net Parent Investment
Accumulated other comprehensive income................... (19.5) (2.4)
Intercompany transactions................................ 1,203.7 1,410.6
-------- --------
Net Parent Investment.................................. 1,184.2 1,408.2
-------- --------
Liabilities and Net Parent Investment.................. $1,364.0 $1,653.3
======== ========

See accompanying Notes to Consolidated Financial Statements.

FEDERAL-MOGUL IGNITION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Millions of Dollars)

Cash flows from operating
activities:
Net income................. $ 43.9 $ 0.6 $ 35.1 $ 53.6
Adjustments to reconcile to
net cash provided by (used
in)
Operating activities:
Depreciation and
amortization.............. 52.5 13.5 45.5 57.3
Loss on sale of assets..... -- -- 1.0 --
Nonrecurring asset write-
down...................... -- -- -- 6.9
Changes in assets and
liabilities:
Accounts receivable...... (10.8) (1.1) 12.4 (2.2)
Inventories.............. 46.2 4.8 (27.1) (1.9)
Accounts payable and
accrued liabilities..... (6.4) 29.1 (9.3) (13.6)
Other assets and
liabilities, net........ (33.3) (47.1) (0.8) (8.7)
------ ------ ------ ------
Net cash provided by
(used in) operating
activities............ 92.1 (0.2) 56.8 91.4
Cash flows from investing
activities:
Cash paid for acquired
businesses................ (1.9) -- (8.5) (20.1)
Capital expenditures....... (30.1) (7.6) (29.8) (42.1)
Proceeds from sales of
property, plant and
equipment................. -- 1.4 0.4 0.9
------ ------ ------ ------
Net cash used in
investing activities.. (32.0) (6.2) (37.9) (61.3)
Cash flows from financing
activities:
Net short-term borrowings
(repayments).............. -- (2.4) (33.1) 30.6
Borrowings (repayments) of
long-term debt............ (10.8) (0.1) 0.3 --
Transfers from (to)
parent.................... (59.1) (23.8) 58.2 (62.5)
------ ------ ------ ------
Net cash provided by
(used in) financing
activities............ (69.9) (26.3) 25.4 (31.9)
------ ------ ------ ------
Increase (decrease) in cash
and cash equivalents........ (9.8) (32.7) 44.3 (1.8)
Cash beginning of
period................ 13.1 45.8 1.5 3.3
------ ------ ------ ------
Cash end of period..... $ 3.3 $ 13.1 $ 45.8 $ 1.5
====== ====== ====== ======

See accompanying Notes to Consolidated Financial Statements.

FEDERAL-MOGUL IGNITION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying financial statements reflect the consolidated assets,
liabilities and operations of Federal-Mogul Ignition Company and its
subsidiaries (Ignition). Ignition is a wholly owned subsidiary of Federal-
Mogul Corporation ("Federal-Mogul"). Ignition's Predessor was previously known
as the Cooper Divisions of Cooper Industries, Inc. hereafter also referred to
as "Ignition." Federal-Mogul purchased the automotive divisions of Cooper,
including Ignition, on October 9, 1998 for approximately $2.0 billion, of
which approximately $986.0 million was attributable to Ignition. The assets
and liabilities of Ignition have been adjusted to their fair values as of
October 9, 1998. All related purchase accounting adjustments as recorded by
Federal-Mogul and related to Ignition have been reflected herein.

Ignition operates with financial and operations staff on a decentralized
basis. Federal-Mogul provides (and Cooper had provided) certain centralized
services for employee benefits administration, cash management, risk
management, legal services, public relations, domestic tax reporting and
internal and external audit. Federal-Mogul bills Ignition for all direct costs
incurred on its behalf. General corporate, accounting, tax, legal and other
administrative costs, such as centralized aftermarket advertising, selling and
marketing cost, that are not directly attributable to the operations of
Ignition have been allocated based on management's estimates, primarily driven
by sales. Management believes that this allocation method is reasonable.

