Federal-mogul 10K 2014 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

Commission File Number: 001-34029

FEDERAL-MOGUL HOLDINGS CORPORATION

(Exact name of Registrant as specified in its charter)



Delaware		46-5182047
(State or other jurisdiction of incorporation or organization)		(IRS Employer I.D. No.)

27300 West 11 Mile Road, Southfield, Michigan		48034
(Address of principal executive offices)		(Zip code)
Registrant’s telephone number including area code: (248) 354-7700



Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class		Name of Each Exchange on Which Registered
Common Stock par value $0.01 per share		The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

Title of Class

Warrants to purchase Common Stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 definition 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 Act). Yes ¨ No x

The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $585 million as of June 30, 2014 based on the reported last sale price as reported on the NASDAQ Global Select Market on that date.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 ¨

The Registrant had 150,029,244 shares of common stock outstanding as of February 19, 2015.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report.

INDEX



	Page No.
Forward-Looking Statements	1
Part I
Item 1 – Business	2
Item 1A – Risk Factors	14
Item 1B – Unresolved Staff Comments	21
Item 2 – Properties	22
Item 3 – Legal Proceedings	22
Item 4 – Mine Safety Disclosures	23
Part II
Item 5 – Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6 – Selected Financial Data	24
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A – Quantitative and Qualitative Disclosures About Market Risk	53
Item 8 – Financial Statements and Supplementary Data
Management’s Report on Internal Control over Financial Reporting	54
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	55
Report of Independent Registered Public Accounting Firm	56
Consolidated Financial Statements	57
Notes to Consolidated Financial Statements	62
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	106
Item 9A – Controls and Procedures	106
Item 9B – Other Information	106
Part III
Item 10 – Directors, Executive Officers and Corporate Governance	107
Item 11 – Executive Compensation	108
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	108
Item 13 – Certain Relationships and Related Transactions, and Director Independence	108
Item 14 – Principal Accountant Fees and Services	109
Part IV
Item 15 – Exhibits and Financial Statement Schedules	110
Signatures	114
Exhibits

FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated in this Annual Report on Form 10-K 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. Federal-Mogul Corporation (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.

Listed below are some of the factors that could potentially cause actual results to differ materially from historical and expected future results. Other factors besides these listed here could also materially affect the Company’s business.


•	The Company's ability to separate its Powertrain and Motorparts divisions into two independent, publicly traded companies may not be completed on the terms or timeline currently contemplated, if at all.


•	Variations in current and anticipated future production volumes, financial condition, or operational circumstances of the Company’s significant customers, particularly the world’s original equipment manufacturers of commercial and passenger vehicles.


•	The Company’s ability to generate cost savings or manufacturing efficiencies to offset or exceed contractually or competitively required price reductions or price reductions to obtain new business.


•	The Company’s ability to obtain cash adequate to fund its needs, including availability of borrowings under its various credit facilities.


•	Fluctuations in the price and availability of raw materials and other supplies used in the manufacturing and distribution of the Company’s products.


•	Material shortages, transportation system delays, or other difficulties in markets where the Company purchases supplies for the manufacturing of its products.


•	Significant work stoppages, disputes, or any other difficulties in labor markets where the Company obtains materials necessary for the manufacturing of its products or where its products are manufactured, distributed or sold.


•	The Company’s ability to increase its development of fuel cell, hybrid-electric or other alternative energy technologies.


•	Changes in actuarial assumptions, interest costs and discount rates, and fluctuations in the global securities markets which directly impact the valuation of assets and liabilities associated with the Company’s pension and other postemployment benefit plans.


•	Various worldwide economic, political and social factors, changes in economic conditions, currency fluctuations and devaluations, credit risks in emerging markets, or political instability in foreign countries where the Company has significant manufacturing operations, customers or suppliers.


•	Legal actions and claims of undetermined merit and amount involving, among other things, product liability, patent infringement, warranty, recalls of products manufactured or sold by the Company, and environmental and safety issues involving the Company’s products or facilities.


•	Legislative activities of governments, agencies, and similar organizations, both in the United States and in other countries that may affect the operations of the Company.


•	Physical damage to, or loss of, significant manufacturing or distribution property, plant and equipment due to fire, weather or other factors beyond the Company’s control.


•	Possible terrorist attacks or acts of aggression or war, that could exacerbate other risks such as slowed vehicle production or the availability of supplies for the manufacturing of the Company’s products.


•	The Company’s ability to effectively transition its information system infrastructure and functions to newer generation systems.

PART I

ITEM 1. BUSINESS

The Company

On April 15, 2014, Federal-Mogul Corporation completed a holding company reorganization (the “Reorganization”). As a result of the Reorganization, the outstanding shares of Federal-Mogul Corporation common stock were automatically converted on a one-for-one basis into shares of Federal-Mogul Holdings Corporation common stock, and all of the stockholders of Federal-Mogul Corporation immediately prior to the Reorganization automatically became stockholders of Federal-Mogul Holdings Corporation. The rights of stockholders of Federal-Mogul Holdings Corporation are generally governed by Delaware law and Federal-Mogul Holdings Corporation’s certificate of incorporation and bylaws, which are the same in all material respects as those of Federal-Mogul Corporation immediately prior to the Reorganization. In addition, the board of directors of Federal-Mogul Holdings Corporation and its Audit Committee and Compensation Committee are composed of the same members as the board of directors, Audit Committee and Compensation Committee of Federal-Mogul Corporation prior to the Reorganization.

References herein to the “Company,” “Federal-Mogul,” “we,” “us,” “our” refer to Federal-Mogul Corporation for the period prior to the effective time of the Reorganization on April 15, 2014 and to Federal-Mogul Holdings Corporation for the period after the effective time of the Reorganization.

On September 3, 2014, the Company announced its plan to separate its Powertrain and Motorparts divisions into two independent, publicly-traded companies serving the global original equipment and aftermarket industries. The planned separation will be implemented through a tax-free distribution of Federal-Mogul’s Motorparts division to shareholders of Federal-Mogul Holdings Corporation. Completion of the transaction is subject to customary conditions, including among others, the Company’s receipt of an IRS ruling or opinion of counsel to the effect that the distribution will qualify as a transaction that is generally tax-free for U.S. Federal Income tax purposes; as well as effectiveness of a Form 10 Registration Statement to be filed with the SEC. On February 24, 2015, the Company announced that it would defer the previously announced spin-off of its Motorparts division to allow for the integration of its recently completed brake component, chassis and valvetrain acquisitions and to recognize the benefits of the strategic initiatives in the Motorparts division. As a result of the deferral and the recent closing of the acquisition of TRW's valvetrain business, the Company will commence a common stock rights offering to strengthen its balance sheet. The Company’s board of directors intends to revisit the timing of the spin-off prior to year-end. Meanwhile the company will continue to operate as two separate, independent divisions. No assurances can be given regarding the ultimate timing of the separation or that it will be consummated.

Business Overview

The Company is a leading global supplier of technology and innovation in vehicle and industrial products for fuel economy, emissions reduction and safety systems. The Company serves the world’s foremost original equipment manufacturers (“OEM”) and servicers (“OES”) (collectively “OE”) of automotive, light, medium and heavy-duty commercial vehicles, off-road, agricultural, marine, rail, aerospace, power generation and industrial equipment, as well as the worldwide aftermarket. 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 is a leading technology supplier and a market share leader in several product categories. As of December 31, 2014, the Company had current OEM products included on more than 300 global vehicle platforms and more than 700 global powertrains used in light, medium and heavy-duty vehicles. The Company offers premium brands, OE replacement and entry/mid level products for all aftermarket customers. Therefore, the Company can be first to the aftermarket with new products, service expertise and customer support. This broad range of vehicle and powertrain applications reinforces the Company’s belief in its unique market position.

The Company operates with two end-customer focused business segments. The Powertrain segment focuses on original equipment products for automotive, heavy duty and industrial applications. The Motorparts segment sells and distributes a broad portfolio of products in the global aftermarket, while also serving original equipment manufacturers with products including braking, chassis, wipers and other vehicle components. This organizational model allows for a strong product line focus benefitting both original equipment and aftermarket customers and enables the global Federal-Mogul teams to be responsive to customers’ needs for superior products and to promote greater identification with Federal-Mogul premium brands. Additionally, this organizational model enhances management focus to capitalize on opportunities for organic or acquisition growth, profit improvement, resource utilization and business model optimization in line with the unique requirements of the two different customer bases.

Powertrain offers its customers a diverse array of market-leading products for OE 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 heat shields, engine bearings, industrial bearings, bushings and washers, plus element resistant systems protection sleeving products, acoustic shielding and flexible heat shields. Motorparts offers powertrain products manufactured by Powertrain, distributed through globally-recognized aftermarket brands to the independent aftermarket and also offers brake disc pads, brake linings, brake blocks, brake system components, chassis products, wipers, and other product lines to OE and aftermarket customers.

The Company has manufacturing facilities and/or distribution centers in 26 countries and, accordingly, the Company’s reporting segments derive sales from both domestic and international markets. The attendant risks of the Company’s international operations are primarily related to currency fluctuations, changes in local economic and political conditions, extraterritorial effects of United States laws such as the Foreign Corrupt Practices Act, and changes in laws and regulations.

The following tables set forth net sales and net property, plant and equipment (“PP&E”) by geographic region as a percentage of total net sales and net PP&E, respectively.



	Net Sales						Net PP&E
	Year Ended December 31						December 31
	2014		2013		2012		2014		2013
United States	36	%	37	%	38	%	28	%	27	%
Mexico	5	%	5	%	5	%	7	%	7	%
Canada	2	%	1	%	2	%	—		—
Total North America	43	%	43	%	45	%	35	%	34	%

Germany	20	%	20	%	18	%	20	%	21	%
France	5	%	6	%	6	%	3	%	4	%
Belgium	4	%	5	%	4	%	1	%	1	%
Italy	4	%	4	%	4	%	3	%	4	%
United Kingdom	3	%	3	%	4	%	4	%	4	%
Other EMEA	8	%	6	%	6	%	13	%	13	%
Total EMEA	44	%	44	%	42	%	44	%	47	%

China	6	%	5	%	4	%	11	%	8	%
India	3	%	3	%	4	%	6	%	7	%
South America	2	%	2	%	2	%	2	%	2	%
Other	2	%	3	%	3	%	2	%	2	%
Total Rest of World	13	%	13	%	13	%	21	%	19	%
	100	%	100	%	100	%	100	%	100	%

The following table sets forth net sales by reporting segment as a percentage of total net sales:



	Year Ended December 31
	2014		2013		2012
Net sales by reporting segment:
Powertrain	57	%	57	%	56	%
Motorparts	43	%	43	%	44	%
	100	%	100	%	100	%

Strategy

The Company’s strategy is designed to create sustainable global profitable growth by leveraging existing and developing new competitive advantages. This strategy consists of the following primary elements:


•	Provide value-added products to customers in all markets served through leading technology and innovation;


•	Develop products to enable increased fuel economy and reduce vehicle emissions, plus enable the use of alternative energies;


•	Utilize the Company’s leading technology resources to develop advanced and innovative products, processes and manufacturing capabilities;


•	Extend the Company’s global reach to support its OE customers, furthering its relationships with leading Asian OEs and strengthening market share with U.S. and European OEs;


•	Assess acquisition and investment opportunities that provide product line expansion, technological advancements, geographic positioning, penetration of emerging markets (including the “BRIC” markets of Brazil, Russia, India and China) and market share growth;


•	Leverage the strength of the Company’s global aftermarket leading brand positions, product portfolio and range, marketing and selling expertise, and distribution and logistics capabilities; and


•	Aggressively pursue cost competitiveness in all business segments by continuing to drive productivity in existing operations, consolidating and relocating manufacturing operations to best cost countries, utilizing the Company’s strategic alliances, and rationalizing business resources and infrastructure.

The Company’s strategy is to develop and deliver leading technology and innovation which results in market share expansion in the OE market and aftermarket. The Company assesses individual opportunities to execute its strategy based upon estimated sales and margin growth, cost reduction potential, internal investment returns, and other criteria, and makes investment decisions on a case-by-case basis. Opportunities meeting or exceeding benchmark return criteria may be undertaken through research and development activities, acquisitions, and other strategic alliances, or restructuring activities as further discussed below.

Research and Development. The Company maintains technical centers throughout the world designed to:


•	provide solutions for customers and bring new, innovative products to market;


•	integrate the Company’s leading technologies into advanced products and processes;


•	provide engineering support for all of the Company’s manufacturing sites; and


•	provide technological expertise in engineering and design development.

Federal-Mogul’s research and development activities are conducted at the Company’s research and development locations. Within the United States, these centers are located in Skokie, Illinois; Ann Arbor, Michigan; Plymouth, Michigan; St. Louis, Missouri; Exton, Pennsylvania; and Waupun, Wisconsin. Internationally, the Company’s research and development centers are located in Araras, Brazil; Aubange, Belgium; Noyon Codex, France; Chapel-en-le-Frith, United Kingdom, Coventry, United Kingdom; Burscheid, Germany; Nuremberg, Germany; Wiesbaden, Germany; Bad Camberg, Germany; and Shanghai, China.

Each of the Company’s business units is engaged in engineering, research and development efforts working closely with customers to develop custom solutions to meet their needs. Total expenditures for research and development activities, including product engineering and validation costs, were $192 million, $173 million and $173 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Non-Consolidated Affiliates. The Company forms certain affiliations, including joint ventures, to gain share in emerging markets, facilitate the exchange of technical information and development of new products, extend current product offerings, provide best cost manufacturing operations, and broaden its customer base. The Company believes that certain of these affiliations have provided, and will continue to provide, opportunities to expand business relationships with Asian and other OEs operating in BRIC growth markets. The Company is currently involved in 29 such affiliations located in 14 different countries throughout the world, including China, India, Korea, Russia, Turkey and the United States. Of these affiliations, the Company maintains a controlling interest in 16 entities and, accordingly, the financial results of these entities are included in the Consolidated Financial Statements of the Company. The Company has a non-controlling interest in 13 of its affiliates, of which 8 are accounted for under the equity method and 5 are accounted for under 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 affiliations are businesses established and maintained in connection with its operating strategy.

Net sales for the Company’s 16 consolidated affiliates were approximately 5%, 8% and 9% of consolidated net sales for the years ended December 31, 2014, 2013 and 2012, respectively. The Company’s investments in non-consolidated affiliates totaled $269 million and $253 million as of December 31, 2014 and 2013, respectively, and the equity in earnings of such affiliates amounted to $48 million, $34 million and $34 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Acquisitions. On February 6, 2015, the Company completed the purchase of certain business assets of the TRW engine components business. The business was acquired through a combination of asset and stock purchases for a base purchase price of approximately $313 million, funded primarily from the available Replacement Revolver Facility, and subject to certain customary closing and post-closing adjustments. The purchase of TRW’s engine valve business adds a completely new product line to the Company's portfolio, strengthens the Company's position as a leading developer and supplier of core components for engines, and enhances the Company's ability to support its customers to improve fuel economy and reduce emissions.

The assets acquired and liabilities assumed will be recorded at fair value as of the acquisition date in accordance with FASB ASC Topic 805, Business Combinations. The preliminary allocation of the purchase price will occur in the first quarter of 2015. There were no revenues or earnings related to TRW included in the Company's condensed consolidated statement of income.

In July 2014, the Company completed the purchase of certain business assets of the Honeywell brake component business including two recently established manufacturing facilities in China and Romania which substantially strengthens the manufacturing and engineering capabilities of the Company's current global braking portfolio. The business was acquired through a combination of asset and stock purchases for a base purchase price of $169 million and a provisional estimate of $15 million subject to certain customary post-closing adjustments, contingent consideration and other liabilities.

See Note 5, Acquisitions, to the Consolidated Financial Statements, included in Item 8 of this report.

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 year ended December 31, 2013, the Company divested its sintered components operations located in France, its connecting rod manufacturing facility located in Canada, its camshaft foundry located in the United Kingdom and its fuel pump business, which included an aftermarket business component and a manufacturing and research and development facility located in the United States. These divestitures have been presented as discontinued operations in the consolidated statements of operations. See Note 6, Discontinued Operations, to the Consolidated Financial Statements, included in Item 8 of this report.

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

During the years ended December 31, 2014, 2013 and 2012, the Company recorded $86 million, $40 million and $26 million, respectively, in net restructuring expenses.

The Company’s restructuring activities are further discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2, Restructuring, to the Consolidated Financial Statements, included in Item 8 of this report.

The Company’s Products

The following provides an overview of products manufactured and distributed by the Company’s reporting segments.

Powertrain. The Powertrain segment primarily represents the Company’s OE business. About 93% of Powertrain’s revenue is from OE customers, with the remaining 7% of its revenue being sold directly to the Company’s Motorparts segment for eventual distribution, by Motorparts, to customers in the independent aftermarket.

Powertrain operates 66 manufacturing sites in 18 countries, serving a large number of major automotive, heavy-duty, marine and industrial customers worldwide. Powertrain derived 34% of its 2014 OE sales in North America, 48% in Europe, the Middle-East and Africa ("EMEA") and 18% in the rest of the world (“Rest of World” or “ROW”).

Federal-Mogul is one of the world’s leading powertrain component and assembly providers. Comprehensive design capability and an extensive product portfolio enable effective delivery of a broad range of engine and driveline components as well as engineered solutions to improve fuel economy, reduce emissions or enhance vehicle performance and durability. Products in this segment include pistons, piston rings, piston pins, cylinder liners, valve seats and guides, engine bearings, industrial bearings, bushings and washers, ignition products, dynamic seals, bonded piston seals, combustion and exhaust gaskets, static gaskets and seals, rigid heat shields, element resistant systems protection sleeving products, flexible heat shields and lighting products. Powertrain products are used in automotive, motorcycle, light truck, heavy-duty, industrial, commercial equipment (construction, agricultural, power generation, marine and railway), aerospace, and small air-cooled engine applications.The following provides a description of the various products manufactured by Powertrain:



Product	Description

Pistons	The main task of the piston is to compress the air and fuel mixture in advance of ignition. Following combustion, the piston relays the combustion energy into mechanical energy. In this process, substantial pressures are exerted on the piston, imposing high demands on it in terms of rigidity and temperature resistance. Product offerings include Monosteel and DuraBowl pistons, winners of the 2006 and 2010 PACE awards (Premier Automotive Suppliers’ Contribution to Excellence Award), respectively.

Piston Rings	The three main tasks of piston rings in internal combustion engines include: (1) sealing the combustion chamber, (2) supporting heat transfer from the piston to the cylinder wall, and (3) regulating lubrication and oil consumption. Products include GDC and LKZ Rings, winners of the 2007 and 2011 PACE awards, respectively.

Piston Pins	Piston pins attach the piston to the end of the connecting rod, allowing the piston to pivot in each cycle of the engine and following the revolution of the crankshaft.

Cylinder Liners	Cylinder liners, or sleeves are specially engineered where surfaces formed within the engine block, working in tandem with the piston and ring, as the chamber in which the thermal energy of the combustion process is converted into mechanical energy.

Valve Seats and Guides	Federal-Mogul designs and manufactures a wide variety of powdered metal inserts used in engines and general industrial applications, which are specially designed to meet customer requirements for extreme hardness.

Engine Bearings	Engine bearings provide an intermediate surface between the connecting rod and crankshaft and between the crankshaft and engine block. Their purpose is to facilitate the conversion of combustion energy into mechanical energy by allowing low-friction movement of the connecting rods and crankshaft when absorbing the power created in the combustion chamber. They operate principally under hydrodynamic lubrication conditions. The Company’s bearing product line includes lead-free aluminum engine bearings commonly used in gasoline engines and bronze bearings used in highly-loaded compression engines such as diesel or gasoline turbocharged models. The Company’s portfolio includes a full range of lead-free bearings, winner of the 2014 PACE award, developed to meet EU requirements and covers a range of electroplated and sputter coated bearings. These extremely high performance materials support the downsizing of engines and consequent improved fuel economy and CO₂ reduction. The Company’s product range also includes innovative polymer coated bearings (IROX®) for automotive engines, winner of the 2013 PACE award. These bearings have a special polymer coated shell that helps to withstand high reciprocating mechanical loads produced by heavily boosted engines. The innovative IROX® bearing coating with embedded dry lubricant design enables these bearings to operate in low lubrication conditions found in hybrid or start-stop engines.




Industrial Bearings	Sold under the Deva^®and Glycodur^® brands, industrial bearings are primarily dedicated to applications operating in mixed or low lubrication conditions. Applications are mainly diverse industrial motors or converters and include wind turbines and hydroelectric power generation equipment.

Bushings and Washers	Bushings and washers are used in engines and transmissions to ensure low friction rotation or oscillation of shafts. They are made of bronze, aluminum or polymer material.

Ignition	Ignition products include spark plugs, glow plugs, ignition coils and accessories for automotive commercial and industrial applications.

Dynamic Seals	Dynamic seals are used between a housing or body structure and rotating or moving shafts to contain lubricants, fluids and pressure inside the housing, while keeping out dust and other contaminates. There are numerous areas of application including engine crankshaft, transmission driveshaft, pinion and axle, and wheel seals.

Bonded Piston Seals	Bonded piston seals use hydraulic pressure in transmissions to facilitate gearshift. These products are used in automatic, dual clutch transmissions and continuously variable transmissions.

Combustion and Exhaust Gaskets	Combustion and exhaust gaskets are used between two surfaces to contain gas and pressure produced from combustion. These gaskets are primarily used on internal combustion engine applications including cylinder head, exhaust manifold, exhaust takedown, exhaust gas recirculation and turbocharger gaskets.
Static Gaskets and Seals	Static gaskets and seals create a barrier between two surfaces to contain fluids, pressure and gases while keeping out dust and other contaminants. There are numerous areas of application including engine covers, oil pans, intake manifolds, transmission covers and differential covers.

Rigid Heat Shields	Rigid heat shields are designed to provide a heat and sound barrier to emitting components. These products cover a full range of application on a vehicle from engine to tailpipe.

Element Resistant Sleeving	Element resistant sleeving products provide protection of wires, hoses, sensors, and mechanical components and assemblies from heat, electro-magnetic interference, dirt, vibration and moisture. Element resistant sleeving products include: • automotive wire harnesses and hoses; • abrasion protection and wire management of cable assemblies; • dielectric protection of electrical leads; • thermal and mechanical protection of hose assemblies; and • acoustic insulating and sound-dampening materials.

Flexible Heat Shields	Flexible heat shields are designed to provide a heat barrier and for thermal management usually in the engine compartment.

Lighting	Automotive lighting products include power and lighting systems, and interior and exterior lighting components.

Motorparts. Motorparts sells and distributes a broad portfolio of products in the global vehicle aftermarket. Approximately 75% of Motorparts’ sales are derived from sales to customers in the aftermarket and approximately 25% are attributable to sales to the OE market. Motorparts operates 33 manufacturing sites in 16 countries and 24 distribution centers in 14 countries. Motorparts derived 55% of its sales through North America, 39% in EMEA and 6% in Rest of World.

Motorparts’ products are designed to solve a problem, facilitate installation and improve safety, durability and vehicle performance. Motorparts’ products are utilized widely in vehicle braking systems and chassis, as well as in engine and sealing applications and general service. Motorparts sells its products, which total more than 570,000 SKUs, into the independent automotive, heavy-duty and specialty replacement markets. Through global market insight, supply chain expertise and brand and product line management, aftermarket and OE customers worldwide benefit from the Company’s innovative technology, manufacturing, supply chain and distribution expertise.

The following table sets forth a description of the principal products sold by the Company:



Product	Description	Brands
Light Vehicle Disc Pads	A light vehicle disc pad assembly consists of: friction material, which dissipates forward momentum by converting energy into heat; underlayer, which is a layer of different friction material placed between the backplate and friction material to improve strength, provide a thermal barrier, corrosion resistance, noise performance or a combination of these characteristics; backplate, to support and locate the friction material in the caliper; and shim, which is a rubber/metal laminate developed to suppress noise.	Wagner^®, Abex^®, Ferodo^®, Jurid^®, Stop^®, QuickStop^® and ThermoQuiet^®

Commercial Vehicle Disc Pads	Commercial vehicle disc brake pads are a growing segment of the friction market, superseding drum brakes on trucks, buses, tractor units and trailers. The basic construction of a commercial vehicle disc pad is the same as a light vehicle disc pad.	Ferodo^®, Beral^®, Abex^® and Stop^®

Light Vehicle Drum Brake Linings	Drum brake linings are friction material affixed to a brake shoe and fitted on the rear service brake, rear parking brake and/or transmission brake application.	Ferodo^® and Wagner^®

Commercial Vehicle Full Length Linings	Full length linings are the commercial vehicle equivalent of light vehicle drum brake linings.	Ferodo^®, Beral^®, Abex^® and Jurid^®

Commercial Vehicle Half Blocks	Half blocks are segments of friction material made to be riveted onto drum brake shoes. They are used on heavier vehicle applications where discs are not used.	Ferodo^®, Beral^®, Abex^® and Jurid^®

Railway Brake Blocks	Railway brake blocks work by acting on the circumference of the wheel. They are lighter and quieter in operation than cast iron blocks. However, friction performance is designed to replicate that of cast iron blocks.	Ferodo^® and Jurid^®

Chassis	Chassis parts include ball joints, tie rod ends, sway bar links, idler arms, and pitman arms. These components affect vehicle steering and vehicle ride quality.	MOOG^® and QuickSteer^®
Driveline Universal Joints	Driveline universal joints which provide a linkage between a power unit and output device such as a wheel end or service device.	MOOG^®

Combustion and Exhaust Gaskets	Combustion and exhaust gaskets are used between two surfaces to contain gas and pressure produced from combustion. These gaskets are primarily used on internal combustion engine applications including cylinder head, exhaust manifold, exhaust takedown, exhaust gas recirculation and turbocharger gaskets.	Fel-Pro^®, Payen^® and Goetze^®

Static Gaskets and Seals	Static gaskets and seals create a barrier between two surfaces to contain fluids, pressure and gases while keeping out dust and other contaminants. There are numerous areas of application including engine covers, oil pans, intake manifolds, shaft seals, transmission covers and differential covers.	Fel-Pro^®, Payen^®, Goetze^® and National^®

Wipers	Windshield wiper parts include conventional and profile style wiper blades, blade refills and wiper arms.	ANCO^® and Champion^®



Pistons	The main task of the piston is to compress the air and fuel mixture in advance of ignition. Following combustion, the piston relays the combustion energy into mechanical energy. In this process, substantial pressures are exerted on the piston, imposing high demands on it in terms of rigidity and temperature resistance.	Sealed Power^®, Speed Pro^®, FP Diesel^® and Nüral^®

Piston Rings	The three main tasks of piston rings in internal combustion engines are (1) sealing the combustion chamber, (2) supporting heat transfer from the piston to the cylinder wall and (3) regulating lubrication and oil consumption.	Sealed Power^®, Speed Pro^®, FP Diesel^® and Goetze^®

Cylinder liners	Cylinder liners, or sleeves, are specially engineered where surfaces form within the engine block, working in tandem with the piston and ring, as the chamber in which the thermal energy of the combustion process is converted into mechanical energy.	FP Diesel^® and Goetze^®

Ignition	Ignition products include spark plugs, glow plugs, ignition coils and accessories for automotive, commercial and industrial applications.	Champion^® and Beru^®

Lighting	Replacement vehicle lighting products for automotive and commercial applications	Wagner^®

Reporting Segment Financial Information. The following tables summarize net sales, cost of products sold, gross profit and total assets for each reporting segment. For additional information related to the Company’s reporting segments, refer to Note 24, Operations by Reporting Segment and Geographic Area, to the Consolidated Financial Statements, included in Item 8 of this report.

Net sales:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Powertrain	$	4,430		$	4,173		$	3,926
Motorparts	3,192			2,935			2,853
Inter-segment eliminations	(305		)	(322		)	(335		)
Total	$	7,317		$	6,786		$	6,444

Cost of products sold:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Powertrain	$	(3,897	)	$	(3,656	)	$	(3,470	)
Motorparts	(2,668		)	(2,432		)	(2,390		)
Inter-segment eliminations	305			322			335
Total Reporting Segment	(6,260		)	(5,766		)	(5,525		)
Corporate	—			—			(6		)
Total Company	$	(6,260	)	$	(5,766	)	$	(5,531	)

Gross profit:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Powertrain	$	533	$	517	$	456
Motorparts	524		503		463
Total Reporting Segment	1,057		1,020		919
Corporate	—		—		(6		)
Total Company	$	1,057	$	1,020	$	913

Total assets:



	December 31
	2014		2013
	(Millions of Dollars)
Powertrain	$	3,485	$	3,373
Motorparts	3,355		3,055
Total Reporting Segment	6,840		6,428
Corporate	227		754
Total Company Assets	$	7,067	$	7,182

The Company’s Industry

The automotive light vehicle market, as well as the medium duty/heavy duty commercial market, is comprised of two primary segments: the OE market in which the Company’s products are used in the manufacture of new vehicles and OE dealer service parts, and the global aftermarket, in which the Company’s products are used as replacement parts for all vehicles in operation on the road, including all previous models.

The OE Market. Demand for component parts in the OE market is generally a function of the number of new vehicles produced, which is driven by macro-economic factors such as interest rates, fuel prices, consumer confidence, employment trends, regulatory requirements and trade agreements. Although OE demand is tied to planned vehicle production, parts suppliers also have the opportunity to grow through increasing their product content per vehicle, by increasing market share and by expanding into new or emerging markets. Companies with a global presence, leading technology and innovation, and advanced product engineering, manufacturing and customer support capabilities are best positioned to take advantage of these opportunities.

There are currently several significant trends that are impacting the OE market, including the following:


•	Global Production – The global light and commercial vehicle production in developed markets during 2014 and 2013 was as follows:



	Global Light and Commercial Vehicle Production
	2014	2013
	Millions of Vehicles
America	21.4	21.4
EMEA	22.3	21.1
Asia	45.7	43.9

While global OE production increased at a moderate pace, the demand for parts, including parts produced the by Company also increased moderately during 2014 due to steady demand in the Americas and EMEA and increased demand in Asia.

•

Automotive Supply Consolidation – Consolidation within the automotive supply base is expected to continue as the entire industry evolves and as the industry responds to the need to achieve economies of scale and global capabilities to serve vehicle manufacturers who are increasingly global in their production. Suppliers will seek opportunities to achieve synergies in their operations through consolidation, while striving to acquire complementary businesses to improve global competitiveness or to strategically enhance a product offering to global customers.

•

Globalization of Automotive Industry – OEs are increasingly designing global platforms where the basic design of the vehicle is performed in one location, but the vehicle is produced and sold in numerous geographic markets to realize significant economies of scale by limiting variations across product designs and geographic regions. While developed markets in North America and Europe continue to remain important to OEs, increased focus is being placed upon expanded design, development and production within emerging markets for growth opportunities, especially in the BRIC markets. As a result, suppliers must be prepared to provide product and technical resources in support of their customers within these emerging markets. Furthermore, OEs are moving their operations to best cost geographies outside the U.S. and Western European markets and, accordingly, OEs are increasingly requiring suppliers to provide parts on a global basis. Finally, the Asian OEs continue to expand their reach and market share in relation to traditional North American and European manufacturers. As this trend is expected to continue into the foreseeable future, suppliers must be geographically and technically positioned to meet the needs of the Asian OEs.

