UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of
Report (Date of earliest event reported): December 3, 2008
Icahn
Enterprises L.P.
(Exact
name of registrant as specified in its charter)
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Delaware
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1-9516
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13-3398766
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(State or Other Jurisdiction of
Incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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767 Fifth Avenue, Suite 4700, New York, NY
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10153
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant’s
Telephone Number, Including Area Code: (212) 702-4300
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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o
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Written
communication pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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On
December 3, 2008, Icahn Enterprises L.P. (“Icahn Enterprises”) filed a Form 8-K
under Item 2.01 to report the acquisition of 24,491,924 shares (the
“Federal-Mogul Shares”) of Federal-Mogul Corporation (“Federal-Mogul”) common
stock (the “Federal-Mogul Common Stock”) from Thornwood Associates Limited
Partnership (“Thornwood”). As a result of the transaction, Icahn Enterprises
beneficially owns 75.7% of the total issued and outstanding Federal-Mogul Common
Stock. In consideration for the acquisition of the additional Federal-Mogul
Shares, Icahn Enterprises issued to Thornwood 4,286,087 fully paid and
non-assessable depositary units representing limited partnership interests in
Icahn Enterprises. This Form 8-K/A is being filed to provide the financial
statements of Federal-Mogul and the unaudited pro forma financial information
for Icahn Enterprises.
Section
9 - Financial Statements and Exhibits
Item
9.01
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Page
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(a) Financial Statements of
Businesses Acquired.
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Federal-Mogul
Corporation
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Report
of Independent Registered Public Accounting Firm
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*
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Consolidated
Statements of Operations for the Years Ended December 31, 2007, 2006 and
2005 (Predecessor)
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*
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Consolidated
Balance Sheets as of December 31, 2007 (Successor) and 2006
(Predecessor)
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*
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Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and
2005 (Predecessor)
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*
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Consolidated
Statements of Shareholders’ Equity (Deficit) for the Years Ended December
31, 2007, 2006 and 2005 (Predecessor)
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*
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Notes
to Consolidated Financial Statements
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*
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Consolidated
Statements of Operations for the Three and Nine Months Ended September 30,
2008 (Successor) and 2007 (Predecessor) (Unaudited)
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F-1
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Consolidated
Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007
(Successor)
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F-2
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Consolidated
Statements of Cash Flows for the Nine Months Ended September 30, 2008
(Successor) and 2007 (Predecessor) (Unaudited)
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F-3
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Notes
to Consolidated Financial Statements (Unaudited)
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F-4
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*
The financial statements indicated by * above are incorporated by
reference from Icahn Enterprises’ Form 8-K/A (SEC File No. 1-9516), filed
on August 7, 2008.
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(b)
Pro Forma Financial Information.
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The
following required pro forma financial information is filed on the pages
listed below.
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Unaudited
Pro Forma Condensed Combined Financial Information for Icahn Enterprises
L.P. and Subsidiaries:
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Introduction
to Unaudited Pro Forma Condensed Combined Financial
Information
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F-31
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Unaudited
Pro Forma Condensed Combined Balance Sheet (as of September 30,
2008)
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F-32
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Unaudited
Pro Forma Condensed Combined Statement of Operations (for the Nine Months
Ended September 30, 2008)
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F-33
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Unaudited
Pro Forma Condensed Combined Statement of Operations (for the Year Ended
December 31, 2007)
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F-34
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Notes
to Unaudited Pro Forma Condensed Combined Financial
Information
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F-35
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(d) Exhibits.
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Exhibits No.
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23.1
Consent of Ernst & Young LLP
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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ICAHN
ENTERPRISES L.P.
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(Registrant)
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By:
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Icahn
Enterprises G.P. Inc.,
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its
General Partner
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By:
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/s/
Dominick Ragone
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Dominick
Ragone
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Principal
Financial Officer
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Date:
January 12, 2009
Consolidated
Statements of Operations (Unaudited)
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Successor
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Predecessor
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Successor
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Predecessor
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||||||||||
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Three
Months Ended
September 30
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Nine
Months Ended
September 30
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||||||||||||||
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2008
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2007
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2008
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2007
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||||||||||
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(Millions
of Dollars, Except Per Share Amounts)
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|||||||||||||||
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||||||||||||||||
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Net
sales
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$
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1,692.0
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$
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1,685.5
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$
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5,546.4
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$
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5,165.4
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|||||
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Cost
of products sold
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(1,413.1
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)
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(1,406.0
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)
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(4,605.5
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)
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(4,255.7
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)
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|||||
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Gross
margin
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278.9
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279.5
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940.9
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909.7
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|||||||||
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Selling,
general and administrative expenses
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(191.7
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)
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(207.7
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)
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(612.8
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)
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(627.3
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)
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|||||
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Interest
expense, net
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(46.6
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)
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(49.9
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)
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(137.2
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)
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(151.8
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)
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|||||
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Amortization
expense
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(21.4
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)
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(4.7
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)
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(56.7
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)
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(14.0
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)
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|||||
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Chapter
11 and U.K. Administration related reorganization expenses
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(2.3
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)
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(15.3
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)
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(15.3
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)
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(56.5
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)
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|||||
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Equity
earnings of unconsolidated affiliates
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4.2
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9.6
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20.7
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27.6
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|||||||||
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Restructuring
expense, net
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(11.3
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)
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(9.8
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)
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(14.0
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)
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(39.4
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)
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|||||
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Other
income, net
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12.1
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5.6
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7.8
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19.7
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|||||||||
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Income
before income taxes
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21.9
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7.3
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133.4
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68.0
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|||||||||
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Income
tax (expense) benefit, net
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(18.3
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)
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6.4
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(71.7
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)
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(45.8
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)
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||||||
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Net
income
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$
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3.6
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$
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13.7
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$
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61.7
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$
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22.2
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|||||
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Income per common
share:
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|||||||||||||
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Basic
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$
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0.04
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$
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0.15
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$
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0.62
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$
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0.25
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|||||
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Diluted
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$
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0.04
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$
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0.15
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$
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0.62
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$
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0.24
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|||||
See
accompanying notes to consolidated financial statements.
F-1
Consolidated
Balance Sheets
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Successor
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||||||||
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(Unaudited)
September 30
2008
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December 31
2007
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|||||||
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(Millions
of dollars)
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||||||||
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ASSETS
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||||||||
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Current
assets:
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||||||||
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Cash
and equivalents
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$ | 781.5 | $ | 425.4 | ||||
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Accounts
receivable, net
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1,185.7 | 1,095.9 | ||||||
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Inventories,
net
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1,034.0 | 1,074.3 | ||||||
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Prepaid
expenses and other current assets
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318.3 | 526.4 | ||||||
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Total
current assets
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3,319.5 | 3,122.0 | ||||||
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Property,
plant and equipment, net
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2,014.9 | 2,061.8 | ||||||
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Goodwill
and indefinite-lived intangible assets
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1,500.5 | 1,852.0 | ||||||
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Definite-lived
intangible assets, net
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582.7 | 310.0 | ||||||
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Other
noncurrent assets
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496.3 | 520.5 | ||||||
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$ | 7,913.9 | $ | 7,866.3 | ||||
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LIABILITIES
AND SHAREHOLDERS’ EQUITY
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||||||||
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Current
liabilities:
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||||||||
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Short-term
debt, including current portion of long-term debt
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$ | 135.8 | $ | 117.8 | ||||
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Accounts
payable
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641.5 | 726.6 | ||||||
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Accrued
liabilities
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465.0 | 496.0 | ||||||
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Current
portion of postemployment benefit liability
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60.8 | 61.2 | ||||||
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Other
current liabilities
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152.1 | 167.3 | ||||||
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Total
current liabilities
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1,455.2 | 1,568.9 | ||||||
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Long-term
debt
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2,771.9 | 2,517.6 | ||||||
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Postemployment
benefits
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920.0 | 936.9 | ||||||
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Long-term
portion of deferred income taxes
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339.4 | 331.4 | ||||||
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Other
accrued liabilities
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262.6 | 300.3 | ||||||
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Minority
interest in consolidated subsidiaries
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51.3 | 87.5 | ||||||
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Shareholders’
equity:
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||||||||
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Common
stock
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1.0 | 1.0 | ||||||
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Additional
paid-in capital, including warrants
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2,122.7 | 2,122.7 | ||||||
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Retained
earnings
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61.7 | — | ||||||
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Accumulated
other comprehensive loss
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(55.2 | ) | — | |||||
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Treasury
stock, at cost
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(16.7 | ) | — | |||||
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Total
shareholders’ equity
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2,113.5 | 2,123.7 | ||||||
| $ | 7,913.9 | $ | 7,866.3 | |||||
See
accompanying notes to consolidated financial statements.
F-2
Consolidated
Statements of Cash Flows (Unaudited)
|
|
Successor
|
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Predecessor
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|||||
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Nine
Months Ended
September 30
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|||||||
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2008
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|
2007
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|||||
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(Millions
of Dollars)
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|||||||
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|
||||||||
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Cash
Provided From (Used By) Operating Activities
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||||||
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Net
income
|
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$
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61.7
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$
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22.2
|
||
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Adjustments
to reconcile net income to net cash provided from operating
activities:
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|
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||||||
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Depreciation
and amortization
|
|
265.8
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|
261.4
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||||
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Cash
received from 524(g) Trust
|
|
225.0
|
|
—
|
||||
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Change
in postemployment benefits, including pensions
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8.5
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(80.8
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)
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|||
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Change
in deferred taxes
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1.7
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(20.5
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)
|
|||
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Changes
in operating assets and liabilities:
|
|
|
||||||
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Accounts
receivable
|
|
(107.9
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)
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|
(127.6
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)
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||
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Inventories
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21.9
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|
(14.3
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)
|
|||
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Accounts
payable
|
|
(75.9
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)
|
|
56.4
|
|||
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Other
assets and liabilities
|
|
(25.5
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)
|
|
41.2
|
|||
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Net
Cash Provided From Operating Activities
|
|
375.3
|
|
138.0
|
||||
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Cash
Provided From (Used By) Investing Activities
|
|
|
||||||
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Expenditures
for property, plant and equipment
|
|
(240.2
|
)
|
|
(220.4
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)
|
||
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Net
proceeds from the sale of property, plant and equipment
|
|
10.9
|
|
26.1
|
||||
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Net
proceeds from the sale of business
|
|
—
|
|
14.0
|
||||
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Proceeds
from sale of investment
|
|
—
|
|
13.8
|
||||
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Payments
to acquire minority interests
|
|
—
|
|
(6.8
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)
|
|||
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Payments
to acquire business
|
|
(4.7
|
)
|
|
—
|
|||
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Net
Cash Used By Investing Activities
|
|
(234.0
|
)
|
|
(173.3
|
)
|
||
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Cash
Provided From (Used By) Financing Activities
|
|
|
||||||
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Proceeds
from borrowings on exit facility
|
|
2,082.0
|
|
—
|
||||
|
Repayment
of Tranche A, Revolver and PIK Notes
|
|
(1,790.8
|
)
|
|
—
|
|||
|
Proceeds
from borrowings on DIP credit facility
|
|
—
|
|
658.8
|
||||
|
Principal
payments on DIP credit facility
|
|
—
|
|
(247.0
|
)
|
|||
|
Repayment
of pre-petition Tranche C debt
|
|
—
|
|
(330.0
|
)
|
|||
|
Increase
(decrease) in short-term debt
|
|
(0.2
|
)
|
|
9.0
|
|||
|
Decrease
in other long-term debt
|
|
(31.4
|
)
|
|
(5.0
|
)
|
||
|
Purchase
of treasury stock
|
|
(16.7
|
)
|
|
—
|
|||
|
Decrease
in factoring arrangements
|
|
(15.5
|
)
|
|
(55.4
|
)
|
||
|
Debt
refinance fees
|
|
(0.6
|
)
|
|
(0.1
|
)
|
||
|
Net
Cash Provided From Financing Activities
|
|
226.8
|
|
30.3
|
||||
|
Effect
of foreign currency exchange rate fluctuations on cash
|
|
(12.0
|
)
|
|
11.9
|
|||
|
Increase
in cash and equivalents
|
|
356.1
|
|
6.9
|
||||
|
Cash
and equivalents at beginning of period
|
|
425.4
|
|
359.3
|
||||
|
Cash
and equivalents at end of period
|
|
$
|
781.5
|
|
$
|
366.2
|
||
See
accompanying notes to consolidated financial statements.
F-3
FEDERAL-MOGUL
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30,
2008
1. BASIS
OF PRESENTATION
Interim Financial Statements:
The predecessor to Federal-Mogul Corporation (the “Predecessor Company”,
“Predecessor Federal-Mogul” or the “Predecessor”) and all of its then-existing
wholly-owned United States subsidiaries (“U.S. Subsidiaries”) filed voluntary
petitions on October 1, 2001 (the “Petition Date”), for reorganization
under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”)
with the United States Bankruptcy Court for the District of Delaware (the
“Bankruptcy Court”). On the Petition Date, certain of the Predecessor Company’s
United Kingdom subsidiaries (together with the U.S. Subsidiaries, the “Debtors”)
also filed voluntary petitions for reorganization under the Bankruptcy Code with
the Bankruptcy Court. On November 8, 2007, the Bankruptcy Court entered an
Order (the “Confirmation Order”) confirming the Fourth Amended Joint Plan of
Reorganization for Debtors and Debtors-in-Possession (as Modified) (the “Plan”)
and entered Findings of Fact and Conclusions of Law regarding the Plan (the
“Findings of Fact and Conclusions of Law”). On November 14, 2007, the
United States District Court for the District of Delaware (the “District Court”)
entered an order affirming the Confirmation Order and adopting the Findings of
Fact and Conclusions of Law. On December 27, 2007, the Plan became
effective in accordance with its terms (the “Effective Date”). On the Effective
Date, the Predecessor Company merged with and into New Federal-Mogul Corporation
whereupon (i) the separate corporate existence of the Predecessor Company
ceased, (ii) New Federal-Mogul Corporation became the surviving corporation
and continues to be governed by the laws of the State of Delaware and
(iii) New Federal-Mogul Corporation was renamed “Federal-Mogul Corporation”
(also referred to as “Federal-Mogul”, the “Company”, the “Successor Company”, or
the “Successor”).
The
consolidated financial statements for the period the Predecessor Company was in
Bankruptcy were prepared in accordance with AICPA Statement of Position 90-7
(“SOP 90-7”), Financial
Reporting by Entities in Reorganization under the Bankruptcy Code, and on
a going concern basis, which contemplated continuity of operations and
realization of assets and liquidation of liabilities in the ordinary course of
business.
In
accordance with accounting principles generally accepted in the United States
(“U.S. GAAP”), the Company was required to adopt fresh-start reporting effective
upon emergence from bankruptcy on December 27, 2007. The Company evaluated
its activity between December 28, 2007 and December 31, 2007 and,
based upon the immateriality of such activity, concluded that the use of an
accounting convenience date of December 31, 2007 was appropriate. As such,
fresh-start reporting has been applied as of that date. Financial statements for
the three and nine months ended September 30, 2007 do not reflect the
impact of changes in the Company’s capital structure or changes in the estimated
fair values of assets and liabilities as a result of fresh-start reporting, and
are therefore not comparable to the financial statements for the three and nine
months ended September 30, 2008. For further information on fresh-start
reporting, see Note 3.
