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Federal-Mogul (NASDAQ:FDML)

Q3 2013 Earnings Call

October 23, 2013 10:00 am ET

Executives

Steven K. Gaut - Vice President of Corporate Communications and Investor Relations

Rainer Jueckstock - Co-Chief Executive Officer, Chief Executive Officer of Powertrain Division and Director

Kevin P. Freeland - Co-Chief Executive Officer and Chief Executive Officer of Vehicle Components Segment

Jerome Rouquet - Interim Chief Financial Officer, Chief Accounting Officer, Vice President, Controller and Chief Financial Officer of Vehicle Components Segment

Analysts

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Kurt Ludtke

David Lee Kelley - BB&T Capital Markets, Research Division

Brian Sponheimer - Gabelli & Company, Inc.

Frank Longobardi

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2013 Corporation Earnings Conference Call. My name is Kim, and I would be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Steve Gaut. Please proceed.

Steven K. Gaut

Thanks, operator. Good morning, everyone, and welcome to our third quarter earnings call. On Slide 2, you'll find our safe harbor statement. Please note that the contents of the presentation slides and the comments and discussion provided by our speakers today are covered under the provisions of this statement.

On Slide 3, you see the agenda. Our speakers today are going to provide an update on our third quarter results and also cover some recent important developments in the company. Rainer Jueckstock will provide a total company results overview, and then he and Kevin Freeland will dig deeper into their respective business segments. And then, those comments will be followed by Jerome Rouquet, our interim CFO, with additional details about the third quarter and year-to-date results. After their comments, then we will have an operator-assisted Q&A. Rainer?

Rainer Jueckstock

Yes. Thanks, Steve, and good morning, everyone. Please turn to Page 4. I want to open this morning's presentation with a pre-visual reminder of Federal-Mogul's business model and how we operate to efficiently serve 2 very distinct markets. Most of you are familiar with the fact that we've been operating in 2 business segments for over a year now, which is why Kevin and I are both here today to talk about the financial performance of both Powertrain and the Vehicle Components Segment.

Please turn to Slide 5. Overall, Federal-Mogul had a good third quarter, and we are encouraged by our sales growth above the underlying market and a solid EBITDA performance on an absolute basis and on a comparable basis through this time last year. We had 9% improvement in sales over quarter 3 2012. That's about 6 percentage points of organic growth and about 2.5% points for the BERU acquisition and the commission distribution agreement. Our sales remain solid, particularly in the light vehicle markets with North America and Asia counting strong and Europe stabilizing. We had a solid operating performance as well. Our EBITDA was $147 million for the quarter or 8.7% of sales. It's also important to note here that our incremental sales margin conversion for the quarter was 30%, which demonstrates the progress we've made on an increased overall efficiency realignment of our global footprint and benefits from our global sourcing activities. Our quarter 3 net income is $38 million, which is up from a loss of $11 million a year ago. Free cash flow of $58 million coming from our operations is another positive signal this quarter. We continue to implement restructuring actions and ongoing cost reductions during the quarter, including the divestiture of our OE and aftermarket fuel system business and also non-core business that did not have the scale, we believe, necessary to consider a core part of our portfolio. I will speak more about our portfolio process in a moment.

In summary, the combination of our restructuring and divestiture actions, great operational efficiencies and higher sales volumes, all that factors in achieving solid quarter 3 profitability.

Please turn to Slide 6. Quarter 3 was a very significant quarter for strengthening our balance sheet. As you know, Federal-Mogul completed a $500 million stockholder rights offering in July. Along with our free cash flow and proceeds from our divestiture during quarter 3, we added $585 million of cash to the balance sheet and have now nearly $960 million to utilize in the business.

In terms of our refinancing, we continue to evaluate the best time to enter some market. We are working on an extension called the asset-backed revolver and we will have more answers as we finalize our planning with the banks. Our current debt has very competitive interest rates, has favorable terms. So we are not in an urgent situation to refinance. Therefore, we will continue to evaluate the best timing for the term debt refinancing. Our positive cash flow and our available liquidity placed us in an excellent position to invest into future.

Please turn to Slide 7. As we've said before, the key factor in our earnings recovery during 2013 has been the aggressive restructuring and portfolio realignment actions we've taken. So the restructuring has included the non-disclosure of 8 sites, with the majority in high-cost countries. We continued downsizing facilities, invest in Europe and into U.S. during quarter 3 by transferring manufacturing operations from high-cost to low-cost locations to lower our cost base. This has been accomplished by: One, focusing our factories on the optimal role as primarily a high-volume producer or as a small better [ph] producer; and secondly, increasing operational efficiency by ensuring a high load in our remaining plants in both high-cost and low-cost countries.

