<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: March 11, 1998
(Date of earliest event reported)
FEDERAL-MOGUL CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
Michigan
--------
(State or other jurisdiction of incorporation)
1-1511 38-0533580
------ ----------
(Commission File Number) (IRS Employer Identification Number)
26555 Northwestern Highway, Southfield, Michigan 48034
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(248) 354-7700
--------------
(Registrant's telephone number including area code)
The total number of pages is 22
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
Audited Consolidated Financial Statements
of Felt Products Mfg. Co. and Subsidiaries
In connection with the acquisitions of T&N plc and Fel-Pro,
Incorporated and certain affiliated entities as previously reported in the
Corporation's Form 8-K's filed March 23, 1998 and March 11, 1998, respectively,
the Corporation entered into a Senior Credit Agreement with The Chase Manhattan
Bank, NA (the "Chase Agreement"). Pursuant to the Chase Agreement the stock of
certain subsidiaries of the Corporation has been pledged as collateral for
borrowings outstanding thereunder. Such pledge also secures the Corporation's
ESOP Obligation.
In the case of the stock of certain of such subsidiaries, such pledge
also secures the Corporation's Medium-term notes and Senior notes (the "Notes").
As required under the provisions of the Securities and Exchange Commission's
Regulation S-X Rule 3-10 "Financial statements of guarantors and affiliates
whose securities collateralize an issue registered or being registered", the
consolidated financial statements of Felt Products Mfg. Co. and subsidiaries
("Felt") as of December 28, 1997 and December 29, 1996 and for the three years
in the period ended December 28, 1997 are included herein.
As of April 17, 1998, the amounts outstanding (to which the stock of
Felt has been pledged as collateral) under the Chase Agreement, ESOP Obligation
and the Notes are $2,714.5 million, $21.9 million and $250.0 million,
respectively.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements
1. The audited consolidated financial statements of the Operating
Business of Felt Products Mfg. Co. and Subsidiaries
(b) Exhibits.
23.1 Consent of Ernst & Young LLP
2
<PAGE> 3
The Corporation will furnish upon request the exhibit described above
upon payment of the Corporation's reasonable expenses for furnishing such
exhibit.
SIGNATURE
FEDERAL-MOGUL CORPORATION
By: /s/Edward W. Gray, Jr.
----------------------------------
Edward W. Gray, Jr.
Title: Sr. Vice President,
General Counsel
and Secretary
Dated: April 17, 1998
3
<PAGE> 4
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
OPERATING BUSINESS OF
FELT PRODUCTS MFG. CO.
AND SUBSIDIARIES
At December 28, 1997 and December 29, 1996
and for the three fiscal years ended December 28, 1997
with Report of Independent Auditors
<PAGE> 5
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Audited Consolidated Financial Statements
At December 28, 1997 and December 29, 1996
and for the three fiscal years ended December 28, 1997
with Report of Independent Auditors
CONTENTS
Report of Independent Auditors.........................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................2
Consolidated Statements of Operations and Retained Earnings............4
Consolidated Statements of Cash Flows..................................5
Notes to Consolidated Financial Statements.............................6
<PAGE> 6
Report of Independent Auditors
The Management of the Operating Business
of Felt Products Mfg. Co. and Subsidiaries
We have audited the accompanying consolidated balance sheets of the Operating
Business of Felt Products Mfg. Co. and Subsidiaries as of December 28, 1997 and
December 29, 1996 and the related consolidated statements of operations and cash
flows for each of the three fiscal years in the period ended December 28, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements 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 the
Operating Business of Felt Products Mfg. Co. and Subsidiaries at December 28,
1997 and December 29, 1996 and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended December
28, 1997 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 13, 1998
1
<PAGE> 7
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
-------------------------------
ASSETS
<S> <C> <C>
Current assets:
Trade accounts receivable, less allowances of $3,326 in
1997 and $2,308 in 1996 $ 52,228 $ 54,278
Inventories, net 24,869 19,932
Refundable income taxes 530 5,646
Deferred income taxes -- 5,501
Other current assets 2,740 2,050
--------- ---------
Total current assets 80,367 87,407
Property, plant, and equipment:
Land 121 121
