<PAGE> 1
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, 1995
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 offices) (Zip code)
Registrant's telephone no. including area code: (810) 354-7700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
------------------- ------------------------
Common Stock and Rights to purchase New York and Pacific Stock Exchanges
Preferred Shares
7 1/2% Sinking Fund Debentures due
January 15, 1998 New York Stock Exchange
The Registrant has no securities registered pursuant to Section 12(g) of the
Act.
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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant is as follows:
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $692,701,349 as of March 25, 1996 based
on the reported last sales price as published for the New York Stock
Exchange--Composite Transactions for such date.
The Registrant had 35,073,486 shares of Common Stock outstanding as of
March 25, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1996
Annual Meeting of Shareholders dated March 11, 1996, and filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the end of the fiscal year, are incorporated by
reference in Part III (Items 10, 11, 12 and 13) of this Form 10-K.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Overview
Federal-Mogul Corporation (incorporated in Michigan in 1924 and referred
to herein as "Federal-Mogul" or the "Company") is a global distributor and
manufacturer of a broad range of precision parts, primarily vehicular
components for automobiles, light and heavy-duty trucks, farm and
construction vehicles and industrial products. Through the Company's
worldwide distribution network, Federal-Mogul sells replacement parts in
the vehicular aftermarket ("Aftermarket" products). The Company also sells
parts to original equipment manufacturers ("OE" products), principally the
major automotive manufacturers in the United States and Europe.
Vehicular components sold by Federal-Mogul include ball and roller bearings,
suspension and steering parts, engine and transmission products, sealing
devices, fuel pumps and related systems, and lighting and electrical
components. Industrial products sold by the Company include ball and
roller bearings, sealing products, and specialized heavy duty fluid-film
bearings.
The Company manufactures many of the parts it sells including engine bearings,
oil seals and high technology gaskets, lighting, electrical and fuel systems,
ball bearings and heavy wall bearings. During the fourth quarter of 1995,
the Company announced its intention to sell its ball bearing and heavy wall
bearing manufacturing operations.
The following table sets forth the Company's net sales by market segment and
geographic region as a percentage of total net sales.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1994 1993 1993
---- ---- ---- ----
Actual Actual Pro Actual
Forma <F1>
<S> <C> <C> <C> <C>
Aftermarket
U.S. and Canada 39% 43% 48% 43%
International 27% 21% 18% 20%
Original Equipment
U.S. and Canada 22% 22% 21% 23%
International 9% 8% 8% 8%
Other <F2>
U.S. and Canada 1% 4% 3% 3%
International 2% 2% 2% 3%
---- ---- ---- ----
100% 100% 100% 100%
</TABLE>
<PAGE> 3
[FN]
<F1> Pro forma for the acquisition of SPX Corporation's automotive
aftermarket business ("SPR") in October 1993 as if such acquisition
had occurred on January 1, 1993.
<F2> Sales of these products -- air bearing spindles, heavy wall bearings,
and precision forged powdered metal parts -- are accounted for by the
Company primarily as OE sales for financial reporting purposes. The
Company's air bearing spindles operation was sold in May 1993; the
Company's precision forged powered metal parts operation was sold in
April 1995. During the fourth quarter of 1995, the Company announced
its intention to sell the heavy wall bearing manufacturing operation.
Recent Acquisitions and Divestitures
During 1995, the Company continued to implement its strategy to emphasize
aftermarket business opportunities. The Company acquired The Centropiezas
Group, one of Puerto Rico's largest retailers of automotive aftermarket
parts with 33 retail stores. In Italy, the Company acquired Bertolotti
Pietro & Figli, S.r.l, a warehouse distributor with a central warehouse in
Milan and 16 wholesale branches throughout Italy. The Company also acquired
Seal Technology Systems, Ltd., a designer and manufacturer of seals and
gaskets for the automotive sector. In December, the Company announced it
would form a 50-50 joint venture with Shanghai Automotive Industry
Corporation to manufacture engine bearings in China.
The Company also continued to divest non-strategic manufacturing operations.
During 1995, the Company completed the sale of its precision forged products
division and its minority interest in Westwind Ltd., a manufacturer of air
bearing spindles based in the United Kingdom. During the fourth quarter of
1995, the Company also announced its intention to sell its ball bearing
manufacturing operations in the United States and its heavy wall bearing
manufacturing operations in Germany.
Aftermarket
The Company supplies a wide variety of Aftermarket products, including engine
and transmission products (engine bearings, pistons, piston rings, valves,
camshafts, valve lifters, valvetrain parts, timing components and engine kits,
bushings and washers), ball and roller bearings, sealing devices (gaskets and
oil seals and other high performance specialty seals), lighting and electrical
components, and automotive fuel pumps, water pumps, oil pumps and related
systems. The Company also sells steering and suspension parts which include
such items as tie rod ends, ball joints, idler and pitman arms, center links,
constant velocity parts, rack and pinion assemblies, coil springs, U-joints,
engine mounts and alignment products.
Federal-Mogul sells Aftermarket products under its own brand names, under
brand names for which it has long term licenses such as TRW and Sealed Power,
and also packages its products under third-party private brand labels such as
NAPA and CARQUEST.
<PAGE> 4
The Company's Aftermarket business supplies approximately 150,000 part
numbers to almost 10,000 customers. Federal-Mogul's customers are located
in more than 90 countries around the world. For 1995, Aftermarket net sales
in the United States and Canada represented 59% of total Aftermarket net
sales, with net sales outside of the United States and Canada representing
41% of such sales.
Domestic customers include industrial bearing distributors, distributors of
heavy duty vehicular parts, machine shops, retail parts stores and
independent warehouse distributors who redistribute products to local parts
suppliers called jobbers. Internationally, the Company sells Aftermarket
products to jobbers, local retail parts stores and independent warehouse
distributors. Aftermarket sales to jobbers and local retail parts stores
comprise a larger proportion of total international Aftermarket sales than
of total domestic Aftermarket sales.
Federal-Mogul's distribution centers in Jacksonville, Alabama; LaGrange,
Indiana; and Maysville, Kentucky (the "Distribution Centers") serve as the
hub of the Company's domestic Aftermarket distribution network. Products
are shipped from the Distribution Centers to North American service centers.
For international sales, products are shipped through a facility in Weston,
Florida to seven international regional distribution centers and six Latin
American branches.
Original Equipment
Federal-Mogul supplies original equipment ("OE") customers with a wide
variety of parts under a number of well-established brand names, including
Federal-Mogul and Glyco engine bearings, National and Mather oil seals,
BCA ball bearings, Carter fuel systems and Signal-Stat and Switches
electrical components. The Company manufactures all of the OE products
it sells.
Customers consist primarily of automotive, heavy duty vehicle and farm and
industrial equipment manufacturers. In 1995, approximately 13% of the
Company's net sales were to the three major automotive manufacturers in the
United States, with General Motors Corporation accounting for approximately
7% of the Company's net sales, Ford Motor Company accounting for
approximately 4% of the Company's net sales and Chrysler Corporation
accounting for approximately 2% of net sales. In addition, the Company sells
OE products to most of the major automotive manufacturers headquartered
outside the United States. The Glyco facility in Germany sells OE products
to Volkswagen, Daimler-Benz and BMW. The Company also sells Federal-Mogul
engine bearings to Renault and Peugeot in France and to Fiat in Italy. In
addition, the Company sells a small amount of OE products to certain Japanese
manufacturers, including Nissan-Mexico, certain Toyota operations in the
United States and to Komatsu in Japan.
<PAGE> 5
Manufactured Products
The Company manufactures the following vehicular and industrial components:
Engine and Transmission Products -- The Company manufactures engine bearings
and other engine and transmission products, including pistons, bushings and
washers. Bimetallic engine bearings, bushings and washers are used in
automotive, truck, industrial, construction and farm equipment applications.
These products are marketed under the brand names of Federal-Mogul, Glyco
and Sterling.
Sealing Devices -- The Company manufactures a line of sealing products
consisting of oil seals and other specialty seals, including oil bath seals
and high performance sealing products. Sealing products are used in the
automotive, truck, farm and off-highway construction equipment markets.
Sealing devices are also supplied for aircraft, marine, stationary machinery
and fuel power equipment. These products are marketed under the brand names
of Bruss, Mather, and National.
Lighting and Electrical Products -- The Company manufactures lighting and
safety components for heavy duty truck applications, and electrical switches,
controls and assemblies for vehicular applications. These products are
marketed under the brand names of Switches and Signal Stat. The Company
focuses on the heavy duty truck market segment where strict government
regulations require that all lighting and electrical systems be operational
at all times.
Fuel Systems -- The Company manufactures a full line of automotive fuel pumps
and related systems under the Carter brand name.
Ball Bearings -- The Company manufactures ball bearings for use chiefly in
farm and construction equipment, trucks, automobiles and some industrial
machinery under the brand name BCA. The Company also produces clutch and
other specialty type precision ball bearings. During the fourth quarter of
1995, the Company announced its intention to sell these operations.
Heavy Wall Bearings -- Braunschweiger Huttenwerk GmbH ("BHW"), an indirect,
wholly-owned German subsidiary of the Company, manufactures heavy wall
bearings used primarily for large diesel engines in ships and stationary
power plants. The Company also manufactures heavy wall bearings at
facilities in Indiana and Brazil. During the fourth quarter of 1995, the
Company announced its intention to sell these operations.
Suppliers
Federal-Mogul sells Aftermarket parts manufactured by other manufacturers as
well as those produced by the Company and its subsidiaries. The products not
manufactured by Federal-Mogul are supplied by over 600 companies. In 1995,
no outside supplier of the Company provided products which accounted for more
than 10% of the Company's net sales.
<PAGE> 6
In connection with the acquisition of the automotive aftermarket business of
TRW, Inc. in 1992, the Company and TRW entered into a Supply Agreement for an
initial term of 15 years (the "Supply Period") pursuant to which TRW has
agreed to supply to the Company with parts manufactured by TRW and
distributed by the Company. During the first five years of the Supply
Period (the "Exclusive Period"), the Company is an exclusive distributor of
such TRW parts and thereafter will be a nonexclusive distributor for the
remaining term of the Supply Agreement, subject to certain exceptions. Both
the Exclusive Period and the Supply Period are automatically renewable for
one-year periods thereafter, and are terminable on one year's notice by
either party.
Employee Relations
On January 1, 1996, the Company had approximately 17,200 full-time
employees of whom approximately 10,200 were employed in the United States.
Approximately 55% of the Company's U.S. employees are represented by one of
four unions. Approximately 55% of the Company's foreign employees are
represented by various unions. Each manufacturing facility of the Company
has its own contract with differing expiration dates so, in general, no
contract expiration date affects more than one facility. The Company
believes its labor relations to be good.
Research and Development
The Company is actively engaged in research and development to improve
existing products and manufacturing processes and to design and develop new
products and materials. The development of superior quality control systems
is a major focus as well.
Each of the Company's operating units is engaged in various engineering and
research and development efforts. These efforts are conducted primarily at
the Company's four major research centers as well as at several manufacturing
locations.
Total expenditures for research and development activities were approximately
$15.1 million in 1995, $18.7 million in 1994 and $17.2 million in 1993.
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 were not material during
1995 and are not expected to be material in 1996 or 1997.
<PAGE> 7
Raw Materials
The Company does not normally experience supply shortages of raw materials.
Although shortages may occur occasionally, the Company generally buys from
many reliable long-term suppliers and purchases most raw material, purchased
parts, components and assemblies from multiple sources.
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 1996 sales volumes.
Patents and Licenses
The Company has a large number of patents which relate to a wide variety of
products and processes, and has pending a substantial number of patent
applications. While in the aggregate its patents are of material importance
to its business, the Company does not consider that any patent or group of
patents relating to a particular product or process is 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 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.
Information About International and Domestic Operations and Export Sales
The Company has both manufacturing and distribution facilities for its
products, principally in the United States, Europe, Latin America, Mexico
and Canada. Certain of these products, primarily engine bearings and oil
seals, are sold to international original equipment manufacturers and
vehicular aftermarket customers.
International operations are subject to certain risks inherent in carrying
on business abroad, including expropriation and nationalization, currency
exchange rate fluctuations and currency controls, and export and import
restrictions. The likelihood of such occurrences and their potential effect
on the Company vary from country to country and are unpredictable.
<PAGE> 8
Aftermarket and original equipment sales by major geographical region were:
<TABLE>
<CAPTION>
1995 1994 1993
(Millions of Dollars)
<S> <C> <C> <C>
Aftermarket
United States and Canada $ 776.9 $ 804.0 $ 674.9
International 530.9 392.6 299.4
Original Equipment
United States and Canada 465.4 523.7 435.6
International 222.7 175.6 165.6
Total Sales $1,995.9 $1,895.9 $1,575.5
======== ======== ========
</TABLE>
Detailed results of operations by geographic area for each of the years ended
December 31, 1995, 1994 and 1993 appear in Note 15 to the Consolidated
Financial Statements contained in Item 8 of this Report.
Executive Officers of the Registrant
The executive officers of the Company are its elected officers. Set forth
below are the names, ages (at December 31, 1995), positions and offices held,
and a brief account of the business experience during the past five years of
each executive officer.
D.J. Gormley (56) Chairman of the Board since May, 1990, and President and
Chief Executive Officer since May 1989. Mr. Gormley first became an
executive officer in 1980.
J.B. Carano (46) Vice President, General Manager - Latin America since 1995;
Vice President and Controller December 1992 to March 1995; International
Distribution Manager - Port Everglades, Florida, February 1990 to November
1992. Mr. Carano first became an executive officer in 1992.
J.M. Eastman (59) Vice President - Human Relations since January 1980. Mr.
Eastman first became an executive officer in 1980.