•

Focus on Fuel Economy, Reduced Emissions and Alternative Energy Sources – Increased fuel economy and decreased vehicle emissions are of great importance to OEs as legislators and customers continue to demand more efficient and cleaner operating vehicles. Increasingly stringent fuel economy standards and environmental regulations are driving OEs to focus on new technologies including downsized, higher output and turbocharged gasoline engines, diesel and turbocharged diesel, bio-mass and hybrid diesel applications and hybrid, electric and alternative energy engines. As a result, the number of powertrain configurations will increase in response to the proliferation of commercially available energy sources. Suppliers offering solutions to OEs related to numerous vehicle fuel and powertrain configurations possess a distinct competitive advantage, which is driving accelerated new product development cycles.

•

Focus on Vehicle Safety – Vehicle safety continues to receive industry attention by OEs as customers view safety as a fundamental driver in consumer purchasing decisions and legislation looks on improved vehicle safety as a public health issue. Accordingly, OEs are seeking suppliers with new technologies, capabilities and products that have the ability to advance vehicle safety. Suppliers that are able to enhance vehicle safety through innovative products and technologies have a distinct competitive advantage.

•

Pricing Pressures – OEs provide extensive pricing incentives and financing alternatives to consumers in order to generate sales of new vehicles and retain or gain market share. These actions, coupled with the increasing content required to meet regulations, have placed pressures on the OEs’ profits and, in turn, the OEs expect certain recovery from their supply base. Suppliers must continually identify and implement product innovation and cost reduction activities to fund customer annual price concession expectations in order to retain current business as well as to be competitively positioned for future new business opportunities.

•

Raw Material Cost Fluctuations – There have been significant fluctuations in recent periods in global prices of aluminum, copper, lead, nickel, platinum, resins, steel, other base raw materials and energy. Suppliers must continue to identify leading design and innovative technological solutions and material substitution options in order to retain a competitive advantage to the extent that cost increases are not passed on to customers.

•

Energy, Industrial and Transport Markets – Customers continue to develop alternatives to historic infrastructure in the energy, industrial and transport markets. This includes power generators and other power conversion devices as well as growth in the aerospace and high speed railway markets and ocean transport. Suppliers with the capability to utilize automotive expertise to service these and other related markets have a competitive advantage.

The Aftermarket Business. Products for the global vehicle aftermarket are sold directly to a wide range of distributors, retail parts stores and mass merchants that distribute these products to professional service providers, “do-it-yourself” consumers and in some cases, directly to service chains. Demand for aftermarket products historically has been driven by three primary factors: (i) the number of vehicles in operation; (ii) the average age of vehicles; and (iii) vehicle usage trends. These factors, while applicable in all regions, vary depending on the composition of the car parc and other factors, which are discussed in greater detail below.


	Number of Vehicles in Operation: The global car parc is expected to grow to over 1.5 billion by 2020. The car parc growth in certain emerging markets, such as China, is increasing at the highest rate, while more mature markets are expected to continue to remain stable or to grow modestly in size, indicating that new car sales are well beyond the replacement rate for scrapped vehicles.

Increase in Average Age of Vehicles: The average age of vehicles on the road in the United States has increased since 2002 from 9.6 years to an estimated 10.7 years in 2014 and is projected to remain relatively constant at approximately 11.8 years through 2020, driving the need for maintenance and repair work and thereby increasing the overall demand for aftermarket replacement parts in the United States.

More recent trends in the global aftermarket include:

Channel Consolidation: In the more mature markets of the United States and Western Europe, there has been increasing consolidation in aftermarket distribution networks with larger, more sophisticated aftermarket distributors and retailers gaining market share. These distributors generally require larger, more sophisticated suppliers with product expertise, category management and supply chain services and capabilities, as well as a global manufacturing and services footprint.


	Growth of Online Capabilities: Reaching consumers directly through online capabilities, including e-commerce, is expected to have an increasing impact on the global aftermarket industry and how aftermarket products are sold. Establishment of a robust online presence will be critical for suppliers regardless of whether they intend to participate directly in e-commerce.

Increase in Private Label Brands and Low-Cost Country Imports: In the United States, there has been an increase in private label or store brands sold by retailers and distributors at a lower price point than premium brands of the same products. However, in many cases, retailers or wholesale distributors creating private label brands will still rely on established suppliers, like Motorparts, to manufacture their private label products and, in some cases, utilize co-branding to support their private label offerings.

Changes in Consumer Behavior: The aftermarket is impacted by changes in economic conditions, volatility in fuel prices, and expanding focus on environmental and energy conservation. For example, the number of consumers with the ability to purchase new vehicles in Europe has been reduced due to adverse economic conditions, which is likely to increase demand for repairs in order to keep older vehicles road-worthy. Increased environmental regulation will lead to additional replacement parts being required on a more frequent basis to meet more exacting standards. Recent falling fuel prices in the United States are likely to lead consumers to drive more and to increase disposable income available for consumers to purchase aftermarket automotive parts and complete necessary repairs.

The Company’s Customers

The Company supplies OEs with a wide variety of technologically innovative parts, substantially all of which are manufactured by the Company. The Company’s OE customers consist of automotive and heavy-duty vehicle manufacturers as well as agricultural, off-highway, marine, railroad, aerospace, high performance and industrial application manufacturers. The Company has well-established relationships with substantially all major American, European and Asian automotive OEs.

The Company’s aftermarket customers include independent warehouse distributors who redistribute products to local parts suppliers, distributors of heavy-duty vehicular parts, engine rebuilders, retail parts stores and mass merchants. The breadth of the Company’s product lines, the strength of its leading brand names, marketing expertise, sizable sales force, and its distribution and logistics capability are central to the success of the Company’s Motorparts operations.

No individual customer accounted for more than 6% of the Company’s direct sales during 2014.

The Company’s Competition

The global vehicular parts business is highly competitive. The Company competes with many independent manufacturers and distributors of component parts globally. In general, competition for sales is based on price, product quality, technology, delivery, customer service and the breadth of products offered by a given supplier. The Company is meeting these competitive challenges by developing leading technologies, efficiently integrating its manufacturing and distribution operations, expanding its product coverage within its core businesses, restructuring its operations and transferring production to best cost countries, and utilizing its worldwide technical centers to develop and provide value-added solutions to its customers. A summary of the Company’s primary independent competitors by reporting segment is set forth below.


•	Powertrain – Primary competitors include Aisin, Art Metal, BinZou, Bleistahl, Bosch, Daido, Dana/Reinz, Delfingen, Denso, DongYang, ElringKlinger, Freudenberg, GKN, Hella, Hitachi-Automotive, Kolbenschmidt, Mahle, Miba, NGK, NOK, NPR, Osram, Pall, Riken, Sinteron, and Stanley.

•

Motorparts – Primary competitors include Akebono Brake Corporation, Autolite, Brake Parts Inc., Bosch Group, Centric Parts, Crowne Group LLC, Delphi Automotive LLP, Denso Corporation, Dorman Products, Inc., GRI Engineering and Development LLC (MAT Holdings, Inc.), Mahle GmbH, Mevotech Inc., NGK Spark Plug Co., Ltd., NTN Bearing Corporation, Neapco Inc., Old World Industries, LLC, Phillips Industries, Pylon Manufacturing Corporation, Rain-X (ITW Global Brands), SKF Group, Osram Sylvania Ltd., TRW Automotive Holdings Corp., The Timken Company, Trico Products Corporation and Valeo Group.

The Company’s Backlog

For OE customers, the Company generally receives purchase orders for specific products supplied for particular vehicles. These supply relationships typically extend over the life of the related vehicle, subject to interim design and technical specification revisions, and do not require the customer to purchase a minimum quantity. In addition to customary commercial terms and conditions, purchase orders generally provide for annual price reductions based upon expected productivity improvements and other factors. Customers typically retain the right to terminate purchase orders, but the Company generally cannot terminate purchase orders. OE order fulfillment is typically manufactured in response to customer purchase order releases, and the Company ships directly from a manufacturing location to the customer for use in vehicle production and assembly. Accordingly, the Company’s manufacturing locations turn finished goods inventory relatively quickly, producing from on-hand raw materials and work-in-process inventory within relatively short manufacturing cycles. Significant risks to the Company include a change in engine production, driven by mix changes, for powertrain components (e.g. a change from diesel to gasoline engines), lower than expected vehicle or engine production by one or more of its OE customers or termination of the business based upon perceived or actual shortfalls in delivery, quality or value.

For its Global Aftermarket customers, the Company generally establishes product line arrangements that encompass all parts offered within a particular product line. These are typically open-ended arrangements that are subject to termination by either the Company or the customer at any time. Pricing is market responsive and subject to adjustment based upon competitive pressures, material costs and other commercial factors. Global Aftermarket order fulfillment is largely performed from finished goods inventory stocked in the Company’s worldwide distribution network. Inventory stocking levels in the Company’s distribution centers are established based upon historical and anticipated future customer demand.

Although customer programs typically extend to future periods, and although there is an expectation that the Company will supply certain levels of OE production and aftermarket shipments over such periods, the Company believes that outstanding purchase orders and product line arrangements do not constitute firm orders. Firm orders are limited to specific and authorized customer purchase order releases placed with its manufacturing and distribution centers for actual production and order fulfillment. Firm orders are typically fulfilled as promptly as possible after receipt from the conversion of available raw materials and work-in-process inventory for OE orders and from current on-hand finished goods inventory for aftermarket orders. The dollar amount of such purchase order releases on hand and not processed at any point in time is not believed to be significant based upon the timeframe involved.

The Company’s Raw Materials and Suppliers

The Company purchases various raw materials and component parts for use in its manufacturing processes, including ferrous and non-ferrous metals, non-metallic raw materials, stampings, castings and forgings. The Company also purchases parts manufactured by other manufacturers for sale in the aftermarket. The Company has not experienced any significant shortages of raw materials, components or finished parts and normally does not carry inventories of raw materials or finished parts in excess of those reasonably required to meet its production and shipping schedules. In 2014, no outside supplier of the Company provided products that accounted for more than 3% of the Company’s annual purchases.

Insight Portfolio Group LLC (formally known as Icahn Sourcing, LLC) - Related Party

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.

Seasonality of the Company’s Business

The Company’s business is moderately seasonal because many North American OE customers typically close assembly plants for two weeks in July for model year changeovers, and for an additional week during the December holiday season. OE customers in Europe historically shut down vehicle production during portions of July and August and one week in December. Shut-down periods in the Rest of World generally vary by country. The aftermarket experiences seasonal fluctuations in sales due to demands caused by weather and driving patterns. Historically, the Company’s sales and operating profits have been the strongest in the second quarter. For additional information, refer to the Company’s quarterly financial results contained in Note 25, Quarterly Financial Data (Unaudited), to the Consolidated Financial Statements, included in Item 8 of this report.

The Company’s Employee Relations

The Company had 48,600 employees as of December 31, 2014.

Various unions represent approximately 31% of the Company’s U.S. hourly employees and approximately 91% of the Company’s non-U.S. hourly employees. With the exception of two facilities in the U.S., most of the Company’s unionized manufacturing facilities have their own contracts with their own expiration dates and, as a result, no contract expiration date affects more than one facility.

Impact of Environmental Regulations on the Company

The Company’s operations, consistent with those of the manufacturing sector in general, are subject to numerous existing and proposed laws and governmental regulations designed to protect the environment, particularly regarding plant wastes and emissions and solid waste disposal. Capital expenditures for property, plant and equipment for environmental control activities did not have a material impact on the Company’s financial position or cash flows in 2014 and are not expected to have a material impact on the Company’s financial position or cash flows in 2015.

The Company’s Intellectual Property

The Company holds in excess of 5,700 patents and patent applications on a worldwide basis, of which more than 1,160 have been filed in the United States. Of the approximately 5,700 patents and patent applications, approximately 30% are in production use and/or are licensed to third parties, and the remaining 70% are being considered for future production use or provide a strategic technological benefit to the Company.

The Company does not materially rely on any single patent, nor will the expiration of any single patent materially affect the Company’s business. The Company’s current patents expire over various periods into the year 2036. The Company is actively introducing and patenting new technology to replace formerly patented technology before the expiration of the existing patents. In the aggregate, the Company’s worldwide patent portfolio is materially important to its business because it enables the Company to achieve technological differentiation from its competitors.

The Company also maintains more than 6,800 active trademark registrations and applications worldwide. In excess of 90% of these trademark registrations and applications are in commercial use by the Company or are licensed to third parties.

Interests Held by an Entity Controlled by Mr. Carl C. Icahn

An entity indirectly owned and controlled by Mr. Icahn filed a Schedule 13D and amendments therein with the Securities and Exchange Commission indicating that such entity has a beneficial interest of approximately 80.73% of the Company’s outstanding shares of common stock. As a result, Mr. Icahn has the indirect ability to nominate and elect all of the directors on the Company’s Board of Directors. Under applicable law and the Company’s certificate of incorporation and by-laws, certain actions cannot be taken without the approval of holders of a majority of the Company’s voting stock including, without limitation, mergers, the sale of substantially all of the Company’s assets, and amendments to its certificate of incorporation and by-laws. So long as Mr. Icahn continues to control a majority of the Company’s outstanding capital stock, he will continue to have these governance rights and the ability to control the Company.

The Company’s Web Site and Access to Filed Reports

The Company maintains an internet Web site at www.federalmogul.com. The contents of the Company’s Web site are not incorporated by reference in this report. The Company provides access to its annual and periodic reports filed with the SEC free of charge through this Web site. The Company’s Integrity Policy is also available on its Web site. The SEC maintains a Web site at www.SEC.gov where reports, proxy and information statements, and other information about the Company may be obtained. Paper copies of annual and periodic reports filed with the SEC may be obtained free of charge by contacting the Company’s headquarters at the address located within the SEC Filings or under Investor Relations on the Company’s Web site.

ITEM 1.A. RISK FACTORS

An investment in Federal-Mogul involves various risks. The risks discussed below are not the only ones faced by the Company. Please also read the cautionary note regarding “Forward-Looking Statements” beginning on page 2.

The separation of the Company's Powertrain and Motorparts divisions into two independent, publicly traded companies may not be completed on the terms or timeline currently contemplated, if at all. Further, the separation will require significant time, resources and attention from management, which may distract management from the operation of our business and the execution of our other initiatives: On September 3, 2014, the Company announced its intention to pursue the separation of its Powertrain and Motorparts divisions into two independent, publicly traded companies (the “Separation Transaction”). Unanticipated developments could delay or negatively impact the Separation Transaction or increase the Company's expenses relating to the transaction. The Company cannot assure that it will be able to complete the Separation Transaction on the terms that were announced or on the anticipated timeline, if at all. If the Company is unable to consummate the Separation Transaction, it will have incurred costs without realizing the benefits of such transaction. Further, the Separation Transaction will require significant time, resources and attention from management, which may distract management from the operation of our business and the execution of our other initiatives. Our employees may also be distracted due to uncertainty about their future roles pending the completion of the Separation Transaction. If the Separation Transaction is completed, such transaction may not achieve the intended results. Any such difficulties could have a material adverse effect on The Company's financial condition, results of operations or cash flows.

The Company’s liquidity may be impacted in the short term from its growth activities and strategic initiatives: The Company is pursuing a number of organic and inorganic growth activities, restructuring plans and strategic initiatives to increase and improve the Company’s business and profitability. Management believes these activities will enhance the Company’s long term shareholder value; however, the investment to effectuate these activities may have an impact on the Company’s short term liquidity and may create the need for additional borrowing which may be at higher interest rates given the Company’s current level of indebtedness.

The Company has substantial indebtedness, which could restrict the Company’s business activities and could subject the Company to significant interest rate risk: As of December 31, 2014, the Company had approximately $2.7 billion of outstanding indebtedness. The Company is permitted by the terms of its debt instruments to incur additional indebtedness, subject to the restrictions therein. The Company’s inability to generate sufficient cash flow to satisfy its debt obligations, or to refinance its debt obligations on commercially reasonable terms, would have a material adverse effect on the Company’s business, financial condition and results of operations. In addition, covenants in the Company’s debt agreements could limit its ability to engage in certain transactions and pursue its business strategies, which could adversely affect liquidity.

The Company’s indebtedness could:


•	limit the Company’s ability to borrow money for working capital, capital expenditures, debt service requirements or other corporate purposes, guarantee additional debt or issue redeemable, convertible of preferred equity;


•	limit the Company’s ability to make distributions or prepay its debt, incur liens, enter into agreements that restrict distributions from restricted subsidiaries, sell or otherwise dispose of assets (including capital stock of subsidiaries), enter into transactions with affiliates and merger, consolidate or sell substantially all of its assets;


•	require the Company to dedicate a substantial portion of its cash flow to payments on indebtedness, which would reduce the amount of cash flow available to fund working capital, capital expenditures, product development and other corporate requirements;


•	increase the Company’s vulnerability to general adverse economic and industry conditions; and


•	limit the Company’s ability to respond to business opportunities.

A significant portion of the Company’s indebtedness accrues interest at variable rates. To the extent market interest rates rise, the cost of the Company’s debt would increase, adversely affecting the Company’s financial condition, results of operations, and cash flows.

The Company’s restructuring activities may not result in the anticipated synergies and cost savings: It is possible that the achievement of expected synergies and cost savings associated with restructuring activities will require additional costs or charges to earnings in future periods. It is also possible that the expected synergies may not be achieved. Any costs or charges could adversely impact the business, results of operations, liquidity and financial condition.

The Company may pursue acquisitions or other affiliations that involve inherent risks, any of which may cause the Company not to realize anticipated benefits, and the Company may have difficulty integrating the operations of any companies that may be acquired, which may adversely affect the Company’s results of operations: In the past, the Company has grown through acquisitions, and may engage in acquisitions in the future as part of the Company’s sustainable global profitable growth strategy. The full benefits of these acquisitions, however, require integration of manufacturing, administrative, financial, sales, and marketing approaches and personnel. If the Company is unable to successfully integrate its acquisitions, it may not realize the benefits of the acquisitions, the financial results may be negatively affected, or additional cash may be required to integrate such operations.

In the future, the Company may not be able to successfully identify suitable acquisition or affiliation opportunities or complete any particular acquisition, combination, affiliation or other transaction on acceptable terms. The Company’s identification of suitable acquisition candidates and affiliation opportunities and the integration of acquired business operations involve risks inherent in assessing the values, strengths, weaknesses, risks and profitability of these opportunities. This includes the effects on the Company’s business, diversion of management’s attention and risks associated with unanticipated problems or unforeseen liabilities, and may require significant financial resources that would otherwise be used for the ongoing development of the Company’s business.

The difficulties of integration may be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. These difficulties could be further increased to the extent the Company pursues acquisition or affiliation opportunities internationally. The Company may not be effective in retaining key employees or customers of the combined businesses. The Company may face integration issues pertaining to the internal controls and operations functions of the acquired companies and also may not realize cost efficiencies or synergies that were anticipated when selecting the acquisition candidates. The Company may experience managerial or other conflicts with its affiliation partners. Any of these items could adversely affect the Company’s results of operations.

The Company’s failure to identify suitable acquisition or joint venture opportunities may restrict the Company’s ability to grow its business. If the Company is successful in pursuing future acquisitions or other affiliations, the Company may be required to expend significant funds, incur additional debt and/or issue additional securities, which may materially adversely affect results of operations. If the Company spends significant funds or incurs additional debt, the Company’s ability to obtain financing for working capital or other purposes could decline and the Company may be more vulnerable to economic downturns and competitive pressures.

Adverse conditions in the automotive market adversely affect demand for the Company’s products and exposes the Company to credit risks of its customers: The revenues of the Company’s operations are closely tied to global OE automobile sales, production levels, and independent aftermarket parts replacement activity. The OE market is characterized by short-term volatility, with overall expected long-term growth in global vehicle sales and production. Automotive production in the local markets served by the Company can be affected by macro-economic factors such as interest rates, fuel prices, consumer confidence, employment trends, regulatory and legislative oversight requirements and trade agreements. A variation in the level of automobile production would affect not only sales to OE customers but, depending on the reasons for the change, could impact demand from aftermarket customers. The Company’s results of operations and financial condition could be adversely affected if the Company fails to respond in a timely and appropriate manner to changes in the demand for its products.

Accounts receivable potentially subject the Company to concentrations of credit risk. The Company’s customer base includes virtually every significant global automotive manufacturer, numerous Tier 1 automotive suppliers, and a large number of distributors and installers of automotive aftermarket parts.

Consolidation and increased market power of the Company’s independent aftermarket customers could negatively affect the Company’s financial performance: The Company’s independent aftermarket customers are continuing to consolidate and gain purchasing power and the ability to demand extended payment terms and other pricing concessions. If these trends continue the financial results of the Company’s Motorparts business segment could be negatively impacted.

If the Company loses any of its executive officers or key employees, the Company’s operations and ability to manage the day-to-day aspects of its business may be materially adversely affected: The Company’s future performance substantially depends on its ability to retain and motivate executive officers and key employees, both individually and as a group. If the Company loses any of its executive officers or key employees, which have many years of experience with the Company and within the automotive industry and other manufacturing industries, or is unable to recruit qualified personnel, the Company’s ability to manage the day-to-day aspects of its business may be materially adversely affected. The loss of the services of one or more executive officers or key employees, who also have strong personal ties with customers and suppliers, could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company does not currently maintain “key person” life insurance.

The Company’s operations in foreign countries expose the Company to risks related to economic and political conditions, currency fluctuations, import/export restrictions, regulatory and other risks: The Company has manufacturing and distribution facilities in many countries. International operations are subject to certain risks including:


•	exposure to local economic conditions;


•	exposure to local political conditions (including the risk of seizure of assets by foreign governments);


•	currency exchange rate fluctuations (including, but not limited to, material exchange rate fluctuations, such as devaluations) and currency controls


•	export and import restrictions; and


•	compliance with U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting inappropriate payments.

The likelihood of such occurrences and their potential effect on the Company are unpredictable and vary from country-to-country.

Certain of the Company’s operating entities report their financial condition and results of operations in currencies other than the U.S. dollar (including, but not limited to, Brazilian real, British pound, Chinese yuan renminbi, Czech crown, euro, Indian rupee, Mexican peso, Polish zloty, Russian ruble, South Korean won and Swedish krona). In reporting its consolidated statements of operations, the Company translates the reported results of these entities into U.S. dollars at the applicable exchange rates. As a result, fluctuations in the dollar against foreign currencies will affect the value at which the results of these entities are included within Federal-Mogul’s consolidated results.

The Company is exposed to a risk of gain or loss from changes in foreign exchange rates whenever the Company, or one of its foreign subsidiaries, enters into a purchase or sales agreement in a currency other than its functional currency. While the Company reduces such exposure by matching most revenues and costs within the same currency, changes in exchange rates could impact the Company’s financial condition or results of operations.

The Company is subject to possible insolvency of financial counterparties: The Company engages in numerous financial transactions and contracts including insurance policies, letters of credit, credit line agreements, financial derivatives and investment management agreements involving various counterparties. The Company is subject to the risk that one or more of these counterparties may become insolvent and therefore be unable to discharge its obligations under such contracts.

The automotive industry is highly competitive and the Company’s success depends upon its ability to compete effectively in the market: 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. In addition, customers continue to require periodic price reductions that require the Company to continually assess, redefine and improve its operations, products and manufacturing capabilities to maintain and improve profitability. The Company’s management continues to develop and execute initiatives to meet the challenges of the industry and to achieve its strategy; however, there can be no assurance that the Company will be able to compete effectively in the automotive market.

The Company’s pension obligations and other postemployment benefits could adversely impact the Company’s operating margins and cash flows: The automotive industry, like other industries, continues to be impacted by the rising cost of providing pension and other postemployment benefits. In addition, the Company sponsors certain defined benefit plans worldwide that are underfunded and will require cash payments. If the performance of the assets in the pension plans does not meet the Company’s expectations, or other actuarial assumptions are modified, the Company’s required contributions may be higher than it expects. See Note 15, Pensions and Other Postemployment Benefits, to the Consolidated Financial Statements, included in Item 8 of this report.

The price of the Company’s common stock is subject to volatility: Various factors could cause the market price of the Company’s common stock to fluctuate substantially including general financial market changes, changes in governmental regulation, significant automotive industry announcements or developments, the introduction of new products or technologies by the Company or its competitors, and changes in other conditions or trends in the automotive industry. Other factors that could cause the Company’s stock price to fluctuate could be actual or anticipated variations in the Company’s or its competitors’ quarterly or annual financial results, financial results failing to meet expectations of analysts or investors, changes in securities analysts’ estimates of the Company’s future performance or of that of the Company’s competitors and the general health of the automotive industry.

Mr. Carl C. Icahn exerts significant influence over the Company and his interests may conflict with the interest of the Company’s other stockholders: Mr. Carl C. Icahn indirectly controls approximately 80.73% 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.

The Company’s stock price may decline due to sales of shares by Mr. Carl C. Icahn: Sales of substantial amounts of the Company’s common stock by Mr. Icahn and his affiliates, or the perception that these sales may occur, may adversely affect the price of the Company’s common stock and impede its ability to raise capital through the issuance of equity securities in the future. Mr. Icahn is contractually entitled, subject to certain exceptions, to exercise rights under a registration rights agreement to cause the Company to register his shares under the Securities Act. By exercising his registration rights and selling a large number of shares, Mr. Icahn could cause the price of the Company’s common stock to decline. No other shareholder has registration rights.

The Company is subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least 80%: In July 2013 the Company completed a common stock rights offering. The purchases of shares of common stock in the rights offering increased the indirect control of Mr. Carl C. Icahn to approximately 80.73% of the voting power. As a result of the more than 80% ownership interest in the Company by Mr. Icahn’s affiliates, the Company is subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least 80%. One such entity, ACF Industries LLC ("ACF"), is the sponsor of several pension plans. All the minimum funding requirements of the Code and the Employee Retirement Income Security Act of 1974 for these plans have been met as of December 31, 2014. If the ACF plans were voluntarily terminated, they would be underfunded by approximately $82 million as of December 31, 2014. These results are based on the most recent information provided by the plans’ actuaries. These liabilities could increase or decrease, depending on a number of factors, including future changes in benefits, investment returns, and the assumptions used to calculate the liability. As members of the controlled group, the Company would be liable for any failure of ACF to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of the pension plans of ACF. In addition, other entities now or in the future within the controlled group in which the Company is included may have pension plan obligations that are, or may become, underfunded and the Company would be liable for any failure of such entities to make ongoing pension contributions or to pay the unfunded liabilities upon termination of such plans. Further, the failure to pay these pension obligations when due may result in the creation of liens in favor of the pension plan or the Pension Benefit Guaranty Corporation (“PBGC”) against the assets of each member of the controlled group.

The current underfunded status of the pension plans of ACF requires it to notify the PBGC of certain “reportable events,” such as if the Company ceases to be a member of the ACF controlled group, or the Company makes certain extraordinary dividends or stock redemptions. The obligation to report could cause the Company to seek to delay or reconsider the occurrence of such reportable events.

Icahn Enterprises Holdings L.P. and IEH FM Holdings LLC have undertaken to indemnify Federal-Mogul for any and all liability imposed upon the Company pursuant to the Employee Retirement Income Security Act of 1974, as amended, or any regulation there under (“ERISA”) resulting from the Company being considered a member of a controlled group within the meaning of ERISA § 4001(a)(14) of which American Entertainment Properties Corporation is a member, except with respect to liability in respect to any employee benefit plan, as defined by ERISA § 3(3), maintained by the Company. Icahn Enterprises Holdings L.P.

and IEH FM Holdings LLC are not required to maintain any specific net worth and there can be no guarantee Icahn Enterprises Holdings L.P. and IEH FM Holdings LLC will be able to fund its indemnification obligations to the Company.

Certain disruptions in supply of and changes in the competitive environment for raw materials could adversely affect the Company’s operating margins and cash flows: The Company purchases a broad range of materials, components and finished parts. The Company also uses a significant amount of energy, both electricity and natural gas, in the production of its products. A significant disruption in the supply of these materials, supplies and energy or the failure of a supplier with whom the Company has established a single source supply relationship could decrease production and shipping levels, materially increase operating costs and materially adversely affect profit margins. Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages, or other interruptions to or difficulties in the employment of labor or transportation in the markets where the Company purchases material, components and supplies for the production of products or where the products are produced, distributed or sold, whether as a result of labor strife, war, further acts of terrorism or otherwise, in each case may adversely affect profitability.

In recent periods there have been significant fluctuations in the prices of aluminum, copper, lead, nickel, platinum, resins, steel, other base metals and energy which have had and may continue to have an unfavorable impact on the Company’s business. Any continued fluctuations in the price or availability of energy and materials may have an adverse effect on the Company’s results of operations or financial condition. To address increased costs associated with these market forces, a number of the Company’s suppliers have implemented surcharges on existing fixed price contracts. Without the surcharge, some suppliers claim they will be unable to provide adequate supply. Competitive and marketing pressures may limit the Company’s ability to pass some of the supply and material cost increases on to the Company’s customers and may prevent the Company from doing so in the future. Furthermore, the Company’s customers are generally not obligated to accept price increases that the Company may desire to pass along to them. This inability to pass on price increases to customers when material prices increase rapidly or to significantly higher than historic levels could adversely affect the Company’s operating margins and cash flow, possibly resulting in lower operating income and profitability.

The Company’s hedging activities to address commodity price fluctuations may not be successful in offsetting future increases in those costs or may reduce or eliminate the benefits of any decreases in those costs: In order to mitigate short-term variation in operating results due to the aforementioned commodity price fluctuations, the Company hedges a portion of near-term exposure to certain raw materials used in production processes, primarily natural gas, copper, nickel, tin, zinc, high-grade aluminum and aluminum alloy. The results of the Company’s hedging practice could be positive, neutral or negative in any period depending on price changes in the hedged exposures.

The Company’s hedging activities are not designed to mitigate long-term commodity price fluctuations and, therefore, will not protect from long-term commodity price increases. The Company’s future hedging positions may not correlate to actual energy or raw materials costs, which would cause acceleration in the recognition of unrealized gains and losses on hedging positions in operating results.

The Company is subject to a variety of environmental, health and safety laws and regulations and the cost of complying, or the Company’s failure to comply with such requirements may have a material adverse effect on its business, financial condition and results of operations: The Company is subject to a variety of federal, state and local environmental laws and regulations relating to the release or discharge of materials into the environment, the management, use, processing, handling, storage, transport or disposal of hazardous waste materials, or otherwise relating to the protection of public and employee health, safety and the environment. These laws and regulations expose the Company to liability for the environmental condition of its current facilities, and also may expose the Company to liability for the conduct of others or for the Company’s actions that were in compliance with all applicable laws at the time these actions were taken. These laws and regulations also may expose the Company to liability for claims of personal injury or property damage related to alleged exposure to hazardous or toxic materials in foreign countries. Despite the Company’s intention to be in compliance with all such laws and regulations, the Company cannot guarantee that it will at all times be in compliance with all such requirements. The cost of complying with these requirements may also increase substantially in future years. If the Company violates or fails to comply with these requirements, the Company could be fined or otherwise sanctioned by regulators. These requirements are complex, change frequently and may become more stringent over time, which could have a material adverse effect on the Company’s business.

