TENNECO INC - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12387

TENNECO INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

500 North Field Drive, Lake Forest, Illinois

(Address of principal executive offices)

76-0515284

(I.R.S. Employer

Identification No.)

60045

(Zip Code)

Registrant’s telephone number, including area code: (847) 482-5000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Voting Common Stock, par value $0.01 per share	TEN	New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of Class A Voting Common Stock, par value $0.01 per share: 61,123,440 shares outstanding as of November 2, 2020. The number of shares of Class B Non-Voting Common Stock, par value $0.01 per share: 20,308,454 shares outstanding as of November 2, 2020.

TABLE OF CONTENTS


		Page
Part I — Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Statements of Income (Loss)	6
	Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Condensed Consolidated Balance Sheets	8
	Condensed Consolidated Statements of Cash Flows	9
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	10
	Notes to Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	73
Item 4.	Controls and Procedures	74

Part II — Other Information
Item 1.	Legal Proceedings	75
Item 1A.	Risk Factors	75
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	*
Item 5.	Other Information	77
Item 6.	Exhibits	79


*			No response to this item is included herein for the reason that it is inapplicable or the answer to such item is negative.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, our prospects and business strategies. These forward-looking statements are included in various sections of this report. The words “may,” “will,” “believe,” “should,” “could,” “plan,” “expect,” “anticipate,” “estimate,” and similar expressions (and variations thereof), identify these forward-looking statements. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, these expectations may not prove to be correct. Because these forward-looking statements are also subject to risks and uncertainties, actual results may differ materially from the expectations expressed in the forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include:

•general economic, business and market conditions, including the effects of the COVID-19 pandemic;

•disasters, local and global public health emergencies or other catastrophic events, such as fires, earthquakes and flooding, pandemics or epidemics (including the COVID-19 pandemic), where we or other customers do business and any resultant disruptions in the supply or production of goods or services to us or by us in demand by our customers or in the operation of our system, disaster recovery capabilities or business continuity capabilities;

•our ability (or inability) to successfully execute cost reduction, performance improvement and other plans, including our plans to respond to the COVID-19 pandemic and our previously announced accelerated performance improvement plan ("Accelerate"), and to realize the anticipated benefits from these plans;

•changes in capital availability or costs, including increases in our cost of borrowing (i.e., interest rate increases), the amount of our debt, our ability to access capital markets at favorable rates, and the credit ratings of our debt and our financial flexibility to respond to the COVID-19 pandemic;

•our ability to maintain compliance with the agreements governing our indebtedness and otherwise have sufficient liquidity through the COVID-19 pandemic;

•our ability to comply with the covenants contained in our debt instruments;

•our working capital requirements;

•our ability to source and procure needed materials, components and other products, and services in accordance with customer demand and at competitive prices;

•the cost and outcome of existing and any future claims, legal proceedings or investigations, including, but not limited to, any of the foregoing arising in connection with the ongoing global antitrust investigation, product performance, product safety or intellectual property rights;

•changes in consumer demand for our original equipment ("OE") products or aftermarket products, prices and our ability to have our products included on top selling vehicles, including any shifts in consumer preferences away from historically higher margin products for our customers and us, to other lower margin vehicles, for which we may or may not have supply arrangements;

•the cyclical nature of the global vehicle industry, including the performance of the global aftermarket sector and the impact of vehicle parts' longer product lives;

•changes in automotive and commercial vehicle manufacturers' production rates and their actual and forecasted requirements for our products, due to difficult economic conditions and/or regulatory or legal changes affecting internal combustion engines and/or aftermarket products;

•our dependence on certain large customers, including the loss of any of our large OE manufacturer customers (on whom we depend for a substantial portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OE-customers or any change in customer demand due to delays in the adoption or enforcement of worldwide emissions regulations;

•new technologies that reduce the demand for certain of our products or otherwise render them obsolete;

•our ability to introduce new products and technologies that satisfy customers' needs in a timely fashion;

•the overall highly competitive nature of the automotive and commercial vehicle parts industries, and any resultant inability to realize the sales represented by our awarded book of business (which is based on anticipated pricing and volumes over the life of the applicable program);

•risks inherent in operating a multi-national company, including economic conditions, such as currency exchange and inflation rates, political conditions in the countries where we operate or sell our products, adverse changes in trade agreements, tariffs, immigration policies, political stability, tax and other laws, and potential disruptions of production and supply;

•increasing competition from lower cost, private-label products;

•damage to the reputation of one or more of our leading brands;

•the impact of improvements in automotive parts on aftermarket demand for some of our products;

•industry-wide strikes, labor disruptions at our facilities or any labor or other economic disruptions at any of our significant customers or suppliers or any of our customers’ other suppliers;

•developments relating to our intellectual property, including our ability to adapt to changes in technology and the availability and effectiveness of legal protection for our innovations and brands;

•costs related to product warranties and other customer satisfaction actions;

•the failure, breach of, or potential disruption to our information technology systems, including cyber attacks, such as ransomware or similar intrusions, cyber incidents, or misappropriation, exposure or corruption of sensitive information stored on such systems and the interruption to our business that such failure, breach or disruption may cause;

•the impact of consolidation among vehicle parts suppliers and customers on our ability to compete in the highly competitive automotive and commercial vehicle supplier industry;

•changes in distribution channels or competitive conditions in the markets and countries where we operate;

•the evolution towards alternative powertrains, including electrification, car and ride sharing, and autonomous vehicles;

•customer acceptance of new products;

•our ability to successfully integrate, and benefit from, any acquisitions we complete;

•our ability to effectively manage our joint ventures and other third-party relationships;

•the potential impairment in the carrying value of our long-lived assets, goodwill, and other intangible assets or the inability to fully realize our deferred tax assets;

•the negative impact of fuel price volatility on transportation and logistics costs, raw material costs, discretionary purchases of vehicles or aftermarket products, and demand for off-highway equipment;

•increases in the costs of raw materials or components, including our ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, customer recovery, and other methods;

•changes by the Financial Accounting Standards Board ("FASB") or the Securities and Exchange Commission ("SEC") of generally accepted accounting principles or other authoritative guidance;

•changes in accounting estimates and assumptions, including changes based on additional information;

•any changes by the International Organization for Standardization ("ISO") or other such committees in their certification protocols for processes and products, which may have the effect of delaying or hindering our ability to bring new products to market;

•the impact of the extensive, increasing, and changing laws and regulations to which we are subject, including environmental laws and regulations, which may result in our incurrence of environmental liabilities in excess of the amount reserved or increased costs or loss of revenues relating to products subject to changing regulation;

•potential volatility in our effective tax rate;

•acts of war and/or terrorism, as well as actions taken or to be taken by the United States and other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial, and social conditions in the countries where we operate;

•pension obligations and other postretirement benefits;

•our hedging activities to address commodity price fluctuations; and

•the timing and occurrence (or non-occurrence) of other transactions, events and circumstances which may be beyond our control.

In addition, this report includes forward-looking statements regarding the Company's ongoing review of strategic alternatives and the potential separation of the Company into a powertrain technology company and an aftermarket and ride performance company. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include (in addition to the risks set forth above):

•the ability to identify and consummate strategic alternatives that yield additional value for shareholders;

•the timing, benefits, and outcome of the Company's strategic review process;

•the structure, terms, and specific risk and uncertainties associated with any potential strategic alternative;

•potential disruptions in our business and stock price as a result of our exploration, review, and pursuit of any strategic alternatives;

•the possibility that the Company may not complete a separation of the aftermarket and ride performance business from the powertrain technology business (or achieve some or all of the anticipated benefits of such a separation);

•the ability to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners;

•the potential diversion of management's attention resulting from a separation;

•the risk the combined company and each separate company following a separation will underperform relative to our expectations;

•the ongoing transaction costs and risk we may incur greater costs following a separation of the business;

•the risk a spin-off is determined to be a taxable transaction;

•the risk the benefits of a separation may not be fully realized or may take longer to realize than expected;

•the risk a separation may not advance our business strategy; and

•the risk a transaction may have an adverse effect on existing arrangements with us, including those related to transition, manufacturing and supply services and tax matters.

The risks included here are not exhaustive. Refer to “Part II, Item 1A — Risk Factors” herein and “Part I, Item 1A — Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the effect such risk factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Unless otherwise indicated in this report, the forward-looking statements in this report are made as of the date of this report, and, except as required by law, the Company does not undertake any obligation, and disclaims any obligation, to publicly disclose revisions or updates to any forward-looking statements.

PART I – FINANCIAL INFORMATION

ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TENNECO INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited)

(in millions, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues
Net sales and operating revenues	$	4,256	$	4,319	$	10,729	$	13,307

Costs and expenses
Cost of sales (exclusive of depreciation and amortization)	3,610		3,660		9,447		11,331
Selling, general, and administrative	214		252		658		862
Depreciation and amortization	151		165		481		503
Engineering, research, and development	67		78		199		248
Restructuring charges, net and asset impairments	17		33		622		98
Goodwill and intangible impairment charges	—		9		383		69
	4,059		4,197		11,790		13,111
Other income (expense)
Non-service pension and other postretirement benefit (costs) credits	18		(2)		20		(8)
Equity in earnings (losses) of nonconsolidated affiliates, net of tax	9		1		26		34
Other income (expense), net	12		27		31		43
	39		26		77		69
Earnings (loss) before interest expense, income taxes, and noncontrolling interests	236		148		(984)		265
Interest expense	(68)		(79)		(209)		(242)
Earnings (loss) before income taxes and noncontrolling interests	168		69		(1,193)		23
Income tax (expense) benefit	(648)		9		(453)		(5)
Net income (loss)	(480)		78		(1,646)		18
Less: Net income (loss) attributable to noncontrolling interests	19		8		42		39
Net income (loss) attributable to Tenneco Inc.	$	(499)	$	70	$	(1,688)	$	(21)
Earnings (loss) per share
Basic earnings (loss) per share:
Earnings (loss) per share	$	(6.12)	$	0.87	$	(20.75)	$	(0.25)
Weighted average shares outstanding	81,456,821		80,916,676		81,325,385		80,903,967
Diluted earnings (loss) per share:
Earnings (loss) per share	$	(6.12)	$	0.87	$	(20.75)	$	(0.25)
Weighted average shares outstanding	81,456,821		80,916,676		81,325,385		80,903,967

See accompanying notes to the condensed consolidated financial statements.

TENNECO INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	(480)	$	78	$	(1,646)	$	18
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	43		(97)		(134)		(80)
Cash flow hedges	1		—		3		1
Defined benefit plans	(14)		3		(15)		2
	30		(94)		(146)		(77)
Comprehensive income (loss)	(450)		(16)		(1,792)		(59)
Less: Comprehensive income (loss) attributable to noncontrolling interests	29		(14)		39		22
Comprehensive income (loss) attributable to common shareholders	$	(479)	$	(2)	$	(1,831)	$	(81)

See accompanying notes to the condensed consolidated financial statements.

TENNECO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except shares)


	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	716	$	564
Restricted cash	5		2
Receivables:
Customer notes and accounts, net	2,675		2,438
Other	108		100
Inventories	1,678		1,999
Prepayments and other current assets	597		632
Total current assets	5,779		5,735
Property, plant, and equipment, net	2,968		3,627
Long-term receivables, net	9		10
Goodwill	507		775
Intangibles, net	1,214		1,422
Investments in nonconsolidated affiliates	541		518
Deferred income taxes	282		607
Other assets	511		532
Total assets	$	11,811	$	13,226
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt, including current maturities of long-term debt	$	176	$	185
Accounts payable	2,708		2,647
Accrued compensation and employee benefits	370		325
Accrued income taxes	89		72
Accrued expenses and other current liabilities	1,178		1,070
Total current liabilities	4,521		4,299
Long-term debt	5,596		5,371
Deferred income taxes	90		106
Pension and postretirement benefits	1,129		1,145
Deferred credits and other liabilities	518		490
Commitments and contingencies (Note 13)
Total liabilities	11,854		11,411
Redeemable noncontrolling interests	63		196
Tenneco Inc. shareholders’ equity:
Preferred stock — $0.01 par value; none issued	—		—
Class A voting stock — $0.01 par value; shares issued: September 30, 2020 — 75,692,772 and December 31, 2019 — 71,727,061	1		1
Class B non-voting convertible stock — $0.01 par value; shares issued: September 30, 2020 — 20,308,454 and December 31, 2019 — 23,793,669	—		—
Additional paid-in capital	4,437		4,432
Accumulated other comprehensive loss	(854)		(711)
Accumulated deficit	(3,055)		(1,367)
	529		2,355
Shares held as treasury stock — at cost: September 30, 2020 and December 31, 2019 — 14,592,888	(930)		(930)
Total Tenneco Inc. shareholders’ equity	(401)		1,425
Noncontrolling interests	295		194
Total equity	(106)		1,619
Total liabilities, redeemable noncontrolling interests, and equity	$	11,811	$	13,226

See accompanying notes to the condensed consolidated financial statements.

TENNECO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)


	Nine Months Ended September 30,
	2020		2019
Operating Activities
Net income (loss)	$	(1,646)	$	18
Adjustments to reconcile net income (loss) to cash (used) provided by operating activities:
Goodwill and intangible impairment charges	383		69
Depreciation and amortization	481		503
Deferred income taxes	302		(115)
Stock-based compensation	13		20
Restructuring charges and asset impairments, net of cash paid	529		12
Change in pension and other postretirement benefit plans	(49)		(49)
Equity in earnings of nonconsolidated affiliates	(26)		(34)
Cash dividends received from nonconsolidated affiliates	18		45
Loss (gain) on sale of assets	(1)		—
Other (gains) losses	2		—
Changes in operating assets and liabilities:
Receivables	(429)		(457)
Inventories	303		112
Payables and accrued expenses	242		99
Accrued interest and accrued income taxes	23		(12)
Other assets and liabilities	10		(147)
Net cash (used) provided by operating activities	155		64
Investing Activities
Acquisitions, net of cash acquired	—		(158)
Proceeds from sale of assets	8		8
Net proceeds from sale of business	3		22
Cash payments for property, plant, and equipment	(308)		(541)
Proceeds from deferred purchase price of factored receivables	176		203
Other	3		—
Net cash (used) provided by investing activities	(118)		(466)
Financing Activities
Proceeds from term loans and notes	143		171
Repayments of term loans and notes	(196)		(278)
Debt issuance costs of long-term debt	(16)		—
Borrowings on revolving lines of credit	4,852		6,804
Payments on revolving lines of credit	(4,647)		(6,548)
Issuance (repurchase) of common shares	(1)		(2)
Cash dividends	—		(20)
Net increase (decrease) in bank overdrafts	9		(12)

Other	10		(2)
Distributions to noncontrolling interest partners	(18)		(20)
Net cash (used) provided by financing activities	136		93
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(18)		2
Increase (decrease) in cash, cash equivalents, and restricted cash	155		(307)
Cash, cash equivalents, and restricted cash, beginning of period	566		702
Cash, cash equivalents, and restricted cash, end of period	$	721	$	395
Supplemental Cash Flow Information
Cash paid during the period for interest	$	188	$	230
Cash paid during the period for income taxes, net of refunds	$	114	$	139
Lease assets obtained in exchange for new operating lease liabilities	$	61	$	54
Non-cash inventory charge due to aftermarket product line exit	$	73	$	—
Non-cash Investing Activities
Period end balance of accounts payable for property, plant, and equipment	$	79	$	118
Deferred purchase price of receivables factored in the period	$	197	$	208
Reduction in assets from redeemable noncontrolling interest transaction with owner	$	53	$	—

See accompanying notes to the condensed consolidated financial statements.

TENNECO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)


	Tenneco Inc. Shareholders' Equity
	$0.01 Par Value Common Stock		Treasury Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Tenneco Inc. Shareholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2019	$	1	$	(930)	$	4,432	$	(1,367)	$	(711)	$	1,425	$	194	$	1,619
Net income (loss)							(839)				(839)		2		(837)
Other comprehensive income (loss)—net of tax:
Foreign currency translation adjustments									(199)		(199)		(13)		(212)
Derivatives									(2)		(2)		—		(2)
Defined benefit plans									4		4		—		4
Comprehensive income (loss)											(1,036)		(11)		(1,047)






Stock-based compensation, net	—		—		2		—		—		2		—		2




Reclassification of redeemable noncontrolling interest to permanent equity	—		—		—		—		—		—		82		82
Redeemable noncontrolling interest transaction with owner	—		—		(7)		—		—		(7)		—		(7)
Balance at March 31, 2020	1		(930)		4,427		(2,206)		(908)		384		265		649
Net income (loss)							(350)				(350)		6		(344)
Other comprehensive income (loss)—net of tax:
Foreign currency translation adjustments									35		35		4		39
Derivatives									4		4		—		4
Defined benefit plans									(5)		(5)		—		(5)
Comprehensive income (loss)											(316)		10		(306)






Stock-based compensation, net	—		—		6		—		—		6		—		6





Balance at June 30, 2020	1		(930)		4,433		(2,556)		(874)		74		275		349
Net income (loss)							(499)				(499)		12		(487)
Other comprehensive income (loss)—net of tax:
Foreign currency translation adjustments									33		33		8		41
Derivatives									1		1		—		1
Defined benefit plans									(14)		(14)		—		(14)
Comprehensive income (loss)											(479)		20		(459)

Stock-based compensation, net	—		—		4		—		—		4		—		4
Balance at September 30, 2020	$	1	$	(930)	$	4,437	$	(3,055)	$	(854)	$	(401)	$	295	$	(106)

TENNECO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)


	Tenneco Inc. Shareholders' Equity
	$0.01 Par Value Common Stock		Treasury Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Tenneco Inc. Shareholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2018	$	1	$	(930)	$	4,360	$	(1,013)	$	(692)	$	1,726	$	190	$	1,916
Net income (loss)							(117)				(117)		7		(110)
Other comprehensive income (loss)—net of tax:
Foreign currency translation adjustments									29		29		4		33
Derivatives									4		4		—		4
Defined benefit plans									1		1		—		1
Comprehensive income (loss)											(83)		11		(72)

Stock-based compensation, net	—		—		5		—		—		5		—		5





Cash dividends ($0.25 per share)	—		—		—		(20)		—		(20)		—		(20)


Purchase accounting measurement period adjustment	—		—		—		—		—		—		(1)		(1)
Distributions declared to noncontrolling interests	—		—		—		—		—		—		(1)		(1)
Balance at March 31, 2019	1		(930)		4,365		(1,150)		(658)		1,628		199		1,827
Net income (loss)							26				26		9		35
Other comprehensive income (loss)—net of tax:
Foreign currency translation adjustments									(17)		(17)		—		(17)
Derivatives									(3)		(3)		—		(3)
Defined benefit plans									(2)		(2)		—		(2)
Comprehensive income (loss)											4		9		13






Stock-based compensation, net	—		—		6		—		—		6		—		6



Distributions declared to noncontrolling interests	—		—		—		—		—		—		(2)		(2)
Balance at June 30, 2019	1		(930)		4,371		(1,124)		(680)		1,638		206		1,844
Net Income (loss)							70				70		4		74
Other comprehensive income (loss)—net of tax:
Foreign currency translation adjustments									(75)		(75)		(11)		(86)

Defined benefit plans									3		3		—		3
Comprehensive income (loss)											(2)		(7)		(9)
Acquisitions and other	—		—		—		—		—		—		(3)		(3)
Stock-based compensation, net	—		—		6		—		—		6		—		6
Purchase accounting measurement period adjustment	—		—		—		—		—		—		(1)		(1)

Balance at September 30, 2019	$	1	$	(930)	$	4,377	$	(1,054)	$	(752)	$	1,642	$	195	$	1,837

See accompanying notes to the condensed consolidated financial statements.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in millions, except share and per share amounts, or as otherwise noted)

1. Description of Business

Tenneco Inc. ("Tenneco" or "the Company") was formed under the laws of Delaware in 1996. Tenneco designs, manufactures, and sells products and services for light vehicle, commercial truck, off-highway, industrial, and aftermarket customers. The Company is one of the world's leading manufacturers of clean air, powertrain, and ride performance products and systems, and serves both original equipment manufacturers ("OEM") and replacement markets worldwide.

On October 1, 2018, the Company completed the acquisition of Federal-Mogul LLC (“Federal-Mogul”) (the “Federal-Mogul Acquisition”), a global supplier of technology and innovation in vehicle and industrial products for fuel economy, emissions reductions, and safety systems. Federal-Mogul serves the world’s foremost OEM and servicers (“OES”, and together with OEM, “OE”) of automotive, light, medium and heavy-duty commercial vehicles, off road, agricultural, marine, rail, aerospace, and power generation and industrial equipment, as well as the worldwide aftermarket.

The Company has previously announced its review of 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. Current end-market conditions and the effects of the ongoing COVID-19 pandemic are affecting the Company's ability to complete a separation. In light of these ongoing conditions, the Company is pursuing additional options to optimize shareholder value creation, including a focus on operational improvements, reducing structural costs, lowering capital intensity, and reducing debt.

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 such, during the nine months ended September 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, and a $9 million impairment charge to its operating lease right-of-use assets. Additionally, the Motorparts segment recognized $4 million in restructuring charges related to cash severance expected to be paid in connection with this action. Refer to Note 4, Restructuring Charges, Net and Asset Impairments for additional information.

2. Summary of Significant Accounting Policies

Basis of Presentation — Interim Financial Statements

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These statements include all adjustments (consisting of normal recurring adjustments) management believes are necessary to fairly state the results of operations, comprehensive income, financial position, changes in shareholders' equity, and cash flows. The Company's management believes the disclosures are adequate to make the information presented not misleading when read in conjunction with the audited consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on March 2, 2020. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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. In response to the expected economic effects of COVID-19, the Company implemented various cost reduction initiatives, including, but not limited to reductions to salary costs and unpaid furloughs; the restructuring actions as discussed in Note 4, Restructuring Charges, Net and Asset Impairments; and the deferral of the Company’s portion of its 2020 employer paid payroll taxes and its U.S. qualified pension plan contributions under the Coronavirus Aid, Relief, and Economic Security Act.

At September 30, 2020, the Company was in compliance with all financial covenants under its credit agreement. On May 5, 2020, the Company entered into a third amendment to its credit agreement to increase the maximum leverage ratio and decrease the minimum interest coverage ratio. The amendment is discussed in more detail in Note 10, Debt and Other Financing Arrangements.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Reclassifications: Certain amounts in the prior period have been aggregated or disaggregated to conform to current year presentation. These reclassifications included reclassifying amounts from restructuring charges, net and asset impairments to cost of sales (exclusive of depreciation and amortization), and selling, general, and administrative expenses. These reclassifications affected the three and nine months ended September 30, 2019 and have no effect on previously reported net income within the condensed consolidated statements of income (loss), other comprehensive income (loss) within the condensed consolidated statements of comprehensive income (loss), and the cash (used) provided by operating, investing or financing activities within the condensed consolidated statements of cash flows.

During the three and nine months ended September 30, 2019, the Company recorded an immaterial $5 million charge in its Ride Performance segment related to prior periods.

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 September 30, 2020 and December 31, 2019, the Company held redeemable noncontrolling interests of $33 million and $44 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.

In addition, at September 30, 2020 and December 31, 2019, the Company held redeemable noncontrolling interests of $30 million and $152 million which were currently redeemable or probable of becoming redeemable. These noncontrolling interests are also presented in the temporary equity section of the Company's condensed consolidated balance sheets and have been remeasured to 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). These redeemable noncontrolling interests include the following:

•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 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 nine months ended September 30, 2020. Refer to Note 17, Related Party Transactions, for additional information related to the tender offer of this noncontrolling interest; and

•A 9.5% ownership interest in Öhlins Intressenter AB (the “KÖ Interest”) was 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. Since it is probable the KÖ Interest will become redeemable, the Company recognized the change in carrying value and recorded an increase of $10 million during the nine months ended September 30, 2020 to reflect its redemption value of $30 million at September 30, 2020.