R.F. Egan (49) Vice President Automotive Sales - Aftermarket since December
1993; Vice President of Automotive Sales - Worldwide Aftermarket Operation
November 1992 to December 1993; National Sales Manager, Automotive
Aftermarket - Worldwide Aftermarket Operation May 1985 to November 1992. Mr.
Egan first became an executive officer in 1993.
C.J. Fischer (38) Vice President - Global Sourcing since December 1994;
Vice President for Global Sourcing of the Company's Worldwide Aftermarket
Organization from December 1992 to December 1994; Senior Vice
President - Purchasing and Management Information Systems at Hi-Lo
Automotive, Inc., September 1990 to November 1992. Mr. Fischer first
became an executive officer in 1994.
<PAGE> 9
C.B. Grant (51) Vice President - Corporate Development since December 1992;
Vice President and Controller, May 1988 to December 1992. Mr. Grant first
became an executive officer in 1985.
S.G. Heim (43) Assistant Secretary and Associate General Counsel since May
1988. Ms. Heim first became an executive officer in 1988.
A.C. Johnson (47) Vice President of the Company and President, Worldwide
Operations since January 1996; Vice President of Company and President,
Worldwide Manufacturing Operation from February 1995 until January 1996;
Vice President of the Company and Vice President of Powertrain
Operations - Americas from December 1993 until February 1995; Vice President
and General Manager of Seal Operations November 1992 to December 1993;
General Manager, Oil Seals Operations January 1990 to November 1992. Mr.
Johnson first became an executive officer in 1993.
D.L. Kaye (45) Vice President, General Counsel and Secretary since April
1995. Before joining the Company in 1995, Ms. Kaye was Divisional Counsel,
Buick Motor Division and Cadillac Motor Car Division, General Motors
Corporation from 1990 to 1995. Ms. Kaye first became an executive officer
in 1995.
M.L. Schultz (48) Vice President and General Manager, North American
Aftermarket Sales and Marketing since December 1995; Vice President
Marketing Worldwide Aftermarket December 1994 to December 1995; Eastern
Zone Sales Manager November 1992 to December 1994. Mr. Schultz was Vice
President of Sales North America for TRW Inc. before joining the Company
in 1992. Mr. Schultz first became an executive officer in 1995.
W.A. Schmelzer (55) Vice President and Group Executive, Engine and
Transmission Products - Europe since January 1992; General Manager, Engine
and Transmission Products - America April 1987 to December 1991. Mr.
Schmelzer first became an executive officer in 1992.
W.G. Smith (46) Vice President of the Company and President, Worldwide
Operations since January 1996; Vice President of the Company and President,
Worldwide Aftermarket Operation from January 1989 until January 1996. Mr.
Smith first became an executive officer in 1988.
T.W. VanHimbergen (47) Senior Vice President and Chief Financial Officer
since February 1996. Before joining the Company in 1996, Mr. VanHimbergen
was Vice President Finance and Chief Financial Officer since May 1994 for
Allied Signal Automotive; Vice President Finance Tenneco Automotive from
May 1993 to May 1994, and Vice President Finance for the Walker
Manufacturing division of Tenneco Automotive from October 1988 to May
1993. Mr. VanHimbergen first became an executive officer in 1996.
J.J. Zamoyski (49) Vice President and General Manager Worldwide Aftermarket
Operation International since November 1993; General Manager, Worldwide
Aftermarket, Distribution and Logistics August 1991 to November 1993; Vice
President and General Manager, Distribution and Logistics Operations, March
1990 to August 1991. Mr. Zamoyski first became an executive officer in 1980.
<PAGE> 10
Generally, officers of the Company are elected at the time of the Annual
Meeting of Shareholders but the Board also elects officers at various times
during the year. Each officer holds office until his or her successor is
elected or appointed or until his or her resignation or removal.
ITEM 2. PROPERTIES
The Company conducts its business from its World Headquarters complex 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, 1995 are listed below.
All properties are owned in fee except where otherwise noted.
A. Manufacturing Facilities.
<TABLE>
<CAPTION>
# Of Sq. Ft.
North American Manufacturing Facilities Facilities @ 12/31/95
- --------------------------------------- ---------- ----------
<S> <C> <C>
Frankfort, Indiana 1 160,000
Greensburg, Indiana <F3> 1 204,800
Leiters Ford, Indiana 1 116,900
Lititz, Pennsylvania <F3> 1 275,000
Milan, Michigan 1 83,000
Van Wert, Ohio 1 222,800
Blacksburg, Virginia 1 190,400
Greenville, Michigan 1 197,100
Lafayette, Tennessee <F2> 1 110,400
Logansport, Indiana 2 284,000
Malden, Missouri <F1> 1 122,000
Mooresville, Indiana 1 65,900
St. Johns, Michigan 1 266,000
Puebla, Mexico 1 100,600
Mexico City, Mexico 2 157,300
Juarez, Mexico 1 33,000
Juarez, Mexico <F1> 1 33,000
Summerton, South Carolina 1 136,000
-- ---------
20 2,758,200
# Of Sq. Ft.
International Manufacturing Facilities Facilities @ 12/31/95
- -------------------------------------- ---------- ----------
<S> <C> <C>
Braunschweiger, Germany 1 65,000
Cataguases/MG, Brazil 1 46,600
Cuorgne, Italy 1 114,900
Laplata, Argentina 1 161,600
Orleans, France 1 120,300
Wiesbaden, Germany 1 837,900
Wiesbaden, Germany <F1> 1 43,600
Cardiff, Wales 1 151,200
Merthyr, Wales <F1> 1 9,000
San Luis, Argentina <F1> 1 22,900
-- ---------
11 1,573,000
Total Manufacturing Facilities 31 4,331,200
== =========
</TABLE>
<PAGE> 11
[FN]
<F1> This facility is leased by the Company and accounted for as an
operating lease. The Company believes these leases could be renewed
or comparable facilities could be obtained without materially affecting
operations.
<F2> The Company closed this facility in 1994. Operations have been
consolidated into the Logansport plant.
<F3> The Company has announced its intentions to sell its ball bearing and
heavy wall bearing operations.
B. Aftermarket Warehouses. The Company operates 110 warehouses and
distribution centers of which 103 are leased. In addition, 2 warehouses
are financed and leased through the issuance of Industrial Revenue Bonds.
C. Retail Properties. The Company leases 8 retail facilities in Australia,
15 facilities in Venezuela, 4 facilities in Chile, 58 facilities in South
Africa, 7 facilities in Panama, 33 facilities in Puerto Rico and 3
facilities in Ecuador.
All owned and leased properties are well maintained and equipped for the
purposes for which they are used. The Company considers that its facilities
are suitable and adequate for the operations involved.
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
A. The Company is a party to three lawsuits filed in various jurisdictions
alleging claims pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("CERCLA") or other state or
federal environmental laws. In addition the Company has been notified by
the Environmental Protection Agency and various state agencies that it
may be a potentially responsible party ("PRP") 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. Although these laws could impose joint
and several liability upon each party at any site, the potential exposure
is expected to be limited because at all sites other companies, generally
including many large, solvent public companies, have been named as PRP's
as well as the Company. In addition, the Company has identified certain
present and former properties at which it may be responsible for
resolving certain environmental matters, which the Company is actively
seeking to resolve. Although difficult to quantify based on the
complexity of the issues and the limited available information, the
Company has accrued the estimated costs associated with such matters.
Management believes these accruals, which have not been reduced by any
anticipated insurance proceeds, will be adequate to cover the Company's
estimated total liability for these exposures.
On August 30, 1995, Zeller Corporation, an auto parts supplier, 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 state laws. The Company believes the claims asserted are without
merit and is defending the lawsuit vigorously.
The Company is one of a large number of defendants in a number of
lawsuits brought by claimants alleging injury due to exposure to
asbestos. The Company is defending all such claims vigorously and
believes it has substantial defenses to liability and adequate insurance
coverage for its defense costs. While the outcome of litigation cannot
be predicted with certainty, after consulting with counsel for the
Company, management believes that these matters will not have a material
effect on the Company's consolidated financial statements.
The Company is involved in various other legal actions and claims. After
taking into consideration legal counsel's evaluation of such actions,
management is of the opinion that their outcome are not reasonably likely
to have a material adverse effect on the Company's consolidated financial
statements.
B. There were no material legal proceedings which were terminated during the
fourth quarter of 1995.
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1995 to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCK HOLDER 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 December 31, 1995 was 11,248. The following
table sets forth the high and low sale price of the Company's Common Stock as
reported on the New York Stock Exchange Composite Transactions Tape for the
last two years:
<TABLE>
<CAPTION>
1995 1994
------------------ -----------------
<S> <C> <C> <C> <C>
Quarter High Low High Low
- ------- ---- --- ---- ---
First $23 1/4 $16 3/4 $37 5/8 $28
Second 19 7/8 16 7/8 32 3/8 24 5/8
Third 23 3/4 17 3/4 32 3/4 22
Fourth 21 1/2 17 1/4 23 3/4 18 3/4
</TABLE>
Quarterly dividends of $.12 per common share were declared during 1995 and
1994. The payment of dividends is subject to the restrictions described
in Note 7 to the consolidated financial statements contained in Item 8 of
this Report. In February 1996 the Company's Board of Directors declared a
quarterly dividend of $.12 per common share. This was the 240th consecutive
quarterly dividend declared by the Company.
<PAGE> 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY
- ---------------------------
<CAPTION>
(Millions of Dollars,
Except Per Share Amounts) 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Consolidated Statement of
Earnings Data
- -------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
Aftermarket $1,307.8 $1,196.6 $ 974.3 $ 668.5 $ 534.0
Original equipment 688.1 699.3 601.2 595.5 564.7
------- ------- ------- ------- -------
Total net sales 1,995.9 1,895.9 1,575.5 1,264.0 1,098.7
Costs and expenses <F1><F2> (1,995.7) (1,792.3) (1,521.9) (1,262.3) (1,124.0)
Other income (expense) (3.4) (1.5) 4.0 7.3 6.6
Income taxes (6.5) (38.8) (17.5) (4.6) (1.1)
------- ------- ------- ------- -------
Earnings (loss) from
continuing operations (9.7) 63.3 40.1 4.4 (19.8)
Discontinued operations <F5> - - - - 16.1
Cumulative effect of
accounting change <F3> - - - (88.1) -
------- ------- ------- ------- -------
Net earnings (loss) (9.7) 63.3 40.1 (83.7) (3.7)
Preferred stock dividends,
net of tax benefits (8.9) (9.0) (9.1) (4.6) (3.1)
------- ------- ------- ------- -------
Net earnings (loss) available
for common shares $ (18.6) $ 54.3 $ 31.0 $ (88.3) $ (6.8)
======= ======= ======= ======= =======
Common Share Summary (Primary)
- ------------------------------
Average shares and equivalents
outstanding (in thousands) 34,988 35,062 27,342 22,390 22,314
Earnings (loss) per share:
Continuing operations $ (.53) $ 1.55 $ 1.13 $ (.01) $(1.03)
Discontinued operations <F5> - - - - .72
Cumulative effect of
accounting change <F3> - - - (3.93) -
----- ----- ----- ----- -----
Net earnings (loss) per share (.53) 1.55 1.13 (3.94) (.31)
===== ===== ===== ===== =====
Dividends paid per share $ .48 $ .48 $ .48 $ .48 $ .92
===== ===== ===== ===== =====
Consolidated Balance Sheet Data
- -------------------------------
Total assets $1,714.4 $1,496.1 $1,301.4 $1,110.6 $ 917.4
Short-term debt <F4> 111.9 74.0 39.2 69.4 47.5
Long-term debt 481.5 319.4 382.5 350.6 304.0
Shareholders' equity 555.1 597.2 371.1 230.9 259.0
</TABLE>
<PAGE> 15
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY (continued)
- ---------------------------
<CAPTION>
(Millions of Dollars,
Except Per Share Amounts) 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Other Financial Information
- ---------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided from (used
by) operating activities $ (34.7) $ 24.3 $ 43.5 $ 57.2 $ 52.5
Expenditures for property,
plant and equipment 78.5 74.9 60.0 40.2 44.0
Depreciation expense 49.0 45.7 43.9 43.9 48.7
<FN>
<F1> Includes restructuring charges of $26.9 million, reengineering and other
charges of $13.9 million and an adjustment of assets held for sale to net
realizable value of $51.8 million in 1995 and restructuring charges of
$19.2 million in 1993.
<F2> Includes special charges of $14 million and $25 million in 1992 and 1991,
respectively.
<F3> The company changed its method of accounting for postretirement benefits
other than pensions effective in 1992.
<F4> Includes current maturities of long-term debt.
<F5> Discontinued operations reflect the operating results (and sale in 1991)
of the company's fastening systems business and include an allocation of
interest expense based on annual net asset ratios.
</TABLE>
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
-----------------------------------
OVERVIEW
- --------
Federal-Mogul's core business is providing value-added services for the
distribution and manufacture of non-discretionary parts to the global
vehicular aftermarket and to vehicular and industrial original equipment
manufacturers. The strategic direction of the company is to increase the
emphasis on its aftermarket business opportunities, capitalizing on its
strength in global distribution and systems logistics to improve customer
service.
During 1995, the company made several acquisitions in support of this
strategic direction. In June, the company acquired Bertolotti, an Italian
distributor of premium-brand European auto and truck parts. Centropiezas,
one of Puerto Rico's largest retailers of automotive aftermarket parts, and
Seal Technology Systems, Ltd., a leading designer and manufacturer of oil
seals and gaskets in Cardiff, Wales, were purchased in September. These
acquisitions will strengthen Federal-Mogul's position as a world leader in
the automotive aftermarket.
The company also sold its Precision Forged Products Division and its equity
stake in Westwind Air Bearings, Ltd. during 1995. In the fourth quarter of
1995, the company announced that it will sell two other non-core manufacturing
operations. Divesting these operations will allow Federal-Mogul to better
allocate its resources to more effectively serve its aftermarket and
original equipment customers and support the strategic direction of the
company.
