Federal-Mogul Holdings LLC - FORM 10-Q - October 26, 2016

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EX-32 - EXHIBIT 32 - Federal-Mogul Holdings LLCexhibit32q32016.htm
EX-31.3 - EXHIBIT 31.3 - Federal-Mogul Holdings LLCexhibit313q32016.htm
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EX-31.1 - EXHIBIT 31.1 - Federal-Mogul Holdings LLCexhibit311q32016.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-34029
 
FEDERAL-MOGUL HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
 
Delaware
 
46-5182047
(State or other jurisdiction of
incorporation or organization)
 
(IRS employer
identification number)
 
 
 
27300 West 11 Mile Road, 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
 
Accelerated filer
 
x
Non-accelerated filer
 
¨
 
Smaller Reporting Company
 
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 24, 2016, there were 169,040,651 outstanding shares of the registrant’s $0.01 par value common stock.


FEDERAL-MOGUL HOLDINGS CORPORATION
Form 10-Q
For the Three and Nine Months Ended September 30, 2016
INDEX
 

2


PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(in millions, except per share amounts)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30
 
September 30
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,825

 
$
1,824

 
$
5,646

 
$
5,621

Cost of products sold
 
(1,550
)
 
(1,561
)
 
(4,779
)
 
(4,817
)
 
 
 
 
 
 
 
 
 
Gross profit
 
275

 
263

 
867

 
804

 
 
 
 
 
 


 


Selling, general and administrative expenses
 
(203
)
 
(193
)
 
(616
)
 
(596
)
Goodwill and intangible impairment expense, net (Note 10)
 
—

 
(56
)
 
(6
)
 
(50
)
Restructuring charges and asset impairments, net (Note 3)
 
(8
)
 
(24
)
 
(32
)
 
(67
)
Amortization expense (Note 10)
 
(15
)
 
(16
)
 
(44
)
 
(45
)
Other income (expense), net (Note 4)
 
3

 
—

 
15

 
(3
)
Operating income (loss)
 
52

 
(26
)
 
184

 
43

 
 
 
 
 
 
 
 
 
Interest expense, net
 
(37
)
 
(36
)
 
(110
)
 
(103
)
Equity earnings of nonconsolidated affiliates (Note 11)
 
11

 
9

 
44

 
37

Income (loss) from continuing operations before income taxes
 
26

 
(53
)
 
118

 
(23
)
Income tax (expense) benefit (Note 14)
 
(10
)
 
(9
)
 
(33
)
 
(32
)
Income (loss) income from continuing operations
 
16

 
(62
)
 
85

 
(55
)
Gain from discontinued operations, net of income tax
 
—

 
—

 
—

 
7

Net income (loss)
 
16

 
(62
)
 
85

 
(48
)
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests
 
(1
)
 
(1
)
 
(4
)
 
(4
)
Net income (loss) attributable to Federal-Mogul
 
$
15

 
$
(63
)
 
$
81

 
$
(52
)
 
 
 
 
 
 
 
 
 
Amounts attributable to Federal-Mogul:
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
15

 
$
(63
)
 
$
81

 
$
(59
)
Gain from discontinued operations, net of income tax
 
—

 
—

 
—

 
7

Net income (loss)
 
$
15

 
$
(63
)
 
$
81

 
$
(52
)
 
 
 
 
 
 
 
 
 
Net income (loss) per common share attributable to Federal-Mogul
 
 
 
 
 
 
 
 
Basic and diluted:
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
0.09

 
$
(0.37
)
 
$
0.48

 
$
(0.36
)
Gain from discontinued operations, net of income tax
 
—

 
—

 
—

 
0.04

Net income (loss)
 
$
0.09

 
$
(0.37
)
 
$
0.48

 
$
(0.32
)
See accompanying notes to condensed consolidated financial statements.

3

FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in millions)
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
16

 
$
(62
)
 
$
85

 
$
(48
)
Other comprehensive income (loss), net of tax (Note 16)
 
 
 
 
 
 
 
Foreign currency translation adjustments
5

 
(92
)
 
(10
)
 
(189
)
Cash flow hedging income (loss), net
1

 
—

 
2

 
(1
)
Postemployment benefits
5

 
8

 
12

 
30

Other comprehensive income (loss), net of tax
11

 
(84
)
 
4

 
(160
)
Comprehensive income (loss)
27

 
(146
)
 
89

 
(208
)
Comprehensive (income) loss attributable to noncontrolling interests
(2
)
 
3

 
(9
)
 
2

Comprehensive income (loss) attributable to Federal-Mogul
$
25

 
$
(143
)
 
$
80

 
$
(206
)

See accompanying notes to condensed consolidated financial statements.


4

FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
(in millions)
 
 
September 30
 
December 31
 
 
2016
 
2015
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
330

 
$
194

Accounts receivable, net
 
1,341

 
1,374

Inventories, net (Note 9)
 
1,339

 
1,342

Prepaid expenses and other current assets
 
206

 
188

Total current assets
 
3,216

 
3,098

 
 
 
 
 
Property, plant and equipment, net
 
2,400

 
2,353

Goodwill and other indefinite-lived intangible assets (Note 10)
 
907

 
903

Definite-lived intangible assets, net (Note 10)
 
360

 
404

Investments in nonconsolidated affiliates (Note 11)
 
275

 
296

Other noncurrent assets
 
159

 
174

TOTAL ASSETS
 
$
7,317

 
$
7,228

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt, including current portion of long-term debt (Note 12)
 
$
174

 
$
138

Accounts payable
 
899

 
901

Accrued liabilities
 
571

 
582

Current portion of pensions and other postemployment benefits liability
 
41

 
40

Other current liabilities
 
145

 
159

Total current liabilities
 
1,830

 
1,820

 
 
 
 
 
Long-term debt (Note 12)
 
2,937

 
2,914

Pensions and other postemployment benefits liability
 
1,101

 
1,123

Long-term portion of deferred income taxes
 
367

 
367

Other accrued liabilities
 
91

 
102

 
 
 
 
 
Shareholders’ equity:
 
 
 
 
Preferred stock ($0.01 par value; 90,000,000 authorized shares; none issued)
 
—

 
—

Common stock ($0.01 par value; 450,100,000 authorized shares; 170,636,151 issued shares and 169,040,651 outstanding shares as of September 30, 2016 and December 31, 2015)
 
2

 
2

Additional paid-in capital
 
2,899

 
2,899

Accumulated deficit
 
(715
)
 
(796
)
Accumulated other comprehensive loss
 
(1,319
)
 
(1,318
)
Treasury stock, at cost
 
(17
)
 
(17
)
Total Federal-Mogul shareholders’ equity
 
850

 
770

Noncontrolling interests
 
141

 
132

Total shareholders’ equity
 
991

 
902

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
7,317

 
$
7,228

See accompanying notes to condensed consolidated financial statements.

5

FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions)
 
 
Nine Months Ended
 
 
September 30
 
 
2016
 
2015
Cash Provided From (Used By) Operating Activities
 
 
 
 
Net income (loss)
 
$
85

 
$
(48
)
Adjustments to reconcile net income to net cash provided from (used by) operating activities:
 
 
 
 
Depreciation and amortization
 
275

 
254

Restructuring charges and asset impairments, net
 
32

 
67

Payments against restructuring liabilities
 
(38
)
 
(48
)
Goodwill and intangible asset impairment expense, net
 
6

 
50

Equity earnings of nonconsolidated affiliates
 
(44
)
 
(37
)
Cash dividends received from nonconsolidated affiliates
 
71

 
6

Change in pensions and postemployment benefits
 
(27
)
 
(61
)
Deferred tax expense (benefit)
 
4

 
(4
)
Loss on sale of equity method investment
 
—

 
11

Gain from discontinued operations
 
—

 
(7
)
Gain from sales of property, plant and equipment
 
(8
)
 
(4
)
Unrealized foreign currency transaction losses
 
1

 
—

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
45

 
(80
)
Inventories
 
20

 
(175
)
Accounts payable
 
8

 
40

Other assets and liabilities
 
(36
)
 
11

Net Cash Provided From (Used by) Operating Activities
 
394

 
(25
)
 
 
 
 
 
Cash Provided From (Used By) Investing Activities
 
 
 
 
Expenditures for property, plant and equipment
 
(283
)
 
(326
)
Payments to acquire businesses, net of cash acquired
 
(24
)
 
(365
)
Net proceeds from sale of equity method investment
 
—

 
15

Net proceeds from sales of property, plant and equipment
 
12

 
8

Transfer of cash balances upon disposition of operations held for sale
 
(12
)
 
—

Net proceeds from sale of shares in consolidated subsidiary
 
2

 
—

Capital investment in nonconsolidated affiliates
 
(1
)
 
—

Net Cash Provided From (Used By) Investing Activities
 
(306
)
 
(668
)
 
 
 
 
 
Cash Provided From (Used By) Financing Activities
 
 
 
 
Proceeds from equity rights offering net of related fees
 
—

 
250

Proceeds from borrowings on revolving lines of credit
 
350

 
543

Payments on revolving lines of credit
 
(272
)
 
(208
)
Proceeds from term loans, net of original issue discount
 
54

 
—

Principal payments on term loans
 
(74
)
 
(20
)
Decrease in other long-term debt
 
—

 
(3
)
Increase in short-term debt
 
1

 
19

Net remittances on servicing of factoring arrangements
 
—

 
(2
)
Net Cash Provided From (Used By) Financing Activities
 
59

 
579

 
 
 
 
 
Effect of foreign currency exchange rate fluctuations on cash
 
(23
)
 
2

 
 
 
 
 
Cash and equivalents at beginning of period
 
194

 
332

Cash from operations held for sale at January 1
 
12

 
—

Increase (decrease) in cash and equivalents
 
124

 
(112
)
Cash and equivalents at end of period
 
$
330

 
$
220

 
 
 
 
 
Supplementary Disclosures:
 
 
 
 
Non-cash financing and investing activities:
 
 
 
 
Change in accrued property and equipment additions
 
$
(15
)
 
$
(12
)

See accompanying notes to condensed consolidated financial statements.

6

FEDERAL-MOGUL HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(tabular information in millions, except per share amounts)

1.     DESCRIPTION OF BUSINESS

Federal-Mogul Holdings Corporation (the "Company") was incorporated as a Delaware Corporation in 2014. The Company is a leading global supplier of technology and innovation in vehicle and industrial products for fuel economy, emissions reduction, and safety systems. The Company serves the world’s foremost original equipment manufacturers (“OEM”) and servicers (“OES”) (collectively, “OE”) of automotive, light, medium and heavy-duty commercial vehicles, off-road, agricultural, marine, rail, aerospace, power generation and industrial equipment, as well as the worldwide aftermarket.

Proposed Merger Transaction
On September 6, 2016, the Company, American Entertainment Properties Corp., a Delaware corporation (“AEP”), and IEH FM Holdings LLC, a Delaware limited liability company (“Merger Sub”) entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merger Sub commenced a cash tender offer (the "Offer) to acquire, subject to the terms and conditions of the Merger Agreement, all of the issued and outstanding shares of the Company’s common stock, par value $0.01 per share, not already owned by AEP, Merger Sub, the Company, and their respective affiliates, for a purchase price of $9.25 per share, net to the seller in cash, without interest, less any applicable tax withholding.

The Offer will expire at 12:00 midnight, New York City time, on October 28, 2016 (one minute after 11:59 P.M., New York City Time, on October 28, 2016), unless further extended. Complete terms and conditions of the Offer are set forth in AEP and Merger Sub's Offer to Purchase and Letter of Transmittal and the Company's Solicitation/Recommendation Statement on Schedule 14D-9 and other materials filed with the Securities and Exchange Commission on September 26, 2016, each as subsequently amended.

2.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Interim Financial Statements
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. These statements include all adjustments (consisting of normal recurring adjustments) management believes are necessary for a fair presentation of the results of operations, comprehensive income, financial position, and cash flows. The Company’s management believes the disclosures are adequate to make the information presented not misleading when read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on February 29, 2016 and the Company's Amended Annual Reports on Form 10-K/A for the year ended December 31, 2015 filed on March 30, 2016 and April 29, 2016. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016.

Principles of Consolidation: The Company consolidates into its financial statements all wholly-owned and any partially-owned subsidiaries the Company has the ability to control. Control generally equates to ownership percentage, whereby investments more than 50% owned are consolidated, investments in affiliates of 50% or less but greater than 20% are accounted for using the equity method, and investments in affiliates of 20% or less are accounted for using the cost method. See Note 11, Investment in Nonconsolidated Affiliates, for discussion regarding the Company's subsidiaries that were subject to regulatory control.

The Company does not consolidate any entity for which it has a variable interest based solely on power to direct the activities and significant participation in the entity’s expected results that would not otherwise be consolidated based on control through voting interests. Further, the Company’s affiliates are businesses established and maintained in connection with the Company's operating strategy. All intercompany transactions and balances have been eliminated.

Reclassifications: Certain reclassifications from the prior year presentation have been made to conform to the current year presentation.

Concentrations of Credit Risk: Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable, cash deposits, cash equivalents, and derivatives. The Company’s customer base includes virtually every significant global light and commercial vehicle manufacturer and a large number of distributors, installers, and retailers of automotive aftermarket parts. The Company’s credit evaluation process and the geographical dispersion of sales

7

transactions help to mitigate credit risk concentration. The Company only utilizes well-known and highly creditworthy financial institutions for cash deposits and investments in cash equivalents or as a counterparty to derivative transactions.

