NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions, except per share amounts)
1.
DESCRIPTION OF BUSINESS
Federal-Mogul Holdings LLC is a limited liability company formed under the laws of Delaware. On February 14, 2017, Federal-Mogul Holdings Corporation was converted to a single member limited liability company in the U.S. and changed its name to Federal-Mogul Holdings LLC. References herein to the “Company” and “Federal-Mogul” refer to Federal-Mogul Holdings LLC for the period after the effective date of the conversion on February 14, 2017, Federal-Mogul Holdings Corporation for the period after the effective date of the Reorganization (subsequently defined below) on April 15, 2014, and Federal-Mogul Corporation for the period prior to the effective date of the Reorganization on April 15, 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.
Holding Company Reorganization:
On April 15, 2014, Federal-Mogul Corporation completed a holding company reorganization (the “Reorganization”). As a result of the Reorganization, the outstanding shares of Federal-Mogul Corporation common stock were automatically converted on a one-for-one basis into shares of Federal-Mogul Holdings Corporation common stock, and all of the stockholders of Federal-Mogul Corporation immediately prior to the Reorganization automatically became stockholders of Federal-Mogul Holdings Corporation. The rights of stockholders of Federal-Mogul Holdings Corporation were generally governed by Delaware law and Federal-Mogul Holdings Corporation's certificate of incorporation and bylaws, which were the same in all material respects as those of Federal-Mogul Corporation immediately prior to the Reorganization. In addition, the board of directors of Federal-Mogul Holdings Corporation and its Audit Committee and Compensation Committee were composed of the same members as the board of directors, Audit Committee, and Compensation Committee of Federal-Mogul Corporation prior to the Reorganization.
Merger Transaction:
On September 6, 2016, the Company, American Entertainment Properties Corp., a Delaware corporation (“AEP”), the Company's parent and a subsidiary of Icahn Enterprises L.P. ("IEP"), 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 IEP affiliates, for a purchase price of
$9.25
per share, net to the seller in cash, without interest, less any applicable tax withholding.
On January 3, 2017, the Company announced it had received a revised proposal to purchase shares of the Company’s common stock for
$10.00
per share, an increase from the previous offer of
$9.25
in cash per share. On January 23, 2017, AEP and Merger Sub completed the acquisition of the Company as all terms and conditions of the merger as set forth in the Merger Agreement were satisfied. Shares of the Company's stock are no longer publicly traded as of the close of business January 23, 2017.
Spinoff:
On January 15, 2016, the Company announced it terminated the previously announced spin-off of its Motorparts division. The Company will continue to operate with two separate, independent businesses with separate CEOs who will each report directly the Company's board of directors. The separate businesses more effectively serve their unique markets and allow each operating business to pursue its business strategy and more quickly react to its respective market conditions.
Controlling Ownership:
As of
December 31, 2016
, Mr. Carl C. Icahn indirectly controlled approximately
81.99%
of the voting power of the Company’s capital stock and, by virtue of such stock ownership, is able to control or exert substantial influence over the Company, including the election of directors, business strategy and policies, mergers or other business combinations, acquisition or disposition of assets, future issuances of common stock or other securities, incurrence of debt or obtaining other sources of financing, and the payment of dividends on the Company’s common stock. The existence of a controlling stockholder may have the effect of making it difficult for, or may discourage or delay, a third party from seeking to acquire a majority of the Company’s outstanding common stock, which may adversely affect the market price of the stock.
Mr. Icahn’s interests may not always be consistent with the Company’s interests or with the interests of the Company’s other stockholders. Mr. Icahn and entities controlled by him may also pursue acquisitions or business opportunities that may or may
not be complementary to the Company’s business. To the extent that conflicts of interest may arise between the Company and Mr. Icahn and his affiliates, those conflicts may be resolved in a manner adverse to the Company or its other shareholders. As a result of the Merger Transaction and subsequent conversion, the entity indirectly owned and controlled by Mr. Icahn became the sole member of the limited liability company.
Deconsolidations:
In 2012, the Company began exiting substantially all its activities in Venezuela with only residual cash and de minimis administrative costs remaining in 2014. In the fourth quarter of 2014, the Company concluded the inability to freely exchange currency between the Venezuelan bolivar currency and the U.S. dollar coupled with the significant government regulations and restrictions then in place severely limited its ability to manage and control its Venezuelan operations. As a result, the Company's Venezuelan subsidiary was deconsolidated as of December 31, 2014. The effect of the deconsolidation was a
$2 million
charge included in the results of operations for the year ended December 31, 2014. In 2016 and 2015, the Company had no operations in Venezuela.
2.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The audited Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Summary of Significant Accounting Policies
Principles of Consolidation:
The Company consolidates into its financial statements the accounts of the Company, all wholly-owned subsidiaries, and any partially-owned subsidiary the Company has the ability to control. Control generally equates to ownership percentage, whereby investments that are 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 12,
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 and are not special purpose entities. 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.
Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.
Cash and Equivalents:
The Company considers all highly liquid investments with maturities of
90
days or less from the date of purchase to be cash equivalents.
Concentrations of Credit Risk:
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable, cash investments and derivative instruments. 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 transactions help to mitigate credit risk concentration.
No
individual customer accounted for more than
10%
of the Company’s net sales for the years ended
December 31, 2016
,
2015
, and
2014
or accounts receivable as of
December 31, 2016
and
2015
. The Company requires placement of cash in financial institutions evaluated as highly creditworthy. See
Note 7,
Derivatives and Hedging Activities
for further discussion related to derivatives.
Divestitures
: In connection with its strategic planning process, the Company assesses its operations for market position, product technology and capability, and profitability. Those businesses determined by management not to have a sustainable competitive advantage are considered non-core and may be considered for divestiture or other exit activities.
Trade Accounts Receivable and Allowance for Doubtful Accounts:
Trade accounts receivable is stated at net realizable value, which approximates fair value. The Company does not generally require collateral for its trade accounts receivable. Accounts receivable is reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
based primarily on management’s evaluation of specific balances as the balances become past due, the financial condition of its customers, and the Company’s historical experience of write-offs. The Company’s general policy for uncollectible accounts, if not reserved through specific examination procedures, is to reserve based upon the aging categories of accounts receivable and whether amounts are due from an OE or aftermarket customer. Past due status is based upon the invoice date of the original amounts outstanding. Included in selling, general, and administrative (“SG&A”) expenses are bad debt expenses of
$5 million
,
$13 million
, and
$5 million
for the years ended
December 31, 2016
,
2015
, and
2014
. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company’s allowance for doubtful accounts was
$19 million
and
$27 million
as of
December 31, 2016
and
2015
.
Factoring of Accounts Receivable:
The Company has subsidiaries in Brazil, Canada, France, Germany, Italy and the U.S. which are party to accounts receivable factoring and securitization facilities. Amounts factored under these facilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31
|
|
|
2016
|
|
2015
|
Gross accounts receivable factored
|
|
$
|
487
|
|
|
$
|
408
|
|
Gross accounts receivable factored, qualifying as sales
|
|
$
|
485
|
|
|
$
|
401
|
|
Undrawn cash on factored accounts receivable
|
|
$
|
—
|
|
|
$
|
1
|
|
Proceeds from the factoring of accounts receivable qualifying as sales and expenses associated with the factoring of accounts receivable are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Proceeds from factoring qualifying as sales
|
|
$
|
1,616
|
|
|
$
|
1,550
|
|
|
$
|
1,679
|
|
Financing charges
(a)
|
|
$
|
(12
|
)
|
|
$
|
(9
|
)
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
(a)
Recorded in the consolidated statements of operations within "other income (expense), net."
|
Accounts receivables factored but not qualifying as a sale, as defined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 860,
Transfers and Servicing
, were pledged as collateral and accounted for as secured borrowings and recorded in the consolidated balance sheets within “Accounts receivable, net” and “Short-term debt, including the current portion of long-term debt.”
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.
Inventories:
The Company values inventory at the lower of cost or market, with cost determined on a first-in, first-out (“FIFO”) basis. Cost of inventory includes direct materials, labor, and applicable manufacturing overhead costs. The value of inventories are reduced for excess and obsolescence based on management’s review of on-hand inventories compared to historical and estimated future sales and usage. Inventory held at consignment locations is included in finished goods inventory as the Company retains full title and rights to the product.
Long-Lived Assets:
Long-lived assets such as property, plant, and equipment are recorded at fair value established at acquisition or cost unless the expected future use of the assets indicate a lower value is appropriate. Definite-lived intangible assets have been stated at fair value established at acquisition or at cost. Long-lived assets are periodically reviewed for impairment indicators. If impairment indicators exist, the Company performs the required analysis and records an impairment charge, if required, in accordance with the subsequent measurement provisions of ASC 360,
Property, Plant & Equipment
. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Depreciation and amortization are computed principally by the straight-line method for financial reporting purposes.
Goodwill:
Goodwill is determined as the excess of fair value over amounts attributable to specific tangible and intangible assets, including developed technology and customer relationships. Goodwill is reviewed for impairment annually as of October 1, or more frequently, if impairment indicators exist, in accordance with the subsequent measurement provisions of ASC Topic 350,
Intangibles – Goodwill and Other
. This impairment analysis compares the fair values of the Company’s reporting units to their related carrying values. If a reporting unit’s carrying value exceeds its fair value, the Company must
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
then calculate the reporting unit’s implied fair value of goodwill and an impairment charge is recorded for any excess of the goodwill carrying value over the implied fair value of goodwill. The reporting units’ fair values are based upon consideration of various valuation methodologies, including projected future cash flows discounted at rates commensurate with the risks involved, guideline transaction multiples, and multiples of current and future earnings.
Trademarks and Brand Names:
Trademarks and brand names are stated at fair value established at acquisition or cost. These indefinite-lived intangible assets are reviewed for impairment annually as of October 1, or more frequently, if impairment indicators exist, in accordance with the subsequent measurement provisions of ASC Topic 350,
Intangibles – Goodwill and Other
. This impairment analysis compares the fair values of these assets to the related carrying values, and impairment charges are recorded for any excess of carrying values over fair values. These fair values are based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets.
Pension and Other Postretirement Obligations:
The cost of benefits provided by defined benefit pension and postretirement plans is recorded in the period employees provide service. Future pension expense for certain significant funded benefit plans is calculated using an expected return on plan asset methodology. The market-related value of plan assets is fair value. Actuarial gains and losses are accumulated and amortized into net income once they exceed a corridor, which is
10%
of the projected benefit obligation, over the expected future working lifetime or life expectancy of the plan participants.
The discount rate assumption is established at the measurement date. In the U.S., the Company uses a cash flow matching approach that uses projected cash flows matched to spot rates along a high quality corporate yield curve to determine the present value of cash flows to calculate a single equivalent discount rate. The benefit obligation for pension plans in Belgium, France, and Germany represents
91%
of the non-U.S. pension benefit obligation at
December 31, 2016
. The discount rates for these plans are determined using a cash flow matching approach similar to the U.S. approach.
Investments with registered investment companies, common and preferred stocks, and certain government debt securities are valued at the closing price reported on the active market on which the securities are traded.
Corporate debt securities are valued by third-party pricing sources using the multi-dimensional relational model using instruments with similar characteristics.
Hedge funds and the collective trusts are valued at net asset value (NAV) per share which are provided by the respective investment sponsors or investment advisers.
Revenue Recognition:
The Company records sales when products are shipped and the risks and rewards of ownership have transferred to the customer, the sales price is fixed and determinable, and the collectability of revenue is reasonably assured. Accruals for sales returns and other allowances are provided at point of sale based upon past experience. Adjustments to such returns and allowances are made as new information becomes available.
Rebates:
The Company accrues for rebates pursuant to specific arrangements with certain customers, primarily in the aftermarket. Rebates generally provide for price reductions based upon the achievement of specified purchase volumes and are recorded as a reduction of sales as earned by such customers.
Sales and Sales Related Taxes:
The Company collects and remits taxes assessed by various governmental authorities that are both imposed on and concurrent with revenue-producing transactions with its customers. These taxes may include, but are not limited to, sales, use, value-added, and some excise taxes. The collection of these taxes is reported on a net basis (excluded from revenues).
Shipping and Handling Costs:
The Company recognizes shipping and handling costs as incurred as a component of "Cost of products sold" in the consolidated statements of operations.
Engineering and Tooling Costs:
Pre-production tooling and engineering costs the Company will not own and will be used in producing products under long-term supply arrangements are expensed as incurred unless the supply arrangement provides the Company with the noncancelable right to use the tools, or the reimbursement of such costs is agreed to by the customer. Pre-production tooling costs owned by the Company are capitalized as part of machinery and equipment, and are depreciated over the shorter of the tool’s expected life or the duration of the related program.
Research and Development:
The Company expenses research and development (“R&D”) costs as incurred. R&D expense, including product engineering and validation costs, was
$192 million
,
$189 million
, and
$192 million
for the years ended
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 2016
,
2015
, and
2014
. R&D expense is recorded in the consolidated statements of operations within “Selling, general and administrative expenses.”
Advertising Costs:
Advertising and promotion expenses for continuing operations are expensed as incurred and were
$57 million
,
$48 million
, and
$47 million
for the years ended
December 31, 2016
,
2015
, and
2014
. Advertising and promotion expenses are recorded in the consolidated statements of operations within “Selling, general and administrative expenses.”
Restructuring:
Restructuring is comprised of two types of costs: employee costs (principally termination benefits) and facility closure costs. Termination benefits are accounted for in accordance with ASC Topic 712,
Compensation – Nonretirement Postemployment Benefits
and are recorded when it is probable employees will be entitled to benefits and the amounts can be reasonably estimated. Estimates of termination benefits are based on the frequency of past termination benefits, the similarity of benefits under the current plan and prior plans, and the existence of statutory required minimum benefits. Termination benefits are also accounted for in accordance with ASC Topic 420,
Exit or Disposal Cost Obligations
(“ASC 420”), for one-time termination benefits and are recorded dependent upon future service requirements. Facility closure and other costs are accounted for in accordance with ASC 420 and are recorded when the liability is incurred.
