SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
CURRENT REPORT
| x | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission file number: 1-1511
FEDERAL-MOGUL CORPORATION
401(k) INVESTMENT PROGRAM
26555 Northwestern Highway
Southfield, MI 48033
(248) 354-7700
The Plan holds warrants of
Federal-Mogul Corporation
FEDERAL-MOGUL CORPORATION
401(k) INVESTMENT PROGRAM
| Page Number | ||
| 1 | ||
Financial Statements | ||
Statements of Net Assets Available for Plan Benefits As of December 31, 2007 and 2006 | 2 | |
| 3 | ||
| 4-16 | ||
Supplemental Schedule for the year ended December 31, 2007 | ||
Schedule H, Line 4i – Schedule of Assets (Held at End of Year) | 17 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Plan Design Committee
Federal-Mogul Corporation
We have audited the accompanying statements of net assets available for plan benefits of the Federal-Mogul Corporation 401(k) Investment Program as of December 31, 2007 and 2006, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Plan’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan at December 31, 2007 and 2006, and the changes in its net assets available for plan benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2007 is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
Detroit, Michigan
June 27, 2008
401(k) Investment Program
Statements of Net Assets Available for Plan Benefits
| December 31 | ||||||
| 2007 | 2006 | |||||
Assets | ||||||
Receivables: | ||||||
Company contributions | $ | — | $ | 122,375 | ||
Participant contributions | — | 616,295 | ||||
Participant loan interest | — | 15,383 | ||||
Federal-Mogul Corporation warrants | 756,237 | — | ||||
Total receivables | 756,237 | 754,053 | ||||
Participant loans in Master Trust (See Note 7) | 6,450,594 | 6,334,906 | ||||
Investments in Master Trust at fair value (See Note 7) | 386,620,763 | 379,765,801 | ||||
Total assets | 393,827,594 | 386,854,760 | ||||
Liabilities | ||||||
Forfeited accounts owed to the Company (See Note 1) | 8,486 | 16,976 | ||||
Net assets at fair value | 393,819,108 | 386,837,784 | ||||
Adjustments from fair value to contract value for fully benefit-responsive investment contracts | 688,425 | 1,128,997 | ||||
Net assets available for plan benefits | $ | 394,507,533 | $ | 387,966,781 | ||
See notes to financial statements
2
401(k) Investment Program
Statements of Changes in Net Assets Available for Plan Benefits
| Years Ended December 31 | |||||||
| 2007 | 2006 | ||||||
Additions | |||||||
Dividends and interest | $ | 26,736,505 | $ | 20,193,695 | |||
Participant contributions | 22,642,065 | 22,623,228 | |||||
Company contributions | 3,792,156 | 3,866,101 | |||||
Total additions | 53,170,726 | 46,683,024 | |||||
Deductions | |||||||
Benefits paid to participants | 43,373,608 | 38,513,632 | |||||
Administrative expenses | 49,902 | 41,601 | |||||
Portion of Company contribution account forfeited upon withdrawal of participants (see Note 1) | 148,741 | 121,001 | |||||
Total deductions | 43,572,251 | 38,676,234 | |||||
Net realized/unrealized appreciation/(depreciation) in fair value of investments in Master Trust (See Note 7) | (3,359,931 | ) | 19,815,208 | ||||
Transfer from other Company investment program | 302,208 | 408,392 | |||||
Net increase | 6,540,752 | 28,230,390 | |||||
Net assets available for plan benefits at beginning of year | 387,966,781 | 359,736,391 | |||||
Net assets available for plan benefits at end of year | $ | 394,507,533 | $ | 387,966,781 | |||
See notes to financial statements
3
401(k) Investment Program
Notes to Financial Statements
December 31, 2007
| 1. | Description of the Plan |
Federal-Mogul Corporation (the “Company”) sponsors the Federal-Mogul Corporation 401(k) Investment Program (the “Plan”). The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan which provides eligible salaried employees of the Company with a program for making voluntary pre-tax, after-tax and Roth contributions. All domestic salaried employees of the Company and subsidiaries are eligible to participate in the Plan. It is subject to the provisions of the Employee Retirement Income Security Act (ERISA).