REENGINEERING
- -------------
Federal-Mogul has initiated an extensive effort to transform the company from
a manufacturer that distributes to a distributor that manufacturers. In doing
so, the company intends to create additional value for its customers and
shareholders. Federal-Mogul began reengineering its manufacturing locations
several years ago and is now aggressively changing the entire corporation
to eliminate functional and departmental barriers and behave as one enterprise.
This initiative began with the creation of the Process Development and Change
Management Office that reports directly to the Strategic Committee and updates
the board of directors quarterly.
Federal-Mogul's strategy of serving its customers with the right part, at the
right place, at the right time, to create the right value will be the
foundation for everything it does.
This reengineering effort is guided by three principles: The Customer,
designing the business from the customer's perspective; Process, organizing
and functioning around processes vs. traditional functions; and Value,
creating value in everything the company does.
The company has identified 28 initiatives to be completed over a five-year
horizon to become the best of the best. Federal-Mogul believes that these
efforts are critical in order for the company to place itself in a position
to capitalize on the opportunities that are currently presenting themselves,
as well as those that will arise into the 21st century.
<PAGE> 17
RESULTS OF OPERATIONS
- ---------------------
Sales
- -----
<TABLE>
Aftermarket and original equipment sales by major geographic area were:
<CAPTION>
(Millions of Dollars) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Aftermarket:
United States and Canada $ 776.9 $ 804.0 $ 674.9
International 530.9 392.6 299.4
Original Equipment:
United States and Canada 465.4 523.7 435.6
International 222.7 175.6 165.6
------- ------- -------
Total sales $1,995.9 $1,895.9 $1,575.5
======= ======= =======
</TABLE>
United States and Canada aftermarket sales decreased in 1995 primarily due
to a decrease in the sale of engine parts. This occurred due to brand
consolidation at the customer level of the company's Federal-Mogul, TRW and
Sealed Power branded engine parts. In 1994, United States and Canada
aftermarket sales improved primarily due to the acquisition of SPX
Corporation's United States and Canadian automotive aftermarket operations,
Sealed Power Replacement (SPR). Base sales were unchanged, with significant
improvements in core engine products, pistons and oil seals, offset by
decreases in ball bearing and suspension products, which were significantly
impacted by a reduction in supplier order fill rates.
The increase in sales in the international aftermarket is largely attributable
to the acquisitions of Varex, Bertlotti and Centropiezas. These acquisitions
will significantly improve the company's position in the global aftermarket.
The increase in sales in 1994 from 1993 is due primarily to the acquisition
of Varex in 1994.
The company's international retail operations have continued to make modest
gains in the marketplace. The number of stores has increased from 65 in 1994
to 128 in 1995 due to the acquisition of Centropiezas and expansion in other
existing international markets. Sales from these outlets have increased from
$39 million in 1994 to $88 million in 1995. The company expects this area to
continue to grow during 1996.
United States and Canada original equipment sales decreased in 1995 due
primarily to the sale of the company's Precision Forged Products Division in
April 1995. In 1994, sales increased over 1993 due to stronger automotive
and light truck production rates in North America. Sales in the new sealing
products application for bonded pistons in transmissions grew in both
1995 and 1994.
International original equipment sales increased significantly during 1995
due to market penetration of engine bearings and appreciating European
currencies. In 1994, sales increased as a result of favorable currency
rates and improving European vehicle production.
<PAGE> 18
Operating Margin
- ----------------
The company's operating margin decreased in 1995 due primarily to a change in
sales mix and additional expenses incurred in conjunction with the expansion
of the company's retail operations, primarily in South Africa and Puerto Rico.
Margins in 1994 increased from 1993 due primarily to the acquisition and
successful integration of SPR during 1994. The company's global sourcing
efforts also yielded substantial savings.
Gains on Sales of Businesses
- ----------------------------
During 1995, the company sold its equity interest in Westwind Air Bearings,
Ltd. recognizing a pretax gain of $16.2 million and its Precision Forged
Products Division for a pretax gain of $7.8 million.
Restructuring Charges
- ---------------------
The company recorded a restructuring charge of $20.8 million in the fourth
quarter for costs associated with employee severance and exit costs of certain
facilities. The charge is comprised of $15.2 million for employee termination
costs and $5.6 million for facility exit costs. Severance actions and
facility consolidations will be substantially completed by early 1996.
These actions are an effort to concentrate resources appropriately and are
expected to improve operating margin by approximately $9 million annually.
The cash portion of this charge is $19.0 million, the majority of which is
expected to be paid out during 1996.
The company also recorded a restructuring charge of $6.1 million in the second
quarter comprised of $4.9 million to pay terminated employees primarily in
Argentina, the U.S. and Europe, and $1.2 million for location closings and
lease terminations. The entire charge of $6.1 million was paid and charged
against the reserve in 1995.
Reengineering and Other Charges
- -------------------------------
As discussed previously, Federal-Mogul has initiated an extensive effort to
reengineer the business by transforming the company from a manufacturer that
distributes to a distributor that manufacturers. This effort is ongoing and
is expected to result in significant improvements to operating results. A
$13.9 million charge was recorded in the fourth quarter for costs associated
with this effort, along with certain other non-recurring costs relating to
brand consolidation at the customer level of the company's Federal-Mogul, TRW
and Sealed Power branded engine parts. Costs charged against this reserve in
1995 were $8.8 million, with the remainder expected to be charged against the
reserve in 1996.
Adjustment of Assets Held for Sale to Net Realizable Value
- ----------------------------------------------------------
The company continually reviews all components of its business for possible
improvement of future profitability through acquisition, divestiture,
reengineering or restructuring. As a result of this process, the company
decided in the fourth quarter of 1995 to sell its U.S. ball bearing division,
its heavy wall bearing division in Germany and certain other non-strategic
assets. Concurrent with these decisions, the company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", effective
January 1, 1995. The new statement addresses the accounting for impairment
of long-lived assets and long-lived assets to be disposed of, certain
<PAGE> 19
identifiable intangibles and goodwill related to those assets. The statement
establishes guidance for recognizing and measuring impairment losses and
requires that the carrying amount of impaired assets be reduced to fair value.
The company estimated the fair value of the businesses held for sale based on
discussions with prospective buyers, adjusted for selling costs. The fair
value of other assets to be disposed of is measured by the discounted future
cash flows less costs to sell. The company expects to improve operating
margin by approximately $8 million annually after the sale of these
non-strategic assets. The company expects to complete the majority of these
dispositions in 1996. The total fair value of the assets held for sale, less
costs to sell at December 31, 1995, is approximately $45 million. An
adjustment of $51.8 million to reduce assets held for sale to net realizable
value was recorded in 1995.
Other Income and Expense
- ------------------------
Interest expense increased $16.1 million in 1995 due to higher levels of debt
necessary to finance the Varex, Bertolotti and Centropiezas acquisitions, a
stock repurchase program completed in January 1995 and increased levels of
working capital. The decrease in interest expense in 1994 from 1993 was
due to the issuance of 5.75 million shares of common stock in February 1994,
the proceeds of which were used to pay a substantial portion of the revolving
credit facility balance.
Amortization of intangible assets increased in 1995 due to the goodwill
amortization related to the acquisitions of Varex, Bertolotti and
Centropiezas. Amortization increased in 1994 from 1993 primarily due to
amortization of goodwill, and trademark and non-compete agreements
associated with the SPR acquisition.
International currency exchange losses decreased in 1995 due to the
devaluation of the Brazilian cruzeiro in the first half of 1994.
Income Taxes
- ------------
The company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". At December 31,
1995, the company had deferred tax assets of $108.7 million and deferred tax
liabilities of $76.0 million.
The company records valuation allowances ($23.7 million at December 31, 1995)
for all deferred tax assets, except where management believes it is more likely
than not that the tax benefit will be realized. A valuation allowance was not
established against deferred tax assets attributable to the company's
postretirement benefit obligation and a portion of its German net operating
loss carryforward.
The deferred tax asset for the company's postretirement benefit obligation was
$58.5 million at December 31, 1995. The company expects that the tax deduction
associated with this obligation will be claimed over a period of 35 to 40
years. The total amount of future taxable income in the United States
necessary to realize the asset is approximately $158 million. The company
expects to generate sufficient taxable income in the United States through
future operations in order to fully realize the deferred tax asset for the
company's postretirement benefit obligation.
The deferred tax asset attributable to a portion of the German net operating
loss carryforward was $32.3 million at December 31, 1995. The carryforward is
not subject to expiration. The company expects that sufficient taxable income
will be generated through the reversal of existing taxable temporary
differences to enable that portion of the carryforward to be utilized.
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow from operations decreased in 1995 due primarily to an inventory
build which enhanced product availability at various locations throughout
the world. The increase in accounts receivable corresponded to the increase
in sales. The company believes that cash flow from operations, together
with borrowings available under the company's revolving credit facility,
will continue to be sufficient to meet its ongoing working capital
requirements.
Cash flow used by investing activities increased due to the acquisitions of
Bertolotti, Centropiezas and Seal Technology Systems, Ltd., offset somewhat
by the proceeds from the sales of the Precision Forged Products Division and
Westwind Air Bearings, Ltd. Capital expenditures are anticipated to be
approximately $66 million in 1996, primarily for expansion of the company's
aftermarket capacity and enhanced manufacturing capabilities.
Cash flow from financing activities increased in 1995 as the company increased
its borrowings to fund the acquisitions noted above as well as increased
levels of working capital. In February 1994, the company issued 5.75 million
shares of common stock generating net proceeds of $191 million, which
were used to repay debt incurred for the 1993 acquisition of SPR. In August
1994, the company filed a registration statement with the SEC for the issuance
of medium-term notes not to exceed $200 million. In November 1994, the company
issued $54 million of the medium-term notes to finance the acquisition of
Varex. During June 1993, the company repaid a $125 million term loan with
the net proceeds from the sale of $40 million of accounts receivable and
$85 million of the $116 million of net proceeds received from the sale of
6.2 million shares of the company's common stock in April 1993.
ENVIRONMENTAL MATTERS
- ---------------------
The company is a party to three lawsuits filed in various jurisdictions
alleging claims pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980 (CERCLA) or other state or federal
environmental laws. In addition, the company has been notified by the
Environmental Protection Agency and various state agencies that it may be
a potentially responsible party (PRP) 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.
Although these laws could impose joint and several liability upon each
party at any site, the potential exposure is expected to be limited because
at all sites other companies, generally including many large, solvent public
companies, have been named as PRPs. 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. Management believes these accruals, which
have not been reduced by any anticipated insurance proceeds, will be
adequate to cover the company's estimated liability for these exposures.
FOREIGN CURRENCY AND COMMODITY CONTRACTS
- ----------------------------------------
The company operates internationally, giving rise 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. The company does not hold or issue financial instruments for trading
purposes.
<PAGE> 21
The company has entered into forward exchange contracts and purchased currency
options to hedge committed and anticipated sales and purchases denominated in
foreign currencies. Some of the contracts involve the exchange of two
currencies according to local needs in foreign subsidiaries. The term of the
currency derivatives is less than one year. The purpose of the company's
foreign currency hedging activities is to protect the company from the risk
that the eventual U.S. dollar cash flows resulting from the purchase of
products from suppliers and sale of products to customers in international
markets will be adversely affected by changes in exchange rates.
The company has foreign exchange contracts totaling $31.5 million and related
deferred losses totaling $.3 million at December 31, 1995.
The company has also entered into copper 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. Under the
agreements, the company is committed to purchase 5.7 million pounds of
copper. The net unrealized gain on these firm purchase commitments at
December 31, 1995 is $.4 million, which will be recognized in earnings as
copper is purchased.
Deferred gains and losses are included in other assets and liabilities and
recognized in earnings when the future purchase or sale occurs, or at a
point in time when the purchase or sale is no longer expected to occur.
All amounts deferred at December 31, 1995 are expected to be recognized
in earnings in 1996.
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
- -----------------------------------
<CAPTION>
Year Ended December 31 1995 1994 1993
-------- -------- --------
(Millions of Dollars,
Except Per Share Amounts)
<S> <C> <C> <C>
Net sales $1,995.9 $1,895.9 $1,575.5
Cost of products sold 1,559.6 1,486.4 1,263.8
Selling, distribution and administrative expenses 324.9 276.8 227.3
------- ------- -------
Operating margin 111.4 132.7 84.4
Gain on sales of businesses 24.0 - 19.2
Restructuring charges (26.9) - (19.2)
Reengineering and other charges (13.9) - -
Adjustment of assets held for
sale to net realizable value (51.8) - -
------- ------- -------
42.8 132.7 84.4
Other income (expense):
Amortization of intangible assets (12.0) (10.0) (6.8)
Interest expense (37.3) (21.2) (25.9)
Interest income 9.6 7.6 7.6
International currency exchange losses (2.9) (5.5) (5.7)
Other (3.4) (1.5) 4.0
------- ------- -------
Earnings (loss) before income taxes (3.2) 102.1 57.6
Income taxes 6.5 38.8 17.5
------- ------- -------
Net Earnings (Loss) $ (9.7) $ 63.3 $ 40.1
======= ======= =======
Earnings (Loss) Per Common and Equivalent Share <F1>
Primary $ (.53) $ 1.55 $ 1.13
======== ======= =======
Fully Diluted $ (.53) $ 1.46 $ 1.12
======= ======= =======
<FN>
<F1> Based on net earnings (loss) after deduction of preferred stock dividends,
net of related tax benefits, of $8.9 million, $9.0 million and $9.1 million
for 1995, 1994 and 1993, respectively.