Foreign Currency Translation:
Exchange adjustments related to foreign currency transactions and translation adjustments for foreign subsidiaries whose functional currency is the U.S. dollar (principally those located in highly inflationary economies) are reflected in the consolidated statements of operations. Translation adjustments of foreign subsidiaries for which the local currency is the functional currency are reflected in the consolidated balance sheets as a component of “Accumulated other comprehensive loss.” Deferred taxes are not provided on translation adjustments as the earnings of the subsidiaries are considered to be permanently reinvested.
Environmental Liabilities:
The Company recognizes environmental liabilities in accordance with ASC Topic 410,
Asset Retirement and Environmental Obligations
("ASC 410") when a loss is probable and reasonably estimable. Such liabilities are generally not subject to insurance coverage. Engineering and legal specialists within the Company estimate each environmental obligation based on current law and existing technologies. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties will be able to fulfill their commitments at the sites where the Company may be jointly and severally liable with such parties. The Company regularly evaluates and revises its estimates for environmental obligations based on expenditures against established accruals and the availability of additional information.
Asset Retirement Obligations
: The Company records asset retirement obligations (“ARO”) in accordance with ASC 410. The Company’s primary ARO activities relate to the removal of hazardous building materials at its facilities. The Company records AROs when liabilities are probable and amounts can be reasonably estimated.
Derivative Financial Instruments:
The Company uses commodity forward contracts to manage volatility of underlying exposures. The Company recognizes all of its derivative instruments as either assets or liabilities at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated, and is effective, as a hedge and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. Gains and losses related to a hedge are either recognized in income immediately to offset the gain or loss on the hedged item or are deferred and reported as a component of accumulated other comprehensive loss and subsequently recognized in earnings when the hedged item affects earnings. The change in fair value of the ineffective portion of a financial instrument, determined using the hypothetical derivative method, is recognized in earnings immediately. The gain or loss related to financial instruments not designated as hedges are recognized immediately in earnings. Cash flows related to hedging activities are included in the operating section of the consolidated statements of cash flows. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company’s objectives for holding derivatives are to minimize risks using the most effective and cost-efficient methods available.
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 Financial Statements is summarized below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Consolidated Balance Sheet
|
Prior Accounting Principles
|
|
Effect of Accounting Change
|
|
As Reported
|
Other noncurrent assets
|
$
|
190
|
|
|
(7
|
)
|
|
$
|
183
|
|
Long-term debt
|
$
|
2,890
|
|
|
(7
|
)
|
|
$
|
2,883
|
|
|
|
|
|
|
|
|
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
|
|
Adoption of New Accounting Standards
In 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires all deferred tax assets and liabilities, as well as related valuation allowances, to be classified as non-current rather than as current and non-current based on the classification of the related assets and liabilities. The Company adopted the provisions of this update in 2015. Accordingly,
$45 million
and
$16 million
of deferred taxes were reclassified from other current assets and other current liabilities, respectively to other long-term assets and other accrued liabilities in the accompanying consolidated balance sheet as of
December 31, 2015
.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-9,
Revenue from Contracts with Customers
, which supersedes the revenue recognition requirements in ASC 605,
Revenue Recognition
. This ASU clarifies the principles for recognizing revenue and provides a common revenue standard for U.S. GAAP and International Financial Reporting Standards and will require revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The FASB, through the issuance of ASU No. 2015-14, approved a one year delay of the effective date and the new standard is effective for reporting periods beginning after December 15, 2017 and can be applied retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with a cumulative effect adjustment to retained earnings for initial application of the guidance at the date of initial adoption (modified retrospective method). The Company continues to evaluate the effect of these accounting pronouncements on its financial statements and will adopt this new guidance on January 1, 2018 using the modified retrospective application method.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
. This ASU requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. ASU No. 2015-11 is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein, with early adoption permitted. The Company's adoption of this guidance will not have a material effect on its financial statements.
In September 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
. Under this ASU, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation or amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed as of the acquisition date, must be recorded in the reporting period in which the adjustment amounts are determined rather than retrospectively. This standard is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2016. Early adoption is permitted as of annual reporting periods beginning after December 15, 2015, including interim reporting periods within those annual periods. The Company expects the adoption of this guidance will not have a material effect on its financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. This ASU removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairments tests performed on testing dates after January 1, 2017. The Company anticipates early adoption of this ASU for goodwill impairment tests performed after January 1, 2017 and will adjust its goodwill testing procedures accordingly upon adoption.
3.
RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS
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 productivity improvements and net cost reductions. Restructuring activities include efforts to integrate and rationalize the Company’s businesses and to relocate operations to best cost 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 postretirement medical benefit obligations as a result of headcount reductions, and asset impairments related to restructuring activities.
For the years ended
December 31, 2016
,
2015
, and
2014
, restructuring charges and asset impairments,net include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Powertrain
|
Motorparts
|
Total
|
|
Powertrain
|
Motorparts
|
Total
|
|
Powertrain
|
Motorparts
|
Corporate
|
Total
|
Severance and other charges, net
|
|
$
|
(21
|
)
|
$
|
(6
|
)
|
$
|
(27
|
)
|
|
$
|
(33
|
)
|
$
|
(56
|
)
|
$
|
(89
|
)
|
|
$
|
(59
|
)
|
$
|
(26
|
)
|
$
|
(1
|
)
|
$
|
(86
|
)
|
Asset impairments related to restructuring activities
|
|
—
|
|
—
|
|
—
|
|
|
(1
|
)
|
(2
|
)
|
(3
|
)
|
|
(2
|
)
|
(1
|
)
|
—
|
|
(3
|
)
|
Total Restructuring charges
|
|
(21
|
)
|
(6
|
)
|
(27
|
)
|
|
(34
|
)
|
(58
|
)
|
(92
|
)
|
|
(61
|
)
|
(27
|
)
|
(1
|
)
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other asset impairments
|
|
—
|
|
—
|
|
—
|
|
|
(16
|
)
|
(1
|
)
|
(17
|
)
|
|
(5
|
)
|
(11
|
)
|
—
|
|
(16
|
)
|
Impairment of assets held for sale
|
|
—
|
|
(17
|
)
|
(17
|
)
|
|
(12
|
)
|
—
|
|
(12
|
)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Impairment of nonconsolidated affiliate
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
(5
|
)
|
—
|
|
(5
|
)
|
Total asset impairment charges
|
|
—
|
|
(17
|
)
|
(17
|
)
|
|
(28
|
)
|
(1
|
)
|
(29
|
)
|
|
(5
|
)
|
(16
|
)
|
—
|
|
(21
|
)
|
Total restructuring charges and asset impairments
|
|
$
|
(21
|
)
|
$
|
(23
|
)
|
$
|
(44
|
)
|
|
$
|
(62
|
)
|
$
|
(59
|
)
|
$
|
(121
|
)
|
|
$
|
(66
|
)
|
$
|
(43
|
)
|
$
|
(1
|
)
|
$
|
(110
|
)
|
Restructuring
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 terminations and other activities have been substantially completed.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Restructuring opportunities include potential plant closures and employee headcount reductions in various countries and 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 facilities, subject to the terms of applicable covenants. Management does not expect the execution of these programs will have an adverse effect on its liquidity position.
The following table is a summary of the Company’s consolidated restructuring liabilities and related activity as of and for the years ended December 31,
2016
,
2015
, and
2014
by reporting segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain
|
|
Motorparts
|
|
Total
Reporting
Segment
|
|
Corporate
|
|
Total
Company
|
Balance at December 31, 2013
|
|
$
|
8
|
|
|
$
|
14
|
|
|
$
|
22
|
|
|
$
|
2
|
|
|
$
|
24
|
|
Provisions
|
|
59
|
|
|
27
|
|
|
86
|
|
|
1
|
|
|
87
|
|
Reversals
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Payments
|
|
(27
|
)
|
|
(24
|
)
|
|
(51
|
)
|
|
(2
|
)
|
|
(53
|
)
|
Foreign currency
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Balance at December 31, 2014
|
|
36
|
|
|
16
|
|
|
52
|
|
|
1
|
|
|
53
|
|
Provisions
|
|
38
|
|
|
55
|
|
|
93
|
|
|
—
|
|
|
93
|
|
Reversals
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Payments
|
|
(35
|
)
|
|
(22
|
)
|
|
(57
|
)
|
|
(1
|
)
|
|
(58
|
)
|
Acquisition
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Foreign currency
|
|
(4
|
)
|
|
(2
|
)
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
Balance at December 31, 2015
|
|
33
|
|
|
47
|
|
|
80
|
|
|
—
|
|
|
80
|
|
Provisions
|
|
21
|
|
|
13
|
|
|
34
|
|
|
—
|
|
|
34
|
|
Reversals
|
|
—
|
|
|
(7
|
)
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
Payments
|
|
(26
|
)
|
|
(24
|
)
|
|
(50
|
)
|
|
|
|
|
(50
|
)
|
Foreign currency
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Balance at December 31, 2016
|
|
$
|
28
|
|
|
$
|
27
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
55
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table provides a summary of the Company’s consolidated restructuring liabilities and related activity for each type of exit cost as of and for the years ended December 31,
2016
,
2015
, and
2014
. As the table indicates, facility closure costs are typically paid within the year of incurrence.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Costs
|
|
Facility Closure and Other Costs
|
|
Total
|
Balance at December 31, 2013
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
24
|
|
Provisions
|
|
77
|
|
|
10
|
|
|
87
|
|
Reversals
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Payments
|
|
(45
|
)
|
|
(8
|
)
|
|
(53
|
)
|
Foreign Currency
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Balance at December 31, 2014
|
|
51
|
|
|
2
|
|
|
53
|
|
Provisions
|
|
85
|
|
|
8
|
|
|
93
|
|
Reversals
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Payments
|
|
(49
|
)
|
|
(9
|
)
|
|
(58
|
)
|
Acquisitions
|
|
2
|
|
|
—
|
|
|
2
|
|
Foreign Currency
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
Balance at December 31, 2015
|
|
79
|
|
|
1
|
|
|
80
|
|
Provisions
|
|
30
|
|
|
4
|
|
|
34
|
|
Reversals
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
Payments
|
|
(46
|
)
|
|
(4
|
)
|
|
(50
|
)
|
Acquisitions
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign Currency
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Balance at December 31, 2016
|
|
$
|
54
|
|
|
$
|
1
|
|
|
$
|
55
|
|
Restructuring charges and asset impairments for the year ended December 31, 2016 were comprised of
$21 million
related to the Powertrain segment and
$23 million
related to the Motorparts segment. The specific components of the restructuring and asset impairment charges by region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Severance Related Charges
|
|
Exit and Other Charges
|
|
Impairment Charges
|
|
Total Restructuring Charges
|
|
Motorparts
(a)
|
|
Powertrain
|
|
Motorparts
|
|
Powertrain
|
|
Motorparts
|
|
Powertrain
|
|
EMEA
|
$
|
1
|
|
|
$
|
(16
|
)
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(22
|
)
|
North America
|
(3
|
)
|
|
(2
|
)
|
|
(3
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(9
|
)
|
ROW
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(13
|
)
|
|
$
|
(2
|
)
|
|
$
|
(19
|
)
|
|
$
|
(4
|
)
|
|
$
|
(2
|
)
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
(44
|
)
|
(a)
The EMEA region in the Motorparts segment recognized $6 million in severance related charges offset by a reduction in previously recorded estimates of $7 million during the year ended December 31, 2016.
|
Restructuring expenses for the year ended December 31, 2016 are aimed at optimizing the Company's cost structure. The Company expects to complete these programs in 2017 and does not expect to incur additional restructuring charges for these programs. For programs previously initiated in prior years, the Company expects to complete the majority of these programs in 2018 and does not expect to incur additional restructuring charges for these programs
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Restructuring charges and asset impairments for the year ended December 31, 2015 were comprised of
$62 million
related to the Powertrain segment and
$59 million
related to the Motorparts segment. The specific components of the restructuring and asset impairment charges by region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Severance Related Charges
|
|
Exit and Other Charges
|
|
Impairment Charges
|
|
Total Restructuring Charges
|
|
Motorparts
|
|
Powertrain
|
|
Motorparts
|
|
Powertrain
|
|
Motorparts
|
|
Powertrain
|
|
EMEA
|
$
|
(45
|
)
|
|
$
|
(27
|
)
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
$
|
(20
|
)
|
|
$
|
(98
|
)
|
North America
|
(5
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(9
|
)
|
ROW
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(8
|
)
|
|
(14
|
)
|
|
$
|
(52
|
)
|
|
$
|
(29
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(3
|
)
|
|
$
|
(29
|
)
|
|
$
|
(121
|
)
|
Restructuring charges and asset impairments for the year ended December 31, 2014 were comprised of
$66 million
related to the Powertrain segment
$43 million
related to the Motorparts segment and
$1 million
in corporate charges. The specific components of the restructuring and asset impairment charges by region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Severance Related Charges
|
|
Exit and Other Charges
|
|
Impairment Charges
|
|
Total Restructuring Charges
(a)
|
|
Motorparts
|
|
Powertrain
|
|
Motorparts
|
|
Powertrain
|
|
Motorparts
|
|
Powertrain
|
|
EMEA
|
$
|
(15
|
)
|
|
$
|
(44
|
)
|
|
$
|
(2
|
)
|
|
$
|
(5
|
)
|
|
$
|
(14
|
)
|
|
$
|
(7
|
)
|
|
$
|
(87
|
)
|
North America
|
(7
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(14
|
)
|
ROW
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(8
|
)
|
|
$
|
(22
|
)
|
|
$
|
(53
|
)
|
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
|
$
|
(17
|
)
|
|
$
|
(7
|
)
|
|
$
|
(109
|
)
|
(a)
Corporate charges of $1 million are excluded from total restructuring charges in above table.
|
Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. Accordingly, the Company reduced its liability previously recorded in
2016
,
2015
, and 2014 by
$7 million
,
$4 million
, and
$1 million
.
