<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 June 30, 1996
----------------------------------------------------
Commission File Number 1-1511
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FEDERAL-MOGUL CORPORATION
- --------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Michigan 38-0533580
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
26555 Northwestern Highway, Southfield, Michigan 48034
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(810) 354-7700
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(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------------- -----------------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock - 35,096,486 shares as of August 12, 1996
<PAGE> 2
<TABLE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
Three Months Ended Six Months Ended
March 31 June 30
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
(Millions of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales $ 536.4 $ 506.3 $1,058.3 $1,030.6
Cost of products sold 419.1 401.4 828.8 821.3
------- ------- ------- -------
Gross margin 117.3 104.9 229.5 209.3
Selling, general and
administrative expenses 81.0 74.9 164.0 147.2
------- ------- ------- -------
Operating Earnings 36.3 30.0 65.5 62.1
Other income (expense):
Interest expense (10.6) (8.2) (21.8) (16.6)
Interest income .7 1.1 1.5 1.9
International currency
exchange losses (1.4) .1 (2.3) (1.6)
Other, net (.2) (.3) (1.1) (.3)
------- ------- ------- -------
Earnings Before
Income Taxes 24.8 22.7 41.8 45.5
Income taxes 9.0 8.5 15.4 17.1
------- ------- ------- -------
Net Earnings 15.8 14.2 26.4 28.4
Preferred stock dividends,
net of tax benefits 2.2 2.2 4.4 4.4
------- ------- ------- -------
Net Earnings Available
for Common Shares $ 13.6 $ 12.0 $ 22.0 $ 24.0
======= ======= ======= =======
Earnings Per Common Share
Primary $ .39 $ .35 $ .63 $ .69
======= ======= ======= =======
Fully Diluted $ .36 $ .33 $ .59 $ .66
======= ======= ======= =======
See accompanying notes.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Millions of Dollars)
June 30 December 31
1996 1995
------------ ------------
(Unaudited)
<S>
Assets
<C> <C>
Current Assets:
Cash and equivalents $ 39.9 $ 19.4
Accounts receivable 315.9 303.4
Inventories 470.9 507.1
Prepaid expenses and income tax benefits 67.0 55.8
------- -------
Total Current Assets 893.7 885.7
Property, Plant and Equipment 414.8 426.6
Goodwill 217.4 226.5
Other Intangible Assets 62.3 66.6
Business Investments and Other Assets 110.0 109.0
------- -------
Total Assets $1,698.2 $1,714.4
======= =======
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 101.5 $ 111.9
Accounts payable 164.2 172.7
Accrued compensation 41.8 32.3
Other accrued liabilities 114.5 101.9
------- -------
Total Current Liabilities 422.0 418.8
Long-Term Debt 472.1 481.5
Postemployment Benefits 214.5 213.0
Other Accrued Liabilities 42.6 46.0
------- -------
Total Liabilities 1,151.2 1,159.3
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 54.9 56.8
Unearned ESOP compensation (31.4) (34.3)
Common stock 175.5 175.2
Additional paid-in capital 282.0 280.8
Retained earnings 57.5 45.0
Currency translation and other (68.1) (45.0)
------- -------
Total Shareholders' Equity 547.0 555.1
------- -------
Total Liabilities and Shareholders' Equity $1,698.2 $1,714.4
======= =======
See accompanying notes.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30
--------------------
1996 1995
-------- --------
(Millions of Dollars)
<S> <C> <C>
Cash Provided From (Used By) Operating Activities
Net earnings $ 26.4 $ 28.4
Adjustments to reconcile net earnings to net cash
provided from (used by) operating activities
Gain on sale of business investment - (7.8)
Restructuring charge - 7.8
Depreciation and amortization 30.6 31.0
Deferred income taxes (.7) .3
Postemployment benefits 1.6 6.4
Increase in accounts receivable (21.7) (54.0)
Decrease (increase) in inventories 25.5 (70.5)
Increase in current liabilities and other 19.5 25.0
Payments against restructuring
and reengineering reserves (8.9) (6.3)
----- -----
Cash Provided From (Used By) Operating Activities 72.3 (39.7)
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment (24.2) (40.7)
Payments for rationalization of acquired businesses - (5.9)
Proceeds from sale of business investments - 28.0
Purchases of business investments (.3) (20.3)
Other .7 -
----- -----
Net Cash Used By Investing Activities (23.8) (38.9)
Cash Provided From (Used By) Financing Activities
Issuance of common stock .4 .2
Repurchase of common stock - (9.0)
Net increase (decrease) in debt (11.7) 98.5
Dividends (13.6) (13.7)
Other (3.1) 1.2
----- -----
Net Cash Provided From (Used By) Financing Activities (28.0) 77.2
----- -----
Increase (Decrease) in Cash and Equivalents 20.5 (1.4)
Cash and Equivalents at Beginning of Period 19.4 25.0
----- -----
Cash and Equivalents at End of Period $ 39.9 $ 23.6
===== =====
See accompanying notes.
