Federal-Mogul Financial Results Show Progress

Saying that a slight drop in aftermarket sales is less important than gains in market share, Federal-Mogul Corporation today reported its financial results for the fourth quarter and full year of 2002.
Reporting in U.S. dollars, fourth quarter 2002 sales were $1,289 million, compared to $1,292 million for the same period last year. For the fourth quarter 2002, Federal-Mogul reported a net loss of $113 million, compared to a net loss of $112 million in 2001. Excluding charges for restructuring activities, asset impairments, losses from divestitures of businesses and Chapter 11 and Administration-related expenses, Federal-Mogul reported a net loss from operations of $17 million in the fourth quarter 2002 compared with a net loss from operations of $23 million for the same period last year. Fourth quarter 2002 net cash provided from operating activities was $68 million.
Sales of replacement parts to aftermarket customers totalled 45% of the company’s 2002 sales. Full year 2002 aftermarket sales were $2,423 million compared to $2,542 million in 2001. Excluding divestitures and the effects of movement in foreign exchange, sales decreased by 2%. By geographic region, 2002 sales were 77% in the Americas and 23% in Europe and Africa. Fourth quarter 2002 aftermarket sales were $563 million, compared to $602 million for fourth quarter 2001. Excluding divestitures and the effects of movement in foreign exchange, sales decreased by 7%.
“We are pleased with our performance in this difficult market as we have been able to increase share through the strength of our brands and new product introductions,” said Macher. “Our revolutionary one-piece Wagner ThermoQuiet premium disc brake pads have exceeded customer expectations, and we are very proud of this product’s recognition as a PACE Award finalist for significant innovation.”
Federal-Mogul earned several notable honours from customers for its 2002 performance, being named Supplier of the Year for the second consecutive year by Aftermarket Auto Parts Alliance, and Sales and Service Vendor of the Year by O’Reilly Auto Parts. In addition, Federal-Mogul was recognized with brand marketing awards including 18 Global Design Awards, the most ever won in a single year, from Aftermarket Business magazine.
Sales of original equipment (OE) parts totalled 55% of the company’s full year sales. Full year 2002 original equipment sales were $2,999 million, compared to $2,915 million in 2001. Excluding divestitures and the effects of movement in foreign exchange, sales increased by 3%. By geographic region, 2002 sales were 48% in the Americas, 49% in Europe and Africa, and 3% in the rest of the world. Fourth quarter 2002 sales were $726 million, compared to $690 million in 2001. Excluding divestitures and the effects of movement in foreign exchange, sales were essentially flat. Full year original equipment sales for the global Friction product line were $374 million, compared to $339 million in 2001. Excluding the effects of movement in foreign exchange, sales increased by 8%. By geographic region, 2002 Friction OE sales were 36% in the Americas and 64% in Europe and Africa and the rest of the world. In the fourth quarter, Friction OE sales were $96 million, up 16% compared to fourth quarter 2001 sales excluding the effects of movement in foreign exchange. Full year original equipment sales for the global powertrain product lines of Bearings, Pistons, Piston Rings and Liners, and Sintered Valve Train and Transmission Products were $1,747 million, compared to $1,712 million in 2001. Excluding divestitures and the effects of movement in foreign exchange, sales increased by 3%. By geographic region, 2002 sales of the powertrain OE products were 37% in North America, 62% in Europe and 1% in the rest of the world. In the fourth quarter, powertrain OE sales were $425 million, compared to $406 million in 2001. Excluding divestitures and the effects of movement in foreign exchange, sales were flat. Full year original equipment sales for the global product lines of Sealing Systems and Systems Protection were $639 million, compared to $630 million in 2001. Excluding the effects of movement in foreign exchange, sales were flat. By geographic region, 2002 Sealing Systems and Systems Protection OE sales were 74% in North America, 25% in Europe and Africa, and 1% in the rest of the world. In the fourth quarter, Sealing Systems and Systems Protection OE sales were $150 million, compared to $146 million in 2001. Excluding the effects of movement in foreign exchange, sales increased 1%.
For the full year, Federal-Mogul as a whole posted sales of $5,422 million, compared to full year 2001 sales of $5,457 million. The full year net loss was $1,629 million for 2002, compared to a net loss in 2001 of $1,002 million. The full year net loss reported for 2002 included a $1,418 million charge for a cumulative effect of change in accounting from the adoption of Statement of Financial Accounting Standard No. 142 (FAS 142).
Full year 2002 net cash provided from operating activities was $257 million. Excluding charges for restructuring, impairment, gains and losses on sales of businesses, and Chapter 11 and Administration-related expenses, Federal- Mogul reported full-year 2002 earnings before income taxes and cumulative effect of change in accounting principle of $100 million compared to a loss of $178 million in 2001.
The loss reported in 2002 excludes amortization of goodwill and certain other intangible assets as a result of the adoption of FAS 142. Also excluded is a portion of interest expense on pre-petition debt as a result of the restructuring proceedings. Excluding the aforementioned items, operating results in 2002 showed gains over the prior year due to productivity improvements. These improvements were offset by significant increases in pension costs. Due to the market performance of the company’s pension plans’ investments over the past several years, Federal-Mogul contributed $26 million to its United States pension plan. Federal-Mogul has a schedule of contributions to pay approximately one million British pounds per month in 2003 in the United Kingdom. Funding strategies are currently under review for its U.S. plan.
As part of the company’s ongoing efforts to reduce its cost structure, Federal-Mogul’s global employment decreased 4% in 2002 to 47,000 employees. “From an operations standpoint, our efforts in 2002 have resulted in profitability improvements and productivity increases. We are using all of our resources, both human and capital, to improve and grow our operations for the future. In addition, our announced plan to acquire Honeywell’s global Bendix friction-materials business to grow one of our core product lines further signifies the exciting future we have ahead of us,” said Frank Macher, chairman and chief executive officer. “Our recently announced agreement in principle with our major U.S. creditors on a consensual Plan of Reorganization is evidence we are on-track to successfully emerge from Chapter 11 this year with a viable capital structure and operations free from asbestos liability. We will emerge as a stronger Federal-Mogul ready to capitalize on our sustainable competitive advantage in both product and process technologies.”