See
Note 6,
Held for Sale and Discontinued Operations
,
for further details related to the
$17 million
impairment loss on assets held for sale.
See
Note 8,
Fair Value Measurements and Financial Instruments
, for further details related to property, plant, and equipment fair value measurements.
4.
OTHER INCOME (EXPENSE), NET
The specific components of “
Other income (expense), net
” are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Loss on sale of equity method investment
(a)
|
|
$
|
—
|
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
Segmentation costs
|
|
—
|
|
|
(4
|
)
|
|
(10
|
)
|
Gain (loss) on sale of assets
|
|
7
|
|
|
4
|
|
|
1
|
|
Foreign currency transaction gain (loss)
|
|
2
|
|
|
(3
|
)
|
|
(7
|
)
|
Financing charges
|
|
(12
|
)
|
|
(9
|
)
|
|
(6
|
)
|
Third party royalty income
|
|
7
|
|
|
6
|
|
|
7
|
|
Unrealized gain on hedge instruments
|
|
—
|
|
|
—
|
|
|
1
|
|
Other
|
|
17
|
|
|
12
|
|
|
3
|
|
|
|
$
|
21
|
|
|
$
|
(5
|
)
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
(a)
See Note 12,
Investment in Nonconsolidated Affiliates
, for further details.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In the year ended December 31, 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 year ended December 31, 2015, the Company recognized an
$11 million
loss on the disposition of an equity method investment.
5.
ACQUISITIONS
Beck Arnley Acquisition
On December 1, 2016, the Company acquired the assets and liabilities of IEH BA LLC ("Beck Arnley"), an entity owned by a subsidiary of IEP. Beck Arnley is a provider of premium OE quality parts and fluids for foreign nameplate vehicles in North America and was acquired for a purchase price of
$14 million
, which included
$7 million
paid in cash on the date of acquisition and a
$7 million
non-interest bearing note maturing on May 1, 2018. This related party note payable is included in "
Other accrued liabilities
" on the balance sheet. Beck Arnley’s products complement the foreign nameplate coverage of the Company's current aftermarket offerings, while adding several new product lines, including fluids, engine management, cooling, electrical parts, and electronic components. As this is a transaction of entities under common control, the net book value of assets acquired and liabilities assumed at the acquisition date was
$14 million
. See
Note 23,
Related Party Transactions
.
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 was approximately
$25 million
. The Company is in the process of finalizing certain post-closing adjustments which could affect the estimated fair value of assets acquired and liabilities assumed.
TRW’s Engine Components Acquisition
On February 6, 2015, the Company completed the acquisition of TRW’s valvetrain business. 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 included a
$25 million
noncontrolling interest related to a
66%
stake in a majority owned entity that the Company consolidates in its financial statements. The acquisition was funded primarily from the Company's available revolving line of credit and was 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 estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
|
|
|
Estimated Fair Value as of December 31, 2015
|
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 postretirement benefits
|
|
(46
|
)
|
Other net assets
|
|
1
|
|
Total identifiable net assets
|
|
$
|
390
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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.
As part of the acquisition, the Company recorded
$107 million
of definite-lived intangible assets, comprising of
$22 million
of developed technology and
$85 million
of customer relationships.
Proforma Results
The following proforma results for the year ended
December 31, 2015
assumes 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.
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2015
|
|
|
(unaudited)
|
Net sales
|
|
$
|
7,463
|
|
|
|
|
Net income (loss) attributable to Federal-Mogul
|
|
$
|
(110
|
)
|
|
|
|
Income (loss) per share attributable to Federal-Mogul - basic and diluted
|
|
$
|
(0.67
|
)
|
During the year ended December 31, 2016, the Company recorded
$1 million
of acquisition related expenses, primarily legal and other professional fees, associated with the acquisition of the filters manufacturing business in Mexico.
During the year ended December 31, 2015, the Company recorded
$4 million
in acquisition related expenses, primarily legal and other professional fees, associated with the acquisition of TRW’s valvetrain business.
During the year ended
December 31, 2014
, the Company recorded
$7 million
in transaction related expenses associated with business acquisitions. All of these transaction related expenses are recorded in "Selling, general, and administrative expenses" within the consolidated statement 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 it is unlikely significant changes to the plan will be made or the plan will be withdrawn.
The Company aggregates the assets and aggregate 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
$13 million
and liabilities of
$6 million
as held for sale, which have been included in "
Prepaid expenses and other current assets
" and "
Other current liabilities
" as of
December 31, 2016
. As part of the held for sale assessment, the Company determined these assets were in excess of fair market value and a
$14 million
impairment charge was recorded. In addition, the Company has record and additional
$3 million
of impairment charges for assets both held for sale and sold during the year ended
December 31, 2016
. Impairment charges related to held for sale assets have been included in
"Restructuring charges and asset impairments, net
" as of December 31, 2016.
In December 2016, the Company entered into an agreement to sell
80.1%
of the shares of one of its subsidiaries in Brazil in the Motorparts segment for a sale price of
one
Brazilian Real. The related assets and liabilities have been classified as held for sale as of December 31, 2016. The sale is expected to close in the second half of 2017.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In December 2016, the Company entered into stock and asset purchase agreement to sell certain assets and liabilities related to its wipers business in the Motorparts segment for a sale price of
$8 million
. The related assets and liabilities have been classified as held for sale as of December 31, 2016. The sale is expected to close in the first half of 2017.
During 2015, the Company entered into a share agreement to sell
100%
of the shares of one of its subsidiaries in the Powertrain segment and classified the assets and liabilities as held for sale. The sale price for the shares was
one
euro. Prior to December 31, 2015, the Company contributed
$12 million
in cash to the subsidiary. The sale closed on January 1, 2016.
The assets and liabilities that were classified as held for sale as of
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1
|
|
|
$
|
12
|
|
Receivables
|
|
4
|
|
|
1
|
|
Inventories
|
|
5
|
|
|
3
|
|
Other current assets
|
|
9
|
|
|
—
|
|
Long-lived assets
|
|
8
|
|
|
—
|
|
Impairment on carrying value
|
|
(14
|
)
|
|
(12
|
)
|
Total assets held for sale
|
|
$
|
13
|
|
|
$
|
4
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Trade payables
|
|
$
|
3
|
|
|
$
|
1
|
|
Accrued liabilities
|
|
1
|
|
|
1
|
|
Other liabilities
|
|
2
|
|
|
3
|
|
Total liabilities held for sale
|
|
$
|
6
|
|
|
$
|
5
|
|
During the year ended December 31, 2016, the Company recorded
$1 million
of transaction related expenses, primarily legal and other professional fees, associated with these assets held for sale.
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 year ended December 31, 2015, the Company's Motorparts segment recognized a
$7 million
adjustment (no income tax effect) which is included in “Gain (loss) from discontinued operations, net of tax” within the consolidated statement of operations.
7.
DERIVATIVES AND HEDGING ACTIVITIES
The Company is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices, and changes in interest rates, which may result in cash flow risks. To manage the volatility relating to these exposures, the Company aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures not offset within its operations, the Company enters into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes, and designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Commodity Price Risk
The Company’s production processes are dependent upon the supply of certain raw materials 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, zinc, tin, high-grade aluminum, and aluminum alloy. Forward contracts are used to mitigate commodity price risk associated with raw materials, generally related to purchases forecasts for up to
eighteen
months in the future.
Information regarding the Company’s outstanding commodity price hedge contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Combined notional value
|
|
$
|
16
|
|
|
$
|
28
|
|
Combined notional value designated as hedging instruments
|
|
$
|
16
|
|
|
$
|
28
|
|
Unrealized net gain (loss) recorded in “Accumulated other comprehensive loss”
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
Net asset (liability) position
|
|
$
|
4
|
|
|
$
|
(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) at
December 31, 2016
and
2015
for these hedging instruments, see
Note 18,
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 in the use of foreign exchange contracts. The Company did not hold any foreign currency price hedge contracts at
December 31, 2016
or
December 31, 2015
.
Concentrations of Credit Risk
Financial instruments including cash equivalents, derivative contracts, and accounts receivable, expose the Company to counterparty 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 counterparty and through monitoring counterparty credit risks. The Company’s concentration of credit risk related to derivative contracts at
December 31, 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 “Cost of products sold” or "Other income (expense), net” upon hedge maturity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8.
FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
ASC Topic 820,
Fair Value Measurements and Disclosures
(“ASC 820”), clarifies fair value is an exit price, representing the amount to 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 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. The Company estimates the fair value of its derivative contracts using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of foreign currency and commodity derivative instruments are determined using exchange traded prices and rates.
Items Measured at Fair Value on a Recurring Basis
Assets and liabilities measured and disclosed at fair value on a recurring basis at
December 31, 2016
and
2015
are set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
Asset
(Liability)
|
|
Level 2
|
December 31, 2016:
|
|
|
|
|
Commodity contracts
|
|
$
|
4
|
|
|
$
|
4
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
Commodity contracts
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
The Company calculates the fair value of its commodity contracts and foreign currency contracts using quoted commodity forward rates and quoted currency 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, we also have assets that may be measured at fair value on a nonrecurring basis. These assets include, long-lived assets, intangible assets, and investments in affiliates which may be written down to fair value as a result of impairment.
The Company has determined the fair value measurements related to each of these assets rely primarily on Company-specific inputs and the Company's assumptions about the use of the assets, as observable inputs are not available. As such, the Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the useful life of the long-lived assets by using a risk-adjusted rate for the Company.
During the year ended
December 31, 2016
the Company did not record an impairment charge related to property, plant, and equipment. During the years ended
December 31, 2015
and
2014
, the Company recorded impairment charges of
$20 million
and
$19 million
related to property, plant, and equipment, which have been recorded within "
Restructuring charges and asset impairments, net
" in the consolidated statement of operations. The Company's impairments related to Goodwill are discussed further in
Note 11,
Goodwill and Other Intangible Assets
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Company's investment in nonconsolidated affiliates is discussed further in
Note 12,
Investment in Nonconsolidated Affiliates
.
Financial Instruments not Carried at Fair Value
Estimated fair values of the Company’s term loans under the Credit Agreement were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Measurement Approach
|
Term Loans (Tranche B and C)
|
$
|
2,529
|
|
|
$
|
2,512
|
|
|
$
|
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
December 31, 2016
and
2015
. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.
9.
INVENTORIES
Net inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
December 31
|
|
|
2016
|
|
2015
|
Raw materials
|
|
$
|
239
|
|
|
$
|
243
|
|
Work-in-process
|
|
170
|
|
|
170
|
|
Finished products
|
|
912
|
|
|
929
|
|
|
|
1,321
|
|
|
1,342
|
|
10.
PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the components of Property, plant, and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
December 31
|
|
|
Useful Life
|
|
2016
|
|
2015
|
Land
|
|
—
|
|
|
$
|
237
|
|
|
$
|
252
|
|
Buildings and building improvements
|
|
10 - 39 years
|
|
|
563
|
|
|
536
|
|
Machinery and equipment
|
|
3 - 12 years
|
|
|
3,200
|
|
|
3,054
|
|
|
|
|
|
4,000
|
|
|
3,842
|
|
Accumulated depreciation
|
|
|
|
(1,666
|
)
|
|
(1,489
|
)
|
|
|
|
|
$
|
2,334
|
|
|
$
|
2,353
|
|
Depreciation expense for the years ended
December 31, 2016
,
2015
, and
2014
was
$316 million
,
$280 million
, and
$285 million
.
The Company leases property, plant, and equipment used in its operations. Future minimum payments under non-cancelable operating leases with initial or remaining terms of more than one year are as follows:
|
|
|
|
|
|
2017
|
|
$
|
65
|
|
2018
|
|
55
|
|
2019
|
|
47
|
|
2020
|
|
41
|
|
2021
|
|
36
|
|
Thereafter
|
|
60
|
|
|
|
$
|
304
|
|
Total rental expense under operating leases for the years ended
December 31, 2016
,
2015
, and
2014
was
$84 million
,
$84 million
, and
$70 million
, exclusive of property taxes, insurance and other occupancy costs generally payable by the Company.
11.
GOODWILL AND OTHER INTANGIBLE ASSETS
At
December 31, 2016
and
2015
, goodwill consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Powertrain
|
|
Motorparts
|
|
Total
|
Gross carrying amount, January 1
|
$
|
648
|
|
|
$
|
809
|
|
|
$
|
1,457
|
|
Acquisitions and purchase accounting adjustments
|
6
|
|
|
—
|
|
|
6
|
|
Foreign exchange
|
—
|
|
|
—
|
|
|
—
|
|
Gross carrying amount, December 31
|
$
|
654
|
|
|
$
|
809
|
|
|
$
|
1,463
|
|
|
|
|
|
|
|
Accumulated impairment, January 1
|
$
|
(136
|
)
|
|
$
|
(648
|
)
|
|
(784
|
)
|
Impairment
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
Accumulated impairment, December 31
|
$
|
(142
|
)
|
|
$
|
(648
|
)
|
|
$
|
(790
|
)
|
|
|
|
|
|
|
Net carrying value, December 31
|
$
|
512
|
|
|
$
|
161
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Powertrain
|
|
Motorparts
|
|
Total
|
Gross carrying amount, January 1
|
$
|
582
|
|
|
$
|
809
|
|
|
$
|
1,391
|
|
Acquisitions and purchase accounting adjustments
|
74
|
|
|
—
|
|
|
74
|
|
Foreign exchange
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Gross carrying amount, December 31
|
$
|
648
|
|
|
$
|
809
|
|
|
$
|
1,457
|
|
|
|
|
|
|
|
Accumulated impairment, January 1
|
$
|
(92
|
)
|
|
$
|
(598
|
)
|
|
$
|
(690
|
)
|
Impairment
|
(44
|
)
|
|
(50
|
)
|
|
(94
|
)
|
Accumulated impairment, December 31
|
$
|
(136
|
)
|
|
$
|
(648
|
)
|
|
$
|
(784
|
)
|
|
|
|
|
|
|
Net carrying value, December 31
|
$
|
512
|
|
|
$
|
161
|
|
|
$
|
673
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
At
December 31, 2016
and
2015
, intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
138
|
|
|
$
|
(100
|
)
|
|
$
|
38
|
|
|
$
|
140
|
|
|
$
|
(86
|
)
|
|
$
|
54
|
|
Customer relationships
|
|
682
|
|
|
(377
|
)
|
|
305
|
|
|
683
|
|
|
(333
|
)
|
|
350
|
|
|
|
$
|
820
|
|
|
$
|
(477
|
)
|
|
$
|
343
|
|
|
$
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2016
|
|
2015
|
|
2014
|
Amortization expense
|
$
|
58
|
|
|
$
|
59
|
|
|
$
|
49
|
|
The Company utilizes the straight line method of amortization, recognized over the estimated useful lives of the assets. The Company’s developed technology intangible assets have useful lives of between
9
and
15
years. The Company’s customer relationships intangible assets have useful lives of between
2
and
24
years.
