Federal-mogul (FDML) 10-Q 2013 Q1 Quarterly report

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 March 31, 2013

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 CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	20-8350090
(State or other jurisdiction of incorporation or organization)	(IRS employer identification number)
26555 Northwestern Highway, Southfield, Michigan	48033
(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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  ¨

As of April 23, 2013, there were 98,904,500 outstanding shares of the registrant’s $0.01 par value common stock.

FEDERAL-MOGUL CORPORATION

Form 10-Q

For the Quarter Ended March 31, 2013

INDEX

	Page No.
Part I – Financial Information
Item 1 – Financial Statements
Consolidated Statements of Operations		3
Consolidated Statements of Comprehensive (Loss) Income		4
Consolidated Balance Sheets		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7
Forward-Looking Statements		30
Item  2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3 – Qualitative and Quantitative Disclosures about Market Risk		39
Item 4 – Controls and Procedures		39
Part II – Other Information
Item 1 – Legal Proceedings		40
Item 4 – Mine Safety Disclosures		40
Item 6 – Exhibits		40
Signatures		41
Exhibits		42

2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FEDERAL-MOGUL CORPORATION

Consolidated Statements of Operations (Unaudited)

	Three Months Ended March  31
	2013			2012
	(Millions of Dollars,
	Except Per Share Amounts)
Net sales	$	1,699		$	1,740
Cost of products sold		(1,448	)		(1,463	)
Gross margin		251			277
Selling, general and administrative expenses		(185	)		(188	)
Interest expense, net		(29	)		(33	)
Amortization expense		(12	)		(12	)
Equity earnings of non-consolidated affiliates		9			10
Restructuring expense, net		(8	)		(6	)
Other income (expense), net		6			(2	)
Income from continuing operations before income taxes		32			46
Income tax expense		(11	)		(9	)
Net income from continuing operations		21			37
Loss from discontinued operations, net of income tax		(53	)		(3	)
Net (loss) income		(32	)		34
Less net income attributable to noncontrolling interests		(2	)		(2	)
Net (loss) income attributable to Federal-Mogul	$	(34	)	$	32
Net (loss) income per common share – basic and diluted:
Net income from continuing operations attributable to Federal-Mogul	$	0.19		$	0.35
Net loss from discontinued operations attributable to Federal-Mogul		(0.53	)		(0.03	)
Net (loss) income attributable to Federal-Mogul	$	(0.34	)	$	0.32
Amounts attributable to Federal-Mogul:
Net income from continuing operations	$	19		$	35
Loss from discontinued operations		(53	)		(3	)
Net (loss) income	$	(34	)	$	32

See accompanying notes to consolidated financial statements.

3

FEDERAL-MOGUL CORPORATION

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

	Three Months Ended
	March 31
	2013			2012
	(Millions of Dollars)
Net (loss) income	$	(32	)	$	34
Other comprehensive (loss) income:
Foreign currency translation adjustments and other		(40	)		86
Postemployment benefits:
Net unrealized postemployment benefits credits arising during the period		4			—
Reclassification of net postemployment benefits costs included in net (loss) income during period		8			8
Income taxes		—			—
Postemployment benefits, net of tax		12			8
Hedge instruments:
Net unrealized hedging (gains) losses arising during period		(1	)		1
Reclassification of net hedging losses included in net (loss) income during period		7			13
Income taxes		—			—
Hedge instruments, net of tax		6			14
Other comprehensive (loss) income, net of tax		(22	)		108
Comprehensive (loss) income		(54	)		142
Less comprehensive income attributable to noncontrolling interests		—			(5	)
Comprehensive (loss) income attributable to Federal-Mogul	$	(54	)	$	137

See accompanying notes to consolidated financial statements.

4

FEDERAL-MOGUL CORPORATION

Consolidated Balance Sheets (Unaudited)

	March 31 2013			December 31 2012
	(Millions of Dollars)
ASSETS
Current assets:
Cash and equivalents	$	269		$	467
Accounts receivable, net		1,513			1,396
Inventories, net		1,124			1,074
Prepaid expenses and other current assets		220			203
Total current assets		3,126			3,140
Property, plant and equipment, net		1,946			1,971
Goodwill and other indefinite-lived intangible assets		1,024			1,019
Definite-lived intangible assets, net		393			408
Investments in non-consolidated affiliates		247			240
Other noncurrent assets		142			149
	$	6,878		$	6,927
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt, including current portion of long-term debt	$	107		$	94
Accounts payable		810			751
Accrued liabilities		427			423
Current portion of pensions and other postemployment benefits liability		46			47
Other current liabilities		157			174
Total current liabilities		1,547			1,489
Long-term debt		2,731			2,733
Pensions and other postemployment benefits liability		1,315			1,362
Long-term portion of deferred income taxes		386			388
Other accrued liabilities		121			123
Shareholders’ equity:
Preferred stock ($.01 par value; 90,000,000 authorized shares; none issued)		—			—
Common stock ($.01 par value; 450,100,000 authorized shares; 100,500,000 issued shares; 98,904,500 outstanding shares as of March 31, 2013 and December 31, 2012)		1			1
Additional paid-in capital, including warrants		2,150			2,150
Accumulated deficit		(593	)		(559	)
Accumulated other comprehensive loss		(870	)		(850	)
Treasury stock, at cost		(17	)		(17	)
Total Federal-Mogul shareholders’ equity		671			725
Noncontrolling interests		107			107
Total shareholders’ equity		778			832
	$	6,878		$	6,927

See accompanying notes to consolidated financial statements.

5

FEDERAL-MOGUL CORPORATION

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended March 31
	2013			2012
	(Millions of Dollars)
Cash Provided From (Used By) Operating Activities
Net (loss) income	$	(32	)	$	34
Adjustments to reconcile net (loss) income to net cash (used by) provided from operating activities:
Depreciation and amortization		71			69
Insurance proceeds related to Thailand flood		—			12
Equity earnings of non-consolidated affiliates		(9	)		(10	)
Change in postemployment benefits		(20	)		(9	)
Restructuring expense, net		8			6
Payments against restructuring liabilities		(6	)		(7	)
Deferred tax benefit		1			(2	)
Net loss from business dispositions		47			—
Changes in operating assets and liabilities:
Accounts receivable		(134	)		(116	)
Inventories		(68	)		(26	)
Accounts payable		96			65
Other assets and liabilities		(4	)		(11	)
Net Cash (Used By) Provided From Operating Activities		(50	)		5
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment		(93	)		(130	)
Net payments associated with business dispositions		(40	)		—
Insurance proceeds related to Thailand flood		—			13
Capital investment in non-consolidated affiliate		(3	)		—
Net Cash Used By Investing Activities		(136	)		(117	)
Cash Provided From (Used By) Financing Activities
Principal payments on term loans		(7	)		(8	)
Increase in short-term debt		14			2
Net remittances on servicing of factoring arrangements		(6	)		(4	)
Net Cash Provided From (Used By) Financing Activities		1			(10	)
Effect of foreign currency exchange rate fluctuations on cash		(13	)		18
Decrease in cash and equivalents		(198	)		(104	)
Cash and equivalents at beginning of period		467			953
Cash and equivalents at end of period	$	269		$	849

See accompanying notes to consolidated financial statements.

6

FEDERAL-MOGUL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2013

1. BASIS OF PRESENTATION

Interim Financial Statements:The unaudited consolidated financial statements of Federal-Mogul Corporation (the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). 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) that management believes are necessary for a fair presentation of the results of operations, financial position and cash flows. The Company’s management believes that 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, 2012. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013.

Principles of Consolidation:The Company consolidates into its financial statements the accounts of the Company, all wholly-owned subsidiaries, and any partially-owned subsidiary that the Company has the ability to control. Control generally equates to ownership percentage, whereby investments that are more than 50% owned are consolidated, investments in affiliates of 50% or less but greater than 20% are accounted for using the equity method, and investments in affiliates of 20% or less are accounted for using the cost method. 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 joint ventures are businesses established and maintained in connection with its operating strategy. All intercompany transactions and balances have been eliminated.

Reclassifications:Certain prior period amounts have been reclassified to conform with the presentation used in this filing. This is due to the Company’s presentation of divested businesses as discontinued operations and the re-segmentation of its reporting segments. See Notes 4 and 21, respectively, for further details.

Use of Estimates:The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.

Controlling Ownership:Mr. Carl C. Icahn indirectly controls approximately 78% of the voting power of the Company’s capital stock and, by virtue of such stock ownership, is able to control or exert substantial influence over the Company, including the election of directors, business strategy and policies, mergers or other business combinations, acquisition or disposition of assets, future issuances of common stock or other securities, incurrence of debt or obtaining other sources of financing, and the payment of dividends on the Company’s common stock. The existence of a controlling stockholder may have the effect of making it difficult for, or may discourage or delay, a third party from seeking to acquire a majority of the Company’s outstanding common stock, which may adversely affect the market price of the stock.

Mr. Icahn’s interests may not always be consistent with the Company’s interests or with the interests of the Company’s other stockholders. Mr. Icahn and entities controlled by him may also pursue acquisitions or business opportunities that may or may not be complementary to the Company’s business. To the extent that conflicts of interest may arise between the Company and Mr. Icahn and his affiliates, those conflicts may be resolved in a manner adverse to the Company or its other shareholders.

Icahn Sourcing, LLC (“Icahn Sourcing”) is an entity formed and controlled by Mr. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. The Company was a member of the buying group in 2012. Prior to December 31, 2012, the Company did not pay Icahn Sourcing any fees or other amounts with respect to the buying group arrangement.

