Fair Value Measurements.

U.S. GAAP requires enhanced disclosures about investments and non-recurring non-financial assets and non-financial liabilities that are measured and reported at fair value and has established a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments or non-financial assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments and non-financial assets and/or liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments included in Level 1 include listed equities and listed derivatives. We do not adjust the quoted price for these investments, even in situations where we hold a large position.

Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments that are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives. The inputs and assumptions of our Level 2 investments are derived from market observable sources including reported trades, broker/dealer quotes and other pertinent data.

Level 3 - Pricing inputs are unobservable for the investment and non-financial asset and/or liability and include situations where there is little, if any, market activity for the investment or non-financial asset and/or liability. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. Significant transfers, if any, between the levels within the fair value hierarchy are recognized at the beginning of the reporting period when changes in circumstances require such transfers.

Investment

The following table summarizes the valuation of the Investment Funds' investments and derivative contracts by the above fair value hierarchy levels as of December 31, 2015 and 2014:



	December 31, 2015								December 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in millions)
Investments:
Equity securities:
Basic materials	$	563	$	—	$	—	$	563	$	—	$	—	$	—	$	—
Communications	407		—		—		407		2,846		—		—		2,846
Consumer, non-cyclical	3,684		—		—		3,684		2,308		—		—		2,308
Consumer, cyclical	115		—		—		115		436		—		—		436
Diversified	17		—		—		17		23		—		—		23
Energy	1,461		—		—		1,461		1,895		—		—		1,895
Financial	2,094		—		—		2,094		417		—		—		417
Funds	—		—		—		—		—		—		—		—
Industrial	188		—		—		188		79		—		—		79
Technology	5,795		—		—		5,795		5,635		—		—		5,635
	14,324		—		—		14,324		13,639		—		—		13,639
Corporate debt:
Consumer, cyclical	—		—		55		55		—		—		75		75
Energy	—		—		—		—		—		19		—		19
Financial	—		4		—		4		—		7		—		7
Sovereign debt	—		13		—		13		—		—		—		—
Utilities	—		—		—		—		—		28		—		28
	—		17		55		72		—		54		75		129
Mortgage-backed securities:
Financial	—		157		—		157		—		173		—		173
	14,324		174		55		14,553		13,639		227		75		13,941
Derivative contracts, at fair value⁽¹⁾	—		214		—		214		—		3		—		3
	$	14,324	$	388	$	55	$	14,767	$	13,639	$	230	$	75	$	13,944
Liabilities
Securities sold, not yet purchased, at fair value:
Equity securities:
Consumer, non-cyclical	$	794	$	—	$	—	$	794	$	—	$	—	$	—	$	—
Consumer, cyclical	—		—		—		—		334		—		—		334
	794		—		—		794		334		—		—		334
Derivative contracts, at fair value⁽²⁾	—		33		—		33		—		627		—		627
	$	794	$	33	$	—	$	827	$	334	$	627	$	—	$	961


⁽¹⁾	Included in other assets in our consolidated balance sheets.


⁽²⁾	Included in accrued expenses and other liabilities in our consolidated balance sheets.

The changes in investments measured at fair value for which our Investment segment has used Level 3 input to determine fair value are as follows:



	Year Ended December 31,
	2015			2014
	(in millions)
Balance at January 1	$	75		$	287
Realized and unrealized losses	(20		)	(100		)
Gross proceeds	—			(2		)
Distribution-in-kind	—			(110		)
Balance at December 31	$	55		$	75

Unrealized losses of $20 million are included in earnings related to Level 3 investments still held at December 31, 2015 by our Investment segment. Total realized and unrealized gains and losses recorded for Level 3 investments are reported in net gain from investment activities in our consolidated statements of operations.

The Investment Funds owned one Level 3 corporate debt investment during 2014. In prior periods, in determining the fair value of this investment, we performed a yield analysis of comparable loans to which we applied a risk premium. As a result of the underlying company’s performance and bankruptcy filing in the third quarter of 2014, however, we determined that it was more appropriate to measure the fair value of our debt investment through an enterprise value analysis. In addition, during 2014, the Investment Funds made a distribution-in-kind of this corporate debt investment in the amount of $110 million to the Holding Company.

