NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in millions, except share and per share amounts, or as otherwise noted)
1. Description of Business
Tenneco Inc. (“Tenneco” or “the Company”) was formed under the laws of Delaware in 1996. Tenneco designs, manufactures, markets, and distributes products and services for light vehicle, commercial truck, off-highway, industrial, motorsport, and aftermarket customers. The Company manufactures innovative performance solutions, clean air and powertrain products and systems, and serves both original equipment (“OE”) manufacturers and the repair and replacement markets worldwide.
The Company is continually evaluating its portfolio and a full range of strategic options to enhance shareholder value creation, including a potential separation of the Company into an Aftermarket and Ride Performance company and a new Powertrain Technology company. Efforts to optimize shareholder value creation remain focused on operational improvements, reducing structural costs, lowering capital intensity, reducing net debt, and growth in targeted business lines.
2. Basis of Presentation
Basis of Presentation — Interim Financial Statements
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. These statements include all adjustments (consisting of normal recurring adjustments) management believes are necessary to fairly state the results of operations, comprehensive income, financial position, changes in shareholders’ equity, and cash flows. The Company’s management believes the disclosures are adequate to make the information presented not misleading when read in conjunction with the audited consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 24, 2021 (the “2020 Form 10-K”). Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. There are many uncertainties related to the COVID-19 global pandemic that could negatively affect the Company's results of operations, financial position, and cash flows.
Beginning in the first quarter of 2021, the Company made a change to its operating segments. This change consisted of moving a reporting unit within the Powertrain segment to the Ride Performance segment to align with a change in how the Chief Operating Decision Maker (“CODM”) allocates resources and assesses performance against the Company's key growth strategies. In addition, with this change to its segments, Ride Performance was renamed Performance Solutions. As such, prior period operating segment results and related disclosures have been conformed to reflect the Company's current operating segments.
Reclassifications
Certain amounts in the prior period have been aggregated or disaggregated to conform to current year presentation, as described above for the change in operating segments.
Redeemable noncontrolling interests
The Company has noncontrolling interests with redemption features. These redemption features could require the Company to make an offer to purchase the noncontrolling interests in the event of a change in control of Tenneco Inc. or certain of its subsidiaries or the passage of time.
At June 30, 2021 and December 31, 2020, the Company held redeemable noncontrolling interests of $58 million and $45 million which were not currently redeemable or probable of becoming redeemable. The redemption of these redeemable noncontrolling interests is not solely within the Company’s control, therefore, they are presented in the temporary equity section of the Company’s condensed consolidated balance sheets. The Company does not believe it is probable the redemption features related to these noncontrolling interest securities will be triggered, as a change in control event is generally not probable until it occurs. As such, these noncontrolling interests have not been remeasured to redemption value.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
In addition, at June 30, 2021 and December 31, 2020, the Company held a redeemable noncontrolling interest of $50 million and $33 million which was probable of becoming redeemable. This noncontrolling interest is also presented in the temporary equity section of the Company’s condensed consolidated balance sheets and has been remeasured to its redemption value. The Company immediately recognizes changes to redemption value as a component of “Net income (loss) attributable to noncontrolling interests” in the condensed consolidated statements of income (loss). This redeemable noncontrolling interest represents a 9.5% ownership interest in Öhlins Intressenter AB (the “KÖ Interest”) retained by K Öhlin Holding AB (“Köhlin”), as a result of the Öhlins acquisition on January 10, 2019. Köhlin has an irrevocable right at any time after the third anniversary of the Öhlins acquisition to sell the KÖ Interest to the Company. During the six months ended June 30, 2021 and 2020, the Company recognized an increase of $18 million and $10 million to the carrying value of this noncontrolling interest.
During the first quarter of 2020, the Company completed the process to make a tender offer of the shares it did not own for a subsidiary in India acquired by the Company as part of the Federal-Mogul LLC acquisition on October 1, 2018, in accordance with local regulations. As a result of completing the tender offer, the redeemable noncontrolling interest was no longer redeemable or probable of becoming redeemable and the amount of $82 million was reclassified to permanent equity during the six months ended June 30, 2020. Refer to Note 16, “Related Party Transactions”, for additional information related to the tender offer of this noncontrolling interest.
The following is a rollforward of activities in the Company’s redeemable noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
Balance at beginning of period
|
$
|
78
|
|
|
$
|
196
|
|
|
Net income (loss) attributable to redeemable noncontrolling interests
|
13
|
|
|
5
|
|
|
Other comprehensive income (loss)
|
(1)
|
|
|
(4)
|
|
|
|
|
|
|
|
Noncontrolling interest tender offer redemption
|
—
|
|
|
(46)
|
|
|
Redemption value measurement adjustment
|
18
|
|
|
10
|
|
|
|
|
|
|
|
Reclassification of noncontrolling interest to permanent equity
|
—
|
|
|
(82)
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
108
|
|
|
$
|
79
|
|
Earnings (loss) per share
Basic earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average shares outstanding during the period. Diluted earnings (loss) per share reflects the weighted average effect of all potentially dilutive securities from the date of issuance. Actual weighted average shares outstanding used in calculating earnings (loss) per share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Weighted average shares of common stock outstanding
|
82,251,559
|
|
|
81,350,773
|
|
|
82,102,310
|
|
|
81,259,667
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
PSUs and RSUs
|
—
|
|
|
—
|
|
|
1,020,044
|
|
|
—
|
|
|
Dilutive shares outstanding
|
82,251,559
|
|
|
81,350,773
|
|
|
83,122,354
|
|
|
81,259,667
|
|
For the three and six months ended June 30, 2021, the calculation of diluted earnings (loss) per share excluded 3,459,155 and 2,032,790 of share-based awards, as the effect on the calculation would have been anti-dilutive. For the three and six months ended June 30, 2020, the calculation of diluted earnings (loss) per share excluded 3,133,035 and 2,508,565 of share-based awards, as the effect on the calculation would have been anti-dilutive.
3. Acquisitions and Divestitures
Assets Held for Sale
At June 30, 2021 and December 31, 2020, the Company had $11 million and $15 million of property, plant, and equipment, primarily land, buildings and non-core machinery and equipment, across multiple segments that are expected to be sold in the next twelve months and have been classified as held for sale. The assets held for sale are recorded in “Prepayments and other current assets” in the condensed consolidated balance sheets.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
4. Restructuring Charges, Net and Asset Impairments
The Company’s restructuring activities are undertaken as necessary to execute management’s strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize the Company’s businesses and to relocate operations to best cost locations.
The Company’s restructuring charges consist primarily of employee costs (principally severance and/or termination benefits), and facility closure and exit costs. For the three and six months ended June 30, 2021 and 2020, restructuring charges, net and asset impairments by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
Powertrain
|
|
Corporate
|
|
Total
|
|
Severance and other charges, net
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairments related to restructuring actions
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Other non-restructuring asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset impairment charges
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
3
|
|
|
Total restructuring charges, net and asset impairments
|
$
|
6
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
Powertrain
|
|
Corporate
|
|
Total
|
|
Severance and other charges, net
|
$
|
15
|
|
|
$
|
18
|
|
|
$
|
22
|
|
|
$
|
36
|
|
|
$
|
1
|
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairments related to restructuring actions
|
25
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
28
|
|
|
Other non-restructuring asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Impairment of assets held for sale
|
(1)
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Total asset impairment charges
|
24
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
1
|
|
|
29
|
|
|
Total restructuring charges, net and asset impairments
|
$
|
39
|
|
|
$
|
18
|
|
|
$
|
22
|
|
|
$
|
40
|
|
|
$
|
2
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
Powertrain
|
|
Corporate
|
|
Total
|
|
Severance and other charges, net
|
$
|
7
|
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
18
|
|
|
$
|
1
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairments related to restructuring actions
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Other non-restructuring asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset impairment charges
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
3
|
|
|
Total restructuring charges, net and asset impairments
|
$
|
8
|
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
18
|
|
|
$
|
3
|
|
|
$
|
52
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
Powertrain
|
|
Corporate
|
|
Total
|
|
Severance and other charges, net
|
$
|
17
|
|
|
$
|
24
|
|
|
$
|
22
|
|
|
$
|
37
|
|
|
$
|
5
|
|
|
$
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairments related to restructuring actions
|
25
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
28
|
|
|
Other non-restructuring asset impairments
|
—
|
|
|
455
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
472
|
|
|
Impairment of assets held for sale
|
(1)
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Total asset impairment charges
|
24
|
|
|
455
|
|
|
—
|
|
|
4
|
|
|
17
|
|
|
500
|
|
|
Total restructuring charges, net and asset impairments
|
$
|
41
|
|
|
$
|
479
|
|
|
$
|
22
|
|
|
$
|
41
|
|
|
$
|
22
|
|
|
$
|
605
|
|
Severance and other charges, net
Three and six months ended June 30, 2021
The Company recognized $15 million and $32 million in severance and other charges expected to be paid for cost reduction initiatives aimed at optimizing the Company’s cost structure across all segments and regions during the three and six months ended June 30, 2021. The Company also recognized severance and other charges of $9 million and $20 million related to plant consolidations, relocations, and closures during the three and six months ended June 30, 2021.
In response to the COVID-19 global pandemic, the Company announced Project Accelerate and executed global headcount reductions. The Company began implementing these actions during the second quarter of 2020 and expects to complete them during 2021. The Company recognized a reduction of $3 million in revisions to estimates for the cash severance costs expected to be paid in connection with these actions during the six months ended June 30, 2021.
Motorparts recognized severance and other charges, and revisions to estimates as follows:
•$1 million and $3 million for the three and six months ended June 30, 2021 in connection with its supply chain rationalization and distribution network initiative to achieve efficiencies and improve throughput to its customers in North America;
•$1 million, along with a reduction of $4 million in revisions to estimates, for the three and six months ended June 30, 2021 in connection with cost reduction initiatives primarily in Europe; and
•$7 million for the three and six months ended June 30, 2021 related to plant consolidations, relocations, and closures, primarily in Europe.
Performance Solutions recognized severance and other charges as follows:
•$7 million and $11 million for the three and six months ended June 30, 2021 in connection with cost reduction initiatives primarily in Europe; and
•$1 million for the three and six months ended June 30, 2021 related to plant consolidations, relocations, and closures, primarily in North America.