For the nine months ended September 30, 2019, the Company recorded a decrease to the redeemable noncontrolling interests of $8 million, as a result of adjustments made in the measurement period to the preliminary purchase price allocation from the Federal-Mogul Acquisition.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The following is a rollforward of activities in the Company's redeemable noncontrolling interests:


	Nine Months Ended September 30,
	2020		2019
Balance at beginning of period	$	196	$	138
Net income (loss) attributable to redeemable noncontrolling interests	12		19
Other comprehensive income (loss)	(2)		(10)
Acquisition and other	—		17
Noncontrolling interest tender offer redemption	(46)		—
Redemption value measurement adjustment	10		—
Purchase accounting measurement period adjustment	—		(8)
Reclassification of noncontrolling interest to permanent equity	(82)		—
Dividends declared	(25)		(17)
Balance at end of period	$	63	$	139

Income taxes: On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was enacted into U.S. law, which, among other provisions, included an anti-deferral provision (the Global Intangible Low-Taxed Income tax or "GILTI") effective from 2018 wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of non-U.S. corporations. The Company has elected the “tax law ordering approach” in that the Company will look to tax law ordering to determine whether its net operating loss ("NOL") carryforward deferred tax asset is expected to be realized. Based on the tax law ordering approach, NOL carryforwards are realizable if they will reduce the expected tax liability when utilized, regardless if the 50% GILTI deduction or related foreign tax credits may have been available.

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:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Weighted average shares of common stock outstanding	81,456,821	80,916,676	81,325,385	80,903,967
Effect of dilutive securities:
Restricted stock, PSUs, and RSUs	—	—	—	—
Stock options	—	—	—	—
Dilutive shares outstanding	81,456,821	80,916,676	81,325,385	80,903,967

For the three and nine months ended September 30, 2020, the calculation of diluted earnings (loss) per share excluded 2,424,215 and 2,246,177 of share-based awards, as the effect on the calculation would have been anti-dilutive. For the three and nine months ended September 30, 2019, the calculation of diluted earnings (loss) per share excluded 1,895,180 and 1,865,345 of share-based awards, as the effect on the calculation would have been anti-dilutive.

New Accounting Pronouncements

Adoption of New Accounting Standards

Income Taxes — In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2019-12: Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The ASU allows certain simplifications in the annual effective tax rate computations, which did not have a material effect on the financial statements. The Company early adopted this ASU on a prospective basis beginning January 1, 2020.

Intangibles — On January 1, 2020, the Company adopted ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

That Is a Service Contract, which includes amendments to align the accounting for costs incurred to implement a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The Company adopted this guidance on a prospective basis beginning January 1, 2020 and the effects of the adoption were not material on the consolidated financial statements.

Retirement benefits — In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). The new standard (i) requires the removal of disclosures that are no longer considered cost beneficial; (ii) clarifies specific requirements of certain disclosures; and (iii) adds new disclosure requirements, including reasons for significant gains and losses related to changes in the benefit obligation. The amendments in this update are effective for fiscal years ending after December 15, 2020. The Company will adopt the enhanced disclosures in the consolidated financial statements for the year ending December 31, 2020.

3. Acquisitions and Divestitures

Öhlins Intressenter AB Acquisition

On January 10, 2019, the Company completed the acquisition of a 90.5% ownership interest in Öhlins Intressenter AB (“Öhlins”, the “Öhlins Acquisition”), a Swedish technology company that develops premium suspension systems and components for the automotive and motorsport industries for a purchase price of $162 million (including $4 million of cash acquired). The remaining 9.5% ownership interest in Öhlins was retained by Köhlin. Köhlin has an irrevocable right at any time after the third anniversary of the Öhlins Acquisition to sell the KÖ Interest to the Company. Refer to Note 2, Summary of Significant Accounting Policies, for further information on the KÖ Interest.

Pro Forma Results

Pro forma results of operations have not been presented because the effects of the Öhlins Acquisition were not material to the Company’s condensed consolidated results of operations.

Assets Held for Sale

On October 17, 2020, the Company entered into an agreement to sell a non-core business and its related assets for $15 million. The sale of the business closed on October 31, 2020 and the related assets shortly thereafter. The Company received $5 million of the purchase price at closing with the remaining to be received in installment payments through the fourth quarter of 2023. The Company recognized an impairment on these assets held for sale of $2 million and $1 million during the three and nine months ended September 30, 2020.

The related assets and liabilities for this non-core business are classified as held for sale at September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019
Assets
Receivables	$	3	$	5
Inventories	7		8
Other current assets	1		1
Long-lived assets	17		18
Goodwill	2		4
Impairment on carrying value	(9)		(8)
Total assets held for sale	$	21	$	28
Liabilities
Accounts payable	$	3	$	4
Accrued liabilities	1		2

Total liabilities held for sale	$	4	$	6

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

In addition to the non-core business above, at September 30, 2020, the Company had approximately $22 million of property, plant, and equipment, primarily land and buildings and non-core machinery and equipment, and $2 million of related liabilities across multiple segments that are expected to be sold in the next twelve months. The related assets and liabilities have been classified as held for sale at September 30, 2020 and are not included in the table above. The Company recognized a non-cash impairment charge of $1 million during the nine months ended September 30, 2020 related to these assets held for sale.

The assets and liabilities held for sale are recorded in prepayments and other current assets and accrued expenses and other current liabilities in the condensed consolidated balance sheets at September 30, 2020 and December 31, 2019.

On March 1, 2019, in accordance with a stock and asset purchase agreement, the Company sold certain assets and liabilities related to a non-core business and received sale proceeds of $22 million, subject to customary working capital adjustments. During the three and nine months ended September 30, 2020, the Company received $3 million of proceeds due to the finalization of working capital adjustments.

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. The 2019 amounts below reflect the reclassifications to the prior period as discussed in Note 2, Summary of Significant Accounting Policies.

For the three and nine months ended September 30, 2020 and 2019, restructuring charges, net and asset impairments by segment are as follows:


	Three Months Ended September 30, 2020
	Clean Air		Powertrain		Ride Performance		Motorparts		Corporate		Total
Severance and other charges, net	$	1	$	13	$	—	$	—	$	—	$	14

Asset impairments related to restructuring actions	—		—		—		1		—		1

Impairment of assets held for sale	—		—		—		2		—		2
Total asset impairment charges	—		—		—		3		—		3
Total restructuring charges, net and asset impairments	$	1	$	13	$	—	$	3	$	—	$	17


	Three Months Ended September 30, 2019
	Clean Air		Powertrain		Ride Performance		Motorparts		Corporate		Total
Severance and other charges, net	$	6	$	11	$	5	$	2	$	1	$	25


Impairment of assets held for sale	—		—		—		8		—		8

Total restructuring charges, net and asset impairments	$	6	$	11	$	5	$	10	$	1	$	33

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)


	Nine Months Ended September 30, 2020
	Clean Air		Powertrain		Ride Performance		Motorparts		Corporate		Total
Severance and other charges, net	$	23	$	50	$	24	$	17	$	5	$	119

Asset impairments related to restructuring actions	—		3		—		26		—		29
Other non-restructuring asset impairments	—		—		455		—		17		472
Impairment of assets held for sale	—		1		—		1		—		2
Total asset impairment charges	—		4		455		27		17		503
Total restructuring charges, net and asset impairments	$	23	$	54	$	479	$	44	$	22	$	622


	Nine Months Ended September 30, 2019
	Clean Air		Powertrain		Ride Performance		Motorparts		Corporate		Total
Severance and other charges, net	$	25	$	29	$	20	$	12	$	2	$	88


Other non-restructuring asset impairments	1		—		—		1		—		2
Impairment of assets held for sale	—		—		—		8		—		8

Total restructuring charges, net and asset impairments	$	26	$	29	$	20	$	21	$	2	$	98

Severance and other charges, net

Severance and other charges, net for the three months ended September 30, 2020 include the following actions:

•In addition to the actions above, the Company initiated several other cost reduction initiatives across all segments and regions aimed at optimizing the Company's cost structure. During the three months ended September 30, 2020, the Powertrain segment recognized a cash severance charge of $4 million in connection with these programs, which was offset by a revision to previously recorded estimates of $3 million in the Ride Performance segment.

•During the three months ended September 30, 2020, the Company incurred $3 million in restructuring and other costs related to previously announced plant relocation and closures within its Ride Performance segment.

Severance and other charges, net for the nine months ended September 30, 2020 include the following actions:

•In conjunction with the Company's previously announced Project Accelerate, and in response to the COVID-19 global pandemic, the Company is executing global headcount reductions, subject to negotiation with works councils in certain jurisdictions. The Company began implementing these actions during the second quarter of 2020 and expects to complete them during 2021. During the nine months ended September 30, 2020, the Company recognized a charge of $26 million in connection with the cash severance costs expected to be paid in connections with these actions. Clean Air recognized charges of $9 million, Powertrain recognized charges of $8 million, Motorparts recognized charges of $5 million, Ride Performance recognized charges of $3 million, and corporate recognized charges of $1 million.

•In addition to the actions above, the Company initiated several other cost reduction initiatives across all segments and regions aimed at optimizing the Company's cost structure. During the nine months ended September 30, 2020, the Company recognized cash severance charges of $33 million expected to be paid under these programs. Clean Air recognized charges of $12 million, Powertrain recognized charges of $12 million, Motorparts recognized charges of $2 million, and Ride Performance recognized charges of $7 million.

•During the nine months ended September 30, 2020, the Powertrain segment incurred $16 million in restructuring and other costs related to plant relocations and closures, and $5 million related to a cost reduction program in one of its product lines.

•During the nine months ended September 30, 2020, the Company incurred $13 million in restructuring and other costs related to previously announced plant relocation and closures within its Ride Performance segment.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

•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 discussed in Note 1, Description of Business. During the nine months ended September 30, 2020, the Motorparts segment recognized $4 million in restructuring charges related to cash severance expected to be paid in connection with this action. In addition, the Motorparts segment also recognized charges during the nine months ended September 30, 2020 of $4 million in connection with an infrastructure cost reduction program in one of its regions.

•The Company also incurred $4 million in cash severance costs for the elimination of certain redundant positions within its corporate component in the nine months ended September 30, 2020.

On June 30, 2020, the Company approved a voluntary termination program within the Powertrain segment at one of its European bearings plants aimed at reducing headcount, as negotiated with the works council and union. The Company anticipates implementing headcount reductions during 2020 and continuing into 2021 through a voluntary early retirement program and a voluntary special termination program. Restructuring and related charges are expected to be incurred during the remainder of 2020 and in 2021 aggregating to approximately $31 million. The charges are expected to be comprised of approximately $10 million for 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. During the three and nine months ended September 30, 2020, restructuring costs incurred related to this program were $6 million and $7 million.

During the three and nine months ended September 30, 2019, the Company incurred $3 million and $12 million in restructuring and related costs and reduced previously recorded estimates by $1 million and $3 million related to a restructuring plan designed to achieve a portion of the synergies the Company anticipated achieving in connection with the Federal-Mogul Acquisition. Pursuant to the plan, the Company reduced its headcount globally across all segments. During the three and nine months ended September 30, 2019, the Ride Performance segment incurred $5 million and $13 million in restructuring and other costs related to plant relocations and closures.

Restructuring reserve rollforward

Amounts related to activities that were charged to restructuring reserves by reportable segments are as follows:


	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total Reportable Segments		Corporate		Total
Balance at December 31, 2019	$	23	$	30	$	23	$	16	$	92	$	9	$	101
Provisions	—		2		7		2		11		4		15
Revisions to estimates	—		(1)		(1)		—		(2)		—		(2)
Payments	(4)		(4)		(9)		(4)		(21)		(9)		(30)
Foreign currency	—		—		(1)		—		(1)		—		(1)
Balance at March 31, 2020	19		27		19		14		79		4		83
Provisions	24		36		18		17		95		1		96
Revisions to estimates	(2)		—		—		(2)		(4)		—		(4)
Payments	(6)		(6)		(17)		(5)		(34)		(1)		(35)

Balance at June 30, 2020	35		57		20		24		136		4		140
Provisions	1		14		3		1		19		—		19
Revisions to estimates	—		(1)		(3)		(1)		(5)		—		(5)
Payments	(5)		(11)		(3)		(6)		(25)		(3)		(28)
Foreign currency	—		—		—		—		—		1		1
Balance at September 30, 2020	$	31	$	59	$	17	$	18	$	125	$	2	$	127

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)


	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total Reportable Segments		Corporate		Total
Balance at December 31, 2018	$	17	$	15	$	25	$	43	$	100	$	3	$	103
Provisions	5		1		5		4		15		1		16
Payments	(6)		(3)		(5)		(14)		(28)		(2)		(30)
Balance at March 31, 2019	16		13		25		33		87		2		89
Provisions	14		17		10		8		49		—		49
Revisions to estimates	—		—		—		(2)		(2)		—		(2)
Payments	(2)		(4)		(7)		(7)		(20)		(1)		(21)

Balance at June 30, 2019	28		26		28		32		114		1		115
Provisions	6		11		5		4		26		1		27
Revisions to estimates	—		—		—		(2)		(2)		—		(2)
Payments	(7)		(4)		(9)		(13)		(33)		(2)		(35)
Foreign currency	(1)		—		—		—		(1)		—		(1)
Balance at September 30, 2019	$	26	$	33	$	24	$	21	$	104	$	—	$	104

The following table provides a summary of the Company's restructuring liabilities and related activity for each type of exit costs:


	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Employee Costs		Facility Closure and Other Costs		Total		Employee Costs		Facility Closure and Other Costs		Total
Balance at beginning of period	$	97	$	4	$	101	$	98	$	5	$	103
Provisions	10		5		15		11		5		16
Revisions to estimates	(2)		—		(2)		—		—		—
Payments	(23)		(7)		(30)		(25)		(5)		(30)
Foreign currency	(1)		—		(1)		—		—		—
Balance at March 31	81		2		83		84		5		89
Provisions	90		6		96		44		5		49
Revisions to estimates	(4)		—		(4)		(2)		—		(2)
Payments	(31)		(4)		(35)		(16)		(5)		(21)

Balance at June 30	136		4		140		110		5		115
Provisions	16		3		19		22		5		27
Revisions to estimates	(4)		(1)		(5)		(2)		—		(2)
Payments	(24)		(4)		(28)		(29)		(6)		(35)
Foreign currency	1		—		1		(1)		—		(1)
Balance at end of period	$	125	$	2	$	127	$	100	$	4	$	104

Asset impairments

Asset impairments related to restructuring actions

During the nine months ended September 30, 2020, as a result of the actions in the Motorparts segment discussed above, 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 1, Description of Business, for additional information.

During the nine months ended September 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

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 Ride Performance 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 nine months ended September 30, 2020. Refer to Note 9, 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 $17 million during the nine months ended September 30, 2020. Included in the asset impairment charges for the nine months ended September 30, 2020 are $11 million related to property, plant, and equipment and $6 million related to operating lease right-of-use assets.

There are many uncertainties regarding the COVID-19 global pandemic that could negatively affect the Company's results of operations, financial position, and cash flows. As a result, if there is an adverse change to the Company’s projected financial information, due to business performance or market conditions, this may be indicative the value of its long-lived assets are not recoverable, which may result in additional non-cash long-lived asset impairment charges in a future period.

Impairment of assets held for sale

Refer to Note 3, Acquisitions and Divestitures, for additional information on impairments of assets held for sale.

5. Inventories

At September 30, 2020 and December 31, 2019, inventory consists of the following:


	September 30, 2020		December 31, 2019
Finished goods	$	734	$	1,027
Work in process	441		460
Raw materials	400		408
Materials and supplies	103		104
	$	1,678	$	1,999

6. Goodwill and Other Intangible Assets

During the three months ended September 30, 2020, the Company performed a review of potential triggering events, and concluded no events indicated it was more likely than not that the fair values of its reporting units had declined to below their carrying values. There are many uncertainties regarding the COVID-19 global pandemic that could negatively affect the Company's results of operations, financial position, and cash flows. As a result, if there is an adverse change to the Company’s projected financial information, due to business performance or market conditions, this may be indicative that the fair value of its reporting units have declined below their carrying values, which may result in non-cash goodwill or intangible asset impairment charges in a future period.

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 to 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 Powertrain, Motorparts, and Ride Performance 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 nine months ended September 30, 2020, which represented full impairments of the goodwill in one reporting unit in the Powertrain segment and one reporting unit in the Ride Performance segment, and partial impairments of goodwill in one reporting unit in the Powertrain segment and one reporting unit in the Motorparts 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 Ride Performance and Motorparts segments. It was determined 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 nine months ended September 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 Ride Performance segment and one of the reporting units in the Motorparts segment.

As discussed in more details 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 Ride Performance segment. As a result, the Company recorded non-cash impairment charges of $65 million related to its definite-lived intangible assets during the nine months ended September 30, 2020, which represented full impairments of the definite-lived intangible assets in these two reporting units.

Impairment charges for goodwill and intangible assets recognized by segment during the nine months ended September 30, 2020 consist of the following:


	Nine Months Ended September 30, 2020
	Powertrain		Ride Performance		Motorparts		Total
Goodwill impairment charges	$	160	$	37	$	70	$	267
Trade names and trademarks intangible asset impairment charges	—		11		40		51
Definite-lived intangible asset impairment charges	—		65		—		65
	$	160	$	113	$	110	$	383

The following table shows a summary of the number of reporting units with goodwill in each segment and whether or not the reporting unit's fair value exceeds its carrying value by more or less than 10% based on each respective reporting units most recent goodwill impairment analysis:


	Segments
	Clean Air		Powertrain		Ride Performance		Motorparts
Number of reporting units with goodwill	3		1		1		1

Number of reporting units where fair value exceeds carrying value:
Greater than 10%	3		—		1		—
Less than 10%	—		1		—		1

Goodwill for reporting units where fair value exceeds carrying value:
Greater than 10%	$	22	$	—	$	7	$	—
Less than 10%	—		165		—		313
	$	22	$	165	$	7	$	313

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

At September 30, 2020 and December 31, 2019, goodwill consists of the following:



	Clean Air		Powertrain		Ride Performance		Motorparts		Total
Gross carrying amount at December 31, 2019	$	22	$	343	$	259	$	620	$	1,244

Foreign exchange	—		—		(3)		—		(3)
Gross carrying amount at March 31, 2020	22		343		256		620		1,241

Foreign exchange	—		—		3		—		3
Gross carrying amount at June 30, 2020	22		343		259		620		1,244
Reclassified from held for sale	—		—		—		2		2

Foreign exchange	—		—		1		1		2
Gross carrying amount at September 30, 2020	22		343		260		623		1,248

Accumulated impairment loss at December 31, 2019	—		(18)		(212)		(239)		(469)
Impairment	—		(160)		(37)		(70)		(267)
Accumulated impairment loss at March 31, 2020	—		(178)		(249)		(309)		(736)

Foreign exchange	—		—		(3)		—		(3)
Accumulated impairment loss at June 30, 2020	—		(178)		(252)		(309)		(739)

Foreign exchange	—		—		(1)		(1)		(2)
Accumulated impairment loss at September 30, 2020	—		(178)		(253)		(310)		(741)

Net carrying value at September 30, 2020	$	22	$	165	$	7	$	313	$	507

During the first quarter of 2019, the Company reorganized the reporting structure of its Aftermarket, Ride Performance, and Motorparts segments and the underlying reporting units within those segments. The Company reassigned assets and liabilities (excluding goodwill) to the reporting units affected. Goodwill was then reassigned to the reporting units using a relative fair value approach based on the fair value of the elements transferred and the fair value of the elements remaining within the original reporting units. The Company tested goodwill for impairment on a pre-reorganization basis and determined there was no impairment for the affected reporting units. The Company also performed an impairment analysis on a post-reorganization basis and determined $60 million of goodwill was impaired for two reporting units within its Ride Performance segment, one of which was a full impairment of the goodwill. As a result, this non-cash charge was recorded in the nine months ended September 30, 2019. Goodwill allocated to other reporting units was supported by the valuation performed at that time.

During the third quarter of 2019, the Company completed purchase accounting for the Federal-Mogul Acquisition. As a result, the final goodwill allocation was reassigned to the reorganized segments and reporting unit structure that occurred in the first quarter of 2019 using a relative fair value approach and the Company determined an incremental $9 million of goodwill was impaired for one reporting unit in its Ride Performance segment. This non-cash charge was recorded in the three months ended September 30, 2019 and the total impairment charges recognized in the nine months ended September 30, 2019 for the reorganization of the reporting units that occurred in the first quarter of 2019 was $69 million.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

At September 30, 2020 and December 31, 2019, the Company's intangible assets consist of the following:


		September 30, 2020						December 31, 2019
	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	$	990	$	(257)	$	733	$	988	$	(123)	$	865
Customer contract	10 years	8		(6)		2		8		(6)		2
Patents	10 to 17 years	1		(1)		—		1		(1)		—
Technology rights	10 to 30 years	135		(47)		88		133		(37)		96
Packaged kits know-how	10 years	54		(11)		43		54		(7)		47
Catalogs	10 years	47		(9)		38		47		(6)		41
Licensing agreements	3 to 5 years	64		(31)		33		63		(18)		45
Land use rights	28 to 46 years	48		(4)		44		47		(3)		44
		1,347		(366)		981		1,341		(201)		1,140
Indefinite-lived intangible assets:
Trade names and trademarks						233						282
Total						$	1,214					$	1,422

The amortization expense associated with definite-lived intangible assets is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amortization expense	$	32	$	33	$	98	$	101

The expected future amortization expense for the Company's definite-lived intangible assets is as follows:


	2020		2021		2022		2023		2024		2025 and thereafter		Total
Expected amortization expense	$	32	$	129	$	124	$	121	$	114	$	461	$	981

7. Investment in Nonconsolidated Affiliates

The Company's ownership interest in affiliates accounted for under the equity method is as follows:


	September 30, 2020		December 31, 2019
Anqing TP Goetze Piston Ring Company Limited (China)	35.7	%	35.7	%
Anqing TP Powder Metallurgy Co., Ltd (China)	20.0	%	20.0	%
Dongsuh Federal-Mogul Industrial Co. Ltd. (Korea)	50.0	%	50.0	%
Farloc Argentina SAIC Y F (Argentina)	23.9	%	23.9	%
Federal-Mogul Powertrain Otomotiv A.S. (Turkey)	50.0	%	50.0	%
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti. (Turkey)	25.0	%	25.0	%
Federal-Mogul TP Liners, Inc. (U.S.)	46.0	%	46.0	%
Frenos Hidraulicos Automotrices, S.A. de C.V. (Mexico)	49.0	%	49.0	%

JURID do Brasil Sistemas Automotivos Ltda. (Brazil)	19.9	%	19.9	%
KB Autosys Co., Ltd. (Korea)	33.6	%	33.6	%
Montagewerk Abgastechnik Emden GmbH (Germany)	50.0	%	50.0	%

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The Company's investments in its nonconsolidated affiliates at September 30, 2020 and December 31, 2019 is as follows:


	September 30, 2020		December 31, 2019
Investments in nonconsolidated affiliates	$	541	$	518

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 $265 million and $251 million at September 30, 2020 and December 31, 2019.

The following table represents the activity from the Company's investments in its nonconsolidated affiliates for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Equity in earnings (losses) of nonconsolidated affiliates, net of tax	$	9	$	1	$	26	$	34
Cash dividends received from nonconsolidated affiliates	$	—	$	18	$	18	$	45

During the three and nine months ended September 30, 2019, the Company made adjustments in the measurement period to the preliminary purchase price allocation for the Federal-Mogul Acquisition which resulted in a reduction to the fair value of its investments in nonconsolidated affiliates of $4 million. As a result of finalizing purchase accounting and completing a purchase price allocation for certain equity method investments, a $10 million reduction to equity in earnings was recognized in the three and nine months ended September 30, 2019. The non-cash reduction in equity earnings was to recognize the basis difference between the fair value and book value of certain assets, including inventory, property, plant, and equipment, and intangible assets. The purchase price allocation for the Federal-Mogul Acquisition was finalized in the third quarter of 2019.

