UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 1994
-----------------------------------------
Commission File Number 1-1511
---------------------------------------
FEDERAL-MOGUL CORPORATION
- - ---------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Michigan
- - --------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
38-0533580
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(I.R.S. Employer Identification No.)
26555 Northwestern Highway, Southfield, Michigan 48034
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(Address of principal executive offices) (Zip Code)
(810) 354-7700
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
---------------- -----------------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
<TABLE>
Common Stock - 35,590,910 shares as of November 8, 1994<PAGE>
PART I - FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
<CAPTION>
<S> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1994 1993 1994 1993
------ ------ ------ ------
(Millions of Dollars, Except Per Share Amounts)
Net sales $ 445.3 $ 370.0 $1,380.4 $1,182.3
Cost of products sold 349.7 295.4 1,083.3 950.0
Selling, distribution and
administrative expenses 66.0 55.5 195.6 169.2
------- ------- ------- -------
Operating earnings 29.6 19.1 101.5 63.1
Other income (expense):
Interest expense (4.0) (5.9) (13.3) (20.2)
Interest income 2.7 1.8 6.5 5.4
International currency
exchange gains/(losses) .4 (1.9) (5.0) (3.7)
Amortization of intangible assets (2.5) (.8) (7.0) (5.0)
Sale of business investments - - - 4.9
Other, net (.2) .6 .4 3.3
------- ------- ------- -------
Earnings Before Income Taxes 26.0 12.9 83.1 47.8
Income taxes 9.9 2.9 31.6 15.0
------- ------- ------- -------
Net Earnings 16.1 10.0 51.5 32.8
Preferred stock dividends,
net of tax benefits 2.3 2.3 6.9 6.9
------- ------- ------- -------
Net Earnings Available
for Common Shares $ 13.8 $ 7.7 $ 44.6 $ 25.9
------- ------- ------- -------
------- ------- ------- -------
Earnings Per Common Share
Primary $ .38 $ .26 $ 1.27 $ .97
------- ------- ------- -------
------- ------- ------- -------
Fully Diluted $ .37 $ .26 $ 1.19 $ .93
------- ------- ------- -------
------- ------- ------- -------
See accompanying notes.
/TABLE
<PAGE>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1994 1993
------------ ------------
(Millions of Dollars)
Assets
Current Assets:
Cash and equivalents $ 9.4 $ 24.2
Accounts receivable 263.7 186.9
Inventories 336.0 322.3
Prepaid expenses and income tax benefits 45.0 40.6
------- -------
Total Current Assets 654.1 574.0
Property, Plant and Equipment 427.8 399.8
Intangible Assets 205.5 199.3
Business Investments and Other Assets 120.6 118.7
------- -------
Total Assets $1,408.0 $1,291.8
------- -------
------- -------
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 73.4 $ 39.2
Accounts payable 115.2 94.5
Accrued compensation 38.9 31.7
Other accrued liabilities 109.3 117.9
------- -------
Total Current Liabilities 336.8 283.3
Long-Term Debt 194.4 382.5
Postretirement Benefits Other than Pensions 154.9 149.9
Other Accrued Liabilities 94.0 92.0
Deferred Income Taxes 9.0 13.0
------- -------
Total Liabilities 789.1 920.7
Shareholders' Equity:
Series D convertible preferred stock 76.6 76.6
Series C ESOP preferred stock 60.2 60.2
Unearned ESOP compensation (42.3) (44.6)
Common stock 177.9 147.5
Additional paid-in capital 285.8 117.2
Retained earnings 77.1 46.4
Currency translation and other (16.4) (32.2)
------- -------
Total Shareholders' Equity 618.9 371.1
------- -------
Total Liabilities and Shareholders' Equity $1,408.0 $1,291.8
------- -------
------- -------
See accompanying notes.
/TABLE
<PAGE>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
September 30,
-----------------------
1994 1993
-------- --------
(Millions of Dollars)
Cash Provided From Operating Activities $ 6.8 $ 26.9
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (48.1) (35.0)
Proceeds from sale of business investments .4 25.2
Business investments and other 3.2 (7.8)
----- -----
Net Cash Used By Investing Activities (44.5) (17.6)
Cash Provided From (Used By) Financing Activities
Proceeds from issuance of common stock 197.0 119.4
Net decrease in debt (154.4) (153.2)
Sale of accounts receivable - 39.6
Dividends (19.7) (16.7)
----- -----
Net Cash From (Used By) Financing Activities 22.9 (10.9)
----- -----
Decrease in Cash and Equivalents (14.8) (1.6)
Cash and Equivalents at Beginning of Period 24.2 19.1
----- -----
Cash and Equivalents at End of Period $ 9.4 $ 17.5
----- -----
----- -----
See accompanying notes.