The
unaudited consolidated financial statements of the Company have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission (“SEC”). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted pursuant to such rules and regulations. These statements
include all adjustments (consisting of normal recurring adjustments) that
management believes are necessary for a fair presentation of the results of
operations, financial position and cash flows. The Company’s management believes
that the disclosures are adequate to make the information presented not
misleading when read in conjunction with the financial statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007, as filed with the SEC.
Operating
results for the three and nine months ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2008.
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.
F-4
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 generally 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 hold a controlling interest in any entity based on
exposure to economic risks and potential rewards (variable interests) for which
it is the primary beneficiary. Further, the Company’s joint ventures are
businesses established and maintained in connection with its operating strategy
and are not special purpose entities.
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.
Trade Accounts Receivable:
Federal-Mogul subsidiaries in Brazil, France, Germany, Italy and Spain
are party to accounts receivable factoring arrangements. Gross accounts
receivable factored under these facilities were $298 million and $347 million as
of September 30, 2008 and December 31, 2007, respectively. Of those
gross amounts, $270 million and $315 million, respectively, were factored
without recourse and treated as a sale under Statement of Financial Accounting
Standards (“SFAS”) No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. Under
terms of these factoring arrangements, the Company is not obligated to draw cash
immediately upon the factoring of accounts receivable. Thus, as of
September 30, 2008 and December 31, 2007, the Company had outstanding
factored amounts of $12 million and $8 million, respectively, for which cash had
not yet been drawn. Expenses associated with receivables factored or discounted
are recorded in the consolidated statements of operations within “Other income,
net.”
Adoption of New Accounting
Pronouncements: In April 2007, the Financial Accounting Standards Board
(the “FASB”) issued FASB Staff Position FIN 39-1 (“FSP 39-1”), Amendment of FASB Interpretation
No. 39, Offsetting of Amounts Related to Certain Contracts. FSP 39-1
permits entities to offset fair value amounts recognized for multiple derivative
instruments executed with the same counterparty under a master netting
agreement. FSP 39-1 clarifies that the fair value amounts recognized for the
right to reclaim cash collateral, or the obligation to return cash collateral,
arising from the same master netting arrangement, should also be offset against
the fair value of the related derivative instruments. In addition, this FSP
requires an entity to make an accounting policy decision to present these
amounts at either their gross or net values. FSP 39-1 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2007. The Company has historically presented all of its
derivative positions and any related material collateral under master netting
agreements on a net basis consistent with the guidance in FIN 39 and FSP 39-1.
The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, which requires that ownership
interests in subsidiaries held by parties other than the parent are clearly
identified. In addition, SFAS 160 requires that the amount of consolidated net
income attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the statement of operations. SFAS 160 is
effective for financial statements issued for fiscal years and interim periods
beginning on or after December 15, 2008. The adoption of SFAS 160 is not
expected to have a material impact on the Company’s consolidated financial
position, results of operations or cash flows.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133, which requires enhanced disclosures about an entity’s
derivative and hedging activities and thereby improves the transparency of
financial reporting. SFAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early adoption encouraged. The Company continues to evaluate the provisions of
this standard and anticipates adopting this standard as of January 1,
2009.
F-5
2. REORGANIZATION
UPON EMERGENCE FROM CHAPTER 11 PROCEEDINGS
Background
On the
Petition Date, the Predecessor Company and all of its U.S. Subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code
in the Bankruptcy Court. Also on October 1, 2001, 133 affiliates of
Predecessor Federal-Mogul incorporated under the laws of England and Wales filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code
in the Bankruptcy Court and commenced administration proceedings in the High
Court of Justice, Chancery Division, in London, England under the United Kingdom
Insolvency Act 1986. An additional affiliate of Predecessor Federal-Mogul
incorporated under the laws of Scotland filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court
on the Petition Date, and commenced administration proceedings before the Court
of Session in Edinburgh, Scotland in April 2002. Subsidiaries of Predecessor
Federal-Mogul other than the aforementioned U.S. and U.K. subsidiaries were not
party to any insolvency proceedings and operated in the normal course during the
pendency of the Chapter 11 Cases and the U.K. administration
proceedings.
Following
a Confirmation Hearing that began on June 18, 2007 and concluded on
October 2, 2007, and following the consensual resolution of various legal
objections to confirmation of the Plan, the Bankruptcy Court entered an order on
November 8, 2007 confirming the Plan and entered detailed Findings of Fact
and Conclusions of Law with respect to the Plan. On November 14, 2007, the
District Court entered an order affirming the Confirmation Order and adopting
the Findings of Fact and Conclusions of Law. The Confirmation Order became final
and non-appealable 30 days after its affirmance by the District Court. The Plan
became effective in accordance with its terms on December 27,
2007.
From
October 1, 2001 through December 27, 2007, the Debtors operated their
businesses as debtors-in-possession in accordance with the Bankruptcy Code. The
chapter 11 cases of the Debtors (collectively, the “Chapter 11 Cases”) were
jointly administered under Case No. 01-10578(JKF).
Company
Voluntary Arrangements and Discharge of U.K. Administration
Proceedings
The
commencement of the administration proceedings in the United Kingdom resulted in
the appointment of certain administrators (the “Administrators”) to oversee the
businesses of the Debtors that were incorporated under the laws of England and
Wales (the “U.K. Debtors”). Predecessor Federal-Mogul, the Administrators of the
U.K. Debtors and the co-proponents of the Plan (the “Plan Proponents”) entered
into an agreement on September 26, 2005 outlining the terms and conditions
of distributions to creditors of the U.K. Debtors (the “U.K. Settlement
Agreement”). A copy of the U.K. Settlement Agreement was filed with the SEC on
Form 8-K on September 30, 2005.
The U.K.
Settlement Agreement contemplated the proposal by the Administrators of Company
Voluntary Arrangements (“CVAs”) for certain of the U.K. Debtors, which CVAs
would follow the basic terms specified in the U.K. Settlement Agreement. In
mid-2006, the Administrators proposed CVAs for 51 of the U.K. Debtors (the “CVA
Debtors”). Following approval of the CVAs by the requisite majorities of
creditors and shareholders, the CVAs became effective on October 11, 2006,
resolving claims (other than those dealt with by the Plan) against the CVA
Debtors.
On
December 1, 2006, the discharge of the administration proceedings for the
CVA Debtors became effective. That discharge ended those U.K. Debtors’
administration proceedings. On February 6, 2008, the High Court of Justice
in London, England approved the discharge of the administration proceedings for
all 70 of the U.K. Debtors that did not have CVAs and whose administration
proceedings were in effect as of that date. The Company has commenced processes
in England that will result in either the liquidation or the striking off from
the English register of companies of those 70 remaining U.K. Debtors, virtually
all of which are dormant entities. The Company anticipates that those processes
will be complete by the end of 2008.
F-6
Plan
of Reorganization
In early
2007, the Debtors and other Plan Proponents solicited votes to accept or reject
the Plan through a process approved by the Bankruptcy Court. The Plan Proponents
comprised the overwhelming majority of significant stakeholders in the Chapter
11 Cases, including representatives of (i) the holders of current and
future asbestos-related personal injury claims against the Debtors,
(ii) the holders of unsecured claims against the Debtors, (iii) the
holders of equity interests in Predecessor Federal-Mogul, and (iv) the
holders of obligations incurred under Predecessor Federal-Mogul’s pre-Petition
Date secured credit facility.
On
June 15, 2007, the Debtors’ voting agent filed the results of the Plan
voting process with the Bankruptcy Court, which showed that all classes of
claims against and equity interests in the Debtors voted to accept the Plan by
margins in excess of the Bankruptcy Code requirements for plan acceptance. All
classes of asbestos personal injury claims voted to accept the Plan by margins
in excess of those required for the imposition of an asbestos trust and
channeling injunction pursuant to section 524(g) of the Bankruptcy Code. The
legal representative for future asbestos claimants also supported approval of
the Plan.
The Plan
provides for distributions of cash and/or securities to be made to holders of
pre-Petition Date claims against the Debtors as well as certain claims that
arose during the pendency of the Chapter 11 Cases. Key provisions of the Plan,
including significant distributions to implement the Plan, include the
following:
|
•
|
On
the Effective Date, the Company distributed all of its newly-issued Class
B Common Stock (representing 50.1% of all of its newly-issued common
stock) to the U.S. Asbestos Trust (defined below), subject to the Company
retaining possessory security interests in certain of that stock to secure
obligations of the U.S. Asbestos Trust to the Company. The Company also
distributed certain insurance-related rights and proceeds to the U.S.
Asbestos Trust on the Effective
Date.
|
|
•
|
On
the Effective Date, the Company distributed all of its Class A Common
Stock (representing 49.9% of all of its newly-issued common stock) to a
disbursing agent for further distribution to the holders of Predecessor
Federal-Mogul’s pre-bankruptcy note debt and to those holders of unsecured
claims against Predecessor Federal-Mogul and its U.S. Debtor subsidiaries
that elected under the Plan to receive a stock distribution in lieu of a
cash distribution on account of their
claims.
|
|
•
|
On
the Effective Date, the Company issued new Tranche A term loans in the
approximate amount of $1,335 million and senior subordinated third
priority payment-in-kind notes (“PIK Notes”) in the approximate amount of
$305 million to satisfy claims under Predecessor Federal-Mogul’s
pre-Petition Date secured credit facility and pre-Petition Date claims on
account of certain surety bonds. The new Tranche A term loans were repaid
and the PIK Notes were redeemed by the Company on January 3, 2008
from proceeds of the Exit Facilities (as defined in Note
11).
|
|
•
|
On
the Effective Date, the Company repaid approximately $761 million in
obligations under the debtor-in-possession financing facility entered into
during the Chapter 11 Cases.
|
|
•
|
On
the Effective Date, the Company paid approximately $132 million for
settlement of an Administrative Expense Claim (as defined in the Plan) on
account of adequate protection payments owed to the holders of Predecessor
Federal-Mogul’s notes issued prior to the Petition
Date.
|
|
•
|
On
or after the Effective Date, the Company distributed 6,951,871 warrants
(the “Warrants”) to the disbursing agent for further distribution to
holders of common stock, convertible preferred stock, and convertible
subordinated debentures (following the deemed conversion of such
debentures under the Plan) of Predecessor Federal-Mogul that were
cancelled under the Plan. Each Warrant provides the holder thereof with
the right to purchase one share of Class A Common Stock of the
Company at $45.815 per share from the Effective Date through
December 27, 2014.
|
The Plan
further provides that holders of general unsecured claims against the U.S.
Debtors that did not elect to receive distributions of Class A Common Stock
on account of their claims will receive cash distributions totaling 35% of the
allowed amount of their claims, subject to reduction in the event the total
amount of such claims, after
F-7
considering
the value of distributions of Class A Common Stock in lieu of cash, exceeds
$258 million. Those distributions will be made in three annual installments. The
first installment payments were made to holders of unsecured claims against the
U.S. Debtors during March 2008. The Company has reserved approximately $41
million and $64 for payment of unsecured claims against the U.S. Debtors as of
September 30, 2008 and December 31, 2007, respectively. Because such
payments are expected to be made through early 2010, $21 million and $41 million
of the amounts reserved have been classified as long-term as of
September 30, 2008 and December 31, 2007, respectively.
Establishment
and Operation of the U.S. Asbestos Trust and U.K. Asbestos Trust
Section 524(g)
of the Bankruptcy Code provides in general terms that, if certain specified
conditions are satisfied, a court may as part of a bankruptcy plan of
reorganization issue a permanent injunction preventing entities from taking
legal action against a debtor to collect, recover, or receive payment on
asbestos-related claims where the bankruptcy plan provides that those claims are
to be paid by an asbestos trust established under section 524(g) of the
Bankruptcy Code.
On the
Effective Date, in accordance with the Plan, an asbestos personal injury trust
qualifying under section 524(g) of the Bankruptcy Code (the “U.S. Asbestos
Trust”) was created. Pursuant to and on the terms specified in the Plan and the
Confirmation Order, the U.S. Asbestos Trust has assumed liability for all
asbestos-related personal injury claims of the Debtors. The U.S. Asbestos Trust
will make payments to holders of asbestos personal injury claims in accordance
with the trust distribution procedures that were filed with the Bankruptcy Court
as an exhibit to the Plan, with the exception of asbestos-related personal
injury claims against the U.K. Debtors that are to be evaluated and paid by the
U.K. Asbestos Trust. The Plan contains an injunction issued by the Bankruptcy
Court and affirmed by the District Court pursuant to section 524(g) of the
Bankruptcy Code that expressly forbids any and all actions against the Debtors,
their respective subsidiaries, and certain of their affiliates, for the purpose
of, directly or indirectly, collecting, recovering or receiving payments or
recovery with respect to all direct or indirect claims relating to
asbestos-related personal injury claims.
The CVAs
established a U.K. Asbestos Trust which shall provide for the sole and exclusive
treatment and payment of the CVA Asbestos Claims. The U.K. Asbestos Trust is
separate from the U.S. Asbestos Trust and was funded by the Predecessor Company
when the CVAs became effective in 2006.
As part
of the Plan, the U.S. Asbestos Trust issued on the Effective Date a note in the
amount of $125 million to the Company. The issuance of that note reflected the
fact that certain of the asbestos personal injury claims that had been
anticipated to be paid from the U.S. Asbestos Trust prior to entry into the U.K.
Settlement Agreement will instead be paid from the U.K. Asbestos Trust, which
had been previously funded by the Predecessor Company. The $125 million note had
a maturity date of January 11, 2008 and was repayable in either cash or
through the Company taking ownership of 6,958,333 shares of Class B Common Stock
of the Company that were pledged to secure the $125 million note. The note was
repaid by the U.S. Asbestos Trust on the maturity date.
Pneumo
Abex Settlement and Ongoing Bankruptcy-Related Matters
The Plan
contemplated that one of two alternative settlements would be implemented by and
between certain of the Debtors, and Cooper Industries, LLC (“Cooper”), Pneumo
Abex LLC (“Pneumo Abex”), and certain of their affiliates. The first of these
alternatives was known as the “Plan A” Settlement and was detailed in an
addendum of additional provisions filed with the Plan (as subsequently amended,
the “Addendum”). The Plan A Settlement contemplated in general terms that Cooper
and Pneumo Abex would make a combined contribution of $756 million, plus the
contribution of certain rights and additional consideration, to the U.S.
Asbestos Trust, which would be placed into a segregated subfund of the U.S.
Asbestos Trust for the satisfaction of Pneumo Asbestos Claims (as defined in the
Addendum). Pneumo Asbestos Claims would be payable exclusively from such
subfund, and a court injunction would prevent the assertion of Pneumo Asbestos
Claims against any of the Pneumo Protected Parties (as defined in the
Addendum).