The following tables present summarized aggregated financial information of the Company's nonconsolidated affiliates for the three and nine months ended September 30, 2020 and 2019. The amounts represent 100% of the interest in the nonconsolidated affiliates and not the Company's proportionate share:


	Three Months Ended September 30, 2020
Statements of Income	Otomotiv A.S.		Anqing TP Goetze		Other		Total
Sales	$	73	$	72	$	140	$	285
Gross profit	$	21	$	17	$	27	$	65
Income from continuing operations	$	16	$	18	$	9	$	43
Net income	$	11	$	16	$	8	$	35


	Three Months Ended September 30, 2019
Statements of Income	Otomotiv A.S.		Anqing TP Goetze		Other		Total
Sales	$	85	$	33	$	115	$	233
Gross profit	$	18	$	8	$	20	$	46
Income from continuing operations	$	13	$	8	$	11	$	32
Net income	$	12	$	7	$	9	$	28








	Nine Months Ended September 30, 2020
Statements of Income	Otomotiv A.S.		Anqing TP Goetze		Other		Total
Sales	$	193	$	113	$	286	$	592
Gross profit	$	53	$	28	$	53	$	134
Income from continuing operations	$	43	$	29	$	20	$	92
Net income	$	34	$	26	$	16	$	76

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)


	Nine Months Ended September 30, 2019
Statements of Income	Otomotiv A.S.		Anqing TP Goetze		Other		Total
Sales	$	261	$	111	$	360	$	732
Gross profit	$	61	$	34	$	66	$	161
Income from continuing operations	$	49	$	28	$	35	$	112
Net income	$	51	$	25	$	31	$	107

Refer to Note 17, Related Party Transactions, for additional information on balances and transactions with equity method investments.

8. Derivatives and Hedging Activities

The Company is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices, equity compensation liabilities, and changes in interest rates, which may result in cash flow risks. For exposures not offset within its operations, the Company may enter into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes. Designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.

Market Risks

Foreign Currency Exchange Rate Risk

The Company manufactures and sells its products in North America, South America, Asia, Europe, and Africa. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which the Company manufactures and sells its products. The Company generally tries to use natural hedges within its foreign currency activities, including the matching of revenues and costs, to minimize foreign currency exchange rate risk. Where natural hedges are not in place, the Company considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. Principal currencies hedged have historically included the U.S. dollar, euro, British pound, Polish zloty, Singapore dollar, Thailand bhat, South African rand, Mexican peso, and Canadian dollar.

Concentrations of Credit Risk

Financial instruments including cash equivalents and derivative contracts expose the Company to counterparty credit risk for non-performance. The Company's counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company's requirement of high credit standing. The Company's counterparties for derivative contracts are substantial investment and commercial banks with significant experience using such derivatives. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counterparty and through monitoring counterparty credit risks. The Company's concentration of credit risk related to derivative contracts at September 30, 2020 and December 31, 2019 is not material.

Other

The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis. For derivatives designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness. Unrealized gains and losses associated with ineffective hedges, determined using the hypothetical derivative method, are recognized in cost of sales in the condensed consolidated statements of income (loss). Derivative gains and losses included in accumulated other comprehensive income (loss) for effective hedges are reclassified into operations upon recognition of the hedged transaction. Derivative gains and losses associated with undesignated hedges are recognized in cost of sales in the condensed consolidated statements of income (loss).

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Derivative Instruments

Foreign Currency Forward Contracts

The Company enters into foreign currency forward purchase and sale contracts to mitigate its exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. In managing its foreign currency exposures, the Company identifies and aggregates existing offsetting positions and then hedges residual exposures through third-party derivative contracts. The gains or losses on these contracts are recognized as foreign currency gains (losses) within cost of sales in the condensed consolidated statements of income (loss). The fair value of foreign currency forward contracts is recorded in prepayments and other current assets or accrued expenses and other current liabilities in the condensed consolidated balance sheets. The fair value of these derivative instruments is not considered material to the condensed consolidated financial statements, refer to Note 9, Fair Value for additional information.

The following table summarizes by position the notional amounts for foreign currency forward contracts at September 30, 2020 (all of which mature in 2020):


	Notional Amount
Long positions	$	43
Short positions	$	(43)

Cash-Settled Share and Index Swap Transactions

The Company selectively uses swaps to reduce market risk associated with its deferred compensation liabilities, which increase as the Company's stock price increases and decrease as the Company's stock price decreases. The Company has entered into a cash-settled share swap agreement that moves in the opposite direction of these liabilities, allowing the Company to fix a portion of the liabilities at a stated amount. At September 30, 2020, the Company hedged its deferred compensation liability related to approximately 1,700,000 common share equivalents, an increase of 1,100,000 common share equivalents from December 31, 2019. In the first quarter of 2020, the Company entered into an S&P 500 index fund ETF swap agreement to further reduce its market risk, which will act as a natural hedge offsetting an equivalent amount of indexed investments in the Company's deferred compensation plans. The fair value of these swap agreements is recorded in prepayments and other current assets or accrued expenses and other current liabilities in the condensed consolidated balance sheets. The fair value of these derivative instruments is not considered material to the condensed consolidated financial statements, refer to Note 9, Fair Value for additional information.

Hedging Instruments

Cash Flow Hedges — Commodity Price Risk — The Company’s production processes are dependent upon the supply of certain raw materials that are exposed to price fluctuations on the open market. The primary purpose of the Company’s commodity price forward contract activity is to manage the volatility associated with forecasted purchases for up to eighteen months in the future. The Company monitors its commodity price risk exposures regularly to maximize the overall effectiveness of its commodity forward contracts. Principal raw materials hedged include copper, tin, and nickel. In certain instances, within this program, foreign currency forwards may be used in order to match critical terms for commodity exposure.

The Company has designated these contracts as cash flow hedging instruments. The Company records unrecognized gains and losses in other comprehensive income (loss) (“OCI or OCL”) and makes regular reclassifying adjustments into cost of sales within the condensed consolidated statements of income (loss) when the underlying hedged transaction is recognized in earnings. The Company had commodity derivatives outstanding with an equivalent notional amount of $14 million and $19 million at September 30, 2020 and December 31, 2019. Substantially all of the commodity price hedge contracts mature within one year.

Net Investment Hedge — Foreign Currency Borrowings — The Company has foreign currency denominated debt, €779 million of which was designated as a net investment hedge in certain foreign subsidiaries and affiliates of the Company. Changes to its carrying value are included in the condensed consolidated statements of changes in shareholders' equity in the foreign currency translation component of OCL and offset against the translation adjustment on the underlying net assets of those foreign subsidiaries and affiliates, which are also recorded in OCL. The Company’s debt instruments are discussed further in Note 10, Debt and Other Financing Arrangements.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The following table is a summary of the carrying value of derivative and non-derivative instruments designated as hedges at September 30, 2020 and December 31, 2019:


		Carrying Value
	Balance sheet classification	September 30, 2020		December 31, 2019
Commodity price hedge contracts designated as cash flow hedges	Prepayments and other current assets	$	2	$	—

Foreign currency borrowings designated as net investment hedges	Long-term debt	$	913	$	850

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 nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Commodity price hedge contracts designated as cash flow hedges	$	1	$	(1)	$	3	$	—
Foreign currency borrowings designated as net investment hedges	$	(38)	$	38	$	(40)	$	45

The Company estimates approximately $2 million included in accumulated OCI or OCL at September 30, 2020 will be reclassified into net income (loss) within the following twelve months. Refer to Note 15, Shareholders' Equity for further information.

9. 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

The following table presents the assets and liabilities included in the Company's condensed consolidated balance sheets at September 30, 2020 and December 31, 2019 that are recognized at fair value on a recurring basis and indicate the fair value hierarchy utilized to determine such fair values:


		September 30, 2020				December 31, 2019
	Fair value hierarchy	Carrying Amount		Fair Value			Carrying Amount		Fair Value
Derivative asset (liability) instruments:
Swap agreements	Level 2	$	2	$	2		$	(1)	$	(1)
Commodity contracts	Level 2	$	2	$	2		$	—	$	—

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.

Cash-Settled Share and Index Swap Agreements

The Company's stock price is used as an observable input in determining the fair value of the cash-settled share swap agreement. The S&P 500 index ETF price is used as an observable input in determining the fair value of this swap agreement.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Commodity Contracts and Foreign Currency Contracts

The Company calculates the fair value of its commodity contracts and foreign currency contracts using commodity forward rates and currency forward rates, 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 the Company's foreign currency forward contracts was a net asset position of less than $1 million at September 30, 2020 and December 31, 2019.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to items measured at fair value on a recurring basis, assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets which may be written down to fair value as a result of impairment.

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 nine months ended September 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

The Company evaluates the carrying value of its goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each year, or more frequently if events or circumstances indicate these assets might be impaired. 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 to 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 its trade names and trademarks. These fair value measurements require the Company to make significant assumptions and estimates about the (i) projected operating margins, (ii) revenue growth rate, and (iii) discount rate, which is risk-adjusted based on the aforementioned items, as observable inputs are not available (level 3). The Company believes the assumptions and estimates used to determine the estimated fair value 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.

During the first quarter of 2020, it was determined the carrying values of certain reporting units, and the Company's trade names and trademarks exceeded their fair values. As a result, the Company recognized $267 million in non-cash impairment charges related to its goodwill and $51 million in non-cash impairment charges related to its indefinite-lived intangible assets during the nine months ended September 30, 2020. Refer to Note 6, Goodwill and Other Intangible Assets, for additional information on the goodwill and indefinite-lived intangible asset impairments.

During the first quarter of 2019, the Company reorganized the reporting structure of its Aftermarket, Ride Performance, and Motorparts segments and the underlying reporting units within those segments. Refer to Note 6, Goodwill and Other Intangible Assets, for additional information on the goodwill impairment recognized in the nine months ended September 30, 2019.

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:


		September 30, 2020				December 31, 2019
	Fair value hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including current maturities):
Term loans and senior notes	Level 2	$	5,151	$	4,788	$	5,179	$	5,113

The fair value of the Company's public senior notes and private borrowings under its senior credit facility is based on observable inputs, and its borrowings on the revolving credit facility approximate fair value. The Company also had $181 million and $192 million at September 30, 2020 and December 31, 2019 in other debt whose carrying value approximates fair value, which consists primarily of foreign debt with maturities of one year or less.

10. Debt and Other Financing Arrangements

Long-Term Debt

A summary of the Company's long-term debt obligations at September 30, 2020 and December 31, 2019 is set forth in the following table:


	September 30, 2020				December 31, 2019
	Principal		Carrying Amount (a)		Principal		Carrying Amount (a)
Credit Facilities
Revolver Borrowings
Due 2023	$	429	$	429	$	183	$	183
Term Loans
LIBOR plus 2.50% Term Loan A due 2019 through 2023(b)	1,552		1,541		1,615		1,608
LIBOR plus 3.00% Term Loan B due 2019 through 2025	1,670		1,613		1,683		1,623
Senior Unsecured Notes
$225 million of 5.375% Senior Notes due 2024	225		223		225		222
$500 million of 5.000% Senior Notes due 2026	500		495		500		494
Senior Secured Notes
€415 million of 4.875% Euro Fixed Rate Notes due 2022	486		496		465		479
€300 million of Euribor plus 4.875% Euro Floating Rate Notes due 2024	352		355		336		340
€350 million of 5.000% Euro Fixed Rate Notes due 2024	410		428		392		413
Other debt, primarily foreign instruments	21		20		14		13
			5,600				5,375
Less - maturities classified as current			4				4
Total long-term debt			$	5,596			$	5,371

(a)Carrying amount is net of unamortized debt issuance costs and debt discounts or premiums. Total unamortized debt issuance costs were $75 million and $76 million at September 30, 2020 and December 31, 2019. Total unamortized debt (premium) discount, net was $(30) million and $(37) million at September 30, 2020 and December 31, 2019.

(b)The interest rate on Term Loan A at December 31, 2019 was LIBOR plus 1.75%.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Short-Term Debt

The Company's short-term debt at September 30, 2020 and December 31, 2019 consists of the following:


	September 30, 2020		December 31, 2019
Maturities classified as current	$	4	$	4
Short-term borrowings(a)	161		179
Bank overdrafts	11		2
Total short-term debt	$	176	$	185

(a) Includes borrowings under both committed credit facilities and uncommitted lines of credit and similar arrangements.

Amortization of debt issuance costs and original issue discounts (premiums)

Interest expense associated with the amortization of the debt issuance costs and original issue discounts (premiums) recognized in the Company's condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2020 and 2019 is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amortization of debt issuance fees	$	6	$	5	$	16	$	14
Accretion of debt premium	$	(2)	$	(3)	$	(8)	$	(9)

Included in the table above is the amortization of debt issuance costs on the revolver of $1 million in each of the three months ended September 30, 2020 and 2019, and $3 million in each of the nine months ended September 30, 2020 and 2019. The unamortized debt issuance costs related to the revolver are included in other assets in the condensed consolidated balance sheets.

Credit Facilities

Financing Arrangements

The table below shows the Company's borrowing capacity on committed credit facilities at September 30, 2020:


	Committed Credit Facilities at September 30, 2020
	Term	Available(b)
		(in billions)
Tenneco Inc. revolving credit facility (a)	2023	$	1.1
Tenneco Inc. Term Loan A	2023	—
Tenneco Inc. Term Loan B	2025	—
Subsidiaries’ credit agreements	2020 - 2028	—
		$	1.1

(a)The Company is required to pay commitment fees under the revolving credit facility on the unused portion of the total commitment.

(b)Letters of credit reduce the available borrowings under the revolving credit facility.

The Company also had $74 million of outstanding letters of credit under uncommitted facilities at September 30, 2020.

At September 30, 2020, the Company had liquidity of $1.8 billion comprised of $721 million of cash and $1.1 billion undrawn on its revolving credit facility. During the three months ended September 30, 2020, the Company repaid $1.1 billion of its $1.5 billion revolving credit facility.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Term Loans

On October 1, 2018, the Company entered into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and other lenders (the "New Credit Facility") in connection with the Federal-Mogul Acquisition, which has been amended by the first amendment, dated February 14, 2020 ("the "First Amendment"), by the second amendment, dated February 14, 2020 (the "Second Amendment"), and by the third amendment, dated May 5, 2020 (the "Third Amendment"). The New Credit Facility provides $4.9 billion of total debt financing, consisting of a five-year $1.5 billion revolving credit facility, a five-year $1.7 billion term loan A facility ("Term Loan A"), and a seven-year $1.7 billion term loan B facility ("Term Loan B"). The Company paid $8 million in one-time fees in connection with the First Amendment and Second Amendment, and $10 million in one-time fees in connection with the Third Amendment.

New Credit Facility — Interest Rates and Fees

The Third Amendment provides for an increase to the margin applicable to borrowings under the revolving credit facility and

the Term Loan A facility at certain leverage levels as set forth below as one of several conditions for obtaining the less restrictive financial maintenance covenants described below under New Credit Facility — Other Terms and Conditions:


Consolidated net leverage ratio			Interest rate
greater than 6.0 to 1			LIBOR plus 2.50%
less than 6.0 to 1 and greater than 4.5 to 1			LIBOR plus 2.25%

Initially, and so long as the Company’s corporate family rating is Ba3 (with a stable outlook) or higher from Moody’s Investors Service, Inc. (“Moody’s”) and BB- (with a stable outlook) or higher from Standard & Poor’s Financial Services LLC (“S&P”), the interest rate on borrowings under the Term Loan B facility will be LIBOR plus 2.75%; at any time the foregoing conditions are not satisfied, the interest rate on the Term Loan B facility will be LIBOR plus 3.00%. When the Term Loan B facility is no longer outstanding and the Company and its subsidiaries have no other secured indebtedness (with certain exceptions set forth in the New Credit Facility), and upon the Company achieving and maintaining two or more corporate credit and/or corporate family ratings higher than or equal to BBB- from S&P, BBB- from Fitch Ratings Inc. (“Fitch”) and/or Baa3 from Moody’s (in each case, with a stable or positive outlook), the collateral under the New Credit Facility may be released. On June 3, 2019, Moody’s lowered our corporate family rating to B1 and the interest rate on borrowings under the term loan B was raised to LIBOR plus 3.00%.

New Credit Facility — Other Terms and Conditions — After giving effect to the Third Amendment, the Company must comply with certain less restrictive financial maintenance covenants for the revolving credit facility and the Term Loan A facility. The financial maintenance covenants are subject to several covenant reset triggers (“Covenant Reset Triggers”) that limit certain activities of the Company by implementing more restrictive affirmative and negative covenants, as more fully described below. If a Covenant Reset Trigger occurs, the financial maintenance covenants revert back to the previous financial maintenance covenants in effect immediately prior to the Third Amendment (and described below) (the “Prior Financial Covenants”). The financial maintenance covenants include (i) a requirement to have a senior secured leverage ratio (as defined in the New Credit Facility), with step-downs, as detailed in the table below; (ii) a requirement to have a consolidated net leverage ratio (as defined in the New Credit Facility), with step-downs, as follows:

(i) Senior secured net leverage ratio

(ii) Consolidated net leverage ratio

not greater than 6.75 to 1

at June 30, 2020

not greater than 4.50 to 1

at March 31, 2020

not greater than 9.50 to 1

at September 30, 2020

not greater than 5.25 to 1

at March 31, 2022

not greater than 8.75 to 1

at December 31, 2020

not greater than 4.75 to 1

at June 30, 2022

not greater than 8.25 to 1

at March 31, 2021

not greater than 4.25 to 1

at September 30, 2022

not greater than 4.50 to 1

at June 30, 2021

not greater than 3.75 to 1

thereafter

not greater than 4.25 to 1

at September 30, 2021

not greater than 4.00 to 1

at December 31, 2021

and (iii) a requirement to maintain a consolidated interest coverage ratio (as defined in the New Credit Facility) for any period of four consecutive fiscal quarters of not less than 2.00 to 1 as of June 30, 2020, 1.50 to 1 through March 31, 2021, and 2.75 to 1 thereafter.

The Company may make a one-time election to revert back to the Prior Financial Covenants and terminate the Covenant Reset Triggers upon delivery of a covenant reset certificate that attests to compliance with the Prior Financial Covenants as of the end of the relevant fiscal period (“Covenant Reset Certificate”).

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The Covenant Reset Triggers include certain limitations on the ability of the Company and its restricted subsidiaries to, among other things, (a) incur additional indebtedness, (b) enter into additional sales and leasebacks, (c) create additional liens over their assets, (d) pay dividends or distributions to Tenneco’s stockholders, (e) prepay certain unsecured indebtedness of the Company or its restricted subsidiaries (as more fully described below), (f) make additional investments, (g) dispose of material intellectual property, and (h) reinvest the proceeds of certain asset sales in the business in lieu of repaying indebtedness, each as more specifically described in the Third Amendment. These limitations are in addition to other affirmative and negative covenants (with customary exceptions, materiality qualifiers and limitations) in the New Credit Agreement, including with respect to: financial reporting; payment of taxes; maintenance of existence; compliance with law and material contractual obligations; maintenance of property and insurance; inspection of property, books and records; notices of certain events; compliance with environmental laws; provision and maintenance of collateral perfection; satisfaction of the financial maintenance covenants described above; incurrence of indebtedness; permitting liens over assets; mergers, consolidations, dispositions or other fundamental transactions; dispositions and asset sales; restricted payments; investments; compliance with limitations on certain transactions with nonconsolidated affiliates; sale and leaseback transactions; changes in fiscal periods; negative pledge clauses in certain contracts; changes to lines of business; prepayments and modifications of certain subordinated indebtedness (as more fully described below); use of proceeds; transactions involving special purpose finance subsidiaries; and transactions related to effectuating a spin-off (as defined in the New Credit Agreement), each as more specifically described in the New Credit Agreement.

The Covenant Reset Triggers in the Third Amendment generally prohibit the Company from repaying the Senior Unsecured Notes. After giving effect to the Third Amendment, so long as no default exists under its New Credit Facility, the Company would be permitted to (i) make regularly scheduled interest and principal payments as and when due in respect of the Senior Unsecured Notes, (ii) refinance the Senior Unsecured Notes with the net cash proceeds of permitted refinancing indebtedness (as defined in the New Credit Facility); (iii) make payments in respect of the Senior Unsecured Notes in an amount equal to the net cash proceeds of qualified capital stock (as defined in the New Credit Facility) issued after May 5, 2020; (iv) convert any Senior Unsecured Notes into qualified capital stock issued after May 5, 2020; and (v) make additional payments of the Senior Unsecured Notes provided that after giving effect to such additional payments the consolidated leverage ratio would be equal to or less than 2.00 to 1 after giving effect to such additional payments. The foregoing limitations regarding repayment and refinancing of the Senior Unsecured Notes apply from the effectiveness of the Third Amendment until delivery of a Covenant Reset Certificate.

The covenants in the New Credit Facility generally prohibit the Company from repaying certain subordinated indebtedness. So long as no default exists, the Company would, under its New Credit Facility, be permitted to repay or refinance its subordinated indebtedness (i) with the net cash proceeds of permitted refinancing indebtedness (as defined in the New Credit Facility); (ii) in an amount equal to the net cash proceeds of qualified capital stock (as defined in the New Credit Facility) issued after October 1, 2018; (iii) in exchange for qualified capital stock issued after October 1, 2018; and (iv) with additional payments provided that such additional payments are capped based on a pro forma consolidated leverage ratio after giving effect to such additional payments.

Such additional payments on subordinated indebtedness (x) will not be permitted at any time the pro forma consolidated leverage ratio is greater than 2.00 to 1 after giving effect to such additional payments and (y) will be permitted in an unlimited amount at any time the pro forma consolidated leverage ratio is equal to or less than 2.00 to 1 after giving effect to such additional payments.

The New Credit Facility contains customary representations and warranties, including, as a condition to future revolver borrowings, that all such representations and warranties are true and correct, in all material respects, on the date of borrowing, including representations (with customary exceptions, materiality qualifiers and limitations) as to: existence; compliance with law; power, authority and enforceability; no violation of law or material contracts; material litigation; no default under the New Credit Agreement and related documents; ownership of property, including material intellectual property; payment of material taxes; compliance with margin stock regulations; labor matters; ERISA; Investment Company Act matters; subsidiaries; use of loan proceeds; environmental matters; accuracy of information; security documents; solvency; anti-corruption laws and sanctions; and that since December 31, 2017 there has been no development or event that has had a material adverse effect on the business or financial condition of the Company and its subsidiaries, each as more specifically described in the New Credit Facility.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The New Credit Facility includes customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company fails to comply with the terms of the New Credit Facility or if other customary events occur. These events of default (with customary exceptions, materiality qualifiers, limitations and grace periods) include (i) failure to pay obligations under the New Credit Agreement when due; (ii) material inaccuracy of representations and warranties; (iii) failure to comply with the covenants in the New Credit Facility and related documents (as summarized above); (iv) cross-default to material indebtedness; (v) commencement of bankruptcy or insolvency proceedings; (vi) ERISA events; (vii) certain material judgments; (viii) invalidity of unenforceability of security and guarantee documents; and (ix) change of control, each as more specifically described in the New Credit Facility.