Buildings and improvements 14,343 13,663
Machinery and equipment 48,873 44,927
Construction in process 8,760 5,804
Accumulated depreciation (21,438) (22,626)
--------- ---------
Total property, plant, and equipment 50,659 41,889
Other assets:
Investment in marketable securities 7,490 10,352
Intangible assets, net 333 385
Deferred income taxes -- 10,184
Other long-term assets 15,957 8,537
--------- ---------
Total other assets 23,780 29,458
--------- ---------
Total assets $ 154,806 $ 158,754
========= =========
</TABLE>
See notes to consolidated financial statements
2
<PAGE> 8
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
----------------------------
<S> <C> <C>
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable $ 14,403 $ 11,534
Accrued income taxes 6,175 --
Accrued sales rebates 10,431 7,957
Accrued payroll and benefits 22,587 20,308
Other current liabilities 6,952 6,252
--------- ---------
Total current liabilities 60,548 46,051
Accrued postretirement benefit obligation 43,272 43,047
Other long-term liabilities 6,136 4,607
Equity:
Owners' Equity 45,520 65,704
Foreign currency translation adjustments (1,194) (1,095)
Unrealized gain on marketable securities,
net of taxes 524 440
--------- ---------
Total equity 44,850 65,049
--------- ---------
Total liabilities and equity $ 154,806 $ 158,754
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 9
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
--------- ------------ -------------
<S> <C> <C> <C>
Net sales $ 345,040 $ 327,633 $ 301,882
Cost of goods sold 194,738 183,500 176,252
--------- --------- ---------
Gross profit 150,302 144,133 125,630
Operating expenses:
Shipping 17,593 15,863 15,450
Advertising and selling 56,135 59,482 53,693
General and administrative 49,935 45,376 41,899
Other 3,681 3,378 4,282
--------- --------- ---------
127,344 124,099 115,324
--------- --------- ---------
Income from operations 22,958 20,034 10,306
Other income, net 556 314 89
--------- --------- ---------
Income before income taxes 23,514 20,348 10,395
Income taxes 24,950 5,363 3,553
--------- --------- ---------
Net income/(loss) $ (1,436) $ 14,985 $ 6,842
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 10
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income/(loss) $ (1,436) $ 14,985 $ 6,842
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation 6,706 6,387 5,736
Provision for losses on accounts receivable 1,686 361 276
Deferred income taxes 16,033 (812) (226)
Accrued postretirement benefit obligation 225 2,078 4,100
Other 36 478 515
Changes in operating assets and liabilities:
Trade accounts receivable 364 (13,583) 720
Inventories (4,937) (6,855) 2,906
Other assets (2,994) (6,557) (5,216)
Trade accounts payable 2,869 891 1,609
Accrued payroll and benefits 2,279 5,854 2,543
Other liabilities 10,530 5,324 (2,823)
-------- -------- --------
Net cash provided by operating activities 31,361 8,551 16,982
INVESTING ACTIVITIES
Proceeds from sale of marketable securities 3,850 -- --
Purchases of marketable securities (988) (3,042) (7,310)
Purchases of property, plant, and equipment (15,770) (11,665) (10,022)
Proceeds from disposal of property, plant, and equipment 295 70 --
-------- -------- --------
Net cash (used in) investing activities (12,613) (14,637) (17,332)
FINANCING ACTIVITIES
Cash distributions to owners (16,287) (3,036) (2,183)
-------- -------- --------
Net cash provided to/(from) affiliates $ 2,461 ($ 9,122) $ (2,533)
======== ======== ========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 11
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements
December 28, 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On January 9, 1998, the owners of the Fel-Pro Group of affiliated entities
signed an agreement to sell the Fel-Pro Group operating business and certain
related real estate (collectively, the operating businesses of the Fel-Pro
Group) to Federal Mogul Corporation (Federal Mogul). Certain non-operating
assets, including cash, debt, certain marketable securities, real estate and
insurance assets, are not included in the transaction. The transaction closed on
February 24, 1998 and the owners received $491.8 million in cash plus $225
million of Federal Mogul Corporation stock.
The accompanying financial statements include the net assets and operations of
the Operating Business of Felt Products Mfg. Co. (Felt) and Subsidiaries
purchased by Federal Mogul (the Company) and are presented as if the Company had
existed as an entity separate from certain affiliated entities not purchased by
Federal Mogul. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements. Any activity with those
affiliated entities has been reflected in owners' equity. The Company is a
member of the Fel-Pro Group of affiliated entities.
