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EX-32 - EXHIBIT 32 - Federal-Mogul Holdings LLCcopyofexhibit32q22016.htm
EX-31.3 - EXHIBIT 31.3 - Federal-Mogul Holdings LLCcopyofexhibit313q22016.htm
EX-31.2 - EXHIBIT 31.2 - Federal-Mogul Holdings LLCcopyofexhibit312q22016.htm
EX-31.1 - EXHIBIT 31.1 - Federal-Mogul Holdings LLCcopyofexhibit311q22016.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-34029
 
FEDERAL-MOGUL HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
 
Delaware
 
46-5182047
(State or other jurisdiction of
incorporation or organization)
 
(IRS employer
identification number)
 
 
 
27300 West 11 Mile Road, Southfield, Michigan
 
48034
(Address of principal executive offices)
 
(Zip Code)
(248) 354-7700
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

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

As of July 25, 2016, there were 169,040,651 outstanding shares of the registrant’s $0.01 par value common stock.



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

2



PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(in millions, except per share amounts)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,924

 
$
1,962

 
$
3,821

 
$
3,797

Cost of products sold
 
(1,620
)
 
(1,672
)
 
(3,229
)
 
(3,256
)
 
 
 
 
 
 
 
 
 
Gross profit
 
304

 
290

 
592

 
541

 
 
 
 
 
 


 


Selling, general and administrative expenses
 
(215
)
 
(200
)
 
(413
)
 
(403
)
Goodwill and intangible impairment expense, net (Note 10)
 
(6
)
 

 
(6
)
 
6

Restructuring charges and asset impairments, net (Note 3)
 
(6
)
 
(30
)
 
(24
)
 
(43
)
Amortization expense (Note 10)
 
(14
)
 
(15
)
 
(29
)
 
(29
)
Other income (expense), net (Note 4)
 
2

 

 
12

 
(3
)
Operating income (loss)
 
65

 
45

 
132

 
69

 
 
 
 
 
 
 
 
 
Interest expense, net
 
(36
)
 
(32
)
 
(73
)
 
(67
)
Equity earnings of nonconsolidated affiliates (Note 11)
 
19

 
16

 
33

 
28

Income (loss) from continuing operations before income taxes
 
48

 
29

 
92

 
30

Income tax (expense) benefit (Note 14)
 
(15
)
 
(12
)
 
(23
)
 
(23
)
Income (loss) income from continuing operations
 
33

 
17

 
69

 
7

Gain from discontinued operations, net of income tax
 

 
7

 

 
7

Net income (loss)
 
33

 
24

 
69

 
14

 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests
 
(2
)
 
(2
)
 
(3
)
 
(3
)
Net income (loss) attributable to Federal-Mogul
 
$
31

 
$
22

 
$
66

 
$
11

 
 
 
 
 
 
 
 
 
Amounts attributable to Federal-Mogul:
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
31

 
$
15

 
$
66

 
$
4

Gain from discontinued operations, net of income tax
 

 
7

 

 
7

Net income (loss)
 
$
31

 
$
22

 
$
66

 
$
11

 
 
 
 
 
 
 
 
 
Net income (loss) per common share attributable to Federal-Mogul
 
 
 
 
 
 
 
 
Basic and diluted:
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
0.18

 
$
0.09

 
$
0.39

 
$
0.03

Gain from discontinued operations, net of income tax
 

 
0.04

 

 
0.04

Net income (loss)
 
$
0.18

 
$
0.13

 
$
0.39

 
$
0.07

See accompanying notes to condensed consolidated financial statements.

3


FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in millions)
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
33

 
$
24

 
$
69

 
$
14

Other comprehensive income (loss), net of tax (Note 16)


 


 


 


Foreign currency translation adjustments
(57
)
 
22

 
(15
)
 
(97
)
Cash flow hedging income (loss), net
1

 
(2
)
 
1

 
(1
)
Postemployment benefits
3

 
1

 
7

 
22

Other comprehensive income (loss), net of tax
(53
)
 
21

 
(7
)
 
(76
)
Comprehensive income (loss)
(20
)
 
45

 
62

 
(62
)
Comprehensive (income) loss attributable to noncontrolling interests
(3
)
 
(2
)
 
(7
)
 
(1
)
Comprehensive income (loss) attributable to Federal-Mogul
$
(23
)
 
$
43

 
$
55

 
$
(63
)

See accompanying notes to condensed consolidated financial statements.