In terms of the portfolio realignment, we've made significant progress divesting non-core business that don't fit our long-term strategic plan. The fuel system divestiture is first business source in 2013, demonstrating our rapid progress in realigning the company's portfolio. The divestiture have presided into sales of 7 plants in high-cost locations with a workforce of more than 1,000 people.

Please turn to Page 8. A few highlights of our Powertrain segment I enjoyed to run on a day-to-day basis. The Powertrain segment had a revenue of more than $1 billion in quarter 3, up $103 million or 11% from quarter 3 2009. It's 9 percentage points from organic growth due to some strong light vehicle market share gains. During the same period, durable light vehicle production increased by only about 1%. In North America, Powertrain revenue was up 16% versus quarter 3 2012. We continue to start up new conquest business programs in the LV market, which increased by 1% in North America during the quarter. These gains are helping to offset the continued weakness of the North American commercial vehicle market. We are pleased to report continued market share gains in Europe during quarter 3. The Powertrain derives around 50% of its revenue.

In Europe, Powertrain revenue increased 8%. That's about 5 percentage points of some [ph] organic growth. This is a considerable improvement compared to our revenue low points during quarter 3 and 4 2012. For comparison, European light vehicle production quarters 3 2013 was down about 1%, while the commercial vehicle market in Europe contracted by about 7%.

While these market factors have been challenging, we have solid profitability in Europe and are implementing projects to address a few remaining loss-making sites in order to further improve our overall European business.

We also had increased revenues in the Rest of the World, up 15%, with revenue in China up remarkably 37% compared to quarter 3, 2012. While we are seeing a more stabilized global light vehicle market, we remain cautious about our group for the global commercial vehicle market. European customers are indicating a slight increase in 2014 volumes, and China is expected to remain in the growth market. India could see recovery into second half of next year, but how much recovery is difficult to forecast at this time. Finally, the Powertrain segment had EBITDA of $94 million in quarter 3 2013, up $40 million from quarter 3 2012. Our progress was largely the result of cost reduction measurements, continued restructuring actions combined with higher sales volume, which allowed for greater operational efficiencies. With this, I will turn over to Kevin.

Kevin P. Freeland

Thank you, Rainer. Please turn to Slide 9. Revenue for the Vehicle Components Segment was $734 million, up 5% compared to Q3 2012. European aftermarket revenue continue to drive revenue improvement for VCS based on increased volumes due to the BERU ignition distribution agreement that began earlier this year, combined with stronger sales of Ferodo brakes and MOOG's steering products. EBITDA was $53 million or 7.3% of sales, up from $49 million in Q3 2012. This improvement was largely driven by operational and distribution efficiencies and implementation of strategies to drive higher order fill rates. These actions are enabling us to keep margins solid while putting in place winning business strategies. As a team, we continue to focus on the fundamentals, including managing our working capital, ensuring that we're well-positioned to fill customer orders and deploying new strategies across our customer channels to grow the equity of our brand.

Slide 10 highlights some of the key accomplishments within the Vehicle Components Segment during the quarter. In July, we announced a partnership of ANCO wiper blades and the NHL. NHL seasoned and geographic footprint is helping us connect with millions of wiper consumers in the right locations during the prime wiper selling season. Last month, we launched our free SmartChoice Mobile app that enables automotive service providers and technicians to use their iPhone or Android devices to instantly access the latest parts information for virtually any passenger car or light truck and communicate detailed inspections findings, including photos of worn or broken parts and a repair estimate directly to the vehicle owner. This mobile tool helps our installers improve the service experience for car owners with more comprehensive information provided with greater clarity and speed.

In August, our Ferodo brake pads received top honors along with our champion wiper blade at the Moscow AutoMechanika aftermarket show. Also in Russia, we recently opened a tech training center, which will help local automotive technicians understand the features and benefits of our aftermarket products and brands.

In August, we announced that our low-copper friction formulations received international NSF certification. In addition to having numerous OE contracts for low-copper brake pads, we've launched low-copper brake pads in the aftermarket. And earlier this month, we were honored to receive the Gold Trophy at the International Grand Prix for Automotive Innovation at Equio Auto show in Paris. Our low-copper pad was selected to receive this award by a jury of 80 journalists and more than 20 -- coming from more than 20 countries. Also during the quarter, we conquested a $27 million in OE Friction contracts in North America, China, Europe and Brazil. Finally, our Sealing operations in South Africa received the Quality Excellence Award from General Motors, an important confirmation of our quality focus from one of our most important customers. With that, I turn the call over to Jerome Rouquet.