The accompanying consolidated financial statements include the accounts of
Ignition as described above. These statements are presented as if Ignition had
existed as an entity separate from its parent during the period presented and
include the assets, liabilities, revenues and expenses that are directly
related to Ignition's operations.

Ignition's separate domestic debt and related interest expense have been
included in the consolidated financial statements. Because Ignition is fully
integrated into its parent's worldwide cash management system, all of their
cash requirements are provided by its parent and any excess cash generated by
Ignition is transferred to the parent.

Note 2: Summary of Significant Accounting Policies

Principles of Consolidation: The consolidated financial statements include
the accounts of Ignition, and its subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.

Inventories: Inventories are carried at cost or, if lower, net realizable
value. Prior to Federal-Mogul's acquisition of Ignition cost was determined
using the first-in, first-out (FIFO) method. Subsequent to Federal-Mogul's
acquisition of Ignition, cost is determined using the last-in, first-out
method (LIFO). Approximately 62% and 55% of the inventory at December 31, 1999
and 1998, respectively was accounted for using the LIFO method. The remaining
inventories are recorded using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost amounts reported would have been
increased by $3.5 million, as of December 31, 1999. LIFO approximated cost at
December 31, 1998. At December 31, inventories consisted of the following:

FEDERAL-MOGUL IGNITION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1999 1998
------ ------
(Millions
of
Dollars)

Raw materials............................................... $ 35.7 $ 45.4
Work-in-process............................................. 38.8 51.8
Finished goods.............................................. 92.3 113.2
------ ------
$166.8 $210.4
====== ======

Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is provided over the estimated useful lives of the related
assets using primarily the straight-line method. This method is applied to
group asset accounts, which in general have the following lives: buildings--10
to 40 years; and machinery and equipment--3 to 12 years. At December 31,
property, plant and equipment consisted of the following:

1999 1998
------ ------
(Millions
of
Dollars)

Property, plant and equipment:
Land and land improvements.............................. $ 12.1 $ 10.3
Buildings............................................... 89.4 105.4
Machinery and equipment................................. 305.4 303.6
------ ------
406.9 419.3
Accumulated depreciation................................ (43.0) (9.1)
------ ------
$363.9 $410.2
====== ======

Goodwill and Other Intangible Assets: At December 31, goodwill and other
intangible assets, which result principally from acquisitions, consisted of
the following:

Estimated
Useful Life 1999 1998
----------- ------ ------
(Millions
of
Dollars)

Goodwill..................................... 40 years $399.5 $480.8
Accumulated amortization..................... (11.2) (2.7)
------ ------
388.3 $478.1
Trademarks................................... 40 years 181.5 $176.5
Developed technology......................... 12-30 years 68.2 68.2
Assembled workforce.......................... 15 years 20.2 20.2
Other........................................ 20 years 2.8 --
------ ------
272.7 264.9
Accumulated amortization..................... (11.8) (1.7)
------ ------
260.9 263.2
------ ------
Total Intangible Assets.................. $649.2 $741.3
====== ======

During 1999, Federal-Mogul completed its allocation of the purchase price of
Ignition, including completing valuations of certain assets and liabilities.
The net effect of such analysis resulted in decreasing goodwill $81 million.

FEDERAL-MOGUL IGNITION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net Parent Investment: The Net Parent Investment account reflects the
balance of Ignition's historical earnings, intercompany debt, accrued and
deferred income taxes, other transactions between Ignition and Federal-Mogul,
foreign currency translations and equity pension adjustments.

Revenue Recognition: Ignition recognizes revenue and estimated returns from
product sales and the related customer incentive and warranty expense when
goods are shipped to the customer.

Currency Translation: Exchange adjustments related to international currency
transactions and translation adjustments for subsidiaries whose functional
currency is the United States dollar (principally those located in highly
inflationary economies) are reflected in the consolidated statements of
operations. Translation adjustments of foreign subsidiaries for which the
United States dollar is not the functional currency are reflected in the
consolidated financial statements as a component of accumulated other
comprehensive income.