The Company’s estimated future amortization expense for its definite-lived intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Total
|
Expected amortization expense
|
|
$
|
58
|
|
|
49
|
|
|
49
|
|
|
49
|
|
|
49
|
|
|
89
|
|
|
$
|
343
|
|
Goodwill
The Company conducts its assessment for goodwill impairments on October 1 of each year for all reporting units.
Powertrain
Based on completion of a preliminary 2015 annual goodwill impairment test, the Company determined goodwill was impaired for
three
reporting units within the Powertrain segment, as the fair values decreased below their carrying values. The decreases in fair values during 2015 were driven by decreases in operating results for these reporting units. Based on the results of the preliminary annual goodwill impairment test, an estimate of goodwill impairment charges of
$44 million
was recorded in the year ended December 31, 2015 in the Powertrain segment. Due to the complexity of the second step goodwill impairment test, the Company did not finalize its assessment prior to filing its 2015 annual report.
As a result of finalizing its 2015 annual impairment assessment during the six-months ended June 30, 2016, the Company recorded an additional impairment charges of
$6 million
in the year ended December 31, 2016. Based on the results of the 2016 annual impairment assessment, there were no goodwill impairment charges in the year ended December 31, 2016 in the Powertrain segment.
Motorparts
Based on the results of the annual goodwill impairment tests, there were no goodwill impairment charges recorded in the year ended
December 31, 2016
in the Motorparts segment.
As part of an interim goodwill impairment test as of
September 30
,
2015
, the Company determined there were impairment indicators for one of its reporting units and conducted an impairment analysis. Decreases in operating results for certain reporting units as a result of the negative effect of exchange rates and negative economic conditions resulted in impairment indicators prior to the annual impairment assessment. Based on the results of the interim goodwill impairment tests, a goodwill impairment charge of
$56 million
was recorded in the year ended December 31, 2015 in the Motorparts segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the year ended December 31, 2014, the Company noted impairment indicators existed in one reporting unit within the Motorparts segment. Among other factors, this reporting unit experienced lower than expected profits and cash flows resulting from decreases in volumes and pricing pressure from customers towards the end of 2014. As a result of these impairment indicators, the Company concluded there was also a potential impairment of its long-lived assets and definite-lived intangible assets. These impairment tests were performed before the goodwill impairment test, and an impairment loss related to long-lived assets of
$7 million
was recognized prior to goodwill being tested for impairment.
The Company then tested goodwill for impairment and determined the carrying value of one reporting unit, within the Motorparts segment, exceeded its fair value. Accordingly, as part of a step two goodwill impairment test, the Company made a preliminary conclusion the carrying amount of the reporting unit's goodwill exceeded the implied fair value of goodwill and an impairment loss of
$120 million
was recognized for the year ended December 31, 2014.
Due to the complexity of the 2014 second step goodwill impairment test, the Company did not finalize its assessment until the first quarter of 2015. During the three months ended March 31, 2015, the Company concluded its assessment of the step two goodwill impairment analysis as of October 1, 2014 and recorded a reduction of
$6 million
to its initial estimate of the goodwill impairment charge for the year ended December 31, 2014.
Fair Value Measurements
The fair values of the Company's reporting units were determined based on valuation techniques using the best available information, primarily discounted cash flow projections. These fair values require the Company to make significant assumptions and estimates about the extent and timing of future cash flows, growth rates, market share, and discount rates that represent unobservable inputs into our valuation methodologies. The cash flows are estimated over a significant future period of time, which makes those estimates and assumptions subject to a high degree of uncertainty. Where available and as appropriate, comparative market multiples and the quoted market price of our common stock are used to corroborate the results of the discounted cash flow method. Assumptions used in the discounted cash flow analysis that have the most significant effect on the estimated fair value of the Company's reporting units are the weighted average cost of capital and revenue growth-rates.
Other Intangible Assets
The Company performs its annual trademarks and brand names impairment analysis as of October 1, or more frequently, if impairment indicators exist. This impairment analysis compares the fair values of these assets to the related carrying values, and impairment charges are recorded for any excess of carrying values over fair values. The fair values are based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets.
The Company had no trademark and brand name impairments from the October 1,
2016
,
2015
, and
2014
impairment analyses.
12.
INVESTMENT IN NONCONSOLIDATED AFFILIATES
The Company maintains investments in several nonconsolidated affiliates, which are primarily located in China, Korea, Turkey, India, and the U.S. 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.
As of
December 31, 2016
and
2015
, the Company's investment in affiliates was
$270 million
and
$296 million
, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Company's beneficial ownership in affiliates accounted for under the equity method is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Anqing TP Goetze Piston Ring Company Limited (China)
|
|
35.7
|
%
|
|
35.7
|
%
|
|
35.7
|
%
|
Dongsuh Federal-Mogul Limited (Korea)
|
|
50.0
|
%
|
|
50.0
|
%
|
|
50.0
|
%
|
Federal-Mogul Piston Segman ve Gomlek Uretim Tesisleri AS. (Turkey)
|
|
—
|
%
|
|
—
|
%
|
|
50.0
|
%
|
Federal-Mogul Motorparts Otomotiv A.S (Turkey)
|
|
—
|
%
|
|
50.0
|
%
|
|
—
|
%
|
Federal-Mogul Powertrain Otomotiv A.S (Turkey)
|
|
50.0
|
%
|
|
50.0
|
%
|
|
—
|
%
|
Federal-Mogul Dis Ticaret A.S. (Turkey)
|
|
50.0
|
%
|
|
50.0
|
%
|
|
50.0
|
%
|
Federal-Mogul Izmit Piston ve Pim Uretim Tesisleri A.S. (Turkey)
|
|
43.0
|
%
|
|
43.0
|
%
|
|
43.0
|
%
|
Federal-Mogul TP Liners Inc. (U.S.)
|
|
46.0
|
%
|
|
46.0
|
%
|
|
46.0
|
%
|
KB Autosys Co, Ltd. (Korea)
|
|
33.6
|
%
|
|
33.6
|
%
|
|
33.6
|
%
|
Federal-Mogul TP Liner Europe Otomotiv Limited Sirketi (Turkey)
|
|
25.0
|
%
|
|
25.0
|
%
|
|
25.0
|
%
|
Farloc Argentina S.A.I.C. Y F. (Argentina)
|
|
23.9
|
%
|
|
23.9
|
%
|
|
23.9
|
%
|
Frenos Hidraulicos Automotrices S.A. de C.V. (Mexico)
|
|
49.0
|
%
|
|
49.0
|
%
|
|
49.0
|
%
|
VTD Vakuum Technik Dresden (Germany)
(a)
|
|
100.0
|
%
|
|
30.0
|
%
|
|
—
|
%
|
Anqing TP Powder Metallurgy Co., Ltd (China)
|
|
20.0
|
%
|
|
20.0
|
%
|
|
—
|
%
|
Federal-Mogul CAIEC Automotive Technology (China)
|
|
45.0
|
%
|
|
—
|
%
|
|
—
|
%
|
(a)
On April 1, 2016 the Company acquired the remaining 70% interest in VTD Vakuum Technik Dresden (Germany) for a purchase price of $2 million. The prior affiliate has been accounted for as a consolidated subsidiary since its acquisition.
|
In January 2015, Federal-Mogul Piston Segman ve Gomlek Uretim Tesisleri A.S was dissolved to form two separate joint ventures, Federal-Mogul Motorparts Otomotiv A.S and Federal-Mogul Powertrain Otomotiv A.S. The Company retained a
50%
noncontrolling interest in the new joint ventures. In July of 2016, Federal-Mogul Motorparts Otomotiv A.S merged with Federal-Mogul Powertrain Otomotiv A.S with the surviving entity being Federal-Mogul Powertrain Otomotiv A.S. This entity, along with Federal-Mogul Izmit Piston ve Pim Uretim Tesisleri A.S. and Federal-Mogul Dis Ticaret A.S., are collectively referred to herein as the Turkey JVs.
As part of the regulatory approval related to the 2014 acquisition of the Honeywell brake component business, the Company committed to divest, or procure the divestiture of the commercial and light vehicle brake pads business relating to the OEM market in the European Economic Area. As such, the Company deconsolidated these subsidiaries and accounted for them as equity method investments until disposition, which have not been included in the table above. 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 consolidated statements of operations.
The following table represents amounts reflected in the Company’s financial statements related to nonconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Equity earnings of nonconsolidated affiliates, net of tax
|
|
$
|
59
|
|
|
$
|
56
|
|
|
$
|
48
|
|
Cash dividends received from nonconsolidated affiliates
|
|
$
|
77
|
|
|
$
|
11
|
|
|
$
|
25
|
|
At December 31, 2016 and 2015, the carrying amount of our investments in the Turkey JVs exceeded our share of the underlying net assets by
$35 million
and
$37 million
. These differences primarily relate to goodwill and other intangible assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following tables present summarized aggregated financial information of the Company’s nonconsolidated affiliates as of and for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey JVs
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
Statements of Operations
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
354
|
|
|
$
|
156
|
|
|
$
|
459
|
|
|
$
|
969
|
|
Gross profit
|
|
$
|
79
|
|
|
$
|
49
|
|
|
$
|
98
|
|
|
$
|
226
|
|
Income from continuing operations
|
|
$
|
64
|
|
|
$
|
48
|
|
|
$
|
60
|
|
|
$
|
172
|
|
Net income
|
|
$
|
55
|
|
|
$
|
48
|
|
|
$
|
55
|
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey JVs
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
Balance Sheets
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
216
|
|
|
$
|
107
|
|
|
$
|
213
|
|
|
$
|
536
|
|
Noncurrent assets
|
|
$
|
220
|
|
|
$
|
128
|
|
|
$
|
173
|
|
|
$
|
521
|
|
Current liabilities
|
|
$
|
114
|
|
|
$
|
47
|
|
|
$
|
101
|
|
|
$
|
262
|
|
Noncurrent liabilities
|
|
$
|
80
|
|
|
$
|
—
|
|
|
$
|
38
|
|
|
$
|
118
|
|
The following tables present summarized aggregated financial information of the Company’s nonconsolidated affiliates as of and for the year ended
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey JVs
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
Statements of Operations
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
327
|
|
|
$
|
164
|
|
|
$
|
396
|
|
|
$
|
887
|
|
Gross profit
|
|
$
|
74
|
|
|
$
|
51
|
|
|
$
|
53
|
|
|
$
|
178
|
|
Income from continuing operations
|
|
$
|
63
|
|
|
$
|
52
|
|
|
$
|
29
|
|
|
$
|
144
|
|
Net income
|
|
$
|
52
|
|
|
$
|
52
|
|
|
$
|
29
|
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey JVs
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
Balance Sheets
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
167
|
|
|
$
|
123
|
|
|
$
|
167
|
|
|
$
|
457
|
|
Noncurrent assets
|
|
$
|
199
|
|
|
$
|
122
|
|
|
$
|
174
|
|
|
$
|
495
|
|
Current liabilities
|
|
$
|
43
|
|
|
$
|
44
|
|
|
$
|
84
|
|
|
$
|
171
|
|
Noncurrent liabilities
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
41
|
|
|
$
|
85
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents summarized aggregated financial information of the Company’s nonconsolidated affiliates as of and for the year ended
December 31, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey JVs
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
Statements of Operations
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
357
|
|
|
$
|
167
|
|
|
$
|
382
|
|
|
$
|
906
|
|
Gross profit
|
|
$
|
90
|
|
|
$
|
54
|
|
|
$
|
48
|
|
|
$
|
192
|
|
Income from continuing operations
|
|
$
|
70
|
|
|
$
|
47
|
|
|
$
|
11
|
|
|
$
|
128
|
|
Net income
|
|
$
|
56
|
|
|
$
|
47
|
|
|
$
|
9
|
|
|
$
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey JVs
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
Balance Sheets
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
155
|
|
|
$
|
107
|
|
|
$
|
135
|
|
|
$
|
397
|
|
Noncurrent assets
|
|
$
|
151
|
|
|
$
|
115
|
|
|
$
|
177
|
|
|
$
|
443
|
|
Current liabilities
|
|
$
|
43
|
|
|
$
|
42
|
|
|
$
|
96
|
|
|
$
|
181
|
|
Noncurrent liabilities
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
44
|
|
|
$
|
47
|
|
The Company does not hold a controlling interest in the Turkey JVs. The Turkey JVs were established for the purpose of manufacturing and marketing automotive parts, including pistons, piston rings, piston pins, and cylinder liners to OE and aftermarket customers. Purchases from the Turkey JVs for the years ended
December 31, 2016
,
2015
, and
2014
were
$173 million
,
$144 million
, and
$180 million
. Sales to the Turkey JVs for the years ended
December 31, 2016
,
2015
, and
2014
were
$65 million
,
$56 million
, and
$45 million
. The Company had net accounts receivable balances with the Turkey JVs of
$3 million
as of
December 31, 2016
and
2015
.
13.