The Company’s failure to maintain and comply with environmental permits that the Company is required to maintain could result in fines or penalties or other sanctions and have a material adverse effect on the Company’s operations or results. Future events, such as new environmental regulations or changes in or modified interpretations of existing laws and regulations or enforcement policies, newly discovered information or further investigation or evaluation of the potential health hazards of products or business activities, may give rise to additional compliance and other costs that could have a material adverse effect on the Company’s business, financial conditions and operations.

New regulations related to “conflict minerals” may force us to incur additional expenses and may make the Company’s supply chain more complex. In August 2012 the SEC adopted annual disclosure and reporting requirements for those companies who use certain minerals known as “conflict minerals” mined from the Democratic Republic of Congo and adjoining countries in their products. These new requirements required due diligence efforts in 2013, with initial disclosure requirements beginning in 2014. There will be significant costs associated with complying with these disclosure requirements, including for diligence to determine the sources of conflict minerals used in the Company’s products and other potential changes to products, processes or sources of supply as a consequence of such verification activities.

The Company is involved from time to time in legal proceedings and commercial or contractual disputes, which could have an adverse impact on the Company’s profitability and consolidated financial position: The Company is involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes, including disputes with suppliers, intellectual property matters, personal injury claims, environmental issues, tax matters and employment matters. No assurances can be given that such proceedings and claims will not have a material adverse impact on the Company’s profitability and consolidated financial position.

If the Company is unable to protect its intellectual property and prevent its improper use by third parties, the Company’s ability to compete in the market may be harmed: Various patent, copyright, trade secret and trademark laws afford only limited protection and may not prevent the Company’s competitors from duplicating the Company’s products or gaining access to its proprietary information and technology. These means also may not permit the Company to gain or maintain a competitive advantage.

Any of the Company’s patents may be challenged, invalidated, circumvented or rendered unenforceable. The Company cannot guarantee that it will be successful should one or more of its patents be challenged for any reason and countries outside the U.S. may diminish the protection of the Company’s patents. If the Company’s patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded to the Company’s products could be impaired, which could significantly impede the Company’s ability to market its products, negatively affect its competitive position and materially adversely affect its business and results of operations.

The Company’s pending or future patent applications may not result in an issued patent. Additionally, newly issued patents may not provide meaningful protection against competitors or against competitive technologies. Courts in the United States and in other countries may invalidate the Company’s patents or find them unenforceable. Competitors may also be able to design around the Company’s patents. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. If these developments were to occur, it could have an adverse effect on the Company’s sales. If the Company’s intellectual property rights are not adequately protected, the Company may not be able to commercialize its technologies, products or services and the Company’s competitors could commercialize the Company’s technologies, which could result in a decrease in the Company’s sales and market share and could materially adversely affect the Company’s business, financial condition and results of operations.

The Company’s products could infringe the intellectual property rights of others, which may lead to litigation that could itself be costly, could result in the payment of substantial damages or royalties, and could prevent the Company from using technology that is essential to its products: The Company cannot guarantee that its products, manufacturing processes or other methods do not infringe the patents or other intellectual property rights of third parties. Infringement and other intellectual property claims and proceedings brought against the Company, whether successful or not, could result in substantial costs and harm the Company’s reputation. Such claims and proceedings can also distract and divert management and key personnel from other tasks important to the success of its business. In addition, intellectual property litigation or claims could force the Company to do one or more of the following:


•	cease selling or using of any products that incorporate the asserted intellectual property, which would adversely affect the Company’s revenue;


•	pay substantial damages for past use of the asserted intellectual property;


•	obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and


•	redesign or rename, in the case of trademark claims, products to avoid infringing the intellectual property rights of third parties, which may not be possible and could be costly and time-consuming if it is possible to do.

In the event of an adverse determination in an intellectual property suit or proceeding, or the Company’s failure to license essential technology, the Company’s sales could be harmed and its costs could increase, which could materially adversely affect the Company’s business, financial condition and results of operations.

The Company may be exposed to certain regulatory and financial risks related to climate change: Climate change is continuing to receive ever increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which could lead to additional legislative and regulatory efforts to limit greenhouse gas emissions. The focus on emissions could increase costs associated with the Company’s operations, including costs for raw materials and transportation. Because the scope of future laws in this area is uncertain, the Company cannot predict the potential impact of such laws on its future consolidated financial condition, results of operations or cash flows.

ITEM 1.B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

The Company’s world headquarters is located in Southfield, Michigan, which is a leased facility. The Company had 174 manufacturing facilities, technical centers, distribution centers, and sales and administration office facilities worldwide at December 31, 2014. Approximately 41% of the facilities are leased; the majority of which are distribution centers, and sales and administration offices. The Company owns the remainder of the facilities.



Type of Facility	North America	EMEA	Rest of World	Total
Manufacturing facilities	31	41	27	99
Technical centers	8	5	1	14
Distribution centers	11	9	4	24
Sales and administration offices	9	13	15	37
	59	68	47	174

The facilities range in size from approximately 100 square feet to 700 thousand square feet. Management believes that substantially all of the Company’s facilities are in good condition and that it has sufficient capacity to meet its current and expected manufacturing and distribution needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various litigation matters regarding environmental matters and other matters as described below.

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. Therefore, 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 were $15 million and $14 million at December 31, 2014 and 2013, respectively. Management believes that such accruals 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 December 31, 2014, management estimates that reasonably possible material additional losses above and beyond management’s best estimate of required remediation costs, as recorded, approximate $40 million.

Other Matters

The Company is involved in other legal actions and claims, directly and through its subsidiaries that arise in the normal course of business. 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 financial position, operating results, or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s stock is listed on the NASDAQ Global Stock Market.

There were approximately 56 stockholders of record of Common Stock as of February 19, 2015 including multiple beneficial holders at depositories, banks and brokers listed as a single holder of record in the street name of each respective depository, bank or broker. High and low sales prices for the Company’s common stock for each quarter in 2014 and 2013 are as follows:



	2014				2013
Quarter	High		Low		High		Low
First	$	22.97	$	15.82	$	9.88	$	5.98
Second	$	20.51	$	16.19	$	10.39	$	4.84
Third	$	20.82	$	14.87	$	17.33	$	9.92
Fourth	$	16.39	$	14.14	$	21.15	$	14.97

The Company did not pay any dividends in 2014 or 2013. The Company has certain restrictions under its debt facilities from paying dividends in the future.

The following graph compares the cumulative total stockholder return during the five year period from December 31, 2009 to December 31, 2014. The graph assumes that $100 was invested on December 31, 2009, in each of the Company’s common stock, the stocks comprising the S&P 500 Index and the stocks comprising the peer group. The peer group is comprised on the following companies: BorgWarner Inc., Dana, Magna International, Meritor, Tenneco and TRW. This performance graph shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Form 10-K into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed soliciting material or filed under such Acts.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents information from the Consolidated Financial Statements as of or for the five years ended December 31, 2014. This information should be read in conjunction with ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and ‘‘Financial Statements and Supplemental Data.’’



	Year Ended December 31
	2014			2013			2012			2011			2010
	(Millions of Dollars, Except Per Share Amounts)
Consolidated Statement of Operations Data
Net sales	$	7,317		$	6,786		$	6,444		$	6,719		$	6,045
Cost of products sold	(6,260		)	(5,766		)	(5,531		)	(5,640		)	(5,049		)
Gross profit	1,057			1,020			913			1,079			996
Selling, general and administrative expenses	(776		)	(719		)	(702		)	(680		)	(676		)
OPEB curtailment gains	—			19			51			1			29
Adjustment of assets to fair value	(144		)	(8		)	(187		)	(279		)	(2		)
Interest expense, net	(120		)	(99		)	(128		)	(127		)	(129		)
Restructuring expense, net	(86		)	(40		)	(26		)	(5		)	(8		)
Amortization expense	(49		)	(47		)	(49		)	(48		)	(49		)
Equity earnings of non-consolidated affiliates	48			34			34			37			32
Loss on debt extinguishment	(24		)	—			—			—			—
Other (expense) income, net	(11		)	(3		)	(26		)	(18		)	(17		)
Income tax (expense) benefit	(56		)	(56		)	29			(16		)	(11		)
Net income (loss) from continuing operations	(161		)	101			(91		)	(56		)	165
(Loss) income from discontinued operations, net of tax	—			(52		)	(19		)	(27		)	2
Less net income attributable to noncontrolling interests	(7		)	(8		)	(7		)	(7		)	(6		)
Net (loss) income attributable to Federal-Mogul	$	(168	)	$	41		$	(117	)	$	(90	)	$	161

Amounts attributable to Federal-Mogul:
Net (loss) income from continuing operations	(168		)	93			(98		)	(63		)	159
(Loss) income from discontinued operations, net of tax	—			(52		)	(19		)	(27		)	2
Net loss) income	$	(168	)	$	41		$	(117	)	$	(90	)	$	161

Common Share Summary Attributable to Federal-Mogul
Net (loss) income per common share - basic:
Net (loss) income from continuing operations	$	(1.12	)	$	0.75		$	(0.99	)	$	(0.64	)	$	1.61
(Loss) income from discontinued operations, net of tax	—			(0.42		)	(0.19		)	(0.27		)	0.02
Net (loss) income	$	(1.12	)	$	0.33		$	(1.18	)	$	(0.91	)	$	1.63

Net (loss) income per common share - diluted:
Net (loss) income from continuing operations	$	(1.12	)	$	0.75		$	(0.99	)	$	(0.64	)	$	1.60
(Loss) income from discontinued operations, net of tax	—			(0.42		)	(0.19		)	(0.27		)	0.02
Net (loss) income	$	(1.12	)	$	0.33		$	(1.18	)	$	(0.91	)	$	1.62

Weighted average shares outstanding – basic (in millions)	150.0			123.4			98.9			98.9			98.9
Weighted average shares outstanding – diluted (in millions)	150.0			123.4			99.4			99.4			99.4
Dividends declared per common share	$	—		$	—		$	—		$	—		$	—




	2014			2013			2012			2011			2010
Other Financial Information
Net cash provided from (used by) operating activities	$	278		$	418		$	(53	)	$	241		$	404
Expenditures for property, plant, equipment	(418		)	(380		)	(387		)	(348		)	(251		)
Depreciation and amortization expense	(334		)	(296		)	(289		)	(284		)	(333		)

	As of December 31
	2014			2013			2012			2011			2010
	(Millions of Dollars)
Consolidated Balance Sheet Data
Total assets	$	7,067		$	7,182		$	6,927		$	7,029		$	7,296
Short-term debt, including current portion of long-term debt	127			1,694			94			88			73
Long-term debt	2,563			905			2,733			2,741			2,752
Federal-Mogul shareholders’ equity	806			1,490			725			953			1,277

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company

Overview

Federal-Mogul Corporation is a leading global supplier of a broad range of components, accessories and systems to the automotive, small engine, heavy-duty, marine, railroad, agricultural, off-road, aerospace and energy, industrial and transport markets, including customers in both the original equipment manufacturers and servicers (“OE”) market and the replacement market (“aftermarket”). The Company’s customers include the world’s largest automotive OEs and major distributors and retailers in the independent aftermarket. Geographically, the Company derived 36% of its 2014 sales in the United States and 64% internationally. The Company has operations in established markets including Australia, Belgium, France, Germany, Italy, Japan, Spain, Sweden, the United Kingdom and the United States, and emerging markets including Argentina, Brazil, China, Czech Republic, Hungary, India, Korea, Mexico, Morocco, Poland, Romania, Russia, South Africa and Thailand. 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.

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 require periodic cost reductions which drive 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, including the following ongoing initiatives:


•	Best-Cost Production – The Company has established and expanded manufacturing operations in best-cost countries in an effort to meet the cost pressures inherent in the industry and increase profitability. The Company has manufacturing operations or affiliations in Brazil, China, Czech Republic, Hungary, India, Korea, Mexico, Poland, Romania, Russia, South Africa, Thailand and Turkey.

•

Global Organization – Recognizing the ever-increasing globalization of the automotive industry, the Company organized its primary business units on both a global and regional basis. This allows each business to take advantage of best practices in product development, technology and innovation, manufacturing capability and capacity as well as adapt to regional customer preferences. Furthermore, the Company continues to develop and implement standardized processes and consolidated systems to further the direction and performance of the business.


•	Global Distribution Optimization – The Company continued its efforts to optimize its aftermarket distribution network in order to improve both the efficiency of operations and customer order fulfillment and delivery performance, including initiatives to streamline its American and European aftermarket operations, and expand its aftermarket operations in Asia.

•

Global Delivery Performance – In addition to the distribution network consolidation efforts, the Company upgraded many of its remaining distribution centers with state-of-the-art warehouse management systems. Furthermore, the Company has renewed its focus on internal logistics and execution of inventory “pull” systems throughout its manufacturing operations and suppliers to ensure prompt and accurate replenishment of its distribution network.

•

Expand Asia Pacific Presence – The Company has invested in manufacturing operations, both wholly-owned and non-consolidated affiliate relationships, in the Asia Pacific region and maintains a technical center in Shanghai, China to support the Company’s efforts in this region. The Company intends to use these operations and technical center to strengthen its current, as well as to develop new, customer relationships in this important region.


•	Customer Valued Technology – The Company has significant engineering and technical resources throughout its businesses focused on creating value for customers with innovative solutions for both product applications and manufacturing processes.

Critical Accounting Policies

The accompanying Consolidated Financial Statements, included in Item 8 of this report, have been prepared in conformity with U.S. GAAP and, accordingly, the Company’s accounting policies have been disclosed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to the Consolidated Financial Statements. The Company considers accounting estimates to be critical accounting policies when:


•	the estimates involve matters that are highly uncertain at the time the accounting estimate is made; and


•	different estimates or changes to estimates could have a material impact on the reported financial position, changes in financial position, or results of operations.

When more than one accounting principle, or the method of its application, is generally accepted, management selects the principle or method that it considers to be the most appropriate given the specific circumstances. Application of these accounting principles requires the Company’s management to make estimates about the future resolution of existing uncertainties. Estimates are typically based upon historical experience, current trends, contractual documentation, and other information, as appropriate. Due to the inherent uncertainty involving estimates, actual results reported in the future may differ from those estimates. In preparing these financial statements, management has made its best estimates and judgments of the amounts and disclosures included in the financial statements, giving due regard to materiality. The following summarizes the Company’s critical accounting policies.

Pension Plans and Other Postemployment Benefit Plans

The Company sponsors defined benefit pension plans (“Pension Benefits”) and postemployment health care and life insurance benefits (“Other Postemployment Benefits” or “OPEB”) for certain employees and retirees around the world. Using appropriate actuarial methods and assumptions, the Company’s defined benefit pension plans and postemployment benefits other than pensions are accounted for in accordance with FASB ASC Topic 715, Compensation – Retirement Benefits.

Actual results that differ from assumptions used are accumulated and amortized over future periods and, accordingly, generally affect recognized expense and the recorded obligation in future periods. Therefore, assumptions used to calculate benefit obligations as of the end of a fiscal year directly impact the expense to be recognized in future periods. The primary assumptions affecting the Company’s accounting for employee benefits as of December 31, 2014 are as follows:

•

Long-term rate of return on plan assets: The required use of the expected long-term rate of return on plan assets may result in recognized returns that are greater or less than the actual returns on those plan assets in any given year. While the development of the long-term rate of return on assets gives appropriate consideration to recent fund performance and historical returns, the assumption is designed to approximate a long-term prospective rate. The expected long-term rate of return used to calculate net periodic pension cost is 6.95% for U.S. plans and a weighted average of 4.18% for non-U.S. plans.


•	Discount rate: The discount rate reflects the effective yield on high quality fixed income securities available in the marketplace as of the measurement date to settle pension and postemployment benefit obligations. The weighted-average discount rates used to calculate net periodic benefit cost for the 2014 and year-end obligations as of December 31, 2014 were as follows:



	Pension Benefits
	United States		Non-U.S.		Other Postemployment
	Plans		Plans		Benefits
Used to calculate net periodic benefit cost	4.55	%	3.49	%	4.45	%

Used to calculate benefit obligations	3.85	%	1.77	%	3.84	%

•

Health care cost trend: For postemployment health care plan accounting, the Company reviews external data and Company specific historical trends for health care costs to determine the health care cost trend rate. The assumed health care cost trend rate used to measure next year’s postemployment health care benefits is 7.25% for health care and 7.25% for drug cost, both declining to an ultimate trend rate of 5.00% in 2022.

The following table illustrates the sensitivity to a change in certain assumptions for projected benefit obligations (“PBO”), associated expense and other comprehensive loss (“OCL”). The changes in these assumptions have no impact on the Company’s funding requirements.



	Pension Benefits																		Other Postemployment Benefits
	United States Plans									Non-U.S. Plans									Other Postemployment Benefits
	Change in 2015 Pension Expense			Change in PBO			Change in Accumulated OCL			Change in 2015 Pension Expense			Change in PBO			Change in Accumulated OCL			Change in 2015 Expense		Change in PBO
	(Millions of Dollars)
25 basis point ("bp") decrease in discount rate	$	(1	)	$	36		$	(36	)	$	1		$	20		$	(20	)	$	—	$	9
25 bp increase in discount rate	—			(34		)	34			(1		)	(20		)	20			—		(9		)
25 bp decrease in return on assets rate	2			—			—			—			—			—			—		—
25 bp increase in return on assets rate	(2		)	—			—			—			—			—			—		—

The assumed health care trend rate has a significant impact on the amounts reported for non-pension plans. The following table illustrates the sensitivity to a change in the assumed health care trend rate:



	Total Service and Interest Cost			APBO
	(Millions of Dollars)
100 bp increase in health care cost trend rate	$	1		$	32
100 bp decrease in health care cost trend rate	$	(1	)	$	(28	)

Environmental Matters

Recorded environmental liabilities were $15 million and $14 million at December 31, 2014 and 2013, respectively. These accruals are based upon management’s best estimates, which requires management to make assumptions regarding the costs for remediation activities, the extent to which costs may be borne by other liable parties, the financial viability of such parties, the time periods over which remediation activities will be completed, and other factors. Although management believes its accruals will be adequate to cover the Company’s estimated liability for its exposure in respect to such environmental matters, any changes in the underlying assumptions could materially impact the Company’s future results of operations and financial condition. At December 31, 2014, management estimates that reasonably possible material additional losses above and beyond management’s best estimate of required remediation costs as recorded approximate $40 million.

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. 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 has accrued $24 million and $26 million as of December 31, 2014 and 2013, respectively, for ARO, primarily related to anticipated costs of removing hazardous building materials, and has considered impairment issues that may result from capitalization of an ARO.

In determining whether the fair value of ARO can reasonably be estimated, the Company must determine if the obligation can be assessed in relation to the acquisition price of the related asset or if an active market exists to transfer the obligation. If the obligation cannot be assessed in connection with an acquisition price and if no market exists for the transfer of the obligation, the Company must determine if it has sufficient information upon which to estimate the obligation using expected present value techniques. This determination requires the Company to estimate the range of settlement dates and the potential methods of settlement, and then to assign the probabilities to the various potential settlement dates and methods.

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. If new information were to become available whereby the Company could make reasonable probability assessments for these CARO, the amount accrued for ARO could change significantly, which could materially impact the Company’s statement of operations and/or financial position. Settlements of ARO in the near-future at amounts other than the Company’s best estimates as of December 31, 2014 also could materially impact the Company’s future results of operations and financial condition.

Long-Lived Asset Impairment Testing

As a result of fresh-start reporting, long-lived assets such as property, plant and equipment (“PP&E”) have been stated at estimated replacement cost as of December 31, 2007, unless the expected future use of the assets indicated a lower value was appropriate. Long-lived assets such as definite-lived intangible assets have been stated at fair value as of December 31, 2007. Depreciation and amortization is computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. Long-lived assets are periodically reviewed for impairment indicators. If impairment indicators exist, the Company performs the required analysis and records an impairment charge, as required, in accordance with the subsequent measurement provisions of FASB ASC Topic 360, Property, Plant & Equipment. The Company recognized PP&E impairments of $19 million, $8 million and $43 million for the years ended December 31, 2014, 2013 and 2012, respectively. The 2012 property, plant and equipment impairment excludes $7 million related to discontinued operations. Discontinued operations are further discussed in Note 6, Discontinued Operations, to the Consolidated Financial Statements, included in Item 8 of this report.

Goodwill Impairment Testing

In accordance with FASB ASC Topic 350, Intangibles – Goodwill and Other, goodwill, and any other intangible asset having an indefinite useful life, must be reviewed for impairment annually, or more frequently if events and circumstances arise that suggest the asset may be impaired. The Company conducts its review for goodwill impairments on October 1 of each year. Goodwill impairment testing is performed at the reporting unit level. The fair value of each reporting unit is determined and compared to the carrying value. If the carrying value exceeds the fair value, then possible goodwill impairment may exist and further evaluation is required. Indefinite-lived intangible assets are tested for impairment by comparing the fair value to the carrying value. If the carrying value exceeds the fair value, the asset is adjusted to fair value.

In contemplation of its annual impairment analysis, the Company noted impairment indicators existed in one reporting unit within the Motorparts segment including lower than expected profits and cash flows resulting from decreases in volumes and pricing pressure from customers. As a result of these impairment indicators, the Company concluded that there was also a potential impairment of its long-lived assets and definite-lived intangible assets. These impairment tests were performed before the goodwill impairment test, and an impairment loss related to long-lived assets of $7 million was recognized prior to goodwill being tested for impairment. The Company then tested goodwill for impairment and determined the carrying value of one reporting unit, within the Motorparts segment, exceeded its fair value. Accordingly, as part of a second step of the goodwill impairment test, the Company made a preliminary conclusion that the carrying amount of the reporting units’ goodwill exceeded the implied fair value of that goodwill and an impairment loss of $120 million was recognized for the year ended December 31, 2014. Due to the complexity of the second step of the goodwill impairment test, the Company expects to finalize its assessment of the of goodwill impairment during the first quarter of 2015. Any resulting difference in the amount of the impairment will be adjusted at that time.

The Company has nine reporting units that have goodwill. The following table categorizes the Company’s goodwill by reporting unit as of October 1, 2014 according to the level of excess between the reporting unit’s fair value and carrying value giving effect to the 2014 impairment charges:



	Fair Value Exceeds Carrying Value	Goodwill
		(Millions of Dollars)
Reporting Units 1 - 4	> 15%	$	131
Reporting Units 5 - 9	> 30%	570
		$	701

In order to align with its regional focus, as of December 31, 2014, the Motorparts segment moved from a product-centered reporting structure to a regional reporting structure. The analysis above, reflects the regional reporting units of the Motorparts segment.

Other Indefinite-Lived Intangible Assets Impairment Testing

The Company performs its annual trademarks and brand names impairment analysis as of October 1, or more frequently if impairment indicators exist, in accordance with the subsequent measurement provisions of FASB ASC Topic 350, Intangibles – Goodwill and Other. This impairment analysis compares the fair values of these assets to the related carrying values, and impairment charges are recorded for any excess of carrying values over fair values. These fair values are based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets.

All of the Company’s trademarks and brand names are associated with its aftermarket sales and are further broken down by product line. The primary, and most sensitive, input utilized in determining the fair values of trademarks and brand names is aftermarket sales by product line. The Company performed a sensitivity analysis on its trademarks and brand names and determined that a one percentage point decrease in its projected future sales growth rates within each aftermarket product line would result in a $2 million impairment.

Results of Impairment Testing Described Above

The Company recorded total impairment charges for the years ended December 31, 2014, 2013 and 2012 as follows:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Goodwill	$	120	$	—	$	96
Property, plant and equipment	19		8		43
Other indefinite-lived intangible assets	—		—		46
Investments in non-consolidated affiliates	5		—		2
	$	144	$	8	$	187

Impairments of goodwill and other indefinite-lived intangible assets are discussed further in Note 8, Fair Value Measurements and Note 11, Goodwill and Other Intangible Assets.

The 2012 property, plant and equipment impairment excludes $7 million related to discontinued operations. Discontinued operations are further discussed in Note 6, Discontinued Operations.

The Company’s adjustment of assets to fair value is further discussed in Note 3, Adjustment of Assets to Fair Value to the Consolidated Financial Statements, included in Item 8 of this report.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation (“FASB ASC 718”), which requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. Estimating fair value for shared-based payments in accordance with FASB ASC 718 requires management to make assumptions regarding expected volatility of the underlying shares, the risk-free rate over the life of the share-based payment, and the date on which share-based payments will be settled. Any differences in actual results from management’s estimates could result in fair values different from estimated fair values, which could materially impact the Company’s future results of operations and financial condition. Additional financial information related to the Company’s share-based payments is presented in Note 21, Stock-Based Compensation to the Consolidated Financial Statements, included in Item 8 of this report.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes (“FASB ASC 740”). The determination of the Company’s tax provision is complex due to operations in many tax jurisdictions outside the United States. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other tax loss and credit carryforwards. The realization of deferred tax assets is dependent upon the Company’s ability to generate future taxable income. The Company records a valuation allowance to offset its deferred tax assets to the amount that it believes is more likely than not to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance that primarily represents operating and other loss carryforwards for which utilization is uncertain. Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against the Company’s net deferred tax assets.

The Company did not record taxes on its undistributed earnings of $902 million at December 31, 2014 since these earnings are considered by the Company to be permanently reinvested. If at some future date, these earnings cease to be permanently reinvested, the Company may be subject to United States income taxes and foreign withholding taxes on such amounts. Determining the unrecognized deferred tax liability on the potential distribution of these earnings is not practicable as such liability, if any, is dependent on circumstances existing when remittance occurs.

At December 31, 2014, the Company had deferred tax assets of $230 million, net of a valuation allowance of $1,314 million, and deferred tax liabilities of $494 million. At December 31, 2013, the Company had deferred tax assets of $236 million, net of a valuation allowance of $1,151 million, and deferred tax liabilities of $492 million.

The Company is subject to income taxes in the U.S. at the federal and state level and numerous non-U.S. jurisdictions. Significant judgment is required in determining the Company’s worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is less than certain. Accruals for income tax contingencies are provided for in accordance with the requirements of FASB ASC 740. The Company’s U.S. federal and certain state income tax returns and certain non-U.S. income tax returns are currently under various stages of audit by applicable tax authorities. Although the outcome of ongoing tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions include amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. At December 31, 2014, the Company has recorded a liability for its best estimate of the more likely than not loss on certain of its tax positions, which is included in other non-current liabilities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.

On July 11, 2013, the Company became part of an affiliated group of corporations as defined in Section 1504 of the Internal Revenue Code of 1986 ("the Code"), as amended, of which American Entertainment Properties Corp. (“AEP”), a wholly owned subsidiary of Icahn Enterprises, is the common parent. The Company subsequently entered into a tax allocation agreement (the “Tax Allocation Agreement”) with AEP. Pursuant to the Tax Allocation Agreement, AEP and the Company have agreed to the allocation of certain income tax items. The Company will join AEP in the filing of AEP’s federal consolidated return and certain state consolidated returns. In those jurisdictions where the Company is filing consolidated returns with AEP, the Company will pay to AEP any tax it would have owed had it continued to file separately. To the extent that the AEP consolidated group is able to reduce its tax liability as a result of including the Company in its consolidated group, AEP will pay the Company an amount equal to 20% of such reduction and the Company will carryforward for its own use under the Tax Allocation Agreement 80% of the items that caused the tax reduction (the “Excess Tax Benefits”). While a member of the AEP affiliated group the Company will reduce the amounts it would otherwise owe AEP by the Excess Tax Benefits. Moreover, if the Company should ever become deconsolidated from AEP, AEP will reimburse the Company for any tax liability in post-deconsolidation years the Company would not have paid had it actually had the Excess Tax Benefits for its own use. The cumulative payments to the Company by AEP post-deconsolidation cannot exceed the cumulative reductions in tax to the AEP group resulting from its use of the Excess Tax Benefits. Separate return methodology will be used in determining income taxes.

RESULTS OF OPERATIONS

The following discussion of the Company’s results of operations should be read in connection with Items 1, 3 and 7A of this Form 10-K, as well as “Forward-Looking Statements” and Item 1.A. “Risk Factors.” These items provide additional relevant information regarding the business of the Company, its strategy, and the various industry dynamics in the OE market and the aftermarket which have a direct and significant impact on the Company’s results of operations, as well as the risks associated with the Company’s business.

Consolidated Results

Net sales:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Powertrain	$	4,430		$	4,173		$	3,926
Motorparts	3,192			2,935			2,853
Inter-segment eliminations	(305		)	(322		)	(335		)
Total	$	7,317		$	6,786		$	6,444

Net sales by group and region:



	Powertrain		Motorparts		Total
2014
North America	34	%	55	%	43	%
EMEA	48	%	39	%	44	%
Rest of World	18	%	6	%	13	%

2013
North America	34	%	57	%	43	%
EMEA	49	%	37	%	44	%
Rest of World	17	%	6	%	13	%

2012
North America	32	%	61	%	45	%
EMEA	50	%	32	%	42	%
Rest of World	18	%	7	%	13	%

Cost of products sold:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Powertrain	$	(3,897	)	$	(3,656	)	$	(3,470	)
Motorparts	(2,668		)	(2,432		)	(2,390		)
Inter-segment eliminations	305			322			335
Total Reporting Segment	(6,260		)	(5,766		)	(5,525		)
Corporate	—			—			(6		)
Total Company	$	(6,260	)	$	(5,766	)	$	(5,531	)

Gross profit by reporting segment:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Powertrain	$	533	$	517	$	456
Motorparts	524		503		463
Total Reporting Segment	1,057		1,020		919
Corporate	—		—		(6		)
Total Company	$	1,057	$	1,020	$	913

Consolidated Results – 2014 versus 2013

Consolidated net sales increased by $531 million, or 8%, to $7,317 million for the year ended December 31, 2014 from $6,786 million for the year ended December 31, 2013. Excluding the impact of unfavorable foreign currency of $51 million, sales increased by $582 million or 9% on a constant dollar basis. This increase is driven by sales growth in the Powertrain division of $301 million or 8% and an increase in sales in the Motorparts division of $281 million or 10%, driven by the Affinia chassis and the Honeywell brake component business acquisitions.

The sales growth of the Company's Powertrain segment of $301 million is driven by an increase in Powertrain's volumes of $330 million, partially offset by customer price reductions of $29 million. This increase comes from higher sales volumes and market share gains across all regions. In Europe, Powertrain sales increased by 6% or $108 million compared to an increase in European light vehicle production of 4% and a decrease in commercial vehicle production of 9%. In North America, Powertrain sales increased by 9% or $117 million compared to an increase in both light vehicle and commercial vehicle production of 5% and 12% respectively. In ROW, as Powertrain's presence in the emerging light vehicle market continued to grow, Powertrain sales increased by $76 million or 12%, compared to an increase in light vehicle production of 1% and a decline in commercial vehicle production of 2%. When taking into account Powertrain's regional and market mix, its sales therefore grew in excess of underlying market demand.

