EX-99.5 7 d609113dex995.htm EX-99.5 EX-99.5

Exhibit 99.5

 

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Federal-Mogul LLC Condensed Consolidated Financial Statements as of June 30, 2018 and Deember 31, 2017, and for the three and six months ended June 30, 2018 nd 2017


FEDERAL-MOGUL LLC

Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2018 and 2017

INDEX

 

     Page No.  

Financial Information

  

Condensed Consolidated Financial Statements (Unaudited)

  

Condensed Consolidated Statements of Operations

     3  

Condensed Consolidated Statements of Comprehensive Income (Loss)

     4  

Condensed Consolidated Balance Sheets

     5  

Condensed Consolidated Statements of Cash Flows

     6  

Notes to Condensed Consolidated Financial Statements

     7  

 

2


FINANCIAL INFORMATION

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FEDERAL-MOGUL LLC

Condensed Consolidated Statements of Operations (Unaudited)

(in millions)

 

     Three Months Ended     Six Months Ended  
     June 30     June 30  
     2018     2017     2018     2017  

Net sales

   $ 2,087     $ 1,983     $ 4,186     $ 3,958  

Cost of products sold

     (1,780     (1,688     (3,580     (3,348
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     307       295       606       610  

Selling, general and administrative expenses

     (206     (205     (414     (399

Restructuring charges and asset impairments, net (Note 3)

     —         —         —         (8

Amortization expense (Note 10)

     (13     (14     (25     (29

Other income (expense), net (Note 4)

     (14     (1     (21     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     74       75       146       172  

Interest expense, net

     (48     (37     (91     (73

Non service pension and other postretirement benefits expense (Note 2)

     (7     (7     (12     (16

Loss on extinguishment of debt

     —         (2     —         (4

Equity earnings of nonconsolidated affiliates (Note 11)

     22       17       42       35  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     41       46       85       114  

Income tax (expense) benefit (Note 14)

     (13     (2     (28     (18
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     28       44       57       96  

Net (income) loss attributable to noncontrolling interests

     (3     (3     (6     (6
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Federal-Mogul

   $ 25     $ 41     $ 51     $ 90  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


FEDERAL-MOGUL LLC

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(in millions)

 

     Three Months Ended     Six Months Ended  
     June 30     June 30  
     2018     2017     2018     2017  

Net income (loss)

   $ 28     $ 44     $ 57     $ 96  

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

        

Foreign currency translation adjustment, including net investment hedges

     (103     6       (70     100  

Pension and other postretirement benefits

     6       4       7       8  

Cash flow hedging

     (1     3       (2     3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (98     13       (65     111  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (70     57       (8     207  

Comprehensive (income) loss attributable to noncontrolling interests

     6       (3     —         (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Federal-Mogul

   $ (64   $ 54     $ (8   $ 195  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


FEDERAL-MOGUL LLC

Condensed Consolidated Balance Sheets (Unaudited)

(in millions)

 

     June 30     December 31  
     2018     2017  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 298     $ 319  

Accounts receivable, net

     1,338       1,294  

Inventories, net (Note 9)

     1,487       1,456  

Prepaid expenses and other current assets

     231       208  
  

 

 

   

 

 

 

Total current assets

     3,354       3,277  

Property, plant and equipment, net

     2,503       2,544  

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

     906       913  

Definite-lived intangible assets, net (Note 10)

     263       289  

Investments in nonconsolidated affiliates (Note 11)

     312       324  

Other noncurrent assets

     160       167  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 7,498     $ 7,514  
  

 

 

   

 

 

 

LIABILITIES AND MEMBER INTEREST

    

Current liabilities:

    

Short-term debt, including current portion of long-term debt (Note 12)

   $ 129     $ 126  

Accounts payable

     1,015       1,020  

Accrued liabilities

     520       506  

Current portion of pensions and other postretirement benefits liability

     37       38  

Other current liabilities

     244       183  
  

 

 

   

 

 

 

Total current liabilities

     1,945       1,873  

Long-term debt (Note 12)

     2,964       3,004  

Pensions and other postretirement benefits liability

     996       1,037  

Long-term deferred income taxes

     111       119  

Other accrued liabilities

     85       84  

Member interest:

    

Member interest

     2,890       2,884  

Accumulated deficit

     (309     (364

Accumulated other comprehensive income (loss)

     (1,342     (1,283
  

 

 

   

 

 

 

Total Federal-Mogul member interest

     1,239       1,237  
  

 

 

   

 

 

 

Noncontrolling interests

     158       160  
  

 

 

   

 

 

 

Total member interest

     1,397       1,397  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND MEMBER INTEREST

   $ 7,498     $ 7,514  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


FEDERAL-MOGUL LLC  
Condensed Consolidated Statements of Cash Flows (Unaudited)  
(in millions)  
     Six Months Ended
June 30
 
     2018     2017  

Cash Provided From (Used By) Operating Activities

    

Net income (loss)

   $ 57     $ 96  

Adjustments to reconcile net income (loss) to net cash provided from (used by) operating activities:

    

Depreciation and amortization

     196       192  

Restructuring charges and asset impairments, net

     —         8  

Payments against restructuring liabilities

     (12     (25

Change in pensions and other postretirement benefits

     (20     (17

Equity earnings of nonconsolidated affiliates

     (42     (35

Cash dividends received from nonconsolidated affiliates

     47       36  

Loss on sale of investment in nonconsolidated affiliate

     —         2  

Loss on extinguishment of debt

     —         4  

Release of uncertain tax positions

     —         (12

Deferred tax expense (benefit)

     (1     5  

Loss (gain) from sales of property, plant and equipment

     —         (2

Unrealized foreign currency transaction losses (gains)

     —         (2

Changes in operating assets and liabilities:

    

Accounts receivable, net

     (71     (70

Inventories, net

     (37     23  

Accounts payable

     22       96  

Other assets and liabilities

     7       (71
  

 

 

   

 

 

 

Net cash provided from (used by) operating activities

     146       228  

Cash Provided From (Used By) Investing Activities

    

Expenditures for property, plant and equipment

     (215     (185

Net proceeds from sale of property, plant, and equipment

     5       5  

Net proceeds from sale of investment in nonconsolidated affiliate

     —         1  
  

 

 

   

 

 

 

Net cash provided from (used by) investing activities

     (210     (179

Cash Provided From (Used By) Financing Activities

    

Proceeds from term loans and secured notes

     46       1,195  

Principal payments on term loans

     (44     (1,112

Proceeds from borrowings on revolving lines of credit

     395       180  

Payments on revolving lines of credit

     (398     (281

Principal payments on capital leases

     (1     (1

Debt issuance costs

     (2     (3

Increase in other short-term debt

     1       —    

Dividends paid to noncontrolling interest partners

     (2     (2

Capital contribution

     56       —    

Net proceeds (remittances) on servicing of factoring arrangements

     (3     3  
  

 

 

   

 

 

 

Net cash provided from (used by) financing activities

     48       (21

Effect of foreign currency exchange rate fluctuations on cash

     (5     6  
  

 

 

   

 

 

 

Increase (decrease) in cash and equivalents

   $ (21   $ 34  
  

 

 

   

 

 

 

Cash and cash equivalents at beginning of year

   $ 319     $ 300  

Increase (decrease) in cash and cash equivalents

     (21     34  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 298     $ 334  
  

 

 

   

 

 

 

Supplementary Disclosures:

    

Non-cash financing and investing activities:

    

Accrued property and equipment additions

   $ 54     $ 46  

Non-cash extinguishment of dissenting shareholders’ shares

   $ 50     $ —    

 

6


FEDERAL-MOGUL LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(tabular information in millions)

 

1.