Effect of Accounting Pronouncements: In 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
In June 1999, the effective date of SFAS No. 133 was delayed by one year to
January 1, 2001. The statement requires Ignition to recognize all derivatives
on the balance sheet at fair value. The effect of adoption of this statement
on Ignition earnings or financial position has not been finalized.

In 1999, the Emerging Issues Task Force ("EITF") of the FASB reached
consensus on issue No. 99-5, Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements. The EITF addresses the accounting for pre-
production costs relating to design and development of production parts and
tooling. The EITF is required to be applied beginning January 1, 2000.
Ignition does not believe the adoption of this pronouncement will have a
material effect on Ignition's financial position or financial operations as
its current accounting practices are consistent with the pronouncement.

Fair Value of Financial Instruments: The carrying amounts of certain
financial instruments such as cash and equivalents, accounts receivable,
accounts payable and debt approximate their fair values.

Derivative Financial Instruments: On a recurring basis, foreign currency
forward exchange contracts and commodity contracts are entered into to reduce
risks of adverse changes in foreign exchange rates and commodity prices. All
contracts are hedges of actual or anticipated transactions with the gain or
loss on the contract recognized in the same period and in the same category of
income or expense as the underlying hedged transaction. Ignition did not enter
into speculative derivative transactions or hedges of anticipated transactions
unless there is a high probability the transactions will occur. Due to the
short term of contracts and a restrictive policy, contract terminations or
anticipated transactions that do not occur are rare and insignificant events
that are accounted for through income in the period they occur.

Note 3: Nonrecurring Charges

During 1997, Ignition incurred charges of $16.2 million for actions
management committed to during the period after concluding an evaluation of
certain sales, marketing and distribution activities and information systems.
The 1997 charges include adjustments to the carrying value of assets of $6.9
million and expenditures for replacing systems and facility consolidations of
$9.3 million.

Ignition consolidated certain sales, marketing and distribution activities.
Adjustments to the carrying value of assets and exit costs were recorded for
projects committed to by management. Severance and certain other costs related
to projects committed to by management are not expensed until the affected
employees are notified. The consolidations were announced and such costs were
accrued and expensed during 1997.

FEDERAL-MOGUL IGNITION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 4: Acquisitions

Ignition completed one product-line acquisition in 1999, which had an
aggregate cost of $1.9 million, with $1.3 million of goodwill recorded.
Ignition completed one product-line acquisition in 1998, which had an
aggregate cost of $8.5 million, with $5.5 of goodwill recorded. The operations
of these businesses were not significant on a pro forma basis to historical
operations of Ignition. The acquisitions have been accounted for as purchases
and the results of the acquisitions are included in the consolidated income
statements since the respective acquisition dates.

Note 5: Commitments and Contingencies

At December 31, 1999, Ignition had accruals of $16.0 million with respect to
potential environmental liabilities, including $11.2 million classified as a
long-term liability, based on Ignition's current estimate of the most likely
amount of losses that it believes will be incurred.

Environmental remediation costs are accrued based on estimates of known
environmental remediation exposures. Such accruals are adjusted as information
develops or circumstances change. The environmental liability accrual includes
$6.5 million related to sites owned by Ignition and $9.5 million for retained
environmental liabilities related to sites previously owned by Ignition and
third-party sites where Ignition was a contributor. Third-party sites usually
involve multiple contributors where Ignition's liability will be determined
based on an estimate of Ignition's proportionate responsibility for the total
cleanup. The amounts actually accrued for such sites are based on these
estimates as well as an assessment of the financial capacity of the other
potentially responsible parties.

Ignition has not utilized any form of discounting in establishing its
environmental liability accrual. While the environmental liability accrual
involves estimates that can have wide ranges of potential liability, Ignition
has taken a proactive approach and has managed environmental costs over the
years. Ignition does not believe that the nature of their products, production
processes, materials or other factors involved in the manufacturing process is
subject to unusual risks or exposures for environmental liability. Ignition's
greatest exposure to inaccuracy in their estimates is with respect to the
constantly changing definitions of what constitutes an environmental liability
or an acceptable level of cleanup.

