NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except share and per share amounts, or as otherwise noted)
1. Description of Business
Tenneco Inc. ("Tenneco" or "the Company") was formed under the laws of Delaware in 1996. Tenneco designs, manufactures, and sells products and services for light vehicle, commercial truck, off-highway, industrial, and aftermarket customers. The Company is one of the world's leading manufacturers of clean air, powertrain, and ride performance products and systems, and serves both original equipment manufacturers ("OEM") and replacement markets worldwide.
On January 10, 2019, the Company completed the acquisition of a
90.5%
ownership interest in Öhlins Intressenter AB (“Öhlins”, the "Öhlins Acquisition"), a Swedish technology company that develops premium suspension systems and components for the automotive and motorsport industries. On October 1, 2018, the Company completed the acquisition of a
100%
ownership interest in Federal-Mogul LLC ("Federal-Mogul Acquisition," and together with the Öhlins Acquisition, the "Acquisitions"), a global supplier of technology and innovation in vehicle and industrial products for fuel economy, emissions reductions, and safety systems.
2. Summary of Significant Accounting Policies
Basis of Presentation
—
Interim Financial Statements
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These statements include all adjustments (consisting of normal recurring adjustments) management believes are necessary to fairly state the results of operations, comprehensive income, financial position, changes in shareholders' equity, and cash flows. The Company's management believes the disclosures are adequate to make the information presented not misleading when read in conjunction with the audited consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the year ended
December 31, 2018
, which was filed with the Securities and Exchange Commission on March 18, 2019. Operating results for the
three and six months ended June 30, 2019
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2019
.
The Company expects to separate its businesses to form two new, independent publicly traded companies, an Aftermarket and Ride Performance company ("DRiV") and a new Powertrain Technology company ("New Tenneco"). The Company currently expects the separation of the businesses to occur through a spinoff transaction of DRiV in mid-2020. In preparation for the spinoff, the Company began to manage and report its DRiV businesses through
two
new operating segments, in the first quarter of 2019, as compared to the
three
operating segments it had previously reported. The DRiV operating segments consist of Motorparts and Ride Performance. The new Motorparts operating segment consists of the previously reported Aftermarket operating segment as well as the aftermarket portion of the previously reported Motorparts operating segment. The Ride Performance operating segment consists of the previously reported Ride Performance operating segment as well as the OE Braking business that was included in the previously reported Motorparts operating segment. As such, prior period operating segment results and related disclosures have been conformed to reflect the Company's current operating segments. The future New Tenneco consists of
two
existing operating segments, Powertrain and Clean Air. See
Note 17, Segment Information
.
Redeemable Noncontrolling Interests —
The Company has noncontrolling interests with redemption features. These redemption features could require the Company to make an offer to purchase the noncontrolling interests at fair value in the event of a change in control of Tenneco Inc. or certain of its subsidiaries. The redemption of these redeemable noncontrolling interests is not solely within the Company's control. Accordingly, these noncontrolling interests are presented in the temporary equity section of the Company's condensed consolidated balance sheets. The Company does not believe it is probable the redemption features related to these noncontrolling interest securities will be triggered, as a change in control event is generally not probable until it occurs, except as discussed in
Note 3, Acquisitions and Divestitures
, for the redeemable noncontrolling interests from the Acquisitions.
The following is a rollforward of activities in the Company's redeemable noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
Balance at beginning of period
|
$
|
138
|
|
|
$
|
42
|
|
Net income (loss) attributable to redeemable noncontrolling interests
|
15
|
|
|
16
|
|
Other comprehensive income (loss)
|
1
|
|
|
(1
|
)
|
Acquisition and other
|
16
|
|
|
—
|
|
Purchase accounting measurement period adjustment
|
(8
|
)
|
|
—
|
|
Dividends declared
|
(17
|
)
|
|
(19
|
)
|
Balance at end of period
|
$
|
145
|
|
|
$
|
38
|
|
The Company recorded a decrease to the redeemable noncontrolling interests of
$8 million
from the Federal-Mogul Acquisition, as a result of adjustments made in the measurement period to the preliminary purchase price allocation. The purchase price allocations for the Acquisitions are preliminary and subject to finalization. The Company's current estimates and assumptions may change as a result. See
Note 3, Acquisitions and Divestitures
for additional information.
Earnings (loss) per share —
Basic earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average shares outstanding during the period. Diluted earnings (loss) per share reflects the weighted average effect of all potentially dilutive securities from the date of issuance. Actual weighted average shares outstanding used in calculating earnings (loss) per share were:
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six months ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Weighted average shares of common stock outstanding
|
80,920,825
|
|
|
51,258,668
|
|
|
80,897,731
|
|
|
51,232,639
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Restricted stock, PSUs and RSUs
|
—
|
|
|
298,826
|
|
|
—
|
|
|
251,971
|
|
Stock options
|
—
|
|
|
49,730
|
|
|
—
|
|
|
61,405
|
|
Dilutive shares outstanding
|
80,920,825
|
|
|
51,607,224
|
|
|
80,897,731
|
|
|
51,546,015
|
|
For the three and
six months ended June 30, 2019
, the calculation of diluted earnings (loss) per share excluded
1,990,099
and
1,850,850
of share-based awards, as the effect on the calculation would have been anti-dilutive. For the three and
six months ended June 30, 2018
, the calculation of diluted earnings (loss) per share excluded
123,773
and
123,947
of share-based awards, as the effect on the calculation would have been anti-dilutive.
Revision of Previously Issued Financial Statements
The Company identified an error in the accounting for certain costs capitalized into inventory that did not constitute inventoriable costs in its historical financial statements. The Company also revised for other immaterial errors related to various line items. As a result, certain amounts in the condensed consolidated financial statements have been revised for the
three and six month periods ended June 30, 2018
. These revisions were not material to the previously issued financial statements and are presented in the tables below.
Reclassifications:
Certain amounts in the prior years have been aggregated or disaggregated to conform to current year presentation. These reclassifications have no effect on previously reported earnings before income taxes and noncontrolling interests or net income, other comprehensive income (loss), current or total assets, current or total liabilities, and the cash provided (used) by operating, investing or financing activities within the condensed consolidated financial statements.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The following tables present the effects of these reclassifications and revisions for the condensed consolidated financial statement line items adjusted in the affected periods included within this quarterly report:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
As Reported
|
|
Reclasses
|
|
As Reclassified
|
|
Revisions
|
|
As Revised
|
Condensed consolidated statement of income (loss)
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net sales and operating revenues
|
$
|
2,537
|
|
|
$
|
—
|
|
|
$
|
2,537
|
|
|
$
|
(4
|
)
|
|
$
|
2,533
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
2,159
|
|
|
(23
|
)
|
|
2,136
|
|
|
(2
|
)
|
|
2,134
|
|
Selling, general, and administrative
|
156
|
|
|
(2
|
)
|
|
154
|
|
|
—
|
|
|
154
|
|
Depreciation and amortization
|
59
|
|
|
—
|
|
|
59
|
|
|
1
|
|
|
60
|
|
Engineering, research, and development
|
42
|
|
|
(4
|
)
|
|
38
|
|
|
1
|
|
|
39
|
|
Restructuring charges and asset impairments
|
—
|
|
|
29
|
|
|
29
|
|
|
—
|
|
|
29
|
|
|
2,416
|
|
|
—
|
|
|
2,416
|
|
|
—
|
|
|
2,416
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
Loss on sale of receivables
|
2
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-service pension and other postretirement benefit costs (credits)
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Other expense (income), net
|
6
|
|
|
(3
|
)
|
|
3
|
|
|
—
|
|
|
3
|
|
|
8
|
|
|
(2
|
)
|
|
6
|
|
|
—
|
|
|
6
|
|
Earnings (loss) before interest expense, income taxes, and noncontrolling interests
|
113
|
|
|
2
|
|
|
115
|
|
|
(4
|
)
|
|
111
|
|
Interest expense
|
20
|
|
|
2
|
|
|
22
|
|
|
—
|
|
|
22
|
|
Earnings (loss) before income taxes and noncontrolling interests
|
93
|
|
|
—
|
|
|
93
|
|
|
(4
|
)
|
|
89
|
|
Income tax expense (benefit)
|
27
|
|
|
—
|
|
|
27
|
|
|
(1
|
)
|
|
26
|
|
Net income (loss)
|
66
|
|
|
—
|
|
|
66
|
|
|
(3
|
)
|
|
63
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
16
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
Net income (loss) attributable to Tenneco Inc.
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
(3
|
)
|
|
$
|
47
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share of common stock
|
$
|
0.98
|
|
|
$
|
—
|
|
|
$
|
0.98
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.92
|
|
Diluted earnings (loss) per share of common stock
|
$
|
0.98
|
|
|
$
|
—
|
|
|
$
|
0.98
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
As Reported
|
|
Reclasses
|
|
As Reclassified
|
|
Revisions
|
|
As Revised
|
Condensed consolidated statement of comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
(3
|
)
|
|
$
|
63
|
|
Other comprehensive income (loss)—net of tax
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(100
|
)
|
|
—
|
|
|
(100
|
)
|
|
1
|
|
|
(99
|
)
|
Defined benefit plans
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
(96
|
)
|
|
—
|
|
|
(96
|
)
|
|
1
|
|
|
(95
|
)
|
Comprehensive income (loss)
|
(30
|
)
|
|
—
|
|
|
(30
|
)
|
|
(2
|
)
|
|
(32
|
)
|
Less: Comprehensive income (loss) attributable to noncontrolling interests
|
9
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Comprehensive income (loss) attributable to common shareholders
|
$
|
(39
|
)
|
|
$
|
—
|
|
|
$
|
(39
|
)
|
|
$
|
(2
|
)
|
|
$
|
(41
|
)
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2018
|
|
As Reported
|
|
Reclasses
|
|
As Reclassified
|
|
Revisions
|
|
As Revised
|
Condensed consolidated statement of income (loss)
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net sales and operating revenues
|
$
|
5,111
|
|
|
$
|
—
|
|
|
$
|
5,111
|
|
|
$
|
3
|
|
|
$
|
5,114
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
4,357
|
|
|
(32
|
)
|
|
4,325
|
|
|
2
|
|
|
4,327
|
|
Selling, general, and administrative
|
309
|
|
|
(4
|
)
|
|
305
|
|
|
—
|
|
|
305
|
|
Depreciation and amortization
|
118
|
|
|
—
|
|
|
118
|
|
|
2
|
|
|
120
|
|
Engineering, research, and development
|
83
|
|
|
(5
|
)
|
|
78
|
|
|
1
|
|
|
79
|
|
Restructuring charges and asset impairments
|
—
|
|
|
41
|
|
|
41
|
|
|
—
|
|
|
41
|
|
|
4,867
|
|
|
—
|
|
|
4,867
|
|
|
5
|
|
|
4,872
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
Loss on sale of receivables
|
5
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-service pension and other postretirement benefit costs (credits)
|
—
|
|
|
6
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Other expense (income), net
|
9
|
|
|
(6
|
)
|
|
3
|
|
|
—
|
|
|
3
|
|
|
14
|
|
|
(5
|
)
|
|
9
|
|
|
—
|
|
|
9
|
|
Earnings (loss) before interest expense, income taxes, and noncontrolling interests
|
230
|
|
|
5
|
|
|
235
|
|
|
(2
|
)
|
|
233
|
|
Interest expense
|
40
|
|
|
5
|
|
|
45
|
|
|
—
|
|
|
45
|
|
Earnings (loss) before income taxes and noncontrolling interests
|
190
|
|
|
—
|
|
|
190
|
|
|
(2
|
)
|
|
188
|
|
Income tax expense (benefit)
|
52
|
|
|
—
|
|
|
52
|
|
|
(1
|
)
|
|
51
|
|
Net income (loss)
|
138
|
|
|
—
|
|
|
138
|
|
|
(1
|
)
|
|
137
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
30
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
30
|
|
Net income (loss) attributable to Tenneco Inc.
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
108
|
|
|
$
|
(1
|
)
|
|
$
|
107
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share of common stock
|
$
|
2.12
|
|
|
$
|
—
|
|
|
$
|
2.12
|
|
|
$
|
(0.04
|
)
|
|
$
|
2.08
|
|
Diluted earnings (loss) per share of common stock
|
$
|
2.10
|
|
|
$
|
—
|
|
|
$
|
2.10
|
|
|
$
|
(0.03
|
)
|
|
$
|
2.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2018
|
|
As Reported
|
|
Reclasses
|
|
As Reclassified
|
|
Revisions
|
|
As Revised
|
Condensed consolidated statement of comprehensive income (loss)
|
|
Net income (loss)
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
138
|
|
|
$
|
(1
|
)
|
|
$
|
137
|
|
Other comprehensive income (loss)—net of tax
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(73
|
)
|
|
—
|
|
|
(73
|
)
|
|
1
|
|
|
(72
|
)
|
Defined benefit plans
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
(66
|
)
|
|
—
|
|
|
(66
|
)
|
|
1
|
|
|
(65
|
)
|
Comprehensive income (loss)
|
72
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
72
|
|
Less: Comprehensive income (loss) attributable to noncontrolling interests
|
31
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
31
|
|
Comprehensive income (loss) attributable to common shareholders
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
41
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2018
|
|
|
As Reported
|
|
Reclasses
|
|
As Reclassified
|
|
Revisions
|
|
As Revised
|
Condensed consolidated statements of cash flow
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
138
|
|
|
$
|
(1
|
)
|
|
$
|
137
|
|
Net cash provided by (used by) operating activities
|
|
78
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
(101
|
)
|
|
—
|
|
|
(101
|
)
|
|
—
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds from term loans and notes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
Repayments of term loans and notes
|
|
—
|
|
|
(12
|
)
|
|
(12
|
)
|
|
(16
|
)
|
|
(28
|
)
|
Retirement of long-term debt
|
|
(12
|
)
|
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Borrowings on revolving lines of credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,669
|
|
|
2,669
|
|
Payments on revolving lines of credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,614
|
)
|
|
(2,614
|
)
|
Net increase (decrease) in revolver borrowings
|
|
48
|
|
|
—
|
|
|
48
|
|
|
(48
|
)
|
|
—
|
|
Issuance (repurchase) of common shares
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Cash dividends
|
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
Debt issuance cost of long-term debt
|
|
(2
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of common stock under the share repurchase program
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net increase (decrease) in bank overdrafts
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
Net increase (decrease) in short-term borrowings secured by accounts receivable
|
|
(20
|
)
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
Distributions to noncontrolling interest partners
|
|
(28
|
)
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
(28
|
)
|
Net cash provided by (used by) financing activities
|
|
(47
|
)
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
(47
|
)
|
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
(81
|
)
|
|
—
|
|
|
(81
|
)
|
|
—
|
|
|
(81
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
318
|
|
|
—
|
|
|
318
|
|
|
—
|
|
|
318
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
237
|
|
|
$
|
—
|
|
|
$
|
237
|
|
|
$
|
—
|
|
|
$
|
237
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
As Reported
|
|
Revisions
|
|
As Revised
|
Condensed consolidated statements of changes in shareholders' equity
|
|
|
Accumulated Deficit
|
|
|
|
|
|
|
Balance March 31
|
|
$
|
(902
|
)
|
|
$
|
(61
|
)
|
|
$
|
(963
|
)
|
Net income (loss) attributable to Tenneco Inc.
|
|
50
|
|
|
(3
|
)
|
|
47
|
|
Cash dividends declared
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
Balance June 30
|
|
$
|
(864
|
)
|
|
$
|
(64
|
)
|
|
$
|
(928
|
)
|
Accumulated Other Comprehensive Income (loss)
|
|
|
|
|
|
|
Balance March 31
|
|
$
|
(519
|
)
|
|
$
|
3
|
|
|
$
|
(516
|
)
|
Other comprehensive income (loss)—net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(93
|
)
|
|
1
|
|
|
(92
|
)
|
Defined benefit plans
|
|
4
|
|
|
—
|
|
|
4
|
|
Balance June 30
|
|
$
|
(608
|
)
|
|
$
|
4
|
|
|
$
|
(604
|
)
|
Total Tenneco Inc. Shareholders' Equity
|
|
|
|
|
|
|
Balance March 31
|
|
$
|
765
|
|
|
$
|
(58
|
)
|
|
$
|
707
|
|
Net income (loss) attributable to Tenneco Inc.