/TABLE
<PAGE>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1994
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three
and nine-month periods ended September 30, 1994 are not
necessarily indicative of the results that may be expected
for the year ended December 31, 1994. For further information,
refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1993.
Certain items in the prior period financial statements have
been reclassified to conform with the presentation used in 1994.
2. ISSUANCE OF COMMON STOCK
In February 1994, the Company sold in a public offering 5,750,000
shares of its common stock which generated net proceeds of $191
million. The Company used the net proceeds from the offering to
repay bank debt outstanding, including debt incurred for the
acquisition of SPX Corporation's automotive aftermarket business
in October 1993.
3. EARNINGS PER COMMON SHARE
The computation of primary earnings per common share is based
on the weighted average number of outstanding common shares
during the period plus, when their effect is dilutive, common
stock equivalents consisting of certain shares subject to stock
options. Fully diluted earnings per common share additionally
assumes the conversion of outstanding Series C ESOP and Series D
preferred stock and the contingent issuance of common stock to
satisfy the Series C ESOP preferred stock redemption price
guarantee. The number of contingent shares used in the fully
diluted calculation is based on the common stock market price on
September 30, 1994, and the number of preferred shares held by
the Employee Stock Ownership Plan (ESOP) that were allocated
to participants' accounts as of September 30, of each of the
respective years.
The primary weighted average number of common and equivalent
shares outstanding (in thousands) was 36,000 and 35,166 for
the three and nine-month periods ended September 30, 1994, and
29,512 and 26,575 for the three and nine-month periods
ended September 30, 1993. The fully diluted weighted average
number of common and equivalent shares outstanding (in thousands)
was 42,630 and 41,805 for the three and nine-month periods ended
September 30, 1994, and 36,170 and 33,368 for the three and
nine-month periods ended September 30, 1993, respectively.
Net earnings used in the computations of primary earnings per
common share are reduced by preferred stock dividend requirements.
Net earnings used in the computation of fully diluted earnings
per common share are reduced by amounts representing the
additional after-tax contribution that would be necessary to
meet ESOP debt service requirements under an assumed conversion
of the Series C ESOP preferred stock.
4. SUBSEQUENT EVENT
On October 31, 1994, the Company completed its acquisition of
Varex Corporation, Ltd., South Africa's largest independent auto
parts distributor. Varex is headquartered in Johannesburg, and
it operates 30 retail stores and 18 warehouses located throughout
the country. The Company financed the acquisition with debt of
approximately $54 million.<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH THREE MONTHS
ENDED SEPTEMBER 30, 1993
Sales for the quarter ended September 30, 1994 were $445.3
million compared to $370.0 million in the corresponding period
of 1993. The 20.4 percent increase was largely attributed to
increased aftermarket sales due to the Company's acquisition of
SPX Corporation's automotive aftermarket business ("SPR") in
October 1993. Domestic aftermarket sales increased approximately
24 percent with improvements in core engine products, pistons and
oil seals. International sales increased approximately 6 percent.
Overall aftermarket sales totalled approximately $281.0 million
for the quarter or 63.1 percent of total Company sales.
Third quarter original equipment sales in the United States and
Canada improved 25.5 percent from the 1993 comparable quarter,
benefitted by an increase in North American vehicle production.
Product lines contributing to the significant sales increase
included oil seals ($8.0 million) and engine bearings ($6.2
million). Internationally, the Company's original equipment
business improved $32.9 million from the same 1993 quarter,
reflecting an increase in European vehicle builds and
strengthening European currencies.
Operating margin for the 1994 third quarter improved to $29.6
million or 6.6 percent of sales from $19.1 million or 5.2
percent of sales in the prior year. This change resulted from
increased aftermarket volume, reductions in administrative
expenses as a percent of sales and reduced product cost from
global sourcing efforts.