Future minimum payments under noncancelable operating leases with initial or
remaining terms of more than one year are, in millions: 2000--$9.4; 2001--
$6.4; 2002--$5.1; 2003--$2.9; 2004--$2.4 and thereafter $8.1.

Note 6: Restructuring

In connection with acquisitions accounted for using the purchase method of
accounting, Ignition recorded accruals for the costs of closing duplicate
facilities, severing redundant personnel and integrating the acquired business
into existing operations of Ignition. Significant accruals include plant
shutdown and realignment costs, and relocations, and aggregated $32.9 million,
at December 31, 1998. Ignition expects to these actions to be primarily
completed in 2000.

Note 7: Borrowing Arrangements

Ignition's cash and indebtedness is managed on a worldwide basis by Federal-
Mogul. The majority of the cash provided by or used by a particular division,
including Ignition's, is provided through this consolidated cash and debt
management system. As a result, the amount of cash or debt historically
related to Ignition is not determinable. For purposes of Ignition's historical
financial statements, identifiable debt was allocated to Ignition during each
year with all of Ignition's positive or negative cash flows being treated as
cash transferred to or from Cooper.

FEDERAL-MOGUL IGNITION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Ignition has an intercompany loan with Federal-Mogul in the amount of $509.9
million, which is included in the net parent investment balance at December
31, 1999 and 1998. In 1999 and 1998, Federal-Mogul charged interest on this
balance based on its incremental borrowing rate, which approximated 7.36% and
7.75% respectively.

For purposes of Ignition's historical financial statements, interest expense
has been computed using the actual interest rate with respect to international
short-term borrowings. Total interest related to short-term debt paid during
1999, 1998 and 1997 was $0.8 million, $1.5 million, $0.6 million,
respectively.

Federal-Mogul has pledged 100% of Ignition's capital stock to secure certain
outstanding debt of Federal-Mogul. In addition, Ignition has guaranteed fully
and unconditionally, on a joint and several basis, the obligation to pay
principal and interest under Federal-Mogul's Senior Credit Agreement and its
publicly registered debt which approximate $3.1 billion and $3.2 billion at
December 31, 1999 and 1998, respectively. Such pledges and guarantees have
also been made by other subsidiaries of Federal-Mogul.

In July 1999, Ignition began participating in Federal-Mogul's accounts
receivable securitization program. On an ongoing basis, Ignition sells certain
accounts receivable to Federal-Mogul Funding Corporation (FMFC), a wholly
owned subsidiary of Federal-Mogul, which then sells such receivables, without
recourse, to a financial conduit. The transfers of these receivables are
charged to the net parent investment account. Ignition does not retain any
interest in these receivables

Note 8: Net Parent Investment

Changes in net parent investment were as follows:

(Millions of
Dollars)

Balance at January 1, 1997................................. $1,129.6
Comprehensive income..................................... 36.2
Intercompany transactions, net........................... (68.7)
--------
Balance at December 31, 1997............................... 1,097.1
Comprehensive income for the period January 1, 1998
through October 9, 1998................................. 41.1
Intercompany transactions, net........................... 95.6
--------
Balance at October 9, 1998................................. $1,233.8
========
Federal-Mogul initial investment in Ignition............... $1,462.2
Comprehensive income for the period October 10, 1998
through December 31, 1998............................... (1.8)
Intercompany transactions, net........................... (52.2)
--------
Balance at December 31, 1998............................... 1,408.2
Comprehensive income..................................... 26.8
Intercompany transactions, net........................... (250.8)
--------
Balance at December 31, 1999............................... $1,184.2
========

Intercompany transactions were principally cash transfers and non-cash
charges between Ignition and its parent. The Company includes comprehensive
income in Net Parent Investment. At December 31, 1999 accumulated other
comprehensive income included $15.4 million of foreign currency translation
adjustments and $4.1 million of minimum pension funding. At December 31, 1998
accumulated other comprehensive income included $2.4 million of foreign
currency translation adjustments.

