10-Q 1 ten-2017930x10q.htm FORM 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________ 
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12387
TENNECO INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
76-0515284
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
500 North Field Drive, Lake Forest, Illinois
 
60045
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (847) 482-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ      No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer   þ
 
Accelerated filer ¨
Non-accelerated filer   ¨
 
Smaller reporting company   ¨
 
(Do not check if a smaller reporting company)
 
 
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨      No  þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Common Stock, par value $0.01 per share: 51,588,561 shares outstanding as of October 27, 2017.


TABLE OF CONTENTS
 
 
 
Page
Part I — Financial Information
 
Item 1.
 
Tenneco Inc. and Consolidated Subsidiaries —
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
Part II — Other Information
 
Item 1.
Item 1A.
Item 2.
Item 3.
Defaults Upon Senior Securities
*
Item 4.
Mine Safety Disclosures
*
Item 5.
Other Information
*
Item 6.
 
*
No response to this item is included herein for the reason that it is inapplicable or the answer to such item is negative.

2

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, our prospects and business strategies. These forward-looking statements are included in various sections of this report, including the section entitled “Outlook” appearing in Item 2 of this report. The words “may,” “will,” “believe,” “should,” “could,” “plan,” “expect,” “anticipate,” “estimate,” and similar expressions (and variations thereof), identify these forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, these expectations may not prove to be correct. Because these forward-looking statements are also subject to risks and uncertainties, actual results may differ materially from the expectations expressed in the forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include:
•
general economic, business and market conditions;
•
our ability to source and procure needed materials, components and other products and services in accordance with customer demand and at competitive prices;
•
the cost and outcome of existing and any future claims, legal proceedings or investigations, including, but not limited to, any of the foregoing arising in connection with the ongoing global antitrust investigation, product performance, product safety or intellectual property rights;
•
changes in capital availability or costs, including increases in our cost of borrowing (i.e., interest rate increases), the amount of our debt, our ability to access capital markets at favorable rates, and the credit ratings of our debt;
•
changes in consumer demand, prices and our ability to have our products included on top selling vehicles, including any shifts in consumer preferences away from light trucks, which tend to be higher margin products for our customers and us, to other lower margin vehicles, for which we may or may not have supply arrangements;
•
changes in consumer demand for our automotive, commercial or aftermarket products, or changes in automotive and commercial vehicle manufacturers’ production rates and their actual and forecasted requirements for our products due to difficult economic conditions;
•
the overall highly competitive nature of the automobile and commercial vehicle parts industries, and any resultant inability to realize the sales represented by our awarded book of business (which is based on anticipated pricing and volumes over the life of the applicable program);
•
the loss of any of our large original equipment manufacturer (“OEM”) customers (on whom we depend for a substantial portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OEMs or any change in customer demand due to delays in the adoption or enforcement of worldwide emissions regulations;
•
our ability to successfully execute cash management and other cost reduction plans, and to realize the anticipated benefits from these plans;
•
risks inherent in operating a multi-national company, including economic, exchange rate and political conditions in the countries where we operate or sell our products, adverse changes in trade agreements, tariffs, immigration policies, political stability, and tax and other laws, and potential disruptions of production and supply;
•
industrywide strikes, labor disruptions at our facilities or any labor or other economic disruptions at any of our significant customers or suppliers or any of our customers’ other suppliers;
•
increases in the costs of raw materials, including our ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, customer recovery and other methods;
•
the negative impact of fuel price volatility on transportation and logistics costs, raw material costs, discretionary purchases of vehicles or aftermarket products and demand for off-highway equipment;
•
the cyclical nature of the global vehicle industry, including the performance of the global aftermarket sector and the impact of vehicle parts’ longer product lives;
•
costs related to product warranties and other customer satisfaction actions;
•
the failure or breach of our information technology systems, including the consequences of any misappropriation, exposure or corruption of sensitive information stored on such systems and the interruption to our business that such failure or breach may cause;
•
the impact of consolidation among vehicle parts suppliers and customers on our ability to compete;
•
changes in distribution channels or competitive conditions in the markets and countries where we operate, including the impact of increasing competition from lower cost, private-label products on our aftermarket business;
•
customer acceptance of new products;

3

•
new technologies that reduce the demand for certain of our products or otherwise render them obsolete;
•
our ability to introduce new products and technologies that satisfy customers' needs in a timely fashion;
•
our ability to realize our business strategy of improving operating performance;
•
our ability to successfully integrate any acquisitions that we complete and effectively manage our joint ventures and other third-party relationships;
•
changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies;
•
changes in accounting estimates and assumptions, including changes based on additional information;
•
any changes by the International Organization for Standardization (ISO) or other such committees in their certification protocols for processes and products, which may have the effect of delaying or hindering our ability to bring new products to market;
•
the impact of the extensive, increasing and changing laws and regulations to which we are subject, including environmental laws and regulations, which may result in our incurrence of environmental liabilities in excess of the amount reserved;
•
the potential impairment in the carrying value of our long-lived assets and goodwill or our deferred tax assets;
•
potential volatility in our effective tax rate;
•
natural disasters, such as earthquakes and flooding, and any resultant disruptions in the supply or production of goods or services to us or by us or in demand by our customers;
•
acts of war and/or terrorism, as well as actions taken or to be taken by the United States and other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where we operate; and
•
the timing and occurrence (or non-occurrence) of other transactions, events and circumstances which may be beyond our control.
The risks included here are not exhaustive. Refer to “Part I, Item 1A — Risk Factors” in our amended annual report on Form 10-K/A for the year ended December 31, 2016 and "Part II, Item 1A — Risk Factors” of this Form 10-Q for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the impact such risk factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Unless otherwise indicated in this report, the forward-looking statements in this report are made as of the date of this report, and, except as required by law, the Company does not undertake any obligation, and disclaims any obligation, to publicly disclose revisions or updates to any forward-looking statements.

4

PART I.
FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Tenneco Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Tenneco Inc. and its subsidiaries as of September 30, 2017, and the related condensed consolidated statements of income, comprehensive income and cash flows for the three-month and nine-month periods ended September 30, 2017 and 2016 and the condensed consolidated statement of changes in shareholders’ equity for the nine-month periods ended September 30, 2017 and 2016. These interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2016, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 24, 2017, except for the effects of the revision discussed in Note 16 to the consolidated financial statements, as to which the date is September 8, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 2, 2017
 

5

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2017
 
Nine Months Ended September 30, 2016
 
(Millions Except Share and Per Share Amounts)
 
(Millions Except Share and Per Share Amounts)
Revenues
 
 
 
 
 
 
 
   Net sales and operating revenues
$
2,274

 
$
2,096

 
$
6,883

 
$
6,444

 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
1,913

 
1,743

 
5,790

 
5,329

Engineering, research, and development
40

 
41

 
115

 
117

Selling, general, and administrative
128

 
109

 
529

 
390

Depreciation and amortization of other intangibles
58

 
53

 
165

 
159

 
2,139

 
1,946

 
6,599

 
5,995

Other expense
 
 
 
 
 
 
 
Loss on sale of receivables
(2
)
 
(2
)
 
(4
)
 
(4
)
Other income
1

 
2

 
2

 
—

 
(1
)
 
—

 
(2
)
 
(4
)
Earnings before interest expense, income taxes, and noncontrolling interests
134

 
150

 
282

 
445

Interest expense
19

 
24

 
54

 
76

Earnings before income taxes and noncontrolling interests
115

 
126

 
228

 
369

Income tax expense (benefit)
16

 
(70
)
 
41

 
3

Net income
99

 
196

 
187

 
366

Less: Net income attributable to noncontrolling interests
16

 
17

 
48

 
48

Net income attributable to Tenneco Inc.
$
83

 
$
179

 
$
139

 
$
318

Earnings per share
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding —
 
 
 
 
 
 
 
Basic
52,508,078

 
55,679,969

 
53,265,149

 
56,511,838

Diluted
52,687,656

 
56,165,709

 
53,501,864

 
56,958,447

Basic earnings per share of common stock
$
1.57

 
$
3.22

 
$
2.61

 
$
5.63

Diluted earnings per share of common stock
$
1.57

 
$
3.19

 
$
2.60

 
$
5.58

Cash dividends declared
$
0.25

 
$
—

 
$
0.75

 
$
—

The accompanying notes to the condensed consolidated financial statements are an integral
part of these condensed consolidated statements of income.

6

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended September 30, 2017
 
Tenneco Inc.
 
Noncontrolling Interests
 
Total
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
(Millions)
Net Income
 
 
$
83

 
 
 
$
16

 
 
 
$
99

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance July 1
$
(285
)
 
 
 
$
(2
)
 
 
 
$
(287
)
 
 
Translation of foreign currency statements
28

 
28

 
1

 
1

 
29

 
29

Balance September 30
(257
)
 
 
 
(1
)
 
 
 
(258
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance July 1
(316
)
 
 
 
—

 
 
 
(316
)
 
 
Additional liability for pension and postretirement benefits, net of tax
3

 
3

 
—

 
—

 
3

 
3

Balance September 30
(313
)
 
 
 
—

 
 
 
(313
)
 
 
Balance September 30
$
(570
)
 
 
 
$
(1
)
 
 
 
$
(571
)
 
 
Other Comprehensive Income
 
 
31

 
 
 
1

 
 
 
32

Comprehensive Income
 
 
$
114

 
 
 
$
17

 
 
 
$
131

The accompanying notes to the condensed consolidated financial statements are an integral
part of these condensed consolidated statements of comprehensive income.

7

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended September 30, 2016
 
Tenneco Inc.
 
Noncontrolling Interests
 
Total
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
(Millions)
Net Income
 
 
$
179

 
 
 
$
17

 
 
 
$
196

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance July 1
$
(294
)
 
 
 
$
(2
)
 
 
 
$
(296
)
 
 
Translation of foreign currency statements
1

 
1

 
—

 
—

 
1

 
1

Balance September 30
(293
)
 
 
 
(2
)
 
 
 
(295
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance July 1
(361
)
 
 
 
—

 
 
 
(361
)
 
 
Additional liability for pension and postretirement benefits, net of tax
4

 
4

 
—

 
—

 
4

 
4

Balance September 30
(357
)
 
 
 
—

 
 
 
(357
)
 
 
Balance September 30
$
(650
)
 
 
 
$
(2
)
 
 
 
$
(652
)
 
 
Other Comprehensive Income
 
 
5

 
 
 
—

 
 
 
5

Comprehensive Income
 
 
$
184

 
 
 
$
17

 
 
 
$
201

The accompanying notes to the condensed consolidated financial statements are an integral
part of these condensed consolidated statements of comprehensive income.

8

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Nine Months Ended September 30, 2017
 
Tenneco Inc.
 
Noncontrolling Interests
 
Total
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
 Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
(Millions)
Net Income
 
 
$
139

 
 
 
$
48

 
 
 
$
187

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
$
(338
)
 
 
 
$
(5
)
 
 
 
$
(343
)
 
 
Translation of foreign currency statements
81

 
81

 
4

 
4

 
85

 
85

Balance September 30
(257
)
 


 
(1
)
 


 
(258
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
(327
)
 
 
 
—

 

 
(327
)
 
 
Additional Liability for Pension and Postretirement Benefits, net of tax
14

 
14

 
—

 
—

 
14

 
14

Balance September 30
(313
)
 
 
 
—

 
 
 
(313
)
 
 
Balance September 30
$
(570
)
 
 
 
$
(1
)
 
 
 
$
(571
)
 
 
Other Comprehensive Income
 
 
95

 
 
 
4

 
 
 
99

Comprehensive Income
 
 
$
234

 
 
 
$
52

 
 
 
$
286


The accompanying notes to the condensed consolidated financial statements are an integral
part of these condensed consolidated statements of comprehensive income.

9

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Nine Months Ended September 30, 2016
 
Tenneco Inc.
 
Noncontrolling Interests
 
Total
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
(Millions)
Net Income
 
 
$
318

 
 
 
$
48

 
 
 
$
366

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
$
(297
)
 
 
 
$
(1
)
 
 
 
$
(298
)
 
 
Translation of foreign currency statements
4

 
4

 
(1
)
 
(1
)
 
3

 
3

Balance September 30
(293
)
 
 
 
(2
)
 
 
 
(295
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
(368
)
 
 
 
—

 
 
 
(368
)
 
 
Additional Liability for Pension and Postretirement Benefits, net of tax
11

 
11

 
—

 
—

 
11

 
11

Balance September 30
(357
)
 
 
 
—

 

 
(357
)
 
 
Balance September 30
$
(650
)
 
 
 
$
(2
)
 
 
 
$
(652
)
 
 
Other Comprehensive Income (Loss)
 
 
15

 
 
 
(1
)
 
 
 
14

Comprehensive Income
 
 
$
333

 
 
 
$
47

 
 
 
$
380


The accompanying notes to the condensed consolidated financial statements are an integral
part of these condensed consolidated statements of comprehensive income.


10

TENNECO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2017
 
December 31,
2016
 
(Millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
277

 
$
347

Restricted cash
2

 
2

Receivables —
 
 
 
Customer notes and accounts, net
1,451

 
1,272

Other
24

 
22

Inventories —
 
 
 
Finished goods
335

 
284

Work in process
289

 
245

Raw materials
184

 
137

Materials and supplies
74

 
64

Prepayments and other
325

 
229

Total current assets
2,961

 
2,602

Other assets:
 
 
 
Long-term receivables, net
9

 
9

Goodwill
59

 
57

Intangibles, net
17

 
19

Deferred income taxes
225

 
199

Other
123

 
103

 
433

 
387

Plant, property, and equipment, at cost
3,967

 
3,548

Less — Accumulated depreciation and amortization
(2,426
)
 
(2,191
)
 
1,541

 
1,357

Total Assets
$
4,935

 
$
4,346

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt (including current maturities of long-term debt)
$
108

 
$
90

Accounts payable
1,601

 
1,501

Accrued taxes
46

 
39

Accrued interest
10

 
15

Accrued liabilities
327

 
285

Other
140

 
43

Total current liabilities
2,232

 
1,973

Long-term debt
1,573

 
1,294

Deferred income taxes
6

 
7

Postretirement benefits
248

 
273

Deferred credits and other liabilities
158

 
139

Commitments and contingencies

 

Total liabilities
4,217

 
3,686

Redeemable noncontrolling interests
32

 
40

Tenneco Inc. Shareholders’ equity:
 
 
 
Common stock
1

 
1

Premium on common stock and other capital surplus
3,109

 
3,098

Accumulated other comprehensive loss
(570
)
 
(665
)
Retained earnings (accumulated deficit)
(1,001
)
 
(1,100
)
 
1,539

 
1,334

Less — Shares held as treasury stock, at cost
892

 
761

Total Tenneco Inc. shareholders’ equity
647

 
573

Noncontrolling interests
39

 
47

Total equity
686

 
620

Total liabilities, redeemable noncontrolling interests and equity
$
4,935

 
$
4,346

The accompanying notes to the condensed consolidated financial statements are an integral
part of these condensed consolidated balance sheets.

11

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2017
 
Nine Months Ended September 30, 2016
 
(Millions)
 
 
 
 
 
 
 
 
Operating Activities
 
 
 
 
 
 
 
Net income
$
99

 
$
196

 
$
187

 
$
366

Adjustments to reconcile net income to cash provided by operating activities —
 
 
 
 
 
 
 
Depreciation and amortization of other intangibles
58

 
53

 
165

 
159

Deferred income taxes
(1
)
 
(86
)
 
(1
)
 
(74
)
Stock-based compensation
1

 
3

 
12

 
13

Loss on sale of assets
1

 
1

 
2

 
2

Changes in components of working capital —
 
 
 
 
 
 
 
(Increase) decrease in receivables
41

 
(10
)
 
(135
)
 
(189
)
(Increase) decrease in inventories
(56
)
 
(12
)
 
(116
)
 
(61
)
(Increase) decrease in prepayments and other current assets
(8
)
 
(34
)
 
(76
)
 
(69
)
Increase (decrease) in payables
(29
)
 
(5
)
 
57

 
59

Increase (decrease) in accrued taxes
16

 
—

 
(22
)
 
9

Increase (decrease) in accrued interest
(3
)
 
9

 
(5
)
 
9

Increase (decrease) in other current liabilities
(51
)
 
10

 
101

 
(7
)
Changes in long-term assets
(10
)
 
1

 
(10
)
 
5

Changes in long-term liabilities
(6
)
 
11

 
1

 
13

Other
1

 
(7
)
 
3

 
(2
)
Net cash provided by operating activities
53

 
130

 
163

 
233

Investing Activities
 
 
 
 
 
 
 
Proceeds from sale of assets
—

 
1

 
6

 
4

Proceeds from sale of equity interest
—

 
—

 
9

 
—

Cash payments for plant, property, and equipment
(90
)
 
(74
)
 
(283
)
 
(213
)
Cash payments for software related intangible assets
(5
)
 
(6
)
 
(17
)
 
(15
)
Changes in restricted cash
—

 
1

 
—

 
(1
)
Other
(1
)
 
—

 
(5
)
 
—

Net cash used by investing activities
(96
)
 
(78
)
 
(290
)
 
(225
)
Financing Activities
 
 
 
 
 
 
 
Issuance (repurchase) of common shares
1

 
5

 
(2
)
 
7

Cash dividends
(14
)
 
—

 
(40
)
 
—

Retirement of long-term debt - net
(1
)
 
(179
)
 
(9
)
 
(527
)
Issuance of long-term debt - net
—

 
2

 
136

 
508

Debt issuance cost of long-term debt
—

 
—

 
(8
)
 
(8
)
Purchase of common stock under the share repurchase program
(71
)
 
(89
)
 
(131
)
 
(146
)
Net increase (decrease) in bank overdrafts
(3
)
 
(1
)
 
(12
)
 
4

Net increase in revolver borrowings and short-term debt excluding current maturities of long-term debt and short-term borrowings secured by accounts receivable
84

 
198

 
144

 
223

Net increase in short-term borrowings secured by accounts receivable
—

 
50

 
20

 
20

Distributions to noncontrolling interest partners
(12
)
 
(28
)
 
(45
)
 
(55
)
Net cash provided (used) by financing activities
(16
)
 
(42
)
 
53

 
26

Effect of foreign exchange rate changes on cash and cash equivalents
3

 
3

 
4

 
3

Increase (decrease) in cash and cash equivalents
(56
)
 
13

 
(70
)
 
37

Cash and cash equivalents, July 1 and January 1, respectively
333

 
311

 
347

 
287

Cash and cash equivalents, September 30 (Note)
$
277

 
$
324

 
$
277

 
$
324

Supplemental Cash Flow Information
 
 
 
 
 
 
 
Cash paid during the period for interest (net of interest capitalized)
$
23

 
$
14

 
$
61

 
$
62

Cash paid during the period for income taxes (net of refunds)
31

 
30

 
74

 
88

Non-cash Investing and Financing Activities
 
 
 
 
 
 
 
Period end balance of trade payables for plant, property, and equipment
$
53

 
$
51

 
$
53

 
$
51

Note: Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase.
The accompanying notes to the condensed consolidated financial statements are an integral
part of these condensed consolidated statements of cash flows.

12

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
Nine Months Ended September 30,
 
2017
 
2016
 
Shares
 
Amount
 
Shares
 
Amount
 
(Millions Except Share Amounts)
Tenneco Inc. Shareholders:
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
Balance January 1
65,891,930

 
$
1

 
65,067,132

 
$
1

Issued pursuant to benefit plans
35,843

 
—

 
313,332

 
—

Restricted shares forfeited
(126,682
)
 
—

 
—

 
—

Stock options exercised
208,818

 
—

 
383,981

 
—

Balance September 30
66,009,909

 
1

 
65,764,445

 
1

Premium on Common Stock and Other Capital Surplus
 
 
 
 
 
 
 
Balance January 1
 
 
3,098

 
 
 
3,081

Premium on common stock issued pursuant to benefit plans
 
 
11

 
 
 
10

Balance September 30
 
 
3,109

 
 
 
3,091

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance January 1
 
 
(665
)
 
 
 
(665
)
Other comprehensive income
 
 
95

 
 
 
15

Balance September 30
 
 
(570
)
 
 
 
(650
)
Retained Earnings (Accumulated Deficit)
 
 
 
 
 
 
 
Balance January 1
 
 
(1,100
)
 
 
 
(1,456
)
Net income attributable to Tenneco Inc.
 
 
139

 
 
 
318

Cash dividends declared
 
 
(40
)
 
 
 
—

Balance September 30
 
 
(1,001
)
 
 
 
(1,138
)
Less — Common Stock Held as Treasury Stock, at Cost
 
 
 
 
 
 
 
Balance January 1
11,655,938

 
761

 
7,473,325

 
536

Purchase of common stock through stock repurchase program
2,310,443

 
131

 
2,783,064

 
146

Balance September 30
13,966,381

 
892

 
10,256,389

 
682

Total Tenneco Inc. shareholders’ equity
 
 
$
647

 
 
 
$
622

Noncontrolling Interests:
 
 
 
 
 
 
 
Balance January 1
 
 
$
47

 
 
 
$
39

Net income
 
 
21

 
 
 
20

Other comprehensive income
 
 
2

 
 
 
—

Dividends declared
 
 
(31
)
 
 
 
(22
)
Balance September 30
 
 
$
39

 
 
 
$
37

Total equity
 
 
$
686

 
 
 
$
659

The accompanying notes to the condensed consolidated financial statements are an integral
part of these condensed consolidated statements of changes in shareholders’ equity.

13

TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)
Consolidation and Presentation
As you read the accompanying financial statements you should also read our amended Annual Report on Form 10-K/A for the year ended December 31, 2016.
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of Tenneco Inc.’s results of operations, comprehensive income, financial position, cash flows, and changes in shareholders’ equity for the periods indicated. We have prepared the unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (U.S. GAAP) for annual financial statements.
Our condensed consolidated financial statements include all majority-owned subsidiaries. We carry investments in 20 percent to 50 percent owned companies in which the Company does not have a controlling interest, as equity method investments, at cost plus equity in undistributed earnings since the date of acquisition and cumulative translation adjustments. We have eliminated all intercompany transactions.
Revision of Previously Issued Financial Statements
For the periods from April 1, 2013 through March 31, 2017, we identified in the second quarter of 2017 that approximately $34 million in lump sum payments from our suppliers were incorrectly recorded upon receipt as a reduction to cost of sales. The errors resulted from the intentional mischaracterization by certain purchasing and accounting personnel at the Company’s China subsidiaries of the nature of the accounting transactions related to the payments received from suppliers. These payments should have been deferred and amortized over the life of the underlying supplier agreements. The deferred amount related to these payments was $25 million at September 30, 2017 and recorded within deferred credit and other liabilities. In addition, we identified in the second quarter of 2017 an unrelated error of approximately $7 million of substrate liabilities that should have been accrued during the periods from January 1, 2016 through March 31, 2017, understating cost of sales in each of these periods. We evaluated the impact of these items on prior periods under the guidance of SEC Staff Accounting Bulletin (SAB) No. 99, “Materiality” and determined that the amounts were not material to previously issued financial statements. As a result, we will revise for interim periods in future filings, for certain amounts in the consolidated financial statements in order to correct these errors. See Note 14 in our notes to condensed consolidated financial statements located in Part I Item 1 of this Form 10-Q.
Prepayments and Other
Prepayments and other included $133 million and $97 million at September 30, 2017 and December 31, 2016, respectively, for in-process tools and dies that we are building for our original equipment customers.
Accounts Payable
Accounts payable included $109 million and $99 million at September 30, 2017 and December 31, 2016, respectively, for accrued compensation and $14 million and $26 million at September 30, 2017 and December 31, 2016, respectively, for bank overdrafts at our European subsidiaries.