The Company’s Emergence from Chapter 11 Proceeding
The predecessor to Federal-Mogul Corporation, (the “Predecessor Company”) and all of its then-existing wholly-owned United States subsidiaries (“U.S. Subsidiaries”) filed voluntary petitions on October 1, 2001 for reorganization under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On October 1, 2001, certain of the Predecessor Company’s United Kingdom subsidiaries (together with the U.S. Subsidiaries, the “Debtors”) filed voluntary petitions for reorganization under the Bankruptcy Code with the Bankruptcy Court. On November 8, 2007, the Bankruptcy Court entered an Order (the “Confirmation Order”) confirming the Fourth Amended Joint Plan of Reorganization for Debtors and Debtors-in-Possession (as Modified) (the “Plan of Reorganization”) and entered Findings of Fact and Conclusions of Law regarding the Plan (the “Findings of Fact and Conclusions of Law”). On November 14, 2007, the United States District Court for the District of Delaware entered an order affirming the Confirmation Order and adopting the Findings of Fact and Conclusions of Law. On December 27, 2007, the Plan of Reorganization became effective in accordance with its terms (the “Effective Date”). On the Effective Date, the Predecessor Company merged with and into New Federal-Mogul Corporation whereupon (i) the separate corporate existence of the Predecessor Company ceased, (ii) New Federal-Mogul Corporation became the surviving corporation and continues to be governed by the laws of the State of Delaware and (iii) New Federal-Mogul Corporation was renamed “Federal-Mogul Corporation” (also referred to as “Federal-Mogul” or the “Company”).
The Company’s Plan of Reorganization
The Plan of Reorganization provides for distributions of cash and/or securities to be made to holders of pre-Petition Date claims against the Debtors as well as certain claims that arose during the pendency of the Chapter 11 Cases. Certain key provisions of the Plan of Reorganization which affect the Plan, include the following:
| • | On the Effective Date, a total of 3,914,758 shares of common stock of the Predecessor Company held in the Master Trust were cancelled. |
| • | 295,674 Federal-Mogul Corporation warrants (the “Warrants”) were issued to the Master Trust, at a conversion ratio of 0.0755280 Warrants for each share of Predecessor Company common stock held in the Master Trust as of the Effective Date. Each Warrant provides the right to purchase a share of Class A Common Stock of the Company at an exercise price equal to $45.815. If not exercised, the Warrants will expire on December 27, 2014. |
| • | The Plan of Reorganization provides the Plan will continue in existence. |
4
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 1. | Description of the Plan (continued) |
Plan Merger
In January 2008, Federal-Mogul Corporation Salaried Employees’ Investment Program (the “SEIP”), which had assets consisting of 66,455 Warrants and a receivable in the Lawsuit Settlement referred to below, was merged into the Plan.
The SEIP Lawsuit Settlement
On September 22, 2003, a class action lawsuit was filed in the United State District Court for the Southern District of Illinois and later transferred to the United States District Court of the Eastern District of Michigan (the “Court”) alleging that certain of the Predecessor Company officers, directors, and employees, Comerica Bank and State Street Bank and Trust Company, as Trustees, and the Plan, breached their fiduciary duty to SEIP participants whose benefit was invested or maintained investments in the Common Stock Fund and/or Preferred Stock at any time between July 1, 1999 and October 30, 2002. Effective July 12, 2007, settlement of this lawsuit was approved by the Court. A Settlement Fund was established that included a cash amount of $12,750,000 (“Cash Amount”), as well as an unsecured claim in the amount of $3 million (“Sherrill Allowed Claim”) under the Plan of Reorganization. Counsel for the plaintiff class sold the Sherrill Allowed Claim for $2.7 million. No damages were claimed from the SEIP. The Cash Amount and proceeds from the sale of the Sherrill Allowed Claim, together with interest earnings on the Cash Amount, are being held in an interest-bearing escrow account (the “Settlement Fund”). The Court has approved certain disbursements from the Settlement Fund, including attorney fees of 28% of the Settlement Fund, $310,000 of Class Counsel costs and expenses, taxes and tax-related expenses incurred in connection with the settlement, costs associated with providing notice to the Settlement Class participants, and a total of $40,000 in incentive payments to Class Representatives.
The assets remaining in the Settlement Fund after approved disbursements are referred to as the Net Proceeds. The Class Action Settlement Agreement provides that the Net Proceeds will be disbursed to the Master Trust (as defined below) for the Plan on behalf of the SEIP. In 2008, Net Proceeds of $10,903,696 were disbursed to the Master Trust of the Plan. The Net Proceeds were then credited to accounts of the Settlement Class participants in accordance with the Court approved Plan of Allocation.
Independent Fiduciary
Fiduciary Counselors Inc., as an independent fiduciary, managed the Plan’s investment in the Predecessor Company common Stock (“Common Stock”) until December 27, 2007 when all the Predecessor Company Common Stock was cancelled as called for under the Plan of Reorganization.
Named Fiduciary
Effective December 27, 2007, the Company hired United States Trust Company, National Association (“U.S. Trust”) as the named fiduciary and investment manager for the assets of the Plan that consist of the Warrants, and any Class A Common Stock acquired upon the exercise of the Warrants, within the Plan. The independent fiduciary has the authority to continue, restrict or terminate these investments within the Plan.
