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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q





|[X] |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934
|--- |  | ----------------------------------------------------------------------------------



For the quarterly period ended March 31, 2003



OR



|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OF THE  SECURITIES EXCHANGE ACT OF 1934
|----- |  | --------------------------------------------------------------------------------



For the transition period from
 to



Commission File Number: 1-1511



FEDERAL-MOGUL CORPORATION

(Exact name of Registrant as specified in its charter)



|Michigan                                                      |  | 38-0533580                         
|------------------------------------------------------------- |  | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (IRS employeridentification number)



|26555 Northwestern Highway, Southfield, Michigan |  | 48034     
|------------------------------------------------ |  | ----------
|(Address of principal executive offices)         |  | (Zip Code)



(248)
354-7700

(Registrants telephone number, including area code)



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, and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No ̈



As of April 28, 2003, there were 87,131,298 outstanding shares of the
registrants $5.00 stated value common stock.



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FEDERAL-MOGUL CORPORATION



Form 10-Q



For the Quarter Ended March 31, 2003



INDEX



|                                                                                                                                                                             |  | Page No.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|Forward-Looking Statements                                                                                                                                                   |  | 3       
|Part IFinancial Information                                                                                                                                                 |  |         
|Item 1Consolidated Financial Statements                                                                                                                                     |  |         
|Consolidated Statements of Operations                                                                                                                                        |  | 5       
|Consolidated Balance Sheets                                                                                                                                                  |  | 6       
|Consolidated Statements of Cash Flows                                                                                                                                        |  | 7       
|Notes to the Consolidated Financial Statements                                                                                                                               |  | 8       
|Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                 |  | 34      
|Item 3Quantitative and Qualitative Disclosures about Market Risk                                                                                                            |  | 38      
|Item 4Disclosure Controls and Procedures                                                                                                                                    |  | 39      
|Part IIOther Information                                                                                                                                                    |  |         
|Item 1Legal Proceedings                                                                                                                                                     |  | 40      
|Item 3Defaults Upon Senior Securities                                                                                                                                       |  | 40      
|Item 6Exhibits and Reports on Form 8-K                                                                                                                                      |  | 40      
|Signatures                                                                                                                                                                   |  | 41      
|Certifications                                                                                                                                                               |  | 42      
|Exhibit 99.1Certification by the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | 44      
|Exhibit 99.2Certification by the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | 45      



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FORWARD-LOOKING STATEMENTS



Certain statements contained or incorporated in this Quarterly Report on Form 10-Q which are not statements of historical fact constitute Forward-Looking Statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the Reform Act).



Forward-looking statements give current expectations or forecasts of future events. Words such as anticipate, expect, intend, plan, believe, seek,
estimate and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. From time to time, the Company also may provide oral or written
forward-looking statements in other materials released to the public. Such statements are made in good faith by Federal-Mogul Corporation (the Company) pursuant to the Safe Harbor provisions of the Reform Act.



Any or all forward-looking statements included in this report
or in any other public statements may ultimately be incorrect. Forward-looking statements may involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance, experience or achievements of the
Company to differ materially from any future results, performance, experience or achievements expressed or implied by such forward-looking statements. The Company undertakes no obligation to update any forward-looking statements, whether as a result
of new information, future events, or otherwise.



These are some of the factors that could potentially cause actual results to differ materially from expected and historical results. Other factors besides those listed here could also materially affect the Companys business.



Chapter 11 Filing

| |  | Factors relating to the Companys filing for Chapter 11 in the U.S. and Administration in the U.K. such as: the possible disruption of relationships with
creditors, customers, and employees; the Companys ability to develop and implement a plan of reorganization in the U.S. and scheme of arrangement in the U.K.; the outcome of asbestos litigation proceedings; and the Companys compliance
with its existing debtor-in-possession credit facility
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Legal and Environmental Proceedings

| |  | Legal actions and claims of undetermined merit and amount involving, among other things, product liability, warranty, recalls of products manufactured or sold by the
Company, and environmental and safety issues involving the Companys products or facilities
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The merit and amount of claims to reinsurance carriers for asbestos related claims, and the financial viability of and resources available to the reinsurance
carriers to meet these claims
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Business
Environment and Economic Conditions

| |  | The Companys ability to generate cost savings or manufacturing efficiencies to offset or exceed contractually or competitively required price reductions or
price reductions to obtain new business
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Variations in the financial or operational condition of the Companys significant customers, particularly the worlds original equipment (OE)
manufacturers of commercial and personal vehicles
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Material shortages, transportation system delays, or other difficulties in markets where the Company purchases supplies for the manufacturing of its products
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Significant work stoppages, disputes, or any other difficulties in labor markets where the Company obtains materials necessary for the manufacture of its products or
where its products are manufactured, distributed or sold
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Increased development of fuel cells, hybrid-electric, or other non-combustion engine technologies
|- |  | -------------------------------------------------------------------------------------------------



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| |  | The Companys ability to obtain cash adequate to fund its needs, including the borrowings available under its debtor-in-possession credit facility and the
availability of financing for the Companys subsidiaries not included under the voluntary filing for Chapter 11 in the U.S. or Administration in the U.K.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Fluctuations in the global securities markets which directly impact the valuation of assets supporting the Companys pension plans
|- |  | ----------------------------------------------------------------------------------------------------------------------------------



International and Other Factors

| |  | Various worldwide economic, political and social factors, changes in economic conditions, currency fluctuations and devaluations, credit risks in emerging markets,
or political instability in foreign countries where the Company has significant manufacturing operations, customers, or suppliers
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | New or expanded litigation activity regarding alleged asbestos claims against subsidiaries of the Company not included in either the U.S. Chapter 11 or the U.K.
Administration Proceedings
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Legislative activities of governments, agencies, and similar organizations, both in the United States and in foreign countries, that may affect the operations of the
Company
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Possible terrorist attacks or acts of aggression or war, which could exacerbate other risks such as reduced vehicle production or interruptions in the transportation
system
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART IFINANCIAL INFORMATION



Item 1.    Financial Statements



FEDERAL-MOGUL CORPORATION



Consolidated Statements of Operations (Unaudited)

(Millions of Dollars, Except Per Share Amounts)



|                                                                                          |  | Three Months EndedMarch 31 |        
|----------------------------------------------------------------------------------------- |  | -------------------------- | -------
|                                                                                          |  | 2003                       |        
|Net sales                                                                                 |  | $                          | 1,409.8
|Cost of products sold                                                                     |  |                            | 1,132.0
|                                                                                          |  |                            |        
|Gross margin                                                                              |  |                            | 277.8  
|Selling, general and administrative expenses                                              |  |                            | 226.0  
|Restructuring charges                                                                     |  |                            | 10.3   
|Interest expense, net                                                                     |  |                            | 29.5   
|Chapter 11 and Administration related reorganization expenses                             |  |                            | 32.8   
|Other (income) expense, net                                                               |  |                            | (5.5   
|                                                                                          |  |                            |        
|Loss before income tax expense and cumulative effect of change in accounting
principle    |  |                            | (15.3  
|Income tax expense                                                                        |  |                            | 18.9   
|                                                                                          |  |                            |        
|Loss before cumulative effect of change in accounting principle                           |  |                            | (34.2  
|Cumulative effect of change in accounting principle, net of applicable income tax
benefit |  |                            |       
|                                                                                          |  |                            |        
|Net loss attributable to common shareholders                                              |  | $                          | (34.2  
|                                                                                          |  |                            |        
|Loss Per Common Share:                                                                    |  |                            |        
|Basic and Diluted                                                                         |  |                            |        
|Loss per common share before cumulative effect of change in accounting
principle          |  | $                          | (0.39  
|                                                                                          |  |                            |        
|Net Loss Per Common Share                                                                 |  | $                          | (0.39  
|                                                                                          |  |                            |        



See accompanying notes.



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FEDERAL-MOGUL CORPORATION



Consolidated Balance Sheets

(Millions of Dollars)



|                                                             |  | (Unaudited) March 31 2003 |          |   | December 31 2002 |  
|------------------------------------------------------------ |  | ------------------------- | -------- | - | ---------------- | -
|ASSETS                                                       |  |                           |          |   |                  |  
|Cash and equivalents                                         |  | $                         | 410.4    |   |                  | $
|Accounts receivable                                          |  |                           | 1,005.4  |   |                  |  
|Inventories                                                  |  |                           | 807.4    |   |                  |  
|Deferred taxes                                               |  |                           | 17.8     |   |                  |  
|Prepaid expenses                                             |  |                           | 186.3    |   |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Current Assets                                         |  |                           | 2,427.3  |   |                  |  
|Property, plant and equipment, net                           |  |                           | 2,274.2  |   |                  |  
|Goodwill and indefinite-lived intangible assets              |  |                           | 1,565.9  |   |                  |  
|Definite-lived intangible assets, net                        |  |                           | 345.2    |   |                  |  
|Asbestos-related insurance recoverable                       |  |                           | 765.5    |   |                  |  
|Prepaid pension costs                                        |  |                           | 328.5    |   |                  |  
|Other noncurrent assets                                      |  |                           | 217.5    |   |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Assets                                                 |  | $                         | 7,924.1  |   |                  | $
|                                                             |  |                           |          |   |                  |  
|                                                            
|LIABILITIES AND SHAREHOLDERS
DEFICIT                        |  |                           |          |   |                  |  
|Short-term debt, including current portion of long-term debt |  | $                         | 394.2    |   |                  | $
|Accounts payable                                             |  |                           | 347.1    |   |                  |  
|Accrued compensation                                         |  |                           | 214.1    |   |                  |  
|Restructuring reserves                                       |  |                           | 84.2     |   |                  |  
|Accrued income taxes                                         |  |                           | 68.2     |   |                  |  
|Other accrued liabilities                                    |  |                           | 370.5    |   |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Current Liabilities                                    |  |                           | 1,478.3  |   |                  |  
|Liabilities subject to compromise                            |  |                           | 6,045.4  |   |                  |  
|Long-term debt                                               |  |                           | 11.8     |   |                  |  
|Postemployment benefits                                      |  |                           | 1,536.4  |   |                  |  
|Deferred income taxes                                        |  |                           | 48.9     |   |                  |  
|Other accrued liabilities                                    |  |                           | 183.8    |   |                  |  
|Minority interest in consolidated subsidiaries               |  |                           | 45.0     |   |                  |  
|Shareholders Deficit:                                       |  |                           |          |   |                  |  
|Series C ESOP preferred stock                                |  |                           | 28.0     |   |                  |  
|Common stock                                                 |  |                           | 435.6    |   |                  |  
|Additional paid-in capital                                   |  |                           | 2,060.5  |   |                  |  
|Accumulated deficit                                          |  |                           | (2,778.1 | ) |                  |  
|Accumulated other comprehensive loss                         |  |                           | (1,171.5 | ) |                  |  
|Other                                                        |  |                           |         |   |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Shareholders Deficit                                  |  |                           | (1,425.5 | ) |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Liabilities and Shareholders Deficit                  |  | $                         | 7,924.1  |   |                  | $
|                                                             |  |                           |          |   |                  |  



See accompanying notes.



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FEDERAL-MOGUL CORPORATION



Consolidated Statements of Cash Flows (Unaudited)

(Millions of Dollars)



|                                                                                            |  | Three Months EndedMarch 31 |      
|------------------------------------------------------------------------------------------- |  | -------------------------- | -----
|                                                                                            |  | 2003                       |      
|Cash Provided From (Used By) Operating Activities                                           |  |                            |      
|Net loss                                                                                    |  | $                          | (34.2
|Adjustments to reconcile net loss to net cash provided from (used by) operating
activities: |  |                            |      
|Cumulative effect of change in accounting principle                                         |  |                            |     
|Depreciation and amortization                                                               |  |                            | 73.8 
|Restructuring charges, net                                                                  |  |                            | 10.3 
|Chapter 11 and Administration related reorganization expenses                               |  |                            | 32.8 
|Adjustment of long-lived assets to fair value                                               |  |                            | 1.6  
|(Gain) loss on sale of businesses                                                           |  |                            | 0.9  
|Change in postemployment benefits including pensions                                        |  |                            | 29.4 
|Deferred taxes                                                                              |  |                            | 4.9  
|Increase in accounts receivable                                                             |  |                            | (46.6
|Increase in inventories                                                                     |  |                            | (2.0 
|Increase in accounts payable                                                                |  |                            | 20.3 
|Change in other assets and liabilities                                                      |  |                            | (24.3
|Payments against restructuring reserves                                                     |  |                            | (17.4
|Payments for Chapter 11 and Administration related reorganization
expenses                  |  |                            | (16.2
|                                                                                            |  |                            |      
|Net Cash Provided From Operating Activities                                                 |  |                            | 33.3 
|                                                                                           
|Cash Provided From (Used By) Investing Activities                                           |  |                            |      
|Expenditures for property, plant and equipment and other long-term
assets                   |  |                            | (65.1
|Net proceeds from sales of businesses                                                       |  |                            |     
|                                                                                            |  |                            |      
|Net Cash Used By Investing Activities                                                       |  |                            | (65.1
|                                                                                           
|Cash Provided From (Used By) Financing Activities                                           |  |                            |      
|Principal payments on long-term debt                                                        |  |                            | (2.5 
|Borrowings from DIP credit facility                                                         |  |                            | 75.0 
|Principal payments on DIP credit facility                                                   |  |                            | (10.2
|Decrease in short-term debt                                                                 |  |                            | (16.7
|                                                                                            |  |                            |      
|Net Cash Provided From (Used By) Financing Activities                                       |  |                            | 45.6 
|                                                                                            |  |                            |      
|Effect of Foreign Currency Exchange Rate Fluctuations on Cash                               |  |                            | 1.5  
|                                                                                            |  |                            |      
|Increase (Decrease) in Cash and Equivalents                                                 |  |                            | 15.3 
|Cash and equivalents at beginning of period                                                 |  |                            | 395.1
|                                                                                            |  |                            |      
|Cash and equivalents at end of period                                                       |  | $                          | 410.4
|                                                                                            |  |                            |      



See accompanying notes.