|
|
50
|
|
|
(3
|
)
|
|
47
|
|
Other comprehensive income (loss)—net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(93
|
)
|
|
1
|
|
|
(92
|
)
|
Defined benefit plans
|
|
4
|
|
|
—
|
|
|
4
|
|
Comprehensive income (loss)
|
|
(39
|
)
|
|
(2
|
)
|
|
(41
|
)
|
Cash dividends
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
Common Stock Issued
|
|
3
|
|
|
—
|
|
|
3
|
|
Balance June 30
|
|
$
|
717
|
|
|
$
|
(60
|
)
|
|
$
|
657
|
|
Total Equity
|
|
|
|
|
|
|
Balance March 31
|
|
$
|
825
|
|
|
$
|
(58
|
)
|
|
$
|
767
|
|
Net income (loss)
|
|
57
|
|
|
(3
|
)
|
|
54
|
|
Other comprehensive income (loss)—net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(98
|
)
|
|
1
|
|
|
(97
|
)
|
Defined benefit plans
|
|
4
|
|
|
—
|
|
|
4
|
|
Comprehensive income (loss)
|
|
(37
|
)
|
|
(2
|
)
|
|
(39
|
)
|
Common Stock Issued
|
|
3
|
|
|
—
|
|
|
3
|
|
Cash dividends
|
|
(30
|
)
|
|
—
|
|
|
(30
|
)
|
Balance June 30
|
|
$
|
761
|
|
|
$
|
(60
|
)
|
|
$
|
701
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2018
|
|
|
As Reported
|
|
Revisions
|
|
As Revised
|
Condensed consolidated statements of changes in shareholders' equity
|
|
|
Accumulated Deficit
|
|
|
|
|
|
|
Balance January 1
|
|
$
|
(946
|
)
|
|
$
|
(63
|
)
|
|
$
|
(1,009
|
)
|
Net income (loss) attributable to Tenneco Inc.
|
|
108
|
|
|
(1
|
)
|
|
107
|
|
Cash dividends declared
|
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
Adjustments to adopt new accounting standards
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Balance June 30
|
|
$
|
(864
|
)
|
|
$
|
(64
|
)
|
|
$
|
(928
|
)
|
Accumulated Other Comprehensive Income (loss)
|
|
|
|
|
|
|
Balance January 1
|
|
$
|
(541
|
)
|
|
$
|
3
|
|
|
$
|
(538
|
)
|
Other comprehensive income (loss)—net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(74
|
)
|
|
1
|
|
|
(73
|
)
|
Defined benefit plans
|
|
7
|
|
|
—
|
|
|
7
|
|
Balance June 30
|
|
$
|
(608
|
)
|
|
$
|
4
|
|
|
$
|
(604
|
)
|
Total Tenneco Inc. Shareholders' Equity
|
|
|
|
|
|
|
Balance January 1
|
|
$
|
696
|
|
|
$
|
(60
|
)
|
|
$
|
636
|
|
Net income (loss) attributable to Tenneco Inc.
|
|
108
|
|
|
(1
|
)
|
|
107
|
|
Other comprehensive income (loss)—net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(74
|
)
|
|
1
|
|
|
(73
|
)
|
Defined benefit plans
|
|
7
|
|
|
—
|
|
|
7
|
|
Comprehensive income (loss)
|
|
41
|
|
|
—
|
|
|
41
|
|
Adjustments to adopt new accounting standards
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Cash dividends
|
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
Common Stock Issued
|
|
6
|
|
|
—
|
|
|
6
|
|
Balance June 30
|
|
$
|
717
|
|
|
$
|
(60
|
)
|
|
$
|
657
|
|
Total Equity
|
|
|
|
|
|
|
Balance January 1
|
|
$
|
742
|
|
|
$
|
(60
|
)
|
|
$
|
682
|
|
Net income (loss)
|
|
122
|
|
|
(1
|
)
|
|
121
|
|
Other comprehensive income (loss)—net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(72
|
)
|
|
1
|
|
|
(71
|
)
|
Defined benefit plans
|
|
7
|
|
|
—
|
|
|
7
|
|
Comprehensive income (loss)
|
|
57
|
|
|
—
|
|
|
57
|
|
Common Stock Issued
|
|
6
|
|
|
—
|
|
|
6
|
|
Cash dividends
|
|
(43
|
)
|
|
—
|
|
|
(43
|
)
|
Adjustments to adopt new accounting standards
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Balance June 30
|
|
$
|
761
|
|
|
$
|
(60
|
)
|
|
$
|
701
|
|
New Accounting Pronouncements
Adoption of New Accounting Standards
Comprehensive income
—
In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The amendments in this update allow a reclassification from accumulated other comprehensive income (loss) to accumulated deficit for stranded tax effects resulting from the Tax Cuts and Jobs Act ("TCJA"). The Company has elected not to adopt the optional reclassification.
Leases
—
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update supersedes the lease requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. For public business entities, the standard is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company adopted this update on January 1, 2019 using the modified retrospective method without the recasting of comparative periods’ financial information, as permitted by the transition guidance.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The Company adopted the package of practical expedients that allows companies to not reassess its previous conclusions related to contracts that contain leases, existing lease classification, and initial direct costs, and to carry forward its historical conclusions. It elected the land easements practical expedient allowing the Company not to reassess whether existing or expired land easements not accounted for as leases under previous guidance are or contain leases under the new guidance. It also did not adopt the hindsight practical expedient and has also made an accounting policy election to exempt leases with an initial term of twelve months or less from balance sheet recognition. Instead, short-term leases will be expensed over the lease term. As a part of the implementation effort, the Company reviewed its internal control structure and modified and augmented existing controls, as necessary.
The adoption of the new standard resulted in the recording of additional lease assets and lease liabilities of
$387 million
and
$383 million
, and a reduction of favorable lease intangibles of
$4 million
as of January 1, 2019. The standard did not materially affect the Company's condensed consolidated financial position or results of operations and had no effect on cash flows. See
Note 14, Leases
.
Accounting Standards Issued But Not Yet Adopted
Intangibles
—
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for interim and annual periods for the Company beginning on January 1, 2020, with early adoption permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the potential effect of this new guidance on its financial statements.
Retirement benefits
—
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in this update are effective for fiscal years ending after December 15, 2020 with early adoption permitted. The Company is currently evaluating the potential effect of this new guidance on its financial statements.
Fair value measurements
—
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU while delaying adoption of the additional disclosures until their effective date. The Company is currently evaluating the potential effect of this new guidance on its financial statements.
3. Acquisitions and Divestitures
The preliminary allocation of the purchase price of the assets acquired and liabilities assumed, including the residual amount recognized as goodwill, is based upon estimated information and is subject to change within the measurement period. The measurement period is a period not to exceed one year from the acquisition date during which the Company may adjust estimated or provisional amounts recorded during purchase accounting if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. Any adjustments to amounts recorded in purchase accounting that do not qualify as measurement period adjustments are included in earnings in the period identified.
The fair values of the assets acquired and liabilities assumed are based on preliminary estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes these preliminary estimates provide a reasonable basis for estimating the fair value of the assets acquired and liabilities assumed, it will continue to evaluate available information prior to finalization of the amounts.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Öhlins Intressenter AB Acquisition
The purchase price for the
90.5%
ownership interest in Öhlins was
$162 million
. The remaining
9.5%
ownership interest in Öhlins (the “KÖ Interest”) was retained by K Öhlin Holding AB (“Köhlin”). Köhlin has an irrevocable right at any time after the third anniversary of the Öhlins Acquisition to sell the KÖ Interest to the Company. As the redemption of this redeemable noncontrolling interest is not solely within the Company's control, the noncontrolling interest is presented in the temporary equity section of the Company's condensed consolidated balance sheets. The fair value of the KÖ Interest was
$17 million
and represents its current redemption value at
June 30, 2019
.
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the acquisition date and the measurement period adjustments made during the six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Allocation
|
|
Adjustments
|
|
Revised Allocation
|
Cash, cash equivalents and restricted cash
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Customer notes and accounts receivable
|
19
|
|
|
—
|
|
|
19
|
|
Inventories
|
31
|
|
|
—
|
|
|
31
|
|
Prepayments and other current assets
|
2
|
|
|
—
|
|
|
2
|
|
Property, plant, and equipment
|
8
|
|
|
—
|
|
|
8
|
|
Goodwill
|
28
|
|
|
2
|
|
|
30
|
|
Intangibles
|
135
|
|
|
(2
|
)
|
|
133
|
|
Other assets
|
9
|
|
|
—
|
|
|
9
|
|
Total assets acquired
|
$
|
236
|
|
|
$
|
—
|
|
|
$
|
236
|
|
|
|
|
|
|
|
Short-term debt, including current maturities of long-term debt
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
10
|
|
Accounts payable
|
11
|
|
|
—
|
|
|
11
|
|
Accrued compensation and employee benefits
|
12
|
|
|
—
|
|
|
12
|
|
Deferred income taxes
|
18
|
|
|
—
|
|
|
18
|
|
Deferred credits and other liabilities
|
6
|
|
|
—
|
|
|
6
|
|
Total liabilities assumed
|
57
|
|
|
—
|
|
|
57
|
|
Redeemable noncontrolling interest
|
17
|
|
|
—
|
|
|
17
|
|
Net assets acquired
|
$
|
162
|
|
|
$
|
—
|
|
|
$
|
162
|
|
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the inventory, intangible assets, right of use assets, and deferred income tax assets and liabilities.
Goodwill of
$30 million
was recognized as part of the acquisition and is reflected in the Ride Performance segment. During the three months ended June 30, 2019, the Company adjusted the initial allocation of the total purchase consideration, which resulted in a
$2 million
increase to goodwill. The goodwill consists of the Company’s expected future economic benefits that will result from the acquisition of Öhlins’ technology, which will allow the Company to more rapidly grow its product offerings for current and future customers, as well as assist the Company in obtaining a larger share of business in developing mobility markets. None of the goodwill is deductible for tax purposes.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Other intangible assets acquired include the following:
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Weighted-Average Useful Lives
|
Definite-lived intangible assets:
|
|
|
|
Customer platforms and relationships
|
$
|
37
|
|
|
10 years
|
Technology rights
|
41
|
|
|
10 years
|
Total definite-lived intangible assets
|
78
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
Trade names and trademarks
|
55
|
|
|
|
Total
|
$
|
133
|
|
|
|
The Company recorded a
$5 million
step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation and recognized
$3 million
and
$5 million
as a non-cash charge to cost of goods sold during the three and
six months ended June 30, 2019
related to the amortization of this step-up, as the acquired inventory was sold.
Pro Forma Results
Pro forma results of operations have not been presented because the effects of the Öhlins Acquisition were not material to the Company’s condensed consolidated results of operations.
Acquisition of Federal-Mogul
During the
six months ended June 30, 2019
, the Company made measurement period adjustments based on further evaluation of available information to facts and circumstances that existed as of the acquisition date.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the acquisition date and the measurement period adjustments made during the
six months ended June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Allocation
|
|
Adjustments
|
|
Revised Allocation
|
Cash, cash equivalents and restricted cash
|
$
|
277
|
|
|
$
|
—
|
|
|
$
|
277
|
|
Customer notes and accounts receivable
|
1,258
|
|
|
—
|
|
|
1,258
|
|
Other receivables
|
62
|
|
|
—
|
|
|
62
|
|
Inventories
|
1,551
|
|
|
(5
|
)
|
|
1,546
|
|
Prepayments and other current assets
|
198
|
|
|
1
|
|
|
199
|
|
Property, plant and equipment
|
1,711
|
|
|
(28
|
)
|
|
1,683
|
|
Long-term receivables
|
48
|
|
|
—
|
|
|
48
|
|
Goodwill
|
825
|
|
|
(40
|
)
|
|
785
|
|
Intangibles
|
1,530
|
|
|
71
|
|
|
1,601
|
|
Investments in nonconsolidated affiliates
|
528
|
|
|
(15
|
)
|
|
513
|
|
Deferred income taxes
|
166
|
|
|
—
|
|
|
166
|
|
Other assets
|
55
|
|
|
(6
|
)
|
|
49
|
|
Total assets acquired
|
$
|
8,209
|
|
|
$
|
(22
|
)
|
|
$
|
8,187
|
|
|
|
|
|
|
|
Short-term debt, including current maturities of long-term debt
|
$
|
130
|
|
|
$
|
—
|
|
|
$
|
130
|
|
Accounts payable
|
957
|
|
|
—
|
|
|
957
|
|
Accrued compensation and employee benefits
|
231
|
|
|
—
|
|
|
231
|
|
Accrued income taxes
|
49
|
|
|
—
|
|
|
49
|
|
Accrued expenses and other current liabilities
|
522
|
|
|
(8
|
)
|
|
514
|
|
Long-term debt
|
1,315
|
|
|
—
|
|
|
1,315
|
|
Deferred income taxes
|
56
|
|
|
—
|
|
|
56
|
|
Pension and postretirement benefits
|
879
|
|
|
—
|
|
|
879
|
|
Deferred credits and other liabilities
|
124
|
|
|
(5
|
)
|
|
119
|
|
Total liabilities assumed
|
4,263
|
|
|
(13
|
)
|
|
4,250
|
|
Redeemable noncontrolling interests
|
96
|
|
|
(8
|
)
|
|
88
|
|
Noncontrolling interests
|
143
|
|
|
(1
|
)
|
|
142
|
|
Net assets and noncontrolling interests acquired
|
$
|
3,707
|
|
|
$
|
—
|
|
|
$
|
3,707
|
|
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of property, plant and equipment; intangible assets; unconsolidated affiliates; deferred income tax assets and liabilities; redeemable noncontrolling interests; and noncontrolling interests.
Goodwill of
$412 million
was allocated to the Powertrain segment,
$318 million
was allocated to the Motorparts segment, and
$55 million
was allocated to the Ride Performance segment. The goodwill consists of the Company's expected future economic benefits that will arise from expected future product sales and synergies from combining Federal-Mogul with its existing portfolio of products.
None
of the goodwill is deductible for tax purposes.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Other intangible assets acquired include the following:
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Weighted-Average Useful Lives
|
Definite-lived intangible assets:
|
|
|
|
Customer platforms and relationships
|
$
|
978
|
|
|
10 years
|
Technology rights
|
68
|
|
|
10 years
|
Packaged kits know-how
|
54
|
|
|
10 years
|
Catalogs
|
40
|
|
|
10 years
|
Licensing agreements
|
64
|
|
|
4.5 years
|
Land use rights
|
30
|
|
|
42.8 years
|
Total definite-lived intangible assets
|
1,234
|
|
|
10.5 years
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
Trade names and trademarks
|
367
|
|
|
|
Total
|
$
|
1,601
|
|
|
|
The Company recorded a
$152 million
step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. The Company recognized
$3 million
and
$44 million
as a non-cash charge to cost of goods sold during the three and
six months ended June 30, 2019
related to the amortization of this step-up, as the acquired inventory was sold. The Company recognized
$105 million
as a non-cash charge to cost of goods sold during the year ended
December 31, 2018
and expects to recognize the remaining amortization of the inventory step-up during 2019.
In addition, the Company acquired
$83 million
in redeemable noncontrolling interests related to a subsidiary from the Federal-Mogul Acquisition. The Company initiated the process to make a tender offer for the shares it does not own due to the change in control in accordance with local regulations triggered by the acquisition. It is probable these shares will become redeemable during 2019 under the tender offer at a price that is representative of fair value and as a result, the noncontrolling interest is presented in the temporary equity section of the Company’s condensed consolidated balance sheets. The carrying amount for this redeemable noncontrolling interest represents its current redemption value at
June 30, 2019
.
The Company's condensed consolidated statements of income (loss) for the
six months ended June 30, 2019
included net sales and operating revenues of
$3,762 million
and net income of
$17 million
associated with the operating results of Federal-Mogul.
Pro Forma Results
The following table summarizes, on a pro forma basis, the combined results of operations of the Company and the Federal-Mogul Acquisition, and the related financing, if the transaction had occurred as of January 1, 2017. The pro forma results are not necessarily indicative of either the actual consolidated results had the Federal-Mogul Acquisition occurred on January 1, 2017 or of future consolidated operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net sales and operating revenues
|
$
|
4,504
|
|
|
$
|
4,618
|
|
|
$
|
8,988
|
|
|
$
|
9,298
|
|
Earnings (loss) before income taxes and noncontrolling interests
|
$
|
171
|
|
|
$
|
232
|
|
|
$
|
201
|
|
|
$
|
458
|
|
Net income (loss) attributable to Tenneco Inc.
|
$
|
43
|
|
|
$
|
78
|
|
|
$
|
(27
|
)
|
|
$
|
171
|
|
Basic earnings (loss) per share of common stock
|
$
|
0.54
|
|
|
$
|
0.97
|
|
|
$
|
(0.33
|
)
|
|
$
|
2.13
|
|
Diluted earnings (loss) per share of common stock
|
$
|
0.54
|
|
|
$
|
0.96
|
|
|
$
|
(0.33
|
)
|
|
$
|
2.12
|
|
These pro forma amounts have been calculated after applying the Company's accounting policies and the results presented above primarily reflect: (i) depreciation adjustments relating to fair value adjustments to property, plant, and equipment; (ii) amortization adjustments relating to fair value estimates of intangible assets; (iii) incremental interest expense, net on assumed indebtedness, the new credit facility, debt issuance costs, and fair value adjustments to debt; and (iv) cost of goods sold
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
adjustments relating to fair value adjustments to inventory. Pro forma adjustments described above have been tax affected using the Company's effective rate during the respective periods.