The
second alternative settlement was the “Plan B” Settlement, pursuant to which the
U.S. Asbestos Trust would pay $138 million to Cooper and $2 million to Pneumo
Abex in satisfaction of the indirect asbestos claims of those entities and their
affiliates against the Debtors. Under that settlement, the Pneumo Protected
Parties (including
F-8
Cooper
and Pneumo Abex) would not receive the benefit of any court injunctions, and
Pneumo Asbestos Claims would remain assertable against them in the tort system.
Pneumo Asbestos Claims will not be assertable against the Successor Company or
any of its affiliates under either settlement. Both the Plan A Settlement and
the Plan B Settlement provided for a broad release of claims from Cooper, Pneumo
Abex and various of their affiliates in favor of the Successor
Company.
Contemporaneously
with confirmation of the Plan, the Bankruptcy Court approved the Plan B
Settlement. On September 30, 2008, the Bankruptcy Court issued an order
denying implementation and approval of the Plan A Settlement on the grounds that
it failed to comply with Section 524(g) of the Bankruptcy Code. On
October 1, 2008, Cooper notified the Debtors that it had terminated the
Plan A Settlement, and, on that date, the releases and settlements contained in
the Plan B Settlement became effective.
On the
Effective Date, the Company, on behalf of the U.S. Asbestos Trust, placed $140
million needed to fund the Plan B Settlement into an escrow account, where it
has been paid out pursuant to the implementation of the Plan B Settlement. In
exchange for the funding by the Company, the U.S. Asbestos Trust issued a $140
million note payable to the Company with a maturity date 60 days after the
Effective Date. The U.S. Asbestos Trust’s obligations under the $140 million
note were secured by a possessory security interest in 7,793,333 shares of Class
B Common Stock of the Company previously issued to the U.S. Asbestos Trust.
Following the exercise by Thornwood Associates Limited Partnership of its option
to purchase from the U.S. Asbestos Trust the Company’s Class B Common Stock, the
$140 million note was repaid by the U.S. Asbestos Trust on February 25,
2008 at which time the possessory security interest in 7,793,333 shares of the
Company’s Class B Common Stock was released. The note receivable is included in
other current assets as of December 31, 2007.
Various
matters relating to the Chapter 11 Cases continue to be litigated in the
Bankruptcy Court or have been litigated therein and are awaiting rulings. The
ongoing pursuit of these matters does not affect the discharges, releases and
injunctions afforded to the Debtors under the Plan.
Discharge,
Releases and Injunctions Pursuant to the Plan and the Confirmation
Order
The Plan
and Confirmation Order contain various discharges, injunctive provisions and
releases that became operative upon the Effective Date, including
(i) discharge (except as otherwise provided in the Plan and Confirmation
Order) of each of the Debtors of all pre-Effective Date obligations in
accordance with the Bankruptcy Code, and (ii) various injunctions
providing, among other things, that, all creditors and interest holders of any
of the Debtors (or their respective estates) shall be prohibited from taking any
action against the Debtors with respect to such discharged
obligations.
Dismissal
of Certain U.K. Subsidiaries’ Chapter 11 Cases
On the
Effective Date, in accordance with a previously-entered order of the Bankruptcy
Court, the Chapter 11 Cases of 75 of the Company’s U.K. subsidiaries were
dismissed. Each of those U.K. subsidiaries has either few or (in most cases) no
known third-party creditors, has no history of using asbestos or manufacturing,
selling or distributing asbestos-containing products, and has never to the
Debtors’ knowledge been named in any asbestos-related lawsuits or comparable
proceedings. None of the U.K. subsidiaries whose Chapter 11 Cases were dismissed
was a party to the Plan.
Chapter
11 and U.K. Administration Related Reorganization Expenses
Chapter
11 and U.K. Administration related reorganization expenses in the consolidated
statements of operations consist of legal, financial and advisory fees, critical
employee retention costs, and other directly related internal costs. The Company
has previously incurred Chapter 11 reorganization expenses in connection with
pursuing the Plan A Settlement as discussed above, and has both previously
incurred and will continue to incur expenses in connection with completing
distributions pursuant to the Plan.
F-9
|
Successor
|
Predecessor
|
Successor
|
Predecessor
|
|||||||||||||
|
Three
Months Ended
September 30
|
Nine
Months Ended
September 30
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
(Millions
of Dollars)
|
||||||||||||||||
|
Professional
fees directly related to the filing
|
$ | 2.3 | $ | 13.2 | $ | 15.3 | $ | 50.0 | ||||||||
|
Critical
employee retention costs
|
— | 2.1 | — | 6.5 | ||||||||||||
| $ | 2.3 | $ | 15.3 | $ | 15.3 | $ | 56.5 | |||||||||
3. FRESH-START
REPORTING
The
Predecessor Company’s emergence from the Chapter 11 Cases resulted in a new
reporting entity for accounting purposes and the adoption of fresh-start
reporting in accordance with SOP 90-7. Since the reorganization value of the
assets of the Successor Company immediately before the date of confirmation of
the Plan was less than the total of all post-petition liabilities and allowed
claims, and the holders of the Predecessor Company’s voting shares immediately
before confirmation of the Plan received less than 50 percent of the voting
shares of the emerging entity, the Successor Company adopted fresh-start
reporting.
Following
confirmation of the Plan by the Bankruptcy Court on November 8, 2007 and
the affirmance of that confirmation by the District Court on November 14,
2007, the Plan required a number of conditions precedent to be satisfied prior
to it becoming effective. These conditions included, but were not limited to:
(i) the establishment of the U.S. Asbestos Trust and the transfer of the
Class B Common Stock and certain additional assets thereto, (ii) the entry
by all parties into the documents governing the U.S. Asbestos Trust and numerous
other corporate-related documents, (iii) the District Court order
confirming the Plan becoming a final, non-appealable order, and (iv) the
closing of the Company’s post-bankruptcy secured credit facilities. Under the
terms of the Plan, the Plan could not become effective without such conditions
being satisfied or waived. The first date on which all of the conditions
precedent set forth in the Plan were satisfied was December 27, 2007, which
corresponds with the Effective Date of the Plan. As such, the Company was
required to adopt fresh-start reporting as of December 27,
2007.
The
Company analyzed the transactions that occurred during the four-day period from
December 28, 2007 through December 31, 2007, and concluded that such
transactions were not material individually or in the aggregate as they
represented approximately 1% of total revenues; gross margin; selling, general
and administrative expenses; and income before taxes. As such, the Company used
December 31, 2007 as the date for adopting fresh-start reporting in order
to coincide with the Company’s normal financial closing for the month of
December. In connection with fresh-start reporting, the recorded amounts of
assets and liabilities were adjusted to reflect their estimated fair values.
Accordingly, the reported historical financial statements of the Predecessor
Company prior to the adoption of fresh-start reporting for periods ended on or
prior to December 31, 2007 are not comparable to those of the Successor
Company.
The
Bankruptcy Court confirmed the Plan based upon a reorganization value of the
Company between $4,369 million and $4,715 million, which was estimated using
various valuation methods, including (i) a comparison of the Company and
its projected performance to the market values of comparable companies;
(ii) a review and analysis of several transactions of companies in similar
industries to the Company; and (iii) a calculation of the present value of
the future cash flows of the Company under its projections. Based upon a
reevaluation of relevant factors used in determining the range of reorganization
value and updated expected cash flow projections, the Company concluded that
$4,369 million should be used for fresh-start reporting purposes as it most
closely approximated fair value at the Effective Date.
In
accordance with fresh-start reporting, the Company’s reorganization value has
been allocated to existing assets using the measurement guidance provided in
SFAS 141. In addition, liabilities, other than deferred taxes, have been
recorded at the present value of amounts estimated to be paid. Finally, the
Predecessor Company’s accumulated deficit has been eliminated, and the Company’s
new debt and equity have been recorded in accordance with the Plan. Deferred
taxes have been determined in conformity with SFAS No. 109, Accounting for Income Taxes.
The
F-10
excess of
reorganization value over the value of net tangible and identifiable intangible
assets and liabilities has been recorded as goodwill in the accompanying
consolidated balance sheets.
Estimates
of fair value represent the Company’s best estimates, which are based on
industry data and trends and by reference to relevant market rates and
transactions, and discounted cash flow valuation methods, among other factors.
The foregoing estimates and assumptions are inherently subject to significant
uncertainties and contingencies beyond the reasonable control of the Company.
Accordingly, there can be no assurance that the estimates, assumptions, and
amounts reflected in the valuations will be realized, and actual results could
vary materially. In accordance with SFAS 141, the preliminary allocation of the
reorganization value is subject to additional adjustment within one year after
emergence from bankruptcy to provide the Company with adequate time to complete
the valuation of its assets and liabilities. Future adjustments may result
from:
|
•
|
Finalization
of valuation reports associated with long-lived tangible and intangible
assets which may derive further adjustments or recording of additional
assets or liabilities;
|
|
•
|
Adjustments
to deferred tax assets and liabilities, which may be based upon additional
information, including adjustments to valuation estimates of underlying
assets or liabilities; or
|
|
•
|
Adjustments
to amounts recorded based upon estimated fair values or upon other
measurements, which could change the amount of recorded
goodwill.
|
The
values assigned to identified intangible assets and goodwill as of
September 30, 2008 continue to be considered preliminary as the Company has
not yet completed its internal review and approval of the latest valuation
estimates. The Company expects to complete the internal review and approval
processes within the upcoming months.
4. RESTRUCTURING
The
Company defines restructuring expense to include costs directly associated with
exit or disposal activities accounted for in accordance with SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities, employee severance costs
incurred as a result of an exit or disposal activity accounted for in accordance
with SFAS Nos. 88 and 112, and pension and other postemployment benefit costs
incurred as a result of an exit or disposal activity accounted for in accordance
with SFAS Nos. 87 and 106.
Estimates
of restructuring charges are based on information available at the time such
charges are recorded. In general, management anticipates that restructuring
activities will be completed within a timeframe such that significant changes to
the exit plan are not likely. 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, these
programs appear to be ongoing when, in fact, terminations and other activities
under these programs have been substantially completed. Management expects that
future savings resulting from execution of its restructuring programs will
generally result in full pay back within 36 months.
Due to
the inherent uncertainty involved in estimating restructuring expenses, actual
amounts paid for such activities may differ from amounts initially estimated.
Accordingly, previously recorded reserves of $2.3 million and $3.4 million were
reversed for the nine months ended September 30, 2008 and 2007,
respectively. Such reversals are recorded consistent with SEC Staff Accounting
Bulletin No. 100, Restructuring and Impairment
Charges, and result from actual costs at program completion being less
than costs estimated at the commitment date. In most instances where final costs
were lower than original estimates, the rate of voluntary employee attrition was
higher than the attrition rate originally estimated as of the commitment dates,
resulting in lower severance costs.
Management
expects to finance these restructuring programs over the next several years
through cash generated from its ongoing operations or through cash available
under the Exit Facilities, 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.
F-11
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 lower cost
markets. These activities generally fall into one of the following
categories:
|
1.
|
Closure
of facilities and relocation of production – in connection with the
Company’s strategy, certain operations have been closed and related
production relocated to best cost countries or to other locations with
available capacity.
|
|
2.
|
Consolidation
of administrative functions and standardization of manufacturing processes
– as part of its productivity strategy, the Company has acted to
consolidate its administrative functions and change its manufacturing
processes to reduce selling, general and administrative costs and improve
operating efficiencies through standardization of
processes.
|
The
following is a summary of the Company’s consolidated restructuring reserves and
related activity as of and for the nine months ended September 30, 2008.
“PTE”, “PTSB”, “VSP”, “AP” and “GA” represent Powertrain Energy, Powertrain
Sealing and Bearings, Vehicle Safety and Protection, Automotive Products and
Global Aftermarket, respectively.
|
|
Successor
Company
|
|||||||||||||||||||||||||||
|
|
PTE
|
PTSB
|
VSP
|
AP
|
GA
|
Corporate
|
Total
|
|||||||||||||||||||||
|
|
(Millions
of dollars)
|
|||||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
|
$
|
6.1
|
$
|
4.3
|
$
|
1.4
|
$
|
—
|
$
|
4.7
|
$
|
2.6
|
$
|
19.1
|
|||||||||||||
|
Provisions
|
|
0.2
|
0.3
|
—
|
0.7
|
—
|
1.4
|
2.6
|
||||||||||||||||||||
|
Reversals
|
|
—
|
(0.2
|
)
|
—
|
(0.2
|
)
|
(0.5
|
)
|
—
|
(0.9
|
)
|
||||||||||||||||
|
Payments
|
|
(0.8
|
)
|
(1.4
|
)
|
(0.4
|
)
|
(0.3
|
)
|
(2.7
|
)
|
(0.1
|
)
|
(5.7
|
)
|
|||||||||||||
|
Foreign
currency
|
|
0.2
|
0.3
|
—
|
—
|
0.1
|
(0.1
|
)
|
0.5
|
|||||||||||||||||||
|
Balance
at March 31, 2008
|
|
5.7
|
3.3
|
1.0
|
0.2
|
1.6
|
3.8
|
15.6
|
||||||||||||||||||||
|
Provisions
|
|
1.0
|
0.1
|
—
|
0.4
|
—
|
—
|
1.5
|
||||||||||||||||||||
|
Reversals
|
|
(0.2
|
)
|
—
|
(0.1
|
)
|
—
|
—
|
(0.2
|
)
|
(0.5
|
)
|
||||||||||||||||
|
Payments
|
|
(1.1
|
)
|
(1.2
|
)
|
(0.5
|
)
|
(0.4
|
)
|
(0.3
|
)
|
(0.4
|
)
|
(3.9
|
)
|
|||||||||||||
|
Foreign
currency
|
|
0.1
|
—
|
—
|
—
|
(0.1
|
)
|
—
|
—
|
|||||||||||||||||||
|
Balance
at June 30, 2008
|
|
5.5
|
2.2
|
0.4
|
0.2
|
1.2
|
3.2
|
12.7
|
||||||||||||||||||||
|
Provisions
|
|
2.7
|
2.4
|
2.6
|
1.8
|
1.6
|
1.1
|
12.2
|
||||||||||||||||||||
|
Reversals
|
|
(0.2
|
)
|
—
|
—
|
—
|
—
|
(0.7
|
)
|
(0.9
|
)
|
|||||||||||||||||
|
Payments
|
|
(2.7
|
)
|
(1.4
|
)
|
(1.2
|
)
|
(1.0
|
)
|
(0.6
|
)
|
(0.2
|
)
|
(7.1
|
)
|
|||||||||||||
|
Foreign
currency
|
|
(0.5
|
)
|
(0.1
|
)
|
0.1
|
(0.1
|
)
|
—
|
—
|
(0.6
|
)
|
||||||||||||||||
|
Balance
at September 30, 2008
|
|
$
|
4.8
|
$
|
3.1
|
$
|
1.9
|
$
|
0.9
|
$
|
2.2
|
$
|
3.4
|
$
|
16.3
|
|||||||||||||
Restructuring
2009
In
September 2008, the Company announced a restructuring plan, herein referred to
as “Restructuring 2009”, designed to improve operating performance and respond
to increasingly challenging conditions in the global automotive market. This
plan, when combined with other workforce adjustments, is expected to reduce the
Company’s global workforce by approximately 8%. The Company continues to
solidify the individual components of this plan, and will announce those
components as plans are finalized. For the period ended September 30, 2008,
the Company has recorded the amount of severance that is probable and estimable,
and that is not attributable to future service from the current employees. The
Company has recorded $10.7 million in restructuring charges associated with
Restructuring 2009, and expects to incur additional restructuring charges up to
$69 million through 2009. As the majority of the costs expected to be incurred
in relation to Restructuring 2009 are related to severance, such activities are
expected to yield future annual savings at least equal to the incurred
costs.
