<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended March 31, 1996
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Commission File Number 1-1511
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FEDERAL-MOGUL CORPORATION
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(Exact name of Registrant as specified in its charter)
Michigan 38-0533580
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
26555 Northwestern Highway, Southfield, Michigan 48034
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(Address of principal executive offices) (Zip Code)
(810) 354-7700
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock - 35,076,486 shares as of May 13, 1996
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<TABLE>
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
Three Months Ended
March 31,
--------------------
1996 1995
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(Millions of Dollars,
Except Per Share Amounts)
<S> <C> <C>
Net sales $ 521.9 $ 524.3
Cost of products sold 409.7 419.9
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Gross margin 112.2 104.4
Selling, general and administrative expenses 83.0 72.3
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Operating Earnings 29.2 32.1
Other income (expense):
Interest expense (11.2) (8.4)
Interest income .8 .8
International currency exchange losses (.9) (1.7)
Other, net (.9) -
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Earnings Before Income Taxes 17.0 22.8
Income taxes 6.4 8.6
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Net Earnings 10.6 14.2
Preferred stock dividends, net of tax benefits 2.2 2.2
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Net Earnings Available for Common Shares $ 8.4 $ 12.0
======= =======
Earnings Per Common Share
Primary $ .24 $ .34
======= =======
Fully Diluted $ .23 $ .33
======= =======
See accompanying notes.
</TABLE>
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<TABLE>
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
March 31, December 31,
1996 1995
------------ ------------
(Millions of Dollars)
<S>
Assets
<C> <C>
Current Assets:
Cash and equivalents $ 39.1 $ 19.4
Accounts receivable 314.0 303.4
Inventories 497.6 507.1
Prepaid expenses and income tax benefits 61.5 55.8
------- -------
Total Current Assets 912.2 885.7
Property, Plant and Equipment 420.6 426.6
Goodwill 219.5 226.5
Other Intangible Assets 65.1 66.6
Business Investments and Other Assets 109.8 109.0
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Total Assets $1,727.2 $1,714.4
======= =======
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 102.2 $ 111.9
Accounts payable 164.0 172.7
Accrued compensation 41.1 32.3
Other accrued liabilities 116.4 101.9
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Total Current Liabilities 423.7 418.8
Long-Term Debt 501.6 481.5
Postemployment Benefits 216.0 213.0
Other Accrued Liabilities 40.9 46.0
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Total Liabilities 1,182.2 1,159.3
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 56.8 56.8
Unearned ESOP compensation (34.3) (34.3)
Common stock 175.4 175.2
Additional paid-in capital 281.2 280.8
Retained earnings 48.6 45.0
Currency translation and other (59.3) (45.0)
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Total Shareholders' Equity 545.0 555.1
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Total Liabilities and Shareholders' Equity $1,727.2 $1,714.4
======= =======
See accompanying notes.
</TABLE>
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<TABLE>
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
--------------------
1996 1995
-------- --------
(Millions of Dollars)
<S> <C> <C>
Cash Provided From (Used By) Operating Activities
Net earnings $ 10.6 $ 14.2
Adjustments to reconcile net earnings to net cash
provided from (used by) operating activities
Depreciation and amortization 15.5 15.5
Deferred income taxes (.7) .9
Postemployment benefits 1.4 1.0
Increase in accounts receivable (15.9) (71.1)
Decrease (increase) in inventories 3.5 (23.9)
Increase in current liabilities and Other 17.7 23.4
Payments against restructuring
and reengineering reserves (7.0) (1.1)
----- -----
Net Cash Provided From (Used By) Operating Activities 25.1 (41.1)
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (13.0) (19.6)
Payments for rationalization of acquired businesses - (3.7)
Purchase of business investments (.3) -
Other .3 -
----- -----
Net Cash Used By Investing Activities (13.0) (23.3)
Cash Provided From (Used By) Financing Activities
Proceeds from issuance of common stock .4 -
Expenditures for purchase of common stock - (9.0)
Net increase in debt 13.8 77.4
Dividends (5.7) (5.7)
Other (.9) 1.2
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Net Cash Provided From Financing Activities 7.6 63.9
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Increase (Decrease) in Cash and Equivalents 19.7 (.5)
Cash and Equivalents at Beginning of Period 19.4 25.0
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Cash and Equivalents at End of Period $ 39.1 $ 24.5
===== =====
See accompanying notes.
</TABLE>
<PAGE> 5
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1996
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, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996.
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, 1995.
Certain items in the prior period financial statements have been reclassified
to conform with the presentation used in 1996.
2. EARNINGS PER COMMON SHARE
The computation of primary earnings per share is based on the weighted average
number of outstanding common shares during the period plus, when their effect
is dilutive, common stock equivalents consisting of certain shares subject to
stock options. Fully diluted earnings per share additionally assumes the
conversion of outstanding Series C ESOP and Series D preferred stock and the
contingent issuance of common stock to satisfy the Series C ESOP preferred
stock redemption price guarantee when their effect is dilutive. The number
of contingent shares used in the fully diluted calculation is based on the
common stock market price on March 29, 1996, 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 35,066 for the three-month period ended March 31, 1996 and
34,918 for the three-month period ended March 31, 1995. The fully diluted
weighted average number of common and equivalent shares outstanding (in
thousands) was 37,464 for the three-month period ended March 31, 1996 and
41,786 for the three-month period ended March 31, 1995.