DEBT
The Company has a revolving line of credit in the U.S. ("Revolver"), which provides for (i) aggregate commitments available of
$600 million
(ii) a maturity date of December 6, 2018, subject to certain limited exceptions, and (iii) additional liquidity of the Company's borrowing base. Advances under the Revolver generally bear interest at a variable rate per annum equal to (i) the Alternate Base Rate (as defined in the agreement) plus an adjustable margin of
0.50%
to
1.00%
based on the average monthly availability or (ii) Adjusted LIBOR Rate (as defined in the agreement) plus a margin of
1.50%
to
2.00%
based on the average monthly availability. An unused commitment fee of
0.375%
is also payable under the terms of the Revolver. As of December 31, 2015, the borrowing capacity under the Revolver was
$550 million
.
On April 15, 2014, the Company entered into a new tranche B term loan facility (the “New Tranche B Facility”) and a new tranche C term loan facility (the “New Tranche C Facility,” and together with the New Tranche B Facility, the “New Term Facilities”). In connection with the New Term Facilities and Revolver, the Company incurred original issue discount of
$11 million
and debt issuance costs of
$12 million
. The discount and debt issuance costs are being amortized to interest expense over
48
to
84
months.
Immediately following the closing of the New Term Facilities, the Company contributed the net proceeds from the New Term Facilities and repaid its existing outstanding indebtedness as a borrower under the tranche B and tranche C term loan facilities. As a result, a
$24 million
non-cash loss on the extinguishment of debt attributable to the write-off of the unamortized fair value adjustment and unamortized debt issuance costs was recognized as a “Loss on debt extinguishment” in the year ended December 31, 2014.
The New Term Facilities, among other things, (i) provides for aggregate commitments under the New Tranche B Facility of
$700 million
with a maturity date of April 15, 2018, (ii) provides for aggregate commitments under the New Tranche C Facility of
$1.9 billion
with a maturity date of April 15, 2021, (iii) increases the interest rates applicable to the New Facilities as described below, (iv) provides that for all outstanding letters of credit there is a corresponding decrease in borrowings available under the Revolver, (v) provides that in the event that as of a particular determination date more than
$700 million
aggregate principal amount of existing term loans and certain related refinancing indebtedness will become due within
91
days of such
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
determination date, the Revolver will mature on such determination date, (vi) provides for additional incremental indebtedness, secured on a
pari passu
basis, of an unlimited amount of additional indebtedness if the Company meets a financial covenant incurrence test, and (vii) amends certain other restrictive covenants.
Borrowings under the New Tranche B Facility generally bear interest at a variable rate per annum equal to (i) the Alternate Base Rate plus a margin of
2.00%
or (ii) the Adjusted LIBOR Rate plus a margin of
3.00%
, subject, in each case, to a floor of
1.00%
. Borrowings under the New Tranche C Facility generally bear interest at a variable rate per annum equal to (i) the Alternate Base Rate plus a margin of
2.75%
or (ii) the Adjusted LIBOR Rate plus a margin of
3.75%
, subject, in each case, to a minimum rate of
1.00%
plus the applicable margin.
The obligations of the Company under the Revolver and New Term Facilities credit agreement are guaranteed by substantially all of the domestic subsidiaries and certain foreign subsidiaries of the Company, and are secured by substantially all personal property and certain real property of the Company and such guarantors, subject to certain limitations. The liens granted to secure these obligations and certain cash management and hedging obligations have first priority. As such, the Company's availability is limited by borrowing base conditions.
The Revolver and New Term Facilities credit agreement also contains certain affirmative and negative covenants and events of default, including, subject to certain exceptions, restrictions on incurring additional indebtedness, mandatory prepayment provisions associated with specified asset sales and dispositions, and limitations on: i) investments; ii) certain acquisitions, mergers or consolidations; iii) sale and leaseback transactions; iv) certain transactions with affiliates; and v) dividends and other payments in respect of capital stock. The Company was in compliance with all debt covenants as of
December 31, 2016
and
2015
.
The following is a summary of debt outstanding as of
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2016
|
|
2015
|
Term loans under credit agreement:
|
|
|
|
|
Revolver
|
|
$
|
345
|
|
|
$
|
340
|
|
Tranche B term loan
|
|
684
|
|
|
691
|
|
Tranche C term loan
|
|
1,857
|
|
|
1,876
|
|
Debt discount
|
|
(6
|
)
|
|
(8
|
)
|
Unamortized debt issuance fees
|
|
(7
|
)
|
|
(10
|
)
|
Other debt, primarily foreign instruments
|
|
152
|
|
|
163
|
|
|
|
3,025
|
|
|
3,052
|
|
Less:
|
|
|
|
|
|
Short-term debt, including current maturities of long-term debt
|
|
(142
|
)
|
|
(138
|
)
|
Total long-term debt
|
|
$
|
2,883
|
|
|
$
|
2,914
|
|
The total availability under U.S. credit facilities was
$213 million
and
$170 million
as of
December 31, 2016
and
2015
. The Company had
$37 million
and
$40 million
of letters of credit outstanding as of
December 31, 2016
and
2015
. To the extent letters of credit associated with the Revolver are issued, there is a corresponding decrease in borrowings available under this facility. Availability under the Company's Revolver was limited by borrowing base conditions as of December 31, 2016.
In addition, the Company had additional availability under foreign lines of credit of
$60 million
and
$59 million
as of
December 31, 2016
and
2015
. The Company had
$8 million
and
$3 million
of foreign letters of credit outstanding as of
December 31, 2016
and
2015
. To the extent foreign letters of credit associated with the foreign credit facilities are issued, there is a corresponding decrease in borrowings available under these facilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Amortization of debt discount
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Amortization of debt issuance fees
|
|
3
|
|
|
3
|
|
|
3
|
|
Amortization of original issue discount
|
|
2
|
|
|
2
|
|
|
1
|
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
11
|
|
The Company has the following contractual debt obligations outstanding at
December 31, 2016
:
|
|
|
|
|
|
2017
|
|
$
|
142
|
|
2018
|
|
1,050
|
|
2019
|
|
27
|
|
2020
|
|
25
|
|
2021
|
|
1,788
|
|
Thereafter
|
|
6
|
|
Total
|
|
$
|
3,038
|
|
The weighted average cash interest rates for debt were approximately
4.3%
and
4.4%
as of
December 31, 2016
and
2015
. Interest paid on debt for the years ended
December 31, 2016
,
2015
, and
2014
was
$139 million
,
$133 million
, and
$111 million
.
14.
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2016
|
|
2015
|
Accrued compensation
|
|
$
|
179
|
|
|
$
|
169
|
|
Accrued rebates
|
|
159
|
|
|
170
|
|
Restructuring liabilities
|
|
55
|
|
|
71
|
|
Non-income tax payable
|
|
42
|
|
|
53
|
|
Alleged defective products
|
|
18
|
|
|
32
|
|
Accrued professional services
|
|
27
|
|
|
29
|
|
Accrued income taxes
|
|
32
|
|
|
27
|
|
Accrued product returns
|
|
25
|
|
|
20
|
|
Accrued warranty
|
|
17
|
|
|
11
|
|
|
|
$
|
554
|
|
|
$
|
582
|
|
15.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Defined Contribution Pension Plans
The Company maintains certain defined contribution pension plans for eligible employees. Effective January 1, 2013, the Company amended its U.S. defined contribution plan to allow for an enhanced company match and company provided age-based contributions for eligible U.S. salaried and non-union hourly employees. The total expenses attributable to the Company’s defined contribution savings plan were
$43 million
,
$45 million
, and
$45 million
for the years ended
December 31, 2016
,
2015
, and
2014
.
The amounts contributed to defined contribution pension plans include contributions to multi-employer plans in France, Italy, and the U.S. of
$1 million
during each of the years ended
December 31, 2016
,
2015
, and
2014
. None of the multiemployer plans in which the Company participates are individually significant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Defined Benefit Plans
The Company sponsors defined benefit pension plans, and health care and life insurance benefits for certain employees and retirees around the world. The Company’s defined benefit pension and postretirement benefit plans other than pensions are accounted for in accordance with ASC Topic 715,
Compensation – Retirement Benefits
. There is also an unfunded nonqualified pension plan primarily covering U.S. executives.
The funding policy for qualified defined benefit pension plans is to contribute the minimum required by applicable laws and regulations or to directly pay benefit payments where appropriate. At
December 31, 2016
, all legal funding requirements had been met. The Company expects to contribute
$45 million
to its U.S. qualified plans,
$1 million
to its U.S. non-qualified plans,
$29 million
to its non-U.S. pension plans, and
$23 million
to its other postretirement plans in
2017
.
Other Benefits
The Company accounts for benefits to former or inactive employees paid after employment but before retirement pursuant to ASC Topic 712,
Compensation – Nonretirement Postemployment Benefits
. The liabilities for such U.S. and European postemployment benefits were
$60 million
and
$59 million
at
December 31, 2016
and
2015
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The measurement date for all defined benefit plans is December 31. The following provides a reconciliation of the plans’ benefit obligations, plan assets, funded status and recognition in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Benefits
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
1,221
|
|
|
$
|
1,291
|
|
|
$
|
487
|
|
|
$
|
575
|
|
|
$
|
323
|
|
|
$
|
368
|
|
Service cost
|
|
3
|
|
|
3
|
|
|
14
|
|
|
16
|
|
|
—
|
|
|
—
|
|
Interest cost
|
|
49
|
|
|
48
|
|
|
13
|
|
|
10
|
|
|
14
|
|
|
13
|
|
Employee contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(98
|
)
|
|
(89
|
)
|
|
(21
|
)
|
|
(24
|
)
|
|
(24
|
)
|
|
(23
|
)
|
Medicare subsidies received
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
3
|
|
Plan amendments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Curtailments
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
Settlements
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Contractual termination benefit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Actuarial losses (gains) and changes in actuarial assumptions
|
|
(8
|
)
|
|
(32
|
)
|
|
39
|
|
|
(75
|
)
|
|
(21
|
)
|
|
(35
|
)
|
Net transfers (out) in
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
|
|
|
—
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Currency translation
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
(57
|
)
|
|
1
|
|
|
(3
|
)
|
Benefit obligation, end of year
|
|
$
|
1,167
|
|
|
$
|
1,221
|
|
|
$
|
510
|
|
|
$
|
487
|
|
|
$
|
295
|
|
|
$
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
870
|
|
|
$
|
912
|
|
|
$
|
57
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
|
45
|
|
|
(27
|
)
|
|
3
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Employee contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Company contributions
|
|
39
|
|
|
74
|
|
|
30
|
|
|
30
|
|
|
22
|
|
|
20
|
|
Benefits paid
|
|
(98
|
)
|
|
(89
|
)
|
|
(21
|
)
|
|
(24
|
)
|
|
(24
|
)
|
|
(23
|
)
|
Expenses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisitions / divestitures
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Medicare subsidies received
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
3
|
|
Currency translation
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
Fair value of plan assets, end of year
|
|
$
|
856
|
|
|
$
|
870
|
|
|
$
|
63
|
|
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plan
|
|
$
|
(311
|
)
|
|
$
|
(351
|
)
|
|
$
|
(447
|
)
|
|
$
|
(430
|
)
|
|
$
|
(295
|
)
|
|
$
|
(323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
$
|
(13
|
)
|
|
$
|
(14
|
)
|
|
$
|
(23
|
)
|
|
$
|
(24
|
)
|
Noncurrent liabilities
(a)
|
|
(310
|
)
|
|
(349
|
)
|
|
(434
|
)
|
|
(416
|
)
|
|
(272
|
)
|
|
(299
|
)
|
Net amount recognized
|
|
$
|
(311
|
)
|
|
$
|
(351
|
)
|
|
$
|
(447
|
)
|
|
$
|
(430
|
)
|
|
$
|
(295
|
)
|
|
$
|
(323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss, inclusive of tax effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
435
|
|
|
$
|
452
|
|
|
$
|
93
|
|
|
$
|
72
|
|
|
$
|
34
|
|
|
$
|
56
|
|
Prior service cost (credit)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
(6
|
)
|
|
(10
|
)
|
Total
|
|
$
|
435
|
|
|
$
|
452
|
|
|
$
|
94
|
|
|
$
|
73
|
|
|
$
|
28
|
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
The "Pension and Other Postretirement Benefits" line in the consolidated balance sheet includes $60 million and $59 million of postemployment benefits which are not included in the table above.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Information for defined benefit plans with projected benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Benefits
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
Projected benefit obligation
|
|
$
|
1,167
|
|
|
$
|
1,221
|
|
|
$
|
509
|
|
|
$
|
486
|
|
|
$
|
295
|
|
|
$
|
323
|
|
Fair value of plan assets
|
|
$
|
856
|
|
|
$
|
870
|
|
|
$
|
62
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Information for pension plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
Projected benefit obligation
|
|
$
|
1,167
|
|
|
$
|
1,221
|
|
|
$
|
494
|
|
|
$
|
482
|
|
Accumulated benefit obligation
|
|
$
|
1,167
|
|
|
$
|
1,221
|
|
|
$
|
459
|
|
|
$
|
445
|
|
Fair value of plan assets
|
|
$
|
856
|
|
|
$
|
870
|
|
|
$
|
50
|
|
|
$
|
53
|
|
The accumulated benefit obligation for all pension plans is
$1,636 million
and
$1,669 million
as of
December 31, 2016
and
2015
.