14
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

Redeemable Noncontrolling Interests
The following is a rollforward of activities in our redeemable noncontrolling interests for the nine months ended September 30, 2017 and 2016, respectively:
 
Nine Months Ended September 30,
 
2017
 
2016
 
(Millions)
Balance January 1
$
40

 
$
41

Net income attributable to redeemable noncontrolling interests
27

 
27

Other comprehensive loss
2

 
(1
)
Dividends declared
(37
)
 
(35
)
Balance September 30
$
32

 
$
32


(2)
Financial Instruments
The net carrying and estimated fair values of our financial instruments by class at September 30, 2017 and December 31, 2016 were as follows:
 
September 30, 2017
 
December 31, 2016
 
Net Carrying
Amount
 
Fair
Value
 
Net Carrying
Amount
 
Fair
Value
 
(Millions)
Long-term debt (including current maturities)
$
1,575

 
$
1,612

 
$
1,297

 
$
1,311

Equity swap agreement and foreign currency forward contracts:
 
 
 
 
 
 
 
Asset derivative contracts (a)
6

 
6

 
—

 
—


(a) All derivatives are categorized within Level 2 of the fair value hierarchy.
Asset and Liability Instruments — The fair value of cash and cash equivalents, short and long-term receivables, accounts payable, and short-term debt was considered to be the same as or was not determined to be materially different from the carrying amount.
Long-term Debt — The fair value of our public fixed rate senior notes is based on quoted market prices (level 1). The fair value of our private borrowings under our senior credit facility and other long-term debt instruments is based on the market value of debt with similar maturities, interest rates and risk characteristics (level 2). The fair value of our level 1 debt, as classified in the fair value hierarchy, was $749 million and $725 million at September 30, 2017 and December 31, 2016, respectively. We have classified $849 million and $571 million as level 2 in the fair value hierarchy at September 30, 2017 and December 31, 2016, respectively, since we utilize valuation inputs that are observable both directly and indirectly. We classified the remaining $14 million and $15 million, consisting of foreign subsidiary debt, as level 3 in the fair value hierarchy at September 30, 2017 and December 31, 2016, respectively.
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.
Foreign Exchange Forward Contracts — We use derivative financial instruments, principally foreign currency forward purchase and sales contracts with terms of less than one year, to hedge our exposure to changes in foreign currency exchange rates. Our primary exposure to changes in foreign currency rates results from intercompany loans made between affiliates to minimize the need for borrowings from third parties. Additionally, we enter into foreign currency forward purchase and sale contracts to mitigate our exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. We manage counter-party credit risk by entering into derivative financial instruments with major financial institutions

15
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

that can be expected to fully perform under the terms of such agreements. We do not enter into derivative financial instruments for speculative purposes. The fair value of our foreign currency forward contracts is based on an internally developed model which incorporates observable inputs including quoted spot rates, forward exchange rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics. We record the change in fair value of these foreign exchange forward contracts as part of currency gains (losses) within cost of sales in the consolidated statements of income. The fair value of foreign exchange forward contracts are recorded in prepayments and other current assets or other current liabilities in the consolidated balance sheet. The fair value of our foreign currency forward contracts was a net asset position of less than $1 million at September 30, 2017 and a net liability position of less than $1 million at December 31, 2016, respectively.
The following table summarizes by major currency the notional amounts for foreign currency forward purchase and sale contracts as of September 30, 2017 (all of which mature in 2017):
 
 
Notional Amount
in Foreign Currency
 
 
(Millions)
British pounds
—Purchase
10

Canadian dollars
—Sell
(2
)
European euro
—Sell
(4
)
U.S. dollars
—Purchase
7

 
—Sell
(14
)
Cash-settled Share Swap Transactions — In the second quarter of 2017, we entered into an equity swap agreement with a financial institution. We selectively use cash-settled share swaps to reduce market risk associated with our deferred liabilities. These equity compensation liabilities increase as our stock price increases and decrease as our stock price decreases. In contrast, the value of the swap agreement moves in the opposite direction of these liabilities, allowing us to fix a portion of the liabilities at a stated amount. As of September 30, 2017, we had hedged our deferred liability related to approximately 250,000 common share equivalents. The fair value of the equity swap agreement is recorded in other current assets in the consolidated balance sheet. The fair value of our equity swap agreement was a net asset position of $5 million at September 30, 2017.
Guarantees —We have from time to time issued guarantees for the performance of obligations by some of our subsidiaries, and some of our subsidiaries have guaranteed our debt. All of our existing and future material domestic subsidiaries fully and unconditionally guarantee our senior credit facility and our senior notes on a joint and several basis. The arrangement for the senior credit facility is also secured by first-priority liens on substantially all our domestic assets and pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries. No assets or capital stock secure our senior notes. For additional information, refer to Note 13 of the condensed consolidated financial statements of Tenneco Inc., where we present the Supplemental Guarantor Condensed Consolidating Financial Statements.
We have two performance guarantee agreements in the U.K. between Tenneco Management (Europe) Limited (“TMEL”) and the two Walker Group Retirement Plans, the Walker Group Employee Benefit Plan and the Walker Group Executive Retirement Benefit Plan (the “Walker Plans”), whereby TMEL will guarantee the payment of all current and future pension contributions in the event of a payment default by the sponsoring or participating employers of the Walker Plans. The Walker Plans are comprised of employees from Tenneco Walker (U.K.) Limited and Futaba (U.K.) Limited, formerly our Futaba-Tenneco (U.K.) joint venture. Employer contributions are funded by Tenneco Walker (U.K.) Limited, as the sponsoring employer, and were also funded by Futaba (U.K.) Limited prior to its ceasing, on April 28, 2017, to be an entity in which Tenneco has an equity interest. The performance guarantee agreements are expected to remain in effect until all pension obligations for the Walker Plans’ sponsoring and participating employers have been satisfied. We did not record an additional liability for this performance guarantee since Tenneco Walker (U.K.) Limited, as the sponsoring employer of the Walker Plans, already recognizes 100 percent of the pension obligation calculated based on U.S. GAAP, for all of the Walker Plans’ participating employers on its balance sheet, which was $12 million and $19 million at September 30, 2017 and December 31, 2016, respectively. At September 30, 2017, all pension contributions under the Walker Plans were current for all of the Walker Plans’ sponsoring and participating employers.
In June 2011, we entered into an indemnity agreement between TMEL and Futaba Industrial Co. Ltd. (Futaba) which required Futaba to indemnify TMEL for any cost, loss or liability which TMEL may have incurred under the performance guarantee agreements relating to the Futaba-Tenneco U.K. joint venture. The maximum amount reimbursable by Futaba to TMEL under this indemnity agreement was equal to the amount incurred by TMEL under the performance guarantee agreements multiplied by Futaba’s shareholder ownership percentage of the Futaba-Tenneco U.K. joint venture. On April 28, 2017, Walker Limited sold its equity interest in the Futaba-Tenneco U.K. joint venture entity to Futaba Industrial Co., Ltd. In

16
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

connection with the closing of that transaction, this indemnity agreement was terminated and accordingly Futaba no longer has any reimbursement obligations thereunder.
We have issued guarantees through letters of credit in connection with some obligations of our affiliates. As of September 30, 2017, we have guaranteed $32 million in letters of credit to support some of our subsidiaries’ insurance arrangements, foreign employee benefit programs, environmental remediation activities and cash management and capital requirements.
Financial Instruments — In certain instances, several of our Chinese subsidiaries receive payment from customers through the receipt of financial instruments on the date the customer payments are due. Several of our Chinese subsidiaries also satisfy vendor payments through the delivery of financial instruments on the date the payments are due. Financial instruments issued to satisfy vendor payables and not redeemed totaled $8 million and $12 million at September 30, 2017 and December 31, 2016, respectively, and were classified as notes payable. Financial instruments received from original equipment (OE) customers and not redeemed totaled $3 million and $5 million at September 30, 2017 and December 31, 2016, respectively. We classify financial instruments received from our customers as other current assets if issued by a financial institution of our customers or as customer notes and accounts, net if issued by our customer. We classified $3 million and $5 million in other current assets at September 30, 2017 and December 31, 2016, respectively.
The financial instruments received by some of our Chinese subsidiaries are drafts drawn that are payable at a future date and, in some cases, are negotiable and/or are guaranteed by the banks of the customers. The use of these instruments for payment follows local commercial practice. Because certain of such financial instruments are guaranteed by our customers’ banks, we believe they represent a lower financial risk than the outstanding accounts receivable that they satisfy which are not guaranteed by a bank.
Supply Chain Financing — Certain of our suppliers participate in supply chain financing programs under which they securitize their accounts receivables from Tenneco. Financial institutions participate in the supply chain financing program on an uncommitted basis and can cease purchasing receivables or drafts from Tenneco's suppliers at any time. If the financial institutions did not continue to purchase receivables or drafts from Tenneco's suppliers under these programs, the participating vendors may have a need to renegotiate their payment terms with Tenneco which in turn would cause our borrowings under our revolving credit facility to increase.
Restricted Cash — Some of our Chinese subsidiaries that issue their own financial instruments to pay vendors are required to maintain a cash balance if they exceed credit limits with the financial institution that guarantees the financial instruments. A restricted cash balance was required at those Chinese subsidiaries for $1 million and $2 million at September 30, 2017 and December 31, 2016, respectively.
One of our subsidiaries in Brazil is required by law to maintain a cash deposit with a financial institution to guarantee the maximum estimated loss related to a tax audit until a settlement is reached. The cash deposit required was $1 million which has been classified as restricted cash on the Tenneco Inc. consolidated balance sheet at September 30, 2017.
(3)
Long-Term Debt and Financing Arrangements
Our financing arrangements are primarily provided by a committed senior secured financing arrangement with a syndicate of banks and other financial institutions. The arrangement is secured by substantially all our domestic assets and pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries, as well as guarantees by our material domestic subsidiaries.
On May 12, 2017, we completed a refinancing of our senior credit facility by entering into an amendment and restatement of that facility. The amended and restated credit agreement enhances financial flexibility by increasing the size and extending the term of its revolving credit facility and term loan facility, and by adding Tenneco Automotive Operating Company Inc. as a co-borrower under the revolver credit facility. The amended and restated credit agreement also adds foreign currency borrowing capability and permits the joinder of our foreign and domestic subsidiaries as borrowers under the revolving credit facility in the future. If any foreign subsidiary of Tenneco is added to the revolving credit facility as a borrower, the obligations of such foreign borrower will be secured by the assets of such foreign borrower, and also will be secured by the assets of, and guaranteed by, the domestic borrowers and domestic guarantors as well as certain foreign subsidiaries of Tenneco in the chain of ownership of such foreign borrower. The amended and restated credit facility consists of a $1,600 million revolving credit facility and a $400 million term loan A facility, which replaced our former $1,200 million revolving credit facility and $264 million term loan A facility, respectively.
As of September 30, 2017, the senior credit facility provides us with a total revolving credit facility of $1,600 million and had a $395 million balance outstanding under the term loan A facility, both of which will mature on May 12, 2022. Net carrying amount for the balance outstanding under the term loan A facility including a $2 million debt issuance cost was $393 million as

17
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

of September 30, 2017. Funds may be borrowed, repaid and re-borrowed under the revolving credit facility without premium or penalty (subject to any customary LIBOR breakage fees). The revolving credit facility is reflected as debt on our balance sheet only if we borrow money under this facility or if we use the facility to make payments for letters of credit. Outstanding letters of credit reduce our availability to borrow revolving loans under the facility. We are required to make quarterly principal payments under the term loan A facility of $5 million through June 30, 2019, $7.5 million beginning September 30, 2019 through June 30, 2020, $10 million beginning September 30, 2020 through March 31, 2022 and a final payment of $260 million is due on May 12, 2022. We have excluded the required payments, within the next twelve months, under the term loan A facility totaling $20 million from current liabilities as of September 30, 2017, because we have the intent and ability to refinance the obligations on a long-term basis by using our revolving credit facility.
We recorded $1 million of pre-tax interest charges in May 2017 related to amendment and restatement of the senior credit facility and the write off of deferred debt issuance costs related to the senior credit facility.
The financial ratios required under the senior credit facility, and the actual ratios we achieved for the first three quarters of 2017, are as follows:
 
Quarter Ended
 
September 30, 2017
 
June 30, 2017

March 31, 2017
 
Required

Actual
 
Required

Actual

Required

Actual
Leverage Ratio (maximum)
3.50


2.15

 
3.50


1.97


3.50


1.62

Interest Coverage Ratio (minimum)
2.75


11.48

 
2.75


12.44


2.75


15.38

The senior credit facility includes a maximum leverage ratio covenant of 3.50 and a minimum interest coverage ratio of 2.75, in each case through May 12, 2022. The amended and restated senior credit facility provides us with the flexibility not to exclude certain otherwise excludable charges incurred in any relevant period from the calculation of the leverage and interest coverage ratios for such period.
At September 30, 2017, of the $1,600 million available under the revolving credit facility, we had unused borrowing capacity of $1,147 million with $453 million in outstanding borrowings and no outstanding letters of credit. As of September 30, 2017, our outstanding debt also included (i) $395 million of a term loan which consisted of a $393 million net carrying amount including a $2 million debt issuance cost related to our term loan A facility which is subject to quarterly principal payments as described above through May 12, 2022, (ii) $225 million of notes which consisted of a $222 million net carrying amount including a $3 million debt issuance cost related to our 53/8 percent senior notes due December 15, 2024, (iii) $500 million of notes which consisted of a $492 million net carrying amount including a $8 million debt issuance cost related to our 5 percent senior notes due July 15, 2026, and (iv) $121 million of other debt.
(4)
Income Taxes
For interim tax reporting we estimate our annual effective tax rate and apply it to our 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 impact of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a particular quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain unusual or infrequently occurring 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.
We reported income tax expense of $16 million and income tax benefit of $70 million in the three month periods ended September 30, 2017 and 2016, respectively. The tax expense recorded in the third quarter of 2017 included a net tax benefit of $12 million primarily relating to valuation allowance releases. The tax benefit recorded in the third quarter of 2016 included a net tax benefit of $105 million primarily relating to recognizing a U.S. tax benefit for foreign taxes. During the third quarter of 2016, we completed a detailed analysis of our ability to recognize and utilize foreign tax credits within the carryforward period. As a result, we amended our U.S. federal tax returns for years 2006 to 2012 to claim foreign tax credits in lieu of deducting foreign taxes paid. The U.S. foreign tax credit law provides for a credit against U.S. taxes otherwise payable for foreign taxes paid with regards to dividends, interest and royalties paid to us in the U.S.
We reported income tax expense of $41 million and $3 million in the nine month periods ended September 30, 2017 and 2016, respectively. The tax expense recorded in the first nine months of 2017 included a net tax benefit of $12 million primarily relating to valuation allowance releases. In addition, the tax expense included a $50 million reduction related to an antitrust settlement accrual. The tax expense recorded in the first nine months of 2016 included a net tax benefit of $106 million primarily relating to recognizing a U.S. tax benefit for foreign taxes as described above.

18
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

We believe it is reasonably possible that up to $5 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.
(5)
Accounts Receivable Securitization
We securitize some of our accounts receivable on a limited recourse basis in the U.S. and Europe. As servicer under these accounts receivable securitization programs, we are responsible for performing all accounts receivable administration functions for these securitized financial assets including collections and processing of customer invoice adjustments. In the U.S., we have an accounts receivable securitization program with three commercial banks comprised of a first priority facility and a second priority facility. We securitize original equipment and aftermarket receivables on a daily basis under the bank program. In April 2017, the U.S. program was amended and extended to April 30, 2019. The first priority facility now provides financing of up to $155 million and the second priority facility, which is subordinated to the first priority facility, now provides up to an additional $25 million of financing. Both facilities monetize accounts receivable generated in the U.S. and Canada that meet certain eligibility requirements, and the second priority facility also monetizes certain accounts receivable generated in the U.S. and Canada that would otherwise be ineligible under the first priority securitization facility. The amount of outstanding third-party investments in our securitized accounts receivable under the U.S. program was $50 million and $30 million at September 30, 2017 and December 31, 2016, respectively.
Each facility contains customary covenants for financings of this type, including restrictions related to liens, payments, mergers or consolidations and amendments to the agreements underlying the receivables pool. Further, each facility may be terminated upon the occurrence of customary events (with customary grace periods, if applicable), including breaches of covenants, failure to maintain certain financial ratios, inaccuracies of representations and warranties, bankruptcy and insolvency events, certain changes in the rate of default or delinquency of the receivables, a change of control and the entry or other enforcement of material judgments. In addition, each facility contains cross-default provisions, where the facility could be terminated in the event of non-payment of other material indebtedness when due and any other event which permits the acceleration of the maturity of material indebtedness.
We also securitize receivables in our European operations with regional banks in Europe. The arrangements to securitize receivables in Europe are provided under six separate facilities provided by various financial institutions in each of the foreign jurisdictions. The commitments for these arrangements are generally for one year, but some may be canceled with notice 90 days prior to renewal. In some instances, the arrangement provides for cancellation by the applicable financial institution at any time upon notification. The amount of outstanding third-party investments in our securitized accounts receivable in Europe was $212 million and $160 million at September 30, 2017 and December 31, 2016, respectively.
If we were not able to securitize receivables under either the U.S. or European securitization programs, our borrowings under our revolving credit agreement might increase. These accounts receivable securitization programs provide us with access to cash at costs that are generally favorable to alternative sources of financing, and allow us to reduce borrowings under our revolving credit agreement.
In our U.S. accounts receivable securitization program, we transfer a partial interest in a pool of receivables and the interest that we retain is subordinate to the transferred interest. Accordingly, we account for our U.S. securitization program as a secured borrowing. In our European programs, we transfer accounts receivables in their entirety to the acquiring entities and satisfy all of the conditions established under ASC Topic 860, “Transfers and Servicing,” to report the transfer of financial assets in their entirety as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under our European securitization programs approximates the fair value of such receivables. We recognized $1 million interest expense in each of the three month periods ended September 30, 2017 and 2016, and $3 million and $2 million in the nine month periods ended September 30, 2017 and 2016, respectively, relating to our U.S. securitization program. In addition, we recognized a loss of $2 million in each of the three month periods ended September 30, 2017 and 2016, and $4 million in each of the nine months periods ended September 30, 2017 and 2016, on the sale of trade accounts receivable in our European accounts receivable securitization programs, representing the discount from book values at which these receivables were sold to our banks. The discount rate varies based on funding costs incurred by our banks, which averaged approximately one percent and two percent during the first nine months of 2017 and 2016, respectively.
(6)
Restructuring and Other Charges
Over the past several years, we have adopted plans to restructure portions of our operations. These plans were approved by our Board of Directors and were designed to reduce operational and administrative overhead costs throughout the business. For the full year 2016, we incurred $36 million in restructuring and related costs including asset write-downs of $6 million, primarily related to manufacturing footprint improvements in North America Ride Performance, headcount reduction and cost improvement initiatives in Europe and China Clean Air, South America and Australia, of which $17 million was recorded in

19
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

cost of sales, $12 million in SG&A, $1 million in engineering expense, $2 million in other expense and $4 million in depreciation and amortization expense. In the third quarter of 2017, we incurred $20 million in restructuring and related costs including asset write-downs of $1 million, primarily related to closing an OE Clean Air manufacturing plant and downsizing Ride Performance operations in Australia and cost improvement initiatives, of which $8 million was recorded in cost of sales, $11 million in SG&A and $1 million in depreciation and amortization expense. In the third quarter of 2016, we incurred $7 million in restructuring and related costs, primarily related to manufacturing footprint improvements in North America Ride Performance as well as headcount reduction and cost improvement initiatives in Europe and China Clean Air, of which $3 million was recorded in cost of sales and $4 million in SG&A. In the first nine months of 2017, we incurred $52 million in restructuring and related costs including asset write-downs of $3 million, primarily related to closing a Clean Air Belgian JIT plant in response to the end of production on a customer platform, closing an OE Clean Air manufacturing plant and downsizing Ride Performance operations in Australia and cost improvement initiatives, of which $31 million was recorded in cost of sales, $18 million in SG&A, and $3 million in depreciation and amortization expense. In the first nine months of 2016, we incurred $26 million in restructuring and related costs including asset write-downs of $5 million primarily related to manufacturing footprint improvements in North America Ride Performance as well as headcount reduction and cost improvement initiatives in Europe and China Clean Air and South America, of which $9 million was recorded in cost of sales, $12 million in SG&A, $2 million in other expense and $3 million in depreciation and amortization expense.
Amounts related to activities that are part of our restructuring reserves are as follows:
 
December 31,
2016
Restructuring
Reserve
 
2017
Expenses
 
2017
Cash
Payments
 
Impact of Exchange Rates
 
September 30, 2017
Restructuring
Reserve
 
(Millions)
Employee Severance, Termination Benefits and Other Related Costs

$15

 
38

 
(18
)
 
2

 

$37

On June 29, 2017, our Board of Directors approved a restructuring initiative to close our Clean Air manufacturing plant in O'Sullivan Beach, Australia when General Motors and Toyota end vehicle production in the country, which occurred in October 2017. All such restructuring activities related to this initiative are expected to be completed by the first quarter 2018. We recorded total charges related to this initiative of $9 million in the third quarter of 2017 including asset write-downs of $1 million and $21 million in the first nine months of 2017 including asset write-downs of $2 million. The charges included severance payments to employees, the cost of decommissioning equipment, a lease termination payment and other costs associated with this action.
Under the terms of our amended and restated senior credit agreement that took effect on May 12, 2017, we are allowed to exclude, at our discretion, (i) up to $35 million in 2017 and $25 million each year thereafter of cash restructuring charges and related expenses, with the ability to carry forward any amount not used in one year to the next following year, and (ii) up to $150 million in the aggregate of all costs, expenses, fees, fines, penalties, judgments, legal settlements and other amounts associated with any restructuring, litigation, claim, proceeding or investigation related to or undertaken by us or any of our subsidiaries, together with any related provision for taxes, incurred for any quarterly period ending after May 12, 2017 in the calculation of the financial covenant ratios required under our senior credit facility. As of September 30, 2017, we elected not to exclude any of the $181 million of allowable cash charges and related expenses recognized in the first nine months of 2017 for antitrust settlement and restructuring related costs against the $150 million aggregate limit available under the terms of the senior credit facility or the $35 million annual limit for 2017.

20
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

(7)
Environmental Matters, Legal Proceedings and Product Warranties
We are involved in environmental remediation matters, legal proceedings, claims, investigations and warranty obligations. These matters are typically incidental to the conduct of our business and create the potential for contingent losses. We accrue for potential contingent losses when our review of available facts indicates that it is probable a loss has been incurred and the amount of the loss is reasonably estimable. Each quarter we assess our loss contingencies based upon currently available facts, existing technology, presently enacted laws and regulations and taking into consideration the likely effects of inflation and other societal and economic factors and record adjustments to these reserves as required. As an example, we consider all available evidence, including prior experience in remediation of contaminated sites, other companies’ cleanup experiences and data released by the United States Environmental Protection Agency or other organizations when we evaluate our environmental remediation contingencies. All of our loss contingency estimates are subject to revision in future periods based on actual costs or new information. With respect to our environmental liabilities, where future cash flows are fixed or reliably determinable, we have discounted those liabilities. We evaluate recoveries separately from the liability and, when they are assured, recoveries are recorded and reported separately from the associated liability in our consolidated financial statements.
Environmental Matters
We are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. We expense or capitalize, as appropriate, expenditures for ongoing compliance with environmental regulations that relate to current operations. We expense costs related to an existing condition caused by past operations that do not contribute to current or future revenue generation. As of September 30, 2017, we have the obligation to remediate or contribute towards the remediation of certain sites, including one Federal Superfund site. At September 30, 2017, our aggregated estimated share of environmental remediation costs for all these sites on a discounted basis was approximately $14 million, of which $2 million is recorded in other current liabilities and $12 million is recorded in deferred credits and other liabilities in our consolidated balance sheet. For those locations where the liability was discounted, the weighted average discount rate used was 2.3 percent. The undiscounted value of the estimated remediation costs was $17 million. Our expected payments of environmental remediation costs are estimated to be approximately $1 million in 2017, $1 million in each year beginning 2018 through 2021 and $12 million in aggregate thereafter.
Based on information known to us, we have established reserves that we believe are adequate for these costs. Although we believe these estimates of remediation costs are reasonable and are based on the latest available information, the costs are estimates and are subject to revision as more information becomes available about the extent of remediation required. At some sites, we expect that other parties will contribute to the remediation costs. In addition, certain environmental statutes provide that our liability could be joint and several, meaning that we could be required to pay in excess of our share of remediation costs. Our understanding of the financial strength of other potentially responsible parties at these sites has been considered, where appropriate, in our determination of our estimated liability. We do not believe that any potential costs associated with our current status as a potentially responsible party in the Federal Superfund site, or as a liable party at the other locations referenced herein, will be material to our consolidated financial position, results of operations, or liquidity.
Antitrust Investigations and Litigation
On March 25, 2014, representatives of the European Commission 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 March 25, 2014, we also received a related subpoena from the U.S. Department of Justice ("DOJ").
On November 5, 2014, the DOJ granted us conditional leniency pursuant to an agreement we entered into under the Antitrust Division's Corporate Leniency Policy. This agreement provides us with important benefits in exchange for our self-reporting of matters to the DOJ and our continuing full cooperation with the DOJ's resulting investigation. For example, the DOJ will not bring any criminal antitrust prosecution against us, nor seek any criminal fines or penalties, in connection with the matters we reported to the DOJ. Additionally, there are limits on our liability related to any follow-on civil antitrust litigation in the U.S. 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 our satisfying the DOJ and any court presiding over such follow-on civil litigation.
On April 27, 2017, Tenneco received notification from the European Commission (EC) that it has administratively closed its global antitrust inquiry regarding the production, assembly, and supply of complete exhaust systems. No charges against Tenneco or any other competitor were initiated at any time and the EC inquiry is now closed.