F-12
Significant
components of charges related to Restructuring 2009 are as follows:
|
Total
Expected
Costs
|
Third
Quarter
2008
|
Estimated
Additional
Charges
|
||||||||||
|
(Millions
of dollars)
|
||||||||||||
|
Powertrain
Energy
|
$ | 2.2 | $ | 1.8 | $ | 0.4 | ||||||
|
Powertrain
Sealing and Bearings
|
16.3 | 2.2 | 14.1 | |||||||||
|
Vehicle
Safety and Protection
|
29.4 | 2.6 | 26.8 | |||||||||
|
Automotive
Products
|
14.8 | 1.7 | 13.1 | |||||||||
|
Global
Aftermarket
|
15.3 | 1.3 | 14.0 | |||||||||
|
Corporate
|
2.0 | 1.1 | 0.9 | |||||||||
| $ | 80.0 | $ | 10.7 | $ | 69.3 | |||||||
Restructuring
2006
In
January 2006, the Predecessor Company announced a global restructuring plan
(“Restructuring 2006”) as part of its global sustainable profitable growth
strategy. From the inception of this program through December 31, 2007, the
Predecessor Company incurred expenses of $119.9 million under this program
associated with the closures of its facilities located in Alpignano, Italy;
Upton, United Kingdom; Malden, Missouri; Pontoise, France; Rochdale, United
Kingdom; Slough, United Kingdom; St. Johns, Michigan; St. Louis, Missouri; and
Bretten, Germany. The Predecessor Company also transferred production with high
labor content from its facilities in Nuremberg, Germany; Wiesbaden, Germany; and
Orleans, France to existing facilities in best cost countries.
The
Restructuring 2006 program will be completed as of December 30, 2008 and
the Company will not initiate additional facility closures or production
transfers under this program. Payments associated with this program are expected
to continue into 2009. From January 1, 2008 through September 30,
2008, the Successor Company has incurred expenses of $3.6 million for
Restructuring 2006. The Company expects that approximately $5 million of
additional expense will be incurred under this program, primarily related to
equipment transportation.
5. OTHER
INCOME, NET
The
specific components of “Other income, net” are as follows:
|
|
Successor
|
|
Predecessor
|
Successor
|
|
Predecessor
|
||||||||||
|
|
Three
Months Ended
September 30
|
Nine
Months Ended
September 30
|
||||||||||||||
|
|
2008
|
|
2007
|
2008
|
|
2007
|
||||||||||
|
|
(Millions
of Dollars)
|
|||||||||||||||
|
Environmental
claims settlements
|
|
$
|
15.8
|
|
$
|
—
|
$
|
16.3
|
|
$
|
—
|
|||||
|
Foreign
currency exchange
|
|
(5.2
|
)
|
|
(0.7
|
)
|
(10.3
|
)
|
|
(1.2
|
)
|
|||||
|
Minority
interest in consolidated subsidiaries
|
|
(3.6
|
)
|
|
0.8
|
(5.2
|
)
|
|
3.5
|
|||||||
|
Accounts
receivable discount expense
|
|
(2.3
|
)
|
|
(2.1
|
)
|
(7.1
|
)
|
|
(5.7
|
)
|
|||||
|
Unrealized
gain (loss) on hedge instruments
|
|
(1.5
|
)
|
|
(1.3
|
)
|
(2.3
|
)
|
|
6.2
|
||||||
|
Royalty
income
|
|
1.3
|
|
0.6
|
0.1
|
|
1.3
|
|||||||||
|
Gain
on sale of assets
|
|
0.7
|
|
0.8
|
1.2
|
|
11.3
|
|||||||||
|
Gain
on sale of businesses
|
|
—
|
|
9.1
|
—
|
|
8.7
|
|||||||||
|
Adjustment
of assets to fair value
|
|
—
|
|
(3.5
|
)
|
—
|
|
(7.0
|
)
|
|||||||
|
Other
|
|
6.9
|
|
1.9
|
15.1
|
|
2.6
|
|||||||||
|
|
$
|
12.1
|
|
$
|
5.6
|
$
|
7.8
|
|
$
|
19.7
|
||||||
F-13
6. FINANCIAL
INSTRUMENTS
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.
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,
Japanese yen and Canadian dollar. These hedges were highly effective and their
impact on earnings was not significant during the three and nine months ended
September 30, 2008 and 2007. The Company had a notional value of
approximately $5 million of foreign currency hedge contracts outstanding at both
September 30, 2008 and December 31, 2007, respectively, that were
designated as hedging instruments for accounting purposes. As such, unrealized
net losses of $0.9 million were recorded in accumulated other comprehensive loss
as of September 30, 2008.
Interest
Rate Risk
As of
September 30, 2008, the Company was party to a series of five year interest
rate swap agreements with a total notional value of $1,150 million to hedge the
variability of interest payments associated with its variable-rate term loans
under the Exit Facilities. Through these swap agreements, the Company has fixed
its base interest and premium rate at a combined average interest rate of
approximately 5.4% on the hedged notional value of $1,150 million. Since the
interest rate swaps hedge the variability of interest payments on variable rate
debt with the same terms, they qualify for cash flow hedge accounting treatment.
As of September 30, 2008, unrealized net gains of $11.2 million were
recorded in accumulated other comprehensive loss as a result of these hedges.
Hedge ineffectiveness, determined using the hypothetical derivative method, was
not material for the three or nine months ended September 30,
2008.
These
interest rate swaps reduce the Company’s overall interest rate risk. However,
due to the remaining outstanding borrowings on the Company’s Exit Facilities and
other borrowing facilities that continue to have variable interest rates,
management believes that interest rate risk to the Company could be material if
there are significant adverse changes in interest rates.
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, lead, 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 eighteen months in
the future.
At
December 31, 2006, the Predecessor Company had 54 commodity price hedge
contracts outstanding that were not designated as accounting hedge contracts.
Through March 31, 2007, the Predecessor Company recognized all changes in
fair value of these hedges in current earnings, resulting in unrealized gains of
approximately $10 million recorded to “Other income, net” for the three months
ended March 31, 2007. Effective April 1, 2007, the Predecessor Company
completed the required evaluation and documentation to designate the majority of
such contracts as cash flow hedges.
F-14
The
Company had 253 and 211 commodity price hedge contracts outstanding with a
combined notional value of $119 million and $139 million at September 30,
2008 and December 31, 2007, respectively, that were designated as hedging
instruments for accounting purposes. As such, unrealized net losses of $5.6
million were recorded in accumulated other comprehensive loss as of
September 30, 2008. Hedge ineffectiveness, determined using the
hypothetical derivative method, was not material for the three and nine months
ended September 30, 2008.
Other
For
derivatives designated either as fair value or cash flow hedges, changes in the
time value are excluded from the assessment of hedge effectiveness. Hedge
ineffectiveness, determined in accordance with SFAS No. 133, did not have a
material effect on operations for the three and nine months ended
September 30, 2008 and 2007. No fair value hedges or cash flow hedges were
re-designated or discontinued during the three and nine months ended
September 30, 2008 and 2007.
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 and
installers 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 requires placement of cash in financial
institutions evaluated as highly creditworthy.
Fair
Value Measurements
In
September 2006, the FASB issued SFAS 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair
value and enhances disclosure about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. On February 2, 2008, the FASB issued FASB Staff
Position No. FAS 157-2 (“FSP 157-2”) which delays the effective date of SFAS 157
for nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Where the measurement objective specifically requires
the use of “fair value”, the Company has adopted the provisions of SFAS 157
related to financial assets and financial liabilities as of December 31,
2007 in connection with its fresh-start reporting.
SFAS 157
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, SFAS 157 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.
Assets
and liabilities measured at fair value are based on one or more of the following
three valuation techniques noted in SFAS 157:
|
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).
|
F-15
|
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).
|
The
Company remeasured its financial assets and financial liabilities as of
December 31, 2007 as required by SOP 90-7 using the guidance for
measurement found in SFAS 141. The gains and losses related to these fair value
adjustments were recorded within the statement of operations of the Predecessor
Company. Financial assets and liabilities remeasured and disclosed at fair value
at September 30, 2008 are set forth in the table below:
|
Frequency
|
Asset
|
Level 1
|
Level 2
|
Level 3
|
Valuation
Technique
|
|||||||||||||||||
|
(In
millions of dollars)
|
||||||||||||||||||||||
|
Hedge
instruments
|
Recurring
|
$ | 1.4 | $ | — | $ | 1.4 | $ | — | A | ||||||||||||
7. INVENTORIES
Prior to
the application of fresh-start reporting, inventories were stated at the lower
of cost or market. Cost was determined by the first-in, first-out (“FIFO”)
method at September 30, 2008 and December 31, 2007. 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.
In
connection with fresh-start reporting, inventory balances as of
December 31, 2007 were increased by $68 million in accordance with SFAS
No. 141 using the following valuation methodology:
|
1)
|
finished
goods were valued at estimated selling prices less the sum of
(a) costs of disposal and (b) a reasonable profit allowance for
the selling effort of the Successor
Company;
|
|
2)
|
work-in-process
was valued at the estimated selling prices of finished goods less the sum
of (a) costs to complete, (b) costs of disposal and (c) a
reasonable profit allowance for the completing and selling effort of the
Successor Company; and
|
|
3)
|
raw
materials were valued at current replacement
cost.
|
The
fresh-start reporting valuation increase to inventory impacted cost of goods
sold as the related inventory was sold. During the nine months ended
September 30, 2008, the Company recognized $68 million in additional cost
of goods sold, reducing gross margin by the same, due to this valuation
adjustment to inventory.
Net
inventories consisted of the following:
|
Successor
Company
|
||||||||
|
September 30
2008
|
December 31
2007
|
|||||||
|
(Millions
of Dollars)
|
||||||||
|
Raw
materials
|
$ | 207.6 | $ | 202.2 | ||||
|
Work-in-process
|
167.8 | 180.9 | ||||||
|
Finished
products
|
658.6 | 691.2 | ||||||
| $ | 1,034.0 | $ | 1,074.3 | |||||
F-16
8. GOODWILL
AND OTHER INTANGIBLE ASSETS
At
September 30, 2008 and December 31, 2007, goodwill and other
intangible assets consist of the following:
|
Successor
Company
|
||||||||||||||||||||||||
|
September 30,
2008
|
December 31,
2007
|
|||||||||||||||||||||||
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||||||||||||||
|
(Millions
of Dollars)
|
||||||||||||||||||||||||
|
Definite-Lived
Intangible Assets
|
||||||||||||||||||||||||
|
Developed
technology
|
$ | 115.0 | $ | (7.9 | ) | $ | 107.1 | $ | 140.0 | $ | — | $ | 140.0 | |||||||||||
|
Customer
relationships
|
524.4 | (48.8 | ) | 475.6 | 170.0 | — | 170.0 | |||||||||||||||||
| $ | 639.4 | $ | (56.7 | ) | $ | 582.7 | $ | 310.0 | $ | — | $ | 310.0 | ||||||||||||
|
Goodwill
and Indefinite-Lived Intangible Assets
|
||||||||||||||||||||||||
|
Goodwill
|
$ | 1,016.5 | $ | 1,544.0 | ||||||||||||||||||||
|
Trademarks
and brand names
|
484.0 | 308.0 | ||||||||||||||||||||||
| $ | 1,500.5 | $ | 1,852.0 | |||||||||||||||||||||
As of
December 31, 2007, the Company adjusted its net carrying amount of
intangible assets based upon preliminary valuations as a result of applying
fresh-start reporting. Included in these adjustments were the elimination of
Predecessor goodwill and the establishment of Successor goodwill. Successor
goodwill was determined as the excess of reorganization value over amounts
attributable to specific tangible and intangible assets, including developed
technology and customer relationships.
The
Company received valuation estimates for intangible assets other than goodwill
during the quarter ended June 30, 2008 that were more detailed and
comprehensive than those used for its initial application of fresh-start
reporting. Based upon the revised valuation estimates, the Company, during the
quarter ended June 30, 2008, recorded adjustments to the initially recorded
fresh-start reporting amounts. During the quarter ended September 30, 2008,
the Company has continued to review these revised valuation estimates and the
underlying data and basis for estimating value. As this review continues,
adjustments are recorded to the amounts assigned to identifiable intangible
assets and to goodwill.
The
Company has preliminarily assigned $115.0 million to technology, including value
for patented and unpatented proprietary know-how and expertise as embodied in
the processes, specifications and testing of products. This estimate was reduced
from $140.0 million recorded as of December 31, 2007 due to changes
primarily in the underlying valuation assumptions and not a change in the
portfolio of identified technologies nor on any changes in the expected revenue
streams associated with each of the identified technologies. The value assigned
is based on the relief-from-royalty method which applies a fair royalty rate for
the technology group to forecasted revenue. Royalty rates were determined based
on discussions with management and a review of royalty data for similar or
comparable technologies. The preliminary amortization periods between 10 and 14
years are based on the expected useful lives of the products or product families
for which the technology relate.
Aftermarket
products are sold to a wide range of wholesalers, retailers and installers as
replacement parts for vehicles in current production and for older vehicles. For
its aftermarket customers, the Company generally establishes product line
arrangements that encompass all products 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. The generation of
repeat business from any one aftermarket customer depends upon numerous factors,
including but not limited to the speed and accuracy of order fulfillment, the
availability of a full range of product, brand recognition, and market
responsive pricing adjustments. Predictable recurring revenue is generally not
heavily based upon prior relationship experience. As such, distinguishing
revenue between that attributable to customer relationships as opposed to
revenue attributable to recognized customer brands is more
difficult.
The
Company, during the quarter ended June 30, 2008, completed its analysis of
its various Aftermarket revenue streams and bifurcated those streams between
revenues associated with brand recognition and revenues associated with customer
relationships. Valuation estimates for brand names and customer relationships
were then determined based upon the estimated revenue streams. As a result of
the latest valuation estimates, the Company recorded $484.0 million for its
trademarks and brand names. As part of fresh-start reporting, value was assigned
to each
F-17
trademark
or brand name based on its earnings potential or relief from costs associated
with licensing the trademark or brand name. As the Company expects to continue
using each trademark or brand name indefinitely with respect to the related
product lines, the trademarks or brand names have been assigned indefinite lives
and will be tested annually for impairment.
Based
upon the latest valuation estimates, the Company has assigned $519.2 million to
its customer relationships, of which $62.0 million relates to original equipment
(“OE”) customer relationships and $457.2 million relates to aftermarket customer
relationships. The values assigned to customer relationships are based on the
propensity of these customers to continue to generate predictable future
recurring revenue and income. The value was based on the present value of the
future earnings attributable to the intangible assets after recognition of
required returns to other contributory assets. The preliminary amortization
periods of between 1 and 16 years are based on the expected cash flows and
historical attrition rates, as determined within each of the separate product
groups.