Net sales in the Motorparts division increased by $281 million or 10% as a result of the Affinia chassis and the Honeywell brake component acquisitions. This increase was partially offset by a decrease in sales in North America of 2% primarily due to the exit of certain unprofitable business. In Europe, Motorparts base sales decreased by 3% largely driven by Eastern European sales decline. Sales in the ROW increased by 4% driven by stronger aftermarket demand in the China and India.

Cost of products sold increased by $494 million to $6,260 million for the year ended December 31, 2014 compared to $5,766 million for the year ended December 31, 2013. Including acquisitions, the increase in materials, labor and overheads as a direct result of the increase in external and inter-segment sales volumes was $507 million. The impact from Motorparts strategic initiatives and project costs and unfavorable productivity of $38 million, as well as the increase in depreciation of $26 million were partially offset by savings in material costs of $34 million and foreign currency of $43 million.

Gross profit increased by $37 million to $1,057 million, or 14.4% of sales, for the year ended December 31, 2014 compared to $1,020 million, or 15.0% of sales, for the year ended December 31, 2013. The favorable impact on gross profit due to sales volumes/mix was $107 million, including acquisitions. Favorable materials and services sourcing savings of $34 million were offset by unfavorable customer pricing of $30 million, project costs and costs related to Motorparts strategic initiatives of $27 million, increased depreciation of $26 million, and unfavorable productivity of $11 million.

Consolidated Results - 2013 versus 2012

Consolidated net sales increased by $342 million, or 5%, to $6,786 million for the year ended December 31, 2013 from $6,444 million for the year ended December 31, 2012 with a favorable foreign currency impact of $24 million. Excluding sales directly related to the acquisition of the spark plug business from BorgWarner, Inc. ("BWA") of $43 million and sales from the European distribution agreement for ignition products of $112 million, sales organically increased by $163 million, which is net of $19 million from customer price decreases. This organic growth is comprised of Powertrain increases of $202 million partially offset by Motorparts decreases of $39 million.

Given Powertrain’s weighted market presence in the light vehicle, commercial vehicle and industrial markets and the year-over-year changes in production rates for those markets, the expected Powertrain sales change would be negligible compared to the prior year. However, Powertrain sales increased by 5%, excluding the impact on sales from the acquisition of the spark plug business from BWA - reflecting growth in excess of the underlying market. This was driven by an increase in sales in North America of 10%, an increase in sales in ROW of 12% and an increase in sales in Europe of 1%.

In the Motorparts segment, external sales volumes decreased by $39 million excluding the impact of sales from the European distribution agreement for ignition products of $112 million. This was mainly attributable to the decrease in sales in North America of 3%. This reflects the exit of selected non-strategic business contracts as well as a softening in the export business, mainly into Venezuela as a result of a tightening in exchange rate control in the country. However, this was partly offset by an increase in sales in Motorparts Europe of 4% resulting from aftermarket volume gains and improved market conditions.

Cost of products sold increased by $235 million to $5,766 million for the year ended December 31, 2013 compared to $5,531 million for the year ended December 31, 2012. The increase in materials, labor and overheads as a direct result of the increase in external and inter-segment sales volumes was $249 million along with an increase of $33 million directly related to the acquisition of the spark plug business from BWA. Materials and sourcing savings of $71 million and favorable productivity of $2 million were partly offset by currency movements of $20 million.

Gross profit increased by $107 million to $1,020 million, or 15.0% of sales, for the year ended December 31, 2013 compared to $913 million, or 14.2% of sales, for the year ended December 31, 2012, driven mainly by materials and services sourcing savings of $71 million. As well, the product mix issues experienced in the first half of the year due to commercial vehicle production declining to a greater extent than light vehicle production has stabilized. Therefore, the impact on gross profit due to volume increases was an increase of $57 million. Other factors contributing to the increased profit were $10 million from the acquisition of the spark plug business from BWA, reduced pension expense of $6 million, $4 million of currency movements, and favorable productivity of $2 million. These increases were partially offset by unfavorable customer pricing of $19 million, $12 million of increased depreciation, and unabsorbed fixed costs on inter-segment sales volumes of $12 million.

Reporting Segment Results 2014 versus 2013

The following table provides a reconciliation of changes in net sales, cost of products sold, gross profit and operational EBITDA for the year ended December 31, 2014 compared with the year ended December 31, 2013 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, OPEB curtailment gains or losses, the income statement impacts associated with stock appreciation rights, loss on extinguishment of debt and costs associated with acquisitions, legal separation and headquarters relocation.



	Powertrain			Motorparts			Inter-segment Elimination			Total Reporting Segment			Corporate		Total
	(Millions of Dollars)
2013 Sales	$	4,173		$	2,935		$	(322	)	$	6,786		$	—	$	6,786
External sales volumes	330			282			—			612			—		612
Inter-segment sales volumes	(17		)	—			17			—			—		—
Customer pricing	(29		)	(1		)	—			(30		)	—		(30		)
Foreign currency	(27		)	(24		)	—			(51		)	—		(51		)
2014 Sales	$	4,430		$	3,192		$	(305	)	$	7,317		$	—	$	7,317

	Powertrain			Motorparts			Inter-segment Elimination			Total Reporting Segment			Corporate		Total
2013 Cost of Products Sold	$	(3,656	)	$	(2,432	)	$	322		$	(5,766	)	$	—	$	(5,766	)
External sales volumes / mix	(252		)	(253		)	—			(505		)	—		(505		)
Inter-segment sales volumes	15			—			(17		)	(2		)	—		(2		)
Productivity, net of inflation	(4		)	(7		)	—			(11		)	—		(11		)
Project costs / strategic initiatives	(17		)	(10		)	—			(27		)	—		(27		)
Materials and services sourcing	11			23			—			34			—		34
Depreciation	(16		)	(10		)	—			(26		)	—		(26		)
Foreign currency	22			21			—			43			—		43
2014 Cost of Products Sold	$	(3,897	)	$	(2,668	)	$	305		$	(6,260	)	$	—	$	(6,260	)

	Powertrain			Motorparts			Inter-segment Elimination			Total Reporting Segment			Corporate		Total
2013 Gross Profit	$	517		$	503		$	—		$	1,020		$	—	$	1,020
External sales volumes / mix	78			29			—			107			—		107
Inter-segment sales volumes	—			—			—			—			—		—
Unabsorbed fixed costs on inter-segment sales	(2		)	—			—			(2		)	—		(2		)
Customer pricing	(29		)	(1		)	—			(30		)	—		(30		)
Productivity, net of inflation	(4		)	(7		)	—			(11		)	—		(11		)
Project costs / strategic initiatives	(17		)	(10		)	—			(27		)	—		(27		)
Materials and services sourcing	11			23			—			34			—		34
Depreciation	(16		)	(10		)	—			(26		)	—		(26		)
Foreign currency	(5		)	(3		)	—			(8		)	—		(8		)
2014 Gross Profit	$	533		$	524		$	—		$	1,057		$	—	$	1,057



	Powertrain			Motorparts			Inter-segment Elimination		Total Reporting Segment			Corporate		Total
2013 Operational EBITDA	$	378		$	213		$	—	$	591		$	—	$	591
External sales volumes / mix	82			12			—		94			—		94
Unabsorbed fixed costs on inter-segment sales	(2		)	—			—		(2		)	—		(2		)
Customer pricing	(29		)	(1		)	—		(30		)	—		(30		)
Productivity, net of inflation	—			(8		)	—		(8		)	—		(8		)
Project costs / strategic initiatives	(18		)	(32		)	—		(50		)	—		(50		)
Sourcing, cost of products sold	11			23			—		34			—		34
Sourcing, SG&A	—			2			—		2			—		2
Equity earnings of non-consolidated affiliates	10			2			—		12			—		12
Foreign currency	(3		)	(7		)	—		(10		)	—		(10		)
Other	—			(9		)	—		(9		)	—		(9		)
2014 Operational EBITDA	$	429		$	195		$	—	$	624		$	—	$	624
Depreciation and amortization														(334		)
Adjustment of assets to fair value														(144		)
Interest expense, net														(120		)
Restructuring expense, net														(86		)
Loss on debt extinguishment														(24		)
Acquisition related costs														(16		)
Legal separation costs														(10		)
Headquarters relocation costs														(6		)
Non-service cost components associated with U.S. based funded pension plans														6
Stock appreciation rights														4
Income tax expense														(56		)
Other														1
Net income														$	(161	)

Powertrain

Sales increased by $257 million to $4,430 million for the year ended December 31, 2014 from $4,173 million for the year ended December 31, 2013. Excluding unfavorable foreign currency impact of $27 million, external sales volumes increased by $301 million, including the impact of customer price reductions of $29 million. This increase is driven by higher sales volumes and market share gains across all regions. In Europe, Powertrain sales increased by 6% or $108 million compared to an increase in European light vehicle production of 4% and a decrease in commercial vehicle production of 9%. In North America, Powertrain sales increased by 9% or $117 million compared to an increase in both light vehicle and commercial vehicle production of 5% and 12% respectively. In ROW, as Powertrain's presence in the emerging light vehicle market continued to grow, Powertrain sales increased by $76 million or 12%, compared to an increase in light vehicle production of 1% and a decline in commercial vehicle production of 2%. When taking into account Powertrain's regional and market mix, its sales therefore grew in excess of underlying market demand.

Cost of products sold increased by $241 million to $3,897 million for the year ended December 31, 2014 compared to $3,656 million for the year ended December 31, 2013. The increase in materials, labor and overhead as a direct result of external and inter-segment sales volumes/mix was $237 million. The increase from project costs of $17 million, increased depreciation of $16 million, and unfavorable productivity of $4 million, were partially offset by foreign currency impacts of $22 million and savings in materials and services sourcing costs of $11 million.

Gross profit increased by $16 million to $533 million, or 12% of sales, for the year ended December 31, 2014 compared to $517 million, or 12.4% of sales, for the year ended December 31, 2013. Gross profit increased by $78 million due to the increase in external sales volumes/mix, representing a conversion of 24% on the incremental sales. However, this was partly offset by unfavorable customer pricing of $29 million and increased depreciation of $16 million. In addition, gross profit was further impacted by project cost spending of $17 million related to i continued expansion and improvement of Powertrain’s manufacturing footprint in order to meet customer demand and improve the cost structure.

Operational EBITDA increased by $51 million to $429 million or 9.7% of sales for the year ended December 31, 2014 from $378 million or 9.1% of sales for the year ended December 31, 2013. The increase in Operational EBITDA was driven by market share gains and volume increases across all regions which improved Operational EBITDA by $82 million. Additionally, Operational EBITDA increased from savings from materials and services sourcing of $11 million and a $10 million increase in earnings from non-consolidated affiliates. These increases were partially offset by unfavorable customer pricing of $29 million and project costs of $18 million.

Motorparts

Sales increased by $257 million, or 9%, to $3,192 million for the year ended December 31, 2014, from $2,935 million for the year ended December 31, 2013. Excluding unfavorable foreign currency impact of $24 million, sales increased by $281 million or 10% driven by the Affinia chassis and the Honeywell brake component business acquisitions. This increase was partially offset by a decrease in sales in North America of 2% primarily due to the exit of certain unprofitable business. In Europe, Motorparts base sales decreased by 3% largely driven by Eastern European sales decline. Sales in the ROW increased by 4% driven by stronger aftermarket demand in the China and India.

Cost of products sold increased by $236 million to $2,668 million for the year ended December 31, 2014 compared to $2,432 million for the year ended December 31, 2013. Including acquisitions, the increase in materials, labor and overheads volumes was $253 million. Cost of products sold further increased due to increased depreciation of $10 million, project costs of $10 million and $7 million of unfavorable productivity. These increases were partially offset by materials and services sourcing savings of $23 million and currency movements of $21 million.

Gross profit increased by $21 million to $524 million, or 16.4% of sales, for the year ended December 31, 2014 compared to $503 million or 17.1% of sales, for the year ended December 31, 2013. The increase in gross profit of $23 million includes the additional volume from the Affinia chassis and the Honeywell brake component business acquisition. Gross profit further increased by $23 million from materials and services sourcing savings, but was offset by increased depreciation of $10 million, project costs of $10 million and $7 million of unfavorable productivity. Gross margin percentage was negatively impacted by the inclusion of the Honeywell brake component business which is operating with a lower gross margin percentage than the Company’s existing business (Honeywell was in the process of completing its restructuring and ramping up production at its two new low-cost facilities in Romania and China when acquired). Excluding the impact from the Honeywell brake component business acquisition, gross margin increased to 17.4% for the year ended December 31, 2014.

Operational EBITDA decreased by $18 million to $195 million for the year ended December 31, 2014 from $213 million for the year ended December 31, 2013. EBITDA for the year ended December 31, 2014 includes costs related to strategic initiatives of $21 million and integration costs related to the Affinia chassis and the Honeywell brake component business acquisition of $14 million. In addition, Operational EBITDA was negatively impacted by unfavorable foreign currency, other reductions primarily related to weaker performance in the wiper business, offset by savings in materials and sourced products for a net impact of $9 million.

Selling, General and Administrative Expense

Selling, general and administrative expenses (“SG&A”) were $776 million, or 10.6% of net sales, for the year ended December 31, 2014 as compared to $719 million, or 10.6% of net sales, for the year ended December 31, 2013. This $57 million increase was primarily driven by SG&A costs related to the Affinia chassis and the Honeywell brake component business acquisition of $36 million. Additionally, the Company incurred during the year $39 million of acquisition and integration related costs primarily related to the Affinia chassis and Honeywell brake acquisitions, as well as costs related to strategic initiatives in Motorparts

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 $192 million and $173 million for the years ended December 31, 2014 and December 31, 2013, respectively

OPEB Curtailment Gain

During the second quarter of 2013, the Company ceased operations at one of its U.S. manufacturing locations. As this location participated in the Company’s U.S. Welfare Benefit Plan, the plan was re-measured due to its curtailment implications. 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 triggered the recognition of a $19 million OPEB curtailment gain, which was recognized in the consolidated statements of operations during the second quarter of 2013. The calculation of the curtailment excluded the newly created prior service credit.

Interest Expense, Net

Net interest expense was $120 million in the year ended December 31, 2014 compared to $99 million for the year ended December 31, 2013. The increase is primarily due to the increased interest rates after the refinancing of the Company's term loans in April 2014.

Other Expense, Net

Other expense, net was $11 million for the year ended December 31, 2014 compared to $3 million for the year ended December 31, 2013.

Foreign currency exchange: The Company recognized $7 million in foreign currency exchange losses during the year ended December 31, 2014, compared to $10 million in foreign currency exchange losses during the year ended December 31, 2013.

Reporting Segment Results 2013 versus 2012

The following table provides a reconciliation of changes in net sales, cost of products sold, gross profit and operational EBITDA for the year ended December 31, 2013 compared with the year ended December 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, OPEB curtailment gains or losses, the income statement impacts associated with stock appreciation rights, loss on extinguishment of debt and costs associated with acquisitions, legal separation and headquarters relocation.



	Powertrain			Motorparts			Inter-segment Elimination			Total Reporting Segment			Corporate			Total
	(Millions of Dollars)
2012 Sales	$	3,926		$	2,853		$	(335	)	$	6,444		$	—		$	6,444
External sales volumes	209			85			—			294			—			294
Inter-segment sales volumes	(19		)	6			13			—			—			—
Customer pricing	(7		)	(12		)	—			(19		)	—			(19		)
Acquisitions	43			—			—			43			—			43
Foreign currency	21			3			—			24			—			24
2013 Sales	$	4,173		$	2,935		$	(322	)	$	6,786		$	—		$	6,786

	Powertrain			Motorparts			Inter-segment Elimination			Total Reporting Segment			Corporate			Total
2012 Cost of Products Sold	$	(3,470	)	$	(2,390	)	$	335		$	(5,525	)	$	(6	)	$	(5,531	)
External sales volumes / mix	(165		)	(72		)	—			(237		)	—			(237		)
Inter-segment sales volumes	7			(6		)	(13		)	(12		)	—			(12		)
Productivity, net of inflation	(1		)	3			—			2			—			2
Materials and services sourcing	41			30			—			71			—			71
Pension	—			—			—			—			6			6
Depreciation	(11		)	(1		)	—			(12		)	—			(12		)
Acquisitions	(33		)	—			—			(33		)	—			(33		)
Foreign currency	(24		)	4			—			(20		)	—			(20		)
2013 Cost of Products Sold	$	(3,656	)	$	(2,432	)	$	322		$	(5,766	)	$	—		$	(5,766	)

	Powertrain			Motorparts			Inter-segment Elimination			Total Reporting Segment			Corporate			Total
2012 Gross Profit	$	456		$	463		$	—		$	919		$	(6	)	$	913
External sales volumes / mix	44			13			—			57			—			57
Inter-segment sales volumes	—			—			—			—			—			—
Unabsorbed fixed costs on inter-segment sales	(12		)	—			—			(12		)	—			(12		)
Customer pricing	(7		)	(12		)	—			(19		)	—			(19		)
Productivity, net of inflation	(1		)	3			—			2			—			2
Materials and services sourcing	41			30			—			71			—			71
Pension	—			—			—			—			6			6
Depreciation	(11		)	(1		)	—			(12		)	—			(12		)
Acquisitions	10			—			—			10			—			10
Foreign currency	(3		)	7			—			4			—			4
2013 Gross Profit	$	517		$	503		$	—		$	1,020		$	—		$	1,020



	Powertrain			Motorparts			Inter-segment Elimination		Total Reporting Segment			Corporate		Total
2012 Operational EBITDA	$	289		$	200		$	—	$	489		$	—	$	489
External sales volumes / mix	46			(5		)	—		41			—		41
Unabsorbed fixed costs on inter-segment sales	(12		)	—			—		(12		)	—		(12		)
Customer pricing	(7		)	(12		)	—		(19		)	—		(19		)
Productivity – Cost of products sold	(1		)	3			—		2			—		2
Productivity – SG&A	4			(36		)	—		(32		)	—		(32		)
Productivity – Other	11			3			—		14			—		14
Sourcing – Cost of products sold	41			30			—		71			—		71
Sourcing – SG&A	2			3			—		5			—		5
Sourcing – Other	(2		)	—			—		(2		)	—		(2		)
Equity earnings of non-consolidated affiliates	3			(4		)	—		(1		)	—		(1		)
Foreign currency	2			5			—		7			—		7
Other	2			26			—		28			—		28
2013 Operational EBITDA	$	378		$	213		$	—	$	591		$	—	$	591
Depreciation and amortization														(294		)
Interest expense, net														(99		)
Discontinued operations														(52		)
Restructuring expense, net														(40		)
Adjustment of assets to fair value														(8		)
OPEB curtailment gain														19
Non-service cost components associated with the U.S. based funded pension plan														(2		)
Acquisition related costs														(5		)
Stock appreciation rights														(5		)
Income tax benefit														(56		)
Net loss														$	49

Powertrain

Sales increased by $247 million to $4,173 million for the year ended December 31, 2013 from $3,926 million for the year ended December 31, 2012, of which $43 million of this increase resulted from the acquisition of the spark plug business from BWA. External sales volumes increased by $202 million net of customer price decreases of $7 million. This was driven by an increase in sales in North America of 10% or $117 million, an increase in sales in ROW of 12% or $73 million and an increase in sales in Europe of 1% or $12 million. Given PT’s weighted market presence in the light vehicle, commercial vehicle and industrial markets and the year over year changes in production rates for those markets, the expected PT sales change would be negligible compared to the prior year. However, PT sales increased by 5%, excluding the impact on sales from the acquisition of the spark plug business from BWA - reflecting growth in excess of the underlying market. The Powertrain segment generated approximately 70% of its revenue outside the United States and the resulting currency movements increased reported sales by $21 million.

Cost of products sold increased by $186 million to $3,656 million for the year ended December 31, 2013 compared to $3,470 million for the year ended December 31, 2012. The increase in materials, labor and overheads as a direct result of the increase in external and inter-segment sales volumes/mix was $158 million along with an increase of $33 million directly related to the acquisition of the spark plug business from BWA and materials and sourcing savings of $41 million. These increases were partially offset by currency movements of $24 million, increased depreciation of $11 million and unfavorable productivity of $1 million.

Gross profit increased by $61 million to $517 million, or 12.4% of sales, for the year ended December 31, 2013 compared to $456 million, or 11.6% of sales, for the year ended December 31, 2012. This increase consists of a net favorable sales volumes and regional mix impact of $44 million, materials and services sourcing savings of $41 million and a $10 million increase in gross profit directly related to the acquisition of the spark plug business from BWA partially offset by unabsorbed fixed costs on inter-segment sales volumes of $12 million, increased depreciation of $11 million, $7 million of unfavorable customer pricing, currency movements of $3 million, and unfavorable productivity of $1 million.

Operational EBITDA increased by $89 million to $378 million for the year ended December 31, 2013 from $289 million for the year ended December 31, 2012. This increase was caused by net favorable external sales volume and mix of $46 million, materials and services sourcing savings of $41 million, favorable productivity of $14 million, an increase in equity earnings of non-consolidated affiliates of $3 million, currency movements of $2 million and other increases of $2 million, partially offset by unabsorbed fixed costs on inter-segment sales volumes of $12 million and unfavorable customer pricing of $7 million.

Motorparts

Sales increased by $82 million to $2,935 million for the year ended December 31, 2013, from $2,853 million for the year ended December 31, 2012, including $112 million from the European distribution agreement for ignition products. The organic external sales volumes change was therefore a decrease of $39 million, including the impact of customer price decreases of $12 million. This was driven by a decline in North America of $51 million or 3%. This reflects the cessation of selected non-strategic business contracts as well as a softening in the export business, mainly into Venezuela as a result of a tightening in exchange rate control in the country. Sales in ROW decreased by $21 million or 11%. However, this was offset by an increase in sales in Europe of $33 million or 4%, excluding the impact on sales from the European distribution agreement for ignition products, due to strong aftermarket volume gains as market conditions in this region continued to improve.

Cost of products sold increased by $42 million to $2,432 million for the year ended December 31, 2013 compared to $2,390 million for the year ended December 31, 2012. This increase was due to $72 million directly associated with external sales volumes/mix, partially offset by favorable materials and services sourcing savings of $30 million, currency movements of $4 million, and efficiencies of $3 million.

Gross profit increased by $40 million to $503 million, or 17.1% of sales, for the year ended December 31, 2013 compared to $463 million or 16.2% of sales, for the year ended December 31, 2012. This is the result of materials and services sourcing savings of $30 million, favorable external sales volume/mix of $13 million, currency movements of $7 million and favorable productivity of $3 million, partially offset by unfavorable customer pricing of $12 million and increased depreciation of $1 million.

Operational EBITDA increased by $13 million to $213 million for the year ended December 31, 2013 from $200 million for the year ended December 31, 2012. Favorable materials and services sourcing of $33 million and other increases of $26 million, inclusive of a year-over-year improvement as 2012 operational EBITDA was negatively impacted by a $9 million legal and contractual settlement, were partially offset by unfavorable productivity of $30 million including labor inflation, increased year-over-year incentive compensation and project costs, customer price decreases of $12 million and a decrease in equity earnings of non-consolidated affiliates of $4 million.

Selling, General and Administrative Expense

Selling, general and administrative expenses (“SG&A”) were $719 million, or 10.6% of net sales, for the year ended December 31, 2013 as compared to $702 million, or 10.9% of net sales, for the year ended December 31, 2012. This $17 million increase was due to costs related to acquisitions of $14 million, increased costs in excess of labor and benefits inflation of $9 million, and $3 million due to currency movements, partially offset by materials and services sourcing savings of $4 million and decreased depreciation of $2 million.

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 $173 million for both the years ended December 31, 2013 and December 31, 2012.

OPEB Curtailment Gain

In July 2012, as a result of contract negotiations with a union at one of the Company’s U.S. manufacturing locations, the benefits under the U.S. Welfare Benefit Plan were eliminated for the location’s active participants. Since this plan change reduced benefits attributable to employee service already rendered, it was treated as a negative plan amendment, which created a $13 million prior service credit in accumulated other comprehensive loss. The corresponding reduction in the average remaining future service period to the full eligibility date also triggered the recognition of a $51 million OPEB curtailment gain which was recognized in the consolidated statements of operations during the third quarter of 2012. The calculation of the curtailment excluded the newly created prior service credit.

Interest Expense, Net

Net interest expense was $99 million in the year ended December 31, 2013 compared to $128 million for the year ended December 31, 2012. The decrease is primarily due to the expiration of unfavorable interest rate swaps.

Other Expense, Net

Other expense, net was $3 million for the year ended December 31, 2013 compared to $26 million for the year ended December 31, 2012.

Foreign currency exchange: The Company recognized $10 million in foreign currency exchange losses during the year ended December 31, 2013. The Company recognized $18 million in foreign currency exchange losses during the year ended December 31, 2012, $10 million of which relates to unrealized losses associated with outstanding foreign currency hedge contracts that settle during 2013.

Adjustment of Assets to Fair Value

The Company recorded total impairment charges for the years ended December 31, 2014, 2013 and 2012 as follows:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Goodwill	$	120	$	—	$	96
Property, plant and equipment	19		8		43
Investments in non-consolidated affiliates	5		—		2
Other indefinite-lived intangible assets	—		—		46
	$	144	$	8	$	187

Impairments of goodwill and other indefinite-lived intangible assets are discussed further in Note 8, Fair Value Measurements and Note 11, Goodwill and Other Intangible Assets to the Consolidated Financial Statements, included in Item 8 of this report.

The Company recorded impairment charges to adjust property, plant and equipment to their fair values in accordance with the subsequent measurement provisions of FASB ASC Topic 360, Property, Plant & Equipment. Adjustments of property, plant and equipment to fair value are discussed further in Note 8, Fair Value Measurements to the Consolidated Financial Statements, included in Item 8 of this report.

The impairment of the Company's investment in non-consolidated affiliates is discussed further in Note 12, Investment in Non-consolidated Affiliates to the Consolidated Financial Statements, included in Item 8 of this report.

The 2012 PP&E impairment excludes $7 million related to discontinued operations. Discontinued operations are further discussed in Note 6, Discontinued Operations to the Consolidated Financial Statements, included in Item 8 of this report.

Restructuring Activities

The following table is a summary of the Company’s consolidated restructuring liabilities and related activity for 2014, 2013 and 2012 by reporting segment.



	Powertrain			Motorparts			Total Reporting Segment			Corporate			Total Company
	(Millions of Dollars)
Balance at January 1, 2012	$	6		$	1		$	7		$	1		$	8
Provisions	6			16			22			4			26
Reversals	(1		)	—			(1		)	—			(1		)
Payments	(7		)	(6		)	(13		)	(2		)	(15		)
Reclassifications to pension liability	—			(6		)	(6		)	—			(6		)
Balance at December 31, 2012	4			5			9			3			12
Provisions	20			20			40			4			44
Reversals	(3		)	—			(3		)	(1		)	(4		)
Payments	(13		)	(11		)	(24		)	(4		)	(28		)
Balance at December 31, 2013	8			14			22			2			24
Provisions	59			27			86			1			87
Reversals	—			(1		)	(1		)	—			(1		)
Payments	(27		)	(24		)	(51		)	(2		)	(53		)
Foreign Currency	(4		)	—			(4		)	—			(4		)
Balance at December 31, 2014	$	36		$	16		$	52		$	1		$	53

Income Taxes

For the year ended December 31, 2014, the Company recorded an income tax expense of $56 million on a loss from continuing operations before income taxes of $105 million, compared to income tax expense of $56 million on a income from continuing operations before income taxes of $157 million for the year ended December 31, 2013, and compared to an income tax benefit of $29 million on a loss from continuing operations before income taxes of $120 million for the year ended December 31, 2012.

The income tax expense for the year ended December 31, 2014 differs from the U.S. statutory rate due primarily to goodwill impairment, pre-tax income taxed at rates lower than the U.S. Statutory rate, recording a valuation allowance on deferred tax assets that are believed to be not more likely than not to be realized, income in jurisdictions with no tax expense due to offsetting valuation allowance release, partially offset by pre-tax losses with no tax benefits and a tax benefit recorded related to special economic zone tax incentive.

The income tax benefit for the year ended December 31, 2013 differs from statutory rates due primarily to a goodwill impairment with no tax benefit and pre-tax losses with no tax benefit, partially offset by 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 settlements, valuation allowance release, and a tax benefit recorded related to a special economic zone tax incentive.

The income tax expense for the year ended December 31, 2012 differs from the U.S. statutory rate primarily due to a goodwill impairment with no tax benefit and pre-tax losses with no tax benefit, partially offset by 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, tax refund from prior years, release of uncertain tax positions due to audit settlement and a tax benefit recorded related to a special economic zone tax incentive.

The Company believes that it is reasonably possible that its unrecognized tax benefits in multiple jurisdictions, which primarily relate to transfer pricing, corporate reorganization and various other matters, may decrease by approximately $3 million in the next 12 months due to audit settlements or statute expirations, of which approximately $2 million, if recognized, could impact the effective tax rate.

On July 11, 2013, Federal-Mogul Corporation became part of the Icahn Enterprises affiliated group of corporations as defined in Section 1504 of the Internal Revenue Code of 1986 ("the Code"), as amended, of which American Entertainment Properties Corp. (“AEP”) is the common parent. The Company subsequently entered into a Tax Allocation Agreement (the “Tax Allocation Agreement”) with AEP. Pursuant to the Tax Allocation Agreement, AEP and the Company have agreed to the allocation of certain income tax items. The Company will join AEP in the filing of AEP’s federal consolidated return and certain state consolidated returns. In those jurisdictions where the Company is filing consolidated returns with AEP, the Company will pay to AEP any tax it would have owed had it continued to file separately. To the extent that the AEP consolidated group is able to reduce its tax liability as a result of including the Company in its consolidated group, AEP will pay the Company an amount equal to 20% of such reduction and the Company will carryforward for its own use under the Tax Allocation Agreement 80% of the items that caused the tax reduction (the “Excess Tax Benefits”). While a member of the AEP affiliated group the Company will reduce the amounts it would otherwise owe AEP by the Excess Tax Benefits. Moreover, if the Company should ever become deconsolidated from AEP, AEP will reimburse the Company for any tax liability in post-consolidation years the Company would not have paid had it actually had the Excess Tax Benefits for its own use. The cumulative payments to the Company by AEP post-consolidation cannot exceed the cumulative reductions in tax to the AEP group resulting from its use of the Excess Tax Benefits. Separate return methodology will be used in determining income taxes.

The Company’s income taxes are further discussed in Note 16, Income Taxes, to the Consolidated Financial Statements, included in Item 8 of this report.

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 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 year ended December 31, 2013, the Company divested its sintered components operations located in France, its connecting rod manufacturing facility located in Canada, its camshaft foundry located in the United Kingdom and its fuel pump business, which included an aftermarket business component and a manufacturing and research and development facility located in the United States. These divestitures have been presented as discontinued operations in the consolidated statements of operations.

The Company’s discontinued operations are further discussed in Note 6, Discontinued Operations, to the Consolidated Financial Statements, included in Item 8 of this report.

Liquidity and Capital Resources

Operating Activities

As summarized in the table below, net cash provided from (used by) operating activities was $278 million, $418 million and $(53) million for the years ended December 31, 2014, 2013 and 2012, respectively.