5
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 1. | Description of the Plan (continued) |
Master Trust
Assets of this Plan, and another Company plan, are administered under the terms of a trust agreement (the “Master Trust”) between the Company and Fidelity Management Trust Company (the “Trustee”). The agreement provides, among other things, that the Trustee safekeeps all investments, and accounts for all investments, receipts, disbursements, benefit payments, and other transactions. Plan net assets, net investment income and gains and losses are not allocated from the Master Trust, but are tracked separately for the Plan by Fidelity.
Contributions & Vesting
Upon employment, employees are immediately eligible to participate in the Plan. The Company matching contribution is equal to 25% on the first 8% of eligible compensation, based on employee pretax and aftertax contributions to the Plan. Participants are immediately vested in their contributions plus earnings thereon. Vesting in the Company’s matching contribution portion of their accounts plus earnings thereon is based on years of vesting service as follows:
Years of Vesting Service | % of Vesting in Company Contribution | |
1 | 0% | |
2 | 25% | |
3 | 50% | |
4 | 75% | |
5 | 100% |
Full vesting also occurs upon death, total and permanent disability, or retirement at designated ages. In addition, special-vesting provisions will become effective if the Plan is determined to be “top-heavy,” pursuant to the Internal Revenue Code.
Forfeitures
Company contributions which are not vested at the time of a participant’s withdrawal from the Plan are forfeited and are applied as a reduction of future Company contributions.
If the individual is re-employed within 60 months of his/her severance of employment and repays the full amount previously distributed to him/her from the Company contribution account and otherwise qualifies for reinstatement in the Plan, the amount of the forfeitures is re-credited to his/her account in the reinstatement year.
Participant Accounts
Each participant’s account is credited with the participant’s contribution, Company’s contribution, if applicable, and Plan earnings. The benefit to which a participant is entitled is the benefit that can be provided not in excess of the participant’s vested account balance. Administrative expenses related to loan administration, disbursements, sale of Common Stock, or participation in the Brokerage Account are paid directly from the corresponding participant’s Plan account.
6
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 1. | Description of the Plan (continued) |
Investment Options
The Plan provides for the following participant directed investment options:
AMCAP Fund – Class R4 | Fidelity Freedom 2035 Fund | |
Brokerage Account | Fidelity Freedom 2040 Fund | |
Columbia Acorn Fund – Class Z | Fidelity Freedom 2045 Fund | |
Dimensional Emerging Markets Fund | Fidelity Freedom 2050 Fund | |
Dodge & Cox Stock Fund | Fidelity Freedom Income Fund | |
Dreyfus Mid-Cap Index Fund | Fidelity Low-Priced Stock Fund | |
Dreyfus Small Cap Stock Index Fund | Fidelity Mid-Cap Stock Fund | |
Fidelity Diversified International Fund | Fidelity U.S. Bond Index Fund | |
Fidelity Dividend Growth Fund | PIMCO Foreign Bond Fund | |
Fidelity Freedom 2000 Fund | PIMCO Total Return Bond Fund | |
Fidelity Freedom 2005 Fund | Royce Opportunity Fund | |
Fidelity Freedom 2010 Fund | Spartan International Index Fund | |
Fidelity Freedom 2015 Fund | Spartan U.S. Equity Index Fund | |
Fidelity Freedom 2020 Fund | Stable Value Fund – MIP II | |
Fidelity Freedom 2025 Fund | T. Rowe Price Mid-Cap Growth Fund | |
Fidelity Freedom 2030 Fund | The Oakmark Select Fund |
Participant Loans
The Plan allows participants to borrow from their account under certain plan conditions. The maximum amount of a participant’s borrowings shall not exceed $50,000 over a 12 month period and is limited to the lower of 50% of the participant’s vested account balance or 90% of the participant’s employee contribution accounts. No borrowings shall be permitted for amounts under $1,000. Loans for the purchase of a primary residence can be for a 15-year duration. All other borrowings shall be paid back in equal payments through payroll deductions not to exceed four-and-one-half years. The rate of interest for the loans is equal to the Prime Rate as published in The Wall Street Journal on the last business day of each month plus 1%. The rate in effect at the time the loan is taken will be fixed for the duration of the loan.
Payment of Benefits / Withdrawals
In the event of retirement (as defined by the Plan agreement), death, total and permanent disability, termination of employment (as defined by the Plan agreement), or attainment of age 59 1/2, the vested balances in the participant’s accounts may be distributed to the participant or the participant’s beneficiary in either a lump-sum distribution or periodic installments.