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 preferred stock dividends when their effect is antidilutive
and 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 when their effect is dilutive.
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Sales for the first quarter of 1996 were $521.9 million compared to $524.3
million in the same 1995 quarter. North American replacement sales decreased
2.5 percent to $195.2 million, from $200.3 million in the first quarter of
1995. The decrease was attributable to the elimination of a sales policy
which encouraged customers to place large quantity orders by offering
additional discounts and extended payment terms. International replacement
sales increased 33.3 percent to $154.9 million from $116.2 million in the
first quarter of 1995. Excluding the 1995 acquisitions of Bertolotti in
Italy and Centropiezas in Puerto Rico, international replacement sales
increased 8.0 percent. North American original equipment sales decreased
23.0 percent to $112.7 million from $146.3 million in the first quarter of
1995. A large percentage of this decrease was attributable to the divestiture
of Precision Forged Products Division in April 1995, offset slightly by the
acquisition of Sealed Technology Systems in September 1995. Excluding this
divestiture and acquisition, sales decreased 12.0 percent over the first
quarter of 1995, consistent with North American auto production which included
the impact of the General Motors strike. International original equipment
sales decreased 4.1 percent to $59.0 million from $61.5 million in the same
1995 quarter. The sales decrease was primarily due to weakness in the engine
bearing product line in the French automotive market, particularly at Renault
and Peugeot.
The Company's operating earnings decreased $2.9 million to $29.2 million when
compared to the first quarter of 1995. The operating margin decreased
slightly from the first quarter of 1995 to 5.6 percent. The Company
attributes this decrease to a $10.7 million increase in selling, general and
administrative expenses, primarily due to the shift to international
replacement business, which has a higher percentage of selling, general and
administrative expenses.
Pretax earnings decreased to $17.0 million for the first quarter of 1996
compared to $22.8 million for the same 1995 quarter. The decrease is
attributable to additional interest expense due to higher levels of debt.
Net earnings were $10.6 million or $.23 per common share on a fully diluted
basis in the first quarter of 1996 compared to $14.2 million or $.33 per
common share in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was impacted by a $15.9 million increase in accounts receivable
during the first quarter of 1996 compared to an increase of $71.1 million in
1995. This decline in accounts receivable growth is primarily due to a sales
policy change in the North American replacement business. The Company expects
that available cash and existing short-term lines of credit will be sufficient
to meet its normal operating requirements.
Net cash used for investing activities consists primarily of capital
expenditures for property, plant and equipment to implement process
improvements, information technology and new product introduction.
<PAGE> 7
PART II - OTHER INFORMATION
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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 March 31, 1996 (filed
herewith and incorporated herein by reference).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
three months ended March 31, 1996.
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
(Kenneth P. Slaby)
By:
---------------------------------
KENNETH P. SLABY
Vice President and Controller and
Chief Accounting Officer
Dated: May 14, 1996
<PAGE> 1
<TABLE>
EXHIBIT 11.1 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED PRIMARY FULLY DILUTED
-------------- ---------------
MARCH 31 1996 1995 1996 1995
- ------------------------------------------ ------ ------ ------ ------
<S>
EARNINGS: (In Millions)
<C> <C> <C> <C>
Net earnings $ 10.6 $ 14.2 $ 10.6 $ 14.2
Series C preferred dividend requirements (.6) (.7)
Series D preferred dividend requirements (1.6) (1.5) (1.6)
Additional required ESOP contribution <F1> (.5) (.5)
----- ----- ----- -----
Net earnings available for common
and equivalent shares $ 8.4 $ 12.0 $ 8.5 $ 13.7
===== ===== ===== =====
WEIGHTED AVERAGE SHARES: (In Millions)
Common shares outstanding 35.0 34.9 35.0 34.9
Dilutive stock options outstanding
Conversion of Series C preferred stock <F3> 1.8 1.8
Contingent issuance of common stock to
satisfy the redemption price guarantee <F2><F4> .6 .7
Conversion of Series D preferred stock <F3> 4.4
----- ----- ----- -----
Common and equivalent shares outstanding 35.0 34.9 37.4 41.8
===== ===== ===== =====
PER COMMON AND EQUIVALENT SHARE:
Net earnings $ .24 $ .34 $ .23 $ .33
===== ===== ===== =====
</TABLE>
[FN]
<F1> 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.
<F2> Calculations consider the March 31, 1996 common stock market price in
accordance with Emerging Issues Task Force Abstract No. 89-12.
<F3> Amount represents the weighted average number of common shares issued
assuming conversion of preferred stock outstanding.
<F4> 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 years.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 39,100
<SECURITIES> 0
<RECEIVABLES> 328,000
<ALLOWANCES> 14,000
<INVENTORY> 497,600
<CURRENT-ASSETS> 912,200
<PP&E> 662,600
<DEPRECIATION> 242,000
<TOTAL-ASSETS> 1,727,200
<CURRENT-LIABILITIES> 423,700
<BONDS> 501,600
<COMMON> 175,400
0
133,400
<OTHER-SE> 236,200
<TOTAL-LIABILITY-AND-EQUITY> 1,727,200
<SALES> 521,900
<TOTAL-REVENUES> 521,900
<CGS> 409,700
<TOTAL-COSTS> 83,000
<OTHER-EXPENSES> 1,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,200
<INCOME-PRETAX> 17,000
<INCOME-TAX> 6,400
<INCOME-CONTINUING> 10,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,600
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
</TABLE>
