TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

~~The financial instruments received by some of our Chinese subsidiaries are drafts drawn that are payable at a future date~~10. Debt and in some cases, are negotiable and/or are guaranteed by the banks of the customers. The use of these instruments for payment follows local commercial practice. Because certain of such financial instruments are guaranteed by our customers’ banks, we believe they represent a lower financial risk than the outstanding accounts receivable that they satisfy which are not guaranteed by a bank.Other Financing Arrangements

~~Supply Chain Financing~~ — Certain of our suppliers in the U.S. participate in supply chain financing programs under which they securitize their accounts receivables from the Company. Financial institutions participate in the supply chain financing program on an uncommitted basis and can cease purchasing receivables or drafts from the Company's suppliers at any time. If the financial institutions do not continue to purchase receivables or drafts from the Company's suppliers under these programs, the participating vendors may have a need to renegotiate their payment terms with the Company which in turn would cause our borrowings under our revolving credit facility to increase.

~~Restricted Cash~~ — Some of our Chinese subsidiaries that issue their own financial instruments to pay vendors are required to maintain a cash balance if they exceed credit limits with the financial institution that guarantees the financial instruments. There was no restricted cash balance required at those Chinese subsidiaries at September 30, 2018 and $2 million at December 31, 2017.

One of our subsidiaries in Spain is required by law to maintain a cash deposit with a financial institution to guarantee the maximum estimated loss related to a tax audit until a settlement is reached. The cash deposit required was less than $1 million which has been classified as restricted cash on the Company's condensed consolidated balance sheets at both September 30, 2018 and December 31, 2017. As of December 31, 2017, there was a similar cash deposit required for one of our subsidiaries in Brazil for approximately $1 million. The audit was closed in 2018 and the Brazil subsidiary has no restricted cash balance as of September 30, 2018.

~~Table of Contents~~

~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~


~~(4)~~	~~Debt and Other Financing Arrangements~~

Long-Term Debt

A summary of our long-term debt obligations at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 is set forth in the following table:



	September 30, 2019				December 31, 2018
	Principal		Carrying Amount ⁽¹⁾		Principal		Carrying Amount ⁽¹⁾
Credit Facilities
Revolver Borrowings
Due 2023	$	229	$	229	$	—	$	—
Term Loans
LIBOR plus 1.75% Term Loan A due 2019 through 2023	1,636		1,628		1,700		1,691
LIBOR plus 3.00% Term Loan B due 2019 through 2025⁽²⁾	1,687		1,624		1,700		1,629
Senior Unsecured Notes
$225 million of 5.375% Senior Notes due 2024	225		222		225		222
$500 million of 5.000% Senior Notes due 2026	500		494		500		493
Senior Secured Notes
€415 million 4.875% Euro Fixed Rate Notes due 2022	452		467		476		496
€300 million of Euribor plus 4.875% Euro Floating Rate Notes due 2024	327		331		344		349
€350 million of 5.000% Euro Fixed Rate Notes due 2024	381		403		401		427
Other debt, primarily foreign instruments	81		78		108		106
			5,476				5,413
Less - maturities classified as current			68				73
Total long-term debt			$	5,408			$	5,340


⁽¹⁾	Carrying amount is net of unamortized debt issuance costs and debt discounts or premiums. Total unamortized debt issuance costs were $80 million and $90 million as of September 30, 2019 and December 31, 2018. Total unamortized debt (premium) discount, net was $(38) million and $(49) million as of September 30, 2019 and December 31, 2018.


⁽²⁾	As of December 31, 2018, the rate on Term Loan B was LIBOR plus 2.75%.

September 30, 2018 December 31, 2017
Principal
Carrying Amount ⁽¹⁾
Principal
Carrying Amount ⁽¹⁾
(Millions)
Tenneco Inc. —
Revolver borrowings due 2022 $ 207
$ 207
$ 244
$ 244
Senior Tranche A Term Loan due 2022 375
373
390
388
5 3/8% Senior Notes due 2024 225
222
225
222
5% Senior Notes due 2026 500
493
500
492
Other subsidiaries —
Other long-term debt due in 2020 6
6
5
5
Notes due 2018 through 2028 8
7
12
10
1,321
1,308
1,376
1,361
Less — maturities classified as current 4
4
3
3
Total long-term debt $ 1,317
$ 1,304
$ 1,373
$ 1,358

⁽¹⁾~~Carrying amount is net of unamortized debt issuance costs and debt discounts. Total unamortized debt issuance costs were $11 million and $13 millionas of September 30, 2018 and December 31, 2017, respectively, and the total unamortized debt discount was $2 million as of both September 30, 2018 and December 31, 2017.~~

~~Short-Term Debt~~

Our short-term debt includes the current portion of long-term debt, borrowings by the parent company and foreign subsidiaries, which includes borrowings under both committed credit facilities and uncommitted lines of credit and similar arrangements, and borrowings under the U.S. accounts receivable securitization program as discussed in Note 6, Accounts Receivable Securitization and Factoring Programs. Information regarding our short-term debt as of September 30, 2018 and December 31, 2017 is as follows:

September 30,
2018 December 31,
2017
(Millions)
Maturities classified as current $ 4
$ 3
Short-term borrowings 236
80
Total short-term debt $ 240
$ 83

~~Financing Arrangements~~

As of September 30, 2018, our financing arrangements were primarily provided by a committed senior secured credit facility with a syndicate of banks and other financial institutions. The arrangement was secured by substantially all our domestic assets and pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries, as well as guarantees by our material domestic subsidiaries.

We were required to make quarterly principal payments under the term loan A facility of $5 million through June 30, 2019, $7.5 million beginning September 30, 2019 through June 30, 2020, $10 million beginning September 30, 2020 through March 31, 2022 and a final payment of $260 million is due on May 12, 2022. We excluded the required payments, within the twelve months after September 30, 2018, under the term loan A facility totaling $22.5 million from current liabilities as of September 30, 2018, because we had the intent and the ability to refinance the obligations on a long-term basis by using our revolving credit facility.

~~Table of Contents~~

~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~

~~New Credit Facility~~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~~"New Credit ~~Facility”~~Facility") in connection with the ~~acquisition of Federal-Mogul.~~Federal-Mogul Acquisition. The New Credit Facility ~~consists of~~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. Proceeds from~~facility ("Term Loan B").

Senior Notes

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

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Credit Facilities

The Company had availability on its credit facilities as of September 30, 2019 as follows:



	Credit Facilities as of September 30, 2019
	Term	Available^(b)
		(in billions)
Tenneco Inc. revolving credit facility ^(a)	2023	$	1.3
Tenneco Inc. Term Loan A	2023	—
Tenneco Inc. Term Loan B	2025	—
Subsidiaries’ credit agreements	2020 - 2028	0.1
		$	1.4


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


^(b)	Letters of credit reduce the available borrowings under the revolving credit facility, as of September 30, 2019 the revolving credit facility had $20 million in letters of credit outstanding.

Interest expense associated with the amortization of the debt issuance costs and original issue discounts recognized in the Company's condensed consolidated statements of income (loss) consist of the following:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Amortization of debt issuance fees	$	5	$	1	$	14	$	3

Included in the table above, is the amortization of debt issuance costs on the revolver, which are $19 million at September 30, 2019 and are recorded in "Other assets" in the condensed consolidated balance sheets. In addition, there was a $3 million and $9 million reduction to interest expense during the three and nine months ended September 30, 2019 related to the accretion of the debt premium on the Senior Secured Notes.

New Credit Facility ~~were used to finance the Cash Consideration portion of the Acquisition purchase price, to refinance the Company’s then existing senior credit facilities, inclusive of the revolver~~— Other Terms and the term loan A then outstanding, and certain senior credit facilities of Federal-Mogul, and to pay fees and expenses relating to the Acquisition and the financing thereof, and the remainder, including future borrowings under the revolving credit facility, will be used for general corporate purposes.

Each of the Company and Tenneco Automotive Operating Company Inc. are borrowers under the New Credit Facility, and the Company is the sole borrower under the term loan A and term loan B facilities. The New Credit Facility is guaranteed on a senior basis by certain material domestic subsidiaries of the Company. Drawings under the revolving credit facility may be in U.S. Dollars, Pounds Sterling or Euros.

The New Credit Facility is secured by substantially all domestic assets of the Company and the subsidiary guarantors and by pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries. The security for the New Credit Facility will be pari passu with the security for outstanding senior secured notes of Federal-Mogul that were assumed by the Company in connection with the Acquisition. If any foreign subsidiary of the Company is added to the revolving credit facility as a borrower, the obligations of such foreign borrower will be secured by the assets of such foreign borrower, and also will be secured by the assets of, and guaranteed by, the domestic borrowers and domestic guarantors as well as certain foreign subsidiaries of the Company in the chain of ownership of such foreign borrower.

The term loan A and revolving credit facilities will mature on the fifth anniversary of closing, and the term loan B facility will mature on the seventh anniversary of closing. The term loan A facility is payable in 19 consecutive quarterly installments, commencing March 31, 2019, with 5% being paid annually in each of the first two years, 7.5% in the third year, 10% annually in each of the fourth and fifth years and the remainder on the maturity date. The term loan B facility is payable in 27 consecutive quarterly installments, commencing March 31, 2019, with 0.25% being paid in 27 quarterly installments and the remainder on the maturity date.

The interest rate on borrowings under the revolving credit facility and the term loan A facility will initially be LIBOR plus 1.75%, which interest rate will be subject to change if the Company’s consolidated net leverage ratio changes. 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.

The New Credit Facility contains representations and warranties and affirmative and negative covenants which are customary for debt facilities of this type. The negative covenants limit the ability of the Company and its restricted subsidiaries to, among other things, (i) incur additional indebtedness or issue preferred stock, (ii) pay dividends or make distributions to the Company’s stockholders, (iii) purchase or redeem the Company’s equity interests, (iv) make investments, (v) create liens on their assets, (vi) enter into transactions with the Company’s affiliates, (vii) sell assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s assets to, other companies.Conditions— The New Credit Facility also contains ~~two~~2 financial maintenance covenants for the revolving credit facility and the ~~term loan~~Term Loan A facility including ~~(x)~~ a requirement to have a consolidated net leverage ratio (as defined in the New Credit Facility) as of the end of each fiscal quarter of not greater than 4.0 to 1 through September 30, 2019, 3.75 to 1 through September 30, 2020 and 3.5 to 1 thereafter; and ~~(y)~~ a requirement to maintain a consolidated interest coverage ratio (as defined in the New Credit Facility) for any period of four consecutive fiscal quarters of not less than 2.75 to 1.

Senior Unsecured Notes and Senior Secured Notes — Other Terms and Conditions—The ~~New Credit Facility includes customary events~~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 ~~default~~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 ~~other provisions that could require~~stock repurchases; (iv) investments; (v) asset sales and (vi) mergers and consolidations.

Subject to limited exceptions, all ~~amounts due thereunder to become immediately due and payable, either automatically or at the option~~ of the ~~lenders, if~~Company's existing and future material domestic wholly owned subsidiaries fully and unconditionally guarantee its Senior Unsecured Notes and Senior Secured Notes on a joint and several basis. There are no significant restrictions on the ability of the subsidiaries that have guaranteed the Company's Senior Notes to make distributions to the Company.

As of September 30, 2019, the Company ~~fails to comply~~was in compliance with ~~the terms~~all of ~~the New Credit Facility or if other customary events occur. The New Credit Facility does not contain any terms that could accelerate the payment of it as a result of a credit rating change.~~its financial covenants.

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

Accounts Receivable Securitization and Factoring

On-Balance Sheet Arrangements — The Company has securitization programs for some of its accounts receivables, with limited recourse provisions. Borrowings on these securitization programs, which are recorded in short-term debt, at September 30, 2019 and December 31, 2018 are as follows:



	September 30, 2019		December 31, 2018
Borrowings on securitization programs	$	3	$	6

Off-Balance Sheet Arrangements— In the Company's European and U.S. accounts receivable factoring programs, accounts receivables are transferred in their entirety to the acquiring entities and are accounted for as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under these factoring programs approximates the fair value of such receivables. Certain programs in Europe have deferred purchase price arrangements with the banks.

The ~~financial ratios required~~Company is the servicer of the receivables under some of these arrangements and is responsible for performing all accounts receivable administration functions. Where the ~~senior credit facility~~Company receives a fee to service and monitor these transferred accounts receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not recorded as a result of such activities.

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

The amounts outstanding for these factoring and drafting arrangements as of September 30, 2019 and December 31, 2018 are as follows:



	September 30, 2019		December 31, 2018
	(in billions)
Accounts receivable outstanding and derecognized	$	1.1	$	1.0

The deferred purchase price receivable as of September 30, 2019 and December 31, 2018 is as follows:



	September 30, 2019		December 31, 2018
Deferred purchase price receivable	$	47	$	154

Proceeds from the ~~actual ratios we achieved~~factoring of accounts receivable qualifying as sales are as follows:



	Three months ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in billions)
Proceeds from factoring qualifying as sales	$	1.1	$	0.6	$	3.6	$	2.1

Financing charges associated with the factoring of receivables are as follows:



	Three months ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Financing charges on sale of receivables^(a)	$	9	$	3	$	23	$	8
^(a)Amount is included in "Interest expense" in the condensed consolidated statements of income (loss).

If the Company were not able to factor receivables or sell drafts under either of these programs, its borrowings under its revolving credit agreement might increase. These programs provide the Company with access to cash at costs that are generally favorable to alternative sources of financing and allow the Company to reduce borrowings under its revolving credit agreement.

11. Pension Plans, Postretirement and Other Employee Benefits

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

Components of net periodic benefit cost (credit) for the ~~first~~ three ~~quarters of~~months ended September 30, 2019 and 2018 are as follows:

Quarter Ended
September 30, 2018 June 30, 2018 March 31, 2018
Required Actual Required Actual Required Actual
Leverage Ratio (maximum) 3.50
2.05
3.50
1.79
3.50
2.09
Interest Coverage Ratio (minimum) 2.75
10.05
2.75
10.84
2.75
9.87



	Three Months Ended September 30
	Pension												Other Postretirement Benefits
	2019						2018						Other Postretirement Benefits
	US			Non-U.S.			US			Non-U.S.			2019			2018
Service cost	$	1		$	6		$	1		$	3		$	—		$	—
Interest cost	13			6			3			3			3			2
Expected return on plan assets	(17		)	(5		)	(4		)	(5		)	—			—
Net amortization:
Actuarial loss	1			1			1			2			1			2
Prior service cost (credit)	—			1			—			—			(2		)	—
Net pension and postretirement costs (credits)	$	(2	)	$	9		$	1		$	3		$	2		$	4

Components of net periodic benefit cost (credit) for the nine months ended September 30, 2019 and 2018 the senior credit facility included a maximum leverage ratio covenant of 3.50 and a minimum interest coverage ratio of 2.75, in each case through May 12, 2022. The senior credit facility provided us with the flexibility not to exclude certain otherwise excludable charges incurred in any relevant period from the calculation of the leverage and interest coverage ratios for such period.