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 23
<TABLE>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<CAPTION>
December 31 1995 1994
-------- --------
(Millions of Dollars)
Assets
- ------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 19.4 $ 25.0
Accounts receivable 303.4 269.5
Inventories 507.1 372.1
Prepaid expenses and income tax benefits 55.8 37.6
------- -------
Total Current Assets 885.7 704.2
Property, Plant and Equipment 434.7 437.3
Goodwill 226.5 172.9
Other Intangible Assets 66.6 71.2
Business Investments and Other Assets 100.9 110.5
------- -------
Total Assets $1,714.4 $1,496.1
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term debt $ 111.9 $ 74.0
Accounts payable 172.7 136.6
Accrued compensation 32.3 33.3
Other accrued liabilities 101.9 92.0
------- -------
Total Current Liabilities 418.8 335.9
Long-Term Debt 481.5 319.4
Postemployment Benefits 213.0 199.8
Other Accrued Liabilities 46.0 43.8
------- -------
Total Liabilities 1,159.3 898.9
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 56.8 59.1
Unearned ESOP compensation (34.3) (39.8)
Common stock 175.2 174.9
Additional paid-in capital 280.8 277.8
Retained earnings 45.0 82.0
Currency translation and other (45.0) (33.4)
------- -------
Total Shareholders' Equity 555.1 597.2
------- -------
Total Liabilities and Shareholders' Equity $1,714.4 $1,496.1
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 24
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<CAPTION>
Year Ended December 31 1995 1994 1993
-------- -------- --------
(Millions of Dollars)
<S>
Cash Provided From (Used By) Operating Activities
- -------------------------------------------------
<C> <C> <C>
Net earnings (loss) $ (9.7) $ 63.3 $ 40.1
Adjustments to reconcile net earnings (loss) to net
cash provided from (used by) operating activities:
Depreciation and amortization 61.0 55.7 50.7
Gain on sale of business investments (24.0) - (19.2)
Restructuring charges 26.9 - 19.2
Reengineering and other charges 13.9 - -
Adjustment of assets held for
sale to net realizable value 51.8 - -
Deferred income taxes (16.2) 8.1 (8.8)
Postemployment benefits other than pensions 4.2 4.0 6.6
Increase in accounts receivable (3.7) (61.7) (40.3)
(Increase) decrease in inventories (106.9) (33.0) 6.1
Payments against restructuring
and reengineering reserves (19.4) (14.0) (12.7)
Increase (decrease) in current
liabilities and other (12.6) 1.9 1.8
------ ------ ------
Net Cash Provided From (Used By)
Operating Activities (34.7) 24.3 43.5
Cash Provided From (Used By) Investing Activities
- -------------------------------------------------
Expenditures for property, plant and equipment (78.5) (74.9) (60.0)
Acquisition of business investments (72.1) (58.3) (147.4)
Payments for rationalization of acquired businesses (7.3) (24.5) (10.5)
Proceeds from sales of business investments 48.5 - 38.3
Other - (.8) (.5)
------ ------ ------
Net Cash Provided From (Used By)
Investing Activities (109.4) (158.5) (180.1)
Cash Provided From (Used By) Financing Activities
- -------------------------------------------------
Issuance of common stock .2 196.8 122.1
Repurchase of common stock (9.0) (10.6) -
Proceeds from issuance of long-term debt 166.2 157.8 258.3
Principal payments on long-term debt (24.9) (203.7) (227.3)
Increase (decrease) in short-term debt 33.7 14.8 (24.1)
Sale of accounts receivable - - 39.6
Dividends (27.3) (27.7) (23.9)
Other (.4) (2.0) (.3)
------ ------ ------
Net Cash Provided From Financing Activities 138.5 125.4 144.4
------ ------ ------
Increase (Decrease) in Cash and Equivalents (5.6) (8.8) 7.8
Cash and Equivalents at Beginning of Year 25.0 33.8 26.0
------ ------ ------
Cash and Equivalents at End of Year $ 19.4 $ 25.0 $ 33.8
====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 25
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------
<CAPTION>
Series C Unearned Currency
Series D ESOP ESOP Additional Transla-
Preferred Preferred Compen- Common Paid-In Retained tion and
Stock Stock sation Stock Capital Earnings Other Total
--------- --------- -------- ------ ---------- -------- -------- -------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1993 $ 76.6 $ 60.9 $(49.2) $111.9 $ 19.3 $ 30.2 $(18.8) $230.9
- -----------------
Net earnings 40.1 40.1
Issuance of
common stock 33.9 91.0 124.9
Exercise of
stock options 1.7 5.3 7.0
Retirement of
preferred stock (.7) (.7)
Amortization of
unearned compensation 4.6 4.6
Dividends (23.9) (23.9)
Preferred dividend
tax benefits 1.6 1.6
Currency translation (10.7) (10.7)
Sale of business 2.4 2.4
Pension adjustment (5.1) (5.1)
----- ----- ----- ----- ----- ----- ----- -----
Balance at
December 31, 1993 76.6 60.2 (44.6) 147.5 117.2 46.4 (32.2) 371.1
- -------------------
Net earnings 63.3 63.3
Issuance of
common stock 28.8 162.5 191.3
Exercise of
stock options 1.6 6.1 7.7
Repurchase of
common stock (3.0) (9.6) (12.6)
Retirement of
preferred stock (1.1) (1.1)
Amortization of
unearned compensation 4.8 .2 5.0
Dividends (27.7) (27.7)
Preferred dividend
tax benefits 1.6 1.6
Currency translation (6.3) (6.3)
Pension adjustment 4.9 4.9
----- ----- ----- ----- ----- ----- ----- -----
Balance at
December 31, 1994 76.6 59.1 (39.8) 174.9 277.8 82.0 (33.4) 597.2
- -------------------
Net loss (9.7) (9.7)
Issuance of
common stock 2.2 6.5 (7.7) 1.0
Exercise of
stock options .2 .2
Repurchase of
common stock (1.9) (5.3) (7.2)
Retirement of
preferred stock (2.3) (2.3)
Amortization of
unearned compensation 5.5 5.5
Dividends (27.3) (27.3)
Preferred dividend
tax benefits 1.6 1.6
Currency translation (1.5) (1.5)
Pension adjustment (2.4) (2.4)
----- ----- ----- ----- ----- ----- ----- -----
Balance at
December 31, 1994 $ 76.6 $ 56.8 $(34.3) $175.2 $280.8 $ 45.0 $(45.0) $555.1
- ------------------- ===== ===== ===== ===== ===== ===== ===== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. ACCOUNTING POLICIES
-------------------
Organization - Federal-Mogul Corporation's core business is providing
value-added services for the distribution and manufacture of
non-discretionary parts to the global vehicular aftermarket and to
vehicular and industrial original equipment manufacturers.
Principles of Consolidation - The consolidated financial statements
include the accounts of Federal-Mogul Corporation and its majority-owned
subsidiaries (the company). 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 52% and 61%
of the inventory at December 31, 1995 and 1994, respectively. The remaining
inventories are costed using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost, amounts reported at December 31
would have been increased by $54.2 million in 1995 and $61.7 million in 1994.
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
------ ------
<S> <C> <C>
Finished products $469.6 $342.9
Work-in-process 34.1 27.7
Raw materials 28.6 27.2
----- -----
532.3 397.8
Reserve for inventory valuation 25.2 25.7
----- -----
$507.1 $372.1
===== =====
</TABLE>
Inventory quantity reductions resulting in liquidations of certain LIFO
inventory layers and the reduction in international locations using the LIFO
method increased net earnings in 1994 and 1993 by $1.6 million ($.04 per
share) and $5.3 million ($.15 per share), respectively. There was no effect
on operations for 1995.
Goodwill and Other Intangible Assets - Intangible assets, which result
principally from acquisitions, consist of goodwill, trademark and
non-compete agreements, patents and other intangibles and are amortized
on a straight-line basis over appropriate periods, generally ranging from
7 to 40 years. Goodwill and other intangible assets reflected in the
consolidated balance sheets are net of accumulated amortization of
$14.2 million and $8.8 million for goodwill and $16.9 million and
$11.1 million for other intangible assets at December 31, 1995 and 1994,
respectively.
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. ACCOUNTING POLICIES (continued)
-------------------
The company evaluates the recoverability of goodwill and reviews the
amortization period on an annual basis. Several factors are used to
evaluate goodwill, including but not limited to: management's plans for
future operations, recent operating results and future projected cash flows.
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 earnings. Translation adjustments of international
subsidiaries whose local currency is the functional currency are reflected
in the consolidated financial statements as a separate component of
shareholders' equity.
Earnings Per 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, when the effect is dilutive, 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 market price of the company's
common stock on December 31, 1995, and the number of preferred shares held
by the Employee Stock Ownership Plan (ESOP) as of December 31 of each of
the respective years.
The primary weighted average number of common and equivalent shares
outstanding (in thousands) was 34,988, 35,062 and 27,342 for 1995, 1994
and 1993, respectively. The fully-diluted weighted average number of
common and equivalent shares outstanding (in thousands) was 34,992, 41,812
and 34,211 for 1995, 1994 and 1993, respectively.
Net earnings used in the computation 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 when the effect is dilutive.
Environmental Liabilities - The company recognizes environmental
liabilities when a loss is probable and can be reasonably estimated.
Such obligations are generally not subject to insurance coverage.
Each environmental obligation is estimated by engineering and legal
specialists within the company based on current law and existing
technologies. Such estimates are based primarily upon the estimated
cost of investigation and remediation required and the likelihood that
other potentially responsible parties ("PRPs") will be able to fulfill
their commitments at the sites where the company may be jointly and
severally liable. At sites being addressed under the U.S. Comprehensive
Environmental Response, Compensation and Liability Act or similar state
laws (the "Superfund Sites"), the company typically recognizes an
estimated liability once it has been named as a PRP and has determined
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. ACCOUNTING POLICIES (continued)
-------------------
that such estimated liability is probable. The Superfund Sites are
primarily multi-PRP sites not owned or operated by the company. An
estimated liability is typically recognized either upon completion of
an environmental assessment or when the company proposes an agreement with
the appropriate regulatory agency to take action at a site.
The company periodically evaluates and revises its estimates for environmental
obligations based on expenditures against established reserves and the
availability of additional information.
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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Reclassifications - Certain items in the prior year financial statements have
been reclassified to conform with the presentation used in 1995.
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
2. ACQUISITIONS
------------
The company accounted for the following acquisitions as purchases, and
accordingly, the purchase prices have been allocated to the acquired assets
and assumed liabilities based on their estimated fair values as of the
acquisition date. The consolidated statements of earnings include the
operating results of the acquired businesses from the acquisition dates
unless otherwise stated.
On September 30, 1995, the company completed its acquisition of the
Centropiezas group, a chain of retail stores in Puerto Rico. Annual sales
of Centropiezas are approximately $40 million.
Wales-based Seal Technology Systems Ltd. (STS), a leading designer and
manufacturer of a specialized range of seals and gaskets for the automotive
sector and other industrial markets was purchased September 25, 1995.
Annual sales of STS are approximately $15 million.
The company acquired Bertolotti Pietro e Figli, S.r.l. (Bertolotti), a
distributor of premium brand European auto and truck parts throughout Italy
on June 28, 1995. Annual sales of Bertolotti are approximately $60 million.
On October 31, 1994, the company purchased all the outstanding shares of
Varex Corporation, Ltd. (Varex), the largest independent auto parts
distributor in South Africa. In 1995, Varex sales were $133 million.
The consolidated statements of earnings includes the operating results of
Varex from July 1, 1994.
On October 26, 1993, the company purchased SPX Corporation's United States
and Canadian automotive aftermarket operations, Sealed Power Replacement (SPR)
for $167 million. The company and SPX Corporation also executed a non-
compete agreement making Federal-Mogul the sole distributor of engine and
chassis parts sold under the Sealed Power and Speed-Pro brand names in North
America. Federal-Mogul also acquired the right to use these trademarks
throughout the rest of the world. The excess of the consideration paid over
the estimated fair value of net assets acquired of $70 million has been
recorded as goodwill.
The following unaudited pro forma results of operations for the year ended
December 31, 1993 assumes the acquisition of SPR occurred as of January 1,
1993 after giving effect to certain adjustments, including amortization of
intangible assets, increased interest expense on acquisition debt and
related income tax effects. The pro forma results have been prepared for
comparative purposes only and do not purport to indicate the results of
operations which would actually have occurred had the combination been in
effect on the dates indicated, or which may occur in the future.
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
2. ACQUISITIONS (continued)
------------
<TABLE>
<CAPTION>
(Millions of Dollars,
Except Per Share Amounts) 1993
----------
<S> <C>
Net sales $1,705.3
Earnings from continuing operations 74.3
Net earnings 50.2
Net earnings per common share:
Primary $ 1.50
Fully diluted 1.41
</TABLE>
Operating results for 1993 also included a $1.0 million charge to provide
for certain aspects of the rationalization of the company's present aftermarket
business. This charge includes costs incurred for severance, eliminating
redundant company facilities and equipment, and integrating the operations of
the acquired businesses.
On April 27, 1993, the company's wholly-owned Australian subsidiary,
Federal-Mogul Pty. Ltd., acquired the automotive aftermarket business and
certain assets of Brown & Dureau Automotive Pty. Ltd.
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
3. SALES OF BUSINESSES
-------------------
In December 1995, the company sold its equity interest in Westwind Air
Bearings, Ltd. (Westwind) in England and its affiliated operations in the
United States and Japan for $20.5 million. The pretax earnings effect was
a gain of $16.2 million.
In April 1995, the company completed the sale of the operations and
substantially all of the assets of its Precision Forged Products Division
to Borg-Warner Automotive, Inc. (Borg-Warner) in a transaction valued at
approximately $45 million. The company received $28.0 million in cash,
retained the division's customer receivables and recognized a pretax gain
of $7.8 million. Additionally, Borg-Warner assumed certain operating
liabilities. The results of operations of the Precision Forged Products
Division have been included in the company's consolidated statement of
earnings through the date of sale.