The Company is engaged in the manufacture and/or distribution of automotive,
heavy duty, and industrial gaskets. Products are primarily sold to customers
located throughout the United States, Canada, South America, Middle East, Asia
and Europe either directly to original equipment manufacturers or through
distributors for the automotive aftermarket. All of these activities constitute
a single business segment and all sales originate in North America. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral. The terms of customer receivables vary
based on customer agreements. Credit losses are provided for in the financial
statements and consistently have been within management's expectations. Primary
manufacturing operations and corporate offices are located in facilities in
Skokie, Illinois.
The stockholders of Felt are also the stockholders of a separate corporation,
Unity Sales Corp. (Unity), an "interest charge DISC" under the provisions of the
Internal Revenue Code, which is active in foreign markets as the distributor of
products sold by Fel-Pro Incorporated and Phillips Gasket, Inc. Commissions paid
to Unity of $.7 million in 1997 and $3.2 million in 1996 and 1995, respectively,
are reflected as current charges to the Company's operations.
6
<PAGE> 12
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
A summary of significant accounting policies followed by the Company is as
follows:
FISCAL YEAR
The Company uses a 52 or 53 week year, ending on the last Sunday in December.
The fiscal years ended December 28, 1997, and December 29, 1996 include 52
weeks, while the fiscal year ended December 31, 1995 includes 53 weeks.
CASH AND CASH EQUIVALENTS
An affiliated entity provides a centralized cash management function;
accordingly, the Company does not maintain separate cash accounts and its cash
disbursements and collections are settled through owners' equity.
MARKETABLE SECURITIES
Management determines the appropriate classification of its investments at the
time of acquisition and reevaluates such determination at each balance sheet
date. All investments are classified as available-for-sale securities which are
carried at fair value, with unrealized holding gains and losses, net of tax,
reported as a component of equity. Marketable equity and debt securities being
held for non-current uses such as the funding of postretirement benefit
obligations are classified as long-term assets. Quoted market prices have been
used in determining the fair value of these investments.
INVENTORIES
Inventories of Fel-Pro Incorporated, a wholly owned subsidiary of Felt, are
carried at the lower of last in, first out (LIFO) cost or market. The aggregate
inventories of all other subsidiaries are carried at the lower of first in,
first out (FIFO) cost or market. At December 28, 1997, and December 29, 1996, 1%
and 2% , respectively, are carried on a FIFO basis.
7
<PAGE> 13
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INTANGIBLE ASSETS
Goodwill, patents, and trademarks are being amortized over periods of 14 to 20
years using the straight-line method. Noncompetition agreements are being
amortized over the terms of the related agreements.
TRANSLATION OF FOREIGN OPERATIONS
The financial statements of the foreign entities have been translated in
accordance with Statement of Financial Accounting Standards No. 52 and,
accordingly, unrealized foreign currency translation adjustments are reflected
as a component of equity.
DEPRECIATION AND AMORTIZATION
Property, plant, and equipment is recorded at cost. For depreciable assets
acquired prior to 1991, provisions for depreciation and amortization are
computed using both straight-line and accelerated methods for financial
reporting purposes, based on the estimated useful lives of the assets. Beginning
in 1991, provisions of newly acquired depreciable assets are computed using the
straight-line method, based on the estimated useful lives.
RESEARCH AND DEVELOPMENT
Activities related to new product development and major improvements to existing
products and processes are expensed as incurred and amounted to approximately
$4.4 million in 1997, $4.1 million in 1996 and $4.2 million in 1995.
ADVERTISING
Advertising costs are generally charged to operations in the year incurred and
totaled $1.4 million in 1997, $1.5 million in 1996 and $1.3 million in 1995.
MANAGEMENT ESTIMATES
The consolidated financial statements include estimated amounts and disclosures
based on management's assumptions about future events. Actual results could
differ from those estimates.
8
<PAGE> 14
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
The composition of marketable securities at December 28, 1997, and December 29,
1996, is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------
(In Thousands)
FAIR VALUE COST FAIR VALUE COST
---------- ------- ---------- --------
<S> <C> <C> <C> <C>
Long term investments
Brinson Global Fund $ 7,490 $ 6,617 $10,352 $ 9,618
======= ======= ======= =======
</TABLE>
Interest and dividend income, net is included in other income (expense), net,
and was $.8 million in both 1997 and 1996, and $.5 million in 1995.