Assets Held for Sale
On March 1, 2019, the Company sold its wipers business in the Motorparts segment for a sale price of
$29 million
, subject to adjustment based on terms of the sale agreement. Proceeds from the sale were
$22 million
, subject to customary working capital adjustments. Certain assets and liabilities of the business are still classified as held for sale within the condensed consolidated balance sheet as of
June 30, 2019
and are expected to transfer in the second half of 2019.
The related assets and liabilities were classified as held for sale as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Assets
|
|
|
|
Inventories
|
$
|
3
|
|
|
$
|
33
|
|
Other current assets
|
—
|
|
|
5
|
|
Long-lived assets
|
1
|
|
|
23
|
|
Total assets held for sale
|
$
|
4
|
|
|
$
|
61
|
|
Liabilities
|
|
|
|
Accounts payable
|
$
|
2
|
|
|
$
|
21
|
|
Accrued liabilities
|
—
|
|
|
7
|
|
Other liabilities
|
1
|
|
|
11
|
|
Total liabilities held for sale
|
$
|
3
|
|
|
$
|
39
|
|
4. Restructuring Charges and Asset Impairments, Net
Restructuring and Other Charges
The Company's restructuring activities are undertaken as necessary to execute management's strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize the Company's businesses and to relocate operations to best cost locations.
The Company's restructuring charges consist primarily of employee costs (principally severance and/or termination benefits), and facility closure and other costs.
For the
three and six months ended June 30, 2019
and
2018
, restructuring charges, net and asset impairments by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Clean Air
|
$
|
15
|
|
|
$
|
17
|
|
|
$
|
20
|
|
|
$
|
18
|
|
Powertrain
|
17
|
|
|
—
|
|
|
18
|
|
|
—
|
|
Ride Performance
|
22
|
|
|
9
|
|
|
35
|
|
|
17
|
|
Motorparts
|
7
|
|
|
1
|
|
|
11
|
|
|
4
|
|
Corporate
|
—
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
$
|
61
|
|
|
$
|
29
|
|
|
$
|
85
|
|
|
$
|
41
|
|
Presented within the table above are asset impairments of
$1 million
in the Clean Air segment and
$1 million
in the Motorparts segment incurred during the
three and six months ended June 30, 2019
.
During the
three and six months ended June 30, 2019
, the Company incurred
$3 million
and
$9 million
in restructuring and related costs and reduced previously recorded estimates by
$2 million
related to a restructuring plan designed to achieve a portion of the synergies the Company anticipates achieving in connection with the Federal-Mogul Acquisition. Pursuant to the plan, the Company will reduce its headcount globally across all segments. The Company began implementing headcount reductions in January 2019 and these actions will continue throughout 2019. The Federal-Mogul Acquisition is discussed further in
Note 3, Acquisitions and Divestitures
. During the
three and six months ended June 30, 2019
, the Company also incurred
$17 million
and
$28 million
in restructuring and related costs related to plant relocation and closures within its Ride Performance segment. The Company expects the actions to be completed by the second quarter of 2020.
During the three and six months ended June 30, 2018, the Company incurred
$7 million
and
$14 million
in restructuring and related costs related to the accelerated move of the Beijing Ride Performance plant.
Restructuring Reserve Rollforward
Amounts related to activities that were charges to restructuring reserves, including costs incurred to support future structural cost reductions, by reportable segments are as follows:
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total Reportable Segments
|
|
Corporate
|
|
Total
|
Balance as of December 31, 2018
|
$
|
17
|
|
|
$
|
15
|
|
|
$
|
25
|
|
|
$
|
43
|
|
|
$
|
100
|
|
|
$
|
3
|
|
|
$
|
103
|
|
Provisions
|
5
|
|
|
1
|
|
|
13
|
|
|
4
|
|
|
23
|
|
|
1
|
|
|
24
|
|
Payments
|
(6
|
)
|
|
(3
|
)
|
|
(13
|
)
|
|
(14
|
)
|
|
(36
|
)
|
|
(2
|
)
|
|
(38
|
)
|
Balance as of March 31, 2019
|
16
|
|
|
13
|
|
|
25
|
|
|
33
|
|
|
87
|
|
|
2
|
|
|
89
|
|
Provisions
|
14
|
|
|
17
|
|
|
22
|
|
|
8
|
|
|
61
|
|
|
—
|
|
|
61
|
|
Revisions to estimates
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Payments
|
(2
|
)
|
|
(4
|
)
|
|
(19
|
)
|
|
(7
|
)
|
|
(32
|
)
|
|
(1
|
)
|
|
(33
|
)
|
Balance as of June 30, 2019
|
$
|
28
|
|
|
$
|
26
|
|
|
$
|
28
|
|
|
$
|
32
|
|
|
$
|
114
|
|
|
$
|
1
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total Reportable Segments
|
|
Corporate
|
|
Total
|
Balance as of December 31, 2017
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
4
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
25
|
|
Provisions
|
1
|
|
|
—
|
|
|
8
|
|
|
3
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Payments
|
(5
|
)
|
|
—
|
|
|
(9
|
)
|
|
(2
|
)
|
|
(16
|
)
|
|
—
|
|
|
(16
|
)
|
Balance as of March 31, 2018
|
10
|
|
|
—
|
|
|
6
|
|
|
5
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Provisions
|
17
|
|
|
—
|
|
|
9
|
|
|
1
|
|
|
27
|
|
|
2
|
|
|
29
|
|
Payments
|
(3
|
)
|
|
—
|
|
|
(10
|
)
|
|
(2
|
)
|
|
(15
|
)
|
|
—
|
|
|
(15
|
)
|
Balance as of June 30, 2018
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
33
|
|
|
$
|
2
|
|
|
$
|
35
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The following table provides a summary of the Company's restructuring liabilities and related activity for each type of exit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Costs
|
|
Facility Closure and Other Costs
|
|
Total
|
Balance as of December 31, 2018
|
$
|
98
|
|
|
$
|
5
|
|
|
$
|
103
|
|
Provisions
|
11
|
|
|
13
|
|
|
24
|
|
Payments
|
(25
|
)
|
|
(13
|
)
|
|
(38
|
)
|
Balance as of March 31, 2019
|
84
|
|
|
5
|
|
|
89
|
|
Provisions
|
44
|
|
|
17
|
|
|
61
|
|
Revisions to estimates
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Payments
|
(16
|
)
|
|
(17
|
)
|
|
(33
|
)
|
Balance as of June 30, 2019
|
$
|
110
|
|
|
$
|
5
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Costs
|
|
Facility Closure and Other Costs
|
|
Total
|
Balance as of December 31, 2017
|
$
|
19
|
|
|
$
|
6
|
|
|
$
|
25
|
|
Provisions
|
10
|
|
|
2
|
|
|
12
|
|
Payments
|
(13
|
)
|
|
(3
|
)
|
|
(16
|
)
|
Balance as of March 31, 2018
|
16
|
|
|
5
|
|
|
21
|
|
Provisions
|
26
|
|
|
3
|
|
|
29
|
|
Payments
|
(12
|
)
|
|
(3
|
)
|
|
(15
|
)
|
Balance as of June 30, 2018
|
$
|
30
|
|
|
$
|
5
|
|
|
$
|
35
|
|
5. Inventories
At
June 30, 2019
and
December 31, 2018
, inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Finished goods
|
$
|
1,110
|
|
|
$
|
1,116
|
|
Work in process
|
497
|
|
|
562
|
|
Raw materials
|
489
|
|
|
457
|
|
Materials and supplies
|
111
|
|
|
110
|
|
|
$
|
2,207
|
|
|
$
|
2,245
|
|
6. Goodwill and Other Intangible Assets
At
June 30, 2019
and
December 31, 2018
, goodwill consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total
|
Gross carrying amount at December 31, 2018
|
$
|
22
|
|
|
$
|
388
|
|
|
$
|
210
|
|
|
$
|
611
|
|
|
$
|
1,231
|
|
Measurement period adjustments
|
—
|
|
|
21
|
|
|
—
|
|
|
(67
|
)
|
|
(46
|
)
|
Acquisitions
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
28
|
|
Gross carrying amount at March 31, 2019
|
22
|
|
|
409
|
|
|
238
|
|
|
544
|
|
|
1,213
|
|
Measurement period adjustments
|
—
|
|
|
3
|
|
|
2
|
|
|
3
|
|
|
8
|
|
Foreign exchange
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gross carrying amount at June 30, 2019
|
22
|
|
|
412
|
|
|
240
|
|
|
547
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated impairment loss at December 31, 2018
|
—
|
|
|
—
|
|
|
(143
|
)
|
|
(219
|
)
|
|
(362
|
)
|
Impairment
|
—
|
|
|
—
|
|
|
(60
|
)
|
|
—
|
|
|
(60
|
)
|
Accumulated impairment loss at March 31, 2019
|
—
|
|
|
—
|
|
|
(203
|
)
|
|
(219
|
)
|
|
(422
|
)
|
Foreign exchange
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accumulated impairment loss at June 30, 2019
|
—
|
|
|
—
|
|
|
(203
|
)
|
|
(219
|
)
|
|
(422
|
)
|
|
|
|
|
|
|
|
|
|
|
Net carrying value at end of period
|
$
|
22
|
|
|
$
|
412
|
|
|
$
|
37
|
|
|
$
|
328
|
|
|
$
|
799
|
|
The Öhlins Acquisition resulted in
$30 million
of goodwill which was included in the Ride Performance segment. During the
six months ended June 30, 2019
, the Company made the following adjustments to goodwill in the measurement period to the preliminary purchase price allocation for the Acquisitions:
|
|
•
|
an increase of
$2 million
for the Öhlins Acquisition; and
|
|
|
•
|
a net decrease of
$40 million
for the Federal-Mogul Acquisition.
|
The purchase price allocations for the Acquisitions are preliminary and subject to finalization. The Company's current estimates and assumptions may change as a result. See
Note 3, Acquisitions and Divestitures
for additional information.
During the first quarter of 2019, the Company reorganized the reporting structure of its Aftermarket, Ride Performance, and Motorparts segments and the underlying reporting units within those segments. The Company reassigned assets and liabilities (excluding goodwill) to the reporting units affected. Goodwill was then reassigned to the reporting units using a relative fair value approach based on the fair value of the elements transferred and the fair value of the elements remaining within the original reporting units. The Company tested goodwill for impairment on a pre-reorganization basis and determined there was no impairment for the affected reporting units. The Company also performed an impairment analysis on a post-reorganization basis and determined
$60 million
of goodwill was impaired for
two
reporting units within its Ride Performance segment, one of which was a full impairment of the goodwill. As a result, this non-cash charge was recorded in the six months ended June 30, 2019. Goodwill allocated to other reporting units was supported by the valuation performed at that time.
During the three months ended
June 30, 2019
, the Company performed a review of potential triggering events, and concluded no events indicated it was more likely than not that the fair values of its reporting units had declined to below their carrying values at
June 30, 2019
. The Company considered the results of the post-reorganized reporting unit changes that occurred in the first quarter of 2019, which indicated
nine
reporting units with goodwill.
Three
of these
nine
reporting units have fair values that are within 15% of their carrying values and are reporting units that were acquired as part of the Acquisitions within the last year. The goodwill balance as of June 30, 2019 attributable to these
three
reporting units was
$442 million
. Management compared its future projected cash flows for these
three
reporting units as of June 30, 2019 compared to the future projected cash flows utilized in the valuation performed during the first quarter of 2019 and concluded there is no indication the carrying value of its reporting units would be less than their fair values.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
If the Company’s market capitalization remains at current levels for a sustained period of time or declines further, and if such a decline becomes indicative the fair value of its reporting units have declined to below their carrying values, the Company will need to determine the fair value of its reporting units which may result in a material non-cash goodwill impairment charge in a future period.
At
June 30, 2019
and December 31, 2018, the Company's intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Useful Lives
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships and platforms
|
10 years
|
|
$
|
1,014
|
|
|
$
|
(75
|
)
|
|
$
|
939
|
|
|
$
|
964
|
|
|
$
|
(24
|
)
|
|
$
|
940
|
|
Customer contract
|
10 years
|
|
8
|
|
|
(6
|
)
|
|
2
|
|
|
8
|
|
|
(5
|
)
|
|
3
|
|
Patents
|
10 to 17 years
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
Technology rights
|
10 to 30 years
|
|
136
|
|
|
(31
|
)
|
|
105
|
|
|
98
|
|
|
(27
|
)
|
|
71
|
|
Packaged kits know-how
|
10 years
|
|
54
|
|
|
(4
|
)
|
|
50
|
|
|
36
|
|
|
(1
|
)
|
|
35
|
|
Catalogs
|
10 years
|
|
40
|
|
|
(3
|
)
|
|
37
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Licensing agreements
|
3 to 5 years
|
|
63
|
|
|
(11
|
)
|
|
52
|
|
|
66
|
|
|
(3
|
)
|
|
63
|
|
Land use rights
|
28 to 46 years
|
|
46
|
|
|
(2
|
)
|
|
44
|
|
|
44
|
|
|
(2
|
)
|
|
42
|
|
|
|
|
1,362
|
|
|
(133
|
)
|
|
1,229
|
|
|
1,217
|
|
|
(63
|
)
|
|
1,154
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks
|
|
|
420
|
|
|
—
|
|
|
420
|
|
|
365
|
|
|
—
|
|
|
365
|
|
Total
|
|
|
$
|
1,782
|
|
|
$
|
(133
|
)
|
|
$
|
1,649
|
|
|
$
|
1,582
|
|
|
$
|
(63
|
)
|
|
$
|
1,519
|
|
The Company recorded definite-lived and indefinite-lived intangible assets of
$133 million
as a result of the Öhlins Acquisition. During the
six months ended June 30, 2019
, the Company made the following adjustments to definite-lived and indefinite-lived intangible assets in the measurement period to the preliminary purchase price allocation for the Acquisitions:
|
|
•
|
a decrease of
$2 million
was recognized for the Öhlins Acquisition; and
|
|
|
•
|
a net increase of
$71 million
was recognized for the Federal-Mogul Acquisition.
|
The purchase price allocations for the Acquisitions are preliminary and subject to finalization. The Company's current estimates and assumptions may change as a result. See
Note 3, Acquisitions and Divestitures
for additional information.
The amortization expense associated with definite-lived intangible assets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amortization expense
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
68
|
|
|
$
|
1
|
|
The expected future amortization expense for the Company's definite-lived intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024 and thereafter
|
|
Total
|
Expected amortization expense
|
|
$
|
70
|
|
|
$
|
139
|
|
|
$
|
138
|
|
|
$
|
134
|
|
|
$
|
130
|
|
|
$
|
618
|
|
|
$
|
1,229
|
|
7. Investment in Nonconsolidated Affiliates
The Company has investments in several nonconsolidated affiliates, which are primarily located in China, Korea, Turkey, and the U.S. The Company generally equates control to ownership percentage whereby investments more than 50% owned are consolidated.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The Company's ownership interest in affiliates accounted for under the equity method is as follows:
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Anqing TP Goetze Piston Ring Company Limited (China)
|
35.7
|
%
|
|
35.7
|
%
|
Anqing TP Powder Metallurgy Co., Ltd (China)
|
20.0
|
%
|
|
20.0
|
%
|
Dongsuh Federal-Mogul Industrial Co. Ltd. (Korea)
|
50.0
|
%
|
|
50.0
|
%
|
Farloc Argentina SAIC Y F (Argentina)
|
23.9
|
%
|
|
23.9
|
%
|
Federal-Mogul Powertrain Otomotiv A.S. (Turkey)
|
50.0
|
%
|
|
50.0
|
%
|
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti. (Turkey)
|
25.0
|
%
|
|
25.0
|
%
|
Federal-Mogul TP Liners, Inc. (USA)
|
46.0
|
%
|
|
46.0
|
%
|
Frenos Hidraulicos Automotrices, S.A. de C.V. (Mexico)
|
49.0
|
%
|
|
49.0
|
%
|
JURID do Brasil Sistemas Automotivos Ltda. (Brazil)
|
19.9
|
%
|
|
19.9
|
%
|
KB Autosys Co., Ltd. (Korea)
|
33.6
|
%
|
|
33.6
|
%
|
Montagewerk Abgastechnik Emden GmbH (Germany)
|
50.0
|
%
|
|
50.0
|
%
|
The Company's investments in its nonconsolidated affiliates at
June 30, 2019
and
December 31, 2018
are:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Investments in nonconsolidated affiliates
|
$
|
531
|
|
|
$
|
544
|
|
The following table represents the activity from the Company's investments in its nonconsolidated affiliates for the
three and six months ended June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Equity earnings (losses) of nonconsolidated affiliates, net of tax
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
Cash dividends received from nonconsolidated affiliates
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
—
|
|
During the
six months ended June 30, 2019
, the Company made adjustments in the measurement period to the preliminary purchase price allocation for the Federal-Mogul Acquisition which resulted in a reduction to the fair value of its investments in nonconsolidated affiliates of
$15 million
. The purchase price allocation is preliminary and subject to the finalization. The Company's current estimates and assumptions may change as more information becomes available. See
Note 3, Acquisitions and Divestitures
, for additional information.
