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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, 1993
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)
555 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:
Title of Each Class Name of each exchange on
which registered
- - - --------------------- -------------------------
Common Stock and Rights to purchase New York and Pacific
Preferred Shares Stock Exchanges
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 $1,229,149,759
as of March 4, 1994 based on the reported last sales price as
published for the New York Stock Exchange--Composite
Transactions for such date.
The Registrant had 35,498,910 shares of Common Stock
outstanding as of March 4, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its
1994 Annual Meeting of Shareholders, which will be 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.
2
PART I
FEDERAL-MOGUL CORPORATION
ITEM 1. BUSINESS
Overview
- - - --------
Federal-Mogul Corporation (which together with its consolidated
subsidiaries is referred to herein as "Federal-Mogul", the "Company" or
"Registrant") 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 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.
The Company was incorporated in 1924 under Michigan law to carry
on a business begun in 1900. The Company's executive offices
are located at 26555 Northwestern Highway, Southfield, Michigan
48034, telephone (810) 354-7700.
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.
Federal-Mogul also manufactures heavy
wall bearings and precision forged powdered metal parts.
Sales of these products account for the balance of the Company's
sales.
3
The following table sets forth the Company's net sales by market
segment and geographic region as a percentage of total net
sales.
Year Ended December 31,
--------------------------------------------
1993 1993 1992 1992 1991
Pro Actual Pro Actual Actual
Forma Forma
(1) (2)
Aftermarket
U.S. and Canada. 48% 43% 44% 36% 34%
International 18 20 19 19 19
Original Equipment
U.S. and Canada 21 23 20 24 23
International 8 8 10 13 13
Other (3)
U.S. and Canada 3 3 4 4 6
International 2 3 3 4 4
100% 100% 100% 100% 100%
(1) Pro forma for the acquisition of SPX Corporation's
automotive aftermarket business ("SPR") in October 1993 as if
such acquisition had occurred in January 1, 1993.
(2) Pro forma for the acquisition of TRW's automotive
aftermarket business ("AAB") in October 1992 as if such
acquisition had occurred on January 1, 1992.
(3) 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.
4
Recent Acquisitions
- - - -------------------
In line with the Company's strategy to emphasize Aftermarket product
sales, the Company recently acquired two distributors of automotive
Aftermarket products. The Company acquired AAB in October 1992
for approximately $220 million, and SPR in October 1993 for
approximately $140 million (collectively, the "Acquisitions").
Primarily as a result of the Acquisitions, Federal-Mogul
increased its Aftermarket combined net sales as a percentage of
new sales from 53% in 1991 to 66% for 1993 on a pro forma basis
as if SPR had been acquired on January 1, 1993. The
Acquisitions have enabled the Company to increase its presence
as a distributor of Aftermarket products in North America and
Europe, broaden its customer base, increase its product
offerings and realize substantial cost savings.
SPR Acquisition. SPR, which had 1992 net sales of $163 million,
is a distributor of engine and chassis components to the North
American aftermarket. The Company believes that the primary
strategic benefits of the acquisition of SPR (the "SPR
Acquisition") include:
Increased Customer Base -- The addition of SPR's
customers has increased the Company's customer base. For
example, SPR is a major distributor of components to machine
shops, a distribution channel in which Federal-Mogul previously
did not have a significant presence.
Expanded Parts Coverage -- SPR is a major distributor
of replacement parts for heavy truck, agricultural and
construction equipment vehicles. Prior to the SPR Acquisition,
Federal-Mogul had not been a major distributor of parts for
these vehicles, the market for which currently represents a
significant portion of worldwide replacement parts sales. As
result of the SPR Acquisition, the Company is able to offer, for
the first time, a complete set of agricultural and heavy truck
engine parts in the form of an engine kit.
Consolidation of Distribution Systems -- The Company
expects to achieve significant cost savings through the
consolidation of the distribution systems of the two
companies. Federal-Mogul and SPR have duplicate warehouse
locations in 34 of the 36 cities served by the two companies in
the United States and Canada. The Company intends to combine all
of the overlapping facilities in these cities by early 1995.
5
AAB Acquisition. In October 1992, the Company acquired from
TRW Inc. the assets of AAB for approximately $220 million (the
"AAB Acquisition"). AAB distributed a full line of suspension
and steering parts and engine components to the vehicular
Aftermarket in North, Central and South America as well as in
Europe, Africa and the Middle East. Since the date of the AAB
Acquisition, Federal-Mogul has completed the consolidation of
the operations of the businesses. The Company believes that
it will meet or exceed its projected total annual savings of
approximately $21 million during and after 1995, with
approximately $15 million of these savings having been realized
during 1993 and approximately $20 million to be realized during
1994.
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.
The Company's Aftermarket business supplies approximately
150,000 part numbers to almost 10,000 customers, including more
than 2,000 customers in North America and Europe added as a
result of the Acquisitions. Federal-Mogul's customers are
located in more than 90 countries around the world. For 1993,
Aftermarket net sales in the United States and Canada
represented 69% of total Aftermarket net sales, with net sales
outside of the United States and Canada representing 31% of such
sales. On a pro forma basis as if the SPR Acquisition had
occurred on January 1, 1993, Aftermarket combined net sales in
the United States and Canada represented 72% of total
Aftermarket combined net sales for 1993.
6
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; Olive Branch, Tennessee; 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
America service centers. For international sales, products are
shipped through a facility in Port Everglades, Florida to seven
international regional distribution centers and six Latin
American branches.
The Distribution Centers apply sophisticated computer
technology which allows the Company to better manage its
inventory and respond to customer needs. Techniques such as
the Company's Reduced Inventory Management System, which was
implemented in the fall of 1990, allow customers to reduce their
inventories by providing them with the ability to order smaller
quantities of products more frequently. This allows customers
to increase their return on inventory investment.
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 manufacturers all
of the OE products it sells. Customers consist primarily of
automotive, heavy duty vehicle and farm and industrial equipment
manufacturers. In 1993, pproximately 16% of the Company's net
sales were to the three major automotive manufacturers in the
United States, with General Motors Corporation ("GM") accounting
for approximately 9% of the Company's net sales, Ford Motor
Company accounting for approximately 5% 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 and certain Toyota operations in the
United States. Recently, the Company began exporting oil seals
to Komatsu in Japan for heavy duty diesel engines. The
remaining net sales in 1993 were divided among almost 10,000
customers.
7
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.
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.
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.
Other Business
- - - --------------
The Company also manufactures:
Heavy Wall Bearings -- Braunschweiger Huttenwerk GmbH
("BHW"), an indirect, wholly-owned German subsidiary of the
Company, manufacturers 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.
8
Precision Forged Powdered Metal Parts -- The Company
manufactures intricate component parts from compressed metal
powders. These parts are used in applications requiring high
fatigue strength, such as clutch races for automatic
transmissions, engine connecting rods, and engine camshaft
lobes.
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 1993, no outside
supplier of the Company provided products which accounted for
more than 10% of the Company's net sales.
In connection with the acquisition of AAB, 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 parts manufactured by TRW and distributed by the
Company. For the first five years of the Supply Period (the
"Exclusive Period"), the Company will be 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, terminable on one year's notice by
either party.
Employee Relations
- - - ------------------
On January 1, 1994, the Company had approximately 14,400
full-time employees of whom 8,800 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 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 developments 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 $17.2 million in 1993, $18.2 million in 1992 and
$20.3 million in 1991. The reduced research and development
expenditures between 1991 and 1993 were in large part due to reduced
spending at the Company's Glyco operation in Germany.
9
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 1993 and are not expected to be material in 1994
or 1995.
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 1994 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.
10
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.
Aftermarket and original equipment sales by major geographical
region were:
1993 1992 1991
(Millions of Dollars)
--------------------------------
Aftermarket
United States and Canada $ 683.8 $ 460.5 $ 377.4
International 309.1 239.5 205.1
Original Equipment
United States and Canada 408.5 357.0 319.9
International 174.1 207.0 196.3
Total Sales $1,575.5 $1,264.0 $1,098.7
Detailed results of operations by geographic area for each of
the years ended December 31, 1993, 1992 and 1991 appear in Note
11 to the Consolidated Financial Statements contained in Item 8
of this Report.
11
Executive Officers of the Registrant
- - - ------------------------------------
Set forth below are the names, ages (at December 31, 1993),
positions and offices held, and a brief account of the business
experience during the past five years of each executive officer.
D.J. Gormley (54)
Chairman of the Board since May, 1990 and President and
Chief Executive Officer since May 1989; Chief Operating Officer,
February 1988 to May 1989; Executive Vice President, January
1986 to February 1988. Mr. Gormley first became an executive
officer in 1980.
G.N. Bashara, Jr. (59)
Vice President, General Counsel and Secretary since April
1987. Mr. Bashara first became an executive officer in 1987.
J.B. Carano (44)
Vice President and Controller since December 1992;
International Distribution Manager - Port Everglades, Florida,
February 1990 to November 1992; Group Controller - Worldwide
Aftermarket Operation January 1989 to February 1990. Mr. Carano
first became an executive officer in 1992.
D.J. Davis (42)
Vice President of the Company and Vice President of Chassis
Operations since December 1993; Vice President of Ball Bearing
Products November 1992 to December 1993; General Manager Ball
Bearing Products October 1991 to November 1992; General Manager,
Lighting and Electrical Division November 1987 to October 1991.
Mr. D. J. Davis first became an executive officer in 1993.
J.O. Davis (45)
Vice President, Distribution and Logistics, Worldwide
Aftermarket Operation since December 1993; General Manager,
Lighting and Electrical Division October 1992 to December 1993;
Plant Manager, Lighting and Electrical Division January 1989 to
October 1991. Mr. J. O. Davis first became an executive officer
in 1993.
J.M. Eastman (57)
Vice President - Employee Relations since January 1980; Mr.
Eastman first became an executive officer in 1980.
R.F. Egan (47)
Vice President of the Company and Vice President of
Automotive Sales - Worldwide Aftermarket Operation 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.
12
T.J. English (53)
Vice President - Information Services since March 1989.
Director of Information Services, November 1983 to March 1989; Mr.
English first became an executive officer in 1989.
C.B. Grant (49)
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 (41)
Assistant Secretary and Associate General Counsel since May
1988; Associate Genera Counsel since June 1987; Ms. Heim first
became an executive officer in 1988.
A.C. Johnson (45)
Vice President of the Company and Vice President of Powertrain
Operations - Americas since December 1993; Vice President and
General Manager of Seal Operations November 1992 to December 1993;
General Manager, Oil Seals Operations January 1990 to November
1992; Manager, Worldwide Distribution Center August 1988 to January
1990. Mr. Johnson first became an executive officer in 1993.
F.J. Musone (49)
Vice President of the Company and President of Worldwide
Manufacturing since November 1993; President of Chassis Products
Operation January 1989 to November 1993; Vice President and General
Manager - Federal-Mogul Service, January 1986 to January 1989. Mr.
Musone first became an executive officer in 1986.
W.A. Schmelzer (53)
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 (44)
Vice President of the Company and President of Worldwide
Aftermarket Operation since January 1989; Vice President and
General Manager - North American Aftermarket, February 1988 to
January 1989; General Manager North American Aftermarket, August
1987 to February 1988. Mr. Smith first became an executive officer
in 1988.
M.J. Viola (39)
Vice President and Treasurer since December 1992; Director of
Corporate Finance, April 1992 to December 1992; Manager - Domestic
Planning and Analysis, Chrysler Corporation, March 1991 to April
1992; Manager - Foreign Exchange and Financing Studies, Chrysler
Corporation, January 1989 to March 1991; Manager - Corporate
Financial Analysis, Chrysler Corporation March 1987 to January
1989.
13
M.E. Welch III (45)
Senior Vice President and Chief Financial Officer since
December 1991; Assistant Treasurer, Chrysler Corporation, September
1988 to November 1991; General Auditor, Chrysler Corporation, July
1987 to September 1988. Chief Financial Officer, Chrysler
Canada Ltd., March 1986 to July 1987. Mr. Welch joined Chrysler in
1982 as corporate accounting manager and served in positions of
increasing responsibility in a wide range of areas including
banking, audit and international finance, acquiring
diverse and comprehensive experience in corporate financial
operations. Mr. Welch first became an executive officer of
the Company in December of 1991 when he left Chrysler to assume
the position of Senior Vice President and Chief Financial Officer
with the Company.