3. INVENTORIES
Inventories at December 28, 1997, and December 29, 1996, consist of the
following:
<TABLE>
<CAPTION>
1997 1996
----------------------------
(In Thousands)
<S> <C> <C>
Raw materials $ 7,907 $ 7,289
Work in process 6,148 6,898
Finished goods 30,513 26,895
-------- --------
Inventories at FIFO 44,568 41,082
Less: Excess of FIFO cost over LIFO cost (19,699) (21,150)
-------- --------
$ 24,869 $ 19,932
======== ========
</TABLE>
9
<PAGE> 15
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. INCOME TAXES
Effective December 30, 1996, the stockholders of Felt elected under Subchapter S
of the Internal Revenue Code to include Felt's income in their own income for
federal tax purposes. Accordingly, Felt is not subject to federal income taxes
effective December 30, 1996 and the net deferred tax asset of approximately
$15.7 million at December 29, 1996 was written off as a charge to tax expense in
fiscal 1997. Additionally, the LIFO reserve of $21.2 million was included in
taxable income and the tax cost recorded as a charge to tax expense in the
income statement in fiscal 1997.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the deferred tax assets and liabilities at
December 29, 1996, are as follows:
<TABLE>
<CAPTION>
1996
-------------
(In Thousands)
DEFERRED TAX ASSETS
<S> <C>
Postretirement benefit obligation $ 14,383
Other 7,509
--------
Total deferred tax assets 21,892
DEFERRED TAX LIABILITIES
Tax over book depreciation (5,877)
Other (330)
--------
Total deferred tax liabilities (6,207)
---------
Net deferred tax assets/(liabilities) $ 15,685
========
</TABLE>
The income tax provision consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $ 8,576 $ 4,615 $ 2,862
State 629 1,347 763
Foreign 60 213 154
------- ------- -------
9,265 6,175 3,779
Deferred (credit) 15,685 (812) (226)
------- ------- -------
$24,950 $ 5,363 $ 3,553
======= ======= =======
</TABLE>
10
<PAGE> 16
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
The reconciliation of income taxes (tax benefits) computed at the United States
federal statutory tax rate to income tax expense is:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------
(In Thousands)
<S> <C> <C> <C>
Pretax income for taxable entities $ 263 $ 20,348 $ 10,395
======== ======== ========
Income taxes at U.S. statutory rate $ 92 $ 7,122 $ 3,638
Tax effect from:
Reversal of deferred taxes 15,685
LIFO recapture 7,420
State income taxes 409 876 496
Other 1,344 (2,635) (581)
-------- -------- --------
$ 24,950 $ 5,363 $ 3,553
======== ======== ========
</TABLE>
Income taxes paid were approximately $3.7 million in 1997, $12.8 million in 1996
and $5.6 million in 1995.
5. EQUITY
A summary of the account activity is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 65,704 $ 44,633 $ 37,441
Net income/(loss) (1,436) 14,985 6,842
Distribution to owners (16,287) (3,036) (2,183)
Net cash provided to/(from)affiliates (2,461) 9,122 2,533
-------- -------- --------
Ending balance $ 45,520 $ 65,704 $ 44,633
======== ======== ========
</TABLE>
Felt Products Mfg. Co. has the following common stock authorized, issued, and
outstanding:
Authorized shares ($.01 par value) 200,100
Shares issued and outstanding 198,137.62
Par value $1,981
11
<PAGE> 17
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company maintains, for the benefit of its eligible employees, the following
benefit plans:
EMPLOYEES' PROFIT-SHARING AND RETIREMENT PLAN
This plan is noncontributory on the part of participants, except for their
voluntary contributions (which are limited, as provided in the plan agreement).
Discretionary contributions by the Company for each year are determined by the
Board of Directors. Distributions from the plan are made to participants or
their beneficiaries on death, retirement, disability, or termination of
employment. Contributions were approximately $8 million in both 1997 and 1996
and $6.9 million in 1995.
DEATH BENEFIT PLAN
The Company maintains a "death benefit plan" for selected managerial employees.
The plan provides that in the event of death of a participant, before
termination of employment or retirement, the applicable death benefits, as
defined, are payable to the participant's designated beneficiaries. There were
no beneficiary payments made in 1997, 1996 or 1995. The Company may at any time
amend or revoke the "death benefit plan" without the consent of its
participants. Since the plan is presently fully funded through life insurance
policies in which the participants possess no interest and the payment of
benefits is contingent upon the death of participants, no provision for such
future possible payments has been reflected in the consolidated financial
statements.