The
Company has also recorded $5.2 million in customer relationships in connection
with the February 2008 acquisition of Federal-Mogul Bearings India Limited
(“FMBIL”). The acquisition of FMBIL did not have a material impact on the
Company’s financial statements or liquidity.
The
values assigned to identifiable intangible assets based upon the latest
valuations represent the Company’s best estimates of fair value based upon
internal and external valuations. If these values were to be considered final,
the Company’s ongoing amortization expense for its definite-lived intangible
assets for each of the following years would be as follows (in millions of
dollars):
|
2008
|
$ | 75.6 | ||
|
2009
|
48.9 | |||
|
2010
|
48.9 | |||
|
2011
|
47.2 | |||
|
2012
|
47.2 | |||
|
Thereafter
|
371.6 | |||
| $ | 639.4 | |||
The
Company evaluated the criteria defined by the American Institute of Certified
Public Accountants practice aid entitled Assets Acquired in a Business
Combination to be Used in Research and Development Activities. The
criteria included control, economic benefit, measurability, no alternative
future use and substance. As a result of this evaluation, the Company concluded
that there were no significant research and development activities to which
value should be assigned in connection with fresh-start reporting.
For the
three and nine months ended September 30, 2008, the Company has recorded
amortization expense of $21.4 million and $56.7 million, respectively,
associated with definite-lived intangible assets. Included in the amortization
expense of $21.4 million for the quarter ended September 30, 2008 is $2.5
million of expense related to the six months ended June 30, 2008, recorded
during the current quarter as a result of revisions to the estimates of value
for definite-lived intangible assets. To the extent the estimates of fair value
for definite-lived intangible assets continue to change, the cumulative recorded
amortization expense will be adjusted to reflect such changes in underlying
asset values.
9. INVESTMENTS
IN NON-CONSOLIDATED AFFILIATES
The
Company maintains investments in 14 non-consolidated affiliates, which are
located in China, Germany, Italy, Japan, Korea, Turkey, the United Kingdom, and
the United States. The Company’s direct ownership in such affiliates ranges from
approximately 1% to 50%. The aggregate investment in these affiliates
approximates $319 million and $324 million at September 30, 2008 and
December 31, 2007, respectively, and is included in the consolidated
balance sheets as “Other noncurrent assets.” Upon the adoption of fresh-start
reporting, the Company’s investments in non-consolidated affiliates were
adjusted to estimated fair value. These estimated fair values were determined
based upon internal and external valuations which considered various relevant
market rates and transactions, and discounted cash flow valuation methods, among
other factors, as further described in Note 3.
F-18
Equity in
the earnings of non-consolidated affiliates amounted to approximately $21
million and $28 million for the nine months ended September 30, 2008 and
2007, respectively. During the nine months ended September 30, 2008, these
entities generated sales of approximately $533 million, net income of
approximately $62 million and at September 30, 2008 had total net assets of
approximately $370 million. Dividends received from non-consolidated affiliates
by the Company for the nine months ended September 30, 2008 were $30
million. The Company does not hold a controlling interest in an entity based on
exposure to economic risks and potential rewards (variable interests) for which
it is the primary beneficiary. Further, the Company’s joint ventures are
businesses established and maintained in connection with its operating strategy
and are not special purpose entities.
The
Company holds a 50% non-controlling interest in a joint venture located in
Turkey. This joint venture was established in 1995 for the purpose of
manufacturing and marketing automotive parts, including pistons, piston rings,
piston pins, and cylinder liners, to OE and aftermarket customers. Pursuant to
the joint venture agreement, the Company’s partner holds an option to put its
shares to a subsidiary of the Company at the higher of the current fair value or
at a guaranteed minimum amount. The term of the contingent guarantee is
indefinite, consistent with the terms of the joint venture agreement. However,
the contingent guarantee would not survive termination of the joint venture
agreement.
The
guaranteed minimum amount represents a contingent guarantee of the initial
investment of the joint venture partner and can be exercised at the discretion
of the partner. As of September 30, 2008, the total amount of the
contingent guarantee, were all triggering events to occur, approximated $59
million. The Company believes that this contingent guarantee is substantially
less than the estimated current fair value of the guarantees’ interest in the
affiliate. As such, the contingent guarantee does not give rise to a contingent
liability and, as a result, no amount is recorded for this guarantee. If this
put option were exercised, the consideration paid and net assets acquired would
be accounted for in accordance with SFAS No. 141, Business
Combinations.
If this
put option were exercised at its estimated current fair value, such exercise
could have a material effect on the Company’s liquidity. Any value in excess of
the guaranteed minimum amount of the put option would be the subject of
negotiation between the Company and its joint venture partner.
In
accordance with SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, the
Company has determined that its investments in Chinese joint venture
arrangements are considered to be “limited-lived” as such entities have
specified durations ranging from 30 to 50 years pursuant to regional statutory
regulations. In general, these arrangements call for extension, renewal or
liquidation at the discretion of the parties to the arrangement at the end of
the contractual agreement. Accordingly, a reasonable assessment cannot be made
as to the impact of such arrangements on the future liquidity position of the
Company.
F-19
10. ACCRUED
LIABILITIES
Accrued
liabilities consisted of the following:
|
Successor
Company
|
||||||||
|
September 30
|
December 31
|
|||||||
|
2008
|
2007
|
|||||||
|
(Millions
of Dollars)
|
||||||||
|
Accrued
compensation
|
$ | 240.6 | $ | 224.4 | ||||
|
Accrued
rebates
|
95.7 | 93.6 | ||||||
|
Accrued
income taxes
|
49.6 | 48.5 | ||||||
|
Accrued
professional services
|
25.4 | 22.8 | ||||||
|
Accrued
product returns
|
19.0 | 20.0 | ||||||
|
Restructuring
reserves
|
16.3 | 19.1 | ||||||
|
Accrued
warranty
|
10.3 | 11.1 | ||||||
|
Accrued
Chapter 11 and U.K. Administration expenses
|
8.1 | 35.3 | ||||||
|
Non-income
taxes payable
|
— | 21.2 | ||||||
| $ | 465.0 | $ | 496.0 | |||||
11. DEBT
In
connection with the consummation of the Plan, on the Effective Date, the Company
entered into a Tranche A Term Loan Agreement (the “Tranche A Facility
Agreement”). The Tranche A Facility Agreement provided for a $1,334.6 million
term loan issued on the Effective Date to satisfy, in part, the obligations owed
under the Prepetition Credit Agreement and certain other prepetition
surety-related obligations. On December 27, 2007, the Company notified the
administrative agent under the Tranche A Facility Agreement of the Company’s
intent to repay the Tranche A term loan in January 2008. On January 3,
2008, the Tranche A term loan was repaid in full.
On the
Effective Date, the Company, as the issuer, entered into an Indenture (the
“Indenture”) relating to the issuance of approximately $305 million principal
amount of PIK Notes (referred to together with the Tranche A Facility Agreement
as the “Repaid Instruments”). The PIK Notes were issued in order to satisfy, in
part, the obligations under the Prepetition Credit Agreement and certain other
prepetition surety-related obligations. On December 28, 2007, the Company
gave its notice of intent to redeem the PIK Notes, in full, in January 2008 at a
price equal to their redemption price. On January 3, 2008, the PIK Notes
were redeemed in full.
Also on
the Effective Date, the Company entered into a Term Loan and Revolving Credit
Agreement (the “Exit Facilities”) with Citicorp U.S.A. Inc. as Administrative
Agent, JPMorgan Chase Bank, N.A. as Syndication Agent and certain lenders. The
Exit Facilities include a $540 million revolving credit facility (which is
subject to a borrowing base and can be increased under certain circumstances and
subject to certain conditions) and a $2,960 million term loan credit facility
divided into a $1,960 million tranche B loan and a $1,000 million tranche C
loan. The Company borrowed $878 million under the term loan facility on the
Effective Date and the remaining $2,082 million of term loans, which were
available for up to sixty days after the Effective Date, have been fully drawn
as described below.
The
obligations under the revolving credit facility shall mature six years after the
Effective Date and shall bear interest for the first six months at LIBOR plus
1.75% or at the alternate base rate (“ABR”, defined as the greater of Citibank,
N.A.’s announced prime rate or 0.50% over the Federal Funds Rate) plus 0.75%,
and thereafter shall be adjusted in accordance with a pricing grid based on
availability under the revolving credit facility. Interest rates on the pricing
grid range from LIBOR plus 1.50% to LIBOR plus 2.00% and ABR plus 0.50% to ABR
plus 1.00%. The tranche B term loans shall mature seven years after the
Effective Date and the tranche C term loans shall mature eight years after the
Effective Date. In addition, the tranche C term loans are subject to a
pre-payment premium, should the Company choose to prepay the loans prior to
December 27, 2011. All Exit Facilities term loans bear interest at LIBOR
plus 1.9375% or at the alternate base rate (as previously defined) plus 0.9375%
at the Company’s election.
F-20
On
January 3, 2008, the Company drew an additional $2,082 million under the
Exit Facilities, of which $1,642 million was used by the Company to repay or
redeem the Repaid Instruments and interest thereon, both as discussed above.
Given that the Company intended to finance the Repaid Instruments on a long-term
basis, commitments for such long-term financing existed as of December 31,
2007 and that such intent was achieved with the refinancing of the Repaid
Instruments with long-term borrowings under the Exit Facilities, each of the
Repaid Instruments was classified as long-term in the Company’s balance sheet as
of December 31, 2007.
As of
September 30, 2008, the Company was party to a series of five year interest
rate swap agreements with a total notional value of $1,150 million to hedge the
variability of interest payments associated with its variable-rate term loans
under the Exit Facilities. Through these swap agreements, the Company has fixed
its base interest and premium rate at a combined average interest rate of
approximately 5.4% on the notional value of $1,150 million.
The Exit
Facilities were initially negotiated by the Predecessor Company and certain of
the Plan Proponents, reaching agreement on the majority of significant terms of
the Exit Facilities in early 2007. Between the time the terms were agreed in
early 2007 and the Effective Date, interest rates charged on similar debt
instruments for companies with similar debt ratings and capitalization levels
rose to higher levels. As such, when applying the provisions of fresh-start
reporting, the Company estimated a fair value adjustment of $163 million for the
available borrowings under the Exit Facilities. This estimated fair value
adjustment has been recorded within fresh-start reporting, and will be amortized
as interest expense over the terms of each of the underlying components of the
Exit Facilities. During the three and nine months ended September 30, 2008,
the Company recognized $5.6 million and $16.7 million, respectively, in interest
expense associated with the amortization of this fair value
adjustment.
Debt
consisted of the following:
|
|
Successor
Company
|
|||||||
|
|
September 30
|
December 31
|
||||||
|
|
2008
|
2007
|
||||||
|
|
(Millions
of Dollars)
|
|||||||
|
Exit
Facilities:
|
|
|||||||
|
Revolver
|
|
$
|
—
|
$
|
151.0
|
|||
|
Tranche
B term loan
|
|
1,945.3
|
—
|
|||||
|
Tranche
C term loan
|
|
992.5
|
878.0
|
|||||
|
Tranche
A term loan
|
|
—
|
1,334.6
|
|||||
|
Senior
subordinated third priority secured notes
|
|
—
|
305.2
|
|||||
|
Debt
discount
|
|
(146.3
|
)
|
(163.0
|
)
|
|||
|
Other
debt, primarily foreign instruments
|
|
116.2
|
129.6
|
|||||
|
|
2,907.7
|
2,635.4
|
||||||
|
Less:
short-term debt, including current maturities of long-term
debt
|
|
(135.8
|
)
|
(117.8
|
)
|
|||
|
Total
long-term debt
|
|
$
|
2,771.9
|
$
|
2,517.6
|
|||
The
obligations of the Company under the Exit Facilities are guaranteed by
substantially all of the domestic subsidiaries and certain foreign subsidiaries
of the Company, and are secured by substantially all personal property and
certain real property of the Company and such guarantors, subject to certain
limitations. The liens granted to secure these obligations and certain cash
management and hedging obligations have first priority.
The Exit
Facilities contain certain affirmative and negative covenants and events of
default, including, subject to certain exceptions, restrictions on incurring
additional indebtedness, mandatory prepayment provisions associated with
specified asset sales and dispositions, and limitations on i) investments; ii)
certain acquisitions, mergers or consolidations; iii) sale and leaseback
transactions; iv) certain transactions with affiliates; and v) dividends and
other payments in respect of capital stock.