21
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

Certain other competition agencies are also investigating possible violations of antitrust laws relating to products supplied by our company. We have cooperated and continue to cooperate fully with all of these antitrust investigations, and take other actions to minimize our potential exposure.
Tenneco and certain of its competitors are also currently defendants in civil putative class action litigation 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 we received conditional leniency from the DOJ, our civil liability in the U.S. follow-on actions is limited to single damages and we will not be jointly and severally liable with the other defendants, provided that we have satisfied our 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 exposure for U.S. follow-on actions.
Following the EC’s decision to administratively close its antitrust inquiry into exhaust systems in 2017, Tenneco’s receipt of conditional leniency from the DOJ in 2014 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 Tenneco and/or certain of its competitors in the U.S., Tenneco 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, Tenneco settled an administrative action brought by Brazil's competition authority for an amount that was not material. Based upon those earlier developments, including settlement discussions, Tenneco established a reserve of $132 million in its second quarter 2017 financial results for settlement costs that are probable, reasonably estimable, and currently expected to be necessary to resolve Tenneco’s antitrust matters globally, which primarily involves the resolution of civil suits and related claims. Of the $132 million reserve that was established, $45 million was paid in the third quarter of 2017 to resolve certain antitrust claims. While Tenneco continues to cooperate with certain competition agencies investigating possible violations of antitrust laws relating to products supplied by Tenneco, 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. Rather, Tenneco expects to obtain final leniency from the DOJ in the near future.
The above reserve is based upon all currently available information and an assessment of the probability of events for those matters where Tenneco can make a reasonable estimate of the costs to resolve such outstanding matters. Tenneco’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 the control of Tenneco. As a result, Tenneco’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, we do not expect that any such change in the reserve will have a material adverse impact on our annual consolidated financial position, results of operations or liquidity.
Other Legal Proceedings, Claims and Investigations
For many years we have been and continue to be subject to lawsuits initiated by claimants alleging health problems as a result of exposure to asbestos. Our current docket of active and inactive cases is less than 500 cases nationwide. A small number of claims have been asserted against one of our subsidiaries by railroad workers alleging exposure to asbestos products in railroad cars. The substantial majority of the remaining claims are related to alleged exposure to asbestos in our automotive products although a significant number of those claims appear also to involve occupational exposures sustained in industries other than automotive. We believe, based on scientific and other evidence, it is unlikely that claimants were exposed to asbestos by our 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. As major asbestos manufacturers and/or users continue to go out of business or file for bankruptcy, we may experience an increased number of these claims. We vigorously defend ourselves against these claims as part of our ordinary course of business. In future periods, we could be subject to cash costs or charges to earnings if any of these matters are resolved unfavorably to us. To date, with respect to claims that have proceeded sufficiently through the judicial process, we have regularly achieved favorable resolutions. Accordingly, we presently believe that these asbestos-related claims will not have a material adverse impact on our future consolidated financial position, results of operations or liquidity.

22
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

We are also from time to time involved in other legal proceedings, claims or investigations. Some of these matters involve allegations of damages against us 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. For example, in July 2017 a complaint was filed against us in federal district court in Chicago, Illinois alleging that we misappropriated a third party's trade secrets in connection with certain of our ride control products.
While we vigorously defend ourselves against all of these legal proceedings, claims and investigations and take other actions to minimize our potential exposure, in future periods, we 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 our assessment of the merits of the particular claim, except as described above under "Antitrust Investigations" and in this paragraph we do not expect the legal proceedings, claims or investigations currently pending against us will have any material adverse impact on our consolidated financial position, results of operations or liquidity. With respect to the trade secret claim described above, we are in the process of evaluating the claim but, at this stage of the case and given the inherent uncertainly of litigation, we are unable to estimate whether a loss is reasonably possible. While we do not believe that this litigation will have a material adverse effect on our annual consolidated financial position, results of operations or liquidity, we cannot assure you that this will be the case.
Warranty Matters
We provide warranties on some of our products. The warranty terms vary but range from one year up to limited lifetime warranties on some of our 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 our products. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. We actively study trends of our warranty claims and take action to improve product quality and minimize warranty claims. We believe that 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 balance sheet.
Below is a table that shows the activity in the warranty accrual accounts:
 
Nine Months Ended September 30,
 
2017
 
2016
 
(Millions)
Beginning Balance January 1,
$
20

 
$
23

Accruals related to product warranties
13

 
6

Reductions for payments made
(8
)
 
(10
)
Ending Balance September 30,
$
25

 
$
19


23
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

(8)
Earnings Per Share
Earnings per share of common stock outstanding were computed as follows:
 
Three Months Ended September 30, 2017
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2017
 
Nine Months Ended September 30, 2016
 
(Millions Except Share and Per Share Amounts)
Basic earnings per share —
 
 
 
 
 
 
 
Net income attributable to Tenneco Inc.
$
83

 
$
179

 
$
139

 
$
318

Weighted Average shares of common stock outstanding
52,508,078

 
55,679,969

 
53,265,149

 
56,511,838

Earnings per share of common stock
$
1.57

 
$
3.22

 
$
2.61

 
$
5.63

Diluted earnings per share —
 
 
 
 

 

Net income attributable to Tenneco Inc.
$
83

 
$
179

 
$
139

 
$
318

Weighted Average shares of common stock outstanding
52,508,078

 
55,679,969

 
53,265,149

 
56,511,838

Effect of dilutive securities:
 
 
 
 

 

Restricted stock
89,666

 
207,707

 
106,320

 
144,145

Stock options
89,912

 
278,033

 
130,395

 
302,464

Weighted Average shares of common stock outstanding including dilutive securities
52,687,656

 
56,165,709

 
53,501,864

 
56,958,447

Earnings per share of common stock
$
1.57

 
$
3.19

 
$
2.60

 
$
5.58


Options to purchase 834 and 171,580 shares of common stock were outstanding as of September 30, 2017 and 2016, respectively, but not included in the computation of diluted earnings per share respectively, because the options were anti-dilutive.
(9)
Common Stock
Equity Plans — We have granted a variety of awards, including common stock, restricted stock, restricted stock units, performance units, stock appreciation rights (“SARs”), and stock options to our directors, officers, and employees.
Accounting Methods — We recorded compensation expense (net of taxes) of less than $1 million in each of the three month periods ended September 30, 2017 and 2016, less than $1 million in compensation expense for the nine month period ended September 30, 2017 and $1 million for the nine month period ended September 30, 2016 related to nonqualified stock options as part of our selling, general and administrative expense. This had no impact on basic or diluted earnings per share for each of the three month periods ended September 30, 2017 and 2016 and a decrease of less than $0.01 and $0.01 in both basic and diluted earnings per share for the nine month periods ended September 30, 2017 and 2016.
For employees eligible to retire at grant date, we immediately expense stock options and restricted stock. If an employee becomes retiree eligible during the vesting period, we amortize the expense for stock options and restricted stock over a period starting at the grant date to the date an employee becomes retiree eligible.
As of September 30, 2017, there was no unrecognized compensation cost related to our stock option awards.
Compensation expense for restricted stock, restricted stock units, long-term performance units and SARs (net of taxes) was $2 million and $5 million for the three month periods ended September 30, 2017 and 2016, respectively, and $10 million and $14 million for the nine month periods ended September 30, 2017 and 2016, respectively, and was recorded in selling, general, and administrative expense in our condensed consolidated statements of income.
Cash received from stock option exercises for the nine month periods ended September 30, 2017 and 2016 was $7 million and $4 million, respectively.
Stock options exercised in the first nine months of 2017 and 2016 generated a tax benefit of $2 million and $1 million, respectively.

24
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

Stock Options — The following table reflects the status and activity for all options to purchase common stock for the period indicated:
 
Nine Months Ended September 30, 2017
 
Shares
Under
Option
 
Weighted Avg.
Exercise
Prices
 
Weighted Avg.
Remaining
Life in Years
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
(Millions)
Outstanding Stock Options
 
 
 
 
 
 
 
Outstanding, January 1, 2017
606,525

 
$
38.54

 
2.6
 
$
12

Canceled
(2,214
)
 
56.23

 
 
 
—

Forfeited
(1,107
)
 
56.23

 
 
 
—

Exercised
(164,863
)
 
33.70

 
 
 
5

Outstanding, March 31, 2017
438,341

 
$
40.22

 
2.6
 
$
11

Forfeited
(278
)
 
66.54

 
 
 
—

Exercised
(3,242
)
 
45.42

 
 
 
—

Outstanding, June 30, 2017
434,821

 
$
40.16

 
2.4
 
$
8

Forfeited
(41,369
)
 
19.53

 
 
 
—

Exercised
(50,125
)
 
34.79

 
 
 
1

Outstanding, September 30, 2017
343,327

 
$
43.44

 
2.4
 
$
4

 
 
 
 
 
 
 
 
There have been no stock options granted since 2015. The total fair value of shares vested from options that were granted prior to 2015 was $2 million and $4 million for the periods ended September 30, 2017 and 2016, respectively.
Restricted Stock — The following table reflects the status for all nonvested restricted shares for the period indicated:
 
Nine Months Ended September 30, 2017
 
Shares
 
Weighted Avg.
Grant Date
Fair Value
Nonvested Restricted Shares
 
 
 
Nonvested balance at January 1, 2017
591,416

 
$
44.63

Granted
182,543

 
68.04

Vested
(261,003
)
 
50.95

Forfeited
(65,354
)
 
53.12

Nonvested balance at March 31, 2017
447,602

 
$
49.25

Granted
23,295

 
57.22

Vested
(15,336
)
 
46.77

Forfeited
(6,271
)
 
48.10

Nonvested balance at June 30, 2017
449,290

 
$
49.79

Granted
2,001

 
55.80

Vested
(4,581
)
 
55.52

Forfeited
(10,234
)
 
44.82

Nonvested balance at September 30, 2017
436,476

 
$
49.87

The fair value of restricted stock grants is usually equal to the average of the high and low trading price of our stock on the date of grant. As of September 30, 2017, approximately $10 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 1.9 years. The total fair value of restricted shares vested was $14 million and $9 million at September 30, 2017 and 2016, respectively.
Share Repurchase Program — In January 2015, our Board of Directors approved a share repurchase program, authorizing our company to repurchase up to $350 million of our outstanding common stock over a three year period. In October 2015, our Board of Directors expanded this share repurchase program, authorizing the repurchase of an additional $200 million of the

25
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

Company's outstanding common stock. In February 2017, our Board of Directors authorized the repurchase of up to $400 million of the Company's outstanding common stock over the next three years. This includes $112 million that remained authorized under earlier repurchase programs. The Company anticipates acquiring the shares through open market or privately negotiated transactions, which will be funded through cash from operations. The repurchase program does not obligate the Company to repurchase shares within any specific time or situations, and opportunities in higher priority areas could affect the cadence of this program. We repurchased 2.3 million shares for $131 million through this program in the nine months ended September 30, 2017. Since we announced the share repurchase program in January 2015, we have repurchased 10.7 million shares for $569 million through September 30, 2017.
Treasury stock shares including repurchased shares were 13,966,381 and 11,655,938 shares at September 30, 2017 and December 31, 2016, respectively.
Dividends — On February 1, 2017, Tenneco announced the reinstatement of a quarterly dividend program. We expect to pay a quarterly dividend of $0.25 per share on our common stock, representing a planned annual dividend of $1.00 per share. In March 2017, we paid an initial quarterly dividend of $0.25 per share, or $13 million. In June 2017, we paid a quarterly dividend of $0.25 per share, or $13 million. In September 2017, we paid a quarterly dividend of $0.25 per share, or $14 million. While we currently expect that comparable quarterly cash dividends will continue to be paid in the future, our dividend program and the payment of future cash dividends under the program are subject to continued capital availability, the judgment of our Board of Directors and our continued compliance with the provisions pertaining to the payment of dividends under our debt agreements.
Long-Term Performance Units, Restricted Stock Units and SARs — Long-term performance units, restricted stock units and SARs are paid in cash and recognized as a liability based upon their fair value. As of September 30, 2017, $19 million of total unrecognized compensation costs is expected to be recognized over a weighted-average period of approximately 1.9 years.


26
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

(10)
Pension Plans, Postretirement and Other Employee Benefits
Net periodic pension costs and postretirement benefit costs consist of the following components:
 
Three Months Ended September 30,
 
Pension
 
Postretirement
 
2017
 
2016
 
2017
 
2016
 
US
 
Foreign
 
US
 
Foreign
 
US
 
US
 
(Millions)
Service cost — benefits earned during the period
$
1

 
$
3

 
$
1

 
$
2

 
$
—

 
$
—

Interest cost
2

 
4

 
4

 
4

 
1

 
1

Expected return on plan assets
(4
)
 
(4
)
 
(6
)
 
(5
)
 
—

 
—

Net amortization:
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
1

 
1

 
2

 
1

 
2

 
2

Prior service cost (credit)
—

 
1

 
—

 
1

 
—

 
(1
)
Net pension and postretirement costs
$
—

 
$
5

 
$
1

 
$
3

 
$
3

 
$
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
Pension
 
Postretirement
 
2017
 
2016
 
2017
 
2016
 
US
 
Foreign
 
US
 
Foreign
 
US
 
US
 
(Millions)
Service cost — benefits earned during the period
$
1

 
$
7

 
$
1

 
$
6

 
$
—

 
$
—

Interest cost
7

 
10

 
13

 
11

 
4

 
4

Expected return on plan assets
(11
)
 
(19
)
 
(18
)
 
(15
)
 
—

 
—

Settlement loss
6

 
—

 
—

 
—

 
—

 
—

Net amortization:
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
4

 
6

 
6

 
5

 
5

 
4

Prior service cost (credit)
—

 
1

 
—

 
1

 
(1
)
 
(1
)
Net pension and postretirement costs
$
7

 
$
5

 
$
2

 
$
8

 
$
8

 
$
7


For the nine months ended September 30, 2017, we made pension contributions of $12 million and $10 million for our domestic and foreign pension plans, respectively. Based on current actuarial estimates, we believe we will be required to contribute approximately $10 million for the remainder of 2017. Pension contributions beyond 2017 will be required, but those amounts will vary based upon many factors including, for example, the performance of our pension fund investments during 2017.
In February 2016, the Company launched a voluntary program to buy out active employees and retirees who had earned benefits in the U.S. pension plans. As of June 30, 2017, this program has been substantially completed and all cash payments have been made from pension plan assets to those who elected to take the buyout. In connection with this program the Company contributed $10 million into the pension trust and recognized a non-cash charge of $6 million in the first quarter of 2017.
We made postretirement contributions of approximately $8 million during the first nine months of 2017. Based on current actuarial estimates, we believe we will be required to contribute approximately $2 million for the remainder of 2017.
The assets of some of our pension plans are invested in trusts that permit commingling of the assets of more than one employee benefit plan for investment and administrative purposes. Each of the plans participating in the trust has interests in the net assets of the underlying investment pools of the trusts. The investments for all our pension plans are recorded at estimated fair value, in compliance with the accounting guidance on fair value measurement. 

27
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

Amounts recognized for pension and postretirement benefits in other comprehensive income for the three and nine months ended September 30, 2017 and 2016 include the following components:
 
Three Months Ended September 30,
 
2017
 
2016
 
Before-Tax
Amount
 
Tax
Benefit
 
Net-of-Tax
Amount
 
Before-
Tax
Amount
 
Tax
Benefit
 
Net-of-Tax
Amount
 
(Millions)
Defined benefit pension and postretirement plans:
 
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost included in net periodic pension and postretirement cost
$
1

 
$
—

 
$
1

 
$
—

 
$
—

 
$
—

Amortization of actuarial loss included in net periodic pension and postretirement cost
4

 
(2
)
 
2

 
5

 
(1
)
 
4

Other comprehensive income – pension benefits
$
5

 
$
(2
)
 
$
3

 
$
5

 
$
(1
)
 
$
4


 
Nine Months Ended September 30,
 
2017
 
2016
 
Before-Tax
Amount
 
Tax
Benefit
 
Net-of-Tax
Amount
 
Before-
Tax
Amount
 
Tax
Benefit
 
Net-of-Tax
Amount
 
(Millions)
Defined benefit pension and postretirement plans:
 
 
 
 
 
 
 
 
 
 
 
Amortization of actuarial loss included in net periodic pension and postretirement cost
$
15

 
$
(5
)
 
$
10

 
$
15

 
$
(4
)
 
$
11

Settlement charge
6

 
(2
)
 
4

 
—

 
—

 
—

Other comprehensive income – pension benefits
$
21

 
$
(7
)
 
$
14

 
$
15

 
$
(4
)
 
$
11


(11)
New Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new guidance improves the presentation of net periodic pension cost and net period postretirement benefit cost. For public business entities, the standard is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.
In November 2016, the FASB issued Accounting Standard Update 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230) to eliminate diversity in practice in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. For public business entities, the standard is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.
In October 2016, the FASB issued Accounting Standard Update 2016-16, Income Taxes - Intra Entity Transfers of Assets Other Than Inventory (Topic 740). The new standard changes the accounting for income taxes when a company transfers certain tangible and intangible assets, such as equipment or intellectual property, between entities in different tax jurisdictions. The new standard does not change the current accounting for the income taxes related to transfers of inventory. For public business entities, the standard is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.

28
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


In March 2016, the FASB issued Accounting Standard Update 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, as part of its initiative to reduce complexity in accounting standards. The areas for simplification in this update involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, the standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We adopted this standard for the first quarter of 2017. The impact of the adoption resulted in the following:
•
We recorded a tax benefit of $2 million within income tax expense for the nine months ended September 30, 2017 related to the excess tax benefit on share-based awards. Prior to adoption, this amount would have been recorded as an addition of additional paid-in capital.
•
We no longer reclassify the excess tax benefit from operating activities to financing activities in the statement of cash flows. Cash payments made to the taxing authorities on employees' behalf for withheld shares are presented as financing activities. Tenneco elected to apply this change in presentation retrospectively and thus prior periods have been adjusted.
•
We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the quarter ended September 30, 2017. The impact was not material.
In February 2016, the FASB issued Accounting Standard Update 2016-02, Leases (Topic 842). The amendments in this update create Topic 842, Leases, and supersede the leases 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 flow 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. We will adopt this amendment on January 1, 2019. We are currently evaluating the potential impact of this new guidance on our consolidated financial statements.
In May 2014, the FASB issued an amendment on revenue recognition. The amendment in this update creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendment supersedes the cost guidance in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs-Contracts with Customers. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB approved a one-year deferral of the effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017 for public entities. We will adopt this amendment on January 1, 2018.
The guidance permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. We will adopt the guidance effective January 1, 2018 using the modified retrospective method by recognizing the cumulative effect in equity at the date of initial application.
We have established a cross-functional coordinated team to implement the guidance related to the recognition of revenue from contracts with customers. We are in the process of assessing our customer contracts, identifying contractual provisions that may result in a change in the timing or the amount of revenue recognized in comparison with current guidance, as well as assessing the enhanced disclosure requirements of the new guidance. Under current guidance, we generally recognize revenue when products are shipped and risk of loss has transferred to the customer. Under the new requirements, the customized nature of some of our products combined with contractual provisions that provide us with an enforceable right to payment will require us to recognize revenue over time during production. Our findings to date indicate only a small number of our customers provide an enforceable right to payment and therefore would be recognized over time. We evaluated how the new guidance may affect our accounting for contractually guaranteed reimbursements related to customer tooling, engineering services and pre-production costs. Under the current applicable guidance, these customer reimbursements are recorded as cost recovery offsets; whereas under the new standard these guaranteed recoveries may represent consideration from contracts with customers and be recorded as revenues. Our findings to date indicate these reimbursements are outside the scope of the new accounting standard and thus accounting for such reimbursements is not expected to be impacted. In addition, we are assessing pricing provisions contained in certain of our customer contracts. Certain price adjustments if they are determined to represent an option to purchase additional product at a reduced price could grant a material right to the customer and require a deferral of revenue. While Tenneco pricing provisions contained in customer contracts are generally reflective of market conditions and customary industry pricing practices, some may provide the customer with a material right. Based on our evaluation to date, no pricing provisions have been considered to represent a material right.

29
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

(12)
Segment Information
In connection with the reportable segment changes announced on February 7, 2017, our Clean Air and Ride Performance product lines in India, which have been reported as part of Europe, South America and India segments, will now be reported with their respective product lines in the Asia Pacific segments. Beginning with the first quarter of 2017, we are organized and manage our business along our two major product lines (clean air and ride performance) and three geographic areas (North America; Europe and South America; Asia Pacific), resulting in six operating segments (North America Clean Air, North America Ride Performance, Europe and South America Clean Air, Europe and South America Ride Performance, Asia Pacific Clean Air and Asia Pacific Ride Performance). Within each geographical area, each operating segment manufactures and distributes either clean air or ride performance products primarily for the original equipment and aftermarket industries. Each of the six operating segments constitutes a reportable segment. Costs related to other business activities, primarily corporate headquarter functions, are disclosed separately from the six operating segments as "Other." We evaluate segment performance based primarily on earnings before interest expense, income taxes, and noncontrolling interests. Products are transferred between segments and geographic areas on a basis intended to reflect as nearly as possible the “market value” of the products. Prior period segment information has been revised to reflect our new reporting segments.

30
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

The following table summarizes certain Tenneco Inc. segment information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clean Air Division
 
Ride Performance Division
 
 
 
 
 
 
 
North
America
 
Europe & South America
 
Asia
Pacific
 
North
America
 
Europe & South America
 
Asia
Pacific
 
Other
 
Reclass & Elims
 
Total
 
(Millions)
At September 30, 2017 and for the Three Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
$
723

 
$
536

 
$
313

 
$
304

 
$
279

 
$
119

 
$
—

 
$
—

 
$
2,274

Intersegment revenues
5

 
7

 
—

 
2

 
6

 
16

 
—

 
(36
)
 
—

EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests
46

 
25

 
36

 
29

 
6

 
11

 
(19
)
 
—

 
134

Total assets
1,504

 
882

 
751

 
761

 
590

 
388

 
—

 
59

 
4,935

At September 30, 2016 and for the Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
716

 
474

 
270

 
306

 
229

 
101

 
—

 
—

 
2,096

Intersegment revenues
4

 
24

 
1

 
2

 
6

 
12

 
—

 
(49
)
 
—

EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests
42

 
29

 
39

 
37

 
8

 
17

 
(22
)
 
—

 
150

Total assets
1,390

 
810

 
625

 
727

 
478

 
333

 
—

 
47

 
4,410

At September 30, 2017 and for the Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
$
2,341

 
$
1,620

 
$
861

 
$
945

 
$
786

 
$
330

 
$
—

 
$
—

 
$
6,883

Intersegment revenues
13

 
38

 
3

 
8

 
23

 
44

 
—

 
(129
)
 
—

EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests
153

 
79

 
91

 
100

 
19

 
45

 
(205
)
 
—

 
282

Total assets
1,504

 
882

 
751

 
761

 
590

 
388

 
—

 
59

 
4,935

At September 30, 2016 and for the Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
2,252

 
1,462

 
813

 
952

 
689

 
276

 
—

 
—

 
6,444

Intersegment revenues
9

 
71

 
2

 
6

 
21

 
37

 
—

 
(146
)
 
—

EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests
168

 
72

 
110

 
127

 
12

 
43

 
(87
)
 
—

 
445

Total assets
1,390

 
810

 
625

 
727

 
478

 
333

 
—

 
47

 
4,410



31
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

(13)
Supplemental Guarantor Condensed Consolidating Financial Statements
Basis of Presentation
Substantially all of our existing and future material domestic 100% owned subsidiaries (which are referred to as the Guarantor Subsidiaries) fully and unconditionally guarantee our senior notes due in 2024 and 2026 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, our investments are recorded at cost and adjusted for our 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 our condensed consolidated financial statements and related notes of which this note is an integral part.
The accompanying supplemental guarantor condensed consolidating financial statements have been updated to reflect the revision as described in Note 14.
Distributions
There are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions to us.