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FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements (Unaudited)

March 31, 2003



|1. |  | BASIS OF PRESENTATION
|-- |  | ---------------------



Interim Financial Statements



The accompanying unaudited consolidated financial statements of Federal-Mogul Corporation (Federal-Mogul or the
Company) have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002. Certain items in the 2002 consolidated financial statements have been reclassified to conform to
the presentation used in 2003.



New Accounting Pronouncements



Accounting for
Costs Associated with Exit or Disposal Activities



In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This pronouncement
addresses accounting and financial reporting for costs associated with an exit activity (including restructuring) or with the disposal of long-lived assets and supersedes Emerging Issues Task Force Issue (EITF) No. 94-3. Under SFAS No.
146, a liability is recorded for a cost associated with an exit activity when that liability is incurred and can be measured at fair value. SFAS No. 146 is effective prospectively for exit and disposal activities initiated after December 31, 2002.
SFAS No. 146 does not allow for the restatement of previously issued financial statements and grandfathers the accounting for liabilities previously recorded under EITF Issue No. 94-3. The Company adopted SFAS No. 146 effective January 1, 2003. The
adoption of SFAS No. 146 had no material effect on the Companys financial statements.





|2. |  | VOLUNTARY REORGANIZATION UNDER CHAPTER 11 AND ADMINISTRATION
|-- |  | ------------------------------------------------------------



On October 1, 2001 (the Petition Date), Federal-Mogul Corporation and all of its wholly-owned United States subsidiaries filed
voluntary petitions for reorganization (the U.S. Restructuring) under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court). Also on October 1, 2001, certain of the Companys United Kingdom subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code and petitions for Administration (the U.K.
Restructuring) under the United Kingdom Insolvency Act of 1986 (the Act) in the High Court of Justice, Chancery division in London, England (the High Court). The Company and its U.S. and U.K. subsidiaries included in
the U.S. Restructuring and U.K. Restructuring are herein referred to as the Debtors. The U.S. Restructuring and U.K. Restructuring are herein referred to as the Restructuring Proceedings. The Chapter 11 cases of the Debtors
(collectively, the Chapter 11 Cases) have been consolidated for purposes of joint administration as In re: Federal-Mogul Global Inc., T&N Limited, et. al (Case No. 01-10578(SLR)). The Chapter 11 Cases do not include any of the
Companys non-U.S. subsidiaries outside of the U.K. subsidiaries mentioned above.



The Restructuring Proceedings were initiated in response to a sharply increasing number of asbestos-related claims and their related demand on the Companys cash flows. Under the Restructuring
Proceedings, the Debtors expect to develop and implement a plan for addressing the asbestos-related claims against them.



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Consequences of the Restructuring Proceedings



The U.S. Debtors are operating their businesses as
debtors-in-possession subject to the provisions of the Bankruptcy Code. The U.K. Debtors are continuing to manage their operations under the supervision of an Administrator approved by the High Court. All vendors will be paid for all goods furnished
and services provided after the Petition Date. However, as a consequence of the Restructuring Proceedings, all pending litigation against the Debtors as of the Petition Date is stayed (subject to certain exceptions in the case of governmental
authorities), and no party may take any action to pursue or collect pre-petition claims except pursuant to an order of the Bankruptcy Court or the High Court as applicable. It is the Debtors intention to address all pending and future
asbestos-related claims and all other pre-petition claims through a unified plan of reorganization under the Bankruptcy Code or scheme of arrangement under the Act.



In the U.S., three committees, representing asbestos claimants, unsecured creditors and equity security
holders have been appointed as official committees in the Chapter 11 Cases and, in accordance with the provisions of the Bankruptcy Code, have the right to be heard on all matters that come before the Bankruptcy Court. The appointed committees,
together with the legal representative for the future asbestos claimants, play important roles in the Restructuring Proceedings. In the U.K., the Administrator has appointed a creditors committee, representing both asbestos claimants and general
unsecured creditors.



As provided by the
Bankruptcy Code, the Debtors initially had the exclusive right to propose a plan of reorganization within 120 days following the Petition Date with the Bankruptcy Court. The Debtors requested the Bankruptcy Court to extend the period of exclusivity
to November 1, 2002, and the request was granted. On October 30, 2002, the Bankruptcy Court granted an additional extension of the period of exclusivity to March 3, 2003. This date was further extended by Federal District Court order until March 6,
2003.



Although a number of issues remain to be
resolved, a plan of reorganization was filed on March 6, 2003. The plan of reorganization provides that the noteholders and asbestos claimants, present and future, will convert all of their claims into equity of the reorganized Company.
Specifically, 49.9% of newly authorized and issued stock will be distributed to the noteholders, and 50.1% of newly authorized and issued stock will be distributed to a trust established pursuant to Section 524(g) of the Bankruptcy Code for the
benefit of existing and future asbestos claimants. United States trade creditors are expected to receive yet to be determined distributions under the consensual plan. Subject to continued negotiation, the plan of reorganization currently provides
for the cancellation of pre-petition equity interests. The filing of the plan of reorganization will be followed by various critical documents, specifically, the Plan Disclosure Statement detailing the reorganization transaction and the U.K scheme
of arrangement. The initial Plan Disclosure Statement was filed with the Bankruptcy Court on April 21, 2003.



There are two possible types of U.K. schemes of arrangements. The first is under Section 425 of the Companies Act of 1985, which may
involve a scheme for the reconstruction of the Company. If a majority in number representing three-fourths in value of the creditors or members or any class of them agree to the compromise or arrangement, it is binding if sanctioned by the High
Court. Section 425 may be invoked where there is an Administration order in force in relation to the Company. The other possible type of scheme arises under Section 1 of the Insolvency Act of 1986 in relation to Company Voluntary Arrangements
(CVA). If a majority in value representing more than three-fourths of the creditors agrees to the compromise or arrangement set out in the CVA proposal, it will be approved.



The Company is unable to predict with a high degree of certainty at this time what treatment will be accorded
under any such plan of reorganization to intercompany indebtedness, licenses, executory contracts, transfers of goods and services, and other intercompany arrangements, transactions and relationships that were entered into prior to the Petition
Date. Various parties in the Chapter 11 Cases may challenge these arrangements, transactions, and relationships, and the outcome of those challenges, if any, may have an impact on the treatment of various claims under such plan of reorganization.
March 3, 2003 was the bar date for asbestos property damage claims and for general and commercial claims.



The Bankruptcy Court may confirm a plan of reorganization only upon making certain findings required by the Bankruptcy Code, and a plan
may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. The payment rights and other entitlements of pre-



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petition creditors and equity security holders may be substantially altered by any plan of reorganization
confirmed in the Chapter 11 Cases. There is no assurance that there will be sufficient assets to satisfy the Debtors pre-petition liabilities in whole or in part, and the pre-petition creditors of some Debtors may be treated differently than
those of other Debtors.



Chapter
11 Financing



In connection with the
Restructuring Proceedings, the Company entered into a $675 million debtor-in-possession (DIP) credit facility to supplement liquidity and fund operations during the restructuring proceedings. The DIP credit facility expires in October
2003 and bears interest at either the alternate base rate (ABR) plus 21⁄2 percentage points or a formula based on the London Inter-Bank Offered Rate (LIBOR) plus 31⁄2 percentage points. The ABR is the greatest of either
the banks prime rate or the base CD rate plus 1 percentage point or the federal funds rate plus 1⁄2 percentage point. The $675 million commitment is reduced by a portion of the proceeds received from an asset sale or business divestiture.
Available borrowings under the DIP credit facility are determined by the underlying collateral at any point in time, consisting of domestic fixed assets, accounts receivable and inventory.



The Company provided collateral in the form of a pledge of its domestic inventories, domestic accounts
receivable, domestic plant, and its equipment and real property to the DIP lenders. The DIP lenders received permission from the lenders of the Senior Credit Agreements to have priority over their collateral interest. The borrowing base available to
the Company is calculated weekly based upon the value of this underlying collaterial. The total commitment and amounts outstanding on the DIP credit facility are as follows:



|                                |  | March 31 2003         |       |   | December 31 2002 |  
|------------------------------- |  | --------------------- | ----- | - | ---------------- | -
|                                |  | (Millions of Dollars) |      
|Commitment:                     |  |                       |      
|Original commitment             |  | $                     | 675.0 |   |                  | $
|Mandatory commitment reductions |  |                       | (36.2 | ) |                  |  
|                                |  |                       |       |   |                  |  
|Current commitment              |  | $                     | 638.8 |   |                  | $
|                                |  |                       |       |   |                  |  
|Outstanding:                    |  |                       |       |   |                  |  
|Current borrowings              |  | $                     | 379.5 |   |                  | $
|Letters of credit               |  |                       | 14.0  |   |                  |  
|                                |  |                       |       |   |                  |  
|Total outstanding               |  |                       | 393.5 |   |                  |  
|Available to borrow             |  |                       | 183.5 |   |                  |  
|                                |  |                       |       |   |                  |  
|Total borrowing base            |  | $                     | 577.0 |   |                  | $
|                                |  |                       |       |   |                  |  



The DIP
credit facility contains restrictive covenants. The more significant of these covenants include the maintenance of certain levels of earnings before interest, taxes, depreciation and amortization and limitation on quarterly capital expenditures.
Additional covenants include, but are not limited to, limitations on the early retirement of debt, additional borrowings, payment of dividends and the sale of assets or businesses.



Financial Statement Presentation



The accompanying consolidated financial statements have been
prepared in accordance with AICPA Statement of Position 90-7 (SOP 90-7), Financial Reporting by Entities in Reorganization under the Bankruptcy Code and on a going concern basis, which contemplates continuity of operations
and realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Restructuring Proceedings, such realization of assets and liquidation of liabilities, without substantial adjustments and/or
changes of ownership, is highly uncertain. Given this uncertainty, there is substantial doubt about the ability of the Company to continue as a going concern. While operating as debtors-in-possession under the protection of Chapter 11 of the
Bankruptcy Code and Administration under the Act, and subject to approval of the Bankruptcy Court, Administrator or the High Court or otherwise as permitted in the ordinary course of business, the Debtors, or some of them, may sell or otherwise
dispose of assets and liquidate or settle liabilities for some amounts other than those reflected in the consolidated financial statements. Further, a plan of reorganization or scheme of arrangement could materially change the amounts and
classifications in the historical consolidated financial statements.



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Virtually all of the Companys pre-petition debt is in default. At March 31, 2003,
the Debtors pre-petition debt is classified under the caption Liabilities subject to compromise. This includes debt outstanding of $1,905.3 million under the pre-petition Senior Credit Agreements and $2,118.1 million of other
outstanding debt, primarily notes payable at various unsecured rates, less capitalized debt issuance fees of $38.4 million. The carrying value of the pre-petition debt will be adjusted once it has become an allowed claim by the Bankruptcy Court to
the extent the related carrying value differs from the amount of the allowed claim. Such adjustment may be material to the consolidated financial statements.



As a result of the Restructuring Proceedings, the Company is in default to its affiliate holder of its convertible junior subordinated
debentures and is no longer accruing interest expense or making interest payments on the debentures. As a result, the affiliate no longer has the funds available to pay distributions on the Company-Obligated Mandatorily Redeemable Preferred
Securities and stopped accruing and paying such distributions on October 1, 2001. The affiliate is in default on the Company-Obligated Mandatorily Redeemable Preferred Securities. The Company is a guarantor on the outstanding debentures and, as a
result of the default, the Company has become a debtor to the holders of the debentures directly. This liability is a pre-petition liability. As a result, the Company has classified these securities as Liabilities subject to compromise
in the consolidated balance sheets.



As reflected
in the consolidated financial statements, Liabilities subject to compromise refers to Debtors liabilities incurred prior to the commencement of the Restructuring Proceedings. The amounts of the various liabilities that are subject
to compromise are set forth below. These amounts represent the Companys estimate of known or potential pre-petition claims to be resolved in connection with the Restructuring Proceedings. Such claims remain subject to future adjustments.
Future adjustments may result from (i) negotiations; (ii) actions of the Bankruptcy Court, High Court or Administrator; (iii) further developments with respect to disputed claims; (iv) rejection of executory contracts and unexpired leases; (v) the
determination as to the value of any collateral securing claims; (vi) proofs of claim; or (vii) other events. Payment terms for these claims will be established in connection with the Restructuring Proceedings.