Factoring of Accounts Receivable: The Company's subsidiaries in Brazil, France, Germany, Italy, Canada, and the United States are party to accounts receivable factoring and securitization facilities. Amounts factored under these facilities consist of the following:
 
 
September 30
 
December 31
 
 
2016
 
2015
Gross accounts receivable factored
 
$
519

 
$
408

Gross accounts receivable factored, qualifying as sales
 
$
510


$
401

Undrawn cash on factored accounts receivable
 
$
1


$
1


Proceeds from the factoring of accounts receivable qualifying as sales and expenses associated with the factoring of receivables are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Proceeds from factoring qualifying as sales
$
311


$
380


$
1,153


$
1,180

Financing charges
$
(2
)

(3
)

$
(9
)

$
(7
)

Accounts receivable factored but not qualifying as a sale were pledged as collateral and accounted for as secured borrowings and recorded in the condensed consolidated balance sheets within “Accounts receivable, net” and “Short-term debt, including the current portion of long-term debt.”

The financing charges are recorded in the condensed consolidated statements of operations within “Other income (expense), net.” Where the Company receives a fee to service and monitor these transferred receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not recorded as a result of such activities.

Certain of the facilities contain terms that require the Company to share in the credit risk of the factored receivables. The maximum exposures to the Company associated with these certain facilities’ terms were $5 million and $11 million as of September 30, 2016 and December 31, 2015.

Changes in Accounting Principle
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The accounting guidance requires debt issuance costs related to a recognized debt liability be reported in the consolidated balance sheets as a direct deduction from the carrying amount of that debt liability. The guidance is effective retrospectively and the Company has adopted this guidance in the first quarter of 2016. The adoption of this accounting guidance to the consolidated and condensed consolidated financial statements is summarized below:
 
September 30, 2016
Condensed Consolidated Balance Sheet
Prior Accounting Principles
 
Effect of Accounting Change
 
As Reported
Other noncurrent assets
$
168

 
(9
)
 
$
159

Long-term debt
$
2,946

 
(9
)
 
$
2,937

 
 
 
 
 
 
 
December 31, 2015
Consolidated Balance Sheet
Previously Reported
 
Effect of Accounting Change
 
Recast
Other noncurrent assets
$
184

 
(10
)
 
$
174

Long-term debt
$
2,924

 
(10
)
 
$
2,914



8


Noncontrolling Interests
The following table presents a rollforward of the changes in noncontrolling interests:
 
 
Nine months ended September 30, 2016

 
 
Equity balance of noncontrolling interests as of January 1
 
$
132

Comprehensive income (loss):
 
 
Net income
 
4

Foreign currency adjustments and other
 
5

Equity balance of noncontrolling interests as of September 30
 
$
141


Recently Issued Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation, and disclosure. The amendments in the ASU are effective prospectively for fiscal years beginning after December 15, 2017, and interim periods therein, with early adoption not permitted. The Company is currently evaluating the potential effects of this pronouncement.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), that replaces existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The standard is effective for the Company beginning January 1, 2019, with early application permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently evaluating the potential effects of this pronouncement.

As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue recognition, with subsequent amendments in 2015. In 2016, the FASB issued ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-11, and ASU 2016-12 which amend the implementation guidance and illustrations in the new standard. The Company continues to evaluate the effects of these accounting pronouncements and will adopt this new guidance on January 1, 2018 using the modified retrospective application method.

3.
RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS, NET

The Company’s restructuring activities are undertaken as necessary to execute management’s strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize the Company’s businesses and to relocate manufacturing operations to best cost manufacturing locations.

The Company's restructuring charges consist primarily of employee costs (principally severance and/or termination benefits), facility closure and other costs, curtailment losses (gains) related to reductions of pension and retiree medical benefit obligations as a result of headcount reductions, and asset impairments related to restructuring activities.

9

 
 
Three Months Ended September 30,
 
 
2016
 
2015
 
 
Powertrain
 
Motorparts
 
Total
 
Powertrain
 
Motorparts
 
Total
Severance and other charges, net
 
$
(6
)
 
$
(1
)
 
$
(7
)
 
$
(17
)
 
$
(1
)
 
$
(18
)
Asset impairments related to restructuring activities
 
—

 
—

 
—

 
—

 
—

 
$
—

Total restructuring charges
 
(6
)
 
(1
)
 
(7
)
 
(17
)
 
(1
)
 
$
(18
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other asset impairments
 
—

 
(1
)
 
(1
)
 
(5
)
 
(1
)
 
(6
)
Total restructuring charges and asset impairments
 
$
(6
)
 
$
(2
)
 
$
(8
)
 
$
(22
)
 
$
(2
)
 
$
(24
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
 
Powertrain
 
Motorparts
 
Total
 
Powertrain
 
Motorparts
 
Total
Severance and other charges, net
 
$
(20
)
 
$
(8
)
 
$
(28
)
 
$
(25
)
 
$
(32
)
 
$
(57
)
Asset impairments related to restructuring activities
 
—

 
—

 
—

 
—

 
(1
)
 
(1
)
Total restructuring charges
 
(20
)
 
(8
)
 
(28
)
 
(25
)
 
(33
)
 
(58
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other asset impairments
 
—

 
(4
)
 
(4
)
 
(7
)
 
(2
)
 
(9
)
Total restructuring charges and asset impairments
 
$
(20
)
 
$
(12
)
 
$
(32
)
 
$
(32
)
 
$
(35
)
 
$
(67
)
 
 
 
 
 
 
 
 
 
 
 
 
 

Estimates of restructuring charges are based on information available at the time such charges are recorded. In certain countries where the Company operates, statutory requirements include involuntary termination benefits that extend several years into the future. Accordingly, severance payments continue well past the date of termination at many international locations. Thus, restructuring programs appear to be ongoing when, in fact, terminations and other activities have been substantially completed.

Restructuring opportunities include potential plant closures and employee headcount reductions in various countries that require consultation with various parties including, but not limited to, unions/works councils, local governments, and/or customers. The consultation process can take a significant amount of time and affect the final outcome and timing. The Company's policy is to record a provision for qualifying restructuring costs in accordance with the applicable accounting guidance when the outcome of such consultations becomes probable.

Management expects to finance its restructuring programs through cash generated from its ongoing operations or through cash available under its existing credit facility, subject to the terms of applicable covenants. Management does not expect that the execution of these programs will have an adverse effect on its liquidity position.


10

The following table provides a quarterly summary of the Company’s restructuring liabilities and related activity as of and for the nine months ended September 30, 2016 and 2015 by reporting segment:

 
Powertrain

Motorparts

Total
Reporting
Segment

Corporate

Total
Company
Balance at December 31, 2015
 
$
33

 
$
47


$
80


$
—


$
80

Provisions
 
12

 
3


15


—


15

Payments
 
(5
)
 
(6
)

(11
)

—


(11
)
Foreign Currency
 
1

 
1

 
2

 
—

 
2

Balance at March 31, 2016
 
41

 
45


86


—


86

Provisions
 
2

 
4

 
6

 
—

 
6

Payments
 
(7
)
 
(6
)
 
(13
)
 
—

 
(13
)
Foreign Currency
 
(1
)
 
(1
)
 
(2
)
 
—

 
(2
)
Balance at June 30, 2016
 
35

 
42

 
77

 
—

 
77

Provisions
 
6

 
4

 
10

 
—

 
10

Reversals
 
—

 
(3
)
 
(3
)
 
—

 
(3
)
Payments
 
(7
)
 
(7
)
 
(14
)
 
—

 
(14
)
Foreign Currency
 
1

 
—

 
1

 
—

 
1

Balance at September 30, 2016
 
$
35

 
$
36

 
$
71

 
$
—

 
$
71


 
 
Powertrain
 
Motorparts
 
Total
Reporting
Segment
 
Corporate
 
Total
Company
Balance at December 31, 2014
 
$
36

 
$
16

 
$
52

 
$
1

 
$
53

Provisions
 
6

 
6

 
12

 
—

 
12

Payments
 
(10
)
 
(5
)
 
(15
)
 
(1
)
 
(16
)
Acquisitions
 
2

 
—

 
2

 
—

 
2

Foreign Currency
 
(3
)
 
(1
)
 
(4
)
 
—

 
(4
)
Balance at March 31, 2015
 
31

 
16

 
47

 
—

 
47

Provisions
 
6

 
25

 
31

 
—

 
31

Reversals
 
(4
)
 
—

 
(4
)
 
—

 
(4
)
Payments
 
(16
)
 
(6
)
 
(22
)
 
—

 
(22
)
Balance at June 30, 2015
 
17

 
35

 
52

 
—

 
52

Provisions
 
17

 
1

 
18

 
—

 
18

Payments
 
(4
)
 
(6
)
 
(10
)
 
—

 
(10
)
Balance at September 30, 2015
 
$
30

 
$
30

 
$
60

 
$
—

 
$
60


The following table provides a quarterly summary of the Company’s restructuring liabilities and related activity for each type of exit cost as of and for the three and nine months ended September 30, 2016 and 2015. As the table indicates, facility closure costs are typically paid within the quarter of incurrence.

11


 
Employee
Costs

Facility Closure and Other
Costs

Total
Balance at December 31, 2015
 
$
79


$
1


$
80

Provisions
 
13


2


15

Payments
 
(9
)
 
(2
)
 
(11
)
Foreign Currency
 
2

 
—

 
2

Balance at March 31, 2016
 
85


1


86

Provisions
 
5


1


6

Payments
 
(12
)

(1
)

(13
)
       Foreign Currency
 
(2
)
 
—

 
(2
)
Balance at June 30, 2016
 
76


1


77

Provisions
 
9

 
1

 
10

Reversals
 
(3
)
 
—

 
(3
)
Payments
 
(13
)
 
(1
)
 
(14
)
       Foreign Currency
 
1

 
—

 
1

Balance at September 30, 2016
 
$
70

 
$
1

 
$
71


 
 
Employee
Costs
 
Facility Closure and Other
Costs
 
Total
Balance at December 31, 2014
 
$
51

 
$
2

 
$
53

Provisions
 
10

 
2

 
12

Payments
 
(13
)
 
(3
)
 
(16
)
Acquisitions
 
2

 
—

 
2

Foreign Currency
 
(4
)
 
—

 
(4
)
Balance at March 31, 2015
 
46

 
1

 
47

Provisions
 
29

 
2

 
31

Reversals
 
(4
)
 
—

 
(4
)
Payments
 
(20
)
 
(2
)
 
(22
)
Balance at June 30, 2015
 
51

 
1

 
52

Provisions
 
17

 
1

 
18

Payments
 
(9
)
 
(1
)
 
(10
)
Balance at September 30, 2015
 
$
59

 
$
1

 
$
60


Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated.

Restructuring charges and asset impairments for the three months ended September 30, 2016 were comprised of $6 million related to the Powertrain segment and $5 million related to the Motorparts segment. In addition, the Motorparts segment determined $3 million of a previously recorded reserve was no longer probable, and reduced the reserve accordingly. The charges include severance related costs of $5 million in EMEA and $1 million in ROW for the Powertrain segment. For the Motorparts segment, the charges include severance related costs of $2 million in EMEA and facility closure and other costs of $1 million in North America and $1 million in EMEA. These charges were offset by reductions to previously recorded severance related reserves of $1 million in North America and $2 million in EMEA. In addition, there was $1 million in asset impairments in EMEA for the Motorparts segment.

Restructuring charges and asset impairments for the nine months ended September 30, 2016 were comprised of $20 million related to the Powertrain segment and $15 million related to the Motorparts segment. The charges include severance related costs of $14 million in EMEA, $3 million in North America, and $2 million in ROW for the Powertrain segment. In addition, there was $1

12

million in facility closure and other costs in ROW for the Powertrain segment. For the Motorparts segment, the charges include severance related costs of $3 million in North America, and facility closure and other costs of $3 million in North America and severance related costs of $2 million in EMEA, and facility and other costs of $3 million in EMEA. These charges were offset by reductions to previously recorded severance related reserves of $1 million in North America and $2 million in EMEA. In addition, there was $4 million in asset impairments in EMEA for the Motorparts segment.

Restructuring expenses for the nine months ended September 30, 2016 are aimed at optimizing the Company's cost structure. We expect to complete these programs in 2017 and incur additional restructuring and other charges of approximately $1 million. For programs previously initiated in prior periods, we expect to complete these programs in 2018 and incur additional restructuring and other charges of approximately $4 million.

See Note 6, Assets Held for Sale and Discontinued Operations, for further details related to the $4 million impairment loss on assets held for sale in the nine months ended September 30, 2016.

4.
OTHER INCOME (EXPENSE), NET
The specific components of “Other income (expense), net” are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Loss on sale of equity method investment(a)
$
—

 
$
—

 
$
—

 
$
(11
)
Foreign currency transaction gain (loss)
(2
)
 
—

 
(1
)
 
—

Gain (loss) on sale of assets
(1
)
 
—

 
8

 
4

Third-party royalty income
2

 
1

 
5

 
5

Legal separation costs
—

 
(1
)
 
—

 
(3
)
Financing charges
(2
)
 
(3
)
 
(9
)
 
(7
)
Other
6

 
3

 
12

 
9

 
$
3

 
$
—

 
$
15

 
$
(3
)
(a) See Note 11, Investment in Nonconsolidated Affiliates, for further details.

In the nine months ended September 30, 2016, the other income (expense), net included the recognition of a $9 million gain related to the sale of real estate made in a prior year. The gain and receipt of the proceeds was contingent upon the property's redevelopment by the buyer.

In the nine months ended September 30, 2015, the Company recognized an $11 million loss on the disposition of an equity method investment.

5.    ACQUISITIONS

Filters Business Acquisition
On May 26, 2016, the Company completed the acquisition of the assets of a filter manufacturing business in Mexico, which primarily serves the Mexican market, for a purchase price of $25 million, net of cash acquired. The estimated fair value of assets acquired and liabilities assumed at the acquisition date is approximately $25 million. The Company is in the process of finalizing certain customary post-closing adjustments which could affect the estimated fair value of assets acquired and liabilities assumed.