	Years Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Operational cash flow before changes in operating assets and liabilities	$	296		$	318		$	203

Changes in operating assets and liabilities:
Accounts receivable	(47		)	1			(197		)
Inventories	(84		)	(21		)	(93		)
Accounts payable	72			79			(2		)
Other assets and liabilities	41			41			36
Total change in operating assets and liabilities	(18		)	100			(256		)

Net Cash Provided From (Used by) Operating Activities	$	278		$	418		$	(53	)

Operating cash flow before changes in operating assets and liabilities

Cash flow from operations before changes in operating assets and liabilities was $296 million, $318 million and $203 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Cash flow from operations before changes in operating assets and liabilities was $22 million lower for the year ended December 31, 2014 compared to the year ended December 31, 2013. The decrease mainly relates to higher interest expense, net of $21 million, the increase in restructuring payments of $25 million as well as the timing of cash dividends received from affiliates, partially offset by the change in deferred taxes.

Cash flow from operations before changes in operating assets and liabilities was $115 million higher for the year ended December 31, 2013 compared to the year ended December 31, 2012. This was driven by the improvement in earnings in 2013 compared to 2012.

Cash inflow (outflow) from changes in operating assets and liabilities

The cash inflows (outflows) from changes in operating assets and liabilities were $(18) million, $100 million and $(256) million for the years ended December 31, 2014, 2013 and 2012, respectively.

The cash outflow due to changes in accounts receivable for the year ended December 31, 2014 was $47 million driven by the sales increase in the Powertrain division.

The cash inflow due to changes in accounts receivable for the year ended December 31, 2013 was $1 million as term extensions with certain customers in the North American aftermarket reached plateau near the end of 2012.

The cash outflow due to changes in accounts receivable for the year ended December 31, 2012 of $197 million was primarily the result of terms extensions with certain customers in the North American aftermarket.

The cash outflow due to changes in inventory of $84 million for the year ended December 31, 2014 was driven by an outflow of $43 million related to increased volumes within Powertrain and a $41 million investment in inventory made as part of the strategic initiatives within Motorparts to improve customer service and delivery times.

The cash outflows due to changes in inventory of $21 million and $93 million for the years ended December 31, 2013 and 2012, respectively, are largely in support of increased customer service and delivery.

Investing Activities

Cash flow used by investing activities was $735 million for the years ended December 31, 2014 which included $321 million of payments to acquire businesses, net of cash acquired, which included: $15 million to acquire the DZV bearings business; $140 million to acquire the Affinia chassis business, exclusive of $9 million of contingent consideration classified within financing activities; $156 million to acquire the Honeywell brake component business and other investments of $10 million. The Company assumed $10 million of pre-existing debt associated with the DZV bearings business acquisition. Capital expenditures of $418 million were required to support future sales growth and productivity improvements.

Cash flow used by investing activities was $355 million for the year ended December 31, 2013. During the year ended December 31, 2013, the Company divested its sintered components operations located in France, its connecting rod manufacturing facility located in Canada, its camshaft foundry located in the United Kingdom and its fuel pump business, which included an aftermarket business component and a manufacturing and research and development facility located in the United States. The Company recognized net proceeds of $26 million associated with these divestitures. Capital expenditures of $380 million were required to support future sales growth and productivity improvements.

Cash flow used by investing activities was $427 million for the year ended December 31, 2012. During the year ended December 31, 2012 the Company entered into a definitive agreement to purchase the spark plug business from BorgWarner, Inc. The purchase was completed in September 2012 for $52 million, net of cash acquired. Also during the year ended December 31, 2012, the Company received $30 million in insurance proceeds directly associated with the Thailand manufacturing facility flood. Of the total proceeds, $13 million was classified as investing. Capital expenditures of $387 million were required to support future sales growth and productivity improvements.

Excluding acquisitions and divestitures, the expenditures for property, plant and equipment were $418 million, $380 million and $387 million for the year ended December 31, 2014, 2013 and 2012, respectively. The increase in 2014 versus 2013 was all in the Motorparts division for the investment in its' strategic growth initiatives.

Financing Activities and Liquidity

Cash flow provided from (used by) financing activities was $35 million, $242 million and $(22) million for the years ended December 31, 2014, 2013, and 2012, respectively.

The cash flow from financing activities in 2014 was primarily from the financing of the term loan facilities.

On April 15, 2014, Federal-Mogul Holdings Corporation entered into a new tranche B term loan facility (the “New Tranche B Facility”) and a new tranche C term loan facility (the “New Tranche C Facility,” and together with the New Tranche B Facility, the “New Term Facilities”), which were arranged by Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC (the "Term Arrangers"), and assumed all of the obligations of Federal-Mogul Corporation with respect to the Replacement Revolving Facility under the Credit Agreement (both defined below). The New Term Facilities were entered into, and the Replacement Revolving Facility was assumed, by Federal-Mogul Holdings Corporation pursuant to an amendment dated as of April 15, 2014 to the previously existing Term Loan and Revolving Credit Agreement dated December 27, 2007 among Federal-Mogul Corporation, the lenders party thereto, the Term Arrangers, Citibank, N.A., as Revolving Administrative Agent, Citibank, N.A., as Tranche B Term Administrative Agent, Credit Suisse AG, as Tranche C Term Administrative Agent, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and Wells Fargo Bank, N.A., as Joint Lead Arrangers and Joint Bookrunners with respect to the Revolving Facility and Wells Fargo Bank, N.A., as sole Documentation Agent with respect to the Revolving Facility (as amended, the "Credit Agreement").

Immediately following the closing of the New Term Facilities, Federal-Mogul Holdings Corporation contributed all of the net proceeds from the New Facilities to Federal-Mogul Corporation, and Federal-Mogul Corporation repaid its existing outstanding indebtedness as a borrower under the tranche B and tranche C term loan facilities.

In accordance with FASB ASC Topic 405, Extinguishments of Liabilities, the Company recognized a $24 million non-cash loss on the extinguishment of debt attributable to the write-off of the unamortized fair value adjustment and unamortized debt issuance costs which is recorded in the line item “Loss on Debt Extinguishment” in the Company’s Condensed Consolidated Statements of Operations.

The New Term Facilities, among other things, (i) provides for aggregate commitments under the New Tranche B Facility of $700 million with a maturity date of April 15, 2018, (ii) provides for aggregate commitments under the New Tranche C Facility of $1.9 billion with a maturity date of April 15, 2021, (iii) increases the interest rates applicable to the New Facilities as described below, (iv) provides that for all outstanding letters of credit there is a corresponding decrease in borrowings available under the Replacement Revolving Facility, (v) provides that in the event that as of a particular determination date more than $700 million aggregate principal amount of existing term loans and certain related refinancing indebtedness will become due within 91 days of such determination date, the Replacement Revolving Facility will mature on such determination date, (vi) provides for additional incremental indebtedness, secured on a pari passu basis, of an unlimited amount of additional indebtedness if the Company meets a financial covenant incurrence test, and (vii) amends certain other restrictive covenants. Pursuant to the New Term Facilities, Federal-Mogul Holdings Corporation assumed all of the obligations of Federal-Mogul Corporation with respect to the Replacement Revolving Facility under the Credit Agreement.

Advances under the New Tranche B Facility generally bear interest at a variable rate per annum equal to (i) the Alternate Base Rate plus a margin of 2.00% or (ii) the Adjusted LIBOR Rate plus a margin of 3.00%, subject, in each case, to a floor of 1.00%. Advances under the New Tranche C Facility generally bear interest at a variable rate per annum equal to (i) the Alternate Base Rate plus a margin of 2.75% or (ii) the Adjusted LIBOR Rate plus a margin of 3.75%, subject, in each case, to a minimum rate of 1.00% plus the applicable margin.

The 2013 cash inflow was primarily the result of a $500 million rights offering in July 2013, partially offset by a $250 million prepayment on the Company's tranche B term loan in November 2013.

On December 6, 2013, the Company entered into an amendment (the “Replacement Revolving Facility”) of its Term Loan and Revolving Credit Agreement dated as of December 27, 2007 (as amended, the “Credit Agreement”), among the Company, the lenders party thereto, Citicorp USA, Inc., as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, and Wachovia Capital Finance Corporation and Wells Fargo Foothill, LLC, as Co-Documentation Agents, to amend its existing revolving credit facility to provide for a replacement revolving credit facility (the “Replacement Revolving Facility”). The Replacement Revolving Facility, among other things, (i) increased the aggregate commitments available under the Replacement Revolving Facility from $540 million to $550 million, (ii) extended the maturity date of the Replacement Revolving Facility to December 6, 2018, subject to certain limited exceptions described below, and (iii) amended the Company’s borrowing base to provide the Company with additional liquidity.

Advances under the Replacement Revolving Facility generally bear interest at a variable rate per annum equal to (i) the Alternate Base Rate (as defined in the Credit Agreement) plus an adjustable margin of 0.50% to 1.00% based on the average monthly availability under the Replacement Revolving Facility or (ii) Adjusted LIBOR Rate (as defined in the Credit Agreement) plus a margin of 1.50% to 2.00% based on the average monthly availability under the Replacement Revolving Facility. An unused commitment fee of 0.375% also is payable under the terms of the Replacement Revolving Facility.

The Company’s ability to obtain cash adequate to fund its needs depends generally on the results of its operations, restructuring initiatives, and the availability of financing. Management believes that cash on hand, cash flow from operations, available borrowings under its New Facilities and its Replacement Revolving Facility and ability to secure additional borrowings will be sufficient to fund capital expenditures and meet its operating obligations through the end of 2015. In the longer term, the Company believes that its base operating potential, supplemented by the benefits from its announced restructuring programs, will provide adequate long-term cash flows. However, there can be no assurance that such initiatives are achievable in this regard.

Off Balance Sheet Arrangements

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

Contractual Obligations and Commercial Commitments

The Company has the following contractual obligations and commercial commitments outstanding at December 31, 2014:



	2015		2016		2017		2018		2019		Thereafter		Total
	(Millions of Dollars)
Debt obligations	$	127	$	28	$	29	$	696	$	19	$	1,801	$	2,700
Interest payments	129		121		121		121		93		93		678
Letters of credit	34		—		—		—		—		—		34
Pension and other postemployment benefit plans	135		85		83		70		64		318		755
Operating leases	41		40		31		20		17		44		193
Total	$	466	$	274	$	264	$	907	$	193	$	2,256	$	4,360

In addition, the Company estimates its 2015 capital expenditures to be in the range of $450-$500 million.

Other Liquidity and Capital Resource Items

As of December 31, 2014, the Company had $332 million of cash and cash equivalents, of which $138 million was held by foreign subsidiaries. In accordance with FASB ASC 740-30-25-17 through 19, the Company asserts that these funds are indefinitely reinvested due to operational and investing needs of the foreign locations. Furthermore, the Company will accrue any applicable taxes in the period when the Company no longer intends to indefinitely reinvest these funds. The Company would expect that the impact on cash taxes would be immaterial due to: the availability of net operation loss carryforwards and related valuation allowances; earnings considered previously taxed; and applicable tax treaties.

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

As part of the regulatory approval related to the acquisition of certain business assets of the Honeywell brake component business, the Company committed to divest, or procure the divestiture of the commercial vehicle brake pads business relating to the original equipment/original equipment services (“OEM/OES”) market in the European Economic Area (“EEA”), based at the manufacturing plant in Marienheide, Germany and light vehicle brake pads business relating to the OEM/OES market in the EEA, based at the manufacturing plant in Noyon, France (collectively, the “Divestment Business”). Furthermore, to the extent possible, the Company committed to keep the Divestment Business separate from the business(es) it is retaining, and unless explicitly permitted committed to ensure: (i) management and staff have no involvement in the Divestment Business; (ii) certain key personnel of the Divestment Business have no involvement in any business retained by the Company and do not report to any individual outside the Divestment Business. As such, the Company deconsolidated its subsidiaries or group of assets which are subject to regulatory commitments and recorded an investment in unconsolidated subsidiary, which will be accounted for as an equity method investment until disposition.

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

The following represents the Company’s aggregate investments and direct ownership in these affiliates:



	December 31
	2014		2013
	(Millions of Dollars)
Investments in non-consolidated affiliates	$	269	$	253

Direct ownership percentages	2% to 100%		2% to 50%

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



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Equity earnings of non-consolidated affiliates	$	48	$	34	$	34
Cash dividends received from non-consolidated affiliates	25		33		31

The Company holds a 50% non-controlling interest in a joint venture located in Turkey (“Turkey JV”). The Turkey JV was established in 1995 for the purpose of manufacturing and marketing automotive parts, including pistons, piston rings, piston pins, and cylinder liners to original equipment and aftermarket customers. The Company purchases/sells inventory from/to the Turkey JV. Purchases from the Turkey JV for the years ended December 31, 2014, 2013 and 2012 were $180 million, $152 million and $150 million, respectively. Sales to the Turkey JV for the years ended December 31, 2014, 2013 and 2012 were $45 million, $44 million and $45 million, respectively. The Company had net accounts payable balances with the Turkey JV of $5 million and $6 million as of December 31, 2014 and 2013, respectively.

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



	December 31
	2014		2013
	(Millions of Dollars)
Gross accounts receivable factored	$	306	$	271
Gross accounts receivable factored, qualifying as sales	293		258
Undrawn cash on factored accounts receivable	2		—

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



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Proceeds from factoring qualifying as sales	$	1,679		$	1,482		$	1,475
Losses on sales of account receivables	(6		)	(7		)	(7		)

Accounts receivables factored but not qualifying as a sale, as defined in FASB 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 losses on sales of accounts receivable are recorded in the consolidated statements of operations within “Other expense, net.” Where the Company receives a fee to service and monitor these transferred receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not recorded as a result of such activities.

Certain of the facilities contain terms that require the Company to share in the credit risk of the sold receivables. The maximum exposures to the Company associated with these certain facilities’ terms were $17 million and $21 million as of December 31, 2014 and 2013, respectively. The fair values of the exposures to the Company associated with these certain facilities’ terms were determined to be immaterial.

Subsequent Events

On February 6, 2015, the Company completed the purchase of certain business assets of the TRW engine components business. The business was acquired through a combination of asset and stock purchases for a base purchase price of approximately $313 million, funded primarily from the available Replacement Revolver Facility and subject to certain customary closing and post-closing adjustments. The purchase of TRW’s engine valve business adds a completely new product line to the Company's portfolio, strengthens the Company's position as a leading developer and supplier of core components for engines, and enhances the Company's ability to support its customers to improve fuel economy and reduce emissions.

The assets acquired and liabilities assumed will be recorded at fair value as of the acquisition date in accordance with FASB ASC Topic No. 805, Business Combinations. The preliminary allocation of the purchase price will occur in the first quarter of 2015. There were no revenues or earnings related to TRW included in the Company's condensed consolidated statement of income.

On February 24, 2015, the Company announced that it intends to launch a registered rights offering on or about March 6, 2015. In the rights offering, each holder of the Company’s common stock as of the close of business on the record date of March 6, 2015 will be issued, at no charge, one transferable subscription right for each whole share of common stock owned by that stockholder on the record date (the “basic subscription privilege”). The rights offering will also include an over-subscription privilege, which will entitle stockholders who exercise all of their subscription rights in the basic subscription privilege the right to purchase additional shares of common stock in the rights offering, subject to availability and pro rata allocation of shares among rights holders exercising such over-subscription privilege.

The Company will offer a number of shares of its common stock in the rights offering, inclusive of the over-subscription privilege, representing approximately $250 million of gross proceeds. The Company plans to use the proceeds from the rights offering to strengthen its balance sheet.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to Note 7, Financial Instruments, to the Consolidated Financial Statements, included in Item 8 of this report, 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 year ended December 31, 2014, the Company derived 36% of its sales in the United States and 64% internationally. Of these international sales, 57% are denominated in the euro, with no other single currency representing more than 10%. 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 year ended December 31, 2014 would have increased the net loss from continuing operations attributable to Federal-Mogul by approximately $9 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON 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. Under the supervision and with the participation of the principal executive and financial officers of the Company, an evaluation of the effectiveness of internal controls over financial reporting was conducted based upon the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (the “COSO 2013 Framework”) of the Treadway Commission. Based on the evaluation performed under the COSO 2013 Framework as of December 31, 2014, management has concluded that the Company’s internal control over financial reporting was effective.

The Company may omit an assessment of an acquired business's internal control over financial reporting from its assessment of internal control. Accordingly, the Company's management excluded the Honeywell brake component business acquisition from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2014; however, the exclusion may not extend beyond one year from the date of acquisition, nor may such assessment be omitted from more than one annual management report on internal control over financial reporting. The total assets of $375 million and total net sales of $250 million associated with the Honeywell brake component business acquisition are included in consolidated financial statements or the Company for the year ended December 31, 2014.

Grant Thornton LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of December 31, 2014, as stated in their report which is included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Federal-Mogul Holdings Corporation

We have audited the internal control over financial reporting of Federal-Mogul Holdings Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of the Honeywell brake component business acquisition, whose financial statements reflect total assets and revenues constituting 5 and 3 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2014. As indicated in Management’s Report, the Honeywell brake component business was acquired during 2014. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of the Honeywell brake component business.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014 based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2014, and our report dated February 26, 2015 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Southfield, Michigan

February 26, 2015

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Federal-Mogul Holdings Corporation

We have audited the accompanying consolidated balance sheets of Federal-Mogul Holdings Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Federal-Mogul Holdings Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, which did not include an audit of internal control over financial reporting of the Honeywell brake component business acquired in 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2015 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Southfield, Michigan

February 26, 2015

FEDERAL-MOGUL HOLDINGS CORPORATION

Consolidated Statements of Operations



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars, Except Per Share Amounts)
Net sales	$	7,317		$	6,786		$	6,444
Cost of products sold	(6,260		)	(5,766		)	(5,531		)

Gross profit	1,057			1,020			913

Selling, general and administrative expenses	(776		)	(719		)	(702		)
OPEB curtailment gain	—			19			51
Adjustment of assets to fair value	(144		)	(8		)	(187		)
Interest expense, net	(120		)	(99		)	(128		)
Restructuring expense, net	(86		)	(40		)	(26		)
Amortization expense	(49		)	(47		)	(49		)
Equity earnings of non-consolidated affiliates	48			34			34
Loss on debt extinguishment	(24		)	—			—
Other expense, net	(11		)	(3		)	(26		)

(Loss) income from continuing operations before income taxes	(105		)	157			(120		)
Income tax (expense) benefit	(56		)	(56		)	29

(Loss) income from continuing operations	(161		)	101			(91		)
Loss from discontinued operations, net of tax	—			(52		)	(19		)
Net (loss) income	(161		)	49			(110		)

Less net income attributable to noncontrolling interests	(7		)	(8		)	(7		)
Net (loss) income attributable to Federal-Mogul	$	(168	)	$	41		$	(117	)


Amounts attributable to Federal-Mogul:
Net (loss) income from continuing operations	$	(168	)	$	93		$	(98	)
Loss from discontinued operations, net of tax	—			(52		)	(19		)
Net (loss) income	$	(168	)	$	41		$	(117	)

Net (loss) income per common share attributable to Federal-Mogul
Basic and diluted:
Net (loss) income from continuing operations	$	(1.12	)	$	0.75		$	(0.99	)
Loss from discontinued operations, net of tax	—			(0.42		)	(0.19		)
Net (loss) income	$	(1.12	)	$	0.33		$	(1.18	)

See accompanying notes to consolidated financial statements.

FEDERAL-MOGUL HOLDINGS CORPORATION

Consolidated Statements of Comprehensive Income (Loss)



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Net (loss) income	$	(161	)	$	49		$	(110	)

Other comprehensive (loss) income:

Foreign currency translation adjustments and other	(248		)	(11		)	56

Postemployment benefits:
Net unrealized postemployment benefits (costs) credits arising during year	(314		)	246			(211		)
Reclassification of net postemployment benefits (credits) costs included in net (loss) income during year	7			(14		)	(29		)
Reclassification of net postemployment benefit losses of deconsolidated affiliates	3			—			—
Income taxes	22			(9		)	27
Postemployment benefits, net of tax	(282		)	223			(213		)

Hedge instruments:
Net unrealized hedging (losses) gains arising during year	—			(7		)	1
Reclassification of net hedging losses included in net (loss) income during year	—			14			47
Income taxes	(1		)	1			(2		)
Hedge instruments, net of tax	(1		)	8			46

Other comprehensive (loss) income, net of tax	(531		)	220			(111		)

Comprehensive (loss) income	(692		)	269			(221		)

Less comprehensive (income) loss attributable to noncontrolling interests	8			(4		)	(7		)

Comprehensive (loss) income attributable to Federal-Mogul	$	(684	)	$	265		$	(228	)

See accompanying notes to consolidated financial statements.

FEDERAL-MOGUL HOLDINGS CORPORATION

Consolidated Balance Sheets



	December 31
	2014			2013
	(Millions of Dollars)
ASSETS
Current assets:
Cash and equivalents	$	332		$	761
Accounts receivable, net	1,419			1,324
Inventories, net	1,215			1,068
Prepaid expenses and other current assets	225			224
Total current assets	3,191			3,377

Property, plant and equipment, net	2,160			2,038
Goodwill and other indefinite-lived intangible assets	928			1,017
Definite-lived intangible assets, net	354			356
Investments in non-consolidated affiliates	269			253
Other noncurrent assets	165			141
	$	7,067		$	7,182
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt, including current portion of long-term debt	$	127		$	1,694
Accounts payable	926			799
Accrued liabilities	546			454
Current portion of pensions and other postemployment benefits liability	46			44
Other current liabilities	186			147
Total current liabilities	1,831			3,138
Long-term debt	2,563			905
Pensions and other postemployment benefits liability	1,282			1,028
Long-term portion of deferred income taxes	389			383
Other accrued liabilities	93			127
Shareholders’ equity:
Preferred stock ($0.01 par value; 90,000,000 authorized shares; none issued)	—			—
Common stock ($0.01 par value; 450,100,000 authorized shares; 151,624,744 issued shares and 150,029,244 outstanding shares as of both December 31, 2014 and 2013)	2			2
Additional paid-in capital, including warrants	2,649			2,649
Accumulated deficit	(686		)	(518		)
Accumulated other comprehensive loss	(1,142		)	(626		)
Treasury stock, at cost	(17		)	(17		)
Total Federal-Mogul shareholders’ equity	806			1,490
Noncontrolling interests	103			111
Total shareholders’ equity	909			1,601
	$	7,067		$	7,182

See accompanying notes to consolidated financial statements.

FEDERAL-MOGUL HOLDINGS CORPORATION

Consolidated Statements of Cash Flows



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Cash Provided From (Used By) Operating Activities
Net (loss) income	$	(161	)	$	49		$	(110	)
Adjustments to reconcile net (loss) income to net cash provided from (used by) operating activities:
Depreciation and amortization	334			296			289
Adjustment of assets to fair value	144			8			194
Restructuring expense, net	86			40			26
Payments against restructuring liabilities	(53		)	(28		)	(15		)
Change in postemployment benefits, excluding curtailment gains	(75		)	(72		)	(66		)
Equity earnings of non-consolidated affiliates	(48		)	(34		)	(34		)
Cash dividends received from non-consolidated affiliates	25			33			31
Loss on debt extinguishment	24			—			—
OPEB curtailment gain	—			(19		)	(51		)
Deferred tax expense (benefit)	20			(2		)	(78		)
Net loss from business dispositions	—			47			—
Insurance proceeds related to Thailand flood	—			—			17
Changes in operating assets and liabilities:
Accounts receivable	(47		)	1			(197		)
Inventories	(84		)	(21		)	(93		)
Accounts payable	72			79			(2		)
Other assets and liabilities	41			41			36
Net Cash Provided From (Used by) Operating Activities	278			418			(53		)
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment	(418		)	(380		)	(387		)
Payments to acquire businesses, net of cash acquired	(321		)	—			(52		)
Net proceeds associated with business dispositions	—			26			—
Net proceeds from sales of property, plant and equipment	4			3			5
Insurance proceeds related to Thailand flood	—			—			13
Capital investment in non-consolidated affiliate	—			(4		)	(6		)
Net Cash Used By Investing Activities	(735		)	(355		)	(427		)
Cash Provided From (Used By) Financing Activities
Proceeds from term loans, net of original issue discount	2,589			—			—
Principal payments on term loans	(2,544		)	(275		)	(30		)
Debt issuance costs	(12		)	(4		)	—
Contingent consideration to acquire business	(9		)	—			—
Proceeds from equity rights offering, net of related fees	—			500			—
Increase in other long-term debt	12			2			—
Increase in short-term debt	—			23			6
Net (remittances) proceeds on servicing of factoring arrangements	(1		)	(4		)	2
Net Cash Provided From (Used By) Financing Activities	35			242			(22		)

Effect of foreign currency exchange rate fluctuations on cash	(7		)	(11		)	16

(Decrease) Increase in cash and equivalents	(429		)	294			(486		)
Cash and equivalents at beginning of year	761			467			953
Cash and equivalents at end of year	$	332		$	761		$	467

See accompanying notes to consolidated financial statements.

FEDERAL-MOGUL HOLDINGS CORPORATION

Consolidated Statements of Shareholders’ Equity



	Common Stock		Additional Paid-in Capital		Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Treasury Stock, at Cost			Total			Noncontrolling Interests
	(Millions of Dollars)
Balance at January 1, 2012	$	1	$	2,150	$	(442	)	$	(739	)	$	(17	)	$	953		$	100
Net (loss) income	—		—		(110		)	—			—			(110		)	7
Less net income attributable to noncontrolling interests	—		—		(7		)	—			—			(7		)	—
Other comprehensive loss, net of tax	—		—					(111		)				(111		)	—
Balance at December 31, 2012	1		2,150		(559		)	(850		)	(17		)	725			107
Net income	—		—		49			—			—			49			8
Less net income attributable to noncontrolling interests	—		—		(8		)	—			—			(8		)	—
Other comprehensive loss, net of tax	—		—		—			224			—			224			(4		)
Equity rights offering	1		499		—			—			—			500			—
Balance at December 31, 2013	2		2,649		(518		)	(626		)	(17		)	1,490			111
Net (loss) income	—		—		(161		)	—			—			(161		)	7
Less net income attributable to noncontrolling interests	—		—		(7		)	—			—			(7		)	—
Other comprehensive loss, net of tax	—		—		—			(516		)	—			(516		)	(15		)
Balance at December 31, 2014	$	2	$	2,649	$	(686	)	$	(1,142	)	$	(17	)	$	806		$	103

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Holding Company Reorganization: On April 15, 2014, Federal-Mogul Corporation completed a holding company reorganization (the “Reorganization”). As a result of the Reorganization, the outstanding shares of Federal-Mogul Corporation common stock were automatically converted on a one-for-one basis into shares of Federal-Mogul Holdings Corporation common stock, and all of the stockholders of Federal-Mogul Corporation immediately prior to the Reorganization automatically became stockholders of Federal-Mogul Holdings Corporation. The rights of stockholders of Federal-Mogul Holdings Corporation are generally governed by Delaware law and Federal-Mogul Holdings Corporation’s certificate of incorporation and bylaws, which are the same in all material respects as those of Federal-Mogul Corporation immediately prior to the Reorganization. In addition, the board of directors of Federal-Mogul Holdings Corporation and its Audit Committee and Compensation Committee are composed of the same members as the board of directors, Audit Committee and Compensation Committee of Federal-Mogul Corporation prior to the Reorganization.

Financial Statement Presentation: The audited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

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. See Note 12, Investment in Non-consolidated Affiliates for discussion regarding the Company's subsidiaries that are subject to regulatory control.

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

In 2012, the Company began exiting substantially all its activities in Venezuela with only residual cash and de minimis administrative costs remaining in 2014. In the fourth quarter of 2014, the Company concluded that the inability to freely exchange currency between the Venezuelan bolivar currency and the U.S. dollar coupled with the significant government regulations and restrictions currently in place, which are expected to continue or worsen, severely limits its ability to manage and control its Venezuelan operations. As a result, the Company's Venezuelan subsidiary was deconsolidated as of December 31, 2014. The impact of the deconsolidation was a $2 million dollar charge included in the results of operations for the year ended December 31, 2014.

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: As of December 31, 2014 Mr. Carl C. Icahn indirectly controls approximately 80.73% 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Related Party: Icahn Sourcing, LLC (“Icahn Sourcing”) is an entity formed 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.

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 Insight Portfolio Group and agreed to pay a portion of Insight Portfolio Group’s operating expenses. 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 operating expenses.

The Company’s payments to Insight Portfolio Group were less than $0.5 million for both of the years ended December 31, 2014 and 2013. The Company anticipates its 2015 payments to Insight Portfolio Group to be similar to the amounts paid in 2014.

Cash and Equivalents: The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.

Trade Accounts Receivable and Allowance for Doubtful Accounts: Trade accounts receivable is stated at net realizable value, which approximates fair value. The Company does not generally require collateral for its trade accounts receivable. Accounts receivable is reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of specific balances as the balances become past due, the financial condition of its customers and the Company’s historical experience of write-offs. The Company’s general policy for uncollectible accounts, if not reserved through specific examination procedures, is to reserve based upon the aging categories of accounts receivable and whether amounts are due from an original equipment manufacturer or servicer (“OE”) or aftermarket customer. Past due status is based upon the invoice date of the original amounts outstanding. Included in selling, general and administration (“SG&A”) expenses are bad debt expenses of $5 million, $3 million and $2 million for the years ended December 31, 2014, 2013 and 2012, respectively. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company’s allowance for doubtful accounts was $11 million at both December 31, 2014 and 2013.



	December 31
	2014		2013
	(Millions of Dollars)
Gross accounts receivable factored	$	306	$	271
Gross accounts receivable factored, qualifying as sales	293		258
Undrawn cash on factored accounts receivable	2		—

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



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Proceeds from factoring qualifying as sales	$	1,679		$	1,482		$	1,475
Losses on sales of account receivables	(6		)	(7		)	(7		)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Accounts receivables factored but not qualifying as a sale, as defined in FASB 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.”

Inventories: The Company values inventory at the lower of cost or market, with cost determined on a first-in, first-out (“FIFO”) basis. Cost of inventory includes direct materials, labor and applicable manufacturing overhead costs. The value of inventories are reduced for excess and obsolete inventories based on management’s review of on-hand inventories compared to historical and estimated future sales and usage.

Long-Lived Assets: As a result of fresh-start reporting, long-lived assets such as property, plant and equipment (PP&E”) that were purchased prior to January 1, 2008 were stated at estimated replacement cost, unless the expected future use of the assets indicated a lower value was appropriate. PP&E purchased since that time are recorded at cost. Definite-lived intangible assets have been stated at fair value established at emergence and at cost thereafter. Long-lived assets are periodically reviewed for impairment indicators. If impairment indicators exist, the Company performs the required analysis and records an impairment charge, if required, in accordance with the subsequent measurement provisions of FASB ASC Topic 360, Property, Plant & Equipment. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Depreciation and amortization is computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes.

