10-Q 1 ten-2017630x10q.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 June 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: 53,202,666 shares outstanding as of August 4, 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 annual report on Form 10-K 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 June 30, 2017, and the related condensed consolidated statements of income, comprehensive income and cash flows for the three-month and six-month periods ended June 30, 2017 and 2016 and the condensed consolidated statement of changes in shareholders’ equity for the six-month periods ended June 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, we expressed an unqualified opinion on those consolidated financial statements. As discussed in Note 14 to the accompanying condensed consolidated interim financial statements, the Company has reflected the effects of a revision. The accompanying December 31, 2016 condensed consolidated balance sheet reflects this change.

 
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
August 9, 2017
 

5


TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2017
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
 
(Millions Except Share and Per Share Amounts)
 
(Millions Except Share and Per Share Amounts)
Revenues
 
 
 
 
 
 
 
   Net sales and operating revenues
$
2,317

 
$
2,212

 
$
4,609

 
$
4,348

 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
1,946

 
1,816

 
3,877

 
3,586

Engineering, research, and development
36

 
37

 
75

 
76

Selling, general, and administrative
253

 
134

 
401

 
281

Depreciation and amortization of other intangibles
55

 
52

 
107

 
106

 
2,290

 
2,039

 
4,460

 
4,049

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

 
(1
)
 
1

 
(2
)
 

 
(2
)
 
(1
)
 
(4
)
Earnings before interest expense, income taxes, and noncontrolling interests
27

 
171

 
148

 
295

Interest expense
20

 
34

 
35

 
52

Earnings before income taxes and noncontrolling interests
7

 
137

 
113

 
243

Income tax (benefit) expense
(8
)
 
39

 
25

 
73

Net income
15

 
98

 
88

 
170

Less: Net income attributable to noncontrolling interests
18

 
16

 
32

 
31

Net income (loss) attributable to Tenneco Inc.
$
(3
)
 
$
82

 
$
56

 
$
139

Earnings per share
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding —
 
 
 
 
 
 
 
Basic
53,505,341

 
56,873,353

 
53,662,375

 
56,991,568

Diluted
53,505,341

 
57,331,749

 
53,952,918

 
57,391,932

Basic earnings per share of common stock
$
(0.05
)
 
$
1.44

 
$
1.05

 
$
2.44

Diluted earnings per share of common stock
$
(0.05
)
 
$
1.43

 
$
1.05

 
$
2.42

Cash dividends declared
$
0.25

 
$

 
$
0.50

 
$

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 June 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
 
 
$
(3
)
 
 
 
$
18

 
 
 
$
15

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance April 1
$
(317
)
 
 
 
$
(4
)
 
 
 
$
(321
)
 
 
Translation of foreign currency statements
32

 
32

 
2

 
2

 
34

 
34

Balance June 30
(285
)
 
 
 
(2
)
 
 
 
(287
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance April 1
(320
)
 
 
 

 
 
 
(320
)
 
 
Additional liability for pension and postretirement benefits, net of tax
4

 
4

 

 

 
4

 
4

Balance June 30
(316
)
 
 
 

 
 
 
(316
)
 
 
Balance June 30
$
(601
)
 
 
 
$
(2
)
 
 
 
$
(603
)
 
 
Other Comprehensive Income
 
 
36

 
 
 
2

 
 
 
38

Comprehensive Income
 
 
$
33

 
 
 
$
20

 
 
 
$
53

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 June 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
 
 
$
82

 
 
 
$
16

 
 
 
$
98

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance April 1
$
(274
)
 
 
 
$

 
 
 
$
(274
)
 
 
Translation of foreign currency statements
(20
)
 
(20
)
 
(2
)
 
(2
)
 
(22
)
 
(22
)
Balance June 30
(294
)
 
 
 
(2
)
 
 
 
(296
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance April 1
(364
)
 
 
 

 
 
 
(364
)
 
 
Additional liability for pension and postretirement benefits, net of tax
3

 
3

 

 

 
3

 
3

Balance June 30
(361
)
 
 
 

 
 
 
(361
)
 
 
Balance June 30
$
(655
)
 
 
 
$
(2
)
 
 
 
$
(657
)
 
 
Other Comprehensive Loss
 
 
(17
)
 
 
 
(2
)
 
 
 
(19
)
Comprehensive Income
 
 
$
65

 
 
 
$
14

 
 
 
$
79

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)

 
Six Months Ended June 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
 
 
$
56

 
 