7
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 2. | Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of accounting.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Plan’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
New Accounting Pronouncement
In September 2006, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements. This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Plan management is currently evaluating the effect that the provisions of FAS 157 will have on the Plan’s financial statements.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value except for the benefit-responsive investment contracts within the Stable Value Fund, which are valued at contract value in accordance with the Financial Accounting Standards Board (FASB) issued FASB Staff Position AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP). Quoted market prices are used to value investments. Shares of mutual funds are valued at the net asset value of shares held by the Plan at year-end. Participant loans are valued at their outstanding balances.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Payment of Benefits
Benefits are recorded when paid.
Administrative Expenses
Expenses incurred in the operation of the Plan are paid by the Plan unless paid by the Company or the Participants. No expenses are paid from the trust unless such payment is permitted by law. Participants may incur administrative expenses related to loan administration, disbursements, sale of Federal-Mogul Corporation Common Stock, or participation in the Brokerage Account. Administrative expenses related to these transactions are paid directly from the corresponding participant’s Plan account.
Reclassifications
Certain items in the prior year’s financial statements have been reclassified to conform with the presentation used in 2007.
8
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 3. | Party-In-Interest Transaction |
Fees incurred for legal and other services rendered by parties-in-interest were paid by the Company on behalf of the Plan.
| 4. | Plan Termination |
Although it has not expressed any intent to do so, the Company has the right, under the Plan document to terminate the Plan, subject to the provisions of ERISA. In the event the Plan is terminated or partially terminated, the Company shall determine the share of each participant affected thereby and all accounts shall fully vest. The Funds shall then be distributed to the participants and no portion of the funds shall be returned to the Company.
| 5. | Risks and Uncertainties |
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities could occur in the future and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for plan benefits.
| 6. | Income Tax Status |
The Plan has received a determination letter from the Internal Revenue Service dated December 15, 2003, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the “Code”) and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the Internal Revenue Service, the Plan has been amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan, as amended, is qualified and the related trust is tax exempt.
9
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 7. | Investments in Master Trust |
Net Assets of Master Trust
The Plan’s investments were held in the Master Trust. The Plan held approximately a 60% and 59% share in the Master Trust at December 31, 2007 and 2006 respectively.
The fair value of net assets of the Master trust was as follows:
| December 31, 2007 | December 31, 2006 | |||||
Assets | ||||||
Receivables: | ||||||
Company contributions | $ | 37,749 | $ | 246,633 | ||
Participant contributions | — | 802,745 | ||||
Participant loan interest | — | 29,143 | ||||
Federal-Mogul Corporation warrants | 1,404,450 | — | ||||
Total receivables | 1,442,199 | 1,078,521 | ||||
Participant loans | 17,689,042 | 17,715,450 | ||||
Investments: | ||||||
AMCAP Fund - Class R4 | 3,856,426 | 3,054,908 | ||||
Brokerage Account | 7,215,805 | 7,202,959 | ||||
Columbia Acorn Fund - Class Z | 9,540,603 | 8,837,760 | ||||
Dimensional Emerging Markets | 15,478,054 | 8,792,650 | ||||
Dodge & Cox Stock Fund | 18,286,268 | 18,943,797 | ||||
Dreyfus Mid Cap Index Fund | 2,795,091 | 2,549,669 | ||||
Dreyfus Small Cap Stock Index Fund | 1,837,635 | 1,771,471 | ||||
Federal-Mogul Corporation Common Stock | — | 2,976,956 | ||||