Senior Notes

The Company has outstanding 5.375% senior unsecured notes due December 15, 2024 ("2024 Senior Notes") and 5.000% senior unsecured notes due July 15, 2026 ("2026 Senior Notes" and together with the 2024 Senior Notes, the "Senior Unsecured Notes"). The Company has outstanding 5.000% euro denominated fixed rate notes which are due July 15, 2024 ("5.000% Euro Fixed Rate Notes"), 4.875% euro denominated fixed rate notes due April 15, 2022 ("4.875% Euro Fixed Rate Notes"), and floating rate notes due April 15, 2024 ("Euro Floating Rate Notes", together with the 5.000% Euro Fixed Rate Notes and the 4.875% Euro Fixed Notes, the "Senior Secured Notes").

Senior Unsecured Notes and Senior Secured Notes — Other Terms and Conditions — The Senior Unsecured Notes and Senior Secured Notes contain covenants that will, among other things, limit the Company's ability to create liens and enter into sale and leaseback transactions. In addition, the Senior Secured Notes and 2024 Senior Unsecured Notes also require that, as a condition precedent to incurring certain types of indebtedness not otherwise permitted, the Company's consolidated fixed charge coverage ratio, as calculated on a pro forma basis, be greater than 2.00, as well as containing restrictions on its operations, including limitations on: (i) incurring additional indebtedness; (ii) paying dividends; (iii) distributions and stock repurchases; (iv) investments; (v) asset sales and (vi) mergers and consolidations.

Subject to limited exceptions, all of the Company's existing and future material, domestic wholly owned subsidiaries fully and unconditionally guarantee its Senior Unsecured Notes and Senior Secured Notes on a joint and several basis. There are no significant restrictions on the ability of the subsidiaries that have guaranteed the Company's Senior Notes to make distributions to the Company.

At September 30, 2020, the Company was in compliance with all of its financial covenants.

Other Debt

Other debt consists primarily of subsidiary debt.

Accounts Receivable Securitization and Factoring

On-Balance Sheet Arrangements

The Company has securitization programs for some of its accounts receivable, with limited recourse provisions. Borrowings on these securitization programs, which are recorded in short-term debt, at September 30, 2020 and December 31, 2019 are as follows:


	September 30, 2020		December 31, 2019
Borrowings on securitization programs	$	6	$	4

Off-Balance Sheet Arrangements

In the Company's European and U.S. accounts receivable factoring programs, accounts receivables are transferred in their entirety to the acquiring entities and are accounted for as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under these factoring programs approximates the fair value of such receivables. 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.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

In the U.S and Canada, the Company participates in supply chain financing programs with certain of the Company's aftermarket customers through drafting programs.

The amount of accounts receivable outstanding and derecognized for these factoring and drafting arrangements was $0.9 billion and $1.0 billion at September 30, 2020 and December 31, 2019. In addition, the deferred purchase price receivable was $49 million and $33 million at September 30, 2020 and December 31, 2019.

Proceeds from the factoring of accounts receivable qualifying as sales and drafting programs was $1.1 billion for each of the three months ended September 30, 2020 and 2019 and was $3.0 billion and $3.6 billion for the nine months ended September 30, 2020 and 2019.

The following table represents the Company's expenses associated with these arrangements for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Loss on sale of receivables(a)	$	5	$	9	$	15	$	23

(a) Amount is included in "Interest expense" in the condensed consolidated statements of income (loss).

These programs provide the Company with access to cash at costs that are generally favorable to alternative sources of financing.

11. Pension Plans, Postretirement and Other Employee Benefits

The Company sponsors several defined benefit pension plans ("Pension Benefits") and health care and life insurance benefits ("Other Postretirement Benefits" or "OPEB") for certain employees and retirees around the world.

In September 2020, the Company renegotiated one of its collective bargaining agreements in the U.S. which eliminated health care benefits in retirement if benefits are not commenced by September 24, 2021 for participants covered by the union agreement. This amendment resulted in a non-cash curtailment gain of $21 million for the three and nine months ended September 30, 2020.

During the three and nine months ended September 30, 2020, the Company paid lump sums out of certain pension plans in connection with a previously announced plant closure. These lump sums were paid out of the pension plan assets and resulted in a non-cash settlement charge of $5 million for the three and nine months ended September 30, 2020. The Company expects additional lump sums to be paid out of pension plan assets during the fourth quarter 2020.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Components of net periodic benefit costs (credits) for the three and nine months ended September 30, 2020 and 2019 are as follows:


	Three Months Ended September 30,
	Pension Benefits								Other Postretirement Benefits
	2020				2019
	U.S.		Non-U.S.		U.S.		Non-U.S.		2020		2019
Service cost	$	—	$	7	$	1	$	6	$	—	$	—
Interest cost	11		4		13		6		2		3
Expected return on plan assets	(16)		(5)		(17)		(5)		—		—
Settlement loss	—		5		—		—		—		—
Curtailment gain	—		—		—		—		(21)		—
Net amortization:
Actuarial loss	1		3		1		1		1		1
Prior service cost (credit)	—		—		—		1		(3)		(2)
Net pension and postretirement costs (credits)	$	(4)	$	14	$	(2)	$	9	$	(21)	$	2


	Nine Months Ended September 30,
	Pension Benefits								Other Postretirement Benefits
	2020				2019
	U.S.		Non-U.S.		U.S.		Non-U.S.		2020		2019
Service cost	$	1	$	19	$	2	$	18	$	—	$	—
Interest cost	31		13		40		18		7		10
Expected return on plan assets	(48)		(13)		(51)		(14)		—		—
Settlement loss	—		5		—		—		—		—
Curtailment gain	—		—		—		—		(21)		—
Net amortization:
Actuarial loss	4		7		3		4		2		3
Prior service cost (credit)	—		—		—		1		(7)		(6)
Net pension and postretirement costs (credits)	$	(12)	$	31	$	(6)	$	27	$	(19)	$	7

12. Income Taxes

For interim tax reporting, the Company estimates its annual effective tax rate and applies it to year-to-date ordinary income. Jurisdictions where no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The effect of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

For the three months ended September 30, 2020, the Company recorded income tax expense of $648 million on income from continuing operations before income taxes of $168 million. This compares to an income tax benefit of $9 million on income from continuing operations of $69 million in the three months ended September 30, 2019.

For the nine months ended September 30, 2020, the Company recorded income tax expense of $453 million on loss from continuing operations before income taxes of $1.2 billion. This compares to an income tax expense of $5 million on income from continuing operations before income taxes of $23 million in the nine months ended September 30, 2019.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Income tax expense for the three months ended September 30, 2020 differs from the U.S. statutory rate due primarily to (i) a $369 million and $11 million non-cash charge relating to the establishment of valuation allowances on deferred tax assets recognized in prior years for the U.S. and France; (ii) a non-cash tax benefit of $2 million relating to the reversal of a valuation allowance in China; and (iii) a $145 million non-cash charge to adjust the estimated annual tax rate for the tax benefit that can no longer be recognized due to the change in positions for these respective entities.

Income tax benefit for the nine months ended September 30, 2020 differs from the U.S. statutory rate due primarily to $39 million of tax benefit recognized related to asset impairment charges of $883 million, the discrete items noted above, and pre-tax income taxed at rates higher than the U.S. statutory tax rate, and pre-tax losses with no tax benefit.

Income tax expense for the three and nine months ended September 30, 2019 differ from the U.S. statutory rate due primarily to $33 million of net tax benefit recognized relating to a valuation allowance release for an entity in Spain, pre-tax income taxed at rates higher than the U.S. statutory rate and pre-tax losses with no tax benefit.

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.

Due to the sudden and sharp decline in industry demand, and the temporary suspension of production at the Company's U.S. manufacturing facilities as a result of the COVID-19 global pandemic, it incurred a significant U.S. pre-tax loss for the second quarter of 2020. Based on the market research and financial forecast available at that time, the Company expected that its U.S. business operations would be recovered substantially in the third and fourth quarters of 2020. However, based on the updated analysis in the current quarter, the third quarter and expected fourth quarter results did not provide enough positive evidence of profitability of the U.S. operations, therefore, the realizability of the U.S. deferred tax assets was re-assessed. While the disruption to the Company's business is expected to be temporary, there is considerable uncertainty around the extent and duration of that disruption. Combined with restructuring, impairment and integration expenses incurred in the most recent three-years, the Company will have a cumulative loss in the three-year period ending December 31, 2020. The Company has concluded that it was no longer more likely than not that it will be able to utilize the U.S. deferred tax assets. Therefore, it established a $369 million full valuation allowance against the deferred tax assets in the U.S. during the three and nine months ended September 30, 2020. Under current tax laws, the valuation allowance will not limit the Company’s ability to utilize U.S. deferred tax assets provided it can generate sufficient future taxable income in the U.S. The Company anticipates it will continue to record a valuation allowance against the losses until such time as they are able to determine it is “more-likely-than-not” the deferred tax asset will be realized. This position is dependent on whether there will be sufficient future taxable income to realize such deferred tax assets.

Also, during the three months ended September 30, 2020, the Company evaluated its ability to realize deferred tax assets of its non-US jurisdictions with available positive and negative evidence with the Company’s assessment noted above. Based on the analysis performed, at September 30, 2020, the Company believed that it is more likely than not that the deferred tax assets will be realized in certain jurisdictions that have reported losses in 2020 and in some instances are reporting a projected three-year cumulative loss. While these entities have demonstrated a return to profit in the third quarter of 2020, if operational declines continue due to the COVID-19 pandemic in certain jurisdictions, the Company believes that there may be sufficient negative evidence for a valuation allowance to be recorded in the next twelve months in the amount of $69 million.

The Company believes it is reasonably possible up to $34 million in unrecognized tax benefits related to the expiration of foreign statute of limitations and the conclusion of income tax examinations may be recognized within the next twelve months.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

13. Commitments and Contingencies

Environmental Matters

The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. The Company has been notified by the U.S. Environmental Protection Agency, other national environmental agencies, and various provincial and state agencies it may be a potentially responsible party (“PRP”) under such laws for the cost of remediating hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and other national and state or provincial environmental laws. PRP designation typically requires the funding of site investigations and subsequent remedial activities. Many of the sites that are likely to be the costliest to remediate are often current or former commercial waste disposal facilities to which numerous companies sent wastes. Despite the potential joint and several liability which might be imposed on the Company under CERCLA and some of the other laws pertaining to these sites, its share of the total waste sent to these sites generally has been small. The Company believes its exposure for liability at these sites is not material.

On a global basis, the Company has also identified certain other present and former properties at which it may be responsible for cleaning up or addressing environmental contamination, in some cases as a result of contractual commitments and/or federal or state environmental laws. The Company is seeking to resolve its responsibilities for those sites for which a claim has been received.

The Company expenses or capitalizes, as appropriate, expenditures for ongoing compliance with environmental regulations. At September 30, 2020, 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 on a discounted basis and the amounts at September 30, 2020 and December 31, 2019 are as follows:


	September 30, 2020		December 31, 2019
Accrued expenses and other current liabilities	$	9	$	8
Deferred credits and other liabilities	26		28
	$	35	$	36

For those locations where the liability was discounted, the weighted average discount rate used was 0.66% and 1.30% at September 30, 2020 and December 31, 2019.

The Company's expected payments for environmental remediation costs for non-indemnified locations are estimated to be approximately:


	2020		2021		2022		2023		2024		2025 and thereafter
Expected payments	$	3	$	5	$	3	$	2	$	2	$	15

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.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Antitrust Investigations and Litigation

On March 25, 2014, representatives of the European Commission (EC) were at Tenneco GmbH's Edenkoben, Germany administrative facility to gather information in connection with a global antitrust investigation concerning multiple automotive suppliers. On the same date, the Company also received a related subpoena from the U.S. Department of Justice (“DOJ”).

On November 5, 2014, the DOJ granted conditional leniency to the Company, its subsidiaries, and its 50% affiliates as of such date ("2014 Tenneco Entities") pursuant to an agreement the Company entered into under the Antitrust Division's Corporate Leniency Policy. On October 22, 2020, the DOJ granted unconditional leniency to the 2014 Tenneco entities. Unconditional leniency means that the DOJ will not bring any criminal antitrust prosecution against the 2014 Tenneco Entities, nor seek any criminal fines or penalties, in connection with the matters the Company reported to the DOJ.

On April 27, 2017, the Company received notification from the EC that it has administratively closed its global antitrust inquiry regarding the production, assembly, and supply of complete exhaust systems. No charges against the Company or any other competitor were initiated at any time and the EC inquiry is now closed. Certain other competition agencies are also investigating possible violations of antitrust laws relating to products supplied by the Company and its subsidiaries, including Federal-Mogul. The Company has cooperated and continues to cooperate fully with all of these antitrust investigations and take other actions to minimize its potential exposure. The exposure to these investigations is not expected to be material to the Company.

The Company and certain of its competitors were also named as defendants in civil putative class action litigations in the United States and Canada. The opt-out deadline in these lawsuits has now passed. The Company has now reached a resolution with the parties in all pending claims in the United States and Canada and expects final judgment to be granted in these lawsuits before the calendar year-end or shortly thereafter. It remains possible that lawsuits alleging similar claims could be filed against the Company in these and other jurisdictions.

The Company established a reserve of $132 million in its second quarter 2017 financial results for settlement costs that were probable, reasonably estimable, and expected to be necessary to resolve its antitrust matters globally, which primarily involves the resolution of civil suits and related claims. Of the $132 million reserve that was established, $12 million remains at September 30, 2020 and is recorded in deferred credits and other liabilities in the Company's condensed consolidated balance sheets.

The Company's reserve for its antitrust matters is based upon all currently available information and an assessment of the probability of events for those matters where the Company can make a reasonable estimate of the costs to resolve such outstanding matters. The Company's estimate involves significant judgment, given the number, variety and potential outcomes of actual and potential claims, the uncertainty of future rulings and approvals by a court or other authority, the behavior or incentives of adverse parties or regulatory authorities, and other factors outside of its control. As a result, the Company's reserve may change from time to time, and actual costs may vary. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, the Company does not expect any such change in the reserve will have a material adverse effect on the Company's annual consolidated financial position, results of operations or liquidity.

Other Legal Proceedings, Claims and Investigations

For many years, the Company has been and continues to be subject to lawsuits initiated by claimants alleging health problems as a result of exposure to asbestos. The Company's current docket of active and inactive cases is less than 500 cases in the United States and less than 50 in Europe.

With respect to the claims filed in the United States, the substantial majority of the claims are related to alleged exposure to asbestos in the Company's line of Walker® exhaust automotive products although a significant number of those claims appear also to involve occupational exposures sustained in industries other than automotive. A small number of claims have been asserted against one of the Company's subsidiaries by railroad workers alleging exposure to asbestos products in railroad cars. The Company believes, based on scientific and other evidence, it is unlikely that U.S. claimants were exposed to asbestos by the Company's former products and that, in any event, they would not be at increased risk of asbestos-related disease based on their work with these products. Further, many of these cases involve numerous defendants. Additionally, in many cases the plaintiffs either do not specify any, or specify the jurisdictional minimum, dollar amount for damages.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

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.

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 September 30, 2020 and December 31, 2019 are as follows:


	September 30, 2020		December 31, 2019
Accrued expenses and other current liabilities	$	4	$	3
Deferred credits and other liabilities	12		13
	$	16	$	16

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.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The following represents the changes in the Company's warranty accrual for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Balance at beginning of period	$	50	$	53	$	54	$	45
Accruals related to product warranties	10		2		14		23
Reductions for payments made	(1)		(2)		(8)		(15)
Foreign currency	1		(1)		—		(1)
Balance at end of period	$	60	$	52	$	60	$	52

14. Share-Based Compensation

Share-based compensation expense is included in selling, general, and administrative expenses in the condensed consolidated statements of income (loss). Total share-based compensation expense (benefit) for the three and nine months ended September 30, 2020 and 2019 is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cash-settled share-based compensation expense (benefit)	$	—	$	—	$	1	$	—
Share-settled share-based compensation expense (benefit)	4		7		13		20
	$	4	$	7	$	14	$	20

Cash-Settled Awards

The Company has granted restricted stock units ("RSUs") to certain key employees that are payable in cash. These awards are classified as liabilities, valued based on the fair value of the award at the grant date, and remeasured at each reporting date until settlement, with compensation expense being recognized in proportion to the completed requisite period up until date of settlement.

At September 30, 2020, approximately $4 million of total unrecognized compensation costs is expected to be recognized on the cash-settled RSU's over a weighted average period of approximately 2 years.

Share-Settled Awards

The Company has granted restricted stock, RSUs, and performance share units ("PSUs") to its directors and certain key employees that are payable in common stock. These awards are settled in shares upon vesting and recognized in equity based on their fair value.

The following table reflects the status of all nonvested restricted shares, share-settled RSUs, and PSUs for the nine months ended September 30, 2020:


	Restricted Stock			Share-Settled RSUs			PSUs
	Shares	Weighted Avg. Grant Date Fair Value		Units	Weighted Avg. Grant Date Fair Value		Units	Weighted Avg. Grant Date Fair Value
Nonvested balance at beginning of period	35,630	$	63.27	1,125,346	$	37.91	806,233	$	34.12
Granted	174,347	9.10		1,511,628	7.86		6,654	12.26
Vested	(205,822)	40.64		(447,292)	41.39		—	—
Forfeited	(1,781)	58.01		(371,271)	35.11		(275,514)	28.75
Nonvested balance at end of period	2,374	$	61.36	1,818,411	$	28.49	537,373	$	36.33

At September 30, 2020, approximately $21 million of total unrecognized compensation costs is expected to be recognized on the share-settled awards over a weighted average period of approximately 2 years.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

15. Shareholders' Equity

Common Stock Outstanding

The Company has authorized 175,000,000 shares ($0.01 par value) of Class A Common Stock at September 30, 2020 and December 31, 2019. The Company has authorized 25,000,000 shares ($0.01 par value) of Class B Common Stock at September 30, 2020 and December 31, 2019.

Total common stock outstanding and changes in common stock issued are as follows:


	Nine Months Ended September 30,
	Class A Common Stock		Class B Common Stock
	2020	2019	2020	2019
Shares issued at beginning of period	71,727,061	71,675,379	23,793,669	23,793,669
Issuance (repurchased) pursuant to benefit plans	605,163	98,716	—	—
Restricted stock forfeited and withheld for taxes	(124,667)	(62,919)	—	—
Stock options exercised	—	8,438	—	—
Class B common stock converted to Class A common stock	3,485,215	—	(3,485,215)	—
Shares issued at end of period	75,692,772	71,719,614	20,308,454	23,793,669

Treasury stock	14,592,888	14,592,888	—	—
Total shares outstanding	61,099,884	57,126,726	20,308,454	23,793,669

Class B Common Stock Conversion

Effective April 1, 2020, Icahn Enterprises L.P. ("IEP") exercised its right to convert 3,485,215 shares of the Company’s Class B Common Stock into 3,485,215 shares of the Company’s Class A Common Stock. As a result, IEP holds 9,136,392 shares, or approximately 14.99%, of the Company’s outstanding Class A Common Stock and 20,308,454 shares of the Company’s outstanding Class B Common Stock.

Preferred Stock

The Company had 50,000,000 shares of preferred stock ($0.01 par value) authorized at both September 30, 2020 and December 31, 2019. No shares of preferred stock were issued or outstanding at those dates.

Shareholder Rights Plan

On April 15, 2020, the Company's Board of Directors approved a Section 382 Rights Plan, which will expire on the earliest to occur of (i) the close of business on the day following the certification of the voting results of the Company’s 2021 annual meeting of stockholders, if at such stockholder meeting or any other meeting of stockholders of the Company duly held prior to such meeting, a proposal to ratify the Section 382 Rights Plan has not been passed by the requisite vote of the Company’s stockholders; (ii) the date on which the Board of Directors determines in its sole discretion that (x) the Section 382 Rights Plan is no longer necessary for the preservation of material valuable tax attributes or (y) the tax attributes have been fully utilized and may no longer be carried forward; and (iii) the close of business on October 2, 2021.

Pursuant to the Section 382 Rights Plan, our Board of Directors declared a dividend of (i) one preferred share purchase right (a “Class A Right”), payable on April 27, 2020, for each share of Class A Voting Common Stock and (ii) one preferred share purchase right (a “Class B Right” and, together with the Class A Rights, the “Rights”), payable on April 27, 2020, for each share of Class B Non-Voting Common Stock, in each case, outstanding on April 27, 2020 to the stockholders of record on that date. Each Right, which is exercisable only in the event that any person or group acquires 4.9% or more of the Company’s outstanding shares of Class A Voting Common Stock (with certain limited exceptions), would entitle any holder other than the person or group whose ownership position has exceeded the ownership limit to purchase common stock having a value equal to twice the exercise price of the Right, or, at the election of the Board of Directors, to exchange each Right for one share of Class A Common Stock per Class A Right or one share of Class B Non-Voting Common Stock per Class B Right.

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 nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Foreign currency translation adjustments and other:
Balance at beginning of period	$	(533)	$	(383)	$	(369)	$	(395)
Other comprehensive income (loss) before reclassifications	33		(77)		(132)		(66)
Reclassification from other comprehensive income (loss)	—		—		—		—
Other comprehensive income (loss)	33		(77)		(132)		(66)
Income tax benefit (provision)	—		2		1		3
Balance at end of period	(500)		(458)		(500)		(458)

Pensions and other postretirement benefits:
Balance at beginning of period	(343)		(298)		(342)		(297)
Other comprehensive income (loss) before reclassifications	—		—		—		—
Reclassification from other comprehensive income (loss)	(14)		2		(10)		5
Other comprehensive income (loss)	(14)		2		(10)		5
Income tax benefit (provision)	—		1		(5)		(3)
Balance at end of period	(357)		(295)		(357)		(295)

Cash flow hedge instruments:
Balance at beginning of period	2		1		—		—
Other comprehensive income (loss) before reclassifications	1		(1)		3		—
Reclassification from other comprehensive income (loss)	—		1		—		1
Other comprehensive income (loss)	1		—		3		1
Income tax benefit (provision)	—		—		—		—
Balance at end of period	3		1		3		1

Accumulated other comprehensive loss at end of period	$	(854)	$	(752)	$	(854)	$	(752)

Other comprehensive income (loss) attributable to noncontrolling interests	$	10	$	(22)	$	(3)	$	(17)

16. Segment Information

Tenneco consists of four operating segments: Powertrain, Clean Air, Ride Performance, and Motorparts. Costs related to other business activities, primarily corporate headquarter functions, are disclosed separately from the four operating segments as "Corporate."