The following table summarizes the components of net periodic benefit cost (credit) along with the assumptions used to determine the benefit obligations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Benefits
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Components of expense
|
|
|
Service cost
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
14
|
|
|
$
|
16
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
49
|
|
|
48
|
|
|
52
|
|
|
13
|
|
|
10
|
|
|
16
|
|
|
14
|
|
|
13
|
|
|
15
|
|
Expected return on plan assets
|
|
(48
|
)
|
|
(59
|
)
|
|
(62
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of actuarial losses
|
|
12
|
|
|
10
|
|
|
4
|
|
|
5
|
|
|
11
|
|
|
5
|
|
|
2
|
|
|
5
|
|
|
3
|
|
Amortization of prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
(5
|
)
|
Settlement loss (gain)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Curtailment gain
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic cost (credit)
|
|
$
|
16
|
|
|
$
|
2
|
|
|
$
|
(6
|
)
|
|
$
|
30
|
|
|
$
|
33
|
|
|
$
|
32
|
|
|
$
|
12
|
|
|
$
|
14
|
|
|
$
|
13
|
|
Weighted-average assumptions used to determine benefit obligations
|
|
Discount rate
|
|
3.90
|
%
|
|
4.15
|
%
|
|
3.85
|
%
|
|
2.03
|
%
|
|
2.72
|
%
|
|
1.77
|
%
|
|
3.98
|
%
|
|
4.18
|
%
|
|
3.84
|
%
|
Rate of compensation increase
|
|
n/a
|
|
n/a
|
|
n/a
|
|
2.96
|
%
|
|
3.19
|
%
|
|
3.16
|
%
|
|
n/a
|
|
n/a
|
|
n/a
|
Weighted-average assumptions used to determine net expense
|
|
Discount rate
|
|
4.15
|
%
|
|
3.85
|
%
|
|
4.55
|
%
|
|
2.72
|
%
|
|
1.77
|
%
|
|
3.49
|
%
|
|
4.18
|
%
|
|
3.84
|
%
|
|
4.45
|
%
|
Expected rate of return on plan assets
|
|
5.65
|
%
|
|
6.55
|
%
|
|
6.95
|
%
|
|
3.22
|
%
|
|
3.52
|
%
|
|
4.18
|
%
|
|
n/a
|
|
n/a
|
|
n/a
|
Rate of compensation increase
|
|
n/a
|
|
n/a
|
|
n/a
|
|
3.19
|
%
|
|
3.16
|
%
|
|
3.17
|
%
|
|
n/a
|
|
n/a
|
|
n/a
|
Estimated amounts to be amortized from accumulated other comprehensive loss into net periodic benefit cost in the year ending December 31, 2017 based on
December 31, 2016
plan measurements are
$9 million
, consisting primarily of amortization of the net actuarial loss in the U.S. pension plans.
Long-term Rate of Return
The Company’s expected return on assets is established annually through analysis of anticipated future long-term investment performance for the plan based upon the asset allocation strategy and is primarily a long-term prospective rate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The study was performed in December 2016 resulting in changes to the expected long-term rate of return on assets. The weighted-average long-term rate of return on assets for the U.S. pension plans decreased from
5.65%
at December 31, 2015 to
5.55%
at December 31, 2016. The expected long-term rate of return on plan assets used in determining pension expense for non-U.S. plans is determined in a similar manner to the U.S. plans and decreased from
3.22%
at December 31, 2015 to
3.05%
at December 31, 2016.
Health Care Trend
The assumed health care and drug cost trend rates used to measure next year’s postretirement healthcare benefits are as follows:
|
|
|
|
|
|
|
|
|
|
Other
Postretirement
Benefits
|
|
|
2016
|
|
2015
|
Initial health care cost trend rate
|
|
6.69
|
%
|
|
6.97
|
%
|
Ultimate health care cost trend rate
|
|
5.00
|
%
|
|
5.00
|
%
|
Year ultimate health care cost trend rate reached
|
|
2022
|
|
|
2022
|
|
The assumed health care cost trend rate has a significant effect on the amounts reported for Other Postretirement Benefits plans. The following table illustrates the sensitivity to a change in the assumed health care cost trend rate:
|
|
|
|
|
|
|
|
|
|
|
|
Total Service and
Interest Cost
|
|
APBO
|
|
|
|
100 basis point (“bp”) increase in health care cost trend rate
|
|
$
|
1
|
|
|
$
|
24
|
|
100 bp decrease in health care cost trend rate
|
|
(1
|
)
|
|
(21
|
)
|
Projected benefit payments from the plans are estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Postretirement
Benefits
|
|
|
U.S.
|
|
Non-U.S. Plans
|
|
|
|
|
2017
|
|
$
|
84
|
|
|
$
|
22
|
|
|
$
|
23
|
|
2018
|
|
84
|
|
|
22
|
|
|
23
|
|
2019
|
|
86
|
|
|
24
|
|
|
23
|
|
2020
|
|
87
|
|
|
24
|
|
|
23
|
|
2021
|
|
86
|
|
|
24
|
|
|
22
|
|
Years 2022-2026
|
|
387
|
|
|
131
|
|
|
101
|
|
Plan Assets
Certain pension plans sponsored by the Company invest in a diversified portfolio consisting of an array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include developed market equities, emerging market equities, private equity, global high quality and high yield fixed income, real estate, and absolute return strategies.
U.S. Plan
As of
December 31, 2016
, plan assets were comprised of
64%
equity investments,
24%
fixed income investments, and
12%
in other investments which include hedge funds. Approximately
63%
of the U.S. plan assets were invested in actively managed investment funds. The Company’s investment strategy includes a target asset allocation of
50%
equity investments,
25%
fixed income investments and
25%
in other investment types including hedge funds.
The U.S. investment strategy mitigates risk by incorporating diversification across appropriate asset classes to meet the plan’s objectives. It is intended to reduce risk, provide long-term financial stability for the plan, and maintain funded levels that meet long-term plan obligations while preserving sufficient liquidity for near-term benefit payments. Risk assumed is considered appropriate for the return anticipated and consistent with the diversification of plan assets.
Non-U.S. Plans
The insurance contracts guarantee a minimum rate of return. The Company has no input into the investment strategy of the assets underlying the contracts, but they are typically heavily invested in active bond markets and are highly regulated by local law.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The majority of the assets of the non-U.S. plans are invested through insurance contracts. The target asset allocation for the non-U.S. pension plans is
65%
insurance contracts,
30%
debt investments and
5%
equity investments.
The following table presents the Company’s defined benefit plan assets measured at fair value by asset class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
U.S. Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
30
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investments with registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
346
|
|
|
346
|
|
|
—
|
|
|
—
|
|
|
310
|
|
|
310
|
|
|
—
|
|
|
—
|
|
Fixed income securities
|
|
154
|
|
|
154
|
|
|
—
|
|
|
—
|
|
|
149
|
|
|
149
|
|
|
—
|
|
|
—
|
|
Real estate and other
|
|
41
|
|
|
41
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
27
|
|
|
—
|
|
|
—
|
|
Equity securities
|
|
204
|
|
|
204
|
|
|
—
|
|
|
—
|
|
|
220
|
|
|
220
|
|
|
—
|
|
|
—
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other
|
|
21
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
|
—
|
|
Government
|
|
28
|
|
|
11
|
|
|
17
|
|
|
—
|
|
|
30
|
|
|
17
|
|
|
13
|
|
|
—
|
|
Hedge funds
|
|
32
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
86
|
|
|
|
$
|
856
|
|
|
$
|
786
|
|
|
$
|
38
|
|
|
$
|
32
|
|
|
$
|
870
|
|
|
$
|
749
|
|
|
$
|
35
|
|
|
$
|
86
|
|
Non-U.S. Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40
|
|
Investments with registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
|
19
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
—
|
|
|
—
|
|
Equity securities
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Corporate bonds
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
|
$
|
63
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
57
|
|
|
$
|
15
|
|
|
$
|
2
|
|
|
$
|
40
|
|
The following tables summarize the activity for the U.S. plan assets classified in level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2015
|
|
Net Realized/
Unrealized
Gains (Loss)
|
|
Purchases,
and
Settlements,
Net
|
|
Sales,
Net
|
|
Transfers
Into (Out) of
Level 3
|
|
Foreign
Currency
Exchange
Rate
Movements
|
|
Balance at
December 31,
2016
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds and other
|
|
$
|
86
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
$
|
(102
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2014
|
|
Net Realized/
Unrealized
Gains (Loss)
|
|
Purchases,
and
Settlements,
Net
|
|
Sales,
Net
|
|
Transfers
Into (Out) of
Level 3
|
|
Foreign
Currency
Exchange
Rate
Movements
|
|
Balance at
December 31,
2015
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds and other
|
|
$
|
91
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
86
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following tables summarize the activity for the non-U.S. plan assets classified in level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2015
|
|
Net Realized/
Unrealized
Gains (Loss)
|
|
Purchases,
and
Settlements,
Net
|
|
Sales,
Net
|
|
Transfers
Into (Out) of
Level 3
|
|
Foreign
Currency
Exchange
Rate
Movements
|
|
Balance at
December 31,
2016
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
$
|
40
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2014
|
|
Net
Realized/
Unrealized
Gains (Loss)
|
|
Purchases,
and
Settlements,
Net
|
|
Sales,
Net
|
|
Transfers
Into (Out)
of Level 3
|
|
Foreign
Currency
Exchange
Rate
Movements
|
|
Balance at
December 31,
2015
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
$
|
41
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
40
|
|
16.
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.
The components of (loss) income from continuing operations before income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
|
$
|
(51
|
)
|
|
$
|
(89
|
)
|
|
$
|
(64
|
)
|
International
|
|
196
|
|
|
8
|
|
|
(41
|
)
|
Total
|
|
$
|
145
|
|
|
$
|
(81
|
)
|
|
$
|
(105
|
)
|
Significant components of the (expense) benefit for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
Federal, state and local
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
International
|
|
(83
|
)
|
|
(47
|
)
|
|
(32
|
)
|
Total current
|
|
(83
|
)
|
|
(47
|
)
|
|
(36
|
)
|
Deferred:
|
|
|
|
|
|
|
Federal, state and local
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
International
|
|
29
|
|
|
17
|
|
|
(20
|
)
|
Total deferred
|
|
28
|
|
|
17
|
|
|
(20
|
)
|
|
|
$
|
(55
|
)
|
|
$
|
(30
|
)
|
|
$
|
(56
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax (expense) benefit is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Income tax (expense) benefit at U.S. statutory rate
|
|
$
|
(51
|
)
|
|
$
|
28
|
|
|
$
|
37
|
|
Tax effect from:
|
|
|
|
|
|
|
Goodwill impairment
|
|
(1
|
)
|
|
(31
|
)
|
|
(42
|
)
|
U.S. income inclusions from foreign subsidiaries
|
|
(14
|
)
|
|
(6
|
)
|
|
(7
|
)
|
Nonconsolidated foreign affiliates
|
|
19
|
|
|
17
|
|
|
15
|
|
Foreign exchange (gain) loss on nontaxable dividends
|
|
15
|
|
|
—
|
|
|
—
|
|
Other permanent differences
|
|
(8
|
)
|
|
(4
|
)
|
|
—
|
|
Tax holidays, incentives and minimum tax
|
|
8
|
|
|
10
|
|
|
2
|
|
Foreign rate variance and enacted rate change
|
|
21
|
|
|
9
|
|
|
24
|
|
State income taxes
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Uncertain tax positions and assessments
|
|
(8
|
)
|
|
5
|
|
|
31
|
|
Valuation allowances
|
|
(9
|
)
|
|
(46
|
)
|
|
(105
|
)
|
Withholding taxes
|
|
(11
|
)
|
|
(7
|
)
|
|
—
|
|
Other
|
|
(16
|
)
|
|
(5
|
)
|
|
(7
|
)
|
Income tax (expense) benefit
|
|
$
|
(55
|
)
|
|
$
|
(30
|
)
|
|
$
|
(56
|
)
|
The following table summarizes the Company’s total (provision) benefit for income taxes by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Income tax (expense) benefit
|
|
$
|
(55
|
)
|
|
$
|
(30
|
)
|
|
$
|
(56
|
)
|
Allocated to equity:
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
3
|
|
|
(27
|
)
|
|
108
|
|
Derivatives
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Foreign currency translation
|
|
(5
|
)
|
|
(11
|
)
|
|
(12
|
)
|
Valuation allowances
|
|
(8
|
)
|
|
7
|
|
|
(84
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2016
|
|
2015
|
Deferred tax assets
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
1,002
|
|
|
$
|
944
|
|
Postretirement benefits, including pensions
|
|
312
|
|
|
327
|
|
Reorganization costs
|
|
7
|
|
|
5
|
|
Inventory
|
|
62
|
|
|
67
|
|
Other temporary differences
|
|
107
|
|
|
117
|
|
Tax credits
|
|
94
|
|
|
115
|
|
Total deferred tax assets
|
|
1,584
|
|
|
1,575
|
|
Valuation allowances for deferred tax assets
|
|
(1,286
|
)
|
|
(1,307
|
)
|
Net deferred tax assets
|
|
298
|
|
|
268
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
Investment in U.S. subsidiaries
|
|
(307
|
)
|
|
(307
|
)
|
Intangible assets
|
|
(138
|
)
|
|
(142
|
)
|
Fixed assets
|
|
(98
|
)
|
|
(92
|
)
|
Total deferred tax liabilities
|
|
(543
|
)
|
|
(541
|
)
|
|
|
|
|
|
|
|
$
|
(245
|
)
|
|
$
|
(273
|
)
|
Deferred tax assets and liabilities are recorded in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2016
|
|
2015
|
Assets:
|
|
|
|
|
Other noncurrent assets
|
|
$
|
121
|
|
|
$
|
94
|
|
Liabilities:
|
|
|
|
|
Deferred income taxes
|
|
(366
|
)
|
|
(367
|
)
|
|
|
$
|
(245
|
)
|
|
$
|
(273
|
)
|
The Company continues to maintain a valuation allowance related to its net deferred tax assets in multiple jurisdictions. As of
December 31, 2016
, the Company had valuation allowances of
$994 million
related to tax loss and credit carryforwards. The current and future provision for income taxes may be significantly affected by changes to valuation allowances in certain countries. These allowances will be maintained until it is more likely than not the deferred tax assets will be realized. The future provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.
At
December 31, 2016
, the Company had a deferred tax asset before valuation allowance of
$1,096 million
for tax loss carryforwards and tax credits, including:
$686 million
in the U.S. with expiration dates from 2017 through 2035;
$124 million
in the United Kingdom with no expiration date; and
$286 million
in other jurisdictions with various expiration dates.