The following tables present summarized aggregated financial information of the Company's nonconsolidated affiliates for the
three and six months ended June 30, 2019
. The amounts represent 100% of the interest in the nonconsolidated affiliates and not the Company's proportionate share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
Statements of Income
|
Otomotiv A.S.
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
Sales
|
$
|
85
|
|
|
$
|
39
|
|
|
$
|
120
|
|
|
$
|
244
|
|
Gross profit
|
$
|
22
|
|
|
$
|
10
|
|
|
$
|
23
|
|
|
$
|
55
|
|
Income from continuing operations
|
$
|
17
|
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
37
|
|
Net income
|
$
|
21
|
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
41
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
Statements of Income
|
Otomotiv A.S.
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
Sales
|
$
|
176
|
|
|
$
|
78
|
|
|
$
|
245
|
|
|
$
|
499
|
|
Gross profit
|
$
|
43
|
|
|
$
|
26
|
|
|
$
|
46
|
|
|
$
|
115
|
|
Income from continuing operations
|
$
|
36
|
|
|
$
|
20
|
|
|
$
|
24
|
|
|
$
|
80
|
|
Net income
|
$
|
39
|
|
|
$
|
18
|
|
|
$
|
22
|
|
|
$
|
79
|
|
See
Note 18, Related Party Transactions
, for additional information on balances and transactions with equity method investments.
8. Derivatives and Hedging Activities
The Company is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices, equity compensation liabilities, and changes in interest rates, which may result in cash flow risks. For exposures not offset within its operations, the Company may enter into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes. Designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.
Market Risks
Foreign Currency Risk
—
The Company manufactures and sells its products in North America, South America, Asia, Europe, Australia and Africa. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which the Company manufactures and sells its products. The Company generally tries to use natural hedges within its foreign currency activities, including the matching of revenues and costs, to minimize foreign currency risk. Where natural hedges are not in place, the Company considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. Principal currencies hedged have historically included the U.S. dollar, euro, British pound, Polish zloty, Mexican peso, and Canadian dollar.
Concentrations of Credit Risk
—
Financial instruments including cash equivalents and derivative contracts expose the Company to counterparty credit risk for non-performance. The Company's counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company's requirement of high credit standing. The Company's counterparties for derivative contracts are substantial investment and commercial banks with significant experience using such derivatives. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counterparty and through monitoring counterparty credit risks. The Company's concentration of credit risk related to derivative contracts at
June 30, 2019
and
2018
is not material.
Other
—
The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis. For derivatives designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness. Unrealized gains and losses associated with ineffective hedges, determined using the hypothetical derivative method, are recognized in "Cost of sales" in the condensed consolidated statements of income (loss). Derivative gains and losses included in accumulated other comprehensive income (loss) for effective hedges are reclassified into operations upon recognition of the hedged transaction. Derivative gains and losses associated with undesignated hedges are recognized in "Cost of sales" in the condensed consolidated statements of income (loss).
Derivative Instruments
Foreign Currency Forward Contracts
—
The Company enters into foreign currency forward purchase and sale contracts to mitigate its exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. In managing its foreign currency exposures, the Company identifies and aggregates existing offsetting positions and then hedges residual exposures through third-party derivative contracts. The gains or losses on these contracts is recognized in "Cost of sales" in the condensed consolidated statements of income (loss). The fair value of foreign currency forward contracts are recorded in "Prepayments and other current assets" or "Accrued expenses and other current liabilities" in the condensed consolidated balance sheets. The fair value of the Company's foreign currency forward contracts was a net asset position of less than
$1 million
at
June 30, 2019
and
December 31, 2018
.
The following table summarizes by position the notional amounts for foreign currency forward contracts as of
June 30, 2019
(all of which mature in 2019):
|
|
|
|
|
|
Notional Amount
|
Long positions
|
$
|
(26
|
)
|
Short positions
|
$
|
26
|
|
Cash-Settled Share Swap Transactions
—
In May 2019, the Company entered into an amended and restated equity swap agreement. The Company selectively uses cash-settled share swaps to reduce market risk associated with its deferred compensation liabilities. These equity deferred compensation liabilities increase as the Company's stock price increases and
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
decrease as the Company's stock price decreases. In contrast, the value of the swap agreement moves in the opposite direction of these liabilities, allowing the Company to fix a portion of the liabilities at a stated amount. As of
June 30, 2019
, the Company had hedged its deferred compensation liability related to approximately
250,000
common share equivalents. The fair value of the equity swap agreement is recorded in "Prepayments and other current assets" in the condensed consolidated balance sheets. The fair value of the Company's equity swap agreement was a net asset position of
$3 million
at
June 30, 2019
and
$4 million
at
December 31, 2018
.
Hedging Instruments
Cash Flow Hedges — Commodity Price Risk
— The Company’s production processes are dependent upon the supply of certain raw materials that are exposed to price fluctuations on the open market. The primary purpose of the Company’s commodity price forward contract activity is to manage the volatility associated with forecasted purchases for up to
eighteen months
in the future. The Company monitors its commodity price risk exposures regularly to maximize the overall effectiveness of its commodity forward contracts. Principal raw materials hedged include copper and tin. In certain instances within this program, foreign currency forwards may be used in order to match critical terms for commodity exposure.
The Company has designated these contracts as cash flow hedging instruments. The Company records unrecognized gains and losses in other comprehensive income (loss) (“OCI or OCL”) and makes regular reclassifying adjustments into “Cost of sales” within the condensed consolidated statements of income (loss) when the underlying hedged transaction is recognized in earnings. The Company had commodity derivatives outstanding with an equivalent notional amount of
$25 million
as of
June 30, 2019
and
$27 million
as of
December 31, 2018
. Substantially all of the commodity price hedge contracts mature within
one year
.
Net Investment Hedge — Foreign Currency Borrowings
— The Company has foreign currency denominated debt,
€774 million
of which was designated as a net investment hedge in certain foreign subsidiaries and affiliates of the Company. Changes to its carrying value are included in shareholders' equity in the foreign currency translation component of OCL and offset against the translation adjustment on the underlying net assets of those foreign subsidiaries and affiliates, which are also recorded in OCL. The Company’s debt instruments are discussed further in
Note 10, Debt and Other Financing Arrangements
.
The following table is a summary of the carrying value of derivative and non-derivative instruments designated as hedges as of
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Balance sheet classification
|
|
June 30, 2019
|
|
December 31, 2018
|
Commodity price hedge contracts designated as cash flow hedges
|
Accrued expenses and other current liabilities
|
|
$
|
—
|
|
|
$
|
2
|
|
Foreign currency borrowings designated as net investment hedges
|
Long-term debt
|
|
$
|
880
|
|
|
$
|
863
|
|
The following table represents the effects before reclassification into net income of derivative and non-derivative instruments designated as hedges in accumulated other comprehensive income (loss)
three and six month periods ended June 30, 2019
and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) recognized in accumulated OCI or OCL (effective portion):
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2019
|
Commodity price hedge contracts designated as cash flow hedges
|
|
$
|
(3
|
)
|
|
$
|
1
|
|
Foreign currency borrowings designated as net investment hedges
|
|
$
|
(12
|
)
|
|
$
|
7
|
|
The Company estimates
$1 million
included in accumulated OCI or OCL as of
June 30, 2019
will be reclassified into earnings within the following 12 months.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
9. Fair Value of Financial Instruments
A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy definition prioritizes the inputs used in measuring fair value into the following levels:
|
|
|
|
Level 1
|
—
|
Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2
|
—
|
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
|
|
|
|
Level 3
|
—
|
Unobservable inputs based on our own assumptions.
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents assets and liabilities included in the Company's condensed consolidated balance sheets as of
June 30, 2019
and
December 31, 2018
that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Fair value
hierarchy
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
|
Equity swap agreement
|
Level 2
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Commodity contracts
|
Level 2
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
Cash-Settled Share Swap Transactions
— The fair value of the equity swap agreement is recorded in "Prepayments and other current assets" in the condensed consolidated balance sheets.
Commodity and Foreign Currency Contracts
— The Company calculates the fair value of its commodity contracts and foreign currency contracts using quoted commodity forward rates and quoted currency forward rates, to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on quoted bank deposit rates. The fair value of the Company's foreign currency forward contracts was a net asset position of less than
$1 million
at
June 30, 2019
and
December 31, 2018
.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
In addition to items measured at fair value on a recurring basis, assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets which may be written down to fair value as a result of impairment.
The Company has determined the fair value measurements related to each of these rely primarily on Company-specific inputs and the Company's assumptions about the use of the assets, as observable inputs are not available (level 3). To determine the fair value of long-lived asset groups, the Company utilizes discounted cash flows expected to be generated by the long-lived asset group.
The Company evaluates the carrying value of its goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each year. These fair value measurements require the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates, and growth rates, which are subject to a high degree of uncertainty. The Company believes the assumptions and estimates used to determine the estimated fair value are reasonable, but different assumptions could materially affect the estimated fair value.
During the first quarter, the Company reorganized the reporting structure of its Aftermarket, Ride Performance, and Motorparts segments and the underlying reporting units within those segments. The Company reassigned assets and liabilities (excluding goodwill) to the reporting units affected. Goodwill was then reassigned to the reporting units using a relative fair value approach based on the fair value of the elements transferred and the fair value of the elements remaining within the original reporting units. The Company tested goodwill for impairment on a pre-reorganization basis and determined there was no impairment for the affected reporting units. The Company also performed an impairment analysis on a post-reorganization basis
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
and determined
$60 million
of goodwill was impaired for
two
reporting units within its Ride Performance segment, one of which was a full impairment of the goodwill. As a result, this non-cash charge was recorded in the six months ended June 30, 2019. Goodwill allocated to other reporting units was supported by the valuation performed at that time. See
Note 6, Goodwill and Other Intangible Assets
.
Financial Instruments Not Carried at Fair Value
Estimated fair values of the Company's outstanding debt were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Fair value
hierarchy
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Long-term debt (including current maturities):
|
|
|
|
|
|
|
|
|
|
Term loans and senior notes
|
Level 2
|
|
$
|
5,247
|
|
|
$
|
5,035
|
|
|
$
|
5,307
|
|
|
$
|
5,218
|
|
The fair value of the Company's public senior notes and private borrowings under its senior credit facility is based on observable inputs, and its borrowings on the revolving credit facility approximate fair value. The Company also had
$91 million
and
$106 million
at
June 30, 2019
and
December 31, 2018
in other debt whose carrying value approximates fair value, which consists primarily of foreign debt with maturities of one year or less.
Assets and Liabilities Not Carried at Fair Value
The carrying value of cash and cash equivalents, restricted cash, short and long-term receivables, accounts payable, and short-term debt approximates fair value.
10. Debt and Other Financing Arrangements
Long-Term Debt
A summary of our long-term debt obligations at
June 30, 2019
and
December 31, 2018
is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Principal
|
|
Carrying Amount
(1)
|
|
Principal
|
|
Carrying Amount
(1)
|
Credit Facilities
|
|
|
|
|
|
|
|
Revolver Borrowings
|
|
|
|
|
|
|
|
Due 2023
|
$
|
250
|
|
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Term Loans
|
|
|
|
|
|
|
|
LIBOR plus 1.75% Term Loan A due 2019 through 2023
|
1,658
|
|
|
1,649
|
|
|
1,700
|
|
|
1,691
|
|
LIBOR plus 3.00% Term Loan B due 2019 through 2025
(2)
|
1,692
|
|
|
1,626
|
|
|
1,700
|
|
|
1,629
|
|
Senior Unsecured Notes
|
|
|
|
|
|
|
|
$225 million of 5.375% Senior Notes due 2024
|
225
|
|
|
222
|
|
|
225
|
|
|
222
|
|
$500 million of 5.000% Senior Notes due 2026
|
500
|
|
|
494
|
|
|
500
|
|
|
493
|
|
Senior Secured Notes
|
|
|
|
|
|
|
|
€415 million 4.875% Euro Fixed Rate Notes due 2022
|
472
|
|
|
489
|
|
|
476
|
|
|
496
|
|
€300 million of Euribor plus 4.875% Euro Floating Rate Notes due 2024
|
341
|
|
|
345
|
|
|
344
|
|
|
349
|
|
€350 million of 5.000% Euro Fixed Rate Notes due 2024
|
398
|
|
|
422
|
|
|
401
|
|
|
427
|
|
Other debt, primarily foreign instruments
|
93
|
|
|
91
|
|
|
108
|
|
|
106
|
|
|
|
|
5,588
|
|
|
|
|
5,413
|
|
Less - maturities classified as current
|
|
|
80
|
|
|
|
|
73
|
|
Total long-term debt
|
|
|
$
|
5,508
|
|
|
|
|
$
|
5,340
|
|
(1) Carrying amount is net of unamortized debt issuance costs and debt discounts or premiums. Total unamortized debt issuance costs were
$83 million
and
$90 million
as of June 30, 2019 and December 31, 2018. Total unamortized debt (premium) discount, net was
$(43) million
and
$(49) million
as of June 30, 2019 and December 31, 2018.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
(2) As of December 31, 2018, the rate on Term Loan B was LIBOR plus
2.75%
.
Term Loans
On October 1, 2018, the Company entered into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and other lenders (the "New Credit Facility") in connection with the Federal-Mogul Acquisition. The New Credit Facility provides
$4.9 billion
of total debt financing, consisting of a
five
-year
$1.5 billion
revolving credit facility, a
five
-year
$1.7 billion
term loan A facility ("Term Loan A") and a
seven
-year
$1.7 billion
term loan B facility ("Term Loan B").
Senior Notes
The Company has outstanding
5.375%
senior unsecured notes due December 15, 2024 ("2024 Senior Notes") and
5.000%
senior unsecured notes due July 15, 2026 ("2026 Senior Notes" and together with the 2024 Senior Notes, the "Senior Unsecured Notes"). The Company has outstanding
5.000%
euro denominated fixed rate notes which are due July 15, 2024 ("
5.000%
Euro Fixed Rate Notes"),
4.875%
euro denominated fixed rate notes due April 15, 2022 ("
4.875%
Euro Fixed Rate Notes"), and floating rate notes due April 15, 2024 ("Euro Floating Rate Notes", together with the
5.000%
Euro Fixed Rate Notes and the
4.875%
Euro Fixed Notes, the "Senior Secured Notes").
Credit Facilities
The Company had availability on its credit facilities as of
June 30, 2019
as follows:
|
|
|
|
|
|
|
|
Credit Facilities as of June 30, 2019
|
|
Term
|
|
Available
(b)
|
|
|
|
(in billions)
|
Tenneco Inc. revolving credit facility
(a)
|
2023
|
|
$
|
1.2
|
|
Tenneco Inc. Term Loan A
|
2023
|
|
—
|
|
Tenneco Inc. Term Loan B
|
2025
|
|
—
|
|
Subsidiaries’ credit agreements
|
2020
|
|
0.2
|
|
|
|
|
$
|
1.4
|
|
|
|
(a)
|
The Company is required to pay commitment fees under the revolving credit facility on the unused portion of the total commitment.
|
|
|
(b)
|
Letters of credit reduce the available borrowings under the revolving credit facility, as of
June 30, 2019
the revolving credit facility had
$20 million
in letters of credit outstanding.
|
Interest expense associated with the amortization of the debt issuance costs and original issue discounts recognized in the Company's condensed consolidated statements of income (loss) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amortization of debt issuance fees
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
2
|
|
Included in the table above, is the amortization of debt issuance costs on the revolver, which are
$20 million
at
June 30, 2019
and are recorded in "Other assets" in the condensed consolidated balance sheets. In addition, there was a
$3 million
and
$6 million
reduction to interest expense during the three and six months ended
June 30, 2019
related to the accretion of the debt premium on the Senior Secured Notes.