Jerome Rouquet

Thank you, Kevin, and good morning to everyone. Please turn to Slide 12 for more details of our third quarter earnings performance. As in previous quarters, we are reporting on a continuing operations basis. The company reported sales of $1.7 billion, net income of $33 million and EBITDA of $147 million. As explained by Rainer, we are pleased with the absolute numbers and the positive comparisons versus Q3 of last year.

During the quarter, we divested our non-core OE in aftermarket show business. This business directed approximately $80 million in sales for the first 9 months of the this year and roughly $2 million of EBITDA. This transaction resulted in above gain of $7 million. The recognition of the gain on divestiture, combined with the operation results of the business for the quarter, which is shown as the one-line entry and the gains, losses from discontinued operations.

Now with respect to the main drivers of performance for the ongoing business. Sales increased by $145 million, including $30 million of positive currency impact. So the constant dollar sales increase is $132 million. If we strip out the impact of the spark plug acquisition in late last year of $30 million and a further $27 million due to European aftermarket distribution agreement for emission products, which started in January of this year, we're still reporting $92 million of organic sales growth, which occurred mainly in the PT segment, representing growth of 10%, while sales in VCS remain essentially flat compared to prior year.

On a regional basis, North American sales increased by 6% or $40 million. Sales in Europe were up 6% or $38 million, and the Rest of World sales increased by 7% or $14 million.

Gross margin increased by $42 million or 1.3 percentage points. This represent a good conversion on the incremental sales of nearly 30%. This is a reflection of a more stable market, especially in Europe, as well as the impact of our cost-reduction actions, savings in material cost and our ongoing footprint restructuring programs. SG&A remained almost flat in absolute dollars. However, as a percentage of sales, SG&A has decreased by 0.7%. As you may recall, an OPEB curtailment gain of $51 million was recognized last year, triggered by further changes made to our retiree healthcare benefits in the U.S. At the same time last year, a $53 million charge was booked for the impairment line related to various tangible and intangible assets. These 2 non-cash items almost offset each other in the year-over-year growth comparison.

Similar to Q2 2013, interest expense is lower than the prior year due to the roll-off about mid-way through the first quarter of the out of the money interest rate swaps established in '08, which were costing the company about $40 million a year or roughly $9 million per quarter. The tax benefit of $8 million in Q3 2012 includes $14 million of benefits due to impairment recognized in that period. Stripping out this item, the tax expense is fairly consistent between the 2 periods. And so our net income from continuing operations is $33 million versus a net loss of $8 million last year, and we're reporting net income attributable to FM of $38 million versus a net loss of $11 million last year.

On Slide 13, we have a reconciliation for the period of our EBITDA to net income from continuing operations. As per prior periods, we exclude from EBITDA the non-cash OPEB curtailment gain as well as impairment charges. Also, consistent with the first half of the year and as a result of the freezing of the U.S. pension plan in 2012, the non-service portion of the expense is negligible for 2013, hence the reduction in the charge from $9 million in Q3 2012 to $1 million this year -- this quarter.

Finally, during the quarter, we adjusted our operational EBITDA to exclude the profit and loss impacts associated with stock appreciation rights. Prior period EBITDA was also recast to reflect this change.

Now turning to Slide 14, which describes the third quarter performance of the PT segment. Revenue increased by $103 million or 11%. On a constant dollar basis, revenue increased by 10% or $94 million. When we strip out the year-over-year impact of the spark plug acquisition of $30 million, the organic year-over-year revenue increased by $81 million, over 9%. By major region, North America grew by 16% compared to Light Vehicle and Commercial Vehicle production increases of 1% and 5%, respectively. Revenue in Europe grew by 5%, driven by strong market share gains and increased volumes in the Light and Commercial Vehicle market. Rest of the World revenue increased 15%, driven by an increased presence in the emerging Light Vehicle market, especially in China, where revenue increased by 37%.

Powertrain EBITDA increased by $40 million to $94 million or 9% of revenue. As shown on the bottom left of the page, the trend since last year is very positive with a slight expected dip in the third quarter due to normal summer shutdown schedules. Breaking down the EBITDA performance, as shown in the waterfalls on the bottom right side of the page, the EBITDA conversion on incremental volumes alone was 24% or $20 million. The further $20 million of EBITDA was generated due to operational and overall cost control actions, as well as significant material and sourcing savings.

Turning now to Slide 15, which describes the third quarter performance of the VCS segment. Revenue increased by $35 million or 5% year-over-year with minimal currency movements. Furthermore, we entered into a European aftermarket distribution agreement for emission products during the first quarter of this year and this added about $27 million to European revenues in the third quarter, stripping out these factors with VCS essentially flat compared to last year.