Liabilities subject to compromise are comprised of (in
millions of dollars):



|                                                    |  | March 31 2003 |         | December 31 2002
|--------------------------------------------------- |  | ------------- | ------- | ----------------
|Debt                                                |  | $             | 3,985.0 |                 
|Asbestos liabilities                                |  |               | 1,560.7 |                 
|Company-obligated mandatorily redeemable securities |  |               | 211.0   |                 
|Accounts payable                                    |  |               | 205.2   |                 
|Interest payable                                    |  |               | 43.0    |                 
|Environmental liabilities                           |  |               | 22.9    |                 
|Other liabilities                                   |  |               | 17.6    |                 
|                                                    |  |               |         |                 
|Subtotal                                            |  |               | 6,045.4 |                 
|Intercompany payables to Affiliates                 |  |               | 2,982.7 |                 
|                                                    |  |               |         |                 
|Liabilities subject to compromise                   |  | $             | 9,028.1 |                 
|                                                    |  |               |         |                 



Chapter
11 and Administration related reorganization expenses in the consolidated statements of operations for the three-month period ended March 31, 2003 and 2002, respectively, consist of legal, financial and advisory



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fees, critical employee retention costs and other directly related internal costs as follows (in millions
of dollars):



|                                                 |  | Three Months Ended March 31
|------------------------------------------------ |  | ---------------------------
|                                                 |  | 2003                       
|Professional fees directly related to the filing |  | $                          
|Critical employee retention costs                |  |                            
|Other directly related costs                     |  |                            
|                                                 |  |                            
|Total                                            |  | $                          
|                                                 |  |                            



Pursuant
to the Bankruptcy Code, the Debtors have filed schedules with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the Petition Date. On October 4, 2002, the Debtors issued approximately 100,000 proof of claim forms to
its current and prior employees, known creditors, vendors and other parties with whom the Debtors have previously conducted business. To the extent that recipients disagree with the claims as quantified on these forms, the recipient may file
discrepancies with the Bankruptcy Court. Differences between amounts recorded by the Debtors and claims filed by creditors will be investigated and resolved as part of the Restructuring Proceedings. The Bankruptcy Court ultimately will determine
liability amounts that will be allowed for these claims in the Chapter 11 Cases. March 3, 2003 was the bar date for the filing of proofs of claim against the Debtors.



Approximately 10,400 proofs of claim (including late-filed claims), totaling approximately $158.4 billion
alleging a right to payment from a Debtor were filed with the Bankruptcy Court in connection with the March 3, 2003 property and general bar date. Upon initial review of the filed claims, the Company has identified approximately 1,500 of these
claims, totaling approximately $142.1 billion, which it believes should be disallowed by the Bankruptcy Court, primarily because they appear to be duplicate or unsubstantiated claims.



Of the approximate 10,400 claims filed, the Company has identified that approximately 4,025 of these claims,
totaling approximately $8.5 billion, are associated with asbestos-related contribution, indemnity, reimbursement, or subrogation claims. The Company will address asbestos-related personal injury and wrongful death claims in the future as part of the
Chapter 11 cases.



Of the approximate 10,400
claims filed, the Company has not completed its evaluation of the approximate remaining 4,875 claims, totaling approximately $7.8 billion, alleging rights to payment for financing, environmental, trade debt and other matters. While the Company
continues to investigate these unresolved proofs of claim, it is impossible to reasonably estimate the value of all claims that will ultimately be allowed by the Bankruptcy Court due to the uncertainties of the Restructuring Proceedings and the
in-progress state of the Companys investigation of submitted claims. The Bankruptcy Court will ultimately determine liability amounts, if any, that will be allowed as part of the Chapter 11 Cases. Because the Debtors have not completed an
evaluation of the claims received in connection with this process, the ultimate number and allowed amount of such claims are not presently known. The resolution of such claims could result in a material adjustment to the Companys financial
statements.



The appropriateness of using the
going concern basis for its financial statements is dependent upon, among other things: (i) the Companys ability to comply with the terms of the DIP credit facility and any cash management order entered by the Bankruptcy Court in connection
with the Chapter 11 Cases; (ii) the ability of the Company to maintain adequate cash on hand; (iii) the ability of the Company to generate cash from operations; (iv) confirmation of a plan(s) of reorganization under the Bankruptcy Code; and (v) the
Companys ability to achieve profitability following such confirmation.



Debtors Financial Statements



The condensed combined financial statements of the Debtors are presented below. These statements reflect the financial position, results of operations and cash flows of the combined Debtor
subsidiaries, including certain amounts and activities between Debtors and non-Debtor subsidiaries of the Company, which are eliminated in the condensed consolidated financial statements.



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##### Table of Contents



Federal-Mogul Corporation



Debtors Condensed Consolidated Statements of
Operations (Unaudited)

(Millions of Dollars)



|                                                                                                                            |  | Three months ended March 31 |      
|--------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -----
|                                                                                                                            |  | 2003                        |      
|Net sales                                                                                                                   |  | $                           | 891.6
|Cost of products sold                                                                                                       |  |                             | 731.3
|                                                                                                                            |  |                             |      
|Gross margin                                                                                                                |  |                             | 160.3
|Selling, general and administrative expenses                                                                                |  |                             | 155.6
|Restructuring charges                                                                                                       |  |                             | 1.0  
|Interest expense, net                                                                                                       |  |                             | 29.0 
|Chapter 11 and administration related reorganization expenses                                                               |  |                             | 32.8 
|Other income, net                                                                                                           |  |                             | (74.7
|                                                                                                                            |  |                             |      
|Earnings before income taxes, equity loss of non-Debtorsubsidiaries, and cumulative
effect of change in accountingprinciple |  |                             | 16.6 
|Income tax expense                                                                                                          |  |                             | 0.2  
|                                                                                                                            |  |                             |      
|Earnings before equity loss of non-Debtor subsidiaries andcumulative effect of
change in accounting principle               |  |                             | 16.4 
|Equity loss of non-Debtor subsidiaries before cumulative effect of change
inaccounting principle                            |  |                             | (50.6
|                                                                                                                            |  |                             |      
|Loss before cumulative effect of change in accounting principle                                                             |  |                             | (34.2
|Cumulative effect of change in accounting principle, Debtors, net of
applicableincome tax benefit                           |  |                             |     
|Cumulative effect of change in accounting principle, non-Debtors, net ofapplicable
income tax benefit                       |  |                             |     
|                                                                                                                            |  |                             |      
|Net loss                                                                                                                    |  | $                           | (34.2
|                                                                                                                            |  |                             |      



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Federal-Mogul Corporation



Debtors Condensed Consolidated Balance Sheets

(Millions of Dollars)



|                                                             |  | (Unaudited) March 31 2003 |          |   | December 31 2002 |  
|------------------------------------------------------------ |  | ------------------------- | -------- | - | ---------------- | -
|ASSETS                                                       |  |                           |          |   |                  |  
|Cash and equivalents                                         |  | $                         | 173.6    |   |                  | $
|Accounts receivable                                          |  |                           | 610.4    |   |                  |  
|Accounts receivable, non-Debtors                             |  |                           | 367.1    |   |                  |  
|Inventories                                                  |  |                           | 470.4    |   |                  |  
|Deferred taxes                                               |  |                           | 13.4     |   |                  |  
|Prepaid expenses                                             |  |                           | 85.8     |   |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Current Assets                                         |  |                           | 1,720.7  |   |                  |  
|Property, plant and equipment, net                           |  |                           | 1,161.5  |   |                  |  
|Goodwill and indefinite-lived intangible assets              |  |                           | 1,368.0  |   |                  |  
|Definite-lived intangible assets, net                        |  |                           | 294.1    |   |                  |  
|Asbestos-related insurance recoverable                       |  |                           | 765.5    |   |                  |  
|Loans receivable and investments in non-Debtors              |  |                           | 4,293.8  |   |                  |  
|Other noncurrent assets                                      |  |                           | 460.2    |   |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Assets                                                 |  | $                         | 10,063.8 |   |                  | $
|                                                             |  |                           |          |   |                  |  
|LIABILITIES AND SHAREHOLDERS
DEFICIT                        |  |                           |          |   |                  |  
|Short-term debt, including current portion of long-term debt |  | $                         | 379.6    |   |                  | $
|Accounts payable and accrued compensation                    |  |                           | 258.6    |   |                  |  
|Accounts payable, non-Debtors                                |  |                           | 144.2    |   |                  |  
|Other accrued liabilities                                    |  |                           | 290.0    |   |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Current Liabilities                                    |  |                           | 1,072.4  |   |                  |  
|Postemployment benefits                                      |  |                           | 1,324.8  |   |                  |  
|Other accrued liabilities                                    |  |                           | 64.0     |   |                  |  
|Liabilities subject to compromise                            |  |                           | 9,028.1  |   |                  |  
|Shareholders Deficit                                        |  |                           | (1,425.5 | ) |                  |  
|                                                             |  |                           |          |   |                  |  
|Total Liabilities and Shareholders Deficit                  |  | $                         | 10,063.8 |   |                  | $
|                                                             |  |                           |          |   |                  |  



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Federal-Mogul Corporation



Debtors Condensed Consolidated Statement of Cash
Flows (Unaudited)

(Millions of Dollars)



|                                                                          |  | Three Months Ended March 31 |      
|------------------------------------------------------------------------- |  | --------------------------- | -----
|                                                                          |  | 2003                        |      
|Net Cash Used By Operating Activities                                     |  | $                           | (45.0
|Cash Provided From (Used By) Investing Activities                         |  |                             |      
|Expenditures for property, plant and equipment and other long-term
assets |  |                             | (37.2
|Net proceeds from sales of businesses                                     |  |                             |     
|                                                                          |  |                             |      
|Net Cash Used By Investing Activities                                     |  |                             | (37.2
|Cash Provided From (Used By) Financing Activities                         |  |                             |      
|Borrowings from DIP credit facility                                       |  |                             | 75.0 
|Principal payments on DIP credit facility                                 |  |                             | (10.2
|                                                                          |  |                             |      
|Net Cash Provided From (Used By) Financing Activities                     |  |                             | 64.8 
|Effect of Foreign Currency Exchange Rate Fluctuations on Cash             |  |                             | 1.4  
|                                                                          |  |                             |      
|Decrease in Cash and Equivalents                                          |  |                             | (16.0
|Cash and equivalents at beginning of period                               |  |                             | 189.6
|                                                                          |  |                             |      
|Cash and equivalents at end of period                                     |  | $                           | 173.6
|                                                                          |  |                             |      



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##### Table of Contents



|3. |  | INCOME TAXES
|-- |  | ------------



For the three months ended March 31, 2003, the Company recorded income tax expense of $18.9 million on a loss of $15.3 million before
income taxes. This compares to income tax expense of $29.8 million on a loss of $11.4 million before income taxes and cumulative effect of change in accounting principle in the same period of 2002. Income tax expense for the three month period ended
March 31, 2003 resulted primarily from the recognition of income tax expense on earnings in certain foreign jurisdictions without the recognition of income tax benefits on current losses in the United States and certain entities in the U.K.



Net deferred tax assets/(liabilities) are as
follows (in millions of dollars):



|                           |  | March 31 2003 |         |   | December 31 2002 |  
|-------------------------- |  | ------------- | ------- | - | ---------------- | -
|Deferred tax assets        |  | $             | 1,441.3 |   |                  | $
|Valuation allowance        |  |               | (708.9  | ) |                  |  
|                           |  |               |         |   |                  |  
|Net deferred tax assets    |  |               | 732.4   |   |                  |  
|Deferred tax liabilities   |  |               | (793.1  | ) |                  |  
|                           |  |               |         |   |                  |  
|Net deferred tax liability |  | $             | (60.7   | ) |                  | $
|                           |  |               |         |   |                  |  



Deferred
tax assets and liabilities are recorded in the consolidated balance sheets as follows (in millions of dollars):



|                                  |  | March 31 2003 |       |   | December 31 2002 |  
|--------------------------------- |  | ------------- | ----- | - | ---------------- | -
|Assets                            |  |               |       |   |                  |  
|Deferred taxes                    |  | $             | 17.8  |   |                  | $
|Other noncurrent assets           |  |               | 6.2   |   |                  |  
|Liabilities                       |  |               |       |   |                  |  
|Other current accrued liabilities |  |               | (35.8 | ) |                  |  
|Deferred income taxes             |  |               | (48.9 | ) |                  |  
|                                  |  |               |       |   |                  |  
|Net deferred tax liability        |  | $             | (60.7 | ) |                  | $
|                                  |  |               |       |   |                  |  



|4. |  | OPERATIONS BY REPORTABLE SEGMENT
|-- |  | --------------------------------



The Companys integrated operations are included in six reportable segments generally corresponding to major product groups:
Powertrain, Sealing Systems and System Protection, Friction, Aftermarket, Other and Divested Operations. Segment information for the three months ended March 31, 2002 has been reclassified to reflect organizational changes implemented in July 2002
and January 2003.



Powertrain products are
used primarily in automotive, light truck, heavy-duty, industrial, marine, agricultural, power generation and small air-cooled engine applications. The primary products of this segment include engine bearings, pistons, piston pins, rings, cylinder
liners, camshafts, sintered products, and connecting rods.



Sealing Systems and Systems Protection products are used in automotive, light truck, heavy-duty, agricultural, off-highway, marine, railroad, high performance and industrial applications. The primary products of this segment
include dynamic seals, gaskets and element resistant sleeving systems protection products.



Friction products are used in automotive and heavy-duty applications. The primary products of this segment include disc pads and brake shoes.



Aftermarket distributes products manufactured within
the above segments, or purchased, to the independent automotive and heavy-duty aftermarkets. The segment also includes manufacturing operations for brake, chassis, ignition, lighting, fuel and wiper products.



Other includes original equipment lighting operations,
Asia Pacific and other Corporate functions.



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Divested
Operations include the historical operating results of the Companys divestitures.



The Company has aggregated certain individual product segments within its six reportable segments. The accounting policies of the segments are the same as that of the Company. Revenues related to
Powertrain, Sealing Systems and Systems Protection, and Friction product sold to OE customers are recorded within the respective segments. Revenues from such products sold to aftermarket customers are recorded within the Aftermarket segment.