New Credit Facility — Other Terms and Conditions
—
The New Credit Facility also contains
two
financial maintenance covenants for the revolving credit facility and the Term Loan A facility including a requirement to have a consolidated net leverage ratio (as defined in the New Credit Facility) as of the end of each fiscal quarter of not greater than
4.0
to 1 through September 30, 2019,
3.75
to 1 through September 30, 2020 and
3.5
to 1 thereafter; and a requirement to maintain a consolidated interest coverage ratio (as defined in the New Credit Facility) for any period of four consecutive fiscal quarters of not less than
2.75
to 1.
Senior Unsecured Notes and Senior Secured Notes — Other Terms and Conditions
—
The Senior Unsecured Notes and Senior Secured Notes contain covenants that will, among other things, limit the Company's ability to create liens and enter into sale and leaseback transactions. In addition, the Senior Secured Notes and 2024 Senior Unsecured Notes also require that, as a condition precedent to incurring certain types of indebtedness not otherwise permitted, the Company's consolidated fixed
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
charge coverage ratio, as calculated on a pro forma basis, be greater than
2.00
, as well as containing restrictions on its operations, including limitations on: (i) incurring additional indebtedness; (ii) paying dividends; (iii) distributions and stock repurchases; (iv) investments; (v) asset sales and (vi) mergers and consolidations.
Subject to limited exceptions, all of the Company's existing and future material domestic wholly owned subsidiaries fully and unconditionally guarantee its Senior Unsecured Notes and Senior Secured Notes on a joint and several basis. There are no significant restrictions on the ability of the subsidiaries that have guaranteed the Company's Senior Notes to make distributions to the Company.
As of
June 30, 2019
, the Company was in compliance with all of its financial covenants.
Accounts Receivable Securitization and Factoring
On-Balance Sheet Arrangements —
The Company has securitization programs for some of its accounts receivables, with limited recourse provisions. Borrowings on these securitization programs, which are recorded in short-term debt, at
June 30, 2019
and
December 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Borrowings on securitization programs
|
$
|
4
|
|
|
$
|
6
|
|
Off-Balance Sheet Arrangements
—
In the Company's European and U.S. accounts receivable factoring programs, accounts receivables are transferred in their entirety to the acquiring entities and are accounted for as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under these factoring programs approximates the fair value of such receivables. Certain programs in Europe have deferred purchase price arrangements with the banks.
The Company is the servicer of the receivables under some of these arrangements and is responsible for performing all accounts receivable administration functions. Where the Company receives a fee to service and monitor these transferred accounts receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not recorded as a result of such activities.
In the U.S and Canada, the Company participates in supply chain financing programs with certain of the Company's aftermarket customers through a drafting program.
The amounts outstanding for these factoring and drafting arrangements as of
June 30, 2019
and December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
(in billions)
|
Accounts receivable outstanding and derecognized
|
$
|
1.1
|
|
|
$
|
1.0
|
|
The deferred purchase price receivable as of June 30, 2019 and December 31, 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Deferred purchase price receivable
|
$
|
52
|
|
|
$
|
154
|
|
Proceeds from the factoring of accounts receivable qualifying as sales are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in billions)
|
Proceeds from factoring qualifying as sales
|
$
|
1.3
|
|
|
$
|
0.7
|
|
|
$
|
2.5
|
|
|
$
|
1.5
|
|
Financing charges associated with the factoring of receivables are as follows:
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Financing charges on sale of receivables
(a)
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
14
|
|
|
$
|
5
|
|
(a)
Amount is included in "Interest expense" in the condensed consolidated statements of income (loss).
|
|
|
|
|
If the Company were not able to factor receivables or sell drafts under either of these programs, its borrowings under its revolving credit agreement might increase. These programs provide the Company with access to cash at costs that are generally favorable to alternative sources of financing and allow the Company to reduce borrowings under its revolving credit agreement.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
11. Pension Plans, Postretirement and Other Employee Benefits
The Company sponsors several defined benefit pension plans ("Pension Benefits") and health care and life insurance benefits ("Other Postretirement Benefits", or "OPEB") for certain employees and retirees around the world.
Components of net periodic benefit cost (credit) for the three months ended
June 30, 2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
Pension
|
|
Other Postretirement Benefits
|
|
2019
|
|
2018
|
|
|
US
|
|
Non-U.S.
|
|
US
|
|
Non-U.S.
|
|
2019
|
|
2018
|
Service cost
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
14
|
|
|
5
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
1
|
|
Expected return on plan assets
|
(17
|
)
|
|
(4
|
)
|
|
(3
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
Net amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
1
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
3
|
|
Prior service cost (credit)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
Net pension and postretirement costs (credits)
|
$
|
(2
|
)
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost (credit) for the six months ended
June 30, 2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
|
Pension
|
|
Other Postretirement Benefits
|
|
2019
|
|
2018
|
|
|
US
|
|
Non-U.S.
|
|
US
|
|
Non-U.S.
|
|
2019
|
|
2018
|
Service cost
|
$
|
1
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
27
|
|
|
12
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
3
|
|
Expected return on plan assets
|
(34
|
)
|
|
(9
|
)
|
|
(7
|
)
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
Net amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
2
|
|
|
3
|
|
|
2
|
|
|
4
|
|
|
2
|
|
|
4
|
|
Prior service cost (credit)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(1
|
)
|
Net pension and postretirement costs (credits)
|
$
|
(4
|
)
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Income Taxes
For interim tax reporting, the Company estimates its annual effective tax rate and applies it to year-to-date ordinary income. Jurisdictions where no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The effect of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
For the
three months ended June 30, 2019
, the Company recorded income tax expense of
$14 million
on income from continuing operations before income taxes of $
59 million
. This compares to income tax expense of $
26 million
on income from continuing operations before income taxes of $
89 million
in the same period of 2018.
For the
six months ended June 30, 2019
, the Company recorded income tax expense of $
14 million
on loss from continuing operations before income taxes of $
46 million
. This compares to income tax expense of $
51 million
on income from continuing operations before income taxes of $
188 million
in the same period of 2018.
Income tax expense for the three and six months ended
June 30, 2019
differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates higher than the U.S. statutory rate and pre-tax losses with no tax benefit.
Income tax expense for the three and six months ended
June 30, 2018
differs from the U.S. statutory rate due primarily to
$2 million
of tax expense for changes in the toll tax, pre-tax income taxed at rates lower than the U.S. statutory rate, and pre-tax losses with no tax benefit. In addition, during the three and six months ended June 30, 2018, a
$5 million
and
$7 million
tax benefit was recognized related to acquisition charges.
On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was enacted into U.S. law, which, among other provisions, lowered the corporate income tax rate effective January 1, 2018 from 35% to 21%, and implemented significant changes with respect to U.S. tax treatment of earnings originating from outside the U.S. Many of the provisions of TCJA are subject to regulatory interpretation and U.S. state conforming enactments. The Internal Revenue Service (IRS) issued final regulations, effective on February 5, 2019, which provided additional guidance to assist taxpayers in computing the toll tax. Based on the final regulations a
$2 million
discrete benefit was recorded in income tax expense during the
six months ended June 30, 2019
.
The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. If recent operational improvements continue in our foreign subsidiaries or if certain restructuring steps are completed as part of the Federal-Mogul Acquisition and anticipated spin-off of DRiV, the Company believes it is reasonably possible sufficient positive evidence may be available to release all, or a portion, of its valuation allowance in the next twelve months in certain jurisdictions. This may result in a one-time tax benefit of up to
$45 million
, primarily related to Spain and the Czech Republic.
The Company believes it is reasonably possible up to
$11 million
in unrecognized tax benefits related to the expiration of foreign statute of limitations and the conclusion of income tax examinations may be recognized within the
next twelve months
.
13. Commitments and Contingencies
Environmental Matters
The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. The Company has been notified by the U.S. Environmental Protection Agency, other national environmental agencies, and various provincial and state agencies it may be a potentially responsible party (“PRP”) under such laws for the cost of remediating hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and other national and state or provincial environmental laws. PRP designation typically requires the funding of site investigations and subsequent remedial activities. Many of the sites that are likely to be the costliest to remediate are often current or former commercial waste disposal facilities to which numerous companies sent wastes. Despite the potential joint and several liability which might be imposed on the Company under CERCLA and some of the other laws pertaining to these
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
sites, its share of the total waste sent to these sites generally has been small. The Company believes its exposure for liability at these sites is not material.
On a global basis, the Company has also identified certain other present and former properties at which it may be responsible for cleaning up or addressing environmental contamination, in some cases as a result of contractual commitments and/or federal or state environmental laws. The Company is seeking to resolve its responsibilities for those sites for which a claim has been received.
The Company expenses or capitalizes, as appropriate, expenditures for ongoing compliance with environmental regulations. As of
June 30, 2019
, the Company has an obligation to remediate or contribute towards the remediation of certain sites, including the sites discussed above at which it may be a PRP.
The Company maintains the aggregated estimated share of environmental remediation costs for all these sites on a discounted basis in the condensed consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Accrued expenses and other current liabilities
|
$
|
8
|
|
|
$
|
12
|
|
Deferred credits and other liabilities
|
30
|
|
|
28
|
|
|
$
|
38
|
|
|
$
|
40
|
|
For those locations where the liability was discounted, the weighted average discount rate used was
1.4%
and
2.9%
at
June 30, 2019
and December 31, 2018.
The Company's expected payments of environmental remediation costs for non-indemnified locations are estimated to be approximately:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024 and thereafter
|
Expected payments
|
$
|
7
|
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
16
|
|
Based on information known to the Company from site investigations and the professional judgment of consultants, the Company has established reserves it believes are adequate for these costs. Although the Company believes these estimates of remediation costs are reasonable and are based on the latest available information, the costs are estimates, difficult to quantify based on the complexity of the issues, and are subject to revision as more information becomes available about the extent of remediation required. At some sites, the Company expects other parties will contribute to the remediation costs. In addition, certain environmental statutes provide the Company's liability could be joint and several, meaning the Company could be required to pay amounts in excess of its share of remediation costs. The financial strength of the other PRPs at these sites has been considered, where appropriate, in the determination of the estimated liability. The Company does not believe any potential costs associated with its current status as a PRP, or as a liable party at the other locations referenced herein, will be material to its annual consolidated financial position, results of operations, or liquidity.
Asset Retirement Obligations
The Company’s primary asset retirement obligations ("ARO") activities relate to the removal of hazardous building materials at its facilities. The Company records an ARO at fair value upon initial recognition when the amount is probable and can be reasonably estimated. ARO fair values are determined based on the Company’s determination of what a third party would charge to perform the remediation activities, generally using a present value technique.
The Company maintains ARO liabilities in the condensed consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Accrued expenses and other current liabilities
|
$
|
3
|
|
|
$
|
3
|
|
Deferred credits and other liabilities
|
12
|
|
|
12
|
|
|
$
|
15
|
|
|
$
|
15
|
|
Antitrust Investigations and Litigation
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
On March 25, 2014, representatives of the European Commission (EC) were at Tenneco GmbH's Edenkoben, Germany administrative facility to gather information in connection with an ongoing global antitrust investigation concerning multiple automotive suppliers. On the same date, the Company also received a related subpoena from the U.S. Department of Justice (“DOJ”).
On November 5, 2014, the DOJ granted conditional leniency to the Company, its subsidiaries, and its 50% affiliates as of such date ("2014 Tenneco Entities") pursuant to an agreement the Company entered into under the Antitrust Division's Corporate Leniency Policy. This agreement provides important benefits to the 2014 Tenneco Entities in exchange for the Company's self-reporting of matters to the DOJ and its continuing full cooperation with the DOJ's resulting investigation. For example, the DOJ will not bring any criminal antitrust prosecution against the 2014 Tenneco Entities, nor seek any criminal fines or penalties, in connection with the matters the Company reported to the DOJ. Additionally, there are limits on the liability of the 2014 Tenneco Entities related to any follow-on civil antitrust litigation in the United States. The limits include single rather than treble damages, as well as relief from joint and several antitrust liability with other relevant civil antitrust action defendants. These limits are subject to the Company satisfying the DOJ and any court presiding over such follow-on civil litigation.
On April 27, 2017, the Company received notification from the EC that it has administratively closed its global antitrust inquiry regarding the production, assembly, and supply of complete exhaust systems. No charges against the Company or any other competitor were initiated at any time and the EC inquiry is now closed.
Certain other competition agencies are also investigating possible violations of antitrust laws relating to products supplied by the Company and its subsidiaries, including Federal-Mogul. The Company has cooperated and continues to cooperate fully with all of these antitrust investigations and take other actions to minimize its potential exposure.
The Company and certain of its competitors are also currently defendants in civil putative class action litigation and are subject to similar claims filed by other plaintiffs, in the United States and Canada. More related lawsuits may be filed, including in other jurisdictions. Plaintiffs in these cases generally allege that defendants have engaged in anticompetitive conduct, in violation of federal and state laws, relating to the sale of automotive exhaust systems or components thereof. Plaintiffs seek to recover, on behalf of themselves and various purported classes of purchasers, injunctive relief, damages and attorneys’ fees. However, as explained above, because the DOJ granted conditional leniency to the 2014 Tenneco Entities, the Company's civil liability in U.S. follow-on actions with respect to these entities is limited to single damages and the Company will not be jointly and severally liable with the other defendants, provided that the Company has satisfied its obligations under the DOJ leniency agreement and approval is granted by the presiding court. Typically, exposure for follow-on actions in Canada is less than the exposure for U.S. follow-on actions.
Following the EC's decision to administratively close its antitrust inquiry into exhaust systems in 2017, receipt by the 2014 Tenneco Entities of conditional leniency from the DOJ and discussions during the third quarter of 2017 following the appointment of a special settlement master in the civil putative class action cases pending against the Company and/or certain of its competitors in the United States, the Company continues to vigorously defend itself and/or take actions to minimize its potential exposure to matters pertaining to the global antitrust investigation, including engaging in settlement discussions when it is in the best interests of the Company and its stockholders. For example, in October 2017, the Company settled an administrative action brought by Brazil's competition authority for an amount that was not material. In December 2018, the Company settled a separate administrative action brought by Brazil’s competition authority against a Federal-Mogul subsidiary, also for an amount that was not material.
Additionally, in February 2018, the Company settled civil putative class action litigation in the United States brought by classes of direct purchasers, end-payors and auto dealers. No other classes of plaintiffs have brought claims against the Company in the United States. Based upon those earlier developments, including settlement discussions, the Company established a reserve of
$132 million
in its second quarter 2017 financial results for settlement costs that were probable, reasonably estimable, and expected to be necessary to resolve its antitrust matters globally, which primarily involves the resolution of civil suits and related claims. Of the
$132 million
reserve that was established,
$79 million
was paid through
June 30, 2019
resulting in a remaining reserve of
$53 million
as of
June 30, 2019
, which is recorded in accrued expenses and other current liabilities in the Company's condensed consolidated balance sheets. While the Company, including its Federal-Mogul subsidiaries, continues to cooperate with certain competition agencies investigating possible violations of antitrust laws relating to products supplied by the Company, and the Company may be subject to other civil lawsuits and/or related claims, no amount of this reserve is attributable to matters with the DOJ or the EC, and no such amount is expected based on current information.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The Company's reserve for its antitrust matters is based upon all currently available information and an assessment of the probability of events for those matters where the Company can make a reasonable estimate of the costs to resolve such outstanding matters. The Company's estimate involves significant judgment, given the number, variety and potential outcomes of actual and potential claims, the uncertainty of future rulings and approvals by a court or other authority, the behavior or incentives of adverse parties or regulatory authorities, and other factors outside of its control. As a result, the Company's reserve may change from time to time, and actual costs may vary. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, the Company does not expect any such change in the reserve will have a material adverse effect on the Company's annual consolidated financial position, results of operations or liquidity.
Other Legal Proceedings, Claims and Investigations
For many years the Company has been and continues to be subject to lawsuits initiated by claimants alleging health problems as a result of exposure to asbestos. The Company's current docket of active and inactive cases is less than
500
cases in the United States and less than
50
in Europe.
With respect to the claims filed in the United States, the substantial majority of the claims are related to alleged exposure to asbestos in the Company's line of Walker® exhaust automotive products although a significant number of those claims appear also to involve occupational exposures sustained in industries other than automotive. A small number of claims have been asserted against one of the Company's subsidiaries by railroad workers alleging exposure to asbestos products in railroad cars. The Company believes, based on scientific and other evidence, it is unlikely that U.S. claimants were exposed to asbestos by the Company's former products and that, in any event, they would not be at increased risk of asbestos-related disease based on their work with these products. Further, many of these cases involve numerous defendants, with the number in some cases exceeding
100
defendants from a variety of industries. Additionally, in many cases the plaintiffs either do not specify any, or specify the jurisdictional minimum, dollar amount for damages.