At September 30, 2018, of the $1.6 billion available under the revolving credit facility, we had unused borrowing capacity of $1,393 million with $207 million in outstanding borrowings and no outstanding letters of credit.

are as follows:



	Nine Months Ended September 30
	Pension												Other Postretirement Benefits
	2019						2018						Other Postretirement Benefits
	US			Non-U.S.			US			Non-U.S.			2019			2018
Service cost	$	2		$	18		$	1		$	8		$	—		$	—
Interest cost	40			18			8			9			10			5
Expected return on plan assets	(51		)	(14		)	(11		)	(15		)	—			—
Net amortization:
Actuarial loss	3			4			3			6			3			6
Prior service cost (credit)	—			1			—			—			(6		)	(1		)
Net pension and postretirement costs (credits)	$	(6	)	$	27		$	1		$	8		$	7		$	10

~~Table of Contents~~12. Income Taxes

~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~


~~(5)~~	~~Income Taxes~~

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

~~We reported~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

For the three months ended September 30, 2019, the Company recorded income tax benefit of $9 million on income from continuing operations before income taxes of $69 million. This compares to income tax expense of ~~$20~~$22 million ~~and $16~~on income from continuing operations before income taxes of $88 million in the three ~~month periods~~months ended September 30, 2018.

For the nine months ended September 30, 2019, the Company recorded income tax expense of $5 million on income from continuing operations before income taxes of $23 million. This compares to income tax expense of $73 million on income from continuing operations before income taxes of $276 million in the nine months ended September 30, 2018.

Income tax expense for the three and nine months ended September 30, 2019 differs 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.

Income tax expense for the three and nine months ended September 30, 2018 differs from the U.S. statutory rate due primarily to $5 million and ~~2017, respectively. The tax expense recorded in the third quarter~~$12 million of ~~2018 included a~~ tax benefit ~~of $5 million~~recognized relating to acquisition and restructuring charges, a$10 million of tax benefit ~~of $10 million relating to a~~recognized for valuation allowance release at our ~~Australian~~Australia entities, pre-tax income taxed at rates lower than the U.S. statutory rate, and pre-tax losses with no tax benefit. In addition, during the three and nine months ended September 30, 2018, $9 million and $11 million of tax expense was recognized for changes in the toll tax as discussed below. ~~The tax benefit recorded in the third quarter of 2017 included a tax benefit of $12 million primarily relating to valuation allowance releases.~~

We reported income tax expense of $72 million and $41 million in the nine month periods ended September 30, 2018 and 2017, respectively. The tax expense recorded in the first nine months of 2018 included tax benefits of $12 million relating to acquisition and restructuring charges, a tax benefit of $10 million relating to a valuation allowance release at our Australian entities and $11 million of tax expense for changes in the toll tax as discussed below. The tax expense recorded in the first nine months of 2017 included a tax benefit of $12 million primarily relating to valuation allowance releases. In addition, the 2017 tax expense included a $50 million tax benefit related to an antitrust settlement accrual.

On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was enacted into U.S. law, which, among other provisions, lowered the corporate income tax rate effective January 1, 2018 from 35% to 21%, and implemented significant changes with respect to U.S. tax treatment of earnings originating from outside the U.S. Many of the provisions of TCJA are subject to regulatory interpretation and U.S. state conforming enactments. The Internal Revenue Service (IRS) issued ~~Notice 2018-26~~final regulations, effective on ~~April 2, 2018,~~February 5, 2019, which provided additional guidance to assist taxpayers in computing the toll tax. Based on the ~~new guidance,~~final regulations a $2 million ~~discrete charge~~tax benefit was ~~recorded in income tax expense~~recognized for the second quarter of 2018. On August 1 2018, the IRS issued proposed regulations under section 965, which provided additional guidance to assist taxpayers in computing the toll tax. Based on the new guidance, an additional $9 million discrete charge was recorded in income tax expense for the third quarter of 2018. Material U.S. state income tax conformity to current federal tax code is still pending as ofnine months ended September 30, ~~2018. We will continue to refine our estimates throughout the measurement period provided for in SEC Staff Accounting Bulletin 118, or until our accounting is complete, whichever comes first.~~2019.

Our losses in various foreign taxing jurisdictions represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets. We evaluate our

The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. If recent operational improvements continue in our foreign subsidiaries, ~~or if certain restructuring steps are completed as part of~~ the ~~Acquisition and planned spin-off of the ride performance and aftermarket company, we believe~~Company believes it is reasonably possible ~~that~~ sufficient positive evidence may be available to release all, or a portion, of ~~the~~its valuation allowance in the next twelve ~~months.~~months in certain jurisdictions. This may result in a one-time tax benefit of up to ~~$53~~$4 million, primarily related to China and ~~Spain.~~France.

~~We believe~~

The Company believes it is reasonably possible ~~that~~ up to $6$9 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.

~~Table of Contents~~13. Commitments and Contingencies

~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~


~~(6)~~	~~Accounts Receivable Securitization and Factoring Programs~~

We securitize or factor some of our accounts receivable on a limited recourse basis in the U.S. and Europe. As a servicer under these accounts receivable securitization and factoring programs, we are responsible for performing all accounts receivable administration functions for these securitized and factored financial assets including collections and processing of customer invoice adjustments. In the U.S., we have an accounts receivable securitization program with three commercial banks comprised of a first priority facility and a second priority facility. We securitize original equipment and aftermarket receivables on a daily basis under the bank program. In April 2017, the U.S. program was amended and extended to April 30, 2019. The first priority facility provides financing of up to $155 million and the second priority facility, which is subordinated to the first priority facility, provides up to an additional $25 million of financing. Both facilities monetize accounts receivable generated in the U.S. that meet certain eligibility requirements and the second priority facility also monetizes certain accounts receivable generated in the U.S. that would otherwise be ineligible under the first priority securitization facility. The amount of outstanding third-party investments in our securitized accounts receivable under the U.S. program was $180 million and $30 million, recorded in short-term debt, at September 30, 2018 and December 31, 2017, respectively.

Each facility contains customary covenants for financings of this type, including restrictions related to liens, payments, mergers or consolidations and amendments to the agreements underlying the receivables pool. Further, each facility may be terminated upon the occurrence of customary events (with customary grace periods, if applicable), including breaches of covenants, failure to maintain certain financial ratios, inaccuracies of representations and warranties, bankruptcy and insolvency events, certain changes in the rate of default or delinquency of the receivables, a change of control and the entry or other enforcement of material judgments. In addition, each facility contains cross-default provisions, where the facility could be terminated in the event of non-payment of other material indebtedness when due and any other event which permits the acceleration of the maturity of material indebtedness.

On December 14, 2017, we entered into a new accounts receivable factoring program in the U.S. with a commercial bank. Under this program, we sell receivables from one 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. The amount of outstanding third-party investments in our accounts receivable sold under this program was $152 million and $107 million at September 30, 2018 and December 31, 2017, respectively.

We also factor receivables in our European operations with regional banks in Europe under various separate facilities. The commitments for these arrangements are generally for one year, but some may be cancelled with notice ~~90 days~~ prior to renewal. In some instances, the arrangement provides for cancellation by the applicable financial institution at any time upon notification. The amount of outstanding third-party investments in our accounts receivable sold under programs in Europe was $189 million and $218 million at ~~September 30, 2018~~ ~~and~~ ~~December 31, 2017~~, respectively. Certain programs in Europe have deferred purchase price arrangements with the banks. We received cash to settle the deferred purchase price of factored receivables for $36 million and $28 million in the three month periods ended September 30, 2018 and 2017, respectively, and $102 million and $77 million in the nine month periods ended September 30, 2018 and 2017, respectively. The cash received to settle the deferred purchase price of factored receivables is included as part of our investing activities in the condensed consolidated statements of cash flows.

If we were not able to securitize or factor our accounts receivable under either the U.S. or European programs, our borrowings under our revolving credit agreement might increase. These accounts receivable securitization and factoring programs provide us with access to cash at costs that are generally favorable to alternative sources of financing, and allow us to reduce borrowings under our revolving credit agreement.

~~Table of Contents~~

~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~

In one of our U.S. accounts receivable securitization programs, we transfer a partial interest in a pool of receivables and the interest that we retain is subordinate to the transferred interest. Accordingly, we account for our U.S. accounts receivable securitization program as a secured borrowing. In one U.S. program and our European accounts receivable factoring programs, we transfer accounts receivable to the acquiring entities and satisfy all of the conditions established under Accounting Standards Codification (ASC) Topic 860, Transfers and Servicing, to report the transfer of financial assets as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under the U.S. and European factoring programs approximates the fair value of such receivables. We recognized $1 million interest expense in each of the three month periods ended September 30, 2018 and 2017, and $4 million and $3 million in the nine month periods ended September 30, 2018 and 2017, respectively, relating to our U.S. accounts receivable securitization program. In addition, we recognized a loss of $2 million in each of the three month periods ended September 30, 2018 and 2017, and $5 million and $4 million in the nine month periods ended September 30, 2018 and 2017, respectively, on the sale of accounts receivable in our U.S. and European accounts receivable factoring programs, representing the discount from book values at which these receivables were sold to our banks. The remaining loss on receivables recognized in our condensed consolidated statements of income is unrelated to the aforementioned factoring programs. The discount rate varies based on funding costs incurred by our banks, which averaged approximately 2% during both the first nine months of 2018 and 2017 for the European programs and 3% during both the first nine months of 2018 and 2017 for the U.S. program.


~~(7)~~	~~Restructuring and Other Charges~~

~~Restructuring and Other Charges~~

Over the past several years, we have adopted plans to restructure portions of our operations. These plans were approved by our Board of Directors and were designed to reduce operational and administrative overhead costs throughout the business.

In the third quarter of 2018, we incurred $12 million in restructuring and related costs, primarily related to the accelerated move of our Beijing Ride Performance plant, and other cost improvement initiatives. In the first nine months of 2018, we incurred $55 million in restructuring and related costs, primarily related to the accelerated move of our Beijing Ride Performance plant, headcount reduction at a Clean Air manufacturing plant in Germany and other cost improvement initiatives. We expect all assembly to be relocated to the new China facility by the end of the year and the component manufacturing relocation to be complete during the first quarter of 2019.

In the third quarter of 2017, we incurred $20 million in restructuring and related costs, including asset write-downs of $1 million, primarily related to closing a Clean Air manufacturing plant and downsizing Ride Performance operations in Australia and other cost improvement initiatives. In the first nine months of 2017, we incurred $52 million in restructuring and related costs, including asset write-downs of $3 million, primarily related to closing a Clean Air Belgian JIT plant in response to the end of production on a customer platform, closing a Clean Air manufacturing plant and downsizing Ride Performance operations in Australia and other cost improvement initiatives.

~~The Company's restructuring and other charges are classified in the condensed consolidated statements of income as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
(Millions)
Cost of sales $ 12
$ 8
$ 44
$ 31
Engineering, research, and development —
—
1
—
Selling, general, and administrative —
11
10
18
Depreciation and amortization of other intangibles —
1
—
3

$ 12
$ 20
$ 55
$ 52

~~Other Structural Cost Reductions~~

The Company has also been tracking other costs, unrelated to manufacturing operations, which are intended to support the achievement of Acquisition synergies. In the third quarter of 2018, these other costs were $4 million, of which $3 million was recorded in selling, general, and administrative and $1 million in other expense, net. In the first nine months of 2018, these other costs were $13 million, of which $8 million was recorded in selling, general, and administrative expenses, $4 million was recorded in engineering, research, and development and $1 million was recorded in other expense, net.

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~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~

~~Amounts related to activities that were charged to our restructuring reserves, including costs incurred to support future structural cost reductions, are as follows:~~

December 31,
2017
Restructuring
Reserve 2018
Expenses 2018
Cash
Payments Impact of Exchange Rates September 30, 2018
Restructuring
Reserve
(Millions)
Employee severance, termination benefits and other related costs $ 25
$ 55
$ (47 ) $ (1 ) $ 32

Under the terms of our amended and restated senior credit agreement that took effect on May 12, 2017, we were allowed to exclude, at our discretion, (i) up to $35 million in 2017 and $25 million each year thereafter of cash restructuring charges and related expenses, with the ability to carry forward any amount not used in one year to the following year, and (ii) up to $150 million in the aggregate of all costs, expenses, fees, fines, penalties, judgments, legal settlements and other amounts associated with any restructuring, litigation, claim, proceeding or investigation related to or undertaken by us or any of our subsidiaries, together with any related provision for taxes, incurred for any quarterly period ending after May 12, 2017 in the calculation of the financial covenant ratios required under our senior credit facility. As of September 30, 2018, we elected not to exclude any of the $106 million of allowable cash charges and related expenses recognized in the fourth quarter of 2017 and in the first nine months of 2018 for restructuring related costs and antitrust settlements against the $35 million annual limit for 2017, the $25 million limit for 2018 and the $150 million aggregate limit that was available under the terms of the senior credit facility.

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~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~


~~(8)~~	~~Environmental Matters, Legal Proceedings and Product Warranties~~

We are involved in environmental remediation matters, legal proceedings, claims (including warranty claims) and investigations. These matters are typically incidental to the conduct of our business and create the potential for contingent losses. We accrue for contingent losses when our review of available facts indicates that it is probable a loss has been incurred and the amount of the loss is reasonably estimable. Each quarter we assess our loss contingencies based upon currently available facts, existing technology, presently enacted laws and regulations and taking into consideration the likely effects of inflation and other societal and economic factors and record adjustments to these reserves as required. As an example, we consider all available evidence, including prior experience in remediation of contaminated sites, other companies’ cleanup experiences and data released by the U.S. Environmental Protection Agency or other organizations when we evaluate our environmental remediation contingencies. All of our loss contingency estimates are subject to revision in future periods based on actual costs or new information. With respect to our environmental liabilities, where future cash flows are fixed or reliably determinable, we have discounted those liabilities. We evaluate recoveries separately from the liability and, when they are assured, recoveries are recorded and reported separately from the associated liability in our consolidated financial statements.

Environmental Matters

~~We are~~The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which ~~we operate. We expense~~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 ~~capitalize,~~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.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The Company expenses or capitalizes, as appropriate, expenditures for ongoing compliance with environmental regulations. As of September 30, ~~2018, we have~~2019, the Company has an obligation to remediate or contribute towards the remediation of certain sites, including ~~one Federal Superfund site. Our~~the sites discussed above at which it may be a PRP.

The Company maintains the aggregated estimated share of environmental remediation costs for all these sites on a discounted basis ~~was approximately $17 million at September 30, 2018, of which $3 million is recorded~~ in ~~other current liabilities and $14 million is recorded in deferred credits and other liabilities in our~~the condensed consolidated balance ~~sheet.~~ sheets as follows:



	September 30, 2019		December 31, 2018
Accrued expenses and other current liabilities	$	8	$	12
Deferred credits and other liabilities	29		28
	$	37	$	40

For those locations where the liability was discounted, the ~~weighted-average~~weighted average discount rate used was ~~2.6 percent.~~ 1.3% and 2.9% at September 30, 2019 and December 31, 2018.

The ~~undiscounted value of the estimated remediation costs was $21 million. Our~~Company's expected payments of environmental remediation costs for non-indemnified locations are estimated to be ~~approximately $2 million in 2018, $3 million in 2019, $1 million each year beginning 2020 through 2022 and $13 million in aggregate thereafter.~~approximately:



	2019		2020		2021		2022		2023		2024 and thereafter
Expected payments	$	5	$	5	$	3	$	3	$	2	$	17

Based on information known to ~~us, we have~~the Company from site investigations and the professional judgment of consultants, the Company has established reserves ~~that we believe~~it believes are adequate for these costs. Although ~~we believe~~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, ~~we expect that~~the Company expects other parties will contribute to the remediation costs. In addition, certain environmental statutes provide ~~that our~~the Company's liability could be joint and several, meaning ~~that we~~the Company could be required to pay amounts in excess of ~~our~~its share of remediation costs. ~~Our understanding of the~~The financial strength of the other ~~potentially responsible parties~~PRPs at these sites has been considered, where appropriate, in ~~our~~the determination of ~~our~~the estimated liability. ~~We do~~The Company does not believe ~~that~~ any potential costs associated with ~~our~~its current status as a ~~potentially responsible party in the Federal Superfund site,~~PRP, or as a liable party at the other locations referenced herein, will be material to ~~our~~its annual consolidated financial position, results of operations, or liquidity.