DESCRIPTION OF BUSINESS

Federal-Mogul LLC (the “Company” or “Federal-Mogul”) is a limited liability company formed under the laws of Delaware.

Icahn Enterprises, L.P. (NASDAQ: IEP) (“IEP”) is a diversified holding company that indirectly owns 100% of the Company’s outstanding LLC interest.

The Company is a 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 (and together with OEM, “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.

On April 10, 2018, IEP, American Entertainment Properties Corp., a Delaware corporation, the Company’s parent and an indirect wholly owned subsidiary of IEP (“AEP”), the Company, and Tenneco Inc., a Delaware corporation (“Tenneco”), entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) pursuant to which AEP agreed to sell all of the outstanding membership interests of the Company to Tenneco (the “Transaction”) in exchange for $800 million in cash and 29,444,846 shares of Tenneco common stock. The Transaction is expected to close in the second half of 2018, subject to regulatory approvals, the approval of Tenneco’s shareholders, and other customary closing conditions.

Following the closing of the Transaction, Tenneco has agreed to use its reasonable best efforts to pursue the separation of the combined company’s powertrain technology business, and its aftermarket and ride performance business into two separate, publicly traded companies in a spin-off transaction that is expected to be treated as a tax-free reorganization for U.S. federal income tax purposes.

 

2.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—Interim Financial Statements

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These statements include all adjustments (consisting of normal recurring adjustments) management believes are necessary for a fair presentation of the results of operations, comprehensive income, financial position, and cash flows. The Company’s management believes the disclosures are adequate to make the information presented not misleading when read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s financial statements for the year ended December 31, 2017 dated February 26, 2018. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018.

Principles of consolidation: The Company consolidates into its financial statements the accounts of the Company, all wholly-owned subsidiaries, and any partially-owned subsidiary the Company has the ability to control. Control generally equates to ownership percentage, whereby investments more than 50% owned are consolidated, investments in affiliates of 50% or less but greater than 20% are accounted for using the equity method, and investments in affiliates of 20% or less are accounted for using the cost method.

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

 

7


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

presentation.

Concentrations of credit risk: Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable, cash deposits, cash equivalents, and derivatives. The Company’s customer base includes virtually every significant global light and commercial vehicle manufacturer and a large number of distributors, installers, and retailers of automotive aftermarket parts. The Company’s credit evaluation process and the geographical dispersion of sales transactions help to mitigate credit risk concentration. The Company only utilizes well-known and highly creditworthy financial institutions for cash deposits and investments in cash equivalents or as a counterparty to derivative transactions.

Factoring of accounts receivable: The Company’s subsidiaries in Brazil, Canada, 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:

 

     June 30      December 31  
     2018      2017  

Gross accounts receivable factored

   $ 648      $ 641  

Gross accounts receivable factored, qualifying as sales

   $ 640      $ 635  

Undrawn cash on factored accounts receivable

   $ —        $ —    

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

 

     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2018      2017      2018      2017  

Proceeds from factoring qualifying as sales

   $ 467      $ 442      $ 958      $ 916  

Financing charges(a)

   $ (5    $ (4    $ (10    $ (8

 

(a) 

Recorded in the condensed consolidated statements of operations within “Other income (expense), net.”

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

Where the Company receives a fee to service and monitor these transferred receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not recorded as a result of such activities.

Summary of Significant Accounting Policies

Revenue: Revenue is measured based on consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Contract balances: The Company has contract assets that primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date for production parts. The contract assets are reclassified into the receivables balance when the rights to receive payment become unconditional. The Company has determined the value of contract assets is immaterial.

 

8


There have been no impairment losses recognized related to any receivables or contract assets arising from the Company’s contracts with customers.

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

Shipping and handling: Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of products sold.

Changes in Accounting Principle

Revenue Recognition

The Company adopted ASC 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018, using the modified retrospective application method under which the cumulative effect is recognized in equity at the date of initial application. Therefore, the comparative information has not been adjusted and continues to be reported under previous guidance. ASC 606 has been applied to all contracts at the date of initial application. The details of significant changes and quantitative effect of the changes are disclosed below.

Upfront fees—The Company previously expensed upfront fees associated with a contract as they were incurred. Under ASC 606, the Company capitalizes certain costs associated with consideration payable to customers. The amounts capitalized will be amortized as a reduction of revenue over the remaining contract life of the associated contracts. Upon adoption on January 1, 2018, $4 million in upfront fees were capitalized and recorded within “Other noncurrent assets”. As of June 30, 2018, under prior accounting principles, “Other noncurrent assets” would have been lower by $5 million. For the three months ended June 30, 2018, there would have been no effect on “Net income.” For the six months ended June 30, 2018, “Net income” would have been lower by $1 million. For the three and six months ended June 30, 2018, “Net sales” would have been higher by $1 million and $2 million, and “Cost of products sold” would have been higher by $1 million.

Product returns—The Company previously recognized product returns as a reduction in revenue based on the estimated product return rate. Under ASC 606, the Company continues to recognize this liability but also recognizes the value of the inventory to be returned. Upon adoption on January 1, 2018, “Inventories, net” and “Accrued liabilities” increased by $26 million. As of June 30, 2018, under prior accounting principles, “Inventories, net” and “Accrued liabilities” would have been lower by $29 million. For the three and six months ended June 30, 2018, there would have been no effect on “Net income.” For the three and six months ended June 30, 2018, “Net sales” would have been higher by $2 million and $3 million and “Cost of products sold” would have been higher by $2 million and $3 million.

The following tables summarize the effects of adopting ASC 606 on the Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2018:

 

     Three Months Ended June 30, 2018  
Condensed Consolidated Statement of Operations    As
Reported
     Effect of
Accounting
Change
     Prior
Accounting
Principles
 

Net sales

   $ 2,087      $ 3      $ 2,090  

Cost of products sold

   $ (1,780    $ (3    $ (1,783

Net income

   $ 28      $ —        $ 28  

 

9


     Six Months Ended June 30, 2018  
Condensed Consolidated Statement of Operations    As
Reported
     Effect of
Accounting
Change
     Prior
Accounting
Principles
 

Net sales

   $ 4,186      $ 5      $ 4,191  

Cost of products sold

   $ (3,580    $ (4    $ (3,584

Net income

   $ 57      $ 1      $ 58  

 

     June 30, 2018  
Condensed Consolidated Balance Sheet    As
Reported
     Effect of
Accounting
Change
     Prior
Accounting
Principles
 

Inventories

   $ 1,487      $ (29    $ 1,458  

Accrued liabilities

   $ 520      $ (29    $ 491  

Other noncurrent assets

   $ 160      $ (5    $ 155  

Accumulated deficit

   $ (309    $ (4    $ (313

As of June 30, 2018, under prior accounting principles, “Net cash provided from (used by) operating activities’’ would have higher by $1 million during the three and six months ended June 30, 2018.