By major region, North America sales decreased by 2%, reflecting weaker sales in our export business into Venezuela, as well as managed exits from some low-margin contracts. This was partially offset by growth of 2% in the U.S. and Canada from market business. Sales in Europe increased by 7%, which was partially offset by a decrease of Rest of the World of 14%, again due to additional contract exits. EBITDA increased by $4 million in the quarter to $53 million or 7.3% of revenue. As shown on the bottom left of the page, similar to the trend in PT, there was a slight dip in the third quarter results due to the normal seasonality of the business.

On the bottom right of the page, we have a further breakdown of the movement of sales and EBITDA versus the same period in 2012. Focusing on the volume and mix column, the ongoing integration of the European aftermarket distribution agreement for emission products combined with negative mix as a result of low-export sales impacted EBITDA negatively by $2 million. Customer price and one-off customer incentive represented $6 million this quarter and were more than offset by productivity improvements and sourcing savings of $9 million, resulting in a VCS EBITDA increase of $4 million year-over-year.

On Slide 16, we provide a summary of the third quarter consolidated cash flow. We generated $142 million of cash from operating activities compared to an outsourced $69 million last year. This was mainly generated from improved working capital with an outflow of $15 million -- with an inflow, sorry, of $15 million each year compared to an outflow of $92 million last year. The year-over-year receivable cash flow improvement is primarily the result of the organic terms to aftermarket customers, reaching that plateau at the end of 2012. Inventory and payable cash flow do show, as well, favorable improvements year-over-year.

Free cash flow, being cash from operating activities less capital expenditures, was an inflow of $58 million versus an outflow $142 million over the same period last year, absorbing a slight increase in capital spending. Cash proceeds associated with business disposition in Q3 was $51 million this quarter. The cash outflow of $52 million last year relates to the acquisition of the spark plug business. These resulted in cash provided from operating and investing activity of $112 million in the quarter compared to a cash outflow of last year $192 million, an improvement of $300 million. And finally, the common stock rights offering from July of this year added $0.5 billion in cash during the quarter. Therefore, total cash at the end of September was $960 million.

Now please turn to Slide 17 for more details of our September year-to-date earnings performance. The year-over-year revenue increase of $189 million contains $12 million of positive currency impacts. Therefore, the constant dollar sales change is $177 million. When excluding the impact of acquisition of approximately $43 million, as well as sales from the European aftermarket distribution agreement for ignition products of $82 million, we had about $52 million of organic constant dollar sales growth. These sales increase is attributable to $98 million of increased sales in PT, offset by a decline of $46 million in VCF. Gross margin increased by $38 million to $782 million and is largely due to improved volumes in the third quarter and more stable mix, as well as significant progress in restructuring in our manufacturing footprint, which is now translated into positive margin impacts. Operating margin, being gross margin minus SG&A, was up $25 million and essentially translated into the year-over-year EBITDA improvement of $28 million.

On the 9 months, we report income from continuing operations of $150 million compared to a loss of $20 million last year and net income attributable to FM of $60 million compared to a loss of $37 million last year. To be noted, the loss from discontinued operation reflects all divested business year-to-date and is mostly attributable to the loss recognized in the first quarter related to divestiture of the Syntertech business in France.

On Slide 18, we have the reconciliation of our net income for the period to our profit measure operational EBITDA. The structure on the reconciliation is the same as the one just described for the third quarter.

And finally, on Slide 19, we provide a summary of the year-to-date consolidated cash flow. We generated $258 million of cash from operating activities compared to an outflow of $76 million last year. This was mainly due to the more stable working capital with an outflow of $48 million this year compared to an outflow $307 million last year. Including EBITDA, lower interest, lower U.S. pension payments all contributed to the cash flow generation this year at operating level.

The slightly lower capital spending pattern this year in addition to the net proceeds received from business dispositions resulted in an $82 million increase in cash from investing activities. Cash provided from operating and investing activities ended up slightly positive with $30 million versus an outflow of $400 million last year. And I will now hand back to Rainer for closing comments.

Rainer Jueckstock

Okay. Thank you, Jerome. Please turn to Slide 20. Before we open the Q&A session, I would like to finalize our comments by highlighting that we have still significant opportunities for positive performance improvement in front of us. First, we expect solid market growth in both OEM aftermarket on a global basis. And we are going to participate on this; Second, market share growth can continue for Federal-Mogul Powertrain on the basis of our technologies to enable the fuel economy to choose emissions and provide superior durability.