Fidelity Diversified International Fund | 50,895,389 | 45,999,297 | ||||
Fidelity Dividend Growth Fund | 104,656,104 | 113,329,599 | ||||
Fidelity Freedom 2000 Fund | 583,037 | 313,613 | ||||
Fidelity Freedom 2005 Fund | 235,142 | 225,420 | ||||
Fidelity Freedom 2010 Fund | 4,759,109 | 3,875,669 | ||||
Fidelity Freedom 2015 Fund | 4,954,489 | 3,479,109 | ||||
Fidelity Freedom 2020 Fund | 5,340,514 | 3,900,680 | ||||
Fidelity Freedom 2025 Fund | 5,387,042 | 3,813,086 | ||||
Fidelity Freedom 2030 Fund | 4,189,775 | 3,023,342 | ||||
Fidelity Freedom 2035 Fund | 3,059,467 | 2,548,359 | ||||
Fidelity Freedom 2040 Fund | 6,028,937 | 4,473,497 | ||||
Fidelity Freedom 2045 Fund | 95,267 | — | ||||
Fidelity Freedom 2050 Fund | 166,680 | — | ||||
Fidelity Freedom Income Fund | 461,973 | 249,736 | ||||
Fidelity Low-Priced Stock Fund | 57,194,226 | 62,940,037 | ||||
Fidelity Mid-Cap Stock Fund | 50,397,520 | 50,122,135 | ||||
Fidelity U.S. Bond Index Fund | 4,042,917 | 2,712,068 | ||||
PIMCO Foreign Bond Fund | 1,427,517 | 1,168,636 | ||||
PIMCO Total Return Bond Fund | 77,643,087 | 74,606,394 | ||||
Royce Opportunity Fund | 6,067,132 | 6,174,943 | ||||
Spartan International Index Fund | 3,366,826 | 2,540,891 | ||||
Spartan U.S. Equity Index Fund | 3,590,305 | 3,107,713 | ||||
Stable Value Fund (See details of underlying investments below) | 176,033,365 | 183,482,408 | ||||
T. Rowe Price Mid-Cap Growth Fund | 6,830,251 | 5,040,655 | ||||
The Oakmark Select Fund | 3,614,813 | 4,478,737 | ||||
Investments in Master Trust at fair value | 640,030,766 | 635,736,194 | ||||
Total assets in Master Trust | 659,162,007 | 654,530,165 | ||||
Liabilities | ||||||
Forfeited accounts owed to the Company | 36,397 | 69,071 | ||||
Employer match owed to the Company | 369 | — | ||||
Total liabilities | 36,766 | 69,071 | ||||
Total net assets of the Master Trust at fair value | 659,125,241 | 654,461,094 | ||||
Adjustments from fair value to contract value for fully benefit-responsive investment contracts | 1,334,621 | 2,181,924 | ||||
Total net assets of the Master Trust | $ | 660,459,862 | $ | 656,643,018 | ||
10
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 7. | Investments in Master Trust (continued) |
Investment income
During the years ended December 31, 2007 and 2006, the Master Trust had net investment income of $43,978,159 and $33,791,394, respectively, and had net realized and unrealized depreciation in the fair value of investments of $5,138,010 during the year ended December 31, 2007, and net realized and unrealized appreciation in the fair value of investments of $30,834,143 during the year ended December 31, 2006, as follows:
| Net Investment Income for the Year Ended December 31, 2007 | Net Realized and Unrealized Appreciation/ (Depreciation) in Fair Value for the Year Ended December 31, 2007 | ||||||
AMCAP Fund - Class R4 | $ | 240,068 | $ | (14,734 | ) | ||
Brokerage Account | — | 657,308 | |||||
Columbia Acorn Fund - Class Z | 727,582 | (59,187 | ) | ||||
Dimensional Emerging Markets Fund | 803,905 | 2,528,177 | |||||
Dodge & Cox Stock Fund | 1,910,329 | (1,900,870 | ) | ||||
Dreyfus Mid Cap Index Fund | 274,323 | (78,368 | ) | ||||
Dreyfus Small Cap Stock Index Fund | 168,409 | (189,583 | ) | ||||
Federal-Mogul Corporation Common Stock | — | (554,099 | ) | ||||
Fidelity Diversified International Fund | 3,650,363 | 3,624,606 | |||||
Fidelity Dividend Growth Fund | 9,092,975 | (7,539,209 | ) | ||||
Fidelity Freedom 2000 Fund | 30,477 | (9,164 | ) | ||||
Fidelity Freedom 2005 Fund | 13,351 | 4,131 | |||||
Fidelity Freedom 2010 Fund | 269,459 | 43,958 | |||||
Fidelity Freedom 2015 Fund | 240,716 | 59,451 | |||||
Fidelity Freedom 2020 Fund | 312,761 | 54,732 | |||||
Fidelity Freedom 2025 Fund | 241,464 | 99,457 | |||||
Fidelity Freedom 2030 Fund | 217,172 | 75,545 | |||||
Fidelity Freedom 2035 Fund | 154,618 | 92,056 | |||||
Fidelity Freedom 2040 Fund | 350,791 | 105,873 | |||||
Fidelity Freedom 2045 Fund | 2,117 | (2,560 | ) | ||||
Fidelity Freedom 2050 Fund | 3,310 | (5,581 | ) | ||||
Fidelity Freedom Income Fund | 25,387 | (8,187 | ) | ||||
Fidelity Low-Priced Stock Fund | 5,094,470 | (2,978,199 | ) | ||||
Fidelity Mid-Cap Stock Fund | 4,036,968 | 123,502 | |||||
Fidelity U.S. Bond Index Fund | 169,208 | 16,378 | |||||
PIMCO Foreign Bond Fund | 45,618 | 6,405 | |||||