7

In December, 2012, Icahn Sourcing advised the Company that effective January 1, 2013 it would restructure its ownership and change its name to Insight Portfolio Group LLC (“Insight Portfolio Group”). In connection with the restructuring, the Company acquired a minority equity interest in Insight Portfolio Group and agreed to pay a portion of Insight Portfolio Group’s operating expenses in 2013. In addition to the minority equity interest held by the Company, certain subsidiaries of Icahn Enterprises Holdings, including CVR, Tropicana, ARI, Viskase PSC Metals and WPH also acquired minority equity interests in Icahn Portfolio Group and agreed to pay a portion of Insight Portfolio Group’s operating expenses in 2013. A number of other entities with which Mr. Icahn has a relationship also acquired equity interests in Insight Portfolio Group and also agreed to pay certain of Insight Portfolio Group’s operating expenses in 2013.

Divestitures: In connection with its strategic planning process, the Company assesses its operations for market position, product technology and capability, and profitability. Those businesses determined by management not to have a sustainable competitive advantage are considered non-core and may be considered for divestiture or other exit activities. During the first quarter of 2013, the Company divested its sintered components operations located in France. This divestiture has been presented as discontinued operations in the consolidated statements of operations. See Note 4 for further details.

Factoring of Trade Accounts Receivable: Federal-Mogul subsidiaries in Brazil, France, Germany, Italy, Japan and the United States are party to accounts receivable factoring and securitization facilities. Amounts factored under these facilities consist of the following:

	March 31 2013		December 31 2012
	(Millions of Dollars)
Gross accounts receivable factored	$	248	$	217
Gross accounts receivable factored, qualifying as sales		244		216
Undrawn cash on factored accounts receivable		—		—

Proceeds from the factoring of accounts receivable qualifying as sales and expenses associated with the factoring of receivables are as follows:

	Three Months Ended March  31
	2013		2012
	(Millions of Dollars)
Proceeds from factoring qualifying as sales	$	333	$	414
Expenses associated with factoring of receivables		1		2

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 $29 million and $19 million as of March 31, 2013 and December 31, 2012, respectively. The fair values of the exposures to the Company associated with these certain facilities’ terms were determined to be immaterial.

Accounts receivables factored but not qualifying as a sale, as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 860,Transfers and Servicing, were pledged as collateral and accounted for as secured borrowings and recorded in the consolidated balance sheets within “Accounts receivable, net” and “Short-term debt, including the current portion of long-term debt.” The expenses associated with receivables factoring are recorded in the 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 incurred as a result of such activities.

8

Noncontrolling Interests: The following table presents a rollforward of the changes in noncontrolling interests for the three months ended March 31, 2013 (in millions of dollars):

Equity balance of non-controlling interests as of December 31, 2012	$	107
Comprehensive income (loss):
Net income		2
Foreign currency translation adjustments and other		(2	)
Equity balance of non-controlling interests as of March 31, 2013	$	107

New Accounting Pronouncements: In December 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-11,Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities. This ASU requires companies to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB issued ASU No. 2013-01,Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU limits the scope of the original guidance. These ASU’s are effective retrospectively for interim and annual periods beginning on or after January 1, 2013. The adoption of this ASU effective January 1, 2013 had no disclosure impact.

In July 2012, the FASB issued ASU No. 2012-02,Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU allows for the option to perform a qualitative assessment that may allow companies to forego the annual two-step impairment test for indefinite-lived intangibles. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption permitted. The Company’s adoption of this new guidance effective January 1, 2013 had no impact on its financial position, results of operations, cash flows or disclosures.

In February 2013, the FASB issued ASU No. 2013-02,Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This ASU is effective prospectively for interim and annual periods beginning after December 15, 2012 and expands the presentation of changes in accumulated other comprehensive income. The required disclosures have been incorporated into Notes 15 and 16.

In February 2013, the FASB issued ASU No. 2013-04,Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. This ASU is effective for interim and annual periods beginning after December 15, 2013 and requires the measurement of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of: a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors; and b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. Required disclosures include a description of the joint-and-several arrangement and the total outstanding amount of the obligation for all joint parties. The Company anticipates the adoption of this guidance will have minimal impact on its financial position, results of operations, cash flows or disclosures.

In March 2013, the FASB issued ASU No. 2013-05,Liabilities (Topic 830): Parent’s Accounting for Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.This ASU is effective for interim and annual periods beginning after December 15, 2013 and requires the release of any cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in foreign entity. The Company anticipates the adoption of this guidance will have minimal impact on its financial position, results of operations, cash flows or disclosures.

2. RESTRUCTURING

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 markets.

9

The costs contained within “Restructuring expense, net” in the Company’s consolidated statements of operations are comprised of two types: employee costs (principally termination benefits) and facility closure costs. Termination benefits are accounted for in accordance with FASB ASC Topic 712,Compensation – Nonretirement Postemployment Benefits, and are recorded when it is probable that employees will be entitled to benefits and the amounts can be reasonably estimated. Estimates of termination benefits are based on the frequency of past termination benefits, the similarity of benefits under the current plan and prior plans, and the existence of statutory required minimum benefits. Facility closure and other costs are accounted for in accordance with FASB ASC Topic 420,Exit or Disposal Cost Obligations, and are recorded when the liability is incurred.

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.

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 impact on its liquidity position.

During the three months ended March 31, 2013 and 2012, the Company recognized net restructuring expenses of $8 million and $6 million, respectively. Of the net restructuring expenses recognized during the first quarter of 2012, $4 million related to headcount reduction actions associated with the aftermarket distribution division of Vehicle Components Solutions.

The following table provides a quarterly summary of the Company’s consolidated restructuring liabilities and related activity as of and for the three months ended March 31, 2013 by reporting segment. “PT” represents Powertrain and “VCS” represents Vehicle Components Solutions.

							Total
							Reporting						Total
	PT			VCS			Segment			Corporate			Company
	(Millions of Dollars)
Balance at January 1, 2013	$	4		$	5		$	9		$	3		$	12
Provisions		4			2			6			2			8
Payments		(3	)		(2	)		(5	)		(1	)		(6	)
Balance at March 31, 2013	$	5		$	5		$	10		$	4		$	14

10

The following table provides a quarterly summary of the Company’s consolidated restructuring liabilities and related activity for each type of exit cost as of and for the three months ended March 31, 2013. As the table indicates, facility closure costs are typically paid within the quarter of incurrence.

	Employee Costs			Facility Costs		Total
	(Millions of Dollars)
Balance at January 1, 2013	$	12		$	—	$	12
Provisions		8			—		8
Payments		(6	)		—		(6	)
Balance at March 31, 2013	$	14		$	—	$	14

Activities under “Restructuring 2013” Program

In February 2013, the Company’s Board of Directors approved evaluation of restructuring opportunities in order to improve operating performance. The Company obtained Board approval to commence a restructuring plan (“Restructuring 2013”) as detailed below. Restructuring 2013 is intended to take place from 2013-2015.

The following table provides a quarterly summary of the Company’s restructuring 2013 liabilities and related activity as of and for the three months ended March 31, 2013:

							Total
							Reporting					Total
	PT			VCS			Segment			Corporate		Company
	(Millions of Dollars)
Balance at January 1, 2013	$	—		$	—		$	—		$	—	$	—
Provisions		4			1			5			2		7
Payments		(2	)		(1	)		(3	)		—		(3	)
Balance at March 31, 2013	$	2		$	—		$	2		$	2	$	4

The following table provides a summary of the Company’s Restructuring 2013 liabilities and related activity for each type of exit cost as of and for the three months ended March 31, 2013:

	Employee Costs			Facility Costs		Total
	(Millions of Dollars)
Balance at January 1, 2013	$	—		$	—	$	—
Provisions		7			—		7
Payments		(3	)		—		(3	)
Balance March 31, 2013	$	4		$	—	$	4

Net Restructuring 2013 costs by type of exit cost are as follows:

	Total Expected Costs		First Quarter 2013		Estimated Additional Charges
	(Millions of dollars)
Employee costs	$	65	$	7	$	58
Facility costs		17		—		17
	$	82	$	7	$	75

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Activities under “Restructuring 2012” Program

In June 2012, the Company announced a restructuring plan (“Restructuring 2012”) to reduce or eliminate capacity at several high cost VCS facilities and transfer production to lower cost locations. Restructuring 2012 is anticipated to be completed within two years.

The following table provides a summary of the Company’s Restructuring 2012 liabilities and related activity for each type of exit cost as of and for the three months ended March 31, 2013:

	Employee Costs			Facility Costs		Total
	(Millions of Dollars)
Balance at January 1, 2013	$	4		$	—	$	4
Provisions		1			—		1
Payments		(1	)		—		(1	)
Balance March 31, 2013	$	4		$	—	$	4

Net Restructuring 2012 costs by type of exit cost are as follows:

	Total Expected Costs		Costs in 2012		First Quarter 2013		Estimated Additional Charges
			(Millions of dollars)
Employee costs	$	12	$	11	$	1	$	—
Facility costs		3		—		—		3
	$	15	$	11	$	1	$	3

3. OTHER INCOME (EXPENSE), NET

The specific components of “Other income (expense), net” are as follows:

	Three Months Ended
	March 31
	2013			2012
	(Millions of Dollars)
Foreign currency exchange	$	2		$	(2	)
Third party royalty income		2			1
Accounts receivable discount expense		(1	)		(2	)
Other		3			1
	$	6		$	(2	)

4. 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 first quarter of 2013, the Company’s Powertrain Segment completed the divestiture of its sintered components operations located in France. The disposal resulted in a $47 million net loss (no income tax impact), which is included in “Loss from discontinued operations, net of income tax” in the first quarter of 2013.