J.J. Zamoyski (47)
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;
Vice President - Corporate Development and Assistant Treasurer
March 1989 to March 1990; Director of Corporate Development
and Assistant Treasurer, May 1988 to March 1989; Mr. Zamoyski first
became an executive officer in 1980.
Generally, officers of the Company are elected at the time of the
Annual Meeting of Shareholders but the Board also elects officers
are 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.
14
ITEM 2. PROPERTIES
- - - -------------------
The Company conducts its business from its World Headquarters
complex in Southfield, Michigan, which is leased pursuant to a
sale-lease back arrangement. The principal manufacturing and other
materially important physical properties of the Company at
December 31, 1993 are listed below. All properties are owned in
fee except where otherwise noted.
A. Manufacturing Facilities.
- - - -------------------------------
# Of Sq. Ft.
North American Manufacturing Facilities Facilities @ 12/31/93
- - - --------------------------------------- ---------- ----------
Frankfort, Indiana 1 160,000
Greensburg, Indiana 1 204,845
Leiters Ford, Indiana 1 116,900
Lititz, Pennsylvania 1 275,000
Milan, Michigan 1 83,000
# Of Sq. Ft.
North American Manufacturing Facilities Facilities @ 12/31/93
- - - --------------------------------------- ---------- ----------
Van Wert, Ohio 1 222,835
Blacksburg, Virginia 1 190,386
Gallipolis, Ohio 1 125,000
Greenville, Michigan 1 197,070
(2) Lafayette, Tennessee 1 110,400
Logansport, Indiana 1 161,000
(1) Malden, Missouri 1 120,000
Mooresville, Indiana 1 65,934
Plymouth, Michigan 1 15,000
Romulus, Michigan 1 170,000
St. Johns, Michigan 1 266,000
Puebla, Mexico 1 100,572
Juarez, Mexico 1 33,000
Mexico City, Mexico 1 72,210
Mexico City, Mexico 1 192,950
(1) Juarez, Mexico 1 33,000
Summerton, South Carolina 1 110,200
22 3,025,302
15
# Of Sq. Ft.
International Manufacturing Facilities Facilities @ 12/31/93
- - - -------------------------------------- ---------- ----------
Braunschweiger, Germany 1 16,191
Cataguases/MG, Brazil 1 46,600
Cuorgne, Italy 1 114,930
Laplata, Argentina 1 64,691
Orleans, France 1 120,300
Wiesbaden, Germany 1 192,919
(1) Wiesbaden, Germany 2 1,030,822
(1) Walldorf, Germany 1 43,600
(1) San Luis, Argentina 1 6,995
10 1,457,530
Total Manufacturing Facilities 33 4,482,832
(1) This facility is leased by the company and
accounted for as an operating lease. The company believes
that these leases could be renewed or comparable
facilities could be obtained without materially affecting
operations.
(2) The company has announced plans to close
this facility in 1994. Operations are being consolidated into the
Logansport plant.
B. Aftermarket Warehouses. The Company operates one hundred
twenty-six warehouses and distribution centers of which one hundred
twenty-one are leased. In addition, two warehouses are financed
and leased through the issuance of Industrial Revenue Bonds.
Following the acquisition of SPR, the Company announced plans to
consolidate duplicative operations and close 34 of these facilities
before the end of 1994.
C. Retail Properties. The Company leases 6 retail facilities
in Australia, 9 facilities in Venezuela and 4 in Chile.
All owned and leased properties are suitable, 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.
16
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
seven 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 six 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 discounted or reduced by any anticipated insurance
proceeds, will cover the Company's estimated foreseeable total liability
for these sites.
The Company is involved in other legal actions arising in the
normal course of business. After taking into consideration legal
counsel's evaluation of such actions, management is of the opinion
that their outcome will not have a significant effect on the
Company's consolidated financial statements.
B. There were no material legal proceedings which were
terminated during the fourth quarter of 1993.
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - - -----------------------------------------------------------
No matter was submitted during the fourth quarter of 1993 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, 1993 was 12,374. 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:
1993 1992
Quarter High Low High Low
First $20 1/2 $ 16 1/4 $ 18 1/8 $ 14 7/8
Second 22 17 5/8 20 15
5/8
Third 26 1/4 19 7/8 18 14 1/2
Fourth 29 7/8 23 1/4 18 15 1/4
Quarterly dividends of $.12 per common share were declared during
1993 and 1992. The payment of dividends is subject to the
restrictions described in Note 6 to the consolidated financial
statements contained in Item 8 of this Report. In February 1994,
the Company's Board of Directors declared a quarterly dividend of
$.12 per common share. This was the 232nd consecutive quarterly
dividend declared by the Company.
18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
SIX YEAR FINANCIAL SUMMARY
--------------------------
FEDERAL-MOGUL CORPORATION
-------------------------
(Millions of Dollars, Except Per Share Amounts)
1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- --------
Consolidated Statement of
Earnings Data
- - - -------------------------
Net sales:
Aftermarket $ 992.9 $ 700.0 $ 582.5 $ 544.1 $ 510.5 $ 530.9
Original equipment 582.6 564.0 516.2 420.7 410.5 428.9
Other (1) - - - - 23.9 96.7
------- ------- ------- ------- ------- -------
Total net sales 1,575.5 1,264.0 1,098.7 964.8 944.9 1,056.5
Costs and expenses (2) (1,521.9) (1,262.3) (1,124.0) (961.5) (905.0) (981.3)
Sale of business investments (1) - - - - 16.9 7.3
Other income 4.0 7.3 6.6 3.7 1.4 3.1
Income taxes (17.5) (4.6) (1.1) (6.7) (23.5) (36.1)
------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations 40.1 4.4 (19.8) 0.3 34.7 49.5
Discontinued operations (3) - - 16.1 6.5 (2.7) (6.1)
Extraordinary loss - - - - - (1.7)
Cumulative effect of
accounting change (4) - (88.1) - - 2.9 -
------- ------- ------- ------- ------- -------
Net earnings (loss) 40.1 (83.7) (3.7) 6.8 34.9 41.7
Preferred stock dividends,
net of tax benefits (9.1) (4.6) (3.1) (3.7) (2.8) -
------- ------- ------- ------- ------- -------
Net earnings (loss) available
for common shares $ 31.0 $ (88.3) $ (6.8) $ 3.1 $ 32.1 $ 41.7
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Common Share Summary (5)
- - - --------------------
Average shares and equivalents
outstanding (in thousands) 27,342 22,390 22,314 22,310 23,123 25,064
Earnings (loss) per share:
Continuing operations (6) $ 1.13 $ (.01) $(1.03) $ (.15) $ 1.38 $ 1.91
Discontinued operations (3) - - .72 .29 (.12) (.24)
Cumulative effect of
accounting change (4) - (3.93) - - .12 -
----- ----- ----- ----- ----- -----
Total earnings (loss) per share 1.13 (3.94) (.31) .14 1.38 1.67
Dividends paid per share .48 .48 .92 .92 .905 .86
Supplemental earnings
(loss) per share (7):
Continuing operations .02
Cumulative effect of
accounting change (4) (3.93)
-----
Total supplemental earnings
(loss) per share (3.91)
19
SIX YEAR FINANCIAL SUMMARY (continued)
- - - --------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
(Millions of Dollars,
Except Per Share Amounts) 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- --------
Consolidated Balance Sheet Data
- - - -------------------------------
Total assets $1,291.8 $1,103.7 $ 912.8 $1,084.6 $ 809.6 $ 811.3
Short-term debt (8) 39.2 69.4 47.5 61.4 105.2 83.5
Long-term debt 382.5 350.6 304.0 417.9 177.7 124.3
Shareholders' equity 371.1 230.9 259.0 292.9 304.1 362.0
Other Financial Information
- - - ---------------------------
Net cash provided from
operating activities $ 29.6 $ 52.7 $ 47.9 $ 70.9 $ 16.0 $ 55.0
Expenditures for property,
plant and equipment 59.3 40.2 44.0 47.1 51.5 57.6
Depreciation expense 43.9 43.9 48.7 43.3 40.8 43.3
(1) Includes materials processing operations through May 1989.
(2) Includes in 1992 and 1991 special charges of $14 million and $25 million,
respectively.
(3) Discontinued operations reflect the operating results (and sale in 1991)
of the company's fastening systems business and include an allocation of
interest expense in each year based on annual net asset ratios.
(4) The company changed its method of accounting for postretirement benefits
other than pensions effective in 1992 and its method of accounting for
income taxes effective in 1989.
(5) Adjusted for two-for-one stock split in 1989.
(6) Extraordinary losses of $(.07) per share are included in 1988.
(7) Adjusted to assume the issuance of 6,750,000 shares of common stock
(including the Pension Shares) and the use of the net proceeds to
prepay a portion of the term loan due in 1998 as if the shares had
been issued and the term loan prepaid on October 20, 1992, the date
of the initial borrowing.
(8) Includes current maturities of long-term debt.
20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
FEDERAL-MOGUL CORPORATION
-------------------------
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)
Balance at 1/1/91 $ 63.5 $(57.6) $111.5 $ 15.4 $159.9 $ .2 $292.9
- - - -----------------
Net loss (3.7) (3.7)
Exercise of
stock options .3 .2 .5
Retirement of
preferred stock (1.2) (1.2)
Amortization of
unearned compensation 4.1 .1 4.2
Dividends (25.3) (25.3)
Preferred dividend
tax benefits 1.7 1.7
Currency translation (8.5) (8.5)
Sale of business (1.9) (1.9)
Pension adjustment .3 .3
----- ----- ----- ----- ----- ----- ----- -----
Balance at 12/31/91 62.3 (53.5) 111.8 17.3 130.9 (9.8) 259.0
- - - ------------------- ----- ----- ----- ----- ----- ----- ----- -----
Net loss (83.7) (83.7)
Issuance of
preferred stock $76.6 76.6
Exercise of
stock options .1 .3 .4
Retirement of
preferred stock (1.4) (1.4)
Amortization of
unearned compensation 4.3 .2 4.5
Dividends (17.0) (17.0)
Preferred dividend
tax benefits 1.7 1.7
Currency translation (8.6) (8.6)
Pension adjustment (.6) (.6)
----- ----- ----- ----- ----- ----- ----- -----
Balance at 12/31/92 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 12/31/93 $ 76.6 $ 60.2 $(44.6) $147.5 $117.2 $ 46.4 $(32.2) $371.1
- - - ------------------- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- -----
See accompanying Notes to Consolidated Financial Statements.
21
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
-----------------------------------
FEDERAL-MOGUL CORPORATION
-------------------------
Overview
- - - --------
Federal-Mogul's core business is providing value added services
based on 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 of
global distribution and systems logistics to improve customer
service. Distribution is focused on markets where the diverse and
complex vehicular population complements our broad range of
products.
On October 26, 1993, the company completed its most recent
strategic acquisition in the vehicular aftermarket with the
purchase of SPX Corporation's United States and Canadian automotive
aftermarket operations, Sealed Power Replacement (SPR). The SPR
acquisition further expands the broad base of products and provides
additional vendor sourcing opportunities. The consolidation of the
two businesses is expected to result in significant cost savings
through the elimination of duplicative processes and facilities.
Since the date of the acquisition, the newly-acquired business has
contributed $26.6 million or 1.7% of the company's total 1993
sales. On a pro forma basis, assuming the acquisition had been
completed on January 1, 1993, SPR would have contributed 10% of pro
forma combined sales for the year.
On October 20, 1992, Federal-Mogul completed the purchase of TRW
Inc.'s automotive aftermarket business (AAB). The AAB acquisition
was a major step in expanding aftermarket activity through an
increased presence as a distributor of replacement parts for
European and Japanese manufactured vehicles. In addition, the
acquisition expanded the company's engine and chassis product
offerings and increased purchasing power with outside suppliers.
This acquisition contributed approximately 20% of total company
sales in 1993.
Throughout 1993, the company sold a number of non-strategic businesses
and assets that were no longer consistent with the company's primary focus
on vehicular parts for the global aftermarket. These included the sale of
Westwind Air Bearings Ltd. and its affiliated operations in the United
States and Japan, an equity interest in the Japanese engine bearing
manufacturer Taiho Kogyo Co., and an equity interest in a Bermuda-based
insurance company. It is the company's plan to divest non-strategic
businesses and assets and utilize the proceeds to finance restructuring
activities in core businesses, while neutralizing, to the extent possible,
the earnings impact. In 1993, gains from the sale of businesses and assets
were used to offset restructuring charges for the closing of a fuel systems
manufacturing facility and the future consolidation of fuel systems
operations in the company's lighting and electrical business. Also, the
gain from the sale of idle land in Germany has been reserved for the
restructuring of the Glyco engine bearing operations. The net effect of
he sale of businesses and assets, and restructuring charges in 1993 was
insignificant to the pretax earnings.