Other Segments and Holding Company

The following table summarizes the valuation of our Automotive, Energy and Gaming segments and our Holding Company investments and derivative contracts by the above fair value hierarchy levels as of December 31, 2015 and 2014:



	December 31, 2015								December 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in millions)
Investments	$	123	$	115	$	237	$	475	$	75	$	3	$	163	$	241
Derivative contracts, at fair value⁽¹⁾	—		45		—		45		—		47		—		47
	$	123	$	160	$	237	$	520	$	75	$	50	$	163	$	288
Liabilities
Other liabilities	$	—	$	3	$	—	$	3	$	—	$	50	$	—	$	50
Derivative contracts, at fair value⁽²⁾	—		3		—		3		—		2		—		2
	$	—	$	6	$	—	$	6	$	—	$	52	$	—	$	52


⁽¹⁾	Amounts are classified within other assets in our consolidated balance sheets.


⁽²⁾	Amounts are classified within accrued expenses and other liabilities in our consolidated balance sheets.

The changes in investments measured at fair value on a recurring basis for which our Gaming segment and Holding Company have used Level 3 input to determine fair value are as follows:



	Year Ended December 31,
	2015			2014
	(in millions)
Balance at January 1	$	154		$	138
Purchases	100			—
Transfers (out) in	(47		)	3
Distribution-in-kind	—			110
Realized and unrealized losses	21			(97		)
Balance at December 31	$	228		$	154

Unrealized gains of $18 million are included in earnings related to Level 3 investments still held at December 31, 2015 by our Holding Company and are included in net gain (loss) from investment activities in our consolidated statements of operations. Unrealized gains of $3 million are included in earnings related to Level 3 investments still held at December 31, 2015 by our Gaming segment and are included in selling, general and administrative in our consolidated statements of operations due to the nature of the gains.

During 2015, the Holding Company made a certain investment classified as trading securities of $100 million, which is considered a Level 3 investment due to unobservable market data. As of December 31, 2015, the fair value of this investment was $157 million. We determined the fair value of this investment using internally developed models and other valuation techniques.

During 2015, the Holding Company obtained control of, and consolidated, Ferrous Resources, which was previously considered a Level 3 investment due to unobservable market data. The fair value of our investment in Ferrous Resources immediately prior to obtaining control was $36 million, which was transferred out of Level 3 investment during the second quarter of 2015. See Note 3, "Operating Units - Mining," for further discussion.

Our Gaming segment has certain investments in debt securities that are classified as held-to-maturity since our Gaming segment has the ability and intent to hold these bonds to maturity. These debt securities are initially recorded at a discount to approximate fair value. The debt securities are considered Level 3 investments measured on a non-recurring basis and after the initial determination of fair value, our Gaming segment analyzes recoverability of these bonds on a quarterly basis based on its historical collection experience and certain other information. If impairment exists, the debt securities are marked down to fair value.

As discussed above, in 2014, the Investment Funds made a distribution-in-kind of a certain Level 3 corporate debt investment in the amount of $110 million to the Holding Company. As of December 31, 2015, the fair value of this investment was $55 million. As discussed above, we determined the fair value of this investment using an enterprise value analysis.

Assets measured at fair value on a nonrecurring basis for which impairment was determined to exist during the years ended December 31, 2015 and 2014 are set forth in the table below. Refer to Note 13, "Segment and Geographic Reporting," for total impairment recorded for each of our reporting segments.



	December 31, 2015				December 31, 2014
	Level 3		Recognized		Level 3		Recognized
Category	Asset		Loss		Asset		Loss
	(in millions)
Property, plant and equipment	$	154	$	201	$	53	$	27
Equity method investments	—		—		10		5
Intangible assets	3		2		—		—
Goodwill	1,491		571		827		103
Assets held for sale (included in other assets)	5		14		—		—

We determined the fair value of property, plant and equipment by applying probability weighted, expected present value techniques to the estimated future cash flows using assumptions a market participant would utilize and through the use of valuation specialists.

During the fourth quarter of 2015, there were impairment indicators for our Mining segment, mainly due to decreases in both demand and price of iron ore. As a result, we performed a fair value analysis of our Mining segment's property, plant and equipment as of December 31, 2015. We recorded an impairment loss of $163 million related to certain of our Mining segment's, property, plant and equipment for the year ended December 31, 2015 which is included in the table above. In addition, in conjunction with our fair value analysis of our Mining segment's property, plant and equipment, we noted that our Mining segment's goodwill was also impaired and thus, we recorded a goodwill impairment charge of $6 million. Due to the complexity of these fair value analyses, we expect to finalize the impairment assessments of our Mining segment's property, plant and equipment and goodwill during the first quarter of 2016 and any resulting difference in the amount of the impairment will be adjusted at that time.