TRW Engine Components Acquisition
Pursuant to the Amended and Restated Share and Asset Purchase Agreement dated January 23, 2015, the Company completed the acquisition of TRW’s valvetrain business and closed the transaction on February 6, 2015. The business was acquired through a combination of asset and stock purchases for a purchase price of approximately $309 million. On July 7, 2015, the Company completed the purchase of certain additional business assets of the TRW's valvetrain business. The business was acquired through stock purchases for a base purchase price of approximately $56 million. The purchase includes a $25 million noncontrolling interest related to a 66% stake in a majority owned entity the Company consolidates into its financial statements. The acquisition was funded primarily from the Company's available revolving line of credit and is subject to certain customary closing and post-closing adjustments. The acquisition of TRW’s valvetrain business adds a completely new product line to the Company's portfolio,

13

strengthens the Company's position as a leading developer and supplier of core components for engines, and enhances the Company's ability to support its customers to improve fuel economy and reduce emissions.

The following table summarizes the fair value of the assets acquired and liabilities assumed at the acquisition date:
 
Fair Value
Cash
$
14

Accounts receivable, net
31

Inventory, net
36

Property, plant and equipment, net
234

Goodwill
74

Other identified intangible assets
107

Accounts payable
(22
)
Accrued liabilities
(39
)
Acquired postemployment benefits
(46
)
Other net assets
1

Total identifiable net assets
$
390


In addition to the benefits noted above, goodwill is created from the expected synergies through the integration of the engine components business into the existing Powertrain segment which will allow for improved profitability.

Proforma Results
The following proforma results for the three and nine months ended September 30, 2016 and 2015 assume the purchase of the TRW valvetrain business occurred as of the beginning of 2015 and are inclusive of provisional purchase price adjustments. The proforma results are not necessarily indicative of the results that actually would have been obtained.

Three Months Ended

Nine Months Ended

September 30

September 30

2016

2015

2016

2015
Net sales
$
1,825


$
1,824


$
5,646


$
5,665













Net income (loss) attributable to Federal-Mogul
$
15


$
(62
)

$
81


$
(52
)












Earnings (loss) per share attributable to Federal-Mogul - basic and diluted
$
0.09


$
(0.37
)

$
0.48


$
(0.32
)


As the assets of the filter business in Mexico were acquired on May 26, 2016, the proforma effects on the Company's results are not significant for the three and nine months ended September 30, 2016 and 2015.

During the nine months ended September 30, 2015, the Company recorded $1 million in transaction related expenses, primarily legal and other professional fees, associated with the acquisition of certain assets of the TRW engine components business. These expenses were recorded in "Selling, general and administrative expenses" within the condensed consolidated statements of operations.

6.    HELD FOR SALE AND DISCONTINUED OPERATIONS

Held for Sale Operations

The Company classifies assets and liabilities as held for sale ("disposal group") when management, having the authority to approve the action, commits to a plan to sell the disposal group, the sale is probable within one year, and the disposal group is available for immediate sale in its present condition. The Company also considers whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value,

14

and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

The Company aggregates the assets and aggregates the liabilities of all held for sale disposal groups on the balance sheet for the period in which the disposal group is held for sale. The Company has classified assets of $5 million as held for sale. These held for sale assets have been recorded in "Prepaid expenses and other current assets" as of September 30, 2016. As part of the evaluation to classify these assets as held for sale, the Company recorded an impairment loss in the amount of $4 million during the nine months ended September 30, 2016 which has been included in "Restructuring charges and asset impairments, net" in the condensed consolidated statements of operations.
 
In 2015, the Company entered into a share agreement to sell 100% of the shares of one of its subsidiaries in the Powertrain segment along with certain related assets of another subsidiary. The Company classified the assets and liabilities related to this transaction as held for sale. Prior to December 31, 2015, the Company contributed $12 million in cash to the subsidiary. The transaction closed on January 1, 2016 with no additional amounts recognized for the nine months ended September 30, 2016.

Discontinued Operations
In connection with its strategic planning process, the Company assesses its operations for market position, product technology and capability, and profitability. Those businesses not core to the Company’s long-term portfolio may be considered for divestiture or other exit activities. During the nine months ended September 30, 2015, the Company recognized a $7 million adjustment (no income tax effect) which is included in “Gain from discontinued operations, net of income tax” within the condensed consolidated statement of operations.

7.
DERIVATIVES AND HEDGING ACTIVITIES

Commodity Price Risk
The Company’s production processes are dependent upon the supply of certain raw materials that are exposed to price fluctuations on the open market. The primary purpose of the Company’s commodity price forward contract activity is to manage the volatility associated with forecasted purchases. The Company monitors its commodity price risk exposures regularly to maximize the overall effectiveness of its commodity forward contracts. Principal raw materials hedged include copper, nickel, tin, zinc, high-grade aluminum, and aluminum alloy. Forward contracts are used to mitigate commodity price risk associated with raw materials, generally related to purchases forecast for up to fifteen months in the future.

Information regarding the Company’s outstanding commodity price hedge contracts is as follows:
 
 
September 30
 
December 31
 
 
2016
 
2015
Combined notional value
 
$
17

 
$
28

Combined notional value designated as hedging instruments
 
$
17

 
$
28

Unrealized net (loss) gain recorded in “Accumulated other comprehensive loss”
 
$
—

 
$
(2
)
Net asset (liability) position
 
$
1

 
$
(3
)

The Company has designated these contracts as cash flow hedging instruments. The Company records unrecognized gains and losses in other comprehensive income and makes regular reclassifying adjustments into "Cost of products sold" within the condensed consolidated statement of operations when amounts are recognized. For amounts recognized in other comprehensive income (loss) and amounts reclassified out of other comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015 for these hedging instruments, see Note 16, Changes in Accumulated Other Comprehensive Loss by Component (Net of Tax). Substantially all of the commodity price hedge contracts mature within one year.

Foreign Currency Risk
The Company manufactures and sells its products in North America, South America, Asia, Europe, Australia, and Africa. 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 foreign markets in which the Company manufactures and sells its products. The Company generally tries to use natural hedges within its foreign currency activities, including the matching of revenues and costs, to minimize foreign currency risk. Where natural hedges are not in place, the Company considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. Principal currencies hedged have historically included the euro, British pound and Polish zloty. Foreign currency forwards are also used in conjunction with the Company's commodity hedging program. In order to obtain critical terms match for commodity exposure, the Company engages the use of foreign exchange contracts. The Company did not hold any foreign currency price hedge contracts at

15

September 30, 2016 or December 31, 2015. For the nine months ended September 30, 2016 and 2015 there were no amounts reclassified into net income.

Concentrations of Credit Risk
Financial instruments including cash equivalents, derivative contracts, and accounts receivable, expose the Company to counter-party credit risk for non-performance. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s counterparties for derivative contracts are substantial investment and commercial banks with significant experience using such derivatives. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counter-party and through monitoring counter-party credit risks. The Company’s concentration of credit risk related to derivative contracts at September 30, 2016 and 2015 is not material.

Other
The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis. For derivatives designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness. Unrealized gains and losses associated with ineffective hedges, determined using the hypothetical derivative method, are recognized in “Other income (expense), net.” Derivative gains and losses included in “Accumulated other comprehensive loss” for effective hedges are reclassified into operations upon recognition of the hedged transaction. Derivative gains and losses associated with undesignated hedges are recognized in “Other income (expense), net” for outstanding hedges and either “Cost of products sold” or “Other income (expense), net” upon hedge maturity.

8.
FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), clarifies fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1:
Observable inputs such as quoted prices in active markets;
Level 2:
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Estimates of the fair value of commodity derivative instruments are determined using exchange traded prices and rates.

Items Measured at Fair Value on a Recurring Basis

Assets and liabilities remeasured and disclosed at fair value on a recurring basis at September 30, 2016 and December 31, 2015 are set forth in the table below:
 

Asset/(Liability)
 
Level 2
September 30, 2016
 
 
 
Commodity contracts
$
1

 
$
1

December 31, 2015
 
 
 
Commodity contracts
$
(3
)
 
$
(3
)

The Company calculates the fair value of its commodity contracts using quoted commodity forward rates to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on quoted bank deposit rates.


16

Items Measured at Fair Value on a Nonrecurring Basis
In addition to items measured at fair value on a recurring basis, the Company also has assets that may be measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. The majority of the Company’s non-financial instruments, long-lived assets, intangible assets, and investments in nonconsolidated affiliates, are Level 3 assets. If certain triggering events occur such that a non-financial instrument is required to be evaluated for impairment and the carrying value is determined to not be recoverable, an impairment charge would be recorded to adjust to the lower of cost or fair value.

During the nine months ended September 30, 2016 and 2015, the Company recorded impairment charges of $4 million and $9 million related to property, plant, and equipment, which have been recorded within "Restructuring charges and asset impairments, net" in the condensed consolidated statement of operations.

The Company's investment in nonconsolidated affiliates is discussed further in Note 11, Investment in Nonconsolidated Affiliates.


Financial Instruments not Carried at Fair Value
Estimated fair values of the Company’s term loans were:
 
September 30, 2016
 
December 31, 2015
 
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
Measurement Approach
Term Loans
$
2,535

 
$
2,479

 
$
2,551

 
$
2,273

 
Level 2

Fair value approximates carrying value for foreign debt as well as the U.S. revolver.

Fair market values are developed by the use of estimates obtained from brokers and other appropriate valuation techniques based on information available as of September 30, 2016 and December 31, 2015. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

9.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost was determined by the first-in, first-out method at September 30, 2016 and December 31, 2015. Inventories are reduced by an allowance for excess and obsolete inventories based on management’s review of on-hand inventories compared to historical and estimated future sales and usage.

Net inventories consist of the following:
 
 
September 30
 
December 31
 
 
2016
 
2015
Raw materials
 
$
275

 
$
254

Work-in-process
 
193

 
175

Finished products
 
1,003

 
1,027

 
 
1,471

 
1,456

Inventory valuation allowance
 
(132
)
 
(114
)
 
 
$
1,339

 
$
1,342



17

10.
GOODWILL AND OTHER INTANGIBLE ASSETS

A summary of changes in the net carrying amounts of goodwill by segment are as follows
 
Nine Months Ended September 30, 2016
 
Powertrain
 
Motorparts
 
Total
Net carrying amount, December 31
$
512

 
$
161

 
$
673

Acquisitions and purchase accounting adjustments
6

 
—

 
6

Foreign exchange
6

 
—

 
6

Net carrying amount, March 31
524

 
161

 
685

Acquisitions and purchase accounting adjustments
—

 
—

 
—

Impairment charges
(6
)
 
—

 
(6
)
Foreign exchange
—

 
—

 
—

Net carrying amount, June 30
518

 
161

 
679

Acquisitions and purchase accounting adjustments
—

 
—

 
—

Impairment charges
—

 
—

 
—

Foreign exchange
—

 
—

 
—

Net carrying amount, September 30
$
518

 
$
161

 
$
679

 
 
 
 
 
 
 
Powertrain
 
Motorparts
 
Total
Accumulated impairment charges at September 30, 2016
$
142

 
$
648

 
$
790

Accumulated impairment charges at December 31, 2015
$
136

 
$
648

 
$
784


The Company conducts its assessment for goodwill impairments on October 1 of each year for all reporting units. Due to the complexity of the 2015 step two goodwill impairment test, the Company finalized its assessment as of June 30, 2016. Based on the results of the annual impairment test, the Company recorded impairment charges of $6 million during nine months ended September 30, 2016.

During the nine months ended September 30, 2015, the Company determined there were impairment indicators for one of its reporting units. Therefore, it conducted an interim impairment analysis and concluded $56 million of goodwill was impaired.


18

At September 30, 2016 and December 31, 2015, intangible assets consist of the following:
 
 
September 30, 2016
 
December 31, 2015
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Developed technology
 
$
140

 
$
(97
)
 
$
43

 
$
140

 
$
(86
)
 
$
54

Customer relationships
 
683

 
(366
)
 
317

 
683

 
(333
)
 
350

 
 
$
823

 
$
(463
)
 
$
360

 
$
823

 
$
(419
)
 
$
404

 
 
 
 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks and brand names
 
 
 
 
 
$
228

 
 
 
 
 
$
230


The Company's recorded amortization expense associated with definite-lived intangible assets was:
 
Nine Months Ended
 
September 30,
 
2016
 
2015
Amortization expense
$
44

 
$
45


The Company’s expected future amortization expense for its definite-lived intangible assets is as follows:
 
Remaining 2016
 
2017
 
2018
 
2019
 
2020
 
2021 and thereafter
 
Total
Expected amortization expenses
15

 
58

 
49

 
49

 
49

 
140

 
$
360


11.
INVESTMENT IN NONCONSOLIDATED AFFILIATES

The Company maintains investments in several nonconsolidated affiliates, which are located in China, Korea, Turkey, India, Germany, and the United States. With the exception of the deconsolidated business discussed below, the Company generally equates control to ownership percentage whereby investments more than 50% owned are consolidated.

The Company does not hold a controlling interest in an entity based on exposure to economic risks and potential rewards (variable interests) for which it is the primary beneficiary. Further, the Company’s affiliations are businesses established and maintained in connection with its operating strategy and are not special purpose entities.

