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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended March 31, 1994
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Commission File Number 1-1511
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FEDERAL-MOGUL CORPORATION
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(Exact name of Registrant as specified in its charter)
Michigan 38-0533580
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(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer ID No.)
26555 Northwestern Highway, Southfield, Michigan 48034
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(Address of principal executive offices) (Zip Code)
(313) 354-7700
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Common Stock - 35,515,010 shares as of May 6, 1994
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PART I - FINANCIAL INFORMATION
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<TABLE>
Item 1. Financial Statements
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
<CAPTION>
Three Months Ended
March 31,
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1994 1993
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(Millions of Dollars,
Except Per Share Amounts)
<S> <C> <C>
Net sales $ 460.3 $ 410.5
Cost of products sold 363.6 331.6
Selling, distribution and administrative expenses 64.7 57.1
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Operating earnings 32.0 21.8
Other income (expense):
Amortization of intangible assets (2.2) (2.0)
Interest expense (5.2) (8.5)
Interest income 1.7 2.0
International currency exchange losses (2.7) (1.1)
Other, net .6 .3
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Earnings Before Income Taxes 24.2 12.5
Income taxes 9.2 5.0
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Net Earnings 15.0 7.5
Preferred stock dividends, net of tax benefits 2.3 2.3
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Net Earnings Available for Common Shares $ 12.7 $ 5.2
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Earnings Per Common Share
Primary $ .39 $ .23
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Fully Diluted $ .37 $ .23
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See accompanying notes.
/TABLE
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<PAGE>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
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(Millions of Dollars)
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents $ 7.6 $ 24.2
Accounts receivable 247.6 186.9
Inventories 319.1 322.3
Prepaid expenses and income tax benefits 40.3 40.6
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Total Current Assets 614.6 574.0
Property, Plant and Equipment 403.5 399.8
Intangible Assets 195.0 199.3
Business Investments and Other Assets 119.3 118.7
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Total Assets $1,332.4 $1,291.8
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Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 44.4 $ 39.2
Accounts payable 107.3 94.5
Accrued compensation 26.9 31.7
Other accrued liabilities 122.4 117.9
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Total Current Liabilities 301.0 283.3
Long-Term Debt 198.9 382.5
Postretirement Benefits Other than Pensions 151.6 149.9
Other Accrued Liabilities 94.0 92.0
Deferred Income Taxes 11.1 13.0
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Total Liabilities 756.6 920.7
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 60.2 60.2
Unearned ESOP compensation (44.6) (44.6)
Common stock 177.6 147.5
Additional paid-in capital 283.9 117.2
Retained earnings 54.4 46.4
Currency translation and other (32.3) (32.2)
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Total Shareholders' Equity 575.8 371.1
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Total Liabilities and Shareholders' Equity $1,332.4 $1,291.8
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See accompanying notes.
/TABLE
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<PAGE>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1994 1993
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(Millions of Dollars)
<S> <C> <C>
Cash Provided From (Used By) Operating Activities
Net earnings $ 15.0 $ 7.5
Depreciation and amortization 14.1 13.7
Working capital and other (47.0) (12.1)
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Net Cash From (Used By) Operating Activities (17.9) 9.1
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (13.5) (9.9)
Other 3.8 .3
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Net Cash Used By Investing Activities (9.7) (9.6)
Cash Provided From (Used By) Financing Activities
Issuance of common stock 196.3 -
Net decrease in debt (179.3) (46.6)
Sale of accounts receivable - 39.8
Dividends (5.8) (4.3)
Other (.2) (1.4)
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Net Cash From (Used By) Financing Activities 11.0 (12.5)
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Decrease in Cash and Equivalents (16.6) (13.0)
Cash and Equivalents at Beginning of Period 24.2 19.1
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Cash and Equivalents at End of Period $ 7.6 $ 6.1
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See accompanying notes.
<PAGE>
<PAGE>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 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-month period ended March 31, 1994 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1994.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1993.
Certain items in the prior period financial statements have been reclassified
to conform with the presentation used in 1994.
2. ISSUANCE OF COMMON STOCK
In February 1994, Federal-Mogul sold in a public offering 5,750,000 shares of
its common stock which generated net proceeds of $191 million. The Company
used approximately $190 million of the net proceeds from the offering to repay
bank debt outstanding, including debt incurred for the acquisition of SPX
Corporation's automotive aftermarket business in October 1993.
3. EARNINGS PER COMMON SHARE
The computation of primary earnings per share is based on the weighted average
number of outstanding common shares during the period plus, when their effect
is dilutive, common stock equivalents consisting of certain shares subject to
stock options. Fully diluted earnings per share additionally assumes the
conversion of outstanding Series C ESOP and Series D preferred stock and the
contingent issuance of common stock to satisfy the Series C ESOP preferred
stock redemption price guarantee. The number of contingent shares used in
the fully diluted calculation is based on the common stock market price on
March 31, 1994, and the number of preferred shares held by the Employee Stock
Ownership Plan (ESOP) that were allocated to participants' accounts as of
March 31 of each of the respective years.