4


FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
(in millions)
 
 
June 30
 
December 31
 
 
2016
 
2015
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
290

 
$
194

Accounts receivable, net
 
1,351

 
1,374

Inventories, net (Note 9)
 
1,348

 
1,342

Prepaid expenses and other current assets
 
216

 
188

Total current assets
 
3,205

 
3,098

 
 
 
 
 
Property, plant and equipment, net
 
2,387

 
2,353

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

 
903

Definite-lived intangible assets, net (Note 10)
 
374

 
404

Investments in nonconsolidated affiliates (Note 11)
 
266

 
296

Other noncurrent assets
 
160

 
174

TOTAL ASSETS
 
$
7,299

 
$
7,228

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt, including current portion of long-term debt (Note 12)
 
$
144

 
$
138

Accounts payable
 
915

 
901

Accrued liabilities
 
576

 
582

Current portion of pensions and other postemployment benefits liability
 
41

 
40

Other current liabilities
 
142

 
159

Total current liabilities
 
1,818

 
1,820

 
 
 
 
 
Long-term debt (Note 12)
 
2,949

 
2,914

Pensions and other postemployment benefits liability
 
1,110

 
1,123

Long-term portion of deferred income taxes
 
367

 
367

Other accrued liabilities
 
91

 
102

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

 

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

 
2

Additional paid-in capital
 
2,899

 
2,899

Accumulated deficit
 
(730
)
 
(796
)
Accumulated other comprehensive loss
 
(1,329
)
 
(1,318
)
Treasury stock, at cost
 
(17
)
 
(17
)
Total Federal-Mogul shareholders’ equity
 
825

 
770

Noncontrolling interests
 
139

 
132

Total shareholders’ equity
 
964

 
902

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
7,299

 
$
7,228

See accompanying notes to condensed consolidated financial statements.

5


FEDERAL-MOGUL HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions)
 
 
Six Months Ended
 
 
June 30
 
 
2016
 
2015
Cash Provided From (Used By) Operating Activities
 
 
 
 
Net income (loss)
 
$
69

 
$
14

Adjustments to reconcile net income to net cash provided from (used by) operating activities:
 
 
 
 
Depreciation and amortization
 
180

 
166

Restructuring charges and asset impairments
 
24

 
43

Payments against restructuring liabilities
 
(24
)
 
(38
)
Goodwill and intangible asset impairment expense, net
 
6

 
(6
)
Equity earnings of nonconsolidated affiliates
 
(33
)
 
(28
)
Cash dividends received from nonconsolidated affiliates
 
65

 
6

Change in pensions and postemployment benefits
 
(16
)
 
(16
)
Deferred tax benefit
 
(2
)
 
(1
)
Loss on sale of equity method investment
 

 
11

Gain from discontinued operations
 

 
(7
)
Gain from sales of property, plant and equipment
 
(9
)
 
(4
)
Unrealized foreign currency transaction losses
 
(1
)
 

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
35

 
(182
)
Inventories
 
8

 
(117
)
Accounts payable
 
27

 
80

Other assets and liabilities
 
(37
)
 
(12
)
Net Cash Provided From (Used by) Operating Activities
 
292

 
(91
)
 
 
 
 
 
Cash Provided From (Used By) Investing Activities
 
 
 
 
Expenditures for property, plant and equipment
 
(195
)
 
(216
)
Payments to acquire businesses, net of cash acquired
 
(24
)
 
(301
)
Net proceeds from sale of equity method investment
 
 
 
15

Net proceeds from sales of property, plant and equipment
 
4

 
8

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

Capital investment in nonconsolidated affiliates
 
(1
)
 

Net Cash Provided From (Used By) Investing Activities
 
(228
)
 
(494
)
 
 
 
 
 
Cash Provided From (Used By) Financing Activities
 
 
 
 
Proceeds from term loans, net of original issue discount
 
28

 

Proceeds from equity rights offering net of related fees
 

 
250

Proceeds from borrowings on revolving line of credit
 
256

 
384

Payments on revolving line of credit
 
(208
)
 
(154
)
Principal payments on term loans
 
(38
)
 