PIMCO Total Return Bond Fund | 4,139,657 | 2,201,423 | |||||
Royce Opportunity Fund | 870,317 | (999,190 | ) | ||||
Spartan International Index Fund | 105,888 | 188,794 | |||||
Spartan U.S. Equity Index Fund | 67,979 | 115,982 | |||||
Stable Value Fund (see details of underlying investments below) | 8,379,434 | (2,580 | ) | ||||
T. Rowe Price Mid-Cap Growth Fund | 568,480 | 259,572 | |||||
The Oakmark Select Fund | 432,130 | (1,053,849 | ) | ||||
| 42,639,726 | (5,138,010 | ) | |||||
Participant loans | 1,338,433 | — | |||||
| $ | 43,978,159 | $ | (5,138,010 | ) | |||
11
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 7. | Investments in Master Trust (continued) |
Investment income (continued)
| Net Investment Income for the Year Ended December 31, 2006 | Net Realized and Unrealized Appreciation/ (Depreciation) in Fair Value for the Year Ended December 31, 2006 | ||||||
AMCAP Fund - Class R4 | $ | 108,465 | $ | 133,236 | |||
Brokerage Account | — | 652,751 | |||||
Columbia Acorn Fund - Class Z | 704,991 | 335,350 | |||||
Dimensional Emerging Markets Fund | 204,495 | 1,538,932 | |||||
Dodge & Cox Stock Fund | 1,043,045 | 1,682,100 | |||||
Dreyfus Mid Cap Index Fund | 121,775 | 120,244 | |||||
Dreyfus Small Cap Stock Index Fund | 77,371 | 133,672 | |||||
Federal-Mogul Corporation Common Stock | 267 | 1,158,805 | |||||
Fidelity Diversified International Fund | 3,295,403 | 5,097,136 | |||||
Fidelity Dividend Growth Fund | 4,432,016 | 10,401,264 | |||||
Fidelity Freedom 2000 Fund | 13,724 | 9,801 | |||||
Fidelity Freedom 2005 Fund | 9,860 | 9,936 | |||||
Fidelity Freedom 2010 Fund | 173,956 | 124,556 | |||||
Fidelity Freedom 2015 Fund | 143,140 | 134,929 | |||||
Fidelity Freedom 2020 Fund | 195,257 | 167,087 | |||||
Fidelity Freedom 2025 Fund | 165,667 | 208,456 | |||||
Fidelity Freedom 2030 Fund | 158,605 | 154,755 | |||||
Fidelity Freedom 2035 Fund | 108,429 | 152,917 | |||||
Fidelity Freedom 2040 Fund | 224,326 | 247,151 | |||||
Fidelity Freedom Income Fund | 16,523 | 9,044 | |||||
Fidelity Low-Priced Stock Fund | 5,540,015 | 4,218,968 | |||||
Fidelity Mid-Cap Stock Fund | 2,282,001 | 4,252,328 | |||||
Fidelity U.S. Bond Index Fund | 115,343 | (10,427 | ) | ||||
PIMCO Foreign Bond Fund | 61,196 | (24,050 | ) | ||||
PIMCO Total Return Bond Fund | 3,611,512 | (893,369 | ) | ||||
Royce Opportunity Fund | 669,061 | 143,236 | |||||
Spartan International Index Fund | 45,603 | 296,386 | |||||
Spartan U.S. Equity Index Fund | 51,281 | 365,718 | |||||
Stable Value Fund (see details of underlying investments below) | 8,221,251 | (11,229 | ) | ||||
T. Rowe Price Mid-Cap Growth Fund | 363,693 | (51,493 | ) | ||||
The Oakmark Select Fund | 473,884 | 75,953 | |||||
| 32,632,155 | 30,834,143 | ||||||
Participant loans | 1,159,239 | — | |||||
| $ | 33,791,394 | $ | 30,834,143 | ||||
12
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 7. | Investments in Master Trust (continued) |
Stable Value Fund
The Stable Value Fund consists of fully benefit-responsive investment contracts of GICs, and the Managed Income Portfolio II commingled pool (MIP II). Investments in the Stable Value Fund are stated at fair value in the Plan’s Statement of Net Assets Available for Plan Benefits with a corresponding adjustment to reflect these investments at contract value, because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. Contract value is equal to principal balance plus accrued interest. As provided in the FSP, an investment contract is generally permitted to be valued at contract value, rather than fair value, to the extent it is fully benefit-responsive.
The GIC issuers are contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan. The fair value of the GICs is calculated by discounting the related cash flows based on current yields of similar instruments with comparable durations.
The MIP II, managed by Fidelity Management Trust Company, intends to maintain a stable net asset value of $1.00 per unit. The MIP II invests in assets (typically fixed-income securities or bond funds and may include derivative instruments such as futures contracts and swap agreements), enters into wrap contracts issued by third-parties, and invests in cash equivalents represented by shares in a money market fund. The MIP II is valued daily at fair value as determined by the fund manager.