The primary weighted average number of common and equivalent shares outstanding
(in thousands) was 32,977 for the three-month period ended March 31, 1994,
and 22,427 for the three-month period ended March 31, 1993. The fully diluted
weighted average number of common and equivalent shares outstanding (in
thousands) was 39,365 for the three-month period ended March 31, 1994 and
28,827 for the three-month period ended March 31, 1993, respectively.
Net earnings used in the computations of primary earnings per share are reduced
by preferred stock dividend requirements. Net earnings used in the computation
of fully diluted earnings per share are reduced by amounts representing the
additional after-tax contribution that would be necessary to meet ESOP debt
service requirements under an assumed conversion of the Series C ESOP preferred
stock.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THREE MONTHS ENDED MARCH 31, 1993
First quarter 1994 sales increased by 12.1 percent to $460.3 from $410.5 million
in the same 1993 quarter. Almost 9 percent of the increase is from sales of
products to the North American automotive aftermarket. The increase is largely
due to the October 1993 acquisition of SPX Corporation's aftermarket business
(SPR). Aftermarket sales represent 63 and 62 percent, respectively, of the
Company's first quarter sales in 1994 and 1993. Excluding Europe, worldwide
sales of original equipment products were up nearly 18 percent over the 1993
first quarter. This is attributable to the increase in North American light
vehicle production for the 1994 first quarter compared to 1993. Sales in Europe,
excluding the April 1993 sale of a non-strategic business, declined from 1993
about 6 percent, primarily as a result of reduced vehicle production in the
region.
The Company's operating margin increased to 7 percent from 5.3 percent in the
first quarter of 1994 compared to 1993, an increase of $10.2 million over 1993
to $32 million. The Company attributes this improvement to additional sales
from the acquisition of SPR and cost savings from the integration of aftermarket
businesses acquired during the last two years and global sourcing activities.
Pretax earnings grew to $24.2 million for the 1994 first quarter compared to
$12.5 for the same 1993 quarter. Net earnings improved 100 percent to
$15 million or $.37 per common share on a fully diluted basis in the 1994
first quarter compared to earnings of $7.5 million or $.23 per common share
for the first quarter of 1993. The earnings increase is the result of improved
margin on higher volumes and a reduction of interest expense due in part to
lower borrowing rates and less debt outstanding.
LIQUIDITY AND CAPITAL RESOURCES
In February 1994, the Company issued 5.75 million shares of common stock in a
public offering which generated net proceeds of $191 million. The proceeds
were used to repay $190 million of the $245 million outstanding on the Company's
$300 million revolving credit facility (revolver). At March 31, 1994 the
revolver balance was $55 million. In February 1994, the Company issued
$4.5 million of industrial revenue bonds to fund the construction of a new
manufacturing facility as part of the Lighting, Electrical and Fuel Systems
consolidation began in 1993. During March 1994, both Moody's and Standard &
Poor's raised the Company's senior debt ratings to investment grade which is
expected to reduce the cost of any future borrowings.
Working capital was negatively impacted by an increase of $60.6 million in
accounts receivable during the first quarter of 1994. This increase is
attributable to strong sales in March, particularly in the North American
automotive aftermarket. The Company believes March aftermarket sales were
heavily influenced by adverse weather conditions experienced throughout much
of the United States in January and February resulting in increased March
sales and a corresponding higher receivable balance. Working capital was also
affected by spending of approximately $10 million against rationalization
reserves established in 1992 and 1993 primarily for the elimination of
redundancies in sales staffs, overlapping warehouses, and distribution and
administrative facilities of recently acquired automotive aftermarket
businesses.
Net cash used for investing activities consists primarily of capital
expenditures for property, plant and equipment to implement process
improvements, new product introductions and to generate cost savings.
The Company expects capital spending for all of 1994 to approximate
$55 million and believes cash from operations will fund all capital
expenditures. Other cash from investing activities consists primarily
of cash received from finalizing certain aspects of an acquisition made
in a previous year.
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
10.26 Federal-Mogul Corporation Executive Loan
Program (filed herewith and incorporated
herein by reference).
11.1 Statement Re Computation of Per Share
Earnings for the three months ended
March 31, 1994 (filed herewith
and incorporated herein by reference).
(b) Reports on Form 8-K:
(i) A report on Form 8-K dated February 8, 1994
was filed pursuant to Item 5 by the Company
during the first quarter of 1994.
(ii) A Form 8-K/A dated February 11, 1994 was filed
during the first quarter of 1994 to amend
certain financial statements previously
included in a report on Form 8-K dated
November 10, 1993 filed pursuant to Item 2.
The Company will furnish upon request any exhibit described
above upon payment of the Company's reasonable expenses for
furnishing such exhibit.
<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
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James B. Carano
Vice President and Controller,
Chief Accounting Officer
Dated: May 13, 1994<PAGE>
EXHIBIT 10.26
<PAGE>
EXHIBIT 10.26 EXECUTIVE LOAN PROGRAM
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ARTICLE I
PURPOSE
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The purpose of this loan program (the "Program") is to
assist key executives of Federal-Mogul Corporation ("F-M") in
retaining F-M stock and stock options by providing them with a
source of liquidity.