(13
)
Decrease in other long-term debt
 

 
(4
)
Increase in short-term debt
 
2

 
17

Net remittances on servicing of factoring arrangements
 
(1
)
 
(1
)
Net Cash Provided From (Used By) Financing Activities
 
39

 
479

 
 
 
 
 
Effect of foreign currency exchange rate fluctuations on cash
 
(19
)
 
17

 
 
 
 
 
Cash and equivalents at beginning of period
 
194

 
332

Cash from operations held for sale at January 1
 
12

 

Increase (decrease) in cash and equivalents
 
84

 
(89
)
Cash and equivalents at end of period
 
$
290

 
$
243

 
 
 
 
 
Supplementary Disclosures:
 
 
 
 
Non-cash financing and investing activities:
 
 
 
 
Change in accrued property and equipment additions
 
$
(17
)
 
$
(16
)

See accompanying notes to condensed consolidated financial statements.

6


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

1     DESCRIPTION OF BUSINESS

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

Proposed Merger Transaction
On February 29, 2016, the Company announced it received a proposal from its majority shareholder Icahn Enterprises L.P. ("IEP") to purchase the shares of the Company's common stock not owned by IEP for $7.00 per share in a merger transaction.  The Company’s Board of Directors subsequently authorized the formation of a special committee consisting of three of the four independent members of the Board of Directors and chaired by Thomas W. Elward to review and evaluate this proposal and any alternative transactions involving the Company. Following its formation, the special committee engaged Houlihan Lokey Capital, Inc. as its financial advisor and Richards, Layton & Finger as its legal counsel. The special committee, working with its advisors, commenced its review and evaluation of the IEP proposal and alternatives thereto. Subsequent to submitting its proposal, IEP advised the Company’s Board of Directors that it was not considering selling its stake in Federal-Mogul at the current time.

On June 20, 2016, the Company announced it had received a revised proposal from IEP to purchase shares of the Company’s common stock not owned by IEP for $8.00 per share, an increase from IEP’s previous offer of $7.00 in cash per share. The proposed merger process is on-going as of the date of this report.

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

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

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

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

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

7


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

Factoring of Accounts Receivable: The Company's subsidiaries in Brazil, France, Germany, Italy, Canada, and the United States are party to accounts receivable factoring and securitization facilities. Amounts factored under these facilities consist of the following:
 
 
June 30
 
December 31
 
 
2016
 
2015
Gross accounts receivable factored
 
$
566

 
$
408

Gross accounts receivable factored, qualifying as sales
 
$
556


$
401

Undrawn cash on factored accounts receivable
 
$
1


$
1


Proceeds from the factoring of accounts receivable qualifying as sales and expenses associated with the factoring of receivables are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2016
 
2015
 
2016
 
2015
Proceeds from factoring qualifying as sales
$
429


$
410


$
842


$
800

Financing charges
(4
)

(2
)

$
(7
)

$
(4
)

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

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

Certain of the facilities contain terms that require the Company to share in the credit risk of the factored receivables. The maximum exposures to the Company associated with these certain facilities’ terms were $4 million and $11 million as of June 30, 2016 and December 31, 2015.

Changes in Accounting Principle
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The accounting guidance requires debt issuance costs related to a recognized debt liability be reported in the consolidated balance sheets as a direct deduction from the carrying amount of that debt liability. The guidance is effective retrospectively and the Company has adopted this guidance in the first quarter of 2016. The adoption of this accounting guidance to the consolidated and condensed consolidated financial statements is summarized below:
 
June 30, 2016
Condensed Consolidated Balance Sheet
Prior Accounting Principles
 
Effect of Accounting Change
 
As Reported
Other noncurrent assets
$
169

 
(9
)
 
$
160

Long-term debt
$
2,958

 
(9
)
 
$
2,949

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

 
(10
)
 
$
174

Long-term debt
$
2,924

 
(10
)
 
$
2,914



8



Noncontrolling Interests
The following table presents a rollforward of the changes in noncontrolling interests:
 
 
Six Months Ended June 30
 
 
Equity balance of noncontrolling interests as of January 1
 
$
132

Comprehensive income (loss):
 