Pension Expense

The Company adopted ASU 2017-07, Retirement Benefits, with a date of initial application of January 1, 2018. As a result of adoption, the service cost component of net periodic pension and postretirement benefit expense is presented in operating income and all other components of net periodic benefit cost are presented in non operating income. The Company used the retrospective application method as required by the new standard and applied the practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The adoption of this accounting guidance to the condensed consolidated financial statements is summarized below.

During the three and six months ended June 30, 2017, the Company classified $7 million and $16 million as non operating income as a result of adoption. The following table summarizes the effects of adopting the new standard on the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2017:

 

     Three Months Ended June 30, 2017  
Condensed Consolidated Statement of Operations    Previously
Reported
     Effect of
Accounting
Change
     As Adjusted  

Cost of products sold

   $ (1,691    $ 3      $ (1,688

Selling, general and administrative expenses

   $ (209    $ 4      $ (205

Non service pension and other postretirement benefits expense

   $ —        $ (7    $ (7

 

     Six Months Ended June 30, 2017  
Condensed Consolidated Statement of Operations    Previously
Reported
     Effect of
Accounting
Change
     As Adjusted  

Cost of products sold

   $ (3,355    $ 7      $ (3,348

Selling, general and administrative expenses

   $ (408    $ 9      $ (399

Non service pension and other postretirement benefits expense

   $ —        $ (16    $ (16

 

10


Noncontrolling Interests

The following table presents a rollforward of the changes in noncontrolling interests included in member interest:

 

     Six Months Ended  
     June 30  

Balance of noncontrolling interests as of December 31, 2017

   $ 160  

Comprehensive income (loss):

  

Net income

     6  

Foreign currency adjustments and other

     (6

Dividends paid to noncontrolling interest partners

     (2
  

 

 

 

Balance of noncontrolling interests as of June 30, 2018

   $ 158  
  

 

 

 

Recently Issued Accounting Pronouncements

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

Subsequent Events

The Company has evaluated subsequent events through July 25, 2018 the date the financial statements were available to be issued, and has concluded no material transactions occurred through that date requiring disclosure or adjustment to the condensed consolidated financial statements.

 

11


3.

RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS, NET

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

The Company’s restructuring charges consist primarily of employee costs (principally severance and/or termination benefits), and facility closure and other costs.

For the three and six months ended June 30, 2018 and 2017, restructuring and asset impairment charges, net included the following:

 

     Three Months Ended June 30  
     2018     2017  
     Powertrain      Motorparts     Total     Powertrain     Motorparts      Total  

Severance and other charges, net

   $ 1      $ 1     $ 2     $ (1   $ 1      $ —    

Impairment of assets held for sale

     —          (2     (2     —         —          —    
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
   $ 1      $ (1   $ —       $ (1   $ 1      $ —    
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

     Six Months Ended June 30  
     2018     2017  
     Powertrain      Motorparts     Total     Powertrain     Motorparts     Total  

Severance and other charges, net

   $ 1      $ 1     $ 2     $ (6   $ (1   $ (7

Impairment of assets held for sale

     —          (2     (2     —         (1     (1
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1      $ (1   $ —       $ (6   $ (2   $ (8
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring

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

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

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

 

12


The following tables provide a summary of the Company’s consolidated restructuring liabilities as of December 31, 2017 and 2016 and related activity for the three and six months ended June 30, 2018 and 2017 by reporting segment:

 

     Powertrain      Motorparts      Total  

Balance as of December 31, 2017

   $ 20      $ 21      $ 41  

Provisions

     —          2        2  

Revisions to estimates

     —          (2      (2

Payments

     (2      (5      (7
  

 

 

    

 

 

    

 

 

 

Balance as of March 31, 2018

     18        16        34  

Provisions

     —          —          —    

Revisions to estimates

     (1      (1      (2

Payments

     (2      (3      (5

Foreign currency

     (1      —          (1
  

 

 

    

 

 

    

 

 

 

Balance as of June 30, 2018

   $ 14      $ 12      $ 26  
  

 

 

    

 

 

    

 

 

 

 

     Powertrain      Motorparts      Total  

Balance as of December 31, 2016

   $ 28      $ 27      $ 55  

Provisions

     5        2        7  

Payments

     (6      (7      (13

Foreign currency

     1        —          1  
  

 

 

    

 

 

    

 

 

 

Balance as of March 31, 2017

     28        22        50  

Provisions

     1        —          1  

Revisions to estimates

     —          (1      (1

Payments

     (3      (9      (12

Foreign currency

     1        1        2  
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2017

   $ 27      $ 13      $ 40  
  

 

 

    

 

 

    

 

 

 

The following tables provide a summary of the Company’s consolidated restructuring liabilities as of December 31, 2017, and 2016 and related activity for the three and six months ended June 30, 2018 and 2017:

 

     Employee
Costs
     Facility
Closure and
Other Costs
     Total  

Balance as of December 31, 2017

   $ 41      $ —        $ 41  

Provisions

     1        1        2  

Revisions to estimates

     (2      —          (2

Payments

     (6      (1      (7
  

 

 

    

 

 

    

 

 

 

Balance as of March 31, 2018

     34        —          34  

Provisions

     —          —          —    

Revisions to estimates

     (2      —          (2

Payments

     (5      —          (5

Foreign currency

     (1      —          (1
  

 

 

    

 

 

    

 

 

 

Balance as of June 30, 2018

   $ 26      $ —        $ 26  
  

 

 

    

 

 

    

 

 

 

 

13


     Employee
Costs
     Facility
Closure and
Other Costs
     Total  

Balance as of December 31, 2016

   $ 54      $ 1      $ 55  

Provisions

     7        —          7  

Payments

     (13      —          (13

Foreign currency

     1        —          1  
  

 

 

    

 

 

    

 

 

 

Balance as of March 31, 2017

     49        1        50  

Provisions

     1        —          1  

Revisions to estimates

     (1      —          (1

Payments

     (11      (1      (12

Foreign currency

     2        —          2  
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2017

   $ 40      $ —        $ 40  
  

 

 

    

 

 

    

 

 

 

The specific components of the restructuring and asset impairment charges, net by region and reporting segment for the three months ended June 30, 2018 and 2017 are as follows:

 

     Three Months Ended June 30, 2018  
     Severance Related Charges      Exit and Other Charges      Impairment Charges     Total  
     Powertrain      Motorparts      Powertrain      Motorparts      Powertrain      Motorparts  

EMEA

   $ —        $ 1      $ —        $ —        $ —        $ —       $ 1  

North America

     1        —          —          —          —          (2     (1

ROW

     —          —          —          —          —          —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1      $ 1      $ —        $ —        $ —        $ (2   $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     Three Months Ended June 30, 2017  
     Severance Related Charges      Exit and Other Charges      Impairment Charges      Total  
     Powertrain     Motorparts      Powertrain      Motorparts      Powertrain      Motorparts  

EMEA

   $ (1   $ 1      $ —        $ —        $ —        $ —        $ —    

North America

     —         —          —          —          —          —          —    

ROW

     —         —          —          —          —          —          —    
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ (1   $ 1      $ —        $ —        $ —        $ —        $ —    
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Restructuring charges and asset impairments, net for the three months ended June 30, 2018 was comprised of $2 million in asset impairments related to the Motorparts segment. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. Accordingly, both the Powertrain and Motorparts segments reduced previously recorded estimates by $1 million each during the three months ended June 30, 2018.