ARTICLE II
ELIGIBILITY
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Except those who are non-employee Directors of the
Company, the senior executive officers ("Executives") and members
of key management of the Company are eligible to participate in
the Program.
ARTICLE III
LOAN CONDITIONS
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3.1 Loan Amount - Each Executive may borrow up to the
sum of (a) fifty percent (50%) of the spread between the
exercise price and the fair market value of the F-M Common
Stock underlying the exercisable, vested options held by the
executive and (b) seventy five percent (75%) of the fair market
value of the restricted shares held by the executive, which
values shall be determined by the plan administrator in good
faith as of the day immediately preceding the date of the
issuance of the loan. Notwithstanding the foregoing, the
maximum amount of any loan or loans outstanding to any one
executive shall be One Million ($1,000,000) Dollars.
3.2 Loan Term - The term of each loan would be the
earlier of (a) the termination of the executive's employment
with the Company (whether voluntary or involuntary or as a
result of retirement, death or disability), (b) the exercise
of the F-M stock options held by the executive or the sale of
any restricted shares held by the executive and (c) five years
from the date of issuance. The loan will be payable upon demand
of the Company upon maturity thereof.
3.3 Interest Rate - The interest rate on each loan
will be established by the plan administrator based upon various
factors including comparable interest rates charged in
connection with brokerage margin accounts and other loans of
similar size and characteristics. The interest rate will be
variable and will be set quarterly. Interest must be paid
annually and any unpaid interest would compound quarterly.
3.4 Security/Offset - In order to obtain a loan under
the Program, each executive officer must execute all of the loan
documents required by the Company (e.g., a promissory note,
assignment of proceeds, etc.). An assignment of proceeds from
the sale of shares of stock acquired upon the exercise of options
or sale of restricted shares must be executed or collateral must
be pledged to secure the loan. Collateral can include, among
other things, the common stock of the Company owned by the
executive. The Company shall have the right to offset from the
amounts owing by the Company to the executive any amount of the
loan that remains unpaid. The Company has the right to require
an additional assignment of proceeds or additional collateral
if the Company determines, in good faith and in its sole
discretion, that such additional protection is necessary.
If an additional assignment or additional collateral is
required and not provided, the loan shall become immediately
due and payable.
ARTICLE IV
MISCELLANEOUS PROVISIONS
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4.1 The Program shall be administered by the Vice
President and Treasurer of the Corporation, who shall have the
power to make all determinations needed in connection with the
Program, to adopt forms of loan documents, to exercise all
rights and powers allocated to the Company under the Program
and to do anything else which is helpful or necessary to the
proper operation of the Program.
4.2 The Company reserves the right, at any time, to
amend, modify or terminate the Program, to discontinue making
new loans or to cancel any outstanding loan by forgiveness of
debt or otherwise and to require the executive to execute
substitute loan documents.
4.3 The Program is strictly a voluntary undertaking
on the part of the Company and shall not constitute a contract
between the Company and any individual, or consideration for,
or any inducement or condition of, the employment of an
individual. Nothing contained in the Program shall give any
individual the right to be retained in the service of the Company
or to interfere with or restrict the right of the Company, which
is hereby expressly reserved, to discharge or retire any
individual at any time for any reason not prohibited by law,
with or without cause.
<PAGE>
EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED PRIMARY FULLY DILUTED
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MARCH 31 1994 1993 1994 1993
- - -------------------------- -------- -------- -------- --------
EARNINGS: (In Millions)
<S> <C> <C> <C> <C>
Net earnings $ 15.0 $ 7.5 $ 15.0 $ 7.5
Series C preferred dividend requirements (.8) (.8)
Series D preferred dividend requirements (1.5) (1.5)
Additional required ESOP contribution (1) (.5) (.5)
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Net earnings available for common
and equivalent shares $ 12.7 $ 5.2 $ 14.5 $ 7.0
-------- -------- -------- --------
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WEIGHTED AVERAGE SHARES: (In Thousands)
Common shares outstanding 32,541.1 22,391.9 32,541.1 22,391.9
Dilutive stock options outstanding 435.5 35.0 435.5 44.6
Conversion of Series C preferred stock (3) 1,883.4 1,907.6
Contingent issuance of common stock to
satisfy the redemption price guarantee (2)(4) 60.4 38.2
Conversion of Series D preferred stock (3) 4,444.8 4,444.8
-------- -------- -------- --------
Common and equivalent shares outstanding 32,976.6 22,426.9 39,365.2 28,827.1
-------- -------- -------- --------
-------- -------- -------- --------
PER COMMON AND EQUIVALENT SHARE:
Net earnings $ .39 $ .23 $ .37 $ .24 (5)
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(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 March 31, 1994 common stock market price in accordance with the
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 March 31 of the respective year.
(5) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it
is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result.
</TABLE>