The wrap contracts in the MIP II are designed to maintain the contract value of the fund. Wrap contracts accrued interest using a formula called the “crediting rate”. Wrap contracts use the crediting rate formula to convert market value changes in the covered assets into income distributions in order to minimize the difference between the market and contract value of the covered assets over time. Using the crediting rate formula, an estimated future market value is calculated by compounding the fund’s current market value at the fund’s current yield to maturity for a period equal to the fund’s duration. The crediting rate is the discount rate that equates that estimated future market value with the fund’s current contract value. Crediting rates are reset quarterly. The wrap contracts provide a guarantee that the crediting rate will not fall below 0%.
Wrap contracts in MIP II are fair valued using a discounted cash flow model which considers recent fee bids as determined by recognized dealers, discount rate and the duration of the underlying portfolio of securities. The dealers may consider the following in the bid process: size of the portfolio, performance of the underlying portfolio, and the fair value to contract value ratio. For purposes of benefit responsive withdrawals, investments in wrap contracts are valued at contract value, which could be more or less than fair value. These investment contracts provide for benefit responsive withdrawals at contract value including those instances when, in connection with wrap contracts, underlying investment securities are sold to fund normal benefit payments prior to the maturity of such contracts.
Underlying debt securities in MIP II for which quotations are readily available are valued at their most recent bid prices (sales prices if the principal market is an exchange) in the principal market in which such securities are normally traded, as determined by recognized dealers in such securities, or securities are valued on the basis of information provided by a pricing service. Pricing services use valuation matrices that incorporate both dealer-supplied valuations and valuation models. If prices are not readily available or do not accurately reflect fair value for a security, or if a security’s value has been materially affected by events occurring after the close of the exchange or market on which the security is principally traded, that security may be valued by another method that the Trustee believes accurately reflects fair value. A security’s valuation may differ depending on the method used for determining value. Price movements in futures contracts and ADRs, market and trading trends, the bid/ask quotes of brokers and off exchange institutional trading may be reviewed in the course of making a good faith determination of a security’s fair value. Underlying short-term securities with remaining maturities of sixty days or less for which market quotations are not readily available are valued at original cost plus accrued interest or at amortized cost, both of which approximate current value. Investments in underlying commingled pools and open-end investment companies are valued at their net asset value each business day.
13
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 7. | Investments in Master Trust (continued) |
Stable Value Fund (continued)
The Plan’s MIP II account balance at fair value was calculated by applying the Plan’s percentage of the total book value of the MIP II to the MIP II fair value calculated by Fidelity.
The adjustments from fair value to contract value for fully benefit-responsive investment contracts (Stable Value Fund) are $1,334,621 and $2,181,924 as of December 31, 2007 and 2006 respectively. The details of the adjustments are as follows:
| December 31, 2007 | December 31, 2006 | |||||||||||||||||
Stable Value Fund | Contract Value | Fair Value | Adjustment (CV - FV) | Contract Value | Fair Value | Adjustment (CV - FV) | ||||||||||||
GIC – Pacific Life | $ | — | $ | — | $ | — | $ | 2,435,427 | $ | 2,424,405 | $ | 11,022 | ||||||
POOL – MIP II | 177,367,986 | 176,033,365 | 1,334,621 | 183,228,905 | 181,058,003 | 2,170,902 | ||||||||||||
Total of Stable Value Fund | $ | 177,367,986 | $ | 176,033,365 | $ | 1,334,621 | $ | 185,664,332 | $ | 183,482,408 | $ | 2,181,924 | ||||||
Average Yields – Stable Value Fund *
| 2007 | 2006 | |||||
Based on actual earnings ** | 4.69 | % | 5.19 | % | ||
Based on interest rate credited to participants *** | 4.64 | % | 4.52 | % |
| * | Includes GIC and Pool (MIP II). |
| ** | Calculated by dividing the annualized earnings of Stable Value Fund by the fair value of Stable Value Fund. |
| *** | Calculated by dividing the annualized earnings of Stable Value Fund credited to participants by the fair value of Stable Value Fund. |
Certain events limit the ability of the investment contracts in the Stable Value Fund to transact at contract value with the issuers. Such events include the following:
| • | The Plan’s failure to qualify under Section 401(a) or Section 401(k) of the Internal Revenue Code. |
| • | The establishment of a defined contribution plan that competes with the plan for employee contributions. |
| • | Any substantive modification of the Plan or the administration of the Plan that is not consented to by the wrap issuer. |
| • | Complete or partial termination of the Plan. |
| • | Any change in law, regulation or administrative ruling applicable to the Plan that could have a material adverse |
effect on the Fund’s cashflow.
| • | Merger or consolidation of the Plan with another plan, the transfer of plan assets to another plan, or the sale, spin-off or merger of a subsidiary or division of the plan sponsor. |
| • | Any communication given to participants by the plan sponsor or any other plan fiduciary that is designed to induce or influence participants not to invest in the fund or to transfer assets out of the fund. |
| • | Exclusion of a group of previously eligible employees from eligibility in the plan. |
| • | Any early retirement program, group termination, group layoff, facility closing, or similar program. |
| • | Any transfer of assets from the fund directly to a competing option. |
At this time, the occurrence of any of these events is not probable.