In November 1993, the company sold equity interests in a Bermuda-based
insurance company, Corporate Officers and Directors Assurance Holding
Ltd., for $5.5 million to ACE Limited. The pretax earnings effect was a
gain of $2.7 million.
In September 1993, the company sold its equity interest in the Japanese
engine bearing manufacturer, Taiho Kogyo Co., for $9.3 million. A total
of 1,544,400 shares were sold to Taiho's principal shareholders, Toyota
Motor Corporation and certain Toyota affiliates. The pretax earnings
effect was a gain of $8.8 million.
In April 1993, the company sold the assets and business of its subsidiary,
Westwind, for $16.3 million in cash and a 20% equity position in the new
Westwind operating company. The pretax earnings effect was a gain of
$5.1 million. The 20% equity position was sold in December 1995 (see above).
In 1993, the company also sold idle land connected with its Glyco operations
for $5.0 million, resulting in a pretax gain of $1.5 million.
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
4. RESTRUCTURING CHARGES
---------------------
Results of operations in the second and fourth quarters of 1995 include
pretax restructuring charges of $6.1 million and $20.8 million,
respectively. These charges are comprised of $20.1 million for
employee severance and $6.8 million for exit costs of certain facilities.
The workforce reductions and consolidation of facilities will be
substantially completed by early 1996.
These actions are an effort to concentrate resources allowing the
company to achieve its long-term strategic growth objectives. Operating
margin is expected to increase by approximately $9 million annually
as a result of these actions. The cash portion of these charges is
$25.1 million, the majority of which is expected to be paid out during
1996.
Employee severance costs for 1995 resulted from the termination of a total
of approximately 750 employees, primarily in Argentina, the United States
and Europe. The separation costs are based on the minimum levels that
would be paid to the affected employees pursuant to the company's
workforce reduction program and certain foreign governmental requirements.
Exit costs include efforts to consolidate and restructure selected
operations primarily in the United States. The consolidation charge
includes additional costs for certain aftermarket and related facilities
consolidated after the acquisition of SPR.
Results of operations for 1993 include pretax restructuring charges
totaling $19.2 million. These charges primarily consisted of $7.0 million
to consolidate the Lafayette, Tennessee fuel systems plant with the
Lighting and Electrical Division and $8.4 million to provide for personnel
reductions at the Glyco manufacturing facilities in Germany. Under new
guidance introduced in 1994, $3.0 million of these costs would not have
qualified as restructuring costs. Spending related to the Lafayette
reserve was completed by December 31, 1994. Spending related to the
Glyco reserves was approximately $1.1 million in 1995 and $2.5 million
in 1994. In 1994, $2.1 million of the Glyco reserve was reversed into
income due to favorable tax treatment from the German government.
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
5. REENGINEERING AND OTHER CHARGES
-------------------------------
Federal-Mogul has initiated an extensive effort to reengineer the
business by transforming the company from a manufacturer that distributes
to a distributor that manufactures. This effort is ongoing and is
expected to result in significant improvements to operating results.
In 1995, the company recorded $13.9 million of pretax charges for
reengineering and other costs. These charges include $7.0 million
in consulting and personnel costs to reengineer the business on a
company-wide basis and $6.9 million primarily for certain other non-
recurring costs relating to brand consolidation at the customer level
of the company's Federal-Mogul, TRW and Sealed Power branded engine
parts. The majority of the charge is expected to be paid out during
1996.
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
6. ADJUSTMENT OF ASSETS HELD FOR SALE TO NET REALIZABLE VALUE
----------------------------------------------------------
The company continually reviews all components of its business for
possible improvement of future profitability through acquisition,
divestiture, reengineering or restructuring. After such a review in
the fourth quarter of 1995, the company decided to sell its U.S. ball
bearing division, its heavy-wall bearing business in Germany and certain
other non-strategic assets. Concurrent with these decisions, the company
adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", effective as of January 1, 1995. The new statement addresses
the accounting for the impairment of long-lived assets and long-lived assets
to be disposed of, certain identifiable intangibles and goodwill related to
those assets. The statement establishes guidance for recognizing and
measuring impairment losses and requires that the carrying amount of
impaired assets be reduced to fair value. The company estimated the fair
value of the businesses held for sale based on discussions with prospective
buyers, adjusted for selling costs. The fair value of other assets to be
disposed of was measured by the discounted future cash flows less costs to
sell. The company expects to improve operating margin by approximately $8
million annually after the sale of these non-strategic assets. The
company expects to complete the majority of these dispositions in
1996. The total fair value of the assets held for sale, less costs
to sell, at December 31, 1995 is approximately $45 million. An
adjustment of $51.8 million to reduce assets held for sale to net
realizable value was recorded in 1995.
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
7. FINANCIAL INSTRUMENTS
---------------------
Foreign Exchange Risk Management
- --------------------------------
The company operates internationally, giving rise 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. The company does not hold or issue financial instruments for trading
purposes.
The company has entered into forward exchange contracts and purchased currency
options to hedge committed and anticipated sales and purchases denominated in
foreign currencies. Some of the contracts involve the exchange of two
currencies according to local needs in foreign subsidiaries. The term of
the currency derivatives is less than one year. The purpose of the company's
foreign currency hedging activities is to protect the company from the risk
that the eventual U.S. dollar cash flows resulting from the purchase of
products from suppliers and sale of products to customers in international
markets will be adversely affected by changes in exchange rates.
The company's foreign exchange contracts at December 31 are summarized below:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
------------------------ ------------------------
Contract Deferred Contract Deferred
Amount Loss Amount Gain
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Forwards $ 23.5 $ (.3) $ 9.6 $ .4
Options Purchased 8.0 - 1.0 -
----- ---- ----- ----
$ 31.5 $ (.3) $ 10.6 $ .4
===== ==== ===== ====
</TABLE>
The company has also entered into copper 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. Under the
agreements, the company is committed to purchase 5.7 million pounds of copper.
The net unrealized gain on these firm purchase commitments at December 31,
1995 is $.4 million, which will be recognized in earnings as copper is
purchased.
Deferred gains and losses are included in other assets and liabilities and
recognized in earnings when the future purchase or sale occurs or at the
point in time when the purchase or sale is no longer expected to occur.
All amounts deferred at December 31, 1995 are expected to be recognized
in operations in 1996.
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
7. FINANCIAL INSTRUMENTS (continued)
---------------------
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 replacement parts. However, 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 also has cash investment policies that limit the amount of credit
exposure to any one financial institution and require placement of investments
in financial institutions evaluated as highly creditworthy.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of certain financial instruments such as cash and
equivalents, accounts receivable, accounts payable and short-term borrowings
approximate their fair values. The carrying amounts and estimated fair
values of the company's long-term borrowings were $481.5 million and
$509.3 million at December 31, 1995. 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.
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
8. ACCOUNTS RECEIVABLE SECURITIZATION
----------------------------------
In March 1993 and June 1992, the company entered into agreements to sell,
on a revolving basis, an undivided interest in a designated pool of accounts
receivable. Accordingly, the company irrevocably and without recourse
transferred all of its U.S. dollar denominated trade accounts receivable
(approximately $201.8 million at December 31, 1995 and principally
representing amounts owed to the company by original equipment and
aftermarket customers in the U.S. automotive and related industries) and
$7.8 million of its Canadian receivables to the Federal-Mogul Trade Receivables
Master Trust (Trust). The Trust sold investor certificates representing an
interest in $40 million and $55 million of Trust assets in 1993 and 1992,
respectively. The company holds seller certificates representing an
interest in the remaining assets of the Trust. These certificates are
included with accounts receivable in the company's balance sheet at
December 31, 1995. The agreement expires in 1997.
The Trust agreement requires the company to maintain its interest in the
assets of the Trust at a certain calculated participation level (approximately
42% at December 31, 1995) which, if not met, requires the company to
contribute cash or additional trade accounts receivable in order to satisfy
such participation requirement. The company exceeded the required
participation level by approximately $45 million and $47 million
as of December 31, 1995 and 1994, respectively.
All losses, credits or other adjustments on receivables owned by the Trust
are deductions from the assets represented by the seller certificates owned
by the company. Accordingly, the owners of the investor certificates have
no recourse to the company beyond the assets represented by the seller
certificates. The company does not generally require collateral for its
trade accounts receivable and maintains an allowance ($13.4 million and $14.1
million at December 31, 1995 and 1994, respectively) based upon the expected
collectibility of all trade accounts receivable, including receivables sold.
Accounts receivable in both the 1995 and 1994 consolidated balance sheets
exclude $95 million of investor certificates sold. The discounts of $6.7
million in 1995 and $6.2 million in 1994 related to the sales of receivables
under the agreement have been classified as reductions of other income.
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
9. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are stated at cost and include expenditures for
additional facilities and those expenditures which materially extend the
useful lives of existing buildings and machinery and equipment.
Depreciation is computed principally by the straight-line method for
financial reporting purposes and by accelerated methods for income tax
purposes.
At December 31, property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
-------- --------
<S> <C> <C>
Land $ 35.7 $ 33.0
Buildings 180.8 181.8
Machinery and equipment 451.2 441.8
------ ------
667.7 656.6
Accumulated depreciation (233.0) (219.3)
------ ------
$ 434.7 $ 437.3
====== ======
</TABLE>
The company leases various facilities and equipment under both capital and
operating leases. Net assets subject to capital leases were not significant
at December 31, 1995.
The balance of the deferred gain resulting from the 1988 sale and leaseback
of a portion of the corporate headquarters complex was $8.5 million at
December 31, 1995. The deferred gain is being amortized over the term of
the lease as a reduction of rent expense. Future minimum payments under
noncancelable operating leases with initial or remaining terms of more than
one year are, in millions: 1996--$18.3; 1997--$17.5; 1998--$15.9;
1999--$14.5; 2000--$11.1 and thereafter--$57.0. Future minimum lease payments
have been reduced by approximately $24.2 million for amounts to be received
under sublease agreements.
Total rental expense under operating leases was $34.0 million in 1995,
$24.9 million in 1994 and $21.1 million in 1993, exclusive of property
taxes, insurance and other occupancy costs generally payable by the company.
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
10. DEBT
----
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
-------- --------
<S> <C> <C>
Revolving credit facility $185.0 $ 55.0
Medium-term notes 125.0 90.0
Notes payable 68.1 71.6
ESOP obligation 33.7 39.0
European revolving credit facility 44.7 29.4
Other 38.1 45.4
----- -----
494.6 330.4
Less current maturities
included in short-term debt 13.1 11.0
----- -----
$481.5 $319.4
===== =====
</TABLE>
The company's $300 million revolving credit facility matures in June 1998
and has an interest rate of 50 basis points over LIBOR. As of December 31,
1995 the company had $185 million borrowed against the facility at an
average interest rate of 6.17%.
In July 1994, the company increased its existing Universal Shelf from
$102 million to $202 million. In August 1994, the company announced
a Medium-Term Note Program for $200 million. Also in 1994, $90 million in
medium-term notes were issued for the acquisition of Varex and to convert
outstanding short-term debt to long-term debt. In 1995, $35.0 million in
medium-term notes were issued for the acquisition of Bertolotti and to
convert outstanding short-term debt to long-term debt. Notes were issued
in maturities ranging from 5 to 10 years. The average interest rate
was approximately 8.4%.
In December 1990 the company privately placed $75.0 million in notes with
insurance companies. The amount outstanding on these notes was $68.1
million as of December 31, 1995. The interest rate on the notes was
approximately 10%. The notes will be completely paid-off in December 2000.
The Employee Stock Ownership Plan (ESOP) obligation represents the unpaid
principal balance on an eleven-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 interest at the rate of 11.45% per annum.
The obligation was refinanced with Bank of America and NBD on June 30, 1995
at a fixed interest rate of 7.19%. The ESOP obligation matures in December
2000.
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
10. DEBT (continued)
----
The company has a European revolving credit facility for $50 million.
The amount borrowed against the facility as of December 31, 1995 was
$44.7 million at a variable interest rate (50 basis points over the
corresponding country LIBOR). The European revolving credit agreement
matures in September of 1997.
The company has additional international lines of credit with several banks
in the maximum amount of $183.7 million. At December 31, 1995 and 1994,
borrowing under these lines of credit amounted to $75.8 million and
$39.0 million, respectively.
Certain of the company's debt agreements contain restrictive covenants that,
among other matters, require the company to maintain certain financial ratios
and minimum levels of working capital and tangible net worth.
Aggregate maturities of long-term debt for each of the four years following
1996 are, in millions: 1997--$87.7; 1998--$212.3; 1999--$48.5; 2000--$47.1
and thereafter--$85.9.
Interest paid in 1995, 1994 and 1993 was $37.1 million, $21.4 million
and $26.9 million, respectively.
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
11. CAPITAL STOCK AND PREFERRED SHARE PURCHASE RIGHTS
-------------------------------------------------
The company's articles of incorporation authorize 60,000,000 shares of common
stock, of which 35,044,859 shares, 34,987,810 shares and 29,497,994 shares
were outstanding at December 31, 1995, 1994 and 1993, respectively. In
February 1994, the company sold 5,750,000 shares of its common stock in a
public offering which generated net proceeds of approximately $191 million.
The proceeds were used to repay bank debt outstanding, including debt
incurred for the acquisition of SPR. In April 1993, the company sold
6,250,000 shares of its common stock in a public offering which generated
net proceeds of approximately $116 million. The proceeds were used to repay
a portion of the debt incurred with the 1992 acquisition of TRW Inc.'s
automotive aftermarket business. Simultaneously, the company issued 500,000
additional shares, valued at approximately $9.6 million, to contribute to the
company's domestic pension plans.