Management uses EBITDA including noncontrolling interests as the key performance measure of segment profitability and uses the measure in its financial and operational decision-making processes, for internal reporting, and for planning and forecasting purposes to effectively allocate resources. EBITDA including noncontrolling interests is defined as earnings before interest expense, income taxes, noncontrolling interests, and depreciation and amortization. Segment assets are not presented as it is not a measure reviewed by the Chief Operating Decision Maker in allocating resources and assessing performance.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

EBITDA including noncontrolling interests should not be considered a substitute for results prepared in accordance with 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 nine months ended September 30, 2020 and 2019 are as follows:




	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total		Reclass & Elims		Total
For the Three Months Ended September 30, 2020
Revenues from external customers	$	1,919	$	1,007	$	600	$	730	$	4,256	$	—	$	4,256
Intersegment revenues	$	5	$	37	$	28	$	8	$	78	$	(78)	$	—
Equity in earnings of nonconsolidated affiliates, net of tax	$	—	$	7	$	—	$	2	$	9	$	—	$	9
For the Three Months Ended September 30, 2019
Revenues from external customers	$	1,772	$	1,082	$	671	$	794	$	4,319	$	—	$	4,319
Intersegment revenues	$	—	$	38	$	42	$	9	$	89	$	(89)	$	—
Equity in earnings of nonconsolidated affiliates, net of tax	$	—	$	(1)	$	1	$	1	$	1	$	—	$	1
For the Nine Months Ended September 30, 2020
Revenues from external customers	$	4,604	$	2,606	$	1,524	$	1,995	$	10,729	$	—	$	10,729
Intersegment revenues	$	14	$	96	$	78	$	23	$	211	$	(211)	$	—
Equity in earnings of nonconsolidated affiliates, net of tax	$	—	$	20	$	1	$	5	$	26	$	—	$	26
For the Nine Months Ended September 30, 2019
Revenues from external customers	$	5,378	$	3,390	$	2,113	$	2,426	$	13,307	$	—	$	13,307
Intersegment revenues	$	—	$	124	$	126	$	31	$	281	$	(281)	$	—
Equity in earnings of nonconsolidated affiliates, net of tax	$	—	$	26	$	3	$	5	$	34	$	—	$	34

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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
EBITDA including noncontrolling interests by segment:
Clean Air	$	149	$	169	$	265	$	452
Powertrain	111		90		(21)		303
Ride Performance	23		20		(624)		1
Motorparts	138		113		46		268
Total reportable segments	421		392		(334)		1,024
Corporate	(34)		(79)		(169)		(256)
Depreciation and amortization	(151)		(165)		(481)		(503)
Earnings (loss) before interest expense, income taxes, and noncontrolling interests	236		148		(984)		265
Interest expense	(68)		(79)		(209)		(242)
Income tax (expense) benefit	(648)		9		(453)		(5)
Net income (loss)	$	(480)	$	78	$	(1,646)	$	18

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Disaggregated Revenue

Original Equipment

Value-Added Sales

OE revenue is generated from providing original equipment 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.

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. Certain amounts in the prior period for the Ride Performance segment have been reclassified from OE - Value add to Aftermarket to conform with the current year presentation. This reclassification affected the three and nine months ended September 30, 2019 and has no effect on the previously reported totals. In the following tables, revenue is disaggregated accordingly:


	Reportable Segments
By Customer Type	Clean Air		Powertrain		Ride Performance		Motorparts		Total
Three Months Ended September 30, 2020
OE - Substrate	$	961	$	—	$	—	$	—	$	961
OE - Value add	958		1,007		586		—		2,551
Aftermarket	—		—		14		730		744
Total	$	1,919	$	1,007	$	600	$	730	$	4,256
Three Months Ended September 30, 2019
OE - Substrate	$	775	$	—	$	—	$	—	$	775
OE - Value add	997		1,082		658		—		2,737
Aftermarket	—		—		13		794		807
Total	$	1,772	$	1,082	$	671	$	794	$	4,319
Nine Months Ended September 30, 2020
OE - Substrate	$	2,284	$	—	$	—	$	—	$	2,284
OE - Value add	2,320		2,606		1,485		—		6,411
Aftermarket	—		—		39		1,995		2,034
Total	$	4,604	$	2,606	$	1,524	$	1,995	$	10,729
Nine Months Ended September 30, 2019
OE - Substrate	$	2,258	$	—	$	—	$	—	$	2,258
OE - Value add	3,120		3,390		2,072		—		8,582
Aftermarket	—		—		41		2,426		2,467
Total	$	5,378	$	3,390	$	2,113	$	2,426	$	13,307

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)


	Reportable Segments
By Geography	Clean Air		Powertrain		Ride Performance		Motorparts		Total
Three Months Ended September 30, 2020
North America	$	798	$	337	$	192	$	475	$	1,802
Europe, Middle East and Africa	532		459		266		206		1,463
Rest of world	589		211		142		49		991
Total	$	1,919	$	1,007	$	600	$	730	$	4,256
Three Months Ended September 30, 2019
North America	$	759	$	386	$	225	$	513	$	1,883
Europe, Middle East and Africa	581		502		311		229		1,623
Rest of world	432		194		135		52		813
Total	$	1,772	$	1,082	$	671	$	794	$	4,319
Nine Months Ended September 30, 2020
North America	$	1,837	$	849	$	471	$	1,340	$	4,497
Europe, Middle East and Africa	1,345		1,214		724		538		3,821
Rest of world	1,422		543		329		117		2,411
Total	$	4,604	$	2,606	$	1,524	$	1,995	$	10,729
Nine Months Ended September 30, 2019
North America	$	2,352	$	1,189	$	685	$	1,556	$	5,782
Europe, Middle East and Africa	1,831		1,617		1,038		707		5,193
Rest of world	1,195		584		390		163		2,332
Total	$	5,378	$	3,390	$	2,113	$	2,426	$	13,307

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

17. Related Party Transactions

The following table summarizes the net sales, purchases, and royalty and other income (expense) to and from related parties for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,
	2020						2019
	Net Sales		Purchases		Royalty and Other		Net Sales		Purchases		Royalty and Other
Anqing TP Goetze Piston Ring Company Limited	$	7	$	14	$	2	$	1	$	14	$	—
Anqing TP Powder Metallurgy Company Limited	$	—	$	1	$	—	$	1	$	2	$	—
Dongsuh Federal-Mogul Industrial Co., Ltd.	$	—	$	2	$	(1)	$	1	$	3	$	—
Federal-Mogul Powertrain Otomotiv A.S.	$	13	$	50	$	6	$	11	$	56	$	1
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti.	$	—	$	1	$	—	$	—	$	1	$	—
Federal-Mogul TP Liners, Inc.	$	3	$	12	$	1	$	4	$	—	$	—

Icahn Automotive Group LLC	$	59	$	—	$	1	$	48	$	—	$	1
Montagewerk Abgastechnik Emden GmbH	$	3	$	—	$	—	$	2	$	—	$	—


	Nine Months Ended September 30,
	2020						2019
	Net Sales		Purchases		Royalty and Other		Net Sales		Purchases		Royalty and Other
Anqing TP Goetze Piston Ring Company Limited	$	12	$	40	$	3	$	1	$	43	$	1
Anqing TP Powder Metallurgy Company Limited	$	3	$	3	$	—	$	2	$	5	$	—
Dongsuh Federal-Mogul Industrial Co., Ltd.	$	1	$	5	$	(1)	$	4	$	10	$	—
Federal-Mogul Powertrain Otomotiv A.S.	$	30	$	126	$	12	$	55	$	168	$	3
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti.	$	—	$	3	$	—	$	—	$	6	$	—
Federal-Mogul TP Liners, Inc.	$	10	$	28	$	1	$	12	$	—	$	1
Frenos Hidraulicos Autos	$	—	$	—	$	—	$	1	$	—	$	—
Icahn Automotive Group LLC	$	124	$	—	$	3	$	138	$	—	$	3
Montagewerk Abgastechnik Emden GmbH	$	7	$	—	$	—	$	4	$	—	$	—
PSC Metals, Inc.	$	1	$	—	$	—	$	1	$	—	$	—

The following table is a summary of amounts due to and from the Company's related parties at September 30, 2020 and December 31, 2019:


	September 30, 2020				December 31, 2019
	Receivables		Payables and Accruals		Receivables		Payables and Accruals
Anqing TP Goetze Piston Ring Company Limited	$	2	$	22	$	1	$	26
Anqing TP Powder Metallurgy Company Limited	$	—	$	1	$	—	$	1
Dongsuh Federal-Mogul Industrial Co., Ltd.	$	—	$	1	$	—	$	2
Farloc Argentina SAIC	$	—	$	—	$	1	$	—
Federal-Mogul Powertrain Otomotiv A.S.	$	17	$	31	$	8	$	31

Federal-Mogul TP Liners, Inc.	$	1	$	6	$	2	$	7
Icahn Automotive Group LLC	$	62	$	11	$	52	$	10
Montagewerk Abgastechnik Emden GmbH	$	1	$	—	$	1	$	—

Refer to Note 7, Investment in Nonconsolidated Affiliates, for further information for companies within the tables above that represent equity method investments.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Amounts presented as Icahn Automotive Group LLC represent the Company's activities with Auto Plus and Pep Boys.

During the three and nine months ended September 30, 2020, the Company paid an amount owed to IEP of $3 million, related to the allocation of certain tax credits.

As part of the Federal-Mogul 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 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 nine months ended September 30, 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 nine months ended September 30, 2020. Refer to Note 2, Summary of Significant Accounting Policies, for further information on this noncontrolling interest.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References herein to "Tenneco", the "Company", "we", "us", and "our" refer to Tenneco Inc. and its consolidated subsidiaries. Unless otherwise stated, all comparisons of September 30, 2020 financial results are to September 30, 2019 financial results.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the condensed consolidated financial statements and related notes included in Item 1 of this quarterly report on Form 10-Q and the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission ("SEC") on March 2, 2020 (the "2019 Form 10-K").

EXECUTIVE OVERVIEW

Our Business

We are one of the world's leading manufacturers of clean air, powertrain, and ride performance products and systems for light vehicle, commercial truck, off-highway, industrial, and aftermarket customers. Both original equipment ("OE") vehicle designers and manufacturers and the repair and replacement markets, or aftermarket, are served globally through leading brands, including Monroe®, Champion®, Öhlins®, MOOG®, Walker®, Fel-Pro®, Wagner®, Ferodo®, Rancho®, Thrush®, National®, and Sealed Power®, among others.

Tenneco consists of four operating segments, Clean Air, Powertrain, Ride Performance, and Motorparts:

•The Clean Air segment designs, manufactures, and distributes a variety of products and systems designed to reduce pollution and optimize engine performance, acoustic tuning, and weight on a vehicle for OE customers;

•The Powertrain segment focuses on original equipment powertrain products for automotive, heavy duty, and industrial applications;

•The Ride Performance segment designs, manufactures, markets, and distributes a variety of ride performance solutions and systems to a global OE customer base, including noise, vibration, and harshness performance materials, advanced suspension technologies, ride control, and braking; and

•The Motorparts segment engineers, manufactures, sources, and distributes a broad portfolio of products in the global vehicle aftermarket while also servicing the original equipment and original equipment servicers market with products, including vehicle braking systems and a wide variety of chassis, engine, sealing, wiper, filter, lighting, and other general maintenance applications.

The COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. We have responded quickly to protect our team members’ health and safety while taking aggressive actions to mitigate the financial effect of the pandemic on us. In response to the pandemic, we expanded on structural cost reductions, and implemented a range of temporary cost reductions including plant closures, deferment of discretionary spending, and the reduction of capital expenditures. In addition, on April 15, 2020, our Board of Directors adopted a shareholder rights plan designed to protect the availability of our tax assets in the current volatile market environment and, on May 5, 2020, we entered into a third amendment to our credit agreement to increase the maximum leverage ratio and decrease the minimum interest coverage ratio. There are many uncertainties related to COVID-19 that could negatively affect our results of operations, financial position, and cash flows. After considering the effect of COVID-19 on our 2020 forecast, we believe we will comply with our financial covenants, as required by our amended credit agreement and we believe our liquidity position continues to be adequate based on our current estimates and forecasts.

Other factors that we expect will continue to be critical to our success include winning new business awards, managing our overall global manufacturing footprint to ensure proper placement and workforce levels in line with business needs, maintaining competitive wages and benefits, maximizing efficiencies in manufacturing processes, and reducing overall costs. In addition, our ability to adapt to key industry trends, such as a shift in consumer preferences to other vehicles in response to higher fuel costs and other economic and social factors, increasing technologically sophisticated content, changing aftermarket distribution channels, increasing environmental standards, and extended product life of automotive parts, also play a critical role in our success. Other factors that are critical to our success include adjusting to economic challenges such as increases in the cost of raw materials and our ability to successfully reduce the effect of any such cost increases through material substitutions, cost reduction initiatives, and other methods.

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 such, during the nine months ended September 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, and a $9 million impairment charge to its operating lease right-of-use assets. Additionally, the Motorparts segment recognized $4 million in restructuring charges related to cash severance expected to be paid in connection with this action.

Separation Transaction

We have previously announced our review of 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. Current end-market conditions and the effects of the ongoing COVID-19 pandemic are affecting our ability to complete a separation. In light of these ongoing conditions, we are pursuing additional options to optimize shareholder value creation, including a focus on operational improvements, reducing structural costs, lowering capital intensity, and reducing debt.

Financial Results for the Nine Months Ended September 30, 2020

Consolidated revenues were $10,729 million, a decrease of $2,578 million, or 19%, for the nine months ended September 30, 2020. The primary driver of the decrease is lower sales volume and unfavorable mix of $2,270 million, largely attributable to the effects of COVID-19. The remaining decrease is attributable to a decrease in revenues of $75 million, or less than 1%, related to the net effects of acquisitions and divestitures, the unfavorable effects of foreign currency exchange of $188 million, and the net unfavorable effects of other of $45 million.

Cost of sales were $9,447 million, a decrease of $1,884 million, or 17%, for the nine months ended September 30, 2020. The primary driver of the decrease is from lower sales volume of $1,597 million, largely attributable to the effects of COVID-19. The remaining decrease is attributable to the decrease in cost of sales of $66 million, or less than 1%, related to the net effects of acquisitions and divestitures, the favorable effects of materials sourcing of $40 million, the favorable effects of foreign currency exchange of $150 million, and the net favorable effects of other costs of $113 million. This was partially offset by a non-cash charge of $82 million related to the write-down of inventory in the Motorparts segment in connection with its initiative to rationalize its supply chain and distribution network. Included in other costs of $113 million, is $9 million of margin on discontinued product that was previously written-down.

Net loss increased by $1,664 million to a net loss of $1,646 million for the nine months ended September 30, 2020 as compared to a net income of $18 million for the nine months ended September 30, 2019. The increase was primarily driven by:

•an increase in restructuring charges, net and asset impairments of $524 million primarily related to the impairment of long-lived asset groups triggered by the effects of the COVID-19 global pandemic on the Company's projected financial information, global headcount and cost reduction initiatives, and other actions to optimize our distribution footprint and warehousing locations;

•an increase in goodwill and intangible impairment charges of $314 million, which was comprised of an increase in goodwill impairment charges of $198 million, $65 million of definite-lived intangible asset impairments, and $51 million of indefinite-lived intangible asset impairments; and

•an increase in income tax expense of $448 million primarily attributable to (i) a non-cash charge of $369 million and $11 million relating to the establishment of valuation allowances on deferred tax assets recognized in prior years for the U.S. and France; (ii) a non-cash tax benefit of $2 million relating to the reversal of a valuation allowance in China; and (iii) a $145 million non-cash charge to adjust the estimated annual tax rate for the tax benefit that can no longer be recognized due to the change in positions for these respective entities.

These unfavorable effects were partially offset by:

•a decrease in selling, general, and administrative costs of $204 million, primarily due to $64 million in lower acquisition and expected separation costs, and the favorable effects of cost reduction initiatives implemented in response to the effects of COVID-19, including unpaid furloughs, net pay decreases, temporary support programs, and other compensation related expenses;

•a decrease in engineering, research, and development of $49 million primarily due to the effects of COVID-19 and cost reduction initiatives; and

•a decrease in interest expense of $33 million primarily attributable to lower interest rates on variable rate debt, slightly offset by interest expense on higher borrowings on the revolver. This includes a decrease of $8 million in financing charges on sales of accounts receivable during the nine months ended September 30, 2020.

Recent Trends and Market Conditions

There is inherent uncertainty in the continuation of the trends discussed below. In addition, there may be other factors or trends that can have an effect on our business. Our business and operating results are affected by the relative strength of:

General economic conditions

Our OE business is directly related to automotive vehicle production by our customers. Automotive production levels depend on a number of factors, including global and regional economic conditions. Demand for aftermarket products is driven by three primary factors: the number of vehicles in operation; the average age of vehicles; and vehicle usage trends (primarily distance traveled).

The decline in value-add revenue for the three and nine months ended September 30, 2020 was $249 million and $2,604 million which is largely attributable to the effects of the COVID-19 global pandemic. We expect the effects of the COVID-19 outbreak will likely continue during the fourth quarter of our fiscal year and, accordingly, we cannot predict the extent to which COVID-19 will ultimately affect our business, results of operations or financial condition. As customer demand increases, we expect to face periods where payments will become due to suppliers for our existing and additional inventories to support renewed production before we have generated new receivables from customers from that renewed production. It is our intent to maintain a consistent balance between our payables and receivables during this time.

Cost reductions and other responses to COVID-19

The Company has implemented a range of actions aimed at temporarily reducing costs and preserving liquidity in response to the effects and anticipated effects to our business resulting from COVID-19 as described under “Liquidity and Capital Resources - Liquidity and Financing Arrangements”. The Company will continue to evaluate further ways to manage costs in line with reduced revenue.

Global light vehicle production levels (According to IHS Markit, October, 2020)

For the three months ended September 30, 2020, global light vehicle production was flat compared to the same period in the prior year resulting from offsetting increases and decreases across the major markets in which we operate. Production levels in North America improved 1% and production in China increased 11%, while light vehicle production declined by 21% in South America, 8% in Europe, and 9% in India.

Global light vehicle production decreased by 23% overall for the first nine months of 2020 compared to the same period in the prior year. There were significant declines globally, including a 26% decline in North America, a 30% decline in Europe, a 41% decline in South America, a 38% decline in India, and a 9% decline in China.

Global commercial truck production levels (According to IHS Markit, August, 2020)

For the three months ended September 30, 2020, global commercial truck production was down across most major markets in which we operate and down 14% overall compared to the same period in the prior year. Production decreased by 40% in North America, 26% in Brazil, 23% in Europe, and 32% in India, while China was up 15%.

Global commercial truck production decreased by 25% overall for the first nine months of 2020 compared to the same period in the prior year. There were significant declines globally, including a 45% decline in North America, a 34% decline in Europe, a 32% decline in Brazil, and a 66% decline in India. Commercial truck production in China improved by 3% for the first nine months of 2020 compared to the same period in the prior year.

Part replacement trends

The strength of our aftermarket business is influenced by several key drivers. These include the vehicle population (or "VIO", vehicles in operation), average vehicle age, fuel prices, and vehicle distance traveled. The VIO is estimated to have expanded in most major markets, including the U.S., China, and Germany over recent years. Average vehicle ages also increased, despite growth in new vehicle sales, in most regions. Vehicle distance traveled varies by region and is sensitive to several factors, including fuel prices, and transportation alternatives.

Geopolitical risk

We conduct business globally, which subjects us to numerous risks and uncertainties including, without limitation, “Brexit” implications, joint ventures in unstable regions, and substantial new tariffs. For example, we have operations in the U.K. which may be materially affected by the U.K.'s referendum to leave the European Union, which has created uncertainty in both the U.K. and Europe. We also have an interest in a Turkish joint venture, which may be affected by recent turmoil in that region. In addition, we do business in Mexico and China where there could be potential changes in trade agreements (e.g., the North American Free Trade Agreement) and new or changed tariffs in the U.S. (such as those relating to China).

Foreign currencies

Given the global nature of our operations, we are subject to fluctuations in foreign exchange rates and there has been significant volatility in foreign currency rates.

Business Strategy

Many of the key components of our business strategy are described below. As we continue to monitor and respond to the COVID-19 global pandemic, we expect that certain of these business strategies will be secondary to our attention to the pandemic and our response and mitigation measures worldwide.

Continue to optimize operational performance by aggressively pursuing cost competitiveness in all business segments and continuing to drive cash flow generation and meet capital allocation objectives

As we continue to expand our distribution and service capabilities globally, we seek to continue optimizing our performance through enhanced efficiencies in order to meet the world-class delivery performance our customers increasingly require. We have made and will continue to make investments in our global distribution network to maximize our manufacturing footprint and manage complexities of our supply chain. By achieving efficiency gains and cost competitiveness, we strive to generate strong cash flow and meet our capital allocation objectives, including deleveraging our balance sheet.

From a design perspective, we will bring a lean mindset to our portfolio to ensure standardization, remove redundancies, reduce transit costs, leverage economies of scale, and optimize manufacturing productivity. We will also continually look for ways to innovate and leverage cross- and up-sell opportunities to the market through a customer-centric product development process. From a manufacturing perspective, we will maintain a continuous improvement philosophy by streamlining plant operations and our network, and executing projects to improve efficiency.

Serving our customers also requires that we compete effectively at the unit cost level, in particular with OE customers. We are making concerted and systematic efforts to continuously improve our position on the cost curve for each of our component part categories. In doing so, we will continue to be a preferred supplier to our customers.

We will be mindful of the changing market conditions that might necessitate adjustments to our resources and manufacturing capacity around the world. We will also remain committed to protecting the environment as well as the health and safety of our employees.

Pursue focused transactional opportunities, consistent with our capital allocation priorities, product line enhancements, technological advancements, geographic positioning, penetration of emerging markets and market share growth

Throughout our history, we have successfully identified and capitalized on acquisitions, alliances, and divestitures to achieve strategic growth and alignment. Through these transactions, we have (1) expanded our product portfolio with complementary technologies; (2) realized incremental business from existing customers; (3) gained access to new customers; (4) achieved leadership positions in geographic regions outside North America; and (5) re-focused on areas that will contribute to our profitable growth.

We intend to continue to explore strategic alliances, joint ventures, acquisitions, divestitures, and other transactions that complement, expand, enhance or realign our existing products, technology, systems development efforts, customer base and/or global presence. We are committed to developing a broader ecosystem-based approach that allows us to work with new and existing customers, suppliers, and entrants to provide timely and leading-edge solutions across the mobility market. We will align with companies that have proven products, proprietary technology, advanced research capabilities, broad geographic reach, and/or strong market positions to further strengthen our product leadership, technology position, global reach, and customer relationships.

Adapt cost structure to economic realities

We aggressively respond to difficult economic environments, aligning our operations to any resulting reductions in production levels and replacement demand and executing comprehensive restructuring and cost-reduction initiatives. Suppliers must continually identify and implement product innovation and cost reduction activities to fund customer annual price concession expectations in order to retain current business as well as to be competitively positioned for future new business opportunities.

Original Equipment Specific Strategies

The converging forces of connectivity, autonomy, electrification, and shared mobility are spawning a new age of automotive autonomy and a unique opportunity to position our business for significant growth and profitability. We strive to strengthen our global position by designing, manufacturing, delivering, and marketing technologically innovative products and solutions for OE manufacturers. The key components of our OE strategy are described below:

Capitalize on our breadth of technology, differentiated products, and global reach to support and strengthen relationships with existing and emerging OE customers across the world

We conduct business with nearly all of the major automotive OE customers around the world. Within the highly competitive automotive parts industry, we seek to extend the significant advantages that come from our world-class global manufacturing, engineering and distribution footprint and global sourcing capabilities. This footprint enables the design, production and delivery of premium parts emphasizing quality, safety and reliability virtually anywhere in the world and also supports the continual innovation of new products, technologies, and solutions for new and existing OE customers.

Maintain technological leadership to drive further growth from secular market trends

In order to maintain our strong market positions, we are focused on meeting changing performance requirements and keeping up with emerging OE trends such as connectivity, autonomy, shared mobility, and electrification. In pursuit of delivering the ideal ride characteristics for any application, our ride performance division will leverage its innovative technology, NVH performance materials, differentiated products, and advanced system capabilities to provide innovative solutions. Aligning product lines and technical capabilities creates an ideal foundation to meet changing performance requirements for comfort and safety and again ultimately reinventing the ride of the future. The addition of Öhlins to the portfolio will accelerate the development of advanced technology suspension solutions, while also fast-tracking time to market. That acquisition is yet another example of our strategy to leverage key technologies that will better position us to take advantage of secular trends. It also enhances our portfolio in broader mobility markets through the addition of Öhlins’ range of premium OE and aftermarket automotive and motorsports performance products. In addition, our suite of mobility solutions under development represents an opportunity to drive greater partnership with OE manufacturers and broader mobility ecosystem players, creating and capturing value, and growth with higher value content per vehicle.