22
The company reported 1993 earnings from continuing operations of
$40.1 million or $1.13 per share, including a one-time after tax
gain of $.07 per share on asset sales net of restructuring charges.
Earnings for 1993 improved significantly over 1992 and 1991 due to
added margin from the acquired AAB business, as well as the timely
rationalization of that business which reduced approximately $15
million in operating expenses. Additionally, improved economic conditions
in the North American original equipment markets and
increased productivity in domestic manufacturing operations contributed to
the earnings improvement.
In 1992, the company reported earnings from continuing operations of $4.4
million. Due to the adoption of Statement of Financial AccountiNg
Standards Nos. 106 and 112, "Employers' Accounting for Postretirement
Benefits Other than Pensions" (SFAS 106), and "Employers' Accounting for
Postemployment Benefits" (SFAS 112), the company incurred a net loss in
1992 of $83.7 million, or $3.94 per share.
In 1991, the company incurred a net loss of $3.7 million, or $.31 per share.
During 1991, the company sold its fastening systems business that was no
longer consistent with the company's strategic direction, resulting in a net
gain of $16.2 million. This gain was offset by a restructuring charge of
$25 million for process changes to improve operating efficiencies.
Excluding the effect of these items, the company would have reported 1991
net earnings of $2 million, or a loss of $.05
per common share after the payment of preferred dividends.
The company has made a strategic decision to emphasize and expand the
company's global aftermarket business. Management believes that
aftermarket sales are less cyclical than original equipment sales, and
aftermarket expansion will offer greater potential for long-term growth and
higher operating margins. Additionally, the company expects to benefit
from improvements in the reduction of manufacturing lead time and other
process changes, particularly in European operations.
Rationalization Costs of Acquired Businesses
- - - --------------------------------------------
A key aspect of the recent acquisitions of SPR and AAB is the opportunity to
realize significant savings through consolidation of operations in North
America and, to a lesser extent, in Europe. Savings realized in 1993 from
the integration of AAB exceeded $15 million and the company estimates
increasing annual cost savings by an additional $6 million in 1994. As a
result of the SPR integration, the company anticipates cost savings of
$12.5 million in 1994, with an incremental $10 million of cost
savings thereafter. The company believes by 1995 it will meet or exceed
combined annual cost savings of $43 million: $21 million from the
integration of AAB and $22 million from the integration of SPR. The
components of these savings include eliminating redundancies with sales
staff, overlapping warehouses, distribution and administration facilities
and consolidating freight. The projected 1994 cost savings from the SPR
integration is reflected in the pro forma net earnings data for the
combined operations as if the acquisition had been completed at the
beginning of 1993 as disclosed in Note 2 to the company's consolidated
financial statements for 1993.
In order to obtain these anticipated cost savings and achieve the benefit of
increased sales volume, the company expects to incur one-time costs of
approximately $32 million in connection with the integration of Federal-
Mogul and AAB and $26 million in the consolidation of SPR. Of the total
rationalization costs, $1 million was expensed for SPR in 1993 and $14
million was expensed for AAB in 1992. The remaining portion of the
rationalization costs of $18 million for AAB and $25 million for SPR has
been capitalized as goodwill. The rationalization expense was significantly
higher in the case of AAB based on the greater number of Federal-Mogul
locations impacted by the consolidation.
23
Results of Operations
- - - ---------------------
Sales
- - - -----
The company experienced a sales increase of $311.5 million, or 24.6%, in
1993 and $165.3 million, or 15%, in 1992. Excluding the impact of the SPR
acquisition, sales grew 22.5% to $1,549 million in 1993. This increase
was largely due to the AAB acquisition in the fourth quarter of 1992.
Other factors include increased sales to domestic original equipment
customers in nearly every manufactured product line and price increases in
aftermarket channels.
Aftermarket and original equipment sales by major geographic area were:
(Millions of Dollars) 1993 1992 1991
-------- -------- --------
Aftermarket:
United States and Canada $ 683.8 $ 460.5 $ 377.4
International 309.1 239.5 205.1
Original Equipment:
United States and Canada 408.5 357.0 320.1
International 174.1 207.0 196.1
------- ------- -------
Total sales 1,575.5 $1,264.0 $1,098.7
------- ------- -------
------- ------- -------
Sales to aftermarket customers represented 63% of total company sales in
1993. On a pro forma basis, assuming the company acquired SPR on January 1,
aftermarket sales would have been 66% of 1993 total sales. Comparatively,
aftermarket sales were 55% of 1992 sales and 53% of 1991 sales.
SPR contributed $26.6 million, or 3.9%, in aftermarket sales to the United
States and Canada in 1993. The company has entered into a long-term
trademark agreement making it the exclusive distributor of parts sold under
the Sealed Power and Speed-Pro brand names. In addition, United States and
Canada aftermarket sales improved $223.3 million primarily due to the
increased sales of steering and suspension parts sold under the TRW brand
name and an increased market presence in engine parts. Federal-Mogul is
the North American automotive aftermarket leader in engine bearings,
engine parts, ball and roller bearings, fuel pumps, sealing products and
lighting and electrical components.
International aftermarket sales increased $69.6 million, or 29% in 1993,
largely as a result of the acquisition of AAB European operations,
additional market share in Japanese application engine part components
and the acquisition of an Australian wholesale and retail business. The
company has made modest gains in expanding its retail stores by opening
several retail stores in late 1993. In the future, the company intends to
expand the number of retail stores it owns and operates in strategic areas
throughout the world.
United States and Canada original equipment sales increased $51.5 million,
or 14.4% in 1993. Stronger automotive and light truck production rates in
North America contributed to this growth. Sales growth also continued in
the new seal application for bonded pistons in transmissions. United
States and Canada original equipment sales improved $36.9 million,
or 11.5%, between 1992 and 1991, due to new product programs and a
recovering demand for light trucks and automobiles.
24
In 1993, European original equipment sales declined $33 million, $6.5 million
of which was due to the divestiture of the Westwind Air Bearing business in
May 1993. European automotive and heavy duty vehicle production felt the
effects of depressed economic conditions resulting in lower sales volumes
and price erosion. In 1992, international original equipment sales
increased $10.9 million, or 5.6% due to market penetration in heavy duty
engine seals and engine bearings.
Operating Margin
- - - ----------------
Operating margins improved $40.8 million, or 93.6%, in 1993 and $14.6
million, or 50.3%, in 1992 and were:
(Millions of Dollars) 1993 1992 1991
------ ------ ------
Total operating margin $ 84.4 $ 43.6 $ 29.0
------ ------ ------
------ ------ ------
Margin percentage 5.4% 3.4% 2.6%
------ ------ ------
------ ------ ------
The successful integration of AAB had a favorable earnings impact of more
than $15 million in cost savings in 1993, as well as the additional margin
generated from incremental AAB sales. SPR contributed $1 million in
operating margin in 1993 from slightly more than two months of operations.
Worldwide aftermarket pricing actions and productivity in the domestic
manufacturing operations also contributed to the improvement.
As the economic recovery continues in the United States, auto and light
truck build rates are expected to remain strong. The company
anticipates that North American earnings will continue to improve in
1994. However, after a more than 20% decline in German original equipment
production in 1993, continued weak volume and competitive pricing pressures
in 1994 are anticipated. The European engine bearing business is expected
to offset these economic conditions somewhat through lead time reductions,
process improvements and employment reductions. The recently-signed North
American Free Trade Agreement (NAFTA) is expected to foster increased
competition in the North American vehicle parts business. It is possible
that operating margins in the company's Mexican operations will decrease
as a result of this agreement. Although the impact of NAFTA on the
company's business is uncertain, the company's Mexican operations are
approved suppliers to the three major United States automobile
manufacturers, as well as a major supplier to the automotive replacement
market. Due to the strategic position of operations in Mexico, management
believes that NAFTA will provide certain opportunities for the company after
the current economic slowdown in Mexico subsides.
There is substantial and continuing pressure from major global automotive
companies to reduce costs, including costs associated with
outside suppliers such as Federal-Mogul. The company has reduced exposure
in this area based on recent acquisitions that have significantly modified
the sales mix and reduced sales volatility. However, there can be no
assurance that the company will be able to maintain its gross margins on
product sales to original equipment manufacturers.
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 product
coverage. The company's strategic response to these competitive challenges
is to more efficiently and effectively integrate its distribution and
manufacturing operations, consolidate its purchasing requirements and expand
its product coverage within its global base of aftermarket and original
equipment businesses.
25
Other Income and Expense
- - - ------------------------
Net interest expense decreased to $18.3 million in 1993 from $19.3 million
in 1992. This was the result of several actions taken to
repay and refinance debt. The company sold $40 million in accounts
receivable in March 1993, bringing the total accounts receivable
securitization to $95 million. In April 1993, 6,250,000 shares of
Federal-Mogul common stock were issued. Proceeds from these actions were
used to repay the term loan associated with the acquisition of AAB.
International currency exchange losses totalled $5.7 million in 1993,
compared to $5.8 million in 1992 and $4.8 million in 1991. The effect
of the continued devaluation of the Brazilian cruzeiro represents the
majority of the foreign exchange losses.
When deemed prudent and cost effective, the company uses foreign exchange
options and forward exchange contracts to hedge material net foreign
exchange transaction exposures. However, the company does not
typically hedge translation exposures in countries whose local currency
is the functional currency. At December 31, 1993, the company's most
significant translation exposures were in German deutsche marks and Mexican
pesos. Changes in the exchange rate between the U.S. dollar
and these currencies are recorded directly as a component of shareholder's
equity.
Amortization of intangible assets increased in 1993 to $6.8 million from
$2.8 million and $1.6 million in 1992 and 1991, respectively.
The amortization of trademark and non-compete agreements and the
goodwill associated with the acquisitions of AAB and SPR represent
the increase in this expense.
SFAS 106 & SFAS 112
- - - -------------------
In 1992, in accordance with Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", the company began accruing the cost of providing future
postretirement benefits, such as health care and life insurance, over the
related employee's service period. Prior to the adoption, the cost of
providing these benefits to retired employees was recognized by the company
when payments were made. The company elected to immediately
recognize the accumulated postretirement benefit obligation at the date
of adoption. The charges to operations were:
(Millions of Dollars) 1993 1992
------ ------
Incremental annual expense $ 6.6 $ 7.6
Income tax benefit (2.4) (2.7)
-------- -------
4.2 4.9
Cumulative effect of accounting change 135.7
Income tax benefit (47.6)
------
88.1
------
Net effect of SFAS 106 $ 4.2 $ 93.0
------- ------
------- ------
Also in 1992, the company adopted Statement of Financial Accounting Standard
No. 112, "Employers' Accounting for Postemployment Benefits", which requires
the accrual of future postemployment benefits, when such amounts can be
estimated. The impact of adopting this standard on the company's financial
position in operating results is not significant.
26
Income Taxes
- - - ------------
The company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). At December 31, 1993, the company had deferred tax assets of
$106.4 million and deferred tax liabilities of $72.5 million.
The company records valuation allowances ($21.0 million at December 31,
1993) 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 its German net operating
loss carryforward.
The deferred tax asset for the company's postretirement benefit obligation
was $55.3 million at December 31, 1993. 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 $150
million. The company could generate approximately $67 million of taxable
income from the execution of tax planning strategies, principally through
revoking the company's LIFO election. The company will need to generate the
additional 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 the German net operating loss
carryforward was $19.0 million at December 31, 1993. The carryforward is
not subject to expiration. Sufficient taxable income will
be generated through the reversal of existing taxable temporary differences
to enable the carryforward to be utilized.
Liquidity and Financial Condition
- - - ---------------------------------
Assets
- - - ------
The acquisitions of SPR and AAB in 1993 and 1992, respectively, added the
following operating assets at the time of the purchase.
(Millions of Dollars) SPR AAB
----- -----
Accounts receivable $ 21 $ 54
Inventories 64 117
Property and equipment 8 12
The additions of the above assets reflects the most significant transactions
affecting comparisons of these accounts from year to year.