Restructuring charges and asset impairments, net for the three months ended June 30, 2017 were comprised of $1 million related to the Powertrain segment. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. Accordingly, the Motorparts segment reduced its previously recorded estimate by $1 million during the three months ended June 30, 2017.

 

14


The specific components of the restructuring and asset impairment charges, net by region and reporting segment for the six months ended June 30, 2018 and 2017 are as follows:

 

     Six Months Ended June 30, 2018  
     Severance Related Charges      Exit and Other Charges     Impairment Charges     Total  
     Powertrain      Motorparts      Powertrain      Motorparts     Powertrain      Motorparts  

EMEA

   $ —        $ 2      $ —        $ (1   $ —        $ —       $ 1  

North America(a)

     1        —          —          —         —          (2     (1

ROW

     —          —          —          —         —          —         —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 1      $ 2      $ —        $ (1   $ —        $ (2   $ —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) 

The North America region within the Motorparts segment recognized a charge of $1 million for severance related to charges, which was offset by a $1 million reduction in a previously recorded liability.

 

     Six Months Ended June 30, 2017  
     Severance Related Charges     Exit and Other Charges      Impairment Charges     Total  
     Powertrain     Motorparts     Powertrain      Motorparts      Powertrain      Motorparts  

EMEA(b)

   $ (3   $ (1   $ —        $ —        $ —        $ —       $ (4

North America

     —         —         —          —          —          —         —    

ROW

     (3     —         —          —          —          (1     (4
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ (6   $ (1   $ —        $ —        $ —        $ (1   $ (8
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(b) 

The EMEA region within the Motorparts segment recognized a charge of $2 million for severance related to charges, which was offset by a $1 million reduction in a previously recorded liability.

Restructuring charges and asset impairments, net for the six months ended June 30, 2018 were comprised of $4 million related to the Motorparts segment. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. Accordingly, the Powertrain segment reduced its liability previously recorded by $1 million and the Motorparts segment reduced its liability previously recorded by $3 million during the six months ended June 30, 2018.

Restructuring charges and asset impairments, net for the six months ended June 30, 2017 were comprised of $6 million related to the Powertrain segment and $4 million related to the Motorparts segment. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. Accordingly, the Motorparts segment reduced its liability previously recorded by $1 million during the six months ended June 30, 2017.

There were no significant restructuring programs initiated during the three and six months ended June 30, 2018. For programs initiated in prior periods, the Company expects to complete these programs in 2019 and the additional restructuring charges to complete these programs are not expected to be significant.

See Note 6, Held for Sale, for further details related to the impairment of assets held for sale.

 

15


4.

OTHER INCOME (EXPENSE), NET

The specific components of other income (expense), net are as follows:

 

     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2018      2017      2018      2017  

Loss on sale of investment in nonconsolidated affiliate

   $ —        $ —        $ —        $ (2

Foreign currency transaction gain (loss)

     2        (1      (1      (8

Gain (loss) on sale of assets

     1        2        —          2  

Third-party royalty income

     3        2        6        4  

Financing charges

     (5      (4      (10      (8

Transaction related costs

     (13      —          (13      —    

Purchase price contingency

     —          —          (5      —    

Cost to exit a multiemployer pension plan

     (5      —          (5      —    

Other

     3        —          7        10  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ (14    $ (1    $ (21    $ (2
  

 

 

    

 

 

    

 

 

    

 

 

 

In the three and six months ended June 30, 2018, the Company recognized a charge of $5 million associated with its exit from a multiemployer pension plan and incurred $13 million of transaction related costs, including a $10 million success fee to be paid to its advisors in connection with the signing of the Purchase Agreement. In addition, other income (expense), net for the six months ended June 30, 2018 included a $5 million charge for a purchase price contingency related to a previous acquisition.

In the six months ended June 30, 2017, other income (expense), net included $6 million gain related to the termination of a customer contract.

 

5.

ACQUISITIONS

During the six months ended June 30, 2018, the Company recorded a $5 million charge for contingent consideration as a result of achieving certain operational milestones related to a prior acquisition which was recorded in “Other income (expense), net.”

During the three and six months ended June 30, 2017, the Company did not record any transaction related expenses associated with acquisitions.

 

6.

HELD FOR SALE

Held for Sale Operations

The Company classifies assets and liabilities as held for sale (“disposal group”) when management, having the authority to approve the action, commits to a plan to sell the disposal group, the sale is probable within one year, and the disposal group is available for immediate sale in its present condition. The Company also considers whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate it is unlikely significant changes to the plan will be made or the plan will be withdrawn. These held for sale assets and liabilities have been recorded in “Prepaid expenses and other current assets” and “Other current liabilities” as of June 30, 2018.

In December 2016, the Company entered into a stock and asset purchase agreement to sell certain assets and liabilities related

to its wipers business in the Motorparts segment for a sale price of $8 million. During the year ended December 31, 2017, the transaction did not close and the assets and liabilities were no longer classified as held for sale as of December 31, 2017.

 

16


In December 2016, the Company entered into an agreement to sell 80.1% of the shares of one of its subsidiaries in Brazil in the Motorparts segment for a sale price of one Brazilian real. The related assets and liabilities have been classified as held for sale as of December 31, 2017 and 2016. The sale closed in January 2018.

The assets and liabilities classified as held for sale as of June 30, 2018 and December 31, 2017 were as follows:

 

     June 30      December 31  
     2018      2017  

Assets held for sale

     

Receivables

   $ —        $ 4  

Inventories

     —          3  

Long-lived assets

     2        2  

Impairment on carrying value

     (2      (9
  

 

 

    

 

 

 
   $ —        $ —    
  

 

 

    

 

 

 

Liabilities held for sale

     

Trade payables

   $ —        $ 2  

Accrued liabilities

     —          1  
  

 

 

    

 

 

 
   $ —        $ 3  
  

 

 

    

 

 

 

The Company has certain properties classified as held for sale which it has agreed to transfer to Pep Boys and has recorded a $2 million impairment during the three months ended June 30, 2018; refer to Note 18, Related Party Transactions.

As part of the held for sale assessment, the Company recorded impairment losses of less than $1 million and $1 million during the three and six months ended June 30, 2017, these have been included in “Restructuring charges and asset impairments, net” in the condensed consolidated statements of operations.

 

7.

DERIVATIVES AND HEDGING ACTIVITIES

The Company is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices, and changes in interest rates, which may result in cash flow risks. To manage the volatility relating to these exposures, the Company aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures not offset within its operations, the Company enters into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes, and designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.

Cash Flow Hedges—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 for up to eighteen months in the future. The Company monitors its commodity price risk exposures regularly to assess the overall effectiveness of its commodity forward contracts. Principal raw materials hedged include copper, nickel, tin, zinc, and aluminum. In certain instances within this program, foreign currency forwards may be used in order to obtain critical terms match for commodity exposure whereby the Company engages the use of foreign exchange contracts.

The Company has designated these contracts as cash flow hedging instruments. The Company records unrecognized gains and losses in other comprehensive income (loss) (“OCI or OCL”) and makes regular reclassifying adjustments into “Cost of products sold” within the condensed consolidated statement of operations when amounts are recognized. The Company had derivatives outstanding with an equivalent notional amount of $32 million and $20 million as of June 30, 2018 and December 31, 2017. Substantially all of the commodity price hedge contracts mature within one year.