 
$
32

 
 
 
$
88

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
$
(338
)
 
 
 
$
(5
)
 
 
 
$
(343
)
 
 
Translation of foreign currency statements
53

 
53

 
3

 
3

 
56

 
56

Balance June 30
(285
)
 


 
(2
)
 


 
(287
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
(327
)
 
 
 

 

 
(327
)
 
 
Additional Liability for Pension and Postretirement Benefits, net of tax
11

 
11

 

 

 
11

 
11

Balance June 30
(316
)
 
 
 

 
 
 
(316
)
 
 
Balance June 30
$
(601
)
 
 
 
$
(2
)
 
 
 
$
(603
)
 
 
Other Comprehensive Income
 
 
64

 
 
 
3

 
 
 
67

Comprehensive Income
 
 
$
120

 
 
 
$
35

 
 
 
$
155


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)

 
Six Months Ended June 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
 
 
$
139

 
 
 
$
31

 
 
 
$
170

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
$
(297
)
 
 
 
$
(1
)
 
 
 
$
(298
)
 
 
Translation of foreign currency statements
3

 
3

 
(1
)
 
(1
)
 
2

 
2

Balance June 30
(294
)
 
 
 
(2
)
 
 
 
(296
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
(368
)
 
 
 

 
 
 
(368
)
 
 
Additional Liability for Pension and Postretirement Benefits, net of tax
7

 
7

 

 

 
7

 
7

Balance June 30
(361
)
 
 
 

 

 
(361
)
 
 
Balance June 30
$
(655
)
 
 
 
$
(2
)
 
 
 
$
(657
)
 
 
Other Comprehensive Income (Loss)
 
 
10

 
 
 
(1
)
 
 
 
9

Comprehensive Income
 
 
$
149

 
 
 
$
30

 
 
 
$
179


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)
 
June 30,
2017
 
December 31,
2016
 
(Millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
333

 
$
347

Restricted cash
2

 
2

Receivables —
 
 
 
Customer notes and accounts, net
1,482

 
1,272

Other
19

 
22

Inventories —
 
 
 
Finished goods
324

 
284

Work in process
261

 
245

Raw materials
159

 
137

Materials and supplies
71

 
64

Prepayments and other
311

 
229

Total current assets
2,962

 
2,602

Other assets:
 
 
 
Long-term receivables, net
9

 
9

Goodwill
59

 
57

Intangibles, net
18

 
19

Deferred income taxes
244

 
199

Other
110

 
103

 
440

 
387

Plant, property, and equipment, at cost
3,821

 
3,548

Less — Accumulated depreciation and amortization
(2,342
)
 
(2,191
)
 
1,479

 
1,357

Total Assets
$
4,881

 
$
4,346

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt (including current maturities of long-term debt)
$
107

 
$
90

Accounts payable
1,608

 
1,501

Accrued taxes
53

 
39

Accrued interest
13

 
15

Accrued liabilities
331

 
285

Other
182

 
43

Total current liabilities
2,294

 
1,973

Long-term debt
1,490

 
1,294

Deferred income taxes
7

 
7

Postretirement benefits
251

 
273

Deferred credits and other liabilities
157

 
139

Commitments and contingencies

 

Total liabilities
4,199

 
3,686

Redeemable noncontrolling interests
25

 
40

Tenneco Inc. Shareholders’ equity:
 
 
 
Common stock
1

 
1

Premium on common stock and other capital surplus
3,106

 
3,098

Accumulated other comprehensive loss
(601
)
 
(665
)
Retained earnings (accumulated deficit)
(1,070
)
 
(1,100
)
 
1,436

 
1,334

Less — Shares held as treasury stock, at cost
821

 
761

Total Tenneco Inc. shareholders’ equity
615

 
573

Noncontrolling interests
42

 
47

Total equity
657

 
620

Total liabilities, redeemable noncontrolling interests and equity
$
4,881

 
$
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 June 30, 2017
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
 
(Millions)
 
 
 
 
 
 
 
 
Operating Activities
 
 
 
 
 
 
 
Net income
$
15

 
$
98

 
$
88

 
$
170

Adjustments to reconcile net income to cash provided by operating activities —
 
 
 
 
 
 
 
Depreciation and amortization of other intangibles
55

 
52

 
107

 
106

Deferred income taxes
(7
)
 
9

 

 
12

Stock-based compensation
2

 
3

 
11

 
10

Loss on sale of assets

 
1

 
1

 
1

Changes in components of working capital —
 
 
 