The increase in intangible assets for both 1993 and 1992 represents the
cost of long-term non-compete and trademark agreements with SPX and TRW and
goodwill of the acquired businesses.
Excluding the acquisition of SPR and the accounts receivable securitized in
1993, accounts receivable at December 31, 1993 increased approximately $40
million. This increase results primarily from the overall
increase in sales.
Inventories decreased by approximately $6 million from December 31, 1992
excluding the impact of SPR. This was achieved during a period where sales
increased by more than 20%, demonstrating the continued
success of lead time reductions and inventory management programs.
27
Liabilities
- - - -----------
In the fourth quarter of 1993, the company renegotiated its revolving credit
facility (revolver), increasing the amount available from
$150 million to $300 million. The renegotiated revolver immediately
lowered interest on borrowings by 75 basis points. Interest on the revolver
is based on LIBOR plus a range of 50 to 150 basis points which are charged
based on the company's Moody's and S&P bond ratings. At December 31, 1993
the company pays interest on the revolver at LIBOR plus 100 basis points
which is a reduction of 150 basis points from the prior year.
During 1993, the company drew $245 million against the revolver to repay
the $100 million 8 3/8% notes due October 1, 1993 and complete the purchase
of SPR. At December 31, 1993, the outstanding balance on the revolver was
$245 million.
In December 1993, the company filed a shelf registration with the SEC that
will allow the company to issue a combination of debt and equity securities
up to $300 million over a two year period. In February 1994, the company
used the shelf registration to offer 5 million shares of common stock to the
public. The underwriters of the offering subsequently
exercised an option to cover overallotments resulting in the sale of an
additional 750,000 shares. The total sale of 5.75 million common shares
generated net proceeds to the company of nearly $191 million. The offering
proceeds were used to repay a portion of the company's outstanding debt.
During the first quarter of 1994, the Company attained an investment grade
status from the Moody's and Standard & Poor's rating agencies, primarily
as a result of acts taken to repay and refinance debt in 1993
and early 1994. This should provide improved access to capital markets.
To finance the 1992 AAB acquisition, the company used net proceeds of $76.6
million from the issuance of 1,600,000 shares of Series D preferred stock
in September 1992 and $125 million of unsecured senior bank financing
pursuant to a bank credit agreement maturing September 1998 (the $125
million term loan). During the first half of 1993, the $125 million term
loan was repaid with the net proceeds from the sale of $40 million of
accounts receivable and $85 million of the $116 million net proceeds from
the sale of 6,250,000 shares of the company's common stock in April 1993.
The increase in other accrued liabilities represents amounts accrued for
the rationalization of the AAB and SPR acquisitions and the
restructuring of manufacturing operations at the Glyco and the lighting,
electrical and fuel systems businesses.
The discount rate used to determine the actuarial present value of domestic
postretirement pension, health insurance and life insurance
benefits was lowered to 7 1/2% for 1993 from 8 3/4% in 1992. The 7 1/2%
discount rate reflects the current expected yield for long-term, high
quality investments. The lowered discount rate reduced net pension income
from domestic plans by about $.6 million for 1993. Assumptions for expected
long-term rates of return on plan assets and future compensation increases
were also adjusted for current conditions. The changes in assumptions had
an insignificant effect on 1993 operating results and the impact in the
future is expected to be minimal. The company also lowered the discount
rate on its international plans from 9% in 1992 to 8% in 1993, increasing
1993 pension expense by approximately $.3 million. Combined changes in the
discount rate increased the recorded liability for pensions by
approximately $20 million at December 31, 1993. The impact of changing
the discount rate on the recorded liability for postretirement health care
and life insurance benefits was largely offset by better than expected
experience, lowering the medical trend rate and changes made to certain
plan provisions.
28
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 seven 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. In addition, the company has
identified six present and former properties at which it may be responsible
for cleaning up certain 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 discounted or reduced by any anticipated insurance
proceeds, will be adequate to cover the company's estimated liability for
these sites.
Cash Flows
- - - ----------
Operating Activities
- - - --------------------
The company generated cash of $29.6 million from operations in 1993
compared to $52.7 million and $47.9 million in 1992 and 1991, respectively.
These year-to-year changes include net earnings from continuing operations
of $40.1 million and $4.4 million in 1993 and 1992, respectively,
and a loss of $19.8 million in 1991. The 1993 results were lower than
previous years as the company spent approximately $22 million dollars on
the integration of AAB. It is the company's belief that cash from
operations will continue to be sufficient to meet its ongoing working
capital requirements including the requirements for the continued
integration of SPR and restructuring of the Glyco and the lighting,
electrical and fuel systems operations.
Investing Activities
- - - --------------------
Other than the purchases of SPR and AAB, the company's principal investing
activity in 1993, 1992 and 1991 was the acquisition of property and
equipment for its existing operations. Approximately $59 million, $40
million and $44 million of cash in 1993, 1992 and 1991, respectively, was
reinvested in productive assets of the company. These investments were
made to support the company's long-term objective of improving operating
productivity and product mix. These investments were funded in 1993 and
1992 with cash from operating and financing activities. In 1991,
investments were funded with proceeds from the sale of the company's
fastening systems business. Capital expenditures for 1994 are anticipated
to be approximately $55 million, as the company continues to enhance
manufacturing capabilities in the United States and Europe.
Financing Activities
- - - --------------------
As previously noted, the sale of common stock and the securitization of
accounts receivable in 1993 helped the company reduce debt associated with
the purchase of AAB in 1992. The company borrowed approximately $145
million to finance the acquisition of SPX Corporation's automotive
aftermarket operations in 1993 which will be repaid from the proceeds of
a common stock offering in early 1994.
The issuance of Series D Convertible Exchangeable Preferred Stock,
borrowings under short and long-term agreements and proceeds from the
accounts receivable securitization contributed an additional $274 million
in cash in 1992. Cash of $73 million used for long-term debt repayments
in 1992 was $24.6 million less than in 1991, as the earlier year included
a large debt reduction with the proceeds from the sale of the company's
fastening systems business.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
- - - -----------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
Year Ended December 31 1993 1992 1991
-------- -------- --------
(Millions of Dollars,
Except Per Share Amounts)
Net sales $1,575.5 $1,264.0 $1,098.7
Cost of products sold 1,263.8 1,054.6 919.2
Selling, distribution and administrative expenses 227.3 165.8 150.5
------- ------- -------
Operating margin 84.4 43.6 29.0
Special charges and sales of business investments - (14.0) (25.0)
------- ------- -------
Operating earnings 84.4 29.6 4.0
Other income (expense):
Interest expense (25.9) (27.2) (27.9)
Interest income 7.6 7.9 5.0
International currency exchange losses (5.7) (5.8) (4.8)
Amortization of intangible assets (6.8) (2.8) (1.6)
Other 4.0 7.3 6.6
------- ------- -------
Earnings (Loss) from Continuing Operations
Before Income Taxes and Cumulative
Effect of Accounting Change 57.6 9.0 (18.7)
Income taxes 17.5 4.6 1.1
------- ------- -------
Earnings (Loss) from Continuing Operations
Before Cumulative Effect of Accounting Change 40.1 4.4 (19.8)
Cumulative effect of change in accounting for
postretirement benefits, net of income taxes - (88.1) -
Discontinued operations, net of income taxes:
Loss from operations - - (.1)
Gain on sale - - 16.2
------- ------- -------
- (88.1) 16.1
------- ------- -------
Net Earnings (Loss) $ 40.1 $ (83.7) $ (3.7)
------- ------- -------
------- ------- -------
Earnings (Loss) Per Common Share: (1)
Primary:
Continuing operations $ 1.13 $ (.01) $ (1.03)
Cumulative effect of accounting change - (3.93) -
Discontinued operations - - .72
------- ------- -------
$ 1.13 $ (3.94) $ (.31)
------- ------- -------
------- ------- -------
(1) Based on net earnings (loss) after deduction of preferred stock dividends,
net of related tax benefits of $9.1 million, $4.6 million and $3.1 million
for 1993, 1992 and 1991, respectively.
See accompanying Notes to Consolidated Financial Statements.
/TABLE
30
CONSOLIDATED BALANCE SHEETS
- - - ---------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
December 31 1993 1992
-------- --------
(Millions of Dollars)
Assets
- - - ------
Current Assets:
Cash and equivalents $ 24.2 $ 19.1
Accounts receivable 186.9 171.8
Inventories 322.3 267.4
Prepaid expenses and income tax benefits 40.6 33.4
------- -------
Total Current Assets 574.0 491.7
Property, Plant and Equipment 399.8 390.7
Intangible Assets 199.3 102.3
Business Investments and Other Assets 118.7 119.0
------- -------
Total Assets $1,291.8 $1,103.7
------- -------
------- -------
Liabilities and Shareholders' Equity
- - - ------------------------------------
Current Liabilities:
Short-term debt $ 39.2 $ 69.4
Accounts payable 94.5 76.0
Accrued compensation 31.7 28.4
Other accrued liabilities 117.9 95.7
------- -------
Total Current Liabilities 283.3 269.5
Long-Term Debt 382.5 350.6
Postretirement Benefits Other than Pensions 149.9 143.3
Other Accrued Liabilities 92.0 82.1
Deferred Income Taxes 13.0 27.3
------- -------
Total Liabilities 920.7 872.8
Shareholders' Equity:
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 60.2 60.9
Unearned ESOP compensation (44.6) (49.2)
Common stock 147.5 111.9
Additional paid-in capital 117.2 19.3
Retained earnings 46.4 30.2
Currency translation and other (32.2) (18.8)
------- -------
Total Shareholders' Equity 371.1 230.9
------- -------
Total Liabilities and Shareholders' Equity $1,291.8 $1,103.7
------- -------
------- -------
See accompanying Notes to Consolidated Financial Statements.
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - -------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
Year Ended December 31 1993 1992 1991
-------- -------- --------
(Millions of Dollars)
Cash Provided From (Used By) Operating Activities
- - - -------------------------------------------------
Net earnings (loss) $ 40.1 $ (83.7) $ (3.7)
Adjustments to reconcile net earnings (loss) to
net cash provided from operating activities:
Depreciation and amortization 50.7 46.7 50.3
Deferred income taxes (8.8) (3.7) (17.1)
Postretirement benefits other than pensions 6.6 93.0 -
Gain on sale of business (19.2) - (16.2)
(Increase) decrease in accounts receivable (40.3) (22.2) 1.1
(Increase) decrease in inventories, prepaid
expenses and other (6.3) 27.3 28.0
Increase (decrease) in other current liabilities 6.8 (4.7) 5.5
------ ------ ------
Net Cash Provided From Operating Activities 29.6 52.7 47.9
Cash Provided From (Used By) Investing Activities
- - - -------------------------------------------------
Expenditures for property, plant and equipment (59.3) (40.2) (44.0)
Acquisitions of automotive aftermarket businesses (147.4) (218.4) -
Proceeds from sale of business investments 38.3 - 146.6
Other (.5) .8 (2.5)
------ ------ ------
Net Cash Provided From (Used By)
Investing Activities (168.9) (257.8) 100.1
Cash Provided From (Used By) Financing Activities
- - - -------------------------------------------------
Issuance of common stock 122.1 .4 .5
Issuance of Series D preferred stock - 76.6 -
Proceeds from issuance of long-term debt 258.3 120.6 -
Principal payments on long-term debt (227.3) (73.0) (97.6)
Increase (decrease) in short-term debt (24.1) 23.1 (7.9)
Sale of accounts receivable 39.6 54.1 -
Dividends (23.9) (16.7) (25.3)
Other (.3) (5.5) -
------ ------ ------
Net Cash Provided From (Used By)
Financing Activities 144.4 179.6 (130.3)
------ ------ ------
Increase (Decrease) in Cash and Equivalents 5.1 (25.5) 17.7
Cash and Equivalents at Beginning of Year 19.1 44.6 26.9
------ ------ ------
Cash and Equivalents at End of Year $ 24.2 $ 19.1 $ 44.6
------ ------ ------
------ ------ ------
See accompanying Notes to Consolidated Financial Statements.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
1. ACCOUNTING POLICIES
-------------------
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 ninety 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 66% and 62% of the inventory at December 31, 1993 and 1992,
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 $65.3 million
in 1993 and $64.7 million in 1992.