The Company evaluates segment performance
principally on a non-GAAP Operational EBIT basis. Operational EBIT is defined as earnings before interest, income taxes, cumulative effect of change in accounting principle and certain nonrecurring items such as restructuring and impairment charges,
Chapter 11 and Administration related reorganization expenses, and gains or losses on the sales of businesses. Operational EBIT for each segment is shown below, as it is most consistent with the corresponding consolidated financial statements.



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##### Table of Contents



Operations
information by reportable segment is as follows (in millions of dollars):



|                                       |  | Net Sales                   |         | Gross Margin                |  
|-------------------------------------- |  | --------------------------- | ------- | --------------------------- | -
|                                       |  | Three Months Ended March 31 |         | Three Months Ended March 31 |  
|                                       |  | 2003                        |         | 2002                        |  
|Powertrain                             |  | $                           | 484.5   |                             | $
|Sealing Systems and Systems Protection |  |                             | 163.5   |                             |  
|Friction                               |  |                             | 104.9   |                             |  
|Aftermarket                            |  |                             | 613.1   |                             |  
|Other, including Corporate             |  |                             | 43.8    |                             |  
|Divested Operations                    |  |                             |        |                             |  
|                                       |  |                             |         |                             |  
|Total                                  |  | $                           | 1,409.8 |                             | $
|                                       |  |                             |         |                             |  



|                                                                                                                                        |  | Operational EBIT            |      
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -----
|                                                                                                                                        |  | Three Months Ended March 31 |      
|                                                                                                                                        |  | 2003                        |      
|Powertrain                                                                                                                              |  | $                           | 41.3 
|Sealing Systems and Systems Protection                                                                                                  |  |                             | 11.3 
|Friction                                                                                                                                |  |                             | 16.1 
|Aftermarket                                                                                                                             |  |                             | 85.4 
|Other, including Corporate                                                                                                              |  |                             | (94.1
|Divested Operations                                                                                                                     |  |                             |     
|                                                                                                                                        |  |                             |      
|Total Operational EBIT                                                                                                                  |  |                             | 60.0 
|Items required to reconcile Operational EBIT to loss before income tax expense and
cumulative effect of change in accounting principle: |  |                             |      
|Net interest and other financing costs                                                                                                  |  |                             | (29.7
|Restructuring and impairment charges                                                                                                    |  |                             | (11.9
|Net (loss) gain on sale of businesses                                                                                                   |  |                             | (0.9 
|Chapter 11 and Administration related reorganization expenses                                                                           |  |                             | (32.8
|                                                                                                                                        |  |                             |      
|Loss before income tax expense and cumulative effect of change in accounting
principle                                                  |  | $                           | (15.3
|                                                                                                                                        |  |                             |      



Total
assets by reportable segment are as follows (in millions of dollars):



|                                       |  | March 31 2003 |         | December 31 2002
|-------------------------------------- |  | ------------- | ------- | ----------------
|Powertrain                             |  | $             | 1,868.3 |                 
|Sealing Systems and Systems Protection |  |               | 1,251.3 |                 
|Friction                               |  |               | 631.2   |                 
|Aftermarket                            |  |               | 2,803.1 |                 
|Other, including Corporate             |  |               | 1,351.0 |                 
|Divested Operations                    |  |               | 19.2    |                 
|                                       |  |               |         |                 
|Total Assets                           |  | $             | 7,924.1 |                 
|                                       |  |               |         |                 



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##### Table of Contents



|5. |  | COMPREHENSIVE LOSS
|-- |  | ------------------



Total comprehensive loss is summarized as follows (in millions of dollars):



|                                         |  | Three Months Ended March 31 |      
|---------------------------------------- |  | --------------------------- | -----
|                                         |  | 2003                        |      
|Net loss                                 |  | $                           | (34.2
|Foreign currency translation adjustments |  |                             | 12.2 
|                                         |  |                             |      
|Total Comprehensive Loss                 |  | $                           | (22.0
|                                         |  |                             |      



|6. |  | EARNINGS PER SHARE
|-- |  | ------------------



The following table sets forth the computation of basic and diluted loss per share (in millions of dollars, except share and per share
data):



|                                                                                                                                                     |  | Three Months Ended March 31 |      
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -----
|                                                                                                                                                     |  | 2003                        |      
|Numerator:                                                                                                                                           |  |                             |      
|Net Loss                                                                                                                                             |  | $                           | (34.2
|Cumulative effect of change in accounting principle, net of applicable tax
benefit                                                                   |  |                             |     
|                                                                                                                                                     |  |                             |      
|Loss before cumulative effect of change in accounting principle                                                                                      |  |                             | (34.2
|Series C preferred dividend requirement                                                                                                              |  |                             |     
|                                                                                                                                                     |  |                             |      
|Numerator for basic and diluted loss per share  loss attributable to common
shareholders before cumulative effect of change in accounting principle |  | $                           | (34.2
|                                                                                                                                                     |  |                             |      
|Numerator for basic and diluted loss per share                                                                                                       |  | $                           | (34.2
|                                                                                                                                                     |  |                             |      
|Denominator:                                                                                                                                         |  |                             |      
|Denominator for basic and diluted loss per share  weighted average shares (in
millions)                                                             |  |                             | 87.1 
|                                                                                                                                                     |  |                             |      
|Basic and diluted loss per share before cumulative effect of change in accounting
principle                                                          |  | $                           | (0.39
|                                                                                                                                                     |  |                             |      
|Basic and diluted loss per share                                                                                                                     |  | $                           | (0.39
|                                                                                                                                                     |  |                             |      



As a
result of the Restructuring Proceedings, the Company stopped accruing and paying dividends on its Series C Preferred Stock.



|7. |  | INCENTIVE STOCK PLANS
|-- |  | ---------------------



The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25), and related interpretations in accounting for its employee stock awards. Accordingly, no compensation cost has been recognized for its stock option grants, as the exercise price of the Companys employee stock options equals the
underlying stock price on the date of grant. Had compensation cost for the Companys stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No.
123 Accounting for Stock Based



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##### Table of Contents



Compensation, the
Companys net loss, in millions, and loss per share would have been adjusted to the pro forma amounts indicated below:



|                                                                |  | Three Months Ended March 31                     |      
|--------------------------------------------------------------- |  | ----------------------------------------------- | -----
|                                                                |  | 2003                                            |      
|                                                                |  | (Millions of Dollars, Except Per Share Amounts) |      
|Net loss as reported                                            |  | $                                               | (34.2
|Additional compensation expense for fair value of stock options |  |                                                 | (0.1 
|                                                                |  |                                                 |      
|Pro forma net loss                                              |  | $                                               | (34.3
|                                                                |  |                                                 |      
|Basic and diluted loss per share as reported                    |  | $                                               | (0.39
|                                                                |  |                                                 |      
|Pro forma loss per share                                        |  | $                                               | (0.39
|                                                                |  |                                                 |      



|8. |  | ASBESTOS LIABILITY AND LEGAL PROCEEDINGS
|-- |  | ----------------------------------------



T&N Companies Asbestos Litigation



Background



The Companys U.K. subsidiary, T&N Ltd., and two U.S. subsidiaries (the T&N Companies) are among many defendants
named in numerous court actions in the U.S. alleging personal injury resulting from exposure to asbestos or asbestos-containing products. T&N Ltd. is also subject to asbestos-disease litigation, to a lesser extent, in the United Kingdom and
France. As a result of the Restructuring Proceedings, the Company now includes as a pending claim open served claims, settled but not documented claims and settled but not paid claims. As of the Petition Date, T&N Ltd. was a defendant in
approximately 115,000 pending personal injury claims. The two United States subsidiaries were defendants in approximately 199,000 pending personal injury claims. Notice of complaints continue to be received Post-petition and are in violation of the
Automatic Stay.



Recorded Liability



In 2000, the Company increased its estimate of
asbestos-related liability for the T&N Companies by $751 million and recorded a related insurance recoverable asset of $577 million. The revision in the estimate of probable asbestos-related liability principally resulted from a study performed
by an econometric firm that specializes in these types of matters. The liability (approximately $1.3 billion as of March 31, 2003) represented the Companys estimate prior to the Restructuring Proceedings for claims currently pending and those
which were reasonably estimated to be asserted and paid through 2012. The Company did not provide a liability for claims that may be paid subsequent to this period as it could not reasonably estimate such claims. In estimating the liability prior to
the Restructuring Proceedings, the Company made assumptions regarding the total number of claims anticipated to be received in a future period, the typical cost of settlement (which is sensitive to the industry in which the plaintiff claims
exposure, the alleged disease type and the jurisdiction in which the action is being brought), the rate of receipt of claims, the settlement strategy in dealing with outstanding claims and the timing of settlements. As a result of the Restructuring
Proceedings (see Note 1), all pending asbestos-related litigation against the Company in the United States and the U.K. is stayed (subject to certain exceptions in the case of governmental authorities), and no party may take any action to pursue or
collect on such asbestos claims absent specific authorization of the Bankruptcy Court or the High Court. Since the Restructuring Proceedings, the Company has ceased making payments with respect to asbestos-related lawsuits. An asbestos
creditors committee has been appointed in the U.S. representing asbestos claimants with pending claims against the Company, and the Bankruptcy Court has appointed a legal representative for the interests of potential future asbestos claimants.
In the U.K. a creditors committee consisting in large part of representatives of asbestos claimants has been appointed. March 3, 2003 was the bar date for the filing of all asbestos-related property damage claims. As part of the Restructuring
Proceedings, it will be determined which asbestos claims should be allowed, or compensated, and the aggregate value of such claims. The Companys obligations with respect to present and future claims could be determined through litigation in
Bankruptcy Court, the High Court, and/or through negotiations with each of the official committees appointed; that determination may provide the basis for a plan of reorganization or scheme of arrangement.



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In December of
2000, the Company entered into $250 million of surety on behalf of the T&N Companies to meet certain collateral requirements for asbestos indemnity obligations associated with their prior membership in the Center for Claims Resolution
(CCR). This amount was stepped down by contract to $225 million effective June, 2001. As a result of the filing, the Company has sought declaratory and injunctive relief in an adversary proceeding filed in the Bankruptcy Court, in order
to enjoin any post-petition payments to asbestos claimants by the CCR and any post-petition draw by the CCR on $225 million in face amount of the surety bonds. CCR now seeks to draw on the surety bonds to fund past and future payments although the
basis of such draw, its validity under the pre-petition bond terms, and whether such draw may be utilized to pay obligations of other CCR members are all disputed. On March 28, 2003, the Federal District Court Judge held that, with respect to phase
one, the CCR has the right to draw upon the bonds to the extent that a settlement between an individual and the CCR member was consummated, i.e., a release has been obtained from such individual. The affect of the ruling and any CCR appeal, and a
yet to be heard phase two, will ultimately determine the amount of any such draw.



Except for exchange rates, the Company has not adjusted its estimate of the asbestos liability since September 30, 2001. This liability is included in the consolidated balance sheet under the caption
Liabilities subject to compromise as of March 31, 2003 for the Companys U.S. and U.K. subsidiaries.



While the Company believes that the liability recorded was appropriate for anticipated losses arising from asbestos-related claims against
the T&N Companies through 2012, it is the Companys view that, as a result of the Restructuring Proceedings, there is even greater uncertainty in estimating the future asbestos liability and related insurance recovery for pending and future
claims. There are significant differences in the treatment of asbestos claims in a bankruptcy proceeding as compared to the tort litigation system. Among other things, it is uncertain at this time as to the number of asbestos-related claims that
will be filed in the Restructuring Proceedings; the number of future claims that will be included in a plan of reorganization; how claims for punitive damages and claims by persons with no asbestos-related physical impairment will be treated and
whether such claims will be allowed; and the impact that historical settlement values for asbestos claims may have on the estimation of asbestos liability in the bankruptcy proceeding.



No assurance can be given that the T&N Companies will not be subject to material additional liabilities
and significant additional litigation relating to asbestos matters through 2012 or thereafter. In the event that such liabilities exceed the amounts recorded by the Company or the remaining insurance coverage, the Companys results of
operations and financial condition could be materially affected.



Insurance Recoverable



In
1996, T&N Ltd. (formerly T&N, plc) purchased for itself and its then defined global subsidiaries a £500 million layer of insurance which will be triggered should the aggregate costs of claims made or brought after June 30, 1996, where
the exposure occurred prior to that date, exceed £690 million. During 2000, the Company concluded that the aggregate cost of the claims filed after June 30, 1996 would exceed the trigger point and accordingly recorded an insurance recoverable
asset under the T&N policy of $577 million. As of March 31, 2003, the recorded insurance recoverable was $595.7 million. In December 2001, one of the three reinsurers filed suit in a London, England court to challenge the validity of its
insurance contract with the T&N Companies. In December 2002, the remaining two reinsurers issued separate declaratory proceedings seeking clarification of policy requirements related to the Asbestos Liability Policy. The Company believes that,
based on its review of the insurance policies and advice from outside legal counsel, it is probable that the T&N Companies will be entitled to receive payment from the reinsurers for the cost of the claims in excess of the trigger point of the
insurance.



The ultimate realization of insurance
proceeds is directly related to the amount of related covered claims paid by the Company. If the ultimate asbestos claims are higher than the recorded liability, the Company expects the ultimate insurance recoverable to be higher than the recorded
amount, up to the cap of the insurance layer. If the ultimate asbestos claims are lower than the recorded liability, the Company expects the ultimate insurance recoverable to be lower than the recorded amount. While the Restructuring Proceedings
will impact the timing and amount of the asbestos claims and the insurance recoverable, there has been no change to the recorded amounts since the Company initiated the Restructuring Proceedings. Accordingly, this asset could change significantly
based upon events that occur from the Restructuring Proceedings.