 
Net income
 
3

Foreign currency adjustments and other
 
4

Equity balance of noncontrolling interests as of June 30
 
$
139


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

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

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

3
RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS, NET

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

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

9


 
 
Three Months Ended June 30,
 
 
2016
 
 
Powertrain
 
Motorparts
 
Corporate
 
Total
Severance and other charges, net
 
$
(2
)
 
$
(4
)
 
$

 
$
(6
)
Asset impairments related to restructuring activities
 

 

 

 

Total restructuring charges
 
(2
)
 
(4
)
 

 
(6
)
 
 
 
 
 
 
 
 
 
Other asset impairments
 

 

 

 

Total restructuring charges and asset impairments
 
$
(2
)
 
$
(4
)
 
$

 
$
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
Powertrain
 
Motorparts
 
Corporate
 
Total
Severance and other charges, net
 
$
(2
)
 
$
(25
)
 
$

 
$
(27
)
Asset impairments related to restructuring activities
 

 
(1
)
 

 
(1
)
Total restructuring charges
 
(2
)
 
(26
)
 

 
(28
)
 
 
 
 
 
 
 
 
 
Other asset impairments
 
(2
)
 

 

 
(2
)
Total restructuring charges and asset impairments
 
$
(4
)
 
$
(26
)
 
$

 
$
(30
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2016
 
 
Powertrain
 
Motorparts
 
Corporate
 
Total
Severance and other charges, net
 
$
(14
)
 
$
(7
)
 
$

 
$
(21
)
Asset impairments related to restructuring activities
 

 

 

 

Total restructuring charges
 
(14
)
 
(7
)
 

 
(21
)
 
 
 
 
 
 
 
 
 
Impairment of assets held for sale
 

 
(3
)
 

 
(3
)
Total restructuring charges and asset impairments
 
$
(14
)
 
$
(10
)
 
$

 
$
(24
)
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
Powertrain
 
Motorparts
 
Corporate
 
Total
Severance and other charges, net
 
$
(8
)
 
$
(31
)
 
$

 
$
(39
)
Asset impairments related to restructuring activities
 

 
(1
)
 

 
(1
)
Total restructuring charges
 
(8
)
 
(32
)
 

 
(40
)
 
 
 
 
 
 
 
 
 
Other asset impairments
 
(2
)
 
(1
)
 

 
(3
)
Total restructuring charges and asset impairments
 
$
(10
)
 
$
(33
)
 
$

 
$
(43
)
 
 
 
 
 
 
 
 
 

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

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

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

10



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

 
Powertrain

Motorparts

Total
Reporting
Segment

Corporate

Total
Company
Balance at December 31, 2015
 
$
33

 
$
47


$
80


$


$
80

Provisions
 
12

 
3


15




15

Payments
 
(5
)
 
(6
)

(11
)



(11
)
Foreign Currency
 
1

 
1

 
2

 

 
2

Balance at March 31, 2016
 
41

 
45


86




86

Provisions
 
2

 
4

 
6

 

 
6

Payments
 
(7
)
 
(6
)
 
(13
)
 

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

 
(2
)
Balance at June 30, 2016
 
$
35

 
$
42

 
$
77

 
$

 
$
77


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

 
$
16

 
$
52

 
$
1

 
$
53

Provisions
 
6

 
6

 
12

 

 
12

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

 

 
2

 

 
2

Foreign Currency
 
(3
)
 
(1
)
 
(4
)
 

 
(4
)
Balance at March 31, 2015
 
31

 
16

 
47

 

 
47

Provisions
 
6

 
25

 
31

 

 
31

Reversals
 
(4
)
 

 
(4
)
 

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

 
(22
)
Balance at June 30, 2015
 
$
17

 
$
35

 
$
52

 
$

 
$
52


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

 
Employee
Costs

Facility Closure and Other
Costs

Total
Balance at December 31, 2015
 
$
79


$
1


$
80

Provisions
 
13


2


15

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

 

 
2

Balance at March 31, 2016
 
85


1


86

Provisions
 
5


1


6

Payments
 
(12
)

(1
)

(13
)
       Foreign Currency
 
(2
)
 

 
(2
)
Balance at June 30, 2016
 
$
76


$
1


$
77


11



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

 
$
2

 
$
53

Provisions
 
10

 
2

 
12

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

 

 
2

Foreign Currency
 
(4
)
 

 
(4
)
Balance at March 31, 2015
 
46

 
1

 
47

Provisions
 
29

 
2

 
31

Reversals
 
(4
)
 

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

 
$
1

 
$
52


Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. The Company did not change its estimate of any previously recorded liabilities during the three and six months ended June 30, 2016.