At December 31, inventories consisted of the following:
(Millions of Dollars) 1993 1992
------ ------
Finished products $279.7 $217.5
Work-in-process 21.3 31.3
Raw materials 21.3 18.6
----- -----
$322.3 $267.4
----- -----
----- -----
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 1993, 1992, and 1991 by
$5.3 million ($.19 per share), $6.9 million ($.31 per share)
and $13.5 million ($.60 per share), respectively.
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. Intangible
assets reflected in the consolidated balance sheets are net of accumulated
amortization of $12.0 million and $6.8 million in 1993 and 1992,
respectively.
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.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
1. ACCOUNTING POLICIES (continued)
-------------------
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 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, 1993, and the
number of preferred shares held by the Employee Stock Ownership Plan
(ESOP) that were allocated to participants' accounts as of December
31 of each of the respective years. Fully diluted earnings per share
amounts are not reported as there is an insignificant difference
in the 1993 calculation and the effects are anti-dilutive in 1992
and 1991.
The primary weighted average number of common and equivalent shares
outstanding (in thousands) was 27,342, 22,390, and 22,314 for 1993,
1992 and 1991, respectively. The fully diluted weighted average
number of common and equivalent shares outstanding (in thousands) was
33,927 for 1993, 25,552 for 1992 and 24,673 for 1991.
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. Financial
Instruments and Concentrations of Credit Risk - Foreign exchange options
and forward contracts on foreign currencies and copper futures are entered
into by the company as hedges against the impact of currency and raw
material price fluctuations and are not used to engage in speculation.
Gains and losses are recognized when these instruments are settled.
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 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 this
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 credit worthy.
Changes in Accounting Method - During the fourth quarter of 1992, the
company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109),
retroactively to 1989. Accordingly, retained earnings at January 1,
1990, were increased by $2.9 million, representing the cumulative effect
of the change in the method of accounting for income taxes. The loss
from continuing operations for the year ended December 31, 1991 has been
restated for the effect of adopting SFAS 109 as follows:
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
1. ACCOUNTING POLICIES (continued)
-------------------
(Millions of Dollars, Except Per Share Amounts) 1991
--------
As previously reported $(21.0)
Effect of adoption of SFAS 109 1.2
-----
As restated $(19.8)
-----
-----
Per common share as previously reported $(1.08)
Effect of adoption of SFAS 109 .05
-----
Per common share as restated $(1.03)
-----
-----
Also in the fourth quarter of 1992, the company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions" (SFAS 106), effective
as of January 1, 1992, and restated previously reported 1992
quarterly results. Prior to adoption, the cost of providing health care
and life insurance benefits to retired employees was recognized
as expense as payments were made. The company recorded a charge of $88.1
million, or $3.93 per common share, net of applicable tax
benefits of $47.6 million to reflect the cumulative effect for years prior
to 1992 of the change in accounting method.
In addition to the cumulative effect, the company's 1993 and 1992
postretirement health care and life insurance costs increased $6.6 million
and $7.6 million, respectively, as a result of adopting SFAS 106.
Reclassifications - Certain items in the prior year financial statements
have been reclassified to conform with the presentation used in 1993.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
2. ACQUISITIONS
------------
On October 26, 1993, the company completed its acquisition of SPX
Corporation's United States and Canadian automotive aftermarket operations,
Sealed Power Replacement (SPR). The acquisition has been accounted for as
a purchase and, accordingly, the total cost of $167 million was allocated
to the acquired assets and assumed liabilities based on their estimated
fair values as of the acquisition date. The company and SPX Corporation
also executed a non-compete agreement and a long-term trademark 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 $65 million has been recorded
as goodwill. The earnings statement includes the operating results of the
acquired business from October 26, 1993.
35
On October 20, 1992, the company acquired substantially all of TRW Inc.'s
automotive aftermarket business (AAB). The acquisition has
been accounted for as a purchase and, accordingly, the total cost of $232
million was allocated to the acquired assets and assumed liabilities based
on their estimated fair values as of the acquisition date. The company and
TRW Inc. also executed a non-compete agreement and completed a long-term
supply contract and a trademark agreement (valued at $48.2 million in the
aggregate) making the company the exclusive supplier of TRW-brand engine and
chassis parts to the independent automotive aftermarket. The excess
of the consideration paid over the estimated fair value of net assets
acquired of $34 million has been recorded as goodwill. The consolidated
statement of earnings includes the operating results of the acquired
business from October 20, 1992.
The following unaudited pro forma results of operations for the years
ended December 31, 1993 and 1992 assume the described acquisitions
occurred as of the beginning of the respective periods, after giving
effect to certain adjustments, including amortization of intangible
assets, increased interest expense on acquisition debt and related
income tax effects, with the SPR acquisition impacting 1993 and the
SPR and AAB acquisitions impacting 1992. 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.
(Millions of Dollars,
Except Per Share Amounts) 1993 1992
---------- ----------
Net sales $1,705.3 $1,672.0
Earnings from continuing operations 74.3 42.0
Net earnings (loss) 50.2 (62.1)
Net earnings (loss) per common share:
Primary $ 1.50 $ (3.17)
Fully diluted 1.41 (3.17)
Operating results for 1993 include a $1 million ($.02 per share) charge
and for 1992 a $14 million ($.40 per share) 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. Limited. The acquisition
was accounted for as a purchase and the cost of $5.6 million was allocated
to the acquired assets and assumed liabilities. The required
rationalization expense was insignificant to total operating results.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
3. SALES OF BUSINESSES AND RELATED MATTERS
---------------------------------------
In 1993, the company sold a number of non-strategic businesses and assets,
using the proceeds to restructure manufacturing operations
to enhance future profitability. On an after-tax basis, a gain of $.07
per share was recorded primarily due to a favorable tax treatment on the
sale of Westwind Air Bearings, Ltd. In 1992 and 1991, the effect of
similar transactions was a charge to income of $14 million and $25 million,
respectively. The pretax gain on the sale of these non-strategic businesses
and assets totalled $19.2 million and were offset by restructuring charges
amounting to $19.2 million. The significant components of these
transactions are:
In April 1993, the company sold the assets and business of its subsidiary,
Westwind Air Bearings, Ltd. in England and its affiliated
operations in the United States and Japan 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. 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 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.
During the second half of 1993, the company recorded special charges
relating to the rationalization of manufacturing operations. In
November 1993, the company announced the closing of its Lafayette,
Tennessee fuel systems plant with a plan to consolidate operations
with the Lighting and Electrical Division. A restructuring reserve was
recorded for $7 million based on the plan to consolidate these two
businesses. The company also announced plans to restructure Glyco
manufacturing operations in Germany. A reserve of $8.4 million was
recorded to provide for personnel reductions and reengineering of
manufacturing facilities. The company also sold idle land for $5 million
connected with its Glyco operations, resulting in a pretax gain of $1.5
million.
In November 1991, the company sold the net assets and operations of its
wholly-owned subsidiary, Huck Manufacturing Company, which constituted all
operations of the company's fastening systems segment. Total cash proceeds
from the sale were $151.9 million. The sale resulted in a net gain of $16.1
million, including an after-tax operating loss of $.1 million. Sales of
$142.2 million and expenses of $141.4 million are excluded from the
consolidated statements of earnings under captions applicable to continuing
operations. Interest expense of $8.3 million was allocated to discontinued
operations to the sum of total consolidated net assets and consolidated
debt.
37
During the fourth quarter of 1991, the company recorded a $25 million ($.98
per share) restructuring charge for inventory and equipment
valuations, severance, reorganizing certain operations and other costs
associated with process changes being implemented throughout
the company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
4. ACCOUNTS RECEIVABLE SECURITIZATION
----------------------------------
In June 1992 and March 1993, 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 $182 million at December 31,
1993 and principally representing amounts owed to the company
by original equipment and aftermarket customers in the U.S. automotive
and related industries) and $7 million Canadian receivables to the
Federal-Mogul Trade Receivables Master Trust. The Trust sold investor
certificates representing an interest in $55 million and $40 million of
trust assets in 1992 and 1993, respectively. The company holds seller
certificates representing an interest in the remaining assets of the Trust,
which certificates are included with accounts receivable in the company's
balance sheet at December 31, 1992. 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
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
$46 million and $16 million as of December 31, 1993 and 1992, 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 ($14.5 million
and $8.6 million at December 31, 1993 and 1992, respectively) based upon
the expected collectibility of all trade accounts receivable, including
receivables sold.
Accounts receivable in the 1993 and 1992 consolidated balance sheet exclude
$95 million and $55 million, respectively, representing
investor certificates sold. The discount related to the sale of
receivables under this agreement of $5.3 million in 1993 and $2 million
in 1992 have been classified as a reduction of other income.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
5. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Properties are stated at cost, which includes expenditures for additional
facilities and those which materially extend the useful lives
of existing buildings and equipment. Fully depreciated assets have been
eliminated from the accounts.
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:
(Millions of Dollars) 1993 1992
-------- --------
Land $ 30.8 $ 35.0
Buildings 162.3 151.9
Machinery and equipment 423.4 403.1
------ ------
616.5 590.0
Accumulated depreciation (216.7) (199.3)
------ ------
$ 399.8 $ 390.7
------ ------
------ ------
The company leases various facilities and equipment under both capital and
operating leases. Net assets subject to capital leases are
not significant at December 31, 1993.
The balance of a deferred gain resulting from the 1988 sale and leaseback
of a portion of the corporate headquarters complex was $9.9
million at December 31, 1993. 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: 1994--$16.7;
1995--$16.1; 1996--$14.3; 1997--$13.6; 1998--$10.7 and thereafter--$51.9.
Future minimum lease payments have been reduced by approximately $37.6
million for amounts to be received under sublease agreements and the balance
of the deferred gain.
Total rental expense under operating leases was $21.1 million in 1993, $17.7
million in 1992 and $17.2 million in 1991, exclusive of property taxes,
insurance and other occupancy costs generally payable by the company.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
6. DEBT
----
In October 1993, the company renegotiated its revolving credit facility and
increased the availability of funds from $150 million to
$300 million. The company borrowed $245 million against the facility to
finance the acquisition of Sealed Power Replacement and to
retire the $100 million 8 3/8% notes which were due October 1, 1993.
The outstanding revolver balance matures in October, 1997. The
revolver carries a variable interest rate (approximately 4.38% at
December 31, 1993). The unused portion of the revolver is subject
to a variable commitment fee (.375% as of December 31, 1993).
The company has additional established lines of credit with several banks
in the maximum amount of $49.1 million. At December 31, 1993
and 1992, borrowings under these lines of credit amounted to $35.7 and
$28.1 million, respectively.
Long-term debt at December 31 consists of the following:
(Millions of Dollars) 1993 1992
-------- --------
Revolver due 1997 $245.0 $ -
Term loan due 1998 - 125.0
8 3/8% notes due 1993 - 100.0
Notes payable due 2000 75.0 75.0
ESOP obligation 43.9 48.4
Other 30.7 18.9
----- -----
394.6 367.3
Less current maturities included
in short-term debt 12.1 16.7
----- -----
$382.5 $350.6
----- -----
----- -----
The notes payable due in 2000 require semi-annual interest payments
(approximately 10% as of December 31, 1993) and, commencing December 1994,
annual principal payments of $3.4 million (increasing to
$16.2 million beginning December 1997).
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.
In 1993, the company exercised an option to prepay principal in the amount
of $4.5 million on the original ESOP loan, which bears interest at 11.2%
per annum. The prepayment is being refinanced with bank debt that carries
a variable interest rate based on LIBOR plus 100 basis points (4 1/2% as
of December 31, 1993).
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
6. DEBT (continued)
----
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. The revolving credit agreement additionally restricts the payment
of common stock cash dividends to the greater of $.135 per common share per
quarter or 80% of the company's average net earnings available for common
shares, as defined in the agreements, for its four most recent fiscal
quarters.
The carrying value of the company's debt is not materially different from
its fair value, which is estimated using discounted cash flow
analysis and the company's current incremental borrowing rates for similar
types of arrangements.
Aggregate maturities of long-term debt for each of the four years following
1994 are, in millions: 1995--$13.3; 1996--$13.3; 1997--$277.3; and
1998--$27.9.