12

Operating results related to discontinued operations are as follows:

	Three Months Ended March  31
	2013			2012
	(Millions of Dollars)
Net sales	$	14		$	23
Cost of products sold		(17	)		(24	)
Gross margin		(3	)		(1	)
Selling, general and administrative expenses		(2	)		(2	)
Other expense, net		(1	)		—
Operating loss (no income tax impact)		(6	)		(3	)
Loss on sale of discontinued operations (no income tax impact)		(47	)		—
Loss from discontinued operations, net of income tax	$	(53	)	$	(3	)

5. FINANCIAL INSTRUMENTS

Interest Rate Risk

The Company, during 2008, entered into a series of five-year interest rate swap agreements with a total notional value of $1,190 million to hedge the variability of interest payments associated with its variable-rate term loans. During the first quarter of 2013, the majority of these interest rate swap agreements expired. As of March 31, 2013, the remaining five-year interest rate swap agreements have a total notional value of $140 million. Since the interest rate swaps hedge the variability of interest payments on variable debt rate with the same terms, they qualify for cash flow hedge accounting treatment. As of March 31, 2013 and December 31, 2012, unrealized net losses of $2 million and $10 million, respectively, were recorded in “Accumulated other comprehensive loss” as a result of these hedges. As of March 31, 2013, losses of $2 million are expected to be reclassified from “Accumulated other comprehensive loss” to the consolidated statement of operations within the next 9 months.

These interest rate swaps reduce the Company’s overall interest rate risk. However, due to the remaining outstanding borrowings on the Company’s Debt Facilities and other borrowing facilities that continue to have variable interest rates, management believes that interest rate risk to the Company could be material if there are significant adverse changes in interest rates. To the extent that interest rates change by 25 basis points, the Company’s annual interest expense would show a corresponding change of approximately $7 million and $2 million for years 2014 and 2015, respectively, the term of the Company’s variable-rate term loans.

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 natural gas, 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.

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Information regarding the Company’s outstanding commodity price hedge contracts is as follows:

	March 31			December 31
	2013			2012
	(Millions of Dollars)
Combined notional value	$	52		$	45
Combined notional value designated as hedging instruments		52			44
Unrealized net (losses) gains recorded in “Accumulated other comprehensive loss”		(1	)		1

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 and Africa. As a result, the Company’s financial results can 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’s operating results are primarily exposed to changes in exchange rates between the U.S. dollar and European currencies.

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.

Information regarding the Company’s outstanding foreign currency hedge contracts is as follows:

	March 31		December 31
	2013		2012
	(Millions of Dollars)
Combined notional value	$	126	$	160
Combined notional value designated as hedging instruments		14		11
Unrealized net gains recorded in “Accumulated other comprehensive loss”		—		1

Substantially all of the foreign currency price hedge contracts mature within one year.

The foreign currency contracts not designated as hedging instruments were entered into by the Company in order to offset fluctuations in consolidated earnings caused by changes in currency rates used to translate earnings at foreign subsidiaries into U.S. dollars over 2013. These contracts are not designated as hedging instruments for accounting purposes and are marked to market through the income statement. The Company recorded a gain of $3 million related to these contracts in “Other income (expense), net” for the three months ended March 31, 2013.

Other

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

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Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable and cash investments. The Company’s customer base includes virtually every significant global light and commercial vehicle manufacturer and a large number of distributors, installers and retailers of automotive aftermarket parts. The Company’s credit evaluation process and the geographical dispersion of sales transactions help to mitigate credit risk concentration. No individual customer accounted for more than 6% of the Company’s direct sales during the three months ended March 31, 2013. The Company has one VCS customer that accounts for approximately 18% of the Company’s net accounts receivable balance as of March 31, 2013. The Company requires placement of cash in financial institutions evaluated as highly creditworthy.

The following table discloses the fair values and balance sheet locations of the Company’s derivative instruments:

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	March 31 2013		December 31 2012		Balance Sheet Location	March 31 2013			December 31 2012
	(Millions of Dollars)
Derivatives designated as cash flow hedging instruments:
Interest rate swap contracts		$	—	$	—	Other current liabilities	$	(2	)	$	(10	)
Commodity contracts	Other current liabilities		1		2	Other current liabilities		(2	)		(1	)
		$	1	$	2		$	(4	)	$	(11	)
Derivatives not designated as cash flow hedging instruments:
Foreign currency contracts		$	—	$	—	Other current liabilities	$	(4	)	$	(10	)

The following table discloses the effect of the Company’s derivative instruments on the consolidated statement of operations for the three months ended March 31, 2013:

Derivatives Designated as Hedging Instruments	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)			Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
(Millions of Dollars)
Interest rate swap contracts	$	1		Interest expense, net	$	(7	)
Commodity contracts		(2	)	Cost of products sold		—
	$	(1	)		$	(7	)

Derivatives Not Designated as Hedging Instruments	Location of Loss Recognized in Income on Derivatives	Amount of Gain Recognized in Income on Derivatives
		(Millions of Dollars)
Foreign currency contracts	Other income (expense), net	$	3

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The following table discloses the effect of the Company’s derivative instruments on the consolidated statement of operations for the three months ended March 31, 2012:

Derivatives Designated as Hedging Instruments	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)			Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
(Millions of Dollars)
Interest rate swap contracts	$	(3	)	Interest expense, net	$	(10	)
Commodity contracts		7		Cost of products sold		(3	)
Foreign currency contracts		(3	)	Cost of products sold		—
	$	1			$	(13	)

6. FAIR VALUE MEASUREMENTS

FASB ASC Topic 820,Fair Value Measurements and Disclosures (“FASB ASC 820”), clarifies that 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, FASB 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.

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in FASB ASC 820:

A. Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

B. Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).

C. Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).

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Assets and liabilities remeasured and disclosed at fair value on a recurring basis at March 31, 2013 and December 31, 2012 are set forth in the table below:

	Asset						Valuation
	(Liability)			Level 2			Technique
	(Millions of Dollars)
March 31, 2013:
Interest rate swap contracts	$	(2	)	$	(2	)	C
Commodity contracts		(1	)		(1	)	C
Foreign currency contracts		(4	)		(4	)	C
December 31, 2012:
Interest rate swap contracts	$	(10	)	$	(10	)	C
Commodity contracts		1			1		C
Foreign currency contracts		(10	)		(10	)	C

The Company calculates the fair value of its interest rate swap contracts, commodity contracts and foreign currency contracts using quoted interest rate curves, quoted commodity forward rates and quoted currency forward rates, respectively, to calculate forward values, and then discounts the forward values.

The discount rates for all derivative contracts are based on quoted swap interest rates or bank deposit rates. For contracts which, when aggregated by counterparty, are in a liability position, the rates are adjusted by the credit spread that market participants would apply if buying these contracts from the Company’s counterparties.

7. INVENTORIES

Inventories are stated at the lower of cost or market. Cost was determined by the first-in, first-out (“FIFO”) method at March 31, 2013 and December 31, 2012. 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:

	March 31			December 31
	2013			2012
	(Millions of Dollars)
Raw materials	$	209		$	200
Work-in-process		165		��	161
Finished products		856			812
		1,230			1,173
Inventory valuation allowance		(106	)		(99	)
	$	1,124		$	1,074

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8. GOODWILL AND OTHER INTANGIBLE ASSETS

At March 31, 2013 and December 31, 2012, goodwill and other indefinite-lived intangible assets consist of the following:

	March 31, 2013							December 31, 2012
	Gross Carrying Amount		Accumulated Impairment			Net Carrying Amount		Gross Carrying Amount		Accumulated Impairment			Net Carrying Amount
	(Millions of Dollars)
Goodwill	$	1,392	$	(598	)	$	794	$	1,385	$	(598	)	$	787
Trademarks and brand names		431		(201	)		230		433		(201	)		232
	$	1,823	$	(799	)	$	1,024	$	1,818	$	(799	)	$	1,019

At March 31, 2013 and December 31, 2012, definite-lived intangible assets consist of the following:

	March 31, 2013							December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(Millions of Dollars)
Developed technology	$	116	$	(55	)	$	61	$	117	$	(53	)	$	64
Customer relationships		560		(228	)		332		562		(218	)		344
	$	676	$	(283	)	$	393	$	679	$	(271	)	$	408

The Company’s net goodwill balances by reporting segment as of March 31, 2013 and December 31, 2012 are as follows:

	March 31		December 31
	2013		2012
	(Millions of Dollars)
Powertrain	$	487	$	480
Vehicle Components Solutions		307		307
	$	794	$	787

The Company’s net trademarks and brand names balances by reporting segment as of March 31, 2013 and December 31, 2012 are as follows:

	March 31		December 31
	2013		2012
	(Millions of Dollars)
Vehicle Components Solutions	$	228	$	228
Powertrain		2		4
	$	230	$	232

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The following is a quarterly summary of the Company’s goodwill and other intangible assets (net) as of and for the three months ended March 31, 2013:

	Net Goodwill		Trademarks and Brand Names			Total Goodwill and Indefinite- Lived Intangibles			Definite- Lived Intangibles (Net)
	(Millions of Dollars)
Balance at January 1, 2013	$	787	$	232		$	1,019		$	408
BERU spark plug purchase accounting adjustments		7		—			7			(3	)
Disposition		—		(1	)		(1	)		—
Amortization expense		—		—			—			(12	)
Foreign currency		—		(1	)		(1	)		—
Balance at March 31, 2013	$	794	$	230		$	1,024		$	393

9. INVESTMENTS IN NON-CONSOLIDATED AFFILIATES

The Company maintains investments in several non-consolidated affiliates, which are located in China, France, Germany, Italy, Korea, Turkey and the United States. 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 joint ventures 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:

	March 31			December 31
	2013			2012
	(Millions of Dollars)
Investments in non-consolidated affiliates	$	247		$	240
Direct ownership percentages		2% to 50	%		2% to 50	%

The following table represents amounts reflected in the Company’s financial statements related to non-consolidated affiliates:

	Three Months Ended March  31
	2013		2012
	(Millions of Dollars)
Equity earnings of non-consolidated affiliates	$	9	$	10
Cash dividends received from non-consolidated affiliates		—		—

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The following table presents selected aggregated financial information of the Company’s non-consolidated affiliates:

	Three Months Ended March  31
	2013		2012
	(Millions of Dollars)
Statements of Operations
Sales	$	196	$	198
Gross margin		36		42
Income from continuing operations		25		29
Net income		21		25

The Company has determined that its investments in Chinese joint venture arrangements are considered to be “limited-lived” as such entities have specified durations ranging from 30 to 50 years pursuant to regional statutory regulations. In general, these arrangements call for extension, renewal or liquidation at the discretion of the parties to the arrangement at the end of the contractual agreement. Accordingly, a reasonable assessment cannot be made as to the impact of such arrangements on the future liquidity position of the Company.

10. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

	March 31		December 31
	2013		2012
	(Millions of Dollars)
Accrued compensation	$	169	$	153
Accrued rebates .		100		113
Alleged defective products .		43		42
Non-income taxes payable		38		36
Accrued product returns		19		22
Accrued professional services		19		17
Accrued income taxes		17		15
Restructuring liabilities		14		12
Accrued warranty		8		12
Other		—		1
	$	427	$	423

11. DEBT

On December 27, 2007, the Company entered into a Term Loan and Revolving Credit Agreement (the “Debt Facilities”) with Citicorp U.S.A. Inc. as Administrative Agent, JPMorgan Chase Bank, N.A. as Syndication Agent and certain lenders. The Debt Facilities include a $540 million revolving credit facility (which is subject to a borrowing base and can be increased under certain circumstances and subject to certain conditions) and a $2,960 million term loan credit facility divided into a $1,960 million tranche B loan and a $1,000 million tranche C loan. The obligations under the revolving credit facility mature December 27, 2013 and bear interest for the first six months at LIBOR plus 1.75% or at the alternate base rate (“ABR,” defined as the greater of Citibank, N.A.’s announced prime rate or 0.50% over the Federal Funds Rate) plus 0.75%, and thereafter shall be adjusted in accordance with a pricing grid based on availability under the revolving credit facility. Interest rates on the pricing grid range from LIBOR plus 1.50% to LIBOR plus 2.00% and ABR plus 0.50% to ABR plus 1.00%. The tranche B term loans mature December 27, 2014 and the tranche C term loans mature December 27, 2015. All Debt Facilities term loans bear interest at LIBOR plus 1.9375% or at the alternate base rate (as previously defined) plus 0.9375% at

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the Company’s election. To the extent that interest rates change by 25 basis points, the Company’s annual interest expense would show a corresponding change of approximately $7 million and $2 million for years 2014 and 2015, respectively, the term of the Company’s Debt Facilities.

The Debt Facilities were initially negotiated and agreement was reached on the majority of significant terms in early 2007. Between the time the terms were agreed in early 2007 and December 27, 2007, interest rates charged on similar debt instruments for companies with similar debt ratings and capitalization levels rose to higher levels. As such, when applying the provisions of fresh-start reporting, the Company estimated a fair value adjustment of $163 million for the available borrowings under the Debt Facilities. This estimated fair value was recorded within the fresh-start reporting, and is being amortized as interest expense over the terms of each of the underlying components of the Debt Facilities. Interest expense associated with the amortization of this fair value adjustment, recognized in the Company’s consolidated statements of operations, consists of the following:

	Three Months Ended March  31
	2013		2012
	(Millions of Dollars)
Amortization of fair value adjustment	$	5	$	5

Debt consists of the following:

	March 31			December 31
	2013			2012
	(Millions of Dollars)
Debt Facilities:
Revolver	$	—		$	—
Tranche B term loan		1,857			1,862
Tranche C term loan		948			950
Debt discount		(47	)		(52	)
Other debt, primarily foreign instruments		80			67
		2,838			2,827
Less: short-term debt, including current maturities of long-term debt		(107	)		(94	)
Total long-term debt	$	2,731		$	2,733

The obligations of the Company under the Debt Facilities are guaranteed by substantially all of the domestic subsidiaries and certain foreign subsidiaries of the Company, and are secured by substantially all personal property and certain real property of the Company and such guarantors, subject to certain limitations. The liens granted to secure these obligations and certain cash management and hedging obligations have first priority.

The Debt Facilities contain certain affirmative and negative covenants and events of default, including, subject to certain exceptions, restrictions on incurring additional indebtedness, mandatory prepayment provisions associated with specified asset sales and dispositions, and limitations on i) investments; ii) certain acquisitions, mergers or consolidations; iii) sale and leaseback transactions; iv) certain transactions with affiliates; and v) dividends and other payments in respect of capital stock. Per the terms of the credit facility, $50 million of the Tranche C Term Loan proceeds were deposited in a Term Letter of Credit Account. The Company was in compliance with all debt covenants as of March 31, 2013 and December 31, 2012.

The revolving credit facility has an available borrowing base of $504 million and $451 million as of March 31, 2013 and December 31, 2012, respectively. The Company had $37 million of letters of credit outstanding at both March 31, 2013 and December 31, 2012, pertaining to the term loan credit facility. To the extent letters of credit associated with the revolving credit facility are issued, there is a corresponding decrease in borrowings available under this facility.

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Estimated fair values of the Company’s Debt Facilities were:

	Estimated Fair Value (Level 1)		Carrying Value in Excess of Fair Value		Valuation Technique
	(Millions of Dollars)
March 31, 2013:
Debt Facilities	$	2,636	$	122	A
December 31, 2012:
Debt Facilities	$	2,587	$	173	A

Fair market values are developed by the use of estimates obtained from brokers and other appropriate valuation techniques based on information available as of March 31, 2013 and December 31, 2012. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets. Refer to Note 6,Fair Value Measurements, for definitions of input levels and valuation techniques.

12. PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS

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

Components of net periodic benefit cost for the three months ended March 31 are as follows:

	Pension Benefits												Other Postemployment
	United States Plans						Non-U.S. Plans						Benefits
	2013			2012			2013			2012			2013			2012
	(Millions of Dollars)
Service cost	$	1		$	5		$	3		$	2		$	—		$	—
Interest cost		12			14			4			5			4			4
Expected return on plan assets		(14	)		(13	)		(1	)		(1	)		—			—
Amortization of actuarial loss		3			9			2			—			2			—
Amortization of prior service credit		—			—			—			—			(3	)		(4	)
Settlement gain		—			(1	)		—			—			—			—
Net periodic benefit cost	$	2		$	14		$	8		$	6		$	3		$	—

13. INCOME TAXES

For the three months ended March 31, 2013, the Company recorded an income tax expense of $11 million on income from continuing operations before income taxes of $32 million. This compares to income tax expense of $9 million on income from continuing operations before income taxes of $46 million in the same period of 2012. The income tax expense for the three months ended March 31, 2013 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates lower than the U.S. Statutory rate, income in jurisdictions with no tax expense due to offsetting valuation allowance release, partially offset by pre-tax losses with no tax benefits. The income tax expense for the three months ended March 31, 2012 differs from U.S. statutory rate due primarily to pre-tax income taxed at rates lower than the U.S. statutory rate, income in jurisdictions with no tax expense due to offsetting valuation allowance releases, release of uncertain tax positions due to audit settlement, and a tax benefit recorded related to a special economic zone tax incentive in Poland, partially offset by pre-tax losses with no tax benefits.

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14. COMMITMENTS AND CONTINGENCIES

Environmental Matters

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

Many of the sites that are likely to be the costliest to remediate are often current or former commercial waste disposal facilities to which numerous companies sent wastes. Despite the potential joint and several liability which might be imposed on the Company under CERCLA and some of the other laws pertaining to these sites, the Company’s share of the total waste sent to these sites has generally been small. The Company believes its exposure for liability at these sites is limited.

The Company has also identified certain other present and former properties at which it may be responsible for cleaning up or addressing environmental contamination, in some cases as a result of contractual commitments and/or federal or state environmental laws. The Company is actively seeking to resolve these actual and potential statutory, regulatory and contractual obligations. Although difficult to quantify based on the complexity of the issues, the Company has accrued amounts corresponding to its best estimate of the costs associated with such regulatory and contractual obligations on the basis of available information from site investigations and best professional judgment of consultants.

Total environmental liabilities, determined on an undiscounted basis, are included in the consolidated balance sheets as follows:

	March 31		December 31
	2013		2012
	(Millions of Dollars)
Other current liabilities	$	5	$	6
Other accrued liabilities (noncurrent)		9		9
	$	14	$	15

Management believes that recorded environmental liabilities will be adequate to cover the Company’s estimated liability for its exposure in respect to such matters. In the event that such liabilities were to significantly exceed the amounts recorded by the Company, the Company’s results of operations and financial condition could be materially affected. At March 31, 2013, management estimates that reasonably possible material additional losses above and beyond management’s best estimate of required remediation costs as recorded approximate $42 million.

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Asset Retirement Obligations

The Company records asset retirement obligations (“ARO”) in accordance with FASB ASC Topic 410,Asset Retirement and Environmental Obligations. The Company’s primary ARO activities relate to the removal of hazardous building materials at its facilities. The Company records an ARO at fair value upon initial recognition when the amount can be reasonably estimated, typically upon the expectation that an operating site may be closed or sold. ARO fair values are determined based on the Company’s determination of what a third party would charge to perform the remediation activities, generally using a present value technique.