With respect to the claims filed in Europe, the substantial majority relate to occupational exposure claims brought by current and former employees of Federal-Mogul facilities in France and amounts paid out were not material. A small number of occupational exposure claims have also been asserted against Federal-Mogul entities in Italy and Spain.
As major asbestos manufacturers and/or users continue to go out of business or file for bankruptcy, the Company may experience an increased number of these claims. The Company vigorously defends itself against these claims as part of its ordinary course of business. In future periods, the Company could be subject to cash costs or charges to earnings if any of these matters are resolved unfavorably to the Company. To date, with respect to claims that have proceeded sufficiently through the judicial process, the Company has regularly achieved favorable resolutions. Accordingly, the Company presently believes that these asbestos-related claims will not have a material adverse effect on the Company's annual consolidated financial position, results of operations or liquidity.
The Company is also from time to time involved in other legal proceedings, claims or investigations. Some of these matters involve allegations of damages against the Company relating to environmental liabilities (including toxic tort, property damage and remediation), intellectual property matters (including patent, trademark and copyright infringement, and licensing disputes), personal injury claims (including injuries due to product failure, design or warning issues, and other product liability related matters), taxes, unclaimed property, employment matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures. Additionally, some of these matters involve allegations relating to legal compliance.
While the Company vigorously defends itself against all of these legal proceedings, claims and investigations and take other actions to minimize its potential exposure, in future periods, the Company could be subject to cash costs or charges to earnings if any of these matters are resolved on unfavorable terms. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including the Company's assessment of the merits of the particular claim, except as described above under "Antitrust Investigations", the Company does expect the legal proceedings, claims or investigations currently pending against it will have any material adverse effect on its annual consolidated financial position, results of operations or liquidity.
Warranty Matters
The Company provides warranties on some of its products. The warranty terms vary but range from
one year
up to limited lifetime warranties on some of its premium aftermarket products. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified with the Company's products. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. The
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Company believes the warranty reserve is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. The reserve is included in both current and long-term liabilities on the condensed consolidated balance sheets.
Below is a table that shows the activity in the warranty accrual accounts:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Balance as of December 31 of the prior year
|
$
|
45
|
|
|
$
|
26
|
|
Accruals related to product warranties
|
5
|
|
|
6
|
|
Reductions for payments made
|
(2
|
)
|
|
(3
|
)
|
Foreign currency
|
—
|
|
|
—
|
|
Balance as of March 31
|
$
|
48
|
|
|
$
|
29
|
|
Accruals related to product warranties
|
16
|
|
|
2
|
|
Reductions for payments made
|
(11
|
)
|
|
(2
|
)
|
Foreign currency
|
—
|
|
|
—
|
|
Balance as of June 30
|
$
|
53
|
|
|
$
|
29
|
|
14. Leases
The Company has operating and finance leases for real estate and equipment. Generally, the leases have remaining terms of
one month
to
ten years
. Leases with an initial term of
12 months or less
which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
In addition, some leases include options to terminate the lease. The Company generally negotiates these termination clauses in anticipation of any changes in market conditions; however, because a termination option requires approval from management, the Company assumes the majority of its termination options will not be exercised when determining the lease term.
The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. Accordingly, all costs associated with a lease contract are accounted for as lease cost. Lease expense is recorded in operating expenses in the results of operations.
Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable portion of lease payments is not included in the computation of the right of use assets or lease liabilities. Rather, variable payments, other than those dependent upon a market index or rate, are expensed when the obligation for those payments is incurred and are included in "Cost of sales" and "Selling, general, and administrative" within the condensed consolidated statements of income (loss).
The Company does not include significant restrictions or covenants in its lease agreements, and residual value guarantees are generally not included within its operating leases.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
Operating lease expense
|
$
|
30
|
|
|
$
|
64
|
|
Short-term lease expense
|
2
|
|
|
4
|
|
Variable lease expense
|
12
|
|
|
20
|
|
Total lease expense
|
$
|
44
|
|
|
$
|
88
|
|
Other information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating cash flows from operating leases
|
$
|
41
|
|
|
$
|
82
|
|
Supplemental balance sheet information related to leases was as follows:
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
June 30, 2019
|
Operating leases
|
|
Operating lease right-of-use assets
(a)
|
$
|
344
|
|
|
|
Other current liabilities
(b)
|
$
|
99
|
|
Other long-term liabilities
(c)
|
239
|
|
Total operating lease liabilities
|
$
|
338
|
|
|
|
Finance leases
|
|
Property, plant and equipment, gross
|
$
|
2
|
|
Accumulated depreciation
|
—
|
|
Total finance lease right-of-use assets
|
$
|
2
|
|
|
|
Other current liabilities
(b)
|
$
|
1
|
|
Other long-term liabilities
(c)
|
1
|
|
Total finance lease liabilities
|
$
|
2
|
|
|
|
(a) Included in "Other assets" in the condensed consolidated balance sheets.
|
|
(b) Included in "Accrued expenses and other current liabilities" in the condensed consolidated balance sheets.
|
|
(c) Included in "Deferred credits and other liabilities" in the condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Weighted average remaining lease term
|
|
Weighted average discount rate
|
Operating leases
|
4.96 years
|
|
4.26
|
%
|
Finance leases
|
3.05 years
|
|
5.08
|
%
|
Maturities of lease liabilities under non-cancellable leases as of June 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
Year ending December 31
|
Operating leases
|
|
Finance leases
|
2019 (excluding the six months ended June 30, 2019)
|
$
|
56
|
|
|
$
|
1
|
|
2020
|
97
|
|
|
1
|
|
2021
|
75
|
|
|
—
|
|
2022
|
53
|
|
|
—
|
|
2023
|
37
|
|
|
—
|
|
Thereafter
|
57
|
|
|
—
|
|
Total future undiscounted lease payments
|
375
|
|
|
2
|
|
Less imputed interest
|
(37
|
)
|
|
—
|
|
Total reported lease liability
|
$
|
338
|
|
|
$
|
2
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Future minimum operating lease payments at
December 31, 2018
are as follows:
|
|
|
|
|
2019
|
$
|
120
|
|
2020
|
100
|
|
2021
|
86
|
|
2022
|
68
|
|
2023
|
56
|
|
Beyond 2023
|
53
|
|
|
$
|
483
|
|
15. Share-Based Compensation
Share-Based Compensation Expense
The total share-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Cash-settled share-based compensation expense (benefit)
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
—
|
|
|
(3
|
)
|
Share-settled share-based compensation expense (benefit)
|
6
|
|
|
2
|
|
|
13
|
|
|
7
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
13
|
|
|
4
|
|
Cash-Settled Awards
Prior to 2018, the Company has granted restricted stock units ("RSUs") and long-term performance units ("LTPUs") to certain key employees that are payable in cash. These awards are classified as liabilities and are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement with compensation expense being recognized in proportion to the completed requisite period up until date of settlement. At
June 30, 2019
, the LTPUs outstanding included a three-year grant for
2017
-
2019
payable in the first quarter of 2020.
As of
June 30, 2019
,
$1 million
of total unrecognized compensation costs is expected to be recognized on the cash-settled awards over a weighted-average period of less than
1 year
.
Share-Settled Awards
The Company has granted restricted stock to its directors and certain key employees as well as RSUs and performance share units ("PSUs") that are payable in common stock to certain key employees. These awards are settled in shares upon vesting and recognized in equity based on their fair value.
The following table reflects the status for all nonvested restricted shares, share-settled RSUs, and PSUs as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Share-Settled RSUs
|
|
PSUs
|
|
Shares
|
|
Weighted Avg.
Grant Date
Fair Value
|
|
Units
|
|
Weighted Avg.
Grant Date
Fair Value
|
|
Units
|
|
Weighted Avg.
Grant Date
Fair Value
|
Nonvested balance at beginning of period
|
178,550
|
|
|
$
|
55.46
|
|
|
440,403
|
|
|
$
|
47.99
|
|
|
227,049
|
|
|
$
|
49.18
|
|
Granted
|
34,009
|
|
|
34.66
|
|
|
867,137
|
|
|
34.21
|
|
|
634,511
|
|
|
24.77
|
|
Vested
|
(172,050
|
)
|
|
50.12
|
|
|
(88,590
|
)
|
|
54.60
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(3,329
|
)
|
|
62.12
|
|
|
(50,113
|
)
|
|
41.26
|
|
|
(43,527
|
)
|
|
43.61
|
|
Nonvested balance at end of period
|
37,180
|
|
|
$
|
63.30
|
|
|
1,168,837
|
|
|
$
|
38.04
|
|
|
818,033
|
|
|
$
|
34.25
|
|
As of
June 30, 2019
, approximately
$54 million
of total unrecognized compensation costs is expected to be recognized on the share-settled awards over a weighted-average period of approximately
2 years
.
16. Shareholders' Equity
Common Stock Outstanding
The Company has authorized
175,000,000
shares and
135,000,000
shares (
$0.01
par value) of Class A Common Stock at
June 30, 2019
and
2018
. The Company has authorized
25,000,000
shares (
$0.01
par value) of Class B Common Stock at
June 30, 2019
.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Total common stock outstanding and changes in common stock issued are as follows:
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
Shares issued at beginning of period
|
71,675,379
|
|
|
66,033,509
|
|
|
23,793,669
|
|
Issuance (repurchased) pursuant to benefit plans
|
123,216
|
|
|
(15,906
|
)
|
|
—
|
|
Restricted stock forfeited and withheld for taxes
|
(60,081
|
)
|
|
(7,590
|
)
|
|
—
|
|
Stock options exercised
|
8,438
|
|
|
(6,975
|
)
|
|
—
|
|
Shares issued at end of period
|
71,746,952
|
|
|
66,003,038
|
|
|
23,793,669
|
|
|
|
|
|
|
|
Treasury stock
|
14,592,888
|
|
|
14,592,888
|
|
|
—
|
|
Total shares outstanding
|
57,154,064
|
|
|
51,410,150
|
|
|
23,793,669
|
|
Preferred Stock
The Company had
50,000,000
shares of preferred stock (
$0.01
par value) authorized at both
June 30, 2019
and
2018
. No shares of preferred stock were issued or outstanding at those dates.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Accumulated Other Comprehensive Income (Loss)
The following represents the Company's changes in accumulated other comprehensive income (loss) by component, net of tax for the
three and six months ended June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Foreign currency translation adjustments and other
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(366
|
)
|
|
$
|
(244
|
)
|
|
$
|
(395
|
)
|
|
$
|
(263
|
)
|
Other comprehensive income (loss) before reclassifications adjustments
|
(16
|
)
|
|
(94
|
)
|
|
11
|
|
|
(75
|
)
|
Reclassification from other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss)
|
(16
|
)
|
|
(94
|
)
|
|
11
|
|
|
(75
|
)
|
Income tax provision (benefit)
|
(1
|
)
|
|
2
|
|
|
1
|
|
|
2
|
|
Balance at end of period
|
$
|
(383
|
)
|
|
$
|
(336
|
)
|
|
$
|
(383
|
)
|
|
$
|
(336
|
)
|
|
|
|
|
|
|
|
|
Pensions and other postretirement benefits
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(296
|
)
|
|
$
|
(272
|
)
|
|
$
|
(297
|
)
|
|
$
|
(275
|
)
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reclassification from other comprehensive income (loss)
|
2
|
|
|
5
|
|
|
3
|
|
|
9
|
|
Other comprehensive income (loss)
|
2
|
|
|
5
|
|
|
3
|
|
|
9
|
|
Income tax provision (benefit)
|
(4
|
)
|
|
(1
|
)
|
|
(4
|
)
|
|
(2
|
)
|
Balance at end of period
|
$
|
(298
|
)
|
|
$
|
(268
|
)
|
|
$
|
(298
|
)
|
|
$
|
(268
|
)
|
|
|
|
|
|
|
|
|
Cash flow hedge instruments
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other comprehensive income (loss) before reclassifications
|
(3
|
)
|
|
—
|
|
|
1
|
|
|
—
|
|
Reclassification from other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss)
|
(3
|
)
|
|
—
|
|
|
1
|
|
|
—
|
|
Income tax provision (benefit)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at end of period
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to noncontrolling interests
|
$
|
(1
|
)
|
|
$
|
(7
|
)
|
|
$
|
5
|
|
|
$
|
1
|
|
17. Segment Information
The Company expects to separate its businesses to form two new, independent publicly traded companies and currently expects the DRiV spin-off to occur in mid-2020. As such, the Company began to manage and report its DRiV businesses through
two
new operating segments, in the first quarter of 2019, as compared to the
three
operating segments it had previously reported. The DRiV operating segments consist of Motorparts and Ride Performance. The new Motorparts operating segment consists of the previously reported Aftermarket operating segment as well as the aftermarket portion of the previously reported Motorparts operating segment. The Ride Performance operating segment consists of the previously reported Ride Performance operating segment as well as the OE Braking business that was included in the previously reported Motorparts operating segment. As such, prior period operating segment results have been conformed to reflect the Company's current operating segments. The future New Tenneco consists of
two
existing operating segments, Powertrain and Clean Air. Costs related to other business activities, primarily corporate headquarter functions, are disclosed separately from the
four
operating segments as "Corporate."
Management uses EBITDA including noncontrolling interests as the key performance measure of segment profitability and uses the measure in its financial and operational decision making processes, for internal reporting, and for planning and forecasting purposes to effectively allocate resources. EBITDA including noncontrolling interests is defined as earnings before interest expense, income taxes, noncontrolling interests, and depreciation and amortization. Segment assets are not presented as it is not a measure reviewed by the Chief Operating Decision Maker in allocating resources and assessing performance.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
EBITDA including noncontrolling interests should not be considered a substitute for results prepared in accordance with US GAAP and should not be considered an alternative to net income, which is the most directly comparable financial measure to EBITDA including noncontrolling interests that is in accordance with US GAAP. EBITDA including noncontrolling interests, as determined and measured by the Company, should not be compared to similarly titled measures reported by other companies.