 

17


Net Investment Hedge—Foreign Currency Borrowings

The Company has foreign currency denominated debt, €723 million of which was designated as a net investment hedge in certain foreign subsidiaries and affiliates of the Company. Changes to its carrying value are included in member interest in the foreign currency translation component of other comprehensive income (loss) and offset against the translation adjustment on the underlying net assets of those foreign subsidiaries and affiliates, which are also recorded in other comprehensive income (loss). The Company’s debt instruments are discussed further in Note 12, Debt.

Hedging Instruments

The following table is a summary of the carrying value of derivative and non-derivative instruments designated as hedges as of June 30, 2018 and December 31, 2017:

 

          Carrying Value  
          June 30      December 31  
     Balance sheet location    2018      2017  

Commodity price hedge contracts designated as cash flow hedges

   Other current assets    $ —        $ 1  

Foreign currency borrowings designated as net investment hedges

   Long-term debt    $ 845      $ 884  

The following table represents the effects before reclassification into net income of derivative and non-derivative instruments designated as hedges in other comprehensive income (loss), net of tax for the three and six months ended June 30, 2018 and 2017:

 

     Amount of gain (loss) recognized in accumulated OCI or OCL
(effective portion), net of tax
 
     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2018      2017      2018      2017  

Commodity price hedge contracts designated as cash flow hedges

   $ —        $ (1    $ (1    $ —    

Foreign currency borrowings designated as net investment hedges

   $ 1      $ (60    $ (23    $ (46

The Company estimates less than $1 million included in accumulated OCI or OCL as of June 30, 2018 will be reclassified into earnings within the following 12 months. See Note 16, Changes in Accumulated Other Comprehensive Income (Loss) by Component, Net of Tax for amounts recognized in other comprehensive income (loss) and amounts reclassified out of other comprehensive income (loss) for these hedging instruments during the three and six months ended June 30, 2018 and 2017.

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 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, Polish zloty, and Mexican peso.

Concentrations of Credit Risk

Financial instruments including cash equivalents and derivative contracts expose the Company to counterparty credit risk for non-performance. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s counterparties for derivative

 

18


contracts are substantial investment and commercial banks with significant experience using such derivatives. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counterparty and through monitoring counterparty credit risks. The Company’s concentration of credit risk related to derivative contracts as of June 30, 2018 and December 31, 2017 is not significant.

Other

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

 

8.

FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

A three-level valuation hierarchy is used for fair value measurements based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available.

 

Level 1:    Quoted prices in active markets for identical instruments;
Level 2:    Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose significant inputs are observable; and
Level 3:    Unobservable inputs in which there is little or no market data, which require the reporting entity to develop assumptions based on the best evidence available.

Items Measured at Fair Value on a Recurring Basis

Assets and (liabilities) remeasured and disclosed at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 are set forth in the table below:

 

     June 30      December 31      Measurement  
     2018      2017      Approach  

Commodity contracts

   $ —        $ 1        Level 2  

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

Items Measured at Fair Value on a Nonrecurring Basis

In addition to items measured at fair value on a recurring basis, assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets which may be written down to fair value as a result of impairment.

The Company has determined the fair value measurements related to each of these assets rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets, as observable inputs are not available (Level 3). To determine the fair value of long-lived asset groups, the Company utilizes discounted cash flows expected to be generated by the long-lived asset group.

The Company recorded impairment charges of $2 million for the three and six months ended June 30, 2018 related to assets held for sale, and $1 million for the six months ended June 30, 2017 primarily related to assets held for sale in addition to impairments on property, plant, and equipment. This has been recorded within “Restructuring charges and asset impairments, net” in the condensed consolidated statement of operations.

 

19


Financial Instruments not Carried at Fair Value

Estimated fair values of the Company’s outstanding debt were:

 

     June 30, 2018      December 31, 2017         
     Carrying Value      Fair Value      Carrying Value      Fair Value      Measurement
Approach
 

Tranche C term loan

   $ 1,450      $ 1,458      $ 1,449      $ 1,467        Level 2  

Secured notes

   $ 1,239      $ 1,277      $ 1,272      $ 1,276        Level 2  

Fair value approximates carrying value for other debt, primarily foreign instruments as well as the U.S. revolver.

Fair market values are developed by the use of estimates obtained from brokers and other appropriate valuation techniques based on information available as of June 30, 2018 and December 31, 2017. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

 

9.

INVENTORIES, NET

Inventories, net consist of the following:

 

     June 30      December 31  
     2018      2017  

Raw materials

   $ 286      $ 278  

Work-in-process

     227        212  

Finished products

     974        966  
  

 

 

    

 

 

 
   $ 1,487      $ 1,456  
  

 

 

    

 

 

 

 

10.

GOODWILL AND OTHER INTANGIBLE ASSETS

A summary of changes in the net carrying amounts of goodwill by segment are as follows:

 

     Six Months Ended June 30, 2018  
     Powertrain      Motorparts      Total  

Net carrying amount, December 31, 2017

   $ 524      $ 161      $ 685  

Foreign exchange

     4        —          4  
  

 

 

    

 

 

    

 

 

 

Net carrying amount, March 31, 2018

     528        161        689  

Foreign exchange

     (11      —          (11
  

 

 

    

 

 

    

 

 

 

Net carrying amount, June 30, 2018

   $ 517      $ 161      $ 678  
  

 

 

    

 

 

    

 

 

 

Accumulated impairment charges at June 30, 2018 and December 31, 2017

   $ 145      $ 648      $ 793  

The Company conducts its assessment for goodwill impairments on October 1 of each year for all reporting units.

 

20


As of June 30, 2018 and December 31, 2017, intangible assets consist of the following:

 

     June 30, 2018      December 31, 2017  
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net
Carrying
Amount
 

Definite-lived intangible assets:

               

Developed technology

   $ 139      $ (115   $ 24      $ 139      $ (113   $ 26  

Customer relationships

     684        (445     239        686        (423     263  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 823      $ (560   $ 263      $ 825      $ (536   $ 289  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Indefinite-lived intangible assets:

               

Trademarks and brand names

 

  $ 228           $ 228  

The Company’s recorded amortization expense associated with definite-lived intangible assets was:

 

     Six Months Ended  
     June 30  
     2018      2017  

Amortization expense

   $ 25      $ 29  

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

 

     Remaining
2018
     2019      2020      2021      2022      2023 and
thereafter
     Total  

Expected amortization expense

   $ 24      $ 49      $ 48      $ 48      $ 27      $ 67      $ 263  

 

11.

INVESTMENT IN NONCONSOLIDATED AFFILIATES

The Company maintains investments in several nonconsolidated affiliates, which are primarily located in China, Korea, Turkey, India, and the U.S. The Company generally equates control to ownership percentage whereby investments more than 50% owned are consolidated.

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

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

 

     June 30      December 31  
     2018      2017  

Investments in nonconsolidated affiliates

   $ 312      $ 324  

Direct ownership percentages

     2% to 50%      2% to 50%  

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

 

     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2018      2017      2018      2017  

Equity earnings of nonconsolidated affiliates

   $ 22      $ 17      $ 42      $ 35  

Cash dividends received from nonconsolidated affiliates

   $ 6      $ 7      $ 47      $ 36  

 

21


The following tables present summarized aggregated financial information of the Company’s nonconsolidated affiliates for the three and six months ended June 30, 2018 and 2017. The amounts represent 100% of the interest in the nonconsolidated affiliates and not the Company’s proportionate share.