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

The Company has identified sites with contractual obligations and several sites that are closed or expected to be closed and sold. In connection with these sites, the Company maintains ARO liabilities in the consolidated balance sheets as follows:

	March 31 2013		December 31 2012
	(Millions of Dollars)
Other current liabilities	$	4	$	3
Other accrued liabilities (noncurrent)		25		26
	$	29	$	29

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

Other Matters

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

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

The following represents the Company’s changes in “Accumulated other comprehensive loss (“AOCL”) by component (net of tax) for the three months ended March 31, 2013:

	Foreign Currency Translation Adjustments			Gains and Losses on Cash Flow Hedges			Post- employment Benefits			Total
	(Millions of Dollars)
Balance January 1, 2013	$	(242	)	$	(24	)	$	(584	)	$	(850	)
Other comprehensive (loss) income before reclassifications		(38	)		(1	)		4			(35	)
Amounts reclassified from AOCL		—			7			8			15
Other comprehensive (loss) income		(38	)		6			12			(20	)
Balance March 31, 2013	$	(280	)	$	(18	)	$	(572	)	$	(870	)

16. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS

Items not reclassified in their entirety out of AOCL to net (loss) income for the three months ended March 31, 2013 are as follows:

	Amount Reclassified from AOCL			Affected Line Item in the Statement Where Net Income is Presented
	(Millions of Dollars)
Losses on cash flow hedges
Interest rate swap contracts	$	(7	)	Interest expense, net (Note (1))
Income taxes		—		Income tax expense
Net of tax	$	(7	)
Postemployment benefits
Recognition of unamortized losses	$	(4	)	Loss from discontinued operations, net of tax
Amortization of prior service credits		3		Note (2)
Amortization of actuarial losses		(7	)	Note (2)
Total	$	(8	)
Income taxes		—		Income tax expense
Net of tax	$	(8	)
Total reclassifications	$	(15	)

Note (1):	See Note 5, Financial Instruments, for additional information.
Note (2):	These items are included in the computation of net periodic benefit cost. See Note 12, Pension and Other Postemployment Benefits, for additional information.

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17. WARRANTS

On December 27, 2007, the Company issued 6,951,871 warrants to purchase 6,951,871 common shares of the Company at an exercise price equal to $45.815, exercisable through December 27, 2014. All of these warrants remain outstanding as of March 31, 2013.

18. STOCK APPRECIATION RIGHTS

A summary of the Company’s stock appreciation rights (“SARs”) activity as of and for the three months ended March 31, 2013 is as follows:

	SARs			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(Thousands)					(Years)		(Millions)
Outstanding at January 1, 2013		1,886		$	19.21		3.4	$	—
Forfeited		(195	)		19.19
Outstanding at March 31, 2013		1,691		$	19.21		3.2	$	—
Exercisable at March 31, 2013		1,151		$	19.33		3.0	$	—

In February 2012, 2011 and 2010, the Company granted approximately 809,000, 1,039,000 and 437,000 SARs, respectively, to certain employees. The SARs granted in February 2012 (“2012 SARs”) and in February 2011 (“2011 SARs”) vested 25.0% on grant date and 25.0% on each of the next three anniversaries of the grant date. The SARs granted in February 2010 (“2010 SARs”) vest 33.3% on each of the three anniversaries of the grant date. All SARs have a term of five years from date of grant. The SARs are payable in cash or, at the election of the Company, in stock. As the Company anticipates paying out SARs exercises in the form of cash, the SARs are being treated as liability awards for accounting purposes. The Company valued the 2012 SARs, the 2011 SARs and the 2010 SARs at March 31, 2013 resulting in fair values of $0.2 million, $0.1 million and less than $0.1 million, respectively. The Company recognized SARs income of $1 million and SARs expense of $1 million for the three months ended March 31, 2013 and 2012, respectively.

The March 31, 2013 and December 31, 2012 SARs fair values were estimated using the Black-Scholes valuation model with the following assumptions:

	March 31, 2013									December 31, 2012
	2012 SARs			2011 SARs			2010 SARs			2012 SARs			2011 SARs			2010 SARs
Exercise price	$	17.64		$	21.03		$	17.16		$	17.64		$	21.03		$	17.16
Expected volatility		53	%		53	%		53	%		56	%		56	%		56	%
Expected dividend yield		0	%		0	%		0	%		0	%		0	%		0	%
Expected forfeitures		0	%		0	%		0	%		0	%		0	%		0	%
Risk-free rate over the expected life		0.27	%		0.19	%		0.14	%		0.30	%		0.23	%		0.17	%
Expected life (in years)		2.3			1.6			1.0			2.5			1.7			1.1
Fair value (in millions)	$	0.2		$	0.1		$	—		$	0.8		$	0.4		$	0.1
Fair value of vested portion (in millions)	$	0.1		$	—		$	—		$	0.2		$	0.2		$	—

Expected volatility is based on the average of five-year historical volatility and implied volatility for a group of comparable auto industry companies as of the measurement date. Risk-free rate is determined based upon U.S. Treasury rates over the estimated expected lives. Expected dividend yield is zero as the Company has not paid

26

dividends to holders of its common stock in the recent past nor does it expect to do so in the future. Expected forfeitures are zero as the Company has no historical experience with SARs; the impact of forfeitures is recognized by the Company upon occurrence. Expected life is the average of the time until the award is fully vested and the end of the term.

19. (LOSS) INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted income (loss) per common share attributable to Federal-Mogul:

	Three Months Ended
	March 31
	2013			2012
	(Millions of Dollars, Except Per Share Amounts)
Amounts attributable to Federal-Mogul:
Net income from continuing operations	$	19		$	35
Net loss from discontinued operations		(53	)		(3	)
Net (loss) income	$	(34	)	$	32
Weighted average shares outstanding, basic (in millions)		98.9			98.9
Incremental shares on assumed conversion of deferred compensation stock (in millions)		—			0.5
Weighted average shares outstanding, including dilutive shares (in millions)		98.9			99.4
Net (loss) income per common share – basic and diluted:
Net income from continuing operations attributable to Federal-Mogul	$	0.19		$	0.35
Loss from discontinued operations attributable to Federal-Mogul		(0.53	)		(0.03	)
Net (loss) income attributable to Federal-Mogul	$	(0.34	)	$	0.32

Warrants to purchase 6,951,871 common shares were not included in the computation of weighted average shares outstanding, including dilutive shares, for the three months ended March 31, 2013 and 2012 because the exercise price was greater than the average market price of the Company’s common shares during these periods.

Options to purchase 4,000,000 common shares, which expired on June 29, 2012, were not included in the computation of weighted average shares outstanding, including dilutive shares, for the three months ended March 31, 2012 because the exercise price was greater than the average market price of the Company’s common shares during this period.

20. SUBSEQUENT EVENT

In April 2013, the Company ceased operations at one of its U.S. manufacturing locations. The resulting reduction in the average remaining future service period to the full eligibility date of the remaining active plan participants in the Company’s U.S. Welfare Benefit Plan will trigger the recognition of an OPEB curtailment gain of approximately $19 million in the second quarter of 2013.

21. OPERATIONS BY REPORTING SEGMENT

Effective September 1, 2012, the Company began operating with two end-customer focused business segments. The Powertrain segment focuses on original equipment products for automotive, heavy duty and industrial applications.

27

The Vehicle Components Solutions segment sells and distributes a broad portfolio of products in the global aftermarket, while also serving original equipment manufacturers with products including braking, chassis, wipers and other vehicle components. The new organizational model allows for a strong product line focus benefitting both original equipment and aftermarket customers and will enable the global Federal-Mogul teams to be responsive to customers’ needs for superior products and to promote greater identification with Federal-Mogul premium brands. The division of the global Federal-Mogul business into two operating segments is expected to enhance management focus to capitalize on opportunities for organic or acquisition growth, profit improvement, resource utilization and business model optimization in line with the unique requirements of the two different customer bases. Prior period amounts have been reclassified to conform with the presentation used in this filing.

The Company evaluates reporting segment performance principally on a non-GAAP Operational EBITDA basis. Management believes that Operational EBITDA provides supplemental information for management and investors to evaluate the operating performance of its business. Management uses, and believes that investors benefit from referring to Operational EBITDA in assessing the Company’s operating results, as well as in planning, forecasting and analyzing future periods as this financial measure approximates the cash flow associated with the operational earnings of the Company. Additionally, Operational EBITDA presents measures of corporate performance exclusive of the Company’s capital structure and the method by which assets were acquired and financed.

During the third quarter of 2012, the Company adjusted its definition of Operational EBITDA to include the service cost component of its U.S. based funded pension plan. Previously, all components of U.S. based funded pension expense were excluded from Operational EDITDA on a total Company basis. Accordingly, Operational EBTIDA is defined as earnings from continuing operations before interest, income taxes, depreciation and amortization, and certain items such as restructuring and impairment charges, Chapter 11 and U.K. Administration related reorganization expenses, gains or losses on the sales of businesses, the non-service cost component of the U.S. based funded pension plan and OPEB curtailment gains or losses. Prior periods have been reclassified to conform with the presentation used in this filing.