 
 
 
 
(Increase) decrease in receivables
(39
)
 
(19
)
 
(176
)
 
(179
)
(Increase) decrease in inventories
(15
)
 
2

 
(60
)
 
(49
)
(Increase) decrease in prepayments and other current assets
(11
)
 
(16
)
 
(68
)
 
(35
)
Increase (decrease) in payables
(7
)
 
7

 
86

 
64

Increase (decrease) in accrued taxes
(41
)
 
(6
)
 
(38
)
 
9

Increase (decrease) in accrued interest
3

 
(12
)
 
(2
)
 

Increase (decrease) in other current liabilities
160

 

 
152

 
(17
)
Changes in long-term assets
1

 
1

 

 
4

Changes in long-term liabilities
2

 
8

 
7

 
2

Other
1

 
4

 
2

 
5

Net cash provided by operating activities
119

 
132

 
110

 
103

Investing Activities
 
 
 
 
 
 
 
Proceeds from sale of assets
3

 
2

 
6

 
3

Proceeds from sale of equity interest
9

 

 
9

 

Cash payments for plant, property, and equipment
(90
)
 
(71
)
 
(193
)
 
(139
)
Cash payments for software related intangible assets
(6
)
 
(3
)
 
(12
)
 
(9
)
Changes in restricted cash
1

 
(1
)
 

 
(2
)
Other
(4
)
 

 
(4
)
 

Net cash used by investing activities
(87
)
 
(73
)
 
(194
)
 
(147
)
Financing Activities
 
 
 
 
 
 
 
Issuance (repurchase) of common shares

 
4

 
(3
)
 
2

Cash dividends
(13
)
 

 
(26
)
 

Retirement of long-term debt - net
(2
)
 
(344
)
 
(8
)
 
(348
)
Issuance of long-term debt - net
136

 
501

 
136

 
506

Debt issuance cost of long-term debt
(8
)
 
(8
)
 
(8
)
 
(8
)
Purchase of common stock under the share repurchase program
(44
)
 
(41
)
 
(60
)
 
(57
)
Net increase (decrease) in bank overdrafts
(12
)
 
(2
)
 
(9
)
 
5

Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt and short-term borrowings secured by accounts receivable
(57
)
 
(168
)
 
60

 
25

Net increase (decrease) in short-term borrowings secured by accounts receivable

 
(30
)
 
20

 
(30
)
Distributions to noncontrolling interest partners
(33
)
 
(27
)
 
(33
)
 
(27
)
Net cash provided (used) by financing activities
(33
)
 
(115
)
 
69

 
68

Effect of foreign exchange rate changes on cash and cash equivalents
(7
)
 
(7
)
 
1

 

Increase (decrease) in cash and cash equivalents
(8
)
 
(63
)
 
(14
)
 
24

Cash and cash equivalents, April 1 and January 1, respectively
341

 
374

 
347

 
287

Cash and cash equivalents, June 30 (Note)
$
333

 
$
311

 
$
333

 
$
311

Supplemental Cash Flow Information
 
 
 
 
 
 
 
Cash paid during the period for interest (net of interest capitalized)
$
16

 
$
42

 
$
38

 
$
48

Cash paid during the period for income taxes (net of refunds)
28

 
37

 
43

 
58

Non-cash Investing and Financing Activities
 
 
 
 
 
 
 
Period end balance of trade payables for plant, property, and equipment
$
51

 
$
35

 
$
51

 
$
35

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)
 
 
Six Months Ended June 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
35,502

 

 
346,394

 

Restricted shares forfeited
(104,668
)
 

 
(32,192
)
 

Stock options exercised
168,105

 

 
205,166

 

Balance June 30
65,990,869

 
1

 
65,586,500

 
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
 
 
8

 
 
 
12

Balance June 30
 
 
3,106

 
 
 
3,093

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance January 1
 
 
(665
)
 
 
 
(665
)
Other comprehensive income
 
 
64

 
 
 
10

Balance June 30
 
 
(601
)
 
 
 
(655
)
Retained Earnings (Accumulated Deficit)
 
 
 
 
 
 
 
Balance January 1
 
 
(1,100
)
 
 
 
(1,456
)
Net income attributable to Tenneco Inc.
 