Clean Air recognized severance and other charges, and revisions to estimates as follows:
•$2 million and $17 million for the three and six months ended June 30, 2021, along with a reduction of $1 million and $6 million in revisions to estimates for the three and six months ended June 30, 2021, in connection with cost reduction initiatives primarily in Europe;
•$1 million and $3 million for the three and six months ended June 30, 2021 related to plant consolidations, relocations and closures primarily in North America and Asia Pacific; and
•$3 million reduction due to a revision in estimates for the six months ended June 30, 2021 in connection with Project Accelerate.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Powertrain recognized severance and other charges, and revisions to estimates as follows:
•$9 million for the three and six months ended June 30, 2021 in connection with cost reduction initiatives primarily in Asia Pacific;
•$3 million and $4 million reduction as a result of revisions to estimates for the three and six months ended June 30, 2021, in connection with cost reduction initiatives primarily in Europe;
•$9 million for the six months ended June 30, 2021 related to plant consolidations, relocations, and closures, primarily in Europe and North America; and
•$2 million and $4 million for the three and six months ended June 30, 2021 incurred related to an approved voluntary termination program at one of its European bearings plants aimed at reducing headcount. As of June 30, 2021, total severance related restructuring charges for this program aggregate to $12 million. Total severance related charges are expected to be approximately $31 million, comprised of approximately $10 million of postemployment benefits, including an early retirement program, and $21 million of special termination benefits. In addition, the Company expects to incur additional costs of approximately $2 million for customer validation, equipment transfer, and related expenditures.
The Company also incurred $1 million in cash severance costs within its corporate component for the three and six months ended June 30, 2021.
Three and six months ended June 30, 2020
The Company recognized $44 million and $51 million in severance and other charges of expected to be paid for cost reduction initiatives during the three and six months ended June 30, 2020. The Company also recognized severance and other charges of $23 million and $29 million related to plant consolidations, relocations, and closures during the three and six months ended June 30, 2020.
The Company recognized charges of $25 million for cash severance costs expected to be paid in connection with Project Accelerate during the three and six months ended June 30, 2020.
Motorparts recognized severance and other charges, and revisions to estimates as follows:
•$4 million for the three and six months ended June 30, 2020 in connection with its supply chain rationalization and distribution network initiative to achieve efficiencies and improve throughput to its customers in North America;
•$4 million and $6 million for the three and six months ended June 30, 2020, along with a reduction of $1 million in revisions to estimates for the three and six months ended June 30, 2020, in connection with cost reduction initiatives primarily in Europe;
•$3 million and $4 million for the three and six months ended June 30, 2020, along with a reduction of $1 million in revisions to estimates for the six months ended June 30, 2020, related to plant consolidations, relocations, and closures primarily in Europe and Asia Pacific; and
•$5 million for the three and six months ended June 30, 2020 in connection with Project Accelerate.
Performance Solutions recognized severance and other charges, and revisions to estimates as follows:
•$10 million for the three and six months ended June 30, 2020 in connection with cost reduction initiatives primarily in Europe;
•$5 million and $12 million for the three and six months ended June 30, 2020, along with a reduction of $1 million in revisions to estimates for the six months ended June 30, 2020 related to plant consolidations, relocations, and closures, primarily in North America; and
•$3 million for the three and six months ended June 30, 2020 in connection with Project Accelerate.
Clean Air recognized severance and other charges, and revisions to estimates for the three and six months ended June 30, 2020 as follows:
•$14 million, along with a reduction of $1 million in revisions to estimates, in connection with cost reduction initiatives primarily in Europe;
•$1 million, along with a reduction of $1 million in revisions to estimates, related to plant consolidations, relocations, and closures primarily in Europe; and
•$9 million in connection with Project Accelerate.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Powertrain recognized severance and other charges, and revisions to estimates as follows:
•$12 million and $14 million for the three and six months ended June 30, 2020 in connection with cost reduction initiatives primarily in Europe;
•$16 million for the three and six months ended June 30, 2020, along with a reduction of $1 million in revisions to estimates for the six months ended June 30, 2020, related to plant consolidations, relocations, and closures, primarily in North America and Europe;
•$7 million for the three and six months ended June 30, 2020 in connection with Project Accelerate; and
•$1 million for the three and six months ended June 30, 2020 incurred related to an approved voluntary termination program at one of its European bearings plants aimed at reducing headcount.
The Company also incurred $1 million in cash severance costs in connection with Project Accelerate for the three and six months ended June 30, 2020, as well as $4 million in cash severance costs for the elimination of certain redundant positions within its corporate component for the six months ended June 30, 2020.
Restructuring reserve rollforward
The following table provides a summary of the Company’s restructuring liabilities and related activity for each type of exit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2020
|
|
|
Employee Costs
|
|
Facility Closure and Other Costs
|
|
Total
|
|
Employee Costs
|
|
Facility Closure and Other Costs
|
|
Total
|
|
Balance at beginning of period
|
$
|
99
|
|
|
$
|
1
|
|
|
$
|
100
|
|
|
$
|
97
|
|
|
$
|
4
|
|
|
$
|
101
|
|
|
Provisions
|
31
|
|
|
3
|
|
|
34
|
|
|
10
|
|
|
5
|
|
|
15
|
|
|
Revisions to estimates
|
(9)
|
|
|
—
|
|
|
(9)
|
|
|
(2)
|
|
|
—
|
|
|
(2)
|
|
|
Payments
|
(21)
|
|
|
(4)
|
|
|
(25)
|
|
|
(23)
|
|
|
(7)
|
|
|
(30)
|
|
|
Foreign currency
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
Balance at March 31
|
99
|
|
|
—
|
|
|
99
|
|
|
81
|
|
|
2
|
|
|
83
|
|
|
Provisions
|
30
|
|
|
2
|
|
|
32
|
|
|
90
|
|
|
6
|
|
|
96
|
|
|
Revisions to estimates
|
(8)
|
|
|
—
|
|
|
(8)
|
|
|
(4)
|
|
|
—
|
|
|
(4)
|
|
|
Payments
|
(22)
|
|
|
(2)
|
|
|
(24)
|
|
|
(31)
|
|
|
(4)
|
|
|
(35)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
99
|
|
|
$
|
136
|
|
|
$
|
4
|
|
|
$
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairments
Asset impairments related to restructuring actions
During the three and six months ended June 30, 2021, as a result of the actions in the Motorparts segment, asset impairment charges of $1 million were recognized related to the write-down of property, plant and equipment.
During the three and six months ended June 30, 2020, as a result of the actions in the Motorparts segment, asset impairment charges of $25 million were recognized which included $16 million related to the write-down of property, plant, and equipment to its fair value, and $9 million of impairment charge to its operating lease right-of-use assets. Refer to Note 5, “Inventories”, for additional information.
During the three and six months ended June 30, 2020, the Powertrain segment incurred $3 million in asset impairment charges in connection with its plant relocation and closure actions.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Other non-restructuring asset impairments
As a result of changes in the business, during the second quarter of 2021, the Company assessed and concluded an impairment trigger had occurred for certain long-lived asset groups in its corporate component and recognized an impairment charge of $2 million during the three and six months ended June 30, 2021.
The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the value of these long-lived asset groups are not recoverable. During the first quarter of 2020, the Company concluded impairment triggers had occurred for certain long-lived asset groups in the Performance Solutions segment as a result of the effects of the COVID-19 global pandemic on the Company’s projected financial information. Accordingly, the Company tested these long-lived asset groups for recoverability by performing undiscounted cash flow analyses. Based on these analyses, the net carrying values of these asset groups exceeded their undiscounted future cash flows. As such, the Company estimated the fair values of these asset groups at March 31, 2020 and compared them to their carrying values. As the net carrying values of these long-lived asset groups exceeded their fair values, the Company recorded long-lived asset impairment charges for property, plant, and equipment of $455 million during the six months ended June 30, 2020. Refer to Note 8, “Financial Instruments and Fair Value” for additional information on the fair value estimates used in these analyses.
As a result of changes in the business, during the first quarter of 2020, the Company assessed and concluded an impairment trigger had occurred for certain long-lived asset groups in its corporate component. Accordingly, the Company tested these long-lived asset groups for recoverability. The Company estimated the fair value of these asset groups and compared it to the carrying value. As the net carrying value exceeded fair value, the Company recorded long-lived asset impairment charges of $1 million and $17 million during the three and six months ended June 30, 2020. Included in the asset impairment charges for the six months ended June 30, 2020 are $11 million of property, plant, and equipment and $6 million of operating lease right-of-use assets, included in “Other assets” within the condensed consolidated balance sheets.
5. Inventories
At June 30, 2021 and December 31, 2020, inventory by major classification was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Finished goods
|
$
|
797
|
|
|
$
|
758
|
|
|
Work in process
|
551
|
|
|
449
|
|
|
Raw materials
|
479
|
|
|
441
|
|
|
Materials and supplies
|
93
|
|
|
95
|
|
|
Total inventories
|
$
|
1,920
|
|
|
$
|
1,743
|
|
Beginning in the second quarter of 2020, the Motorparts segment initiated a rationalization of its supply chain and distribution network to achieve supply chain efficiencies and improve throughput to its customers. As a result, certain assets including inventory, real estate, and personal property will no longer be utilized. As part of Motorparts' on-going efforts related to this initiative, it recognized an additional non-cash charge of $44 million to write-down inventory to its net realizable value, an additional $1 million impairment charge to write-down property, plant and equipment, and $1 million and $3 million in restructuring charges related to cash severance benefits and other costs during the three and six months ended June 30, 2021.
During the three and six months ended June 30, 2020, the Motorparts segment recognized an $82 million non-cash charge to write-down inventory to its net realizable value, a $16 million impairment charge to write-down property, plant, and equipment to its fair value, a $9 million impairment charge to its operating lease right-of-use assets, and $4 million in restructuring charges related to cash severance benefits. Refer to Note 4, “Restructuring Charges, Net and Asset Impairments” for additional information.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
6. Goodwill and Other Intangible Assets
As discussed in Note 2, “Basis of Presentation”, beginning in the first quarter of 2021, the Company moved a reporting unit within the Powertrain segment to the Ride Performance segment and Ride Performance was renamed Performance Solutions. Refer to Note 15, “Segment Information” for further information.
