Federal-Mogul Announces Second Quarter 2002 Results
SOUTHFIELD, Mich., July 30 Federal-Mogul Corporation today reported second quarter 2002 sales of $1,442 million up one percent compared to $1,425 million in 2001. Excluding the effects of foreign currency and businesses divested in the prior year, second quarter sales increased four percent. Second quarter 2002 earnings from operations were $48 million or $.58 per share compared to a loss from operations of $5 million or $(.06) per share in 2001. Earnings from operations for the second quarter 2002 exclude restructuring charges, impairment charges and Chapter 11 related expenses. Earnings from operations for the second quarter 2001 exclude restructuring charges, impairment charges, gains and losses on sales of businesses, gain on debt to equity swaps, and have been adjusted on a proforma basis for the adoption of SFAS 142.
In the second quarter 2002, Federal-Mogul had reported earnings of $16 million or $.17 per share, compared to a loss of $18 million or a loss of $(.25) per share in 2001.
Second quarter 2002 cash flow from operations, net of capital expenditures, was $11 million compared to a one million-dollar cash usage for second quarter 2001. By geographic region, total second quarter 2002 sales were 62 percent in North America, 36 percent in Europe and two percent in the rest of the world.
"We continue to achieve operational improvement and I am pleased with our progress to date," said Frank Macher, chairman and chief executive officer. "Our net new business backlog rose to $440 million with significant contracts gained for pistons in both North America and Europe. The strength of our customer relationships at this time is very encouraging."
Impact of SFAS 142 Adoption
On January 1, 2002, Federal-Mogul adopted Statement of Financial Accounting Standard (SFAS) No. 142. Under SFAS 142, companies no longer amortize goodwill and other indefinite-lived intangible assets and are required to perform annual tests of impairment. During the second quarter of 2002, Federal-Mogul, along with the assistance of an outside valuation firm, completed its initial fair-value based impairment test of its goodwill and indefinite-lived intangible assets required by SFAS 142. As a result of these tests, Federal-Mogul recorded a non-cash charge of $1,428 million for the cumulative effect of a change in accounting principle. The performance of certain operating units and changes in market conditions were the primary reasons for the decrease in certain operating units' fair values that resulted in the impairment charge.
After this non-cash charge, reported six months 2002 net loss was $(17.65) per share compared to $(1.14) per share in 2001.
Sales by Customer Channel
Sales of replacement parts to aftermarket customers totaled 46 percent of the company's second quarter 2002 sales or $668 million. By geographic region, second quarter 2002 aftermarket sales were 77 percent in North America, 21 percent in Europe and two percent in the rest of the world.
Sales of original equipment parts totaled 54 percent of the company's second quarter 2002 sales or $774 million. By geographic region, second quarter 2002 original equipment sales were 50 percent in North America, 48 percent in Europe and two percent in the rest of the world.
Sales by Global Product Line
Bearings
Second quarter 2002 sales for the global Bearings product line were $172 million for 12 percent of Federal-Mogul's total sales compared to $180 million in 2001. By customer, total Bearings sales were 62 percent for original equipment and 38 percent for the aftermarket. By geographic region, Bearings original equipment sales were 39 percent in North America, 55 percent in Europe and six percent in the rest of the world.
Friction
Second quarter 2002 sales for the global Friction product line were $192 million for 13 percent of Federal-Mogul's total sales compared to $172 million in 2001. Total Friction sales were split evenly between original equipment and aftermarket customers. By geographic region, Friction original equipment sales were 36 percent in North America, 62 percent in Europe and two percent in the rest of the world.
Lighting
Second quarter 2002 sales for the Lighting product line were $74 million for five percent of Federal-Mogul's total sales compared to $87 million in 2001. By customer, total Lighting sales were 81 percent for original equipment and 19 percent for the aftermarket. By geographic region, Lighting original equipment sales were 94 percent in North America and six percent in the rest of the world.
Pistons
Second quarter 2002 sales for the global Pistons product line were $188 million for 13 percent of Federal-Mogul's total sales compared to $164 million in 2001. By customer, total Pistons sales were 88 percent for original equipment and 12 percent for the aftermarket. By geographic region, Pistons original equipment sales were 40 percent in North America and 60 percent in Europe.
Piston Rings and Liners
Second quarter 2002 sales for the global Piston Rings and Liners product line were $120 million for eight percent of Federal-Mogul's total sales compared to $110 million in 2001. By customer, total Piston Rings and Liners sales were 83 percent for original equipment and 17 percent for the aftermarket. By geographic region, Piston Rings and Liners original equipment sales were 43 percent in North America and 57 percent in Europe.