</TABLE>
<PAGE> 5
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 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- and six-month periods ended June 30, 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 June 28, 1996, and the number of preferred shares
held by the Employee Stock Ownership Plan (ESOP) that were allocated to
participants' accounts as of June 30 of each of the respective years.
The primary weighted average number of common and equivalent shares outstanding
(in thousands) was 35,099 and 35,081 for the three- and six-month periods ended
June 30, 1996, and 34,987 and 34,952 for the three- and six-month periods ended
June 30, 1995. The fully diluted weighted average number of common and
equivalent shares outstanding (in thousands) was 41,989 and 37,543 for the
three- and six-month periods ended June 30, 1996, and 41,928 and 41,901 for
the three- and six-month periods ended June 30, 1995, 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 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 JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED
JUNE 30, 1995
Sales for the second quarter of 1996 were $536.4 million compared to
$506.3 million in the same 1995 quarter. North American replacement
sales increased 3 percent to $211.2 million, from $205.1 million
in the second quarter of 1995. The increase was attributable to the
integration of the Sealed Power acquisition at the customer level and
implementation of a value based selling reengineering initiative.
International replacement sales increased 23.8 percent to $151.5 million
from $122.4 million in the second quarter of 1995. Excluding the 1995
acquisitions of Bertolotti in Italy and Centropiezas in Puerto Rico,
international replacement sales increased 4 percent. North American
original equipment sales decreased 3 percent to $118.2 million from
$121.8 million in the second quarter of 1995. The decrease was
attributable to the divestiture of Precision Forged Products Division in
April 1995, offset slightly by the acquisition of Seal Technology
Systems in September 1995. Excluding this divestiture and acquisition,
sales were flat over prior year. International original equipment sales
decreased 3 percent to $55.5 million, from $57.1 million in the same 1995
quarter. The sales decrease was primarily due to unfavorable foreign
exchange with an actual $2 million increased volume over prior year.
The Company's operating earnings increased $6.3 million to $36.3 million
when compared to the second quarter of 1995. The operating margin
increased from the second quarter of 1995 to 6.8 percent. The Company
attributes this increase to improved North American manufacturing cost
performance.
Pretax earnings increased to $24.8 million for the 1996 second quarter
compared to $22.8 million for the same 1995 quarter. The increase is
attributable to increased operating earnings partially offset by additional
interest expense due to higher levels of debt. Net earnings were $15.8
million or $.36 per common share on a fully diluted basis in the second
quarter of 1996 compared to $14.2 million or $.33 per common share in the
second quarter of 1995.
<PAGE> 7
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED
JUNE 30, 1995
Sales for the six-month period ended June 30, 1996 increased by 3 percent
to $1,058.3 million from $1,030.6 million for the six-month period ended
June 30, 1995. North American replacement sales were essentially flat
over the six-month period ended June 30, 1995. International replacement
sales increased 28 percent to $306.4 million from $238.7 million in the
same prior year period. Excluding the 1995 acquisitions of Bertolotti in
Italy and Centropiezas in Puerto Rico, international replacement sales
increased 5 percent. North American original equipment sales decreased
14 percent to $231.0 million from $268.0 million for the six-month period
ended June 30, 1995. The decrease was attributable to the divestiture of
Precision Forged Products Division in April 1995, offset slightly by the
acquisition of Seal Technology Systems in September 1995. Excluding this
divestiture and acquisition, sales decreased 7 percent over prior year.
International original equipment sales decreased 3 percent to $114.5
million, from $118.6 million in the same 1995 period. The sales decrease
was primarily due to unfavorable foreign exchange and a weakness in the
engine bearing product line in the French automotive market.
The Company's operating earnings increased to $65.5 million from $62.1
million for the six-month period ended June 30, 1995. The operating margin
slightly increased from the six-month period ended June 30, 1995 to 6.2
percent. The Company attributes this increase to second quarter improved
North American manufacturing cost performance.
Pretax earnings decreased to $41.8 million from $45.5 million for the
six-month period ended June 30, 1995. The decrease in pretax earnings is
attributable to additional interest expense due to higher levels of debt
to finance the Bertolotti and Centropiezas acquisitions and increased levels
of working capital. Net earnings were $26.4 million or $.59 per common
share on a fully diluted basis for the six-month period ended June 30, 1996
compared to net earnings of $28.4 million or $.66 per common share for
the six-month period ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was impacted by a $21.7 million increase in accounts
receivable during the six-month period ended June 30, 1996 compared to an
increase of $54.0 million in 1995. This decrease in accounts receivable
growth is primarily due to a sales policy change in the North American
replacement business. In addition inventories decreased $25.5 million
in the six-month period ended June 30, 1996 compared to an increase of
$54.0 million in 1995. 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 introductions.
<PAGE> 8
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
Zeller Corporation, an auto parts supplier, had filed a lawsuit
against the Company and Neapco, Inc., in the United States District
Court for the Northern District of Ohio, Western Division seeking
damages for alleged violations of federal antitrust laws and certain
laws. On June 25, 1996 the judge dismissed the federal antitrust
law claims. The potential exposure to the Company of the remaining
state law claims is immaterial.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on April 24,
1996, at which the Shareholders considered and voted on (i) the
election of seven directors, and (ii) the approval of the
appointment of Ernst & Young LLP as independent accountants for 1996.