 
56

 
 
 
139

Cash dividends declared
 
 
(26
)
 
 
 

Balance June 30
 
 
(1,070
)
 
 
 
(1,317
)
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
1,023,800

 
60

 
1,132,805

 
57

Balance June 30
12,679,738

 
821

 
8,606,130

 
593

Total Tenneco Inc. shareholders’ equity
 
 
$
615

 
 
 
$
529

Noncontrolling Interests:
 
 
 
 
 
 
 
Balance January 1
 
 
$
47

 
 
 
$
39

Net income
 
 
14

 
 
 
13

Other comprehensive loss
 
 
1

 
 
 
(1
)
Dividends declared
 
 
(20
)
 
 
 

Balance June 30
 
 
$
42

 
 
 
$
51

Total equity
 
 
$
657

 
 
 
$
580

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 Annual Report on Form 10-K 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 approximately $34 million in lump sum payments from our suppliers that 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 $27 million at June 30, 2017 and recorded within deferred credit and other liabilities. In addition, we identified 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 have revised and will revise for annual and 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 June 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 $103 million and $99 million at June 30, 2017 and December 31, 2016, respectively, for accrued compensation and $17 million and $26 million at June 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 six months ended June 30, 2017 and 2016, respectively:
 
Six Months Ended June 30,
 
2017
 
2016
 
(Millions)
Balance January 1
$
40

 
$
42

Net income attributable to redeemable noncontrolling interests
19

 
18

Other comprehensive loss
1

 
(1
)
Dividends declared
(35
)
 
(33
)
Balance June 30
$
25

 
$
26

(2)
Financial Instruments
The net carrying and estimated fair values of our financial instruments by class at June 30, 2017 and December 31, 2016 were as follows:
 
June 30, 2017
 
December 31, 2016
 
Net Carrying
Amount
 
Fair
Value
 
Net Carrying
Amount
 
Fair
Value
 
(Millions)
Long-term debt (including current maturities)
$
1,492

 
$
1,520

 
$
1,297

 
$
1,311

Equity swap agreement and foreign exchange forward contracts:
 
 
 
 
 
 
 
Asset derivative contracts (a)
4

 
4

 

 


(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 $739 million and $725 million at June 30, 2017 and December 31, 2016, respectively. We have classified $767 million and $571 million as level 2 in the fair value hierarchy at June 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 June 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 that can be expected to fully perform under the terms of such agreements. We do not enter into derivative financial instruments

15

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

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 June 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 June 30, 2017 (all of which mature in 2017):
 
 
Notional Amount
in Foreign Currency
 
 
(Millions)
British pounds
—Purchase
10

Canadian dollars
—Sell
(2
)
European euro
—Purchase
4

 
—Sell
(8
)
South African rand
—Sell
(8
)
U.S. dollars
—Purchase
11

 
—Sell
(17
)
Cash-settled Share Swap Transactions — 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 June 30, 2017, we had hedged 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 $4 million at June 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 June 30, 2017 and December 31, 2016, respectively. At June 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

16

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

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 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 June 30, 2017, we have guaranteed $33 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 $7 million at both June 30, 2017 and December 31, 2016 and were classified as notes payable. Financial instruments received from original equipment (OE) customers and not redeemed totaled $5 million at both June 30, 2017 and December 31, 2016. 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 $5 million in other current assets at both June 30, 2017 and December 31, 2016.
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 June 30, 2017 and December 31, 2016, respectively.
One of our subsidiaries in Brazil is required by law to maintain a cash deposit with the 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 June 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 June 30, 2017, the senior credit facility provides us with a total revolving credit facility of $1,600 million and had a $400 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 $398 million as

17

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

of June 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 June 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 two quarters of 2017, are as follows:
 