At June 30, 2021 and December 31, 2020, goodwill consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
Powertrain
|
|
Total
|
|
Gross carrying amount at December 31, 2020
|
$
|
623
|
|
|
$
|
549
|
|
|
$
|
23
|
|
|
$
|
59
|
|
|
$
|
1,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
—
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
Gross carrying amount at March 31, 2021
|
623
|
|
|
546
|
|
|
23
|
|
|
59
|
|
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Gross carrying amount at June 30, 2021
|
623
|
|
|
548
|
|
|
23
|
|
|
59
|
|
|
1,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated impairment loss at December 31, 2020
|
(310)
|
|
|
(377)
|
|
|
—
|
|
|
(59)
|
|
|
(746)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
Accumulated impairment loss at March 31, 2021
|
(310)
|
|
|
(374)
|
|
|
—
|
|
|
(59)
|
|
|
(743)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
—
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
Accumulated impairment loss at June 30, 2021
|
(310)
|
|
|
(376)
|
|
|
—
|
|
|
(59)
|
|
|
(745)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value at June 30, 2021
|
$
|
313
|
|
|
$
|
172
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
508
|
|
The following table shows a summary of the number of reporting units with a net carrying value of goodwill in each segment at June 30, 2021 and whether or not the reporting unit’s fair value exceeds its carrying value by more or less than 25% based on each respective reporting units most recent goodwill impairment analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
|
|
Number of reporting units with goodwill
|
1
|
|
|
2
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of reporting units where fair value exceeds carrying value:
|
|
|
|
|
|
|
|
|
Greater than 25%
|
1
|
|
|
1
|
|
|
3
|
|
|
|
|
Less than 25%
|
—
|
|
|
1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill for reporting units where fair value exceeds carrying value:
|
|
|
|
|
|
|
|
|
Greater than 25%
|
$
|
313
|
|
|
$
|
7
|
|
|
$
|
23
|
|
|
|
|
Less than 25%
|
—
|
|
|
165
|
|
|
—
|
|
|
|
|
|
$
|
313
|
|
|
$
|
172
|
|
|
$
|
23
|
|
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
During the first quarter of 2020, the Company concluded it was more likely than not that the fair values of certain of its reporting units and its indefinite-lived intangible assets had declined below their carrying values as a result of the effects of the COVID-19 global pandemic on the Company’s projected financial information. The Company completed a goodwill impairment analysis for four of its reporting units with goodwill in the Motorparts, Performance Solutions, and Powertrain segments. The difference between the reporting units’ carrying values and fair values were recognized as impairment charges. The Company recognized $267 million in non-cash impairment charges related to its goodwill during the six months ended June 30, 2020, which represented full impairments of the goodwill in one reporting unit in the Performance Solutions segment and one reporting unit in the Powertrain segment, and partial impairments of goodwill in one reporting unit in the Motorparts segment and one reporting unit in the Performance Solutions segment.
During the first quarter of 2020, the Company also completed an analysis to determine the fair value of its trade names and trademarks for its reporting units in the Motorparts and Performance Solutions segments. It was determined that their carrying values exceeded their fair values and the Company recognized $51 million in non-cash impairment charges related to these indefinite-lived intangible assets during the six months ended June 30, 2020, which represented a full impairment of the trade names and trademarks in one of the reporting units in the Motorparts segment, and a partial impairment of the trade names and trademarks in one of the reporting units in the Performance Solutions segment and one of the reporting units in the Motorparts segment.
As discussed in more detail in Note 4, “Restructuring Charges, Net and Asset Impairments”, the Company concluded impairment triggers had occurred during the first quarter of 2020 for certain long-lived asset groups within the Performance Solutions segment. As a result, the Company recorded non-cash impairment charges of $65 million related to its definite-lived intangible assets during the six months ended June 30, 2020, which represented full impairments of the definite-lived intangible assets in two reporting units.
Impairment charges for goodwill and intangible assets recognized by segment during the six months ended June 30, 2020 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
Motorparts
|
|
Performance Solutions
|
|
Powertrain
|
|
Total
|
|
Goodwill impairment charges
|
$
|
70
|
|
|
$
|
156
|
|
|
$
|
41
|
|
|
$
|
267
|
|
|
Trade names and trademarks intangible asset impairment charges
|
40
|
|
|
11
|
|
|
—
|
|
|
51
|
|
|
Definite-lived intangible asset impairment charges
|
—
|
|
|
65
|
|
|
—
|
|
|
65
|
|
|
|
$
|
110
|
|
|
$
|
232
|
|
|
$
|
41
|
|
|
$
|
383
|
|
At June 30, 2021 and December 31, 2020, the Company’s intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Useful Lives
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships and platforms
|
10 years
|
|
$
|
994
|
|
|
$
|
(328)
|
|
|
$
|
666
|
|
|
$
|
995
|
|
|
$
|
(282)
|
|
|
$
|
713
|
|
|
Customer contracts
|
10 years
|
|
8
|
|
|
(6)
|
|
|
2
|
|
|
8
|
|
|
(6)
|
|
|
2
|
|
|
Patents
|
10 to 17 years
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
Technology rights
|
10 to 30 years
|
|
137
|
|
|
(56)
|
|
|
81
|
|
|
139
|
|
|
(51)
|
|
|
88
|
|
|
Packaged kits know-how
|
10 years
|
|
54
|
|
|
(15)
|
|
|
39
|
|
|
54
|
|
|
(12)
|
|
|
42
|
|
|
Catalogs
|
10 years
|
|
47
|
|
|
(13)
|
|
|
34
|
|
|
47
|
|
|
(11)
|
|
|
36
|
|
|
Licensing agreements
|
3 to 5 years
|
|
65
|
|
|
(42)
|
|
|
23
|
|
|
66
|
|
|
(35)
|
|
|
31
|
|
|
Land use rights
|
28 to 46 years
|
|
50
|
|
|
(5)
|
|
|
45
|
|
|
49
|
|
|
(4)
|
|
|
45
|
|
|
|
|
|
$
|
1,356
|
|
|
$
|
(466)
|
|
|
890
|
|
|
$
|
1,359
|
|
|
$
|
(402)
|
|
|
957
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks
|
|
|
|
|
|
|
235
|
|
|
|
|
|
|
237
|
|
|
Total
|
|
|
|
|
|
|
$
|
1,125
|
|
|
|
|
|
|
$
|
1,194
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The amortization expense associated with definite-lived intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Amortization expense
|
$
|
33
|
|
|
$
|
32
|
|
|
$
|
65
|
|
|
$
|
66
|
|
The expected future amortization expense for the Company’s definite-lived intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026 and thereafter
|
|
Total
|
|
Expected amortization expense
|
$
|
64
|
|
|
$
|
125
|
|
|
$
|
122
|
|
|
$
|
114
|
|
|
$
|
114
|
|
|
$
|
351
|
|
|
$
|
890
|
|
7. Investment in Nonconsolidated Affiliates
No significant changes occurred in the Company’s ownership interest in nonconsolidated affiliates since December 31, 2020.
The carrying amount of the Company’s investments in its nonconsolidated affiliates accounted for under the equity method exceeded its share of the underlying net assets by $278 million and $287 million at June 30, 2021 and December 31, 2020.
The following tables present summarized aggregated financial information of the Company’s nonconsolidated affiliates for the three and six months ended June 30, 2021 and 2020. The amounts represent 100% of the interest in the nonconsolidated affiliates and not the Company’s proportionate share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Statements of Income
|
Otomotiv A.S.
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
|
Sales
|
$
|
94
|
|
|
$
|
52
|
|
|
$
|
136
|
|
|
$
|
282
|
|
|
Gross profit
|
$
|
29
|
|
|
$
|
14
|
|
|
$
|
29
|
|
|
$
|
72
|
|
|
Income from continuing operations
|
$
|
25
|
|
|
$
|
14
|
|
|
$
|
15
|
|
|
$
|
54
|
|
|
Net income
|
$
|
17
|
|
|
$
|
13
|
|
|
$
|
14
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Statements of Income
|
Otomotiv A.S.
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
|
Sales
|
$
|
36
|
|
|
$
|
11
|
|
|
$
|
41
|
|
|
$
|
88
|
|
|
Gross profit
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
17
|
|
|
Income from continuing operations
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
10
|
|
|
Net income
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Statements of Income
|
Otomotiv A.S.
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
|
Sales
|
$
|
196
|
|
|
$
|
101
|
|
|
$
|
248
|
|
|
$
|
545
|
|
|
Gross profit
|
$
|
64
|
|
|
$
|
28
|
|
|
$
|
51
|
|
|
$
|
143
|
|
|
Income from continuing operations
|
$
|
57
|
|
|
$
|
28
|
|
|
$
|
30
|
|
|
$
|
115
|
|
|
Net income
|
$
|
51
|
|
|
$
|
25
|
|
|
$
|
24
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Statements of Income
|
Otomotiv A.S.
|
|
Anqing TP Goetze
|
|
Other
|
|
Total
|
|
Sales
|
$
|
120
|
|
|
$
|
41
|
|
|
$
|
146
|
|
|
$
|
307
|
|
|
Gross profit
|
$
|
32
|
|
|
$
|
11
|
|
|
$
|
26
|
|
|
$
|
69
|
|
|
Income from continuing operations
|
$
|
27
|
|
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
49
|
|
|
Net income
|
$
|
23
|
|
|
$
|
10
|
|
|
$
|
8
|
|
|
$
|
41
|
|
Refer to Note 16, “Related Party Transactions”, for additional information on balances and transactions with equity method investments.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
8. Financial Instruments and Fair Value
The Company is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices, equity price risk associated with share-based compensation awards, and changes in interest rates, which may result in cash flow risks. For exposures not offset within its operations, the Company may enter into various derivative or other financial instrument transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes. In certain cases, the Company may or may not designate certain derivatives instruments as hedges for accounting purposes. Designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.
Market Risks
Foreign Currency Exchange Rate Risk
The Company manufactures and sells its products globally. As a result, the Company’s financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which the Company manufactures and sells its products. The Company generally tries to use natural hedges within its foreign currency activities to minimize foreign currency risk. Where natural hedges are not in place, the Company considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts.