F-21
The total
commitment and amounts outstanding on the revolving credit facility are as
follows:
|
Successor
Company
|
||||||||
|
September 30
|
December 31
|
|||||||
|
2008
|
2007
|
|||||||
|
(Millions
of Dollars)
|
||||||||
|
Current
Contractual Commitment
|
$ | 540.0 | $ | 540.0 | ||||
|
Outstanding:
|
||||||||
|
Revolving
credit facility
|
$ | — | $ | 151.0 | ||||
|
Letters
of credit
|
48.3 | 73.7 | ||||||
|
Total
outstanding
|
$ | 48.3 | $ | 224.7 | ||||
|
Borrowing
Base on Revolving Credit Facility
|
||||||||
|
Current
borrowings
|
$ | — | $ | 151.0 | ||||
|
Letters
of credit
|
48.3 | 73.7 | ||||||
|
Available
to borrow
|
491.7 | 315.3 | ||||||
|
Total
borrowing base
|
$ | 540.0 | $ | 540.0 | ||||
12. PENSIONS
AND OTHER POSTEMPLOYMENT BENEFITS
The
Company sponsors several defined benefit pension plans (“Pension Benefits”) and
health care and life insurance benefits (“Other Benefits”) for certain employees
and retirees around the world. Components of net periodic benefit cost for the
three months ended September 30 are as follows:
|
|
Successor
|
|
Predecessor
|
Successor
|
|
Predecessor
|
Successor
|
|
|
Predecessor
|
||||||||||||||
|
|
Pension
Benefits
|
|
|
|||||||||||||||||||||
|
|
United
States
|
International
|
Other
Benefits
|
|||||||||||||||||||||
|
|
2008
|
|
2007
|
2008
|
|
2007
|
2008
|
|
|
2007
|
||||||||||||||
|
|
(Millions
of Dollars)
|
|||||||||||||||||||||||
|
Service
cost
|
|
$
|
6.0
|
|
$
|
6.3
|
$
|
1.7
|
|
$
|
2.3
|
$
|
0.5
|
|
|
$
|
0.5
|
|||||||
|
Interest
cost
|
|
15.1
|
|
14.9
|
4.9
|
|
4.7
|
7.4
|
|
|
9.0
|
|||||||||||||
|
Expected
return on plan assets
|
|
(18.6
|
)
|
|
(18.4
|
)
|
(0.7
|
)
|
|
(1.1
|
)
|
—
|
|
|
—
|
|||||||||
|
Amortization
of actuarial loss
|
|
—
|
|
4.5
|
—
|
|
0.7
|
—
|
|
|
3.9
|
|||||||||||||
|
Amortization
of prior service cost (benefit)
|
|
—
|
|
1.6
|
—
|
|
—
|
—
|
|
|
(1.1
|
)
|
||||||||||||
|
Net
periodic benefit cost
|
|
$
|
2.5
|
|
$
|
8.9
|
$
|
5.9
|
|
$
|
6.6
|
$
|
7.9
|
|
|
$
|
12.3
|
|||||||
Components
of net periodic benefit cost for the nine months ended September 30 are as
follows:
|
|
Successor
|
|
Predecessor
|
Successor
|
|
Predecessor
|
Successor
|
|
|
Predecessor
|
||||||||||||||
|
|
Pension
Benefits
|
|
|
|||||||||||||||||||||
|
|
United
States
|
International
|
Other
Benefits
|
|||||||||||||||||||||
|
|
2008
|
|
2007
|
2008
|
|
2007
|
2008
|
|
|
2007
|
||||||||||||||
|
|
(Millions
of Dollars)
|
|||||||||||||||||||||||
|
Service
cost
|
|
$
|
17.9
|
|
$
|
19.4
|
$
|
5.1
|
|
$
|
4.9
|
$
|
1.5
|
|
|
$
|
1.5
|
|||||||
|
Interest
cost
|
|
46.2
|
|
45.1
|
14.9
|
|
11.8
|
23.1
|
|
|
27.0
|
|||||||||||||
|
Expected
return on plan assets
|
|
(55.7
|
)
|
|
(54.2
|
)
|
(2.1
|
)
|
|
(1.7
|
)
|
—
|
|
|
—
|
|||||||||
|
Amortization
of actuarial loss
|
|
—
|
|
13.7
|
—
|
|
1.9
|
—
|
|
|
11.6
|
|||||||||||||
|
Amortization
of prior service cost (benefit)
|
|
—
|
|
4.8
|
—
|
|
—
|
—
|
|
|
(3.2
|
)
|
||||||||||||
|
Settlement
gain
|
|
—
|
|
—
|
—
|
|
(0.3
|
)
|
—
|
|
|
—
|
||||||||||||
|
Net
periodic benefit cost
|
|
$
|
8.4
|
|
$
|
28.8
|
$
|
17.9
|
|
$
|
16.6
|
$
|
24.6
|
|
|
$
|
36.9
|
|||||||
F-22
13. INCOME
TAXES
For the
nine months ended September 30, 2008, the Company recorded income tax
expense of $71.7 million on income before income taxes of $133.4 million. This
compares to income tax expense of $45.8 million on income before income taxes of
$68.0 million in the same period of 2007. Income tax expense for the nine months
ended September 30, 2008 differs from statutory rates due to
non-recognition of income tax benefits on certain operating losses, primarily in
the U.S., and non-deductible items in various jurisdictions.
The
Company accounts for uncertainty in income taxes in accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”). As a
result, the Company applies a more-likely-than-not recognition threshold for all
tax uncertainties. FIN 48 only allows the recognition of those tax benefits that
have a greater than 50% likelihood of being sustained upon examination by the
taxing authorities.
During
the quarter ended September 30, 2008, the Company’s gross unrecognized tax
benefits increased by a net $156.8 million, primarily as a result of an increase
in unrecognized tax benefits relating to changes in tax positions taken during
the current and prior periods. Included in the net increase in gross
unrecognized tax benefits are decreases of $14.3 million relating to statute
expirations and $8.8 million relating to settlements with taxing
authorities.
The
amount of unrecognized tax benefits that, if recognized, would impact the
effective tax rate decreased by $18.0 million during the quarter ended
September 30, 2008. The total unrecognized tax benefits differ from the
amount that would impact the effective tax rate due to the impact of valuation
allowances. During 2008, any change in the amount that impacts the effective
rate that relates to unrecognized tax benefits from years prior to 2008 will be
adjusted through goodwill. Beginning January 1, 2009, pursuant to SFAS
141(R), any changes to this amount will be reflected through the income tax
provision.
14. LITIGATION
AND ENVIRONMENTAL MATTERS
Resolution
of Asbestos Liabilities
As
described in Note 2, all asbestos-related personal injury claims against the
Debtors will be addressed by the U.S. Asbestos Trust or the U.K. Asbestos Trust
in accordance with the terms of the Debtors’ confirmed Plan and the CVAs, and
such claims will be treated and paid in accordance with the terms of the Plan,
the CVAs, and their related documents. All asbestos property damage claims
against the Debtors have been compromised and resolved through the Plan and the
CVAs. Accordingly, the Debtors have not recorded an asbestos
liability.
Environmental
Matters
The
Company is a defendant in lawsuits filed, or the recipient of administrative
orders issued, 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 laws. These laws
require responsible parties to pay for remediating contamination resulting from
hazardous substances that were discharged into the environment by them, by prior
owners or occupants of their property, or by others to whom they sent such
substances for treatment or other disposition. 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 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 other companies that sent wastes to these sites, often numbering in the
hundreds or more, generally include large, solvent, publicly owned companies and
in most
F-23
such
situations the government agencies and courts have imposed liability in some
reasonable relationship to contribution of waste. Thus, 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. 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.
The
Company is a party to two lawsuits in Ohio and Michigan arising from
indemnification for costs relating to environmental releases from industrial
operations of the Predecessor Company prior to 1986. These two lawsuits have
been stayed temporarily to allow the parties to engage in settlement
negotiations. During the third quarter of 2008, the Company reached settlements
with certain parties, which resulted in net recoveries to the Company of $15.8
million. The Company continues to engage in settlement discussions with the
remaining parties, although no assurances can be given regarding the outcome of
such discussions.
Total
environmental reserves were $27.1 million and $30.4 million at
September 30, 2008 and December 31, 2007, respectively, and are
included in the consolidated balance sheets as follows:
|
Successor
|
||||||||
|
September 30
2008
|
December 31
2007
|
|||||||
|
(Millions
of Dollars)
|
||||||||
|
Current
liabilities
|
$ | 4.5 | $ | 7.5 | ||||
|
Long-term
accrued liabilities
|
22.6 | 22.9 | ||||||
| $ | 27.1 | $ | 30.4 | |||||
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 September 30, 2008, management
estimates that reasonably possible material additional losses above and beyond
management’s best estimate of required remediation costs as recorded
approximates $72 million.
Other
Matters
The
Company is involved in other legal actions and claims, directly and through its
subsidiaries. Management does not believe that the outcomes of these other
actions or claims are likely to have a material adverse effect on the Company’s
financial position, operating results, or cash flows.
15. ASSET
RETIREMENT OBLIGATIONS
The
Company records asset retirement obligations in accordance with SFAS 143, Accounting for Asset Retirement
Obligations and Financial Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations (“FIN 47”) when the amount can be reasonably
estimated, typically upon decision to close or sell an operating site. The
Company has identified sites with contractual obligations and sites that are
closed or expected to be closed and sold in connection with Restructuring 2006.
In connection with these sites, the Company has accrued $27.6 million and $27.3
million as of September 30, 2008 and December 31, 2007, respectively,
for conditional asset retirement obligations, primarily related to anticipated
costs of removing hazardous materials in buildings, and has considered
impairment issues that may result from capitalization of asset retirement
obligations in accordance with SFAS 144.
The
Company has additional asset retirement obligations, also 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
F-24
these
retirement obligations. Accordingly, the Company is currently unable to
determine amounts to accrue for conditional asset retirement obligations at such
sites.
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 impairment issues in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, and for conditional asset retirement
obligations in accordance with SFAS 143 and FIN 47.
Reserves
for conditional asset retirement obligations are included in the consolidated
balance sheets as follows:
|
Successor
|
||||||||
|
September 30
2008
|
December 31
2007
|
|||||||
|
(Millions
of Dollars)
|
||||||||
|
Current
liabilities
|
$ | 11.4 | $ | 11.1 | ||||
|
Long-term
accrued liabilities
|
16.2 | 16.2 | ||||||
| $ | 27.6 | $ | 27.3 | |||||
16. COMPREHENSIVE
INCOME (LOSS)
The
Company’s comprehensive income (loss) consists of the following:
|
Successor
|
Predecessor
|
Successor
|
Predecessor
|
|||||||||||||
|
Three
Months Ended
September 30
|
Nine
Months Ended
September 30
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
(Millions
of Dollars)
|
||||||||||||||||
|
Net
income
|
$ | 3.6 | $ | 13.7 | $ | 61.7 | $ | 22.2 | ||||||||
|
Foreign
currency translation adjustments and other
|
(175.0 | ) | 96.9 | (59.8 | ) | 143.6 | ||||||||||
|
Hedge
instruments, net of tax
|
(22.1 | ) | (2.5 | ) | 4.6 | 0.9 | ||||||||||
|
Postemployment
benefits, net of tax
|
— | 7.9 | — | 24.9 | ||||||||||||
| $ | (193.5 | ) | $ | 116.0 | $ | 6.5 | $ | 191.6 | ||||||||
17. CAPITAL
STOCK
Common
and Preferred Stock
On
September 11, 2008, the Company purchased 1,095,500 shares of its common
stock for approximately $16.7 million in a single transaction with an unrelated
party.
Warrants
In
connection with the Plan, holders of the Predecessor Company’s common stock,
Series C ESOP Convertible Preferred Shares and the 7% Convertible Junior
Subordinate Debentures received warrants to purchase shares of common stock of
the Successor Company at an exercise price equal to $45.815, exercisable through
December 27, 2014. The Company issued 6,951,871 warrants as of the
Effective Date, all of which remained outstanding at both September 30,
2008 and December 31, 2007. All of the Predecessor Company’s common stock
(and all rights and covenants related thereto) was cancelled pursuant to the
Plan on December 27, 2007, of which 91,344,239 shares were outstanding at
December 27, 2007.
F-25
The
Company has accounted for these warrants as equity instruments in accordance
with Emerging Issues Task Force 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,
and as such, these warrants are classified in stockholders’ equity as
they meet the definition of “indexed to the issuer’s stock” in Emerging Issues
Task Force 01-6, The Meaning
of Indexed to a Company’s Own Stock. The Company estimated the fair value
of these warrants at $33.0 million as of December 31, 2007 using the
Black-Scholes option pricing model.
18. STOCK-BASED
COMPENSATION
On
February 2, 2005, the Predecessor Company entered into a five-year
employment agreement with José Maria Alapont, effective March 23, 2005,
whereby Mr. Alapont was appointed as the Predecessor Company’s president
and chief executive officer. Mr. Alapont served as chairman of the board of
the directors of the Company from June 2005 to December 2007. In connection with
this agreement, the Plan Proponents agreed to amend the Plan to provide that the
Successor Company would grant to Mr. Alapont stock options equal to at
least 4% of the value of the Successor Company at the reorganization date (the
“Employment Agreement Options”). The Employment Agreement Options vest ratably
over the life of the employment agreement, such that one fifth of the Employment
Agreement Options vest on each anniversary of the employment agreement effective
date. For purposes of estimating fair value, the Employment Agreement Options
were deemed to expire on December 27, 2014.
Additionally,
one-half of the Employment Agreement Options had an additional feature allowing
for the exchange of one half of the options for shares of stock of the Successor
Company, at the exchange equivalent of four options for one share of
Class A Common Stock. The Employment Agreement Options without the exchange
feature are referred to herein as “plain vanilla options” and those Employment
Agreement Options with the exchange feature are referred to as “options with
exchange.”
Prior to
the Effective Date of the Plan, the Predecessor Company was required to reassess
the value of the Employment Agreement Options quarterly and adjust the aggregate
compensation expense recognized to reflect any change in the value of the
Employment Agreement Options. The Predecessor Company recorded compensation
expense pertaining to the options of $2.2 million and $5.0 million for the three
and nine months ended September 30, 2007, respectively.
In
accordance with SFAS No. 123(R), Share Based Payments, the
Predecessor Company determined the amount of compensation expense associated
with the Employment Agreement Options based upon the estimated fair value of
such options as of September 30, 2007. Key assumptions and related
option-pricing models used by the Predecessor Company are summarized in the
following table:
|
Plain Vanilla
Options
|
Options with
Exchange
|
|||||||
|
Valuation
model
|
Black-Scholes
|
Modified Binomial
|
||||||
|
Expected
volatility
|
41 | % | 41 | % | ||||
|
Expected
dividend yield
|
0 | % | 0 | % | ||||
|
Risk-free
rate over the estimated expected option life
|
4.22 – 4.47 | % | 4.22 – 4.47 | % | ||||
|
Expected
option life (in years)
|
3.79 | 4.62 | ||||||
In
estimating the expected life of the plain vanilla options, the Company utilized
the “simplified method” as first described in SEC Staff Accounting Bulletin
(“SAB”) 107 and as permitted in accordance with SAB 110. The simplified method
was used as there is only one individual who had outstanding options as of
September 30, 2007 and no historical option exercise data was
available.
On the
Effective Date and in accordance with the Plan, the Company granted to
Mr. Alapont stock options to purchase four million shares of Successor
Company Class A Common Stock at an exercise price of $19.50 (the “Granted
Options”). Pursuant to the Stock Option Agreement dated as of December 27,
2007 between the Company and Mr. Alapont (the “Initial CEO Stock Option
Agreement”), the Granted Options do not have an exchange feature. In lieu of
“options with exchange” under the Employment Agreement Options, the Successor
Company
F-26
entered
into a deferred compensation agreement with Mr. Alapont intended to be the
economic equivalent of the options with exchange. Under the terms of this
deferred compensation agreement, Mr. Alapont is entitled to certain
distributions of Class A Common Stock, or, at the election of
Mr. Alapont, certain distributions of cash upon certain events as set forth
in the Deferred Compensation Agreement dated as of December 27, 2007
between the Company and Mr. Alapont (the “Deferred Compensation
Agreement”). The amount of the distributions shall be equal to the fair value of
500,000 shares of Class A Common Stock, subject to certain adjustments and
offsets, determined as of the first to occur of (1) the date on which
Mr. Alapont’s employment with the Company terminates,
(2) March 23, 2010, the date on which Mr. Alapont’s employment
agreement with the Company expires, (3) Mr. Alapont’s death,
(4) the date Mr. Alapont becomes disabled (as defined for purposes of
Section 409A of the Internal Revenue Code), (5) at the election of
Mr. Alapont, a change in control (as defined for purposes of
Section 409A of the Internal Revenue Code), or (6) the occurrence of
an unforeseeable emergency (as defined for purposes of Section 409A of the
Internal Revenue Code).
In
connection with fresh-start reporting, the Company determined the aggregate
estimated fair value at $33.7 million associated with the Granted Options and
deferred compensation in accordance with SFAS 123(R). Since the Deferred
Compensation Agreement provides for net cash settlement at the option of
Mr. Alapont, the Granted Options are treated as a liability award under
SFAS 123(R), and the vested portion of the awards, aggregating $19.1 million,
has been recorded as a liability as of December 31, 2007.