Each of the nominees for director at the meeting was an incumbent and
all nominees were elected. The following table sets forth the number
of votes for and withheld with respect to each nominee:
<TABLE>
<CAPTION>
<S> <C> <C>
Nominee Votes For Votes Withheld
D. J. Gormley 27,581,033 3,723,845
J. J. Fannon 29,361,689 1,943,189
R. M. Hills 29,381,802 1,923,076
A. Madero 28,193,649 3,111,229
R. S. Miller, Jr. 29,383,637 1,921,241
J. C. Pope 29,344,631 1,960,247
H. M. Sekyra 28,203,836 3,101,042
</TABLE>
The appointment of Ernst & Young LLP as independent accountants for
1996 was approved, with 29,796,496 votes "For", 504,932 votes cast
"Against" and 1,003,451 abstentions.
<PAGE> 9
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 June 30, 1996 (filed with
this report).
11.2 Statement Re Computation of Per Share Earnings for
the six months ended June 30, 1996 (filed with this
report).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
June 30, 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,
Chief Accounting Officer
Dated: August 13, 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
-------------- ---------------
JUNE 30 1996 1995 1996 1995
- ------------------------------------------ ------ ------ ------ ------
<S>
EARNINGS: (In Millions)
<C> <C> <C> <C>
Net earnings $ 15.8 $ 14.2 $ 15.9 $ 14.2
Series C preferred dividend requirements (.6) (.6)
Series D preferred dividend requirements (1.6) (1.6)
Additional required ESOP contribution <F1> (.5) (.5)
----- ----- ----- -----
Net earnings available for common
and equivalent shares $ 13.6 $ 12.0 $ 15.4 $ 13.7
===== ===== ===== =====
WEIGHTED AVERAGE SHARES: (In Millions)
Common shares outstanding 35.1 35.0 35.1 35.0
Conversion of Series C preferred stock <F3> 1.7 1.8
Contingent issuance of common stock to
satisfy the redemption price guarantee <F2><F4> .7 .7
Conversion of Series D preferred stock <F3> 4.4 4.4
----- ----- ----- -----
Common and equivalent shares outstanding 35.1 35.0 41.9 41.9
===== ===== ===== =====
PER COMMON AND EQUIVALENT SHARE:
Net earnings $ .39 $ .35 $ .36 $ .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 June 30, 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
June 30 of the respective years.
<PAGE> 1
<TABLE>
EXHIBIT 11.2 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED PRIMARY FULLY DILUTED
-------------- ---------------
JUNE 30 1996 1995 1996 1995
- ------------------------------------------ ------ ------ ------ ------
<S>
EARNINGS: (In Millions)
<C> <C> <C> <C>
Net earnings $ 26.4 $ 28.4 $ 26.4 $ 28.4
Series C preferred dividend requirements (1.3) (1.3)
Series D preferred dividend requirements (3.1) (3.1) (3.1)
Additional required ESOP contribution <F1> (.9) (1.0)
----- ----- ----- -----
Net earnings available for common
and equivalent shares $ 22.0 $ 24.0 $ 22.4 $ 27.4
===== ===== ===== =====
WEIGHTED AVERAGE SHARES: (In Millions)
Common shares outstanding 35.1 35.0 35.1 35.0
Conversion of Series C preferred stock <F3> 1.7 1.8
Contingent issuance of common stock to
satisfy the redemption price guarantee <F2><F4> .7 .7
Conversion of Series D preferred stock <F3> 4.4
----- ----- ----- -----
Common and equivalent shares outstanding 35.1 35.0 37.5 41.9
===== ===== ===== =====
PER COMMON AND EQUIVALENT SHARE:
Net earnings $ .63 $ .69 $ .59 $ .66
===== ===== ===== =====
</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 June 30, 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
June 30 of the respective year.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 39,900
<SECURITIES> 0
<RECEIVABLES> 329,400
<ALLOWANCES> 13,500
<INVENTORY> 470,900
<CURRENT-ASSETS> 893,700
<PP&E> 663,600
<DEPRECIATION> 248,800
<TOTAL-ASSETS> 1,698,200
<CURRENT-LIABILITIES> 422,000
<BONDS> 472,100
<COMMON> 175,500
0
131,500
<OTHER-SE> 240,000
<TOTAL-LIABILITY-AND-EQUITY> 1,698,200
<SALES> 1,058,300
<TOTAL-REVENUES> 1,058,300
<CGS> 828,800
<TOTAL-COSTS> 164,000
<OTHER-EXPENSES> 1,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,800
<INCOME-PRETAX> 41,800
<INCOME-TAX> 15,400
<INCOME-CONTINUING> 26,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,400
<EPS-PRIMARY> .63
<EPS-DILUTED> .59
</TABLE>