Sealing Systems
Second quarter 2002 sales for the global Sealing Systems product line were $242 million for 17 percent of Federal-Mogul's total sales compared to $226 million in 2001. By customer, total Sealing Systems sales were 52 percent for original equipment and 48 percent for the aftermarket. By geographic region, Sealing Systems original equipment sales were 74 percent in North America, 25 percent in Europe and one percent in the rest of the world.
Sintered Valve Train and Transmission Products
Second quarter 2002 sales for the global Sintered Valve Train and Transmission Products line were $89 million for six percent of Federal-Mogul's total sales compared to $88 million in 2001. By customer, total Sintered Valve Train and Transmission Products sales were 98 percent for original equipment and two percent for the aftermarket. By geographic region, Sintered Valve Train and Transmission Products original equipment sales were 30 percent in North America, 68 percent in Europe and two percent in the rest of the world.
Systems Protection
Second quarter 2002 sales for the global Systems Protection product line were $32 million for two percent of Federal-Mogul's total sales compared to $33 million in 2001. Original equipment customers account for 100 percent of Systems Protection sales. By geographic region, Systems Protection sales were for 69 percent in North America, 28 percent in Europe and three percent in the rest of the world.
Federal-Mogul is a global supplier of automotive components and sub- systems serving the world's original equipment manufacturers and the aftermarket. The company utilizes its engineering and materials expertise, proprietary technology, manufacturing skill, distribution flexibility and marketing power to deliver products, brands and services of value to its customers. Federal-Mogul is focused on the globalization of its teams, products and processes to bring greater opportunities for its customers and employees, and value to its constituents.
Headquartered in Southfield, Michigan, Federal-Mogul was founded in Detroit in 1899 and today employs 49,000 people in 24 countries. On October 1, 2001, Federal-Mogul decided to separate its asbestos liabilities from its true operating potential by voluntarily filing for financial restructuring in Bankruptcy Court in the United States and Administration in the United Kingdom.
For more information on Federal-Mogul, visit the company's web site at http://www.federal-mogul.com .
Information in this press release contains forward-looking statements, which are not historical facts and involve risks and uncertainties. Actual results, events and performance could differ materially from those contemplated by these forward-looking statements including, without limitation, the cost and timing of implementing restructuring actions, the effect of the Chapter 11 voluntary reorganization filing by the company and certain U.S. subsidiaries and the joint filing for Chapter 11 and Administration by the company's U.K. subsidiaries, conditions in the automotive components industry, certain global and regional economic conditions, and other factors detailed from time to time in the company's filings with the Securities and Exchange Commission. Federal-Mogul undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release.
F E D E R A L - M O G U L C O R P O R A T I O N
S T A T E M E N T S O F O P E R A T I O N S
(Millions of Dollars, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
Net sales $1,442.3 $1,425.4 $2,788.4 $2,876.1
Cost of products sold 1,151.0 1,126.4 2,235.8 2,273.8
Gross margin 291.3 299.0 552.6 602.3
Selling, general and
administrative expenses 213.4 203.6 426.8 431.2
Amortization of goodwill and
other intangible assets 3.5 29.8 7.1 60.2
Restructuring charge 1.5 2.1 11.0 31.9
Adjustment of assets held for
sale and other long-lived
assets to fair value 2.6 0.1 2.6 0.7
Interest expense, net 29.9 81.2 60.2 163.8
Chapter 11 and Administration
related reorganization expenses 18.5 - 33.4 -
Gain on early extinguishment of
debt - (25.1) - (25.1)
Other income, net (14.8) (27.8) (13.8) (21.3)
Earnings (Loss) Before Income
Taxes and Cumulative
Effect of Change in Accounting
Principle 36.7 35.1 25.3 (39.1)