On
February 14, 2008, the Company entered into Amendment No. 1 to the
Initial CEO Stock Option Agreement, dated as of February 14, 2008 (the
“Amendment”). Pursuant to the Amendment, the exercise price for the option was
increased to $29.75 per share. On February 15, 2008, the Initial CEO Stock
Option Agreement as amended was cancelled by mutual written agreement of the
Company and Mr. Alapont. On February 15, 2008, subject to obtaining
the approval of the Company’s shareholders, the Company entered into a new Stock
Option Agreement with Mr. Alapont dated as of February 15, 2008 (the
“New CEO Stock Option Agreement”). Subject to shareholder approval, the New CEO
Stock Option Agreement grants Mr. Alapont a non-transferable, non-qualified
option (the “CEO Option”) to purchase up to 4,000,000 shares of the Company’s
Class A Common Stock subject to the terms and conditions described below.
The exercise price for the CEO Option is $19.50 per share, which is at least
equal to the fair market value of a share of the Company’s Class A Common
Stock on the date of grant of the CEO Option. In no event may the CEO Option be
exercised, in whole or in part, after December 27, 2014. The New CEO Stock
Option Agreement provides for vesting as follows: 60% of the shares of
Class A Common Stock subject to the Option are vested, and an additional
20% of the shares of Class A Common Stock subject to the Option shall vest
on each of March 23, 2009, and March 23, 2010.
The
February 2008 transactions were undertaken to comply with Internal Revenue Code
Section 409A in connection with the implementation of Mr. Alapont’s
employment agreement. The grant of the CEO Option was approved by the Company’s
shareholders effective July 28, 2008.
The
Company revalued the options granted to Mr. Alapont at September 30,
2008, resulting in a revised fair value of $19.4 million. During the three and
nine months ended September 30, 2008, the Company recognized $4.2 million
and $5.2 million, respectively, in income associated with these options. Since
the Deferred Compensation Agreement provides for net cash settlement at the
option of Mr. Alapont, the Granted Options are treated as a liability award
under SFAS 123(R), and the vested portion of the awards, aggregating $13.9
million, has been recorded as a liability as of September 30, 2008. The
remaining $5.5 million of total unrecognized compensation cost as of
September 30, 2008 related to non-vested stock options is expected to be
recognized ratably over the remaining term of Mr. Alapont’s employment
agreement. Key assumptions and related option-pricing models used by the Company
are summarized in the following table:
F-27
|
Successor Company September 30, 2008 Valuation
|
||||||||||||
|
Plain Vanilla
Options
|
Options Connected
To
Deferred
Compensation
|
Deferred
Compensation
|
||||||||||
|
Valuation
model
|
Black-Scholes
|
Monte Carlo
|
Monte Carlo
|
|||||||||
|
Expected
volatility
|
55 | % | 55 | % | 55 | % | ||||||
|
Expected
dividend yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Risk-free
rate over the estimated expected option life
|
2.65 | % | 2.65 | % | 2.65 | % | ||||||
|
Expected
option life (in years)
|
3.32 | 3.86 | 3.86 | |||||||||
19. INCOME
PER COMMON SHARE
The
common shares of the Predecessor Company were cancelled upon the implementation
of the Plan. As such, the earnings per share information for the Predecessor
Company is not meaningful to shareholders of the Successor Company’s common
shares, or to potential investors in such common shares.
The
following table sets forth the computation of basic and diluted income per
common share:
|
Successor
|
Predecessor
|
Successor
|
Predecessor
|
|||||||||||||
|
Three
Months Ended
September 30
|
Nine
Months Ended
September 30
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
(Millions
of Dollars, Except Share and Per Share
Amounts)
|
||||||||||||||||
|
Net
income
|
$ | 3.6 | $ | 13.7 | $ | 61.7 | $ | 22.2 | ||||||||
|
Weighted
average shares outstanding, basic (in millions)
|
99.8 | 89.9 | 99.9 | 89.7 | ||||||||||||
|
Basic
income per common share
|
$ | 0.04 | $ | 0.15 | $ | 0.62 | $ | 0.25 | ||||||||
|
Weighted
average shares outstanding, diluted (in millions)
|
100.1 | 91.3 | 100.2 | 91.3 | ||||||||||||
|
Diluted
income per common share
|
$ | 0.04 | $ | 0.15 | $ | 0.62 | $ | 0.24 | ||||||||
The
500,000 common shares issued in connection with the Deferred Compensation
Agreement described in Note 18 are excluded from the basic earnings per share
calculation as required by Emerging Issues Task Force 97-14, Accounting for Deferred Compensation
Arrangements Where Amounts Earned Are Held in a Rabbi Trust and
Invested.
20. OPERATIONS
BY REPORTING SEGMENT
The
Company’s integrated operations are organized into six reporting segments
generally corresponding to major product groups; Powertrain Energy, Powertrain
Sealing and Bearings, Vehicle Safety and Protection, Automotive Products, Global
Aftermarket and Corporate.
The
accounting policies of the segments are the same as those of the Company.
Revenues related to products sold from Powertrain Energy, Powertrain Sealing and
Bearings, Vehicle Safety and Protection, and Automotive Products to OE customers
are recorded within the respective segments. Revenues from such products sold to
aftermarket customers are recorded within the Global Aftermarket segment. All
product transferred into Global Aftermarket from other reporting segments is
transferred at cost in the United States and at agreed-upon transfer prices
internationally.
The
Company evaluates segment performance principally on a non-GAAP Operational
EBITDA basis. Operational EBITDA is defined as earnings 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
F-28
or losses
on the sales of businesses, and the impact on gross margin of the fresh-start
reporting valuation of inventory.
Net sales
and gross margin information by reporting segment is as follows:
|
|
Successor
|
|
|
Predecessor
|
Successor
|
|
|
Predecessor
|
||||||||
|
|
Net
Sales
|
|||||||||||||||
|
|
Three
Months Ended
September 30
|
Nine
Months Ended
September 30
|
||||||||||||||
|
|
2008
|
|
|
2007
|
2008
|
|
|
2007
|
||||||||
|
|
(Millions
of Dollars)
|
|||||||||||||||
|
|
||||||||||||||||
|
Powertrain
Energy
|
|
$
|
515
|
|
|
$
|
490
|
$
|
1,726
|
|
|
$
|
1,513
|
|||
|
Powertrain
Sealing and Bearings
|
|
266
|
|
|
252
|
858
|
|
|
790
|
|||||||
|
Vehicle
Safety and Protection
|
|
173
|
|
|
196
|
594
|
|
|
599
|
|||||||
|
Automotive
Products
|
|
93
|
|
|
83
|
302
|
|
|
243
|
|||||||
|
Global
Aftermarket
|
|
645
|
|
|
665
|
2,066
|
|
|
2,020
|
|||||||
|
|
$
|
1,692
|
|
|
$
|
1,686
|
$
|
5,546
|
|
|
$
|
5,165
|
||||
|
|
Successor
|
|
|
Predecessor
|
Successor
|
|
|
Predecessor
|
||||||||
|
|
Gross
Margin
|
|||||||||||||||
|
|
Three
Months Ended
September 30
|
Nine
Months Ended
September 30
|
||||||||||||||
|
|
2008
|
|
|
2007
|
2008
|
|
|
2007
|
||||||||
|
|
(Millions
of Dollars)
|
|||||||||||||||
|
|
||||||||||||||||
|
Powertrain
Energy
|
|
$
|
67
|
|
|
$
|
53
|
$
|
242
|
|
|
$
|
191
|
|||
|
Powertrain
Sealing and Bearings
|
|
11
|
|
|
14
|
71
|
|
|
48
|
|||||||
|
Vehicle
Safety and Protection
|
|
38
|
|
|
47
|
150
|
|
|
150
|
|||||||
|
Automotive
Products
|
|
20
|
|
|
13
|
62
|
|
|
52
|
|||||||
|
Global
Aftermarket
|
|
140
|
|
|
153
|
410
|
|
|
472
|
|||||||
|
Corporate
|
|
3
|
|
|
(1
|
)
|
6
|
|
|
(3
|
)
|
|||||
|
|
$
|
279
|
|
|
$
|
279
|
$
|
941
|
|
|
$
|
910
|
||||
F-29
Operational
EBITDA by reporting segment and the reconciliation of Operational EBITDA to
income before income tax expense is as follows:
|
|
Successor
|
|
Predecessor
|
Successor
|
|
Predecessor
|
||||||||||
|
|
Three
Months Ended
September 30
|
Nine
Months Ended
September 30
|
||||||||||||||
|
|
2008
|
|
2007
|
2008
|
|
2007
|
||||||||||
|
|
(Millions
of Dollars)
|
|||||||||||||||
|
Powertrain
Energy
|
|
$
|
79
|
|
$
|
71
|
$
|
277
|
|
$
|
245
|
|||||
|
Powertrain
Sealing and Bearings
|
|
8
|
|
14
|
58
|
|
48
|
|||||||||
|
Vehicle
Safety and Protection
|
|
36
|
|
45
|
142
|
|
141
|
|||||||||
|
Automotive
Products
|
|
21
|
|
16
|
59
|
|
53
|
|||||||||
|
Global
Aftermarket
|
|
89
|
|
108
|
303
|
|
331
|
|||||||||
|
Corporate
|
|
(55
|
)
|
|
(88
|
)
|
(199
|
)
|
|
(241
|
)
|
|||||
|
Total
Operational EBITDA
|
|
178
|
|
166
|
640
|
|
577
|
|||||||||
|
Interest
expense, net
|
|
(47
|
)
|
|
(50
|
)
|
(137
|
)
|
|
(152
|
)
|
|||||
|
Depreciation
and amortization
|
|
(95
|
)
|
|
(89
|
)
|
(266
|
)
|
|
(261
|
)
|
|||||
|
Restructuring
charges, net
|
|
(11
|
)
|
|
(10
|
)
|
(14
|
)
|
|
(39
|
)
|
|||||
|
Gross
margin impact of December 31, 2007 fresh-start reporting inventory
adjustment
|
|
—
|
|
—
|
(68
|
)
|
|
—
|
||||||||
|
Chapter
11 and U.K. Administration related reorganization expenses
|
|
(2
|
)
|
|
(15
|
)
|
(15
|
)
|
|
(57
|
)
|
|||||
|
Other
|
|
(1
|
)
|
|
5
|
(7
|
)
|
|
—
|
|||||||
|
Income
before income tax expense
|
|
$
|
22
|
|
$
|
7
|
$
|
133
|
|
$
|
68
|
|||||
Total
assets by reporting segment are as follows:
|
Successor
|
||||||||
|
September 30
2008
|
December 31
2007
|
|||||||
|
(Millions
of Dollars)
|
||||||||
|
Powertrain
Energy
|
$ | 1,669 | $ | 1,820 | ||||
|
Powertrain
Sealing and Bearings
|
847 | 822 | ||||||
|
Vehicle
Safety and Protection
|
1,229 | 1,708 | ||||||
|
Automotive
Products
|
859 | 1,022 | ||||||
|
Global
Aftermarket
|
2,276 | 1,988 | ||||||
|
Corporate
|
1,034 | 506 | ||||||
| $ | 7,914 | $ | 7,866 | |||||
F-30
ICAHN
ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The
following unaudited pro forma condensed combined financial information is
presented to give effect to the acquisition by Icahn Enterprises of 24,491,924
Federal-Mogul Shares from Thornwood on December 2, 2008 and the previous
acquisition by Icahn Enterprises on July 3, 2008 of 50,750,000 shares of
Federal-Mogul Common Stock from Thornwood. Additionally, the unaudited pro forma
condensed combined financial information is presented to give effect to the
issuance of 4,286,087 depositary units in exchange for the 24,491,924
Federal-Mogul Shares.
The
unaudited pro forma condensed combined financial information is based on the (i)
historical consolidated financial statements of Icahn Enterprises and (ii)
historical consolidated financial statements of Federal-Mogul (predecessor and
successor company, where applicable) included elsewhere in this current report
on Form 8-K/A or incorporated herein by reference to Icahn Enterprises’ current
report on Form 8-K/A filed with the Securities and Exchange Commission (the
“SEC”) on August 7, 2008. The assumptions and adjustments used are described
below and in the accompanying notes to the unaudited pro forma condensed
combined financial information.
The
unaudited pro forma condensed combined balance sheet as of September 30, 2008 is
presented as if the acquisition of the 24,491,924 Federal-Mogul Shares from
Thornwood had occurred as of September 30, 2008. The unaudited pro forma
condensed combined statements of operations for the nine months ended September
30, 2008 and for the year ended December 31, 2007 have been prepared to
give effect to the unaudited pro forma adjustments necessary as if the
acquisitions from Thornwood had taken place prior to January 1,
2007. The Icahn
Enterprises column as of September 30, 2008 and for the nine months ended
September 30, 2008 includes amounts for Federal-Mogul, since the date of
common control, February 25, 2008, as reported in Icahn Enterprises Form 10-Q,
filed with the SEC on November 5, 2008.
Federal-Mogul
emerged from bankruptcy on December 27, 2007 and adopted fresh-start reporting.
Accordingly, the unaudited pro forma condensed combined statement of operations
for the year ended December 31, 2007 gives effect to adjustments relating to the
emergence from bankruptcy and the adoption of fresh-start reporting as if it had
occurred prior to January 1, 2007.
The
acquisition of the controlling interest in Federal-Mogul is accounted for as a
business combination of entities under common control and recorded at the
historical basis of the assets and liabilities acquired at the effective date of
control by Mr. Icahn, February 25, 2008. The unaudited pro forma condensed
combined balance sheet as of September 30, 2008, included herein, includes the
pro forma combination of Icahn Enterprises and Federal-Mogul, and pro forma
adjustments relating to the difference in Icahn Enterprises’ basis in
Federal-Mogul and Icahn Enterprises’ share of the equity in
Federal-Mogul.
The
unaudited pro forma condensed combined financial information does not purport to
be indicative of the financial position and results of operations that Icahn
Enterprises will obtain in the future, or that Icahn Enterprises would have
obtained if the acquisition of the Federal-Mogul Shares from Thornwood on
December 2, 2008 had been effective as of the dates indicated above. The pro
forma adjustments are based upon currently available information and upon
certain assumptions that Icahn Enterprises believes are reasonable. The
unaudited pro forma condensed combined financial information should be read in
conjunction with the historical consolidated financial statements of Icahn
Enterprises and Federal-Mogul, in each case included in its annual reports on
Form 10-K and quarterly reports on Form 10-Q, and related
amendments.
