|
|
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,
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,
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
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.
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.
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
|
|
|
|
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.
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
|
|
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.
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.
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
|
|
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.
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
|
|
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.
|
|
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
.
|
|
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.
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
|
|
|
|
|
|
|
|
|
|
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
|
|
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.