FEDERAL-MOGUL IGNITION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9: Income Taxes

Ignition files a consolidated return with its parent for U.S. federal income
tax purposes. Federal income tax expense is calculated on a separate-return
basis for financial reporting purposes.

Period
Period January 1,
October 10, 1998
Year ended 1998 through through Year ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------
(Millions of Dollars)

Components of income tax
expense (benefit):
Current............... $37.7 $1.0 $ 43.8 $39.1
Deferred.............. (4.0) -- (17.0) (0.8)
----- ---- ------ -----
Income tax expense.... $33.7 $1.0 $ 26.8 $38.3
===== ==== ====== =====

Effective tax rate
reconciliation:
U.S. Federal statutory
rate................. 35% 35% 35% 35%
State and local
taxes................ 4 4 4 4
Nondeductible
goodwill............. 5 50 8 7
Foreign / other....... (1) (26) (4) (3)
--- --- --- ---
Effective tax rate.... 43% 63% 43% 43%
=== === === ===

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the related amounts used for income tax purposes. Significant
components of the Ignition net deferred tax asset are non-deductible accruals
and depreciation timing differences.

1999 1998
------ ------
(Millions
of
Dollars)

Current deferred tax assets............................... $ 23.7 $ 64.3
Long term deferred tax liabilities........................ (72.1) (51.9)
------ ------
Net deferred tax assets (liabilities)..................... $(48.4) $ 12.4
====== ======

As Ignition files a consolidated tax return with Federal-Mogul, the net
deferred tax asset at December 31, 1999 and 1998 is a component of the net
parent investment.

Note 10: Pension Plans

In 1997 as part of Cooper, employees of Ignition participated in numerous
pension plans covering substantially all domestic employees and pension and
similar arrangements in accordance with local customs covering employees at
foreign locations. The assets of the various domestic and foreign plans were
maintained in various trusts and consisted primarily of equity and fixed-
income securities. Funding policies range from five to thirty years. Pension
benefits for salaried employees were generally based upon career earnings.
Benefits for

FEDERAL-MOGUL IGNITION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

hourly employees were generally based on a dollar unit, multiplied by years of
service. The amount of expense and the funded status with respect to the
defined benefit pension plans of the Ignition, exclusive of the Cooper
Salaried Employee Benefit Plan, is set forth in the table below. In addition,
most U.S. salaried employees of Ignition participated in the Cooper Salaried
Employee Benefit Plan. The amount of expense allocated to Ignition for this
plan was $0.4 million for the years ended December 31, 1997, respectively.
During 1997, Ignition's expense with respect to domestic and foreign defined
contribution plans (primarily related to various groups of hourly employees)
and Ignition's aggregate pension expense amounted to $3.2 million and $9.7
million, respectively.

Year Ended
December 31,
1997
------------
(Millions of
Dollars)

Components of defined benefit plan net pension expense:
Service cost--benefits earned during the year.............. $ 3.5
Interest cost on projected benefit obligation.............. 18.0
Actual return on assets.................................... (25.6)
Net amortization and deferral.............................. 10.6
-----
Net pension expense...................................... $ 6.5
=====

Domestic International
-------- -------------

Actuarial assumptions used:
Discount rate................................... 7 1/2% 6-7 1/4%
Rate of compensation increase................... 4 3/4% 4 1/2-6%
Expected long-term rate of return on assets..... 8 1/2% 7 1/2-9 3/4%

In 1998, the various pension plans of Ignition were merged into other plans
of Cooper. As such, the related pension liabilities were recorded to net
parent investment. These multiple-employer plans were assumed by Federal-Mogul
in its acquisition of the automotive division of Cooper. Such plans were
required to be fully funded by Cooper prior to the acquisition by Federal-
Mogul. The expense charged to Ignition by Cooper during the period January 1,
1998 to October 9, 1998 was $7.3 million. The credit to Ignition from Federal-
Mogul for the period October 10, 1998 to December 31, 1998 was $0.5 million.