The following table summarizes certain of the Company's segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total
|
|
Corporate
|
|
Reclass & Elims
|
|
Total
|
For the Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
1,827
|
|
|
$
|
1,133
|
|
|
$
|
709
|
|
|
$
|
835
|
|
|
$
|
4,504
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,504
|
|
Intersegment revenues
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
38
|
|
|
$
|
11
|
|
|
$
|
89
|
|
|
$
|
—
|
|
|
$
|
(89
|
)
|
|
$
|
—
|
|
EBITDA, including noncontrolling interests
|
$
|
152
|
|
|
$
|
100
|
|
|
$
|
26
|
|
|
$
|
110
|
|
|
$
|
388
|
|
|
$
|
(78
|
)
|
|
$
|
—
|
|
|
$
|
310
|
|
For the Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
1,694
|
|
|
$
|
—
|
|
|
$
|
506
|
|
|
$
|
333
|
|
|
$
|
2,533
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,533
|
|
Intersegment revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
EBITDA, including noncontrolling interests
|
$
|
142
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
55
|
|
|
$
|
217
|
|
|
$
|
(46
|
)
|
|
$
|
—
|
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total
|
|
Corporate
|
|
Reclass & Elims
|
|
Total
|
For the Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
3,606
|
|
|
$
|
2,308
|
|
|
$
|
1,442
|
|
|
$
|
1,632
|
|
|
$
|
8,988
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,988
|
|
Intersegment revenues
|
$
|
—
|
|
|
$
|
86
|
|
|
$
|
84
|
|
|
$
|
22
|
|
|
$
|
192
|
|
|
$
|
—
|
|
|
$
|
(192
|
)
|
|
$
|
—
|
|
EBITDA, including noncontrolling interests
|
$
|
283
|
|
|
$
|
213
|
|
|
$
|
(19
|
)
|
|
$
|
155
|
|
|
$
|
632
|
|
|
$
|
(177
|
)
|
|
$
|
—
|
|
|
$
|
455
|
|
For the Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
3,450
|
|
|
$
|
—
|
|
|
$
|
1,019
|
|
|
$
|
645
|
|
|
$
|
5,114
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,114
|
|
Intersegment revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
EBITDA, including noncontrolling interests
|
$
|
299
|
|
|
$
|
—
|
|
|
$
|
44
|
|
|
$
|
100
|
|
|
$
|
443
|
|
|
$
|
(90
|
)
|
|
$
|
—
|
|
|
$
|
353
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Segment EBITDA including noncontrolling interests and the reconciliation to earnings before interest expense, income taxes, and noncontrolling interests are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
Six Months Ended June 30
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
EBITDA including noncontrolling interests by Segments:
|
|
|
|
|
|
|
|
Clean Air
|
$
|
152
|
|
|
142
|
|
|
$
|
283
|
|
|
$
|
299
|
|
Powertrain
|
100
|
|
|
—
|
|
|
213
|
|
|
—
|
|
Ride Performance
|
26
|
|
|
20
|
|
|
(19
|
)
|
|
44
|
|
Motorparts
|
110
|
|
|
55
|
|
|
155
|
|
|
100
|
|
Corporate
|
(78
|
)
|
|
(46
|
)
|
|
(177
|
)
|
|
(90
|
)
|
Total EBITDA including noncontrolling interests
|
310
|
|
|
171
|
|
|
455
|
|
|
353
|
|
Depreciation and amortization
|
(169
|
)
|
|
(60
|
)
|
|
(338
|
)
|
|
(120
|
)
|
Earnings (loss) before interest expense, income taxes, and noncontrolling interests
|
141
|
|
|
111
|
|
|
117
|
|
|
233
|
|
Interest expense
|
(82
|
)
|
|
(22
|
)
|
|
(163
|
)
|
|
(45
|
)
|
Income tax (expense) benefit
|
(14
|
)
|
|
(26
|
)
|
|
(14
|
)
|
|
(51
|
)
|
Net income (loss)
|
$
|
45
|
|
|
$
|
63
|
|
|
$
|
(60
|
)
|
|
$
|
137
|
|
Revenue from contracts with customers is disaggregated by customer type and geography, as it depicts the nature and amount of the Company’s revenue that is aligned with the Company's key growth strategies. In the following tables, revenue is disaggregated accordingly:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
By Customer Type
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
OE - Substrate
|
$
|
777
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
777
|
|
OE - Value add
|
1,050
|
|
|
1,133
|
|
|
709
|
|
|
—
|
|
|
2,892
|
|
Aftermarket
|
—
|
|
|
—
|
|
|
—
|
|
|
835
|
|
|
835
|
|
Total
|
$
|
1,827
|
|
|
$
|
1,133
|
|
|
$
|
709
|
|
|
$
|
835
|
|
|
$
|
4,504
|
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
OE - Substrate
|
$
|
621
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
621
|
|
OE - Value add
|
1,073
|
|
|
—
|
|
|
506
|
|
|
—
|
|
|
1,579
|
|
Aftermarket
|
—
|
|
|
—
|
|
|
—
|
|
|
333
|
|
|
333
|
|
Total
|
$
|
1,694
|
|
|
$
|
—
|
|
|
$
|
506
|
|
|
$
|
333
|
|
|
$
|
2,533
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
By Customer Type
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
OE - Substrate
|
$
|
1,483
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,483
|
|
OE - Value add
|
2,123
|
|
|
2,308
|
|
|
1,442
|
|
|
—
|
|
|
5,873
|
|
Aftermarket
|
—
|
|
|
—
|
|
|
—
|
|
|
1,632
|
|
|
1,632
|
|
Total
|
$
|
3,606
|
|
|
$
|
2,308
|
|
|
$
|
1,442
|
|
|
$
|
1,632
|
|
|
$
|
8,988
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
OE - Substrate
|
$
|
1,273
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,273
|
|
OE - Value add
|
2,177
|
|
|
—
|
|
|
1,019
|
|
|
—
|
|
|
3,196
|
|
Aftermarket
|
—
|
|
|
—
|
|
|
—
|
|
|
645
|
|
|
645
|
|
Total
|
$
|
3,450
|
|
|
$
|
—
|
|
|
$
|
1,019
|
|
|
$
|
645
|
|
|
$
|
5,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
By Geography
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
800
|
|
|
$
|
398
|
|
|
$
|
228
|
|
|
$
|
536
|
|
|
$
|
1,962
|
|
Europe, Middle East and Africa
|
609
|
|
|
540
|
|
|
349
|
|
|
241
|
|
|
1,739
|
|
Rest of world
|
418
|
|
|
195
|
|
|
132
|
|
|
58
|
|
|
803
|
|
Total
|
$
|
1,827
|
|
|
$
|
1,133
|
|
|
$
|
709
|
|
|
$
|
835
|
|
|
$
|
4,504
|
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
745
|
|
|
$
|
—
|
|
|
$
|
185
|
|
|
$
|
210
|
|
|
$
|
1,140
|
|
Europe, Middle East and Africa
|
623
|
|
|
—
|
|
|
212
|
|
|
105
|
|
|
940
|
|
Rest of world
|
326
|
|
|
—
|
|
|
109
|
|
|
18
|
|
|
453
|
|
Total
|
$
|
1,694
|
|
|
$
|
—
|
|
|
$
|
506
|
|
|
$
|
333
|
|
|
$
|
2,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
By Geography
|
Clean Air
|
|
Powertrain
|
|
Ride Performance
|
|
Motorparts
|
|
Total
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,593
|
|
|
$
|
803
|
|
|
$
|
460
|
|
|
$
|
1,043
|
|
|
$
|
3,899
|
|
Europe, Middle East and Africa
|
1,250
|
|
|
1,115
|
|
|
727
|
|
|
478
|
|
|
3,570
|
|
Rest of world
|
763
|
|
|
390
|
|
|
255
|
|
|
111
|
|
|
1,519
|
|
Total
|
$
|
3,606
|
|
|
$
|
2,308
|
|
|
$
|
1,442
|
|
|
$
|
1,632
|
|
|
$
|
8,988
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,513
|
|
|
$
|
—
|
|
|
$
|
365
|
|
|
$
|
398
|
|
|
$
|
2,276
|
|
Europe, Middle East and Africa
|
1,280
|
|
|
—
|
|
|
437
|
|
|
213
|
|
|
1,930
|
|
Rest of world
|
657
|
|
|
—
|
|
|
217
|
|
|
34
|
|
|
908
|
|
Total
|
$
|
3,450
|
|
|
$
|
—
|
|
|
$
|
1,019
|
|
|
$
|
645
|
|
|
$
|
5,114
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
18. Related Party Transactions
Amounts presented as Icahn Automotive Group LLC represent the Company's activity with Auto Plus and Pep Boys. See
Note 7, Investment in Nonconsolidated Affiliates
, for further information for companies within the tables below that represent equity method investments.
The following tables are summaries of the net sales, purchases, and royalty and other income from related parties for the three and six months ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Net Sales
|
|
Purchases
|
|
Royalty and Other Income
|
Icahn Automotive Group LLC
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
1
|
|
PSC Metals, Inc.
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Anqing TP Goetze Piston Ring Company Limited
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
1
|
|
Anqing TP Powder Metallurgy Company Limited
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
—
|
|
Dongsuh Federal-Mogul Industrial Co., Ltd.
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
—
|
|
Federal-Mogul Powertrain Otomotiv A.S.
|
$
|
15
|
|
|
$
|
49
|
|
|
$
|
1
|
|
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti.
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
Federal-Mogul Izmit Piston ve Pim Uretim Tesisleri A.S.
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
—
|
|
Federal-Mogul TP Liners, Inc.
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Frenos Hidraulicos Auto
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Montagewerk Abgastechnik Emden GmbH
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Net Sales
|
|
Purchases
|
|
Royalty and Other Income
|
Icahn Automotive Group LLC
|
$
|
90
|
|
|
$
|
—
|
|
|
$
|
2
|
|
PSC Metals, Inc.
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Anqing TP Goetze Piston Ring Company Limited
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
—
|
|
Anqing TP Powder Metallurgy Company Limited
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
—
|
|
Dongsuh Federal-Mogul Industrial Co., Ltd.
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
—
|
|
Federal-Mogul Powertrain Otomotiv A.S.
|
$
|
42
|
|
|
$
|
104
|
|
|
$
|
2
|
|
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti.
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
Federal-Mogul Izmit Piston ve Pim Uretim Tesisleri A.S.
|
$
|
2
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Federal-Mogul TP Liners, Inc.
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Frenos Hidraulicos Auto
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Montagewerk Abgastechnik Emden GmbH
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The following table is a summary of amounts due to and from the Company's related parties as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Receivables
|
|
Payables and accruals
|
|
Receivables
|
|
Payables and accruals
|
Icahn Automotive Group LLC
|
$
|
54
|
|
|
$
|
2
|
|
|
$
|
60
|
|
|
$
|
12
|
|
Anqing TP Goetze Piston Ring Company Limited
|
$
|
2
|
|
|
$
|
22
|
|
|
$
|
1
|
|
|
$
|
22
|
|
Anqing TP Powder Metallurgy Company Limited
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Dongsuh Federal-Mogul Industrial Co., Ltd.
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
2
|
|
Federal-Mogul Powertrain Otomotiv A.S.
|
$
|
12
|
|
|
$
|
27
|
|
|
$
|
9
|
|
|
$
|
16
|
|
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti.
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Federal-Mogul Izmit Piston ve Pim Uretim Tesisleri A.S.
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Federal-Mogul TP Liners, Inc.
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
7
|
|
Farloc Argentina SAIC
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Montagewerk Abgastechnik Emden GmbH
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
19. Supplemental Guarantor Condensed Consolidating Financial Statements
Basis of Presentation
Substantially all of the Company's existing and future material domestic
100%
owned subsidiaries (which are referred to as the Guarantor Subsidiaries) fully and unconditionally guarantee its senior notes on a joint and several basis. However, a subsidiary’s guarantee may be released in certain customary circumstances such as a sale of the subsidiary or all or substantially all of its assets in accordance with the indenture applicable to the notes. The Guarantor Subsidiaries are combined in the presentation below.
These consolidating financial statements are presented on the equity method. Under this method, the Company's investments are recorded at cost and adjusted for its ownership share of a subsidiary’s cumulative results of operations, capital contributions and distributions, and other equity changes. You should read the condensed consolidating financial information of the Guarantor Subsidiaries in connection with the Company's condensed consolidated financial statements and related notes of which this note is an integral part.
The accompanying supplemental guarantor consolidating financial statements have been updated to reflect the revision as described in
Note 2, Summary of Significant Accounting Policies
.
As discussed in
Note 3, Acquisitions and Divestitures
, the allocation of the purchase price to the assets acquired and liabilities assumed, including the entities to which it is allocated, is preliminary and subject to change during the measurement period.
Distributions
There are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
STATEMENT OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Tenneco Inc.
(Parent
Company)
|
|
Reclass
& Elims
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net sales and operating revenues:
|
|
|
|
|
|
|
|
|
|
External
|
$
|
1,690
|
|
|
$
|
2,814
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,504
|
|
Affiliated companies
|
235
|
|
|
283
|
|
|
—
|
|
|
(518
|
)
|
|
—
|
|
|
1,925
|
|
|
3,097
|
|
|
—
|
|
|
(518
|
)
|
|
4,504
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
1,618
|
|
|
2,692
|
|
|
1
|
|
|
(518
|
)
|
|
3,793
|
|
Restructuring charges and asset impairments
|
43
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
61
|
|
Engineering, research, and development
|
30
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
78
|
|
Selling, general, and administrative
|
148
|
|
|
143
|
|
|
(3
|
)
|
|
—
|
|
|
288
|
|
Depreciation and amortization
|
81
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
169
|
|
|
1,920
|
|
|
2,989
|
|
|
(2
|
)
|
|
(518
|
)
|
|
4,389
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
Non-service postretirement benefit costs
|
(1
|
)
|
|
5
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Equity in (income) losses of nonconsolidated affiliates, net of tax
|
(1
|
)
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
Other (income) expense, net
|
30
|
|
|
(43
|
)
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
28
|
|
|
(54
|
)
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
Earnings (loss) before interest expense, income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies
|
(23
|
)
|
|
162
|
|
|
2
|
|
|
—
|
|
|
141
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
External, net of interest capitalized
|
(6
|
)
|
|
12
|
|
|
76
|
|
|
—
|
|
|
82
|
|
Affiliated companies, net of interest income
|
(6
|
)
|
|
11
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
Earnings (loss) before income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies
|
(11
|
)
|
|
139
|
|
|
(69
|
)
|
|
—
|
|
|
59
|
|
Income tax expense (benefit)
|
—
|
|
|
27
|
|
|
(13
|
)
|
|
—
|
|
|
14
|
|
Equity in net income (loss) from affiliated companies
|
93
|
|
|
—
|
|
|
82
|
|
|
(175
|
)
|
|
—
|
|
Net income (loss)
|
82
|
|
|
112
|
|
|
26
|
|
|
(175
|
)
|
|
45
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
19
|
|
Net income (loss) attributable to Tenneco Inc.
|
$
|
82
|
|
|
$
|
93
|
|
|
$
|
26
|
|
|
$
|
(175
|
)
|
|
$
|
26
|
|
Comprehensive income (loss) attributable to Tenneco Inc.
|
$
|
51
|
|
|
$
|
67
|
|
|
$
|
(86
|
)
|
|
$
|
(28
|
)
|
|
$
|
4
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
STATEMENT OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Tenneco Inc.
(Parent
Company)
|
|
Reclass
& Elims
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net sales and operating revenues:
|
|
|
|
|
|
|
|
|
|
External
|
$
|
1,028
|
|
|
$
|
1,505
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,533
|
|
Affiliated companies
|
134
|
|
|
156
|
|
|
—
|
|
|
(290
|
)
|
|
—
|
|
|
1,162
|
|
|
1,661
|
|
|
—
|
|
|
(290
|
)
|
|
2,533
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
984
|
|
|
1,440
|
|
|
—
|
|
|
(290
|
)
|
|
2,134
|
|
Restructuring charges and asset impairments
|
2
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
29
|
|
Engineering, research, and development
|
19
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
39
|
|
Selling, general, and administrative
|
82
|
|
|
72
|
|
|
—
|
|
|
—
|
|
|
154
|
|
Depreciation and amortization
|
24
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
1,111
|
|
|
1,595
|
|
|
—
|
|
|
(290
|
)
|
|
2,416
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
Non-service postretirement benefit costs
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Other (income) expense, net
|
15
|
|
|
(22
|
)
|
|
—
|
|
|
10
|
|
|
3
|
|
|
18
|
|
|
(22
|
)
|
|
—
|
|
|
10
|
|
|
6
|
|
Earnings (loss) before interest expense, income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies
|
33
|
|
|
88
|
|
|
—
|
|
|
(10
|
)
|
|
111
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
External, net of interest capitalized
|
10
|
|
|
3
|
|
|
9
|
|
|
—
|
|
|
22
|
|
Affiliated companies, net of interest income
|
(4
|
)
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
Earnings (loss) before income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies
|
27
|
|
|
85
|
|
|
(13
|
)
|
|
(10
|
)
|
|
89
|
|
Income tax (benefit) expense
|
(2
|
)
|
|
28
|
|
|
—
|
|
|
—
|
|
|
26
|
|
Equity in net income (loss) from affiliated companies
|
37
|
|
|
—
|
|
|
60
|
|
|
(97
|
)
|
|
—
|
|
Net income (loss)
|
66
|
|
|
57
|
|
|
47
|
|
|
(107
|
)
|
|
63
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Net income (loss) attributable to Tenneco Inc.
|
$
|
66
|
|
|
$
|
41
|
|
|
$
|
47
|
|
|
$
|
(107
|
)
|
|
$
|
47
|
|
Comprehensive income (loss) attributable to Tenneco Inc.
|
$
|
66
|
|
|
$
|
41
|
|
|
$
|
(41
|
)
|
|
$
|
(107
|
)
|
|
$
|
(41
|
)
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Tenneco Inc.