Asset Retirement Obligations

The Company’s primary asset retirement obligations ("ARO") activities relate to the removal of hazardous building materials at its facilities. The Company records an ARO at fair value upon initial recognition when the amount is probable and can be reasonably estimated. ARO fair values are determined based on the Company’s determination of what a third party would charge to perform the remediation activities, generally using a present value technique.

The Company maintains ARO liabilities in the condensed consolidated balance sheets as follows:



	September 30, 2019		December 31, 2018
Accrued expenses and other current liabilities	$	3	$	3
Deferred credits and other liabilities	12		12
	$	15	$	15

Antitrust Investigations and Litigation

On March 25, 2014, representatives of the European Commission (EC) were at Tenneco GmbH's Edenkoben, Germany administrative facility to gather information in connection with an ongoing global antitrust investigation concerning multiple automotive suppliers. On ~~March 25, 2014, we~~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 us conditional leniency to the Company, its subsidiaries, and its 50% affiliates as of such

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

date ("2014 Tenneco Entities") pursuant to an agreement wethe Company entered into under the Antitrust Division's Corporate Leniency Policy. This agreement provides ~~us with~~ important benefits to the 2014 Tenneco Entities in exchange for ~~our~~the Company's self-reporting of matters to the DOJ and ~~our~~its continuing full cooperation with the DOJ's resulting investigation. For example, the DOJ will not bring any criminal antitrust prosecution against ~~us,~~the 2014 Tenneco Entities, nor seek any criminal fines or penalties, in connection with the matters wethe Company reported to the DOJ. Additionally, there are limits on ~~our~~the liability of the 2014 Tenneco Entities related to any follow-on civil antitrust litigation in the ~~U.S.~~United States. The limits include single rather than treble damages, as well as relief from joint and several antitrust liability with other relevant civil antitrust action defendants. These limits are subject to ~~our~~the Company satisfying the DOJ and any court presiding over such follow-on civil litigation.

On April 27, 2017, the Company received notification from the ~~European Commission (EC)~~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. We have~~Company and its subsidiaries, including Federal-Mogul. The Company has cooperated and ~~continue~~continues to cooperate fully with all of these antitrust investigations and take other actions to minimize ~~our~~its potential exposure.

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~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~

The Company and certain of its competitors are also currently defendants in civil putative class action litigation and are subject to similar claims filed by other plaintiffs, in the United States and Canada. More related lawsuits may be filed, including in other jurisdictions. Plaintiffs in these cases generally allege that defendants have engaged in anticompetitive conduct, in violation of federal and state laws, relating to the sale of automotive exhaust systems or components thereof. Plaintiffs seek to recover, on behalf of themselves and various purported classes of purchasers, injunctive relief, damages and attorneys’ fees. However, as explained above, because ~~we received~~the DOJ granted conditional leniency ~~from~~to the ~~DOJ, our~~2014 Tenneco Entities, the Company's civil liability in U.S. follow-on actions with respect to these entities is limited to single damages and wethe Company will not be jointly and severally liable with the other defendants, provided that ~~we have~~the Company has satisfied ~~our~~its obligations under the DOJ leniency agreement and approval is granted by the presiding court. Typically, exposure for follow-on actions in Canada is less than the exposure for U.S. follow-on actions.

Following the ~~EC’s~~EC's decision to administratively close its antitrust inquiry into exhaust systems in 2017, receipt by the ~~Company’s receipt~~2014 Tenneco Entities of conditional leniency from the DOJ ~~in 2014~~ and discussions during the third quarter of 2017 following the appointment of a special settlement master in the civil putative class action cases pending against the Company and/or certain of its competitors in the ~~U.S.,~~United States, the Company continues to vigorously defend itself and/or take actions to minimize its potential exposure to matters pertaining to the global antitrust investigation, including engaging in settlement discussions when it is in the best interests of the Company and its stockholders. For example, in October 2017, the Company settled an administrative action brought by Brazil's competition authority for an amount that was not material. In December 2018, the Company settled a separate administrative action brought by Brazil’s competition authority against a Federal-Mogul subsidiary, also for an amount that was not material.

Additionally, in February 2018, the Company settled civil putative class action litigation in the United States brought by classes of direct purchasers, end-payors and auto dealers. No other classes of plaintiffs have brought claims against the Company in the United States. Based upon those earlier developments, including settlement discussions, the Company established a reserve of $132 million in its second quarter 2017 financial results for settlement costs that were probable, reasonably estimable, and expected to be necessary to resolve ~~the Company’s~~its antitrust matters globally, which primarily involves the resolution of civil suits and related claims. Of the $132 million reserve that was established, ~~$64~~$79 million ~~has been~~was paid through September 30, ~~2018 resulting~~2019. In connection with the resolution of certain claims, $9 million was released from the reserve in ~~a remaining~~the third quarter of 2019 and the Company expects to pay $30 million in the first quarter of 2020 from amounts that were included in the reserve. The reserve of ~~$68~~$44 million as of September 30, ~~2018, which~~2019 is recorded in accrued expenses and other current ~~liabilities.~~liabilities in the Company's condensed consolidated balance sheets. While the Company, including its Federal-Mogul subsidiaries, continues to cooperate with certain competition agencies investigating possible violations of antitrust laws relating to products supplied by the Company, and the Company may be subject to other civil lawsuits and/or related claims, no amount of this reserve is attributable to matters with the DOJ or the EC, and no such amount is expected based on current information.

~~Our~~

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~~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

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

incentives of adverse parties or regulatory authorities, and other factors outside of ~~the control of the Company.~~its control. As a result, the ~~Company’s~~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, ~~we do~~the Company does not expect ~~that~~ any such change in the reserve will have a material adverse ~~impact~~effect on ~~our~~the Company's annual consolidated financial position, results of operations or liquidity.

Other Legal Proceedings, Claims and Investigations

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

With respect to the claims ~~have been asserted against one of our subsidiaries by railroad workers alleging exposure to asbestos products~~filed in ~~railroad cars. The~~the United States, the substantial majority of the ~~remaining~~ claims are related to alleged exposure to asbestos in ~~our~~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. ~~We believe,~~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 ~~our~~the Company's former products and that, in any event, they would not be at increased risk of asbestos-related disease based on their work with these products. Further, many of these cases involve numerous ~~defendants, with the number in some cases exceeding 100 defendants from a variety of industries.~~defendants. Additionally, in many cases the plaintiffs either do not specify any, or specify the jurisdictional minimum, dollar amount for damages.

With respect to the claims filed in Europe, the substantial majority relate to occupational exposure claims brought by current and former employees of Federal-Mogul facilities in France and amounts paid out were not material. A small number of occupational exposure claims have also been asserted against Federal-Mogul entities in Italy and Spain.

As major asbestos manufacturers and/or users continue to go out of business or file for bankruptcy, wethe Company may experience an increased number of these claims. WeThe Company vigorously ~~defend ourselves~~defends itself against these claims as part of ~~our~~its ordinary course of business. In future periods, wethe Company could be subject to cash costs or charges to earnings if any of these matters are resolved unfavorably to ~~us.~~the Company. To date, with respect to claims that have proceeded sufficiently through the judicial process, ~~we have~~the Company has regularly achieved favorable resolutions. Accordingly, wethe Company presently ~~believe~~believes that these asbestos-related claims will not have a material adverse ~~impact~~effect on ~~our future~~the Company's annual consolidated financial position, results of operations or liquidity.

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~~TENNECO INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)~~

~~(Unaudited)~~

~~We are~~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 usthe Company relating to environmental liabilities (including toxic tort, property damage and remediation), intellectual property matters (including patent, trademark and copyright infringement, and licensing disputes), personal injury claims (including injuries due to product failure, design or warning issues, and other product liability related matters), taxes, unclaimed property, employment matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures. Additionally, some of these matters involve allegations relating to legal compliance.

While wethe Company vigorously ~~defend ourselves~~defends itself against all of these legal proceedings, claims and investigations and take other actions to minimize ~~our~~its potential exposure, in future periods, wethe 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 ~~our~~the Company's assessment of the merits of the particular claim, except as described above under "Antitrust ~~Investigations"~~Investigations and Litigation", ~~we do not~~the Company does expect the legal proceedings, claims or investigations currently pending against usit will have any material adverse ~~impact~~effect on ~~our~~its annual consolidated financial position, results of operations or liquidity.

~~Warranty Matters~~Accounting Standards Issued But Not Yet Adopted

~~We provide warranties~~Intangibles— In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for interim and annual periods for the Company beginning on ~~some~~January 1, 2020, with early adoption permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of ~~our products.~~adoption. The ~~warranty terms vary~~Company is currently evaluating the potential effect of this new guidance on its financial statements.

Retirement benefits — In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The 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 with early adoption permitted. The Company is currently evaluating the potential effect of this new guidance on its financial statements and will include the enhanced disclosures in the consolidated financial statements upon adoption.

Fair value measurements — In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU while delaying adoption of the additional disclosures until their effective date. The Company is currently evaluating the potential effect of this new guidance on its financial statements but ~~range from~~does not expect this guidance to have a material effect on its consolidated financial statements.

3. Acquisitions and Divestitures

The preliminary allocation of the purchase price of the assets acquired and liabilities assumed, including the residual amount recognized as goodwill, is based upon estimated information and is subject to change within the measurement period. The measurement period is a period not to exceed one year up to limited lifetime warranties on some of our premium aftermarket products. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified with our products. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. We actively study trends of our warranty claims and take action to improve product quality and minimize warranty claims. We believe that the warranty reserve is appropriate; however, actual claims incurred could differ from the ~~original estimates, requiring~~acquisition date during which the Company may adjust estimated or provisional amounts recorded during purchase accounting if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. Any adjustments to ~~the reserve. The reserve is~~amounts recorded in purchase accounting that do not qualify as measurement period adjustments are included in ~~both current and long-term liabilities on the condensed consolidated balance sheets.~~

~~Below is a table that shows the activity~~earnings in the ~~warranty accrual accounts:~~period identified.

Nine Months Ended
September 30,
2018 2017
(Millions)
Beginning Balance January 1, $ 26
$ 20
Accruals related to product warranties 13
13
Reductions for payments made (11 ) (8 )
Ending Balance September 30, $ 28
$ 25
The fair values of the assets acquired and liabilities assumed are based on preliminary estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

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TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)


~~(9)~~	~~Earnings Per Share~~

~~Earnings per share~~While the Company believes these preliminary estimates provide a reasonable basis for estimating the fair value of ~~common stock outstanding were computed as follows:~~the assets acquired and liabilities assumed, it will continue to evaluate available information prior to finalization of the amounts.

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
(Millions Except Share and Per Share Amounts)
Basic earnings per share —
Net income attributable to Tenneco Inc. $ 54
$ 83
$ 162
$ 139
Weighted average shares of common stock outstanding 51,272,618
52,508,078
51,247,664
53,265,149
Earnings per share of common stock $ 1.05
$ 1.57
$ 3.17
$ 2.61
Diluted earnings per share —
Net income attributable to Tenneco Inc. $ 54
$ 83
$ 162
$ 139
Weighted average shares of common stock outstanding 51,272,618
52,508,078
51,247,664
53,265,149
Effect of dilutive securities:
Restricted stock, PSUs and RSUs
93,956
89,666
95,022
106,320
Stock options 35,255
89,912
53,241
130,395
Weighted average shares of common stock outstanding including dilutive securities 51,401,829
52,687,656
51,395,927
53,501,864
Earnings per share of common stock $ 1.05
$ 1.57
$ 3.16
$ 2.60
Öhlins Intressenter AB Acquisition

The purchase price for the 90.5% ownership interest in Öhlins was $162 million. The remaining 9.5% ownership interest in Öhlins (the “KÖ Interest”) was retained by K Öhlin Holding AB (“Köhlin”). Köhlin has an irrevocable right at any time after the third anniversary of the Öhlins Acquisition to sell the KÖ Interest to the Company. As the redemption of this redeemable noncontrolling interest is not solely within the Company's control, the noncontrolling interest is presented in the temporary equity section of the Company's condensed consolidated balance sheets. The fair value of the KÖ Interest was $17 million and represents its current redemption value at September 30, ~~2018~~2019.

The following table summarizes the preliminary fair values of assets acquired and ~~2017,~~liabilities assumed as of the ~~outstanding options to purchase shares of common stock that were not included in~~acquisition date and the computation of diluted earnings per share because they were anti-dilutive were 124,865 and 127,359 shares for the three months ended September 30, 2018 and 2017, respectively, and 124,606 and 834 shares formeasurement period adjustments made during the nine months ended September 30, ~~2018~~2019:



	Initial Allocation		Adjustments			Revised Allocation
Cash, cash equivalents and restricted cash	$	4	$	—		$	4
Customer notes and accounts receivable	19		—			19
Inventories	31		—			31
Prepayments and other current assets	2		—			2
Property, plant, and equipment	8		—			8
Goodwill	28		2			30
Intangibles	135		(2		)	133
Other assets	9		—			9
Total assets acquired	236		—			236

Short-term debt, including current maturities of long-term debt	10		—			10
Accounts payable	11		—			11
Accrued compensation and employee benefits	12		—			12
Deferred income taxes	18		—			18
Deferred credits and other liabilities	6		—			6
Total liabilities assumed	57		—			57
Redeemable noncontrolling interest	17		—			17
Net assets acquired	$	162	$	—		$	162

The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the intangible assets, deferred income tax assets and ~~2017, respectively.~~liabilities, and redeemable noncontrolling interest.

Goodwill of $30 million was recognized as part of the acquisition and is reflected in the Ride Performance segment. During the nine months ended September 30, 2019, the Company adjusted the initial allocation of the total purchase consideration, which resulted in a $2 million increase to goodwill. The goodwill consists of the Company’s expected future economic benefits that will result from the acquisition of Öhlins’ technology, which will allow the Company to more rapidly grow its product offerings for current and future customers, as well as assist the Company in obtaining a larger share of business in developing mobility markets. None of the goodwill is deductible for tax purposes.

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TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)


~~(10)~~	~~Common Stock~~

~~Common Stock~~ ~~— As discussed in Note 2, Acquisition~~Other intangible assets acquired include the following:



	Estimated Fair Value		Weighted-Average Useful Lives
Definite-lived intangible assets:
Customer platforms and relationships	$	37	10 years
Technology rights	41		10 years
Total definite-lived intangible assets	78

Indefinite-lived intangible assets:
Trade names and trademarks	55
Total	$	133

The Company recorded a $5 million step-up of ~~Federal-Mogul, pursuant~~inventory to ~~the Amended and Restated Certificate of Incorporation, a new class of Class B Common Stock was created and the Company’s existing common stock was reclassified~~its fair value as ~~Class A Common Stock. See Note 2, Acquisition of Federal-Mogul for additional information.~~

~~Equity Plans~~ — We have granted a variety of awards, including common stock, restricted stock, restricted stock units (RSUs), performance share units (PSUs), stock appreciation rights (SARs), and stock options to our directors, officers, and employees.

~~Accounting Methods~~ — Prior to 2018, for employees eligible to retire at grant date, we immediately expensed stock options and restricted stock. In 2018, we prospectively changed our vesting policy regarding retirement eligibility and now require a retirement eligible employee (or an employee who becomes retirement eligible) to provide at least one year of service from the grant date in order for the award to vest. If an employee becomes retirement eligible after the first year of vesting but before completion of the ~~three-year term, we amortize~~acquisition date based on the ~~expense for~~preliminary valuation and recognized $5 million as a non-cash charge to cost of goods sold during the ~~share-based awards over a period starting at the grant date to the date an employee becomes retirement eligible.~~

~~Stock Options~~ ~~— There have been no stock options granted since 2014. There is no compensation expense in each of the three month periods~~nine months ended September 30, ~~2018~~2019 related to the amortization of this step-up, as the acquired inventory was sold.