Concentrations of Credit Risk
Financial instruments, including cash equivalents and derivative contracts, expose the Company to counterparty credit risk for non-performance. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s concentration of credit risk related to derivative contracts at June 30, 2021 and December 31, 2020 is not considered material to the condensed consolidated financial statements.
Equity Price Risk
The Company has deferred compensation liabilities and certain cash-settled share-based incentive compensation liabilities that are dependent upon the Company’s stock price. These liabilities increase as the stock price increases and decrease as the stock price decreases. The Company has entered into certain financial instruments that move in the opposite direction of these liabilities. The market risk related to the deferred compensation liability and vested portion of the cash-settled share-based incentive compensation awards have been substantially mitigated. Significant market risk still exists with respect to the unvested cash-settled share-based incentive compensation grant awards which have not yet been accrued. Refer to “Other Financial Instruments” section below for additional details on these liabilities and the related financial instruments used to reduce the Company's equity price risk.
Fair Value
A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy definition prioritizes the inputs used in measuring fair value into the following levels:
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
—
|
Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2
|
—
|
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
|
|
Level 3
|
—
|
Unobservable inputs based on the Company's own assumptions.
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Asset and Liability Instruments
The carrying value of cash and cash equivalents, restricted cash, short and long-term receivables, accounts payable, and short-term debt approximates fair value.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Derivative Instruments
The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis. Derivative gains and losses associated with undesignated hedges are recognized in “Cost of sales (exclusive of depreciation and amortization)” in the condensed consolidated statements of income (loss).
Foreign Currency Forward Contracts
The Company enters into foreign currency forward purchase and sale contracts to mitigate its exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. The Company calculates the fair value of its foreign currency contracts using currency forward rates (level 2), to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on bank deposit rates. The fair value of these derivative instruments at June 30, 2021 and December 31, 2020 is not considered material to the condensed consolidated financial statements.
The following table summarizes by position the notional amounts for foreign currency forward contracts at June 30, 2021, all of which mature in the next twelve months:
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Long positions
|
$
|
277
|
|
|
Short positions
|
$
|
(282)
|
|
Other Financial Instruments
Cash-Settled Share and Index Swap Transactions
The Company has certain employee compensation arrangements, including deferred compensation and cash-settled share-based units granted under its long-term incentive plan, that are valued based on the Company's stock price. As of June 30, 2021 and December 31, 2020, the share equivalents outstanding related to cash-settled share-based awards are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Restricted Stock Units (RSUs)
|
1,758,443
|
|
1,878,220
|
|
Performance Share Units (PSUs)
|
2,990,493
|
|
—
|
|
|
|
4,748,936
|
|
1,878,220
|
|
|
|
|
|
|
Deferred compensation arrangements
|
1,584,039
|
|
1,125,605
|
The Company has entered into financial instruments to mitigate the risk associated with the deferred compensation liability and vested portion of the cash-settled share-based incentive compensation awards. In the second quarter of 2021, the Company entered into an additional agreement to increase the number of common share equivalents from 1,700,000 at December 31, 2020 to 3,200,000 at June 30, 2021 to mitigate additional market risk. These financial instruments use the Company’s stock price as an observable input (level 2) in determining fair value. The estimated fair value of these financial instruments at June 30, 2021 and December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet classification
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Other financial instruments in asset positions
|
Prepayments and other current assets
|
|
$
|
29
|
|
|
$
|
1
|
|
|
Other financial instruments in liability positions (a)
|
Accrued expenses and other current liabilities
|
|
$
|
3
|
|
|
$
|
—
|
|
(a) There is cash collateral of $15 million and $7 million at June 30, 2021 and December 31, 2020 associated with this instrument, which is included in “Prepayments and other current assets” in the condensed consolidated balance sheets.
The gains and losses associated with these other financial instruments is recognized in “Selling, general, and administrative” in the condensed consolidated statements of income (loss).
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Hedging Instruments
Cash Flow Hedges — Commodity Price Risk
The Company’s production processes are dependent upon the supply of certain raw materials that are exposed to price fluctuations on the open market. Commodity rate price forward contracts are executed to offset a portion of the exposure to potential change in prices for raw materials. The Company monitors its commodity price risk exposures regularly to maximize the overall effectiveness of its commodity forward contracts.
The Company has designated these contracts as cash flow hedging instruments. The Company records unrecognized gains and losses in other comprehensive income (loss) (“OCI” or “OCL”) and makes reclassifying adjustments into “Cost of sales (exclusive of depreciation and amortization)” within the condensed consolidated statements of income (loss) when the underlying hedged transaction is recognized in earnings. The Company had commodity derivatives outstanding with an equivalent notional amount of $40 million and $10 million at June 30, 2021 and December 31, 2020. Substantially all of the commodity price hedge contracts mature within one year.
The Company calculates the fair value of its commodity contracts using commodity forward rates (level 2), to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on bank deposit rates. The fair value of these derivative instruments at June 30, 2021 and December 31, 2020 is not considered material to the condensed consolidated financial statements.
Net Investment Hedge — Foreign Currency Borrowings
At December 31, 2020, the Company had foreign currency denominated debt, of which €344 million or $420 million, was designated as a net investment hedge in certain foreign subsidiaries and affiliates of the Company and was included in “Long-term debt” in the condensed consolidated balance sheets. Changes to its carrying value were included in the condensed consolidated statements of changes in shareholders’ equity in the foreign currency translation component of OCL and offset against the translation adjustments on the underlying net assets of those foreign subsidiaries and affiliates, which are also recorded in OCL. All of the outstanding foreign currency borrowings related to the net investment hedge were discharged on March 17, 2021, as a result, there are no outstanding foreign currency borrowings designated as a net investment hedge at June 30, 2021. The Company’s debt instruments are discussed further in Note 9, “Debt and Other Financing Arrangements”.
The following table represents the amount of gain (loss) recognized in accumulated other comprehensive income (loss) before any reclassifications into net income (loss) for derivative and non-derivative instruments designated as hedges for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Commodity price hedge contracts designated as cash flow hedges
|
$
|
(1)
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
Foreign currency borrowings designated as a net investment hedge
|
$
|
—
|
|
|
$
|
(16)
|
|
|
$
|
11
|
|
|
$
|
(2)
|
|
The Company estimates approximately $1 million included in accumulated OCI or OCL at June 30, 2021 will be reclassified into net income (loss) within the following twelve months. Refer to Note 14, “Shareholders' Equity” for further information.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets, which may be written down to fair value as a result of impairment.
Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the value of these long-lived asset groups are not recoverable. During the first quarter of 2020, the Company concluded certain impairment triggers had occurred for certain long-lived asset groups as a result of the effects of the COVID-19 global pandemic on the Company’s projected financial information. After failing the undiscounted cash flow recoverability test, the Company estimated the fair values of these long-lived asset groups and compared them to their net carrying values. The fair value measurements related to these long-lived asset groups rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets, as observable inputs are not available (level 3). To determine the fair value of the long-lived asset groups, the Company utilized an asset-based approach. The Company believes the assumptions and estimates used to determine the estimated fair values of the long-lived asset groups are reasonable; however, these estimates and assumptions are subject to a high degree of uncertainty. Due to the many variables inherent in estimating fair value, differences in assumptions could have a material effect on the results of the analyses.
As the net carrying values of the long-lived asset groups exceeded their fair values, the Company recorded long-lived asset impairment charges consisting of $65 million of definite-lived intangible assets and $455 million of property, plant, and equipment, during the six months ended June 30, 2020. Refer to Note 4, “Restructuring Charges, Net and Asset Impairments” for additional information on asset impairments and refer to Note 6, “Goodwill and Other Intangible Assets”, for additional information on the definite-lived intangible asset impairments.
Goodwill and Indefinite-Lived Intangible Assets
During the first quarter of 2020, the Company concluded it was more likely than not that the fair values of certain of its reporting units and trade names and trademarks had declined below their carrying values as a result of the effects of the COVID-19 global pandemic on the Company’s projected financial information. The Company completed analyses to estimate the fair values of these reporting units and trade names and trademarks. The Company believes the assumptions and estimates used to determine the estimated fair values are reasonable; however, these estimates and assumptions are subject to a high degree of uncertainty. Due to the many variables inherent in estimating fair value, differences in assumptions could have a material effect on the results of the analyses.
The basis of the goodwill impairment and indefinite-lived intangible asset analyses is the Company's current forecast of its annual budget and three-year strategic plan. This includes a projection of future cash flows, which requires the Company to make significant assumptions and estimates about the extent and timing of future cash flows and revenue growth rates. These represent Company-specific inputs and assumptions about the use of the assets, as observable inputs are not available (level 3). Due to the many variables inherent in estimating fair value and the relative size of the goodwill and indefinite-lived intangible assets, differences in assumptions could have a material effect on the results of the analyses.
In the goodwill impairment analysis, for reporting units with goodwill, fair values are estimated using a combination of the income approach and market approach. The Company applies a 75% weighting to the income approach and a 25% weighting to the market approach. The most significant inputs in estimating the fair value of the Company's reporting units under the income approach are (i) projected operating margins, (ii) the revenue growth rate, and (iii) the discount rate, which is risk-adjusted based on the aforementioned inputs.
For the indefinite-lived asset impairment analysis, the fair value is based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets. The primary, and most sensitive, inputs utilized in determining fair values of trade names and trademarks are (i) projected branded product sales, (ii) the revenue growth rate, (iii) the royalty rate, and (iv) the discount rate, which is risk-adjusted based on the projected branded sales.
Refer to Note 6, “Goodwill and Other Intangible Assets”, for additional information on the goodwill and indefinite-lived intangible asset impairments.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Financial Instruments Not Carried at Fair Value
The estimated fair value of the Company’s outstanding debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Fair value
hierarchy
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Long-term debt (including current maturities):
|
|
|
|
|
|
|
|
|
|
|
Term loans and senior notes
|
Level 2
|
|
$
|
5,061
|
|
|
$
|
5,213
|
|
|
$
|
5,153
|
|
|
$
|
5,138
|
|
The fair value of the Company’s public senior notes and private borrowings under its New Credit Facility, as subsequently defined in Note 9, “Debt and Other Financing Arrangements”, is based on observable inputs, and any borrowings on the revolving credit facility approximate fair value. The Company also had $146 million and $180 million at June 30, 2021 and December 31, 2020 in other debt whose carrying value approximates fair value, which consists primarily of foreign debt with maturities of one year or less.