(Parent
Company)
|
|
Reclass
& Elims
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net sales and operating revenues:
|
|
|
|
|
|
|
|
|
|
External
|
$
|
3,381
|
|
|
$
|
5,607
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,988
|
|
Affiliated companies
|
453
|
|
|
564
|
|
|
—
|
|
|
(1,017
|
)
|
|
—
|
|
|
3,834
|
|
|
6,171
|
|
|
—
|
|
|
(1,017
|
)
|
|
8,988
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
3,294
|
|
|
5,380
|
|
|
—
|
|
|
(1,017
|
)
|
|
7,657
|
|
Restructuring charges and asset impairments
|
51
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
85
|
|
Goodwill impairment charge
|
33
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
60
|
|
Engineering, research, and development
|
69
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
170
|
|
Selling, general, and administrative
|
326
|
|
|
278
|
|
|
—
|
|
|
—
|
|
|
604
|
|
Depreciation and amortization
|
164
|
|
|
174
|
|
|
—
|
|
|
—
|
|
|
338
|
|
|
3,937
|
|
|
5,994
|
|
|
—
|
|
|
(1,017
|
)
|
|
8,914
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
Non-service postretirement benefit costs
|
(1
|
)
|
|
7
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Equity in losses of nonconsolidated affiliates, net of tax
|
(2
|
)
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
(33
|
)
|
Other (income) expense, net
|
23
|
|
|
(39
|
)
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
20
|
|
|
(63
|
)
|
|
—
|
|
|
—
|
|
|
(43
|
)
|
Earnings (loss) before interest expense, income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies
|
(123
|
)
|
|
240
|
|
|
—
|
|
|
—
|
|
|
117
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
External, net of interest capitalized
|
5
|
|
|
17
|
|
|
141
|
|
|
—
|
|
|
163
|
|
Affiliated companies, net of interest income
|
(14
|
)
|
|
19
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
Earnings (loss) before income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies
|
(114
|
)
|
|
204
|
|
|
(136
|
)
|
|
—
|
|
|
(46
|
)
|
Income tax expense (benefit)
|
(18
|
)
|
|
57
|
|
|
(25
|
)
|
|
—
|
|
|
14
|
|
Equity in net income (loss) from affiliated companies
|
72
|
|
|
—
|
|
|
20
|
|
|
(92
|
)
|
|
—
|
|
Net income (loss)
|
(24
|
)
|
|
147
|
|
|
(91
|
)
|
|
(92
|
)
|
|
(60
|
)
|
Less: Net income (loss) attributable to noncontrolling interests
|
—
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
Net income (loss) attributable to Tenneco Inc.
|
$
|
(24
|
)
|
|
$
|
116
|
|
|
$
|
(91
|
)
|
|
$
|
(92
|
)
|
|
$
|
(91
|
)
|
Comprehensive income (loss) attributable to Tenneco Inc.
|
$
|
(17
|
)
|
|
$
|
128
|
|
|
$
|
(79
|
)
|
|
$
|
(111
|
)
|
|
$
|
(79
|
)
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Tenneco Inc.
(Parent
Company)
|
|
Reclass
& Elims
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net sales and operating revenues:
|
|
|
|
|
|
|
|
|
|
External
|
$
|
2,060
|
|
|
$
|
3,054
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,114
|
|
Affiliated companies
|
257
|
|
|
312
|
|
|
—
|
|
|
(569
|
)
|
|
—
|
|
|
2,317
|
|
|
3,366
|
|
|
—
|
|
|
(569
|
)
|
|
5,114
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
1,991
|
|
|
2,905
|
|
|
—
|
|
|
(569
|
)
|
|
4,327
|
|
Restructuring charges and asset impairments
|
3
|
|
|
38
|
|
|
—
|
|
|
—
|
|
|
41
|
|
Engineering, research, and development
|
37
|
|
|
42
|
|
|
—
|
|
|
—
|
|
|
79
|
|
Selling, general, and administrative
|
155
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
305
|
|
Depreciation and amortization
|
47
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
120
|
|
|
2,233
|
|
|
3,208
|
|
|
—
|
|
|
(569
|
)
|
|
4,872
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
Non-service postretirement benefit costs
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Other (income) expense, net
|
24
|
|
|
(31
|
)
|
|
—
|
|
|
10
|
|
|
3
|
|
|
30
|
|
|
(31
|
)
|
|
—
|
|
|
10
|
|
|
9
|
|
Earnings (loss) before interest expense, income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies
|
54
|
|
|
189
|
|
|
—
|
|
|
(10
|
)
|
|
233
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
External, net of interest capitalized
|
20
|
|
|
6
|
|
|
19
|
|
|
—
|
|
|
45
|
|
Affiliated companies, net of interest income
|
(7
|
)
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
Earnings (loss) before income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies
|
41
|
|
|
183
|
|
|
(26
|
)
|
|
(10
|
)
|
|
188
|
|
Income tax (benefit) expense
|
(1
|
)
|
|
52
|
|
|
—
|
|
|
—
|
|
|
51
|
|
Equity in net income (loss) from affiliated companies
|
85
|
|
|
—
|
|
|
133
|
|
|
(218
|
)
|
|
—
|
|
Net income (loss)
|
127
|
|
|
131
|
|
|
107
|
|
|
(228
|
)
|
|
137
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
—
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
30
|
|
Net income (loss) attributable to Tenneco Inc.
|
$
|
127
|
|
|
$
|
101
|
|
|
$
|
107
|
|
|
$
|
(228
|
)
|
|
$
|
107
|
|
Comprehensive income (loss) attributable to Tenneco Inc.
|
$
|
127
|
|
|
$
|
101
|
|
|
$
|
41
|
|
|
$
|
(228
|
)
|
|
$
|
41
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Tenneco Inc.
(Parent
Company)
|
|
Reclass
& Elims
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
216
|
|
|
$
|
165
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
384
|
|
Restricted cash
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Receivables, net
|
965
|
|
|
1,882
|
|
|
—
|
|
|
—
|
|
|
2,847
|
|
Inventories, net
|
927
|
|
|
1,280
|
|
|
—
|
|
|
—
|
|
|
2,207
|
|
Prepayments and other current assets
|
193
|
|
|
329
|
|
|
28
|
|
|
—
|
|
|
550
|
|
Total current assets
|
2,301
|
|
|
3,662
|
|
|
31
|
|
|
—
|
|
|
5,994
|
|
Property, plant and equipment, net
|
1,142
|
|
|
2,418
|
|
|
9
|
|
|
—
|
|
|
3,569
|
|
Investment in affiliated companies
|
1,637
|
|
|
—
|
|
|
5,204
|
|
|
(6,841
|
)
|
|
—
|
|
Long-term receivables, net
|
9
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Goodwill
|
470
|
|
|
329
|
|
|
—
|
|
|
—
|
|
|
799
|
|
Intangibles, net
|
971
|
|
|
678
|
|
|
—
|
|
|
—
|
|
|
1,649
|
|
Investments in nonconsolidated affiliates
|
42
|
|
|
489
|
|
|
—
|
|
|
—
|
|
|
531
|
|
Deferred income taxes
|
256
|
|
|
212
|
|
|
12
|
|
|
—
|
|
|
480
|
|
Other assets
|
150
|
|
|
396
|
|
|
14
|
|
|
—
|
|
|
560
|
|
Total assets
|
$
|
6,978
|
|
|
$
|
8,185
|
|
|
$
|
5,270
|
|
|
$
|
(6,841
|
)
|
|
$
|
13,592
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt, including current maturities of long-term debt
|
$
|
1
|
|
|
$
|
154
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
170
|
|
Accounts payable
|
904
|
|
|
1,821
|
|
|
—
|
|
|
—
|
|
|
2,725
|
|
Accrued compensation and employee benefits
|
87
|
|
|
304
|
|
|
—
|
|
|
—
|
|
|
391
|
|
Accrued income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accrued expenses and other current liabilities
|
426
|
|
|
542
|
|
|
56
|
|
|
—
|
|
|
1,024
|
|
Total current liabilities
|
1,418
|
|
|
2,821
|
|
|
71
|
|
|
—
|
|
|
4,310
|
|
Long-term debt
|
250
|
|
|
11
|
|
|
5,247
|
|
|
—
|
|
|
5,508
|
|
Intercompany due to (due from)
|
1,905
|
|
|
(196
|
)
|
|
(1,709
|
)
|
|
—
|
|
|
—
|
|
Deferred income taxes
|
—
|
|
|
110
|
|
|
—
|
|
|
—
|
|
|
110
|
|
Pension, postretirement benefits and other liabilities
|
817
|
|
|
835
|
|
|
23
|
|
|
—
|
|
|
1,675
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
4,390
|
|
|
3,581
|
|
|
3,632
|
|
|
—
|
|
|
11,603
|
|
Redeemable noncontrolling interests
|
—
|
|
|
145
|
|
|
—
|
|
|
—
|
|
|
145
|
|
Tenneco Inc. shareholders’ equity
|
2,588
|
|
|
4,253
|
|
|
1,638
|
|
|
(6,841
|
)
|
|
1,638
|
|
Noncontrolling interests
|
—
|
|
|
206
|
|
|
—
|
|
|
—
|
|
|
206
|
|
Total equity
|
2,588
|
|
|
4,459
|
|
|
1,638
|
|
|
(6,841
|
)
|
|
1,844
|
|
Total liabilities, redeemable noncontrolling interests and equity
|
$
|
6,978
|
|
|
$
|
8,185
|
|
|
$
|
5,270
|
|
|
$
|
(6,841
|
)
|
|
$
|
13,592
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Tenneco Inc.
(Parent
Company)
|
|
Reclass
& Elims
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
329
|
|
|
$
|
364
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
697
|
|
Restricted cash
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Receivables, net
|
943
|
|
|
1,629
|
|
|
—
|
|
|
—
|
|
|
2,572
|
|
Inventories, net
|
958
|
|
|
1,287
|
|
|
—
|
|
|
—
|
|
|
2,245
|
|
Prepayments and other current assets
|
254
|
|
|
311
|
|
|
25
|
|
|
—
|
|
|
590
|
|
Total current assets
|
2,484
|
|
|
3,596
|
|
|
29
|
|
|
—
|
|
|
6,109
|
|
Property, plant and equipment, net
|
1,131
|
|
|
2,361
|
|
|
9
|
|
|
—
|
|
|
3,501
|
|
Investment in affiliated companies
|
1,421
|
|
|
—
|
|
|
4,856
|
|
|
(6,277
|
)
|
|
—
|
|
Long-term receivables, net
|
9
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Goodwill
|
263
|
|
|
383
|
|
|
223
|
|
|
—
|
|
|
869
|
|
Intangibles, net
|
1,007
|
|
|
510
|
|
|
2
|
|
|
—
|
|
|
1,519
|
|
Investments in nonconsolidated affiliates
|
43
|
|
|
501
|
|
|
—
|
|
|
—
|
|
|
544
|
|
Deferred income taxes
|
255
|
|
|
200
|
|
|
12
|
|
|
—
|
|
|
467
|
|
Other assets
|
48
|
|
|
180
|
|
|
—
|
|
|
(15
|
)
|
|
213
|
|
Total assets
|
$
|
6,661
|
|
|
$
|
7,732
|
|
|
$
|
5,131
|
|
|
$
|
(6,292
|
)
|
|
$
|
13,232
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt, including current maturities of long-term debt
|
$
|
1
|
|
|
$
|
152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
153
|
|
Accounts payable
|
858
|
|
|
1,894
|
|
|
7
|
|
|
—
|
|
|
2,759
|
|
Accrued compensation and employee benefits
|
88
|
|
|
255
|
|
|
—
|
|
|
—
|
|
|
343
|
|
Accrued income taxes
|
—
|
|
|
52
|
|
|
27
|
|
|
(15
|
)
|
|
64
|
|
Accrued expenses and other current liabilities
|
436
|
|
|
488
|
|
|
77
|
|
|
—
|
|
|
1,001
|
|
Total current liabilities
|
1,383
|
|
|
2,841
|
|
—
|
|
111
|
|
|
(15
|
)
|
|
4,320
|
|
Long-term debt
|
3
|
|
|
32
|
|
|
5,305
|
|
|
—
|
|
|
5,340
|
|
Intercompany due to (due from)
|
2,726
|
|
|
(215
|
)
|
|
(2,511
|
)
|
|
—
|
|
|
—
|
|
Deferred income taxes
|
—
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
88
|
|
Postretirement benefits and other liabilities
|
225
|
|
|
705
|
|
|
500
|
|
|
—
|
|
|
1,430
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
4,337
|
|
|
3,451
|
|
|
3,405
|
|
|
(15
|
)
|
|
11,178
|
|
Redeemable noncontrolling interests
|
—
|
|
|
138
|
|
|
—
|
|
|
—
|
|
|
138
|
|
Tenneco Inc. shareholders’ equity
|
2,324
|
|
|
3,953
|
|
|
1,726
|
|
|
(6,277
|
)
|
|
1,726
|
|
Noncontrolling interests
|
—
|
|
|
190
|
|
|
—
|
|
|
—
|
|
|
190
|
|
Total equity
|
2,324
|
|
|
4,143
|
|
|
1,726
|
|
|
(6,277
|
)
|
|
1,916
|
|
Total liabilities, redeemable noncontrolling interests and equity
|
$
|
6,661
|
|
|
$
|
7,732
|
|
|
$
|
5,131
|
|
|
$
|
(6,292
|
)
|
|
$
|
13,232
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Tenneco Inc.
(Parent
Company)
|
|
Reclass
& Elims
|
|
Consolidated
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
(8
|
)
|
|
$
|
(2
|
)
|
|
$
|
(90
|
)
|
|
$
|
—
|
|
|
$
|
(100
|
)
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired
|
—
|
|
|
(158
|
)
|
|
—
|
|
|
—
|
|
—
|
|
(158
|
)
|
Proceeds from sale of assets
|
1
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Cash payments for property, plant and equipment
|
(118
|
)
|
|
(261
|
)
|
|
—
|
|
|
—
|
|
|
(379
|
)
|
Net proceeds from sale of business
|
6
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Other
|
1
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Proceeds from deferred purchase price of factored receivables
|
—
|
|
|
147
|
|
|
—
|
|
|
—
|
|
|
147
|
|
Net cash used in investing activities
|
(110
|
)
|
|
(254
|
)
|
|
—
|
|
|
—
|
|
|
(364
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
Repayment of term loans and notes
|
—
|
|
|
(139
|
)
|
|
(51
|
)
|
|
—
|
|
|
(190
|
)
|
Proceeds from term loans and notes
|
—
|
|
|
111
|
|
|
—
|
|
|
—
|
|
|
111
|
|
Issuance (repurchase) of common shares
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Decrease in bank overdrafts
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Borrowings on revolving lines of credit
|
4,047
|
|
|
117
|
|
|
361
|
|
|
—
|
|
|
4,525
|
|
Payments on revolving lines of credit
|
(3,797
|
)
|
|
(111
|
)
|
|
(346
|
)
|
|
—
|
|
|
(4,254
|
)
|
Other
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Intercompany dividends and net (decrease) increase in intercompany obligations
|
(245
|
)
|
|
98
|
|
|
147
|
|
|
—
|
|
|
—
|
|
Distribution to noncontrolling interests partners
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
Net cash (used in) provided by financing activities
|
5
|
|
|
47
|
|
|
89
|
|
|
—
|
|
|
141
|
|
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
(113
|
)
|
|
(198
|
)
|
|
(1
|
)
|
|
—
|
|
|
(312
|
)
|
Cash, cash equivalents and restricted cash, January 1
|
329
|
|
|
369
|
|
|
4
|
|
|
—
|
|
|
702
|
|
Cash, cash equivalents and restricted cash, June 30
|
$
|
216
|
|
|
$
|
171
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
390
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Guarantor
Subsidiaries
|
|
Nonguarantor
Subsidiaries
|
|
Tenneco Inc.
(Parent
Company)
|
|
Reclass
& Elims
|
|
Consolidated
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
79
|
|
|
$
|
13
|
|
|
$
|
(5
|
)
|
|
$
|
(9
|
)
|
|
$
|
78
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets
|
1
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Cash payments for property, plant and equipment
|
(77
|
)
|
|
(97
|
)
|
|
—
|
|
|
—
|
|
|
(174
|
)
|
Proceeds from deferred purchase price of factored receivables
|
—
|
|
|
66
|
|
|
—
|
|
|
—
|
|
|
66
|
|
Other
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Net cash used in investing activities
|
(74
|
)
|
|
(27
|
)
|
|
—
|
|
|
—
|
|
|
(101
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Proceeds from term loans and notes
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
Repayments of term loans and notes
|
(10
|
)
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
Borrowings on revolving lines of credit
|
2,349
|
|
|
45
|
|
|
275
|
|
|
—
|
|
|
2,669
|
|
Payments on revolving lines of credit
|
(2,315
|
)
|
|
(38
|
)
|
|
(261
|
)
|
|
—
|
|
|
(2,614
|
)
|
Issuance (repurchase) of common shares
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Cash dividends
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
Net increase (decrease) in bank overdrafts
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
Distribution to noncontrolling interests partners
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
Other
|
(2
|
)
|
|
(20
|
)
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
Intercompany dividends and net (decrease) increase in intercompany obligations
|
(32
|
)
|
|
6
|
|
|
17
|
|
|
9
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
(10
|
)
|
|
(51
|
)
|
|
5
|
|
|
9
|
|
|
(47
|
)
|
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
(5
|
)
|
|
(76
|
)
|
|
—
|
|
|
—
|
|
|
(81
|
)
|
Cash, cash equivalents and restricted cash, January 1
|
7
|
|
|
311
|
|
|
—
|
|
|
—
|
|
|
318
|
|
Cash, cash equivalents and restricted cash, June 30
|
$
|
2
|
|
|
$
|
235
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
237
|
|