 

     Three Months Ended June 30, 2018  
Statements of Operations    Turkey JVs      Anqing TP
Goetze
     Other      Total  

Sales

   $ 103      $ 45      $ 131      $ 279  

Gross profit

   $ 30      $ 14      $ 26      $ 70  

Income from continuing operations

   $ 25      $ 14      $ 18      $ 57  

Net income

   $ 23      $ 12      $ 16      $ 51  
     Three Months Ended June 30, 2017  
Statements of Operations    Turkey JVs      Anqing TP
Goetze
     Other      Total  

Sales

   $ 91      $ 42      $ 124      $ 257  

Gross profit

   $ 23      $ 13      $ 27      $ 63  

Income from continuing operations

   $ 23      $ 14      $ 20      $ 57  

Net income

   $ 18      $ 12      $ 13      $ 43  
     Six Months Ended June 30, 2018  
Statements of Operations    Turkey JVs      Anqing TP
Goetze
     Other      Total  

Sales

   $ 213      $ 92      $ 266      $ 571  

Gross profit

   $ 60      $ 27      $ 52      $ 139  

Income from continuing operations

   $ 49      $ 28      $ 35      $ 112  

Net income

   $ 46      $ 25      $ 32      $ 103  
     Six Months Ended June 30, 2017  
Statements of Operations    Turkey JVs      Anqing TP
Goetze
     Other      Total  

Sales

   $ 183      $ 83      $ 253      $ 519  

Gross profit

   $ 48      $ 25      $ 58      $ 131  

Income from continuing operations

   $ 47      $ 28      $ 33      $ 108  

Net income

   $ 38      $ 24      $ 27      $ 89  

 

22


12.

DEBT

The following is a summary of debt outstanding as of June 30, 2018 and December 31, 2017:

 

     June 30      December 31  
     2018      2017  

Loans under facilities:

     

Revolver

   $ 250      $ 250  

Tranche C term loan

     1,455        1,455  

Secured notes:

     

4.875% Euro Fixed Rate Notes

     485        498  

Euro Floating Rate Notes

     351        360  

5.000% Euro Fixed Rate Notes

     409        420  

Debt discount

     (3      (4

Debt issuance fees

     (11      (9

Other debt, primarily foreign instruments

     157        160  
  

 

 

    

 

 

 
     3,093        3,130  

Less: Short-term debt, including current maturities of long-term debt

     (129      (126
  

 

 

    

 

 

 

Total long-term debt

   $ 2,964      $ 3,004  
  

 

 

    

 

 

 

On February 23, 2018, the Company extended its Revolver, which provides for (i) aggregate availability of $625 million, (ii) a maturity date of February 23, 2023, subject to certain limited exceptions, and (iii) additional availability under the Company’s borrowing base. Advances under the Revolver generally bear interest at a variable rate per annum equal to (i) the Alternate Base Rate (as defined in the agreement) plus an adjustable margin of 0.25% to 0.75% based on the average monthly availability or (ii) the Adjusted LIBOR Rate (as defined in the agreement) plus a margin of 1.25% to 1.75% based on the average monthly availability. An unused commitment fee of 0.25% is also payable under the terms of the Revolver.

The total availability under credit facilities was $412 million and $386 million as of June 30, 2018 and December 31, 2017. The Company had $36 million and $38 million letters of credit outstanding as of June 30, 2018 and December 31, 2017.

Interest expense associated with the amortization of the debt issuance costs and original issue discount for the three and six months ended June 30, 2018 and 2017 was as follows:

 

     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2018      2017      2018      2017  

Amortization of debt issuance fees

   $ —        $ —        $ 1      $ 1  

Amortization of original issue discount

     1        1        1        1  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1      $ 1      $ 2      $ 2  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

23


13.

PENSIONS AND OTHER POSTRETIREMENT BENEFITS

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

Components of net periodic benefit cost (credit) for the three months ended June 30, 2018 and 2017 are as follows:

 

     Pension Benefits      Other Postretirement  
     U.S. Plans     Non-U.S. Plans      Benefits  
     2018     2017     2018     2017      2018     2017  

Service cost

   $ —       $ 1     $ 4     $ 4      $ —       $ —    

Interest cost

     10       11       3       2        3       2  

Expected return on plan assets

     (12     (12     (1     —          —         —    

Amortization of actuarial losses

     3       3       2       1        —         —    

Amortization of prior service credits

     —         —         —         —          (1     —    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 1     $ 3     $ 8     $ 7      $ 2     $ 2  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Components of net periodic benefit cost (credit) for the six months ended June 30, 2018 and 2017 are as follows:

 

     Pension Benefits     Other Postretirement  
     U.S. Plans     Non-U.S. Plans     Benefits  
     2018     2017     2018     2017     2018     2017  

Service cost

   $ 1     $ 1     $ 8     $ 8     $ —       $ —    

Interest cost

     20       22       6       5       5       5  

Expected return on plan assets

     (25     (23     (1     (1     —         —    

Amortization of actuarial losses

     6       6       3       3       —         —    

Amortization of prior service credits

     —         —         —         —         (2     (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2     $ 6     $ 16     $ 15     $ 3     $ 4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In the three and six months ended June 30, 2018, the Company recognized a charge associated with its exit from a multiemployer pension plan of $5 million in other income (expense), net; refer to Note 4, Other Income (Expense), Net.

 

24


14.

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.

For the three months ended June 30, 2018, the Company recorded income tax expense of $13 million on income from continuing operations before income taxes of $41 million. This compares to income tax expense of $2 million on income from continuing operations before income taxes of $46 million in the same period of 2017. Income tax expense for the three months ended June 30, 2018 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates higher than the U.S. statutory rate and pre-tax losses with no tax benefit. Income tax expense for the three months ended June 30, 2017 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates lower than the U.S. statutory rate and pre-tax losses with no tax benefit.

For the six months ended June 30, 2018, the Company recorded income tax expense of $28 million on income from continuing operations before income taxes of $85 million. This compares to income tax expense of $18 million on income from continuing operations before income taxes of $114 million in the same period of 2017. Income tax expense for the six months ended June 30, 2018 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates higher than the U.S. statutory rate and pre-tax losses with no tax benefit. Income tax expense for the six months ended June 30, 2017 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates lower than the U.S. statutory rate and pre-tax losses with no tax benefit.

The Company released uncertain tax positions of $8 million and $12 million, primarily resulting from the closure of income tax audits in the three and six months ended June 30, 2017.

On December 22, 2017, The Tax Cuts and Jobs Act (the Tax Legislation) was enacted in the United States, significantly revising the U.S. corporate income tax provisions, including among other items, a reduction in the U.S. corporate tax rate from 35% to 21%, the imposition of a deemed repatriation tax on unremitted foreign earnings to facilitate a shift from a world-wide tax system to a territorial system, the creation of new anti-deferral provisions and new limitations on certain deductions. The Company does not currently anticipate significant revisions to the amounts recorded. However, under the guidance of Staff Accounting Bulletin No. 118 issued December 22, 2017, we will account for the income effects of any additional guidance associated with the Tax Legislation under the measurement period approach.