The Company has also concluded there is a more than remote possibility the existing valuation allowances of up to
$60 million
as of
December 31, 2016
could be released within the next 12 months. If releases of such valuation allowances occur, they may have a significant effect on results of operations in the quarter in which it is deemed appropriate to release the reserve. Income taxes paid, net of income tax refunds received, were
$67 million
,
$44 million
and
$42 million
for the years ended
December 31, 2016
,
2015
and
2014
.
The Company did not record taxes on its undistributed earnings of
$778 million
at
December 31, 2016
since these earnings are considered by the Company to be permanently reinvested. If at some future date these earnings cease to be permanently reinvested, the Company may be subject to U.S. income taxes and foreign withholding taxes on such amounts. Determining the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
unrecognized deferred tax liability on the potential distribution of these earnings is not practicable as such liability, if any, is dependent on circumstances existing when remittance occurs.
As of
December 31, 2016
, the Company had
$300 million
of cash and cash equivalents, of which
$166 million
was held by foreign subsidiaries. The Company asserts these funds are indefinitely reinvested due to operational and investing needs of the foreign locations. Furthermore, the Company will accrue any applicable taxes in the period when the Company no longer intends to indefinitely reinvest these funds. The Company would expect the effect on cash taxes would be immaterial due to: the availability of net operating loss carryforwards and related valuation allowances; earnings considered previously taxed; and applicable tax treaties.
At
December 31, 2016
,
2015
and
2014
, the Company had total unrecognized tax benefits of
$42 million
,
$37 million
and
$50 million
. Of these totals,
$33 million
,
$29 million
and
$44 million
, represent the amounts of unrecognized tax benefits that, if recognized, would affect the effective income tax rates. The total unrecognized tax benefits differ from the amounts which would affect the effective tax rates primarily due to the effect of valuation allowances.
A summary of the changes in the gross amount of unrecognized tax benefits for the years ended
December 31, 2016
,
2015
and
2014
are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Change in unrecognized tax benefits
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
37
|
|
|
$
|
50
|
|
|
$
|
78
|
|
Additions based on tax positions related to the current year
|
|
2
|
|
|
6
|
|
|
7
|
|
Additions for tax positions of prior years
|
|
6
|
|
|
6
|
|
|
10
|
|
Decreases for tax positions of prior years
|
|
(1
|
)
|
|
(10
|
)
|
|
(14
|
)
|
Decreases for statute of limitations expiration
|
|
(1
|
)
|
|
(4
|
)
|
|
(1
|
)
|
Settlements
|
|
—
|
|
|
(6
|
)
|
|
(25
|
)
|
Effect of currency translation
|
|
(1
|
)
|
|
(5
|
)
|
|
(5
|
)
|
Balance at December 31
|
|
$
|
42
|
|
|
$
|
37
|
|
|
$
|
50
|
|
The Company classifies tax-related penalties and net interest as income tax expense. As of
December 31, 2016
,
2015
and
2014
, the Company recorded
$7 million
,
$7 million
and
$12 million
in liabilities for tax-related net interest and penalties on its consolidated balance sheet. The Company recorded
no
income tax (expense) benefit related to a net change in its liability for interest and penalties for the year ended
December 31, 2016
and
$(5) million
and
$11 million
for the years ended December 31,
2015
and
2014
.
The Company operates in multiple jurisdictions throughout the world. The Company is no longer subject to U.S. federal tax examinations for years before 2011 or state and local for years before 2008, with limited exceptions. Furthermore, the Company is no longer subject to income tax examinations in major foreign tax jurisdictions for years prior to 2005. The income tax returns of foreign subsidiaries in various tax jurisdictions are currently under examination.
The Company believes that it is reasonably possible that its unrecognized tax benefits in multiple jurisdictions, which primarily relate to transfer pricing, corporate reorganization and various other matters, may decrease by approximately
$3 million
in the next
12 months
due to audit settlements or statute expirations, which approximately
$3 million
, if recognized, could affect the effective tax rate.
On July 11, 2013, Federal-Mogul Corporation became part of the IEP affiliated group of corporations as defined in Section 1504 of the Internal Revenue Code of 1986 ("the Code"), as amended, of which AEP is the common parent. The Company subsequently entered into a Tax Allocation Agreement (the “Tax Allocation Agreement”) with AEP. Pursuant to the Tax Allocation Agreement, AEP and the Company have agreed to the allocation of certain income tax items. The Company will join AEP in the filing of AEP’s federal consolidated return and certain state consolidated returns. In those jurisdictions where the Company is filing consolidated returns with AEP, the Company will pay to AEP any tax it would have owed had it continued to file separately. Effective January 23, 2017, AEP will no longer be obligated to the Company for reductions to the consolidated group's tax liability as a result of including the Company in its consolidated group.
On February 14, 2017, the Company was converted into a limited liability company in the U.S. and changed its name to Federal-Mogul Holdings LLC. As a result of the conversion, the Company is treated as a disregarded entity for U.S. income tax purposes and no U.S. income tax will be allocated to the Company. IEP will succeed to the Company’s U.S. deferred tax assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
and liabilities as the sole member of the Company. However, for purposes of preparing its financial statements, the Company will continue to use a separate return methodology in determining income taxes prospectively.
17.
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 U.S. 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 the professional judgment of consultants.
Total environmental liabilities, determined on an undiscounted basis are included in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Other current liabilities
|
|
$
|
6
|
|
|
$
|
4
|
|
Other accrued liabilities (noncurrent)
|
|
10
|
|
|
10
|
|
|
|
$
|
16
|
|
|
$
|
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. At
December 31, 2016
, management estimates that reasonably possible material additional losses above and beyond management’s best estimate of required remediation costs as recorded approximate
$41 million
.
Asset Retirement Obligations
The Company’s primary 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 is probable and can be reasonably estimated. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Other current liabilities
|
|
$
|
1
|
|
|
$
|
2
|
|
Other accrued liabilities (noncurrent)
|
|
14
|
|
|
14
|
|
|
|
$
|
15
|
|
|
$
|
16
|
|
The following is a rollforward of the Company’s ARO liability for the years ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
24
|
|
Liabilities incurred
|
|
—
|
|
Liabilities settled/adjustments
|
|
(6
|
)
|
Foreign Currency
|
|
(2
|
)
|
Balance at December 31, 2015
|
|
16
|
|
Liabilities incurred
|
|
(2
|
)
|
Liabilities settled/adjustments
|
|
1
|
|
Foreign Currency
|
|
—
|
|
Balance at December 31, 2016
|
|
$
|
15
|
|
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
December 31, 2016
. If the ACF plans were voluntarily terminated, they would be underfunded by approximately
$111
million as of
December 31, 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 the Company 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 its indemnification obligations to the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 the outcome of this litigation will have a material effect on its condensed consolidated financial position, results of operations or cash flows.
On September 29, 2016, September 30, 2016, October 12, 2016 and October 19, 2016, respectively, four putative class actions were filed in the Court of Chancery of the State of Delaware against the Board, IEP, and certain of its affiliates, including Parent and the Offeror (the “Icahn Defendants”). The complaints allege that, among other things, the Board breached its fiduciary duties by approving the proposed Merger Agreement, that the Icahn Defendants breached their fiduciary duties to the minority stockholders and/or aided and abetted the Board’s breaches of its fiduciary duties, as well as alleging certain material misstatements and omissions in the Schedule 14D-9. The complaints allege that, among other things, the then-Offer Price was inadequate and, together with that the Merger Agreement, was the result of a flawed and unfair sales process and conflicts of interest of the Board and the Special Committee, alleging that the Special Committee and the Company’s management lacked independence from the Icahn Defendants. In addition, the complaints allege that the Merger Agreement contains certain allegedly preclusive deal protection provisions, including a no-solicitation provision, an information rights provision and a matching rights provision. Among other things, the complaints sought to enjoin the transactions contemplated by the Merger Agreement, as well as award costs and disbursements, including reasonable attorneys’ and experts’ fees. On October 28, 2016, all four actions were consolidated (the “Delaware Action”). On February 3, 2017, an order was entered requiring plaintiffs to file their amended complaint by March 6, 2017.
On October 5, 2016, a putative class action was filed in the Circuit Court for Oakland County of the State of Michigan against the Company, the Board and the Icahn Defendants (the “Michigan Action”). The complaint alleges, among other things, that the Board breached its fiduciary duties and that the Company and the Icahn Defendants aided and abetted the Board’s breaches of its fiduciary duties, as well as alleging certain material misstatements and omissions in the Schedule 14D-9. The complaint alleges that, among other things, the then-Offer Price was unfair and the result of an unfair sales process that included conflicts of interest. In addition, the complaint alleges that the Merger Agreement contains certain allegedly preclusive deal protection provisions, including a no-solicitation provision, an information rights provision and a matching rights provision. Among other things, the complaint sought to enjoin the transactions contemplated by the Merger Agreement, or, in the event that the transactions were consummated, rescind the transactions or award rescissory damages, as well as award money damages and costs, including reasonable attorneys’ and experts’ fees. On February 10, 2017, an order was entered providing that plaintiff shall have through March 6, 2016, to file his First Amended Complaint.
The Company believes the claims in the Delaware and Michigan Actions are without merit and intends to defend against them vigorously.
In addition, the Company is involved in other legal actions and claims, directly, and through its subsidiaries. Management does not believe 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.
18.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(714
|
)
|
|
$
|
(482
|
)
|
|
$
|
(249
|
)
|
Other comprehensive income (loss) before reclassification adjustment, net of tax
|
|
(146
|
)
|
|
(232
|
)
|
|
(233
|
)
|
Reclassification from other comprehensive income (loss)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Other comprehensive loss, net of tax
|
|
(147
|
)
|
|
(232
|
)
|
|
(233
|
)
|
Balance at end of period
|
|
$
|
(861
|
)
|
|
$
|
(714
|
)
|
|
$
|
(482
|
)
|
|
|
|
|
|
|
|
Pensions and postretirement benefits
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(587
|
)
|
|
$
|
(643
|
)
|
|
$
|
(361
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
15
|
|
|
34
|
|
|
(314
|
)
|
Reclassification from other comprehensive income (loss)
(a)
|
|
15
|
|
|
22
|
|
|
10
|
|
Income taxes
|
|
—
|
|
|
—
|
|
|
22
|
|
Other comprehensive income (loss), net of tax
|
|
30
|
|
|
56
|
|
|
(282
|
)
|
Balance at end of period
|
|
$
|
(557
|
)
|
|
$
|
(587
|
)
|
|
$
|
(643
|
)
|
|
|
|
|
|
|
|
Hedge instruments
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(17
|
)
|
|
$
|
(17
|
)
|
|
$
|
(16
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
2
|
|
|
(4
|
)
|
|
—
|
|
Reclassification from other comprehensive income (loss)
(b)
|
|
1
|
|
|
4
|
|
|
—
|
|
Income taxes
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Other comprehensive income (loss), net of tax
|
|
3
|
|
|
—
|
|
|
(1
|
)
|
Balance at end of period
|
|
$
|
(14
|
)
|
|
$
|
(17
|
)
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to noncontrolling interests, net of tax
(c)
|
|
$
|
2
|
|
|
$
|
(5
|
)
|
|
$
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
(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.
|
(b) Includes commodity contacts and foreign currency contracts which are included in cost of products sold.
|
(c) Consists of foreign currency translation adjustments.
|
19.
STOCK-BASED COMPENSATION
In February 2012, 2011, and 2010, the Company granted approximately
809,000
,
1,043,000
, and
437,000
stock appreciation rights ("SARs"), to certain employees. The SARs granted in February 2012 (“2012 SARs”) and in February 2011 (“2011 SARs”) vested
25.0%
on grant date and
25.0%
on each of the next
three
anniversaries of the grant date. The SARs granted in February 2010 (“2010 SARs”) vest
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 exercises in the form of cash, the SARs were treated as liability awards for accounting purposes.
The Company has total outstanding awards of approximately
200,331
,
603,000
and
796,000
as of
December 31, 2016
,
2015
, and
2014
.
The Company recognized
$0 million
,
$1 million
, and
$4 million
of SARS income for the years ended December 31 2016, 2015, and 2014.
20.
INCOME (LOSS) PER COMMON SHARE
The following is a reconciliation of the numerators and the denominators of the basic and diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Amounts attributable to Federal-Mogul:
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
82
|
|
|
$
|
(117
|
)
|
|
$
|
(168
|
)
|
Gain (loss) from discontinued operations, net of tax
|
|
—
|
|
|
7
|
|
|
—
|
|
Net income (loss)
|
|
$
|
82
|
|
|
$
|
(110
|
)
|
|
$
|
(168
|
)
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted (in millions)
|
|
169.0
|
|
|
164.7
|
|
|
150.0
|
|
|
|
|
|
|
|
|
Net (loss) income per share attributable to Federal-Mogul - basic and diluted:
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
$
|
0.49
|
|
|
$
|
(0.71
|
)
|
|
$
|
(1.12
|
)
|
Loss from discontinued operations, net of tax
|
|
—
|
|
|
0.04
|
|
|
—
|
|
Net (loss) income
|
|
$
|
0.49
|
|
|
$
|
(0.67
|
)
|
|
$
|
(1.12
|
)
|
The Company had losses for the year ended December 31, 2015 and 2014. As a result, diluted loss per share is the same as basic in those periods, as any potentially dilutive securities would reduce the loss per share.
Warrants to purchase
6,951,871
common shares, which expired December 27, 2014, were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the Company’s common shares during the year ended December 31,
2014
. In addition, there are
500,000
common shares issued in connection with a deferred compensation agreement excluded from the basic earnings per share calculation for the year ended December 31, 2014.
21.