32
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

STATEMENT OF COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended September 30, 2017
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
Revenues
 
 
 
 
 
 
 
 
 
Net sales and operating revenues —
 
 
 
 
 
 
 
 
 
External
$
917

 
$
1,357

 
$
—

 
$
—

 
$
2,274

Affiliated companies
128

 
143

 
—

 
(271
)
 
—

 
1,045

 
1,500

 
—

 
(271
)
 
2,274

Costs and expenses
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
889

 
1,295

 
—

 
(271
)
 
1,913

Engineering, research, and development
17

 
23

 
—

 
—

 
40

Selling, general, and administrative
51

 
77

 
—

 
—

 
128

Depreciation and amortization of other intangibles
23

 
35

 
—

 
—

 
58

 
980

 
1,430

 
—

 
(271
)
 
2,139

Other income (expense)
 
 
 
 
 
 
 
 
 
Loss on sale of receivables
(1
)
 
(1
)
 
—

 
—

 
(2
)
Other income (expense)
(9
)
 
10

 
—

 
—

 
1

 
(10
)
 
9

 
—

 
—

 
(1
)
Earnings (loss) before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
55

 
79

 
—

 
—

 
134

Interest expense —
 
 
 
 
 
 
 
 
 
External (net of interest capitalized)
7

 
2

 
10

 
—

 
19

Affiliated companies (net of interest income)
(5
)
 
3

 
2

 
—

 
—

Earnings (loss) before income taxes, noncontrolling interests, and equity in net income from affiliated companies
53

 
74

 
(12
)
 
—

 
115

Income tax (benefit) expense
(5
)
 
21

 
—

 
—

 
16

Equity in net income (loss) from affiliated companies
31

 
—

 
95

 
(126
)
 
—

Net income (loss)
89

 
53

 
83

 
(126
)
 
99

Less: Net income attributable to noncontrolling interests
—

 
16

 
—

 
—

 
16

Net income (loss) attributable to Tenneco Inc.
$
89

 
$
37

 
$
83

 
$
(126
)
 
$
83

Comprehensive income (loss) attributable to Tenneco Inc.
$
89

 
$
31

 
$
114

 
$
(120
)
 
$
114



33
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

STATEMENT OF COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended September 30, 2016
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
Revenues
 
 
 
 
 
 
 
 
 
Net sales and operating revenues —
 
 
 
 
 
 
 
 
 
External
$
928

 
$
1,168

 
$
—

 
$
—

 
$
2,096

Affiliated companies
134

 
183

 
—

 
(317
)
 
—

 
1,062

 
1,351

 
—

 
(317
)
 
2,096

Costs and expenses
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
904

 
1,156

 
—

 
(317
)
 
1,743

Engineering, research, and development
20

 
21

 
—

 
—

 
41

Selling, general, and administrative
48

 
61

 
—

 
—

 
109

Depreciation and amortization of other intangibles
23

 
30

 
—

 
—

 
53

 
995

 
1,268

 
—

 
(317
)
 
1,946

Other income (expense)
 
 
 
 
 
 
 
 
 
Loss on sale of receivables
(1
)
 
(1
)
 
—

 
—

 
(2
)
Other income (expense)
(7
)
 
9

 
—

 
—

 
2

 
(8
)
 
8

 
—

 
—

 
—

Earnings (loss) before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
59

 
91

 
—

 
—

 
150

Interest expense —
 
 
 
 
 
 
 
 
 
External (net of interest capitalized)
(1
)
 
1

 
24

 
—

 
24

Affiliated companies (net of interest income)
(3
)
 
2

 
1

 
—

 
—

Earnings (loss) before income taxes, noncontrolling interests, and equity in net income from affiliated companies
63

 
88

 
(25
)
 
—

 
126

Income tax expense
(108
)
 
38

 
—

 
—

 
(70
)
Equity in net income (loss) from affiliated companies
33

 
—

 
204

 
(237
)
 
—

Net income (loss)
204

 
50

 
179

 
(237
)
 
196

Less: Net income attributable to noncontrolling interests
—

 
17

 
—

 
—

 
17

Net income (loss) attributable to Tenneco Inc.
$
204

 
$
33

 
$
179

 
$
(237
)
 
$
179

Comprehensive income (loss) attributable to Tenneco Inc.
$
204

 
$
33

 
$
184

 
$
(237
)
 
$
184


34
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)


STATEMENT OF COMPREHENSIVE INCOME (LOSS)
 
Nine Months Ended September 30, 2017
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
Revenues
 
 
 
 
 
 
 
 
 
Net sales and operating revenues —
 
 
 
 
 
 
 
 
 
External
$
2,958

 
$
3,925

 
$
—

 
$
—

 
$
6,883

Affiliated companies
413

 
497

 
—

 
(910
)
 
—

 
3,371

 
4,422

 
—

 
(910
)
 
6,883

Costs and expenses
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
2,871

 
3,829

 
—

 
(910
)
 
5,790

Engineering, research, and development
56

 
59

 
—

 
—

 
115

Selling, general, and administrative
310

 
219

 
—

 
—

 
529

Depreciation and amortization of other intangibles
65

 
100

 
—

 
—

 
165

 
3,302

 
4,207

 
—

 
(910
)
 
6,599

Other income (expense)
 
 
 
 
 
 
 
 
 
Loss on sale of receivables
(2
)
 
(2
)
 
—

 
—

 
(4
)
Other income (expense)
(9
)
 
26

 
—

 
(15
)
 
2

 
(11
)
 
24

 
—

 
(15
)
 
(2
)
Earnings (loss) before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
58

 
239

 
—

 
(15
)
 
282

Interest expense —
 
 
 
 
 
 
 
 
 
External (net of interest capitalized)
10

 
4

 
40

 
—

 
54

Affiliated companies (net of interest income)
(12
)
 
6

 
6

 
—

 
—

Earnings (loss) before income taxes, noncontrolling interests, and equity in net income from affiliated companies
60

 
229

 
(46
)
 
(15
)
 
228

Income tax expense
6

 
35

 
—

 
—

 
41

Equity in net income (loss) from affiliated companies
119

 
—

 
185

 
(304
)
 
—

Net income (loss)
173

 
194

 
139

 
(319
)
 
187

Less: Net income attributable to noncontrolling interests
—

 
48

 
—

 
—

 
48

Net income attributable to Tenneco Inc.
$
173

 
$
146

 
$
139

 
$
(319
)
 
$
139

Comprehensive income (loss) attributable to Tenneco Inc.
$
173

 
$
140

 
$
234

 
$
(313
)
 
$
234


35
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)


STATEMENT OF COMPREHENSIVE INCOME (LOSS)
 
Nine Months Ended September 30, 2016
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
Revenues
 
 
 
 
 
 
 
 
 
Net sales and operating revenues —
 
 
 
 
 
 
 
 
 
External
$
2,929

 
$
3,515

 
$
—

 
$
—

 
$
6,444

Affiliated companies
389

 
569

 
—

 
(958
)
 
—

 
3,318

 
4,084

 
—

 
(958
)
 
6,444

Costs and expenses
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
2,800

 
3,487

 
—

 
(958
)
 
5,329

Engineering, research, and development
59

 
58

 
—

 
—

 
117

Selling, general, and administrative
174

 
215

 
1

 
—

 
390

Depreciation and amortization of other intangibles
65

 
94

 
—

 
—

 
159

 
3,098

 
3,854

 
1

 
(958
)
 
5,995

Other income (expense)
 
 
 
 
 
 
 
 
 
Loss on sale of receivables
(2
)
 
(2
)
 
—

 
—

 
(4
)
Other income (expense)
(6
)
 
21

 
—

 
(15
)
 
—

 
(8
)
 
19

 
—

 
(15
)
 
(4
)
Earnings (loss) before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
212

 
249

 
(1
)
 
(15
)
 
445

Interest expense —
 
 
 
 
 
 
 
 
 
External (net of interest capitalized)
(1
)
 
3

 
74

 
—

 
76

Affiliated companies (net of interest income)
(9
)
 
6

 
3

 
—

 
—

Earnings (loss) before income taxes, noncontrolling interests, and equity in net income from affiliated companies
222

 
240

 
(78
)
 
(15
)
 
369

Income tax expense
(71
)
 
74

 
—

 
—

 
3

Equity in net income (loss) from affiliated companies
118

 
—

 
396

 
(514
)
 
—

Net income (loss)
411

 
166

 
318

 
(529
)
 
366

Less: Net income attributable to noncontrolling interests
—

 
48

 
—

 
—

 
48

Net income (loss) attributable to Tenneco Inc.
$
411

 
$
118

 
$
318

 
$
(529
)
 
$
318

Comprehensive income (loss) attributable to Tenneco Inc.
$
411

 
$
118

 
$
333

 
$
(529
)
 
$
333



36
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

BALANCE SHEET
 
September 30, 2017
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
4

 
$
273

 
$
—

 
$
—

 
$
277

Restricted cash
—

 
2

 
—

 
—

 
2

Receivables, net
619

 
1,578

 
—

 
(722
)
 
1,475

Inventories
394

 
488

 
—

 
—

 
882

Prepayments and other
104

 
221

 
—

 
—

 
325

Total current assets
1,121

 
2,562

 
—

 
(722
)
 
2,961

Other assets:
 
 
 
 
 
 
 
 
 
Investment in affiliated companies
1,256

 
—

 
1,517

 
(2,773
)
 
—

Notes and advances receivable from affiliates
968

 
18,572

 
4,010

 
(23,550
)
 
—

Long-term receivables, net
8

 
1

 
—

 
—

 
9

Goodwill
22

 
37

 
—

 
—

 
59

Intangibles, net
6

 
11

 
—

 
—

 
17

Deferred income taxes
101

 
36

 
88

 
—

 
225

Other
62

 
61

 
—

 
—

 
123

 
2,423

 
18,718

 
5,615

 
(26,323
)
 
433

Plant, property, and equipment, at cost
1,463

 
2,504

 
—

 
—

 
3,967

Less — Accumulated depreciation and amortization
(937
)
 
(1,489
)
 
—

 
—

 
(2,426
)
 
526

 
1,015

 
—

 
—

 
1,541

Total assets
$
4,070

 
$
22,295

 
$
5,615

 
$
(27,045
)
 
$
4,935

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term debt (including current maturities of long-term debt)
 
 
 
 
 
 
 
 
 
Short-term debt — non-affiliated
$
—

 
$
93

 
$
15

 
$
—

 
$
108

Short-term debt — affiliated
398

 
151

 
—

 
(549
)
 
—

Accounts payable
594

 
1,098

 
—

 
(91
)
 
1,601

Accrued taxes
45

 
1

 
—

 
—

 
46

Other
224

 
326

 
9

 
(82
)
 
477

Total current liabilities
1,261

 
1,669

 
24

 
(722
)
 
2,232

Long-term debt — non-affiliated
846

 
13

 
714

 
—

 
1,573

Long-term debt — affiliated
706

 
18,614

 
4,230

 
(23,550
)
 
—

Deferred income taxes
—

 
6

 
—

 
—

 
6

Postretirement benefits and other liabilities
275

 
131

 
—

 
—

 
406

Commitments and contingencies

 

 

 

 


Total liabilities
3,088

 
20,433

 
4,968

 
(24,272
)
 
4,217

Redeemable noncontrolling interests
—

 
32

 
—

 
—

 
32

Tenneco Inc. shareholders’ equity
982

 
1,791

 
647

 
(2,773
)
 
647

Noncontrolling interests
—

 
39

 
—

 
—

 
39

Total equity
982

 
1,830

 
647

 
(2,773
)
 
686

Total liabilities, redeemable noncontrolling interests and equity
$
4,070

 
$
22,295

 
$
5,615

 
$
(27,045
)
 
$
4,935


37
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

BALANCE SHEET
 
December 31, 2016
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9

 
$
338

 
$
—

 
$
—

 
$
347

Restricted cash
—

 
2

 
—

 
—

 
2

Receivables, net
386

 
1,412

 
—

 
(504
)
 
1,294

Inventories
361

 
369

 
—

 
—

 
730

Prepayments and other
62

 
167

 
—

 
—

 
229

Total current assets
818

 
2,288

 
—

 
(504
)
 
2,602

Other assets:
 
 
 
 
 
 
 
 
 
Investment in affiliated companies
1,213

 
—

 
1,207

 
(2,420
)
 
—

Notes and advances receivable from affiliates
939

 
16,529

 
4,781

 
(22,249
)
 
—

Long-term receivables, net
9

 
—

 
—

 
—

 
9

Goodwill
22

 
35

 
—

 
—

 
57

Intangibles, net
7

 
12

 
—

 
—

 
19

Deferred income taxes
47

 
23

 
129

 
—

 
199

Other
46

 
49

 
8

 
—

 
103

 
2,283

 
16,648

 
6,125

 
(24,669
)
 
387

Plant, property, and equipment, at cost
1,371

 
2,177

 
—

 
—

 
3,548

Less — Accumulated depreciation and amortization
(895
)
 
(1,296
)
 
—

 
—

 
(2,191
)
 
476

 
881

 
—

 
—

 
1,357

Total assets
$
3,577

 
$
19,817

 
$
6,125

 
$
(25,173
)
 
$
4,346

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term debt (including current maturities of long-term debt)
 
 
 
 
 
 
 
 
 
Short-term debt — non-affiliated
$
—

 
$
75

 
$
15

 
$
—

 
$
90

Short-term debt — affiliated
167

 
187

 
—

 
(354
)
 
—

Accounts payable
562

 
1,027

 
—

 
(88
)
 
1,501

Accrued taxes
4

 
35

 
—

 
—

 
39

Other
147

 
243

 
15

 
(62
)
 
343

Total current liabilities
880

 
1,567

 
30

 
(504
)
 
1,973

Long-term debt — non-affiliated
—

 
12

 
1,282

 
—

 
1,294

Long-term debt — affiliated
1,543

 
16,466

 
4,240

 
(22,249
)
 
—

Deferred income taxes
—

 
7

 
—

 
—

 
7

Postretirement benefits and other liabilities
297

 
115

 
—

 
—

 
412

Commitments and contingencies

 

 

 

 

Total liabilities
2,720

 
18,167

 
5,552

 
(22,753
)
 
3,686

Redeemable noncontrolling interests
—

 
40

 
—

 
—

 
40

Tenneco Inc. shareholders’ equity
857

 
1,563

 
573

 
(2,420
)
 
573

Noncontrolling interests
—

 
47

 
—

 
—

 
47

Total equity
857

 
1,610

 
573

 
(2,420
)
 
620

Total liabilities, redeemable noncontrolling interests and equity
$
3,577

 
$
19,817

 
$
6,125

 
$
(25,173
)
 
$
4,346


38
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

STATEMENT OF CASH FLOWS
 
Three Months Ended September 30, 2017
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
Operating Activities
 
 
 
 
 
 
 
 
 
Net cash provided (used) by operating activities
$
39

 
$
26

 
$
(8
)
 
$
(4
)
 
$
53

Investing Activities
 
 
 
 
 
 
 
 
 
Cash payments for plant, property, and equipment
(29
)
 
(61
)
 
—

 
—

 
(90
)
Cash payments for software related intangible assets
(4
)
 
(1
)
 
—

 
—

 
(5
)
Other
(1
)
 
—

 
—

 
—

 
(1
)
Net cash used by investing activities
(34
)
 
(62
)
 
—

 
—

 
(96
)
Financing Activities
 
 
 
 
 
 
 
 
 
Issuance of common shares
—

 
—

 
1

 
—

 
1

Cash dividends
—

 
—

 
(14
)
 
—

 
(14
)
Retirement of long-term debt - net
—

 
(1
)
 
—

 
—

 
(1
)
Purchase of common stock under the share repurchase program
—

 
—

 
(71
)
 
—

 
(71
)
Net increase in bank overdrafts
—

 
(3
)
 
—

 
—

 
(3
)
Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt
82

 
2

 
—

 
—

 
84

Intercompany dividend payments and net increase (decrease) in intercompany obligations
(87
)
 
(9
)
 
92

 
4

 
—

Distributions to noncontrolling interest partners
—

 
(12
)
 
—

 
—

 
(12
)
Net cash provided (used) by financing activities
(5
)
 
(23
)
 
8

 
4

 
(16
)
Effect of foreign exchange rate changes on cash and cash equivalents
—

 
3

 
—

 
—

 
3

Decrease in cash and cash equivalents
—

 
(56
)
 
—

 
—

 
(56
)
Cash and cash equivalents, July 1
4

 
329

 
—

 
—

 
333

Cash and cash equivalents, September 30 (Note)
$
4

 
$
273

 
$
—

 
$
—

 
$
277

 
Note:
Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase.

39
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

STATEMENT OF CASH FLOWS
 
Three Months Ended September 30, 2016
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
Operating Activities
 
 
 
 
 
 
 
 
 
Net cash provided (used) by operating activities
$
170

 
$
(17
)
 
$
(19
)
 
$
(4
)
 
$
130

Investing Activities
 
 
 
 
 
 
 
 
 
Proceeds from sale of assets
1

 
—

 
—

 
—

 
1

Cash payments for plant, property, and equipment
(29
)
 
(45
)
 
—

 
—

 
(74
)
Cash payments for software related intangible assets
(6
)
 
—

 
—

 
—

 
(6
)
Changes in restricted cash
—

 
1

 
—

 
—

 
1

Net cash used by investing activities
(34
)
 
(44
)
 
—

 
—

 
(78
)
Financing Activities
 
 
 
 
 
 
 
 
 
Issuance of common shares
—

 
—

 
5

 
—

 
5

Retirement of long-term debt - net
—

 
—

 
(179
)
 
—

 
(179
)
Issuance of long-term debt - net
—

 
2

 
—

 
—

 
2

Purchase of common stock under the share repurchase program
—

 
—

 
(89
)
 
—

 
(89
)
Net decrease in bank overdrafts
—

 
(1
)
 
—

 
—

 
(1
)
Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt and short-term borrowings secured by accounts receivables
—

 
46

 
152

 
—

 
198

Net decrease in short-term borrowings secured by accounts receivable
—

 
—

 
50

 
—

 
50

Intercompany dividend payments and net increase (decrease) in intercompany obligations
(137
)
 
54

 
79

 
4

 
—

Distributions to noncontrolling interest partners
—

 
(28
)
 
—

 
—

 
(28
)
Net cash provided (used) by financing activities
(137
)
 
73

 
18

 
4

 
(42
)
Effect of foreign exchange rate changes on cash and cash equivalents
(1
)
 
3

 
1

 
—

 
3

Increase (decrease) in cash and cash equivalents
(2
)
 
15

 
—

 
—

 
13

Cash and cash equivalents, July 1
2

 
309

 
—

 
—

 
311

Cash and cash equivalents, September 30 (Note)
$
—

 
$
324

 
$
—

 
$
—

 
$
324

 
Note:
Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase.


40
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

STATEMENT OF CASH FLOWS
 
Nine Months Ended September 30, 2017
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass
&
Elims
 
Consolidated
 
(Millions)
Operating Activities
 
 
 
 
 
 
 
 
 
Net cash provided (used) by operating activities
$
102

 
$
101

 
$
(29
)
 
$
(11
)
 
$
163

Investing Activities
 
 
 
 
 
 
 
 
 
Proceeds from sale of equity interest
—

 
9

 
—

 
—

 
9

Proceeds from sale of assets
3

 
3

 
—

 
—

 
6

Cash payments for plant, property, and equipment
(110
)
 
(173
)
 
—

 
—

 
(283
)
Cash payments for software related intangible assets
(10
)
 
(7
)
 
—

 
—

 
(17
)
Other
(5
)
 
—

 
—

 
—

 
(5
)
Net cash used by investing activities
(122
)
 
(168
)
 
—

 
—

 
(290
)
Financing Activities
 
 
 
 
 
 
 
 
 
Repurchase of common shares
—

 
—

 
(2
)
 
—

 
(2
)
Cash dividends
—

 
—

 
(40
)
 
—

 
(40
)
Retirement of long-term debt - net
—

 
(3
)
 
(6
)
 
—

 
(9
)
Issuance of long-term debt - net
400

 
—

 
(264
)
 
—

 
136

Debt issuance cost of long-term debt
(8
)
 
—

 
—

 
—

 
(8
)
Purchase of common stock under the share repurchase program
—

 
—

 
(131
)
 
—

 
(131
)
Net decrease in bank overdrafts
—

 
(12
)
 
—

 
—

 
(12
)
Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt and short-term borrowings secured by accounts receivables
451

 
16

 
(323
)
 
—

 
144

Net increase in short-term borrowings secured by accounts receivables
—

 
—

 
20

 
—

 
20

Intercompany dividend payments and net increase (decrease) in intercompany obligations
(828
)
 
42

 
775

 
11

 
—

Distributions to noncontrolling interest partners
—

 
(45
)
 
—

 
—

 
(45
)
Net cash provided by financing activities
15

 
(2
)
 
29

 
11

 
53

Effect of foreign exchange rate changes on cash and cash equivalents
—

 
4

 
—

 
—

 
4

Decrease in cash and cash equivalents
(5
)
 
(65
)
 
—

 
—

 
(70
)
Cash and cash equivalents, January 1
9

 
338

 
—

 
—

 
347

Cash and cash equivalents, June 30 (Note)
$
4

 
$
273

 
$
—

 
$
—

 
$
277


Note:
Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase.

41
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

STATEMENT OF CASH FLOWS
 
Nine Months Ended September 30, 2016
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass
&
Elims
 
Consolidated
 
(Millions)
Operating Activities
 
 
 
 
 
 
 
 
 
Net cash provided (used) by operating activities
$
113

 
$
187

 
$
(52
)
 
$
(15
)
 
$
233

Investing Activities
 
 
 
 
 
 
 
 
 
Proceeds from sale of assets
1

 
3

 
—

 
—

 
4

Cash payments for plant, property, and equipment
(72
)
 
(141
)
 
—

 
—

 
(213
)
Cash payments for software related intangible assets
(10
)
 
(5
)
 
—

 
—

 
(15
)
Changes in restricted cash
—

 
(1
)
 
—

 
—

 
(1
)
Net cash used by investing activities
(81
)
 
(144
)
 
—

 
—

 
(225
)
Financing Activities
 
 
 
 
 
 
 
 
 
Issuance of common shares
—

 
—

 
7

 
—

 
7

Retirement of long-term debt - net
—

 
(16
)
 
(511
)
 
—

 
(527
)
Issuance of long-term debt - net
—

 
8

 
500

 
—

 
508

Debt issuance cost of long-term debt
—

 
—

 
(8
)
 
—

 
(8
)
Purchase of common stock under the share repurchase program
—

 
—

 
(146
)
 
—

 
(146
)
Net decrease in bank overdrafts
—

 
4

 
—

 
—

 
4

Net increase in revolver borrowings and short-term debt excluding current maturities of long-term debt and short-term borrowings secured by accounts receivables
—

 
36

 
187

 
—

 
223

Net increase in short-term borrowings secured by accounts receivables
—

 
—

 
20

 
—

 
20

Intercompany dividend payments and net increase (decrease) in intercompany obligations
(34
)
 
16

 
3

 
15

 
—

Distributions to noncontrolling interest partners
—

 
(55
)
 
—

 
—

 
(55
)
Net cash provided (used) by financing activities
(34
)
 
(7
)
 
52

 
15

 
26

Effect of foreign exchange rate changes on cash and cash equivalents
—

 
3

 
—

 
—

 
3

Increase (decrease) in cash and cash equivalents
(2
)
 
39

 
—

 
—

 
37

Cash and cash equivalents, January 1
2

 
285

 
—

 
—

 
287

Cash and cash equivalents, June 30 (Note)
$
—

 
$
324

 
$
—

 
$
—

 
$
324


Note:
Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase.