The following represents the Company’s aggregate investments and direct ownership in these affiliates:
 
 
September 30
 
December 31
 
 
2016
 
2015
Investments in nonconsolidated affiliates
 
$
275

 
$
296

 
 
 
 
 
Direct ownership percentages
 
2% to 50%

 
2% to 50%


The following table represents amounts reflected in the Company’s financial statements related to nonconsolidated affiliates:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Equity earnings of nonconsolidated affiliates
$
11

 
$
9

 
$
44

 
$
37

 
 
 
 
 
 
 
 
Cash dividends received from nonconsolidated affiliates
$
6

 
$
—

 
$
71

 
$
6


19


The following tables present summarized aggregated financial information of the Company’s nonconsolidated affiliates for the three and nine months ended September 30, 2016 and 2015. The amounts represent 100% of the interest in the nonconsolidated affiliates and not the Company's proportionate share.
 
 
Three months ended September 30, 2016
Statements of Operations
 
Turkey JVs
 
Anqing TP Goetze
 
All Other
 
Total
Sales
 
$
77

 
$
37

 
$
114

 
$
228

Gross profit
 
$
17

 
$
12

 
$
22

 
$
51

Income from continuing operations
 
$
12

 
$
9

 
$
13

 
$
34

Net income
 
$
11

 
$
9

 
$
12

 
$
32


 
 
Three months ended September 30, 2015
Statements of Operations
 
Turkey JVs
 
Anqing TP Goetze
 
All Other
 
Total
Sales
 
$
80

 
$
31

 
$
82

 
$
193

Gross profit
 
$
17

 
$
8

 
$
11

 
$
36

Income from continuing operations
 
$
13

 
$
7

 
$
5

 
$
25

Net income
 
$
11

 
$
8

 
$
4

 
$
23



 
 
Nine Months Ended September 30, 2016
Statements of Operations
 
Turkey JVs
 
Anqing TP Goetze
 
All Other
 
Total
Sales
 
$
264

 
$
117

 
$
347

 
$
728

Gross profit
 
$
67

 
$
36

 
$
74

 
$
177

Income from continuing operations
 
$
55

 
$
30

 
$
45

 
$
130

Net income
 
$
45

 
$
30

 
$
42

 
$
117


 
 
Nine Months Ended September 30, 2015
Statements of Operations
 
Turkey JVs
 
Anqing TP Goetze
 
All Other
 
Total
Sales
 
$
248

 
$
123

 
$
254

 
$
625

Gross profit
 
$
56

 
$
38

 
$
31

 
$
125

Income from continuing operations
 
$
50

 
$
34

 
$
16

 
$
100

Net income
 
$
41

 
$
35

 
$
15

 
$
91


As part of the regulatory approval related to an acquisition, the Company committed to divest, or procure the divestiture of the commercial and light vehicle brake pads business relating to the original equipment manufacturers market in the European Economic Area. As such, the Company deconsolidated these subsidiaries and accounted for them as equity method investments until disposition. The disposition was completed in the first quarter of 2015. As a result, the Company recognized an $11 million loss on disposal recorded in the line item "Other Income (Expense), Net" in the condensed consolidated statements of operations during the nine months ended September 30, 2015.


20

12.    DEBT

The following is a summary of debt outstanding as of September 30, 2016 and December 31, 2015:
 
 
September 30
 
December 31
 
 
2016
 
2015
Loans under facilities:
 
 
 
 
Revolver
 
$
390

 
$
340

Tranche B term loan
 
686

 
691

Tranche C term loan
 
1,862

 
1,876

Debt discount
 
(7
)
 
(8
)
Unamortized debt issuance fees
 
(8
)
 
(10
)
Other debt, primarily foreign instruments
 
188

 
163

 
 
3,111

 
3,052

Less:
 
 
 
 
Short-term debt, including current maturities of long-term debt
 
(174
)
 
(138
)
Total long-term debt
 
$
2,937

 
$
2,914


The Replacement Revolving Facility has an available borrowing base of $173 million and $37 million of letters of credit outstanding at September 30, 2016, pertaining to the term loan credit facility. To the extent letters of credit associated with the Replacement Revolving Facility are issued, there is a corresponding decrease in borrowings available under this facility. There is also $37 million of availability under foreign credit facilities at September 30, 2016.

Interest expense associated with the amortization of the debt issuance costs recognized in the Company’s condensed consolidated statements of operations, consists of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Amortization of debt issuance fees
$
1

 
$
1

 
$
2

 
$
2

Amortization of original issue discount
1

 
—

 
1

 
1

 
$
2

 
$
1

 
$
3

 
$
3



13.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors several defined benefit pension plans (“Pension Benefits”) and health care and life insurance benefits (“Other Postretirement Benefits” or "OPEB") for certain employees and retirees around the world.


21

Components of net periodic benefit cost (credit) for the three months ended September 30, 2016 and 2015 are as follows:
 
 
Pension Benefits
 
Other Postretirement
 
 
United States Plans
 
Non-U.S. Plans
 
Benefits
 
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
 
$
1

 
$
—

 
$
3

 
$
4

 
$
—

 
$
—

Interest cost
 
12

 
12

 
3

 
4

 
3

 
3

Expected return on plan assets
 
(12
)
 
(15
)
 
—

 
—

 
—

 
—

Amortization of actuarial losses
 
3

 
3

 
2

 
2

 
1

 
2

Amortization of prior service credits
 
—

 
—

 
—

 
—

 
(1
)
 
(1
)
Net periodic benefit cost
 
$
4

 
$
—

 
$
8

 
$
10

 
$
3

 
$
4


Components of net periodic benefit cost (credit) for the nine months ended September 30, 2016 and 2015 are as follows:
 
 
Pension Benefits
 
Other Postretirement
 
 
United States Plans
 
Non-U.S. Plans
 
Benefits
 
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
 
$
2

 
$
2

 
$
10

 
$
12

 
$
—

 
$
—

Interest cost
 
36

 
36

 
9

 
8

 
9

 
10

Expected return on plan assets
 
(36
)
 
(44
)
 
—

 
(1
)
 
—

 
—

Amortization of actuarial losses
 
9

 
8

 
4

 
8

 
2

 
4

Amortization of prior service credits
 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
Net periodic benefit cost
 
$
11

 
$
2

 
$
23

 
$
27

 
$
8

 
$
11


14.
INCOME TAXES

Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

For the three months ended September 30, 2016, the Company recorded income tax expense of $10 million on income from continuing operations before income taxes of $26 million. This compares to income tax expense of $9 million on a loss from operations before income taxes of $53 million in the same period of 2015. Income tax expense for the three months ended September 30, 2016 and three months ended September 30, 2015 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates lower than the U.S. statutory rate, partially offset by pre-tax losses with no tax benefit.

For the nine months ended September 30, 2016, the Company recorded income tax expense of $33 million on income from continuing operations before income taxes of $118 million. This compares to income tax expense of $32 million on a loss from operations before income taxes of $23 million in the same period of 2015. Income tax expense for the nine months ended September 30, 2016 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates lower than the U.S. statutory rate, partially offset by pre-tax losses with no tax benefit. Income tax expense for the nine months ended September 30, 2015 differs from the U.S. statutory rate due primarily to pre-tax losses with no tax benefits.

15.
COMMITMENTS AND CONTINGENCIES

Environmental Matters
The Company is a defendant in lawsuits filed, or the recipient of administrative orders issued or demand letters received, in various jurisdictions pursuant to the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”) or other similar national, provincial or state environmental remedial laws. These laws provide that responsible parties may be liable to pay for remediating contamination resulting from hazardous substances that were discharged into the environment by them, by prior owners or occupants of property they currently own or operate, or by others to whom they sent such substances for treatment or other disposition at third party locations. The Company has been notified by the United States Environmental Protection Agency, other national environmental agencies, and various provincial and 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 or provincial environmental laws. PRP designation typically requires the funding of site investigations and subsequent remedial activities.


22

Many of the sites that are likely to be the costliest to remediate are often current or former commercial waste disposal facilities to which numerous companies sent wastes. Despite the potential 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 sent to these sites has generally been small. The Company believes its exposure for liability at these sites is limited.

On a global basis, the Company has also identified certain other present and former properties at which it may be responsible for cleaning up or addressing environmental contamination, in some cases as a result of contractual commitments and/or federal or state environmental laws. The Company is actively seeking to resolve these actual and potential statutory, regulatory and contractual obligations. 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 regulatory and contractual obligations on the basis of available information from site investigations and best professional judgment of consultants.

Total environmental liabilities, determined on an undiscounted basis, are included in the condensed consolidated balance sheets as follows:
 
 
September 30
 
December 31
 
 
2016
 
2015
Other current liabilities
 
$
4

 
$
4

Other accrued liabilities (noncurrent)
 
8

 
10

 
 
$
12

 
$
14


Management believes recorded environmental liabilities will be adequate to cover the Company’s estimated liability for its exposure in respect to such matters. In the event 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 of September 30, 2016, management estimates that reasonably possible material additional losses above and beyond management’s best estimate of required remediation costs as recorded approximate $44 million.

Asset Retirement Obligations
The Company’s primary asset retirement obligations ("ARO") activities relate to the removal of hazardous building materials at its facilities. The Company records an ARO at fair value upon initial recognition when the amount can be reasonably estimated, typically upon the expectation an operating site may be closed or sold. ARO fair values are determined based on the Company’s determination of what a third party would charge to perform the remediation activities, generally using a present value technique.

For those sites the Company identifies in the future for closure or sale, or for which it otherwise believes it has a reasonable basis to assign probabilities to a range of potential settlement dates, the Company will review these sites for both ARO and impairment issues.

The Company has identified sites with contractual obligations and several sites that are closed or expected to be closed and sold. In connection with these sites, the Company maintains ARO liabilities in the condensed consolidated balance sheets as follows:
 
 
September 30
 
December 31
 
 
2016
 
2015
Other current liabilities
 
$
2

 
$
2

Other accrued liabilities (noncurrent)
 
14

 
14

 
 
$
16

 
$
16



23

There was no activity in the Company's ARO liability for the three and nine months ended September 30, 2016. The following is a rollforward of the Company’s ARO liability for the three and nine months ended September 30, 2015:
Balance at December 31, 2014
 
$
24

Liabilities settled/adjustments
 
(3
)
Foreign Currency
 
(2
)
Balance at March 31, 2015
 
19

Liabilities settled/adjustments
 
1

Balance at June 30, 2015
 
20

Liabilities settled/adjustments
 
(1
)
Balance at September 30, 2015
 
$
19


The Company has conditional asset retirement obligations (“CARO”), primarily related to removal costs of hazardous materials in buildings, for which it believes reasonable cost estimates cannot be made at this time because the Company does not believe it has a reasonable basis to assign probabilities to a range of potential settlement dates for these retirement obligations. Accordingly, the Company is currently unable to determine amounts to accrue for CARO at such sites.

Affiliate Pension Obligations
As a result of the more than 80% ownership interest in the Company by Mr. Icahn’s affiliates, the Company is subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least 80%. One such entity, ACF Industries LLC ("ACF"), is the sponsor of several pension plans. All the minimum funding requirements of the Code and the Employee Retirement Income Security Act of 1974 for these plans have been met as of September 30, 2016. If the ACF plans were voluntarily terminated, they would be underfunded by approximately $104 million as of September 30, 2016. These results are based on the most recent information provided by the plans’ actuaries. These liabilities could increase or decrease, depending on a number of factors, including future changes in benefits, investment returns, and the assumptions used to calculate the liability. As members of the controlled group, the Company would be liable for any failure of ACF to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of the pension plans of ACF. In addition, other entities now or in the future within the controlled group in which the Company is included may have pension plan obligations that are, or may become, underfunded and the Company would be liable for any failure of such entities to make ongoing pension contributions or to pay the unfunded liabilities upon termination of such plans. Further, the failure to pay these pension obligations when due may result in the creation of liens in favor of the pension plan or the Pension Benefit Guaranty Corporation (“PBGC”) against the assets of each member of the controlled group.

The current underfunded status of the pension plans of ACF requires it to notify the PBGC of certain “reportable events” such as if the Company ceases to be a member of the ACF controlled group, or the Company makes certain extraordinary dividends or stock redemptions. The obligation to report could cause the Company to seek to delay or reconsider the occurrence of such reportable events.

Icahn Enterprises Holdings L.P. and IEH FM Holdings LLC have undertaken to indemnify Federal-Mogul for any and all liability imposed upon the Company pursuant to the Employee Retirement Income Security Act of 1974, as amended, or any regulation thereunder (“ERISA”) resulting from the Company being considered a member of a controlled group within the meaning of ERISA § 4001(a)(14) of which American Entertainment Properties Corporation is a member, except with respect to liability in respect to any employee benefit plan, as defined by ERISA § 3(3), maintained by the Company. Icahn Enterprises Holdings L.P. and IEH FM Holdings LLC are not required to maintain any specific net worth and there can be no guarantee Icahn Enterprises Holdings L.P. and IEH FM Holdings LLC will be able to fund their indemnification obligations to the Company.

Other Matters
On April 25, 2014, a group of plaintiffs brought an action against Federal-Mogul Products, Inc. (“F-M Products”), a wholly-owned subsidiary of the Company, alleging injuries and damages associated with the discharge of chlorinated hydrocarbons by the former owner of a facility located in Kentucky.  Since 1998, when F-M Products acquired the facility, it has been cooperating with the applicable regulatory agencies on remediating the prior discharges pursuant to an order entered into by the facility’s former owner. The Company does not currently believe that the outcome of this litigation will have a material effect on its condensed consolidated financial position, results of operations or cash flows.