9. Debt and Other Financing Arrangements
Long-Term Debt
A summary of the Company’s long-term debt obligations at June 30, 2021 and December 31, 2020 is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Principal
|
|
Carrying Amount (a)
|
|
Principal
|
|
Carrying Amount (a)
|
|
Credit Facilities
|
|
|
|
|
|
|
|
|
Revolver Borrowings
|
|
|
|
|
|
|
|
|
Due 2023
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Term Loans
|
|
|
|
|
|
|
|
|
LIBOR plus 2.00% Term Loan A due 2019 through 2023(b)
|
1,466
|
|
|
1,458
|
|
|
1,530
|
|
|
1,520
|
|
|
LIBOR plus 3.00% Term Loan B due 2019 through 2025
|
1,658
|
|
|
1,609
|
|
|
1,666
|
|
|
1,612
|
|
|
Senior Unsecured Notes
|
|
|
|
|
|
|
|
|
$225 million of 5.375% Senior Notes due 2024
|
225
|
|
|
223
|
|
|
225
|
|
|
223
|
|
|
$500 million of 5.000% Senior Notes due 2026
|
500
|
|
|
495
|
|
|
500
|
|
|
494
|
|
|
Senior Secured Notes
|
|
|
|
|
|
|
|
|
€300 million of Euribor plus 4.875% Euro Floating Rate Notes due 2024(c)
|
—
|
|
|
—
|
|
|
366
|
|
|
370
|
|
|
€350 million of 5.000% Euro Fixed Rate Notes due 2024(c)
|
—
|
|
|
—
|
|
|
428
|
|
|
445
|
|
|
$500 million of 7.875% Senior Secured Notes due 2029
|
500
|
|
|
490
|
|
|
500
|
|
|
489
|
|
|
$800 million of 5.125% Senior Secured Notes due 2029(d)
|
800
|
|
|
786
|
|
|
—
|
|
|
—
|
|
|
Other debt, primarily foreign instruments
|
28
|
|
|
27
|
|
|
24
|
|
|
23
|
|
|
|
|
|
5,088
|
|
|
|
|
5,176
|
|
|
Less - maturities classified as current
|
|
|
7
|
|
|
|
|
5
|
|
|
Total long-term debt
|
|
|
$
|
5,081
|
|
|
|
|
$
|
5,171
|
|
(a)Carrying amount is net of unamortized debt issuance costs and debt discounts or premiums. Total unamortized debt issuance costs were $87 million and $82 million at June 30, 2021 and December 31, 2020. Total unamortized debt (premium) discount, net was $1 million and $(20) million at June 30, 2021 and December 31, 2020.
(b)The interest rate on Term Loan A at December 31, 2020 was LIBOR plus 2.50%.
(c)The Company satisfied and discharged all of its 4.875% Euro Floating Rate Notes due 2024 and 5.000% Euro Fixed Rate Notes due 2024 on March 17, 2021.
(d)On March 17, 2021, the Company issued $800 million aggregate principal amount of 5.125% senior secured notes due April 15, 2029. Interest payable semiannually on April 15 and October 15 of each year beginning on October 15, 2021 with principal due at maturity.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The Company has a senior credit facility under the credit agreement dated October 1, 2018 (as amended, restated, supplemented or otherwise modified, the “New Credit Facility”) that provides $4.9 billion of total debt financing, consisting of a five-year $1.5 billion revolving credit facility, a five-year $1.7 billion term loan A facility (“Term Loan A”) and a seven-year $1.7 billion term loan B facility (“Term Loan B”).
Short-Term Debt
The Company’s short-term debt at June 30, 2021 and December 31, 2020 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Maturities classified as current
|
$
|
7
|
|
|
$
|
5
|
|
|
Short-term borrowings(a)
|
119
|
|
|
157
|
|
|
|
|
|
|
|
Total short-term debt
|
$
|
126
|
|
|
$
|
162
|
|
(a)Includes borrowings under both committed credit facilities and uncommitted lines of credit and similar arrangements.
Credit Facilities
Financing Arrangements
The table below shows the Company’s borrowing capacity on committed credit facilities at June 30, 2021 (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Term
|
|
|
|
|
|
Available(b)
|
|
Tenneco Inc. revolving credit facility(a)
|
2023
|
|
|
|
|
|
$
|
1.5
|
|
|
Tenneco Inc. Term Loan A
|
2023
|
|
|
|
|
|
—
|
|
|
Tenneco Inc. Term Loan B
|
2025
|
|
|
|
|
|
—
|
|
|
Subsidiaries’ credit agreements
|
2022 - 2028
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
$
|
1.5
|
|
(a)The Company is required to pay commitment fees under the revolving credit facility on the unused portion of the total commitment.
(b)At June 30, 2021, the Company had $28 million of outstanding letters of credit under the revolving credit facility, which reduces the available borrowings under the revolving credit facility. The Company also had $77 million of outstanding letters of credit under uncommitted facilities at June 30, 2021.
At June 30, 2021, the Company had liquidity of $2.2 billion comprised of $719 million of cash and $1.5 billion undrawn on its revolving credit facility. The Company had no outstanding borrowings on its revolving credit facility at June 30, 2021.
At June 30, 2021 and December 31, 2020, the unamortized debt issuance costs related to the revolver of $14 million and $17 million are included in “Other assets” in the condensed consolidated balance sheets.
Credit Facility
New Credit Facility — Interest Rates
At June 30, 2021, the interest rate on borrowings under the revolving credit facility and the Term Loan A facility was LIBOR plus 2.00% and will remain at LIBOR plus 2.00% for each relevant period for which the Company's consolidated net leverage ratio (as defined in the New Credit Facility) is less than 4.5 to 1 and greater than 3.0 to 1. The interest rate on borrowings under the revolving credit facility and the Term Loan A facility are subject to step downs in accordance with the credit agreement.
New Credit Facility — Other Terms and Conditions
Further information on interest rates, fees, and other terms and conditions of the New Credit Facility is included in the Company's 2020 Form 10-K.
At June 30, 2021, the Company was in compliance with all the financial covenants of the New Credit Facility.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Senior Notes
On March 3, 2021, the Company provided notice of its intention to redeem all of the outstanding 5.000% euro denominated senior secured notes due July 15, 2024 (the “2024 Fixed Rate Secured Notes”) and all of the outstanding floating rate euro denominated senior secured notes due April 15, 2024 (the “2024 Floating Rate Secured Notes” and, together with the 2024 Fixed Rate Secured Notes, the “2024 Secured Notes”). On March 17, 2021, the Company using the net proceeds of the offering of 5.125% Senior Secured Notes, together with cash on hand, satisfied and discharged each of the indentures governing the 2024 Secured Notes in accordance with their terms. As a result, the Company recorded a gain on extinguishment of debt of $8 million for the six months ended June 30, 2021.
Further information on the terms and conditions of the Senior Unsecured Notes and Senior Secured Notes is included in the Company's 2020 Form 10-K.
At June 30, 2021, the Company was in compliance with all of its financial covenants under the indentures governing the Senior Unsecured Notes and Senior Secured Notes.
Other Debt
Other debt consists primarily of subsidiary debt.
Factoring Arrangements
In the Company's accounts receivable factoring programs, accounts receivables are transferred in their entirety to the acquiring entities and are accounted for as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under these factoring programs approximates the fair value of such receivables. Some of these programs have deferred purchase price arrangements with the banks.
The Company is the servicer of the receivables under some of these arrangements and is responsible for performing all accounts receivable administration functions. Where the Company receives a fee to service and monitor these transferred accounts receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not recorded as a result of such activities.
At June 30, 2021 and December 31, 2020, the amount of accounts receivable outstanding and derecognized for factoring arrangements was $1.0 billion and $1.0 billion, of which $0.4 billion and $0.4 billion relate to accounts receivable where the Company has continuing involvement. In addition, the deferred purchase price receivable was $62 million and $51 million at June 30, 2021 and December 31, 2020.
For the three months ended June 30, 2021 and 2020, proceeds from the factoring of accounts receivable qualifying as sales were $1.3 billion and $0.7 billion, of which $1.0 billion and $0.5 billion were received on accounts receivable where the Company has continuing involvement. For the six months ended June 30, 2021 and 2020, proceeds from the factoring of accounts receivable qualifying as sales were $2.6 billion and $1.9 billion, of which $2.1 billion and $1.6 billion were received on accounts receivable where the Company has continuing involvement.
The Company’s financing charges associated with the factoring of receivables, which are included in “Interest expense” in the condensed consolidated statements of income (loss), was $5 million and $4 million for the three months ended June 30, 2021 and 2020, and $9 million and $10 million for the six months ended June 30, 2021 and 2020.
If the Company were not able to factor receivables under these programs, its borrowings under its revolving credit agreement might increase. These programs provide the Company with access to cash at costs that are generally favorable to alternative sources of financing and allow the Company to reduce borrowings under its revolving credit agreement.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
10. Pension Plans, Postretirement and Other Employee Benefits
The Company sponsors several defined benefit pension plans (“Pension Benefits”) and health care and life insurance benefits (“Other Postretirement Benefits” or “OPEB”) for certain employees and retirees around the world.
Components of net periodic benefit costs (credits) for the three and six months ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
2021
|
|
2020
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
2021
|
|
2020
|
|
Service cost
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
7
|
|
|
5
|
|
|
10
|
|
|
5
|
|
|
2
|
|
|
3
|
|
|
Expected return on plan assets
|
(16)
|
|
|
(4)
|
|
|
(16)
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
3
|
|
|
3
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Prior service cost (credit)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
(2)
|
|
|
Net pension and postretirement costs (credits)
|
$
|
(5)
|
|
|
$
|
10
|
|
|
$
|
(4)
|
|
|
$
|
9
|
|
|
$
|
(1)
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
2021
|
|
2020
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
2021
|
|
2020
|
|
Service cost
|
$
|
1
|
|
|
$
|
13
|
|
|
$
|
1
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
15
|
|
|
9
|
|
|
20
|
|
|
9
|
|
|
3
|
|
|
5
|
|
|
Expected return on plan assets
|
(32)
|
|
|
(8)
|
|
|
(32)
|
|
|
(8)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
6
|
|
|
5
|
|
|
3
|
|
|
4
|
|
|
1
|
|
|
1
|
|
|
Prior service cost (credit)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
(4)
|
|
|
Net pension and postretirement costs (credits)
|
$
|
(10)
|
|
|
$
|
19
|
|
|
$
|
(8)
|
|
|
$
|
17
|
|
|
$
|
(1)
|
|
|
$
|
2
|
|
11. Income Taxes
For interim tax reporting, the Company estimates its annual effective tax rate and applies it to year-to-date ordinary income. Jurisdictions where no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The effect of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur. The Company considers both positive and negative evidence and evaluates its deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, reversals of existing taxable temporary differences, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.