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The Company
has reviewed the financial viability and legal obligations of the three reinsurance companies involved and has concluded that currently there is little risk that the reinsurers will not be able to meet their obligation to pay, once the claims filed
after June 30, 1996 exceed the £690 million trigger point. The U.S. claims costs applied against this policy are converted at a fixed exchange rate of $1.69/£. As such, if the market exchange rate is less then $1.69/£, the
Company will effectively have a discount from 100% recovery on claims paid. As of March 31, 2003, the $595.7 million insurance recoverable asset is net of an exchange rate discount of approximately $42.8 million.



Abex and Wagner Asbestos Litigation



Background



Two of the Companys businesses formerly owned by Cooper
Industries, Inc. known as Abex and Wagner are involved as defendants in numerous court actions in the U.S. alleging personal injury from exposure to asbestos or asbestos-containing products. These claims mainly involve friction products. As a result
of the Restructuring Proceedings, the Company now includes as a pending claim open served claims, settled but not documented claims and settled but not paid claims. As of the Petition Date, Abex and Wagner were defendants in approximately 66,000 and
33,000 pending claims, respectively. Notices of complaints continue to be received post-petition and are in violation of the Automatic Stay.



The liability of the Company with respect to claims alleging exposure to Wagner products arises from the 1998 stock purchase from Cooper
Industries of the corporate successor by merger to Wagner Electric Company; the purchased entity is now a wholly-owned subsidiary of the Company and one of the Debtors in the Restructuring Proceedings. As a consequence, all claims against the
Debtors, including asbestos-related claims, have been stayed.



The liability of the Company with respect to claims alleging exposure to Abex products arises from a contractual liability entered into in 1994 by the predecessor to the Company whose stock the Company purchased in 1998. Pursuant to
that contract, prior to the Restructuring Proceedings, the Company, through the relevant subsidiary, was liable for certain indemnity and defense payments incurred on behalf of an entity known as Pneumo Abex Corporation, the successor in interest to
Abex Corporation. Effective as of the Petition Date, the Company has ceased making such payments and is currently considering whether to accept or reject the 1994 contractual liability.



As mentioned above, as of the Petition Date, all pending asbestos litigation of Abex (as to the Company only)
and Wagner is stayed (subject to certain exceptions in the case of governmental authorities), and no party may take any action to pursue or collect on such asbestos claims absent specific authorization of the Bankruptcy Court or the High Court.



Recorded Liability



The liability ($214.5 million as of March 31, 2003)
represented the Companys estimate prior to the Restructuring Proceedings for claims currently pending and those which were reasonably estimated to be asserted and paid through 2012. The Company did not provide a liability for claims that may
be brought subsequent to this period as it could not reasonably estimate such claims. In estimating the liability prior to the Restructuring Proceedings, the Company made assumptions regarding the total number of claims anticipated to be received in
a future period, the typical cost of settlement (which is sensitive to the industry in which the plaintiff claims exposure, the alleged disease type and the jurisdiction in which the action is being brought), the rate of receipt of claims, the
settlement strategy in dealing with outstanding claims and the timing of settlements.



As a result of the Restructuring Proceedings (see Note 1), all pending asbestos-related litigation is stayed as previously described for the T&N Companies.



While the Company believes that the liability recorded was
appropriate for anticipated losses arising from asbestos-related claims related to Abex and Wagner through 2012, it is the Companys view that, as a result of the Restructuring Proceedings, there is even greater uncertainty in estimating the
future asbestos liability and related insurance recovery for pending and future claims. There are significant differences in the treatment of asbestos



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claims in a bankruptcy proceeding as compared to the tort litigation system. Among other things, it is
uncertain at this time as to the number of asbestos-related claims that will be filed in the proceeding; the number of future claims that will be included in a plan of reorganization; how claims for punitive damages and claims by persons with no
asbestos-related physical impairment will be treated and whether such claims will be allowed; and the impact historical settlement values for asbestos claims may have on the estimation of asbestos liability in the Restructuring Proceedings.



No assurance can be given that the Company will
not be subject to material additional liabilities and significant additional litigation relating to Abex and Wagner asbestos matters through 2012 or thereafter. In the event that such liabilities exceed the amounts recorded by the Company or the
remaining insurance coverage, the Companys results of operations and financial condition could be materially affected.



Insurance Recoverable



Abex maintained product liability insurance coverage for most of the time that it manufactured products that contained asbestos. This
coverage is shared with other third-party companies. The subsidiary of the Company that may be liable for certain indemnity and defense payments with respect to Abex has the benefit of that insurance up to the extent of that liability. Abex has been
in litigation since 1982 with the insurance carriers of its primary layer of liability concerning coverage for asbestos claims. Abex also has substantial excess layer liability insurance coverage that is shared with other companies that, barring
unforeseen insolvencies of excess carriers or other adverse events, should provide coverage for asbestos claims against Abex.



Wagner also maintained product liability insurance coverage for some of the time that it manufactured products that contained asbestos.
This coverage is shared with other third-party companies. The subsidiary of the Company that may be liable for asbestos claims against Wagner has the benefit of that insurance, subject to the rights of other potential insureds under the policies.
Primary layer liability insurance coverage for asbestos claims against Wagner is the subject of an agreement with Wagners solvent primary carriers. The agreement provides for partial reimbursement of indemnity and defense costs for Wagner
asbestos claims until exhaustion of aggregate limits. Wagner also has substantial excess layer liability insurance coverage which, barring unforeseen insolvencies of excess carriers or other adverse events, should provide coverage for asbestos
claims against Wagner.



The ultimate realization
of insurance proceeds is directly related to the amount of related covered claims paid by the Company. If the ultimate asbestos claims are higher than the recorded liability, the Company expects the ultimate insurance recoverable to be higher than
the recorded amount. If the ultimate asbestos claims are lower than the recorded liability, the Company expects the ultimate insurance recoverable to be lower than the recorded amount. While the Restructuring Proceedings will impact the timing and
amount of the asbestos claims and the insurance recoverable, there has been no change to the recorded amounts due to the uncertainties created by the Restructuring Proceedings. Accordingly, this asset could change materially based upon events that
occur from the Restructuring Proceedings.



The
Company believes that based on its review of the insurance policies, the financial viability of the insurance carriers, and advice from outside legal counsel, it is probable that Abex and Wagner will realize an insurance recoverable correlating with
the respective liability.



Federal-Mogul and Fel-Pro Asbestos Litigation



Prior to the Restructuring Proceedings the Company was also sued in its own name as one of a large number of defendants in multiple lawsuits brought by claimants alleging injury from exposure to asbestos due to its ownership of
certain assets involved in gasket making. As of the Petition Date, the Company was a defendant in approximately 61,500 pre-petition pending claims. Over 40,000 of these claims were transferred to a federal court, where, prior to the Restructuring
Proceedings, they were pending. Notices of complaints continue to be received post-petition and are in violation of the Automatic Stay.



Prior to the Restructuring Proceedings the Companys Fel-Pro subsidiary also was named as a defendant in a number of product
liability cases involving asbestos, primarily involving gasket or packing products. Fel-Pro was a defendant in approximately 34,000 pending claims as of the Petition Date. Over 32,000 of these claims were



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transferred to a federal court where, prior to the Restructuring Proceedings, they were pending. The
Company was defending all such claims vigorously and believed that it and Fel-Pro had substantial defenses to liability and insurance coverage for defense and indemnity.



All claims alleging exposure to the products of the Company and of Fel-Pro have been stayed as a result of
the Restructuring Proceedings.



Aggregate of
Asbestos Liability and Insurance Recoverable Asset



The following is a summary of the asbestos liability and the insurance recoverable asset as of March 31, 2003:



|                           |  | T&N Companies         |         |   | Abex & Wagner |   | Other |  | Total |    
|-------------------------- |  | --------------------- | ------- | - | ------------- | - | ----- |  | ----- | ---
|                           |  | (Millions of Dollars) |        
|Liability:                 |  |                       |         |   |               |   |       |  |       |    
|Balance at January 1, 2003 |  | $                     | 1,347.9 |   |               | $ | 214.5 |  | $     | 2.7
|Foreign exchange           |  |                       | (4.4    | ) |               |   |      |  |       |   
|                           |  |                       |         |   |               |   |       |  |       |    
|Balance at March 31, 2003  |  | $                     | 1,343.5 |   |               | $ | 214.5 |  | $     | 2.7
|                           |  |                       |         |   |               |   |       |  |       |    
|Asset:                     |  |                       |         |   |               |   |       |  |       |    
|Balance at January 1, 2003 |  | $                     | 610.8   |   |               | $ | 169.8 |  | $     |   
|Foreign exchange           |  |                       | (15.1   | ) |               |   |      |  |       |   
|                           |  |                       |         |   |               |   |       |  |       |    
|Balance at March 31, 2003  |  | $                     | 595.7   |   |               | $ | 169.8 |  | $     |   
|                           |  |                       |         |   |               |   |       |  |       |    



The
Companys estimate of asbestos-related liabilities for pending and expected future asbestos claims is subject to considerable uncertainty because such liabilities are influenced by numerous variables that are inherently difficult to predict.
The Restructuring Proceedings significantly increase the inherent difficulties and uncertainties involved in estimating the number and cost of resolution of present and future asbestos-related claims against the Company and may have the effect of
increasing the ultimate cost of the resolution of such claims.



Other



The Company is involved in other legal actions and claims, directly and through its subsidiaries. After taking into consideration legal counsels evaluation of such actions, management is of the opinion that the outcomes are not
likely to have a material adverse effect on the Companys financial position, operating results, or cash flows.



Environmental Matters



The Company is a defendant in lawsuits filed, or the recipient of administrative orders issued, in various jurisdictions pursuant to the
Federal Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) or other similar national or state environmental laws. These laws require responsible parties to pay for remediating contamination resulting
from hazardous substances that were discharged into the environment by them, or by others to whom they sent such substances for treatment or other disposition. In addition, the Company has been notified by the United States Environmental Protection
Agency, other national environmental agencies, and various state agencies that it may be a potentially responsible party (PRP) under such laws for the cost of remediating hazardous substances pursuant to CERCLA and other national and
state environmental laws. PRP designation requires the funding of site investigations and subsequent remediation activities.



At most of the sites that are likely to be costliest to remediate, which are often current or former commercial waste disposal facilities
to which numerous companies sent waste, the Companys exposure is expected to be limited. Despite the joint and several liability which might be imposed on the Company under CERCLA and some of the other laws pertaining to these sites, the
Companys share of the total waste has generally been small. The other companies, which also sent wastes, often numbering in the hundreds or more, generally include large, solvent publicly owned companies, and in most such situations the
government agencies and courts have imposed liability in some reasonable relationship to contribution of waste.



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The Company has identified certain present and former properties at which it may be
responsible for cleaning up environmental contamination, in some cases as a result of contractual commitments. The Company is actively seeking to resolve these matters. Although difficult to quantify based on the complexity of the issues, the
Company has accrued amounts corresponding to its best estimate of the costs associated with such matters based upon current available information from site investigations and consultants.



Environmental reserves were $65.4 million and $64.6 million as of March 31, 2003 and December 31, 2002,
respectively. Management believes that such accruals will be adequate to cover the Companys estimated liability for its exposure in respect to such matters. In the event that such liabilities were to significantly exceed the amounts recorded
by the Company, the Companys results of operations and financial condition could be materially affected. As a result of the Restructuring Proceedings, $22.9 million of these reserves as of both March 31, 2003 and December 31, 2002 have been
reclassified to liabilities subject to compromise in the consolidated balance sheet.



|9. |  | INVENTORIES
|-- |  | -----------



Inventories consisted of the following (in millions of dollars):



|                        |  | March 31 2003 |       |   | December 31 2002 |  
|----------------------- |  | ------------- | ----- | - | ---------------- | -
|Raw materials           |  | $             | 174.0 |   |                  | $
|Work-in-process         |  |               | 136.3 |   |                  |  
|Finished products       |  |               | 552.5 |   |                  |  
|                        |  |               |       |   |                  |  
|                        |  |               | 862.8 |   |                  |  
|Reserves and allowances |  |               | (55.4 | ) |                  |  
|                        |  |               |       |   |                  |  
|                        |  | $             | 807.4 |   |                  | $
|                        |  |               |       |   |                  |  



|10. |  | RESTRUCTURING
|--- |  | -------------



The Company recorded $10.3 million of restructuring charges during the first three months of 2003. These charges included both severance
and exit costs for European site consolidation and headcount reduction programs. Aftermarket recorded $4.2 million of these charges, including $1.4 million associated with programs initiated during the first three months of 2003. Powertrain recorded
$4.1 million of restructuring charges, including $2.4 million of costs relating to programs initiated during the first three months of 2003. Restructuring charges for Sealing Systems and Systems Protection totaled $2.0 million for the three-month
period ending March 31, 2003 primarily relating to previously announced programs.



Total employee reductions for all current Company restructuring programs are expected to be 2,850 of which 2,150 have been terminated as of March 31, 2003.



The following table sets forth the restructuring reserves for
the three months ended March 31, 2003 (in millions of dollars):



|Balance of restructuring reserves as of December 31, 2002 |  | $ | 90.8  |  
|--------------------------------------------------------- |  | - | ----- | -
|Restructuring charges                                     |  |   | 10.3  |  
|Effect of foreign exchange                                |  |   | 0.5   |  
|Payments against restructuring reserves                   |  |   | (17.4 | )
|                                                          |  |   |       |  
|Balance of restructuring reserves as of March 31, 2003    |  | $ | 84.2  |  
|                                                          |  |   |       |  



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|11. |  | ACQUISITIONS AND DIVESTITURES
|--- |  | -----------------------------



On January 30, 2003, the Company announced that it had entered into a letter of intent to acquire principally all of the Bendix friction
materials business of Honeywell International, Inc. (Honeywell). The terms of the transaction are under negotiation and must be agreed to by the Companys appointed committees in the Restructuring Proceedings. The consummation of
this acquisition is expressly conditional upon Honeywell receiving a bankruptcy court-issued permanent injunction shielding it from all current and future asbestos liabilities related to the friction materials business. In addition, the completion
of the acquisition is subject to Bankruptcy Court approval.