The Company is involved in other legal actions and claims, directly and through its subsidiaries. Management does not believe that the outcomes of these other actions or claims are likely to have a material adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

24


16.
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (NET OF TAX)

The following represents the Company’s changes in accumulated other comprehensive loss ("AOCL") by component for the three and nine months ended September 30, 2016 and 2015:
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
Foreign currency translation adjustments and other
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
(733
)
 
$
(577
)
 
$
(714
)
 
$
(482
)
Other comprehensive income (loss) before reclassification adjustment, net of tax
 
4

 
(88
)
 
(14
)
 
(183
)
Reclassification from other comprehensive income (loss)
 
—

 
—

 
(1
)
 
—

Other comprehensive loss, net of tax
 
4

 
(88
)
 
(15
)
 
(183
)
Balance at end of period
 
$
(729
)
 
$
(665
)
 
$
(729
)
 
$
(665
)
 
 
 
 
 
 
 
 
 
Pensions and postretirement benefits
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
(580
)
 
$
(621
)
 
$
(587
)
 
$
(643
)
Other comprehensive income (loss) before reclassifications
 
—

 
—

 
—

 
11

Reclassification from other comprehensive income (loss)(a)
 
5

 
6

 
12

 
17

Income tax
 
—

 
2

 
—

 
2

Other comprehensive income (loss), net of tax
 
5

 
8

 
12

 
30

Balance at end of period
 
$
(575
)
 
$
(613
)
 
$
(575
)
 
$
(613
)
 
 
 
 
 
 
 
 
 
Hedge instruments
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
(16
)
 
$
(18
)
 
$
(17
)
 
$
(17
)
Other comprehensive income (loss) before reclassifications
 
1

 
(1
)
 
—

 
(3
)
Reclassification from other comprehensive income (loss)(b)
 
—

 
1

 
2

 
2

Other comprehensive income (loss), net of tax
 
1

 
—

 
2

 
(1
)
Balance at end of period
 
$
(15
)
 
$
(18
)
 
$
(15
)
 
$
(18
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) attributable to noncontrolling interests, net of tax(c)
 
$
1

 
$
(4
)
 
$
5

 
$
(6
)
 
 
 
 
 
 
 
 
 
(a) Includes amortization of prior service costs/credits and actuarial gains/losses which are included in cost of products sold, and selling, general, and administrative. Refer to Note 13 for additional information.
(b) Includes commodity contacts which are included in cost of products sold. Refer to Note 7 for additional information.
(c) Consists of foreign currency translation adjustments.

17.
STOCK-BASED COMPENSATION

In February 2012, 2011 and 2010, the Company granted approximately 809,000, 1,043,000 and 437,000 SARs, respectively, to certain employees. The SARs granted in February 2012 (“2012 SARs”) and in February 2011 (“2011 SARs”) vested 25.0% on the grant date and 25.0% on each of the next three anniversaries of the grant date. The SARs granted in February 2010 (“2010 SARs”) vested 33.3% on each of the three anniversaries of the grant date. All SARs have a term of five years from date of grant. The SARs are payable in cash or, at the election of the Company, in stock. As the Company anticipates paying out SARs exercised in the form of cash, the SARs are being treated as liability awards for accounting purposes.

The Company has total outstanding awards of approximately 212,000 and 603,000 as of September 30, 2016 and December 31, 2015. As of September 30, 2016, all 2011 SARs and 2010 SARs were expired.

The Company did not recognize any SARs income for the nine months ended September 30, 2016 and recognized $1 million in income for the nine months ended September 30, 2015.

25


18.
INCOME (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted income (loss) per common share attributable to Federal-Mogul:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Amounts attributable to Federal-Mogul:
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
15

 
$
(63
)
 
$
81

 
$
(59
)
Gain from discontinued operations, net of income tax
—

 
—

 
—

 
7

Net income (loss)
$
15

 
$
(63
)
 
$
81

 
$
(52
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding, basic and diluted
169.0

 
169.0

 
169.0

 
163.2

 
 
 
 
 
 
 
 
Net income (loss) per common share attributable to Federal-Mogul
 
 
 
 
 
 
 
Basic and diluted:
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
0.09

 
$
(0.37
)
 
$
0.48

 
$
(0.36
)
Gain from discontinued operations, net of income tax
—

 
—

 
—

 
0.04

Net income (loss)
$
0.09

 
$
(0.37
)
 
$
0.48

 
$
(0.32
)

19.    OPERATIONS BY REPORTING SEGMENT

The Company operates with two end-customer focused business segments. The Powertrain segment focuses on original equipment products for automotive, heavy duty and industrial applications. The Motorparts segment sells and distributes a broad portfolio of products in the global aftermarket, while also serving original equipment manufacturers with products including braking, chassis, wipers, and other vehicle components. This organizational model allows for a strong product line focus benefitting both original equipment and aftermarket customers and enables the Company's global teams to be responsive to customers’ needs for superior products and to promote greater identification with the Company's premium brands. Additionally, this organizational model enhances management focus to capitalize on opportunities for organic or acquisition growth, profit improvement, resource utilization and business model optimization in line with the unique requirements of the two different customer bases.

26


Net sales, cost of products sold and gross profit information are as follows:
 
 
Three Months Ended September 30
 
 
Net Sales
 
Cost of Products Sold
 
Gross Profit
 
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Powertrain
 
$
1,089

 
$
1,079

 
$
(963
)
 
$
(955
)
 
$
126

 
$
124

Motorparts
 
797

 
817

 
(648
)
 
(678
)
 
149

 
139

Inter-segment eliminations
 
(61
)
 
(72
)
 
61

 
72

 
—

 
—

Total Reporting Segment
 
$
1,825

 
$
1,824

 
$
(1,550
)
 
$
(1,561
)
 
$
275

 
$
263

 
 
 
 
 
 
 
 
 
 
 
 
 
Inter-segment eliminations attributable to sales from Powertrain to Motorparts
 
$
54

 
$
64

 
 
 
 
 
 
 
 
Inter-segment eliminations attributable to sales from Motorparts to Powertrain
 
$
7

 
$
8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
Net Sales
 
Cost of Products Sold
 
Gross Profit
 
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Powertrain
 
$
3,389

 
$
3,384

 
$
(2,976
)
 
$
(2,978
)
 
$
413

 
$
406

Motorparts
 
2,446

 
2,461

 
(1,992
)
 
(2,063
)
 
454

 
398

Inter-segment eliminations
 
(189
)
 
(224
)
 
189

 
224

 
—

 
—

Total Reporting Segment
 
$
5,646

 
$
5,621

 
$
(4,779
)
 
$
(4,817
)
 
$
867

 
$
804

 
 
 
 
 
 
 
 
 
 
 
 
 
Inter-segment eliminations attributable to sales from Powertrain to Motorparts
 
$
163

 
$
197

 
 
 
 
 
 
 
 
Inter-segment eliminations attributable to sales from Motorparts to Powertrain
 
$
26

 
$
27

 
 
 
 
 
 
 
 


27

Operational EBITDA and the reconciliation to net income (loss) are as follows:
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2016
 
2015
 
2016
 
2015
Powertrain
$
104

 
$
97

 
$
358

 
$
323

Motorparts
69

 
59

 
204

 
157

Total Operational EBITDA
173

 
156

 
562

 
480

 
 
 
 
 
 
 
 
Items required to reconcile Operational EBITDA to EBITDA:
 
 
 
 
 
 
 
Restructuring charges and asset impairments (a)
(8
)
 
(24
)
 
(32
)
 
(67
)
Goodwill and intangible impairment expense, net
—

 
(56
)
 
(6
)
 
(50
)
Loss on sale of equity method investment
—

 
—

 
—

 
(11
)
Financing charges
(2
)
 
(3
)
 
(9
)
 
(7
)
Discontinued operations
—

 
—

 
—

 
7

Transaction related costs
(2
)
 
(1
)
 
(4
)
 
(7
)
Segmentation costs
—

 
(1
)
 
—

 
(3
)
Other (b)
(3
)
 
—

 
(8
)
 
(1
)
EBITDA
158

 
71

 
503

 
341

 
 
 
 
 
 
 
 
Items required to reconcile EBITDA to net income (loss):
 
 
 
 
 
 
 
Depreciation and amortization
(95
)
 
(88
)
 
(275
)
 
(254
)
Interest expense, net
(37
)
 
(36
)
 
(110
)
 
(103
)
Income tax (expense) benefit
(10
)
 
(9
)
 
(33
)
 
(32
)
Net income (loss)
$
16

 
$
(62
)
 
$
85

 
$
(48
)

 
Three Months Ended September 30
 
Nine Months Ended September 30
Footnotes:
2016
 
2015
 
2016
 
2015
(a) Restructuring charges and asset impairments, net:
 
Restructuring charges related to severance and other charges, net
$
(7
)
 
$
(18
)
 
$
(28
)
 
$
(58
)
Asset impairments, including impairments related to restructuring activities
(1
)
 
(6
)
 
(4
)
 
(9
)
Total restructuring charges
(8
)
 
(24
)
 
(32
)
 
(67
)
 
 
 
 
 
 
 
 
(b) Other reconciling items:
 
 
 
 
 
 
 
Non-service cost components associated with U.S. based funded pension plans
(3
)
 
1

 
(9
)
 
1

Stock appreciation rights
—

 
—

 
—

 
1

Other
—

 
(1
)
 
1

 
(3
)
Total other reconciling items
$
(3
)
 
$
—

 
$
(8
)
 
$
(1
)

Total assets are as follows:
 
 
September 30
 
December 31

 
2016

2015
Powertrain
 
$
4,132

 
$
3,997

Motorparts
 
3,013

 
3,141

Total Reporting Segment Assets
 
7,145

 
7,138

Corporate
 
172

 
90

Total Company Assets
 
$
7,317


$
7,228



28

20.     RELATED PARTY TRANSACTIONS

Insight Portfolio Group, LLC (“Insight”) is an entity formed and controlled by IEP in order to maximize the potential buying power of a group of entities with which IEP has a relationship in negotiating with a wide range of suppliers of goods, services, and tangible and intangible property at negotiated rates. The Company acquired a minority equity interest in Insight and agreed to pay a portion of Insight’s operating expenses beginning in 2013. In addition to the minority equity interest held by the Company, certain subsidiaries of IEP and other entities with which IEP has a relationship also acquired equity interests in Insight and also agreed to pay certain operating expenses.

The Company’s payments to Insight were less than $0.5 million for the nine months ended September 30, 2016 and 2015.

On June 1, 2015, IEP, the Company's parent, completed an acquisition of substantially all of the assets of Uni-Select USA, Inc. and Beck/Arnley Worldparts, Inc. comprising the U.S. automotive parts distribution of Uni-Select Inc ("Uni-Select"). Subsequent to the IEP acquisition of Uni-Select, Uni-Select changed its name to Auto Plus. Auto Plus is operated independently from the Company and transactions with Auto Plus are approved by the Company's audit committee in accordance with the Company's policy regarding related party transactions. In connection with IEP's acquisition of Auto Plus, Mr. Icahn resigned from the Company's board of directors and Daniel A. Ninivaggi, Co-Chief Executive Officer of the Company resigned from the board of directors of IEP.

Subsequent to the IEP acquisition of Auto Plus, the Company had $17 million of sales from the date of acquisition through September 30, 2015 to Auto Plus and $19 million of accounts receivable outstanding from Auto Plus as of September 30, 2015.
The Company had $13 million and $41 million of sales for the three and nine months ended September 30, 2016 to Auto Plus and $10 million of accounts receivable, net outstanding from Auto Plus as of September 30, 2016.

On February 3, 2016, IEP acquired a majority of the outstanding shares of Pep Boys - Manny, Moe & Jack ("Pep Boys"), a leading aftermarket provider of automotive service, tires, parts and accessories across the United States and Puerto Rico. On February 4, 2016, IEP completed the acquisition of the remaining outstanding shares of Pep Boys. The Company had $18 million and $20 million of sales for the three and nine months ended September 30, 2016 to Pep Boys and $19 million of accounts receivable, net outstanding from Pep Boys as of September 30, 2016.

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,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. The Company also, from time to time, may provide oral or written forward-looking statements in other materials released to the public. Such statements are made in good faith by 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.
All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on February 29, 2016, the Company's Amended Annual Reports on Form 10-K/A for the year ended December 31, 2015 filed on March 30, 2016, and April 29, 2016, and the Company’s quarterly reports for the quarters ended March 31, 2016 filed on April 27, 2016, and July 27, 2016 as well as the risks and uncertainties discussed elsewhere in the Annual Report and this report. Other factors besides those listed could also materially affect the Company’s business.


29

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References herein to the “Company,” “Federal-Mogul,” “we,” “us,” “our” refer to Federal-Mogul Holdings Corporation.

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.

Executive Overview

Our Business: We are a leading global supplier of a broad range of components, accessories, and systems to the automotive, small engine, heavy-duty, marine, railroad, agricultural, off-road, aerospace and energy, industrial, and transport markets, including customers in both the original equipment manufacturers (“OEM”) and servicers (“OES”) (collectively “OE”) market and the replacement market (“aftermarket”). Our customers include the world’s largest automotive OEs, and major distributors and retailers in the independent aftermarket. For a more detailed description of the Company’s business, products, industry, operating strategy and associated risks, refer to the Annual Report.

Proposed Merger Transaction:
On September 6, 2016, the Company, American Entertainment Properties Corp., a Delaware corporation (“AEP”), and IEH FM Holdings LLC, a Delaware limited liability company (“Merger Sub”) entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merger Sub commenced a cash tender offer (the "Offer) to acquire, subject to the terms and conditions of the Merger Agreement, all of the issued and outstanding shares of the Company’s common stock, par value $0.01 per share, not already owned by AEP, Merger Sub, the Company, and their respective affiliates, for a purchase price of $9.25 per share, net to the seller in cash, without interest, less any applicable tax withholding.