For the three months ended June 30, 2021, the Company recorded an income tax expense of $41 million on income from continuing operations before income taxes of $58 million. This compares to an income tax benefit of $101 million on loss from continuing operations before income taxes of $441 million in the three months ended June 30, 2020.
For the six months ended June 30, 2021, the Company recorded an income tax expense of $88 million on income from continuing operations before income taxes of $192 million. This compares to an income tax benefit of $195 million on loss from continuing operations before income taxes of $1,361 million in the six months ended June 30, 2020.
Income tax expense for the three months ended June 30, 2021 and 2020 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates higher than the U.S. statutory rate and pre-tax losses with no tax benefits.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Income tax expense for the six months ended June 30, 2021 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates higher than the U.S. statutory rate and pre-tax losses with no tax benefits.
Income tax benefit for the six months ended June 30, 2020 differs from the U.S. statutory rate due primarily to $111 million of tax benefit recognized related to the asset impairment charges of $883 million, pre-tax income taxed at rates higher than the U.S. statutory rate, and pre-tax losses with no tax benefits.
The Company received notification in the first quarter of 2021 that its U.S. tax refund claim is approved and the tax years through 2016 are now effectively settled. The Company believes it is reasonably possible up to $43 million in unrecognized tax benefits related to the expiration of statute of limitations and the conclusion of income tax examinations may be recognized within the next twelve months. The Company released $54 million of unrecognized tax benefits with a corresponding adjustment of $54 million to the Company’s valuation allowance as a result of the conclusion of income tax examinations in the first quarter of 2021.
12. Commitments and Contingencies
Environmental Matters
The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. The Company has been notified by the U.S. Environmental Protection Agency, other national environmental agencies, and various provincial and state agencies that it may be a potentially responsible party (“PRP”) under such laws for the cost of remediating hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and other national and state or provincial environmental laws. PRP designation typically requires the funding of site investigations and subsequent remedial activities. Many of the sites that are likely to be the costliest to remediate are often current or former commercial waste disposal facilities to which numerous companies sent wastes. Despite the potential joint and several liability which might be imposed on the Company under CERCLA and some of the other laws pertaining to these sites, its share of the total waste sent to these sites generally has been small. The Company believes its exposure for liability at these sites is not material.
On a global basis, the Company has also identified certain other present and former properties at which it may be responsible for cleaning up or addressing environmental contamination, in some cases, as a result of contractual commitments and/or federal or state environmental laws. The Company is actively seeking to resolve these actual and potential statutory, regulatory, and contractual obligations.
The Company expenses or capitalizes, as appropriate, expenditures for ongoing compliance with environmental regulations. At June 30, 2021, the Company has an obligation to remediate or contribute towards the remediation of certain sites, including the sites discussed above at which it may be a PRP.
The Company’s estimated share of environmental remediation costs for all these sites is recognized in the condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Accrued expenses and other current liabilities
|
$
|
9
|
|
|
$
|
8
|
|
|
Deferred credits and other liabilities
|
24
|
|
|
26
|
|
|
|
$
|
33
|
|
|
$
|
34
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Based on information known to the Company from site investigations and the professional judgment of consultants, the Company has established reserves it believes are adequate for these costs. Although the Company believes these estimates of remediation costs are reasonable and are based on the latest available information, the costs are estimates, difficult to quantify based on the complexity of the issues, and are subject to revision as more information becomes available about the extent of remediation required. At some sites, the Company expects other parties will contribute to the remediation costs. In addition, certain environmental statutes provide the Company’s liability could be joint and several, meaning the Company could be required to pay amounts in excess of its share of remediation costs. The financial strength of the other PRPs at these sites has been considered, where appropriate, in the determination of the estimated liability. The Company does not believe any potential costs associated with its current status as a PRP, or as a liable party at the other locations referenced herein, will be material to its annual consolidated financial position, results of operations, or liquidity.
Other Legal Proceedings, Claims and Investigations
For many years, the Company has been and continues to be subject to lawsuits initiated by claimants alleging health problems as a result of exposure to asbestos. The Company’s current docket of active and inactive cases is approximately 500 cases in the United States and less than 50 in Europe.
With respect to the claims filed in the United States, the substantial majority of the claims are related to alleged exposure to asbestos in the Company’s line of Walker® exhaust automotive products although a significant number of those claims appear also to involve occupational exposures sustained in industries other than automotive. A small number of claims have been asserted against one of the Company’s subsidiaries by railroad workers alleging exposure to asbestos products in railroad cars. The Company believes, based on scientific and other evidence, it is unlikely that U.S. claimants were exposed to asbestos by the Company’s former products and that, in any event, they would not be at increased risk of asbestos-related disease based on their work with these products. Further, many of these cases involve numerous defendants. Additionally, in many cases the plaintiffs either do not specify any, or specify the jurisdictional minimum, dollar amount for damages.
With respect to the claims filed in Europe, the substantial majority relate to occupational exposure claims brought by current and former employees of Federal-Mogul facilities in France and amounts paid out were not material. A small number of occupational exposure claims have also been asserted against Federal-Mogul entities in Italy and Spain.
As major asbestos manufacturers and/or users continue to go out of business or file for bankruptcy, the Company may experience an increased number of these claims. The Company vigorously defends itself against these claims as part of its ordinary course of business. In future periods, the Company could be subject to cash costs or charges to earnings if any of these matters are resolved unfavorably to the Company. To date, with respect to claims that have proceeded sufficiently through the judicial process, the Company has regularly achieved favorable resolutions. Accordingly, the Company presently believes that these asbestos-related claims will not have a material adverse effect on the Company’s annual consolidated financial position, results of operations or liquidity.
The Company is also from time to time involved in other legal proceedings, claims or investigations. Some of these matters involve allegations of damages against the Company relating to environmental liabilities (including toxic tort, property damage and remediation), intellectual property matters (including patent, trademark and copyright infringement, and licensing disputes), personal injury claims (including injuries due to product failure, design or warning issues, and other product liability related matters), taxes, unclaimed property, employment matters, advertising matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures. Additionally, some of these matters involve allegations relating to legal compliance.
While the Company vigorously defends itself against all of these legal proceedings, claims and investigations and take other actions to minimize its potential exposure, in future periods, the Company could be subject to cash costs or charges to earnings if any of these matters are resolved on unfavorable terms. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including the Company’s assessment of the merits of the particular claim, the Company does not expect the legal proceedings, claims or investigations currently pending against it will have any material adverse effect on its annual consolidated financial position, results of operations or liquidity.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Asset Retirement Obligations
The Company’s primary asset retirement obligations (“ARO”) activities relate to the removal of hazardous building materials at its facilities. The Company records an ARO at fair value upon initial recognition when the amount is probable and can be reasonably estimated. ARO fair values are determined based on the Company’s determination of what a third party would charge to perform the remediation activities, generally using a present value technique.
The Company’s ARO liabilities at June 30, 2021 and December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Accrued expenses and other current liabilities
|
$
|
2
|
|
|
$
|
2
|
|
|
Deferred credits and other liabilities
|
12
|
|
|
12
|
|
|
|
$
|
14
|
|
|
$
|
14
|
|
Warranty Matters
The Company provides warranties on some of its products. The warranty terms vary but range from one year up to limited lifetime warranties on some of its premium aftermarket products. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified with the Company’s products. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. The Company believes the warranty reserve is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. The reserve is included in both current and long-term liabilities on the condensed consolidated balance sheets.
The following represents the changes in the Company’s warranty accrual accounts for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Balance at beginning of period
|
$
|
67
|
|
|
$
|
51
|
|
|
$
|
62
|
|
|
$
|
54
|
|
|
Accruals and revisions to estimates
|
18
|
|
|
1
|
|
|
32
|
|
|
4
|
|
|
Settlements
|
(14)
|
|
|
(1)
|
|
|
(22)
|
|
|
(7)
|
|
|
Foreign currency
|
1
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
Balance at end of period
|
$
|
72
|
|
|
$
|
50
|
|
|
$
|
72
|
|
|
$
|
50
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
13. Share-Based Compensation
Share-based compensation expense is included in “Selling, general, and administrative” in the condensed consolidated statements of income (loss). Total share-based compensation expense for the three and six months ended June 30, 2021 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Cash-settled share-based compensation expense
|
$
|
12
|
|
|
$
|
1
|
|
|
$
|
16
|
|
|
$
|
1
|
|
|
Share-settled share-based compensation expense
|
4
|
|
|
7
|
|
|
9
|
|
|
9
|
|
|
|
$
|
16
|
|
|
$
|
8
|
|
|
$
|
25
|
|
|
$
|
10
|
|
Cash-Settled Awards
The Company has granted restricted stock units (“RSUs”) and performance share units (“PSUs”) to certain key employees that are payable in cash. These awards are classified as liabilities and remeasured at fair value each reporting date until settlement. Compensation expense for the RSUs is recognized ratably over the requisite service period. Compensation expense for the PSUs is recognized ratably over the requisite service period if it is probable the performance target related to the PSUs will be achieved and subsequently adjusted if this probability assessment changes. The PSUs have the potential to pay out between zero and 200%, based on performance target achievement. The following table reflects the outstanding cash-settled share-based awards as of June 30, 2021, and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
RSUs
|
1,758,443
|
|
|
1,878,220
|
|
|
PSUs
|
2,990,493
|
|
|
—
|
|
|
|
4,748,936
|
|
|
1,878,220
|
|
At June 30, 2021 and December 31, 2020, the liability of all cash-settled RSUs was $11 million and $3 million. The liability of all cash-settled PSUs at June 30, 2021 was $8 million and there were no outstanding PSUs at December 31, 2020.