Goodwill: As of December 31, 2007, in accordance with fresh-start reporting, goodwill was determined as the excess of reorganization value over amounts attributable to specific tangible and intangible assets, including developed technology and customer relationships. Goodwill is reviewed for impairment annually as of October 1, or more frequently if impairment indicators exist, in accordance with the subsequent measurement provisions of FASB ASC Topic 350, Intangibles – Goodwill and Other. This impairment analysis compares the fair values of the Company’s reporting units to their related carrying values. If a reporting unit’s carrying value exceeds its fair value, the Company must then calculate the reporting unit’s implied fair value of goodwill and impairment charges are recorded for any excess of the goodwill carrying value over the implied fair value of goodwill. The reporting units’ fair values are based upon consideration of various valuation methodologies, including projected future cash flows discounted at rates commensurate with the risks involved, guideline transaction multiples, and multiples of current and future earnings.

Trademarks and Brand Names: As of December 31, 2007, trademarks and brand names were stated at fair value as a result of fresh-start reporting. These indefinite-lived intangible assets are reviewed for impairment annually as of October 1, or more frequently if impairment indicators exist, in accordance with the subsequent measurement provisions of FASB ASC Topic 350, Intangibles – Goodwill and Other. This impairment analysis compares the fair values of these assets to the related carrying values, and impairment charges are recorded for any excess of carrying values over fair values. These fair values are based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets.

Pension and Other Postemployment Obligations: Pension and other postemployment benefit costs are dependent upon assumptions used in calculating such costs. These assumptions include discount rates, health care cost trends, expected returns on plan assets and other factors. In accordance with U.S. GAAP, actual results that differ from the assumptions used are accumulated and amortized over future periods and, accordingly, generally affect recognized expense and the recorded obligation in future periods.

Revenue Recognition: The Company records sales when products are shipped and the risks and rewards of ownership have transferred to the customer, the sales price is fixed and determinable, and the collectability of revenue is reasonably assured. Accruals for sales returns and other allowances are provided at point of sale based upon past experience. Adjustments to such returns and allowances are made as new information becomes available.

Rebates: The Company accrues for rebates pursuant to specific arrangements with certain of its customers, primarily in the aftermarket. Rebates generally provide for price reductions based upon the achievement of specified purchase volumes and are recorded as a reduction of sales as earned by such customers.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Sales and Sales Related Taxes: The Company collects and remits taxes assessed by various governmental authorities that are both imposed on and concurrent with revenue-producing transactions with its customers. These taxes may include, but are not limited to, sales, use, value-added, and some excise taxes. The collection of these taxes is reported on a net basis (excluded from revenues).

Shipping and Handling Costs: The Company recognizes shipping and handling costs as incurred as a component of cost of products sold in the consolidated statements of operations.

Engineering and Tooling Costs: Pre-production tooling and engineering costs that the Company will not own and that will be used in producing products under long-term supply arrangements are expensed as incurred unless the supply arrangement provides the Company with the noncancelable right to use the tools, or the reimbursement of such costs is agreed to by the customer. Pre-production tooling costs that are owned by the Company are capitalized as part of machinery and equipment, and are depreciated over the shorter of the tool’s expected life or the duration of the related program.

Research and Development: The Company expenses research and development (“R&D”) costs as incurred. R&D expense, including product engineering and validation costs, was $192 million, $173 million and $173 million for the years ended December 31, 2014, 2013 and 2012, respectively. R&D expense is recorded in the consolidated statements of operations within “Selling, general and administrative expenses.”

Advertising Costs: Advertising and promotion expenses for continuing operations are expensed as incurred and were $47 million, $41 million and $37 million for the years ended December 31, 2014, 2013 and 2012, respectively. Advertising and promotion expenses are recorded in the consolidated statements of operations within “Selling, general and administrative expenses.”

Restructuring: 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. Termination benefits are also accounted for in accordance with FASB ASC Topic 420, Exit or Disposal Cost Obligations (“FASB ASC 420”), for one-time termination benefits and are recorded dependent upon future service requirements. Facility closure and other costs are accounted for in accordance with FASB ASC 420 and are recorded when the liability is incurred.

Foreign Currency Translation: Exchange adjustments related to international currency transactions and translation adjustments for international subsidiaries whose functional currency is the United States dollar (principally those located in highly inflationary economies) are reflected in the consolidated statements of operations. Translation adjustments of international subsidiaries for which the local currency is the functional currency are reflected in the consolidated balance sheets as a component of “Accumulated other comprehensive loss.” Deferred taxes are not provided on translation adjustments as the earnings of the subsidiaries are considered to be permanently reinvested.

Environmental Liabilities: The Company recognizes environmental liabilities in accordance with FASB ASC Topic 410, Asset Retirement and Environmental Obligations when a loss is probable and reasonably estimable. Such liabilities are generally not subject to insurance coverage. Engineering and legal specialists within the Company estimate each environmental obligation based on current law and existing technologies. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties will be able to fulfill their commitments at the sites where the Company may be jointly and severally liable with such parties. The Company regularly evaluates and revises its estimates for environmental obligations based on expenditures against established accruals and the availability of additional information.

Asset Retirement Obligations: The Company records asset retirement obligations (“ARO”) in accordance with FASB ASC 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 ARO when amounts can be reasonably estimated, typically upon the expectation that facilities may be closed or sold.

Derivative Financial Instruments: The Company uses interest rate swaps, commodity forward contracts and currency swaps to manage volatility of underlying exposures. The Company recognizes all of its derivative instruments as either assets or liabilities at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated, and is effective, as a hedge and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. Gains and losses related to a hedge are either recognized in income immediately to offset the gain or loss on the hedged item or are deferred and reported as a component of “Accumulated other comprehensive loss” and subsequently recognized in earnings when the hedged item affects

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

earnings. The change in fair value of the ineffective portion of a financial instrument, determined using the hypothetical derivative method, is recognized in earnings immediately. The gain or loss related to financial instruments that are not designated as hedges are recognized immediately in earnings. Cash flows related to hedging activities are included in the operating section of the consolidated statements of cash flows. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company’s objectives for holding derivatives are to minimize risks using the most effective and cost-efficient methods available.

New Accounting Pronouncements:

In April 2014, the FASB issued ASU No. 2014-8, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU is effective for disposals that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. This ASU elevates the threshold for a disposal to qualify as discontinued operations and significantly expands the disclosure requirements for transactions that meet the criteria for discontinued operations. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, comprehensive income, cash flows and/or disclosures.

In May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606). This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. This ASU clarifies the principles for recognizing revenue and provides a common revenue standard for U.S. GAAP and International Financial Reporting Standards ("IFRS"). The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, comprehensive income, cash flows and/or disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2015. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, comprehensive income, cash flows and/or disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (subtopic 205-40). This ASU is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter, and defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The Company expects the adoption of this guidance will have no impact on the Company's financial position, results of operations, comprehensive income, cash flows and disclosures.

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. This ASU is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The Company expects the adoption of this guidance will have no impact on the Company's financial position, results of operations, comprehensive income, cash flows and disclosures.

In November 2014, the FASB issued ASU No. 2014-17, Business Combinations (Topic 805): Pushdown Accounting. This ASU is effective on November 18, 2014 and provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The Company expects the adoption of this guidance will have no impact on the Company's financial position, results of operations, comprehensive income, cash flows and disclosures.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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 manufacturing locations.

The costs contained within “Restructuring expense, net” in the Company’s consolidated statements of operations contain two types: employee costs (principally termination benefits) and facility closure and other 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. Termination benefits are also accounted for in accordance with FASB ASC Topic 420, Exit or Disposal Cost Obligations (“FASB ASC 420”), for one-time termination benefits and are recorded dependent upon future service requirements. Facility closure and other costs are accounted for in accordance with FASB ASC 420 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.

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

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

The following table is a summary of the Company’s consolidated restructuring liabilities and related activity for 2014, 2013 and 2012 by reporting segment.



	Powertrain			Motorparts			Total Reporting Segment			Corporate			Total Company
	(Millions of Dollars)
Balance at January 1, 2012	$	6		$	1		$	7		$	1		$	8
Provisions	6			16			22			4			26
Reversals	(1		)	—			(1		)	—			(1		)
Payments	(7		)	(6		)	(13		)	(2		)	(15		)
Reclassifications to pension liability	—			(6		)	(6		)	—			(6		)
Balance at December 31, 2012	4			5			9			3			12
Provisions	20			20			40			4			44
Reversals	(3		)	—			(3		)	(1		)	(4		)
Payments	(13		)	(11		)	(24		)	(4		)	(28		)
Balance at December 31, 2013	8			14			22			2			24
Provisions	59			27			86			1			87
Reversals	—			(1		)	(1		)	—			(1		)
Payments	(27		)	(24		)	(51		)	(2		)	(53		)
Foreign Currency	(4		)	—			(4		)	—			(4		)
Balance at December 31, 2014	$	36		$	16		$	52		$	1		$	53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following table provides a summary of the Company’s consolidated restructuring liabilities and related activity for each type of exit cost for 2014, 2013 and 2012. As the table indicates, facility closure costs are typically paid within the year of incurrence.



	Employee Costs			Facility Closure and Other Exit Costs			Total
	(Millions of Dollars)
Balance at January 1, 2012	$	8		—			8
Provisions	25			1			26
Reversals	(1		)	—			(1		)
Payments	(14		)	(1		)	(15		)
Reclassification to pension liability	(6		)	—			(6		)
Balance at December 31, 2012	12			—			12
Provisions	41			3			44
Reversals	(4		)	—			(4		)
Payments	(25		)	(3		)	(28		)
Balance at December 31, 2013	24			—			24
Provisions	77			10			87
Reversals	(1		)	—			(1		)
Payments	(45		)	(8		)	(53		)
Foreign Currency	(4		)	—			(4		)
Balance at December 31, 2014	$	51		$	2		$	53

Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. Accordingly, the Company reversed $1 million, $4 million and $1 million of previously recorded liabilities in 2014, 2013 and 2012, respectively. Such reversals result from: changes in estimated amounts to accomplish previously planned activities; changes in expected (based on historical practice) outcome of negotiations with labor unions, which reduced the level of originally committed actions; newly implemented government employment programs, which lowered the expected cost; and changes in approach to accomplish restructuring activities.

Activities under Restructuring Programs

The Company has initiated approved restructuring activities as part of a broader initiative to improve operating performance and reduce cost.

The following table provides a summary of the Company's restructuring activities which commenced in the first quarter of 2013 and through December 31, 2014. The Company will continue to evaluate its activities and opportunities to align its business with executive management's strategy.



	Total Expected Costs		Costs in 2013		Costs in 2014		Estimated Additional Costs
	(Millions of Dollars)
Employee costs	$	127	$	38	$	76	$	13
Facility closure and other exit costs	7		1		6		—
	$	134	$	39	$	82	$	13

3. ADJUSTMENT OF ASSETS TO FAIR VALUE

The Company recorded total impairment charges for the years ended December 31, 2014, 2013 and 2012 as follows:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Goodwill	$	120	$	—	$	96
Property, plant and equipment	19		8		43
Investments in non-consolidated affiliates	5		—		2
Other indefinite-lived intangible assets	—		—		46
	$	144	$	8	$	187

Impairments of goodwill and other indefinite-lived intangible assets are discussed further in Note 8, Fair Value Measurements and Note 11, Goodwill and Other Intangible Assets.

The impairment of the Company's investment in non-consolidated affiliates is discussed further in Note 12, Investment in Non-consolidated Affiliates.

The impairment of property, plant and equipment by reporting segment for the years ended December 31, 2014, 2013 and 2012 are as follows:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Powertrain	$	7	$	5	$	19
Motorparts	12		2		23
Corporate	—		1		1
	$	19	$	8	$	43

The 2012 property, plant and equipment impairment excludes $7 million related to discontinued operations. Discontinued operations are further discussed in Note 6, Discontinued Operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

4. OTHER EXPENSE, NET

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



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Legal separation costs	$	(10	)	$	—		$	—
Foreign currency exchange	(7		)	(10		)	(18		)
Losses on sales of account receivables	(6		)	(7		)	(7		)
Third party royalty income	7			8			3
Unrealized gain on hedge instruments	1			—			—
Adjustment of Chapter 11 accrual	—			4			—
Other	4			2			(4		)
	$	(11	)	$	(3	)	$	(26	)

Foreign currency exchange: The Company recognized $7 million, $10 million and $18 million in foreign currency exchange losses during the years ended December 31, 2014, 2013 and 2012, respectively. Of the $18 million in foreign currency exchange losses during the year ended December 31, 2012, $10 million related to unrealized losses associated with outstanding foreign currency hedge contracts that settled during 2013. See Note 7, Financial Instruments, for further details.

5 . ACQUISITIONS

On May 1, 2014, the Company completed the Affinia chassis business acquisition. This business serves leading U.S. aftermarket customers with private label chassis product lines and will allow the Company to broaden its product offering, provide operational synergies and better service customers globally. The purchase price was $149 million, net of acquired cash. The Company paid $140 million in the second quarter of 2014 and $9 million in the third quarter of 2014.

A valuation of the assets from the Affinia chassis business acquisition resulted in $71 million allocated to tangible net assets, $26 million allocated to goodwill, and $51 million allocated to other intangible assets based on estimated fair values as of the acquisition date as determined by third party valuation specialists. The valuation of assets was performed utilizing cost, income and market approaches.

On July 11, 2014, the Company completed the purchase of certain business assets of the Honeywell brake component business including two recently established manufacturing facilities in China and Romania which substantially strengthens the manufacturing and engineering capabilities of the Company's current global braking portfolio. The business was acquired through a combination of asset and stock purchases for a base purchase price of $169 million and a provisional estimate of $15 million subject to certain customary post-closing adjustments, contingent consideration and other liabilities.

A valuation of the assets from the Honeywell brake component business acquisition was performed utilizing cost, income and market approaches resulting in $184 million allocated to tangible net assets.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company is in the process of finalizing certain customary post-closing adjustments which could have an effect on the third-party valuations of certain tangible assets; thus, the provisional measurements of net assets are subject to change.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



	Preliminary Estimated Fair Value			Measurement Period Adjustments			Estimated Fair Value as of December 31, 2014
	(Millions of Dollars)
Cash, net of assumed debt	$	6		$	—		$	6
Accounts receivable, net	108			—			108
Inventory, net	77			(2		)	75
Property, plant and equipment, net	164			25			189
Accounts payable	(107		)	—			(107		)
Acquired post-employment benefits	(60		)	(21		)	(81		)
Other net assets	(4		)	(2		)	(6		)
Total identifiable net assets	$	184		$	—		$	184

The initial allocations of purchase price were recorded at the estimated fair value of assets acquired and liabilities assumed based upon the best information available to management. The measurement period adjustments reflect additional information obtained to record the fair value of certain assets acquired and liabilities assumed based on facts and circumstances existing as of the acquisition date.

The following proforma results for the years ended December 31, 2014 and 2013 assumes the Affinia chassis business acquisition and the purchase of Honeywell's brake component business already occurred as of the beginning of 2013 and is inclusive of provisional purchase price adjustments. The proforma results are not necessarily indicative of the results that actually would have been obtained.



	Year Ended December 31
	2014			2013
	(Millions of Dollars, Except Per Share Amounts)
	Unaudited

Net sales	$	7,673		$	7,510

Net income (loss) attributable to Federal-Mogul	$	(172	)	$	11

Earnings (loss) per share attributable to Federal-Mogul - basic and diluted	$	(1.14	)	$	0.09

During the year ended December 31, 2014, the Company recorded $1 million in transaction related expenses associated with the Affinia chassis business acquisition and $6 million in transaction related expenses associated with the Honeywell brake component acquisition. During the year ended December 31, 2013, the Company recorded $1 million in transaction related expenses associated with the Affinia chassis business acquisition and $3 million in transaction related expenses associated with the Honeywell brake component acquisition. All of these transaction related expenses are recorded in selling, general and administrative expenses within the consolidated statement of operations.

6. 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 March 2013, the Company’s Powertrain Segment completed the divestiture of its sintered components operations located in France. This disposal resulted in a $48 million net loss (no income tax impact), which is included in “Loss from discontinued operations, net of tax” during the year ended December 31, 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

During June 2013, the Company’s Powertrain Segment completed the divestiture of its connecting rod manufacturing facility located in Canada and its camshaft foundry located in the United Kingdom. This disposal resulted in a $6 million net loss (no income tax impact), which is included in “Loss from discontinued operations, net of tax” during the year ended December 31, 2013.

During September 2013, the Company completed the divestiture of its fuel pump business. This disposal resulted in a $7 million net gain (inclusive of a $2 million tax benefit), which is included in “Loss from discontinued operations, net of tax” during the year December 31, 2013. As certain employees at the fuel pump manufacturing facility participated in the Company’s U.S. Welfare Benefit Plan, the Company had this plan re-measured due to its curtailment implications. The termination of those employees and the related reduction in the average remaining future service period to the full eligibility date of the remaining active plan participants in the U.S. Welfare Benefit Plan triggered a $19 million OPEB curtailment gain which is included in "Loss on sale of discontinued operations" during the year ended December 31, 2013.

Operating results related to discontinued operations are as follows:



	Year Ended December 31
	2013			2012
	(Millions of Dollars)
Net sales	$	119		$	220
Cost of products sold	(119		)	(222		)
Gross profit	—			(2		)
Selling, general and administrative expenses	(6		)	(9		)
Adjustment of assets to fair value	—			(7		)
Other income (expense), net	1			(1		)
Operating loss (no income tax impact)	(5		)	(19		)
Loss on sale of discontinued operations (net of tax benefit of $2 million for the year ended December 31, 2013)	(47		)	—
Loss from discontinued operations, net of tax	$	(52	)	$	(19	)

7. FINANCIAL INSTRUMENTS

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.

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



	December 31
	2014			2013
	(Millions of Dollars)
Combined notional value	$	36		$	51
Combined notional value designated as hedging instruments	36			51
Unrealized net (loss) 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 could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which the Company manufactures and sells its products. The Company’s operating results are primarily exposed to changes in exchange rates between the U.S. dollar and European currencies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company generally tries to use natural hedges within its foreign currency activities, including the matching of revenues and costs, to minimize foreign currency risk. Where natural hedges are not in place, the Company considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. Principal currencies hedged have historically included the euro, British pound and Polish zloty. Foreign currency forwards are also used in conjunction with the Company's commodity hedging program. In order to obtain critical terms match for commodity exposure, the Company engages the use of foreign exchange contracts.

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



	December 31
	2014		2013
	(Millions of Dollars)
Combined notional value	$	—	$	12
Combined notional value designated as hedging instruments	—		12
Unrealized net (loss) recorded in “Accumulated other comprehensive loss”	—		(1		)

The Company does not hold any foreign currency price hedge contracts as of December 31, 2014.

During 2013, 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 were not designated as hedging instruments for accounting purposes and were marked to market through the income statement.

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. As of December 31, 2013, all of these five-year interest rate swap agreements had expired.

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 (expense) income, 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 (expense) income, net” for outstanding hedges and “Cost of products sold” or "Other (expense) income, net” upon hedge maturity.

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 2014. The Company has two Motorparts customer that accounts for 18% of the Company’s net accounts receivable balance as of December 31, 2014. The Company requires placement of cash in financial institutions evaluated as highly creditworthy.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following table discloses the fair values and balance sheet locations of the Company’s derivative instruments, all of which were designated as cash flow hedging instruments:



	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	December 31, 2014		December 31, 2013		Balance Sheet Location	December 31, 2014			December 31, 2013
	(Millions of Dollars)
Commodity contracts	Other current liabilities	1		1		Other current liabilities	(2		)	(2		)
Foreign currency contracts	Other current liabilities	—		—			—			(1		)
		$	1	$	1		$	(2	)	$	(3	)

The following tables disclose the effect of the Company’s derivative instruments on the consolidated statement of operations for the year ended December 31, 2014, all of which were designated as hedging instruments:



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 (Loss) Reclassified from AOCI into Income (Effective Portion)			Location of Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	(Millions of Dollars)
Commodity contracts	$	—	Cost of products sold	$	—		Other expense, net	$	1
Foreign currency contracts	—		Cost of products sold	(1		)		—
	$	—		$	(1	)		$	1

The following tables disclose the effect of the Company’s derivative instruments on the consolidated statement of operations for the year ended December 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 (Loss) Reclassified from AOCI into Income (Effective Portion)
	(Millions of Dollars)
Interest rate swap contracts	$	1		Interest expense, net	$	(9	)
Commodity contracts	(7		)	Cost of products sold	(5		)
Foreign currency contracts	(1		)	Cost of products sold	—
	$	(7	)		$	(14	)



Derivatives Not Designated as Hedging Instruments	Location of Loss Recognized in Income on Derivatives	Amount of Loss Recognized in Income on Derivatives
		(Millions of Dollars)
Foreign currency contracts	Interest expense, net	$	(1	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following tables disclose the effect of the Company’s derivative instruments on the consolidated statement of operations for the year ended December 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	$	(4	)	Interest expense, net	$	(38	)
Commodity contracts	7			Cost of products sold	(10		)
Foreign currency contracts	(2		)	Cost of products sold	1
	$	1			$	(47	)



Derivatives Not Designated as Hedging Instruments	Location of Loss Recognized in Income on Derivatives	Amount of Loss Recognized in Income on Derivatives
		(Millions of Dollars)
Foreign currency contracts	Interest expense, net	$	(10	)

8. 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).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Assets and liabilities remeasured and disclosed at fair value on a recurring basis at December 31, 2014 and 2013 are set forth in the table below:



	Asset (Liability)			Level 2			Valuation Technique
	(Millions of Dollars)
December 31, 2014:
Commodity contracts	$	(1	)	$	(1	)	C

December 31, 2013:
Commodity contracts	$	(1	)	$	(1	)	C
Foreign currency contracts	(1		)	(1		)	C

The Company calculates the fair value of its commodity contracts and foreign currency contracts using 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 bank deposit rates.

The following table presents the Company’s defined benefit plan assets measured at fair value on a recurring basis as of December 31, 2014:



	Total		Level 1		Level 2		Level 3		Valuation Technique
	(Millions of Dollars)
U.S. Plans:
Cash	$	44	$	44	$	—	$	—	A
Investments with registered investment companies:
Equity securities	314		314		—		—		A
Fixed income securities	166		166		—		—		A
Real estate and other	25		25		—		—		A
Equity securities	231		231		—		—		A
Debt securities:
Corporate and other	21		—		21		—		B
Government	20		16		4		—		A
Hedge funds	91		—		—		91		A,C
	$	912	$	796	$	25	$	91
Non-U.S. Plans:
Insurance contracts	$	41	$	—	$	—	$	41	B
Investments with registered investment companies:
Fixed income securities	10		10		—		—		A
Equity securities	1		1		—		—		A
Corporate bonds	2		—		2		—		B
	$	54	$	11	$	2	$	41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following table summarizes the activity for the U.S. plan assets classified in level 3:



	Balance at January 1, 2014		Net Realized/ Unrealized Gains (Loss)		Purchases, and Settlements, Net		Sales, Net			Transfers Into (Out) of Level 3		Foreign Currency Exchange Rate Movements		Balance at December 31, 2014
	(Millions of Dollars)
Assets
Hedge funds and other	$	85	$	6	$	47	$	(47	)	$	—	$	—	$	91

The following table summarizes the activity for the non-U.S. plan assets classified in level 3:



	Balance at January 1, 2014		Net Realized/ Unrealized Gains (Loss)		Purchases, and Settlements, Net		Sales, Net			Transfers Into (Out) of Level 3		Foreign Currency Exchange Rate Movements			Balance at December 31, 2014
	(Millions of Dollars)
Assets
Insurance contracts	$	44	$	2	$	6	$	(5	)	$	—	$	(6	)	$	41

The following table presents the Company’s defined benefit plan assets measured at fair value on a recurring basis as of December 31, 2013:



	Total		Level 1		Level 2		Level 3		Valuation Technique
	(Millions of Dollars)
U.S. Plans:
Cash	$	33	$	33	$	—	$	—	A
Investments with registered investment companies:
Equity securities	347		347		—		—		A
Fixed income securities	135		135		—		—		A
Real estate and other	23		23		—		—		A
Equity securities	242		242		—		—		A
Debt securities:
Corporate and other	22		—		22		—		B
Government	22		14		8		—		A
Hedge funds	85		—		—		85		A,C
	$	909	$	794	$	30	$	85
Non-U.S. Plans:
Insurance contracts	$	44	$	—	$	—	$	44	B
Investments with registered investment companies:
Fixed income securities	7		7		—		—		A
Equity securities	2		2		—		—		A
Corporate bonds	2		—		2		—		B
	$	55	$	9	$	2	$	44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following table summarizes the activity for the U.S. plan assets classified in level 3:



	Balance at January 1, 2013		Net Realized/ Unrealized Gains (Loss)		Purchases, and Settlements, Net		Sales, Net			Transfers Into (Out) of Level 3		Foreign Currency Exchange Rate Movements		Balance at December 31, 2013
	(Millions of Dollars)
Assets
Hedge funds and other	$	14	$	11	$	83	$	(23	)	$	—	$	—	$	85

The following table summarizes the activity for the non-U.S. plan assets classified in level 3:



	Balance at January 1, 2013		Net Realized/ Unrealized Gains (Loss)		Purchases, and Settlements, Net		Sales, Net			Transfers Into (Out) of Level 3		Foreign Currency Exchange Rate Movements		Balance at December 31, 2013
	(Millions of Dollars)
Assets
Insurance contracts	$	42	$	1	$	6	$	(6	)	$	—	$	1	$	44

U.S. Plan

As of December 31, 2014, plan assets were comprised of 60% equity investments, 23% fixed income investments, and 17% in other investments which include hedge funds. Approximately 76% of the U.S. plan assets were invested in actively managed investment funds. The Company’s investment strategy includes a target asset allocation of 50% equity investments, 25% fixed income investments and 25% in other investment types including hedge funds.

Investments with registered investment companies, common and preferred stocks, and government debt securities are valued at the closing price reported on the active market on which the funds are traded. Corporate debt securities are valued by third-party pricing sources. Hedge funds and collective trusts are valued at net asset value per share.

Non-U.S. Plans

The insurance contracts guarantee a minimum rate of return. The Company has no input into the investment strategy of the assets underlying the contracts, but they are typically heavily invested in active bond markets and are highly regulated by local law.

Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2014 and 2013 are set forth in the table below:



	Asset (Liability)		Level 3		(Loss)			Valuation Technique
	(Millions of Dollars)
December 31, 2014:
Goodwill	$	37	$	37	$	(120	)	C
Property, plant and equipment	38		38		(19		)	C
Investments in non-consolidated affiliates:	10		10		(5		)	C

December 31, 2013:
Property, plant and equipment	$	55	$	55	$	(8	)	C

One of the Company’s reporting units with goodwill of $157 million recorded an impairment charge of $120 million which reduced the implied fair value of goodwill to $37 million for the year ended December 31, 2014. The impairment charge was recorded within “Adjustment of assets to fair value”. The estimated fair values were determined based upon consideration of various valuation methodologies, including projected future cash flows discounted at rates commensurate with the risks involved, guideline transaction multiples, and multiples of current and future earnings.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Property, plant and equipment with a carrying value of $57 million were written down to their fair value of $38 million, resulting in an impairment charge of $19 million, which was recorded within “Adjustment of assets to fair value” for the year ended December 31, 2014.

Investments in non-consolidated affiliates with a carrying value of $15 million were written down to their fair value of $10 million, resulting in a $5 million impairment for the year ended December 31, 2014. The Company's investment in non-consolidated affiliiates is discussed further in Note 12, Investment in Non-consolidated Affiliates.

Property, plant and equipment with a carrying value of $63 million were written down to their fair value of $55 million, resulting in an impairment charge of $8 million, which was recorded within “Adjustment of assets to fair value” for the year ended December 31, 2013.

9. INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method at December 31, 2014 and 2013. 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:



	December 31			December 31
	2014			2013
	(Millions of Dollars)
Raw materials	$	232		$	207
Work-in-process	171			160
Finished products	934			819
	1,337			1,186
Inventory valuation allowance	(122		)	(118		)
	$	1,215		$	1,068

10. PROPERTY, PLANT AND EQUIPMENT

As a result of fresh-start reporting, PP&E that were purchased prior to January 1, 2008 were stated at estimated replacement cost, unless the expected future use of the assets indicated a lower value was appropriate. PP&E purchased since that time are recorded at cost. Depreciation expense for the years ended December 31, 2014, 2013 and 2012 was $285 million, $247 million and $236 million, respectively.

PP&E consist of the following:



		December 31			December 31
	Useful Life	2014			2013
		(Millions of Dollars)
Land	—	$	215		$	219
Buildings and building improvements	10 - 39 years	511			495
Machinery and equipment	3 - 12 years	2,832			2,662
		3,558			3,376
Accumulated depreciation		(1,398		)	(1,338		)
		$	2,160		$	2,038

The Company leases PP&E used in its operations. Future minimum payments under non-cancelable operating leases with initial or remaining terms of more than one year are as follows:



	Millions of Dollars
2015	$	41
2016	40
2017	31
2018	20
2019	17
Thereafter	44
	$	193

Total rental expense under operating leases for the years ended December 31, 2014, 2013 and 2012 was $70 million, $63 million and $55 million, respectively, exclusive of property taxes, insurance and other occupancy costs generally payable by the Company.

11. GOODWILL AND OTHER INTANGIBLE ASSETS

At December 31, 2014 and 2013, goodwill and other indefinite-lived intangible assets consist of the following:



	December 31, 2014							December 31, 2013
	Gross Carrying Amount		Accumulated Impairment			Net Carrying Amount		Gross Carrying Amount		Accumulated Impairment			Net Carrying Amount
	(Millions of Dollars)
Goodwill	$	1,391	$	(690	)	$	701	$	1,362	$	(570	)	$	792
Trademarks and brand names	425		(198		)	227		423		(198		)	225
	$	1,816	$	(888	)	$	928	$	1,785	$	(768	)	$	1,017

At December 31, 2014 and 2013, definite-lived intangible assets consist of the following:



	December 31, 2014							December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(Millions of Dollars)
Developed technology	$	116	$	(73	)	$	43	$	116	$	(63	)	$	53
Customer relationships	598		(287		)	311		555		(252		)	303
	$	714	$	(360	)	$	354	$	671	$	(315	)	$	356

The Company’s net goodwill balances by reporting segment as of December 31, 2014 and 2013 are as follows:



	December 31		December 31
	2014		2013
	(Millions of Dollars)
Powertrain	$	490	$	487
Motorparts	211		305
	$	701	$	792

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company’s net trademarks and brand names balances by reporting segment as of December 31, 2014 and 2013 are as follows:



	December 31		December 31
	2014		2013
	(Millions of Dollars)
Motorparts	$	223	$	222
Powertrain	4		3
	$	227	$	225

The following is a rollforward of the Company’s goodwill and other intangible assets (net) for the years ended December 31, 2014 and 2013:



	Goodwill			Trademarks and Brand Names			Total Goodwill and Indefinite- Lived Intangibles			Definite- Lived Intangibles
	(Millions of Dollars)
Balance at Balance at January 1, 2013	$	787		$	232		$	1,019		$	408
Acquisition and purchase accounting adjustments	8			—			8			(3		)
Dispositions	(3		)	(7		)	(10		)	(2		)
Amortization expense	—			—			—			(47		)
Balance at December 31, 2013	792			225			1,017			356
Impairments	(120		)	—			(120		)	—
Acquisition and purchase accounting adjustments	32			3			35			52
Dispositions	—			—			—			(1		)
Amortization expense	—			—			—			(49		)
Foreign currency	(3		)	(1		)	(4		)	(4		)
Balance at December 31, 2014	$	701		$	227		$	928		$	354

Goodwill

As part of its annual goodwill impairment test, the Company noted impairment indicators existed in one reporting unit within the Motorparts segment. Among other factors, this reporting unit experienced lower than expected profits and cash flows resulting from decreases in volumes and pricing pressure from customers towards the end of 2014. As a result of these impairment indicators, the Company concluded that there was also a potential impairment of its long-lived assets and definite-lived intangible assets. These impairment tests were performed before the goodwill impairment test, and an impairment loss related to long-lived assets of $7 million was recognized prior to goodwill being tested for impairment. The Company then tested goodwill for impairment and determined the carrying value of one reporting unit, within the Motorparts segment, exceeded its fair value. Accordingly, as part of a second step of the goodwill impairment test, the Company made a preliminary conclusion that the carrying amount of the reporting units’ goodwill exceeded the implied fair value of that goodwill and an impairment loss of $120 million was recognized for the year ended December 31, 2014. Due to the complexity of the second step of the goodwill impairment test, the Company expects to finalize its assessment during the first quarter of 2015. Any resulting difference in the amount of the impairment will be adjusted at that time.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Effective September 1, 2012, the Company re-segmented its business. Given the business realignments that occurred due to this re-segmentation and the fact that some reporting units containing goodwill under the former segmentation were being divided within the new Company structure thus requiring the Company to determine the relative fair value of these divided reporting units in order to allocate goodwill, the Company deemed it prudent to perform an interim goodwill impairment test in accordance with FASB ASC 350. As a result of this interim testing, one divided reporting unit that received a relative fair value goodwill allocation of $3 million had a carrying value in excess of fair value, thus requiring the Company to recognize a full impairment charge of $3 million in the third quarter of 2012.