OE manufacturers are responding to changing end customer trends and preferences alongside their own challenging cost structures by reducing design and production complexities and investing in advanced technologies that enable vehicle electrification and autonomy. We anticipate that OE suppliers with high technology capabilities in vehicle system integration will be able to enable a more seamless transition to next-generation electric vehicles and become preferred suppliers to OE manufacturers. Though many vehicle and customer requirements will evolve, we believe one of the remaining characteristics that will continue to provide differentiated experience and value in the future of mobility is the ride experience. By leveraging our deep component level expertise as well as working with partners across the broader mobility ecosystem, our intent is to lead in the next generation development of motion management products, systems and solutions to engineer the ideal ride for any customer.

Penetrate adjacent market segments

We seek to penetrate a variety of adjacent sales opportunities and achieve growth in higher-margin businesses by applying our design, engineering and manufacturing capabilities. For example, we aggressively leverage our technology and engineering leadership in powertrain, clean air, ride performance and aftermarket into adjacent sales opportunities for heavy-duty trucks, buses, agricultural equipment, construction machinery, and other vehicles in other regions around the world.

We design and launch clean air products for commercial vehicle customers such as Caterpillar, for whom we are their global diesel clean air system integrator, John Deere, Navistar, Deutz, Daimler Trucks, Scania, Weichai Power, FAW Group, and Kubota. We also engineer and build modular NOx-reduction systems for large engines that meet standards of the International Maritime Organization, among others.

Aftermarket Specific Strategies

Our aftermarket business strategy incorporates a go-to-market model that we believe differentiates us from our competitors and creates structural support for sustained revenue growth. The model is designed to drive revenue growth by capitalizing on three of the company’s key competitive strengths: a leading portfolio of products and brands; extensive global manufacturing, distribution and service capabilities; and market intelligence gathered from the company’s distributors, installers and consumers.

We expect this distinctive go-to-market model will result in a sustainable competitive advantage, particularly as the industry trends previously mentioned disrupt the traditional aftermarket landscape and business practices. We expect the demand for replacement parts to increase as a result of the increase in the average age of VIO and the increase in the average miles driven per year. The characteristics of aftermarket sales and distribution are defined regionally, which require regionally focused strategies to address the key success factors of our customers. The key components of our aftermarket strategy are described below:

Leverage the strength of our global aftermarket leading brands positions, product portfolio and range, marketing and selling expertise, and distribution and logistics capabilities

Our aftermarket business includes multiple leading brands with strong product offerings. Our portfolio includes the industry’s most well-respected and enduring brands.

We will leverage our go-to-market model to build upon our brand strengths and grow our global aftermarket business by consistently delivering differentiated benefits, by growing our brand equity among our target end-customers, and by leveraging our broad product coverage and extensive distribution network. We are in an outstanding position to capitalize on aftermarket trends and expand in mature markets (e.g., North America, Europe, and Australia) as well as high-growth regions (i.e. China, South America, India, and Southeast and Northeast Asia). Important focus areas are enhancing our presence in high-growth markets; leveraging our portfolio and strong presence in suspension to expand our business globally; and diversifying outside of chassis with our sealing, engine and underhood products, as well as other components.

Continue to strengthen our aftermarket capabilities and product offerings in mature markets, including North America and Europe

The scale of our aftermarket business allows for strong distribution channels that significantly enhance our go-to-market capabilities across mature markets in North America and Europe. We continually rationalize our already strong distribution networks with the goal of improved customer service at a lower cost. This is achieved by continually harnessing and leveraging market intelligence and sharing information with our channel partners to drive best practices in go-to-market, manufacturing and distribution processes.

The North America and Europe go-to-market capabilities will be defined by positioning our distribution and installer partners for success. We believe this will require maintaining an extensive catalog of products to provide the ability to address customer requirements quickly and easily. Managing a large and complex catalog of products requires an understanding of the composition of the car parc within the regions including wear patterns, typical replacement rates based on weather, road quality, and average miles driven annually. These compositions differ significantly by region, which will affect the range and frequency of replacement part requirements. The understanding of these regional dynamics will help us provide the right parts when they are needed and achieve the industry’s best “Order to Delivery” times. We will continue to innovate product solutions that will be cost competitive and reliable, reduce install time, reduce the number of unique parts that installers need to inventory on-site, reduce the number of unique installer tools and equipment required, and improve installer safety.

In addition to having a comprehensive product offering, we also strive to maintain very close relationships with our customers and help position them for success. We have launched a series of “Tech First” initiatives to provide online, on demand, and onsite technical training and support to vehicle repair technicians who use and install our products in North America, Europe, and China and plan to expand into South America. This initiative included Garage Gurus™, a network of technical support centers that provide some of the most comprehensive training programs in the industry to educate our partners and customers with emerging vehicle technologies and vehicle repair operational skills. We believe it is key to our strategy to provide aftermarket parts that are simple to install and to make sure our customers have the resources to know how to install these parts properly. In having the right products and resources for our customers, we believe we will continue to be a preferred aftermarket supplier and continue to drive growth in the Americas and emerging economic areas.

Increase aftermarket position in high-growth regions, notably in Asia Pacific

The Asia Pacific region, particularly the high-growth markets of China and India, presents a significant opportunity for us to expand our business. We have made investments in distribution and in our sales force in both China and the rest of Asia to help drive growth in this increasingly important region. We must take into account the different operational requirements in Asia Pacific in order to drive aftermarket growth in this region.

The Asia Pacific light vehicle and commercial vehicle aftermarket industry is fragmented with a large number of small distributors and installers that require different strategies and solutions than more mature consolidated markets. Distribution in smaller volumes will require us to have a hub and spoke warehousing approach to compete on the basis of optimal “Order to Delivery” timeliness while maintaining a broad range of products.

Additionally, buying online is the preferred purchase method for many smaller distribution and installer partners. The sophistication of the existing online marketplaces in Asia Pacific will require us to develop adaptive and flexible omnichannel tools in order to compete effectively. We believe that developing a competitive online platform for our Asia Pacific customers will be the foundation for us to build a digital platform that will improve our competitiveness globally.

Critical Accounting Estimates

Refer to our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 2, 2020.

Non-GAAP Measures

We use EBITDA including noncontrolling interests as the key performance measure of segment profitability and use the measure in our 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. 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. EBITDA including noncontrolling interests, as determined and measured by us, should not be compared to similarly titled measures reported by other companies.

RESULTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2020 compared to the Three and Nine Months Ended September 30, 2019

Consolidated Results of Operations

The following table presents our condensed consolidated results of operations. The amounts for the three and nine months ended September 30, 2019 below reflect the reclassifications to the prior period as discussed in Part I, Item I.


	Three Months Ended September 30,				Increase / (Decrease)				Nine Months Ended September 30,				Increase / (Decrease)
	2020		2019		$ Change		% Change (1)		2020		2019		$ Change		% Change (1)
	(millions, except percent, share, and per share amounts)
Revenues
Net sales and operating revenues	$	4,256	$	4,319	$	(63)	(1)	%	$	10,729	$	13,307	$	(2,578)	(19)	%
Costs and expenses
Cost of sales (exclusive of depreciation and amortization)	3,610		3,660		(50)		(1)	%	9,447		11,331		(1,884)		(17)	%
Selling, general, and administrative	214		252		(38)		(15)	%	658		862		(204)		(24)	%
Depreciation and amortization	151		165		(14)		(8)	%	481		503		(22)		(4)	%
Engineering, research, and development	67		78		(11)		(14)	%	199		248		(49)		(20)	%
Restructuring charges, net and asset impairments	17		33		(16)		(48)	%	622		98		524		n/m
Goodwill and intangible impairment charges	—		9		(9)		(100)	%	383		69		314		n/m
	4,059		4,197		(138)		(3)	%	11,790		13,111		(1,321)		(10)	%
Other income (expense)

Non-service pension and other postretirement benefit (costs) credits	18		(2)		20		n/m		20		(8)		28		n/m

Equity in earnings (losses) of nonconsolidated affiliates, net of tax	9		1		8		n/m		26		34		(8)		(24)	%
Other income (expense), net	12		27		(15)		(56)	%	31		43		(12)		(28)	%
	39		26		13		50	%	77		69		8		12	%
Earnings (loss) before interest expense, income taxes, and noncontrolling interests	236		148		88		59	%	(984)		265		(1,249)		n/m
Interest expense	(68)		(79)		(11)		(14)	%	(209)		(242)		(33)		(14)	%
Earnings (loss) before income taxes and noncontrolling interests	168		69		99		143	%	(1,193)		23		(1,216)		n/m
Income tax (expense) benefit	(648)		9		657		n/m		(453)		(5)		448		n/m
Net income (loss)	(480)		78		(558)		n/m		(1,646)		18		(1,664)		n/m
Less: Net income (loss) attributable to noncontrolling interests	19		8		11		138	%	42		39		3		8	%
Net income (loss) attributable to Tenneco Inc.	$	(499)	$	70	$	(569)	n/m		$	(1,688)	$	(21)	$	(1,667)	n/m
Earnings (loss) per share
Basic earnings (loss) per share:
Earnings (loss) per share	$	(6.12)	$	0.87					$	(20.75)	$	(0.25)
Weighted average shares outstanding	81,456,821		80,916,676						81,325,385		80,903,967
Diluted earnings (loss) per share:
Earnings (loss) per share	$	(6.12)	$	0.87					$	(20.75)	$	(0.25)
Weighted average shares outstanding	81,456,821		80,916,676						81,325,385		80,903,967

(1) Percentages above denoted as "n/m" are not meaningful to present in the table.

Revenues

Three-months ended: Revenues decreased by $63 million, or 1%, as compared to the three months ended September 30, 2019. The primarily driver of the decrease is lower sales volume and unfavorable mix of $41 million, largely attributable to the effects of COVID-19. The remaining decrease is attributable to a decrease in revenues of $15 million, or less than 1%, related to the net effects of acquisitions and divestitures and the net unfavorable effects of other of $24 million, partially offset by the favorable effects of foreign currency exchange of $17 million.

The table below reflects consolidated revenues for the three months ended September 30, 2020 and 2019 (amounts in millions):


Three months ended September 30, 2019	$	4,319
Acquisitions and divestitures, net	(15)
Drivers in the change of organic revenues:
Volume and mix	(41)
Currency exchange rates	17
Others	(24)
Three months ended September 30, 2020	$	4,256

Nine-months ended: Revenues decreased by $2,578 million, or 19%, as compared to the nine months ended September 30, 2019. The primary driver of the decrease is lower sales volume and unfavorable mix of $2,270 million, largely attributable to the effects of COVID-19. The remaining decrease is attributable to a decrease in revenues of $75 million, or less than 1%, related to the net effects of acquisitions and divestitures, the unfavorable effects of foreign currency exchange of $188 million, and the net unfavorable effects of other of $45 million.

The table below reflects consolidated revenues for the nine months ended September 30, 2020 and 2019 (amounts in millions):


Nine months ended September 30, 2019	$	13,307
Acquisitions and divestitures, net	(75)
Drivers in the change of organic revenues:
Volume and mix	(2,270)
Currency exchange rates	(188)
Others	(45)
Nine months ended September 30, 2020	$	10,729

Cost of sales

Three-months ended: Cost of sales decreased by $50 million, or 1%, as compared to the three months ended September 30, 2019. The primary driver of the decrease, included in net favorable effects of other costs of $73 million, is improved operating performance. Also contributing to the decrease in cost of sales is $11 million, or less than 1%, related to the net effects of acquisitions and divestitures and the favorable effects of materials sourcing of $18 million. These decreases were largely offset by the unfavorable effects of foreign currency exchange of $31 million and higher costs resulting from unfavorable mix amid lower volumes for a net of $21 million. Included in other costs of $73 million, is $9 million of margin on discontinued product that was previously written-down.

The table below reflects consolidated cost of sales for the three months ended September 30, 2020 and 2019 (amounts in millions):


Three months ended September 30, 2019	$	3,660
Acquisitions and divestitures, net	(11)
Drivers in the change of organic cost of sales:
Volume and mix	21
Materials sourcing	(18)
Currency exchange rates	31

Others	(73)
Three months ended September 30, 2020	$	3,610

Nine-months ended: Cost of sales decreased by $1,884 million, or 17%, as compared to the nine months ended September 30, 2019. The primary driver of the decrease is from lower sales volume of $1,597 million, largely attributable to the effects of COVID-19. The remaining decrease is attributable to a decrease in cost of sales of $66 million, or less than 1%, related to the net effects of acquisitions and divestitures, the favorable effects of materials sourcing of $40 million, the favorable effects of foreign currency exchange of $150 million, and the net favorable effects of other costs of $113 million. This was partially offset by a non-cash charge of $82 million related to the write-down of inventory in the Motorparts segment in connection with its initiative to rationalize its supply chain and distribution network. Included in other costs of $113 million, is $9 million of margin on discontinued product that was previously written-down.

The table below reflects consolidated cost of sales for the nine months ended September 30, 2020 and 2019 (amounts in millions):


Nine months ended September 30, 2019	$	11,331
Acquisitions and divestitures, net	(66)
Drivers in the change of organic cost of sales:
Volume and mix	(1,597)
Materials sourcing	(40)
Currency exchange rates	(150)
Inventory write-down	82
Others	(113)
Nine months ended September 30, 2020	$	9,447

Selling, general, and administrative (SG&A)

Three-months ended: SG&A decreased by $38 million to $214 million compared to $252 million for the three months ended September 30, 2019. The decrease was primarily due to $22 million in lower acquisition and expected separation costs, and the favorable effects of cost reduction initiatives implemented in response to the effects of COVID-19, including unpaid furloughs, net pay decreases, temporary support programs, and other compensation related expenses during the three months ended September 30, 2020. In addition, SG&A includes a reduction of $9 million recognized for a non-income tax refund received in the three months ended September 30, 2020.

Nine-months ended: SG&A decreased by $204 million to $658 million compared to $862 million for the nine months ended September 30, 2019. The decrease was primarily due to $64 million in lower acquisition and expected separation costs, and the favorable effects of cost reduction initiatives implemented in response to the effects of COVID-19, including unpaid furloughs, net pay decreases, temporary support programs, and other compensation related expenses during the nine months ended September 30, 2020. In addition, SG&A includes a reduction of $9 million recognized for a non-income tax refund received in the nine months ended September 30, 2020.

Depreciation and amortization

Three-months ended: Depreciation and amortization decreased by $14 million to $151 million as compared to $165 million for the three months ended September 30, 2019, primarily attributable to the effects of the impairments on property, plant, and equipment recognized in the first quarter of 2020.

Nine-months ended: Depreciation and amortization decreased by $22 million to $481 million as compared to $503 million for the nine months ended September 30, 2019, primarily attributable to the effects of the impairments on property, plant, and equipment recognized in the first quarter of 2020.

Engineering, research, and development

Three-months ended: Engineering, research, and development decreased by $11 million to $67 million as compared to $78 million for the three months ended September 30, 2019. The decrease was due primarily to the effects of COVID-19 and the favorable effects of cost reduction initiatives.

Nine-months ended: Engineering, research, and development decreased by $49 million to $199 million as compared to $248 million for the nine months ended September 30, 2019. The decrease was due primarily to the effects of COVID-19 and the favorable effects of cost reduction initiatives.

Restructuring charges, net and asset impairments

Three-months ended: Restructuring charges, net and asset impairments decreased by $16 million to $17 million as compared to $33 million for the three months ended September 30, 2019. The decrease is primarily attributable to a decrease of $11 million for cash severance costs expected to be paid as part of global headcount and cost reduction actions across all segments and regions, including plant closures, during the three months ended September 30, 2020. In addition, there was a decrease of $5 million in other asset impairments, primarily related to assets held for sale for a non-core business, for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Nine-months ended: Restructuring charges, net and asset impairments increased by $524 million to $622 million as compared to $98 million for the nine months ended September 30, 2019. The increase is primarily attributable to property, plant, and equipment asset impairments in the Ride Performance segment of $455 million; an increase of $31 million for cash severance costs expected to be paid as part of global headcount and cost reduction actions across all segments and regions, including plant closures; asset impairment charges in the Motorparts segment of $25 million related to its initiative to rationalize its supply chain and distribution network; asset impairment charges of $3 million in the Powertrain segment in connection with certain plant relocations and closures; and an asset impairment charge of $17 million for operating lease right-of-use assets in the corporate component during the nine months ended September 30, 2020. In addition, there was a decrease of $7 million in other asset impairments, primarily related to assets held for sale for a non-core business, for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Goodwill and intangible impairment charges

Three-months ended: There was no goodwill and intangible impairment charge for the three months ended September 30, 2020 as compared to a $9 million goodwill impairment charge recorded in the three months ended September 30, 2019. Purchase accounting was completed for the Federal-Mogul Acquisition during the third quarter of 2019 and the allocation of goodwill was finalized. As a result, the final goodwill allocation was reassigned to the reorganized segments and reporting unit structure that occurred in the first quarter of 2019 and an incremental $9 million of goodwill was impaired for one reporting unit in the Ride Performance segment.

Nine-months ended: Goodwill and intangible impairment charges increased by $314 million to $383 million as compared to $69 million for the nine months ended September 30, 2019. The increase is primarily attributable to $267 million of goodwill impairment charges, $65 million of definite-lived intangible asset impairments, and $51 million of indefinite-lived intangible asset impairments during the nine months ended September 30, 2020, which was the result of the effects of COVID-19 on the projected financial information during the first quarter 2020. This compared to a $69 million goodwill impairment charge for the nine months ended September 30, 2019, which was the result of a reorganization of reporting units within the Motorparts and Ride Performance segments.

Non-service pension and postretirement benefit (costs) credits

Three-months ended: Non-service pension and postretirement benefit (costs) credits increased by $20 million to a net credit of $18 million as compared to a net cost of $2 million for the three months ended September 30, 2019. The change was primarily attributable to a renegotiated collective bargaining agreement in the U.S., which eliminated health care benefits in retirement if benefits are not commenced by September 24, 2021 for participants covered by the union agreement and resulted in a non-cash curtailment gain of $21 million. This was partially offset by a non-cash settlement charge of $5 million attributable to a partial settlement of certain pension plans where paid lump sums were paid out of pension plan assets in connection with a plant closure.

Nine-months ended: Non-service pension and postretirement benefit (costs) credits increased by $28 million to a net credit of $20 million as compared to a net cost of $8 million for the nine months ended September 30, 2019. The change was primarily attributable to a renegotiated collective bargaining agreement in the U.S., which eliminated health care benefits in retirement if benefits are not commenced by September 24, 2021 for participants covered by the union agreement and resulted in a non-cash curtailment gain of $21 million. This was partially offset by a non-cash settlement charge of $5 million attributable to a partial settlement of certain pension plans where paid lump sums were paid out of pension plan assets in connection with a plant closure. The remaining change was attributable to a decrease in the discount rate and lower amortization, which was partially offset by a decrease in the long-term rate of return.

Equity in earnings (losses) of nonconsolidated affiliates, net of tax

Three-months ended: Equity in earnings (losses) of nonconsolidated affiliates, net of tax increased by $8 million as compared to the three months ended September 30, 2019. The increase is primarily attributable to a $10 million reduction to equity in earnings recognized in the three months ended September 30, 2019. The non-cash reduction in equity earnings was to recognize the basis difference between the fair value and book value of certain assets, including inventory, property, plant, and equipment, and intangible assets.

Nine-months ended: Equity in earnings (losses) of nonconsolidated affiliates, net of tax decreased by $8 million as compared to the nine months ended September 30, 2019. The decrease is primarily attributable to the effects of the COVID-19 global pandemic on the equity in earnings (losses) of our nonconsolidated affiliates located in Turkey, Korea, and the U.S., partially offset by the $10 million reduction to equity in earnings related to the basis difference between the fair value and book value of certain assets, including inventory, property, plant, and equipment, and intangible assets.

Other income (expense), net

Three-months ended: Other income (expense), net decreased by $15 million as compared to the three months ended September 30, 2019. This is primarily attributable to a recovery of value-added tax in a foreign jurisdiction recognized in the three months ended September 30, 2019.

Nine-months ended: Other income (expense), net decreased by $12 million as compared to the nine months ended September 30, 2019. This is primarily attributable to a recovery of value-added tax in a foreign jurisdiction recognized in the nine months ended September 30, 2019.

Interest expense

Three-months ended: Interest expense decreased by $11 million as compared to the three months ended September 30, 2019. The decrease was primarily attributable to lower interest rates on variable rate debt, slightly offset by interest expense on higher borrowings on the revolver. This includes a decrease of $4 million related to financing charges on sales of accounts receivable as compared to the three months ended September 30, 2019.

Nine-months ended: Interest expense decreased by $33 million as compared to the nine months ended September 30, 2019. The decrease was primarily attributable to lower interest rates on our variable rate debt, slightly offset by interest expense on higher borrowings on the revolver. This includes a decrease of $8 million related to financing charges on sales of accounts receivable as compared to the nine months ended September 30, 2019.

Income tax (expense) benefit

Three-months ended: Income tax expense increased by $657 million to an income tax expense of $648 million as compared to an income tax benefit of $9 million in the three months ended September 30, 2019. This is primarily the result of (i) a non-cash charge of $369 million and $11 million relating to the establishment of valuation allowances on deferred tax assets recognized in prior years for the U.S. and France; (ii) a non-cash tax benefit of $2 million relating to the reversal of a valuation allowance in China; and (iii) a $145 million non-cash charge to adjust the estimated annual tax rate for the tax benefit that can no longer be recognized due to the change in positions for these respective entities during the three months ended September 30, 2020.

Nine-months ended: Income tax expense increased by $448 million to $453 million as compared to $5 million in the nine months ended September 30, 2019. This is primarily the result of (i) a $39 million tax benefit recognized related to asset impairment charges of $883 million, (ii) a $369 million and $11 million non-cash charge relating to the establishment of valuation allowances on deferred tax assets recognized in prior years for the U.S. and France; (iii) a non-cash tax benefit of $2 million relating to the reversal of a valuation allowance in China; and (iv) a $145 million non-cash charge to adjust the estimated annual tax rate for the tax benefit that can no longer be recognized due to the change in positions for these respective entities during the nine months ended September 30, 2020.

Net income (loss)

Three-months ended: Net loss increased by $558 million to a net loss of $480 million as compared to a net income of $78 million for the three months ended September 30, 2019 as a result of the aforementioned items.

Nine-months ended: Net loss increased by $1,664 million to a net loss of $1,646 million as compared to a net income of $18 million for the nine months ended September 30, 2019 as a result of the aforementioned items.

Earnings (loss) before interest expense, income taxes, noncontrolling interests, and depreciation and amortization (“EBITDA including noncontrolling interests”)

The following table presents the reconciliation from EBITDA including noncontrolling interests to net income (loss) for the three and nine months ended September 30, 2020 and 2019 (amounts in millions):


	Three Months Ended September 30,	Nine Months Ended September 30,
		2020		2019		2020		2019






EBITDA including noncontrolling interests:
Clean Air		$	149	$	169	$	265	$	452
Powertrain		111		90		(21)		303
Ride Performance		23		20		(624)		1
Motorparts		138		113		46		268
Corporate		(34)		(79)		(169)		(256)
Depreciation and amortization		(151)		(165)		(481)		(503)
Earnings (loss) before interest expense, income taxes, and noncontrolling interests		236		148		(984)		265
Interest expense		(68)		(79)		(209)		(242)
Income tax (expense) benefit		(648)		9		(453)		(5)
Net income (loss)		$	(480)	$	78	$	(1,646)	$	18

See "Segment Results of Operations" for further information on EBITDA including noncontrolling interests.

Segment Results of Operations

Overview of Net Sales and Operating Revenues

Our Clean Air segment has substrate sales. Substrates are porous ceramic filters coated with a catalyst - typically, precious metals such as platinum, palladium and rhodium. We do not manufacture substrates, as they are supplied to us by Tier 2 suppliers generally as directed by our OE customers. We generally earn a small margin on these components of the system. These substrate components have been increasing as a percentage of our revenue as the need for more sophisticated emission control solutions increases to meet more stringent environmental regulations, and as we capture more diesel aftertreatment business. While these substrates dilute our gross margin percentage, they are a necessary component of an emission control system.