At June 30, 2021, there is $72 million in unrecognized costs on the cash-settled awards, using the quarter end stock price, that is expected to be recognized over a weighted-average period of approximately two years.
Share-Settled Awards
The Company has granted restricted stock, restricted stock units (“RSUs”), and performance share units (“PSUs”) that are payable in shares to certain key employees. These awards are classified as equity and are recognized at the grant date fair value. Compensation expense for the restricted stock and RSUs is recognized ratably over the requisite service period. Compensation expense for the PSUs is recognized ratably over the requisite service period if it is probable the performance target will be achieved, and subsequently adjusted if this probability assessment changes. The PSUs have the potential to pay out between zero and 200 percent, based on performance target achievement. The following table reflects the status of all share-settled RSUs and PSUs for the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-Settled RSUs
|
|
Share-Settled PSUs
|
|
|
|
|
|
Units
|
|
Weighted Avg.
Grant Date
Fair Value
|
|
Units
|
|
Weighted Avg.
Grant Date
Fair Value
|
|
Nonvested balance at beginning of period
|
|
|
|
2,118,605
|
|
|
$
|
26.00
|
|
|
527,105
|
|
|
$
|
36.37
|
|
|
Granted
|
|
|
|
2,078,409
|
|
|
10.70
|
|
|
—
|
|
|
—
|
|
|
Vested
|
|
|
|
(635,023)
|
|
|
34.09
|
|
|
(57,794)
|
|
|
49.18
|
|
|
Forfeited
|
|
|
|
(171,384)
|
|
|
19.78
|
|
|
(134,361)
|
|
|
46.61
|
|
|
Nonvested balance at end of period
|
|
|
|
3,390,607
|
|
|
$
|
14.89
|
|
|
334,950
|
|
|
$
|
24.60
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
14. Shareholders' Equity
Common Stock
Common Stock Outstanding
The Company has authorized 175,000,000 shares ($0.01 par value) of Class A Common Stock at June 30, 2021 and December 31, 2020. The Company has authorized 25,000,000 shares ($0.01 par value) of Class B Common Stock at June 30, 2021 and December 31, 2020.
Total common stock outstanding and changes in common stock issued are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Shares issued at beginning of period
|
75,714,163
|
|
|
71,727,061
|
|
|
20,308,454
|
|
|
23,793,669
|
|
|
Issued pursuant to benefit plans
|
790,467
|
|
|
458,855
|
|
|
—
|
|
|
—
|
|
|
Withheld for taxes pursuant to benefit plans
|
(249,015)
|
|
|
(124,440)
|
|
|
—
|
|
|
—
|
|
|
Class B common stock converted to Class A common stock
|
20,308,454
|
|
|
3,485,215
|
|
|
(20,308,454)
|
|
|
(3,485,215)
|
|
|
Shares issued at end of period
|
96,564,069
|
|
|
75,546,691
|
|
|
—
|
|
|
20,308,454
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock
|
14,592,888
|
|
|
14,592,888
|
|
|
—
|
|
|
—
|
|
|
Total shares outstanding
|
81,971,181
|
|
|
60,953,803
|
|
|
—
|
|
|
20,308,454
|
|
Class B Common Stock Conversion
During the six months ended June 30, 2021, Icahn Enterprises L.P. (“IEP”) and its affiliates converted all of its remaining 20,308,454 shares of the Company’s Class B Common Stock into 20,308,454 shares of Class A Common Stock. Based on information contained in filings with the SEC as of August 4, 2021, IEP and its affiliates hold less than 10% of the Company’s outstanding Class A Common Stock.
Shareholder Agreement
In connection with the closing of the Federal-Mogul LLC acquisition, on October 1, 2018, the Company, American Entertainment Properties Corporation, IEP, and Icahn Enterprises Holdings L.P. entered into a Shareholders Agreement (the “Shareholders Agreement”). There have been no changes to the Shareholders Agreement during the six months ended June 30, 2021.
Preferred Stock
The Company had 50,000,000 shares of preferred stock ($0.01 par value) authorized at both June 30, 2021 and December 31, 2020. No shares of preferred stock were issued or outstanding at those dates.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Accumulated Other Comprehensive Income (Loss)
The following represents the Company’s changes in accumulated other comprehensive income (loss) by component, net of tax for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(441)
|
|
|
$
|
(568)
|
|
|
$
|
(395)
|
|
|
$
|
(369)
|
|
|
Other comprehensive income (loss) before reclassifications
|
58
|
|
|
34
|
|
|
12
|
|
|
(165)
|
|
|
Reclassification from other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other comprehensive income (loss)
|
58
|
|
|
34
|
|
|
12
|
|
|
(165)
|
|
|
Income tax benefit (provision)
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Balance at end of period
|
(383)
|
|
|
(533)
|
|
|
(383)
|
|
|
(533)
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
(350)
|
|
|
(338)
|
|
|
(353)
|
|
|
(342)
|
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Reclassification from other comprehensive income (loss)
|
3
|
|
|
1
|
|
|
7
|
|
|
4
|
|
|
Other comprehensive income (loss)
|
3
|
|
|
1
|
|
|
7
|
|
|
4
|
|
|
Income tax benefit (provision)
|
—
|
|
|
(6)
|
|
|
(1)
|
|
|
(5)
|
|
|
Balance at end of period
|
(347)
|
|
|
(343)
|
|
|
(347)
|
|
|
(343)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
2
|
|
|
(2)
|
|
|
4
|
|
|
—
|
|
|
Other comprehensive income (loss) before reclassifications
|
(1)
|
|
|
5
|
|
|
1
|
|
|
2
|
|
|
Reclassification from other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
Other comprehensive income (loss)
|
(1)
|
|
|
5
|
|
|
(3)
|
|
|
2
|
|
|
Income tax benefit (provision)
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
Balance at end of period
|
1
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss at end of period
|
$
|
(729)
|
|
|
$
|
(874)
|
|
|
$
|
(729)
|
|
|
$
|
(874)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to noncontrolling interests
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
(2)
|
|
|
$
|
(13)
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
15. Segment Information
Tenneco consists of four operating segments, Motorparts, Performance Solutions, Clean Air, and Powertrain. Costs related to other business activities, primarily corporate headquarter functions, are disclosed separately from the four operating segments as “Corporate.”
Beginning in the first quarter of 2021, the Company made a change to its operating segments. This change consisted of moving a reporting unit within the Powertrain segment to the Ride Performance segment to align with a change in how the CODM allocates resources and assesses performance against the Company’s key growth strategies. In addition, with this change to its segments, Ride Performance was renamed Performance Solutions. As such, prior period operating segment results and related disclosures have been conformed to reflect the Company's current operating segments.
Management uses EBITDA including noncontrolling interests as the key performance measure of segment profitability and uses the measure in its financial and operational decision-making processes, for internal reporting, and for planning and forecasting purposes to effectively allocate resources. EBITDA including noncontrolling interests is defined as earnings before interest expense, income taxes, noncontrolling interests, and depreciation and amortization. Segment assets are not presented as it is not a measure reviewed by the CODM in allocating resources and assessing performance.
EBITDA including noncontrolling interests should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income, which is the most directly comparable financial measure to EBITDA including noncontrolling interests that is in accordance with U.S. GAAP. EBITDA including noncontrolling interests, as determined and measured by the Company, should not be compared to similarly titled measures reported by other companies.
Segment results for the three and six months ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
Powertrain
|
|
Total
|
|
|
|
Reclass & Elims
|
|
Total
|
|
For the Three Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
794
|
|
|
$
|
715
|
|
|
$
|
2,024
|
|
|
$
|
1,050
|
|
|
$
|
4,583
|
|
|
|
|
$
|
—
|
|
|
$
|
4,583
|
|
|
Intersegment revenues
|
$
|
10
|
|
|
$
|
23
|
|
|
$
|
4
|
|
|
$
|
47
|
|
|
$
|
84
|
|
|
|
|
$
|
(84)
|
|
|
$
|
—
|
|
|
Equity in earnings of nonconsolidated affiliates, net of tax
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
15
|
|
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
For the Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
559
|
|
|
$
|
378
|
|
|
$
|
1,140
|
|
|
$
|
560
|
|
|
$
|
2,637
|
|
|
|
|
$
|
—
|
|
|
$
|
2,637
|
|
|
Intersegment revenues
|
$
|
6
|
|
|
$
|
21
|
|
|
$
|
3
|
|
|
$
|
21
|
|
|
$
|
51
|
|
|
|
|
$
|
(51)
|
|
|
$
|
—
|
|
|
Equity in earnings of nonconsolidated affiliates, net of tax
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
For the Six Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
1,513
|
|
|
$
|
1,502
|
|
|
$
|
4,148
|
|
|
$
|
2,151
|
|
|
$
|
9,314
|
|
|
|
|
$
|
—
|
|
|
$
|
9,314
|
|
|
Intersegment revenues
|
$
|
19
|
|
|
$
|
49
|
|
|
$
|
10
|
|
|
$
|
94
|
|
|
$
|
172
|
|
|
|
|
$
|
(172)
|
|
|
$
|
—
|
|
|
Equity in earnings of nonconsolidated affiliates, net of tax
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
37
|
|
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
For the Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
1,265
|
|
|
$
|
1,047
|
|
|
$
|
2,685
|
|
|
$
|
1,476
|
|
|
$
|
6,473
|
|
|
|
|
$
|
—
|
|
|
$
|
6,473
|
|
|
Intersegment revenues
|
$
|
15
|
|
|
$
|
50
|
|
|
$
|
9
|
|
|
$
|
59
|
|
|
$
|
133
|
|
|
|
|
$
|
(133)
|
|
|
$
|
—
|
|
|
Equity in earnings of nonconsolidated affiliates, net of tax
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
17
|
|
|
|
|
$
|
—
|
|
|
$
|
17
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Segment EBITDA including noncontrolling interests and the reconciliation to earnings (loss) before interest expense, income taxes, and noncontrolling interests are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
EBITDA including noncontrolling interests by segment:
|
|
|
|
|
|
|
|
|
Motorparts
|
$
|
67
|
|
|
$
|
(52)
|
|
|
$
|
169
|
|
|
$
|
(92)
|
|
|
Performance Solutions
|
32
|
|
|
(63)
|
|
|
75
|
|
|
(737)
|
|
|
Clean Air
|
143
|
|
|
17
|
|
|
292
|
|
|
116
|
|
|
Powertrain
|
94
|
|
|
(69)
|
|
|
209
|
|
|
(42)
|
|
|
Total reportable segments
|
336
|
|
|
(167)
|
|
|
745
|
|
|
(755)
|
|
|
Corporate
|
(64)
|
|
|
(49)
|
|
|
(114)
|
|
|
(135)
|
|
|
Depreciation and amortization
|
(145)
|
|
|
(159)
|
|
|
(300)
|
|
|
(330)
|
|
|
Earnings (loss) before interest expense, income taxes, and noncontrolling interests
|
127
|
|
|
(375)
|
|
|
331
|
|
|
(1,220)
|
|
|
Interest expense
|
(69)
|
|
|
(66)
|
|
|
(139)
|
|
|
(141)
|
|
|
Income tax (expense) benefit
|
(41)
|
|
|
101
|
|
|
(88)
|
|
|
195
|
|
|
Net income (loss)
|
$
|
17
|
|
|
$
|
(340)
|
|
|
$
|
104
|
|
|
$
|
(1,166)
|
|
Disaggregated Revenue
Original Equipment
Value-Added Sales
OE revenue is generated from providing OE manufacturers and servicers with products for automotive, heavy duty, and industrial applications. Supply relationships typically extend over the life of the related vehicle, subject to interim design and technical specification revisions, and do not require the customer to purchase a minimum quantity.