The Offer will expire at 12:00 midnight, New York City time, on October 28, 2016 (one minute after 11:59 P.M., New York City Time, on October 28, 2016), unless further extended. Complete terms and conditions of the Offer are set forth in AEP and Merger Sub's Offer to Purchase and Letter of Transmittal and the Company's Solicitation/Recommendation Statement on Schedule 14D-9 and other materials filed with the Securities and Exchange Commission on September 26, 2016, each as subsequently amended.

Financial Results for the Nine Months Ended September 30, 2016: Consolidated net sales were $5,646 million, an increase of $25 million, or 0.4% The increase was primarily driven by a 2.1% increase in sales volumes of $118 million (which included a $80 million benefit from acquisitions) and was substantially offset by an $80 million unfavorable effect of foreign currency exchange.

Cost of products sold was $4,779 million for the nine months ended September 30, 2016, a decrease of $38 million, or 0.8%. The decrease was primarily driven by $84 million of savings from net performance and a $72 million favorable effect of foreign currency exchange. This was partially offset by the $118 million in incremental costs related to higher sales volumes attributable to organic growth and acquisitions.

Gross profit increased by $63 million to $867 million, or 15.4% of sales, for the nine months ended September 30, 2016 compared to $804 million, or 14.3% of sales, for the nine months ended September 30, 2015. The increase was primarily driven by the favorable effects of performance of $71 million which was offset by the negative effects of foreign currency exchange of $8 million.

For the nine months ended September 30, 2016:
•
Net income attributable to Federal-Mogul was $81 million which included restructuring charges and asset impairments of $32 million, goodwill impairment charges of $6 million, and other income of $9 million (net of tax) related to the recognition of a gain on the sale of real estate made in a prior year.

•
Restructuring charges and asset impairments were comprised of $20 million related to the Powertrain segment and $12 million related to the Motorparts segment. The charge includes $28 million of costs related to severance and other charges, primarily focused on optimizing our cost structure. The charges include severance related costs and other charges of $18 million in EMEA, $6 million in North America, and $4 million in ROW. In addition, there was $4 million in asset impairments in EMEA for the Motorparts segment.


30

•
Total debt, including short-term debt and current portion of long-term debt, increased by $59 million. The increase was primarily attributable to net borrowings on the U.S. revolving line of credit of $50 million. These net borrowings contributed to the $136 million increase in cash during the nine months ended September 30, 2016. We had $330 million of cash, $173 million of availability under our U.S. credit facilities, and $37 million of availability under foreign credit facilities at September 30, 2016.

Recent Trends and Market Conditions:
There is inherent uncertainty in the continuation of the trends discussed below. In addition, there may be other factors or trends that can have an effect on our business. For example, the recent referendum in the United Kingdom ("UK") to leave the European Union has created economic uncertainty in both the UK and Europe. Our business and operating results are affected by the relative strength of:

General economic conditions: Our OE business is directly related to automotive sales and automotive vehicle production by our customers. Automotive sales depend on a number of factors, including global and regional economic conditions. Demand in our aftermarket business is driven by three primary factors including: the number of vehicles in operation, the average age of vehicles, and vehicle usage trends (primarily distance traveled).

Global vehicle production levels: Global light vehicle production increased by 3.2 percent for the first nine months of 2016. European light vehicle production rose 3.1 percent and North American light vehicle production also increased 3.1 percent, with positive growth in Canada and the United States. Light vehicle production in the Asia-Pacific region increased by 4.8 percent, with positive growth in China and India. Among the major regions, only South America posted a decline during the nine months ended September 30, 2016, down 17.9 percent.

Global commercial vehicle production increased by 3.5 percent in the first nine months of 2016. European commercial vehicle production rose 5.4 percent and the Asia-Pacific region rose 11.6 percent, with positive growth in China and India. South America posted a decline during the nine months ended September 30, 2016, down 22.7 percent. There was a 13.8 percent decrease in commercial vehicle production in our primary market of North America.
 
Global vehicle sales levels: Global light vehicle sales increased by 4.6 percent in the first nine months of 2016. European light vehicle sales rose 4.7 percent and North American vehicles sales increased 1.9 percent, with positive growth in Canada, Mexico, and the United States. Light vehicle sales in the Asia-Pacific region increased 8.0 percent, with positive growth in China and India. Among the major regions, only South America posted a decline during the nine months ended September 30, 2016, which was down 14.4 percent.

Global commercial vehicle sales were up 6.8 percent in the first nine months of 2016. European commercial vehicles sales rose 9.3 percent and the Asia-Pacific region was up 13.8 percent, with positive growth in China and India. South America posted a decline during the nine months ended September 30, 2016, down 25.4 percent. There was a 6.1 percent decrease in our primary market of North America.

Part replacement trends: The strength of our aftermarket business is influenced by several key drivers. These include the vehicle population (or "parc"), average vehicle age, fuel prices, and vehicle distance traveled. The vehicle parc is estimated to have expanded in most major markets, including the United States, China, and Germany.  Average vehicle ages also increased, despite growth in new vehicle sales, in most regions. Vehicle distance traveled varies by region and is sensitive to several factors, including fuel prices and transportation alternatives. Average vehicle distance traveled has declined in China in the recent past, partially offsetting generally favorable trends in the country.

Geopolitical risk: We conduct business globally, which subjects us to numerous risks and uncertainties. For example, we have operations in the UK which may be materially affected by the UK's possible withdrawal from the European Union. We also have an interest in a Turkish joint venture, which may be affected by recent turmoil in that region.

Foreign currencies: Given the global nature of our operations, we are subject to fluctuations in foreign exchange rates and there has been significant volatility in foreign currency rates.

Strategy:
Our strategy is to develop and deliver leading technology, innovation, and service capabilities which result in market share expansion in the OE market and aftermarket. Our strategy is designed to create sustainable global profitable growth by leveraging existing and developing new economic advantages. This strategy consists of the following:


31

Extending our global reach to support our OE and aftermarket customers, furthering our relationships with leading Asian OEs and strengthening market share with U.S. and European OEs.
Our company conducts business with the majority of OE/OES providers, as well as leading automotive aftermarket warehouse distributors and retailers, around the world. Within the highly competitive automotive parts industry, we enjoy and seek to extend the significant advantage that comes from our world-class manufacturing and global distribution footprint. This footprint enables the production and delivery of premium parts emphasizing quality, safety, and reliability virtually anywhere in the world and also supports the continual innovation of new products and technologies. During 2015, we acquired TRW’s valvetrain business, which adds a completely new product line to our product portfolio, and strengthens our position as a leading developer and supplier of core components for engines. In late 2015, we opened a new state-of-the-art wiper production facility in southeastern Romania serving both OE and aftermarket customers throughout Europe. We are in the process of expanding our braking production capacity in an existing braking plant in Romania and also investing in our manufacturing footprint in Mexico, Eastern Europe, and Africa.

Assess acquisition and investment opportunities that provide product line expansion, technological advancements, geographic positioning, penetration of emerging markets (including India and China) and market share growth.
In addition to the TRW valvetrain acquisition during 2015, we also made investments in joint ventures in India, as well as entered into two new joint ventures, one in Thailand and one in China focused on automotive aftermarket vehicle repair business. We will be the preferred supplier to the China joint venture and will provide our broad portfolio of premium-branded automotive parts for distribution through a network of repair shops. These investments position the company to capitalize on the development of the independent aftermarket in the Asia Pacific region.

On May 26, 2016, we completed the acquisition of a filter manufacturing business in Mexico, which primarily serves the Mexican market.

Leverage the strength of our global aftermarket leading brand positions, product portfolio and range, marketing and selling expertise, and distribution and logistics capabilities.
As we expand our distribution and service capabilities globally, we look to optimize the performance of our distribution centers (“DCs”) through enhanced efficiencies and the world-class delivery performance our customers increasingly require. We have made investments into our U.S. distribution network through our East and West coast distribution centers, and through the implementation of automated picking technology and a more efficient replenishment system with the objective of improving inventory availability and lowering costs. Recently, we made investments in our DC network in Belgium, China and announced plans to open a DC in Hungary during 2017.

During 2015, we executed on various marketing campaigns and significantly expanded the digital presence of our premium brands. We also launched a series of 'Tech First' initiatives to provide online, on-demand, and onsite technical training and support to vehicle repair technicians who use and install our products. This initiative included the opening of 'Garage Gurus,' a nationwide technical education network consisting of 12 technical support centers and a fleet of mobile training vans in major U.S. markets; a repair shop engagement program in France and Germany; and the opening of the Company’s first technical training and support center in China.

Aggressively pursue cost competitiveness in all business segments by continuing to drive productivity in existing operations, consolidating and relocating manufacturing operations to best cost countries, utilizing our strategic alliances, and rationalizing business resources and infrastructure.
We assess individual opportunities to execute our strategy based upon estimated sales and margin growth, cost reduction potential, internal investment returns, and other criteria, and make investment decisions on a case-by-case basis. Opportunities meeting or exceeding benchmark return criteria may be undertaken through research and development activities, acquisitions, and other strategic alliances, or restructuring activities. Restructuring expenses for the nine months ended September 30, 2016 primarily related to our Powertrain locations and were aimed at reducing production complexities, and reducing inefficiencies in indirect and fixed cost structures.


32

Consolidated Results – Three Months Ended September 30, 2016 vs. Three Months Ended September 30, 2015
 
 
Three Months Ended September 30
 
Favorable/ (unfavorable)
 
Nine Months Ended September 30
 
Favorable/ (unfavorable)
 
 
2016
 
2015
 
 
2016
 
2015
 
Consolidated Statement of Operations Data
 
(millions of dollars)
Net sales
 
$
1,825

 
$
1,824

 
$
1

 
$
5,646

 
$
5,621

 
$
25

Cost of products sold
 
(1,550
)
 
(1,561
)
 
11

 
(4,779
)
 
(4,817
)
 
38

Gross profit
 
275

 
263

 
12

 
867

 
804

 
63

Selling, general and administrative expenses
 
(203
)
 
(193
)
 
(10
)
 
(616
)
 
(596
)
 
(20
)
Goodwill and intangible impairment expense, net
 
—

 
(56
)
 
56

 
(6
)
 
(50
)
 
44

Restructuring charges and asset impairments, net
 
(8
)
 
(24
)
 
16

 
(32
)
 
(67
)
 
35

Amortization expense
 
(15
)
 
(16
)
 
1

 
(44
)
 
(45
)
 
1

Other income (expense), net
 
3

 
—

 
3

 
15

 
(3
)
 
18

Interest expense, net
 
(37
)
 
(36
)
 
(1
)
 
(110
)
 
(103
)
 
(7
)
Equity earnings of nonconsolidated affiliates
 
11

 
9

 
2

 
44

 
37

 
7

Income tax (expense) benefit
 
(10
)
 
(9
)
 
(1
)
 
(33
)
 
(32
)
 
(1
)
Net income (loss) from continuing operations
 
16

 
(62
)
 
78

 
85

 
(55
)
 
140

Gain from discontinued operations, net of income tax
 
—

 
—

 
—

 
—

 
7

 
(7
)
Net income (loss)
 
16

 
(62
)
 
78

 
85

 
(48
)
 
133

Net (income) attributable to noncontrolling interests
 
(1
)
 
(1
)
 
—

 
(4
)
 
(4
)
 
—

Net income (loss) attributable to Federal-Mogul
 
$
15

 
$
(63
)
 
$
78

 
$
81

 
$
(52
)
 
$
133


Comparison of Three and Nine Months Ended September 30, 2016 vs. Three and nine months ended September 30, 2015

Sales:
Three-months ended: Consolidated net sales increased by $1 million compared to the three months ended September 30, 2015. The increase was primarily driven by a 1.2% increase in sales volumes of $21 million (which included a $7 million benefit from acquisitions) and was substantially offset by a $13 million unfavorable effect of foreign currency exchange.

Nine-months ended: Consolidated net sales increased by $25 million, or 0.4%, compared to the nine months ended September 30, 2015. The increase was primarily driven by a 2.1% increase in sales volumes of $118 million (which included a $80 million benefit from acquisitions) and was substantially offset by an $80 million unfavorable effect of foreign currency exchange.

Cost of Sales:
Three-months ended: Cost of products sold decreased by $11 million compared to the three months ended September 30, 2015. The decrease was primarily driven by the $11 million favorable effect of foreign currency exchange and $24 million of savings from net performance. This was partially offset by $24 million in incremental costs related to higher sales volumes attributable to organic growth and acquisitions

Nine-months ended: Cost of products sold was $4,779 million for the nine months ended September 30, 2016, a decrease of $38 million, or 0.8%. The decrease was primarily driven by $84 million of savings from net performance and a $72 million favorable effect of foreign currency exchange. This was partially offset by the $118 million in incremental costs related to higher sales volumes attributable to organic growth and acquisitions.

Gross Profit:
Three-months ended: Gross profit as a percentage of sales, for the three months ended September 30, 2016 was 15.1% compared to 14.4% for the three months ended September 30, 2015. Gross profit increased by $12 million compared to the three months ended September 30, 2015. The increase was primarily driven by the favorable effects of performance of $17 million offset by the net effects of sales volumes and mix of $3 million and unfavorable effects of foreign currency of $2 million.

Nine-months ended: Gross profit as a percentage of sales, for the nine months ended September 30, 2016 was 15.4% compared to 14.3% for the nine months ended September 30, 2015. Gross profit increased by $63 million compared to the nine months

33

ended September 30, 2015. The increase was primarily driven by the favorable effects of performance of $71 million which was offset by the negative effects of foreign currency exchange of $8 million.