Restructuring charges and asset impairments for the three months ended June 30, 2016 were comprised of $2 million related to the Powertrain segment and $4 million related to the Motorparts segment. The charges include severance related costs of $2 million in EMEA for the Powertrain segment. For the Motorparts segment, the charges include severance related costs of $2 million in EMEA and $1 million North America, and $1 million of facility closure and other costs in North America.

Restructuring charges and asset impairments for the six months ended June 30, 2016 were comprised of $14 million related to the Powertrain segment and $10 million related to the Motorparts segment. The charges include severance related costs of $9 million in EMEA, $3 million in North America, and $1 million in ROW for the Powertrain segment. In addition, there was $1 million in facility closure and other costs in ROW for the Powertrain segment. For the Motorparts segment, the charges include severance related costs of $3 million in North America, and $2 million in EMEA, and facility closure and other costs of $2 million in North America. In addition, there was $3 million in asset impairments in EMEA for the Motorparts segment.

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

See Note 6, Assets Held for Sale and Discontinued Operations, for further details related to the $3 million impairment loss on assets held for sale in the six months ended June 30, 2016.


12


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

 
$

 
$

 
$
(11
)
Foreign currency transaction gain (loss)
3

 

 
1

 

Gain on sale of assets

 

 
9

 
4

Third-party royalty income
1

 
2

 
3

 
4

Legal separation costs

 
(1
)
 

 
(2
)
Financing charges
(4
)
 
(2
)
 
(7
)
 
(4
)
Other
2

 
1

 
6

 
6

 
$
2

 
$

 
$
12

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

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

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

5    ACQUISITIONS

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

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


13


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

Accounts receivable, net
31

Inventory, net
36

Property, plant and equipment, net
234

Goodwill
74

Other identified intangible assets
107

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

Total identifiable net assets
$
390


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

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

Three Months Ended

Six Months Ended

June 30

June 30

2016

2015

2016

2015
Net sales
$
1,924


$
1,962


$
3,821


$
3,841













Net income (loss) attributable to Federal-Mogul
$
31


$
22


$
66


$
11













Earnings (loss) per share attributable to Federal-Mogul - basic and diluted
$
0.18


$
0.13


$
0.39


$
0.07



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

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

6    HELD FOR SALE AND DISCONTINUED OPERATIONS

Held for Sale Operations
The Company classifies assets and liabilities as held for sale ("disposal group") when management, having the authority to approve the action, commits to a plan to sell the disposal group, the sale is probable within one year, and the disposal group is available for immediate sale in its present condition. The Company also considers whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

The Company aggregates the assets and aggregates the liabilities of all held for sale disposal groups on the balance sheet for the period in which the disposal group is held for sale. The Company has classified assets of $3 million as held for sale. These held for sale assets have been recorded in "Prepaid expenses and other current assets" as of June 30, 2016. As part of the evaluation to

14


classify these assets as held for sale, the Company recorded an impairment loss in the amount of $3 million during the six months ended June 30, 2016 which has been included in "Restructuring charges and asset impairments, net" in the condensed consolidated statements of operations.
 
In 2015, the Company entered into a share agreement to sell 100% of the shares of one of its subsidiaries in the Powertrain segment along with certain related assets of another subsidiary. The Company classified the assets and liabilities related to this transaction as held for sale. Prior to December 31, 2015, the Company contributed $12 million in cash to the subsidiary. The transaction closed on January 1, 2016 with no additional amounts recognized for the six months ended June 30, 2016.