42
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

(14)
Revision of Previously Issued Financial Statements
For the periods from April 1, 2013 through March 31, 2017, we identified in the second quarter of 2017 that approximately $34 million in lump sum payments from our suppliers were incorrectly recorded upon receipt as a reduction to cost of sales. These payments should have been deferred and amortized over the life of the underlying supplier agreements. The deferred credit balance related to these payments was $25 million at September 30, 2017.
In addition, we identified in the second quarter of 2017 that approximately $7 million in cost of sales should have been accrued in prior periods for substrate liabilities, impacting the periods from January 1, 2016 through March 31, 2017.
We evaluated the impact of these items on prior periods under the guidance of SEC Staff Accounting Bulletin (SAB) No. 99, “Materiality” and determined that the amounts were not material to previously issued financial statements.
We also evaluated the impact of correcting these items through a cumulative adjustment to our financial statements and concluded that based on the guidance within SEC SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” it was appropriate to revise our previously issued financial statements to reflect this correction. As a result, we have revised and will revise for annual and interim periods in future filings, for certain amounts in the consolidated financial statements and related notes in order to correct these errors, which are described further below.
The following tables present the impact of this revision on our condensed consolidated statements of income, comprehensive income and cash flows for the three months and nine months ended September 30, 2016, and changes in shareholders' equity for the nine months ended September 30, 2016.
 
 
Three Months Ended September 30, 2016
 
 
As Previously Reported
 
Adjustment
 
As Revised
 
 
(Millions Except Per Share Amounts)
Condensed Consolidated Income Statement
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization)
 
$
1,741

 
$
2

 
$
1,743

Earnings before interest expense, income taxes, and noncontrolling interests
 
152

 
(2
)
 
150

Earnings before income taxes and noncontrolling interests
 
128

 
(2
)
 
126

Income tax expense (benefit)
 
(69
)
 
(1
)
 
(70
)
Net income
 
197

 
(1
)
 
196

Net income attributable to Tenneco Inc.
 
$
180

 
$
(1
)
 
$
179

Earnings per share
 
 
 
 
 
 
Basic earnings per share of common stock
 
$
3.24

 
$
(0.02
)
 
$
3.22

Diluted earnings per share of common stock
 
$
3.21

 
$
(0.02
)
 
$
3.19


 
 
Nine Months Ended September 30, 2016
 
 
As Previously Reported
 
Adjustment
 
As Revised
 
 
(Millions Except Per Share Amounts)
Condensed Consolidated Income Statement
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization)
 
$
5,321

 
$
8

 
$
5,329

Earnings before interest expense, income taxes, and noncontrolling interests
 
453

 
(8
)
 
445

Earnings before income taxes and noncontrolling interests
 
377

 
(8
)
 
369

Income tax expense (benefit)
 
5

 
(2
)
 
3

Net income
 
372

 
(6
)
 
366

Less: Net income attributable to noncontrolling interests
 
49

 
(1
)
 
48

Net income attributable to Tenneco Inc.
 
$
323

 
$
(5
)
 
$
318

Earnings per share
 
 
 
 
 
 
Basic earnings per share of common stock
 
$
5.72

 
$
(0.09
)
 
$
5.63

Diluted earnings per share of common stock
 
$
5.67

 
$
(0.09
)
 
$
5.58


43
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 
As Previously Reported
 
Adjustment
 
As Revised
 
 
(Millions)
Condensed Consolidated Statement of Comprehensive Income
 
 
 
 
 
 
Tenneco Inc.
 
 
 
 
 
 
  Net Income
 
$
180

 
$
(1
)
 
$
179

  Other Comprehensive Income
 
5

 
—

 
5

  Comprehensive Income
 
$
185

 
$
(1
)
 
$
184

 
 
 
 
 
 
 
Noncontrolling Interests
 
 
 
 
 
 
  Net Income
 
$
17

 
$
—

 
$
17

  Other Comprehensive Income
 
—

 
—

 
—

  Comprehensive Income
 
$
17

 
$
—

 
$
17

 
 
 
 
 
 
 
Total
 
 
 
 
 
 
  Net Income
 
$
197

 
$
(1
)
 
$
196

  Other Comprehensive Income
 
5

 
—

 
5

  Comprehensive Income
 
$
202

 
$
(1
)
 
$
201


 
 
Nine Months Ended September 30, 2016
 
 
As Previously Reported
 
Adjustment
 
As Revised
 
 
(Millions)
Condensed Consolidated Statement of Comprehensive Income
 
 
 
 
 
 
Tenneco Inc.
 
 
 
 
 
 
  Net Income
 
$
323

 
$
(5
)
 
$
318

  Other Comprehensive Income
 
15

 
—

 
15

  Comprehensive Income
 
$
338

 
$
(5
)
 
$
333

 
 
 
 
 
 
 
Noncontrolling Interests
 
 
 
 
 
 
  Net Income
 
$
49

 
$
(1
)
 
$
48

  Other Comprehensive Loss
 
(1
)
 
—

 
(1
)
  Comprehensive Income
 
$
48

 
$
(1
)
 
$
47

 
 
 
 
 
 
 
Total
 
 
 
 
 
 
  Net Income
 
$
372

 
$
(6
)
 
$
366

  Other Comprehensive Income
 
14

 
—

 
14

  Comprehensive Income
 
$
386

 
$
(6
)
 
$
380


44
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
(Unaudited)


 
 
Three Months Ended September 30, 2016
 
 
As Previously Reported
 
Adjustment
 
As Revised
 
 
(Millions)
Condensed Consolidated Statement of Cash Flow *
 
 
 
 
 
 
Net income
 
$
197

 
$
(1
)
 
$
196

   Increase (decrease) in payables
 
(7
)
 
2

 
(5
)
   Increase (decrease) in accrued taxes
 
1

 
(1
)
 
—


 
 
Nine Months Ended September 30, 2016
 
 
As Previously Reported
 
Adjustment
 
As Revised
 
 
(Millions)
Condensed Consolidated Statement of Cash Flow *
 
 
 
 
 
 
Net income
 
$
372

 
$
(6
)
 
$
366

Deferred income taxes
 
(73
)
 
(1
)
 
(74
)
Increase (decrease) in payables
 
55

 
4

 
59

Increase (decrease) in accrued taxes
 
10

 
(1
)
 
9

Changes in long-term liabilities
 
9

 
4

 
13


* No change to net cash provided by operating activities. 

 
 
Nine Months Ended September 30, 2016
 
 
As Previously Reported
 
Adjustment
 
As Revised
 
 
(Millions)
Condensed Consolidated Statements of Changes in Shareholders' Equity
 
 
 
 
 
 
Retained earnings (accumulated deficit)
 
 
 
 
 
 
Balance January 1
 
$
(1,448
)
 
$
(8
)
 
$
(1,456
)
  Net income attributable to Tenneco Inc.
 
323

 
(5
)
 
318

Balance September 30
 
$
(1,125
)
 
$
(13
)
 
$
(1,138
)
 
 
 
 
 
 
 
Total Tenneco Inc. shareholders' equity
 
$
635

 
$
(13
)
 
$
622

 
 
 
 
 
 
 
Noncontrolling interests:
 
 
 
 
 
 
Balance January 1
 
$
42

 
$
(3
)
 
$
39

  Net income
 
21

 
(1
)
 
20

  Other comprehensive loss
 
(1
)
 
1

 
—

  Dividends declared
 
(22
)
 
$
—

 
(22
)
Balance September 30
 
$
40

 
$
(3
)
 
$
37

 
 
 
 
 
 
 
Total Equity
 
$
675

 
$
(16
)
 
$
659



45

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As you read the following review of our financial condition and results of operations, you should also read our condensed consolidated financial statements and related notes beginning on page 6.
Executive Summary
We are one of the world's leading manufacturers of clean air and ride performance products and systems for light vehicle, commercial truck and off-highway applications. We serve both original equipment (OE) vehicle designers and manufacturers and the repair and replacement markets, or aftermarket, globally through leading brands, including Monroe®, Rancho®, Clevite® Elastomers, Axios™, Kinetic® and Fric-Rot™ ride performance products and Walker®, XNOx®, Fonos™, DynoMax® and Thrush® clean air products. We serve more than 80 different original equipment manufacturers and commercial truck and off-highway engine manufacturers, and our products are included on nine of the top 10 car models produced for sale in Europe and eight of the top 10 light truck models produced for sale in North America for 2016. Our aftermarket customers are comprised of full-line and specialty warehouse distributors, retailers, jobbers, installer chains and car dealers. As of December 31, 2016, we operated 91 manufacturing facilities worldwide and employed approximately 31,000 people to service our customers' demands.
Factors that continue to be critical to our success include winning new business awards, managing our overall global manufacturing footprint to ensure proper placement and workforce levels in line with business needs, maintaining competitive wages and benefits, maximizing efficiencies in manufacturing processes and reducing overall costs. In addition, our ability to adapt to key industry trends, such as a shift in consumer preferences to other vehicles in response to higher fuel costs and other economic and social factors, increasing technologically sophisticated content, changing aftermarket distribution channels, increasing environmental standards and extended product life of automotive parts, also play a critical role in our success. Other factors that are critical to our success include adjusting to economic challenges such as increases in the cost of raw materials and our ability to successfully reduce the impact of any such cost increases through material substitutions, cost reduction initiatives and other methods.
For the third quarter of 2017, light vehicle production was up five percent in Europe, 26 percent in South America, three percent in India and one percent in China compared to the third quarter of 2016. Light vehicle production was down 10 percent in North America and 24 percent in Australia when compared to the third quarter of 2016.
As announced on February 7, 2017, we made an organizational change in our reportable segments effective with the first quarter of 2017. Our Clean Air and Ride Performance product lines in India, which had been reported as part of the Europe, South America and India segments, are now reported with their respective product lines in the Asia Pacific segments. Prior period segment information has been revised to reflect our new reporting segments. Also financial statements for 2016 and first quarter 2017 have been revised for certain immaterial supplier cost reduction payments that Tenneco determined should have been recognized in future periods and for cost of sales expense that should have been accrued in prior periods for substrate liabilities. See Note 14 in our notes to condensed consolidated financial statements located in Part I Item 1 of this Form 10-Q. Additionally, all amounts in MD&A have been revised.
Total revenues for the third quarter of 2017 were $2,274 million, up eight percent from $2,096 million in the third quarter of 2016 on strong global light vehicle and commercial truck, off-highway and other vehicle revenues, driven by both the Clean Air and Ride Performance product lines. Excluding the impact of currency and substrate sales, revenue was up $99 million, or six percent, from $1,612 million to $1,711 million. The increase in revenues was driven primarily by stronger OE light vehicle volumes in Europe, South America and Asia Pacific and higher commercial truck, off-highway and other vehicle revenues in all regions, new platforms in North America and Europe, and higher aftermarket revenues in South America Ride Performance, partially offset by lower aftermarket revenues in North America and Europe.
Cost of sales (exclusive of depreciation and amortization): Cost of sales for the third quarter of 2017 was $1,913 million, or 84.1 percent of sales, compared to $1,743 million, or 83.2 percent of sales in the third quarter of 2016. The following table lists the primary drivers behind the change in cost of sales ($ millions).
Quarter ended September 30, 2016
$
1,743

Volume and mix
125

Material
2

Currency exchange rates
39

Restructuring
6

Other costs
(2
)
Quarter ended September 30, 2017
$
1,913



46

The increase in cost of sales was due to the year-over-year increase in volume, higher net material costs, higher restructuring costs and the impact of currency exchange rates, partially offset by lower other costs, mainly manufacturing.
Gross margin: Revenue less cost of sales for the third quarter of 2017 was $361 million, or 15.9 percent, versus $353 million, or 16.8 percent, in the third quarter of 2016. The effect on gross margin resulting from year-over-year increase in volume, lower other costs, mainly manufacturing, and favorable currency impact was partially offset by higher net material costs and restructuring costs.
Engineering, research and development: Engineering, research and development expense was $40 million and $41 million in the third quarters of 2017 and 2016, respectively.
Selling, general and administrative (SG&A): SG&A expense was up $19 million in the third quarter of 2017, at $128 million compared to $109 million in the third quarter of 2016, primarily driven by investments in growth initiatives in global Ride Performance and Clean Air Asia Pacific and a $7 million increase in restructuring and related expenses.
Depreciation and amortization: Depreciation and amortization expense was $58 million in the third quarter of 2017, compared to $53 million in the third of quarter of 2016.
Earnings before interest expense, taxes and noncontrolling interests (“EBIT”) was $134 million for the third quarter of 2017, a decrease of $16 million when compared to $150 million in the third quarter of the prior year. Higher OE light vehicle volumes in Europe, South America and Asia Pacific, increased commercial truck, off-highway and other vehicle revenues in all regions, new platforms in North America and Europe, higher aftermarket revenues in South America Ride Performance, operational improvements and $4 million of favorable currency were more than offset by lower aftermarket revenues in North America and Europe, higher restructuring and related costs, the timing of steel economics recoveries and continued investments in growth for new programs.
Total revenues for the first nine months of 2017 were $6,883 million, up seven percent from $6,444 million in the first nine months of 2016 on strong global light vehicle and commercial truck, off-highway and other vehicle revenues, driven by both the Clean Air and Ride Performance product lines. Excluding the impact of currency and substrate sales, revenue was up $339 million, or seven percent, from $4,931 million to $5,270 million. The increase in revenues was driven primarily by stronger OE light vehicle volumes and higher commercial truck, off-highway and other vehicle revenues in all regions as well as new platforms in North America and Europe. Higher aftermarket Ride Performance revenues in South America and Asia Pacific were more than offset by lower aftermarket revenues in North America Ride Performance.
Cost of sales (exclusive of depreciation and amortization): Cost of sales for the first nine months of 2017 was $5,790 million, or 84.1 percent of sales, compared to $5,329 million, or 82.7 percent of sales in the first nine months of 2016. The following table lists the primary drivers behind the change in cost of sales ($ millions).
Nine months ended September 30, 2016
$
5,329

Volume and mix
414

Material
26

Currency exchange rates
(1
)
Restructuring
18

Other Costs
4

Nine months ended September 30, 2017
$
5,790


The increase in cost of sales was due to the year-over-year increase in volume, higher net material costs, higher other costs, mainly manufacturing, and higher restructuring costs, partially offset by the impact of currency exchange rates.
Gross margin: Revenue less cost of sales for the first nine months of 2017 was $1,093 million, or 15.9 percent, versus $1,115 million, or 17.3 percent, in the first nine months of 2016. The effect on gross margin resulting from year-over-year increase in volume was more than offset by higher net material costs, higher other costs, mainly manufacturing, higher restructuring costs and unfavorable currency impact.
Engineering, research and development: Engineering, research and development expense was $115 million and $117 million in the first nine months of 2017 and 2016, respectively.
Selling, general and administrative (SG&A): SG&A expense was up $139 million in the first nine months of 2017 at $529 million compared to $390 million in the first nine months of 2016 mainly due to the $132 million antitrust settlement accrual recorded in the second quarter of 2017.
Depreciation and amortization: Depreciation and amortization expense was $165 million and $159 million in the first nine months of 2017 and 2016, respectively.

47

EBIT was $282 million for the first nine months of 2017, a decrease of $163 million when compared to $445 million in the first nine months of the prior year. Higher OE light vehicle and commercial truck, off-highway and other vehicle revenues in all regions, higher aftermarket Ride Performance revenues mainly in South America and Asia Pacific, as well as new platforms in North America and Europe, were more than offset by lower aftermarket revenues in North America Ride Performance and Europe Clean Air, higher manufacturing costs, higher restructuring and related costs, antitrust settlement accrual of $132 million, a warranty settlement with a customer, the timing of steel economics recoveries, continued investments in growth for new programs and $8 million of negative currency.
Results from Operations
The tables below reflect our revenues for the three months and nine months periods ended September 30, 2017 and 2016. We show the component of our OE revenue represented by substrate sales. While we generally have primary design, engineering and manufacturing responsibility for OE emission control systems, we do not manufacture substrates. Substrates are porous ceramic filters coated with a catalyst - typically, precious metals such as platinum, palladium and rhodium. These are supplied to us by Tier 2 suppliers generally as directed by our OE customers. We generally earn a small margin on these components of the system. As the need for more sophisticated emission control solutions increases to meet more stringent environmental regulations, and as we capture more diesel aftertreatment business, these substrate components have been increasing as a percentage of our revenue. While these substrates dilute our gross margin percentage, they are a necessary component of an emission control system.
Our value-add content in an emission control system includes designing the system to meet environmental regulations through integration of the substrates into the system, maximizing use of thermal energy to heat up the catalyst quickly, efficiently managing airflow to reduce back pressure as the exhaust stream moves past the catalyst, managing the expansion and contraction of the emission control system components due to temperature extremes experienced by an emission control system, using advanced acoustic engineering tools to design the desired exhaust sound, minimizing the opportunity for the fragile components of the substrate to be damaged when we integrate it into the emission control system and reducing unwanted noise, vibration and harshness transmitted through the emission control system.
We present these substrate sales separately in the following table because we believe investors utilize this information to understand the impact of this portion of our revenues on our overall business and because it removes the impact of potentially volatile precious metals pricing from our revenues. While our original equipment customers generally assume the risk of precious metals pricing volatility, it impacts our reported revenues. Presenting revenues that exclude “substrates” used in catalytic converters and diesel particulate filters removes this impact.
Additionally, we present these reconciliations of revenues in order to reflect value-add revenues without the effect of changes in foreign currency rates. We have not reflected any currency impact in the 2016 table since this is the base period for measuring the effects of currency during 2017 on our operations. We believe investors find this information useful in understanding period-to-period comparisons in our revenues.
Net Sales and Operating Revenues for the Three Months Ended September 30, 2017 and 2016
 
Three Months Ended September 30, 2017
 
Revenues
 
Substrate Sales
 
Value-add Revenues
 
Currency Impact on Value-add Revenues
 
Value-add Revenues excluding Currency
 
(Millions)
Clean Air Division
 
 
 
 
 
 
 
 
 
North America
$
723

 
$
244

 
$
479

 
$
—

 
$
479

Europe & South America
536

 
200

 
336

 
27

 
309

Asia Pacific
313

 
78

 
235

 
1

 
234

Total Clean Air Division
1,572

 
522

 
1,050

 
28

 
1,022

Ride Performance Division
 
 
 
 
 
 
 
 
 
North America
304

 
—

 
304

 
2

 
302

Europe & South America
279

 
—

 
279

 
10

 
269

Asia Pacific
119

 
—

 
119

 
1

 
118

Total Ride Performance Division
702

 
—

 
702

 
13

 
689

Total Tenneco Inc.
$
2,274

 
$
522

 
$
1,752

 
$
41

 
$
1,711


48

 
Three Months Ended September 30, 2016
 
Revenues
 
Substrate Sales
 
Value-add Revenues
 
Currency Impact on Value-add Revenues
 
Value-add Revenues excluding Currency
 
(Millions)
Clean Air Division
 
 
 
 
 
 
 
 
 
North America
$
716

 
$
248

 
$
468

 
$
—

 
$
468

Europe & South America
474

 
177

 
297

 
—

 
297

Asia Pacific
270

 
59

 
211

 
—

 
211

Total Clean Air Division
1,460

 
484

 
976

 
—

 
976

Ride Performance Division


 


 


 


 


North America
306

 
—

 
306

 
—

 
306

Europe & South America
229

 
—

 
229

 
—

 
229

Asia Pacific
101

 
—

 
101

 
—

 
101

Total Ride Performance Division
636

 
—

 
636

 
—

 
636

Total Tenneco Inc.
$
2,096

 
$
484

 
$
1,612

 
$
—

 
$
1,612


 
Three Months Ended September 30, 2017
Versus Three Months Ended September 30, 2016
Dollar and Percent Increase (Decrease)
 
Revenues
 
Percent
 
Value-add Revenues excluding Currency
 
Percent
 
(Millions Except Percent Amounts)
Clean Air Division
 
 
 
 
 
 
 
North America
$
7

 
1
 %
 
$
11

 
2
 %
Europe & South America
62

 
13
 %
 
12

 
4
 %
Asia Pacific
43

 
16
 %
 
23

 
11
 %
Total Clean Air Division
112

 
8
 %
 
46

 
5
 %
Ride Performance Division
 
 
 
 
 
 
 
North America
(2
)
 
(1
)%
 
(4
)
 
(1
)%
Europe & South America
50

 
22
 %
 
40

 
17
 %
Asia Pacific
18

 
18
 %
 
17

 
17
 %
Total Ride Performance Division
66

 
10
 %
 
53

 
8
 %
Total Tenneco Inc.
$
178

 
8
 %
 
$
99

 
6
 %

Light Vehicle Industry Production by Region for Three Months Ended September 30, 2017 and 2016 (According to IHS Automotive, October 2017)
 
Three Months Ended September 30,
 
2017
 
2016
 
Increase
(Decrease)
 
% Increase
(Decrease)
 
(Number of Vehicles in Thousands)
North America
3,995

 
4,424

 
(429
)
 
(10
)%
Europe
4,991

 
4,745

 
246

 
5
 %
South America
870

 
691

 
179

 
26
 %
Total Europe & South America
5,861

 
5,436

 
425

 
8
 %
China
6,349

 
6,301

 
48

 
1
 %
India
1,166

 
1,127

 
39

 
3
 %
Australia
34

 
45

 
(11
)
 
(24
)%
Clean Air revenue was up $112 million in the third quarter of 2017 compared to the third quarter of 2016 with higher volumes in all segments. In North America, higher volumes drove a $6 million revenue increase mainly due to increased OE off-highway and other vehicle sales and new platforms, partially offset by lower OE light vehicle revenue. Currency had no

49

impact on North American revenues. In the European and South American segment, higher volumes drove a $32 million increase in revenues mainly due to increased OE light vehicle and commercial truck, off-highway and other vehicle sales in the region and new platforms in Europe. Currency had a $36 million favorable impact on European and South American revenues. In Asia Pacific, higher volumes of $42 million were mainly driven by increased light vehicle and commercial truck revenues in China and India as well as higher off-highway revenue in Japan partially offset by lower OE light vehicle revenue in Australia. Currency had a $2 million favorable impact on Asia Pacific revenues.
Ride Performance revenue was up $66 million in the third quarter of 2017 compared to the third quarter of 2016 with higher volumes in Europe, South America and Asia Pacific. In North America, higher OE commercial truck sales and new platforms were offset by lower OE light vehicle and aftermarket sales. Currency had a $2 million favorable impact on North American revenues. In the European and South American segment, higher volumes of $36 million were driven by increases in OE light vehicle, commercial truck and off-highway and other in the region, new platform in Europe, as well as higher aftermarket sales in South America, partially offset by lower aftermarket sales in Europe. Currency had a $10 million favorable impact on European and South American revenues. In Asia Pacific, higher volumes of $17 million were mainly driven by increased OE light vehicle volumes in China and India. Currency had a $1 million favorable impact on Asia Pacific revenues.
Net Sales and Operating Revenues for the Nine Months Ended September 30, 2017 and 2016
 
Nine Months Ended September 30, 2017
 
Revenues
 
Substrate Sales
 
Value-add Revenues
 
Currency Impact on Value-add Revenues
 
Value-add Revenues excluding Currency
 
(Millions)
Clean Air Division
 
 
 
 
 
 
 
 
 
North America
$
2,341

 
$
795

 
$
1,546

 
$
—

 
$
1,546

Europe & South America
1,620

 
608

 
1,012

 
10

 
1,002

Asia Pacific
861

 
207

 
654

 
(15
)
 
669

Total Clean Air Division
4,822

 
1,610

 
3,212

 
(5
)
 
3,217

Ride Performance Division
 
 
 
 
 
 
 
 
 
North America
$
945

 
—

 
945

 
—

 
945

Europe & South America
786

 
—

 
786

 
11

 
775

Asia Pacific
330

 
—

 
330

 
(3
)
 
333

Total Ride Performance Division
2,061

 
—

 
2,061

 
8

 
2,053

Total Tenneco Inc.
$
6,883

 
$
1,610

 
$
5,273

 
$
3

 
$
5,270


 
Nine Months Ended September 30, 2016
 
Revenues
 
Substrate Sales
 
Value-add Revenues
 
Currency Impact on Value-add Revenues
 
Value-add Revenues excluding Currency
 
(Millions)
Clean Air Division
 
 
 