As Kevin outlined, our VCS business and especially the aftermarket, has important plant differentiations to drive customer loyalty, and there are further opportunities to enhance the way how we approach the market to add up greater value in Federal-Mogul products and services. And finally, we have already today outlined significant restructuring actions already underway and more yet to come, so it should contribute to improved performance, especially as the markets return to healthier levels. Now let's take your questions. Operator, please give the Q&A instructions.

Question-and-Answer Session

Operator

[Operator Instructions] And I show we have our first question on the line from Patrick Archambault from the Goldman Sachs.

Patrick Archambault - Goldman Sachs Group Inc., Research Division

I -- yes, I mean -- first on the restructuring update on Page 7. Maybe a little bit more detail on that. And I suppose it might be helpful to break it down by segment. In the aftermarket, VCS segment, I know you've done a lot of re-footprinting. These were initiatives that were started last year. Kind of in what innings are you of completing that? And maybe a commentary, sort of, about the -- relating to sort of the momentum of improvements that's going to continue to generate. And then I would actually, I guess, ask exactly the same question for the PT segment as well, where you seem to be in earlier stages.

Kevin P. Freeland

Yes, Patrick, this is Kevin. I'd say in our key market of North America, we have substantially made the announcements to reposition ourselves and we're moving largely to 1 or 2 key plants in the United States and a parallel plant in Mexico. We have made -- we have begun the progress in Western Europe, and I'd say that we're probably better positioned there than our initial position in North America. And then in terms of our best cost footprint in the quarter, we are underweighted in both China and India, but we're in a good shape with the facilities that we have in China and have a -- further ways to go with the new facility that we opened in India. Rainer?

Rainer Jueckstock

Yes, okay. Thanks, Patrick, for the question. It's clear in Western Europe, the maturity of Powertrain restructuring action has to be taken. The process is significantly slow and takes quite a long time than in the U.S. and also in addition, the OE business needs more time to be restructured. So what we're doing in Western Europe is we have -- in all plants, we have in our list for closing or downsizing. We are preparing customer approvals to move the product. We've prepared tools and capacity in the receiving plants. And in several of the plants, we have entered into very pragmatic and I think, constructive discussion with the unions, the direct [ph] counsel and in some cases, where it's legally needed, also is also a lookout. So I see the process is on time. We expect that we will spend less money we originally assumed into restructuring. And that's where we are.

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Okay, and just -- if I can follow on that. Just looking at the walks, for instance, on Page 14 and 15, right, performance is such a big piece of those improvements in EBITDA that you've cited, particularly in Powertrain. Is it fair to say that performance tailwind could sort of be sustained into the future for some time, just given all the activities you're working on? And then again, I just wanted to sort of get a same -- a similar sense for VCS, where it sounds like again, you're sort of further along in completing the transition there?

Rainer Jueckstock

The Powertrain, I do believe that we will have further quarters with performance gains. I contradict that it will be, at pre-quarter, $20 million, and I don't think so because we are in a very, very competitive industry and we live in a competitive environment with a certain given industry performance, and we want to be on the top of this. So but yes, we will have continued improvements on the Powertrain side.

Kevin P. Freeland

Patrick, our walk across the -- and in terms of the volume and mix issues that we're facing, the BERU acquisition is a large increase in volume that is not dropping at the bottom line. So we, as a team, have essentially work to do in the quarters and years ahead to try to extract value from that move. I can't really comment in terms of some of the hits that we took, both from our what had been historically the strongest business in Venezuela and Egypt. Those are geopolitical and global financial issues that are difficult to predict. From a pricing perspective, about half of that was actually conscious decisions on our part, and we have opportunities in the aftermarket to pursue incremental business on multi-year contracts that require upfront costs that are booked in a single quarter but the benefits occur over the period of years. And as opportunities like that come long, those will further continue. On the performance front, we see continued material costs savings in the next year. And I would say, we probably have sizable improvements that are being mapped out at this point that it will take us some time to be able to bring to life. And I actually believe that the upside there is probably stronger by bringing the headwinds that we might find in other areas.

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Okay. That's really helpful. One last one for me, if I may. I guess you referred to a -- on Slide 8, a 7% contraction in CV production. I believe that's within Europe. I mean, what we've been hearing more -- that sort of surprised me a little bit, just because there's -- things like that has been a reasonable pre-buy from the off-highway side. So I'm assuming it has to do with segmentation. Maybe you could talk a little bit about that. Are you guys more in off-highway and industrial or in other segments that maybe aren't seeing the pre-buy impact as others are?