Quarter Ended
 
June 30, 2017
 
March 31, 2017
 
Required

Actual
 
Required

Actual
Leverage Ratio (maximum)
3.50


1.97

 
3.50


1.58

Interest Coverage Ratio (minimum)
2.75


12.44

 
2.75


15.73

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. Had these charges been excluded, the leverage ratio and the interest ratio would have been 1.57 and 15.62, respectively, as of June 30, 2017.
At June 30, 2017, of the $1,600 million available under the revolving credit facility, we had unused borrowing capacity of $1,234 million with $366 million in outstanding borrowings and no outstanding letters of credit. As of June 30, 2017, our outstanding debt also included (i) $400 million of a term loan which consisted of a $398 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 $221 million net carrying amount including a $4 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) $120 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 benefit of $8 million and income tax expense of $39 million in the three month periods ended June 30, 2017 and 2016, respectively. The tax benefit recorded in the second quarter of 2017 included a net tax benefit of $50 million primarily relating to an antitrust settlement accrual. The tax expense recorded in the second quarter of 2016 included a net tax expense of $2 million primarily relating to tax adjustments to uncertain tax positions, prior year intercompany transactions and prior year income tax estimates.
We reported income tax expense of $25 million and $73 million in the six months periods ended June 30, 2017 and 2016, respectively. The tax expense recorded in the first six months of 2017 included a net tax benefit of $49 million primarily relating to an antitrust settlement accrual. The tax expense recorded in the first six months of 2016 included a net tax benefit of $1 million primarily relating to tax adjustments to uncertain tax positions, prior year intercompany transactions and tax adjustments to prior year income tax estimates.
We believe it is reasonably possible that up to $17 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.

18

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

(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 June 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 $222 million and $160 million at June 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 and less than $1 million interest expense in the three month periods ended June 30, 2017 and 2016, respectively, and $2 million and $1 million in the six month periods ended June 30, 2017 and 2016, respectively, relating to our U.S. securitization program. In addition, we recognized a loss of $1 million in each of the three month periods ended June 30, 2017 and 2016, and $2 million in each of the six months periods ended June 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 two percent during the first six months of both 2017 and 2016.
(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 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 second quarter of 2017, we incurred $17 million in restructuring and related costs, including asset write-downs of $1 million, primarily related to closing a Clean Air manufacturing plant in Australia, of

19

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

which $12 million was recorded in cost of sales, $4 million in SG&A and $1 million in depreciation and amortization expense. In the second quarter of 2016, we incurred $5 million in restructuring and related costs, primarily related to European cost reduction efforts and headcount reductions in South America, of which $3 million was recorded in cost of sales and $2 million in SG&A. In the first six months of 2017, we incurred $32 million in restructuring and related costs including asset write-downs of $2 million, primarily related to closing a Clean Air Belgian JIT plant in response to the end of production on a customer platform, closing a Clean Air manufacturing plant in Australia and cost improvement initiatives in Europe, of which $23 million was recorded in cost of sales, $7 million in SG&A, and $2 million in depreciation and amortization expense. In the first six months of 2016, we incurred $19 million in restructuring and related costs including asset write-downs of $5 million primarily related to European cost reduction efforts and headcount reductions in South America, of which $6 million was recorded in cost of sales, $8 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
 
June 30, 2017
Restructuring
Reserve
 
(Millions)
Employee Severance, Termination Benefits and Other Related Costs

$15

 
26

 
(10
)
 
2

 

$33

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 is expected to occur in October 2017. This initiative may include additional restructuring actions with respect to our local original equipment Ride Performance operations. 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 $12 million in the second quarter of 2017 including asset write-downs of $1 million.
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 June 30, 2017, we elected not to exclude any of the $132 million of allowable cash charges and related expenses recognized in the second quarter for antitrust settlement costs against the $150 million aggregate limit available under the terms of the senior credit facility and none of the $30 million against the $35 million annual limit for 2017.
(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

20

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

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 June 30, 2017, we have the obligation to remediate or contribute towards the remediation of certain sites, including one Federal Superfund site. At June 30, 2017, our aggregated estimated share of environmental remediation costs for all these sites on a discounted basis was approximately $15 million, of which $2 million is recorded in other current liabilities and $13 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 2.4 percent. The undiscounted value of the estimated remediation costs was $19 million. Our expected payments of environmental remediation costs are estimated to be approximately $2 million in 2017, $1 million in each year beginning 2018 through 2021 and $13 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.
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. 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 these 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.
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 second 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. Based upon these developments, including recent 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

21

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

civil suits and related 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.
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

22

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

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:
 
Six Months Ended June 30,
 
2017
 
2016
 
(Millions)
Beginning Balance January 1,
$
20

 
$
23

Accruals related to product warranties
11

 
6

Reductions for payments made
(4
)
 
(6
)
Ending Balance June 30,
$
27

 
$
23

(8)
Earnings Per Share
Earnings per share of common stock outstanding were computed as follows:
 
Three Months Ended June 30, 2017
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
 
(Millions Except Share and Per Share Amounts)
Basic earnings per share —
 
 
 
 
 
 
 
Net income (loss) attributable to Tenneco Inc.
$
(3
)
 