The articles of incorporation also authorize 5,000,000 shares of preferred
stock. At December 31, 1995, 1994 and 1993, 1,600,000 shares of $3.875
Series D convertible exchangeable preferred stock was outstanding. Sold to
institutional investors in a private placement under rule 144A of the
Securities Act, each share has a liquidation preference of $50 and is
convertible into the company's common stock at a conversion price of $18
per share. The shares are not redeemable prior to September 1996, but they
may be exchanged at the company's option for 7.75% convertible subordinated
debentures due in 2012. Such debentures would be convertible into the
company's common stock at a rate of $50 principal amount for each share of
common stock and at the same conversion price as the Series D preferred
stock.
The company's ESOP covers substantially all domestic salaried employees and
allocates Series C ESOP convertible preferred stock to eligible employees
based on their contributions to the Salaried Employees' Investment Program
and their eligible compensation. The company had 892,620 shares, 926,136
shares and 944,016 shares of Series C ESOP preferred stock outstanding at
December 31, 1995, 1994 and 1993, respectively. The company repurchased
and retired 33,516 Series C ESOP preferred shares valued at $2.1 million
during 1995 and 17,880 Series C ESOP preferred shares valued at $1.1 million
during 1994, all of which were forfeited by participants upon early
withdrawal from the plan.
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. The Series C ESOP preferred stock may only be issued to a
trustee acting on behalf of an employee stock ownership plan or other
employee benefit plan of the company. The shares are automatically converted
into shares of common stock in the event of any transfer to any person other
than the plan trustee. The preferred stock is redeemable, in whole or in
part, at the option of the company.
The charge to operations for the cost of the ESOP was $4.4 million in 1995,
$4.9 million in 1994 and $4.9 million in 1993. The company made cash
contributions to the plan of $8.5 million in 1995 and $9.2 million in both
1994 and 1993 for debt service, including preferred stock dividends of $4.3
million in 1995, $4.5 million in 1994 and $4.5 million in 1993.
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
11. CAPITAL STOCK AND PREFERRED SHARE PURCHASE RIGHTS (continued)
-------------------------------------------------
In 1988, the company's Board of Directors authorized the distribution of one
Preferred Share Purchase Right (Right) for each outstanding share of common
stock of the company. Each Right entitles shareholders to buy one-half of
one-hundredth of a share of a new series of preferred stock at a price of $70.
As distributed, the Preferred Share Purchase Rights trade together with the
common stock of the company. They may be exercised or traded separately only
after the earlier to occur of: (i) 10 days following a public announcement
that a person or group of persons has obtained the right to acquire 10% or
more of the outstanding common stock of the company (20% in the case of
certain institutional investors), or (ii) 10 business days (or such later
date as may be determined by action of the Board of Directors) following the
commencement or announcement of an intent to make a tender offer or exchange
offer which would result in beneficial ownership by a person or group of
persons of 10% or more of the company's outstanding common stock.
Additionally, if the company is acquired in a merger or other business
combination, each Right will entitle its holder to purchase, at the Right's
exercise price, shares of the acquiring company's common stock (or stock of
the company if it is the surviving corporation) having a market value of
twice the Right's exercise price.
The Preferred Share Purchase Rights may be redeemed at the option of the
Board of Directors for $.005 per Right at any time before a person or group
of persons acquires 10% or more of the company's common stock. The Board
may amend the Rights at any time without shareholder approval. The Rights
will expire by their terms on November 14, 1998.
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
12. INCENTIVE STOCK PLANS
---------------------
The company's shareholders adopted stock option plans in 1976 and 1984 and a
performance incentive stock plan in 1989. 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
or forfeitures. 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 ten years.
Under the plans, options become exercisable ranging from six months to four
years as determined by the Board of Directors at the time of grant. At
December 31, 1995, 310,381 shares were available for future grants under
the plans.
The following table summarizes the activity relating to the company's
incentive stock plans:
<TABLE>
<CAPTION>
Number of
Shares Share Price
------------- ---------------
(In Millions)
<S> <C> <C>
Outstanding at January 1, 1993 2.4 $14.34 - $26.19
Options granted .5 19.25 - 24.13
Options exercised (.3) 14.34 - 22.69
Options lapsed or canceled -
---
Outstanding at December 31, 1993 2.6 $15.69 - $26.19
Options granted .1 28.63 - 36.69
Options exercised (.3) 15.69 - 26.19
Options lapsed or canceled -
---
Outstanding at December 31, 1994 2.4 $15.69 - $36.69
Options granted .5 17.63 - 18.25
Options exercised -
Options lapsed or canceled (.3) 18.19 - 36.69
---
Outstanding at December 31, 1995 2.6 $15.69 - $36.69
===
Exercisable at December 31, 1995 1.5 $15.69 - $26.19
===
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
13. POSTEMPLOYMENT BENEFITS
-----------------------
The company maintains several defined benefit pension plans which cover
substantially all domestic employees and certain employees in other
countries. Benefits for domestic salaried employees are based on
compensation, age and years of service, while hourly employees' benefits
are primarily based on negotiated rates and years of service. International
plans maintained by the company provide benefits based on years of
service and compensation.
The company's funding policy is consistent with funding requirements of
federal and international laws and regulations. Plan assets consist
primarily of listed equity securities and fixed income instruments.
As of December 31, 1995, plan assets included 309,000 shares of
Federal-Mogul Corporation common stock valued at approximately
$6.1 million.
Net periodic pension cost for the company's defined benefit plans
in 1995, 1994 and 1993 consists of the following:
</TABLE>
<TABLE>
<CAPTION>
(Millions of Dollars)
U.S. Plans International Plans
---------------------- ----------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ ------
<S>
(Income)/Expense
<C> <C> <C> <C> <C> <C>
Service cost - benefits
earned during the period $ 7.3 $ 6.8 $ 6.8 $ .4 $ .3 $ .4
Interest cost on projected
benefit obligation 15.0 14.0 12.9 2.7 2.4 2.2
Actual return on plan assets (51.6) (3.7) (29.8) - - -
Net amortization and deferral 28.6 (22.7) 7.3 - - -
Curtailment loss .5 1.1 - - - -
---- ---- ---- ---- ---- ----
Net periodic pension
(income) cost $ (.2) $(4.5) $(2.8) $ 3.1 $ 2.7 $ 2.6
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
13. POSTEMPLOYMENT BENEFITS (continued)
-----------------------
The following table sets forth the funded status for the company's defined
benefit plans at December 31:
<TABLE>
<CAPTION>
(Millions of Dollars)
International
U.S. Plans Plans
------------------------------- --------------
Assets Exceed Accumulated Accumulated
Accumulated Benefits Benefits
Benefits Exceed Assets Exceed Assets
1995 1994 1995 1994 1995 1994
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit
obligation $ 95.6 $ 86.7 $ 79.9 $ 67.7 $ 35.0 $ 28.7
===== ===== ===== ===== ===== =====
Accumulated benefit
obligation $103.4 $ 92.6 $ 95.4 $ 78.8 $ 36.6 $ 30.0
===== ===== ===== ===== ===== =====
Projected benefit
obligation $105.0 $ 94.6 $ 96.0 $ 79.3 $ 36.7 $ 30.1
Plan assets at fair value 173.0 155.5 74.6 63.0 - -
Plan assets in excess of
(less than) projected
benefit obligation 68.0 60.9 (21.4) (16.3) (36.7) (30.1)
Unrecognized net (asset)
liability at transition (9.1) (12.4) .8 .9 - -
Unrecognized prior
service cost .2 (.2) 8.8 8.8 - -
Unrecognized net
(gain) loss (18.3) (8.4) 6.4 3.9 4.4 1.4
----- ----- ----- ----- ----- -----
Accrued pension asset
(liability) included
in the consolidated
balance sheet $ 40.8 $ 39.9 $ (5.4) $ (2.7) $(32.3) $(28.7)
===== ===== ===== ===== ===== =====
</TABLE>
The assumptions used in computing the above information are as follows:
<TABLE>
<CAPTION>
U.S. Plans International Plans
---------------------- ----------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Discount rates 7 1/2% 8 1/2% 7 1/2% 7 1/2% 8 1/2% 8%
Rates of increase in
compensation levels 4 1/2% 5 1/2% 4 1/2% 4 1/2% 4 1/2% 5%
Expected long-term rates
of return on assets 10% 10% 10% N/A N/A N/A
</TABLE>
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
13. POSTEMPLOYMENT BENEFITS (continued)
-----------------------
The company's minimum liability adjustment was $15.3 million and $13.1 million
for U.S. plans at December 31, 1995 and 1994, respectively, and $3.9 million
and $2.5 million for international plans at December 31, 1995 and 1994,
respectively.
In addition to providing pension benefits, the company provides health care
and life insurance benefits for certain domestic retirees covered under
company-sponsored benefit plans. Employees who are participants in these
plans may become eligible for these benefits if they reach normal retirement
age while working for the company. The company's policy is to fund benefit
costs as they are provided, with retirees paying a portion of the costs.
The components of net periodic postretirement benefit costs are as follows
as of December 31:
<TABLE>
<CAPTION>
(Millions of Dollars)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 2.3 $ 2.8 $ 2.7
Interest cost 10.4 9.0 11.1
Curtailment gain (1.0) - -
Amortized gains (1.1) - -
---- ---- ----
Net periodic postretirement
benefits cost $10.6 $11.8 $13.8
==== ==== ====
</TABLE>
The following schedule reconciles the funded status of the company's
postretirement benefit plans to the amounts recorded in the company's
balance sheets as of December 31:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
-------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligations (APBO):
Retirees $ 95.8 $ 80.4
Active plan participants 48.7 46.9
----- -----
144.5 127.3
Unrecognized net gain 7.6 26.6
Unrecognized prior service cost 4.5 -
----- -----
Accrued postretirement benefits liability $156.6 $153.9
===== =====
</TABLE>
The discount rate used in determining the APBO was 7 1/2% at December 31,
1995 and 8 1/2% at December 31, 1994.
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
13. POSTEMPLOYMENT BENEFITS (continued)
-----------------------
At December 31, 1995, the assumed annual health care cost trend used in
measuring the APBO approximated 8% in 1995, declining to 7 1/2% in 1996
and to an ultimate rate of 5 1/2% estimated to be achieved in 2008.
At December 31, 1994, the assumed annual health care cost trend used
in measuring the APBO approximated 8 1/2% in 1994, declining to 8% in 1995
and to an ultimate annual rate of 5 1/2% estimated to be achieved in 2008.
Increasing the assumed cost trend rate by 1% each year would have increased
the APBO by approximately 11% at December 31, 1995 and 1994, respectively.
Aggregate service and interest costs would have increased by approximately
13% for each of the years 1995, 1994 and 1993.
In 1991, the company established a retiree health benefits account (as
defined in Section 401 of the Internal Revenue Code) within its domestic
salaried employees' pension plan. Annually through the year 2000, the
company may elect to transfer excess pension plan assets (subject to defined
limitations) to the 401(h) account for purposes of funding current salaried
retiree health care costs. The company transferred excess pension plan
assets of $4.2 million in 1995, $4.0 million in 1994 and $3.6 million in
1993 to the 401(h) account to fund salaried retiree health care benefits.
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
14. INCOME TAXES
------------
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," the liability method is used in accounting for income taxes.
Under this 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 (loss) before income taxes consisted of the
following:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Domestic $ 9.0 $100.1 $ 54.5
International (12.2) 2.0 3.1
----- ----- -----
$ (3.2) $102.1 $ 57.6
===== ===== =====
</TABLE>
Significant components of the provision for income taxes (tax benefit)
attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 16.7 $ 18.4 $ 16.1
State and local 1.2 2.1 1.9
International 9.3 5.2 6.5
----- ----- -----
Total current 27.2 25.7 24.5
Deferred:
Federal (9.0) 18.5 5.2
State and local (.9) 1.0 .1
International (10.8) (6.4) (12.3)
----- ----- -----
Total deferred (20.7) 13.1 (7.0)
----- ----- -----
$ 6.5 $ 38.8 $ 17.5
===== ===== =====
</TABLE>
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
14. INCOME TAXES (continued)
------------
The reconciliation of income taxes (tax benefits) attributable to continuing
operations computed at the United States federal statutory tax rate to income
tax expense is:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income taxes (tax benefits) at
at U.S. statutory rate $ (1.1) $ 35.7 $ 20.1
Tax effect from:
State income taxes (.1) 2.4 1.3
International earnings (loss)
subject to varying tax rates 5.9 2.2 (.2)
Sale of business - - (1.8)
Statutory rate changes - - (4.3)
Other differences 1.8 (1.5) 2.4
----- ----- -----
$ 6.5 $ 38.8 $ 17.5
===== ===== =====
</TABLE>
In 1993, the company was subject to statutory rate changes both in the United
States and in Germany. Income tax expense was decreased by $1.4 million and
$2.9 million as a result of applying the newly enacted tax rates to the
deferred tax balances as of the beginning of the period in the United States
and Germany, respectively. However, the effect of the change in tax rates on
the 1993 income was to increase the United States and Germany income tax
expense by $.6 million and $1.0 million, respectively. As a result, net tax
benefits of $.8 million and $1.9 million have been recognized, respectively.
The following table summarizes the company's total provision for income taxes:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Continuing operations $ 6.5 $ 38.8 $ 17.5
Allocated to equity:
Currency translation 5.3 3.6 (3.0)
Preferred dividends (1.6) (1.6) (1.6)
Other .8 .6 -
----- ----- -----
$ 11.0 $ 41.4 $ 12.9
===== ===== =====
</TABLE>
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
14. INCOME TAXES (continued)
------------
Significant components of the company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits
other than pensions $ 58.5 $ 56.9
Net operating loss carryforwards
of international subsidiaries 56.0 46.2
Other temporary differences 17.9 28.4
----- -----
Total deferred tax assets 132.4 131.5
Valuation allowance for
deferred tax assets (23.7) (20.9)
----- -----
Net deferred tax assets 108.7 110.6
----- -----
Deferred tax liabilities:
Fixed asset basis differences (62.3) (66.3)
Pension (10.9) (13.3)
Restructuring costs (2.8) (14.6)
----- -----
Total deferred tax liabilities (76.0) (94.2)
----- -----
$ 32.7 $ 16.4
===== =====
</TABLE>
The company has recognized a deferred tax asset on approximately $75 million
of a German net operating loss which has no expiration date.