Our value-add content in an emission control system includes designing the system to meet environmental regulations through integration of the substrates into the system, maximizing use of thermal energy to heat up the catalyst quickly, efficiently managing airflow to reduce back pressure as the exhaust stream moves past the catalyst, managing the expansion and contraction of the emission control system components due to temperature extremes experienced by an emission control system, using advanced acoustic engineering tools to design the desired exhaust sound, minimizing the opportunity for the fragile components of the substrate to be damaged when we integrate it into the emission control system and reducing unwanted noise, vibration and harshness transmitted through the emission control system.

We disclose substrate sales amounts because we believe investors utilize this information to understand the effect of this portion of our revenues on our overall business and because it removes the effect of potentially volatile precious metals pricing from our revenues. While our OE customers generally assume the risk of precious metals pricing volatility, it affects our reported revenues.

The table below reflects our segment revenues for the three months ended September 30, 2020 and 2019 (amounts in millions):


	Segments

	Clean Air				Powertrain				Ride Performance				Motorparts				Total Revenues
For the Three Months Ended September 30,	2020		2019		2020		2019		2020		2019		2020		2019			2020		2019
Revenues	$	1,919	$	1,772	$	1,007	$	1,082	$	600	$	671	$	730	$	794		$	4,256	$	4,319

Value-add revenues	$	958	$	997	$	1,007	$	1,082	$	600	$	671	$	730	$	794		$	3,295	$	3,544
Currency effect on value-add revenue	8		—		12		—		8		—		(10)		—			18		—
Value-add revenue excluding currency	$	950	$	997	$	995	$	1,082	$	592	$	671	$	740	$	794		$	3,277	$	3,544

Substrate sales	$	961	$	775	$	—	$	—	$	—	$	—	$	—	$	—		$	961	$	775

The table below reflects our segment revenues for the nine months ended September 30, 2020 and 2019 (amounts in millions):


	Segments

	Clean Air				Powertrain				Ride Performance				Motorparts				Total Revenues
For the Nine Months Ended September 30,	2020		2019		2020		2019		2020		2019		2020		2019			2020		2019
Revenues	$	4,604	$	5,378	$	2,606	$	3,390	$	1,524	$	2,113	$	1,995	$	2,426		$	10,729	$	13,307

Value-add revenues	$	2,320	$	3,120	$	2,606	$	3,390	$	1,524	$	2,113	$	1,995	$	2,426		$	8,445	$	11,049
Currency effect on value-add revenue	(27)		—		(49)		—		(24)		—		(56)		—			(156)		—
Value-add revenue excluding currency	$	2,347	$	3,120	$	2,655	$	3,390	$	1,548	$	2,113	$	2,051	$	2,426		$	8,601	$	11,049

Substrate sales	$	2,284	$	2,258	$	—	$	—	$	—	$	—	$	—	$	—		$	2,284	$	2,258

Segment Revenue

Clean Air

Three-months ended: Clean Air revenue increased $147 million, or 8%, as compared to the three months ended September 30, 2019. Higher sales volumes in North America and Asia Pacific resulted in revenue growth, partially offset by lower sales volumes in South America and Europe contributing net $159 million to the increase. Overall for the Clean Air segment, light vehicle and commercial truck revenues improved while off-highway and other revenues declined when compared to the same three month period in the prior year. In addition, foreign currency exchange had a $7 million favorable effect on Clean Air revenue while other unfavorable effects decreased revenue by $19 million.

Nine-months ended: Clean Air revenue decreased $774 million, or 14%, as compared to the nine months ended September 30, 2019. While higher sales volumes in Asia Pacific resulted in revenue growth, this improvement was more than offset by lower sales volumes primarily in North America, South America, and Europe contributing a net $675 million to the decrease. Overall for the Clean Air segment, lower light vehicle and off-highway and other revenues were the main drivers of the revenue decline while commercial truck improved when compared to the same nine month period in the prior year. In addition, foreign currency exchange had a $59 million unfavorable effect on Clean Air revenue while other unfavorable effects decreased revenue by $40 million.

Powertrain

Three-months ended: Powertrain revenue decreased $75 million, or 7%, as compared to the three months ended September 30, 2019. Lower light vehicle, commercial truck, industrial, and off-highway and other vehicle revenue contributed $75 million to the decrease, foreign currency exchange had a $12 million favorable effect on Powertrain revenue, while other unfavorable effects decreased revenue by $12 million.

Nine-months ended: Powertrain revenue decreased $784 million, or 23%, as compared to the nine months ended September 30, 2019. Lower light vehicle, commercial truck, industrial, and off-highway and other vehicle revenue contributed $709 million to the decrease, foreign currency exchange had a $49 million unfavorable effect on Powertrain revenue, while other unfavorable effects decreased revenue by $26 million.

Ride Performance

Three-months ended: Ride Performance revenue decreased $71 million, or 11%, as compared to the three months ended September 30, 2019. Lower light vehicle, commercial truck, and off-highway and other vehicle revenues contributed $72 million to the decrease, as well as a decrease in revenues from divestitures of $2 million, foreign currency exchange had an $8 million favorable effect on Ride Performance revenue, while other unfavorable effects decreased revenue by $5 million.

Nine-months ended: Ride performance revenue decreased $589 million, or 28%, as compared to the nine months ended September 30, 2019. Lower light vehicle, commercial truck, and off-highway and other vehicle revenues contributed $532 million to the decrease, as well as a decrease in revenues from divestitures of $23 million, foreign currency exchange had a $24 million unfavorable effect on Ride Performance revenue, while other unfavorable effects decreased revenue by $10 million.

Motorparts

Three-months ended: Motorparts revenue decreased $64 million, or 8%, as compared to the three months ended September 30, 2019. Lower volume contributed $53 million to the decrease, as well as a decrease in revenues from divestitures of $13 million, and foreign currency exchange had a $10 million unfavorable effect on Motorparts revenues. The unfavorable effects were partially offset by other net favorable effects of $12 million.

Nine-months ended: Motorparts revenue decreased $431 million, or 18%, as compared to the nine months ended September 30, 2019. Lower volume contributed $354 million to the decrease, as well as a decrease in revenues from divestitures of $52 million, and foreign currency exchange had a $56 million unfavorable effect on Motorparts revenues. The unfavorable effects were partially offset by other net favorable effects of $31 million.

EBITDA including noncontrolling interests

The following table presents the EBITDA including noncontrolling interests by segment for the three and nine months ended September 30, 2020 and 2019 (amounts in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,		Nine Months Ended September 30,
	2020		2019		2020		2019		2020 vs 2019 Change		2020 vs 2019 Change
EBITDA including noncontrolling interests by segment:
Clean Air	$	149	$	169	$	265	$	452	$	(20)	$	(187)
Powertrain	$	111	$	90	$	(21)	$	303	$	21	$	(324)
Ride Performance	$	23	$	20	$	(624)	$	1	$	3	$	(625)
Motorparts	$	138	$	113	$	46	$	268	$	25	$	(222)

Clean Air

Three-months ended: Clean Air EBITDA including noncontrolling interests decreased $20 million as compared to the three months ended September 30, 2019. The decrease is primarily attributable to lower sales volume and unfavorable mix, partially offset by lower SG&A costs during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Nine-months ended: Clean Air EBITDA including noncontrolling interests decreased $187 million as compared to the nine months ended September 30, 2019. The decrease is primarily attributable to lower sales volume and unfavorable mix, partially offset by favorable operating performance and lower SG&A costs during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Powertrain

Three-months ended: Powertrain EBITDA including noncontrolling interests increased $21 million as compared to the three months ended September 30, 2019. The increase is primarily attributable to favorable operating performance and lower SG&A and engineering, research, and development costs, partially offset by lower sales volume and unfavorable mix for three months ended September 30, 2020 as compared to the three months ended September 30, 2019. This included a reduction of $9 million to SG&A for a non-income tax refund received in the three months ended September 30, 2020.

Nine-months ended: Powertrain EBITDA including noncontrolling interests decreased $324 million as compared to the nine months ended September 30, 2019. The decrease is primarily attributable to lower sales volume and unfavorable mix, an increase in cash severance charges expected to be paid of $21 million, and a goodwill impairment charge in the amount of $160 million recognized during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. These unfavorable factors were partially offset by favorable operating performance and lower SG&A and engineering, research, and development costs. Included in the lower SG&A costs is a reduction of $9 million for a non-income tax refund received in the nine months ended September 30, 2020.

Ride Performance

Three-months ended: Ride Performance EBITDA including noncontrolling interests increased $3 million as compared to the three months ended September 30, 2019. The increase is primarily attributable to favorable operating performance and lower SG&A and engineering, research, and development costs, partially offset by lower sales volumes.

Nine-months ended: Ride Performance EBITDA including noncontrolling interests decreased $625 million as compared to the nine months ended September 30, 2019. The decrease is primarily attributable to asset impairment charges of $455 million and goodwill and intangible impairment charges of $113 million recognized during the nine months ended September 30, 2020 as compared to a goodwill impairment charge of $69 million recognized during the nine months ended September 30, 2019. Also contributing to the decrease is lower sales volume, partially offset by lower SG&A and engineering, research, and development costs.

Motorparts

Three-months ended: Motorparts EBITDA including noncontrolling interests increased $25 million as compared to the three months ended September 30, 2019. The increase is primarily attributable to favorable operating performance and lower SG&A costs, partially offset by lower sales volumes and unfavorable mix during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Nine-months ended: Motorparts EBITDA including noncontrolling interests decreased $222 million as compared to the nine months ended September 30, 2019. The decrease is primarily attributable to lower sales volumes and unfavorable mix, goodwill and intangible impairment charges of $110 million, and a non-cash charge to cost of sales of $82 million related to the write-down of inventory recognized in connection with its initiative to rationalize its supply chain and distribution network as compared to the nine months ended September 30, 2019. These unfavorable factors were partially offset by favorable operating performance and lower SG&A costs.

The EBITDA including noncontrolling interests results shown in the preceding table include the following items, certain of which may have an effect on the comparability of EBITDA including noncontrolling interests results between periods (amounts in millions):


	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total		Corporate		Total
Three Months Ended September 30, 2020
Restructuring charges, net	$	1	$	13	$	—	$	—	$	14	$	—	$	14
Restructuring related costs	—		—		11		(1)		10		—		10
Inventory write-down (1)	—		—		—		(9)		(9)		—		(9)
Asset impairments restructuring related	—		—		—		1		1		—		1
Other non-restructuring asset impairments	—		—		—		2		2		—		2
Acquisition and expected separation costs (2)	(1)		—		(2)		—		(3)		7		4
OPEB curtailment (3)	—		—		—		—		—		(21)		(21)

Total adjustments	$	—	$	13	$	9	$	(7)	$	15	$	(14)	$	1

(1) Margin on discontinued product that was previously written-down in connection with the initiative in the Motorparts segment to rationalize its supply chain and distribution network.

(2) Costs related to acquisitions and costs related to expected separation.

(3) OPEB curtailment as a result of an amended union agreement that eliminates healthcare benefits for future retirees.


	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total		Corporate		Total
Three Months Ended September 30, 2019
Restructuring and related expenses	$	6	$	11	$	15	$	2	$	34	$	1	$	35
Other non-restructuring asset impairments	—		—		—		8		8		—		8
Cost reduction initiatives(1)	—		—		—		—		—		6		6
Acquisition and expected separation costs (2)	—		—		—		—		—		30		30
Purchase accounting adjustments (3)	—		8		(1)		4		11		—		11
Brazil tax credit (4)	(9)		—		(6)		(7)		(22)		—		(22)
Antitrust reserve charge in estimate (5)	(9)		—		—		—		(9)		—		(9)
Out of period adjustment (6)	—		—		5		—		5		—		5
Warranty charge (7)	—		—		—		1		1		—		1
Goodwill impairment charge (8)	—		—		9		—		9		—		9
Total adjustments	$	(12)	$	19	$	22	$	8	$	37	$	37	$	74

(1) Costs related to cost reduction initiatives.

(2) Costs related to acquisitions and costs related to expected separation.

(3) This primarily relates to non-cash charge to cost of goods sold for the amortization of the inventory fair value step-up recorded as part of the Acquisitions.

(4) Recovery of value-added tax in a foreign jurisdiction.

(5) Reduction in estimated antitrust accrual.

(6) Inventory losses attributable to prior periods.

(7) Charge related to warranty. Although we regularly incur warranty costs, this specific charge is of an unusual nature in the period incurred.

(8) Post segment reorganization impairment of goodwill.


	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total		Corporate		Total
Nine Months Ended September 30, 2020
Restructuring charges, net	$	23	$	50	$	24	$	17	$	114	$	5	$	119
Restructuring related costs	—		—		41		2		43		1		44
Inventory write-down (1)	—		—		—		73		73		—		73
Asset impairments restructuring related	—		3		—		26		29		—		29
Other non-restructuring asset impairments	—		1		455		1		457		17		474
Acquisition and expected separation costs (2)	3		—		(2)		—		1		36		37
OPEB curtailment (3)	—		—		—		—		—		(21)		(21)
Goodwill and intangibles impairment charges	—		160		113		110		383		—		383
Total adjustments	$	26	$	214	$	631	$	229	$	1,100	$	38	$	1,138

(1) Non-cash charge of $82 million to write-down inventory in the Motorparts segment in connection with its initiative to rationalize its supply chain and distribution network, partially offset by $9 million margin on discontinued product that was previously written-down.

(2) Costs related to acquisitions and costs related to expected separation.

(3) OPEB curtailment as a result of an amended union agreement that eliminates healthcare benefits for future retirees.


	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total		Corporate		Total
Nine Months Ended September 30, 2019
Costs to achieve synergies (1)	$	—	$	1	$	—	$	—	$	1	$	2	$	3
Restructuring and related expenses	25		29		50		12		116		2		118
Other non-restructuring asset impairments	1		—		—		9		10		—		10
Cost reduction initiatives (2)	—		—		—		—		—		16		16
Acquisition and expected separation costs (3)	—		—		—		1		1		96		97
Process harmonization (4)	5		—		—		5		10		—		10
Purchase accounting charges (5)	—		10		4		41		55		—		55
Brazil tax credit (6)	(9)		—		(6)		(7)		(22)		—		(22)
Antitrust reserve change in estimate (7)	(9)		—		—		—		(9)		—		(9)
Out of period adjustment (8)	—		—		5		—		5		—		5
Goodwill impairment charge (9)	—		—		69		—		69		—		69
Warranty charge (10)	—		—		—		8		8		—		8
Total adjustments	$	13	$	40	$	122	$	69	$	244	$	116	$	360

(1) Cost to achieve synergies related to the Acquisitions.

(2) Costs related to cost reduction initiatives.

(3) Costs related to acquisitions and costs related to expected separation.

(4) Charge due to process harmonization.

(5) This primarily relates to non-cash charge to cost of goods sold for the amortization of the inventory fair value step-up recorded as part of the Acquisitions.

(6) Recovery of value-added tax in a foreign jurisdiction.

(7) Reduction in estimated antitrust accrual.

(8) Inventory losses attributable to prior periods.

(9) Post segment reorganization impairment of goodwill.

(10) Charge related to warranty. Although we regularly incur warranty costs, this specific charge is of an unusual nature in the period incurred.

Liquidity and Capital Resources

Liquidity and Financing Arrangements

The COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. We believe our liquidity position continues to be adequate. However, with the recent economic downturn related to COVID-19, we expect to see lower revenue and lower earnings, putting pressure on our liquidity position. As customer demand increases, we expect to face periods where payments will become due to our suppliers for our existing and additional inventories needed to support renewed production before we have generated new receivables from customers from that renewed production. It is our intent to maintain a consistent balance between our payables and receivables during this time.

We have implemented a range of actions aimed at temporarily reducing costs and preserving liquidity in response to the effects and anticipated effects to our business resulting from COVID-19. These measures include:

•Temporarily suspending or reducing operations;

•As discussed in more detail in Note 10, Debt and Other Financing Arrangements and below, we entered into an amendment to our senior credit facility to increase the maximum leverage ratio and decrease the minimum interest coverage ratio;

•At September 30, 2020, we had liquidity of $1.8 billion comprised of $721 million of cash and $1.1 billion undrawn on our revolving credit facility. During the third quarter of 2020, we repaid $1.1 billion of our $1.5 billion revolving credit facility;

•For the third quarter of 2020, overall salary costs were reduced at least 10% through a combination of unpaid furloughs, net pay decreases, and available temporary support programs in all regions Tenneco does business. Additionally, the executive leadership team (the CEO and direct staff) had reduced their salaries by 20%. Employee salaries were restored to their prior levels effective October 1, 2020;

•We reduced our headcount globally, and plan further reductions subject to negotiation with works councils in certain jurisdictions, beginning in the second quarter of 2020 and expect these actions to be completed during 2020;

•Capital expenditures in 2020 are expected to approximate $380 million. This is a reduction from previous guidance of 2020 expenditures between $610 to $650 million and 2019 expenditures of more than $700 million;

•Utilizing applicable and appropriate provisions under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) including deferral of our portion of the 2020 FICA payroll taxes which will be repaid in 2021 and 2022, payroll tax credits, and deferral of our U.S. qualified pension plan contributions; and

•The Tenneco Board of Directors annual retainer fees were reduced by 25% effective for the third quarter of 2020 and will be reduced for the remainder of the year.

On May 5, 2020, we entered into a third amendment to our credit agreement to increase the maximum leverage ratio and decrease the minimum interest coverage ratio. At September 30, 2020, we are in compliance with all financial covenants under the credit agreement. There are many uncertainties related to COVID-19 that could negatively affect our results of operations, financial position, and cash flows. After considering the effect of COVID-19 on our 2020 forecast, we believe we will comply with these financial covenants, as required by our amended credit agreement. The amendment is discussed in more detail below.

We believe cash flows from operations, combined with our cash on hand, will be sufficient to meet our future capital requirements, including debt amortization, capital expenditures, pension contributions, and other operational requirements, for the following year based on our current estimates and forecasts. We believe we will maintain compliance with the new financial ratios set forth in the amended credit agreement. However, our ability to meet the financial covenants depends upon a number of operational and economic factors, including the effects of COVID-19, many of which are beyond our control. In the event we are unable to meet these financial covenants, we would consider several options to meet our cash flow needs. Such actions include additional restructuring initiatives and other cost reductions, sales of assets, reductions to working capital and capital spending, issuance of equity, and other alternatives to enhance our financial and operating position. We also continue to actively monitor credit market conditions for the right opportunity to replace and extend maturity.

Credit Facilities

The table below shows our borrowing capacity on committed credit facilities at September 30, 2020 (amounts in billions):


	Committed Credit Facilities at September 30, 2020
	Term	Available(b)
Tenneco Inc. revolving credit facility (a)	2023	$	1.1
Tenneco Inc. Term Loan A	2023	—
Tenneco Inc. Term Loan B	2025	—
Subsidiaries’ credit agreements	2020 - 2028	—
		$	1.1

(a)We are required to pay commitment fees under the revolving credit facility on the unused portion of the total commitment.

(b)Letters of credit reduce the available borrowings under the revolving credit facility.

We also have $74 million of outstanding letters of credit under our uncommitted facilities at September 30, 2020.

At September 30, 2020, we had liquidity of $1.8 billion comprised of $721 million of cash and $1.1 billion undrawn on our revolving credit facility. During the third quarter of 2020, we repaid $1.1 billion of our $1.5 billion revolving credit facility.

Term Loans

We entered into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and other lenders (the "New Credit Facility") in connection with the Federal-Mogul Acquisition, which has been amended by the first amendment, dated February 14, 2020 (the “First Amendment”), by the second amendment, dated February 14, 2020 (the “Second Amendment”), and by the third amendment, dated May 5, 2020 (the "Third Amendment"). The New Credit Facility consists of $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"). We paid $8 million in one-time fees in connection with the First Amendment and Second Amendment, and $10 million in one-time fees in connection with the Third Amendment.

New Credit Facility — Interest Rates and Fees

The Third Amendment provides for an increase to the margin applicable to borrowings under the revolving credit facility and the Term Loan A facility at certain leverage levels as set forth below as one of several conditions for obtaining less restrictive financial maintenance covenants described below under New Credit Facility — Other Terms and Conditions:


Consolidated net leverage ratio			Interest rate
greater than 6.0 to 1			LIBOR plus 2.50%
less than 6.0 to 1 and greater than 4.5 to 1			LIBOR plus 2.25%

Initially, and so long as our corporate family rating is Ba3 (with a stable outlook) or higher from Moody’s Investors Service, Inc. (“Moody’s”) and BB- (with a stable outlook) or higher from Standard & Poor’s Financial Services LLC (“S&P”), the interest rate on borrowings under the Term Loan B facility will be LIBOR plus 2.75%; at any time the foregoing conditions are not satisfied, the interest rate on the Term Loan B facility will be LIBOR plus 3.00%. When the Term Loan B facility is no longer outstanding and we, and our subsidiaries, have no other secured indebtedness (with certain exceptions set forth in the New Credit Facility), and upon us achieving and maintaining two or more corporate credit and/or corporate family ratings higher than or equal to BBB- from S&P, BBB- from Fitch Ratings Inc. (“Fitch”) and/or Baa3 from Moody’s (in each case, with a stable or positive outlook), the collateral under the New Credit Facility may be released. On June 3, 2019, Moody’s lowered our corporate family rating to B1 and the interest rate on borrowings under the term loan B was raised to LIBOR plus 3.00%.

New Credit Facility — Other Terms and Conditions — After giving effect to the Third Amendment, we must comply with certain less restrictive financial maintenance covenants for the revolving credit facility and the Term Loan A facility. The financial maintenance covenants are subject to several covenant reset triggers (“Covenant Reset Triggers”) that limit certain activities of ours by implementing more restrictive affirmative and negative covenants. If a Covenant Reset Trigger occurs, the financial maintenance covenants revert back to the financial maintenance covenants in effect immediately prior to the Third Amendment (and described above) (the “Prior Financial Covenants”). The financial maintenance covenants include (i) a requirement to have a senior secured leverage ratio (as defined in the New Credit Facility), with step-downs, as detailed in the table below; (ii) a requirement to have a consolidated net leverage ratio (as defined in the New Credit Facility), with step-downs, as follows:

(i) Senior secured net leverage ratio

(ii) Consolidated net leverage ratio

not greater than 6.75 to 1

at June 30, 2020

not greater than 4.50 to 1

at March 31, 2020

not greater than 9.50 to 1

at September 30, 2020

not greater than 5.25 to 1

at March 31, 2022

not greater than 8.75 to 1

at December 31, 2020

not greater than 4.75 to 1

at June 30, 2022

not greater than 8.25 to 1

at March 31, 2021

not greater than 4.25 to 1

at September 30, 2022

not greater than 4.50 to 1

at June 30, 2021

not greater than 3.75 to 1

thereafter

not greater than 4.25 to 1

at September 30, 2021

not greater than 4.00 to 1

at December 31, 2021

We may make a one-time election to revert back to the Prior Financial Covenants and terminate the Covenant Reset Triggers upon delivery of a covenant reset certificate that attests to compliance with the Prior Financial Covenants as of the end of the relevant fiscal period (“Covenant Reset Certificate”). Refer to Note 10, Debt and Other Financing Arrangements included in Part I, Item I for additional details.