Rainer Jueckstock

I think we are operating in 2 very distinguished segments in all the market segments. And this one is a heavy-duty truck business and here, we think this is an indicator about how the overall economy is going. We see, for the next quarters, overall, a positive trend. We have indications from most of our OEMs about increased production volumes. This morning, Scania announced significant volume increases that you can see everyday. I would say, in general, positive comment about the next 2 or 3 quarters on the truck business. A very different situation is on the industrial business, which is nearly equal insightful for Federal-Mogul Powertrain. And this includes mining applications, this includes Marine engines, this includes components for agriculture and forest and also for power station. And these business, we do not see overall a positive trend here. The Marine business is in an all-time low, I would say. I can look back towards the last 5, 8 years, we had never such a low Marine business, and we are supplying into engines in all categories, including the largest for our supertankers and post-Panamax vessels. And this business is down. I don't see a significant positive movements on the mining industry. I saw this morning, Caterpillar said a statement about the mining outlook, and we're on the same line. We do believe that agriculture might have some benefits going forward, as well as power stations. But overall, the Industrial business will remain flat.

Operator

[Operator Instructions] Our next question comes from the line of Kurt Ludtke from CRT Capital Group.

Kurt Ludtke

I guess I was hoping to touch on the restructuring as well. I know this involves multiple locations and a lot of SKUs, but I was hoping, is there anything that you can share with in terms of quantifying the potential here and the cash cost of achieving that? And if -- either in aggregate or by, obviously, segment will be better. But is there anything that you can point us to there?

Rainer Jueckstock

We announced, in 2 waves, restructurings -- in total, I think -- Jerome might help me.

Jerome Rouquet

Yes, Rainer. We've -- you'll see that in our Q that we are normally disclosing, the '13 cost for structuring as well as the estimated additional charges. You'll see that there's approximately still another $60 million of additional charges that will be taken going forward. And you'll see that in our Q that we will be filing later on today.

Rainer Jueckstock

We do not give guidance, but as I indicated, we think we will be on some low end of these numbers. Definitely, we'll do everything to have a smooth process in the restructuring because we have to ensure that our customers are served during the time we need their support, and most of the customers are very helpful. But it has to be fit in their timeline for engine tests and whatever. And it's the same importance we've placed -- that we have good way with our employees. These are a tough decisions and I would like to leave it at that place.

Kurt Ludtke

Okay. And I guess the timing would be over the next year or 2 in terms of the realizing of the benefit?

Jerome Rouquet

We believe that by end of 2014, most of the restructuring actions are done there.

Kurt Ludtke

Okay. That's great. That's helpful. And with respect to the non-core businesses that you've identified at this point, is there a -- can you kind of put a range on revenues or book value or EBITDA or any kind of metrics that would help us value those?

Rainer Jueckstock

I think you would find the data in the Q. And from a number point of view, on the annualized basis, I think we sold so far around $200 million sales. That's what we have done, and there's probably one smaller item still to go. But that's the magnitude we are now talking. And our numbers you see in our press release and all of these covering our sales for the ongoing business, excluding the divestitures.

Operator

Your next question comes from the line of Bret Jordan from BB&T Capital Markets.

David Lee Kelley - BB&T Capital Markets, Research Division

This is actually David Kelly, in for Brett this morning. A couple of questions, and first, looking at the Powertrain segment. I think you pointed out light vehicle production was up 1%, North America and down 1% in the Europe. And I was hoping you provide some color on your expectations as we're now account 3 weeks or so into the fourth quarter. Are we -- have we reached the point of sustained growth in North America on light vehicle production? And in your opinion, how close are we to getting over the hump in Europe?

Rainer Jueckstock

So the picture we have for the most amount of cost is very positive. We believe there is a trend towards $16.5 million to $17 million NOL production for most of America in the next 1.5, 2 years. So we are quite positive about this. And we are happy to report that have good business here. We are gaining market share and we have, overall, a good position to participate in this move in Europe. The situation is quite different. We believe Europe will be flat, maybe 1% up next year. And this is for newer package registrations in Europe. We have a little bit different picture on engine production because the European OEMs and tiers, especially in the high-end market segment, exporting 100 million engines a year. And that is a significant business for us. We are in good business with these OEMs. So we will have -- continue to be in the healthier segment of this market. Overall, we are pleased that we gained market share, that we gain market share on gasoline. In the past, we had been heavily loaded on the diesel side. We have significant new business on gasoline in all our product lines coming in, and this is a good business. We are happy to have it. And so we are well-positioned for 3 years. Maybe 2015, '16, then European market will recover to pre-crisis levels.