 
 
 
 
 
 
North America
$
2,252

 
$
792

 
$
1,460

 
$
—

 
$
1,460

Europe & South America
1,462

 
537

 
925

 
—

 
925

Asia Pacific
813

 
184

 
629

 
—

 
629

Total Clean Air Division
4,527

 
1,513

 
3,014

 
—

 
3,014

Ride Performance Division
 
 
 
 
 
 
 
 
 
North America
$
952

 
—

 
952

 
—

 
952

Europe & South America
689

 
—

 
689

 
—

 
689

Asia Pacific
276

 
—

 
276

 
—

 
276

Total Ride Performance Division
1,917

 
—

 
1,917

 
—

 
1,917

Total Tenneco Inc.
$
6,444

 
$
1,513

 
$
4,931

 
$
—

 
$
4,931


50

 
Nine Months Ended September 30, 2017
Versus Nine Months Ended September 30, 2016
Dollar and Percent Increase (Decrease)
 
Revenues
 
Percent
 
Value-add Revenues excluding Currency
 
Percent
 
(Millions Except Percent Amounts)
Clean Air Division
 
 
 
 
 
 
 
North America
$
89

 
4
 %
 
$
86

 
6
 %
Europe & South America
158

 
11
 %
 
77

 
8
 %
Asia Pacific
48

 
6
 %
 
40

 
6
 %
Total Clean Air Division
295

 
7
 %
 
203

 
7
 %
Ride Performance Division
 
 
 
 
 
 
 
North America
(7
)
 
(1
)%
 
(7
)
 
(1
)%
Europe & South America
97

 
14
 %
 
86

 
12
 %
Asia Pacific
54

 
20
 %
 
57

 
21
 %
Total Ride Performance Division
144

 
8
 %
 
136

 
7
 %
Total Tenneco Inc.
$
439

 
7
 %
 
$
339

 
7
 %

Light Vehicle Industry Production by Region for Nine Months Ended September 30, 2017 and 2016 (According to IHS Automotive, October 2017)
 
Nine Months Ended September 30,
 
2017
 
2016
 
Increase
(Decrease)
 
% Increase
(Decrease)
 
(Number of Vehicles in Thousands)
North America
12,980

 
13,479

 
(499
)
 
(4
)%
Europe
16,558

 
16,170

 
388

 
2
 %
South America
2,404

 
1,988

 
416

 
21
 %
Total Europe & South America
18,962

 
18,158

 
804

 
4
 %
China
19,248

 
18,754

 
494

 
3
 %
India
3,343

 
3,137

 
206

 
7
 %
Australia
90

 
123

 
(33
)
 
(26
)%
Clean Air revenue was up $295 million in the first nine months of 2017 compared to the first nine months of 2016 with higher volumes in all segments. In North America, higher volumes drove a $103 million revenue increase due to increased OE light vehicle and commercial truck, off-highway and other sales as well as new platforms. Currency had no impact on North American revenues. In the European and South American segment, higher volumes drove a $165 million increase in revenues mainly due to increased OE light vehicle and commercial truck, off-highway and other vehicle sales in the region and new platforms in Europe, partially offset by lower aftermarket sales in Europe. Currency had a $7 million favorable impact on European and South American revenues. In Asia Pacific, higher volumes of $76 million were mainly driven by increased OE light vehicle and commercial truck revenues in China and India as well as higher off-highway and other revenue in Japan partially offset by lower OE light vehicle revenue in Australia. Currency had a $19 million unfavorable impact on Asia Pacific revenues.
Ride Performance revenue was up $144 million in the first nine months of 2017 compared to the first nine months of 2016. In North America, lower volumes of $20 million were mainly driven by lower aftermarket volumes partially offset by higher OE light vehicle and commercial truck sales and new platforms. Currency had no impact on North American revenues. In the European and South American segment, higher volumes of $77 million were driven by increases in OE light vehicle, commercial truck and off-highway and other and aftermarket sales in the region and new platforms in Europe. Currency had a $11 million favorable impact on European and South American revenues. In Asia Pacific, higher volumes of $61 million were mainly driven by increased OE light vehicle volumes in China and India and higher aftermarket sales in the region partially offset by lower volumes in Australia. Currency had a $3 million unfavorable impact on Asia Pacific revenues.




51

Earnings before Interest Expense, Income Taxes and Noncontrolling Interests (“EBIT”) for the Three Months Ended September 30, 2017 and 2016
 
Three Months Ended September 30,
 
Change
 
2017
 
2016
 
 
(Millions)
Clean Air Division
 
 
 
 
 
North America
$
46

 
$
42

 
$
4

Europe & South America
25

 
29

 
(4
)
Asia Pacific
36

 
39

 
(3
)
Total Clean Air Division
107

 
110

 
(3
)
Ride Performance Division
 
 
 
 
 
North America
29

 
37

 
(8
)
Europe & South America
6

 
8

 
(2
)
Asia Pacific
11

 
17

 
(6
)
Total Ride Performance Division
46

 
62

 
(16
)
Other
(19
)
 
(22
)
 
3

Total Tenneco Inc.
$
134

 
$
150

 
$
(16
)

The EBIT results shown in the preceding table include the following items, certain of which are discussed below under “Restructuring and Other Charges,” which have an effect on the comparability of EBIT results between periods:
 
Three Months Ended September 30,
 
2017
 
2016
 
(Millions)
Clean Air Division
 
 
 
North America
 
 
 
Restructuring and related expenses
$
1

 
$
—

Europe & South America
 
 
 
Restructuring and related expenses
—

 
1

Asia Pacific
 
 
 
Restructuring and related expenses
2

 
1

Total Clean Air Division
3

 
2

Ride Performance Division
 
 
 
North America
 
 
 
Restructuring and related expenses
5

 
5

Europe & South America
 
 
 
Restructuring and related expenses
4

 
—

Asia Pacific
 
 
 
Restructuring and related expenses
8

 
—

Total Ride Performance Division
17

 
5

Total Tenneco Inc.
$
20

 
$
7


EBIT for the Clean Air division was $107 million in the third quarter of 2017 compared to $110 million in the third quarter a year ago. EBIT for North America increased $4 million, to $46 million, in the third quarter of 2017 versus the third quarter of 2016. The benefit from higher off-highway and other vehicle sales, new platforms and favorable currency was partially offset by lower OE light vehicle sales and higher restructuring and related expenses. Europe and South America's EBIT was $25 million in the third quarter of 2017 and $29 million in the third quarter of 2016. The benefit from increased OE light vehicle volumes and higher commercial truck, off-highway and other vehicles sales in the region, new platforms in Europe, lower restructuring and related costs, operational efficiencies and favorable currency was more than offset by unfavorable product mix and higher costs associated with launching light vehicle, commercial truck and off-highway programs.

52

EBIT for Asia Pacific decreased $3 million to $36 million in the third quarter of 2017 from $39 million in the third quarter of 2016. EBIT benefited from higher OE light vehicle and commercial truck revenues in China and India and higher off-highway revenue in Japan, which was more than offset by lower OE light vehicle revenue in Australia, the timing of steel recoveries and higher restructuring and related expenses. For the Clean Air division, restructuring and related expenses of $3 million were included in EBIT for the third quarter of 2017 and $2 million were included in EBIT for the same period in 2016. Currency had a $4 million favorable impact on EBIT of the Clean Air division for the third quarter of 2017 when compared to last year.
EBIT for the Ride Performance division was $46 million in the third quarter of 2017 compared to $62 million in the third quarter a year ago. EBIT for North America decreased $8 million in the third quarter of 2017 to $29 million from $37 million in the third quarter of 2016, driven by lower volumes in OE light vehicle and aftermarket as well as the timing of steel recoveries, which were partially offset by higher OE commercial truck sales and new platforms. Europe and South America's EBIT was $6 million in the third quarter of 2017 and $8 million in the third quarter of 2016. The benefit from higher OE light vehicle and commercial truck, off-highway and other vehicle revenues in the region, new platforms in Europe as well as higher aftermarket sales in South America was more than offset by lower aftermarket sales in Europe, higher SG&A expenses, restructuring and related expenses, manufacturing costs and the timing of steel recoveries. EBIT for Asia Pacific decreased to $11 million in the third quarter of 2017 from $17 million in the third quarter of 2016, mainly driven by higher restructuring and related expenses and higher SG&A expenses which more than offset higher OE light vehicle volumes in China and India. For the Ride Performance division, restructuring and related expenses of $17 million were included in EBIT for the third quarter of 2017 and $5 million for the same period in 2016. Currency had no impact on EBIT of the Ride Performance division for the third quarter of 2017 when compared to last year.
Currency had a $4 million favorable impact on overall company EBIT for the third quarter of 2017 as compared to the prior year's third quarter.
EBIT as a Percentage of Revenue for the Three Months Ended September 30, 2017 and 2016

 
Three Months Ended September 30,
 
2017
 
2016
Clean Air Division
 
 
 
North America
6
%
 
6
%
Europe & South America
5
%
 
6
%
Asia Pacific
12
%
 
14
%
Total Clean Air Division
7
%
 
8
%
Ride Performance Division
 
 
 
North America
10
%
 
12
%
Europe & South America
2
%
 
3
%
Asia Pacific
9
%
 
17
%
Total Ride Performance Division
7
%
 
10
%
Total Tenneco Inc.
6
%
 
7
%

In the Clean Air division, EBIT as a percentage of revenues for the third quarter of 2017 was down one percentage point compared to last year's third quarter. In North America, EBIT as a percentage of revenues for the third quarter of 2017 was even compared to last year's third quarter. The benefit from higher off-highway and other vehicle sales, new platforms and favorable currency was offset by lower OE light vehicle sales and higher restructuring and related expenses. Europe and South America's EBIT as a percentage of revenues for the third quarter of 2017 was down one percentage point compared to the prior year's third quarter. The benefit from increased OE light vehicle volumes and higher commercial truck, off-highway and other vehicles sales in the region, new platforms in Europe, lower restructuring and related costs, operational efficiencies and favorable currency was more than offset by unfavorable product mix and higher costs associated with launching light vehicle, commercial truck and off-highway programs. EBIT as a percentage of revenues for Asia Pacific in the third quarter of 2017 was down two percentage points compared to the third quarter of 2016. The benefit from higher OE light vehicle and commercial truck revenues in China and India and higher off-highway and other revenues in Japan was more than offset by lower OE light vehicle revenue in Australia, the timing of steel recoveries and higher restructuring and related expenses.
In the Ride Performance division, EBIT as a percentage of revenues was down three percentage points compared to the prior year's third quarter. In the third quarter of 2017, EBIT as a percentage of revenues for North America was down two percentage points compared to the third quarter of 2016, driven by lower volumes in OE light vehicle and aftermarket as well as the timing of steel recoveries, which were partially offset by higher OE commercial truck sales and new platforms. EBIT as a

53

percentage of revenues in Europe and South America was down one percentage point compared to the prior year's third quarter. The benefit from higher OE light vehicle and commercial truck, off-highway and other vehicle revenues in the region, new platforms in Europe as well as higher aftermarket sales in South America was more than offset by lower aftermarket sales in Europe and higher SG&A expenses, restructuring and related expenses, manufacturing costs and the timing of steel recoveries. In Asia Pacific, EBIT as a percentage of revenues for the third quarter of 2017 was down eight percentage points compared to last year's third quarter, driven by higher restructuring and related expenses and higher SG&A expenses which more than offset higher OE light vehicle volumes in China and India.
EBIT for the Nine Months Ended September 30, 2017 and 2016
 
Nine Months Ended September 30,
 
Change
 
2017
 
2016
 
 
(Millions)
Clean Air Division
 
 
 
 
 
North America
$
153

 
$
168

 
$
(15
)
Europe & South America
79

 
72

 
7

Asia Pacific
91

 
110

 
(19
)
Total Clean Air Division
323

 
350

 
(27
)
Ride Performance Division
 
 
 
 
 
North America
100

 
127

 
(27
)
Europe & South America
19

 
12

 
7

Asia Pacific
45

 
43

 
2

Total Ride Performance Division
164

 
182

 
(18
)
Other
(205
)
 
(87
)
 
(118
)
Total Tenneco Inc.
$
282

 
$
445

 
$
(163
)

54

The EBIT results shown in the preceding table include the following items, certain of which are discussed below under “Restructuring and Other Charges,” which have an effect on the comparability of EBIT results between periods:
 
Nine Months Ended September 30,
 
2017
 
2016
 
(Millions)
Clean Air Division
 
 
 
North America
 
 
 
Restructuring and related expenses
$
1

 
$
—

Europe & South America
 
 
 
Restructuring and related expenses
10

 
2

Asia Pacific
 
 
 
Restructuring and related expenses
14

 
1

Total Clean Air Division
25

 
3

Ride Performance Division
 
 
 
North America
 
 
 
Restructuring and related expenses
8

 
6

Warranty settlement (1)
7

 
—

Europe & South America
 
 
 
Restructuring and related expenses
8

 
17

Asia Pacific
 
 
 
Restructuring and related expenses
8

 
—

Total Ride Performance Division
31

 
23

Other
 
 
 
Restructuring and related expenses
3

 
—

Pension charges / Stock vesting (2)
11

 
—

Antitrust settlement accrual (3)
132

 
—

Gain on sale of unconsolidated JV (4)
(5
)
 
—

Total Other
141

 
—

Total Tenneco Inc.
$
197

 
$
26


(1) Warranty settlement with a customer.
(2) Charges related to pension derisking and the acceleration of restricted stock vesting in accordance with the long-term incentive plan.
(3) Charges related to establishing a reserve for settlement costs necessary to resolve the company's antitrust matters globally.
(4) Gain on sale of unconsolidated JV.
EBIT for the Clean Air division was $323 million in the first nine months of 2017 compared to $350 million in the first nine months of prior year. EBIT for North America decreased $15 million, to $153 million, in the first nine months of 2017 versus the first nine months of 2016. The benefit from higher OE light vehicle and commercial truck, off-highway and other sales and new platforms was more than offset by higher restructuring and related expenses, the timing of contractual cost recovery of alloy surcharge increases, higher manufacturing costs and negative currency. Europe and South America's EBIT was $79 million in the first nine months of 2017 and $72 million in the first nine months of 2016. The benefit from increased OE light vehicle volumes and higher commercial truck, off-highway and other vehicles sales in the region, new platforms in Europe and operational efficiencies was partially offset by lower aftermarket sales in Europe, higher restructuring and related expenses and higher costs associated with launching light vehicle, commercial truck and off-highway programs. EBIT for Asia Pacific decreased $19 million to $91 million in the first nine months of 2017 from $110 million in the first nine months of 2016. EBIT benefited from higher OE light vehicle and commercial truck revenues in China and India as well as higher OE off-highway and other revenues in Japan, which was more than offset by lower OE light vehicle revenues in Australia, the timing of steel recoveries, higher restructuring and related expenses and negative currency. For the Clean Air division, restructuring and related expenses of $25 million were included in EBIT for the first nine months of 2017 and $3 million were included in EBIT for the same period in 2016. Currency had a $5 million unfavorable impact on EBIT of the Clean Air division for the first nine months of 2017 when compared to last year.

55

EBIT for the Ride Performance division was $164 million in the first nine months of 2017 compared to $182 million in the first nine months of the prior year. EBIT for North America decreased $27 million in the first nine months of 2017 to $100 million from $127 million in the first nine months of 2016, driven by lower volumes in aftermarket, a warranty settlement with a customer, the timing of steel recoveries, and higher restructuring and related expenses, which more than offset higher OE light vehicle and commercial truck sales and new platforms. Europe and South America's EBIT was $19 million in the first nine months of 2017 and $12 million in the first nine months of 2016. The benefit from higher light vehicle, aftermarket and commercial truck, off-highway and other vehicle revenues in the region, new platforms in Europe and lower restructuring and related expenses was partially offset by the timing of steel recoveries, higher manufacturing costs and unfavorable currency. EBIT for Asia Pacific increased to $45 million in the first nine months of 2017 from $43 million in the first nine months of 2016, driven by higher OE light vehicle volumes in China and India and higher aftermarket sales in the region partially offset by lower volumes in Australia, higher SG&A expenses and negative currency. For the Ride Performance division, restructuring and related expenses of $24 million were included in EBIT for the first nine months of 2017 and $23 million for the same period in 2016. Additionally, a warranty settlement charge of $7 million was recorded in the first nine months of 2017. Currency had a $3 million unfavorable impact on EBIT of the Ride Performance division for the first nine months of 2017 when compared to last year.
Currency had an $8 million unfavorable impact on overall company EBIT for the first nine months of 2017 as compared to the first nine months of prior year.
EBIT as a Percentage of Revenue for the Nine Months Ended September 30, 2017 and 2016

 
Nine Months Ended September 30,
 
2017
 
2016
Clean Air Division
 
 
 
North America
7
%
 
7
%
Europe & South America
5
%
 
5
%
Asia Pacific
11
%
 
14
%
Total Clean Air Division
7
%
 
8
%
Ride Performance Division
 
 
 
North America
11
%
 
13
%
Europe & South America
2
%
 
2
%
Asia Pacific
14
%
 
16
%
Total Ride Performance Division
8
%
 
9
%
Total Tenneco Inc.
4
%
 
7
%

In the Clean Air division, EBIT as a percentage of revenues for the first nine months of 2017 was down one percentage point compared to the first nine months of last year. In North America, EBIT as a percentage of revenues for the first nine months of 2017 was even compared to the first nine months of last year. The benefit from higher OE light vehicle and commercial truck, off-highway and other vehicle sales and new platforms was offset by higher restructuring and related expenses, the timing of contractual cost recovery of alloy surcharge increases, higher manufacturing costs and negative currency. Europe and South America's EBIT as a percentage of revenues for the first nine months of 2017 was even compared to the first nine months of the prior year. The benefit from increased OE light vehicle volumes and higher commercial truck, off-highway and other vehicles sales in the region, new platforms in Europe and operational efficiencies was offset by lower aftermarket sales in Europe, higher restructuring and related expenses and higher costs associated with launching light vehicle, commercial truck and off-highway programs. EBIT as a percentage of revenues for Asia Pacific in the first nine months of 2017 was down three percentage points compared to the first nine months of 2016. The benefit from higher OE light vehicle and commercial truck sales in China and India as well as higher OE off-highway and other revenues in Japan was more than offset by lower OE light vehicle revenues in Australia, the timing of steel recoveries, higher restructuring and related expenses and negative currency.
In the Ride Performance division, EBIT as a percentage of revenues was down one percentage point compared to the first nine months of prior year. In the first nine months of 2017, EBIT as a percentage of revenues for North America was down two percentage points compared to the first nine months of 2016, driven by lower volumes in aftermarket, a warranty settlement with a customer, the timing of steel recoveries, and higher restructuring and related expenses, which more than offset higher OE light vehicle and commercial truck sales and new platforms. EBIT as a percentage of revenues in Europe and South America was even compared to the first nine months of prior year. The benefit from higher light vehicle, aftermarket and commercial truck, off-highway and other vehicle revenues in the region, new platforms in Europe and lower restructuring and related

56

expenses was offset by the timing of steel recoveries, higher manufacturing costs and unfavorable currency. In Asia Pacific, EBIT as a percentage of revenues for the first nine months of 2017 was down two percentage points compared to the first nine months of last year, driven by lower volumes in Australia, higher SG&A expenses and negative currency, which more than offset higher OE light vehicle volumes in China and India and higher aftermarket sales in the region.
Interest Expense, Net of Interest Capitalized
We reported interest expense in the third quarter of 2017 of $19 million (substantially all in our U.S. operations) net of interest capitalized of $2 million, and $24 million (substantially all in our U.S. operations) net of interest capitalized of $1 million in the third quarter of 2016. Included in the third quarter of 2016 was $8 million of expense related to the completion of our refinancing activities which were initiated in the second quarter of 2016.
We reported interest expense in the first nine months of 2017 of $54 million (substantially all in our U.S. operations) net of interest capitalized of $6 million, and $76 million (substantially all in our U.S. operations) net of interest capitalized of $4 million in the first nine months of 2016. Included in the first nine months of 2017 was $1 million of expense related to our refinancing activities. Included in the first nine months of 2016 was $24 million of expense related to the completion of our refinancing activities which were initiated in the second quarter of 2016.
On September 30, 2017, we had $740 million in long-term debt obligations that have fixed interest rates. Of that amount, $500 million is fixed through July 2026, $225 million is fixed through December 2024, and the remainder is fixed through 2025. We also have $850 million in long-term debt obligations that are subject to variable interest rates. For more detailed explanations on our debt structure and senior credit facility refer to “Liquidity and Capital Resources — Capitalization” later in this Management’s Discussion and Analysis.
Income Taxes
We reported income tax expense of $16 million and income tax benefit of $70 million in the three month periods ended September 30, 2017 and 2016, respectively. The tax expense recorded in the third quarter of 2017 included a net tax benefit of $12 million primarily relating to valuation allowance releases. The tax benefit recorded in the third quarter of 2016 included a net tax benefit of $105 million primarily relating to recognizing a U.S. tax benefit for foreign taxes. During the third quarter of 2016, we completed our detailed analysis of our ability to recognize and utilize foreign tax credits within the carryforward period. As a a result, we amended our U.S. federal tax returns for the years 2006 to 2012 to claim foreign tax credits in lieu of deducting foreign taxes paid. The U.S. foreign tax credit law provides for a credit against U.S. taxes otherwise payable for foreign taxes paid with regard to dividends, interest and royalties paid to us in the U.S.
We reported income tax expense of $41 million and $3 million in the nine month periods ended September 30, 2017 and 2016, respectively. The tax expense recorded in the first nine months of 2017 included a net tax benefit of $12 million primarily relating to valuation allowance releases. In addition, the tax expense included a $50 million reduction related to an antitrust settlement accrual. The tax expense recorded in the first nine months of 2016 included a net tax benefit of $106 million primarily relating to recognizing a U.S. tax benefit for foreign taxes as described above.
We believe it is reasonably possible that up to $5 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.
Subsequent to the Company's earnings release on October 27, 2017, we reclassified a non-cash tax benefit related to the reversal of a tax valuation allowance from the Statements of Comprehensive Income to the Statements of Income, which resulted in an increase in U.S. GAAP net income of $6 million or $0.12 per diluted share for the quarter.
Restructuring and Other Charges
Over the past several years, we have adopted plans to restructure portions of our operations. These plans were approved by our Board of Directors and were designed to reduce operational and administrative overhead costs throughout the business. For the full year 2016, we incurred $36 million in restructuring and related costs including asset write-downs of $6 million, primarily related to manufacturing footprint improvements in North America Ride Performance, headcount reduction and cost improvement initiatives in Europe and China Clean Air, South America and Australia, of which $17 million was recorded in cost of sales, $12 million in SG&A, $1 million in engineering expense, $2 million in other expense and $4 million in depreciation and amortization expense. In the third quarter of 2017, we incurred $20 million in restructuring and related costs including asset write-downs of $1 million, primarily related to closing an OE Clean Air manufacturing plant and downsizing Ride Performance operations in Australia and cost improvement initiatives, of which $8 million was recorded in cost of sales, $11 million in SG&A and $1 million in depreciation and amortization expense. In the third quarter of 2016, we incurred $7 million in restructuring and related costs, primarily related to manufacturing footprint improvements in North America Ride Performance as well as headcount reduction and cost improvement initiatives in Europe and China Clean Air, of which $3 million was recorded in cost of sales and $4 million in SG&A. In the first nine months of 2017, we incurred $52 million in restructuring and related costs including asset write-downs of $3 million, primarily related to closing a Clean Air Belgian JIT

57

plant in response to the end of production on a customer platform, closing an OE Clean Air manufacturing plant and downsizing Ride Performance operations in Australia and cost improvement initiatives, of which $31 million was recorded in cost of sales, $18 million in SG&A and $3 million in depreciation and amortization expense. In the first nine months of 2016, we incurred $26 million in restructuring and related costs including asset write-downs of $5 million, primarily related to manufacturing footprint improvements in North America Ride Performance as well as headcount reduction and cost improvement initiatives in Europe and China Clean Air and South America, of which $9 million was recorded in cost of sales, $12 million in SG&A, $2 million in other expense and $3 million in depreciation and amortization expense.
Amounts related to activities that are part of our restructuring reserves are as follows:
 