$
82

 
$
56

 
$
139

Weighted Average shares of common stock outstanding
53,505,341

 
56,873,353

 
53,662,375

 
56,991,568

Earnings per share of common stock
$
(0.05
)
 
$
1.44

 
$
1.05

 
$
2.44

Diluted earnings per share —
 
 
 
 

 

Net income (loss) attributable to Tenneco Inc.
$
(3
)
 
$
82

 
$
56

 
$
139

Weighted Average shares of common stock outstanding
53,505,341

 
56,873,353

 
53,662,375

 
56,991,568

Effect of dilutive securities:
 
 
 
 

 

Restricted stock

 
134,084

 
111,459

 
93,947

Stock options

 
324,312

 
179,084

 
306,417

Weighted Average shares of common stock outstanding including dilutive securities
53,505,341

 
57,331,749

 
53,952,918

 
57,391,932

Earnings per share of common stock
$
(0.05
)
 
$
1.43

 
$
1.05

 
$
2.42


Options to purchase 834 and 175,382 shares of common stock were outstanding as of June 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 June 30, 2017 and 2016, and less than $1 million in compensation expense for each of the six month periods ended June 30, 2017 and 2016, respectfully, 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 June 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 six month periods ended June 30, 2017 and 2016.
For employees eligible to retire at grant date, we immediately expense stock options and restricted stock. If an employee is 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.

23

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

As of June 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 $3 million for the three month periods ended June 30, 2017 and 2016, respectively, and $8 million and $9 million for the six month periods ended June 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 six month periods ended June 30, 2017 and 2016 was $6 million and $4 million, respectively.
Stock options exercised in the first six months of 2017 and 2016 generated a tax benefit of $2 million and a tax benefit of $1 million, respectively.
Stock Options — The following table reflects the status and activity for all options to purchase common stock for the period indicated:
 
Six Months Ended June 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

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 for each of the periods ended June 30, 2017 and 2016.
Restricted Stock — The following table reflects the status for all nonvested restricted shares for the period indicated:
 
Six Months Ended June 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

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 June 30, 2017, approximately $12 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 2.1 years. The total fair value of restricted shares vested was $14 million and $8 million at June 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

24

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

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 1.0 million shares for $60 million through this program in the six months ended June 30, 2017. Since we announced the share repurchase program in January 2015, we have repurchased 9.4 million shares for $498 million through June 30, 2017.
Treasury stock shares including repurchased shares were 12,679,738 and 11,655,938 shares at June 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. 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 June 30, 2017, $26 million of total unrecognized compensation costs is expected to be recognized over a weighted-average period of approximately 2.0 years.


25

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 June 30,
 
Pension
 
Postretirement
 
2017
 
2016
 
2017
 
2016
 
US
 
Foreign
 
US
 
Foreign
 
US
 
US
 
(Millions)
Service cost — benefits earned during the period
$

 
$
2

 
$

 
$
2

 
$

 
$

Interest cost
2

 
3

 
5

 
3

 
2

 
2

Expected return on plan assets
(3
)
 
(11
)
 
(6
)
 
(5
)
 

 

Net amortization:
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
2

 
3

 
2

 
2

 
2

 
1

Prior service cost (credit)

 

 

 

 
(1
)
 

Net pension and postretirement costs
$
1

 
$
(3
)
 
$
1

 
$
2

 
$
3

 
$
3

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

 
$
4

 
$

 
$
4

 
$

 
$

Interest cost
5

 
6

 
9

 
7

 
3

 
3

Expected return on plan assets
(7
)
 
(15
)
 
(12
)
 
(10
)
 

 

Settlement loss
6

 

 

 

 

 

Net amortization:
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
3

 
5

 
4

 
4

 
3

 
2

Prior service cost (credit)

 

 

 

 
(1
)
 

Net pension and postretirement costs
$
7

 
$

 
$
1

 
$
5

 
$
5

 
$
5


For the six months ended June 30, 2017, we made pension contributions of $12 million and $7 million for our domestic and foreign pension plans, respectively. Based on current actuarial estimates, we believe we will be required to contribute approximately $13 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 $6 million during the first six months of 2017. Based on current actuarial estimates, we believe we will be required to contribute approximately $4 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. 

26

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 six months ended June 30, 2017 and 2016 include the following components:
 
Three Months Ended June 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
$
7

 
$
(2
)
 
$
5

 
$
5

 
$
(2
)
 
$
3

Other comprehensive income – pension benefits
$
6

 
$
(2
)
 
$
4

 
$
5

 
$
(2
)