David Lee Kelley - BB&T Capital Markets, Research Division

Okay. Very helpful. And then a question for Kevin on the aftermarket side. You pointed out 2% aftermarket revenue growth, and I think you mentioned a specific strength in the Friction category and -- that's in line with the commentary we've been hearing thus far in the third quarter results. I'm just wondering if you could maybe provide some clarification on the magnitude of growth in the brake category?

Kevin P. Freeland

Just for point of clarification, the 2% number was U.S. and Canada in the aftermarket, and the $27 million Friction conquest was actually OES business that we do. So, they were actually different perspectives. I'd say that, for us, the business in North America in Friction has been a tougher market for us in the aftermarket. We have a solid business, a solid market share in commercial Friction, but quite frankly, it's -- there's been a movement in North America through the primary distributors to private label Friction and away from branded friction. We participate in both markets, but that's part of what Jerome had gone through in terms of the EBITDA, that the private label businesses are lower margin rates. And while the volume is holding in there, the transition into private label is essentially creating a headwind for our overall margin requirements.

Operator

Your next question comes from the line of Brian Sponheimer from Gabelli.

Brian Sponheimer - Gabelli & Company, Inc.

Kevin, within your group, there's a major transaction within the last couple of weeks or one of your largest customers is buying general parts. One of the things they called out was the ability to take out $60 million in purchasing cost, which I would term as a net negative to you. What's the concern from a pricing standpoint that you may have with these 2 larger customers coming together?

Kevin P. Freeland

Federal-Mogul has had experience with these kinds of events in the past. Literally at the beginning of this year, Advance had picked up BWP, which was the largest independent within the CARQUEST group. O'Reilly's picked up VIP in their move into the Northeast. And as far back as 5 years ago, O'Reilly's, which was a big customer of ours, acquired CSK. So this consolidation of distribution in North America had been going on for a very long time. The positives and negatives of this, clearly a large customer, we have distribution efficiencies with them and we would have a commanding footprint to distribute across North America, as they would put pressure on the contracts that we have with them. The solid news here is, of what had been the top 4, our -- essentially, our brand portfolio within CARQUEST, was -- we had almost lost all of the business within CARQUEST. So as the 2 of those companies come together, certainly, what Advance will be doing is on line-by-line basis. The products are completely different. Their chassis supplier is different between the 2 companies. Their friction suppliers, their filtration, every product line, they were very, very different. Now there was at least an early warning of how this might play out. And when Advance acquired BWP, they have essentially the same challenge, which brand would they go with. In that particular instance, all of the brands that we provide to Advance were chosen. Now that's not a completely fair analogy. BWP was much smaller than all of CARQUEST in total. So it's going to be more competitive process than that would've been. I'd say when I'm confident at this point or certainly optimistic, that, in fact, we'll be a net winner from an overall volume perspective. The question is negotiation is essentially the heart of your point. What will be the volume line profitability of that increased volume? We'll say that the negotiations that we have had with O'Reilly's 5 years ago, I think helped us create a model. We have some brands that are highly coveted by professional installers, and the heart of our discussions and negotiations will be there. We also have other complementary businesses, but a time like, it's not a time to try to reach deeper and deeper into our brand portfolio.

Brian Sponheimer - Gabelli & Company, Inc.

Right. Understood. That's good color. I appreciate that. One of the things that was called out on the cash flow statement from working capital perspective is the terms with the -- that some of your customers plateauing. There have been a movement over the last couple of years to potentially reverse the terms, but it doesn't appear that any of your aftermarket cohorts are complying with your decision. Should we think of this is an ongoing opportunity for you or potentially something that was more sought out by your predecessor than you've got?

Kevin P. Freeland

Actually, Jerome and I are aligned on this particular one that it's essentially a very; simple trade-off between margins received and terms offered. And as the payment terms extend, it involves a trade-off. And in terms of higher margins, with current cost of capital, that trade-off is favoring the extended terms. Depending on where cost of capital goes in the years ahead, that may go up and down over time. But the -- to a certain extent, with lower overall cost of capital, the terms are extended out about as far as they, in theory, would go. As Jerome said, we kind of peaked last year. And if the -- so long prevailing interest rates stay roughly where they are today, the terms will likely stay there as well.

Brian Sponheimer - Gabelli & Company, Inc.

All right. Speaking of interest rates, would it be a fair thing to say that as lenders look at last 12 months results, it would be good of you to wait until the first quarter of 2013 to potentially look into this, your refinance, given what was a very poor fourth quarter of last year and what promises to be a much better quarter this coming 3 months?