Pretax earnings of $26.0 million for the 1994 third quarter
improved from $12.9 million in the same 1993 period. The
Company's interest expense decreased on a year over year basis
due to a reduction in outstanding debt. Net earnings amounted
to $16.1 million or $.37 per common share on a fully-diluted
basis for 1994 as compared to $10.0 million or $.26 per common
share for the third quarter of 1993.
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH NINE MONTHS
ENDED SEPTEMBER 30, 1993
Sales for the nine month period ended September 30, 1994 were
$1,380.4 million compared to $1,182.3 million for the first nine
months of 1993. Nearly all product lines contributed to the 16.8
percent improvement. Aftermarket sales in the first nine months
of 1994 totalled $871.1 million and exceeded 1993 sales by $128.7
million, a 17.3 percent increase largely attributable to
increased volume from the acquisition of SPR. Original equipment
sales increased 15.8 percent from the prior year. This sales
growth reflects the strong North American auto and light truck
build on a year-to-year basis and increased market penetration
in the sealing products line.
Operating margin increased nearly 61 percent on a year over year
basis to 7.4 percent of sales. Higher profit margins realized on
aftermarket sales, reduced product cost from global sourcing
efforts and reduced operating expenses from the consolidation
of SPR facilities contributed to this increase.
Net earnings were $51.5 million or $1.19 per common share on a
fully-diluted basis for the first nine months of 1994. Earnings
for the comparable 1993 period were $32.8 million or $.93 per
common share. The 1993 results include a $.15 per share gain on
the sale of Westwind Air Bearings Ltd.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows from operations were $6.8 million for the nine month
period ended September 30, 1994 as compared to $26.9 million in
1993. Year over year changes include the nine month net earnings
increase, offset by an increase in accounts receivable resulting
from the higher sales volume in 1994. Significantly impacting
cash from operations was spending against rationalization
reserves and spending on the integration of purchased businesses
totalling approximately $32 million and $13 million in 1994 and
1993, respectively.
Net cash used by investing activities in 1994 include significant
property, plant and equipment expenditures incurred to facilitate
the change process in manufacturing and introduce new product
in original equipment markets.
In February 1994, the Company issued 5.75 million share of common
stock which generated net proceeds of $191 million. The
proceeds were used to repay debt outstanding. In 1993, the sale
of 6.25 million shares of common stock, the disposition of
business investments and the $40 million sale and securitization
of certain trade receivables enabled the Company to reduce its
debt outstanding by $153.2 million from December 31, 1992.<PAGE>
PART II - OTHER INFORMATION
- - ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
11.1 Statement Re Computation of Per Share
Earnings for the three months ended
September 30, 1994 (filed
herewith and incorporated herein by
reference).
11.2 Statement Re Computation of Per Share
Earnings for the nine months ended
September 30, 1994 (filed
herewith and incorporated herein by
reference).
27.0 Article 5 Financial Data Schedule for
3rd Quarter (filed herewith and
incorporated by reference.
The Company will furnish upon request any exhibit
described above upon payment of the Company's
reasonable expenses for furnishing such exhibit.
(b) Reports on Form 8-K:
Reports on Form 8-K were filed by the Company
pursuant to Item 5 on July 25, 1994 and on
August 19, 1994, respectively.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FEDERAL-MOGUL CORPORATION
By: /s/ James B. Carano
------------------------------
James B. Carano
Vice President and Controller,
Chief Accounting Officer
Dated: November 14, 1994<PAGE>
EXHIBIT 11.1 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <S> <S> <S> <S>
FOR THE THREE MONTHS ENDED PRIMARY FULLY DILUTED
-------------- ---------------
SEPTEMBER 30 1994 1993 1994 1993
- - ------------------------------------------ ------ ------ ------ ------
EARNINGS: (In Millions)
Net earnings $ 16.1 $ 10.0 $ 16.1 $ 10.0
Series C preferred dividend requirements (.7) (.7)
Series D preferred dividend requirements (1.6) (1.6)
Additional required ESOP contribution (1) (.5) (.6)
----- ----- ----- -----
Net earnings available for common
and equivalent shares $ 13.8 $ 7.7 $ 15.6 $ 9.4
----- ----- ----- -----
----- ----- ----- -----
WEIGHTED AVERAGE SHARES: (In Millions)
Common shares outstanding 35.6 29.3 35.6 29.3
Dilutive stock options outstanding .4 .2 .4 .3
Conversion of Series C preferred stock (3) 1.9 1.9
Contingent issuance of common stock to
satisfy the redemption price guarantee (2)(4) .3 .2
Conversion of Series D preferred stock (3) 4.4 4.4
----- ----- ----- -----
Common and equivalent shares outstanding 36.0 29.5 42.6 36.1
----- ----- ----- -----
----- ----- ----- -----
PER COMMON AND EQUIVALENT SHARE: $ .38 $ .26 $ .37 $ .26
----- ----- ----- -----
----- ----- ----- -----
(1) Amount represents the additional after-tax contribution that would be necessary
to meet the ESOP debt service requirements under an assumed conversion of the
Series C preferred stock.