OPERATIONS BY REPORTING SEGMENT AND GEOGRAPHIC AREA
The Company operates with
two
end-customer focused business segments. The Powertrain segment focuses on original equipment powertrain 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 OEMs with products including braking, wipers, and a limited range of chassis components. This organizational model allows for a strong product line focus benefitting both OE and aftermarket customers and enables the Company to be responsive to customers’ needs for superior products and to promote greater identification with its 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. Reporting units are components of the Company’s reporting segments (which are also its operating segments) and generally align with specific product groups for Powertrain and regions for Motorparts for which segment managers regularly review operating results.
Management utilizes Operational EBITDA as the key performance measure of segment profitability and uses the measure in its financial and operational decision making processes, for internal reporting, and for planning and forecasting purposes to effectively allocate resources. Operational EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation, and amortization), as adjusted for additional amounts. Examples of these adjustments include impairment charges related to goodwill, other long-lived assets, and investments; restructuring charges; certain gains or losses on the settlement/extinguishment of obligations; and receivable financing charges. During 2015, the Company modified its definition of Operational EBITDA to adjust for financing charges related to certain receivable financing programs. Comparable periods have been adjusted to conform to this definition.
Operational EBITDA presents a performance measure exclusive of capital structure and the method by which net assets were acquired, disposed of, or financed. Management believes this measure provides additional transparency into its core operations and is most reflective of the operational profitability or loss of the Company’s operating segments and reporting units. The measure also allows management and investors to view operating trends, perform analytical comparisons, and benchmark performance between periods and among operating segments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Operational EBITDA should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income, which is the most directly comparable financial measure to Operational EBITDA that is in accordance with U.S. GAAP. Operational EBITDA, as determined and measured by the Company, should not be compared to similarly titled measures reported by other companies.
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Powertrain
|
|
$
|
4,463
|
|
|
$
|
4,450
|
|
|
$
|
4,430
|
|
Motorparts
|
|
3,215
|
|
|
3,253
|
|
|
3,192
|
|
Inter-segment eliminations
|
|
(244
|
)
|
|
(284
|
)
|
|
(305
|
)
|
Total
|
|
$
|
7,434
|
|
|
$
|
7,419
|
|
|
$
|
7,317
|
|
|
|
|
|
|
|
|
Inter-segment eliminations attributable to sales from Powertrain to Motorparts
|
|
$
|
211
|
|
|
$
|
252
|
|
|
$
|
267
|
|
Inter-segment eliminations attributable to sales from Motorparts to Powertrain
|
|
$
|
33
|
|
|
$
|
32
|
|
|
$
|
38
|
|
Cost of products sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Powertrain
|
|
$
|
(3,929
|
)
|
|
$
|
(3,913
|
)
|
|
$
|
(3,897
|
)
|
Motorparts
|
|
(2,616
|
)
|
|
(2,716
|
)
|
|
(2,668
|
)
|
Inter-segment eliminations
|
|
244
|
|
|
284
|
|
|
305
|
|
Total
|
|
$
|
(6,301
|
)
|
|
$
|
(6,345
|
)
|
|
$
|
(6,260
|
)
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Powertrain
|
|
$
|
534
|
|
|
$
|
537
|
|
|
$
|
533
|
|
Motorparts
|
|
599
|
|
|
537
|
|
|
524
|
|
Total
|
|
$
|
1,133
|
|
|
$
|
1,074
|
|
|
$
|
1,057
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Operational EBITDA and the reconciliation to net income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Powertrain
|
|
$
|
473
|
|
|
$
|
428
|
|
|
$
|
431
|
|
Motorparts
|
|
271
|
|
|
216
|
|
|
199
|
|
Total Operational EBITDA
|
|
$
|
744
|
|
|
$
|
644
|
|
|
$
|
630
|
|
Items required to reconcile Operational EBITDA to EBITDA:
|
|
|
|
|
|
|
Restructuring charges and asset impairments
(a)
|
|
$
|
(44
|
)
|
|
$
|
(121
|
)
|
|
$
|
(110
|
)
|
Goodwill and intangible impairment expense, net
|
|
(6
|
)
|
|
(94
|
)
|
|
(120
|
)
|
Loss on debt extinguishment
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
Loss on sale of equity method investment
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
Financing charges
|
|
(12
|
)
|
|
(9
|
)
|
|
(6
|
)
|
Discontinued operations
|
|
—
|
|
|
7
|
|
|
—
|
|
Acquisition related costs
|
|
(5
|
)
|
|
(6
|
)
|
|
(16
|
)
|
Segmentation costs
|
|
—
|
|
|
(4
|
)
|
|
(10
|
)
|
Other
(b)
|
|
(12
|
)
|
|
(1
|
)
|
|
5
|
|
EBITDA
|
|
$
|
665
|
|
|
$
|
405
|
|
|
$
|
349
|
|
|
|
|
|
|
|
|
Items required to reconcile EBITDA to net income (loss):
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(375
|
)
|
|
$
|
(341
|
)
|
|
$
|
(334
|
)
|
Interest expense, net
|
|
(145
|
)
|
|
(138
|
)
|
|
(120
|
)
|
Income tax (expense) benefit
|
|
(55
|
)
|
|
(30
|
)
|
|
(56
|
)
|
Net income (loss)
|
|
$
|
90
|
|
|
$
|
(104
|
)
|
|
$
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnotes:
|
|
Year Ended December 31
|
(a)
Restructuring charges and asset impairments, net:
|
|
2016
|
|
2015
|
|
2014
|
Restructuring charges related to severance and other charges, net
|
|
$
|
(27
|
)
|
|
$
|
(89
|
)
|
|
$
|
(86
|
)
|
Asset impairments, including impairments related to restructuring activities
|
|
(17
|
)
|
|
(32
|
)
|
|
(24
|
)
|
Total Restructuring charges
|
|
$
|
(44
|
)
|
|
$
|
(121
|
)
|
|
$
|
(110
|
)
|
|
|
|
|
|
|
|
(b)
Other reconciling items:
|
|
|
|
|
|
|
Headquarters relocation costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
Non-service cost components associated with U.S. based funded pension plans
|
|
(13
|
)
|
|
1
|
|
|
6
|
|
Stock appreciation rights
|
|
—
|
|
|
1
|
|
|
4
|
|
Other
|
|
1
|
|
|
(3
|
)
|
|
1
|
|
|
|
$
|
(12
|
)
|
|
$
|
(1
|
)
|
|
$
|
5
|
|
Total assets, capital expenditures, and depreciation and amortization information by reporting segment is as set forth in the table below. Goodwill was assigned to reporting segments and reporting units based on individual reporting unit fair values over values attributed to specific intangible and tangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
Capital Expenditures
|
|
Depreciation and
Amortization
|
|
|
December 31
|
|
Year Ended December 31
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Powertrain
|
|
$
|
3,956
|
|
|
$
|
3,997
|
|
|
$
|
262
|
|
|
$
|
301
|
|
|
$
|
268
|
|
|
$
|
233
|
|
|
$
|
208
|
|
|
$
|
196
|
|
Motorparts
|
|
2,919
|
|
|
3,141
|
|
|
116
|
|
|
131
|
|
|
130
|
|
|
133
|
|
|
119
|
|
|
114
|
|
Total Reporting Segment
|
|
6,875
|
|
|
7,138
|
|
|
378
|
|
|
432
|
|
|
398
|
|
|
366
|
|
|
327
|
|
|
310
|
|
Corporate
|
|
201
|
|
|
90
|
|
|
3
|
|
|
8
|
|
|
20
|
|
|
9
|
|
|
14
|
|
|
24
|
|
Total Company
|
|
$
|
7,076
|
|
|
$
|
7,228
|
|
|
$
|
381
|
|
|
$
|
440
|
|
|
$
|
418
|
|
|
$
|
375
|
|
|
$
|
341
|
|
|
$
|
334
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table shows geographic information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Net PPE
|
|
|
Year Ended December 31
|
|
December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
U.S.
|
|
$
|
2,757
|
|
|
$
|
2,803
|
|
|
$
|
2,667
|
|
|
$
|
693
|
|
|
$
|
683
|
|
Germany
|
|
1,444
|
|
|
1,469
|
|
|
1,494
|
|
|
458
|
|
|
464
|
|
China
|
|
530
|
|
|
467
|
|
|
446
|
|
|
263
|
|
|
277
|
|
Mexico
|
|
456
|
|
|
422
|
|
|
375
|
|
|
158
|
|
|
155
|
|
France
|
|
378
|
|
|
399
|
|
|
398
|
|
|
62
|
|
|
67
|
|
Italy
|
|
275
|
|
|
262
|
|
|
290
|
|
|
57
|
|
|
62
|
|
Belgium
|
|
254
|
|
|
257
|
|
|
272
|
|
|
22
|
|
|
14
|
|
United Kingdom
|
|
201
|
|
|
218
|
|
|
242
|
|
|
63
|
|
|
72
|
|
India
|
|
219
|
|
|
210
|
|
|
203
|
|
|
138
|
|
|
141
|
|
Other
|
|
920
|
|
|
912
|
|
|
930
|
|
|
420
|
|
|
418
|
|
|
|
$
|
7,434
|
|
|
$
|
7,419
|
|
|
$
|
7,317
|
|
|
$
|
2,334
|
|
|
$
|
2,353
|
|
The following table shows nonconsolidated affiliates information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Earnings of Nonconsolidated Affiliates, Net of Tax
|
|
Investments In Nonconsolidated Affiliates
|
|
|
Year Ended December 31
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
Powertrain
|
|
$
|
47
|
|
|
$
|
43
|
|
|
$
|
35
|
|
|
$
|
232
|
|
|
$
|
248
|
|
Motorparts
|
|
12
|
|
|
13
|
|
|
13
|
|
|
38
|
|
|
48
|
|
Total Company
|
|
$
|
59
|
|
|
$
|
56
|
|
|
$
|
48
|
|
|
$
|
270
|
|
|
$
|
296
|
|
22.
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents supplementary quarterly financial information for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Net sales
|
|
$
|
1,897
|
|
|
$
|
1,924
|
|
|
$
|
1,825
|
|
|
$
|
1,788
|
|
Gross profit
|
|
$
|
288
|
|
|
$
|
304
|
|
|
$
|
275
|
|
|
$
|
266
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
36
|
|
|
$
|
33
|
|
|
$
|
16
|
|
|
$
|
5
|
|
Net income (loss) attributable to Federal-Mogul
|
|
$
|
35
|
|
|
$
|
31
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share attributable to Federal-Mogul:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.21
|
|
|
$
|
0.18
|
|
|
$
|
0.09
|
|
|
$
|
0.01
|
|
The following table represents items that affect the comparability of the amounts shown above for the interim periods in
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Restructuring charges and asset impairments, net
|
|
$
|
(18
|
)
|
|
$
|
(6
|
)
|
|
$
|
(8
|
)
|
|
$
|
(12
|
)
|
Goodwill and intangible impairment expense, net
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Gain (loss) on sale of assets
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents supplementary quarterly financial information for the year ended
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Net sales
|
|
$
|
1,835
|
|
|
$
|
1,962
|
|
|
$
|
1,824
|
|
|
$
|
1,798
|
|
Gross profit
|
|
$
|
251
|
|
|
$
|
290
|
|
|
$
|
263
|
|
|
$
|
270
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(10
|
)
|
|
$
|
17
|
|
|
$
|
(62
|
)
|
|
(56
|
)
|
Discontinued operations
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
—
|
|
Net income (loss)
|
|
$
|
(10
|
)
|
|
$
|
24
|
|
|
$
|
(62
|
)
|
|
(56
|
)
|
Net income (loss) attributable to Federal-Mogul
|
|
$
|
(11
|
)
|
|
$
|
22
|
|
|
$
|
(63
|
)
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share attributable to Federal-Mogul:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.37
|
)
|
|
$
|
(0.36
|
)
|
Discontinued operations
|
|
$
|
—
|
|
|
$
|
0.04
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income (loss)
|
|
$
|
(0.07
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.37
|
)
|
|
$
|
(0.36
|
)
|
The following table represents items that affect the comparability of the amounts shown above for the interim periods in
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Loss on equity method investment
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restructuring charges and asset impairments, net
|
|
$
|
(13
|
)
|
|
$
|
(30
|
)
|
|
$
|
(23
|
)
|
|
$
|
(54
|
)
|
Goodwill and intangible impairment expense, net
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
(56
|
)
|
|
$
|
(44
|
)
|
23.
RELATED PARTY TRANSACTIONS
Insight Portfolio Group, LLC (“Insight”) is an entity formed and controlled by Mr. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn 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 Mr. Icahn 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 years ended
December 31, 2016
,
2015
, and
2014
.
On June 1, 2015, a subsidiary of IEP 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 acquisition, Uni-Select changed its name to Auto Plus. Auto Plus is operated independently from the Company and all transactions are approved by the independent directors of the Company. In connection with the acquisition, Mr. Icahn has resigned from the Company's board of directors and Daniel A. Ninivaggi, Co-Chief Executive Officer of the Company has resigned from the board of directors of IEP.
The Company had
$54 million
of sales for the year ended December 31, 2016 and
$27 million
of sales from the date of acquisition through
December 31, 2015
to Auto Plus. The Company had
$11 million
and
$12 million
of accounts receivable, net outstanding from Auto Plus as of December 31, 2016 and December 31, 2015.
On February 3, 2016, a subsidiary of 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 U.S. and Puerto Rico. On February 4, 2016, the acquisition of the remaining outstanding shares of Pep Boys was completed.
The Company had
$39 million
of sales from the date of acquisition for the year ended December 31, 2016 to Pep Boys and
$25 million
of accounts receivable, net outstanding from Pep Boys as of December 31, 2016.
On December 1, 2016, the Company acquired the assets and liabilities of Beck Arnley, an entity owned by a subsidiary of IEP. The purchase price was
$14 million
and included a
$7 million
non-interest bearing note maturing on May 1, 2018.
PSC Metals, Inc. (“PSC Metals”) is a wholly-owned subsidiary of IEP. The Company had scrap sales to PSC Metals of
$2 million
and less than
$1 million
for the years ended
December 31, 2016
and
2015
.