F-31
ICAHN
ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September
30, 2008
(In
$000s)
|
Historical
|
Pro Forma Adjustments
|
|||||||||||
|
Icahn
Enterprises
|
Acquisition of
Additional Federal-
Mogul Shares
|
Pro Forma
Results
|
||||||||||
|
ASSETS
|
||||||||||||
|
Investment
Management:
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 8,457 | $ | - | $ | 8,457 | ||||||
|
Cash
held at consolidated affiliated partnerships and restircted
cash
|
2,939,909 | - | 2,939,909 | |||||||||
|
Securities
owned, at fair value
|
5,930,257 | - | 5,930,257 | |||||||||
|
Due
from brokers
|
554,571 | - | 554,571 | |||||||||
|
Other
assets
|
257,072 | - | 257,072 | |||||||||
| 9,690,266 | - | 9,690,266 | ||||||||||
|
Automotive:
|
||||||||||||
|
Cash
and cash equivalents
|
781,547 | - | 781,547 | |||||||||
|
Accounts
receivable, net
|
1,185,634 | - | 1,185,634 | |||||||||
|
Inventories,
net
|
1,033,968 | - | 1,033,968 | |||||||||
|
Property,
plant and equipment, net
|
2,014,884 | - | 2,014,884 | |||||||||
|
Goodwill
and intangible assets
|
2,072,341 | 6,360 |
2a
|
2,078,701 | ||||||||
|
Other
assets
|
814,706 | - | 814,706 | |||||||||
| 7,903,080 | 6,360 | 7,909,440 | ||||||||||
|
Metals,
Real Estate and Home Fashion:
|
||||||||||||
|
Cash
and cash equivalents
|
264,747 | - | 264,747 | |||||||||
|
Other
assets
|
1,566,807 | - | 1,566,807 | |||||||||
| 1,831,554 | - | 1,831,554 | ||||||||||
|
Holding
Company:
|
||||||||||||
|
Cash
and cash equivalents
|
1,531,474 | 3,098 |
2b
|
1,534,572 | ||||||||
|
Restricted
cash
|
30,901 | - | 30,901 | |||||||||
|
Other
assets
|
385,385 | - | 385,385 | |||||||||
|
|
1,947,760 | 3,098 | 1,950,858 | |||||||||
|
Total
Assets
|
$ | 21,372,660 | $ | 9,458 | $ | 21,382,118 | ||||||
|
LIABILITIES
AND PARTNERS' EQUITY
|
||||||||||||
|
Investment
Management:
|
||||||||||||
|
Accounts
payable, accrued expenses and other liabilities
|
$ | 595,279 | $ | - | $ | 595,279 | ||||||
|
Securities
sold, not yet purchased, at fair value
|
1,038,768 | - | 1,038,768 | |||||||||
|
Due
to brokers
|
1,606,667 | - | 1,606,667 | |||||||||
| 3,240,714 | - | 3,240,714 | ||||||||||
|
Automotive:
|
||||||||||||
|
Accounts
payable, accrued expenses and other liabilities
|
1,860,541 | - | 1,860,541 | |||||||||
|
Debt
|
2,907,721 | - | 2,907,721 | |||||||||
|
Postemployment
benefit liability
|
980,777 | - | 980,777 | |||||||||
| 5,749,039 | - | 5,749,039 | ||||||||||
|
Metals,
Real Estate and Home Fashion:
|
||||||||||||
|
Accounts
payable, accrued expenses and other liabilities
|
195,584 | - | 195,584 | |||||||||
|
Debt
|
88,303 | - | 88,303 | |||||||||
| 283,887 | - | 283,887 | ||||||||||
|
Holding
Company:
|
||||||||||||
|
Accounts
payable, accrued expenses and other liabilities
|
176,055 | - | 176,055 | |||||||||
|
Debt
|
1,926,183 | - | 1,926,183 | |||||||||
|
Preferred
limited partnership units
|
128,153 | - | 128,153 | |||||||||
| 2,230,391 | - | 2,230,391 | ||||||||||
|
Total
Liabilities
|
11,504,031 | - | 11,504,031 | |||||||||
|
Non-controlling
interests:
|
||||||||||||
|
Investment
Management
|
5,816,251 | - | 5,816,251 | |||||||||
|
Automotive
|
1,084,847 | (519,929 | ) 2c | 564,918 | ||||||||
|
Holding
Company and other
|
118,518 | - | 118,518 | |||||||||
| 7,019,616 | (519,929 | ) | 6,499,687 | |||||||||
|
Partners'
Equity
|
2,849,013 | 529,387 | 3,378,400 | |||||||||
|
Total
Liabilities and Partners' Equity
|
$ | 21,372,660 | $ | 9,458 | $ | 21,382,118 | ||||||
See
accompanying notes.
F-32
ICAHN
ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine
Months Ended September 30, 2008
(In
000s, except per unit data)
|
Historical
|
Pro Forma
Adjustments
|
|||||||||||||||||||
|
Icahn Enterprises
|
Federal-Mogul
(1/1/08 - 2/29/08)
|
Subtotal
|
Acquisition of
Additional
Federal-Mogul
Shares
|
Pro Forma
Results
|
||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Investment
Management
|
$ | (1,290,399 | ) | $ | - | $ | (1,290,399 | ) | $ | - | $ | (1,290,399 | ) | |||||||
|
Automotive
|
4,392,212 | 1,222,400 | 5,614,612 | - | 5,614,612 | |||||||||||||||
|
Metals
|
1,143,727 | - | 1,143,727 | - | 1,143,727 | |||||||||||||||
|
Real
Estate
|
74,879 | - | 74,879 | - | 74,879 | |||||||||||||||
|
Home
Fashion
|
327,934 | - | 327,934 | - | 327,934 | |||||||||||||||
|
Holding
Company
|
142,278 | - | 142,278 | - | 142,278 | |||||||||||||||
| 4,790,631 | 1,222,400 | 6,013,031 | - | 6,013,031 | ||||||||||||||||
|
Expenses:
|
||||||||||||||||||||
|
Investment
Management
|
56,962 | - | 56,962 | - | 56,962 | |||||||||||||||
|
Automotive
|
4,257,440 | 1,242,700 | 5,500,140 | (107,500 | ) 2d | 5,392,640 | ||||||||||||||
|
Metals
|
1,020,951 | - | 1,020,951 | - | 1,020,951 | |||||||||||||||
|
Real
Estate
|
66,761 | - | 66,761 | - | 66,761 | |||||||||||||||
|
Home
Fashion
|
385,483 | - | 385,483 | - | 385,483 | |||||||||||||||
|
Holding
Company
|
122,363 | - | 122,363 | - | 122,363 | |||||||||||||||
| 5,909,960 | 1,242,700 | 7,152,660 | (107,500 | ) | 7,045,160 | |||||||||||||||
|
Loss
from continuing operations before income taxes
|
||||||||||||||||||||
|
and
non-controlling interests in (income) loss
|
(1,119,329 | ) | (20,300 | ) | (1,139,629 | ) | 107,500 | (1,032,129 | ) | |||||||||||
|
Income
tax expense
|
(108,602 | ) | (10,100 | ) | (118,702 | ) | (5,300 | ) 2d | (124,002 | ) | ||||||||||
|
Non-controlling
interests in (income) loss:
|
||||||||||||||||||||
|
Investment
Management
|
1,188,675 | - | 1,188,675 | - | 1,188,675 | |||||||||||||||
|
Automotive
|
(50,594 | ) | (200 | ) | (50,794 | ) | 10,574 | 2c | (40,220 | ) | ||||||||||
|
Holding
Company and Other
|
19,492 | - | 19,492 | - | 19,492 | |||||||||||||||
| 1,157,573 | (200 | ) | 1,157,373 | 10,574 | 1,167,947 | |||||||||||||||
|
(Loss)
income from continuing operations
|
$ | (70,358 | ) | $ | (30,600 | ) | $ | (100,958 | ) | $ | 112,774 | $ | 11,816 | |||||||
|
Loss
from continuing operations applicable to
|
||||||||||||||||||||
|
limited
partners
|
$ | (89,269 | ) | $ | (8,730 | ) | ||||||||||||||
|
Loss
per limited partnership unit:
|
||||||||||||||||||||
|
Basic
and Diluted (Note 3)
|
$ | (1.27 | ) | $ | (0.12 | ) | ||||||||||||||
|
Weighted
average limited partnership units outstanding:
|
||||||||||||||||||||
|
Basic
and Diluted
|
70,490 | 74,776 | ||||||||||||||||||
See
accompanying notes.
F-33
ICAHN
ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year
Ended December 31, 2007
(In
000s, except per unit data)
|
Historical
|
Pro Forma
Adjustments
|
|||||||||||||||||||
|
Icahn Enterprises
|
Federal-Mogul
|
Subtotal
|
Acquisition of
Additional
Federal-Mogul
Shares
|
Pro Forma
Results
|
||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Investment
Management
|
$ | 588,254 | $ | - | $ | 588,254 | $ | - | $ | 588,254 | ||||||||||
|
Automotive
|
- | 8,717,900 | 8,717,900 | (1,746,800 | ) 2e | 6,971,100 | ||||||||||||||
|
Metals
|
833,680 | - | 833,680 | - | 833,680 | |||||||||||||||
|
Real
Estate
|
110,362 | - | 110,362 | - | 110,362 | |||||||||||||||
|
Home
Fashion
|
705,487 | - | 705,487 | - | 705,487 | |||||||||||||||
|
Holding
Company
|
249,843 | - | 249,843 | - | 249,843 | |||||||||||||||
| 2,487,626 | 8,717,900 | 11,205,526 | (1,746,800 | ) | 9,458,726 | |||||||||||||||
|
Expenses:
|
||||||||||||||||||||
|
Investment
Management
|
99,787 | - | 99,787 | - | 99,787 | |||||||||||||||
|
Automotive
|
- | 6,978,000 | 6,978,000 | (144,000 | ) 2f | 6,834,000 | ||||||||||||||
|
Metals
|
796,849 | - | 796,849 | - | 796,849 | |||||||||||||||
|
Real
Estate
|
98,449 | - | 98,449 | - | 98,449 | |||||||||||||||
|
Home
Fashion
|
844,129 | - | 844,129 | - | 844,129 | |||||||||||||||
|
Holding
Company
|
161,681 | - | 161,681 | - | 161,681 | |||||||||||||||
| 2,000,895 | 6,978,000 | 8,978,895 | (144,000 | ) | 8,834,895 | |||||||||||||||
|
Income
from continuing operations before income taxes
|
||||||||||||||||||||
|
and
non-controlling interests in (income) loss
|
486,731 | 1,739,900 | 2,226,631 | (1,602,800 | ) | 623,831 | ||||||||||||||
|
Income
tax expense
|
(8,436 | ) | (331,800 | ) | (340,236 | ) | 264,600 | 2g | (75,636 | ) | ||||||||||
|
Non-controlling
interests in (income) loss:
|
||||||||||||||||||||
|
Investment
Management
|
(313,982 | ) | - | (313,982 | ) | - | (313,982 | ) | ||||||||||||
|
Automotive
|
- | 4,200 | 4,200 | (18,599 | ) 2c | (14,399 | ) | |||||||||||||
|
Holding
Company and Other
|
52,959 | - | 52,959 | - | 52,959 | |||||||||||||||
| (261,023 | ) | 4,200 | (256,823 | ) | (18,599 | ) | (275,422 | ) | ||||||||||||
|
Income
from continuing operations
|
$ | 217,272 | $ | 1,412,300 | $ | 1,629,572 | $ | (1,356,799 | ) | $ | 272,773 | |||||||||
|
Income
from continuing operations applicable to
|
||||||||||||||||||||
|
limited
partners
|
$ | 13,747 | $ | 68,144 | ||||||||||||||||
|
Earnings
per limited partnership unit:
|
||||||||||||||||||||
|
Basic
and Diluted (Note 3)
|
$ | 0.21 | $ | 0.98 | ||||||||||||||||
|
Weighted
average limited partnership units outstanding:
|
||||||||||||||||||||
|
Basic
and Diluted
|
65,286 | 69,572 | ||||||||||||||||||
See
accompanying notes.
F-34
ICAHN
ENTERPRISES L.P. AND SUBSIDIARIES
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1.
Acquisition of Federal-Mogul Shares.
On
December 2, 2008, Icahn Enterprises acquired 24,491,924 Federal-Mogul Shares
from Thornwood pursuant to a Contribution and Exchange Agreement, among Icahn
Enterprises, Thornwood and Barberry Corp. (the “Agreement”). As a result of
the transaction, Icahn Enterprises beneficially owns 75.7% of the total issued
and outstanding Federal-Mogul Common Stock. In consideration of the acquisition
of the Federal-Mogul Shares, Icahn Enterprises issued to Thornwood 4,286,087
fully paid and non-assessable depositary units representing limited partnership
interests in Icahn Enterprises (“Depositary Units”).
For
further information on the history and background of Federal-Mogul, see Note 2
to the consolidated financial statements of Icahn Enterprises included in Icahn
Enterprises’ quarterly report on Form 10-Q filed with the SEC on November 5,
2008.
Federal-Mogul
is considered an entity under common control with Icahn Enterprises.
Accordingly, the consolidated financial statements to be included in our future
filings with the SEC will include the assets, liabilities, equity and results of
operations of Federal-Mogul commencing February 25, 2008.
2.
Pro Forma Adjustments — Acquisition of Federal-Mogul
Shares.
2a Adjustment
to goodwill representing the excess of Icahn Enterprises’ basis in the
Federal-Mogul Shares acquired from Thornwood over their fair value.
2b Icahn
Enterprises G.P. Inc. contribution of $1,541,000 to Icahn Enterprises and
$1,557,000 to Icahn Enterprises Holdings L.P. in order to maintain its 1%
interest in each of Icahn Enterprises and Icahn Enterprises Holdings
L.P.
2c Adjustment
to record the change in non-controlling interests in Federal-Mogul.
2d Reflects
the elimination of Chapter 11 expenses and inventory fair value adjustments
resulting from Federal-Mogul’s adoption of fresh-start reporting as well as our
acquisition of the controlling interest in Federal-Mogul.
2e Elimination
of the gains related to the emergence from bankruptcy of
Federal-Mogul.
|
Description
|
(In $000’s)
Year ended
December 31,
2007
|
|||
|
Fresh-start
reporting adjustments
|
$ | (956,300 | ) | |
|
Gain
on settlement of liabilities subject to compromise
|
(760,700 | ) | ||
|
Other
|
(29,800 | ) | ||
|
Total
|
$ | (1,746,800 | ) | |
2f Elimination
of Chapter 11 expenses, adjustments relating to the adoption of fresh-start
reporting, and incremental interest expense on exit financing
facility relating to Federal-Mogul’s emergence from
bankruptcy.
2g Tax
effect primarily relating to gain on settlement of liabilities subject to
compromise.
3.
Earnings per Depositary Unit.
Basic
earnings per LP Unit are based on earnings attributable to Icahn Enterprises’
limited partners. For pro forma presentation, earnings per LP Unit have been
prepared to give effect to the unaudited pro forma adjustments necessary as if
the acquisition of the Federal-Mogul Shares and the issuance of Depositary Units
referred to above had taken place prior to January 1,
2007.
F-35
EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statements (Forms
S-3 Nos. 333-126069 and 333-143930 and Form S-4 No. 333-143929) of Icahn
Enterprises L.P. of our report dated March 10, 2008, with respect to the
consolidated balance sheets of Federal-Mogul Corporation and subsidiaries as of
December 31, 2007 (Successor) and 2006 (Predecessor), and the related
consolidated statements of operations, stockholders’ equity (deficit) and cash
flows for the years ended December 31, 2007, 2006 and 2005 (Predecessor
Company), which is included in the previously filed Current Report on
Form 8-K/A of Icahn Enterprises L.P. dated August 7, 2008 and is incorporated by
reference into this Current Report on Form 8-K/A of Icahn Enterprises L.P.
|
/s/
Ernst & Young LLP
|
||
|
Detroit,
Michigan
|
||
|
January
8, 2009
|