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

7
DERIVATIVES AND HEDGING ACTIVITIES

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

Information regarding the Company’s outstanding commodity price hedge contracts is as follows:
 
 
June 30
 
December 31
 
 
2016
 
2015
Combined notional value
 
$
21

 
$
28

Combined notional value designated as hedging instruments
 
$
21

 
$
28

Unrealized net loss recorded in “Accumulated other comprehensive loss”
 
$

 
$
(2
)
Net liability position
 
$

 
$
3


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

Foreign Currency Risk
The Company manufactures and sells its products in North America, South America, Asia, Europe, Australia, and Africa. As a result, the Company’s financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which the Company manufactures and sells its products. The Company generally tries to use natural hedges within its foreign currency activities, including the matching of revenues and costs, to minimize foreign currency risk. Where natural hedges are not in place, the Company considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. Principal currencies hedged have historically included the euro, British pound and Polish zloty. Foreign currency forwards are also used in conjunction with the Company's commodity hedging program. In order to obtain critical terms match for commodity exposure, the Company engages the use of foreign exchange contracts. The Company did not hold any foreign currency price hedge contracts at June 30, 2016 or December 31, 2015. For the six months ended June 30, 2016 and 2015 there were no amounts reclassified into net income.

Concentrations of Credit Risk
Financial instruments including cash equivalents, derivative contracts, and accounts receivable, expose the Company to counter-party credit risk for non-performance. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s counterparties for derivative

15


contracts are substantial investment and commercial banks with significant experience using such derivatives. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counter-party and through monitoring counter-party credit risks. The Company’s concentration of credit risk related to derivative contracts at June 30, 2016 and 2015 is not material.

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

8
FAIR VALUE MEASUREMENTS

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

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

Items Measured at Fair Value on a Recurring Basis

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

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

 
$

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

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

Items Measured at Fair Value on a Nonrecurring Basis
In addition to items measured at fair value on a recurring basis, the Company also has assets that may be measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. 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.

During the six months ended June 30, 2016 and 2015, the Company recorded impairment charges of $3 million and $4 million related to property, plant, and equipment, which have been recorded within "Restructuring charges and asset impairments, net" in the condensed consolidated statement of operations.

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

16



Financial Instruments not Carried at Fair Value
Estimated fair values of the Company’s term loans under the Credit Agreement were:
 
June 30, 2016
 
December 31, 2015
 
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
Measurement Approach
Term Loans
$
2,540

 
$
2,383

 
$
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 June 30, 2016 and December 31, 2015. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

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

Net inventories consist of the following:
 
 
June 30
 
December 31
 
 
2016
 
2015
Raw materials
 
$
277

 
$
254

Work-in-process
 
190

 
175

Finished products
 
1,011

 
1,027

 
 
1,478

 
1,456

Inventory valuation allowance
 
(130
)
 
(114
)
 
 
$
1,348

 
$
1,342


10
GOODWILL AND OTHER INTANGIBLE ASSETS

A summary of changes in the net carrying amounts of goodwill by segment are as follows:
 
Six Months Ended June 30, 2016
 
Powertrain
 
Motorparts
 
Total
Net carrying amount, January 1
$
512

 
$
161

 
$
673

Acquisitions and purchase accounting adjustments
6

 

 
6

Foreign exchange
6

 

 
6

Net carrying amount, March 31
524

 
161

 
685

Acquisitions and purchase accounting adjustments

 

 

Impairment charges
(6
)
 

 
(6
)
Foreign exchange

 

 

Net carrying amount, June 30
$
518

 
$
161

 
$
679

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

 
$
648

 
$
790

Accumulated impairment charges at December 31, 2015
$
136

 
$
648

 
$
784


The Company conducts its assessment for goodwill impairments on October 1 of each year for all reporting units. Due to the complexity of the 2015 step two goodwill impairment test, the Company finalized its assessment as of June 30, 2016. Based on

17


the results of the annual impairment test, the Company recorded an additional goodwill impairment charge of $6 million in the three and six months ended June 30, 2016.



At June 30, 2016 and December 31, 2015, intangible assets consist of the following:
 
 
June 30, 2016
 
December 31, 2015
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Developed technology
 
$
138

 
$
(93
)
 
$
45

 
$
140

 
$
(86
)
 
$
54

Customer relationships
 
684

 
(355
)
 
329

 
683

 
(333
)
 
350

 
 
$
822

 
$
(448
)
 
$
374

 
$
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:
 
Six Months Ended
 
June 30,
 
2016
 
2015
Amortization expense
$
29

 
$
29


The Company’s estimated future amortization expense for its definite-lived intangible assets is as follows:
 