Selling, General and Administrative Expense:
Three-months ended: Selling, general and administrative expenses (“SG&A”) as a percentage of sales, was 11.1% for the three months ended September 30, 2016 as compared to 10.6% for the three months ended September 30, 2015. This increase of $10 million is primarily attributable to an increase in sales and marketing expenses of $3 million, an additional $1 million from acquisitions, and higher compensation, including pension costs, which were partially offset by favorable project costs of $2 million and foreign exchange of $1 million. SG&A includes research and development (“R&D”) costs, including product and validation costs, of $47 million for both the three months ended September 30, 2016 and 2015.

Nine-months ended: SG&A as a percentage of sales, was 10.9% for the nine months ended September 30, 2016 as compared to 10.6% for the nine months ended September 30, 2015. This increase of $20 million is primarily attributable to an increase in sales and marketing expenses of $8 million, an additional $3 million from acquisitions, a legal reserve of $3 million, and higher compensation costs, including pension costs, which were partially offset by favorable project costs of $3 million and foreign exchange of $7 million. SG&A includes R&D costs, including product and validation costs, of $146 million and $143 million for the nine months ended September 30, 2016 and 2015.

Goodwill and intangible impairment expense, net:
Three-months ended: Goodwill impairment charges decreased by $56 million during the three months ended September 30, 2016. For the three months ended September 30, 2015, an impairment of $56 million was recorded as a result of an interim analysis of impairment indicators in one of our reporting units.

Nine-months ended: Goodwill impairment charges decreased by $44 million during the nine months ended September 30, 2016. In 2016, an additional impairment charge of $6 million was recorded as a result of finalizing our 2015 year-end step two goodwill impairment test during the nine months ended September 30, 2016. In 2015, an impairment charge of $56 million was recorded as a result of an analysis on interim impairment indicators in one reporting unit, this was partially offset by a $6 million reduction to a previously recognized impairment charge as a result of the completion of our 2014 year-end step two goodwill analysis during the nine months ended September 30, 2015.

Restructuring charges and asset impairments:
Restructuring charges and asset impairments decreased by $16 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 and decreased by $35 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decreases are related to higher severance and other charges incurred in the three and nine months ended September 30, 2015, primarily related to our restructuring efforts in EMEA and ROW aimed at optimizing our cost structure.

Amortization expense:
Amortization expense decreased $1 million for both the three and nine months ended September 30, 2016 compared to the comparable periods in 2015.

Other Income (Expense), Net:
Three-months ended: Other income (expense), net increased by $3 million for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. The primary reason for the net increase is higher third party royalties of $1 million, and lower financings charges of $1 million during the three months ended September 30, 2016. In addition, we recognized $1 million in legal separation costs during the three months ended September 30, 2015.

Nine-months ended: Other income (expense), net increased by $18 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The primary reason for the net increase is the recognition of an $8 million gain (net of tax) on the sale of real estate, as compared to $4 million in the prior nine months ended September 30, 2015. In addition, we recognized a loss on disposition of an equity method investment of $11 million and legal separation costs of $3 million during the nine months ended September 30, 2015.

Interest Expense, Net:
Net interest expense increased $1 million and $7 million for the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015. This increase is primarily attributable to higher borrowings and interest rates under our revolving credit facilities.


34

Equity earnings of nonconsolidated affiliates:
Equity in earnings of nonconsolidated affiliates increased by $2 million and $7 million for the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015. The increase was primarily driven by the additional investment in one of our China joint ventures included in the results for three and nine months ended September 30, 2016.

Income tax (expense) / benefit:
Three-months ended: For the three months ended September 30, 2016, we recorded an income tax expense of $10 million on income from continuing operations before income taxes of $26 million, compared to income tax expense of $9 million on a loss from continuing operations before income taxes of $53 million for the three months ended September 30, 2015.

Nine-months ended: For the nine months ended September 30, 2016, we recorded an income tax expense of $33 million on income from continuing operations before income taxes of $118 million, compared to income tax expense of $32 million on a loss from continuing operations before income taxes of $23 million for the nine months ended September 30, 2015.


35

Reporting Segment Results – Three Months Ended September 30, 2016 vs. Three Months Ended September 30, 2015

2016 Sales Analysis:
 
Sales by Region:
 
Volume Increase (Decrease) by Region:
 
 
 
 
 
 
 
 
 
Excluding Acquisitions
 
Including Acquisitions
 
Powertrain
 
%
 
Motorparts
 
%
 
Powertrain
 
Motorparts
 
Powertrain
 
Motorparts
 
(millions of dollars)
 
(millions of dollars)
North America
$
390

 
36
%
 
$
432

 
54
%
 
$
2

 
$
(36
)
 
$
2

 
$
(30
)
EMEA
474

 
43
%
 
294

 
37
%
 
5

 
3

 
5

 
3

ROW
225

 
21
%
 
71

 
9
%
 
32

 
8

 
32

 
9

 
$
1,089

 
100
%
 
$
797

 
100
%
 
39

 
(25
)
 
39

 
(18
)

 
 
Powertrain
 
Motorparts
 
Inter-segment
Elimination
 
Total
Reporting
Segment
 
 
(millions of dollars)
2015 Sales
 
$
1,079

 
$
817

 
$
(72
)
 
$
1,824

External sales volumes
 
39

 
(25
)
 
—

 
14

Inter-segment sales volumes
 
(9
)
 
(2
)
 
11

 
—

Acquisitions
 
—

 
7

 
—

 
7

Other
 
(14
)
 
7

 
—

 
(7
)
Foreign currency
 
(6
)
 
(7
)
 
—

 
(13
)
2016 Sales
 
$
1,089

 
$
797

 
$
(61
)
 
$
1,825


Other: Primarily represents commercial actions and customer pricing.


2016 Cost of Products Sold Analysis:
 
 
Powertrain
 
Motorparts
 
Inter-segment
Elimination
 
Total
Reporting
Segment
 
 
(millions of dollars)
2015 Cost of Products Sold
 
$
(955
)
 
$
(678
)
 
$
72

 
$
(1,561
)
Sales volumes / mix
 
(27
)
 
14

 
(11
)
 
(24
)
Performance
 
11

 
13

 
—

 
24

Foreign currency
 
8

 
3

 
—

 
11

2016 Cost of Products Sold
 
$
(963
)
 
$
(648
)
 
$
61

 
$
(1,550
)

Sales Volumes: The increase is primarily due to the increase in sales in the Powertrain segment.

Performance: Performance includes the benefit of favorable material and service sourcing, and productivity.


36

2016 Gross Profit Analysis:
 
 
Powertrain
 
Motorparts
 
Inter-segment
Elimination
 
Total
Reporting
Segment
 
 
(millions of dollars)
2015 Gross Profit
 
$
124

 
$
139

 
$
—

 
$
263

Sales volumes/mix
 
3

 
(6
)
 
—

 
(3
)
Performance and other
 
(3
)
 
20

 
—

 
17

Foreign currency
 
2

 
(4
)
 
—

 
(2
)
2016 Gross Profit
 
$
126

 
$
149

 
$
—

 
$
275


2016 Operational EBITDA Analysis:
 
 
Powertrain
 
Motorparts
 
Inter-segment
Elimination
 
Total
Reporting
Segment
 
 
(millions of dollars)
2015 Operational EBITDA
 
$
97

 
$
59

 
$
—

 
$
156

Sales volumes / mix
 
2

 
(8
)
 
—

 
(6
)
Performance and other
 
7

 
21

 
—

 
28

Equity earnings in nonconsolidated affiliates
 
1

 
1

 
—

 
2

Increase in other costs
 
(2
)
 
(1
)
 
—

 
(3
)
Foreign currency
 
(1
)
 
(3
)
 
—

 
(4
)
2016 Operational EBITDA
 
$
104

 
$
69

 
$
—

 
$
173

 
 
 
 
 
 
 
 
 


37

Reconciliation of Operational EBITDA to Net Income (loss):
 
 
Three Months Ended September 30
 
 
2016
 
2015
 
 
(millions of dollars)
Powertrain
 
$
104

 
$
97

Motorparts
 
69

 
59

Total Operational EBITDA
 
173

 
156

 
 
 
 
 
Items required to reconcile Operational EBITDA to EBITDA:
 
 
 
 
Restructuring charges and asset impairments (a)
 
(8
)
 
(24
)
Goodwill and intangible impairment expense, net
 
—

 
(56
)
Financing charges
 
(2
)
 
(3
)
Discontinued operations
 
—

 
—

Transaction related costs
 
(2
)
 
(1
)
Segmentation costs
 
—

 
(1
)
Other (b)
 
(3
)
 
—

EBITDA
 
158

 
71

 
 
 
 
 
Items required to reconcile EBITDA to net income (loss):
 
 
 
 
Depreciation and amortization
 
(95
)
 
(88
)
Interest expense, net
 
(37
)
 
(36
)
Income tax (expense) benefit
 
(10
)
 
(9
)
Net income (loss)
 
$
16

 
$
(62
)
 
 
Three Months Ended September 30
Footnotes:
 
2016
 
2015
(a) Restructuring charges and asset impairments, net:
 
(millions of dollars)
Restructuring charges related to severance and other charges, net
 
$
(7
)
 
$
(18
)
Asset impairments, including impairments related to restructuring activities
 
(1
)
 
(6
)
Total Restructuring charges
 
(8
)
 
(24
)
 
 
 
 
 
(b) Other reconciling items:
 
 
 
 
Non-service cost components associated with U.S. based funded pension plans
 
(3
)
 
1

Other
 
—

 
(1
)
Total other reconciling items
 
$
(3
)
 
$
—




38


Reporting Segment Results – Nine Months Ended September 30, 2016 vs. Nine Months Ended September 30, 2015

2016 Sales Analysis:
 
Sales by Region:
 
Volume Increase (Decrease) by Region:
 
 
 
 
 
 
 
 
 
Excluding Acquisitions
 
Including Acquisitions
 
Powertrain
 
%
 
Motorparts
 
%
 
Powertrain
 
Motorparts
 
Powertrain
 
Motorparts
 
(millions of dollars)
 
(millions of dollars)
North America
$
1,203

 
36
%
 
$
1,371

 
56
%
 
$
(5
)
 
$
(22
)
 
$
36

 
$
(14
)
EMEA
1,536

 
45
%
 
875

 
36
%
 
8

 
(9
)
 
26

 
(9
)
ROW
650

 
19
%
 
200

 
8
%
 
47

 
19

 
59

 
20

 
$
3,389

 
100
%
 
$
2,446

 
100
%
 
50

 
(12
)
 
121

 
(3
)

 
 
Powertrain
 
Motorparts
 
Inter-segment
Elimination
 
Total
Reporting
Segment
 
 
(millions of dollars)
2015 Sales
 
$
3,384

 
$
2,461

 
$
(224
)
 
$
5,621

External sales volumes
 
50

 
(12
)
 
—

 
38

Inter-segment sales volumes
 
(33
)
 
(2
)
 
35

 
—

Acquisitions
 
71

 
9

 
—

 
80

Other
 
(40
)
 
27

 
—

 
(13
)
Foreign currency
 
(43
)
 
(37
)
 
—

 
(80
)
2016 Sales
 
$
3,389

 
$
2,446

 
$
(189
)
 
$
5,646


Other: Primarily represents commercial actions and customer pricing.

2016 Cost of Products Sold Analysis:
 
 
Powertrain
 
Motorparts
 
Inter-segment
Elimination
 
Total
Reporting
Segment
 
 
(millions of dollars)
2015 Cost of Products Sold
 
$
(2,978
)
 
$
(2,063
)
 
$
224

 
$
(4,817
)
Sales volumes / mix
 
(88
)
 
5

 
(35
)
 
(118
)
Performance
 
44

 
40

 
—

 
84

Foreign currency
 
46

 
26

 
—

 
72

2016 Cost of Products Sold
 
$
(2,976
)
 
$
(1,992
)
 
$
189

 
$
(4,779
)

Sales Volumes: The increase is primarily due to the increase in external sales and sales attributable to acquisitions in the Powertrain segment.

Performance: Performance includes the benefit of favorable material and service sourcing, and productivity.