Deferred tax assets and liabilities are recorded in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
-------- --------
<S> <C> <C>
Assets:
Prepaid expenses and income tax benefits $ 27.1 $ 12.4
Business investments and other assets 6.2 13.3
Liabilities:
Other long-term accrued liabilities (.6) (9.3)
----- -----
$ 32.7 $ 16.4
===== =====
</TABLE>
Income taxes paid in 1995, 1994 and 1993 were $19.4 million, $20.0 million
and $16.3 million, respectively.
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
14. INCOME TAXES (continued)
------------
Undistributed earnings of the company's international subsidiaries amounted
to approximately $20 million at December 31, 1995. No taxes have been
provided on approximately $17 million of these earnings, which are considered
by the company to be permanently reinvested. Upon distribution of these
earnings, the company would be subject to U.S. 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.
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
15. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
--------------------------------------------------
The company is a global distributor and manufacturer of a broad range of non-
discretionary parts, primarily vehicular components for automobiles, light
trucks, heavy duty trucks and farm and construction vehicles and industrial
products. Through its worldwide distribution network, the company sells
replacement parts in the vehicular aftermarket. The company also sells parts
to original equipment manufacturers, principally the major automotive
manufacturers in the United States and Europe. All of these activities
constitute a single business segment.
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States and Canada $1,242.3 $1,327.7 $1,110.5
Europe 382.8 285.3 270.4
Other international 370.8 282.9 194.6
------- ------- -------
$1,995.9 $1,895.9 $1,575.5
======= ======= =======
Operating earnings (loss):
United States and Canada $ 58.0 $ 128.4 $ 85.1
Europe (13.2) (4.2) (2.9)
Other international 13.8 25.1 19.7
------- ------- -------
58.6 149.3 101.9
Corporate expenses and other (27.8) (26.6) (24.3)
------- ------- -------
Operating earnings $ 30.8 $ 122.7 $ 77.6
======= ======= =======
Identifiable assets:
United States and Canada $ 785.3 $ 799.4 $ 756.8
Europe 493.9 342.5 313.1
Other international 435.2 354.2 231.5
------- ------- -------
$1,714.4 $1,496.1 $1,301.4
======= ======= =======
</TABLE>
Transfers between geographic areas are not significant, and when made, are
recorded at prices comparable to normal unaffiliated customer sales.
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
16. LITIGATION
----------
On August 30, 1995, Zeller Corporation, an auto parts supplier, 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 state laws.
The company believes the claims asserted are without merit and is defending
the lawsuit vigorously.
The company is one of a large number of defendants in a number of lawsuits
brought by claimants alleging injury due to exposure to asbestos. The
Company is defending all such claims vigorously and believes it has
substantial defenses to liability and adequate insurance coverage for its
defense costs. The company is also involved in various other legal actions
and claims. While the outcome of litigation cannot be predicted with
certainty, after consulting with counsel for the company, management
believes that these matters will not have a material effect on the
company's consolidated financial statements.
<PAGE> 54
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 a strong system of internal accounting controls
supplemented by written policies and procedures, implemented by the careful
selection and training of qualified personnel and verified by an extensive
internal audit program. These measures, the cost of which is balanced against
the benefits that may reasonably be expected therefrom, are designed to
prevent significant misuse of company assets or misstatements of financial
reports and to assure that business is conducted as directed by management in
accordance with all applicable laws and the Federal-Mogul Code of Conduct.
The Audit Committee of the Board of Directors, comprised of four 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.
(Dennis J. Gormley)
Dennis J. Gormley
Chairman and Chief Executive Officer
(Thomas W. VanHimbergen)
Thomas W. VanHimbergen
Senior Vice President
Chief Financial Officer
<PAGE> 55
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
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, 1995 and 1994, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. Our audit also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements 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 generally accepted auditing
standards. 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, 1995 and 1994,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
(Ernst & Young LLP)
Ernst & Young LLP
Detroit, Michigan
February 1, 1996
<PAGE> 56
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------
<CAPTION>
Fully
Net Sales Diluted
Less Cost Net Earnings
(Millions of Dollars, Net of Products Operating Earnings (Loss)
Except Per Share Amounts) Sales Sold Margin (Loss) Per Share
-------- ----------- --------- -------- ---------
Year ended December 31, 1995:
<S> <C> <C> <C> <C> <C>
First quarter $ 524.3 $113.7 $ 35.0 $14.2 $ .33
Second quarter <F1> 506.3 113.7 33.0 14.2 .33
Third quarter 480.2 106.8 28.7 11.0 .25
Fourth quarter <F2> 485.1 102.1 14.7 (49.1) (1.44)
------- ----- ----- ---- ----
$1,995.9 $436.3 $111.4 $(9.7) $(.53)
======= ===== ===== ==== ====
Year ended December 31, 1994:
First quarter $ 460.3 $ 96.7 $ 32.0 $ 15.0 $ .37
Second quarter 474.8 104.9 40.0 20.4 .47
Third quarter 445.3 95.6 29.6 16.1 .37
Fourth quarter 515.5 112.3 31.1 11.8 .27
------- ----- ----- ----- -----
$1,895.9 $409.5 $132.7 $ 63.3 $ 1.46
======= ===== ===== ===== =====
<FN>
<F1> Net earnings includes a restructuring charge of $6.1 million and
reengineering and other charges of $1.7 million.
<F2> Net earnings (loss) includes restructuring charges of $20.8 million,
reengineering and other charges of $12.2 million and an adjustment of
assets held for sale to net realizable value of $51.8 million.
</TABLE>
<TABLE>
STOCK PRICES DIVIDENDS
- ------------ ---------
<CAPTION>
High and low prices for the company's common Quarterly dividends of $.12 per
stock for each quarter in the past two years common share were declared for
were as follows: 1995 and 1994. In February
1996, the company's Board of
1995 1994 Directors declared a quarterly
---------------- ---------------- dividend of $.12 per common
share. This was the 240th
Quarter High Low High Low consecutive quarterly dividend
- ------- ------- ------- ------- ------- declared by the company.
<S> <C> <C> <C> <C>
First $23 1/4 $16 3/4 $37 5/8 $28
Second 19 7/8 16 7/8 32 3/8 24 5/8
Third 23 3/4 17 3/4 32 3/4 22
Fourth 21 1/2 17 1/4 23 3/4 18 3/4
</TABLE>
<PAGE> 57
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 is incorporated by reference from pages 1
through 4 and the first two paragraphs at the top of page 5 of the Company's
definitive proxy statement dated March 11, 1996 relating to its 1996 annual
meeting of shareholders (the "1996 Proxy") under the heading "Nominees for
Election as Directors" and the section on Page 13 of the 1996 Proxy under the
heading "Compliance With Section 16(a) of The Exchange Act," except that the
information required by Item 10 with respect to executive officers is included
under Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
1996 Proxy under the headings "Information on Executive Compensation" on
pages 6 to 8, excluding the Compensation Committee Report on Executive
Compensation, and under the heading "Compensation of Directors" on pages
4 to 5 of the 1995 Proxy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
pages 11 through 14 of the 1996 Proxy under the heading "Information on
Securities".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
pages 7-8 of the 1996 Proxy under the heading "Certain Related
Transactions."
<PAGE> 58
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 Form 10-K are listed
under Part II, Item 8 of this Form 10-K.
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 under instructions contained in Regulation S-X or
because the information called for is shown in the financial
statements and notes thereto.
Individual financial statements of subsidiaries of the Company have
been omitted as the Company is primarily an operating company and all
subsidiaries included in the consolidated financial statements filed,
in the aggregate, do not have minority equity interests and/or
indebtedness to any person other than the Company or its consolidated
subsidiaries in amounts which together exceed 5% of the total assets
of the Company as shown by the most recent year-end Consolidated
Balance Sheet.
<PAGE> 59
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
- ------------------------------------------
(In Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------- --------- ------------------------ ------------ ---------
Additions
------------------------
Balance Charged to
at Charged Other Balance
Beginning to Costs Accounts - Deductions - at End
Description of Period and Expenses Describe Describe of Period
- ----------------------------- --------- ------------ ---------- ------------ ---------
Year Ended December 31, 1995:
- ----------------------------
<S> <C> <C> <C> <C> <C>
Valuation allowance
for trade receivable $14.1 $ 4.7 $ .4 <F2> $ 5.5 <F1> $13.7
Valuation allowance
for notes receivable .7 - - .2 <F3> .5
Reserve for
inventory valuation 25.7 .7 5.3 <F2> 6.5 <F6> 25.2
Valuation allowance
for deferred tax assets 20.9 2.8 - - 23.7
Year Ended December 31, 1994:
- ----------------------------
Valuation allowance
for trade receivable 15.5 2.0 3.2 <F2> 6.6 <F1> 14.1
Valuation allowance
for notes receivable .7 - - - .7
Reserve for
inventory valuation 28.9 - 6.3 <F2> 3.4 <F5> 25.7
6.1 <F6>
Valuation allowance
for deferred tax assets 21.0 - - (.1)<F7> 20.9
Year Ended December 31, 1993:
- ----------------------------
Valuation allowance
for trade receivable 8.6 1.5 5.7 <F2> .3 <F1> 15.5
Valuation allowance for
notes receivable 1.0 - - .3 <F3> .7
Reserve for
inventory valuation 23.1 .6 9.9 <F2> 1.3 <F4> 28.9
3.4 <F5>
Valuation allowance
for deferred tax assets 24.3 - - 3.3 <F7> 21.0
<FN>
<F1> Uncollectible accounts charged off net of recoveries.
<F2> Increase to reserve due to acquisition of automotive aftermarket
businesses.
<F3> Decrease to reserve due to change in market value of note.
<F4> Reduction of Glyco inventory reserves to current requirements.
<F5> Reduction of automotive aftermarket businesses' reserves to current
requirements.
<F6> Reduction in inventory reserves for inventory disposed of during the
year.
<F7> Decrease due to utilization of excess foreign tax credit carryforwards.
</TABLE>
<PAGE> 60
3. Exhibits:
--------
3.1 The Company's Second Restated Articles of Incorporation, as
amended (filed as Exhibit 3.1 to the Company's Registrant's Form
10-Q for the quarter ended September 30, 1993, and incorporated
herein by reference).
3.2 The Company's Bylaws, as amended (filed as Exhibit 3.2 to the
Company's Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference).
4.2 Rights Agreement ("Rights Agreement") between the Company and
National Bank of Detroit as Rights Agent with Bank of New York
as successor Rights Agent (filed as Exhibit 1 to the Company's
Form 8-A Registration Statement dated November 7, 1988, and
incorporated herein by reference).
4.3 Amendments dated July 25, 1990, to Rights Agreement (filed as
Exhibit 4.5 to the Company's Form 10-Q for the quarter ended
June 30, 1990, and incorporated herein by reference).
4.4 Amendment dated September 23, 1992 to Rights Agreement (filed
as Exhibit 4.4 to the Company's Form 10-K for the year ended
December 31, 1992 ("1992 10-K"), and incorporated herein by
reference).
4.5 Reference is made to Exhibit 3.1 hereto which contains
provisions defining the rights of securities holders of the
long-term debt securities of the Company and any of its
subsidiaries for which consolidated or unconsolidated financial
statements are required to be filed. Other instruments defining
the rights of holders of long-term debt of the Company and its
subsidiaries have not been filed because in each case the total
amount of long-term debt permitted thereunder does not exceed 10%
of the Company's consolidated assets and the Company hereby
agrees to furnish such instruments to the Securities and Exchange
Commission upon its request.
4.6 Revolving Credit and Competitive Advance Facility Agreement dated
as of June 30, 1994 among the Company, various banks, and
Chemical Bank, as agent (filed as Exhibit 4.11 to Pre-Effective
Amendment No. 1 to a Registration Statement on Form S-3,
No. 33-54717 dated August 3, 1994, and incorporated herein by
reference).
10.1 The Company's 1976 Stock Option Plan, as last amended November 3,
1988 (filed as Exhibit 10.1 to the Company's Form 10-K for the
year ended December 31, 1994 ("1994 10-K"), and incorporated
herein by reference).
10.2 The Company's 1984 Stock Option Plan as last amended (filed as
Exhibit 10.2 to the 1994 10-K).
<PAGE> 61
10.3 The Company's 1977 Supplemental Compensation Plan, as amended
and restated effective as of January 1, 1994 (filed as Exhibit
10.27 to the Company's Form 10-Q for the quarter ended June 30,
1994, and incorporated herein by reference).
10.4 The Company's Supplemental Compensation Retirement Trust
Agreement (filed as Exhibit 10.4 to the 1994 10-K, and
incorporated herein by reference).
10.6 Form of Executive Severance Agreement between the Company and
certain executive officers, (filed as Exhibit 10.6 to the
Company's Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference).
10.7 Amended and Restated Deferred Compensation Plan for Corporate
Directors (filed as Exhibit 10.7 to the 1990 10-K, and
incorporated herein by reference).
10.10 Supplemental Executive Retirement Plan, as amended (filed as
Exhibit 10.10 to the 1992 10-K, and incorporated herein by
reference).
10.11 Description of Umbrella Excess Liability Insurance for the
Executive Council (filed as Exhibit 10.11 to the 1990 10-K and
incorporated herein by reference).
10.14 Federal-Mogul Corporation 1989 Performance Incentive Stock Plan,
as amended (filed as Exhibit 10.14 to the 1994 10-K, and
incorporated herein by reference).