Pro Forma Results

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

Acquisition of Federal-Mogul

The Company finalized the valuation of the assets and ~~2017, and~~liabilities of the Federal-Mogul Acquisition during the third quarter of 2019. During the nine ~~month periods~~months ended September 30, ~~2018. There is less than $1 million of compensation expense (net of tax) for~~2019, the ~~nine month~~Company made measurement period ended September 30, 2017 related to nonqualified stock options, which was recorded in selling, general, and administrative expense. This had no impact on basic or diluted earnings per share for the three month periods ended September 30, 2018 and 2017 and nine month period ended September 30, 2018 and a decrease of less than $0.01 in both basic and diluted earnings per share for the nine month period ended September 30, 2017.

~~As of September 30, 2018, there was no unrecognized compensation cost related to our stock option awards.~~

~~Cash received from stock option exercises for the nine month periods ended September 30, 2018 and 2017 was less than $1 million and $7 million, respectively.~~

~~Stock options exercised in the first nine months of 2018 and 2017 generated a tax benefit of less than $1 million and $2 million, respectively.~~

~~The following table reflects the status and activity for all options to purchase common stock for the period indicated:~~

Nine Months Ended September 30, 2018
Shares
Under
Option Weighted Avg.
Exercise
Prices Weighted Avg.
Remaining
Life in Years Aggregate
Intrinsic
Value
(Millions)
Outstanding Stock Options
Outstanding, January 1, 2018 318,016
$ 43.60
2.6 $ 5
Exercised (4,607 ) 26.78
—
Outstanding, March 31, 2018 313,409
43.84
2.1 4
Forfeited (2,368 ) 54.34
—
Outstanding, June 30, 2018 311,041
43.76
1.8 2
Exercised (11,420 ) 29.93
—
Outstanding, September 30, 2018 299,621
$ 44.29
2.4 $ 1

As mentioned above, there have been no stock options granted since 2014. Accordingly, no options vested during the nine month period ended September 30, 2018. The total fair value of shares vested from options that were granted prior to 2015 for the nine month period ended September 30, 2017 was $2 million.

~~Long-Term Performance Units, PSUs, RSUs and SARs~~ — Long-term performance units, RSUs granted prior to 2018 and SARs are paid in cash (cash-settled awards) and recognized as a liability based upon their fair value. PSUs and RSUs granted in 2018 onward (share-settled RSUs) are settled in shares upon vesting and recognized in equityadjustments based on ~~their fair value. As~~further evaluation of ~~September 30, 2018, $3 million~~available information to facts and circumstances that existed as of ~~total unrecognized compensation costs is expected to be recognized on~~ the ~~cash-settled awards over a weighted-average period of approximately 1.2 years.~~acquisition date.

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

Compensation expense for restricted stock, RSUs, long-term performance units, PSUs and SARs (net of tax) was $3 million and $2 million for the three month periods ended September 30, 2018 and 2017, respectively, and $7 million and $10 million for the nine month periods ended September 30, 2018 and 2017, respectively, and was recorded in selling, general, and administrative expense.

The following table ~~reflects~~summarizes the ~~status for all nonvested restricted shares, share-settled RSUs~~final fair values of assets acquired and ~~PSUs for the period indicated:~~

Restricted Shares Share-Settled RSUs PSUs
Shares Weighted Avg.
Grant Date
Fair Value Shares Weighted Avg.
Grant Date
Fair Value Shares Weighted Avg.
Grant Date
Fair Value
Nonvested balance at January 1, 2018 410,251
$ 49.95
—
$ —
—
$ —
Granted 17,440
55.05
253,257
55.02
214,348
50.75
Vested (168,409 ) 47.08
—
—
—
—
Forfeited (5,108 ) 48.68
(1,362 ) 55.04
—
—
Nonvested balance at March 31, 2018 254,174
52.23
251,895
55.02
214,348
50.75
Granted 1,573
47.97
16,995
47.17
25,957
35.64
Vested (60,434 ) 49.89
(192 ) 55.04
—
—
Forfeited (2,482 ) 57.15
(8,001 ) 55.04
(4,051 ) 50.75
Nonvested balance at June 30, 2018 192,831
53.14
260,697
54.51
236,254
49.28
Granted —
—
14,903
42.22
8,623
32.24
Vested (6,443 ) 53.31
—
—
—
—
Forfeited (1,210 ) 62.79
(6,408 ) 55.04
(5,882 ) 50.75
Nonvested balance at September 30, 2018 185,178
$ 53.07
269,192
$ 57.51
238,995
$ 48.68

~~The fair value of restricted stock grants is equal to the average~~liabilities assumed as of the ~~high and low trading price of our common stock on the date of grant. As of~~ ~~September 30, 2018~~, approximately $4 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 1.2 years. The total fair value of restricted shares vested was $11 million and $14 million at ~~September 30, 2018~~ ~~and 2017, respectively.~~

The fair value of share-settled RSU grants is equal to the average of the high and low trading price of our common stock on the date of the grant and vest ratably over a three-year period. As of September 30, 2018, approximately $10 million of total unrecognized compensation costs related to share-settled RSUs is expected to be recognized over a weighted-average period of approximately 2.4 years.

~~PSU grants are subject to service, market and performance conditions. PSU grants are valued based on the fair value of the high and low trading price of our common stock at grant~~acquisition date and at the ~~end of a three-year~~measurement period if performance measures are met. As of September 30, 2018, approximately $8 million of total unrecognized compensation costs related to PSUs is expected to be recognized over a weighted-average period of approximately 2.4 years.

~~Share Repurchase Program~~ — In January 2015, our Board of Directors approved a share repurchase program, authorizing our Company to repurchase up to $350 million of our outstanding common stock over a three year period. In October 2015, our Board of Directors expanded this share repurchase program, authorizing the repurchase of an additional $200 million of the Company's outstanding common stock.

In February 2017, our Board of Directors authorized the repurchase of up to $400 million of the Company's outstanding common stock over the next three years, inclusive of $112 million that remained authorized under earlier repurchase programs. The Company anticipates acquiring the shares through open market or privately negotiated transactions, which will be funded from cash flow from operations. The repurchase program does not obligate the Company to repurchase shares within any specific time or situations, and opportunities in higher priority areas could affect the cadence of this program. We did not repurchase any shares through this program inadjustments made during the nine months ended September 30, ~~2018. Since we announced~~2019:



	Initial Allocation		Adjustments			Final Allocation
Cash, cash equivalents and restricted cash	$	277	$	—		$	277
Customer notes and accounts receivable	1,258		(4		)	1,254
Other receivables	62		—			62
Inventories	1,551		(8		)	1,543
Prepayments and other current assets	198		—			198
Property, plant and equipment	1,711		(28		)	1,683
Long-term receivables	48		—			48
Goodwill	825		(22		)	803
Intangibles	1,530		47			1,577
Investments in nonconsolidated affiliates	528		(4		)	524
Deferred income taxes	166		30			196
Other assets	55		(5		)	50
Total assets acquired	8,209		6			8,215

Short-term debt, including current maturities of long-term debt	130		—			130
Accounts payable	957		4			961
Accrued compensation and employee benefits	231		—			231
Accrued income taxes	49		—			49
Accrued expenses and other current liabilities	522		(7		)	515
Long-term debt	1,315		—			1,315
Deferred income taxes	56		24			80
Pension and postretirement benefits	879		—			879
Deferred credits and other liabilities	124		(5		)	119
Total liabilities assumed	4,263		16			4,279
Redeemable noncontrolling interests	96		(8		)	88
Noncontrolling interests	143		(2		)	141
Net assets and noncontrolling interests acquired	$	3,707	$	—		$	3,707

Goodwill of $343 million was allocated to the ~~share repurchase program in January 2015, we have repurchased 11.3~~Powertrain segment, $395 million ~~shares~~was allocated to the Motorparts segment, and $65 million was allocated to the Ride Performance segment. The goodwill consists of the Company's expected future economic benefits that will arise from expected future product sales and synergies from combining Federal-Mogul with its existing portfolio of products. None of the goodwill is deductible for ~~$607 million through September 30, 2018.~~tax purposes.

~~Treasury shares were 14,592,888 shares at September 30, 2018 and December 31, 2017, respectively.~~

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

~~Dividends~~ ~~— On February 1, 2017,~~Other intangible assets acquired include the following:



	Estimated Fair Value		Weighted-Average Useful Lives
Definite-lived intangible assets:
Customer platforms and relationships	$	953	10 years
Technology rights	66		10 years
Packaged kits know-how	54		10 years
Catalogs	47		10 years
Licensing agreements	64		4.5 years
Land use rights	30		42.8 years
Total definite-lived intangible assets	1,214		10.5 years

Indefinite-lived intangible assets:
Trade names and trademarks	363
Total	$	1,577

The Company ~~announced the reinstatement~~recorded a $149 million step-up of ~~a quarterly dividend program under which we expect~~inventory to ~~pay quarterly dividends of $0.25 per share on our common stock, representing planned annual dividends of $1.00 per share. We paid a quarterly dividend of $0.25 per share in each~~its fair value as of the ~~first three quarters~~acquisition date. The Company recognized $44 million as a non-cash charge to cost of 2017 and 2018. Dividends declared and paid were $39 million and $40 million in the nine month periods ended September 30, 2018 and 2017, respectively. As a result of the Federal-Mogul transaction, and the resulting higher share count, the quarterly dividend payment will increase to $20 million beginning in the fourth quarter. In view of our current stock price and overall sector valuations, we will evaluate the best methodology to return this value to our shareholders. This may result in a change in the dividend and returning that capital via share buybacks in a comparable amount.


~~(11)~~	~~Pension Plans, Postretirement and Other Employee Benefits~~

~~Net periodic pension and other postretirement benefit costs consist of the following components:~~

Three Months Ended September 30,
Pension Postretirement
2018 2017 2018 2017
U.S. Foreign U.S. Foreign U.S. U.S.
(Millions)
Service cost — benefits earned during the period $ 1
$ 3
$ 1
$ 3
$ —
$ —
Interest cost (a) 3
3
2
4
2
1
Expected return on plan assets (a) (4 ) (5 ) (4 ) (4 ) —
—
Net amortization:
Actuarial loss (a) 1
2
1
1
2
2
Prior service cost (a) —
—
—
1
—
—
Net pension and postretirement costs $ 1
$ 3
$ —
$ 5
$ 4
$ 3

Nine Months Ended September 30,
Pension Postretirement
2018 2017 2018 2017
U.S. Foreign U.S. Foreign U.S. US
(Millions)
Service cost — benefits earned during the period $ 1
$ 8
$ 1
$ 7
$ —
$ —
Interest cost (a) 8
9
7
10
5
4
Expected return on plan assets (a) (11 ) (15 ) (11 ) (19 ) —
—
Settlement loss (a) —
—
6
—
—
—
Net amortization:
Actuarial loss (a) 3
6
4
6
6
5
Prior service cost (credit) (a) —
—
—
1
(1 ) (1 )
Net pension and postretirement costs $ 1
$ 8
$ 7
$ 5
$ 10
$ 8

~~(a) Recorded in other expense, net.~~

~~For~~goods sold during the nine months ended September 30, ~~2018, we made pension contributions~~2019 related to the amortization of $1this step-up, as the acquired inventory was sold. The Company recognized $105 million as a non-cash charge to cost of goods sold during the year ended December 31, 2018. As of September 30, 2019, there is no remaining inventory step-up to be amortized.

In addition, the Company acquired $81 million in redeemable noncontrolling interests related to a subsidiary from the Federal-Mogul Acquisition. The Company initiated the process to make a tender offer for the shares it does not own due to the change in control in accordance with local regulations triggered by the acquisition. It is probable these shares will become redeemable within the next year under the tender offer at a price that is representative of fair value and as a result, the noncontrolling interest is presented in the temporary equity section of the Company’s condensed consolidated balance sheets. The carrying amount for this redeemable noncontrolling interest represents its current redemption value at September 30, 2019.

The Company's condensed consolidated statements of income (loss) for the nine months ended September 30, 2019 included net sales and operating revenues of $5,537 million and $9net loss of $34 million ~~for our domestic~~associated with the operating results of Federal-Mogul.

Pro Forma Results

The following table summarizes, on a pro forma basis, the combined results of operations of the Company and ~~foreign pension plans, respectively. Based~~the Federal-Mogul Acquisition, and the related financing, if the transaction had occurred as of January 1, 2017. The pro forma results are not necessarily indicative of either the actual consolidated results had the Federal-Mogul Acquisition occurred on ~~current actuarial~~January 1, 2017 or of future consolidated operating results.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net sales and operating revenues	$	4,319	$	4,283	$	13,307	$	13,581
Earnings (loss) before income taxes and noncontrolling interests	$	168	$	287	$	369	$	745
Net income (loss) attributable to Tenneco Inc.	$	84	$	142	$	57	$	313
Basic earnings (loss) per share of common stock	$	1.03	$	1.75	$	0.70	$	3.88
Diluted earnings (loss) per share of common stock	$	1.03	$	1.75	$	0.70	$	3.87

These pro forma amounts have been calculated after applying the Company's accounting policies and the results presented above primarily reflect: (i) depreciation adjustments relating to fair value adjustments to property, plant, and equipment; (ii) amortization adjustments relating to fair value estimates ~~we believe we will be required to contribute approximately $5 million for the remainder~~ of 2018 for domestic and foreign plans. Pension contributions beyond 2018 will be required, but those amounts will vary based upon many factors including, for example, the performance of our pension fund investments during 2018.intangible assets; (iii) incremental interest expense, net on assumed

We made postretirement contributions of approximately $6 million during the first nine months of 2018. Based on current actuarial estimates, we believe we will be required to contribute approximately $3 million for the remainder of 2018.

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

indebtedness, the new credit facility, debt issuance costs, and fair value adjustments to debt; and (iv) cost of goods sold adjustments relating to fair value adjustments to inventory. Pro forma adjustments described above have been tax affected using the Company's effective rate during the respective periods.

Assets Held for Sale

On March 1, 2019, the Company sold its wipers business in the Motorparts segment for a sale price of $29 million, subject to adjustment based on terms of the sale agreement. Proceeds from the sale were $22 million, subject to customary working capital adjustments. Certain assets and liabilities of the business are still classified as held for sale within the condensed consolidated balance sheet as of September 30, 2019 and were transferred to the buyer on October 1, 2019.

In ~~February 2016,~~August 2019, the Company ~~launched~~executed a ~~voluntary program~~letter of intent to ~~buy out active employees and retirees who had earned benefits~~sell a non-core business in the ~~U.S. pension plans. This program was completed~~Motorparts segment for a sale price of $24 million, subject to adjustment, as the Company continues to rationalize its product portfolio and ~~all cash payments~~focus on core product lines. As of September 30, 2019, proceeds from the sale would have been $24 million. The related assets and liabilities were ~~made from pension plan assets to those who elected to take the buyout~~classified as held for sale as of ~~June~~September 30, ~~2017. In connection with this program,~~2019. The transaction is expected to close within the ~~Company contributed $10 million into the pension trust~~next year.