The Company is included in AEP’s consolidated U.S. federal income tax return and certain state income tax returns. In its stand-alone financial statements, the Company accounts for income taxes using the separate return methodology, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax basis. In the event of a deconsolidation transaction, certain tax attributes would not be retained by the Company. The Transaction, as defined in Note 1, Description of Business, would be a deconsolidation transaction upon closing.

 

25


15.

COMMITMENTS AND CONTINGENCIES

Environmental Matters

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

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

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

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

 

     June 30      December 31  
     2018      2017  

Other current liabilities

   $ 6      $ 7  

Other accrued liabilities (noncurrent)

     9        9  
  

 

 

    

 

 

 
   $ 15      $ 16  
  

 

 

    

 

 

 

Management believes recorded environmental liabilities will be adequate to cover the Company’s estimated liability for its exposure in respect to such matters. In the event such liabilities were to significantly exceed the amounts recorded by the Company, the Company’s results of operations and financial condition could be materially affected. As of June 30, 2018, management estimates additional losses above and beyond management’s best estimate of required remediation costs could range up to $25 million.

Asset Retirement Obligations

The Company’s primary asset retirement obligations (“ARO”) activities relate to the removal of hazardous building materials at its facilities. The Company records an ARO at fair value upon initial recognition when the amount is probable and can be reasonably estimated. ARO fair values are determined based on the Company’s determination of what a third party would charge to perform the remediation activities, generally using a present value technique.

 

26


ARO liabilities are included in the condensed consolidated balance sheets as follows:

 

     June 30      December 31  
     2018      2017  

Other accrued liabilities (noncurrent)

   $ 12      $ 15  

The $3 million reduction in ARO liabilities during the six months ended June 30, 2018 is mainly attributable to a reduction in previously recorded estimates due to the sale of a location in the Powertrain segment.

Affiliate Pension Obligations

As a result of the 100% 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 Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, for these plans have been met as of June 30, 2018. If the ACF plans were voluntarily terminated, they would be underfunded by approximately $83 million as of June 30, 2018. 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.

IEP and IEH FM Holdings LLC have undertaken to indemnify the Company for any and all liability imposed upon the Company pursuant to 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 the liability in respect to any employee benefit plan, as defined by ERISA § 3(3), maintained by the Company. IEP and IEH FM Holdings LLC are not required to maintain any specific net worth and there can be no guarantee IEP and IEH FM Holdings LLC will be able to fund their indemnification obligations to the Company.

Other Matters

On March 3, 2017, certain purported former stockholders of Federal-Mogul Holdings Corporation (“FMHC”) filed a petition in the Delaware Court of Chancery seeking an appraisal of the value of common stock they claim to have held at the time of the January 23, 2017 merger of IEH FM Holdings, LLC into FMHC. IEH FM Holdings, LLC was a wholly owned subsidiary of American Entertainment Properties Corp. and a subsidiary of Icahn Enterprises L.P. Federal-Mogul Holdings LLC, f/k/a FMHC, filed an answer to the petition on March 28, 2017. A second petition for appraisal was filed by purported former stockholders of FMHC on May 1, 2017. The two cases were consolidated on May 10, 2017 and the consolidated action is styled: “In re Appraisal of Federal-Mogul Holdings LLC, C.A. No. 2017-0158-AGB”. Discovery is ongoing and a trial date has not yet been set. The Company believes that it has a meritorious defense and intends to vigorously defend the matter.

During the three months ended June 30, 2018, the Company recorded an accrued liability of $56 million in connection with this matter, of which $50 million represents the extinguishment of the dissenting shareholders common shares at $10 per share and $6 million of interest expense.

 

27


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. F-M Products negotiated a settlement agreement with plaintiffs’ counsel which was approved by the required number of plaintiffs and, following a fairness hearing, given final approval by the court on July 13, 2018. F-M Products will pay approximately $3 million pursuant to the settlement agreement, likely during the third quarter of 2018.

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

 

16.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT, NET OF TAX

The following represents the Company’s changes in accumulated other comprehensive income (loss) by component, net of tax for the three and six months ended June 30, 2018 and 2017:

 

     Three Months Ended
June 30
     Six Months Ended
June 30
 
     2018      2017      2018      2017  

Foreign currency translation adjustments and other

           

Balance at beginning of period

   $ (727    $ (773    $ (757    $ (861

Other comprehensive income (loss) before reclassifications adjustment

     (94      6        (64      94  

Reclassification from other comprehensive income (loss)

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss)

     (94      6        (64      94  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ (821    $ (767    $ (821    $ (767
  

 

 

    

 

 

    

 

 

    

 

 

 

Pensions and other postretirement benefits

           

Balance at beginning of period

   $ (510    $ (553    $ (511    $ (557

Other comprehensive income (loss) before reclassifications

     2        —          —          —    

Reclassification from other comprehensive income (loss)(a)

     4        4        7        8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss)

     6        4        7        8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ (504    $ (549    $ (504    $ (549
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow hedge instruments

           

Balance at beginning of period

   $ (16    $ (14    $ (15    $ (14

Other comprehensive income (loss) before reclassifications

     —          (1      (1      —    

Reclassification from other comprehensive income (loss)(b)

     (1      4        (1      3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss)

     (1      3        (2      3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ (17    $ (11    $ (17    $ (11
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss) attributable to noncontrolling interests(c)

   $ (9    $ —        $ (6    $ 6  

 

(a)

Includes amortization of prior service costs/credits and actuarial gains/losses.

(b)

Mainly consists commodity contracts which are included in “Cost of products sold”.

(c)

Mainly consists of foreign currency translation adjustments; refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies.

 

28


17.

OPERATIONS BY REPORTING SEGMENT

The Company operates with two end-customer focused business segments. The Powertrain segment focuses on original equipment powertrain products for automotive, heavy duty, and industrial applications. The Motorparts segment sells and distributes a broad portfolio of products in the global aftermarket, while also serving OEMs with products including braking, wipers, and a limited range of chassis components. This organizational model allows for a strong product line focus benefitting both OE and aftermarket customers and enables the Company to be responsive to customers’ needs for superior products and to promote greater identification with its premium brands. Additionally, this organizational model enhances management focus to capitalize on opportunities for organic or acquisition growth, profit improvement, resource utilization, and business model optimization in line with the unique requirements of the two different customer bases. Reporting units are components of the Company’s reporting segments (which are also its operating segments) and generally align with specific product groups for Powertrain and regions for Motorparts for which segment managers regularly review operating results.

Management utilizes Operational EBITDA as the key performance measure of segment profitability and uses the measure in its

financial and operational decision making processes, for internal reporting, and for planning and forecasting purposes to effectively allocate resources. Operational EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation, and amortization), as adjusted for additional amounts. Examples of these adjustments include impairment charges related to goodwill, other long-lived assets, and investments; restructuring charges; certain gains or losses on the settlement/extinguishment of obligations; and receivable financing charges. During 2018, the Company modified its definition of Operational EBITDA to adjust for the non service cost components of its pension and postretirement benefits expense. Comparable periods have been adjusted to conform to this definition.

 

29


Disaggregated Revenue

OE revenue: OE revenue is generated from providing original equipment manufacturers and servicers with products for automotive, heavy duty, and industrial applications. 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. OE order fulfillment is typically manufactured in response to customer purchase order releases. Revenue is generally recognized at the point in time in which control transfers. Customers usually pay within 60-days of order fulfillment.