The GICs do not permit the insurance companies to terminate the agreement at will prior to the scheduled maturity date. Wrap contracts in the Pool (MIP II) may be terminated by the wrap issuers at any time. A wrap issuer may terminate a wrap contract if FMTC’s (Fidelity Management Trust Company) investment management authority over the fund is limited or terminated as well as if all of the terms of the wrap contract fail to be met.
14
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 7. | Investments in Master Trust (continued) |
Changes in the Fair Value of Net Assets
The changes in the fair value of net assets of the Master Trust, for the years ended December 31, 2007 and 2006 are summarized as follows:
| Years Ended December 31 | |||||||
| 2007 | 2006 | ||||||
Additions | |||||||
Dividends and interest | $ | 43,978,159 | $ | 33,791,394 | |||
Participant contributions | 34,256,903 | 35,155,914 | |||||
Company contributions | 8,686,592 | 8,991,424 | |||||
Total additions | 86,921,654 | 77,938,732 | |||||
Deductions | |||||||
Benefits paid to participants | 77,297,005 | 64,429,174 | |||||
Administrative expenses | 184,569 | 168,892 | |||||
Portion of Company contribution account forfeited upon withdrawal of participants | 485,226 | 403,124 | |||||
Total deductions | 77,966,800 | 65,001,190 | |||||
Net realized/unrealized appreciation/(depreciation) in fair value of investments | (5,138,010 | ) | 30,834,143 | ||||
Net increase | 3,816,844 | 43,771,685 | |||||
Net assets available for plan benefits at beginning of year | 656,643,018 | 612,871,333 | |||||
Net assets available for plan benefits at end of year | $ | 660,459,862 | $ | 656,643,018 | |||
15
Federal-Mogul Corporation
401(k) Investment Program
Notes to Financial Statements—(Continued)
December 31, 2007
| 8. | Differences between Financial Statements and Form 5500 |
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
| December 31 | ||||||
| 2007 | 2006 | |||||
Net assets available for plan benefits per the financial statements | $ | 394,507,533 | $ | 387,966,781 | ||
Minus: Adjustments from fair value to contract value for fully benefit-responsive investment contracts | 688,425 | 1,128,997 | ||||
Net assets available for plan benefits per the Form 5500 | $ | 393,819,108 | $ | 386,837,784 | ||
The following is a reconciliation of net investment gain from master trust investment accounts per the financial statements to the Form 5500:
| Year Ended December 31 2007 | ||||
Dividends and interest per the financial statements | $ | 26,736,505 | ||
Minus: Interest from participant loans | 479,701 | |||
Dividends and interest from master trust investment accounts per the financial statements | 26,256,804 | |||
Plus: Net realized/unrealized appreciation (depreciation) from master trust investment accounts | (3,359,931 | ) | ||
Net investment gain from master trust investment accounts per the financial statements | 22,896,873 | |||
Minus: Changes in adjustments from fair value to contract value for fully benefit-responsive investment contracts | (440,572 | ) | ||
Net investment gain from master trust investment accounts per the Form 5500 | $ | 23,337,445 | ||
16
401(k) Investment Program
EIN: 20-8350090 Plan Number 140
Schedule H, Line 4i
Schedule of Assets (Held at End of Year)
December 31, 2007
The following is a Schedule of Assets Held outside of the Master Trust:
Identity of Issue, Borrower, Lessor or Similar Party | Description of Investment including Maturity Date, Interest, Collateral, Par or Maturity Value | Historical Cost | Current Value | |||||
Participants * | Loans at various terms and interest rates (5% - 10.5%) | $ | — | $ | 6,450,594 | |||
Federal-Mogul Corporation * | 159,208 warrants - appraised value $4.75 per warrant | 756,237 | 756,237 | |||||
| $ | 756,237 | $ | 7,206,831 | |||||
There were no investment assets reportable as acquired and disposed of during the year.
* Party-in-interest
17
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Federal-Mogul Corporation 401(k) Program has caused this annual report to be signed on its behalf by the undersigned duly authorized person.
Federal-Mogul Corporation 401(k) Investment Program (Name of Plan) | ||
| By: | /s/ Jeff Kaminski | |
Jeff Kaminski Senior Vice President and Chief Financial Officer Federal-Mogul Corporation | ||
Date: June 27, 2008