Cash interest paid in 1993, 1992 and 1991 was $26.9 million, $27.1 million
and $40.1 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
7. CAPITAL STOCK AND PREFERRED SHARE PURCHASE RIGHTS
-------------------------------------------------
The company's articles of incorporation authorize 60,000,000 shares of
common stock with a stated value of $5, of which 29,497,994 shares,
22,391,154 shares and 22,354,354 shares were outstanding at December 31,
1993, 1992 and 1991, respectively. In April 1993, the company sold
6,250,000 shares of its common stock in a public offering with net proceeds
of approximately $116 million that were used to repay a portion of the debt
incurred with the 1992 acquisition of AAB. Simultaneously, the company
issued 500,000 additional shares, valued at approximately $9.6 million, to
contribute to the company's domestic pension plans.
41
The articles of incorporation also authorize 5,000,000 shares of preferred
stock. On September 24, 1992, the company completed an $80,000,000 private
issue of 1,600,000 shares of its $3.875 Series D convertible exchangeable
preferred stock. Sold to institutional investors in a private placement
under rule 144A of the Securities Act, each share of stock 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 944,016 shares, 954,196
shares and 978,170 shares of Series C ESOP preferred stock outstanding at
December 31, 1993, 1992 and 1991, respectively. The company repurchased
and retired 10,180 Series C ESOP preferred shares valued at $.7 million
during 1993 and 23,974 Series C ESOP preferred shares valued at $1.4
million during 1992, 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 $4.9 million in 1993, $4.7 million in 1992 and $3.8 million in 1991.
The company made cash contributions to the plan of $9.2 million in 1993 and
1992, and $8.3 million in 1991 for debt service, including preferred stock
dividends of $4.5 million in 1993, $4.6 million in 1992 and $4.8 million in
1990.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
7. 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 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% of 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.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
8. 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, 1993, 775,010 shares were available for future grants under
the plans.
The following table summarizes the activity relating to the company's
incentive stock plans:
Number of
Shares Share Price
------------- ---------------
(In Millions)
Outstanding at January 1, 1991 1.4 $ 9.47 - $26.19
Options granted 1.1 $15.69 - $22.00
Options exercised (.1) $9.47
Options lapsed or cancelled -
---
Outstanding at December 31, 1991 2.4 $ 9.47 - $26.19
Options granted .1 $16.44 - $22.00
Options exercised -
Options lapsed or cancelled (.1)
---
Outstanding at December 31, 1992 2.4 $14.34 - $26.19
Options granted .5 $19.25 - $24.13
Options exercised (.3) $14.34 - $22.69
Options lapsed or cancelled -
---
Outstanding at December 31, 1993 2.6 $15.69 - $26.19
---
---
Exercisable at December 31, 1993 1.0 $15.69 - $26.19
---
---
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
------------------------------------------
The company maintains several defined benefit pension plans which cover
substantially all domestic employees. Benefits for domestic
salaried employees are based on compensation and years of service, while
hourly employees' benefits are primarily based on negotiated
rates and years of service. In addition, certain employees in other
countries are covered by pension plans. 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, 1993, plan assets included 444,000 shares of
Federal-Mogul common stock valued at approximately $12.9 million.
Net periodic pension cost for the company's defined benefit plans in 1993,
1992 and 1991 consist of the following:
(Millions of Dollars)
U.S. Plans International Plans
---------------------- ---------------------
Year Ended December 31, 1993 1992 1991 1993 1992 1991
------ ------ ------ ------ ------ -----
(Income)/Expense
Service cost - benefits
earned during the period $ 6.8 $ 5.6 $ 5.9 $ .4 $ .3 $ .4
Interest cost on projected
benefit obligation 12.9 12.7 11.7 2.2 2.2 2.2
Actual return on plan assets (29.8) (5.7) (27.8) N/A N/A N/A
Net amortization and deferral 7.3 (16.9) 6.7 - - -
---- ---- ---- ---- ---- ----
Net periodic pension cost $(2.8) $(4.3) $(3.5) $ 2.6 $ 2.5 $ 2.6
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (continued)
------------------------------------------
The following table sets forth the funded status for the company's defined
benefit plans at December 31, 1993 and 1992:
(Millions of Dollars)
International
U.S. Plans Plans
------------------------------- --------------
Assets Exceed Accumulated Accumulated
Accumulated Benefits Benefits
Benefits Exceed Assets Exceed Assets
December 31, 1993 1992 1993 1992 1993 1992
------ ------ ------ ------ ------ ------
Actuarial present value of
benefit obligations:
Vested benefit
obligation $ 79.0 $ 68.9 $ 82.8 $ 58.0 $ 26.7 $ 24.4
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
Accumulated benefit
obligation $ 83.1 $ 75.2 $ 97.2 $ 67.3 $ 28.0 $ 25.7
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
Projected benefit
obligation $ 84.0 $ 76.3 $ 97.4 $ 67.4 $ 28.1 $ 25.9
Plan assets at fair value 151.1 145.7 78.7 55.5 - -
Plan assets in excess of
(less than) projected
benefit obligation 67.1 69.4 (18.7) (11.9) (28.1) (25.9)
Unrecognized net (asset)
liability at transition (15.2) (19.1) .6 1.3 - -
Unrecognized prior
service cost (1.8) (1.1) 10.5 8.1 - -
Unrecognized net
(gain) loss (15.8) (18.4) 9.2 (1.8) 2.6 (.9)
----- ----- ----- ----- ----- -----
Accrued pension asset
(liability) included
in the consolidated
balance sheet $ 34.3 $ 30.8 $ 1.6 $ (4.3) $(25.5) $(26.8)
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
The assumptions used in computing the above information are as follows:
U.S. Plans International Plans
---------------------- ----------------------
1993 1992 1991 1993 1992 1991
------ ------ ------ ------ ------ ------
Discount rates 7 1/2% 8 3/4% 9% 8% 9% 9%
Rates of increase in
compensation levels 4 1/2% 5 1/2% 6 1/2% 5% 5% 5%
Expected long-term rates
of return on assets 10% 9% 9% N/A N/A N/A
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (continued)
------------------------------------------
The company's minimum liability adjustment at December 31 was $20.2 million
for U.S. plans and $2.5 million for international plans in 1993 and $7.7
million for U.S. plans in 1992.
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. Beginning in 1992, the
company is required to accrue the cost of providing post-retirement
benefits over the employees' service period. The company's policy is to
fund benefit costs as they are provided, with retirees paying a portion of
the costs.
Periodic postretirement benefit costs were $13.8 million in 1993 and $14.4
million in 1992. The cost of these benefits in 1991, which were previously
recognized as expense when paid, amounted to $5.4 million. The components
of net periodic postretirement benefit costs are as follows:
(Millions of Dollars)
Year Ended December 31, 1993 1992
-------- --------
Service Cost $ 2.7 $ 2.7
Interest Cost 11.1 11.7
---- ----
$13.8 $14.4
---- ----
---- ----
The accumulated postretirement benefits obligation (APBO) at
December 31, 1993 and 1992 was as follows:
(Millions of Dollars)
December 31, 1993 1992
-------- --------
Accumulated postretirement
benefit obligations:
Retirees $ 96.2 $ 90.0
Fully eligible plan participants 15.0 18.7
Other active plan participants 39.5 34.6
Other loss (.8) (.2)
----- -----
$149.9 $143.1
----- -----
----- -----
The discount rate used in determining the APBO was 7 1/2% at December 31,
1993 and 8 3/4% at December 31, 1992.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (continued)
------------------------------------------
The assumed annual health care cost trend used in measuring the APBO
approximated 9% in 1993, declining to 8 1/2% in 1994 and to an
ultimate annual rate of 5 1/2% estimated to be achieved in 2008. At
December 31, 1992, the health care cost trend rate approximated
9 1/2% in 1992, declining to 9% in 1993 to an annual rate of 6% to be
achieved in 2007. Increasing the assumed cost trend rate by 1%
each year would have increased the APBO by approximately 11% and 10% at
December 31, 1993 and 1992, respectively. Aggregate service
and interest costs would have increased by approximately 13% and 12% for
1993 and 1992, respectively.
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 1995, 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 $3.6 million in 1993, $3.9 million in 1992
and $7.8 million in 1991 ($4.2 million related to 1991 expenses and $3.6
million related to 1990 expenses) to the 401(h) account to fund salaried
retiree health care benefits.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
10. INCOME TAXES
------------
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109) adopted by the company in 1992, 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) from continuing operations before income
taxes consisted of the following:
(Millions of Dollars) 1993 1992 1991
-------- -------- --------
Domestic $ 54.5 $ 7.1 $(22.0)
International 3.1 1.9 3.3
----- ----- -----
$ 57.6 $ 9.0 $(18.7)
----- ----- -----
----- ----- -----
Significant components of the provision for income taxes
attributable to continuing operations are as follows:
(Millions of Dollars) 1993 1992 1991
-------- -------- --------
Current:
Federal $ 16.1 $ 4.1 $ 8.5
State and local 1.9 1.0 .8
International 6.5 5.0 4.2
----- ----- -----
Total current 24.5 10.1 13.5
Deferred:
Federal 5.2 (2.7) (12.5)
State and local .1 (.2) (.7)
International (12.3) (2.6) .8
----- ----- -----
Total deferred (7.0) (5.5) (12.4)
----- ----- -----
$ 17.5 $ 4.6 $ 1.1
----- ----- -----
----- ----- -----
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
10. INCOME TAXES (continued)
------------
The reconciliation of income tax attributable to continuing operations
computed at the United States federal statutory tax rates to
income tax expense is:
(Millions of Dollars) 1993 1992 1991
-------- -------- --------
Tax at U.S. statutory rates $ 20.1 $ 3.0 $ (6.4)
Increase (decrease) from:
State income taxes 1.3 .6 .5
International earnings subject
to varying tax rates
and tax effect of losses (.2) 1.3 5.0
Tax effect on sale of business (1.8)
Tax effect of rate changes
U.S. (1.4)
Germany (2.9)
Other differences 2.4 (.3) 2.0
----- ----- -----
$ 17.5 $ 4.6 $ 1.1
----- ----- -----
----- ----- -----
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 current year's income was to increase income tax expense
by $.6 million and $1 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:
(Millions of Dollars) 1993 1992 1991
-------- -------- --------
Continuing operations $ 17.5 $ 4.6 $ 1.1
Cumulative effect of
accounting change (47.6)
Discontinued operations 2.4
Allocated to equity:
Currency translation (3.0) (2.5)
Preferred dividends (1.6) (1.7) (1.7)
Other (.7)
----- ----- -----
$ 12.9 $(47.9) $ 1.8
----- ----- -----
----- ----- -----
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
10. INCOME TAXES (continued)
------------
Significant components of the company's deferred tax liabilities and assets
as of December 31 are as follows:
(Millions of Dollars) 1993 1992 1991
-------- -------- --------
Deferred tax liabilities:
Fixed asset basis differences $(60.0) $(67.9) $(69.0)
Pension (12.5) (9.4) (8.3)
----- ----- -----
Total deferred tax liabilities (72.5) (77.3) (77.3)
Deferred tax assets:
Postretirement benefits other
than pensions 55.3 51.6 -
Special charges .2 11.9 6.0
Other non-deductible expenses 29.3 14.3 24.1
AMT credit carryforwards - 5.6 5.3
Foreign tax credit carryforwards 2.4 7.9 7.7
Net operating loss carryforwards
of international subsidiaries 37.6 28.0 17.2
Other, net 2.6 4.3 (2.2)
----- ----- -----
Total deferred tax assets 127.4 123.6 58.1
Valuation allowance for
deferred tax assets (21.0) (24.3) (21.2)
----- ----- -----
Net deferred tax assets 106.4 99.3 36.9
----- ----- -----
$ 33.9 $ 22.0 $(40.4)
----- ----- -----
----- ----- -----
At December 31, 1993, the company had net operating loss carryforwards in
Germany of $46 million that are not subject to expiration.
Net operating loss carryforwards of $49.5 million exist at other
international subsidiaries subject to various expiration dates. Foreign
tax credit carryforwards of $2.4 million will expire in years 1994 through
1998. Valuation allowances have been recognized against the net operating
loss carryforwards (other than in Germany) and the foreign tax credit
carryforwards.
The company is not required to record valuation allowances for deferred tax
assets where management believes it is more likely than not that the tax
benefit will be realized. Valuation allowances were not established against
deferred tax assets attributable to the company's postretirement benefit
obligation and the German net operating loss carryforward.