The related assets and ~~recognized a non-cash settlement loss~~liabilities were classified as held for sale as of ~~$6 million~~September 30, 2019 and December 31, 2018:



	September 30, 2019			December 31, 2018
Assets
Receivables	$	8		$	—
Inventories	7			33
Other current assets	3			5
Long-lived assets	16			23
Goodwill	4			—
Impairment on carrying value	(8		)	—
Total assets held for sale	$	30		$	61
Liabilities
Accounts payable	$	4		$	21
Accrued liabilities	—			7
Other liabilities	1			11
Total liabilities held for sale	$	5		$	39

The assets and liabilities held for sale are recorded in “Prepayments and other current assets” and “Accrued expenses and other current liabilities” in the ~~first quarter~~consolidated balance sheets as of ~~2017.~~

The assets of some of our pension plans are invested in trusts that permit commingling of the assets of more than one employee benefit plan for investment and administrative purposes. Each of the plans participating in the trust has interests in the net assets of the underlying investment pools of the trusts. The investments for all our pension plans are recorded at estimated fair value, in compliance with the accounting guidance on fair value measurement.

~~Amounts recognized for pension and postretirement benefits in other comprehensive income for the three and nine months ended~~ September 30, ~~2018~~2019 and ~~2017 include the following components:~~December 31, 2018.

Three Months Ended September 30,
2018 2017
Before-Tax
Amount Tax
Benefit Net-of-Tax
Amount Before-Tax
Amount Tax
Benefit Net-of-Tax
Amount
(Millions)
Defined benefit pension and postretirement plans:
Amortization of prior service cost included in net periodic pension and postretirement costs $ —
$ —
$ —
$ 1
$ —
$ 1
Amortization of actuarial loss included in net periodic pension and postretirement costs 5
(1 ) 4
4
(2 ) 2
Other comprehensive income – pension benefits $ 5
$ (1 ) $ 4
$ 5
$ (2 ) $ 3

Nine Months Ended September 30,
2018 2017
Before-Tax
Amount Tax
Benefit Net-of-Tax
Amount Before-Tax
Amount Tax
Benefit Net-of-Tax
Amount
(Millions)
Defined benefit pension and postretirement plans:
Amortization of prior service credit included in net periodic pension and postretirement costs $ (1 ) $ —
$ (1 ) $ —
$ —
$ —
Amortization of actuarial loss included in net periodic pension and postretirement costs 15
(3 ) 12
15
(5 ) 10
Settlement charge —
—
—
6
(2 ) 4
Other comprehensive income – pension benefits $ 14
$ (3 ) $ 11
$ 21
$ (7 ) $ 14

4. Restructuring Charges, Asset Impairments, and Other, Net

~~Table~~

Restructuring and Other Charges

The Company's restructuring activities are undertaken as necessary to execute management's strategy and streamline operations, consolidate and take advantage of ~~Contents~~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), facility closure and exit costs, and other.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)


~~(12)~~	~~New Accounting Pronouncements~~

~~Adoption of New Accounting Standards~~

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new guidance improved the presentation of net periodic pension and postretirement benefit costs. We retrospectively adopted this standard in the first quarter of 2018. We recorded other pension and postretirement costs of $4 million and $10 million in other expense, net forFor the three and nine ~~month periods~~months ended September 30, 2019 and 2018, ~~respectively. Prior to adoption, this amount would have been recorded in selling, general,~~restructuring charges, asset impairments, and ~~administrative expenses and cost of sales in the condensed consolidated statements of income. Prior year net pension and postretirement costs of $3 million and $10 million for~~other by segment are as follows:



	Three Months Ended September 30, 2019
	Clean Air		Powertrain		Ride Performance⁽¹⁾		Motorparts		Corporate		Total
Severance and other charges, net	$	6	$	11	$	15	$	2	$	1	$	35
Impairment of assets held for sale	—		—		—		8		—		8
Total restructuring charges, asset impairments, and other	$	6	$	11	$	15	$	10	$	1	$	43
⁽¹⁾ The Ride Performance segment includes $10 million of other charges for the three months ended September 30, 2019.



	Three Months Ended September 30, 2018
	Clean Air		Powertrain		Ride Performance		Motorparts		Corporate		Total
Severance and other charges, net	$	1	$	—	$	10	$	2	$	1	$	14
Other non-restructuring asset impairments	—		—		—		—		2		2
Total restructuring charges, asset impairments, and other	$	1	$	—	$	10	$	2	$	3	$	16



	Nine Months Ended September 30, 2019
	Clean Air		Powertrain		Ride Performance⁽²⁾		Motorparts		Corporate		Total
Severance and other charges, net	$	25	$	29	$	50	$	12	$	2	$	118

Other non-restructuring asset impairments	1		—		—		1		—		2
Impairment of assets held for sale	—		—		—		8		—		8
Total asset impairment charges	1		—		—		9		—		10
Total restructuring charges, asset impairments, and other	$	26	$	29	$	50	$	21	$	2	$	128
⁽¹⁾ The Ride Performance segment includes $8 million, $20 million, and $30 million of other charges for the three months ended March 31, 2019, six months ended June 30, and for the nine months ended September 30, 2019.



	Nine Months Ended September 30, 2018
	Clean Air		Powertrain		Ride Performance		Motorparts		Corporate		Total
Severance and other charges, net	$	19	$	—	$	27	$	6	$	3	$	55

Other non-restructuring asset impairments	—		—		—		—		2		2
Total restructuring charges, asset impairments, and other	$	19	$	—	$	27	$	6	$	5	$	57

During the three and nine ~~month periods~~months ended September 30, ~~2017, respectively, have been reclassified from selling, general,~~2019, the Company incurred $3 million and ~~administrative expenses~~$12 million in restructuring and ~~cost of sales to other expense, net to conform to the current year presentation. Of the $10~~related costs and reduced previously recorded estimates by $1 million ~~adjustment for the nine month period ended September 30, 2017, $6~~and $3 million ~~was a non-cash charge~~ related to a ~~voluntary program~~restructuring plan designed to ~~buy out active employees and retirees who had earned benefits in the U.S. pension plans.~~

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230) to eliminate diversity in practice in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. We retrospectively adopted this standard in the first quarter of 2018 with no material impact. Prior year amounts have been reclassified to conform to current year presentation.

~~In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra Entity Transfers of Assets Other Than Inventory (Topic 740). The standard changed the accounting for income taxes when~~achieve a company transfers certain tangible and intangible assets, such as equipment or intellectual property, between entities in different tax jurisdictions. The standard did not change the current accounting for the income taxes related to transfers of inventory. We adopted this standard on January 1, 2018 using the modified retrospective method. The cumulative effectportion of the ~~adoption was recognized as an increase to accumulated deficit of $2 million.~~

~~In August 2016,~~synergies the ~~FASB issued ASU 2016-15, Statement of Cash Flows - Classification of certain cash receipts and cash payments (Topic 230). This update addressed eight specific cash flow issues~~Company anticipates achieving in connection with the ~~objective of reducing~~Federal-Mogul Acquisition. Pursuant to the ~~diversity~~plan, the Company will reduce its headcount globally across all segments. The Company began implementing headcount reductions in ~~practice. We retrospectively adopted this standard~~January 2019 and these actions will continue throughout 2019. The Federal-Mogul Acquisition is discussed further in ~~the first quarter of 2018. We recorded $36 million~~Note 3, Acquisitions and ~~$102 million as an investing activity in the condensed consolidated statements of cash flows for the cash we received to settle the deferred purchase price of factored receivables for~~Divestitures. During the three and nine ~~month periods~~months ended September 30, ~~2018, respectively. Prior to adoption, this amount would have been recorded as an operating activity. Prior period amounts of $28~~2019, the Company also incurred $15 million and ~~$77~~$43 million ~~for~~in restructuring and other costs related to plant relocation and closures within its Ride Performance segment. The Company expects the ~~three and nine month periods ended September 30, 2017, respectively, have been reclassified from operating to investing activities to conform to the current year presentation.~~

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), an amendment on revenue recognition. The amendment in this update created Topic 606, Revenue from Contracts with Customers, and superseded the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the industry topics of the codification. In addition, the amendment superseded the cost guidance in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts, and created a new Subtopic 340-40, Other Assets and Deferred Costs-Contracts with Customers. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsactions to be ~~entitled in exchange for those goods or services. We adopted Topic 606 on January 1, 2018, using~~completed by the ~~modified retrospective method. The cumulative effect~~second quarter of ~~the adoption was recognized as a decrease to accumulated deficit of $1 million on January 1, 2018. Please refer to Note 15, Revenue for further discussion of the adoption of this standard.~~2020.

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

During the three and nine months September 30, 2018, the Company incurred $8 million and $22 million in restructuring and other costs related to the accelerated move of the Beijing Ride Performance plant.

Restructuring Reserve Rollforward

Amounts related to activities that were charges to restructuring reserves, including costs incurred to support future structural cost reductions, by reportable segments are as follows:



	Reportable Segments
	Clean Air			Powertrain			Ride Performance⁽¹⁾			Motorparts			Total Reportable Segments			Corporate			Total
Balance as of December 31, 2018	$	17		$	15		$	25		$	43		$	100		$	3		$	103
Provisions	5			1			13			4			23			1			24
Payments	(6		)	(3		)	(13		)	(14		)	(36		)	(2		)	(38		)
Balance as of March 31, 2019	16			13			25			33			87			2			89
Provisions	14			17			22			8			61			—			61
Revisions to estimates	—			—			—			(2		)	(2		)	—			(2		)
Payments	(2		)	(4		)	(19		)	(7		)	(32		)	(1		)	(33		)
Balance as of June 30, 2019	28			26			28			32			114			1			115
Provisions	6			11			15			4			36			1			37
Revisions to estimates	—			—			—			(2		)	(2		)	—			(2		)
Payments	(7		)	(4		)	(19		)	(13		)	(43		)	(2		)	(45		)
Foreign currency	(1		)	—			—			—			(1		)	—			(1		)
Balance as of September 30, 2019	$	26		$	33		$	24		$	21		$	104		$	—		$	104
⁽¹⁾The Ride Performance segment includes $8 million, $12 million, and $10 million of other charges and payments in each of the three months ended March 31, 2019, June 30, 2019, and September 30, 2019.



	Reportable Segments
	Clean Air			Powertrain		Ride Performance			Motorparts			Total Reportable Segments			Corporate			Total
Balance as of December 31, 2017	$	14		$	—	$	7		$	4		$	25		$	—		$	25
Provisions	1			—		8			3			12			—			12
Payments	(5		)	—		(9		)	(2		)	(16		)	—			(16		)
Balance as of March 31, 2018	10			—		6			5			21			—			21
Provisions	17			—		9			1			27			2			29
Payments	(3		)	—		(10		)	(2		)	(15		)	—			(15		)
Balance as of June 30, 2018	24			—		5			4			33			2			35
Provisions	1			—		10			2			13			1			14
Payments	(2		)	—		(7		)	(5		)	(14		)	(2		)	(16		)
Foreign currency	(1		)	—		—			—			(1		)	—			(1		)
Balance as of September 30, 2018	$	22		$	—	$	8		$	1		$	31		$	1		$	32

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

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



	Employee Costs			Facility Closure and Other Costs⁽¹⁾			Total
Balance as of December 31, 2018	$	98		$	5		$	103
Provisions	11			13			24
Payments	(25		)	(13		)	(38		)
Balance as of March 31, 2019	84			5			89
Provisions	44			17			61
Revisions to estimates	(2		)	—			(2		)
Payments	(16		)	(17		)	(33		)
Balance as of June 30, 2019	110			5			115
Provisions	22			15			37
Revisions to estimates	(2		)	—			(2		)
Payments	(29		)	(16		)	(45		)
Foreign currency	(1		)	—			(1		)
Balance as of September 30, 2019	$	100		$	4		$	104
⁽¹⁾Facility closure and other costs includes $8 million, $12 million, and $10 million of other charges and payments in each of the three months ended March 31, 2019, June 30, 2019, and September 30, 2019 related to the Ride Performance segment.



	Employee Costs			Facility Closure and Other Costs			Total
Balance as of December 31, 2017	$	19		$	6		$	25
Provisions	10			2			12
Payments	(13		)	(3		)	(16		)
Balance as of March 31, 2018	16			5			21
Provisions	26			3			29
Payments	(12		)	(3		)	(15		)
Balance as of June 30, 2018	30			5			35
Provisions	2			12			14
Payments	(4		)	(12		)	(16		)
Foreign currency	(1		)	—			(1		)
Balance as of September 30, 2018	$	27		$	5		$	32

5. Inventories

At September 30, 2019 and December 31, 2018, inventory consists of the following:



	September 30, 2019		December 31, 2018
Finished goods	$	1,078	$	1,116
Work in process	519		562
Raw materials	440		457
Materials and supplies	100		110
	$	2,137	$	2,245

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

6. Goodwill and Other Intangible Assets

At September 30, 2019 and December 31, 2018, goodwill consists of the following:



	Nine Months Ended September 30, 2019
	Clean Air			Powertrain			Ride Performance			Motorparts			Total
Gross carrying amount at December 31, 2018	$	22		$	388		$	210		$	611		$	1,231
Measurement period adjustments	—			21			—			(67		)	(46		)
Acquisitions	—			—			28			—			28
Gross carrying amount at March 31, 2019	22			409			238			544			1,213
Measurement period adjustments	—			3			2			3			8
Gross carrying amount at June 30, 2019	22			412			240			547			1,221
Measurement period adjustments	—			(69		)	10			77			18
Reclassification to assets held for sale	—			—			—			(4		)	(4		)
Foreign exchange	(1		)	—			(1		)	(1		)	(3		)
Gross carrying amount at September 30, 2019	21			343			249			619			1,232

Accumulated impairment loss at December 31, 2018	—			—			(143		)	(219		)	(362		)
Impairment	—			—			(60		)	—			(60		)
Accumulated impairment loss at March 31, 2019	—			—			(203		)	(219		)	(422		)
Impairment	—			—			—			—			—
Accumulated impairment loss at June 30, 2019	—			—			(203		)	(219		)	(422		)
Impairment	—			—			(9		)	—			(9		)
Foreign Exchange	—			—			1			—			1
Accumulated impairment loss at September 30, 2019	—			—			(211		)	(219		)	(430		)

Net carrying value at end of period	$	21		$	343		$	38		$	400		$	802

The Öhlins Acquisition resulted in $30 million of goodwill which was included in the Ride Performance segment. During the nine months ended September 30, 2019, the Company made the following adjustments to goodwill in the measurement period to the preliminary purchase price allocation for the Acquisitions:

an increase of $2 million for the Öhlins Acquisition; and

a net decrease of $22 million for the Federal-Mogul Acquisition.

The purchase price allocation for the Öhlins Acquisition is preliminary and subject to finalization. The Company's current estimates and assumptions may change as a result. See Note 3, Acquisitions and Divestitures for additional information.

During the first quarter of 2019, the Company reorganized the reporting structure of its Aftermarket, Ride Performance, and Motorparts segments and the underlying reporting units within those segments. The Company reassigned assets and liabilities (excluding goodwill) to the reporting units affected. Goodwill was then reassigned to the reporting units using a relative fair value approach based on the fair value of the elements transferred and the fair value of the elements remaining within the original reporting units. The Company tested goodwill for impairment on a pre-reorganization basis and determined there was no impairment for the affected reporting units. The Company also performed an impairment analysis on a post-reorganization basis and determined $60 million of goodwill was impaired for 2 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 first quarter of 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

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

impaired for 1 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 charge 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.