For the year ended December 31, 1999, the credit to Ignition from Federal-
Mogul was approximately $2.8 million. The fully funded aggregated projected
benefit obligations of such domestic and international plans of $345.6 million
and $63.0 million was based upon discount rates of 7.75% and 6.26% at December
31, 1999, respectively. The fair value of the plan's assets at December 31,
1999 were $327.0 million and $68.8 million for domestic and international
plans, respectively. Company contributions for 1999 were $0.5 million and $2.4
million for domestic and international plans, respectively.

Note 11: Postretirement Benefits Other Than Pensions

As part of Cooper and subsequently Federal-Mogul, benefits provided to
employees of Ignition under various multiple-employer postretirement plans
other than pensions, all of which are unfunded, include retiree medical care,
dental care, prescriptions and life insurance, with medical care accounting
for approximately 90% of the total. The majority of participants under such
plans are retirees. The expense related to such plans approximated $11.8
million, $4.4 million, $2.8 million and $11.4 million for 1999, the period
January 1, 1998 to October 9, 1998, the period October 10, 1998 to December
31, 1998 and 1997, respectively. The unfunded projected benefit obligation of
these plans aggregated approximately $169.7 million at December 31, 1999,
based upon a discount rate of 7.75%

FEDERAL-MOGUL IGNITION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 12: North America, Europe and Other Operations

Ignition operates in a single business segment. It manufactures and
distributes spark plugs, wiper blades, lamps, and other products for use by the
automotive aftermarket and in automobile assemblies. No single customer
accounted for 10% or more of combined revenues in 1999, 1998, and 1997.

Revenues Assets
-------------------------------------------------------------- -----------------------
Period October 10, Period January 1,
Year ended 1998 through 1998 through Year ended December 31,
December 31, December 31 October 9, December 31, -----------------------
1999 1998 1998 1997 1999 1998
------------ ------------------ ----------------- ------------ ----------- -----------
(Millions of Dollars) (Millions of Dollars)

North America........... $738.3 $150.8 $506.1 $ 711.4 $ 847.6 $ 1,025.1
Europe.................. 159.2 59.1 195.1 253.8 380.5 463.0
Other................... 66.3 23.2 81.6 66.1 135.9 165.2
------ ------ ------ -------- ----------- -----------
Consolidated.......... $963.8 $233.1 $782.8 $1,031.3 $ 1,364.0 $ 1,653.3
====== ====== ====== ======== =========== ===========

Note 13: Concentrations of Credit Risk

Ignition grants credit to their customers, which are primarily in the
automotive industry. Credit risk with respect to trade receivables is generally
diversified due to the large number of entities comprising Ignition's customer
base and their dispersion across many different countries. Ignition performs
periodic credit evaluations of their customers and generally does not require
collateral.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

/s/ Kenneth P. Slaby
By___________________________________
Kenneth P. Slaby
Vice President and Controller

Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

Signature Title
--------- -----

________/s/ Richard A. Snell________ Chairman, Chief Executive
Richard A. Snell Officer and President
Vice President and Control-
ler
________/s/Kenneth P. Slaby_________ (Principal Financial and
Kenneth P. Slaby Accounting Officer)
_________________*__________________ Director
John F. Fannon
____________________________________* Director
Roderick M. Hills
____________________________________* Director
Paul Scott Lewis
_________________*__________________ Director
Antonio Madero
_________________*__________________ Director
Robert S. Miller, Jr.
____________________________________* Director
John C. Pope
____________________________________* Director
Sir Geoffrey Whalen C.B.E.
*By______/s/ James J. Zamoyski______
James J. Zamoyski
Attorney-in-fact

Dated: March 15, 2000