December 31,
2016
Restructuring
Reserve
 
2017
Expenses
 
2017
Cash
Payments
 
Impact of Exchange Rates
 
September 30, 2017
Restructuring
Reserve
 
(Millions)
Employee Severance, Termination Benefits and Other Related Costs
$
15

 
38

 
(18
)
 
2

 
$
37

On June 29, 2017, our Board of Directors approved a restructuring initiative to close our Clean Air manufacturing plant in O’Sullivan Beach, Australia when General Motors and Toyota end vehicle production in the country, which occurred in October 2017. All such restructuring activities related to this initiative are expected to be completed by the first quarter of 2018. We recorded total charges related to this initiative of $9 million in third quarter of 2017 including asset write-downs of $1 million and $21 million in the first nine months of 2017 including asset write-downs of $2 million. The charges included severance payments to employees, the cost of decommissioning equipment, a lease termination payment and other costs associated with this action.
Under the terms of our amended and restated senior credit agreement that took effect on May 12, 2017, we are allowed to exclude, at our discretion, (i) up to $35 million in 2017 and $25 million each year thereafter of cash restructuring charges and related expenses, with the ability to carry forward any amount not used in one year to the next following year, and (ii) up to $150 million in the aggregate of all costs, expenses, fees, fines, penalties, judgments, legal settlements and other amounts associated with any restructuring, litigation, claim, proceeding or investigation related to or undertaken by us or any of our subsidiaries, together with any related provision for taxes, incurred for any quarterly period ending after May 12, 2017 in the calculation of the financial covenant ratios required under our senior credit facility. As of September 30, 2017, we elected not to exclude any of the $181 million of allowable cash charges and related expenses recognized in the first nine months of 2017 for antitrust settlement and restructuring related costs against the $150 million aggregate limit available under the terms of the senior credit facility or the $35 million annual limit for 2017.
Earnings Per Share
We reported net income attributable to Tenneco Inc. of $83 million or $1.57 per diluted common share for the third quarter of 2017. Included in the results for the third quarter of 2017 was negative impact related to our restructuring activities partially offset by positive impact from net tax benefits. The total impact of these items decreased earnings per diluted share by $0.10. We reported net income attributable to Tenneco Inc. of $179 million or $3.19 per diluted common share for the third quarter of 2016. Included in the results for the third quarter of 2016 was positive impact from a net tax benefit partially offset by negative impacts from expenses related to our restructuring activities and costs related to our refinancing activities. The total impact of these items increased earnings per diluted share by $1.68.
We reported net income attributable to Tenneco Inc. of $139 million or $2.60 per diluted common share for the first nine months of 2017. Included in the results for the first nine months of 2017 were negative impacts from expenses related to our restructuring activities, charges related to pension derisking and the acceleration of restricted stock vesting, cost related to our refinancing activities, warranty settlement and antitrust settlement accrual, which was partially offset by a positive impact from the gain on sale of an unconsolidated JV and net tax benefits. The total impact of these items decreased earnings per diluted share by $2.41. We reported net income attributable to Tenneco Inc. of $318 million or $5.58 per diluted common share for the first nine months of 2016. Included in the results for the first nine months of 2016 was positive impact from a net tax benefit partially offset by negative impacts from expenses related to our restructuring activities and costs related to our refinancing activities. The total impact of these items increased earnings per diluted share by $1.18.
Dividends on Common Stock
On February 1, 2017, Tenneco announced the reinstatement of a quarterly dividend program. We expect to pay a quarterly dividend of $0.25 per share on our common stock, representing a planned annual dividend of $1.00 per share. In the third quarter of 2017, we paid a quarterly dividend of $0.25 per share, or $14 million. In the first nine months of 2017, we paid dividends of $0.25 per share in each of the quarters, or $40 million. While we currently expect that comparable quarterly cash

58

dividends will continue to be paid in the future, our dividend program and the payment of future cash dividends under the program are subject to continued capital availability, the judgment of our Board of Directors and our continued compliance with the provisions pertaining to the payment of dividends under our debt agreements.
Cash Flows for the Three Months Ended September 30, 2017 and 2016
 
Three Months Ended September 30,
 
2017
 
2016
 
(Millions)
Cash provided (used) by:
 
 
 
Operating activities (1)
$
53

 
$
130

Investing activities
(96
)
 
(78
)
Financing activities (1)
(16
)
 
(42
)

(1) Retrospectively adjusted to reflect the effects of applying the new guidance on stock compensation adopted in Q1 2017.
Operating Activities
For the third quarter of 2017, operating activities provided $53 million in cash, after paying $45 million to resolve certain antitrust claims, compared to $130 million in cash provided during last year’s third quarter. The decrease was mainly driven by lower earnings and incremental investments in working capital to support growth. For the third quarter of 2017, cash used by working capital was $90 million versus $42 million of cash used for working capital in the third quarter of 2016. Receivables were a source of cash of $41 million in the third quarter of 2017 compared to a use of cash of $10 million in the prior year’s third quarter. Inventory represented a cash outflow of $56 million for the third quarter of 2017 and a cash outflow of $12 million during the third quarter of 2016. Accounts payable used $29 million of cash for the quarter ended September 30, 2017 compared to $5 million of cash used for the quarter ended September 30, 2016. Cash taxes were $31 million in the third quarter of 2017 compared to $30 million in the prior year's third quarter.
Investing Activities
Cash used for investing activities was $96 million in the third quarter of 2017 compared to cash used of $78 million in the same period a year ago. Cash payments for plant, property and equipment were $90 million in the third quarter of 2017 versus payments of $74 million in the third quarter of 2016. Cash payments for software-related intangible assets were $5 million and $6 million in the third quarters of 2017 and 2016, respectively. There was no change in restricted cash in the third quarter of 2017 compared to a source of cash of $1 million in 2016.
Financing Activities
Cash flow from financing activities was an outflow of $16 million for the quarter ended September 30, 2017, compared to an outflow of $42 million for the quarter ended September 30, 2016. We repurchased 1,286,643 shares of our outstanding common stock for $71 million at an average price of $54.90 per share during the third quarter of 2017 and 1,650,259 shares of our outstanding common stock for $89 million at an average price of $53.71 per share during the third quarter of 2016. In the third quarter of 2017, we paid a quarterly dividend of $0.25 per share, or $14 million.
Cash Flows for the Nine Months Ended September 30, 2017 and 2016

 
Nine Months Ended September 30,
 
2017
 
2016
 
(Millions)
Cash provided (used) by:
 
 
 
Operating activities (1)
$
163

 
$
233

Investing activities
(290
)
 
(225
)
Financing activities (1)
53

 
26


(1) Retrospectively adjusted to reflect the effects of applying the new guidance on stock compensation adopted in Q1 2017.

59

Operating Activities
For the first nine months of 2017, operating activities provided $163 million in cash, after paying $45 million to resolve certain antitrust claims, compared to $233 million in cash provided during last year’s first nine months. The decrease was mainly driven by lower earnings. For the first nine months of 2017, cash used for working capital was $196 million versus $249 million of cash used for working capital in the first nine months of 2016. Receivables were a use of cash of $135 million in the first nine months of 2017 compared to a use of cash of $189 million in the first nine months of prior year. Inventory represented a cash outflow of $116 million for the first nine months of 2017 and a cash outflow of $61 million during the first nine months of 2016. Accounts payable provided $57 million of cash for the nine months ended September 30, 2017 compared to $59 million of cash provided for the nine months ended September 30, 2016. Cash taxes were $74 million in the first nine months of 2017 compared to $88 million in the first nine months of prior year.
Investing Activities
Cash used for investing activities was $290 million in the first nine months of 2017 compared to cash used of $225 million in the same period a year ago. Cash payments for plant, property and equipment were $283 million in the first nine months of 2017 versus payments of $213 million in the first nine months of 2016. Cash payments for software-related intangible assets were $17 million and $15 million in the first nine months of 2017 and 2016, respectively. There was no change in restricted cash in the first nine months of 2017, while in 2016 there was a use of cash of $1 million.
Financing Activities
Cash flow from financing activities was an inflow of $53 million for the nine months ended September 30, 2017, compared to an inflow of $26 million for the nine months ended September 30, 2016. We repurchased 2,310,443 shares of our outstanding common stock for $131 million at an average price of $56.51 per share during the first nine months of 2017 and 2,783,064 shares of our outstanding common stock for $146 million at an average price of $52.35 per share during the first nine months of 2016. Since announcing our share repurchase program in 2015, we have repurchased a total of approximately 10.7 million shares for $569 million, representing 18 percent of the shares outstanding at that time. In February 2017, the Board authorized the repurchase of up to $400 million of common stock over the next three years. This amount includes the $112 million that remained authorized under earlier repurchase programs. As of September 30, 2017, we had $269 million remaining on the share repurchase authorization. In the first nine months of 2017, we paid a dividend of $0.25 per share in each quarter, or $40 million.
On May 12, 2017, we completed a refinancing of our senior credit facility by entering into an amendment and restatement of that facility. The amended and restated credit agreement enhances financial flexibility by increasing the size and extending the term of its revolving credit facility and term loan facility, and by adding Tenneco Automotive Operating Company Inc. as a co-borrower under the revolver credit facility. The amended and restated credit agreement also adds foreign currency borrowing capability and permits the joinder of our foreign and domestic subsidiaries as borrowers under the revolving credit facility in the future. If any foreign subsidiary of ours is added to the revolving credit facility as a borrower, the obligations of such foreign borrower will be secured by the assets of such foreign borrower, and also will be secured by the assets of, and guaranteed by, the domestic borrowers and domestic guarantors as well as certain foreign subsidiaries of ours in the chain of ownership of such foreign borrower. The amended and restated credit facility consists of a $1,600 million revolving credit facility and a $400 million term loan A facility, which replaced our former $1,200 million revolving credit facility and $264 million term loan A facility, respectively. As of September 30, 2017, the senior credit facility provides us with a total revolving credit facility of $1,600 million and had a $395 million balance outstanding under the term loan A facility, both of which will mature on May 12, 2022.
Borrowings under our revolving credit facility were $453 million at September 30, 2017 and $309 million at September 30, 2016. At both September 30, 2017 and September 30, 2016, there was $50 million borrowing under the U.S. accounts receivable securitization program.
Outlook
In the fourth quarter, we expect year-over-year revenue growth of approximately seven percent, or three percent in constant currency, outpacing estimated light vehicle industry production growth of one percent. We expect continued strong double-digit growth in commercial truck and off-highway revenue, light vehicle revenue in line with industry production and a steady contribution from the global aftermarket.
We also expect fourth quarter value-add adjusted EBIT percent margin to be about even with prior year fourth quarter.
For the full year, we expect revenue growth of approximately seven percent, in constant currency six percent, outpacing estimated light vehicle industry growth of two percent.

60

We updated our anticipated tax rate, and now expect a tax rate between 26% and 27% for 2017, due to continued focus on global tax planning.
Tenneco's revenue projections are based on the type of information set forth under "Outlook" in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" as set forth in Tenneco's amended Annual Report on Form 10-K/A for the year ended December 31, 2016. Please see that disclosure for further information. Additionally, revenue assumptions for the fourth quarter and full year 2017 are based on current and projected customer production schedules as well as aggregate industry production, which includes IHS Automotive October 2017 global light vehicle production forecasts, Power Systems Research (PSR) October 2017 forecast for global commercial truck, and/or Tenneco estimates. Unless otherwise indicated, our revenue estimate methodology does not attempt to forecast currency fluctuation, and accordingly reflects constant currency. Certain elements of the restructuring and related expenses, legal settlements and other unusual charges we incur from time to time cannot be forecasted accurately. In this respect, we are not able to forecast EBIT (and the related margins) on a forward-looking basis without unreasonable efforts on account of these factors and the difficulty in predicting GAAP revenues (for purposes of a margin calculation) due to variability in production rates and volatility of precious metal pricing in the substrates that we pass through to our customers. See “Cautionary Statement for Purposes of the ‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of 1995” and Item 1A, “Risk Factors.”
Other Event
We began to accelerate a required move of our Beijing Ride Performance plant outside the Beijing area. We anticipate this move out of our Beijing plant will be complete by the end of the first quarter of 2018. As we move production to existing and future sites, we expect to carry higher inventory levels to protect customer deliveries, and we will incur some additional costs in connection with these moves.
Critical Accounting Policies
We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Preparing our condensed consolidated financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The following paragraphs include a discussion of some critical areas where estimates are required.
Revenue Recognition
We recognize revenue for sales to our original equipment and aftermarket customers when title and risk of loss passes to the customers under the terms of our arrangements with those customers, which is usually at the time of shipment from our plants or distribution centers. Generally, in connection with the sale of exhaust systems to certain original equipment manufacturers, we purchase catalytic converters and diesel particulate filters or components thereof including precious metals (“substrates”) on behalf of our customers which are used in the assembled system. These substrates are included in our inventory and “passed through” to the customer at our cost, plus a small margin, since we take title to the inventory and are responsible for both the delivery and quality of the finished product. Revenues recognized for substrate sales were $1,610 million and $1,513 million for the first nine months of 2017 and 2016, respectively. For our aftermarket customers, we provide for promotional incentives and returns at the time of sale. Estimates are based upon the terms of the incentives and historical experience with returns. Certain taxes assessed by governmental authorities on revenue producing transactions, such as value added taxes, are excluded from revenue and recorded on a net basis. Shipping and handling costs billed to customers are included in revenues and the related costs are included in cost of sales in our condensed consolidated statements of income.
Warranty Reserves
Where we have offered product warranty, we also provide for warranty costs. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified with our products. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims and upon specific warranty issues as they arise. The warranty terms vary but range from one year up to limited lifetime warranties on some of our premium aftermarket products. We actively study trends of our warranty claims and take action to improve product quality and minimize warranty claims. While we have not experienced any material differences between these estimates and our actual costs, it is reasonably possible that future warranty issues could arise that could have a significant impact on our condensed consolidated financial statements.
Pre-production Design and Development and Tooling Assets
We expense pre-production design and development costs as incurred unless we have a contractual guarantee for reimbursement from the original equipment customer. Unbilled pre-production design and development costs recorded in

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prepayments and other and long-term receivables totaled $35 million and $22 million at September 30, 2017 and December 31, 2016. In addition, plant, property and equipment included $72 million and $62 million at September 30, 2017 and December 31, 2016, respectively, for original equipment tools and dies that we own, and prepayments and other included $133 million and $97 million at September 30, 2017 and December 31, 2016, respectively, for in-process tools and dies that we are building for our original equipment customers.
Income Taxes
We recognize deferred tax assets and liabilities on the basis of the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax values, and net operating losses ("NOL") and tax credit carryforwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid.
We evaluate our deferred income taxes quarterly to determine if valuation allowances are required or should be adjusted. U.S. GAAP requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence, both positive and negative, using a "more likely than not" standard. 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.
Valuation allowances are established for deferred tax assets based on a “more likely than not” threshold. The ability to realize deferred tax assets depends on our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. We have considered the following possible sources of taxable income when assessing the realization of our deferred tax assets:
•
Future reversals of existing taxable temporary differences;
•
Taxable income or loss, based on recent results, exclusive of reversing temporary differences and carryforwards;
•
Tax-planning strategies; and
•
Taxable income in prior carryback years if carryback is permitted under the relevant tax law.
The valuation allowances recorded against deferred tax assets in certain foreign jurisdictions will impact our provision for income taxes until the valuation allowances are released. Our provision for income taxes will include no tax benefit for losses incurred and no tax expense with respect to income generated in these jurisdictions until the respective valuation allowance is eliminated.
For interim tax reporting we estimate our annual effective tax rate and apply it to our 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 impact of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a particular quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain unusual or infrequently occurring 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.
Goodwill, net
We evaluate goodwill for impairment as of October 31st each year, or more frequently if events indicate it is warranted. The goodwill impairment test consists of a two-step process. In step one, we compare the estimated fair value of our reporting units with goodwill to the carrying value of the unit’s assets and liabilities to determine if impairment exists within the recorded balance of goodwill. We estimate the fair value of each reporting unit using the income approach which is based on the present value of estimated future cash flows. The income approach is dependent on a number of factors, including estimates of market trends, forecasted revenues and expenses, capital expenditures, weighted average cost of capital and other variables. A separate discount rate derived by a combination of published sources, internal estimates and weighted based on our debt and equity structure, was used to calculate the discounted cash flows for each of our reporting units. These estimates are based on assumptions that we believe to be reasonable, but which are inherently uncertain and outside of the control of management. If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist which requires step two to be performed to measure the amount of the impairment loss. The amount of impairment is determined by comparing the implied fair value of a reporting unit’s goodwill to its carrying value.
The estimated fair value of each of our reporting units exceeded the carrying value of their assets and liabilities as October 31, 2016.

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Pension and Other Postretirement Benefits
We have various defined benefit pension plans that cover some of our employees. We also have postretirement health care and life insurance plans that cover some of our domestic employees. Our pension and postretirement health care and life insurance expenses and valuations are dependent on assumptions used by our actuaries in calculating those amounts. These assumptions include discount rates, health care cost trend rates, long-term return on plan assets, retirement rates, mortality rates and other factors. Health care cost trend rate assumptions are developed based on historical cost data and an assessment of likely long-term trends. Retirement rates are based primarily on actual plan experience while mortality rates are based upon the general population experience which is not expected to differ materially from our experience.
Our approach to establishing the discount rate assumption for both our domestic and foreign plans is generally based on the yield on high-quality corporate fixed-income investments. At the end of each year, the discount rate is determined using the results of bond yield curve models based on a portfolio of high quality bonds matching the notional cash inflows with the expected benefit payments for each significant benefit plan. Based on this approach, we lowered the weighted average discount rate for all our pension plans to 3.3 percent in 2017 from 3.9 percent in 2016. The discount rate for postretirement benefits was lowered to 4.2 percent in 2017 from 4.3 percent in 2016.
Our approach to determining expected return on plan asset assumptions evaluates both historical returns as well as estimates of future returns, and is adjusted for any expected changes in the long-term outlook for the equity and fixed income markets. As a result, our estimate of the weighted average long-term rate of return on plan assets for all of our pension plans was lowered to 6.1 percent for 2017 from 6.6 percent for 2016.
Except in the U.K., our pension plans generally do not require employee contributions. Our policy is to fund our pension plans in accordance with applicable U.S. and foreign government regulations and to make additional payments as funds are available to achieve full funding of the accumulated benefit obligation. As of September 30, 2017, all legal funding requirements have been met.
New Accounting Pronouncements
Note 11 in our notes to condensed consolidated financial statements located in Part I Item 1 of this Form 10-Q is incorporated herein for reference.

Liquidity and Capital Resources
Capitalization
 
September 30, 2017
 
December 31, 2016
 
% Change
 
(Millions)
 
 
Short-term debt and maturities classified as current
$
108

 
$
90

 
20
 %
Long-term debt
1,573

 
1,294

 
22

Total debt
1,681

 
1,384

 
21

Total redeemable noncontrolling interests
32

 
40

 
(20
)
Total noncontrolling interests
39

 
47

 
(17
)
Tenneco Inc. shareholders’ equity
647

 
573

 
13

Total equity
686

 
620

 
11

Total capitalization
$
2,399

 
$
2,044

 
17
 %
General. Short-term debt, which includes maturities classified as current, borrowings by foreign subsidiaries, and borrowings under our U.S. accounts receivable securitization program, were $108 million and $90 million as of September 30, 2017 and December 31, 2016, respectively. Borrowings under our revolving credit facilities, which are classified as long-term debt, were $453 million and $300 million at September 30, 2017 and December 31, 2016, respectively.
The 2017 year-to-date increase in Tenneco Inc. shareholders' equity primarily resulted from net income attributable to Tenneco Inc. of $139 million, a $14 million increase related to pension and postretirement benefits, a $11 million increase in premium on common stock and other capital surplus relating to common stock issued pursuant to benefit plans, and a $81 million increase caused by the impact of changes in foreign exchange rates on the translation of financial statements of our foreign subsidiaries into U.S. dollars, partially offset by a $40 million decrease related to cash dividends declared and a $131 million increase in treasury stock as a result of purchases of common stock under our share purchase program.
Overview. Our financing arrangements are primarily provided by a committed senior secured financing arrangement with a syndicate of banks and other financial institutions. The arrangement is secured by substantially all our domestic assets and

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pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries, as well as guarantees by our material domestic subsidiaries.
On May 12, 2017, we completed a refinancing of our senior credit facility by entering into an amendment and restatement of that facility. The amended and restated credit agreement enhances financial flexibility by increasing the size and extending the term of its revolving credit facility and term loan facility, and by adding Tenneco Automotive Operating Company Inc. as a co-borrower under the revolver credit facility. The amended and restated credit agreement also adds foreign currency borrowing capability and permits the joinder of our foreign and domestic subsidiaries as borrowers under the revolving credit facility in the future. If any foreign subsidiary of Tenneco is added to the revolving credit facility as a borrower, the obligations of such foreign borrower will be secured by the assets of such foreign borrower, and also will be secured by the assets of, and guaranteed by, the domestic borrowers and domestic guarantors as well as certain foreign subsidiaries of Tenneco in the chain of ownership of such foreign borrower. The amended and restated credit facility consists of a $1,600 million revolving credit facility and a $400 million term loan A facility, which replaced our former $1,200 million revolving credit facility and $264 million term loan A facility, respectively. As of September 30, 2017, the senior credit facility provides us with a total revolving credit facility of $1,600 million and had a $395 million balance outstanding under the term loan A facility, both of which will mature on May 12, 2022. Net carrying amount for the balance outstanding under the term loan A facility including a $2 million debt issuance cost was $393 million as of September 30, 2017. Funds may be borrowed, repaid and re-borrowed under the revolving credit facility without premium or penalty (subject to any customary LIBOR breakage fees). The revolving credit facility is reflected as debt on our balance sheet only if we borrow money under this facility or if we use the facility to make payments for letters of credit. Outstanding letters of credit reduce our availability to borrow revolving loans under the facility. We are required to make quarterly principal payments under the term loan A facility of $5 million through June 30, 2019, $7.5 million beginning September 30, 2019 through June 30, 2020, $10 million beginning September 30, 2020 through March 31, 2022 and a final payment of $260 million is due on May 12, 2022. We have excluded the required payments, within the next twelve months, under the term loan A facility totaling $20 million from current liabilities as of September 30, 2017, because we have the intent and ability to refinance the obligations on a long-term basis by using our revolving credit facility.
We recorded $1 million of pre-tax interest charges in May 2017 related to amendment and restatement of the senior credit facility and the write off of deferred debt issuance costs related to the senior credit facility.
At September 30, 2017, of the $1,600 million available under the revolving credit facility, we had unused borrowing capacity of $1,147 million with $453 million in outstanding borrowings and no outstanding letters of credit. As of September 30, 2017, our outstanding debt also included (i) $395 million of a term loan which consisted of a $393 million net carrying amount including a $2 million debt issuance cost related to our term loan A facility which is subject to quarterly principal payments as described above through May 12, 2022, (ii) $225 million of notes which consisted of a $222 million net carrying amount including a $3 million debt issuance cost related to our 53/8 percent senior notes due December 15, 2024, (iii) $500 million of notes which consisted of a $492 million net carrying amount including a $8 million debt issuance cost related to our 5 percent senior notes due July 15, 2026 , and (iv) $121 million of other debt.
We monitor market conditions with respect to the potential refinancing of our outstanding debt obligations, including our senior secured credit facility and senior notes. Depending on market and other conditions, we may seek to refinance our debt obligations from time to time. We cannot make any assurance, however, that any refinancing will be completed.
Senior Credit Facility — Interest Rates and Fees. Beginning May 12, 2017, our term loan A facility and revolving credit facility bear interest at an annual rate equal to, at our option, either (i) London Interbank Offered Rate (“LIBOR”) plus a margin of 175 basis points, or (ii) a rate consisting of the greater of (a) the JPMorgan Chase prime rate plus a margin of 75 basis points, (b) the Federal Funds rate plus 50 basis points plus a margin of 75 basis points, and (c) one month LIBOR plus 100 basis points plus a margin of 75 basis points. The margin we pay on these borrowings will be increased by a total of 25 basis points above the original margin following each fiscal quarter for which our consolidated net leverage ratio is equal to or greater than 2.5. In addition, the margin we pay on these borrowings will be reduced by a total of 25 basis points below the original margin if our consolidated net leverage ratio is less than 1.5. We also pay a commitment fee equal to 25 basis points that will be reduced to 20 basis points or increased to up to 30 basis points depending on consolidated net leverage ratio changes as set forth in the senior credit facility.
Senior Credit Facility — Other Terms and Conditions. Our senior credit facility requires that we maintain financial ratios equal to or better than the following consolidated net leverage ratio (consolidated indebtedness plus, without duplication, the domestic receivable program amount, net of unrestricted cash and cash equivalents up to $250 million, divided by consolidated EBITDA, each as defined in the senior credit facility agreement), and consolidated interest coverage ratio (consolidated EBITDA divided by consolidated interest expense, as defined in the senior credit facility agreement) at the end of each period indicated. Failure to maintain these ratios will result in a default under our senior credit facility. The financial ratios required under the senior credit facility and the actual ratios we achieved for the first three quarters of 2017, are as follows:

64

 
Quarter Ended
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
Required
 
Actual
 
Required
 
Actual
 
Required
 
Actual
Leverage Ratio (maximum)
3.50

 
2.15

 
3.50

 
1.97

 
3.50

 
1.62

Interest Coverage Ratio (minimum)
2.75

 
11.48

 
2.75

 
12.44

 
2.75

 
15.38

The senior credit facility includes a maximum leverage ratio covenant of 3.50 and a minimum interest coverage ratio of 2.75, in each case through May 12, 2022. The amended and restated senior credit facility provides us with the flexibility not to exclude certain otherwise excludable charges incurred in any relevant period from the calculation of the leverage and interest coverage ratios for such period. As of September 30, 2017, we elected not to exclude a total of $168 million of excludable charges. Had these charges been excluded, the leverage ratio and the interest ratio would have been 1.69 and 14.61, respectively, as of September 30, 2017.
The covenants in our senior credit facility agreement generally prohibit us from repaying or refinancing our senior notes. So long as no default existed, we would, however, under our senior credit facility agreement, be permitted to repay or refinance our senior notes (i) with the net cash proceeds of permitted refinancing indebtedness (as defined in the senior credit facility agreement) or with the net cash proceeds of our common stock, in each case issued within 180 days prior to such repayment; (ii) with the net cash proceeds of the incremental facilities (as defined in the senior credit facility agreement) and certain indebtedness incurred by our foreign subsidiaries; (iii) with the proceeds of the revolving loans (as defined in the senior credit facility agreement); (iv) with the cash generated by our operations; (v) in an amount equal to the net cash proceeds of qualified capital stock (as defined in the senior credit facility agreement) issued by us after May 12, 2017; and (vi) in exchange for permitted refinancing indebtedness or in exchange for shares of our common stock; provided that such purchases are capped as follows (with respect to clauses (iii), (iv) and (v) based on a pro forma consolidated leverage ratio after giving effect to such purchase, cancellation or redemption):
Pro forma Consolidated Leverage Ratio
Aggregate Senior
Note Maximum
Amount
 
(Millions)
Greater than or equal to 3.25x
$
20

Greater than or equal to 3.0x
$
100

Greater than or equal to 2.5x
$
225

Less than 2.5x
no limit

Although the senior credit facility agreement would permit us to repay or refinance our senior notes under the conditions described above, any repayment or refinancing of our outstanding notes would be subject to market conditions and either the voluntary participation of note holders or our ability to redeem the notes under the terms of the applicable note indenture. For example, while the senior credit facility agreement would allow us to repay our outstanding notes via a direct exchange of the notes for either permitted refinancing indebtedness or for shares of our common stock, we do not, under the terms of the agreements governing our outstanding notes, have the right to refinance the notes via any type of direct exchange.
The senior credit facility agreement also contains other restrictions on our operations that are customary for similar facilities, including limitations on: (i) incurring additional liens; (ii) sale and leaseback transactions (except for the permitted transactions as described in the senior credit facility agreement); (iii) liquidations and dissolutions; (iv) incurring additional indebtedness or guarantees; (v) investments and acquisitions; (vi) dividends and share repurchases; (vii) mergers and consolidations; (viii) disposition of assets; and (ix) refinancing of the senior notes. Compliance with these requirements and restrictions is a condition for any incremental borrowings under the senior credit facility agreement and failure to meet these requirements enables the lenders to require repayment of any outstanding loans.
As of September 30, 2017, we were in compliance with all the financial covenants and operational restrictions of the senior credit facility. Our senior credit facility does not contain any terms that could accelerate payment of the facility or affect pricing under the facility as a result of a credit rating agency downgrade.
Senior Notes. As of September 30, 2017, our outstanding senior notes included $225 million of 53/8 percent senior notes due December 15, 2024 which consisted of $222 million net carrying amount including a $3 million debt issuance cost and $500 million of 5 percent senior notes due July 15, 2026 which consisted of $492 million net carrying amount including a $8 million debt issuance cost. Under the indentures governing the remaining notes, we are permitted to redeem some or all of the remaining senior notes at specified prices that decline to par over a specified period, (a) on or after July 15, 2021, in case of the senior notes due 2026, and (b) on or after December 15, 2019, in the case of the senior notes due 2024. In addition, the notes may also be redeemed in whole or in part at a redemption price generally equal to 100 percent of the principal amount thereof plus a premium based on the present values of the remaining payments due to the note holders. Further, the indentures governing the notes also permit us to redeem up to 35 percent of the senior notes with the proceeds of certain equity offerings,

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(a) on or before July 15, 2019 at a redemption price equal to 105 percent, in case of the senior notes due 2026 and (b) on or before December 15, 2017 at a redemption price equal to 105.375 percent, in case of the senior notes due 2024. If we sell certain of our assets or experience specified kinds of changes in control, we must offer to repurchase the notes due 2026 and 2024 at 101 percent of the principal amount thereof plus accrued and unpaid interest.
Our senior notes due, respectively, December 15, 2024 and July 15, 2026 contain covenants that will, among other things, limit our ability to create liens, and enter into sale and leaseback transactions. Our senior notes due 2024 also require that, as a condition precedent to incurring certain types of indebtedness not otherwise permitted, our consolidated fixed charge coverage ratio, as calculated on a pro forma basis, be greater than 2.00, as well as containing restrictions on our operations, including limitations on: (i) incurring additional indebtedness; (ii) dividends; (iii) distributions and stock repurchases; (iv) investments; (v) asset sales and (vi) mergers and consolidations. Subject to limited exceptions, all of our existing and future material domestic wholly owned subsidiaries fully and unconditionally guarantee our senior notes on a joint and several basis. There are no significant restrictions on the ability of the subsidiaries that have guaranteed these notes to make distributions to us. As of September 30, 2017, we were in compliance with the covenants and restrictions of these indentures.
Accounts Receivable Securitization. We securitize some of our accounts receivable on a limited recourse basis in the U.S. and Europe. As servicer under these accounts receivable securitization programs, we are responsible for performing all accounts receivable administration functions for these securitized financial assets including collections and processing of customer invoice adjustments. In the U.S., we have an accounts receivable securitization program with three commercial banks comprised of a first priority facility and a second priority facility. We securitize original equipment and aftermarket receivables on a daily basis under the bank program. In April 2017, the U.S. program was amended and extended to April 30, 2019. The first priority facility now provides financing of up to $155 million and the second priority facility, which is subordinated to the first priority facility, now provides up to an additional $25 million of financing. Both facilities monetize accounts receivable generated in the U.S. and Canada that meet certain eligibility requirements, and the second priority facility also monetizes certain accounts receivable generated in the U.S. and Canada that would otherwise be ineligible under the first priority securitization facility. The amount of outstanding third-party investments in our securitized accounts receivable under the U.S. program was $50 million and $30 million at September 30, 2017 and December 31, 2016, respectively.
Each facility contains customary covenants for financings of this type, including restrictions related to liens, payments, mergers or consolidations and amendments to the agreements underlying the receivables pool. Further, each facility may be terminated upon the occurrence of customary events (with customary grace periods, if applicable), including breaches of covenants, failure to maintain certain financial ratios, inaccuracies of representations and warranties, bankruptcy and insolvency events, certain changes in the rate of default or delinquency of the receivables, a change of control and the entry or other enforcement of material judgments. In addition, each facility contains cross-default provisions, where the facility could be terminated in the event of non-payment of other material indebtedness when due and any other event which permits the acceleration of the maturity of material indebtedness.
We also securitize receivables in our European operations with regional banks in Europe. The arrangements to securitize receivables in Europe are provided under six separate facilities provided by various financial institutions in each of the foreign jurisdictions. The commitments for these arrangements are generally for one year, but some may be canceled with notice 90 days prior to renewal. In some instances, the arrangement provides for cancellation by the applicable financial institution at any time upon notification. The amount of outstanding third-party investments in our securitized accounts receivable in Europe was $212 million and $160 million at September 30, 2017 and December 31, 2016, respectively.
If we were not able to securitize receivables under either the U.S. or European securitization programs, our borrowings under our revolving credit agreement might increase. These accounts receivable securitization programs provide us with access to cash at costs that are generally favorable to alternative sources of financing, and allow us to reduce borrowings under our revolving credit agreement.
In our U.S. accounts receivable securitization program, we transfer a partial interest in a pool of receivables and the interest that we retain is subordinate to the transferred interest. Accordingly, we account for our U.S. securitization program as a secured borrowing. In our European programs, we transfer accounts receivables in their entirety to the acquiring entities and satisfy all of the conditions established under ASC Topic 860, “Transfers and Servicing,” to report the transfer of financial assets in their entirety as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under our European securitization programs approximates the fair value of such receivables. We recognized $1 million interest expense in each of the three month periods ended September 30, 2017 and 2016, and $3 million and $2 million for the nine month periods ended September 30, 2017 and 2016, respectively, relating to our U.S. securitization program. In addition, we recognized a loss of $2 million in each of the three month periods ended September 30, 2017 and 2016, and $4 million in each of the nine month periods ended September 30, 2017 and 2016, on the sale of trade accounts receivable in our European accounts receivable securitization programs, representing the discount from book values at which these receivables were sold to our banks. The discount rate varies based on funding costs incurred by our banks, which averaged approximately one percent and two percent during the first nine months of 2017 and 2016, respectively.

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Financial Instruments. In certain instances, several of our Chinese subsidiaries receive payment from customers through the receipt of financial instruments on the date the customer payments are due. Several of our Chinese subsidiaries also satisfy vendor payments through the delivery of financial instruments on the date the payments are due. Financial instruments issued to satisfy vendor payables and not redeemed totaled $8 million and $12 million at September 30, 2017 and December 31, 2016, respectively, and were classified as notes payable. Financial instruments received from OE customers and not redeemed totaled $3 million and $5 million at September 30, 2017 and December 31, 2016, respectively. We classify financial instruments received from our customers as other current assets if issued by a financial institution of our customers or as customer notes and accounts, net if issued by our customer. We classified $3 million and $5 million in other current assets at September 30, 2017 and December 31, 2016, respectively.
The financial instruments received by some of our Chinese subsidiaries are drafts drawn that are payable at a future date and, in some cases, are negotiable and/or are guaranteed by the banks of the customers. The use of these instruments for payment follows local commercial practice. Because certain of such financial instruments are guaranteed by our customers’ banks, we believe they represent a lower financial risk than the outstanding accounts receivable that they satisfy which are not guaranteed by a bank.
Supply Chain Financing. Certain of our suppliers in the U.S. participate in a supply chain financing programs under which they securitize their accounts receivables from Tenneco. Financial institutions participate in the supply chain financing program on an uncommitted basis and can cease purchasing receivables from Tenneco's suppliers at any time. If the financial institutions did not continue to purchase receivables from Tenneco's suppliers under these programs, the participating vendors may have a need to renegotiate their payment terms with Tenneco which in turn would cause our borrowings under our revolving credit facility to increase.
Capital Requirements. We believe that cash flows from operations, combined with our cash on hand, subject to any applicable withholding taxes upon repatriation of cash balances from our foreign operations where most of our cash balances are located, and available borrowing capacity described above, assuming that we maintain compliance with the financial covenants and other requirements of our senior credit facility agreement, will be sufficient to meet our future capital requirements, including debt amortization, capital expenditures, pension contributions, and other operational requirements, for the following year. Our ability to meet the financial covenants depends upon a number of operational and economic factors, many of which are beyond our control. In the event that we are unable to meet these financial covenants, we would consider several options to meet our cash flow needs. Such actions include additional restructuring initiatives and other cost reductions, sales of assets, reductions to working capital and capital spending, issuance of equity and other alternatives to enhance our financial and operating position. Should we be required to implement any of these actions to meet our cash flow needs, we believe we can do so in a reasonable time frame.

Derivative Financial Instruments
Foreign Currency Exchange Rate Risk
When foreign currency exchange rate risk cannot be managed by operational strategies, we use derivative financial instruments, principally foreign currency forward purchase and sale contracts with terms of less than one year, to hedge our exposure to changes in foreign currency exchange rates. Our primary exposure to changes in foreign currency rates results from intercompany loans and accounts receivable and payable in nonfunctional currencies made between affiliates to minimize the need for borrowings from third parties. Additionally, we enter into foreign currency forward purchase and sale contracts to mitigate our exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. We manage counter-party credit risk by entering into derivative financial instruments with major financial institutions that can be expected to fully perform under the terms of such agreements. We do not enter into derivative financial instruments for speculative purposes.
In managing our foreign currency exposures, we identify and then hedge exposures by creating offsetting intercompany exposures or through third-party derivative contracts. The fair value of our foreign currency forward contracts was a net asset position of less than $1 million at September 30, 2017 and is based on an internally developed model which incorporates observable inputs including quoted spot rates, forward exchange rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics. The following table summarizes by major currency the notional amounts for our foreign currency forward purchase and sale contracts as of September 30, 2017. All contracts in the following table mature in 2017.

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September 30, 2017
 
 
Notional Amount
in Foreign Currency
 
 
(Millions)
British pounds
—Purchase
10

Canadian dollars
—Sell
(2
)
European euro
—Sell
(4
)
U.S. dollars
—Purchase
7

 
—Sell
(14
)
Interest Rate Risk
Our financial instruments that are sensitive to market risk for changes in interest rates are primarily our debt securities. We use our revolving credit facility to finance our short-term and long-term capital requirements. We pay a current market rate of interest on these borrowings. Our long-term capital requirements have been financed with long-term debt with original maturity dates ranging from five to ten years. On September 30, 2017, we had $740 million in long-term debt obligations that have fixed interest rates. Of that amount, $500 million is fixed through July 2026, $225 million is fixed through December 2024, and the remainder is fixed through 2025. We also have $850 million in long-term debt obligations that are subject to variable interest rates. For more detailed explanations on our debt structure and senior credit facility refer to “Liquidity and Capital Resources — Capitalization” earlier in this Management’s Discussion and Analysis.
We estimate that the fair value of our long-term debt at September 30, 2017 was about 101 percent of its book value. A one percentage point increase or decrease in interest rates related to our variable interest rate debt would increase or decrease the annual interest expense we recognize in the income statement and the cash we pay for interest expense by about $10 million.
Equity Prices
We also utilize an equity swap arrangement to offset changes in liabilities related to the equity market risks of our arrangements for deferred compensation and restricted stock unit awards. Gain or losses from changes in fair value of these total return swaps are generally offset by the losses or gains on the related liabilities. In the second quarter, we entered into an equity swap agreement with a financial institution. We selectively use cash-settled share swaps to reduce market risk associated with our deferred liabilities. These equity compensation liabilities increase as our stock price increases and decrease as our stock price decreases. In contrast, the value of the swap agreement moves in the opposite direction of these liabilities, allowing us to fix a portion of the liabilities at a stated amount. As of September 30, 2017, we had hedged deferred liability related to approximately 250,000 common share equivalents.

Environmental Matters, Legal Proceedings and Product Warranties
Note 7 in our notes to condensed consolidated financial statements located in Part I Item 1 of this Form 10-Q is incorporated herein for reference.
Tenneco 401(K) Retirement Savings Plan
Effective January 1, 2012, the Tenneco Employee Stock Ownership Plan for Hourly Employees and the Tenneco Employee Stock Ownership Plan for Salaried Employees were merged into one plan called the Tenneco 401(k) Retirement Savings Plan (the “Retirement Savings Plan”). Under the plan, subject to limitations in the Internal Revenue Code, participants may elect to defer up to 75 percent of their salary through contributions to the plan, which are invested in selected mutual funds or used to buy our common stock. We match 100 percent of an employee's contributions up to three percent of the employee's salary and 50 percent of an employee's contributions that are between three percent and five percent of the employee's salary. In connection with freezing the defined benefit pension plans for nearly all U.S. based salaried and non-union hourly employees effective December 31, 2006, and the related replacement of those defined benefit plans with defined contribution plans, we are making additional contributions to the Retirement Savings Plan. We recorded expense for these contributions of approximately $22 million and $21 million for the nine month periods ended September 30, 2017 and 2016, respectively. Matching contributions vest immediately. Defined benefit replacement contributions fully vest on the employee’s third anniversary of employment.
Other Financial Information
The interim financial information included in this Quarterly Report on Form 10-Q for the periods ended
September 30, 2017 and 2016 has not been audited by PricewaterhouseCoopers LLP (“PwC”). In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Readers should restrict reliance on PwC’s reports on such information accordingly. PwC is not subject to the liability provisions

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of Section 11 of the Securities Act of 1933 for its reports on interim financial information, because such reports do not constitute “reports” or “parts” of registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933.


ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding our exposure to interest rate risk and foreign currency exchange rate risk, see the caption entitled “Derivative Financial Instruments” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is incorporated herein by reference.

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ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the quarter covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting previously identified and described more fully under Item 9A in the Company’s amended Annual Report on Form 10-K/A for the year ended December 31, 2016, the Company’s disclosure controls and procedures were not effective as of September 30, 2017 to ensure that information required to be disclosed by our Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.
Internal Controls Surrounding the Accounting for Supplier Payments
A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.
As previously identified and described more fully under Item 9A in the Company’s amended Annual Report on Form 10-K/A for the year ended December 31, 2016, the Company identified deficiencies that, when aggregated together, resulted in a material weakness in the Company’s internal control over financial reporting in China. Specifically, the Company did not have people with appropriate authority and experience in key positions in China to ensure adherence to Company policies and US GAAP. Additionally, we did not have adequate international oversight to prevent the intentional mischaracterization of the nature of accounting transactions related to payments received from suppliers by certain purchasing and accounting personnel at the Company’s China subsidiaries. The material weakness continued to exist as of the end of the period covered by this Quarterly Report.
The material weakness resulted in the revision of the consolidated financial statements as of December 31, 2016, 2015 and 2014, each interim and year-to-date period in those respective years, and the first interim period in 2017, as described in Note 14 to the condensed consolidated financial statements included in this Quarterly Report. Additionally these control deficiencies could result in the misstatement of the relevant account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected, our management has determined that these control deficiencies constitute a material weakness.
Remediation Plan for Material Weakness in Internal Control over Financial Reporting
The Audit Committee engaged an independent legal firm to investigate these transactions and it concluded that such mischaracterizations were intentional. In particular, certain China personnel created accounting documentation for certain supplier transactions that was inconsistent with the substance of the transactions. With respect to these circumstances, the Company has taken action with respect to the individuals who have engaged in intentional misconduct, and will take further actions as appropriate.
As part of our commitment to strengthening our internal controls over financial reporting, the additional actions expected to be taken have not yet been fully implemented and evidenced; therefore, we concluded that this material weakness continued to exist as of September 30, 2017. To address the material weakness, we are implementing various personnel actions and will initiate other related remedial actions under the oversight of the Audit Committee, including implementing additional training for China accounting and purchasing personnel, augmenting international accounting oversight with qualified personnel in the United States and Europe, and enhancing oversight controls at the Company’s China locations around adherence by Company personnel to policies regarding payments received from suppliers.
We will continue to monitor the effectiveness of these and other processes, procedures and controls and make any further changes management determines appropriate.
Changes in Internal Control Over Financial Reporting
Except as described above, there have been no other changes in our internal control over financial reporting during the quarter ended September 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Note 7 in our notes to condensed consolidated financial statements located in Part I Item 1 of this Form 10-Q is incorporated herein for reference.
ITEM 1A.RISK FACTORS
We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, financial condition and operating results. Except for the update to the following risk factor related to governmental investigations, there have been no other material changes to the Risk Factors described in Part I, Item 1A of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2016.
We are subject to, and could be further subject to, governmental investigations or actions by other third parties.
We are subject to a variety of laws and regulations that govern our business both in the United States and internationally, including antitrust laws, violations of which can involve civil or criminal sanctions. Responding to governmental investigations or other actions may be both time-consuming and disruptive to our operations and could divert the attention of our management and key personnel from our business operations.
For example, antitrust authorities in various jurisdictions are investigating possible violations of antitrust laws by multiple automotive parts suppliers, including Tenneco. In addition, Tenneco and certain of its competitors are currently subject to civil putative class action lawsuits in the U.S., which allege anti-competitive conduct related to the activities subject to these investigations. More related lawsuits may be filed, including in other jurisdictions.
While we have established a reserve that we believe is adequate to resolve Tenneco’s antitrust matters globally, we cannot, however, assure you that the reserve will not change materially from time to time or that the costs, charges and liabilities associated with these matters will not exceed any amounts reserved for them in our consolidated financial statements.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) Not applicable.
(c) Purchase of equity securities by the issuer and affiliated purchasers. The following table provides information relating to our purchase of shares of our common stock in the third quarter of 2017. These purchases reflect shares withheld upon vesting of restricted stock for tax withholding obligations as well as shares repurchased through our share repurchase program. We generally intend to continue to satisfy tax withholding obligations in connection with the vesting of outstanding restricted stock through the withholding of shares.
In January 2015, our Board of Directors approved a share repurchase program, authorizing our company to repurchase up to $350 million of our outstanding common stock over a three year period. In October 2015, our Board of Directors expanded this share repurchase program, authorizing the repurchase of an additional $200 million of the Company's outstanding common stock. In February 2017, our Board of Directors authorized the repurchase of up to $400 million of the Company's outstanding common stock over the next three years. This includes $112 million that remained authorized under earlier repurchase programs. The Company anticipates acquiring the shares through open market or privately negotiated transactions, which will be funded through cash from operations. The repurchase program does not obligate the Company to repurchase shares within any specific time or situations, and opportunities in higher priority areas could affect the cadence of this program. We repurchased 2.3 million shares for $131 million through this program in the nine months ended September 30, 2017. Since we announced the share repurchase program in January 2015, we have repurchased 10.7 million shares for $569 million through September 30, 2017.

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Period
Total Number of
Shares Purchased (1)
 
Average
Price Paid
 
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
 
Maximum Value of
Shares That
May Yet be
Purchased
Under
These Plans
or Programs (Millions)
July 2017
81,953

 
$
56.93

 
81,000

 
$
335

August 2017
603,676

 
$
53.36

 
603,000

 
302

September 2017
570,677

 
$
56.31

 
570,643

 
269

Total
1,256,306

 
$
54.93

 
1,254,643

 
$
269


(1)
Includes shares withheld upon vesting of restricted stock in the amount of 953 in July 2017, 676 in August and 34 in September 2017.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Tenneco Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
TENNECO INC.
 
 
 
By:
 
/S/    KENNETH R. TRAMMELL
 
 
Kenneth R. Trammell
 
 
Executive Vice President and Chief Financial Officer
Dated: November 2, 2017

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INDEX TO EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2017
 
Exhibit
Number
 
Description
 
 
 
—
Amendment No. 3, effective October 26, 2017, to Amended and Restated Tenneco Value Added Incentive Compensation Plan.
 
 
 
—
Computation of Ratio of Earnings to Fixed Charges.
 
 
 
—
Letter of PricewaterhouseCoopers LLP regarding interim financial information.
 
 
 
—
Certification of Brian J. Kesseler under Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
—
Certification of Kenneth R. Trammell under Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
—
Certification of Brian J. Kesseler and Kenneth R. Trammell under Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
*101.INS
—
XBRL Instance Document.
 
 
 
*101.SCH
—
XBRL Taxonomy Extension Schema Document.
 
 
 
*101.CAL
—
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
*101.DEF
—
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
*101.LAB
—
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
*101.PRE
—
XBRL Taxonomy Extension Presentation Linkbase Document.
*
Filed herewith.

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