The fair values of goodwill are based on our goodwill impairment analyses for our Automotive, Energy and Mining segments as of October 1, 2015, December 1, 2015 and December 31, 2015, respectively. The fair values were determined based upon consideration of various valuation methodologies, including projected cash flows discounted at rates commensurate with the risks involved, guideline transaction multiples, and multiples of current and future earnings. Refer to Note 8, "Goodwill and Intangible Assets, Net," for further discussion relating to our goodwill impairment analyses.

The following table presents our Automotive segment's defined benefit plan assets measured at fair value on a recurring basis as of December 31, 2015 and 2014:



	December 31, 2015								December 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
U.S. Plans:
Cash	$	26	$	—	$	—	$	26	$	44	$	—	$	—	$	44
Investments with registered investment companies:
Equity securities	310		—		—		310		314		—		—		314
Fixed income securities	149		—		—		149		166		—		—		166
Real estate and other	27		—		—		27		25		—		—		25
Equity securities	220		—		—		220		231		—		—		231

Corporate and other	—		22		—		22		—		21		—		21
Government	17		13		—		30		16		4		—		20
Hedge funds	—		—		86		86		—		—		91		91
	$	749	$	35	$	86	$	870	$	796	$	25	$	91	$	912
Non-U.S. Plans:
Insurance contracts	$	—	$	—	$	40	$	40	$	—	$	—	$	41	$	41
Investments with registered investment companies:
Fixed income securities	13		—		—		13		10		—		—		10
Equity securities	2		—		—		2		1		—		—		1
Corporate bonds	—		2		—		2		—		2		—		2
	$	15	$	2	$	40	$	57	$	11	$	2	$	41	$	54

The changes in U.S. and Non-U.S. plan assets measured at fair value for which our Automotive segment has used Level 3 input to determine fair value are as follows:



	Year Ended December 31,
	2015			2014
	(in millions)
U.S. Plans:
Hedge funds:
Balance at January 1	$	91		$	85
Realized/unrealized (losses) gains, net	(5		)	6
Purchases and settlements, net	—			47
Sales, net	—			(47		)
Balance at December 31	$	86		$	91



	Year Ended December 31,
	2015			2014
	(in millions)
Non-U.S. Plans:
Insurance contracts:
Balance at January 1	$	41		$	44
Realized and unrealized gains, net	1			2
Purchases and settlements, net	6			6
Proceeds	(4		)	(5		)
Foreign currency exchange rate movements	(4		)	(6		)
Balance at December 31	$	40		$	41

U.S. Plans

As of December 31, 2015, plan assets were comprised of 61% equity investments, 23% fixed income investments, and 16% in other investments which include hedge funds. Approximately 73% of the U.S. plan assets were invested in actively managed investment funds. Federal-Mogul's investment strategy includes a target asset allocation of 50% equity investments, 25% fixed income investments and 25% in other investment types including hedge funds.

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

Non-U.S. Plans

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

The following table presents our Food Packaging and Railcar segment's defined benefit plan assets measured at fair value on a recurring basis as of December 31, 2015 and 2014:



	December 31, 2015								December 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
U.S. and Non-U.S. Plans:
Asset category:
Cash equivalents	$	5	$	1	$	—	$	6	$	5	$	1	$	—	$	6
Equity securities	51		27		—		78		55		28		—		83
Fixed income securities	18		1		—		19		22		1		—		23
Other	5		—		21		26		6		—		21		27
	$	79	$	29	$	21	$	129	$	88	$	30	$	21	$	139

The changes in U.S. and Non-U.S. plan assets measured at fair value for which our Food Packaging and Railcar segments have used Level 3 input to determine fair value are as follows:



	Year Ended December 31,
	2015		2014
	(in millions)
U.S. and Non-U.S. Plans:
Balance at January 1	$	21	$	21
Realized and unrealized gains, net	—		1
Purchases and settlements, net	—		(1		)
Balance at December 31	$	21	$	21