Net sales, cost of products sold and gross margin information are as follows:

	Three Months Ended March 31
	Net Sales						Cost of Products Sold						Gross Margin
	2013			2012			2013			2012			2013		2012
	(Millions of Dollars)
Powertrain	$	1,062		$	1,087		$	(935	)	$	(936	)	$	127	$	151
Vehicle Components Solutions		737			754			(613	)		(627	)		124		127
Inter-segment eliminations		(100	)		(101	)		100			101			—		—
Total Reporting Segment		1,699			1,740			(1,448	)		(1,462	)		251		278
Corporate		—			—			—			(1	)		—		(1	)
Total Company	$	1,699		$	1,740		$	(1,448	)	$	(1,463	)	$	251	$	277

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Operational EBITDA and the reconciliation to net (loss) income are as follows:

	Three Months Ended
	March 31
	2013			2012
	(Millions of Dollars)
Powertrain	$	90		$	107
Vehicle Components Solutions		51			58
Total Operational EBITDA		141			165
Depreciation and amortization		(71	)		(69	)
Discontinued operations		(53	)		(3	)
Interest expense, net		(29	)		(33	)
Non-service cost component associated with the U.S. based funded pension plan		(1	)		(9	)
Restructuring expense, net		(8	)		(6	)
Income tax expense		(11	)		(9	)
Other		—			(2	)
Net (loss) income	$	(32	)	$	34

Total assets are as follows:

	March 31		December 31
	2013		2012
	(Millions of Dollars)
Powertrain	$	3,285	$	3,144
Vehicle Components Solutions		3,336		3,242
Total Reporting Segment Assets		6,621		6,386
Discontinued operations		—		25
Corporate		257		516
Total Company Assets	$	6,878	$	6,927

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FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated in this Quarterly Report on Form 10-Q which are not statements of historical fact constitute “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements give current expectations or forecasts of future events. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. The Company also, from time to time, may provide oral or written forward-looking statements in other materials released to the public. Such statements are made in good faith by the Company pursuant to the “Safe Harbor” provisions of the Reform Act.

Any or all forward-looking statements included in this report or in any other public statements may ultimately be incorrect. Forward-looking statements may involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance, experience or achievements of the Company to differ materially from any future results, performance, experience or achievements expressed or implied by such forward-looking statements. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “Annual Report”) filed on February 27, 2013, as well as the risks and uncertainties discussed elsewhere in the Annual Report and this report. Other factors besides those listed could also materially affect the Company’s business.

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

The following Management’s Discussion and Analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the MD&A included in the Company’s Annual Report.

Overview

Federal-Mogul Corporation is a leading global supplier of technology and innovation in vehicle and industrial products for fuel economy, emissions reduction, alternative energies, environment and safety systems. The Company serves the world’s foremost original equipment manufacturers (“OEM”) and servicers (“OES”) of automotive, light, medium and heavy-duty commercial vehicles, off-road, agricultural, marine, rail, aerospace, power generation and industrial equipment (collectively, “OE”), as well as the worldwide aftermarket. The Company seeks to participate in both of these markets by leveraging its original equipment product engineering and development capability, manufacturing know-how, and expertise in managing a broad and deep range of replacement parts to service the aftermarket. The Company believes that it is uniquely positioned to effectively manage the life cycle of a broad range of products to a diverse customer base.

Federal-Mogul has established a global presence and conducts its operations through various manufacturing, distribution and technical centers that are wholly-owned subsidiaries or partially-owned joint ventures. During the three months ended March 31, 2013, the Company derived 38% of its sales in the United States and 62% internationally. The Company has operations in established markets including Canada, France, Germany, Italy, Japan, Spain, Sweden, the United Kingdom and the United States, and developing markets including Argentina, Brazil, China, Czech Republic, Hungary, India, Korea, Mexico, Poland, Russia, South Africa, Thailand, Turkey and Venezuela. The attendant risks of the Company’s international operations are primarily related to currency fluctuations, changes in local economic and political conditions, and changes in laws and regulations.

Federal-Mogul offers its customers a diverse array of market-leading products for OE and replacement parts (“aftermarket”) applications, including pistons, piston rings, piston pins, cylinder liners, valve seats and guides, ignition products, dynamic seals, bonded piston seals, combustion and exhaust gaskets, static gaskets and seals, rigid

30

heat shields, engine bearings, industrial bearings, bushings and washers, brake disc pads, brake linings, brake blocks, element resistant systems protection sleeving products, acoustic shielding, flexible heat shields, brake system components, chassis products, wipers, fuel pumps and lighting.

The Company operates in an extremely competitive industry, driven by global vehicle production volumes and part replacement trends. Business is typically awarded to the supplier offering the most favorable combination of cost, quality, technology and service. Customers continue to demand periodic cost reductions that require the Company to continually assess, redefine and improve its operations, products, and manufacturing capabilities to maintain and improve profitability. Management continues to develop and execute initiatives to meet the challenges of the industry and to achieve its strategy for sustainable global profitable growth.

Effective September 1, 2012, the Company began operating with two end-customer focused business segments. The Powertrain (or “PT”) segment focuses on original equipment products for automotive, heavy duty and industrial applications. The Vehicle Components Solutions (or “VCS”) segment sells and distributes a broad portfolio of products in the global aftermarket, while also serving original equipment manufacturers with products including braking, chassis, wipers and other vehicle components. The new organizational model allows for a strong product line focus benefitting both original equipment and aftermarket customers and will enable the global Federal-Mogul teams to be responsive to customers’ needs for superior products and to promote greater identification with Federal-Mogul premium brands. The division of the global Federal-Mogul business into two operating segments is expected to enhance management focus to capitalize on opportunities for organic or acquisition growth, profit improvement, resource utilization and business model optimization in line with the unique requirements of the two different customer bases. Prior period amounts have been reclassified to conform with the presentation used in this filing.

The PT segment primarily represents the Company’s OE business. About 90% of PT’s revenue is to OEM customers, with the remaining 10% of its revenue being sold directly to VCS for eventual distribution, by VCS, to customers in the independent aftermarket. Discussions about the Company’s PT segment or its OE business should be seen as analogous. The performance of PT is therefore highly correlated to changes in regional OEM light and commercial vehicle production, together with the changes in the mix of technologies (such as between light vehicle gasoline and light vehicle diesel), and changes in demand for non-automotive and industrial applications. These drivers are enhanced by the rate at which the Company gains new programs, which is itself affected by the rate at which the OEM’s make improvements to emissions and fuel economy – some in response to regional regulations.

The VCS segment primarily represents the Company’s aftermarket business. About 75% of VCS’s revenue is to the customers in the independent aftermarket. The remaining 25% of the VCS business is to OEM or tier 1 suppliers to OEM, and the OES market, essentially, dealer supplied replacement parts – a feature more prevalent in Europe than in North America. The OES market is subject to the same general commercial patterns as the aftermarket business. The performance of VCS is therefore highly correlated to the factors that variously influence the different regional replacement parts markets around the world, such as vehicle miles driven, the average age of vehicles on the road, the size of the regional vehicle parcs and levels of consumer confidence. These drivers are enhanced by the relative strength of the aftermarket brands and the breadth of the portfolio offered relative to the changing needs of the local markets.

For a more detailed description of the Company’s business, products, industry, operating strategy and associated risks, refer to the Annual Report.

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Results of Operations

Consolidated Results – Three Months Ended March 31, 2013 vs. Three Months Ended March 31, 2012

Net sales:

	Three Months Ended March  31
	2013			2012
	(Millions of Dollars)
Powertrain	$	1,062		$	1,087
Vehicle Components Solutions		737			754
Inter-segment eliminations		(100	)		(101	)
Total	$	1,699		$	1,740

The percentage of net sales by group and region for the three months ended March 31, 2013 and 2012 are listed below. “PT,” represents Powertrain and “VSC” represents Vehicle Components Solutions.

	PT			VCS			Total
2013
North America		34	%		58	%		44	%
EMEA		49	%		36	%		44	%
Rest of World		17	%		6	%		12	%
2012
North America		32	%		61	%		44	%
EMEA		51	%		33	%		43	%
Rest of World		17	%		6	%		13	%

Cost of products sold:

	Three Months Ended March 31
	2013			2012
	(Millions of Dollars)
Powertrain	$	(935	)	$	(936	)
Vehicle Components Solutions		(613	)		(627	)
Inter-segment eliminations		100			101
Total Reporting Segment		(1,448	)		(1,462	)
Corporate		—			(1	)
Total Company	$	(1,448	)	$	(1,463	)

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Gross margin:

	Three Months Ended March  31
	2013		2012
	(Millions of Dollars)
Powertrain	$	127	$	151
Vehicle Components Solutions		124		127
Total Reporting Segment		251		278
Corporate		—		(1	)
Total Company	$	251	$	277

The 2% drop in sales is primarily related to reductions in European light vehicle production as well as reduced global commercial vehicle production. Although the U.S. passenger car market contracted slightly, this had only a minor impact on the Company’s sales given that the majority of its OEM sales are to customers outside the U.S. The European passenger car market is also continuing to see its demand shifting away from diesel towards gasoline vehicles. Over 70% of the Company’s European OEM business serves the light vehicle diesel and heavy duty markets, and given the generally greater technical complexity of these applications, the margins for these parts are generally higher than those serving light vehicle gasoline market. Therefore, not only are the Company’s sales significantly impacted by the changes in European demand, but its profits bore a disproportionate adverse impact due to those reductions occurring in some of the most profitable applications within those regions.

Consolidated sales decreased by $41 million, or 2%, to $1,699 million for the first quarter of 2013 from $1,740 million in the same period of 2012. Sales volumes decreased by $48 million, of which $40 million occurred in PT Europe. The rest was essentially driven by VCS due to the cessation of selected non-strategic business contracts, and lower export sales to Venezuela as a result of the country’s currency devaluation, partially offset by additional sales gained from a distribution agreement. This sales decline also reflects some level of impact of the U.S. dollar strengthening, primarily against the euro, which reduced reported sales by $8 million. These decreases were partially offset by $14 million of increased sales directly related to acquisitions.