In the second quarter of 2012, the Company determined that goodwill impairment indicators existed in the Company’s friction reporting unit, including lower than expected profits and cash flows due to continued lower aftermarket volumes, further product mix shifts and pressure on margins. In response to these trends, the Company’s board of directors approved a restructuring plan to reduce or eliminate capacity at several high cost facilities and transfer production to lower cost locations. The friction reporting unit goodwill was tested for impairment in accordance with the FASB ASC 350 during the second quarter of 2012. The fair value of friction reporting unit did not support the recorded goodwill and accordingly the Company recognized a full impairment charge of $91 million in the second quarter of 2012.

Given the complexity of the calculation, the Company had not finalized “Step 2” of its annual goodwill impairment assessment for the year ended December 31, 2011 prior to filing its annual report on Form 10-K. The goodwill impairment charge recognized during the fourth quarter of 2011 was $259 million. During the second quarter of 2012, the Company completed this assessment, and recorded an additional $1 million goodwill impairment charge.



	Fair Value Exceeds Carrying Value	Goodwill
		(Millions of Dollars)
Reporting Units 1 - 4	> 15%	$	131
Reporting Units 5 - 9	> 30%	570
		$	701

In May 2014, the Company completed the purchase of the Affinia chassis business. This business serves leading U.S. aftermarket customers with private label chassis product lines and will allow the Company to broaden its product offering, provide operational synergies and better service customers globally. The purchase price was $149 million, net of acquired cash. The Company allocated the purchase price in accordance with FASB ASC Topic 805, Business Combinations. The Company utilized a third party to assist in the fair value determination of certain components of the purchase price allocation, namely fixed assets and intangible assets. The Company recorded $51 million of definite-lived intangible assets (customer relationships) and $27 million of indefinite-lived intangible assets (primarily goodwill) associated with this acquisition. The goodwill established as part of the Affinia chassis business acquisition was included in the Company's respective reporting unit as part of the annual impairment test discussed above and subsequently included in the estimated impairment charge recorded in the fourth quarter of 2014.

Also during 2014, the Company recorded $6 million of goodwill, $2 million of brand names and $1 million of customer relationship in connection with its January 2014 acquisition of the DZV bearings business. The acquisition of the DZV bearings business did not have a material impact on the Company's financial statements or liquidity.

Other Intangible Assets

The Company performs its annual trademarks and brand names impairment analysis as of October 1, or more frequently if impairment indicators exist, in accordance with the subsequent measurement provisions of FASB ASC 350, Intangibles - Goodwill and Other. This impairment analysis compares the fair values of these assets to the related carrying values, and impairment charges are recorded for any excess of carrying values over fair values. The fair values are based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets.

All of the Company's trademarks and brand names passed the October 1, 2014 and 2013 impairment analysis.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

In connection with the September 1, 2012 goodwill impairment test discussed above, the Company also performed its trademarks and brand names impairment analysis. This impairment analysis compares the fair values of these assets to the related carrying values, and impairment charges are recorded for any excess of carrying values over fair values. These fair values are based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets. Primarily all of the Company's trademarks and brand names are associated with its aftermarket sales and are further broken down by product line. Based upon this annual analysis, the Company recognized a $33 million impairment charge in the third quarter of 2012. Prior to the September 1, 2012 analysis, the Company noted impairment indicators and performed an interim trademarks and brand names impairment analysis. Based upon this analysis, the Company recognized a $13 million impairment charge in the second quarter of 2012.

The Company recorded amortization expense of $49 million, $47 million and $49 million associated with definite-lived intangible assets during the years ended December 31, 2014, 2013 and 2012, respectively. The Company utilizes the straight line method of amortization, recognized over the estimated useful lives of the assets. The Company’s developed technology intangible assets have useful lives of between 10 and 15 years. The Company’s customer relationships intangible assets have useful lives of between 5 and 24 years.

The Company’s estimated future amortization expense for its definite-lived intangible assets is as follows:



	Millions of Dollars
2015	$	50
2016	49
2017	49
2018	40
2019	40
Thereafter	126
	$	354

12. INVESTMENT IN NON-CONSOLIDATED AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following represents the Company’s aggregate investments and direct ownership in these affiliates:



	December 31
	2014		2013
	(Millions of Dollars)
Investments in non-consolidated affiliates	$	269	$	253

Direct ownership percentages	2% to 100%		2% to 50%

In accordance with FASB ASC Topic 323, Investments - Equity Method and Joint Ventures, the Company discloses summarized financial information of its non-consolidated affiliates.

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



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Equity earnings of non-consolidated affiliates	$	48	$	34	$	34
Cash dividends received from non-consolidated affiliates	25		33		31

The following tables present summarized aggregated financial information of the Company’s non-consolidated affiliates:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Statements of Operations
Sales	$	906	$	918	$	682
Gross profit	192		185		151
Income from continuing operations	128		120		91
Net income	112		105		79



	December 31		December 31
	2014		2013
	(Millions of Dollars)
Balance Sheets
Current assets	$	397	$	402
Noncurrent assets	443		398
Current liabilities	181		180
Noncurrent liabilities	47		38

13. ACCRUED LIABILITIES

Accrued liabilities consist of the following:



	December 31
	2014		2013
	(Millions of Dollars)
Accrued compensation	$	177	$	169
Accrued rebates	149		125
Restructuring liabilities	53		24
Non-income tax payable	52		41
Alleged defective products	30		30
Accrued professional services	28		21
Accrued product returns	24		21
Accrued income taxes	24		17
Accrued warranty	9		6
	$	546	$	454

14. DEBT

In accordance with FASB ASC Topic No. 405, Extinguishments of Liabilities, the Company recognized a $24 million non-cash loss on the extinguishment of debt attributable to the write-off of the unamortized fair value adjustment and unamortized debt issuance costs which is recorded in the line item “Loss on Debt Extinguishment” in the Company’s Condensed Consolidated Statements of Operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Due to the refinancing of the Company's term loans, the backstop commitment letter provided to the Company on December 6, 2013 from High River Limited Partnership, an affiliate of Mr. Carl C. Icahn and the Company’s largest stockholder, was terminated.

In connection with the New Term Facilities, the Company incurred original issue discount of $9 million and debt issuance costs of $6 million in connection with the New Tranche C Facility and original issue discount of $2 million and debt issuance costs of $6 million in connection with the New Tranche B Facility. The discount and debt issuance costs are being amortized to interest expense over the terms of the loans of 84 months and 48 months, respectively. As noted above the unamortized fair value adjustment established when applying the provisions of fresh-start reporting to the Company's Credit agreement was written off upon the closing of the New Term Facilities.

Interest expense associated with the amortization of the original issue discount, debt issuance costs and fair value adjustment recognized in the Company’s consolidated statements of operations, consists of the following:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Amortization of fair value adjustment	$	7	$	22	$	23
Amortization of debt issuance fees	3		—		—
Amortization of original issue discount	1		—		—
	$	11	$	22	$	23



Debt consists of the following:	December 31
	2014			2013
	(Millions of Dollars)
Term loans under credit agreement:
Tranche B term loan	$	698		$	1,597
Tranche C term loan	1,895			940
Debt discount	(10		)	(30		)
Other debt, primarily foreign instruments *	107			92
	2,690			2,599
Less: short-term debt, including current maturities of long-term debt	(127		)	(1,694		)
Total long-term debt	$	2,563		$	905

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

* The Company assumed $10 million of pre-existing debt associated with its January 2014 acquisition of the DZV bearings business.

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

The Credit Agreement contains certain affirmative and negative covenants and events of default, including, subject to certain exceptions, restrictions on incurring additional indebtedness, mandatory prepayment provisions associated with specified asset sales and dispositions, and limitations on: i) investments; ii) certain acquisitions, mergers or consolidations; iii) sale and leaseback transactions; iv) certain transactions with affiliates; and v) dividends and other payments in respect of capital stock. The Company was in compliance with all debt covenants as of December 31, 2014 and 2013. Per the terms of the Credit Agreement, $50 million of the Tranche C proceeds were deposited in a Term Letter of Credit Account as of December 31, 2013.

The Replacement Revolving Facility has an available borrowing base of $516 million and $550 million as of December 31, 2014 and 2013, respectively. The Company had $34 million and $39 million of letters of credit outstanding as of December 31, 2014 and 2013, respectively, pertaining to the term loan credit facility. To the extent letters of credit associated with the Replacement Revolving Facility are issued, there is a corresponding decrease in borrowings available under this facility.

Estimated fair values of the Company’s term loans under the Credit Agreement were:



	Estimated Fair Value (Level 1)		Fair Value in Excess (Deficit) of Carrying Value			Valuation Technique
	(Millions of Dollars)
December 31, 2014:
Term Loans	$	2,571	$	(12	)	A

December 31, 2013:
Term Loans	$	2,520	$	13		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 December 31, 2014 and 2013. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets. Refer to Note 8, Fair Value Measurements, for definitions of input levels and valuation techniques.

The Company has the following contractual debt obligations outstanding at December 31, 2014:



	Millions of Dollars
2015	$	127
2016	28
2017	29
2018	696
2019	19
Thereafter	1,801
Total	$	2,700

The weighted average cash interest rates for debt were approximately 4.7% and 2.3% as of December 31, 2014 and 2013, respectively. Interest paid on debt in 2014, 2013 and 2012 was $111 million, $77 million and $106 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

15. PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS

The Company sponsors defined benefit pension plans (“Pension Benefits”) and postretirement health care and life insurance benefits (“Other Postemployment Benefits” or “OPEB”) for certain employees and retirees around the world. Using appropriate actuarial methods and assumptions, the Company’s defined benefit pension plans and postemployment benefits other than pensions are accounted for in accordance with FASB ASC Topic 715, Compensation – Retirement Benefits.

The measurement date for all defined benefit plans is December 31. The following provides a reconciliation of the plans’ benefit obligations, plan assets, funded status and recognition in the consolidated balance sheets:



	Pension Benefits												Other Postemployment
	United States Plans						Non-U.S. Plans						Benefits
	2014			2013			2014			2013			2014			2013
	(Millions of Dollars)
Change in benefit obligation:
Benefit obligation, beginning of year	$	1,184		$	1,298		$	450		$	474		$	335		$	395
Service cost	3			4			12			12			—			—
Interest cost	52			47			16			14			15			11
Employee contributions	—			—			—			—			—			1
Benefits paid	(96		)	(64		)	(28		)	(28		)	(26		)	(28		)
Medicare subsidies received	—			—			—			—			1			3
Plan amendments	—			—			—			—			8			—
Curtailments	—			—			(1		)	(1		)	—			(1		)
Settlements	(3		)	—			—			—			—			—
Actuarial losses (gains) and changes in actuarial assumptions	151			(101		)	112			(25		)	36			(43		)
Net transfers (out) in	—			—			73			(11		)	—			(1		)
Currency translation	—			—			(59		)	15			(1		)	(2		)
Benefit obligation, end of year	$	1,291		$	1,184		$	575		$	450		$	368		$	335

Change in plan assets:
Fair value of plan assets, beginning of year	$	909		$	778		$	55		$	55		$	—		$	—
Actual return on plan assets	43			138			3			2			—			—
Employee contributions	—			—			—			—			—			1
Company contributions	56			60			30			24			25			24
Benefits paid	(96		)	(64		)	(28		)	(28		)	(26		)	(28		)
Expenses	—			(3		)	—			—			—			—
Medicare subsidies received	—			—			—			—			1			3
Currency translation	—			—			(6		)	2			—			—
Fair value of plan assets, end of year	$	912		$	909		$	54		$	55		$	—		$	—

Funded status of the plan	$	(379	)	$	(275	)	$	(521	)	$	(395	)	$	(368	)	$	(335	)

Amounts recognized in the consolidated balance sheets:
Current liabilities	$	(3	)	$	(3	)	$	(17	)	$	(13	)	$	(26	)	$	(28	)
Noncurrent liabilities	(376		)	(272		)	(504		)	(382		)	(342		)	(307		)
Net amount recognized	$	(379	)	$	(275	)	$	(521	)	$	(395	)	$	(368	)	$	(335	)

Amounts recognized in accumulated other comprehensive loss, inclusive of tax impacts:
Net actuarial loss	$	409		$	242		$	151		$	81		$	95		$	63
Prior service cost (credit)	—			—			2			3			(14		)	(28		)
Total	$	409		$	242		$	153		$	84		$	81		$	35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Weighted-average assumptions used to determine the benefit obligation as of December 31:



	Pension Benefits								Other Postemployment
	United States Plans				Non-U.S. Plans				Benefits
	2014		2013		2014		2013		2014		2013
Discount rate	3.85	%	4.55	%	1.77	%	3.49	%	3.84	%	4.45	%
Rate of compensation increase	—		—		3.16	%	3.17	%	—		—

Weighted-average assumptions used to determine net periodic benefit cost (credit) for the years ended December 31:



	Pension Benefits								Other Postemployment
	United States Plans				Non-U.S. Plans				Benefits
	2014		2013		2014		2013		2014		2013
Discount rate	4.55	%	3.70	%	3.49	%	2.99	%	4.45	%	3.60	%
Expected return on plan assets	6.95	%	7.45	%	4.18	%	4.62	%	—		—
Rate of compensation increase	—		—		3.17	%	3.13	%	—		—

The Company evaluates its discount rate assumption annually as of December 31 for each of its retirement-related benefit plans based upon the yield of high quality, fixed-income debt instruments, the maturities of which correspond to expected benefit payment dates.

The Company’s expected return on assets is established annually through analysis of anticipated future long-term investment performance for the plan based upon the asset allocation strategy. While the study gives appropriate consideration to recent fund performance and historical returns, the assumption is primarily a long-term prospective rate.

The U.S. investment strategy mitigates risk by incorporating diversification across appropriate asset classes to meet the plan’s objectives. It is intended to reduce risk, provide long-term financial stability for the plan and maintain funded levels that meet long-term plan obligations while preserving sufficient liquidity for near-term benefit payments. Risk assumed is considered appropriate for the return anticipated and consistent with the diversification of plan assets. The Company’s investment strategy includes a target asset allocation of 50% equity investments, 25% fixed income investments and 25% in other investment types including hedge funds. Approximately 76% of the U.S. plan assets were invested in actively managed investment funds.

The majority of the assets of the non-U.S. plans are invested through insurance contracts. The insurance contracts guarantee a minimum rate of return. The Company has no input into the investment strategy of the assets underlying the contracts, but they are typically heavily invested in active bond markets and are highly regulated by local law. The target asset allocation for the non-U.S. pension plans is 80% insurance contracts, 15% debt investments and 5% equity investments.

Refer to Note 8, “Fair Value Measurements,” for more detail surrounding the fair value of each major category of plan assets, including the inputs and valuation techniques used to develop the fair value measurements of the plans’ assets, at December 31, 2014 and 2013.

Information for defined benefit plans with projected benefit obligations in excess of plan assets:



	Pension Benefits								Other Postemployment
	United States Plans				Non-U.S. Plans				Benefits
	2014		2013		2014		2013		2014		2013
	(Millions of Dollars)
Projected benefit obligation	$	1,291	$	1,184	$	574	$	448	$	368	$	335
Fair value of plan assets	912		909		53		52		—		—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Information for pension plans with accumulated benefit obligations in excess of plan assets:



	Pension Benefits
	United States Plans				Non-U.S. Plans
	2014		2013		2014		2013
	(Millions of Dollars)
Projected benefit obligation	$	1,291	$	1,184	$	555	$	444
Accumulated benefit obligation	1,291		1,184		514		409
Fair value of plan assets	912		909		42		49

The accumulated benefit obligation for all pension plans is $1,809 million and $1,598 million as of December 31, 2014 and 2013, respectively.

Components of net periodic benefit cost (credit) for the years ended December 31:



	Pension Benefits																		Other Postemployment
	United States Plans									Non-U.S. Plans									Benefits
	2014			2013			2012			2014			2013			2012			2014			2013			2012
	(Millions of Dollars)
Service cost	$	3		$	4		$	21		$	12		$	12		$	9		$	—		$	—		$	1
Interest cost	52			47			53			16			14			16			15			11			14
Expected return on plan assets	(62		)	(58		)	(52		)	(2		)	(3		)	(2		)	—			—			—
Amortization of actuarial losses	4			14			35			5			8			—			3			6			2
Amortization of prior service credit	—			—			—			—			—			1			(5		)	(9		)	(14		)
Settlement loss (gain)	(3		)	—			(1		)	1			1			—			—			—			—
Curtailment gain	—			—			(1		)	—			—			—			—			(19		)	(51		)
Net periodic cost (credit)	$	(6	)	$	7		$	55		$	32		$	32		$	24		$	13		$	(11	)	$	(48	)

Other Postemployment Benefits - U.S. Welfare Benefit Plan

In May 2013, the Company ceased operations at one of its U.S. manufacturing locations. As this location participated in the Company’s U.S. Welfare Benefit Plan, the Company had this plan re-measured due to its curtailment implications. 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 triggered the recognition of a $19 million OPEB curtailment gain, which was recognized in the consolidated statements of operations for the year ended December 31, 2013.

In July 2012, as a result of contract negotiations with a union at one of the Company’s U.S. manufacturing locations, the benefits under the U.S. Welfare Benefit Plan were eliminated for the location’s active participants. Since this plan change reduced benefits attributable to employee service already rendered, it was treated as a negative plan amendment, which created a $13 million prior service credit in accumulated other comprehensive income (“AOCI”). The corresponding reduction in the average remaining future service period to the full eligibility date also triggered the recognition of a $51 million OPEB curtailment gain which was recognized in the consolidated statements of operations during the third quarter of 2012.

Amounts in “Accumulated other comprehensive loss” expected to be recognized as components of net periodic benefit cost over the next fiscal year:



	Pension Benefits				Other Postemployment Benefits
	United States		Non-U.S. Plans		Other Postemployment Benefits
	(Millions of Dollars)
Amortization of actuarial losses	$	10	$	12	$	5
Amortization of prior service credit	—		—		(4		)
Total	$	10	$	12	$	1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The assumed health care and drug cost trend rates used to measure next year’s postemployment healthcare benefits are as follows:



	Other Postemployment Benefits
	2014		2013
Health care cost trend rate	7.25	%	6.88	%
Ultimate health care cost trend rate	5.00	%	5.00	%
Year ultimate health care cost trend rate reached	2022		2018

Drug cost trend rate	7.25	%	7.81	%
Ultimate drug cost trend rate	5.00	%	5.00	%
Year ultimate drug cost trend rate reached	2022		2018

The assumed health care cost trend rate has a significant impact on the amounts reported for Other Postemployment Benefits plans. The following table illustrates the sensitivity to a change in the assumed health care cost trend rate:



	Total Service and Interest Cost			APBO
	(Millions of Dollars)
100 basis point (“bp”) increase in health care cost trend rate	$	1		$	32
100 bp decrease in health care cost trend rate	(1		)	(28		)



	Pension Benefits																		Other Postemployment Benefits
	United States Plans									Non-U.S. Plans									Other Postemployment Benefits
	Change in 2015 pension expense			Change in PBO			Change in accumulated OCL			Change in 2015 pension expense			Change in PBO			Change in accumulated OCL			Change in 2015 expense		Change in PBO
	(Millions of dollars)
25 bp decrease in discount rate	$	(1	)	$	36		$	(36	)	$	1		$	20		$	(20	)	$	—	$	9
25 bp increase in discount rate	—			(34		)	34			(1		)	(20		)	20			—		(9		)
25 bp decrease in return on assets rate	2			—			—			—			—			—			—		—
25 bp increase in return on assets rate	(2		)	—			—			—			—			—			—		—

Projected benefit payments from the plans are estimated as follows:



	Pension Benefits				Other Postemployment Benefits
	United States		Non-U.S. Plans		Other Postemployment Benefits
	(Millions of Dollars)
2015	$	94	$	26	$	27
2016	84		25		26
2017	83		25		27
2018	81		26		26
2019	82		27		26
Years 2020 - 2022	392		139		121

The Company expects to contribute approximately $108 million to its pension plans in 2015.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Defined Contribution Pension Plans

The Company also maintains certain defined contribution pension plans for eligible employees. Effective January 1, 2013, the Company amended its U.S. defined contribution plan to allow for an enhanced company match and company provided age-based contributions for eligible U.S. salaried and non-union hourly employees. The total expenses attributable to the Company’s defined contribution savings plan were $45 million, $42 million and $23 million for the years ended December 31, 2014, 2013 and 2012, respectively.

The amounts contributed to defined contribution pension plans include contributions to multi-employer plans in France, Italy and the United States of $1 million during each of the years ended December 31, 2014, 2013 and 2012. None of the multiemployer plans in which the Company participates are individually significant.

Other Benefits

The Company accounts for benefits to former or inactive employees paid after employment but before retirement pursuant to FASB ASC Topic 712, Compensation – Nonretirement Postemployment Benefits. The liabilities for such U.S. and European postemployment benefits were $25 million and $29 million at December 31, 2014 and 2013, respectively.

16. INCOME TAXES

Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The components of (loss) income from continuing operations before income taxes consist of the following:



	Year Ended December 31
	2014			2013		2012
	(Millions of Dollars)
Domestic	$	(64	)	$	28	$	(103	)
International	(41		)	129		(17		)
Total	$	(105	)	$	157	$	(120	)

Significant components of the (expense) benefit for income taxes are as follows:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Current:
Federal, state and local	$	(4	)	$	(3	)	$	(2	)
International	(32		)	(55		)	(47		)
Total current	(36		)	(58		)	(49		)
Deferred:
Federal, state and local	—			(3		)	32
International	(20		)	5			46
Total deferred	(20		)	2			78
	$	(56	)	$	(56	)	$	29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The reconciliation of income taxes computed at the United States federal statutory tax rate to income tax (expense) benefit is:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Income tax (expense) benefit at United States statutory rate	$	37		$	(55	)	$	42
Tax effect from:
Goodwill impairment	(42		)	—			(34		)
U.S. income inclusions from foreign subsidiaries	(7		)	(5		)	(27		)
Non-consolidated foreign affiliates	15			11			11
Tax holidays, incentives and minimum tax	2			14			9
Foreign rate variance and enacted rate change	24			11			13
State income taxes	(4		)	(3		)	(1		)
Uncertain tax positions and assessments	31			(14		)	335
Valuation allowances	(105		)	(15		)	(327		)
Other	(7		)	—			8
Income tax (expense) benefit	$	(56	)	$	(56	)	$	29

The following table summarizes the Company’s total (provision) benefit for income taxes by component:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Income tax (expense) benefit	$	(56	)	$	(56	)	$	29
Allocated to equity:
Postemployment benefits	108			(83		)	(71		)
Derivatives	—			(2		)	18
Foreign currency translation	(12		)	(1		)	(2		)
Valuation allowances	(84		)	77			29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Significant components of the Company’s deferred tax assets and liabilities are as follows:



	December 31
	2014			2013
	(Millions of Dollars)
Deferred tax assets
Net operating loss carryforwards	$	895		$	783
Postemployment benefits, including pensions	368			291
Reorganization costs	11			27
Inventory	63			48
Other temporary differences	78			98
Tax credits	129			140
Total deferred tax assets	1,544			1,387
Valuation allowances for deferred tax assets	(1,314		)	(1,151		)
Net deferred tax assets	230			236

Deferred tax liabilities
Investment in U.S. subsidiaries	(307		)	(307		)
Intangible assets	(156		)	(166		)
Fixed assets	(31		)	(19		)
Total deferred tax liabilities	(494		)	(492		)

	$	(264	)	$	(256	)

Deferred tax assets and liabilities are recorded in the consolidated balance sheets as follows:



	December 31
	2014			2013
	(Millions of Dollars)
Assets:
Prepaid expenses and other current assets	$	44		$	40
Other noncurrent assets	81			87
Liabilities:
Long-term portion of deferred income taxes	(389		)	(383		)
	$	(264	)	$	(256	)

The Company continues to maintain a valuation allowance related to its net deferred tax assets in multiple jurisdictions. As of December 31, 2014, the Company had valuation allowances of $999 million related to tax loss and credit carryforwards. The current and future provision for income taxes may be significantly impacted by changes to valuation allowances in certain countries. These allowances will be maintained until it is more likely than not that the deferred tax assets will be realized. The future provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated. During the current year the Company recorded $9 million of valuation allowances on deferred tax assets that the Company believes are not more likely than not to be realized in the foreseeable future.

At December 31, 2014, the Company had a deferred tax asset before valuation allowance of $1,024 million for tax loss carryforwards and tax credits, including: $629 million in the United States with expiration dates from 2015 through 2034; $181 million in the United Kingdom with no expiration date; and $214 million in other jurisdictions with various expiration dates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company has also concluded that there is a more than remote possibility that existing valuation allowances of up to $148 million as of December 31, 2014 could be released within the next 12 months. If releases of such valuation allowances occur, they may have a significant impact on results of operations in the quarter in which it is deemed appropriate to release the reserve. Income taxes paid, net of income tax refunds received, were $42 million, $38 million and $56 million for the years ended December 31, 2014, 2013 and 2012, respectively.

The Company did not record taxes on its undistributed earnings of $902 million at December 31, 2014 since these earnings are considered by the Company to be permanently reinvested. If at some future date these earnings cease to be permanently reinvested, the Company may be subject to United States income taxes and foreign withholding taxes on such amounts. Determining the unrecognized deferred tax liability on the potential distribution of these earnings is not practicable as such liability, if any, is dependent on circumstances existing when remittance occurs.

At December 31, 2014, 2013 and 2012, the Company had total unrecognized tax benefits of $50 million, $78 million and $69 million, respectively. Of these totals, $44 million, $47 million and $39 million, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would affect the effective income tax rates. The total unrecognized tax benefits differ from the amounts which would affect the effective tax rates primarily due to the impact of valuation allowances.

A summary of the changes in the gross amount of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 are shown below:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Change in unrecognized tax benefits
Balance at January 1	$	78		$	69		$	375
Additions based on tax positions related to the current year	7			7			7
Additions for tax positions of prior years	10			6			10
Decreases for tax positions of prior years	(14		)	(4		)	(9		)
Decreases for statute of limitations expiration	(1		)	(1		)	(13		)
Settlements	(25		)	2			(300		)
Impact of currency translation	(5		)	(1		)	(1		)
Balance at December 31	$	50		$	78		$	69

The Company classifies tax-related penalties and net interest as income tax expense. As of December 31, 2014, 2013 and 2012, the Company recorded $12 million, $23 million and $15 million, respectively, in liabilities for tax-related net interest and penalties on its consolidated balance sheet. During the years ended December 31, 2014, 2013 and 2012, the Company recorded tax income (expense) related to a net increase (decrease) in its liability for interest and penalties of $11 million, $(8) million and $(2) million, respectively.

The Company operates in multiple jurisdictions throughout the world. The Company is no longer subject to U.S. federal tax examinations for years before 2011 or state and local for years before 2008, with limited exceptions. Furthermore, the Company is no longer subject to income tax examinations in major foreign tax jurisdictions for years prior to 2005. The income tax returns of foreign subsidiaries in various tax jurisdictions are currently under examination.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(“AEP”) is the common parent. The Company subsequently entered into a Tax Allocation Agreement (the “Tax Allocation Agreement”) with AEP. Pursuant to the Tax Allocation Agreement, AEP and the Company have agreed to the allocation of certain income tax items. The Company will join AEP in the filing of AEP’s federal consolidated return and certain state consolidated returns. In those jurisdictions where the Company is filing consolidated returns with AEP, the Company will pay to AEP any tax it would have owed had it continued to file separately. To the extent that the AEP consolidated group is able to reduce its tax liability as a result of including the Company in its consolidated group, AEP will pay the Company an amount equal to 20% of such reduction and the Company will carryforward for its own use under the Tax Allocation Agreement 80% of the items that caused the tax reduction (the “Excess Tax Benefits”). While a member of the AEP affiliated group the Company will reduce the amounts it would otherwise owe AEP by the Excess Tax Benefits. Moreover, if the Company should ever become deconsolidated from AEP, AEP will reimburse the Company for any tax liability in post-consolidation years the Company would not have paid had it actually had the Excess Tax Benefits for its own use. The cumulative payments to the Company by AEP post-consolidation cannot exceed the cumulative reductions in tax to the AEP group resulting from its use of the Excess Tax Benefits. Separate return methodology will be used in determining income taxes.