Remaining 2016
 
2017
 
2018
 
2019
 
2020
 
2021 and thereafter
 
Total
Expected amortization expenses
$
30

 
58

 
49

 
49

 
49

 
139

 
374


11
INVESTMENT IN NONCONSOLIDATED AFFILIATES

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

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

The following represents the Company’s aggregate investments and direct ownership in these affiliates:
 
 
June 30
 
December 31
 
 
2016
 
2015
Investments in nonconsolidated affiliates
 
$
266

 
$
296

 
 
 
 
 
Direct ownership percentages
 
2% to 50%

 
2% to 50%



18


The following table represents amounts reflected in the Company’s financial statements related to nonconsolidated affiliates:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2016
 
2015
 
2016
 
2015
Equity earnings of nonconsolidated affiliates
$
19

 
$
16

 
$
33

 
$
28

 
 
 
 
 
 
 
 
Cash dividends received from nonconsolidated affiliates
$
59

 
$
6

 
$
65

 
$
6


The following tables present summarized aggregated financial information of the Company’s nonconsolidated affiliates for the three and six months ended June 30, 2016 and 2015. The amounts represent 100% of the interest in the nonconsolidated affiliates and not the Company's proportionate share.
 
 
Three months ended June 30, 2016
Statements of Operations
 
Turkey JVs
 
Anqing TP Goetze
 
All Other
 
Total
Sales
 
$
96

 
$
42

 
$
121

 
$
259

Gross profit
 
$
26

 
$
13

 
$
27

 
$
66

Income from continuing operations
 
$
25

 
$
12

 
$
17

 
$
54

Net income
 
$
20

 
$
12

 
$
16

 
$
48


 
 
Three months ended June 30, 2015
Statements of Operations
 
Turkey JVs
 
Anqing TP Goetze
 
All Other
 
Total
Sales
 
$
86

 
$
45

 
$
88

 
$
219

Gross profit
 
$
20

 
$
15

 
$
11

 
$
46

Income from continuing operations
 
$
22

 
$
14

 
$
6

 
$
42

Net income
 
$
18

 
$
14

 
$
6

 
$
38



 
 
Six Months Ended June 30, 2016
Statements of Operations
 
Turkey JVs
 
Anqing TP Goetze
 
All Other
 
Total
Sales
 
$
187

 
$
80

 
$
233

 
$
500

Gross profit
 
$
50

 
$
24

 
$
52

 
$
126

Income from continuing operations
 
$
43

 
$
21

 
$
32

 
$
96

Net income
 
$
34

 
$
21

 
$
30

 
$
85


 
 
Six Months Ended June 30, 2015
Statements of Operations
 
Turkey JVs
 
Anqing TP Goetze
 
All Other
 
Total
Sales
 
$
168

 
$
92

 
$
172

 
$
432

Gross profit
 
$
39

 
$
30

 
$
20

 
$
89

Income from continuing operations
 
$
37

 
$
27

 
$
11

 
$
75

Net income
 
$
30

 
$
27

 
$
11

 
$
68



19


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

12    DEBT

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

 
$
340

Tranche B term loan
 
688

 
691

Tranche C term loan
 
1,867

 
1,876

Debt discount
 
(7
)
 
(8
)
Unamortized debt issuance fees
 
(9
)
 
(10
)
Other debt, primarily foreign instruments
 
164

 
163

 
 
3,093

 
3,052

Less:
 
 
 
 
Short-term debt, including current maturities of long-term debt
 
(144
)
 
(138
)
Total long-term debt
 
$
2,949

 
$
2,914


The Replacement Revolving Facility has an available borrowing base of $171 million and $39 million of letters of credit outstanding at June 30, 2016, pertaining to the term loan credit facility. To the extent letters of credit associated with the Replacement Revolving Facility are issued, there is a corresponding decrease in borrowings available under this facility.

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

 
$

 
$
1

 
$
1



13
PENSIONS AND OTHER POSTRETIREMENT BENEFITS

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


20


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

 
$
1

 
$
4

 
$
4

 
$

 
$

Interest cost
 
12

 
12

 
3

 
2

 
3

 
4

Expected return on plan assets
 
(12
)
 
(14
)
 

 
(1
)
 

 

Amortization of actuarial losses
 
3

 
2

 
1

 
3

 

 

Amortization of prior service credits