The Bendix friction business has annual sales of approximately $700 million, and includes 13 manufacturing plants and five major engineering facilities in nine countries.



During April 2003, the Company completed the divestitures of its U.S. camshaft operations and principally all
of its original equipment lighting operations. The divested U.S. camshaft operations include Grand Haven, Michigan and Orland, Indiana, as well as the Companys share of an assembled camshaft joint venture in Grand Haven. The original equipment
lighting operations divested include locations in Matamoros, Mexico; Brownsville, Texas; and Toledo, Ohio.



Collectively, the divested businesses had 2002 net sales of $65.6 million. Combined assets of the divested businesses totaled $19.5
million as of March 31, 2003. As the intent to sell these operations did not meet the plan of sale criteria in SFAS No. 144 as of March 31, 2003, the assets were valued in accordance with SFAS No. 144 as assets to be held and used in the
consolidated balance sheets.



The Company does
not expect to record a material gain or loss as a result of the divestitures.



|12. |  | CONSOLIDATING CONDENSED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
|--- |  | -----------------------------------------------------------------------



Certain subsidiaries of the Company (as listed below, collectively the Guarantor Subsidiaries)
have guaranteed fully and unconditionally, on a joint and several basis, the obligation to pay principal and interest under the Companys Senior Credit Agreements.



|Federal-Mogul Venture Corporation    |  | Federal-Mogul Piston Rings, Inc.  |  | Federal-Mogul Powertrain, Inc.
|------------------------------------ |  | --------------------------------- |  | ------------------------------
|Federal-Mogul Global Properties Inc. |  | Federal-Mogul Dutch Holdings Inc. |  | Federal-Mogul Mystic, Inc.    
|Carter Automotive Company            |  | Federal-Mogul U.K. Holdings Inc.  |  | Felt Products Mfg. Co.        
|Federal-Mogul Worldwide Inc.         |  | F-M U.K. Holdings Limited         |  | Ferodo America, Inc.          
|Federal-Mogul Ignition Company       |  | Federal-Mogul Global Inc.         |  | McCord Sealing, Inc.          
|Federal-Mogul Products, Inc.         |  | T&N Industries, Inc.              |  |                               



The
Company issued notes in 1999 and 1998 that are guaranteed by the Guarantor Subsidiaries. The Guarantor Subsidiaries also guarantee the Companys previously existing publicly registered Medium-term notes and Senior notes.



T&N Industries, Inc. and Federal-Mogul Powertrain, Inc.
are wholly-owned subsidiaries of the Company and were acquired with the acquisition of T&N, plc. These subsidiaries became guarantors as a result of the Companys Fourth Amended and Restated Senior Credit Agreement dated December 29, 2000.



In lieu of providing separate unaudited
financial statements for the Guarantor Subsidiaries, the Company has included the accompanying unaudited consolidating condensed financial statements based on the Companys understanding of the Securities and Exchange Commissions
interpretation and application of Rule 3-10 of the Securities and Exchange Commissions Regulation S-X and Staff Accounting Bulletin 53. Management does not believe that separate financial statements of the Guarantor Subsidiaries are material
to investors. Therefore, separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented.



Subsequent to the Restructuring Proceedings, no dividends have been paid to the Federal-Mogul parent company by any of its subsidiaries.



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As a result of
the Restructuring Proceedings (see Note 2 Voluntary Reorganization Under Chapter 11 and Administration) certain pre-petition liabilities, as shown below, were liabilities subject to compromise as of March 31, 2003 (in millions of
dollars):



|                                                                                                                                              |  | Parent |         | Guarantor Subsidiaries |   | Non-Guarantor Subsidiaries |  | Consolidated
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | ------- | ---------------------- | - | -------------------------- |  | ------------
|Debt                                                                                                                                          |  | $      | 3,984.0 |                        | $ | 1.0                        |  | $           
|Asbestos liabilities                                                                                                                          |  |        | 1.4     |                        |   | 237.7                      |  |             
|Company-obligated mandatorily redeemable preferred securities of subsidiary holding
solely convertible subordinated debentures of the Company |  |        |        |                        |   |                           |  |             
|Accounts payable                                                                                                                              |  |        | 62.9    |                        |   | 113.8                      |  |             
|Interest payable                                                                                                                              |  |        | 42.8    |                        |   | 0.2                        |  |             
|Environmental liabilities                                                                                                                     |  |        | 22.3    |                        |   |                           |  |             
|Other accrued liabilities                                                                                                                     |  |        | 4.0     |                        |   | 1.3                        |  |             
|                                                                                                                                              |  |        |         |                        |   |                            |  |             
|Liabilities Subject to Compromise                                                                                                             |  | $      | 4,117.4 |                        | $ | 354.0                      |  | $           
|                                                                                                                                              |  |        |         |                        |   |                            |  |             



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Federal-Mogul Corporation



Notes to Condensed Consolidated Financial Statements

Unaudited Consolidating Condensed Statement of Operations

Three Months Ended March
31, 2003

(Millions of Dollars)



|                                                                                  |  | (Unconsolidated) |       |   |                        |   |       |                             | 
|--------------------------------------------------------------------------------- |  | ---------------- | ----- | - | ---------------------- | - | ----- | --------------------------- | 
|                                                                                  |  | Parent           |       |   | Guarantor Subsidiaries |   |       | Non- Guarantor Subsidiaries | 
|Net sales                                                                         |  | $                | 281.5 |   |                        | $ | 425.5 |                             | 
|Cost of products sold                                                             |  |                  | 230.4 |   |                        |   | 326.9 |                             | 
|                                                                                  |  |                  |       |   |                        |   |       |                             | 
|Gross margin                                                                      |  |                  | 51.1  |   |                        |   | 98.6  |                             | 
|Selling, general and administrative expenses                                      |  |                  | 78.5  |   |                        |   | 54.2  |                             | 
|Restructuring charges                                                             |  |                  |      |   |                        |   | 0.4   |                             | 
|Interest expense (income), net                                                    |  |                  | 30.0  |   |                        |   |      |                             | 
|Chapter 11 and Administration related reorganization expenses                     |  |                  | 32.8  |   |                        |   |      |                             | 
|Other expense (income), net                                                       |  |                  | (5.1  | ) |                        |   | (28.9 | )                           | 
|                                                                                  |  |                  |       |   |                        |   |       |                             | 
|Earnings (loss) before income taxes and equity in earnings (loss) of
subsidiaries |  |                  | (85.1 | ) |                        |   | 72.9  |                             | 
|Income tax expense                                                                |  |                  | 1.2   |   |                        |   | 1.0   |                             | 
|                                                                                  |  |                  |       |   |                        |   |       |                             | 
|Earnings (loss) before equity in earnings (loss) of subsidiaries                  |  |                  | (86.3 | ) |                        |   | 71.9  |                             | 
|Equity in earnings (loss) of subsidiaries                                         |  |                  | 52.1  |   |                        |   | 23.2  |                             | 
|                                                                                  |  |                  |       |   |                        |   |       |                             | 
|Net Earnings (Loss)                                                               |  | $                | (34.2 | ) |                        | $ | 95.1  |                             | 
|                                                                                  |  |                  |       |   |                        |   |       |                             | 



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Federal-Mogul Corporation



Notes to Condensed Consolidated Financial Statements

Unaudited Consolidating Condensed Statement of Operations

Three Months Ended March
31, 2002

(Millions of Dollars)



|                                                                                                                                       |  | (Unconsolidated) |          |   |                        |   |        |                             | 
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ---------------------- | - | ------ | --------------------------- | 
|                                                                                                                                       |  | Parent           |          |   | Guarantor Subsidiaries |   |        | Non- Guarantor Subsidiaries | 
|Net sales                                                                                                                              |  | $                | 315.0    |   |                        | $ | 444.3  |                             | 
|Cost of products sold                                                                                                                  |  |                  | 256.2    |   |                        |   | 355.0  |                             | 
|                                                                                                                                       |  |                  |          |   |                        |   |        |                             | 
|Gross margin                                                                                                                           |  |                  | 58.8     |   |                        |   | 89.3   |                             | 
|Selling, general and administrative expenses                                                                                           |  |                  | 60.0     |   |                        |   | 63.1   |                             | 
|Restructuring charges                                                                                                                  |  |                  |         |   |                        |   |       |                             | 
|Interest expense (income), net                                                                                                         |  |                  | 31.5     |   |                        |   |       |                             | 
|Chapter 11 and Administration related reorganization expenses                                                                          |  |                  | 19.8     |   |                        |   |       |                             | 
|Other expense (income), net                                                                                                            |  |                  | (18.6    | ) |                        |   | (31.0  | )                           | 
|                                                                                                                                       |  |                  |          |   |                        |   |        |                             | 
|Earnings (loss) before income taxes, cumulative effect of change in accounting principle
and equity in earnings (loss) of subsidiaries |  |                  | (33.9    | ) |                        |   | 57.2   |                             | 
|Income tax expense                                                                                                                     |  |                  |         |   |                        |   | 23.3   |                             | 
|                                                                                                                                       |  |                  |          |   |                        |   |        |                             | 
|Earnings (loss) before cumulative effect of change in accounting principle and equity in
earnings (loss) of subsidiaries               |  |                  | (33.9    | ) |                        |   | 33.9   |                             | 
|Cumulative effect of change in accounting principle, net of applicable tax
benefits                                                    |  |                  | (3.8     | ) |                        |   | 432.8  |                             | 
|                                                                                                                                       |  |                  |          |   |                        |   |        |                             | 
|Loss before equity in loss of subsidiaries                                                                                             |  |                  | (30.1    | ) |                        |   | (398.9 | )                           | 
|Equity in earnings (loss) of subsidiaries                                                                                              |  |                  | (1,429.0 | ) |                        |   | 28.2   |                             | 
|                                                                                                                                       |  |                  |          |   |                        |   |        |                             | 
|Net Loss                                                                                                                               |  | $                | (1,459.1 | ) |                        | $ | (370.7 | )                           | 
|                                                                                                                                       |  |                  |          |   |                        |   |        |                             | 



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Federal-Mogul Corporation



Notes to Condensed Consolidated Financial Statements

Unaudited Consolidating Condensed Balance Sheet

March 31, 2003

(Millions of Dollars)



|                                                             |  | (Unconsolidated) |          |   |                        |   |                             | 
|------------------------------------------------------------ |  | ---------------- | -------- | - | ---------------------- | - | --------------------------- | 
|                                                             |  | Parent           |          |   | Guarantor Subsidiaries |   | Non- Guarantor Subsidiaries | 
|ASSETS                                                       |  |                  |          |   |                        |   |                             | 
|Cash and equivalents                                         |  | $                | 25.1     |   |                        | $ |                            | 
|Accounts receivable, net                                     |  |                  | 201.9    |   |                        |   | 314.6                       | 
|Inventories                                                  |  |                  | 80.3     |   |                        |   | 329.8                       | 
|Deferred taxes                                               |  |                  | 3.2      |   |                        |   |                            | 
|Prepaid expenses                                             |  |                  | 41.6     |   |                        |   | 31.7                        | 
|                                                             |  |                  |          |   |                        |   |                             | 
|Total Current Assets                                         |  |                  | 352.1    |   |                        |   | 676.1                       | 
|Property, plant and equipment                                |  |                  | 246.4    |   |                        |   | 684.6                       | 
|Goodwill and indefinite-lived intangible assets              |  |                  | 531.4    |   |                        |   | 682.4                       | 
|Definite-lived intangible assets, net                        |  |                  | 86.9     |   |                        |   | 90.5                        | 
|Investment in subsidiaries                                   |  |                  | 6,402.6  |   |                        |   | 2,973.9                     | 
|Intercompany accounts, net                                   |  |                  | (3,460.2 | ) |                        |   | 2,363.1                     | 
|Asbestos-related insurance recoverable                       |  |                  |         |   |                        |   | 171.9                       | 
|Prepaid pension costs                                        |  |                  | 52.7     |   |                        |   |                            | 
|Other noncurrent assets                                      |  |                  | 40.0     |   |                        |   | 36.5                        | 
|                                                             |  |                  |          |   |                        |   |                             | 
|Total Assets                                                 |  | $                | 4,251.9  |   |                        | $ | 7,679.0                     | 
|                                                             |  |                  |          |   |                        |   |                             | 
|LIABILITIES AND SHAREHOLDERS EQUITY
(DEFICIT)               |  |                  |          |   |                        |   |                             | 
|Short-term debt, including current portion of long-term debt |  | $                | 379.6    |   |                        | $ |                            | 
|Accounts payable                                             |  |                  | 53.3     |   |                        |   | 82.2                        | 
|Accrued compensation                                         |  |                  | 54.4     |   |                        |   | 24.0                        | 
|Restructuring reserves                                       |  |                  | 10.6     |   |                        |   | 14.7                        | 
|Accrued income taxes                                         |  |                  |         |   |                        |   | 1.6                         | 
|Other accrued liabilities                                    |  |                  | 143.7    |   |                        |   | 40.6                        | 
|                                                             |  |                  |          |   |                        |   |                             | 
|Total Current Liabilities                                    |  |                  | 641.6    |   |                        |   | 163.1                       | 
|Liabilities subject to compromise                            |  |                  | 4,117.4  |   |                        |   | 354.2                       | 
|Long-term debt                                               |  |                  |         |   |                        |   |                            | 
|Postemployment benefits                                      |  |                  | 814.6    |   |                        |   |                            | 
|Deferred income taxes                                        |  |                  |         |   |                        |   |                            | 
|Other accrued liabilities                                    |  |                  | 82.4     |   |                        |   | 0.7                         | 
|Minority interest in consolidated subsidiaries               |  |                  | 21.4     |   |                        |   | 23.6                        | 
|Shareholders Equity (Deficit)                               |  |                  | (1,425.5 | ) |                        |   | 7,137.4                     | 
|                                                             |  |                  |          |   |                        |   |                             | 
|Total Liabilities and ShareholdersEquity (Deficit)          |  | $                | 4,251.9  |   |                        | $ | 7,679.0                     | 
|                                                             |  |                  |          |   |                        |   |                             | 