10.15 Supply Agreement dated as of October 19, 1992 between the
Company and TRW Inc. (filed as Exhibit 10.15 to the 1992 10-K
and incorporated herein by reference).
10.16 Federal-Mogul Corporation Note Agreement dated December 1, 1990
between the Company and various financial institutions listed
therein (filed as Exhibit 10.17 to the Company's Form 10-K for
the year ended December 31, 1991, and incorporated herein by
reference).
10.17 First Amendment dated as of December 11, 1992, to December 1,
1990 Note Agreement (filed as Exhibit 10.27 to the 1992 10-K,
and incorporated herein by reference).
10.18 Second Amendment to December 1, 1990 Note Agreement (filed as
Exhibit 10.29 to the Company's Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by reference).
<PAGE> 62
10.19 Pooling and Servicing Agreement dated as of June 1, 1992
("Pooling and Servicing Agreement") among Federal-Mogul Funding
Corporation, as Seller, Federal-Mogul Corporation, as Servicer,
and Chemical Bank, as trustee (filed as Exhibit 10.21 to the
Company's Form 10-Q for the quarter ended March 31, 1993, and
incorporated herein by reference).
10.20 Series 1992-1 Supplement dated as of June 1, 1992 to the Pooling
and Servicing Agreement (filed as Exhibit 10.22 to the Company's
Form 10-Q for the quarter ended June 30, 1992, and incorporated
herein by reference).
10.21 Receivables Purchase Agreement dated as of June 1, 1992 between
the Company and Federal-Mogul Funding Corporation (filed as
Exhibit 10.23 to the 1992 10-K, and incorporated herein by
reference).
10.24 Series 1993-1 Supplement dated as of March 1, 1993 to the Pooling
and Servicing Agreement dated June 1, 1992 among the Company,
Federal-Mogul Funding Corporation and Chemical Bank trustee
(filed as Exhibit 10.29 to the Company's Form 10-Q for the
quarter ended March 31, 1993 and incorporated herein by
reference).
10.25 Amendment to Rights Agreement between Federal-Mogul Corporation
and the Bank of New York, (filed as Exhibit 10.30 to the Company's
Form 10-Q for the quarter ended June 30, 1992, and incorporated
herein by reference).
10.26 Federal-Mogul Corporation Executive Loan Program (filed as Exhibit
10.26 to the Company's Report on Form 10-Q for the first quarter
of 1994, and incorporated herein by reference).
10.27 Federal-Mogul Corporation Non-Employee Director Stock Plan (filed
as Exhibit 4 to the Company's Registration Statement on Form S-8,
No. 33-54301 dated June 24, 1994, and incorporated herein by
reference).
11.1 Statement Re: Computation of Per Share earnings (filed with this
Report).
21.1 Subsidiaries of the Registrant (filed with this Report).
23.1 Consent of Ernst & Young LLP (filed with this Report).
24.1 Power of Attorney (filed with this Report).
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:
A report on Form 8-K was filed by the Company on December 22, 1995.
<PAGE> 63
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, thereto duly authorized.
FEDERAL-MOGUL CORPORATION
(Thomas W. VanHimbergen)
By: ------------------------------
Thomas W. VanHimbergen
Senior Vice President and
Chief Financial Officer
Dated as of March 28, 1996
Pursuant to the required of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant
and in the capacities and as of the date(s) indicated.
Signature Title
(Dennis J. Gormley)
- -------------------------
Dennis J. Gormley Chairman of the Board, President and
Chief Executive Officer
(Thomas W. VanHimbergen)
- -------------------------
Thomas W. VanHimbergen Senior Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
*
- ------------------------
Roderick M. Hills Director
*
- ------------------------
John J. Fannon Director
*
- -----------------------
Antonio Madero Director
<PAGE> 64
*
- -----------------------
Robert S. Miller, Jr. Director
*
- -----------------------
John C. Pope Director
*
- -----------------------
Dr. H. Michael Sekyra Director
(Stephanie G. Heim)
*By:-----------------------
Stephanie G. Heim
Attorney-in-fact
Dated as of March 28, 1996
<PAGE> 1
<TABLE>
EXHIBIT 11.1 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
- -------------------------------------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
- ------------------------------------------
<CAPTION>
Primary Earnings Per Share Fully Diluted Earnings Per Share
---------------------------- --------------------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
EARNINGS: (In Millions)
- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) from
continuing operations $ (9.7) $ 63.3 $ 40.1 $ (9.7) $ 63.3 $ 40.1
Series C preferred
dividend requirements (2.7) (2.8) (2.9) (2.7)
Series D preferred
dividend requirements (6.2) (6.2) (6.2) (6.2)
Additional required
ESOP contribution <F1> (2.1) (2.3)
----- ----- ----- ----- ----- -----
Net earnings (loss)
available for common
& equivalent shares $(18.6) $ 54.3 $ 31.0 $(18.6) $ 61.2 $ 37.8
===== ===== ===== ===== ===== =====
WEIGHTED AVERAGE SHARES: (In Millions)
- -----------------------
Common shares outstanding 35.0 34.8 27.2 35.0 34.8 27.2
Dilutive stock
options outstanding .3 .1 .3 .3
Conversion of Series C
preferred stock <F3> 1.9 1.9
Contingent issuance of
common stock to satisfy
the redemption price
guarantee <F2><F4> .4 .1
Conversion of Series D
preferred stock <F3> 4.4 4.4
----- ----- ----- ----- ----- -----
Common and equivalent
shares outstanding 35.0 35.1 27.3 35.0 41.8 33.9
===== ===== ===== ===== ===== =====
PER COMMON AND
EQUIVALENT SHARE: $ (.53) $ 1.55 $ 1.13 $ (.53) $ 1.46 $ 1.12
===== ===== ===== ===== ===== =====
<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 December 31, 1995 common stock market price in accordance
with the 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 when their effect is dilutive.
<F4> Amount represents the additional number of common shares that would be issued in
order to satisfy the 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 December 31 of the respective year.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The Company has no parent. The direct and indirect subsidiaries of the
Company and their respective States or other jurisdictions of incorporation
as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Percentage of
Voting Stock
Owned by
Company and
Jurisdiction Each Other
Name of Subsidiary of Incorporation Subsidiary
<S> <C> <C>
Carter Automotive Company, Inc. Delaware, U.S.A. 100%
Mather Seal Company Michigan, U.S.A. 100%
Federal-Mogul Bruss Sealing Systems
(Partnership) South Carolina, U.S.A. 74%
Federal-Mogul Funding Corp. Michigan, U.S.A. 100%
Federal-Mogul Venture Corporation Nevada, U.S.A. 100%
Federal-Mogul World Wide, Inc. Michigan, U.S.A. 100%
Federal-Mogul World Trade, Inc. Nevada, U.S.A. 100%
DeCaroli & CIA, S.A.I.C. Argentina 97%
In-De-Co. H. Minoli, S.A.I.C. Argentina 96%
Neoprint, S.A. Argentina 96%
Plasticos Puntanos, S.A. Argentina 96%
Federal-Mogul Pty. Ltd. Australia 100%
Federal-Mogul World Trade Ltd. ("FSC") Barbados 100%
Coventry Assurance Ltd. Bermuda 100%
Federal-Mogul Boliviana, S.A. Bolivia 100%
Federal-Mogul Comercio Internacional, S.A. Brazil 100%
Glyco do Brasil Industria Metalurgica Ltd. Brazil 100%
Federal-Mogul Canada Investment Co. ("NRO") Canada 100%
Federal-Mogul Canada Limited Canada 100%
Federal-Mogul World Trade Chile Ltda. Chile 100%
Federal-Mogul de Costa Rica, S.A. Costa Rica 100%
Federal-Mogul Dominicana, S.A. Dominican Republic 100%
Federal-Mogul del Ecuador, S.A. Ecuador 100%
Federal-Mogul S.A. France 100%
Braunschweiger Huttenwerke GmbH Germany 100%
Federal-Mogul Karosserieteile GmbH Germany 100%
F-M Motorentiele Holding GmbH Germany 100%
Glyco GmbH Germany 100%
Glyco-Metall-Werke Glyco B.V. & Co. KG Germany 100%
(Partnership)
Glyco Antriebstechnik GmbH Germany 100%
</TABLE>
<PAGE> 2
SUBSIDIARIES OF THE REGISTRANT (cont)
<TABLE>
<CAPTION>
Percentage of
Voting Stock
Owned by
Company and
Jurisdiction Each Other
Name of Subsidiary of Incorporation Subsidiary
<S> <C> <C>
Federal-Mogul de Guatemala, S.A. Guatemala 100%
Federal-Mogul World Trade Hong Kong, Ltd. Hong Kong 100%
AFM India Ltd. India 50%
Bertolotti & Figli, S.r.l. Italy 100%
Federal-Mogul Holdings, S.r.l. Italy 100%
Federal-Mogul S.p.A. Italy 100%
Federal-Mogul Japan K.K. Japan 100%
Federal-Mogul World Trade SDN, BHD Malaysia 100%
Federal-Mogul S.A. de C.V. ("PUEBLA") Mexico 61%
Manufacturas Metalicas Linan S.A. ("LINAN") Mexico 100%
Raimsa S.A. de C.V. ("RAIMSA") Mexico 100%
Servicios Administrativos Industriales, S.A.
("SAISA") Mexico 100%
Servicios de Components Automotrices, S.A.
("SEDECA") Mexico 100%
Subensambles Internacionales S.A. de C.V. Mexico 100%
Glyco B.V. Netherlands 100%
Federal-Mogul New Zealand Limited New Zealand 100%
Federal-Mogul Panama, S.A. Panama 100%
Federal-Mogul Puerto Rico, Inc. Puerto Rico 100%
Federal-Mogul World Trade Pte. Ltd. Singapore 100%
Federal-Mogul Auto Parts Ltd. South Africa 100%
Federal-Mogul Distributors (Pty) Ltd. South Africa 100%
Federal-Mogul South Africa Ltd. South Africa 100%
Germax Spares & Accessories (Pty) Ltd. South Africa 100%
Federal-Mogul Distribucion, S.A. Spain 51%
Federal-Mogul S.A. Switzerland 100%
Federal-Mogul Acquisition Corp. United Kingdom 100%
Federal-Mogul Holding U.K., Limited United Kingdom 100%
Federal-Mogul, Limited United Kingdom 100%
Seal Technology Systems Ltd. United Kingdom 100%
Federal-Mogul de Uruguay Uruguay 100%
Federal-Mogul de Venezuela C.A. Venezuela 100%
La Font Repuestos C.A. Venezuela 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Form S-3 Registration
Statement No. 33-54717, effective August 5, 1994, Form S-3 Registration
Statement No. 33-55135, effective September 2, 1994, Form S-3 Registration
Statement No. 33-51265, effective January 13, 1994, Form S-8 Registration
Statement No. 33-54301 effective June 24, 1994, Form S-8 Registration
Statement No. 33-51403, effective December 10, 1993, Form S-8 Registration
Statement No. 33-32429, effective December 31, 1989, Form S-8 Registration
Statement No. 33-32323, effective December 22, 1989, Form S-8 Registration
Statement No. 33-30172, effective August 21, 1989, and Form S-8 Registration
Statement No. 2-93179, effective October 1, 1984, of our report dated
February 1, 1996, with respect to the consolidated financial statements and
schedules of Federal-Mogul Corporation included in the Annual Report on
Form 10-K for the year ended December 31, 1995.
(Ernst & Young LLP)
ERNST & YOUNG LLP
Detroit, Michigan
March 27, 1996
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
of FEDERAL-MOGUL CORPORATION, a Michigan corporation, which is about to
file with the Securities and Exchange Commission, Washington D.C. under the
provisions of the Securities Exchange Act of 1934 as amended, the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
hereby constitutes and appoints Thomas W. VanHimbergen, Diane L. Kaye and
Stephanie G. Heim, or any of them, his true and lawful attorney-in-fact, with
full power to act, with the other, for him and in his name, place and stead,
to sign such Report and any and all amendments thereto, and to file and cause
to be filed said Report and each Amendment so signed, with all Exhibits
thereto, with the Securities and Exchange Commission.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney this 7th day of February, 1996.
(DENNIS J. GORMLEY)
--------------------------------
DENNIS J. GORMLEY
Chairman of the Board and
Chief Executive Officer
(JOHN J. FANNON) (ROBERT S. MILLER)
- ---------------------------- ------------------------------------
JOHN J. FANNON ROBERT S. MILLER, JR.
Director Director
(RODERICK M. HILLS) (JOHN C. POPE)
- ---------------------------- ------------------------------------
RODERICK M. HILLS JOHN C. POPE
Director Director
(ANTONIO MADERO) (DR. H. MICHAEL SEKYRA)
- ---------------------------- ------------------------------------
ANTONIO MADERO DR. H. MICHAEL SEKYRA
Director Director
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 19,400,000
<SECURITIES> 0
<RECEIVABLES> 317,100,000
<ALLOWANCES> 13,700,000
<INVENTORY> 507,100,000
<CURRENT-ASSETS> 885,700,000
<PP&E> 667,700,000
<DEPRECIATION> 233,000,000
<TOTAL-ASSETS> 1,714,400,000
<CURRENT-LIABILITIES> 418,800,000
<BONDS> 481,500,000
<COMMON> 175,200,000
0
135,700,000
<OTHER-SE> 246,500,000
<TOTAL-LIABILITY-AND-EQUITY> 1,714,400,000
<SALES> 1,995,900,000
<TOTAL-REVENUES> 1,995,900,000
<CGS> 1,559,600,000
<TOTAL-COSTS> 393,500,000
<OTHER-EXPENSES> 8,700,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,300,000
<INCOME-PRETAX> (3,200,000)
<INCOME-TAX> 6,500,000
<INCOME-CONTINUING> (9,200,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,700,000)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