(2) Calculations consider the September 30, 1994 common stock market price in
accordance with Emerging Issues Task Force Abstract No. 89-12.
(3) Amount represents the weighted average number of common shares issued assuming
conversion of preferred stock outstanding.
(4) Amount represents the additional number of common shares that would be issued
in order to satisfy the Series C preferred stock redemption price guarantee.
This calculation considers only the number of preferred shares held by the
ESOP that have been allocated to participants' accounts as of September 30,
of the respective years.
</TABLE>
<PAGE>
EXHIBIT 11.2 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
<S> <C> <C>
FOR THE NINE MONTHS ENDED PRIMARY FULLY DILUTED
-------------- ---------------
SEPTEMBER 30 1994 1993 1994 1993
- - ------------------------------------------ ------ ------ ------ ------
EARNINGS (LOSS): (In Millions)
Net earnings (loss) $ 51.5 $ 32.8 $ 51.5 $ 32.8
Series C preferred dividend requirements (2.2) (2.2)
Series D preferred dividend requirements (4.7) (4.7)
Additional required ESOP contribution (1) (1.6) (1.7)
----- ----- ----- -----
Net earnings (loss) available for common
and equivalent shares $ 44.6 $ 25.9 $ 49.9 $ 31.1
----- ----- ----- -----
----- ----- ----- -----
WEIGHTED AVERAGE SHARES: (In Millions)
Common shares outstanding 34.6 26.5 34.6 26.5
Dilutive stock options outstanding .6 .1 .6 .3
Conversion of Series C preferred stock (3) 1.9 1.9
Contingent issuance of common stock to
satisfy the redemption price guarantee (2)(4) .3 .2
Conversion of Series D preferred stock (3) 4.4 4.4
----- ----- ----- -----
Common and equivalent shares outstanding 35.2 26.6 41.8 33.3
----- ----- ----- -----
----- ----- ----- -----
PER COMMON AND EQUIVALENT SHARE: $ 1.27 $ .97 $ 1.19 $ .93
----- ----- ----- -----
----- ----- ----- -----
(1) Amount represents the additional after-tax contribution that would be necessary
to meet the ESOP debt service requirements under an assumed conversion of the
Series C preferred stock.
(2) Calculations consider the September 30, 1994 common stock market price in
accordance with Emerging Issues Task Force Abstract No. 89-12.
(3) Amount represents the weighted average number of common shares issued assuming
conversion of preferred stock outstanding.
(4) Amount represents the additional number of common shares that would be issued
in order to satisfy the Series C preferred stock redemption price guarantee.
This calculation considers only the number of preferred shares held by the
ESOP that have been allocated to participants' accounts as of September 30,
of the respective years.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 9,400,000
<SECURITIES> 0
<RECEIVABLES> 274,500,000
<ALLOWANCES> 10,800,000
<INVENTORY> 336,000,000
<CURRENT-ASSETS> 654,100,000
<PP&E> 667,100,000
<DEPRECIATION> 239,300,000
<TOTAL-ASSETS> 1,408,000,000
<CURRENT-LIABILITIES> 336,800,000
<BONDS> 194,400,000
<COMMON> 177,900,000
0
136,800,000
<OTHER-SE> 304,200,000
<TOTAL-LIABILITY-AND-EQUITY> 1,408,000,000
<SALES> 1,380,400,000
<TOTAL-REVENUES> 1,380,400,000
<CGS> 1,083,300,000
<TOTAL-COSTS> 195,600,000
<OTHER-EXPENSES> 18,400,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,300,000
<INCOME-PRETAX> 83,100,000
<INCOME-TAX> 31,600,000
<INCOME-CONTINUING> 51,500,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,500,000
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.19
</TABLE>