Cost of products sold decreased by $15 million to $1,448 million for the first quarter of 2013 compared to $1,463 million in the same period of 2012. The reduction in materials, labor and overheads as a direct result of the reduction in sales volume was $22 million, due to adverse changes in regional and product mix. The Company noted materials and services sourcing savings of $12 million. The impact of the relative strength of the U.S. dollar decreased cost of products sold by $3 million. These decreases were partially offset by $11 million of cost increases directly related to an acquisition’s sales volumes, inter-segment sales volumes of $4 million, and increased depreciation of $3 million. Furthermore, the Company reported unfavorable productivity of $5 million which includes labor and benefits inflation.

Gross margin decreased by $26 million, including currency impacts of $5 million, to $251 million, or 14.8% of sales, for the first quarter of 2013 compared to $277 million, or 15.9% of sales, in the same period of 2012. The drop in gross margin as a percent of sales mainly reflects the market driven drop in OEM volumes on the more profitable applications within the OE business. These elements are reflected as unfavorable external sales volumes / mix impact of $26 million. In addition, there were unabsorbed fixed costs on inter-segment sales of 4 million, increased depreciation of $3 million, and unfavorable productivity of $5 million which includes year-over-year labor and benefits inflation. These decreases were partially offset by a favorable impact on margin of $12 million from materials and services sourcing savings, $3 million of additional margin directly related to an acquisition, and $1 million of favorable customer pricing.

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Reporting Segment Results – Three Months Ended March 31, 2013 vs. Three Months Ended March 31, 2012

The following table provides a reconciliation of changes in sales, cost of products sold, gross margin and operational EBITDA from continuing operations for the three months ended March 31, 2013 compared with the three months ended March 31, 2012 for each of the Company’s reporting segments. Operational EBITDA is defined as earnings from continuing operations before interest, income taxes, depreciation and amortization, and certain items such as restructuring and impairment charges, Chapter 11 and U.K. Administration related reorganization expenses, gains or losses on the sales of businesses, the non-service cost components of the U.S. based funded pension plan and OPEB curtailment gains or losses. Information for the three months ended March 31, 2012 has been reclassified from that presented in prior reports to reflect the financial results of operations divested in 2013 as discontinued operations.

	PT			VCS			Inter-segment Elimination			Total Reporting Segment			Corporate			Total Company
	(Millions of Dollars)
Sales
Three months ended March 31, 2012	$	1,087		$	754		$	(101	)	$	1,740		$	—		$	1,740
External sales volumes		(32	)		(16	)		—			(48	)		—			(48	)
Inter-segment sales volumes		(1	)		—			1			—			—			—
Customer pricing		(1	)		2			—			1			—			1
Acquisitions		14			—			—			14			—			14
Foreign currency		(5	)		(3	)		—			(8	)		—			(8	)
Three months ended March 31, 2013	$	1,062		$	737		$	(100	)	$	1,699		$	—		$	1,699
	PT			VCS			Inter-segment Elimination			Total Reporting Segment			Corporate			Total Company
Cost of Products Sold
Three months ended March 31, 2012	$	(936	)	$	(627	)	$	101		$	(1,462	)	$	(1	)	$	(1,463	)
External sales volumes / mix		14			8			—			22			—			22
Inter-segment sales volumes		(3	)		—			(1	)		(4	)		—			(4	)
Productivity, net of inflation		(2	)		(3	)		—			(5	)		—			(5	)
Materials and services sourcing		6			6			—			12			—			12
Pension		—			—			—			—			1			1
Depreciation		(3	)		—			—			(3	)		—			(3	)
Acquisitions		(11	)		—			—			(11	)		—			(11	)
Foreign currency		—			3			—			3			—			3
Three months ended March 31, 2013	$	(935	)	$	(613	)	$	100		$	(1,448	)	$	—		$	(1,448	)
	PT			VCS			Inter-segment Elimination			Total Reporting Segment			Corporate			Total Company
Gross Margin
Three months ended March 31, 2012	$	151		$	127		$	—		$	278		$	(1	)	$	277
External sales volumes / mix		(18	)		(8	)		—			(26	)		—			(26	)
Inter-segment sales volumes		—			—			—			—			—			—
Unabsorbed fixed costs on inter-segment sales		(4	)		—			—			(4	)		—			(4	)
Customer pricing		(1	)		2			—			1			—			1
Productivity, net of inflation		(2	)		(3	)		—			(5	)		—			(5	)
Materials and services sourcing		6			6			—			12			—			12
Pension		—			—			—			—			1			1
Depreciation		(3	)		—			—			(3	)		—			(3	)
Acquisitions		3			—			—			3			—			3
Foreign currency		(5	)		—			—			(5	)		—			(5	)
Three months ended March 31, 2013	$	127		$	124		$	—		$	251		$	—		$	251

34

	PT			VCS			Inter-segment Elimination		Total Reporting Segment			Corporate		Total Company
Operational EBITDA
Three months ended March 31, 2012	$	107		$	58		$	—	$	165		$	—	$	165
External sales volumes / mix		(18	)		(12	)		—		(30	)		—		(30	)
Unabsorbed fixed costs on inter-segment sales		(4	)		—			—		(4	)		—		(4	)
Customer pricing		(1	)		2			—		1			—		1
Productivity, cost of products sold		(2	)		(3	)		—		(5	)		—		(5	)
Productivity, SG&A		(3	)		(8	)		—		(11	)		—		(11	)
Productivity, Other		1			—			—		1			—		1
Sourcing, Cost of products sold		6			6			—		12			—		12
Sourcing, SG&A		—			1			—		1			—		1
Sourcing, Other		(1	)		—			—		(1	)		—		(1	)
Equity earnings in non-consolidated affiliates		(1	)		—			—		(1	)		—		(1	)
Expense associated with payment to retired CEO		4			2			—		6			—		6
Acquisitions		2			—			—		2			—		2
Foreign currency		2			(1	)		—		1			—		1
Other		(2	)		6			—		4			—		4
Three months ended March 31, 2013	$	90		$	51		$	—	$	141		$	—	$	141
Depreciation and amortization															(71	)
Discontinued operations															(53	)
Interest expense, net															(29	)
Income tax expense															(11	)
Restructuring expense, net															(8	)
Non-service cost components associated with the U.S. based funded pension plan															(1	)
Net loss														$	(32	)

Powertrain

Sales decreased by $25 million, or 2%, to $1,062 million for the first quarter of 2013 from $1,087 million in the same period of 2012. The Powertrain segment generates approximately 70% of its revenue outside the United States and the resulting currency movements decreased reported sales by $5 million. External sales volumes decreased by $32 million, due to reductions in European vehicle production, reductions in demand for European non-automotive and industrial applications, and lower U.S. heavy duty production. Although the U.S. passenger car market contracted slightly, this had only a minor impact on PT’s sales given that the majority of its OEM sales are to customers outside the U.S. The European passenger car market is also undergoing a shift in demand away from diesel towards gasoline vehicles. These decreases were partially offset by $14 million of sales increases directly related to an acquisition.

Cost of products sold decreased by $1 million to $935 million for the first quarter of 2013 compared to $936 million in the same period of 2012. Noted decreases were due to materials and services sourcing savings of $6 million, and a reduction in materials, labor and overheads as a direct result of the reduction in volume of $14 million due to adverse changes in regional and product mix. These decreases were mostly offset by unfavorable productivity of $2 million which includes labor and benefits inflation, acquisition-related increased cost of product sold of $11 million, increased depreciation of $3 million, and unfavorable inter-segment sales volumes of $3 million.

Gross margin decreased by $24 million, including currency movements of $5 million, to $127 million, or 12.0% of sales, for the first quarter of 2013 compared to $151 million, or 13.9% of sales, for the first quarter of 2012. The drop in gross margin mainly reflects the loss in OEM volume, at a variable margin level, on the more profitable applications. These elements are reflected as unfavorable external sales volumes / mix impact of $18 million and unfavorable productivity of $2 million, respectively, which includes year-over-year labor and benefits inflation. There were also decreases of $4 million of unabsorbed fixed costs on inter-segment sales, $3 million of increased depreciation, and $1 million of unfavorable customer pricing. These decreases were partially offset by a favorable impact on margin of $6 million from materials and services sourcing savings and $3 million of margins directly related to an acquisition.

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Operational EBITDA decreased by $17 million to $90 million for the first quarter of 2013 from $107 million in the same period of 2012. This decrease was substantially due to the loss of volume, at a variable margin level, on the more profitable applications. These elements are reflected as unfavorable external sales volumes / mix impact of $18 million. All other profit and loss drivers essentially netted out to zero.

Vehicle Components Solutions

Sales decreased by $17 million, or 2%, to 737 million for the first quarter of 2013 from $754 million in the same period of 2012. The external sales volumes decrease of $16 million was driven by the cessation of selected non-strategic business contracts, and lower export sales to Venezuela as a result of the country’s currency devaluation, partially offset by additional sales gained from a distribution agreement. There was favorable customer pricing of $2 million, which includes the non-recurrence of prior year customer incentives. Currency movements impacted sales negatively by $3 million.

Cost of products sold decreased by $14 million to $613 million for the first quarter of 2013 compared to $627 million in the same period of 2012. This decrease was due to $8 million directly associated with external sales volume and changes in product mix, materials and services sourcing savings of $6 million, and currency movements of $3 million. These decreases were partially offset unfavorable productivity, net of inflation of $3 million.

Gross margin decreased by $3 million to $124 million, or 16.8% of sales, for the first quarter of 2013 compared to $127 million, also 16.8% of sales, in the same period of 2012. This is the result of a net unfavorable external sales volume/mix impact of $8 million and unfavorable productivity, net of inflation of $3 million. These decreases in gross margin were partially offset by improved materials and services sourcing of $6 million, as well as favorable customer pricing of $2 million, which includes the non-recurrence of prior year customer incentives.