17. COMMITMENTS AND CONTINGENCIES

Environmental Matters

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

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

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



	December 31,		December 31,
	2014		2013
	(Millions of Dollars)
Other current liabilities	$	6	$	5
Other accrued liabilities (noncurrent)	9		9
	$	15	$	14

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 December 31, 2014, management estimates that reasonably possible material additional losses above and beyond management’s best estimate of required remediation costs as recorded approximate $40 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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:



	December 31,		December 31,
	2014		2013
	(Millions of Dollars)
Other current liabilities	$	3	$	4
Other accrued liabilities (noncurrent)	21		22
	$	24	$	26

The following is a rollforward of the Company’s ARO liability for the two years ended December 31, 2014 (in millions of dollars):



Balance at January 1, 2013	$	29
Liabilities incurred	1
Liabilities settled/adjustments	(4		)
Balance at December 31, 2013	26
Liabilities incurred	—
Liabilities settled/adjustments	(1		)
Foreign Currency	(1		)
Balance at December 31, 2014	$	24

Affiliate Pension Obligations

In July 2013 the Company completed a common stock rights offering. The purchases of shares of common stock in the rights offering increased the indirect control of Mr. Carl C. Icahn to approximately 80.73% of the voting power. As a result of the more than 80% ownership interest in the Company by Mr. Icahn’s affiliates, the Company is subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least 80%. One such entity, ACF Industries LLC ("ACF"), is the sponsor of several pension plans. All the minimum funding requirements of the Code and the Employee Retirement Income Security Act of 1974 for these plans have been met as of December 31, 2014. If the ACF plans were voluntarily terminated, they would be underfunded by approximately $82 million as of December 31, 2014. These results are based on the most recent information provided by the plans’ actuaries. These liabilities could increase or decrease, depending on a number of factors, including future changes in benefits, investment returns, and the assumptions used to calculate the liability. As members of the controlled group, the Company would be liable for any failure of ACF to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of the pension plans of ACF. In addition, other entities now or in the future within the controlled group in which the Company is included may have pension plan obligations that are, or may become, underfunded and the Company would be liable for any failure of such entities to make ongoing pension contributions or to pay the unfunded liabilities upon termination of such plans. Further, the failure to pay these pension obligations when due may result in the creation of liens

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

in favor of the pension plan or the Pension Benefit Guaranty Corporation (“PBGC”) against the assets of each member of the controlled group.

Icahn Enterprises Holdings L.P. and IEH FM Holdings LLC have undertaken to indemnify Federal-Mogul for any and all liability imposed upon the Company pursuant to the Employee Retirement Income Security Act of 1974, as amended, or any regulation thereunder (“ERISA”) resulting from the Company being considered a member of a controlled group within the meaning of ERISA § 4001(a)(14) of which American Entertainment Properties Corporation is a member, except with respect to liability in respect to any employee benefit plan, as defined by ERISA § 3(3), maintained by the Company. Icahn Enterprises Holdings L.P. and IEH FM Holdings LLC are not required to maintain any specific net worth and there can be no guarantee Icahn Enterprises Holdings L.P. and IEH FM Holdings LLC will be able to fund its indemnification obligations to the Company.

Other Matters

On April 25, 2014, a group of plaintiffs brought an action against Federal-Mogul Products, Inc. (“F-M Products”), a wholly-owned subsidiary of the Company, alleging injuries and damages associated with the discharge of chlorinated hydrocarbons by the former owner of a facility located in Kentucky. Since 1998, when F-M Products acquired the facility, it has been cooperating with the applicable regulatory agencies on remediating the prior discharges pursuant to an order entered into by the facility’s former owner. The Company is unable to estimate any reasonably possible range of loss for reasons including that the plaintiffs did not claim any amount of damages in their complaint. F-M Products intends to vigorously defend this litigation.

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.

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

The following represents the Company’s changes in accumulated other comprehensive loss ("AOCL") by component for the year ended December 31, 2014:



	Foreign Currency Translation Adjustments			Gains and Losses on Cash Flow Hedges			Post- employment Benefits			Total
	(Millions of Dollars)
Balance at January 1, 2014	$	(249	)	$	(16	)	$	(361	)	$	(626	)

Other comprehensive loss before reclassifications	(233		)	—			(314		)	(547		)
Amounts reclassified from AOCL	—			—			10			10
Income taxes	—			(1		)	22			21
Other comprehensive loss	(233		)	(1		)	(282		)	(516		)

Balance at December 31, 2014	$	(482	)	$	(17	)	$	(643	)	$	(1,142	)


19.	RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCL")

Items not reclassified in their entirety out of AOCL to net income for the year ended December 31, 2014 are as follows:



							Affected Line Item in the
	Year Ended December 31						Statement Where Net Income
	2014			2013			is Presented

Losses on cash flow hedges
Commodity contracts	$	1		$	(5	)	Cost of products sold
Foreign currency contracts	(1		)	—			Cost of products sold
Interest rate swap contracts	—			(9		)	Interest expense, net
Total	—			(14		)
Income taxes	1			(1		)	Income tax (expense) benefit
Net of tax	1			(15		)

Postemployment benefits
Amortization of actuarial losses	(12		)	(29		)	Cost of products sold and selling, general and administrative expenses ("SG&A")
Amortization of prior service credits	5			9			Cost of products sold and SG&A
Recognition of unamortized losses	—			(4		)	Loss from discontinued operations, net of tax
Curtailment gain	—			19			Loss from discontinued operations, net of tax
Curtailment gain	—			19			OPEB curtailment gain
Total	(7		)	14
Income taxes	(22		)	9			Income tax (expense) benefit
Net of tax	(29		)	23

Total reclassifications	$	(28	)	$	8

20. 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 the warrants expired as of December 31, 2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

21. STOCK-BASED COMPENSATION

Stock Appreciation Rights

A summary of the Company’s stock appreciation rights (“SARs”) activity on an annual basis for the years ended December 31, 2014, 2013 and 2012 is as follows:



	SARs			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(Thousands)					(Years)	(Millions)
Outstanding at January 1, 2012	$	1,388		$	19.96
Granted	809			17.64
Forfeited	(311		)	18.50
Outstanding at December 31, 2012	1,886			$	19.21	3.4	$	—
Granted	(182		)	17.48
Forfeited	(445		)	19.30
Outstanding at December 31, 2013	1,259			$	19.43	2.4	$	1
Exercised	(57		)	17.25
Forfeited	(406		)	19.56
Outstanding at December 31, 2014	796			$	19.51	1.4	$	—

Exercisable at December 31, 2014	703			$	19.76	1.4	$	—

In February 2012, 2011 and 2010, the Company granted approximately 809,000, 1,043,000 and 437,000 SARs, respectively, to certain employees. The SARs granted in February 2012 (“2012 SARs”) and in February 2011 (“2011 SARs”) vested 25.0% on 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 recognized SARs income of $4 million for the year ended December 31, 2014, SARs expense of $5 million for the year ended December 31, 2013, and SARs income of $4 million for the year ended December 31, 2012. The SARs fair values were estimated using the Black-Scholes valuation model with the following assumptions:



	December 31, 2014									December 31, 2013
	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	39		%	39		%	39		%	48		%	48		%	48		%
Expected dividend yield	—		%	—		%	—		%	—		%	—		%	—		%
Expected forfeitures	—		%	—		%	—		%	—		%	—		%	—		%
Risk-free rate over the expected life	0.28		%	0.14		%	0.03		%	0.29		%	0.14		%	0.10		%
Expected life (in years)	1.1			0.6			0.1			1.7			1.1			0.6
Fair value (in millions)	$	0.6		$	0.2		$	—		$	2.6		$	2.3		$	0.5
Fair value of vested portion (in millions)	$	0.4		$	0.2		$	—		$	1.1		$	1.7		$	0.5

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 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.

100

22. INCOME (LOSS) PER COMMON SHARE

The following is a reconciliation of the numerators and the denominators of the basic and diluted income (loss) per common share:



	Year Ended December 31
	2014			2013			2012
	(In Millions of Dollars, Except Per Share Amounts)
Amounts attributable to Federal-Mogul:
Net (loss) income from continuing operations	$	(168	)	$	93		$	(98	)
Loss from discontinued operations, net of tax	—			(52		)	(19		)
Net (loss) income	$	(168	)	$	41		$	(117	)

Weighted average shares outstanding, basic (in millions)	150.0			123.4			98.9
Incremental shares on assumed conversion of deferred compensation stock (in millions)	—			—			0.5
Weighted average shares outstanding, diluted (in millions)	150.0			123.4			99.4

Net (loss) income per share attributable to Federal-Mogul - basic and diluted:
Net (loss) income from continuing operations	$	(1.12	)	$	0.75		$	(0.99	)
Loss from discontinued operations, net of tax	—			(0.42		)	(0.19		)
Net (loss) income	(1.12		)	0.33			(1.18		)

The Company had losses for the year ended December 31, 2014 and 2012. As a result, diluted loss per share is the same as basic in those periods, as any potentially dilutive securities would reduce the loss per share.

Warrants to purchase 6,951,871 common shares, which expired December 27, 2014, were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the Company’s common shares during the years ended December 31, 2014, 2013 and 2012. Options to purchase $4,000,000 common shares, which expired on June 29, 2012, were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the Company’s common shares during the year ended December 31, 2012.

As required by FASB ASC Topic 710, Compensation, there are 500,000 common shares issued in connection with a deferred compensation agreement that are excluded from the basic earnings per share calculation for the year ended December 31, 2014.

23. SUBSEQUENT EVENT

24. OPERATIONS BY REPORTING SEGMENT AND GEOGRAPHIC AREA

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 capital structure and the method by which assets were acquired and financed. Accordingly, 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, OPEB curtailment gains or losses, the income statement impacts associated with stock appreciation rights, loss on extinguishment of debt and costs associated with acquisitions, legal separation and headquarters relocation.

Net sales:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Powertrain	$	4,430		$	4,173		$	3,926
Motorparts	3,192			2,935			2,853
Inter-segment eliminations	(305		)	(322		)	(335		)
Total	$	7,317		$	6,786		$	6,444

Cost of products sold:



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Powertrain	$	(3,897	)	$	(3,656	)	$	(3,470	)
Motorparts	(2,668		)	(2,432		)	(2,390		)
Inter-segment eliminations	305			322			335
Total Reporting Segment	(6,260		)	(5,766		)	(5,525		)
Corporate	—			—			(6		)
Total Company	$	(6,260	)	$	(5,766	)	$	(5,531	)

101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Gross profit:



	Year Ended December 31
	2014		2013		2012
	(Millions of Dollars)
Powertrain	$	533	$	517	$	456
Motorparts	524		503		463
Total Reporting Segment	1,057		1,020		919
Corporate	—		—		(6		)
Total Company	$	1,057	$	1,020	$	913

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



	Year Ended December 31
	2014			2013			2012
	(Millions of Dollars)
Powertrain	$	429		$	378		$	289
Motorparts	195			213			200
Total Operational EBITDA	624			591			489
Items required to reconcile Operational EBITDA to net income (loss):
Depreciation and amortization	(334		)	(294		)	(285		)
Adjustment of assets to fair value	(144		)	(8		)	(187		)
Interest expense, net	(120		)	(99		)	(128		)
Restructuring expense, net	(86		)	(40		)	(26		)
Loss on debt extinguishment	(24		)	—			—
Acquisition related costs	(16		)	(5		)	—
Legal separation costs	(10		)	—			—
Headquarters relocation costs	(6		)	—			—
Non-service cost components associated with U.S. based funded pension plans	6			(2		)	(35		)
Stock appreciation rights	4			(5		)	4
Discontinued operations	—			(52		)	(19		)
OPEB curtailment gain	—			19			51
Income tax (expense) benefit	(56		)	(56		)	29
Other	1			—			(3		)
Net (loss) income	$	(161	)	$	49		$	(110	)

Total assets, capital expenditures, and depreciation and amortization information by reporting segment is as set forth in the tables below. Goodwill was assigned to reporting segments and reporting units based on individual reporting unit fair values over values attributed to specific intangible and tangible assets. Reporting units are components of the Company’s reporting segments (which are also its operating segments) and generally align with specific product groups for which segment managers regularly review operating results.

102

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



	Total Assets				Capital Expenditures						Depreciation and Amortization
	December 31				Year Ended December 31						Year Ended December 31
	2014		2013		2014		2013		2012		2014		2013		2012
	(Millions of Dollars)
Powertrain	$	3,485	$	3,373	$	268	$	276	$	278	$	196	$	178	$	165
Motorparts	3,355		3,055		130		86		86		114		100		99
Total Reporting Segment	6,840		6,428		398		362		364		310		278		264
Corporate	227		754		20		13		16		24		16		21
Discontinued operations	—		—		—		5		$	7	—		2		4
Total Company	$	7,067	$	7,182	$	418	$	380	$	387	$	334	$	296	$	289

The following table shows geographic information:



	Net Sales						Net PPE
	Year Ended December 31						December 31
	2014		2013		2012		2014		2013
	(Millions of Dollars)
United States	$	2,667	$	2,516	$	2,479	$	607	$	559
Germany	1,494		1,326		1,160		423		425
China	446		361		288		234		158
France	398		390		365		55		82
Mexico	375		341		312		143		135
Italy	290		286		263		69		73
Belgium	272		312		286		16		26
United Kingdom	242		233		235		77		80
India	203		198		229		134		135
Other	930		823		827		402		365
	$	7,317	$	6,786	$	6,444	$	2,160	$	2,038

103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

25. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents selected unaudited quarterly operating results of the Company for 2014 and 2013, and the audited results of the Company for the years ended December 31, 2014 and 2013.



	First		Second			Third			Fourth			Year
	(Amounts in millions, except per share amounts and stock prices)
Year ended December 31, 2014:
Net sales	$	1,779	$	1,872		$	1,871		$	1,794		$	7,317
Gross profit	273		297			262			224			1,057
Net (loss) income attributable to Federal-Mogul	40		(5		)	(18		)	(185		)	(168		)
Net (loss) income per common share attributable to Federal-Mogul - basic and diluted:	0.27		(0.03		)	(0.12		)	(1.23		)	(1.12		)

Weighted avg. shares outstanding – basic (in millions)	150.0		150.0			150.0			150.0			150.0
Weighted avg. shares outstanding – diluted (in millions)	150.0		150.0			150.0			150.0			150.0

Stock price:
High	$	22.97	$	20.51		$	20.82		$	16.39
Low	$	15.82	$	16.19		$	14.87		$	14.14

Dividend per share	—		—			—			—

104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



	First			Second			Third		Fourth			Year
	(Amounts in millions, except per share amounts and stock prices)
Year ended December 31, 2013:
Net sales	$	1,659		$	1,744		$	1,690	$	1,694		$	6,786
Gross profit	249			278			255		238			1,020

Amounts attributable to Federal-Mogul:
Net (loss) income from continuing operations	$	17		$	61		$	31	$	(16	)	$	93
Loss from discontinued operations, net of tax	(51		)	(5		)	7		(3		)	(52		)
Net (loss) income attributable to Federal-Mogul*	$	(34	)	$	56		$	38	$	(19	)	$	41

Net (loss) income per common share attributable to Federal-Mogul - basic and diluted:
Net (loss) income from continuing operations	$	0.17		$	0.62		$	0.21	$	(0.11	)	$	0.75
Loss from discontinued operations, net of tax	(0.51		)	(0.05		)	0.05		(0.02		)	(0.42		)
Net (loss) income attributable to Federal-Mogul*	$	(0.34	)	$	0.57		$	0.26	$	(0.13	)	$	0.33

Weighted avg. shares outstanding – basic (in millions)	98.9			98.9			145.0		150.0			123.4
Weighted avg. shares outstanding – diluted (in millions)	98.9			98.9			145.0		150.0			123.4

Stock price:
High	$	9.88		$	10.39		$	17.33	$	21.15
Low	$	5.98		$	4.84		$	9.92	$	14.97

Dividend per share	—			—			—		—

105

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure 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.

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Company’s periodic 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.

Management's Report on Internal Control Over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). As of December 31, 2014, an assessment 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 over financial reporting based upon the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (the “COSO 2013 Framework”) of the Treadway Commission. 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 December 31, 2014, at the reasonable assurance level previously described.

Internal Control over Financial Reporting

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company included within this Form 10-K Management’s Report on Internal Control over Financial Reporting as of December 31, 2014. The Company’s independent registered public accounting firm also attested to, and reported on, the Company’s Internal Control over Financial Reporting. Management’s report and the independent registered public accounting firm’s report are included in Item 8 of this Form 10-K.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2014 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

106

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE

The information required by Item 10 regarding our directors and other corporate governance matters is incorporated by reference to the Company’s proxy statement for the 2014 annual meeting of stockholders under the captions “Election of Directors”, “Corporate Governance” and “Security Ownership of Certain Beneficial Owners and Management.” The information required by Item 10 regarding the Company’s executive officers is set forth below. The information required by Item 10 regarding compliance with section 16(a) of the Securities and Exchange Act of 1934, as amended, is incorporated by reference to the Company’s proxy statement for the 2013 annual meeting of stockholders under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”



Daniel A. Ninivaggi Age 50		Mr. Ninivaggi has served as a director of the Company since March 2010 and as co-chief Executive Officer and Chief Executive Officer of Motorparts segment since February 2014. Mr. Ninivaggi was President of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, real estate and home fashion, from April 2010 to February 2014 and its Chief Executive Officer from August 2010 to February 2014. From January 2011 to May 2012, Mr. Ninivaggi served as the Interim President and Interim Chief Executive Officer of Tropicana Entertainment Inc., a company that is primarily engaged in the business of owning and operating casinos and resorts. From 2003 until July 2009, Mr. Ninivaggi served in a variety of executive positions at Lear Corporation, a global supplier of automotive seating and electrical power management systems and components, most recently as Executive Vice President and Chief Administrative Officer from 2006 to 2009. Lear Corporation filed for bankruptcy in July 2009 and emerged in November 2009. Mr. Ninivaggi served as Of Counsel to the law firm of Winston & Strawn LLP from July 2009 to March 2010. Mr. Ninivaggi has been a director of: Hertz Global Holdings, Inc., a rental car company, since September 2014; Icahn Enterprises, since March 2012; and Tropicana Entertainment Inc., since January 2011. Mr. Ninivaggi was previously a director of: CVR Refining, LP, an independent downstream energy limited partnership, from January 2013 to September 2014; American Railcar Industries, Inc., a railcar manufacturing company, from June 2013 to February 2014; CVR Energy, Inc., a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries, from May 2012 to February 2014; CVR Partners LP, a nitrogen fertilizer company, from May 2012 to February 2014; PSC Metals Inc., a metal recycling company, from April 2012 to February 2014; WestPoint Home LLC, a home textiles manufacturer, from February 2012 to February 2014; Viskase Companies, Inc., a meat casing company, from June 2011 to February 2014; XO Holdings, a competitive provider of telecom services, from August 2010 to February 2014; Motorola Mobility Holdings, Inc., a provider of mobile communication devices, video and data delivery solutions, from December 2010 to May 2012; and CIT Group Inc., a bank holding company, from December 2009 to May 2011. Icahn Enterprises, American Railcar Industries, CVR Refining, CVR Energy, CVR Partners, PSC Metals, WestPoint Home, Viskase Companies, XO Holdings and Tropicana Entertainment are each indirectly controlled by Carl C. Icahn. Mr. Icahn previously had interests in Lear, Motorola Mobility and CIT Group through the ownership of securities. Mr. Ninivaggi received a B.A. in History from Columbia University in 1986, a Masters of Business Administration from the University of Chicago in 1988 and a J.D. from Stanford Law School in 1991.

Rainer Jueckstock Age 55		Mr. Jueckstock has served as co-chief executive officer and a director of the Company and chief executive officer for the Powertrain Segment since April 2012. Mr. Jueckstock joined the Company in 1990, and has served as senior vice president, Powertrain Energy; senior vice president, powertrain operations; senior vice president, pistons, rings and liners; vice president, rings and liners; operations director, piston rings, Europe; and managing director of the Friedberg, Germany, operation. He also was sales director for rings and liners, Europe; finance controller in Burscheid, Germany; and finance manager in Dresden, Germany. Since February 2013, Mr. Jueckstock also serves on the board of directors of PLEXUS Corp.

Scott Pepin Age 47		Mr. Pepin has served as senior vice president, Global Human Resources since April 2012. Previously, Mr. Pepin was vice president, labor relations, and director of human resources, North America and Global Powertrain Energy. Mr. Pepin joined the company in 1994, and had held several positions of increasing responsibility. He was also formerly senior director, Kellogg North America, human resources and organizational development. Pepin earned a bachelor of arts degree in English and psychology from the University of Western Ontario, London, Ontario, Canada; and a bachelor of commerce degree in business administration and a master’s degree in business administration, both from The University of Windsor, Ontario, Canada.

Brett D. Pynnonen Age 46		Mr. Pynnonen has served as senior vice president, general counsel, secretary and chief compliance officer since November 2010. Mr. Pynnonen joined the Company as associate general counsel and assistant secretary in 2007. Prior to joining the Company, Mr. Pynnonen was vice president, general counsel and secretary for Covansys Corporation. Prior to that, Mr. Pynnonen was an attorney for the law firm of Butzel Long in Detroit, MI.

107




Jérôme Rouquet Age 47		Mr. Rouquet has served as senior vice president, finance, Motorparts, and controller and chief accounting officer of the Company since December 2013. Previously, he was interim Chief Financial Officer of the Company from August to December 2013; vice president, controller and chief accounting officer of the company since August 2010; and chief financial officer, Motorparts segment since July 2012. Mr. Rouquet joined the Company in 1996 and held various finance positions of increasing responsibility at regional and group levels across multiple product lines and business units, ultimately serving as Finance Director, Vehicle Safety and Protection. Mr. Rouquet graduated in 1990 from the Institut Superieur de Gestion in Paris, France.

Rajesh Shah Age 63		Mr. Shah has served as senior vice president and chief financial officer of the company since December 2013. Previously, Mr. Shah served as executive vice president and chief financial officer at X-Rite, an industrial technology business. Prior to that, he held various executive-level positions in finance at companies such as Cadence Innovation, LLC; Remy International, Inc.; Collins & Aikman; UT Automotive; Varity Corporation; and Kelsey Hayes Group. Mr. Shah is a chartered accountant in both India and Canada. He earned a bachelor’s degree from Bombay University, Bombay (Mumbai) India; and a master’s degree from Bowling Green University, Bowling Green, Ohio.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to compensation of executive officers and directors of the Company under the captions “Director Compensation”, “Compensation Committee Interlocks and Insider Participation,” and “Compensation Discussion and Analysis” in the Company’s proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference and made a part of this Annual Report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information under the captions “Security Ownership of Certain Beneficial Owners and Management” in the Company’s proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference and made a part of this Annual Report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE

Tax Allocation Agreement

Insight Portfolio Group LLC (formally known as Icahn Sourcing, LLC)

Icahn Sourcing, LLC (“Icahn Sourcing”) is an entity formed 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.

108

Affiliate Pension Obligations

Additional Information

Additional information required by Item 13 is incorporated herein by reference to the Company’s proxy statement for the 2015 annual meeting of stockholders under the captions “Director Independence and Controlled Company Status” and “Certain Relationships and Related-Party Transactions.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information with respect to the fees and services of the Company’s principal accountant under the caption “Fees of Independent Registered Public Accounting Firm” in the Company’s proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference and made a part of this Annual Report.

109

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)The following documents are filed as part of this report:


1.	Financial Statements

Financial statements filed as part of this Annual Report on Form 10-K are listed under Part II, Item 8 hereof.


2.	Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts

Financial Statements and Schedules Omitted

Schedules other than the schedule listed above are omitted because they are not required or applicable under instructions contained in Regulation S-X or because the information called for is shown in the financial statements and notes thereto.

110

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES



Column A	Column B		Column C				Column D				Column E
			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions				Balance at End of Period
	(Millions of Dollars)
Year ended December 31, 2014:
Valuation allowance for trade receivables	$	11	$	5	$	—	$	(5	)	⁽¹⁾	$	11

Year ended December 31, 2013:
Valuation allowance for trade receivables	$	13	$	3	$	—	$	(5	)	⁽¹⁾	$	11

Year ended December 31, 2012:
Valuation allowance for trade receivables	$	13	$	2	$	—	$	(2	)	⁽¹⁾	$	13


(1)	Uncollectible accounts charged off net of recoveries.

111

15(b). Exhibits

The Company will furnish upon request any of the following exhibits upon payment of the Company’s reasonable expenses for furnishing such exhibit.



	2.1		Agreement and Plan of Merger, dated April 14, 2014, by and among Federal-Mogul Corporation, Federal-Mogul Holdings Corporation, Federal-Mogul MergerCo Inc. and Federal-Mogul Holding Sweden AB. (Incorporated by Reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated April 14, 2014 and filed with the Securities and Exchange Commission on April 16, 2014).

	2.2		Asset Purchase Agreement, dated as of January 21, 2014, between Affinia Group Inc. and VCS Quest Acquisition LLC (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated January 21, 2014 and filed with the Securities and Exchange Commission on January 22, 2014).

	2.3		Letter Agreement, dated April 29, 2014, by and between Federal-Mogul Chassis LLC and Affinia Group Inc. (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated April 29, 2014 and filed with the Securities and Exchange Commission on May 2, 2014).

	2.4		Amended and Restated Stock and Asset Purchase Agreement dated as of January 7, 2014 by and among Honeywell International Inc., Platin 966. GmbH and Saxid SAS (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated July 9, 2014 and filed with the Securities and Exchange Commission on July 15, 2014).

	3.1		Certificate of Incorporation of Federal-Mogul Holdings Corporation (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 14, 2014 and filed with the Securities and Exchange Commission on April 16, 2014).

	3.2		Bylaws of Federal-Mogul Holdings Corporation (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated April 14, 2014 and filed with the Securities and Exchange Commission on April 16, 2014).

	4.1		Federal-Mogul U.S. Asbestos Personal Injury Trust Agreement by and among the Company, the Future Claimants Representative, the Official Committee of Asbestos Claimants, the Trustees, Wilmington Trust Company, and the members of the Trust Advisory Committee, dated as of December 27, 2007 (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 27, 2007 and filed with the Securities and Exchange Commission on January 3, 2008).

	4.2		Registration Rights Agreement dated as of December 27, 2007 by and among the company, Thornwood Associates Limited Partnership and the Federal-Mogul Asbestos Personal Injury Trust (Incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K dated December 27, 2007 and filed with the Securities and Exchange Commission on January 3, 2008.)

	4.3		Amendment and Joinder to Federal-Mogul Corporation Registration Rights Agreement among Federal-Mogul Corporation and IEH FM Holdings LLC (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 9, 2013 and filed with the Securities and Exchange Commission on July 11, 2013.)

	10.1		Term Loan and Revolving Credit Agreement by and among the Company, as Borrower, the Lenders party thereto, Citicorp USA, Inc., as Administrative Agent, and JPMorgan Chase Bank, N.A., as Syndication Agent dated as of December 27, 2007 (Incorporated by reference to Exhibit 4.11 to the Company’s Current Report on Form 8-K dated December 27, 2007 and filed with the Securities and Exchange Commission on January 3, 2008.)

	10.2		Federal-Mogul Corporation 2010 Stock Incentive Plan (Incorporated by Reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 26, 2010 and filed with the Securities and Exchange Commission on June 2, 2010). †

	10.3		Form of Stock Appreciation Rights Agreement (Incorporated by Reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 26, 2010 and filed with the Securities and Exchange Commission on June 2, 2010). †

	10.4		Employment Agreement by and between the Company and Rainer Jueckstock dated as of April 1, 2012. (Incorporated by Reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 20, 2012 and filed with the Securities and Exchange Commission on March 14, 2012). †

*	10.5		Federal-Mogul 2014 Motorparts Management Incentive Plan (MIP). †

*	10.6		Federal-Mogul 2014 Powertrain Management Incentive Plan (MIP). †

*	10.7	��	Federal-Mogul 2014 Corporate Management Incentive Plan (MIP). †

112



	10.8	Replacement Revolving Facility dated December 6, 2013, which is an amendment of the Term Loan and Revolving Credit Agreement, dated as of December 27, 2007, among the Company, the lenders party thereto, Citicorp USA, Inc., as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, and Wachovia Capital Finance Corporation and Wells Fargo Foothill, LLC, as Co-Documentation Agents, to amend its existing revolving credit facility to provide for a replacement revolving credit facility (Incorporated by Reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 6, 2013 and filed with the Securities and Exchange Commission on December 9, 2013).

	10.9	Employment Agreement by and between the Company and Rajesh K. Shah dated as of December 9, 2013. (Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013). †

	10.10	Amendment Agreement dated as of April 15, 2014 to the Term Loan and Revolving Credit Agreement dated as of December 27, 2007 among Federal-Mogul Corporation, Citicorp USA, Inc. and each of the lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 14, 2014 and filed with the Securities and Exchange Commission on April 16, 2014).

	10.11	Separation Agreement between the Company and Kevin P. Freeland, dated February 4, 2014 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 4, 2014 and filed with the Securities and Exchange Commission on February 10, 2014). †

	10.12	Employment Agreement by and between the Company and Daniel A. Ninivaggi dated as of February 5, 2014. (Incorporated by Reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 4, 2104 and filed with the Securities and Exchange Commission on February 10, 2014). †

	10.13	Federal-Mogul Corporation 2010 Stock Incentive Plan 2014-15 EVA Award Agreement - Powertrain Segment (Incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013). †

	10.14	Amended and Restated Share and Asset Purchase Agreement dated as of January 23, 2015 by and between TRW Automotive Inc. and Federal-Mogul Valvetrain Gmbh (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed dated January 23, 2015 and filed with the Securities and Exchange Commission on January 29, 2015).

	10.15	Tax Allocation Agreement by and among American Entertainment Properties Corp. and Federal Mogul Corporation dated as of July 11, 2013 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 9, 2013 and filed with the Securities and Exchange Commission on July 11, 2013.)

*	21	Subsidiaries of the Registrant.

*	23.1	Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP

*	31.1	Certification by the Company’s Co-Chief Executive Officer pursuant to Rule 13a-14

*	31.2	Certification by the Company’s Co-Chief Executive Officer pursuant to Rule 13a-14

*	31.3	Certification by the Company’s Chief Financial Officer pursuant to Rule 13a-14

*	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)

*	101.INS	XBRL Instance Document

*	101.SCH	XBRL Taxonomy Extension Schema Document

*	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

*	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

*	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document



*	Filed Herewith
†	Management contracts and compensatory plans or arrangements.

15(c). Separate financial statements of affiliates whose securities are pledged as collateral.

None

113

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 HOLDINGS CORPORATION



By:	/s/ Rajesh Shah
	Rajesh Shah
	Senior Vice President and
	Chief Financial Officer

Dated: February 26, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



/s/ Daniel A. Ninivaggi	Co-Chief Executive Officer, Federal-Mogul Holdings Corporation Chief Executive Officer, Motorparts Division, Director	February 26, 2015
Daniel A. Ninivaggi

/s/ Rainer Jueckstock	Co-Chief Executive Officer, Federal-Mogul Holdings Corporation Chief Executive Officer, Powertrain Division, Director	February 26, 2015
Rainer Jueckstock

/s/ Rajesh Shah	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	February 26, 2015
Rajesh Shah

/s/ Jérôme Rouquet	Senior Vice President and Controller (Principal Accounting Officer)	February 26, 2015
Jérôme Rouquet

/s/ Thomas W. Elward	Director	February 26, 2015
Thomas W. Elward

/s/ George Feldenkreis	Director	February 26, 2015
George Feldenkreis

/s/ SungHwan Cho	Director	February 26, 2015
SungHwan Cho

/s/ Hunter C. Gary	Director	February 26, 2015
Hunter C. Gary

/s/ J. Michael Laisure	Director	February 26, 2015
J. Michael Laisure

/s/ Neil S. Subin	Director	February 26, 2015
Neil S. Subin

114

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Federal-mogul (FDML) Inactive 10-K2014 FY Annual report

Content analysis