The deferred tax asset for the company's postretirement benefit obligation
is $55.3 million at December 31, 1993. The total amount
of future taxable income in the U.S. necessary to realize the asset is
$149.5 million. The company could generate approximately $67 million of
taxable income from the execution of reasonable and prudent tax planning
strategies, principally through revoking the company's LIFO election.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
10. INCOME TAXES (continued)
------------
In addition to tax planning strategies, the company will need to generate
additional taxable income of approximately $82.5 million in
the U.S. through future operations in order to fully realize the deferred
tax asset for the company's postretirement benefit obligation.
Over the past ten years, the company has generated taxable income in the
U.S., on average, of approximately $52 million per year. Based on the
company's history of taxable income and its projection of future earnings,
management believes that it is more likely than not that sufficient taxable
income will be generated in the foreseeable future to realize the deferred
tax asset. The deferred tax asset attributable to the German net operating
loss carryforward is $19 million. Sufficient taxable income will be
generated through the reversal of existing taxable temporary differences
to enable the carryforward to be utilized.
Deferred tax liabilities and assets are recorded in the consolidated balance
sheets as follows:
(Millions of Dollars) 1993 1992
-------- --------
Assets:
Prepaid expenses and income tax benefits $ 19.4 $ 14.6
Business investments and other assets 27.5 34.7
Liabilities:
Deferred income taxes (13.0) (27.3)
----- -----
$ 33.9 $ 22.0
----- -----
----- -----
Income taxes paid in 1993, 1992 and 1991 were $16.3 million, $10.5 million
and $17.5 million, respectively.
Undistributed earnings of the company's international subsidiaries amounted
to approximately $70 million at December 31, 1993. No taxes
have been provided on the $63 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. However, the company
believes the foreign withholding taxes would be insignificant and any
United States income tax would be largely offset by foreign tax credits.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
11. 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:
(Millions of Dollars) 1993 1992 1991
-------- -------- --------
Net sales:
United States and Canada $1,092.3 $ 817.5 $ 697.5
Europe 270.4 268.3 243.5
Other international 212.8 178.2 157.7
------- ------- -------
$1,575.5 $1,264.0 $1,098.7
------- ------- -------
------- ------- -------
Operating profit:
United States and Canada $ 91.0 $ 30.8 $ 18.6
Europe (2.3) (.9) (7.4)
Other international 20.0 22.1 11.4
------- ------- -------
Total operating profit (a) 108.7 52.0 22.6
Corporate expenses and other (24.3) (22.4) (18.6)
------- ------- -------
Operating earnings $ 84.4 $ 29.6 $ 4.0
------- ------- -------
------- ------- -------
Identifiable assets:
United States and Canada $ 804.5 $ 618.2 $ 451.6
Europe 243.2 290.1 328.9
Other international 244.1 195.4 133.4
------- ------- -------
$1,291.8 $1,103.7 $ 913.9
------- ------- -------
------- ------- -------
(a) Operating profit included special charges of $14 million and $25
million in 1992 and 1991, respectively.
Transfers between geographic areas are not significant, and when made, are
recorded at prices comparable to normal unaffiliated customer
sales.
Sales to domestic automotive manufacturers were approximately 16% of net
sales in 1993 and included sales to General Motors Corporation
of $141.7 million, $115.7 million and $112.2 million in 1993, 1992 and
1991, respectively.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
12. LITIGATION
----------
The company is involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that their outcome
will not have a significant effect on the company's consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
13. SUBSEQUENT EVENTS
-----------------
In December 1993, the company filed a shelf registration with the SEC that
permits the issuance of a combination of debt and equity securities up to
$300 million over a two year period. In February 1994, the company used
the shelf registration to offer 5.75 million shares of common stock to the
public, generating net proceeds to the company of nearly $191 million. The
offering proceeds were used to repay a portion of the outstanding debt
which was principally used to purchase SPR.
Had the February 1994 offering occurred on January 1, 1993, primary earnings
per share for 1993 would have been unchanged at $1.13.
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 of
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 five 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
Chairman and Chief Executive Officer
Martin E. Welch III
Senior Vice President
Chief Financial Officer
James B. Carano
Vice President and Controller
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, 1993 and
1992, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1993. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position
of Federal-Mogul Corporation and subsidiaries at December 31, 1993 and
1992, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1992
the company changed its method of accounting for postretirement
benefits other than pensions.
Detroit, Michigan
February 8, 1994
56
QUARTERLY FINANCIAL DATA (UNAUDITED)
- - - ------------------------------------
FEDERAL-MOGUL CORPORATION
- - - -------------------------
Net Sales
Less Cost Net Earnings
(Millions of Dollars, Net of Products Earnings (Loss)
Except Per Share Amounts) Sales Sold (Loss) Per Share
------- ----------- -------- ---------
Year ended December 31, 1993:
First quarter $ 410.5 $ 79.0 $ 7.5 $ .23
Second quarter 401.8 78.8 15.3 .47
Third quarter 370.0 74.5 10.0 .26
Fourth quarter 393.2 79.4 7.3 .17
------- ----- ----- -----
$1,575.5 $311.7 $ 40.1 $ 1.13
------- ----- ----- -----
------- ----- ----- -----
Year ended December 31, 1992:
First quarter $ 297.0 $ 46.0 $(87.5) $(3.94)
Second quarter 311.0 53.3 4.4 .16
Third quarter 297.9 47.4 3.0 .10
Fourth quarter 358.1 62.7 (3.6) (.26)
------- ----- ----- -----
$1,264.0 $209.4 $(83.7) $(3.94)
------- ----- ----- -----
------- ----- ----- -----
Net earnings in the first quarter of 1992 were adversely impacted by $88.1
million ($3.93 per share) representing the cumulative effect
of a change in the method of accounting for postretirement
benefits other than pensions. Quarterly net earnings and
earnings per share for the first three quarters of 1992 have been
restated from amounts previously reported. Net earnings in the fourth
quarter of 1992 were adversely impacted by a special charge of
$.40 per share. Refer to Notes 1 and 2 to the consolidated financial
statements for further discussion of these matters.
In the fourth quarter of 1992, the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109), retroactively to 1989. Quarterly net earnings
and earnings per share have been restated from amounts previously reported
in conjunction with the provisions of SFAS 109.
STOCK PRICES DIVIDENDS
- - - ------------ ---------
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: 1993 and 1992. In February
1994, the company's Board of
1993 1992 Directors declared a quarterly
---------------- ---------------- dividend of $.12 per common
share. This was the 232nd
Quarter High Low High Low consecutive quarterly dividend
- - - ------- ------- ------- ------- ------- declared by the company.
First $20 1/2 $16 1/4 $18 1/8 $14 7/8
Second 22 17 5/8 20 15 5/8
Third 26 1/4 19 7/8 18 14 1/2
Fourth 29 7/8 23 1/4 18 15 1/4
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 5 of the company's definitive proxy statement dated
March 18, 1994 relating to its 1994 annual meeting of shareholders (the
"1994 Proxy") under the heading "Nominees for Election as Directors"
except that the information required by Item 10 with respect to executive
officers included under Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
- - - ----------------------------------
The information required by this item is incorporated by reference from
the 1994 Proxy under the headings "Information on Executive Compensation"
on pages 9 to 11 and under the heading "Retirement Plans" on page 15 and
"Nominees for Election as Directors" on pages 4 and 5 of the Proxy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - - --------------------------------------------------------------------------
The information required by this item is incorporated by reference from
pages 15 through 18 of the 1994 Proxy under the heading "Information on
Securities".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - - -----------------------------------------------------------
Not applicable.
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 V - Property, plant and equipment
Schedule VI - Accumulated depreciation, depletion and
amortization of property, plant and equipment
Schedule VIII - Valuation and qualifying accounts
Schedule IX - Short-term borrowings
Schedule X - Supplementary income statement
information
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.
58
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
------------------------------------------
(In Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - - ------------------------- ---------- --------- --------- --------------- --------
Balance at Other Changes - Balance
Beginning Additions Add (Deduct) - at End
Classification of Period at Cost Disposals Describe of Period
- - - ------------------------- ---------- --------- --------- --------------- ---------
Year Ended 12/31/93:
- - - -------------------
Land $ 35.0 $ .1 $ 2.6 $ (2.2)-B $ 30.8
.5 -C
Bldgs. & land improvements 151.9 13.2 1.6 (.7)-A 162.3
1.6 -D (4.1)-B
5.2 -C
Machinery & equipment 352.3 39.3 2.7 (21.7)-A 362.4
5.3 -D (5.7)-B
6.2 -C
Furniture & office machines 41.4 5.2 1.5 (6.8)-A 52.7
.5 -D (.5)-B
15.4 -C
Transportation equipment 9.4 1.5 2.0 (.5)-A 8.3
(.1)-B
----- ----- ----- ----- -----
TOTALS $590.0 $ 59.3 $ 17.8 $(15.0) $616.5
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Year Ended 12/31/92:
- - - -------------------
Land $ 36.8 $ .2 $ .4 $ (1.6)-B $ 35.0
Bldgs. & land improvements 151.4 6.0 3.1 (.6)-A 151.9
(2.6)-B
.8 -C
Machinery & equipment 341.7 33.8 5.8 (19.9)-A 352.3
(5.6)-B
8.1 -C
Furniture & office machines 43.8 2.8 1.1 (6.2)-A 41.4
(.7)-B
2.8 -C
Transportation equipment 11.0 1.8 3.0 (.3)-A 9.4
(.1)-B
----- ----- ----- ----- -----
TOTALS $584.7 $ 44.6 $ 13.4 $(25.9) $590.0
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Year Ended 12/31/91:
- - - -------------------
Land $ 28.8 $ .3 $ .2 $ 1.4 -B $ 36.8
3.5 -D 10.0 -E
Bldgs. & land improvements 172.5 3.4 4.0 (.3)-A 151.4
19.8 -D (.4)-B
Machinery & equipment 387.0 38.7 9.3 (14.1)-A 341.7
66.4 -D 5.8 -B
Furniture & office machines 61.5 5.8 1.5 (7.4)-A 43.8
6.3 -D (8.3)-B
Transportation equipment 13.6 1.7 2.0 (2.6)-A 11.0
.2 -D .5 -B
----- ----- ----- ----- -----
TOTALS $663.4 $ 49.9 $113.2 $(15.4) $584.7
----- ----- ----- ----- -----
----- ----- ----- ----- -----
59
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (continued)
- - - ------------------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
------------------------------------------
Machinery and equipment additions were for improvements of manufacturing
capacity at various locations.
The amounts in Columns D and E are described as follows:
A - Fully amortized costs eliminated from the accounts by charges to
the offsetting allowances for depreciation.
B - Adjustments to property, plant and equipment balances as a result
of applying the provisions of FASB Statement No. 52.
C - Acquisitions. The 1990 amounts have been restated due to the
adoption of FASB Statement No. 109.
D - Dispositions of businesses
E - Final allocation of purchase price for Glyco AG and subsidiaries
The annual provisions for depreciation have been computed based on the
following ranges of estimated useful lives:
Years Years
----- -----
Bldgs. & land improvements 10-50 Furniture & office machines 4-10
Machinery & equipment 3-15 Transportation equipment 3-8
60
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
- - - -----------------------------------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
------------------------------------------
(In Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - - ------------------------ --------- ------------ --------- --------------- ---------
Balance Additions
at Charged Other Changes - Balance
Beginning to Costs Add (Deduct) - at End
Description of Period and Expenses Disposals Describe of Period
- - - ------------------------ --------- ------------ --------- --------------- ---------
Year Ended 12/31/93:
- - - -------------------
Bldgs. & land improvements $ 32.9 $ 7.5 $ .3 $ (.7)-A $ 41.5
.2 -D 2.3 -C
Machinery & equipment 140.5 28.2 1.7 (21.7)-A 144.6
2.9 -D (1.6)-B
3.8 -C
Furniture & office machines 21.7 7.0 .9 (6.8)-A 27.1
.3 -D (.2)-B
6.6 -C
4.2 1.2 1.4 (.5)-A 3.5
----- ----- ----- ----- -----
TOTALS $199.3 $ 43.9 $ 7.7 $(18.8) $216.7
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Year Ended 12/31/92:
- - - -------------------
Bldgs. & land improvements $ 29.0 $ 4.9 $ .3 $ (.6)-A $ 32.9
(.1)-B
Machinery & equipment 134.8 30.4 3.1 (19.9)-A 140.5
(1.7)-B
Furniture & office machines 22.2 6.7 .8 (6.2)-A 21.7
(.2)-B
Transportation equipment 4.6 1.6 1.6 (.3)-A 4.2
(.1)-B
----- ----- ----- ----- -----
TOTALS $190.6 $ 43.6 $ 5.8 $(29.1) $199.3
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Year ended 12/31/91:
- - - -------------------
Bldgs. & land improvements $ 29.6 $ 4.8 $ .9 $ (.3)-A $ 29.0
4.2 -D
Machinery & equipment 140.9 33.5 2.1 (14.1)-A 134.8
23.1 -D (.3)-B
Furniture & office machines 26.0 8.3 .7 (7.4)-A 22.2
4.0 -D
Transportation equipment 6.3 2.1 1.1 (2.6)-A 4.6
.1 -D
----- ----- ----- ----- -----
TOTALS $202.8 $ 48.7 $ 36.2 $(24.7) $190.6
----- ----- ----- ----- -----
----- ----- ----- ----- -----
The amounts in Columns D and E are described as follows:
A - Fully amortized costs eliminated from the accounts by charges to the
offsetting allowances for depreciation.