The Covenant Reset Triggers in the Third Amendment generally prohibit us from repaying the Senior Unsecured Notes. After giving effect to the Third Amendment, so long as no default exists under its New Credit Facility, we would be permitted to (i) make regularly scheduled interest and principal payments as and when due in respect of the Senior Unsecured Notes, (ii) refinance the Senior Unsecured Notes with the net cash proceeds of permitted refinancing indebtedness (as defined in the New Credit Facility); (iii) make payments in respect of the Senior Unsecured Notes in an amount equal to the net cash proceeds of qualified capital stock (as defined in the New Credit Facility) issued after May 5, 2020; (iv) convert any Senior Unsecured Notes into qualified capital stock issued after May 5, 2020; and (v) make additional payments of the Senior Unsecured Notes provided that after giving effect to such additional payments the consolidated leverage ratio would be equal to or less than 2.00 to 1 after giving effect to such additional payments. The foregoing limitations regarding repayment and refinancing of the Senior Unsecured Notes apply from the effectiveness of the Third Amendment until delivery of a Covenant Reset Certificate.

The covenants in the New Credit Facility generally prohibit us from repaying certain subordinated indebtedness. So long as no default exists, we would, under our New Credit Facility, be permitted to repay or refinance our subordinated indebtedness (i) with the net cash proceeds of permitted refinancing indebtedness (as defined in the New Credit Facility); (ii) in an amount equal to the net cash proceeds of qualified capital stock (as defined in the New Credit Facility) issued after October 1, 2018; (iii) in exchange for qualified capital stock issued after October 1, 2018; and (iv) with additional payments provided that such additional payments are capped based on a pro forma consolidated leverage ratio after giving effect to such additional payments.

The financial ratios required under the New Credit Facility and the actual ratios we calculated as of September 30, 2020 for the third quarter of 2020, are as follows: leverage ratio of 3.72 actual versus 9.50 (maximum) required; and interest coverage ratio of 4.36 actual versus 1.50 (minimum) required.

Senior Notes

We have outstanding 5.375% senior unsecured notes due December 15, 2024 ("2024 Senior Notes") and 5.000% senior unsecured notes due July 15, 2026 ("2026 Senior Notes" and together with the 2024 Senior Notes, the "Senior Unsecured Notes"). We have outstanding 5.000% euro denominated fixed rate notes which are due July 15, 2024 ("5.000% Euro Fixed Rate Notes"), 4.875% euro denominated fixed rate notes due April 15, 2022 ("4.875% Euro Fixed Rate Notes"), and floating rate notes due April 15, 2024 ("Euro Floating Rate Notes", together with the 5.000% Euro Fixed Rate Notes and the 4.875% Euro Fixed Notes, the "Senior Secured Notes").

Senior Unsecured Notes and Senior Secured Notes — Other Terms and Conditions — The Senior Unsecured Notes and Senior Secured Notes contain covenants that will, among other things, limit our ability to create liens and enter into sale and leaseback transactions. In addition, the Senior Secured Notes and 2024 Senior Unsecured Notes also require that, as a condition precedent to incurring certain types of indebtedness not otherwise permitted, our consolidated fixed charge coverage ratio, as calculated on a pro forma basis, be greater than 2.00, as well as containing restrictions on our operations, including limitations on: (i) incurring additional indebtedness; (ii) paying dividends; (iii) distributions and stock repurchases; (iv) investments; (v) asset sales and (vi) mergers and consolidations.

Subject to limited exceptions, all of our existing and future material, domestic wholly owned subsidiaries fully and unconditionally guarantee our Senior Unsecured Notes and Senior Secured Notes on a joint and several basis. There are no significant restrictions on the ability of the subsidiaries that have guaranteed our Senior Notes to make distributions to us.

Accounts Receivable Securitization and Factoring

On-Balance Sheet Arrangements

We have securitization programs for some of our accounts receivable, with limited recourse provisions. Borrowings on these securitization programs, which are recorded in short-term debt, at September 30, 2020 and December 31, 2019 are as follows (amounts in millions):


	September 30, 2020		December 31, 2019
Borrowings on securitization programs	$	6	$	4

Off-Balance Sheet Arrangements

We have an accounts receivable factoring program in the U.S. with a commercial bank. Under this program we sell receivables from certain of our U.S. OE customers at a rate that is favorable versus our senior credit facility. This arrangement is uncommitted and provides for cancellation by the commercial bank with no less than 30 days prior written notice. In addition, we have two other receivable factoring programs in the U.S. with commercial banks under which we sell receivables from certain of our aftermarket customers to whom we have extended payment terms. Both arrangements are uncommitted and may be terminated with 10 days prior notice for one program and 30 days prior notice for the other program.

We also have subsidiaries in several countries in Europe that are parties to accounts receivable factoring facilities. The commitments for these arrangements are generally for one year, but some may be canceled with notice 90 days prior to renewal. In some instances, the arrangement provides for cancellation by the applicable financial institution at any time upon notification.

Certain of these programs have deferred purchase price arrangements with the banks. These programs provide us with access to cash at costs that are generally favorable to alternative sources of financing.

In the U.S and Canada, we participate in supply chain financing programs with certain of our aftermarket customers to whom we have extended payment terms whereby the accounts receivable are satisfied through the early receipt of negotiable financial instruments that are payable at a later date when payments from our customers are due. We sell these financial instruments before their maturity date to various financial institutions at a discount.

The accounts receivables under the programs described above 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. We are the servicer of the receivables under some of these arrangements and are responsible for performing all accounts receivable administration functions. Where we receive 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.

Proceeds from the factoring of accounts receivable qualifying as sales and drafting programs was $1.1 billion and $1.1 billion for the three months ended September 30, 2020 and 2019 and was $3.0 billion and $3.6 billion for the nine months ended September 30, 2020 and 2019.

Financing charges associated with the factoring of receivables are as follows (amounts in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Loss on sale of receivables(a)	$	5	$	9	$	15	$	23

(a) Amount is included in "Interest expense" in the condensed consolidated statements of income (loss).

Supply Chain Financing

Certain of our suppliers participate in supply chain financing programs under which they securitize their accounts receivables from us. Financial institutions participate in the supply chain financing program on an uncommitted basis and can cease purchasing receivables or drafts from our suppliers at any time. We began to wind down these programs in 2019 and ended them in the third quarter of 2020.

Cash Flows

Operating Activities

Operating activities for the nine months ended September 30, 2020 and 2019 were as follows (amounts in millions):


	Nine Months Ended September 30,
	2020		2019
Operational cash flow before changes in operating assets and liabilities	$	6	$	469

Changes in operating assets and liabilities:
Receivables	(429)		(457)
Inventories	303		112
Payables and accrued expenses	242		99
Accrued interest and accrued income taxes	23		(12)
Other assets and liabilities	10		(147)
Total change in operating assets and liabilities	149		(405)
Net cash (used) provided by operating activities	$	155	$	64

Net cash provided by operating activities for the nine months ended September 30, 2020 was $155 million, an increase of $91 million compared to the nine months ended September 30, 2019. The activity was the result of:

•a net increase of $554 million in net cash provided by operating activities due to favorable changes in working capital items; and

•a decrease in net cash provided by operating activities before operating assets and liabilities of $463 million.

The favorable working capital changes can be attributed primarily to inventory efficiency gains resulting from higher inventory turns and lower days of inventory on hand. Net cash provided by operating activities was also benefited by the deferral of pension contributions and payroll taxes under the CARES Act, and the expansion and utilization of certain factoring arrangements.

Investing Activities

Investing activities for the nine months ended September 30, 2020 and 2019 were as follows (amounts in millions):


	Nine Months Ended September 30,
	2020		2019
Proceeds from sale of assets	$	8	$	8
Net proceeds from sale of business	3		22

Cash payments for property, plant, and equipment	(308)		(541)
Acquisitions, net of cash acquired	—		(158)
Proceeds from deferred purchase price of factored receivables	176		203
Other	3		—
Net cash (used) provided by investing activities	$	(118)	$	(466)

Net cash used by investing activities for the nine months ended September 30, 2020 decreased primarily due to a decrease in cash payments for property, plant, and equipment of $233 million and decrease in acquisitions, net of cash acquired of $158 million due to no cash payments for acquisitions for the nine months ended September 30, 2020, partially offset by a decrease in net proceeds from sale of business of $19 million, and a decrease in proceeds from deferred purchase price of factored receivables of $27 million.

Cash payments for property, plant, and equipment were $308 million and $541 million for the nine months ended September 30, 2020 and 2019.

Financing Activities

Financing activities for the nine months ended September 30, 2020 and 2019 were as follows (amounts in millions):


	Nine Months Ended September 30,
	2020		2019
Proceeds from term loans and notes	$	143	$	171
Repayments of term loans and notes	(196)		(278)
Debt issuance costs of long-term debt	(16)		—
Borrowings on revolving lines of credit	4,852		6,804
Payments on revolving lines of credit	(4,647)		(6,548)
Issuance (repurchase) of common shares	(1)		(2)
Cash dividends	—		(20)

Net increase (decrease) in bank overdrafts	9		(12)

Other	10		(2)
Distributions to noncontrolling interest partners	(18)		(20)
Net cash (used) provided by financing activities	$	136	$	93

Net cash provided by financing activities was $136 million for the nine months ended September 30, 2020. This included net repayments on term loans of $53 million and net borrowings on revolving lines of credit of $205 million.

Net cash provided by financing activities was $93 million for the nine months ended September 30, 2019. This included net repayments on term loans of $107 million and net borrowings on revolving lines of credit of $256 million.

Dividends on Common Stock

We did not pay dividends during the nine months ended September 30, 2020 as compared to $20 million of cash dividends paid during the nine months ended September 30, 2019, due to the suspension of the dividend program in the second quarter 2019.

Supplemental Guarantor Financial Information

Basis of Presentation

Substantially all of the Company's existing and future material domestic 100% owned subsidiaries (which are referred to as the "Guarantor Subsidiaries") fully and unconditionally guarantee its senior notes on a joint and several basis. However, a subsidiary’s guarantee may be released in certain customary circumstances such as a sale of the subsidiary or all or substantially all of its assets in accordance with the indenture applicable to the notes. The Guarantor Subsidiaries are combined in the presentation below.

Summarized Financial Information

The following tables present summarized financial information for the Parent and the Guarantors on a combined basis after the elimination of (a) intercompany transactions and balances among the Parent and the Guarantors and (b) the equity in earnings from and investments in any subsidiary that is a Nonguarantor:

Income Statements


	Nine Months Ended September 30,		Year Ended December 31,
	2020		2019
Net sales and operating revenues	$	4,423	$	7,299
Operating expenses	$	5,142	$	7,662
Net income (loss)	$	(1,292)	$	(498)
Net income (loss) attributable to Tenneco Inc.	$	(1,292)	$	(498)

Balance Sheets


	September 30, 2020		December 31, 2019
ASSETS
Current assets	$	1,650	$	1,947
Non-current assets	$	2,072	$	3,089

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities	$	1,472	$	1,347
Non-current liabilities	$	6,304	$	6,102
Intercompany due to (due from)	$	118	$	107

Environmental Matters, Legal Proceedings and Product Warranties

Note 13, Commitments and Contingencies in our condensed consolidated financial statements located in Part I, Item 1 of this Form 10-Q is incorporated herein by reference.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain global market risks, including foreign currency exchange rate risk, commodity price risk, interest rate risk associated with our debt, and equity price risk associated with our share-based compensation awards.

Foreign Currency Exchange Rate Risk

We manufacture and sell our products in North America, South America, Asia, Europe, and Africa. As a result, our 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 we manufacture and sell our products. We generally try to use natural hedges within our foreign currency activities, including the matching of revenues and costs, to minimize foreign currency exchange rate risk. Where natural hedges are not in place, we consider managing certain aspects of our foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. Principal currencies hedged have historically included the U.S. dollar, euro, British pound, Polish zloty, Singapore dollar, Thailand bhat, South African rand, Mexican peso, and Canadian dollar.

Foreign Currency Forward Contracts

We enter into foreign currency forward purchase and sale contracts to mitigate our exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. In managing our foreign currency exposures, we identify and aggregate existing offsetting positions and then hedge residual exposures through third-party derivative contracts. The gains or losses on these contracts are recognized as foreign currency gains (losses) within cost of sales in the condensed consolidated statements of income (loss). The fair value of foreign currency forward contracts is recorded in prepayments and other current assets or accrued expenses and other current liabilities in the condensed consolidated balance sheets. The fair value of these derivative instruments 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 September 30, 2020 (all of which mature in 2020):


	Notional Amount
Long positions	$	43
Short positions	$	(43)

Interest Rate Risk

Our financial instruments that are sensitive to market risk for changes in interest rates are primarily our debt securities. We use our revolving credit facility to finance our short-term and long-term capital requirements. We pay a current market rate of interest on these borrowings. Our long-term capital requirements have been financed with long-term debt with original maturity dates ranging from five to ten years. At September 30, 2020, we had $1.6 billion par value of fixed rate debt and $3.6 billion par value of floating rate debt. In addition, borrowings on our revolving credit facility of $0.4 billion at September 30, 2020 are subject to variable rates. Of the fixed rate debt, $486 million is fixed through 2022, $635 million is fixed through 2024, and $500 million is fixed through 2026. For more detailed explanations on our debt structure and senior credit facility, refer to “Liquidity and Capital Resources” earlier in this Management’s Discussion and Analysis and Note 10, Debt and Other Financing Arrangements in our condensed consolidated financial statements located in Part I, Item 1 of this Form 10-Q.

We estimate the fair value of our long-term debt at September 30, 2020 was approximately 93% percent of its book value. A one percentage point increase or decrease in interest rates related to our variable interest rate debt would increase or decrease the annual interest expense we recognize in the condensed consolidated statements of income (loss) and the cash we pay for interest expense by approximately $50 million.

Equity Prices

We selectively use swaps to reduce market risk associated with our deferred compensation liabilities, which increase as our stock price increases and decrease as our stock price decreases. We have entered into a cash-settled share swap agreement that moves in the opposite direction of these liabilities, allowing us to fix a portion of the liabilities at a stated amount. At September 30, 2020, we hedged our deferred compensation liability related to approximately 1,700,000 common share equivalents. We also have an S&P 500 index fund ETF swap agreement to further reduce our market risk, which will act as a natural hedge offsetting an equivalent amount of indexed investments in our deferred compensation plans. The fair value of these swap agreements is recorded in prepayments and other current assets or accrued expenses and other current liabilities in the condensed consolidated balance sheets. The fair value of these derivative instruments is not considered material to the condensed consolidated financial statements.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officers and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), as the end of the quarter covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting previously identified and described more fully under Item 9A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company’s disclosure controls and procedures were not effective as of September 30, 2020 to ensure information required to be disclosed by our Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

Internal Controls Surrounding the North America Motorparts Business

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.

As previously identified and described more fully under Item 9A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company identified a deficiency within its North America Motorparts business that constitutes a material weakness, as it did not maintain a sufficient complement of resources in the North America Motorparts business to ensure that appropriate controls were designed, maintained and executed, including controls over account reconciliations and manual journal entries, related to the integration of a previously acquired entity within the North America Motorparts business. The material weakness continued to exist as of the end of the period covered by this Quarterly Report.

The material weakness did not result in any material misstatements of the Company’s financial statements or disclosures but did result in out-of-period adjustments during the quarter ended December 31, 2019. Additionally, this material weakness could result in the misstatement of relevant account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

The Company continues to take action on the remediation plan more fully described under Item 9A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. While the Company is moving forward with these remediation activities, additional work needs to be done in this area. Accordingly, we concluded that this material weakness had not yet been remediated as of September 30, 2020.

We will continue to monitor the effectiveness of these and other processes, procedures and controls and make any further changes management determines appropriate.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Note 13, Commitments and Contingencies, in our condensed consolidated financial statements located in Part I, Item 1 of this Form 10-Q is incorporated herein by reference.

ITEM 1A.RISK FACTORS

We are exposed to certain risks and uncertainties that could have a material adverse effect on our business, financial condition and operating results. Except as set forth below, there have been no material changes to the Risk Factors described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The risks described herein or in our Annual Report on Form 10-K are not the only risks facing us. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the effect such risk factors might have on our business, financial condition and operating results, or the extent to which any such risk factor or combination of risk factors may affect our business, financial condition and operating results.

The novel coronavirus (COVID-19) global pandemic has had and is expected to continue to have an adverse effect on our business and results of operations.

In late 2019, a novel strain of coronavirus, COVID-19, was first detected in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have adversely affected workforces, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, reductions in revenue, and delays in payments from customers and partners, have led to an economic downturn in many of our markets. As a result of COVID-19, and in response to government mandates or recommendations, as well as decisions made to protect the health and safety of employees, consumers and communities, we and our customers have experienced significant closures and instances of reduced operations. Additionally, we have limited access at many of our corporate office and other facilities and have implemented a work from home policy for many corporate employees which may negatively impact productivity and cause other disruptions to our business.

The uncertainties created by the COVID-19 global pandemic, including the severity and duration of the outbreak and additional actions that may be taken by governmental authorities make it difficult to forecast the effects of the virus on the Company’s future results, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame. Additionally, it is possible that we may experience supply chain disruptions as well as labor shortages as a result of COVID-19, further disrupting operations and impacting revenues negatively.

To the extent the COVID-19 global pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section or to the “Risk Factors” described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, our ability to comply with the covenants contained in the agreements that govern our indebtedness and to have access to sufficient liquidity through the COVID-19 pandemic, decreased revenue from loss of customer market share, and working capital requirements.

We may not be able to fully utilize our net operating loss and other tax carryforwards.

Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. A corporation generally experiences an “ownership change” if the percentage of its shares of stock owned by its “5-percent shareholders,” as such term is defined in Section 382 of the Code, increases by more than 50 percentage points over a rolling three-year period. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our tax attributes is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.

In April 2020, our Board of Directors approved a Section 382 Rights Agreement (the “Section 382 Rights Plan”), which may cause substantial dilution to a person or group that attempts to acquire 4.9% or more of the Company’s Class A Voting Common Stock on terms not approved by our Board of Directors. The purpose of the Rights Plan is to protect value by preserving the Company’s ability to use certain of its tax attributes to offset potential future income taxes. Although the Section 382 Rights Plan is intended to reduce the likelihood of an “ownership change” that could adversely affect utilization of our tax assets, there is no assurance that the Section 382 Rights Plan will prevent all transfers that could result in such an “ownership change.” The Section 382 Rights Plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, a large block of our Class A Voting Common Stock. A third party that acquires in excess of 4.9% or more of our Class A Voting Common Stock could suffer substantial dilution of its ownership interest under the terms of the Section 382 Rights Plan. This may adversely affect the marketability of our Class A Voting Common Stock by discouraging existing or potential investors from acquiring our stock or additional shares of our stock.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) Not applicable.

(c) Purchase of equity securities by the issuer and affiliated purchasers. The following table provides information relating to our purchase of shares of our common stock in the third quarter of 2020. These purchases reflect shares withheld upon vesting of restricted stock for tax withholding obligations. We generally intend to continue to satisfy tax withholding obligations in connection with the vesting of outstanding restricted stock through the withholding of shares.


Period	Total Number of Shares Purchased (1)	Average Price Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Value of Shares That May Yet be Purchased Under These Plans or Programs (Millions)
July 2020	13	$	8.14	—	$	—
August 2020	191	10.47		—	—
September 2020	4,736	7.07		—	—
Total	4,940	$	7.21	—	$	—

(1) Shares withheld upon vesting of share settled restricted stock units in the third quarter of 2020.

ITEM 5. OTHER INFORMATION

2006 Tenneco Inc. Long-Term Incentive Plan

On November 5, 2020 (the “Effective Date”), the Board of Directors of the Company (the “Board”) adopted an amendment and restatement of the 2006 Tenneco Inc. Long-Term Incentive Plan (the “2006 Plan”). The amendment and restatement modifies the definition of a Change in Control under the 2006 Plan such that a Change in Control is deemed to occur upon the acquisition by any person of 30% or more of the Company’s outstanding voting securities or 40% or more of the Company’s outstanding class A voting common stock and class B non-voting common stock in the aggregate (in each case without regard to whether the Board approves the acquisition).

Prior to the Effective Date, awards were subject to “single-trigger” accelerated vesting upon a Change in Control. The amendment and restatement of the 2006 Plan modifies this treatment for awards granted on or after the Effective Date to generally provide for “double-trigger” accelerated vesting, whereby awards will vest if a participant’s employment is terminated by the Company without Cause (as defined in the amended and restated 2006 Plan) or by the participant for Good Reason (as defined in the amended and restated 2006 Plan, which definition is consistent with the amended definition of Constructive Discharge under the CIC Plan, described below) upon or within the twenty-four (24) months following a Change in Control. Performance awards will vest at target.

In addition, upon a Change in Control where outstanding awards are continued, assumed or replaced, unless the Compensation Committee determines that Company performance can be determined with respect to any performance period in effect on the date of the Change in Control, the performance conditions for outstanding performance-based awards will be deemed to be achieved at the target level for such performance period and will thereafter not be subject to any performance conditions, and any applicable service-based conditions will continue to apply as if the Change in Control had not occurred.

Tenneco Inc. Change in Control Severance Plan

On the Effective Date, the Board also adopted an amendment and restatement of the Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives (the “CIC Plan”) to modify the definition of a Change in Control to be the same as the definition under the 2006 Plan.

The amended and restated CIC Plan also modifies the definition of Constructive Termination to provide that a Constructive Termination will occur when there has been a material reduction in an executive’s Total Compensation, defined to include the executive’s target annual long-term incentive awards for the calendar year ended immediately prior to a Change in Control. Prior to the Effective Date, a Constructive Termination was only deemed to occur when an executive’s annual base salary and annual cash incentive awards were materially reduced.

ITEM 6.EXHIBITS

INDEX TO EXHIBITS

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED SEPTEMBER 30, 2020


Exhibit Number		Description


*+10.1	—	Offer Letter to Kevin W. Baird dated July 6, 2020.

*+10.2	—	Restricted Stock Unit Inducement Grant Award Agreements, effective as of August 3, 2020, by and between Tenneco Inc. and Kevin W. Baird (2-year vesting).

*+10.3	—	Restricted Stock Unit Inducement Grant Award Agreement, effective as of August 3, 2020, by and between Tenneco Inc. and Kevin W. Baird (3-year vesting).

*+10.4	—	Offer Letter to Matti Masanovich dated July 6, 2020.

*+10.5	—	Restricted Stock Unit Inducement Grant Award Agreements, effective as of August 10, 2020, by and between Tenneco Inc. and Matti Masanovich.

*+10.6	—	Tenneco Inc. 2006 Long-Term Incentive Plan, as amended and restated effective November 5, 2020.

*+10.7	—	Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives, as Amended and Restated effective November 5, 2020.

*+10.8	—	Form of amended and Restated Cash-Settled Long-Term Performance Share Unit Award Agreement under the Tenneco Inc. 2006 Long-Term Incentive Plan (for periods commencing after January 1, 2020).

*31.1	—	Certification of Brian J. Kesseler under Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2	—	Certification of Matti Masanovich under Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1	—	Certification of Brian J. Kesseler and Matti Masanovich under Section 906 of the Sarbanes-Oxley Act of 2002.

*101.INS	—	Inline XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

*101.SCH	—	Inline XBRL Taxonomy Extension Schema Document.

*101.CAL	—	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

*101.DEF	—	Inline XBRL Taxonomy Extension Definition Linkbase Document.

*101.LAB	—	Inline XBRL Taxonomy Extension Label Linkbase Document.

*101.PRE	—	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*			Filed herewith.
+			Indicates a management contract or compensatory plan or arrangement

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Tenneco Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


TENNECO INC.

By:						/s/ MATTI MASANOVICH
						Matti Masanovich
						Executive Vice President and Chief Financial Officer (on behalf of the Registrant)


TENNECO INC.

By:						/s/ JOHN S. PATOUHAS
						John S. Patouhas
						Vice President and Chief Accounting Officer (principal accounting officer)

Dated: November 5, 2020