Substrate/Passthrough Sales
Generally, in connection with the sale of exhaust systems to certain OE manufacturers, the Company purchases catalytic converters and diesel particulate filters or components thereof including precious metals (“substrates”) on behalf of its customers which are used in the assembled system. These substrates are included in inventory and are “passed through” to the customer at cost, plus a small margin. Since the Company takes title to the substrate inventory and has responsibility for both the delivery and quality of the finished product including the substrates, the revenues and related expenses are recorded at gross amounts.
Aftermarket
Aftermarket revenue is generated from providing products for the global vehicle aftermarket to a wide range of warehouse distributors, retail parts stores, and mass merchants that distribute these products to customers ranging from professional service providers to “do-it-yourself” consumers.
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Revenue from contracts with customers is disaggregated by customer type and geography, as it depicts the nature and amount of the Company’s revenue that is aligned with the Company’s key growth strategies. In the following tables, revenue is disaggregated accordingly:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
By Customer Type
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
Powertrain
|
|
Total
|
|
Three Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
OE - Substrate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,081
|
|
|
$
|
—
|
|
|
$
|
1,081
|
|
|
OE - Value add
|
—
|
|
|
697
|
|
|
943
|
|
|
1,050
|
|
|
2,690
|
|
|
Aftermarket
|
794
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
812
|
|
|
Total
|
$
|
794
|
|
|
$
|
715
|
|
|
$
|
2,024
|
|
|
$
|
1,050
|
|
|
$
|
4,583
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
OE - Substrate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
623
|
|
|
$
|
—
|
|
|
$
|
623
|
|
|
OE - Value add
|
—
|
|
|
368
|
|
|
517
|
|
|
560
|
|
|
1,445
|
|
|
Aftermarket
|
559
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
569
|
|
|
Total
|
$
|
559
|
|
|
$
|
378
|
|
|
$
|
1,140
|
|
|
$
|
560
|
|
|
$
|
2,637
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
OE - Substrate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,169
|
|
|
$
|
—
|
|
|
$
|
2,169
|
|
|
OE - Value add
|
—
|
|
|
1,465
|
|
|
1,979
|
|
|
2,151
|
|
|
5,595
|
|
|
Aftermarket
|
1,513
|
|
|
37
|
|
|
—
|
|
|
—
|
|
|
1,550
|
|
|
Total
|
$
|
1,513
|
|
|
$
|
1,502
|
|
|
$
|
4,148
|
|
|
$
|
2,151
|
|
|
$
|
9,314
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
OE - Substrate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,323
|
|
|
$
|
—
|
|
|
$
|
1,323
|
|
|
OE - Value add
|
—
|
|
|
1,022
|
|
|
1,362
|
|
|
1,476
|
|
|
3,860
|
|
|
Aftermarket
|
1,265
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
1,290
|
|
|
Total
|
$
|
1,265
|
|
|
$
|
1,047
|
|
|
$
|
2,685
|
|
|
$
|
1,476
|
|
|
$
|
6,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
By Geography
|
Motorparts
|
|
Performance Solutions
|
|
Clean Air
|
|
Powertrain
|
|
Total
|
|
Three Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
501
|
|
|
$
|
223
|
|
|
$
|
812
|
|
|
$
|
316
|
|
|
$
|
1,852
|
|
|
Europe, Middle East, Africa and South America
|
238
|
|
|
324
|
|
|
639
|
|
|
548
|
|
|
1,749
|
|
|
Asia Pacific
|
55
|
|
|
168
|
|
|
573
|
|
|
186
|
|
|
982
|
|
|
Total
|
$
|
794
|
|
|
$
|
715
|
|
|
$
|
2,024
|
|
|
$
|
1,050
|
|
|
$
|
4,583
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
389
|
|
|
$
|
91
|
|
|
$
|
335
|
|
|
$
|
158
|
|
|
$
|
973
|
|
|
Europe, Middle East, Africa and South America
|
135
|
|
|
170
|
|
|
248
|
|
|
254
|
|
|
807
|
|
|
Asia Pacific
|
35
|
|
|
117
|
|
|
557
|
|
|
148
|
|
|
857
|
|
|
Total
|
$
|
559
|
|
|
$
|
378
|
|
|
$
|
1,140
|
|
|
$
|
560
|
|
|
$
|
2,637
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
955
|
|
|
$
|
463
|
|
|
$
|
1,663
|
|
|
$
|
644
|
|
|
$
|
3,725
|
|
|
Europe, Middle East, Africa and South America
|
450
|
|
|
679
|
|
|
1,321
|
|
|
1,111
|
|
|
3,561
|
|
|
Asia Pacific
|
108
|
|
|
360
|
|
|
1,164
|
|
|
396
|
|
|
2,028
|
|
|
Total
|
$
|
1,513
|
|
|
$
|
1,502
|
|
|
$
|
4,148
|
|
|
$
|
2,151
|
|
|
$
|
9,314
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
865
|
|
|
$
|
319
|
|
|
$
|
1,039
|
|
|
$
|
472
|
|
|
$
|
2,695
|
|
|
Europe, Middle East, Africa and South America
|
332
|
|
|
489
|
|
|
813
|
|
|
724
|
|
|
2,358
|
|
|
Asia Pacific
|
68
|
|
|
239
|
|
|
833
|
|
|
280
|
|
|
1,420
|
|
|
Total
|
$
|
1,265
|
|
|
$
|
1,047
|
|
|
$
|
2,685
|
|
|
$
|
1,476
|
|
|
$
|
6,473
|
|
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
16. Related Party Transactions
The following tables summarize the net sales, purchases, and royalty and other income (expense) to and from related parties for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
|
Net Sales
|
|
Purchases
|
|
Royalty and Other
|
|
Net Sales
|
|
Purchases
|
|
Royalty and Other
|
|
Otomotiv A.S.
|
$
|
11
|
|
|
$
|
67
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
17
|
|
|
$
|
2
|
|
|
Anqing TP Goetze
|
$
|
1
|
|
|
$
|
28
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
18
|
|
|
$
|
1
|
|
|
Other nonconsolidated affiliates
|
$
|
8
|
|
|
$
|
13
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
Icahn Automotive Group LLC
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
PSC Metals, Inc.
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
|
Net Sales
|
|
Purchases
|
|
Royalty and Other
|
|
Net Sales
|
|
Purchases
|
|
Royalty and Other
|
|
Otomotiv A.S.
|
$
|
21
|
|
|
$
|
143
|
|
|
$
|
3
|
|
|
$
|
17
|
|
|
$
|
76
|
|
|
$
|
6
|
|
|
Anqing TP Goetze
|
$
|
3
|
|
|
$
|
55
|
|
|
$
|
3
|
|
|
$
|
9
|
|
|
$
|
31
|
|
|
$
|
1
|
|
|
Other nonconsolidated affiliates
|
$
|
16
|
|
|
$
|
25
|
|
|
$
|
1
|
|
|
$
|
11
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
Icahn Automotive Group LLC
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
65
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
PSC Metals, Inc.
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table is a summary of amounts due to and from the Company's related parties at June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
Receivables
|
|
Payables and Accruals
|
|
Receivables
|
|
Payables and Accruals
|
|
|
|
|
|
Otomotiv A.S.
|
$
|
6
|
|
|
$
|
33
|
|
|
$
|
10
|
|
|
$
|
49
|
|
|
|
|
|
|
Anqing TP Goetze
|
$
|
4
|
|
|
$
|
35
|
|
|
$
|
4
|
|
|
$
|
30
|
|
|
|
|
|
|
Other nonconsolidated affiliates
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
|
|
|
|
Icahn Automotive Group LLC
|
$
|
47
|
|
|
$
|
4
|
|
|
$
|
47
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 7, “Investment in Nonconsolidated Affiliates”, for further information for companies within the tables above that represent equity method investments.
Amounts presented as Icahn Automotive Group LLC represent the Company’s activities with IEH Auto Parts LLC and Pep Boys—Manny, Moe & Jack.
As part of the Federal-Mogul LLC acquisition, the Company acquired a redeemable noncontrolling interest related to a subsidiary in India. In accordance with local regulations, the Company initiated a process to make a tender offer of the shares it did not own due to the change in control triggered by the Federal-Mogul LLC acquisition. The Company entered into separate agreements with IEP subsequent to the purchase agreement whereby IEP agreed to fund and execute the tender offer for the shares on behalf of the Company. During the first quarter of 2020, the tender offer for the shares was completed. Since the transaction was funded and executed by IEP, the completion of the tender offer resulted in an adjustment to additional paid-in capital during the three months ended March 31, 2020. Immediately following the completion of the tender offer, the shares of this noncontrolling interest not owned by the Company were no longer redeemable, or probable of becoming redeemable; therefore, the noncontrolling interest was reclassified from temporary equity to permanent equity during the six months ended June 30, 2020. Refer to Note 2, “Basis of Presentation”, for further information on this noncontrolling interest.