Income tax expense 20.7 52.6 50.5 40.6
Earnings (Loss) Before
Cumulative Effect of
Change in Accounting Principle 16.0 (17.5) (25.2) (79.7)
Cumulative effect of change in
accounting for goodwill and
other intangible assets, net of
applicable income tax benefit - - 1,428.4 -
Net Earnings (Loss) $16.0 $(17.5) $(1,453.6) $(79.7)
Earnings (Loss) Per Common Share:
Basic
Earnings (loss) before
cumulative effect of
change in accounting principle $0.19 $(0.25) $(0.31) $(1.14)
Cumulative effect of change in
accounting for goodwill and
other intangible assets, net of
applicable income tax benefit - - 17.34 -
Earnings (Loss) Available for
Common Shareholders $0.19 $(0.25) $(17.65) $(1.14)
Diluted
Earnings (loss) before
cumulative effect of
change in accounting principle $0.17 $(0.25) $(0.31) $(1.14)
Cumulative effect of change in
accounting for goodwill and
other intangible assets, net of
applicable income tax benefit - - 17.34 -
Earnings (Loss) Available for
Common Shareholders $0.17 $(0.25) $(17.65) $(1.14)
Weighted Average Shares (Thousands)
Basic 82,365 71,169 82,365 70,880
Diluted 91,962 71,169 82,365 70,880
F E D E R A L - M O G U L C O R P O R A T I O N
B A L A N C E S H E E T S
(Millions of Dollars)
(Unaudited)
June 30 December 31
2002 2001
Assets
Cash and equivalents $350.5 $346.9
Accounts receivable 1,103.4 944.8
Inventories 786.7 721.9
Deferred taxes 62.0 55.4
Prepaid expenses and income tax benefits 171.0 177.6
Total current assets 2,473.6 2,246.6
Property, plant and equipment 2,217.4 2,163.7
Goodwill 1,454.5 2,738.9
Other intangible assets 457.1 624.7
Asbestos-related insurance recoverable 751.8 723.2
Other noncurrent assets 550.0 556.1
Total Assets $7,904.4 $9,053.2
Liabilities and Shareholders' Equity (Deficit)
Short-term debt, including current
portion of long-term debt $17.4 $24.9
Accounts payable 351.6 299.5
Accrued compensation 237.8 193.9
Restructuring and rationalization reserves 78.6 81.1
Other accrued liabilities 460.9 382.9
Total current liabilities 1,146.3 982.3
Long-term debt 259.9 266.7
Postemployment benefits 847.3 819.8
Other accrued liabilities 237.5 258.5
Minority interest in consolidated
subsidiaries 47.2 50.3
Liabilities subject to compromise 6,250.4 6,256.6
Shareholders' equity (deficit):
Series C ESOP preferred stock 28.0 28.0
Common stock 411.9 411.9
Additional paid-in capital 1,845.1 1,844.6
Accumulated deficit (2,568.6) (1,115.0)
Accumulated other comprehensive loss (600.4) (750.1)
Other (0.2) (0.4)
Total Shareholders' Equity (Deficit) (884.2) 419.0
Total Liabilities and Shareholders'
Equity (Deficit) $7,904.4 $9,053.2
F E D E R A L - M O G U L C O R P O R A T I O N
S T A T E M E N T S O F C A S H F L O W S
(Millions of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
Cash Provided From (Used By) Operating
Activities
Net earnings (loss) $16.0 $(17.5) $(1,453.6) $(79.7)
Adjustments to reconcile net
earnings (loss) to net cash
provided from (used by) operating
activities:
Depreciation and amortization 69.4 93.3 136.8 191.1
Restructuring charge 1.5 2.1 11.0 31.9
Chapter 11 and Administration
related reorganization expenses 18.5 - 33.4 -
Adjustment of assets held for
sale and other long-lived
assets to fair value 2.6 0.1 2.6 0.7
Gain on early retirement of debt - (25.1) - (25.1)
Cumulative effect of change in
accounting principle - - 1,464.5 -
Change in postemployment benefits 6.8 (3.9) 7.0 (0.4)
(Increase) decrease in accounts
receivable (38.7) 49.7 (122.5) 11.4
(Increase) decrease in
inventories (9.5) 25.6 (48.2) 34.7
Increase (decrease) in accounts
payable (4.5) (4.1) 21.2 17.8
Change in other assets and other
liabilities 44.4 44.6 108.3 5.8
Payments against restructuring
and rationalization reserves (9.2) (21.5) (17.8) (37.5)
Payments of Chapter 11 and
Administration costs (22.3) - (36.2) -
Payments against asbestos
liability - (82.4) - (170.7)
Net Cash Provided From (Used By)
Operating Activities 75.0 60.9 106.5 (20.0)
Cash Provided From (Used By) Investing
Activities
Expenditures for property, plant and
equipment and other long-term
assets (63.7) (69.7) (127.2) (146.0)
Proceeds from the sale of property,
plant and equipment - 7.7 - 19.0
Proceeds from sale of businesses - 160.2 21.8 160.2