During the three months ended September 30, 2019, the Company performed a review of potential triggering events, and concluded no events indicated it was more likely than not that the fair values of its reporting units had declined to below their carrying values at September 30, 2019. The Company considered the results of the post-reorganized reporting unit changes that occurred in the first quarter of 2019, which indicated 9 reporting units with goodwill. Management compared its future projected cash flows as of September 30, 2019 to the future projected cash flows utilized in the valuation performed during the first quarter of 2019 and concluded there is no indication the carrying value of its reporting units would be less than their fair values.

If the Company’s market capitalization remains at current levels for a sustained period of time or declines further, and if such a decline becomes indicative the fair value of its reporting units have declined to below their carrying values, the Company will need to determine the fair value of its reporting units which may result in a material non-cash goodwill impairment charge in a future period.

At September 30, 2019 and December 31, 2018, the Company's intangible assets consist of the following:



		September 30, 2019							December 31, 2018
	Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Definite-lived intangible assets:
Customer relationships and platforms	10 years	$	985	$	(98	)	$	887	$	964	$	(24	)	$	940
Customer contract	10 years	8		(6		)	2		8		(5		)	3
Patents	10 to 17 years	1		(1		)	—		1		(1		)	—
Technology rights	10 to 30 years	131		(34		)	97		98		(27		)	71
Packaged kits know-how	10 years	54		(5		)	49		36		(1		)	35
Catalogs	10 years	47		(5		)	42		—		—			—
Licensing agreements	3 to 5 years	62		(14		)	48		66		(3		)	63
Land use rights	28 to 46 years	45		(3		)	42		44		(2		)	42
		1,333		(166		)	1,167		1,217		(63		)	1,154
Indefinite-lived intangible assets:
Trade names and trademarks		411		—			411		365		—			365
Total		$	1,744	$	(166	)	$	1,578	$	1,582	$	(63	)	$	1,519

The Company recorded definite-lived and indefinite-lived intangible assets of $133 million as a result of the Öhlins Acquisition. During the nine months ended September 30, 2019, the Company made the following adjustments to definite-lived and indefinite-lived intangible assets in the measurement period to the preliminary purchase price allocation for the Acquisitions:

a decrease of $2 million was recognized for the Öhlins Acquisition; and

a net increase of $47 million was recognized for the Federal-Mogul Acquisition.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Amortization expense	$	33	$	—	$	101	$	1

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

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



	2019		2020		2021		2022		2023		2024 and thereafter		Total
Expected amortization expense	$	33	$	131	$	130	$	126	$	126	$	621	$	1,167

7. Investment in Nonconsolidated Affiliates

The Company has investments in several nonconsolidated affiliates, which are primarily located in China, Korea, Turkey, and the U.S. The Company generally equates control to ownership percentage whereby investments more than 50% owned are consolidated.

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



	September 30, 2019		December 31, 2018
Anqing TP Goetze Piston Ring Company Limited (China)	35.7	%	35.7	%
Anqing TP Powder Metallurgy Co., Ltd (China)	20.0	%	20.0	%
Dongsuh Federal-Mogul Industrial Co. Ltd. (Korea)	50.0	%	50.0	%
Farloc Argentina SAIC Y F (Argentina)	23.9	%	23.9	%
Federal-Mogul Powertrain Otomotiv A.S. (Turkey)	50.0	%	50.0	%
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti. (Turkey)	25.0	%	25.0	%
Federal-Mogul TP Liners, Inc. (USA)	46.0	%	46.0	%
Frenos Hidraulicos Automotrices, S.A. de C.V. (Mexico)	49.0	%	49.0	%
JURID do Brasil Sistemas Automotivos Ltda. (Brazil)	19.9	%	19.9	%
KB Autosys Co., Ltd. (Korea)	33.6	%	33.6	%
Montagewerk Abgastechnik Emden GmbH (Germany)	50.0	%	50.0	%

The Company's investments in its nonconsolidated affiliates at September 30, 2019 and December 31, 2018 was:



	September 30, 2019		December 31, 2018
Investments in nonconsolidated affiliates	$	505	$	544

The following table represents the activity from the Company's investments in its nonconsolidated affiliates for the three and nine months ended September 30, 2019 and 2018:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Equity in earnings (losses) of nonconsolidated affiliates, net of tax	$	1	$	—	$	34	$	—
Cash dividends received from nonconsolidated affiliates	$	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 has been finalized. See Note 3, Acquisitions and Divestitures, for additional information.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

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



	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, 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

See Note 18, Related Party Transactions, for additional information on balances and transactions with equity method investments.

8. Derivatives and Hedging Activities

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

Market Risks

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

Concentrations of Credit Risk— Financial instruments including cash equivalents and derivative contracts expose the Company to counterparty credit risk for non-performance. The Company's counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company's requirement of high credit standing. The Company's counterparties for derivative contracts are substantial investment and commercial banks with significant experience using such derivatives. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counterparty and through monitoring counterparty credit risks. The Company's concentration of credit risk related to derivative contracts at September 30, 2019 and 2018 is not material.

Other— The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis. For derivatives designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

effectiveness. Unrealized gains and losses associated with ineffective hedges, determined using the hypothetical derivative method, are recognized in "Cost of sales" in the condensed consolidated statements of income (loss). Derivative gains and losses included in accumulated other comprehensive income (loss) for effective hedges are reclassified into operations upon recognition of the hedged transaction. Derivative gains and losses associated with undesignated hedges are recognized in "Cost of sales" in the condensed consolidated statements of income (loss).

Derivative Instruments

Foreign Currency Forward Contracts— The Company enters into foreign currency forward purchase and sale contracts to mitigate its exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. In managing its foreign currency exposures, the Company identifies and aggregates existing offsetting positions and then hedges residual exposures through third-party derivative contracts. The gains or losses on these contracts is recognized in "Cost of sales" in the condensed consolidated statements of income (loss). The fair value of foreign currency forward contracts are recorded in "Prepayments and other current assets" or "Accrued expenses and other current liabilities" in the condensed consolidated balance sheets. The fair value of the Company's foreign currency forward contracts was a net asset position of less than $1 million at September 30, 2019 and December 31, 2018.

The following table summarizes by position the notional amounts for foreign currency forward contracts as of September 30, 2019 (all of which mature in 2019):



	Notional Amount
Long positions	$	(47	)
Short positions	$	47

Cash-Settled Share Swap Transactions— During 2019, the Company entered into an amended and restated equity swap agreement. The Company selectively uses cash-settled share swaps to reduce market risk associated with its deferred compensation liabilities. These equity deferred compensation liabilities increase as the Company's stock price increases and decrease as the Company's stock price decreases. In contrast, the value of the swap agreement moves in the opposite direction of these liabilities, allowing the Company to fix a portion of the liabilities at a stated amount. As of September 30, 2019, the Company hedged its deferred compensation liability related to approximately 600,000 common share equivalents, an increase from 250,000 common share equivalents as of December 31, 2018. The fair value of the equity swap agreement 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 the Company's equity swap agreement was a net liability position of $1 million at September 30, 2019 and net asset position of $4 million at December 31, 2018.

Hedging Instruments

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

The Company has designated these contracts as cash flow hedging instruments. The Company records unrecognized gains and losses in other comprehensive income (loss) (“OCI or OCL”) and makes regular reclassifying adjustments into “Cost of sales” within the condensed consolidated statements of income (loss) when the underlying hedged transaction is recognized in earnings. The Company had commodity derivatives outstanding with an equivalent notional amount of $26 million as of September 30, 2019 and $27 million as of December 31, 2018. Substantially all of the commodity price hedge contracts mature within one year.

Net Investment Hedge — Foreign Currency Borrowings — The Company has foreign currency denominated debt, €770 million of which was designated as a net investment hedge in certain foreign subsidiaries and affiliates of the Company. Changes to its carrying value are included in shareholders' equity in the foreign currency translation component of OCL and offset against the translation adjustment on the underlying net assets of those foreign subsidiaries and affiliates, which are also recorded in OCL. The Company’s debt instruments are discussed further in Note 10, Debt and Other Financing Arrangements.

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 as of September 30, 2019:



		Carrying Value
	Balance sheet classification	September 30, 2019		December 31, 2018
Commodity price hedge contracts designated as cash flow hedges	Accrued expenses and other current liabilities	$	1	$	2
Foreign currency borrowings designated as net investment hedges	Long-term debt	$	839	$	863

The following table represents the effects before reclassification into net income of derivative and non-derivative instruments designated as hedges in accumulated other comprehensive income (loss) three and nine month periods ended September 30, 2019:



	Amount of gain (loss) recognized in accumulated OCI or OCL (effective portion):
	Three Months Ended September 30,			Nine Months Ended September 30,
	2019			2019
Commodity price hedge contracts designated as cash flow hedges	$	(1	)	$	—
Foreign currency borrowings designated as net investment hedges	$	38		$	45

The Company estimates less than $1 million included in accumulated OCI or OCL as of September 30, 2019 will be reclassified into earnings within the following 12 months.

9. Fair Value of Financial Instruments

A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy definition prioritizes the inputs used in measuring fair value into the following levels:



Level 1	—	Quoted prices in active markets for identical assets or liabilities.

Level 2	—	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3	—	Unobservable inputs based on our own assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents assets and liabilities included in the Company's condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 that are recognized at fair value on a recurring basis and indicate the fair value hierarchy utilized to determine such fair value:



		September 30, 2019						December 31, 2018
	Fair value hierarchy	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Derivative instruments:
Equity swap agreement	Level 2	$	(1	)	$	(1	)	$	4		$	4
Commodity contracts	Level 2	$	(1	)	$	(1	)	$	(2	)	$	(2	)

Cash-Settled Share Swap Transactions — The Company's stock price is used as an observable input in determining the fair value of the equity swap.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Commodity 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, 2019 and December 31, 2018.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

The Company has determined the fair value measurements related to each of these rely primarily on Company-specific inputs and the Company's assumptions about the use of the assets, as observable inputs are not available (level 3). To determine the fair value of long-lived asset groups, the Company utilizes discounted cash flows expected to be generated by the long-lived asset group.

The Company evaluates the carrying value of its goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each year. These fair value measurements require the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates, and growth rates, which are subject to a high degree of uncertainty. The Company believes the assumptions and estimates used to determine the estimated fair value are reasonable, but different assumptions could materially affect the estimated fair value.

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

Financial Instruments Not Carried at Fair Value

Estimated fair values of the Company's outstanding debt were:



		September 30, 2019				December 31, 2018
	Fair value hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including current maturities):
Term loans and senior notes	Level 2	$	5,169	$	4,963	$	5,307	$	5,218

The fair value of the Company's public senior notes and private borrowings under its senior credit facility is based on observable inputs, and its borrowings on the revolving credit facility approximate fair value. The Company also had $78 million and $106 million at September 30, 2019 and December 31, 2018 in other debt whose carrying value approximates fair value, which consists primarily of foreign debt with maturities of one year or less.

Assets and Liabilities Not Carried at Fair Value

The carrying value of cash and cash equivalents, restricted cash, short and long-term receivables, accounts payable, and short-term debt approximates fair value.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

10. Debt and Other Financing Arrangements

Long-Term Debt

A summary of our long-term debt obligations at September 30, 2019 and December 31, 2018 is set forth in the following table:



	September 30, 2019				December 31, 2018
	Principal		Carrying Amount ⁽¹⁾		Principal		Carrying Amount ⁽¹⁾
Credit Facilities
Revolver Borrowings
Due 2023	$	229	$	229	$	—	$	—
Term Loans
LIBOR plus 1.75% Term Loan A due 2019 through 2023	1,636		1,628		1,700		1,691
LIBOR plus 3.00% Term Loan B due 2019 through 2025⁽²⁾	1,687		1,624		1,700		1,629
Senior Unsecured Notes
$225 million of 5.375% Senior Notes due 2024	225		222		225		222
$500 million of 5.000% Senior Notes due 2026	500		494		500		493
Senior Secured Notes
€415 million 4.875% Euro Fixed Rate Notes due 2022	452		467		476		496
€300 million of Euribor plus 4.875% Euro Floating Rate Notes due 2024	327		331		344		349
€350 million of 5.000% Euro Fixed Rate Notes due 2024	381		403		401		427
Other debt, primarily foreign instruments	81		78		108		106
			5,476				5,413
Less - maturities classified as current			68				73
Total long-term debt			$	5,408			$	5,340


⁽¹⁾	Carrying amount is net of unamortized debt issuance costs and debt discounts or premiums. Total unamortized debt issuance costs were $80 million and $90 million as of September 30, 2019 and December 31, 2018. Total unamortized debt (premium) discount, net was $(38) million and $(49) million as of September 30, 2019 and December 31, 2018.


⁽²⁾	As of December 31, 2018, the rate on Term Loan B was LIBOR plus 2.75%.

Term Loans

On October 1, 2018, the Company entered into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and other lenders (the "New Credit Facility") in connection with the Federal-Mogul Acquisition. The New Credit Facility provides $4.9 billion of total debt financing, consisting of a five-year $1.5 billion revolving credit facility, a five-year $1.7 billion term loan A facility ("Term Loan A"), and a seven-year $1.7 billion term loan B facility ("Term Loan B").

Senior Notes

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Credit Facilities

The Company had availability on its credit facilities as of September 30, 2019 as follows:



	Credit Facilities as of September 30, 2019
	Term	Available^(b)
		(in billions)
Tenneco Inc. revolving credit facility ^(a)	2023	$	1.3
Tenneco Inc. Term Loan A	2023	—
Tenneco Inc. Term Loan B	2025	—
Subsidiaries’ credit agreements	2020 - 2028	0.1
		$	1.4


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


^(b)	Letters of credit reduce the available borrowings under the revolving credit facility, as of September 30, 2019 the revolving credit facility had $20 million in letters of credit outstanding.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Amortization of debt issuance fees	$	5	$	1	$	14	$	3

New Credit Facility — Other Terms and Conditions— The New Credit Facility also contains 2 financial maintenance covenants for the revolving credit facility and the Term Loan A facility including a requirement to have a consolidated net leverage ratio (as defined in the New Credit Facility) as of the end of each fiscal quarter of not greater than 4.0 to 1 through September 30, 2019, 3.75 to 1 through September 30, 2020 and 3.5 to 1 thereafter; and a requirement to maintain a consolidated interest coverage ratio (as defined in the New Credit Facility) for any period of four consecutive fiscal quarters of not less than 2.75 to 1.

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

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

As of September 30, 2019, the Company was in compliance with all of its financial covenants.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Accounts Receivable Securitization and Factoring



	September 30, 2019		December 31, 2018
Borrowings on securitization programs	$	3	$	6

The Company is the servicer of the receivables under some of these arrangements and is responsible for performing all accounts receivable administration functions. Where the Company receives a fee to service and monitor these transferred accounts receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not recorded as a result of such activities.

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

The amounts outstanding for these factoring and drafting arrangements as of September 30, 2019 and December 31, 2018 are as follows:



	September 30, 2019		December 31, 2018
	(in billions)
Accounts receivable outstanding and derecognized	$	1.1	$	1.0

The deferred purchase price receivable as of September 30, 2019 and December 31, 2018 is as follows:



	September 30, 2019		December 31, 2018
Deferred purchase price receivable	$	47	$	154

Proceeds from the factoring of accounts receivable qualifying as sales are as follows:



	Three months ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in billions)
Proceeds from factoring qualifying as sales	$	1.1	$	0.6	$	3.6	$	2.1

Financing charges associated with the factoring of receivables are as follows:



	Three months ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Financing charges on sale of receivables^(a)	$	9	$	3	$	23	$	8
^(a)Amount is included in "Interest expense" in the condensed consolidated statements of income (loss).