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Federal-Mogul Corporation



Notes to Condensed Consolidated Financial Statements

Consolidating Condensed Balance Sheet

December 31, 2002

(Millions of Dollars)



|                                                             |  | (Unconsolidated) |          |   |                        |   |                             | 
|------------------------------------------------------------ |  | ---------------- | -------- | - | ---------------------- | - | --------------------------- | 
|                                                             |  | Parent           |          |   | Guarantor Subsidiaries |   | Non- Guarantor Subsidiaries | 
|ASSETS                                                       |  |                  |          |   |                        |   |                             | 
|Cash and equivalents                                         |  | $                | 31.9     |   |                        | $ |                            | 
|Accounts receivable                                          |  |                  | 171.8    |   |                        |   | 310.0                       | 
|Inventories                                                  |  |                  | 62.5     |   |                        |   | 351.9                       | 
|Deferred taxes                                               |  |                  | 3.2      |   |                        |   |                            | 
|Prepaid expenses                                             |  |                  | 41.1     |   |                        |   | 33.0                        | 
|                                                             |  |                  |          |   |                        |   |                             | 
|Total Current Assets                                         |  |                  | 310.5    |   |                        |   | 694.9                       | 
|Property, plant and equipment                                |  |                  | 244.6    |   |                        |   | 687.4                       | 
|Goodwill and indefinite-lived intangible assets              |  |                  | 536.3    |   |                        |   | 681.1                       | 
|Definite-lived intangible assets, net                        |  |                  | 87.6     |   |                        |   | 91.7                        | 
|Investment in subsidiaries                                   |  |                  | 6,394.2  |   |                        |   | 2,771.7                     | 
|Intercompany accounts, net                                   |  |                  | (3,455.9 | ) |                        |   | 2,297.6                     | 
|Asbestos-related insurance recoverable                       |  |                  |         |   |                        |   | 171.9                       | 
|Prepaid pension costs                                        |  |                  | 71.2     |   |                        |   |                            | 
|Other noncurrent assets                                      |  |                  | 43.7     |   |                        |   | 36.5                        | 
|                                                             |  |                  |          |   |                        |   |                             | 
|Total Assets                                                 |  | $                | 4,232.2  |   |                        | $ | 7,432.8                     | 
|                                                             |  |                  |          |   |                        |   |                             | 
|LIABILITIES AND SHAREHOLDERS EQUITY
(DEFICIT)               |  |                  |          |   |                        |   |                             | 
|Short-term debt, including current portion of long-term debt |  | $                | 314.7    |   |                        | $ |                            | 
|Accounts payable                                             |  |                  | 44.5     |   |                        |   | 67.0                        | 
|Accrued compensation                                         |  |                  | 91.4     |   |                        |   | 25.3                        | 
|Restructuring reserves                                       |  |                  | 13.9     |   |                        |   | 18.1                        | 
|Accrued income taxes                                         |  |                  | 3.0      |   |                        |   | 2.4                         | 
|Other accrued liabilities                                    |  |                  | 138.1    |   |                        |   | 41.6                        | 
|                                                             |  |                  |          |   |                        |   |                             | 
|Total Current Liabilities                                    |  |                  | 605.6    |   |                        |   | 154.4                       | 
|Liabilities subject to compromise                            |  |                  | 4,111.1  |   |                        |   | 363.6                       | 
|Long-term debt                                               |  |                  |         |   |                        |   |                            | 
|Postemployment benefits                                      |  |                  | 813.5    |   |                        |   |                            | 
|Deferred income taxes                                        |  |                  |         |   |                        |   |                            | 
|Other accrued liabilities                                    |  |                  | 83.3     |   |                        |   | 1.4                         | 
|Minority interest in consolidated subsidiaries               |  |                  | 22.3     |   |                        |   | 23.4                        | 
|Shareholders Equity (Deficit)                               |  |                  | (1,403.6 | ) |                        |   | 6,890.0                     | 
|                                                             |  |                  |          |   |                        |   |                             | 
|Total Liabilities and Shareholders Equity (Deficit)         |  | $                | 4,232.2  |   |                        | $ | 7,432.8                     | 
|                                                             |  |                  |          |   |                        |   |                             | 



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Federal-Mogul Corporation



Notes to Condensed Consolidated Financial Statements

Unaudited Consolidating Condensed Statement of Cash Flows

Three Months Ended March
31, 2003

(Millions of Dollars)



|                                                                          |  | (Unconsolidated) |        |   |                        |   |       |                            
|------------------------------------------------------------------------- |  | ---------------- | ------ | - | ---------------------- | - | ----- | ---------------------------
|                                                                          |  | Parent           |        |   | Guarantor Subsidiaries |   |       | Non- Guarantor Subsidiaries
|Net Cash Provided From (Used By) Operating Activities                     |  | $                | (121.6 | ) |                        | $ | 111.1 |                            
|Cash Provided From (Used By) Investing Activities:                        |  |                  |        |   |                        |   |       |                            
|Expenditures for property, plant and equipment and other long-term
assets |  |                  | (10.4  | ) |                        |   | (18.9 | )                          
|                                                                          |  |                  |        |   |                        |   |       |                            
|Net Cash Used By Investing Activities                                     |  |                  | (10.4  | ) |                        |   | (18.9 | )                          
|Cash Provided From (Used By) Financing Activities:                        |  |                  |        |   |                        |   |       |                            
|Principal payments on long-term debt                                      |  |                  |       |   |                        |   |      |                            
|Borrowings from DIP credit facility                                       |  |                  | 75.0   |   |                        |   |      |                            
|Principal payments on DIP credit facility                                 |  |                  | (10.2  | ) |                        |   |      |                            
|Decrease in short-term debt                                               |  |                  |       |   |                        |   |      |                            
|Change in intercompany accounts                                           |  |                  | 58.9   |   |                        |   | (92.2 | )                          
|                                                                          |  |                  |        |   |                        |   |       |                            
|Net Cash Provided From (Used By) Financing Activities                     |  |                  | 123.7  |   |                        |   | (92.2 | )                          
|Effect of Foreign Currency Exchange Rate Fluctuations on Cash             |  |                  | 1.5    |   |                        |   |      |                            
|                                                                          |  |                  |        |   |                        |   |       |                            
|Net Increase (Decrease) in Cash and Equivalents                           |  | $                | (6.8   | ) |                        | $ |      |                            
|                                                                          |  |                  |        |   |                        |   |       |                            



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Federal-Mogul Corporation



Notes to Condensed Consolidated Financial Statements

Unaudited Consolidating Condensed Statement of Cash Flows

Three Months Ended March 31, 2002

(Millions of Dollars)



|                                                                          |  | (Unconsolidated) |       |   |                        |   |       |                            
|------------------------------------------------------------------------- |  | ---------------- | ----- | - | ---------------------- | - | ----- | ---------------------------
|                                                                          |  | Parent           |       |   | Guarantor Subsidiaries |   |       | Non- Guarantor Subsidiaries
|Net Cash Provided From (Used By) Operating Activities                     |  | $                | (12.9 | ) |                        | $ | 50.9  |                            
|Cash Provided From (Used By) Investing Activities:                        |  |                  |       |   |                        |   |       |                            
|Expenditures for property, plant and equipment and other long-term
assets |  |                  | (6.1  | ) |                        |   | (18.3 | )                          
|Net proceeds from sales of businesses                                     |  |                  | 5.9   |   |                        |   | 6.0   |                            
|                                                                          |  |                  |       |   |                        |   |       |                            
|Net Cash Used By Investing Activities                                     |  |                  | (0.2  | ) |                        |   | (12.3 | )                          
|Cash Provided From (Used By) Financing Activities:                        |  |                  |       |   |                        |   |       |                            
|Principal payments on long-term debt                                      |  |                  |      |   |                        |   |      |                            
|Principal payments on DIP credit facility                                 |  |                  | (6.1  | ) |                        |   |      |                            
|Increase (decrease) in short-term debt                                    |  |                  |      |   |                        |   | 0.3   |                            
|Change in intercompany accounts                                           |  |                  | (28.9 | ) |                        |   | (35.7 | )                          
|                                                                          |  |                  |       |   |                        |   |       |                            
|Net Cash Provided From (Used By) Financing Activities                     |  |                  | (35.0 | ) |                        |   | (35.4 | )                          
|Effect of Foreign Currency Exchange Rate Fluctuations on Cash             |  |                  | (3.0  | ) |                        |   |      |                            
|                                                                          |  |                  |       |   |                        |   |       |                            
|Net Increase (Decrease) in Cash and Equivalents                           |  | $                | (51.1 | ) |                        | $ | 3.2   |                            
|                                                                          |  |                  |       |   |                        |   |       |                            



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Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations



OVERVIEW



Federal-Mogul Corporation (the Company or Federal-Mogul) is a vehicular parts manufacturer providing innovative
solutions and systems to global customers in the automotive, small engine, heavy-duty and industrial markets. The Company manufactures engine bearings, pistons, piston pins, rings, cylinder liners, camshafts, sintered products, connecting rods,
sealing systems, systems protection sleeving products, fuel systems, wipers, lighting, ignition, brake, friction and chassis products. The Companys principal customers include many of the worlds original equipment (OE)
manufacturers of vehicles and industrial products. The Company also manufactures and supplies its products to the aftermarket.





VOLUNTARY BANKRUPTCY FILING



On October 1, 2001 (the Petition Date),
Federal-Mogul Corporation (the Company or Federal-Mogul) and all of its wholly-owned United States subsidiaries filed voluntary petitions for reorganization (the U.S. Restructuring) under Chapter 11 of the United
States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court). Also on October 1, 2001, certain of the Companys United Kingdom subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code and petitions for Administration (the U.K. Restructuring) under the United Kingdom Insolvency Act of 1986 (the Act) in the High Court of Justice,
Chancery division in London, England (the High Court). The Company and its U.S. and U.K. subsidiaries included in the U.S. Restructuring and U.K. Restructuring are herein referred to as the Debtors. The U.S. Restructuring and
U.K. Restructuring are herein referred to as the Restructuring Proceedings. The Chapter 11 cases of the Debtors (collectively, the Chapter 11 Cases) have been consolidated for purposes of joint administration as In re:
Federal-Mogul Global Inc., T&N Limited, et. al (Case No. 01-10578(SLR)). The Chapter 11 Cases do not include any of the Companys non-U.S. subsidiaries outside of the U.K. subsidiaries mentioned above.



The Restructuring Proceedings were initiated in response to a
sharply increasing number of asbestos-related claims and their related demand on the Companys cash flows. Under the Restructuring Proceedings, the Debtors expect to develop and implement a plan for addressing the asbestos-related claims
against them. The Chapter 11 Cases are further discussed in Note 2 to the consolidated financial statements, Voluntary Reorganization Under Chapter 11 and Administration.



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CONTINUING OPERATIONS



THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002



RESULTS OF OPERATIONS



The following Managements Discussion and Analysis of financial condition and results of operations (MD&A) should be read in conjunction with the MD&A included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2002.



Net Sales



Consolidated
net sales by reportable segment for the three-months ended March 31, 2003 and 2002 were as follows (in millions of dollars):



|                                       |  | 2003 |         | 2002 |   | Change  | 
|-------------------------------------- |  | ---- | ------- | ---- | - | ------- | 
|Powertrain                             |  | $    | 484.5   |      | $ | 430.5   | 
|Sealing Systems and Systems Protection |  |      | 163.5   |      |   | 160.3   | 
|Friction                               |  |      | 104.9   |      |   | 87.2    | 
|Aftermarket                            |  |      | 613.1   |      |   | 599.9   | 
|Other, including Corporate             |  |      | 43.8    |      |   | 52.1    | 
|Divested Operations                    |  |      |        |      |   | 16.1    | 
|                                       |  |      |         |      |   |         | 
|Total                                  |  | $    | 1,409.8 |      | $ | 1,346.1 | 
|                                       |  |      |         |      |   |         | 



Gross Margin



Consolidated gross margin by reportable
segment for the three-months ended March 31, 2003 and 2002 was as follows (in millions of dollars):



|                                       |  | 2003 |       | 2002 |   |       | Change | 
|-------------------------------------- |  | ---- | ----- | ---- | - | ----- | ------ | 
|Powertrain                             |  | $    | 68.4  |      | $ | 71.0  |        | 
|Sealing Systems and Systems Protection |  |      | 29.6  |      |   | 30.6  |        | 
|Friction                               |  |      | 31.0  |      |   | 24.4  |        | 
|Aftermarket                            |  |      | 147.2 |      |   | 132.2 |        | 
|Other, including Corporate             |  |      | 1.6   |      |   | (0.6  | )      | 
|Divested Operations                    |  |      |      |      |   | 3.7   |        | 
|                                       |  |      |       |      |   |       |        | 
|Total                                  |  | $    | 277.8 |      | $ | 261.3 |        | 
|                                       |  |      |       |      |   |       |        | 



Powertrain



Net sales for the first quarter of 2003 were
$484.5 million compared to $430.5 million in the same quarter of 2002. Increased European sales volumes of approximately $21 million, and favorable foreign currency of approximately $47 million, were partially offset by the impact of customer price
reductions and reduced sales volumes in the Americas.