DEFERRED COMPENSATION PLAN
The Company maintains deferred compensation plans for qualified managers. The
plans allow such participants to defer up to 90% of their annual bonuses and
salary (subject to certain limitations). The plans also provide for matching
amounts (as defined) from the employer, provide for a growth increment dependent
on several factors, and provide for additional employer contributions on
compensation in excess of $160,000. Distributions from the plan are made to the
participants or their designated beneficiaries upon the earlier of death,
retirement, disability, termination of employment, or by participant choice.
Employer and employee contributions, including interest, of $2.7 million, $2.3
million and $2.2 million were paid to the plans in 1997, 1996 and 1995,
respectively.
12
<PAGE> 18
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
The Company provides postretirement medical, dental, and death benefits to
domestic employees hired prior to January 1, 1988, who have worked at least 10
years and attained age 55 while in service with the Company. All employees hired
subsequent to this date are eligible for these benefits if they have worked at
least 20 years and attained age 55. The plan amendment in November 1996 provided
that for all retiree groups, the Company caps its contributions toward retiree
health care at the employer cost levels reached in 2004, thereby reducing the
liability and annual expense. The plan is contributory and contains certain
cost-sharing features such as deductibles, coinsurance, and a lifetime payout
maximum. Assets with a fair value of $7.5 million and $10.4 million which are
included in investments in marketable securities at December 28, 1997 and
December 29, 1996, respectively, are being held for non-current uses such as the
postretirement benefits. The Company's foreign subsidiaries provide no
significant postretirement benefits.
The following table presents the components of the liability recognized in the
Company's balance sheet at December 28, 1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
-----------------------
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $16,297 $13,412
Fully eligible active plan participants 4,150 6,817
Other active plan participants 6,596 8,397
Unrecognized net gain 3,516 622
Unrecognized plan reduction 12,713 13,799
------- -------
Accrued postretirement benefit cost $43,272 $43,047
======= =======
</TABLE>
A summary of the components of net periodic postretirement benefit cost is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost $ 554 $ 1,438 $ 1,233
Interest cost 1,906 2,639 2,782
Amortization of unrecognized gain (42) -- --
Amortization of plan reduction (1,086) (390) (251)
------- ------- -------
Net periodic postretirement benefit cost $ 1,332 $ 3,687 $ 3,764
======= ======= =======
</TABLE>
13
<PAGE> 19
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The health care cost trend rate utilized to determine the benefit cost was 9.5%
for 1997 and 1996, decreasing gradually to 5.5% for 2005 and thereafter.
Increasing the trend rate by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of December 28, 1997, by
$1.7 million and increase the annual postretirement benefit cost for 1997 by
$0.2 million. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% at December 28, 1997 and December
29, 1996.
7. LEASE COMMITMENTS
The Company leases its primary operating facilities, which were purchased by
Federal Mogul Corporation, from a related party, under operating leases. In
addition, the Company leases equipment from outside parties under an operating
lease. Minimum future rentals under these operating leases at December 28, 1997,
approximate the following (in thousands):
1998 $2,020
1999 286
2000 250
2001 250
2002 250
Thereafter 250
------
$3,306
======
In addition to annual minimum rentals, as reflected above, certain leases
provide for payment by the lessees of costs applicable to operating the leased
premises (real estate taxes, insurance, repairs and maintenance costs,
utilities, etc.)
The principal operating facility lease expires on February 28, 1998.
Rental expense charged to operations for all operating leases amounted to
approximately $11.7 million in 1997, $11.5 million in 1996 and $11.1 million in
1995 of which $11 million in 1997, $10.8 million in 1996 and $10.4 million in
1995 was to a related party.
14
<PAGE> 20
Operating Business of
Felt Products Mfg. Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES
The Company is engaged in various legal actions arising in the ordinary course
of its business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that it has adequate legal
defenses or insurance coverages and that the outcome of these matters will not
have a material adverse effect on the Company's consolidated financial position.
15
<PAGE> 21
EXHIBIT INDEX
23.1 Consent of Ernst & Young LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Form S-8 Registration Statement
No. 333-38961, effective October 29, 1997, Form S-3 Registration Statement No.
33-55135, effective September 2, 1994, Form S-3 Registration Statement No.
33-54717, effective August 5, 1994, Form S-3 Registration Statement No.
33-54301, effective June 24, 1994, Form S-3 Registration Statement No. 33-51265,
effective January 13, 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 13, 1998, with respect
to the financial statements of The Operating Businesses of the Felt Products
Mfg. Co. and subsidiaries included in Federal Mogul Corporation's Form 8-K dated
April 17, 1998.
April 17, 1998