11. Pension Plans, Postretirement and Other Employee Benefits

Components of net periodic benefit cost (credit) for the three months ended September 30, 2019 and 2018 are as follows:



	Three Months Ended September 30
	Pension												Other Postretirement Benefits
	2019						2018						Other Postretirement Benefits
	US			Non-U.S.			US			Non-U.S.			2019			2018
Service cost	$	1		$	6		$	1		$	3		$	—		$	—
Interest cost	13			6			3			3			3			2
Expected return on plan assets	(17		)	(5		)	(4		)	(5		)	—			—
Net amortization:
Actuarial loss	1			1			1			2			1			2
Prior service cost (credit)	—			1			—			—			(2		)	—
Net pension and postretirement costs (credits)	$	(2	)	$	9		$	1		$	3		$	2		$	4

Components of net periodic benefit cost (credit) for the nine months ended September 30, 2019 and 2018 are as follows:



	Nine Months Ended September 30
	Pension												Other Postretirement Benefits
	2019						2018						Other Postretirement Benefits
	US			Non-U.S.			US			Non-U.S.			2019			2018
Service cost	$	2		$	18		$	1		$	8		$	—		$	—
Interest cost	40			18			8			9			10			5
Expected return on plan assets	(51		)	(14		)	(11		)	(15		)	—			—
Net amortization:
Actuarial loss	3			4			3			6			3			6
Prior service cost (credit)	—			1			—			—			(6		)	(1		)
Net pension and postretirement costs (credits)	$	(6	)	$	27		$	1		$	8		$	7		$	10

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.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

For the three months ended September 30, 2019, the Company recorded income tax benefit of $9 million on income from continuing operations before income taxes of $69 million. This compares to income tax expense of $22 million on income from continuing operations before income taxes of $88 million in the three months ended September 30, 2018.

Income tax expense for the three and nine months ended September 30, 2018 differs from the U.S. statutory rate due primarily to $5 million and $12 million of tax benefit recognized relating to acquisition and restructuring charges, $10 million of tax benefit recognized for valuation allowance release at our Australia entities, pre-tax income taxed at rates lower than the U.S. statutory rate, and pre-tax losses with no tax benefit. In addition, during the three and nine months ended September 30, 2018, $9 million and $11 million of tax expense was recognized for changes in the toll tax discussed below.

The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. If recent operational improvements continue in our foreign subsidiaries, the Company believes it is reasonably possible sufficient positive evidence may be available to release all, or a portion, of its valuation allowance in the next twelve months in certain jurisdictions. This may result in a one-time tax benefit of up to $4 million, primarily related to China and France.

The Company believes it is reasonably possible up to $9 million in unrecognized tax benefits related to the expiration of foreign statute of limitations and the conclusion of income tax examinations may be recognized within the next twelve months.

13. Commitments and Contingencies

Environmental Matters

The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. The Company has been notified by the U.S. Environmental Protection Agency, other national environmental agencies, and various provincial and state agencies it may be a potentially responsible party (“PRP”) under such laws for the cost of remediating hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and other national and state or provincial environmental laws. PRP designation typically requires the funding of site investigations and subsequent remedial activities. Many of the sites that are likely to be the costliest to remediate are often current or former commercial waste disposal facilities to which numerous companies sent wastes. Despite the potential joint and several liability which might be imposed on the Company under CERCLA and some of the other laws pertaining to these 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.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The Company expenses or capitalizes, as appropriate, expenditures for ongoing compliance with environmental regulations. As of September 30, 2019, the Company has an obligation to remediate or contribute towards the remediation of certain sites, including the sites discussed above at which it may be a PRP.

The Company maintains the aggregated estimated share of environmental remediation costs for all these sites on a discounted basis in the condensed consolidated balance sheets as follows:



	September 30, 2019		December 31, 2018
Accrued expenses and other current liabilities	$	8	$	12
Deferred credits and other liabilities	29		28
	$	37	$	40

For those locations where the liability was discounted, the weighted average discount rate used was 1.3% and 2.9% at September 30, 2019 and December 31, 2018.

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



	2019		2020		2021		2022		2023		2024 and thereafter
Expected payments	$	5	$	5	$	3	$	3	$	2	$	17

Based on information known to the Company from site investigations and the professional judgment of consultants, the Company has established reserves it believes are adequate for these costs. Although the Company believes these estimates of remediation costs are reasonable and are based on the latest available information, the costs are estimates, difficult to quantify based on the complexity of the issues, and are subject to revision as more information becomes available about the extent of remediation required. At some sites, the Company expects other parties will contribute to the remediation costs. In addition, certain environmental statutes provide the Company's liability could be joint and several, meaning the Company could be required to pay amounts in excess of its share of remediation costs. The financial strength of the other PRPs at these sites has been considered, where appropriate, in the determination of the estimated liability. The Company does not believe any potential costs associated with its current status as a PRP, or as a liable party at the other locations referenced herein, will be material to its annual consolidated financial position, results of operations, or liquidity.

Asset Retirement Obligations

The Company maintains ARO liabilities in the condensed consolidated balance sheets as follows:



	September 30, 2019		December 31, 2018
Accrued expenses and other current liabilities	$	3	$	3
Deferred credits and other liabilities	12		12
	$	15	$	15

Antitrust Investigations and Litigation

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

On November 5, 2014, the DOJ granted conditional leniency to the Company, its subsidiaries, and its 50% affiliates as of such

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

date ("2014 Tenneco Entities") pursuant to an agreement the Company entered into under the Antitrust Division's Corporate Leniency Policy. This agreement provides important benefits to the 2014 Tenneco Entities in exchange for the Company's self-reporting of matters to the DOJ and its continuing full cooperation with the DOJ's resulting investigation. For example, the DOJ will not bring any criminal antitrust prosecution against the 2014 Tenneco Entities, nor seek any criminal fines or penalties, in connection with the matters the Company reported to the DOJ. Additionally, there are limits on the liability of the 2014 Tenneco Entities related to any follow-on civil antitrust litigation in the United States. The limits include single rather than treble damages, as well as relief from joint and several antitrust liability with other relevant civil antitrust action defendants. These limits are subject to the Company satisfying the DOJ and any court presiding over such follow-on civil litigation.

On April 27, 2017, the Company received notification from the EC that it has administratively closed its global antitrust inquiry regarding the production, assembly, and supply of complete exhaust systems. No charges against the Company or any other competitor were initiated at any time and the EC inquiry is now closed.

Certain other competition agencies are also investigating possible violations of antitrust laws relating to products supplied by the Company and its subsidiaries, including Federal-Mogul. The Company has cooperated and continues to cooperate fully with all of these antitrust investigations and take other actions to minimize its potential exposure.

The Company and certain of its competitors are also currently defendants in civil putative class action litigation and are subject to similar claims filed by other plaintiffs, in the United States and Canada. More related lawsuits may be filed, including in other jurisdictions. Plaintiffs in these cases generally allege that defendants have engaged in anticompetitive conduct, in violation of federal and state laws, relating to the sale of automotive exhaust systems or components thereof. Plaintiffs seek to recover, on behalf of themselves and various purported classes of purchasers, injunctive relief, damages and attorneys’ fees. However, as explained above, because the DOJ granted conditional leniency to the 2014 Tenneco Entities, the Company's civil liability in U.S. follow-on actions with respect to these entities is limited to single damages and the Company will not be jointly and severally liable with the other defendants, provided that the Company has satisfied its obligations under the DOJ leniency agreement and approval is granted by the presiding court. Typically, exposure for follow-on actions in Canada is less than the exposure for U.S. follow-on actions.

Following the EC's decision to administratively close its antitrust inquiry into exhaust systems in 2017, receipt by the 2014 Tenneco Entities of conditional leniency from the DOJ and discussions during the third quarter of 2017 following the appointment of a special settlement master in the civil putative class action cases pending against the Company and/or certain of its competitors in the United States, the Company continues to vigorously defend itself and/or take actions to minimize its potential exposure to matters pertaining to the global antitrust investigation, including engaging in settlement discussions when it is in the best interests of the Company and its stockholders. For example, in October 2017, the Company settled an administrative action brought by Brazil's competition authority for an amount that was not material. In December 2018, the Company settled a separate administrative action brought by Brazil’s competition authority against a Federal-Mogul subsidiary, also for an amount that was not material.

Additionally, in February 2018, the Company settled civil putative class action litigation in the United States brought by classes of direct purchasers, end-payors and auto dealers. No other classes of plaintiffs have brought claims against the Company in the United States. Based upon those earlier developments, including settlement discussions, the Company established a reserve of $132 million in its second quarter 2017 financial results for settlement costs that were probable, reasonably estimable, and expected to be necessary to resolve its antitrust matters globally, which primarily involves the resolution of civil suits and related claims. Of the $132 million reserve that was established, $79 million was paid through September 30, 2019. In connection with the resolution of certain claims, $9 million was released from the reserve in the third quarter of 2019 and the Company expects to pay $30 million in the first quarter of 2020 from amounts that were included in the reserve. The reserve of $44 million as of September 30, 2019 is recorded in accrued expenses and other current liabilities in the Company's condensed consolidated balance sheets. While the Company, including its Federal-Mogul subsidiaries, continues to cooperate with certain competition agencies investigating possible violations of antitrust laws relating to products supplied by the Company, and the Company may be subject to other civil lawsuits and/or related claims, no amount of this reserve is attributable to matters with the DOJ or the EC, and no such amount is expected based on current information.

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

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

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.

As major asbestos manufacturers and/or users continue to go out of business or file for bankruptcy, the Company may experience an increased number of these claims. The Company vigorously defends itself against these claims as part of its ordinary course of business. In future periods, the Company could be subject to cash costs or charges to earnings if any of these matters are resolved unfavorably to the Company. To date, with respect to claims that have proceeded sufficiently through the judicial process, the Company has regularly achieved favorable resolutions. Accordingly, the Company presently believes that these asbestos-related claims will not have a material adverse effect on the Company's annual consolidated financial position, results of operations or liquidity.

The Company is also from time to time involved in other legal proceedings, claims or investigations. Some of these matters involve allegations of damages against the Company relating to environmental liabilities (including toxic tort, property damage and remediation), intellectual property matters (including patent, trademark and copyright infringement, and licensing disputes), personal injury claims (including injuries due to product failure, design or warning issues, and other product liability related matters), taxes, unclaimed property, employment matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures. Additionally, some of these matters involve allegations relating to legal compliance.

While the Company vigorously defends itself against all of these legal proceedings, claims and investigations and take other actions to minimize its potential exposure, in future periods, the Company could be subject to cash costs or charges to earnings if any of these matters are resolved on unfavorable terms. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including the Company's assessment of the merits of the particular claim, except as described above under "Antitrust Investigations and Litigation", the Company does expect the legal proceedings, claims or investigations currently pending against it will have any material adverse effect on its annual consolidated financial position, results of operations or liquidity.

Accounting Standards Issued But Not Yet Adopted

Intangibles— In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for interim and annual periods for the Company beginning on January 1, 2020, with early adoption permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. ~~We are~~The Company is currently evaluating the potential ~~impact~~effect of this new guidance on ~~the Company's consolidated~~its financial statements.

Retirement benefits — In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ~~Although narrow in scope,~~The new standard (i) requires the ~~amendments are considered an important part of the Board's efforts to improve the effectiveness~~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 ~~notes to financial statements by applying concepts in the concepts statement.~~benefit obligation. The amendments in this update are effective for fiscal years ending after December 15, 2020 with early adoption permitted. ~~We are~~The Company is currently evaluating the potential ~~impact~~effect of this new guidance on its financial statements and will include the ~~Company's~~enhanced disclosures in the consolidated financial ~~statements.~~statements upon adoption.

~~In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220).~~ The amendments in this update allow a reclassification from accumulated other comprehensive income to accumulated deficit for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments allow for an election to eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires the effect of a change in tax laws or rates be included in income from continuing operationsCompany is not affected. The amendments in this update also require certain disclosures about stranded tax effects. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently evaluating the potential ~~impact~~effect of this new guidance on ~~the Company's~~its financial statements but does not expect this guidance to have a material effect on its consolidated financial statements.

~~In February 2016,~~

3. Acquisitions and Divestitures

The preliminary allocation of the ~~FASB issued ASU 2016-02, Leases (Topic 842). This update supersedes~~purchase price of the ~~lease requirements~~assets acquired and liabilities assumed, including the residual amount recognized as goodwill, is based upon estimated information and is subject to change within the measurement period. The measurement period is a period not to exceed one year from the acquisition date during which the Company may adjust estimated or provisional amounts recorded during purchase accounting if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in ~~Topic 840, Leases.~~ revised estimated values of those assets or liabilities as of that date. Any adjustments to amounts recorded in purchase accounting that do not qualify as measurement period adjustments are included in earnings in the period identified.

The ~~objective~~fair values of ~~Topic 842 is to establish~~ the ~~principles that lessees~~assets acquired and ~~lessors shall apply to report useful information to users of financial statements about the amount, timing,~~liabilities assumed are based on preliminary estimates and uncertainty of cash flow arising from a lease. For public business entities, the standard is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We will adopt this amendment on January 1, 2019. We are currently undertaking a process to quantify the impact that this standard will have on our condensed consolidated financial statements, including reviewing our lease arrangements,assumptions, as well as ~~working through system implementation steps~~other information compiled by management, including valuations that utilize customary valuation procedures and assessing our procedural and policy requirements. At a minimum, in the period the ASU is adopted, total assets and total liabilities will increase in the condensed consolidated balance sheet as a result of recognizing right-of-use assets and liabilities for our operating lease obligations.techniques.

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

While the Company believes these preliminary estimates provide a reasonable basis for estimating the fair value of the assets acquired and liabilities assumed, it will continue to evaluate available information prior to finalization of the amounts.

Öhlins Intressenter AB Acquisition

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the acquisition date and the measurement period adjustments made during the nine months ended September 30, 2019:



	Initial Allocation		Adjustments			Revised Allocation
Cash, cash equivalents and restricted cash	$	4	$	—		$	4
Customer notes and accounts receivable	19		—			19
Inventories	31		—			31
Prepayments and other current assets	2		—			2
Property, plant, and equipment	8		—			8
Goodwill	28		2			30
Intangibles	135		(2		)	133
Other assets	9		—			9
Total assets acquired	236		—			236

Short-term debt, including current maturities of long-term debt	10		—			10
Accounts payable	11		—			11
Accrued compensation and employee benefits	12		—			12
Deferred income taxes	18		—			18
Deferred credits and other liabilities	6		—			6
Total liabilities assumed	57		—			57
Redeemable noncontrolling interest	17		—			17
Net assets acquired	$	162	$	—		$	162

The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the intangible assets, deferred income tax assets and liabilities, and redeemable noncontrolling interest.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Other intangible assets acquired include the following:



	Estimated Fair Value		Weighted-Average Useful Lives
Definite-lived intangible assets:
Customer platforms and relationships	$	37	10 years
Technology rights	41		10 years
Total definite-lived intangible assets	78

Indefinite-lived intangible assets:
Trade names and trademarks	55
Total	$	133

The Company recorded a $5 million step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation and recognized $5 million as a non-cash charge to cost of goods sold during the nine months ended September 30, 2019 related to the amortization of this step-up, as the acquired inventory was sold.