Net Cash Provided From (Used By)
Investing Activities (63.7) 98.2 (105.4) 33.2
Cash Provided From (Used By) Financing
Activities
Proceeds from the issuance of long-
term debt 1.5 110.8 1.5 346.8
Principal payments on long-term debt - (113.4) (1.9) (135.5)
Principal payments on DIP credit
facility - - (6.1) -
Increase (decrease) in short-term
debt 2.4 6.8 (7.5) (25.3)
Fees paid for debt issuance and other
securities - (4.3) - (18.5)
Repurchase of accounts receivable
under securitization - (81.4) - (129.6)
Dividends - (0.8) - (1.5)
Foreign Currency and Other 19.5 (6.4) 16.5 (3.4)
Net Cash Provided From (Used By)
Financing Activities 23.4 (88.7) 2.5 33.0
Increase in Cash and Equivalents 34.7 70.4 3.6 46.2
Cash and equivalents at beginning of
period 315.8 83.0 346.9 107.2
Cash and Equivalents at End of
Period $350.5 $153.4 $350.5 $153.4
F E D E R A L - M O G U L C O R P O R A T I O N
N E T E A R N I N G S R E C O N C I L I A T I O N
(Millions of Dollars, Except Per Share Data)
(Unaudited)
Three Months Ended June 30, 2002
Adjustments
Restructuring/ Chapter 11 Tax
From Impairment Related Valuation As
Operations Charge Items Allowance Reported
Net sales $1,442.3 $- $- $- $1,442.3
Cost of products
sold 1,151.0 - - - 1,151.0
Gross margin 291.3 - - - 291.3
Selling, general and
administrative
expenses 213.4 - - - 213.4
Amortization of
goodwill and
other intangible
assets 3.5 - - - 3.5
Restructuring charge - 1.5 - - 1.5
Adjustment of assets
held for sale and
other long-lived
assets to fair
value - 2.6 - - 2.6
Interest expense,
net 29.9 - - - 29.9
Chapter 11 and
Administration
related
reorganization
expenses - - 18.5 - 18.5
Other income, net (14.8) - - - (14.8)
Earnings (Loss)
Before Income
Taxes 59.3 (4.1) (18.5) - 36.7
Income tax expense
(benefit) 11.7 (0.6) (2.1) 11.7 20.7
Net Earnings
(Loss) $47.6 $(3.5) $(16.4) $(11.7) $16.0
Basic Earnings
(Loss) Per Common
Share $0.58 $(0.05) $(0.20) $(0.14) $0.19
F E D E R A L - M O G U L C O R P O R A T I O N
N E T E A R N I N G S R E C O N C I L I A T I O N
(Millions of Dollars, Except Per Share Data)
(Unaudited)
Six Months ended June 30, 2002
Adjustments
Restructuring/ Chapter 11
From Impairment Related
Operations Charge Items Divestitures
Net sales $2,788.4 $- $- $-
Cost of products sold 2,235.8 - - -
Gross margin 552.6 - - -
Selling, general and
administrative expenses 426.8 - - -
Amortization of goodwill
and other intangible
assets 7.1 - - -
Restructuring charge - 11.0 - -
Adjustment of assets held
for sale and other
long-lived assets to
fair value - 2.6 - -
Interest expense, net 60.2 - - -
Chapter 11 and
Administration related
reorganization expenses - - 33.4 -
Other income, net (7.2) - - (6.6)
Earnings (Loss) Before
Income Taxes and
Cumulative Effect of
Change in Accounting
Principle 65.7 (13.6) (33.4) 6.6
Income tax expense
(benefit) 23.2 (4.4) (3.2) -
Earnings (Loss) Before
Cumulative Effect of
Change in Accounting
Principle 42.5 (9.2) (30.2) 6.6
Cumulative effect of
change in accounting
for goodwill and
other intangible
assets net of
applicable income
tax benefit - - - -
Net Earnings (Loss) $42.5 $(9.2) $(30.2) $6.6
Basic Earnings
(Loss) Per Common
Share $0.52 $(0.12) $(0.37) $0.08
Six Months ended June 30, 2002
Adjustments
Cumulative
Effect of Change Tax
in Accounting Valuation As
Principle Allowance Reported
Net sales $- $- $2,788.4
Cost of products sold - - 2,235.8
Gross margin - - 552.6
Selling, general and administrative
expenses - - 426.8
Amortization of goodwill and other
intangible assets - - 7.1
Restructuring charge - - 11.0
Adjustment of assets held for sale
and other long-lived assets to
fair value - - 2.6
Interest expense, net - - 60.2
Chapter 11 and Administration related
reorganization expenses - - 33.4
Other income, net - - (13.8)
Earnings (Loss) Before Income Taxes
and Cumulative Effect of Change in
Accounting Principle - - 25.3
Income tax expense (benefit) - 34.9 50.5
Earnings (Loss) Before Cumulative
Effect of Change in Accounting
Principle - (34.9) (25.2)
Cumulative effect of change in
accounting for goodwill and other
intangible assets net of applicable
income tax benefit 1,428.4 - 1,428.4
Net Earnings (Loss) $(1,428.4) $(34.9) $(1,453.6)
Basic Earnings (Loss) Per
Common Share $(17.34) $(0.42) $(17.65)