39

2016 Gross Profit Analysis:
 
 
Powertrain
 
Motorparts
 
Inter-segment
Elimination
 
Total
Reporting
Segment
 
 
(millions of dollars)
2015 Gross Profit
 
$
406

 
$
398

 
$
—

 
$
804

Sales volumes/mix
 
—

 
—

 
—

 
—

Performance and other
 
4

 
67

 
—

 
71

Foreign currency
 
3

 
(11
)
 
—

 
(8
)
2016 Gross Profit
 
$
413

 
$
454

 
$
—

 
$
867


2016 Operational EBITDA Analysis:
 
 
Powertrain
 
Motorparts
 
Inter-segment
Elimination
 
Total
Reporting
Segment
 
 
(millions of dollars)
2015 Operational EBITDA
 
$
323

 
$
157

 
$
—

 
$
480

Sales volumes / mix
 
4

 
(2
)
 
—

 
2

Performance and other
 
23

 
69

 
—

 
92

Equity earnings in nonconsolidated affiliates
 
5

 
2

 
—

 
7

Increase in other costs
 
3

 
(14
)
 
—

 
(11
)
Foreign currency
 
—

 
(8
)
 
—

 
(8
)
2016 Operational EBITDA
 
$
358

 
$
204

 
$
—

 
$
562

 
 
 
 
 
 
 
 
 


40

Reconciliation of Operational EBITDA to Net Income (loss):
 
 
Nine Months Ended September 30
 
 
2016
 
2015
 
 
(millions of dollars)
Powertrain
 
$
358

 
$
323

Motorparts
 
204

 
157

Total Operational EBITDA
 
562

 
480

 
 
 
 
 
Items required to reconcile Operational EBITDA to EBITDA:
 
 
 
 
Restructuring charges and asset impairments (a)
 
(32
)
 
(67
)
Goodwill and intangible impairment expense, net
 
(6
)
 
(50
)
Loss on sale of equity method investment
 
—

 
(11
)
Financing charges
 
(9
)
 
(7
)
Discontinued operations
 
—

 
7

Transaction related costs
 
(4
)
 
(7
)
Segmentation costs
 
—

 
(3
)
Other (b)
 
(8
)
 
(1
)
EBITDA
 
503

 
341

 
 
 
 
 
Items required to reconcile EBITDA to net income (loss):
 
 
 
 
Depreciation and amortization
 
(275
)
 
(254
)
Interest expense, net
 
(110
)
 
(103
)
Income tax (expense) benefit
 
(33
)
 
(32
)
Net income (loss)
 
$
85

 
$
(48
)
 
 
Nine Months Ended September 30
Footnotes:
 
2016
 
2015
(a) Restructuring charges and asset impairments, net:
 
(millions of dollars)
Restructuring charges related to severance and other charges, net
 
$
(28
)
 
$
(58
)
Asset impairments, including impairments related to restructuring activities
 
(4
)
 
(9
)
Total Restructuring charges
 
(32
)
 
(67
)
 
 
 
 
 
(b) Other reconciling items:
 
 
 
 
Non-service cost components associated with U.S. based funded pension plans
 
(9
)
 
1

Stock appreciation rights
 
—

 
1

Other
 
1

 
(3
)
Total other reconciling items
 
$
(8
)
 
$
(1
)


41

Liquidity and Capital Resources

Operating Activities
As summarized in the table below, net cash provided from (used by) operating activities was $394 million and $(25) million for the nine months ended September 30, 2016 and 2015:
 
 
Nine Months Ended
 
 
September 30
 
 
2016
 
2015
 
 
(millions of dollars)
Operational cash flow before changes in operating assets and liabilities
 
$
357

 
$
179

 
 
 
 
 
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
45

 
(80
)
Inventories
 
20

 
(175
)
Accounts payable
 
8

 
40

Other assets and liabilities
 
(36
)
 
11

Total change in operating assets and liabilities
 
37

 
(204
)
Net Cash Provided From (Used by) Operating Activities
 
$
394

 
$
(25
)

Cash provided by operations for the nine months ended September 30, 2016 increased by $419 million compared to the nine months ended September 30, 2015. The increase was primarily the result of:
•
a reduction in cash contributions to our pension plans and cash payments for restructuring activities;
•
an increase in cash dividends from our nonconsolidated affiliates;
•
a reduction in inventory in the nine months ended September 30, 2016 versus a build of inventory in the nine months ended September 30, 2015 driven by the integration of acquisitions and the additional investment related to the realignment of our North American distribution network during the prior period in the Motorparts segment;
•
an increase in factored receivables activity in the nine months ended September 30, 2016 versus the nine months ended September 30, 2015; and
•
normalized working capital requirements as compared to the prior year when additional working capital was required to support the acquisition of the TRW valvetrain business in the Powertrain segment.

Investing Activities
As summarized in the table below, net cash provided from (used by) investing activities for the nine months ended September 30, 2016 and 2015:
 
 
Nine Months Ended September 30
 
 
2016
 
2015
 
 
(millions of dollars)
Expenditures for property, plant and equipment
 
$
(283
)
 
$
(326
)
Payments to acquire businesses, net of cash acquired
 
(24
)
 
(365
)
Net proceeds from sale of equity method investment
 
—

 
15

Net proceeds from sales of property, plant and equipment
 
12

 
8

Transfer of cash balances upon disposition of operations held for sale
 
(12
)
 
—

Net proceeds from sale of shares in consolidated subsidiary
 
2

 
—

Capital investment in nonconsolidated affiliates
 
(1
)
 
—

Net Cash Provided From (Used By) Investing Activities
 
$
(306
)
 
$
(668
)

Capital expenditures were $283 million and $326 million for the nine months ended September 30, 2016 and 2015. These capital expenditures were primarily related to investing in new facilities, upgrading existing products, continuing new product launches, and infrastructure and equipment at our facilities to support our manufacturing, distribution and cost reduction efforts. We expect to spend between $390 million and $425 million on capital expenditures during 2016, depending on timing of expenditures, as we continue to invest in our strategic priorities and growth. During the nine months ended September 30,

42

2016, we completed two acquisitions resulting in cash outflow of $24 million, primarily attributable to the filters manufacturing business in Mexico. In addition, we sold a disposal group that was classified as operations held for sale at December 31, 2015 resulting in a cash outflow of $12 million.

The nine months ended September 30, 2015 included a payment of $365 million, net of acquired cash, to acquire certain assets of the TRW valvetrain business and proceeds from the sale of an equity method investment of $15 million.

Financing Activities
Cash flow provided from (used by) financing activities for the nine months ended September 30, 2016 and 2015:
 
 
Nine Months Ended September 30
 
 
2016
 
2015
 
 
(millions of dollars)
Proceeds from equity rights offering, net of related fees
 
$
—

 
$
250

Proceeds from draws on revolving lines of credit
 
350

 
543

Payment on revolving lines of credit
 
(272
)
 
(208
)
Proceeds from term loans, net of original issue discount
 
54

 
—

Principal payments on term loans
 
(74
)
 
(20
)
Decrease in other long-term debt
 
—

 
(3
)
Increase (decrease) in short-term debt
 
1

 
19

Net proceeds (remittances) on servicing of factoring arrangements
 
—

 
(2
)
Net cash provided from (used by) financing activities
 
$
59

 
$
579


For the nine months ended September 30, 2016, cash flow provided by financing activities was $59 million. This included net borrowings under revolving lines of credit of $78 million, and net repayments under term loans of $20 million.

For the nine months ended September 30, 2015, cash flow provided by financing activities was $579 million. This included $335 million of net borrowings on the revolving line of credit primarily for the acquisition of the TRW valvetrain business. In addition, it included a $250 million cash inflow associated with a common stock rights offering in which approximately 19 million shares of our common stock were issued in March 2015.

Liquidity
The following table summarizes our available liquidity:
 
 
September 30
 
 
2016
 
 
(millions of dollars)
Cash and cash equivalents
 
$
330

Available under U.S. credit facilities
 
$
173

Available under foreign credit facilities
 
$
37


Off Balance Sheet Arrangements
The Company does not have any material off-balance sheet arrangements other than described below.

Other Liquidity and Capital Resource Items
Our subsidiaries in Brazil, France, Germany, Italy, Canada, and the United States are party to accounts receivable factoring and securitization facilities. For additional detailed information, refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the condensed consolidated financial statements.

Litigation and Environmental Contingencies
For a summary of material litigation and environmental contingencies, refer to Note 15, Commitments and Contingencies, of the condensed consolidated financial statements.


43

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the information concerning the Company’s exposures to market risk as stated in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on February 29, 2016 and the Company's Amended Annual Report on Form 10-K/A for the year ended December 31, 2015 filed on March 30, 2016 and April 29, 2016. Refer to Note 7, Derivatives and Hedging Activities, to the consolidated financial statements for information with respect to interest rate risk, commodity price risk and foreign currency risk.
The translated values of revenue and expense from the Company’s international operations are subject to fluctuations due to changes in currency exchange rates. During the nine months ended September 30, 2016, the Company derived 37% of its sales in the United States and 63% internationally. Of these international sales, 54% are denominated in the euro, with no other single currency representing more than 10%. To minimize foreign currency risk, the Company generally maintains natural hedges within its non-U.S. activities, including the matching of operational revenues and costs. Where natural hedges are not in place, the Company may manage certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
Our Co-Chief Executive Officers and Chief Financial Officer, based on their evaluation of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of September 30, 2016, had concluded the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and is accumulated and communicated to the Company's management to allow timely decisions regarding required disclosure.

Changes to Internal Control Over Financial Reporting
As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2015 filed on February 29, 2016, management had then concluded that there was a material weakness in internal controls over financial reporting related to the operating effectiveness of information technology (IT) general controls. More specifically, the Company was not consistently following its processes and procedures during 2015 to execute and monitor change management controls or to restrict or monitor access to certain of its IT systems. These processes and procedures are intended to ensure that access to financial applications and data is adequately restricted to appropriate personnel and that all changes affecting the financial applications and underlying account records are identified, authorized, tested and implemented appropriately.

The Company evaluated the material weakness and developed a plan of remediation to strengthen our information technology general controls. The remediation plan included improving the design and operation of control activities and procedures associated with user and administrator access and implementing appropriate program change management control activities to the affected IT systems; including both preventive and detective control activities. As of March 31, 2016, the Company concluded these remediation efforts represent significant improvements to our internal control over financial reporting.

Based upon the actions taken, management believes the condensed consolidated financial statements included in this filing are fairly stated in all material respects. The Company will continue to monitor the effectiveness of its internal control over financial reporting, particularly as it relates to IT general controls, and will take further actions as deemed appropriate.

There were no changes in internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




44

PART II
OTHER INFORMATION
 
ITEM 1.
LEGAL PROCEEDINGS
(a)
Contingencies.
Note 15, Commitments and Contingencies, that is included in Part I of this report, is incorporated herein by reference.

ITEM 1A.
RISK FACTORS

The Company faces a variety of risks that are inherent in its business and its industry, including operational, legal, regulatory, and product risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations, and historical trends. Except for the risks described below, there have been no material changes from the risk factors disclosed in Part I, Item 1.A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015.

Consolidation, increased market power, and potential conflicts with the Company’s independent aftermarket customers could negatively affect the Company’s financial performance: The Company’s independent aftermarket customers are continuing to consolidate and gain purchasing power and the ability to demand extended payment terms and other pricing concessions. If these trends continue, the financial results of the Company’s Motorparts business segment could be negatively affected. In addition, certain of the Company’s strategic initiatives, including the Company’s strategy of supporting its branded products, strategy of supporting new distribution channels and enhancing its distribution and category management capabilities, or the Company’s strategic affiliation with certain competitors, may not align with the interest of customers.  As a result, aftermarket customers may reduce their business with the Company based on perceived channel conflict.

The Company's operations in foreign countries expose the Company to risks related to economic and political conditions and foreign currency fluctuations: As a global business operating in a time of increasing global economic and political instability, we are exposed to global market risks, the consequences of which cannot always be anticipated or quantified.  One example is the recent decision of voters in the United Kingdom to withdraw from the European Union (referred to as “Brexit”). While any ultimate effects of Brexit on the Company are difficult to predict (particularly given the potentially lengthy negotiation period to accomplish a formal withdrawal), because we currently conduct business in the United Kingdom and in Europe, the results of the referendum and any eventual withdrawal could cause disruptions and create uncertainty for our businesses, including affecting our relationships with our customers and suppliers, and could also alter the relationship among currencies, including the value of the British Pound relative to the US Dollar. Such disruptions and uncertainties could adversely affect our financial condition, operating results and cash flows. Any ultimate effects of Brexit on the Company will also depend on whether the UK negotiates to retain access to European Union markets either during a transitional period or more permanently.  The failed coup attempt in Turkey, a country in which the Company has various ownership and economic interests, is another example of a recent global political development for which any potential consequences for the Company are uncertain.  These and other developments may increase volatility in the results our operations and may adversely affect our financial condition.

ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.


45

ITEM 5. OTHER INFORMATION

The Company previously advised it was negotiating for the acquisition of the Beck Arnley tradename and related assets and operations from IEH BA LLC, an entity controlled by IEP, for an estimated purchase price of $18 million. As part of a supply agreement to be executed at closing, IEH Auto Parts LLC, also an entity controlled by IEP, would agree to continue to purchase Beck Arnley products from a subsidiary of the Company after closing. Negotiations between the Company and IEH BA LLC are on-going.

On April 22, 2016, the Company’s subsidiary Federal-Mogul Motorparts Corporation (“Motorparts”) filed a lawsuit against Genuine Parts Company and UAP Inc. (collectively, “NAPA”) in state court in Michigan alleging that NAPA had breached certain terms of its supply agreement with Motorparts. The amount in dispute is not expected to be material to the financial condition or results of operations of the Company.


46

ITEM 6.
EXHIBITS
(a)
Exhibits:
 
 
 
 
 
 
 
2.1
 
Agreement and Plan of Merger, dated as of September 6, 2016, by and among Federal-Mogul Holdings Corporation, American Entertainment Properties Corp. and IEH FM Holdings LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 6, 2016 as filed with the Securities and Exchange Commission on September 7, 2016).

 
 
 
 
 
*
 
31.1

Certification by Daniel A. Ninivaggi, Co-Chief Executive Officer, Federal-Mogul Holdings Corporation, and Chief Executive Officer, Motorparts, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
 
 



*
 
31.2

Certification by Rainer Jueckstock, Co-Chief Executive Officer, Federal-Mogul Holdings Corporation, and Chief Executive Officer, Powertrain, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
 
 



*
 
31.3

Certification by Jérôme Rouquet, Chief Financial Officer, Federal-Mogul Holdings Corporation, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
 
 



*
 
32

Certification by the Company’s Co-Chief Executive Officers and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, and Rule 13a-14(b) of the Securities Exchange Act of 1934.
 
 



*
 
101.INS

XBRL Instance Document
 
 
 
 
 
*
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
*
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
*
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
*
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
*
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
*
 
Filed Herewith


47

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 HOLDINGS CORPORATION
 
By:
/s/ Jérôme Rouquet
 
 
 
Jérôme Rouquet
 
Senior Vice President and Chief Financial Officer
 
Principal Financial Officer
 
 
By:
/s/ John S. Patouhas
 
 
 
John S. Patouhas
 
Vice President and Chief Accounting Officer
 
Principal Accounting Officer
Dated: October 26, 2016

48

Federal-Mogul Holdings LLC Reports