B - Adjustments to property, plant and equipment balances as a result of
applying the provisions of FASB Statement No. 52.
C - Acquisitions
D - Dispositions of businesses
/TABLE
61
SCHEDULE VIII - 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, 1993:
- - - ----------------------------
Valuation allowance
for trade receivable $ 8.6 $ 1.5 $ 4.7(4) $ .3(1) $14.5
Valuation allowance for
notes receivable 1.0 .3(5) .7
Reserve for
inventory valuation 23.1 .6 9.9(4) 1.3(8) 28.9
3.4(9)
Valuation allowance
for deferred tax assets 24.3 (3.3)(10) 21.0
Year Ended December 31, 1992:
- - - ----------------------------
Valuation allowance
for trade receivable 6.2 1.2 1.8(4) .6(1) 8.6
Valuation allowance
for notes receivable 1.1 .1(5) 1.0
Reserve for
inventory valuation 30.0 3.4 6.1(4) 7.3(7) 23.1
9.1(8)
Valuation allowance
for deferred tax assets 21.2 3.1 24.3
Year Ended December 31, 1991:
- - - ----------------------------
Valuation allowance
for trade receivable 6.9 .4 - 1.1 (1) 6.2
Valuation allowance
for notes receivable 2.6 1.1 - 2.6 (2) 1.1
Reserve for
inventory valuation 30.0 2.1 - 2.1 (3) 30.0
Valuation allowance
for deferred tax assets 12.5 8.8 - .1 (6) 21.2
(1) Uncollectible accounts charged off net of recoveries.
(2) Reversal of allowance due to realization of note.
(3) Reduction of reserve due to divestiture of Huck Manufacturing fastener subsidiary.
(4) Increase to reserve due to acquisition of automotive aftermarket
businesses.
(5) Decrease to reserve due to change in market value of note.
(6) Decrease due to change in tax rates on an international valuation
allowance item.
(7) Reduction in 1991 restructuring reserve for inventory disposed of
during the year.
(8) Reduction of Glyco inventory reserves to current requirements.
(9) Reduction of automotive aftermarket businesses' reserves to current requirements.
(10) Decrease due to utilization of excess foreign tax credit carryforwards.
62
SCHEDULE IX - SHORT-TERM BORROWINGS
- - - -----------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
------------------------------------------
(In Millions, Except Percents)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - - ----------------------------- --------- -------- ----------- ----------- -------------
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest Rate
Category of Aggregate at End Interest During the During the During the
Short-Term Borrowings of Period Rate Period (4) Period (2) Period (3)
- - - ----------------------------- --------- -------- ----------- ----------- -------------
Year Ended December 31, 1993:
- - - ----------------------------
Notes payable to banks (1)
Domestic $ .0 .0% $32.0 $ 7.9 5.7%
International 27.1 12.4 36.4 23.4 15.4
Year Ended December 31, 1992:
- - - ----------------------------
Notes payable to banks (1)
Domestic 20.0 6.6 30.0 6.7 5.0
International 32.7 13.6 32.7 18.6 16.3
Year Ended December 31, 1991:
- - - ----------------------------
Notes payable to banks (1)
Domestic 10.0 8.6 44.3 20.8 7.0
International 19.2 12.0 31.9 24.0 14.0
(1) Notes payable to banks include borrowings under domestic and international lines
of credit borrowing arrangements which have no termination date but are reviewed
annually for renewal.
(2) The average amount outstanding during the period was computed by dividing the
total of each month's ending outstanding principal balances by 12.
(3) The weighted average interest rate during the period was computed by dividing total
interest expense by the average amount of principal outstanding during the period.
(4) Maximum amount outstanding during the period for each individual category of
short-term borrowing. Maximum amount outstanding, in total, was $59.5 million,
$53.3 million and $72.7 million in 1993, 1992 and 1991, respectively.
63
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
- - - -------------------------------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
------------------------------------------
(In Millions)
COLUMN A COLUMN B
- - - -------------------------------------- ---------------------------------
Item Charged to Costs and Expenses
- - - -------------------------------------- ---------------------------------
Year Ended December 31
1993 1992 1991
-------- -------- --------
Maintenance and repairs $ 19.1 $ 17.5 $ 17.3
Depreciation and amortization of
intangible assets, preoperating
costs and similar deferral:
Depreciation 43.9 43.9 48.7
Amortization 6.8 2.8 1.6
Amounts for taxes, other than payroll and income taxes, advertising costs and royalties
are not presented as such amounts are less than 1% of total revenues.
64
3. Exhibits:
3.1 The Registrant's Second Restated Articles of
Incorporation, as amended (filed as Exhibit 3.1 to Registrant's
Form 10-Q for the quarter ended September 30, 1993, and
incorporated herein by reference).
3.2 The Registrant's Bylaws, as amended (filed as Exhibit
3.2 to Registrant's Form 10-K for the year ended December 31, 1993,
and incorporated herein by reference).
4.2 Rights Agreement ("Rights Agreement") between
Registrant and National Bank of Detroit as Rights Agent with Bank
of New York as successor Rights Agent (filed as Exhibit 1 to
Registrant'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 1990 Second Quarter 10-Q).
4.4 Amendment dated September 23, 1992 to Rights Agreement
(filed as Exhibit 4.4 to Registrant's Form 10-K for the year ended
December 31, 1993 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 Registrant 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 Registrant 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
Registrant's consolidated assets and the Registrant hereby agrees
to furnish such instruments to the Securities and Exchange
Commission upon its request.
4.6 Second Amended and Restated Revolving Credit
Agreement dated October 19, 1993, among the Company, various banks,
and Chemical Bank, as agent (filed as Exhibit 4.6 to Registrant's
Registration Statement on Form S-3 No. 33-51265 dated December 3,
1993 and incorporated herein by reference).
10.1 The Registrant's 1976 Stock Option Plan, as last
amended November 3, 1988 (filed as Exhibit 10.27 to the 1988 10-K,
and incorporated herein by reference).
10.2 The Registrant's 1984 Stock Option Plan as last
amended, (filed as Exhibit 10.26 to the 1988 10-K, and incorporated
herein by reference).
65
10.3 The Registrant's 1977 Supplemental Compensation Plan,
as amended and restated effective as of January 1, 1986 (refiled as
Exhibit 10.3 to the 1993 10-K, and incorporated herein by
reference).
10.4 Registrant's Supplemental Compensation Retirement
Trust Agreement (filed as Exhibit 10.1 to the 1988 Third Quarter
10-Q and incorporated herein by reference).
10.6 Form of Executive Severance Agreement between the
Registrant and certain executive officers, (refiled as Exhibit 10.6
to the 1990 10-K, and incorporated herein by reference).
10.7 Amended and Restated Deferred Compensation Plan for
Corporate Directors (refiled as Exhibit 10.7 to the 1990 10-K, and
incorporated herein by reference).
10.10 Supplemental Executive Retirement Plan, as amended
(refiled 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 (refiled as Exhibit 10.11 to the 1990 10-
K, and incorporated herein by reference).
10.12 Guaranty and Contingent Purchase Agreement of
Federal-Mogul Corporation dated February 15, 1989, between the
Registrant and Aetna Life Insurance Company ("Guaranty and
Contingent Purchase Agreement" filed as Exhibit 10.28 to the 1988
10-K, and incorporated herein by reference).
10.13 Note Agreement dated February 15, 1989, between the
Federal-Mogul Corporation Salaried Employees Stock Ownership Trust
and Aetna Life Insurance Company (filed as Exhibit 10.29 to the
1988 10-K, and incorporated herein by reference).
10.14 Federal-Mogul Corporation 1989 Performance Incentive
Stock Plan (filed as Exhibit 10.31 to the 1988 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 ("12/1/90 Note Agreement") between the Registrant
and various financial institutions listed therein(filed as Exhibit
10.17 to the 1991 10-K, and incorporated herein by reference).
10.17 First Amendment dated as of March 9, 1992 to Note
Agreement dated February 15, 1989, between the Federal-Mogul
Corporation Salaried Employees Stock Ownership Trust and Aetna Life
Insurance Company (filed as Exhibit 10.19 to the Registrant's
Quarterly Report on Form 10-Q for the first quarter of 1993, and
incorporated herein by reference).
10.18 First Amendment dated as of March 9, 1992 to
Guaranty and Contingent Purchase Agreement (filed as Exhibit 10.20
to the Registrant's Quarterly Report on Form 10-Q for the first
quarter of 1993, and incorporated herein by reference).
66
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 Registrant's Quarterly Report on Form 10-Q for
the second quarter of 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
registrant's Quarter Report on Form 10-Q for the second quarter of
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 Form 10-K, and incorporated
herein by reference).
10.22 Second Amendment dated as of October 19, 1992 to
Guaranty and Contingent Purchase Agreement (filed as Exhibit 10.24
to the 1992 Form 10-K and incorporated herein by reference).
10.23 First Amendment dated as of December 11, 1992, to
12/1/90 Note Agreement (filed as Exhibit 10.27 to the 1992 Form 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 Form 10-K for the first
quarter of 1992 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 second quarter 1992 Form 10-Q and incorporated herein by
reference).
11.1 Statement Re: Computation of Per Share earnings
(filed herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Ernst & Young (filed herewith).
24.1 Powers of Attorney (filed herewith).
The Company will furnish upon request any exhibit described above
upon payment of the Company's reasonable expenses for furnishing
such exhibit.
(b) Report on Form 8-K:
A report on Form 8-K dated November 10, 1993 was filed
pursuant to Item 2 by the Company during the fourth quarter of 1993
concerning the Company's acquisition of the automotive aftermarket
business of Sealed Power Replacement Division of SPX Corporation
("SPR"). The report was amended by Form 8-K/A dated December 3, 1993
to include financial statements of SPR and pro forma financial
statements of SPR and the Company which were unavailable at the
time the report was filed.
67
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
By: (Martin E. Welch III)
------------------------------
Martin E. Welch III
Senior Vice President and
Chief Financial Officer
Dated as of March 25, 1994
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
(D.J. Gormley)*
- - - ------------------------ Chairman of the Board,
D. J. Gormley President and Chief Executive Officer
(M.E. Welch III)
- - - ------------------------ Senior Vice President and
M. E. Welch III Chief Financial
Officer (Principal Financial Officer)
(J.B. Carano)
- - - ------------------------ Vice President and Controller
J. B. Carano (Principal Accounting Officer)
(Thomas F. Russell)*
- - - ------------------------ Director
Thomas F. Russell
(Roderick M. Hills)*
- - - ------------------------ Director
Roderick M. Hills
(John J. Fannon)*
- - - ------------------------ Director
John J. Fannon
(Antonio Madero)*
- - - ------------------------ Director
Antonio Madero
(Walter J. McCarthy, Jr.)*
- - - ------------------------ Director
Walter J. McCarthy, Jr.
68
(Robert S. Miller, Jr.)*
- - - ------------------------ Director
Robert S. Miller, Jr.
(John C. Pope)*
- - - ------------------------ Director
John C. Pope
(Dr. Hugo Michael Sekyra)*
- - - ------------------------ Director
Dr. Hugo Michael Sekyra
*By: (George N. Bashara, Jr.)
-------------------------
George N. Bashara, Jr.
Attorney-in-fact
Dated as of March 25, 1994