Aftermarket revenue: Aftermarket revenue is generated from providing products for the global vehicle aftermarket to a wide range of warehouse distributors, retail parts stores, and mass merchants that distribute these products to customers ranging from professional service providers to “do-it-yourself” consumers. In some cases, these agreements with customers have terms ranging from one to three years that cover one or more product lines with fixed prices and do not require the customer to purchase a minimum quantity. Aftermarket order fulfillment is based on receipt of a customer purchase order. Revenue is generally recognized at the point in time which control transfers. Payment terms vary based on the nature of the customer arrangement.

The following tables provide a summary of the Company’s net sales by geographic region and end markets for the three and six months ended June 30, 2018 and 2017 by reporting segment:

 

     Three Months Ended June 30  
     2018     2017  
     Powertrain     Motorparts     Total     Powertrain     Motorparts     Total  

Geographic region:

            

North America

   $ 458     $ 440     $ 898     $ 458     $ 476     $ 934  

EMEA

     591       331       922       527       292       819  

ROW

     247       85       332       223       75       298  

Inter-segment eliminations

     (53     (12     (65     (59     (9     (68
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,243     $ 844     $ 2,087     $ 1,149     $ 834     $ 1,983  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End markets:

            

OE

   $ 1,243     $ 277     $ 1,520     $ 1,149     $ 242     $ 1,391  

Aftermarket

     53       579       632       59       601       660  

Inter-segment eliminations

     (53     (12     (65     (59     (9     (68
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,243     $ 844     $ 2,087     $ 1,149     $ 834     $ 1,983  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Six Months Ended June 30  
     2018     2017  
     Powertrain     Motorparts     Total     Powertrain     Motorparts     Total  

Geographic region:

            

North America

   $ 913     $ 878     $ 1,791     $ 920     $ 943     $ 1,863  

EMEA

     1,204       660       1,864       1,054       579       1,633  

ROW

     496       167       663       446       147       593  

Inter-segment eliminations

     (110     (22     (132     (113     (18     (131
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,503     $ 1,683     $ 4,186     $ 2,307     $ 1,651     $ 3,958  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End markets:

            

OE

   $ 2,503     $ 553     $ 3,056     $ 2,307     $ 479     $ 2,786  

Aftermarket

     110       1,152       1,262       113       1,190       1,303  

Inter-segment eliminations

     (110     (22     (132     (113     (18     (131
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,503     $ 1,683     $ 4,186     $ 2,307     $ 1,651     $ 3,958  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Cost of products sold and gross profit information are as follows:

 

     Three Months Ended June 30  
     Cost of Products Sold      Gross Profit  
     2018      2017      2018      2017  

Powertrain

   $ (1,146    $ (1,067    $ 150      $ 141  

Motorparts

     (699      (689      157        154  

Inter-segment eliminations

     65        68        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     $(1,780)      $(1,688)      $307      $295  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended June 30  
     Cost of Products Sold      Gross Profit  
     2018      2017      2018      2017  

Powertrain

   $ (2,312    $ (2,121    $ 301      $ 299  

Motorparts

     (1,400      (1,358      305        311  

Inter-segment eliminations

     132        131        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     $(3,580)      $(3,348)      $606      $610  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

31


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

 

     Three Months Ended
June 30
     Six Months Ended
June 30
 
     2018      2017      2018      2017  

Powertrain

   $ 140      $ 127      $ 272      $ 266  

Motorparts

     75        69        148        153  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Operational EBITDA

   $ 215      $ 196      $ 420      $ 419  

Items required to reconcile Operational EBITDA to EBITDA:

           

Restructuring charges and asset impairments, net (a)

   $ —        $ —        $ —        $ (8

Loss on sale of investment in nonconsolidated affiliate

     —          —          —          (2

Financing charges

     (5      (4      (10      (8

Loss on extinguishment of debt

     —          (2      —          (4

Purchase price contingency

     —          —          (5      —    

Transaction related costs(b)

     (13      —          (14      (1

Non service pension and other postretirement benefits expense

     (7      (7      (12      (16

Cost to exit a multiemployer pension plan

     (5      —          (5      —    

Other

     —          (3      (2      (1
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 185      $ 180      $ 372      $ 379  

Items required to reconcile EBITDA to net income (loss):

           

Depreciation and amortization

   $ (96    $ (97    $ (196    $ (192

Interest expense, net

     (48      (37      (91      (73

Income tax (expense) benefit

     (13      (2      (28      (18
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 28      $ 44      $ 57      $ 96  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
June 30
     Six Months Ended
June 30
 
     2018      2017      2018      2017  

Footnotes:

           

(a) Restructuring charges and asset impairments, net:

           

Restructuring charges related to severance and other charges, net

   $ 2      $ —        $ 2      $ (7

Asset impairments, including impairments related to restructuring activities

     (2      —          (2      (1
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ —        $ —        $ (8
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(b) 

Includes $1 million of costs classified in “Selling, general and administrative expenses” for the six months ended June 30, 2018.

Total assets are as follows:

 

     June 30      December 31  
     2018      2017  

Powertrain

   $ 4,484      $ 4,466  

Motorparts

     2,766        2,812  
  

 

 

    

 

 

 

Total Reporting Segment

     7,250        7,278  

Corporate(a)

     248        236  
  

 

 

    

 

 

 
   $ 7,498      $ 7,514  
  

 

 

    

 

 

 

 

(a) 

Includes net deferred tax asset balances.

 

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18.

RELATED PARTY TRANSACTIONS

The Company’s payments to Insight were less than $0.5 million for the three and six months ended June 30, 2018 and 2017.

The following table is a summary of net sales to Auto Plus and Pep Boys during the three and six months ended June 30, 2018 and 2017:

 

     Three Months Ended
June 30
     Six Months Ended
June 30
 
     2018      2017      2018      2017  

Net sales:

           

Auto Plus

   $ 25      $ 19      $ 49      $ 36  

Pep Boys

   $ 15      $ 28      $ 33      $ 34  

The following table is a summary of amounts due to and from Auto Plus and Pep Boys as of June 30, 2018 and December 31, 2017:

 

     June 30      December 31  
     2018      2017  

Accounts receivable:

     

Auto Plus

   $ 35      $ 26  

Pep Boys

   $ 13      $ 41  

Trade accruals:

     

Auto Plus

   $ 4      $ 5  

Pep Boys

   $ 3      $ 7  

Other provisions:

     

Auto Plus

   $ 2      $ 2  

Pep Boys

   $ 5      $ 5  

Other receivables:

     

Auto Plus

   $ —        $ 1  

Pep Boys

   $ 2      $ 1  

The Company had royalty income from Pep Boys of $1 million and $2 million for the three and six months ended June 30, 2018 and $1 million for the three and six months ended June 30, 2017. The Company has certain properties classified as held for sale which it has agreed to transfer to Pep Boys and has recorded a $2 million impairment related to these assets.

PSC Metals, Inc. (“PSC Metals”) is a wholly-owned subsidiary of IEP. The Company’s scrap sales to PSC Metals were $1 million for the three and six months ended June 30, 2018 and 2017.

IEP has a 28% ownership interest in Hertz Global Holdings, Inc. (“Hertz”). The Company’s purchases from Hertz were $1 million for the three and six months ended June 30, 2018.

On June 29, 2018, the Company received a capital contribution of $56 million from its parent, IEP.

 

33