Operational EBITDA decreased by $7 million to $51 million for the first quarter of 2013 from $58 million in the same period of 2012. This decrease was primarily due to unfavorable sales volume/mix changes of $12 million, partially offset by decreases in the cost of materials and services sourcing of $7 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) were $185 million, or 10.9% of net sales, for the first quarter of 2013 as compared to $188 million, or 10.8% of net sales, for the same quarter of 2012.

The Company maintains technical centers throughout the world designed to integrate the Company’s leading technologies into advanced products and processes, to provide engineering support for all of the Company’s manufacturing sites, and to provide technological expertise in engineering and design development providing solutions for customers and bringing new, innovative products to market. Included in SG&A were research and development (“R&D”) costs, including product and validation costs, of $46 million for the first quarter of 2013 compared with $44 million for the same period in 2012.

Interest Expense, Net

Net interest expense was $29 million for the first quarter of 2013 compared to $33 for the first quarter of 2012.

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Restructuring Activities

The following is a summary of the Company’s consolidated restructuring liabilities and related activity as of and for the quarter ended March 31, 2013:

	PT			VCS			Total Reporting Segment			Corporate			Total Company
	(Millions of Dollars)
Balance at January 1, 2013	$	4		$	5		$	9		$	3		$	12
Provisions		4			2			6			2			8
Payments		(3	)		(2	)		(5	)		(1	)		(6	)
Balance at March 31, 2013	$	5		$	5		$	10		$	4		$	14

Other Income (Expense), Net

Other income (expense), net was $6 million for the three months ended March 31, 2013 compared to $(2) million for the same period of 2012.

Income Taxes

For the three months ended March 31, 2013, the Company recorded an income tax expense of $11 million on income from continuing operations before income taxes of $32 million. This compares to income tax expense of $9 million on income from continuing operations before income taxes of $46 million in the same period of 2012. The income tax expense for the three months ended March 31, 2013 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates lower than the U.S. Statutory rate, income in jurisdictions with no tax expense due to offsetting valuation allowance release, partially offset by pre-tax losses with no tax benefits. The income tax expense for the three months ended March 31, 2012 differs from U.S. statutory rate due primarily to pre-tax income taxed at rates lower than the U.S. statutory rate, income in jurisdictions with no tax expense due to offsetting valuation allowance releases, release of uncertain tax positions due to audit settlement, and a tax benefit recorded related to a special economic zone tax incentive in Poland, partially offset by pre-tax losses with no tax benefits.

Litigation and Environmental Contingencies

For a summary of material litigation and environmental contingencies, refer to Note 14 of the consolidated financial statements, “Commitments and Contingencies.”

Liquidity and Capital Resources

Cash Flow

Cash flow used by operating activities was $(50) million for the three months ended March 31, 2013 compared to cash flow provided from operating activities of $5 million for the comparable period of 2012. The $55 million year-over-year decrease is primarily attributable to a $24 million decrease in Operational EBITDA and a $29 million increase in working capital outflow. The increase in working capital outflow includes $23 million of additional working capital to support a new global aftermarket distribution agreement.

Cash flow used by investing activities was $136 million for the three months ended March 31, 2013 compared to $117 million for the comparable period of 2012. Capital expenditures of $93 million and $130 million for the three months ended March 31, 2013 and 2012, respectively, were required to support future sales growth and productivity improvements. Furthermore, there were $40 million of net payments during the first quarter of 2013 related to business dispositions.

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Cash flow provided from financing activities was $1 million for the three months ended March 31, 2013 compared to cash flow used by financing activities of $(10) million for the comparable period of 2012. This $11 million increase in cash inflow was primarily due to a $12 million flow change associated with short-term debt borrowings.

Financing Activities

On December 27, 2007, the Company entered into a Term Loan and Revolving Credit Agreement (the “Debt Facilities”) with Citicorp U.S.A. Inc. as Administrative Agent, JPMorgan Chase Bank, N.A. as Syndication Agent and certain lenders. The Debt Facilities include a $540 million revolving credit facility (which is subject to a borrowing base and can be increased under certain circumstances and subject to certain conditions) and a $2,960 million term loan credit facility divided into a $1,960 million tranche B loan and a $1,000 million tranche C loan. The obligations under the revolving credit facility mature December 27, 2013 and bear interest for the first six months at LIBOR plus 1.75% or at the alternate base rate (“ABR,” defined as the greater of Citibank, N.A.’s announced prime rate or 0.50% over the Federal Funds Rate) plus 0.75%, and thereafter shall be adjusted in accordance with a pricing grid based on availability under the revolving credit facility. Interest rates on the pricing grid range from LIBOR plus 1.50% to LIBOR plus 2.00% and ABR plus 0.50% to ABR plus 1.00%. The tranche B term loans mature December 27, 2014 and the tranche C term loans mature December 27, 2015. All Debt Facilities term loans bear interest at LIBOR plus 1.9375% or at the alternate base rate (as previously defined) plus 0.9375% at the Company’s election. To the extent that interest rates change by 25 basis points, the Company’s annual interest expense would show a corresponding change of approximately $7 million and $2 million for years 2014 and 2015, respectively, the term of the Company’s Debt Facilities.

The Company has explored in the past and continues to explore alternatives for refinancing all or a portion of the Debt Facilities. The Company may determine to seek to raise additional equity in order to reduce its total debt, increase equity and/or facilitate debt refinancing transactions.

Off Balance Sheet Arrangements

The Company does not have any material off-balance sheet arrangements.

Other Liquidity and Capital Resource Items

Federal-Mogul subsidiaries in Brazil, France, Germany, Italy, Japan and the United States are party to accounts receivable factoring and securitization facilities. Amounts factored under these facilities consist of the following:

	March 31 2013		December 31 2012
	(Millions of Dollars)
Gross accounts receivable factored	$	248	$	217
Gross accounts receivable factored, qualifying as sales		244		216
Undrawn cash on factored accounts receivable		—		—

Proceeds from the factoring of accounts receivable qualifying as sales and expenses associated with the factoring of receivables are as follows:

	Three Months Ended March  31
	2013		2012
	(Millions of Dollars)
Proceeds from factoring qualifying as sales	$	333	$	414
Expenses associated with factoring of receivables		1		2

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 $29 million and $19 million as of March 31, 2013 and December 31, 2012, respectively. The fair values of the exposures to the Company associated with these certain facilities’ terms were determined to be immaterial.

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the information concerning the Company’s exposures to market risk as stated in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Refer to Note 5, “Financial Instruments,” to the consolidated financial statements for information with respect to interest rate risk, commodity price risk and foreign currency risk.

The translated values of revenue and expense from the Company’s international operations are subject to fluctuations due to changes in currency exchange rates. During the three months ended March 31, 2013, the Company derived 38% of its sales in the United States and 62% internationally. Of these international sales, 57% are denominated in the euro, with no other single currency representing more than 8%. To minimize foreign currency risk, the Company generally maintains natural hedges within its non-U.S. activities, including the matching of operational revenues and costs. Where natural hedges are not in place, the Company manages certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. The Company estimates that a hypothetical 10% adverse movement of all foreign currencies in the same direction against the U.S. dollar over the three months ended March 31, 2013 would have decreased “Net income from continuing operations attributable to Federal-Mogul” by approximately $3 million.

ITEM 4. CONTROLS AND PROCEDURES

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s periodic Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of March 31, 2013, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Co-Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Co-Chief Executive Officers and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2013, at the reasonable assurance level previously described.

Changes to Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934. As of March 31, 2013, the Company’s management, with the participation of the Co-Chief Executive Officers and the Chief Financial Officer, has evaluated for disclosure, changes to the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There were no material changes in the Company’s internal control over financial reporting during first quarter of 2013.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

(a) Contingencies.

Note 14, that is included in Part I of this report, is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Except as noted below, there were no material changes in the risk factors previously disclosed in Item 1A, Risk Factors, in the Company’s 2012 Annual Report on Form 10-K as filed on February 27, 2013.

The Company carries significant goodwill on its balance sheet, which is subject to impairment testing and could subject the Company to significant non-cash charges to earnings if impairment occurs: As of March 31, 2013, the Company had goodwill of $794 million, which represented approximately 12% of its total assets. Goodwill is not amortized, but is tested for impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Factors that could indicate that the Company’s goodwill is impaired include, but are not limited to, whether the Company’s fair value, as measured by its market capitalization, has remained below its net book value for a significant period of time, lower than projected operating results and cash flows, and significant industry deterioration in key geographic regions. If impairment is determined to exist, it may result in a significant non-cash charge to earnings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 6. EXHIBITS

(a) Exhibits:

31.1	Certification by Rainer Jueckstock, Co-Chief Executive Officer, Federal-Mogul Corporation, and Chief Executive Officer, Powertrain, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	Certification by Michael Broderick, Co-Chief Executive Officer, Federal-Mogul Corporation, and Chief Executive Officer, Vehicle Components Solutions, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.3	Certification by Alan J. Haughie, Chief Financial Officer, Federal-Mogul Corporation, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32	Certification by the Company’s Co-Chief Executive Officers and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, and Rule 13a-14(b) of the Securities Exchange Act of 1934.
101	Financial statements from the quarterly report on Form 10-Q of Federal-Mogul Corporation for the quarter ended March 31, 2013, filed on April 24, 2013, formatted in XBRL: (i) the Consolidated Statements of Operations; (ii) the Consolidated Statements of Comprehensive (Loss) Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows: and (v) the Notes to the Consolidated Financial Statements furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FEDERAL-MOGUL CORPORATION
By:	/s/    Alan J. Haughie
Alan J. Haughie
Senior Vice President and Chief Financial Officer, Principal Financial Officer
By:	/s/    Jérôme Rouquet
Jérôme Rouquet
Vice President, Controller, and Chief Accounting Officer Principal Accounting Officer

Dated: April 25, 2013

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