Gross margin was $68.4 million, or 14.1% of sales, for the first quarter of 2003 compared to $71.0 million, or 16.5% of sales, for the same quarter in 2002. Increased sales volume and favorable mix contributed approximately $5
million of incremental gross margin. Productivity programs and favorable foreign currency were more than offset by increased warranty and product costs and customer price reductions.



Sealing Systems and Systems Protection



Net sales for the first quarter of 2003 were $163.5 million compared to $160.3 million in the same quarter of
2002. Favorable foreign currency and Americas sales volumes were partially offset by the impacts of decreased European sales volumes and customer price reductions.



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Gross margin
was $29.6 million, or 18.1% of sales, for the first quarter of 2003 compared to $30.6 million, or 19.1% of sales, for the same quarter in 2002. Gross margin decreased as productivity gains and favorable foreign currency more than offset the effects
of decreased European sales volumes and customer price reductions.



Friction



Net sales for
the first quarter of 2003 were $104.9 million compared to $87.2 million in the same quarter of 2002. Favorable sales volumes and foreign currency more than offset the impact of customer price reductions.



Gross margin was $31.0 million, or 29.6% of sales, for the
first quarter of 2003 compared to $24.4 million, or 28.0% of sales, for the same quarter of 2002. Increased sales volume combined with favorable product mix contributed approximately $3 million in additional gross margin. Offsetting the impact of
customer price reductions was net productivity improvements and favorable foreign currency effects.



Aftermarket



Net sales for the first quarter of 2003 were $613.1 million compared to $599.9 million in the same quarter of 2002. Before the effect of favorable foreign currency, sales in both North America and Europe were flat compared
to the prior year.



Gross margin was $147.2
million, or 24.0% of sales, for the first quarter of 2003 compared to $132.2 million, or 22.0% of sales, for the same quarter of 2002. Gross margin was favorably impacted by productivity programs and favorable foreign exchange.



Other



Other primarily includes the original equipment lighting business, Asia Pacific and other Corporate
functions. Net sales for the first quarter of 2003 were $43.8 million compared to $52.1 million in the same quarter of 2002. The decline in sales is primarily attributable to the original equipment lighting operations.



Gross margin was $1.6 million for the first quarter of 2003 as
compared to $(0.6) million for the same quarter in 2002. The change is primarily attributable to productivity improvements in the Asia Pacific and lighting operations.



Selling, General and Administrative Expenses



Selling, general and administrative expenses were $226.0 million, or 16.0% of total sales, for the first
quarter of 2003 as compared to $208.5 million, or 15.5% of total sales, for the same quarter of 2002. Rising employee health and welfare costs and the effect on current year pension expense of lower than expected returns on the Companys
pension plan assets were partially offset by corporate cost reduction.



Interest Expense, net



Interest expense, net was $29.5 million in the first quarter of 2003 compared to $30.3 million for the same quarter of 2002. Interest expense fluctuates based upon the interest rates applicable to and the balances outstanding under
the DIP credit facility.



Income Tax Expense



For the three months ended March 31, 2003, the Company
recorded income tax expense of $18.9 million on a loss of $15.3 million before income taxes. This compares to income tax expense of $29.8 million on a loss of $11.4 million before income taxes and cumulative effect of change in accounting principle
in the same period of 2002. Net income tax expense for the three month period ended March 31, 2003 resulted primarily from the





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recognition of income tax expense on earnings in certain foreign jurisdictions without the recognition of income tax benefits on current
losses in the United States and certain entities in the U.K.



Restructuring Charges



During the three months ended March 31, 2003 and 2002, the Company recorded restructuring charges of $10.3 million and $9.5 million, respectively. Charges for 2003 relate to severance charges for European Powertrain, Aftermarket and
Sealing Systems and Systems Protection programs initiated during the first three months of 2003 as well as severance charges for previously announced distribution site consolidations and closures. Charges for 2002 largely relate to severance and
exit costs for planned consolidation of the European Friction and Powertrain businesses.



Chapter 11 and Administration Related Reorganization Expenses



During the three months ended March 31, 2003 and 2002, the Company recorded Chapter 11 and Administration related reorganization expenses of $32.8 million and $19.8 million, respectively. Chapter 11
and Administration related reorganization expenses consist of legal, financial and advisory fees, critical employee retention costs and other directly related internal costs. These expenses fluctuate largely based upon the necessity for professional
services by third-party vendors in connection with the Restructuring Proceedings.



LITIGATION & ENVIRONMENTAL CONTINGENCIES



For a summary of material litigation and environmental contingencies, refer to Note 8 of the consolidated
financial statements, Asbestos Liability and Legal Proceedings.



LIQUIDITY AND CAPITAL RESOURCES



Cash Flow Provided From Operating Activities



Cash flow provided from operating activities was $33.3 million for the first three months of 2003. Among the factors impacting operating cash flows were positive operational EBIT offset by working capital movements and
timing issues on various accounts. Operational EBIT is defined as earnings before interest, income taxes, cumulative effect of change in accounting principle and certain nonrecurring items such as restructuring and impairment charges.



Cash Flow Used By Investing Activities



Cash flow used by investing activities was $65.1 million in
the first three months of 2003. Investing cash flows were comprised entirely of capital expenditures made for property, plant and equipment to implement process improvements, increase manufacturing capacity and production, and introduce new
products.



Cash Flow Used By Financing Activities



Cash flow provided from financing activities
was $45.6 million for the first three months of 2003 resulting from borrowings from the Companys DIP credit facility of $75.0 million offset by repayments of certain international debt and a required repayment on the DIP credit facility due to
proceeds received from a divested business.



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In connection
with the Restructuring Proceedings, the Company entered into a $675 million DIP credit facility to supplement liquidity and fund operations during the restructuring proceedings. The DIP credit facility expires in October 2003 and bears interest at
either the alternate base rate (ABR) plus 21⁄2 percentage points or a formula based on the London Inter-Bank Offered Rate plus 31⁄2 percentage points. The ABR is the greatest of either the banks prime rate or the base
certificate of deposit rate plus 1 percentage point or the federal funds rate plus 1⁄2 percentage point. The $675 million commitment is reduced by a portion of the proceeds received from an asset sale or business divestiture. The Company intends
on renegotiating its DIP credit facility prior to its expiration, if necessary.



The Company has pledged 100% of the capital stock of certain U.S. subsidiaries, 65% of the capital stock of certain foreign subsidiaries and certain intercompany loans to secure the Senior Credit
Agreements of the Company. Certain of such pledges also extend to the Notes, Medium-Term Notes and Senior Notes of the Company. In addition, certain subsidiaries of the Company have guaranteed the senior debt.



The Companys ability to obtain cash adequate to fund its
needs depends generally on the results of its operations, restructuring initiatives, the Bankruptcy Courts approval of managements plans and the availability of financing. Management believes that cash on hand and cash flow from
operations, in conjunction with borrowings available from its DIP credit facility, will be sufficient to fund capital expenditures and meet its post-petition operating obligations in the short-term. In the long term, the Company believes that the
benefits from the previously announced restructuring programs and the favorable resolution of its asbestos liabilities through Chapter 11 and Administration should provide adequate long-term cash flows. However, there can be no assurance in this
regard or that the terms available for any future financing, if required, would be favorable to the Company. Also, certain obligations, particularly asbestos obligations, can be impacted by factors outside the Companys control.



As of March 31, 2003, the Company was in compliance with all
debt covenants under its existing DIP credit facility. Based on current forecasts, the Company expects to be in compliance through the expiration of the facility. Changes in the business environment, market factors, macroeconomic factors, and the
Companys ability to achieve its forecasts and other factors outside of the Companys control, could adversely impact its ability to remain in compliance with debt covenants. If the Company were to not be in compliance at a measurement
date, the Company would be required to renegotiate its facility. No assurance can be provided as to the impact of such actions.





Item 3.    Quantitative And Qualitative Disclosures About Market Risk



The Company is subject to the risk of changes in foreign currency exchange rates due to its operations in foreign jurisdictions. The
Company manufactures and sells its products in North America, Europe, South America, Africa and Asia. As a result, the Companys financial results could be significantly affected by factors such as changes in foreign currency exchange rates or
weak economic conditions in the foreign markets in which the Company manufactures and distributes its products. The Companys operating results are primarily exposed to changes in exchange rates between the U.S. dollar and European currencies.



As currency exchange rates change, translation
of the statements of operations of the Companys international businesses into United States dollars affects year-over-year comparability of operating results. The Company does not generally hedge operating translation risks because cash flows
from international operations are generally reinvested locally. Changes in foreign currency exchange rates are generally reported as a component of shareholders equity for the Companys foreign subsidiaries reporting in local currencies
and as a component of income for its foreign subsidiaries using the U.S. dollar as the functional currency. The Companys equity was increased by $12.2 million during the three months ended March 31, 2003, primarily due to cumulative
translation adjustments resulting from changes in the U.S. dollar to the Euro and the British Pound.



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Item 4.    Disclosure Controls And Procedures



CEO and CFO Certifications



Appearing immediately following the Signatures section of this Quarterly Report on Form 10-Q there are two separate Certifications of the
Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), collectively referred to as the Certifications, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as adopted by the SEC.
This item of the Quarterly Report includes information concerning the Controls Evaluation which should be read in conjunction with the Certifications for a more complete understanding of the topics presented.



Controls Evaluation



An evaluation of Disclosure Controls and Internal Controls was
performed by the CEO, CFO and management of the Company. The Companys management, including the CEO and CFO, does not expect that Disclosure Controls or Internal Controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



Conclusions



Based upon the Controls Evaluation, our CEO and CFO have concluded that, subject to the limitations noted above, the Companys
Disclosure Controls are effective to ensure that material information relating to Federal-Mogul and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when periodic reports are being
prepared, and that Internal Controls are effective to provide reasonable assurance that the financial statements are fairly presented in conformity with accounting principles generally accepted in the United States.



In accordance with SEC requirements, the CEO and CFO note
that, since the date of the Controls Evaluation to the date of this quarterly report, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls, including any corrective actions
with regard to significant deficiencies and material weaknesses.



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##### Table of Contents



PART IIOTHER INFORMATION



Item 1.    Legal Proceedings



| | (a) |  | Contingencies.
| | --- |  | --------------



Note 8 to the Consolidated Financial Statements, Asbestos Liability and Legal Proceedings, that is included in Part I of this
report, is incorporated herein by reference.



Item 3.    Defaults Upon Senior Securities



Virtually all of the Companys pre-petition debt is in default due to the Filing. See Note 2 Voluntary Reorganization Under Chapter 11 and Administration to the Companys
consolidated financial statements.



The
Company-Obligated Mandatorily Redeemable Preferred Securities are in default due to the Filing. See Note 2 Voluntary Reorganization Under Chapter 11 and Administration to the Companys consolidated financial statements.



Item 6.    Exhibits and Reports on Form 8-K



(a
)

Exhibits:99.1

Certification by the Companys Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

Certification by the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(b
)

Reports on Form 8-K:(1)

On March 7, 2003, the Company filed a Current Report on Form 8-K to report the issuance of a press release announcing
that the Company has filed a plan of reorganization with the U.S. Bankruptcy Court in Delaware .(2)

On February 13, 2003, the Company filed a Current Report on Form 8-K to report the issuance of a press release
announcing the Companys financial results for the fourth quarter and full year ended December 31, 2002.(3)

On January 30, 2003, the Company filed a Current Report on Form 8-K to report the issuance of a press release
announcing that the Company entered into a letter of intent to acquire the Bendix friction materials business of Honeywell International Inc.(4)

On January 30 2003, the Company filed a Current Report on Form 8-K to report the issuance of a press release
announcing that the Company has reached an agreement in principle with all its major U.S. creditor constituencies to the terms of a consensual plan of reorganization.(5)

On January 10, 2003, the Company filed a Current Report on Form 8-K announcing that the official Chapter 11 committees
representing asbestos claimants and unsecured creditors filed a motion in the United States Bankruptcy Court for the District of Delaware to terminate the Debtors exclusive right to file a plan of reorganization.










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##### Table of Contents



SIGNATURES



Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



FEDERAL-MOGUL CORPORATION



By:/s/    G. Michael Lynch

G. Michael Lynch

Executive Vice President and Chief Financial Officer,

Principal Financial Officer



By:
/s/    William G. Quigley III

William G. Quigley III

Vice President and Controller,

Chief Accounting Officer



Dated: May 1, 2003



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##### Table of Contents



CERTIFICATIONS



I, Frank E. Macher,
the Chief Executive Officer of Federal-Mogul Corporation (the Company), certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Federal-Mogul Corporation;
|-- |  | --------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: May 1, 2003



By:

/S/    Frank E.
MacherFrank E. Macher Chief Executive Officer




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##### Table of Contents



I, G. Michael Lynch, the Chief
Financial Officer of Federal-Mogul Corporation (the Company), certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Federal-Mogul Corporation;
|-- |  | --------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: May 1, 2003



By:

/S/    G. Michael
LynchG. Michael Lynch Chief Financial Officer






43