Rainer Jueckstock

Yes and no. Looking back through all this model. But you have also to see that we are probably one of the best-rated debt in the market. Our interest rates are very low. We have very favorable condition. And even if you would have taken the good rates in May, we would have seen significant increase in borrowing cost of Federal-Mogul. So it's a fine line. By watching some market, assessing our own performance and see what is the best timing, as I said in my statements, we are currently preparing to launch an expansion for the revolver. And we will continue to see what is best timing for the refinancing for us.

Brian Sponheimer - Gabelli & Company, Inc.

I guess said a different way, how concerned -- how do you balance the idea that you get closer to the maturity date for the refinance versus the benefit of paying such a low interest rate on what you currently have outstanding?

Rainer Jueckstock

If you would refinance today, everything, we would see and the remaining time for our current term loan $60 million-plus additional interest. And that is a significant amount for a company like Federal-Mogul. And therefore, we will find the right timing to refinance. We are well aware about this maturity date. We all know the dates by heart, and we will do the best in the interest of the company.

Operator

Your next question comes from the line of Frank Longobardi from Alcentra.

Frank Longobardi

Just had some questions on the cash flow statement, as we look kind of year-to-date. Can you just tell me year-to-date what the one-time cash cost would be, whether specifically, with restructuring or just other onetime items? I'm just trying to get an idea of kind of what a more normalized free cash flow may look like? And then what you might expect for the rest of this year? I know the -- you mentioned the $60 million for restructuring, but I think that was over the rest of this year and next year, and maybe how much of that $60 million is actual cash versus non-cash?

Jerome Rouquet

It's Jerome speaking. Yes, overall the $60 million we talked about earlier on will ultimately be all cash flow. In terms of how much we had in the last year -- you're asking about the last 9 months and how much...

Frank Longobardi

Yes, yes. Year-to-date, kind of onetime cash restructuring costs or one-time cash items.

Jerome Rouquet

Okay, and I'm just looking at my numbers. The total restructuring expense for cash was $60 million and we cashed out $12 million overall. So the payments year-to-date were $12 million.

Frank Longobardi

Out of $60 million accrued, you said?

Jerome Rouquet

And the $60 million is what's -- is still in front of us.

Frank Longobardi

Okay. So $12 million paid, $60 million accrued to come. Okay. And how much of that $60 million you think will be in the rest of 2013?

Rainer Jueckstock

Rainer speaking. We are not giving such details. And as I've said, we will do everything to find the right balance between having effective restructuring on the lowest cost at the best possible timing. So it's -- what we accounted for is an estimation we did at the time when we announced this, and we will do everything to execute the restructuring at a lower cost.

Frank Longobardi

Okay. And then sticking on the cash flow, what has been your year-to-date cash for pensions and OPEB above what you've put to the P&L?

Jerome Rouquet

We had some savings of approximately $30 million coming from the pension side, largely coming from the fact that we froze our pension plan last year.

Frank Longobardi

Okay. That was a non-cash savings, right?

Jerome Rouquet

Yes. And the -- if you look as well at the payments, essentially -- and it's a coincidence that the payments for this year were approximately $30 million as well lower than what we had last year at the same time. So again, it's a coincidence, but the $30 million year-to-date is what the savings are cash-wise from a pension payment standpoint.

Frank Longobardi

Okay. And is that something kind of a go-forward, we can annualize savings rate, we can expect, or you're not providing guidance on that?

Jerome Rouquet

Yes. We don't really give any guidance going forward. So I'll leave my comment at that.

Frank Longobardi

And then on the working capital, kind of normalizing these extended terms, are we kind of nowadays more kind of run rate use of working capital, do you think, as we enter 2014?

Jerome Rouquet

Again, not commenting on 2014. The -- let's say we've got improvements year-to-date on our cash flow side. On the cash flow side, the -- as I've said earlier on, the main improvement is really coming from the side that we plateaued last year on the receivable terms. And we are now managing our working capital. We've made good progress on inventory, and that's why we show some improvement year-over-year.

Frank Longobardi

Okay. And then my follow-up question goes back to the refinancing, notwithstanding, I understand you're constantly evaluated in it. Are you guys prepared to have kind of go current when your 10-K comes out, or do you -- i.e. would you let -- be willing to keep that -- keep your current term loan outstanding past the 10-K filing or would your decision kind of...

Rainer Jueckstock

We know exactly what is the maturity date and we know when accounting changed up. Please, leave it with us.

Operator

Okay, there are no questions at this time.

Steven K. Gaut

Okay. Thank you, operator. Thanks to everyone who had questions and everyone who participated in the call today, and we look forward to talking to you in a few months. Thanks very much. We can close the call.

Rainer Jueckstock

Thank you.

Operator

This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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