Pro Forma Results

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

Acquisition of Federal-Mogul

The Company finalized the valuation of the assets and liabilities of the Federal-Mogul Acquisition during the third quarter of 2019. During the nine months ended September 30, 2019, the Company made measurement period adjustments based on further evaluation of available information to facts and circumstances that existed as of the acquisition date.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The following table summarizes the final fair values of assets acquired and liabilities assumed as of the acquisition date and the measurement period adjustments made during the nine months ended September 30, 2019:



	Initial Allocation		Adjustments			Final Allocation
Cash, cash equivalents and restricted cash	$	277	$	—		$	277
Customer notes and accounts receivable	1,258		(4		)	1,254
Other receivables	62		—			62
Inventories	1,551		(8		)	1,543
Prepayments and other current assets	198		—			198
Property, plant and equipment	1,711		(28		)	1,683
Long-term receivables	48		—			48
Goodwill	825		(22		)	803
Intangibles	1,530		47			1,577
Investments in nonconsolidated affiliates	528		(4		)	524
Deferred income taxes	166		30			196
Other assets	55		(5		)	50
Total assets acquired	8,209		6			8,215

Short-term debt, including current maturities of long-term debt	130		—			130
Accounts payable	957		4			961
Accrued compensation and employee benefits	231		—			231
Accrued income taxes	49		—			49
Accrued expenses and other current liabilities	522		(7		)	515
Long-term debt	1,315		—			1,315
Deferred income taxes	56		24			80
Pension and postretirement benefits	879		—			879
Deferred credits and other liabilities	124		(5		)	119
Total liabilities assumed	4,263		16			4,279
Redeemable noncontrolling interests	96		(8		)	88
Noncontrolling interests	143		(2		)	141
Net assets and noncontrolling interests acquired	$	3,707	$	—		$	3,707

Goodwill of $343 million was allocated to the Powertrain segment, $395 million was allocated to the Motorparts segment, and $65 million was allocated to the Ride Performance segment. The goodwill consists of the Company's expected future economic benefits that will arise from expected future product sales and synergies from combining Federal-Mogul with its existing portfolio of products. None of the goodwill is deductible for tax purposes.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Other intangible assets acquired include the following:



	Estimated Fair Value		Weighted-Average Useful Lives
Definite-lived intangible assets:
Customer platforms and relationships	$	953	10 years
Technology rights	66		10 years
Packaged kits know-how	54		10 years
Catalogs	47		10 years
Licensing agreements	64		4.5 years
Land use rights	30		42.8 years
Total definite-lived intangible assets	1,214		10.5 years

Indefinite-lived intangible assets:
Trade names and trademarks	363
Total	$	1,577

The Company recorded a $149 million step-up of inventory to its fair value as of the acquisition date. The Company recognized $44 million as a non-cash charge to cost of goods sold during the nine months ended September 30, 2019 related to the amortization of this step-up, as the acquired inventory was sold. The Company recognized $105 million as a non-cash charge to cost of goods sold during the year ended December 31, 2018. As of September 30, 2019, there is no remaining inventory step-up to be amortized.

The Company's condensed consolidated statements of income (loss) for the nine months ended September 30, 2019 included net sales and operating revenues of $5,537 million and net loss of $34 million associated with the operating results of Federal-Mogul.

Pro Forma Results

The following table summarizes, on a pro forma basis, the combined results of operations of the Company and the Federal-Mogul Acquisition, and the related financing, if the transaction had occurred as of January 1, 2017. The pro forma results are not necessarily indicative of either the actual consolidated results had the Federal-Mogul Acquisition occurred on January 1, 2017 or of future consolidated operating results.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net sales and operating revenues	$	4,319	$	4,283	$	13,307	$	13,581
Earnings (loss) before income taxes and noncontrolling interests	$	168	$	287	$	369	$	745
Net income (loss) attributable to Tenneco Inc.	$	84	$	142	$	57	$	313
Basic earnings (loss) per share of common stock	$	1.03	$	1.75	$	0.70	$	3.88
Diluted earnings (loss) per share of common stock	$	1.03	$	1.75	$	0.70	$	3.87

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Assets Held for Sale

In August 2019, the Company executed a letter of intent to sell a non-core business in the Motorparts segment for a sale price of $24 million, subject to adjustment, as the Company continues to rationalize its product portfolio and focus on core product lines. As of September 30, 2019, proceeds from the sale would have been $24 million. The related assets and liabilities were classified as held for sale as of September 30, 2019. The transaction is expected to close within the next year.

The related assets and liabilities were classified as held for sale as of September 30, 2019 and December 31, 2018:



	September 30, 2019			December 31, 2018
Assets
Receivables	$	8		$	—
Inventories	7			33
Other current assets	3			5
Long-lived assets	16			23
Goodwill	4			—
Impairment on carrying value	(8		)	—
Total assets held for sale	$	30		$	61
Liabilities
Accounts payable	$	4		$	21
Accrued liabilities	—			7
Other liabilities	1			11
Total liabilities held for sale	$	5		$	39

The assets and liabilities held for sale are recorded in “Prepayments and other current assets” and “Accrued expenses and other current liabilities” in the consolidated balance sheets as of September 30, 2019 and December 31, 2018.

4. Restructuring Charges, Asset Impairments, and Other, Net

Restructuring and Other Charges

The Company's restructuring activities are undertaken as necessary to execute management's strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize the Company's businesses and to relocate operations to best cost locations.

The Company's restructuring charges consist primarily of employee costs (principally severance and/or termination benefits), facility closure and exit costs, and other.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

For the three and nine months ended September 30, 2019 and 2018, restructuring charges, asset impairments, and other by segment are as follows:



	Three Months Ended September 30, 2019
	Clean Air		Powertrain		Ride Performance⁽¹⁾		Motorparts		Corporate		Total
Severance and other charges, net	$	6	$	11	$	15	$	2	$	1	$	35
Impairment of assets held for sale	—		—		—		8		—		8
Total restructuring charges, asset impairments, and other	$	6	$	11	$	15	$	10	$	1	$	43
⁽¹⁾ The Ride Performance segment includes $10 million of other charges for the three months ended September 30, 2019.



	Three Months Ended September 30, 2018
	Clean Air		Powertrain		Ride Performance		Motorparts		Corporate		Total
Severance and other charges, net	$	1	$	—	$	10	$	2	$	1	$	14
Other non-restructuring asset impairments	—		—		—		—		2		2
Total restructuring charges, asset impairments, and other	$	1	$	—	$	10	$	2	$	3	$	16



	Nine Months Ended September 30, 2019
	Clean Air		Powertrain		Ride Performance⁽²⁾		Motorparts		Corporate		Total
Severance and other charges, net	$	25	$	29	$	50	$	12	$	2	$	118

Other non-restructuring asset impairments	1		—		—		1		—		2
Impairment of assets held for sale	—		—		—		8		—		8
Total asset impairment charges	1		—		—		9		—		10
Total restructuring charges, asset impairments, and other	$	26	$	29	$	50	$	21	$	2	$	128
⁽¹⁾ The Ride Performance segment includes $8 million, $20 million, and $30 million of other charges for the three months ended March 31, 2019, six months ended June 30, and for the nine months ended September 30, 2019.



	Nine Months Ended September 30, 2018
	Clean Air		Powertrain		Ride Performance		Motorparts		Corporate		Total
Severance and other charges, net	$	19	$	—	$	27	$	6	$	3	$	55

Other non-restructuring asset impairments	—		—		—		—		2		2
Total restructuring charges, asset impairments, and other	$	19	$	—	$	27	$	6	$	5	$	57

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 anticipates achieving in connection with the Federal-Mogul Acquisition. Pursuant to the plan, the Company will reduce its headcount globally across all segments. The Company began implementing headcount reductions in January 2019 and these actions will continue throughout 2019. The Federal-Mogul Acquisition is discussed further in Note 3, Acquisitions and Divestitures. During the three and nine months ended September 30, 2019, the Company also incurred $15 million and $43 million in restructuring and other costs related to plant relocation and closures within its Ride Performance segment. The Company expects the actions to be completed by the second quarter of 2020.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Restructuring Reserve Rollforward

Amounts related to activities that were charges to restructuring reserves, including costs incurred to support future structural cost reductions, by reportable segments are as follows:



	Reportable Segments
	Clean Air			Powertrain			Ride Performance⁽¹⁾			Motorparts			Total Reportable Segments			Corporate			Total
Balance as of December 31, 2018	$	17		$	15		$	25		$	43		$	100		$	3		$	103
Provisions	5			1			13			4			23			1			24
Payments	(6		)	(3		)	(13		)	(14		)	(36		)	(2		)	(38		)
Balance as of March 31, 2019	16			13			25			33			87			2			89
Provisions	14			17			22			8			61			—			61
Revisions to estimates	—			—			—			(2		)	(2		)	—			(2		)
Payments	(2		)	(4		)	(19		)	(7		)	(32		)	(1		)	(33		)
Balance as of June 30, 2019	28			26			28			32			114			1			115
Provisions	6			11			15			4			36			1			37
Revisions to estimates	—			—			—			(2		)	(2		)	—			(2		)
Payments	(7		)	(4		)	(19		)	(13		)	(43		)	(2		)	(45		)
Foreign currency	(1		)	—			—			—			(1		)	—			(1		)
Balance as of September 30, 2019	$	26		$	33		$	24		$	21		$	104		$	—		$	104
⁽¹⁾The Ride Performance segment includes $8 million, $12 million, and $10 million of other charges and payments in each of the three months ended March 31, 2019, June 30, 2019, and September 30, 2019.



	Reportable Segments
	Clean Air			Powertrain		Ride Performance			Motorparts			Total Reportable Segments			Corporate			Total
Balance as of December 31, 2017	$	14		$	—	$	7		$	4		$	25		$	—		$	25
Provisions	1			—		8			3			12			—			12
Payments	(5		)	—		(9		)	(2		)	(16		)	—			(16		)
Balance as of March 31, 2018	10			—		6			5			21			—			21
Provisions	17			—		9			1			27			2			29
Payments	(3		)	—		(10		)	(2		)	(15		)	—			(15		)
Balance as of June 30, 2018	24			—		5			4			33			2			35
Provisions	1			—		10			2			13			1			14
Payments	(2		)	—		(7		)	(5		)	(14		)	(2		)	(16		)
Foreign currency	(1		)	—		—			—			(1		)	—			(1		)
Balance as of September 30, 2018	$	22		$	—	$	8		$	1		$	31		$	1		$	32

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

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



	Employee Costs			Facility Closure and Other Costs⁽¹⁾			Total
Balance as of December 31, 2018	$	98		$	5		$	103
Provisions	11			13			24
Payments	(25		)	(13		)	(38		)
Balance as of March 31, 2019	84			5			89
Provisions	44			17			61
Revisions to estimates	(2		)	—			(2		)
Payments	(16		)	(17		)	(33		)
Balance as of June 30, 2019	110			5			115
Provisions	22			15			37
Revisions to estimates	(2		)	—			(2		)
Payments	(29		)	(16		)	(45		)
Foreign currency	(1		)	—			(1		)
Balance as of September 30, 2019	$	100		$	4		$	104
⁽¹⁾Facility closure and other costs includes $8 million, $12 million, and $10 million of other charges and payments in each of the three months ended March 31, 2019, June 30, 2019, and September 30, 2019 related to the Ride Performance segment.



	Employee Costs			Facility Closure and Other Costs			Total
Balance as of December 31, 2017	$	19		$	6		$	25
Provisions	10			2			12
Payments	(13		)	(3		)	(16		)
Balance as of March 31, 2018	16			5			21
Provisions	26			3			29
Payments	(12		)	(3		)	(15		)
Balance as of June 30, 2018	30			5			35
Provisions	2			12			14
Payments	(4		)	(12		)	(16		)
Foreign currency	(1		)	—			(1		)
Balance as of September 30, 2018	$	27		$	5		$	32

5. Inventories

At September 30, 2019 and December 31, 2018, inventory consists of the following:



	September 30, 2019		December 31, 2018
Finished goods	$	1,078	$	1,116
Work in process	519		562
Raw materials	440		457
Materials and supplies	100		110
	$	2,137	$	2,245

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

6. Goodwill and Other Intangible Assets

At September 30, 2019 and December 31, 2018, goodwill consists of the following:



	Nine Months Ended September 30, 2019
	Clean Air			Powertrain			Ride Performance			Motorparts			Total
Gross carrying amount at December 31, 2018	$	22		$	388		$	210		$	611		$	1,231
Measurement period adjustments	—			21			—			(67		)	(46		)
Acquisitions	—			—			28			—			28
Gross carrying amount at March 31, 2019	22			409			238			544			1,213
Measurement period adjustments	—			3			2			3			8
Gross carrying amount at June 30, 2019	22			412			240			547			1,221
Measurement period adjustments	—			(69		)	10			77			18
Reclassification to assets held for sale	—			—			—			(4		)	(4		)
Foreign exchange	(1		)	—			(1		)	(1		)	(3		)
Gross carrying amount at September 30, 2019	21			343			249			619			1,232

Accumulated impairment loss at December 31, 2018	—			—			(143		)	(219		)	(362		)
Impairment	—			—			(60		)	—			(60		)
Accumulated impairment loss at March 31, 2019	—			—			(203		)	(219		)	(422		)
Impairment	—			—			—			—			—
Accumulated impairment loss at June 30, 2019	—			—			(203		)	(219		)	(422		)
Impairment	—			—			(9		)	—			(9		)
Foreign Exchange	—			—			1			—			1
Accumulated impairment loss at September 30, 2019	—			—			(211		)	(219		)	(430		)

Net carrying value at end of period	$	21		$	343		$	38		$	400		$	802

an increase of $2 million for the Öhlins Acquisition; and

a net decrease of $22 million for the Federal-Mogul Acquisition.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

At September 30, 2019 and December 31, 2018, the Company's intangible assets consist of the following:



		September 30, 2019							December 31, 2018
	Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Definite-lived intangible assets:
Customer relationships and platforms	10 years	$	985	$	(98	)	$	887	$	964	$	(24	)	$	940
Customer contract	10 years	8		(6		)	2		8		(5		)	3
Patents	10 to 17 years	1		(1		)	—		1		(1		)	—
Technology rights	10 to 30 years	131		(34		)	97		98		(27		)	71
Packaged kits know-how	10 years	54		(5		)	49		36		(1		)	35
Catalogs	10 years	47		(5		)	42		—		—			—
Licensing agreements	3 to 5 years	62		(14		)	48		66		(3		)	63
Land use rights	28 to 46 years	45		(3		)	42		44		(2		)	42
		1,333		(166		)	1,167		1,217		(63		)	1,154
Indefinite-lived intangible assets:
Trade names and trademarks		411		—			411		365		—			365
Total		$	1,744	$	(166	)	$	1,578	$	1,582	$	(63	)	$	1,519

a decrease of $2 million was recognized for the Öhlins Acquisition; and

a net increase of $47 million was recognized for the Federal-Mogul Acquisition.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Amortization expense	$	33	$	—	$	101	$	1

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

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



	2019		2020		2021		2022		2023		2024 and thereafter		Total
Expected amortization expense	$	33	$	131	$	130	$	126	$	126	$	621	$	1,167

7. Investment in Nonconsolidated Affiliates

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



	September 30, 2019		December 31, 2018
Anqing TP Goetze Piston Ring Company Limited (China)	35.7	%	35.7	%
Anqing TP Powder Metallurgy Co., Ltd (China)	20.0	%	20.0	%
Dongsuh Federal-Mogul Industrial Co. Ltd. (Korea)	50.0	%	50.0	%
Farloc Argentina SAIC Y F (Argentina)	23.9	%	23.9	%
Federal-Mogul Powertrain Otomotiv A.S. (Turkey)	50.0	%	50.0	%
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti. (Turkey)	25.0	%	25.0	%
Federal-Mogul TP Liners, Inc. (USA)	46.0	%	46.0	%
Frenos Hidraulicos Automotrices, S.A. de C.V. (Mexico)	49.0	%	49.0	%
JURID do Brasil Sistemas Automotivos Ltda. (Brazil)	19.9	%	19.9	%
KB Autosys Co., Ltd. (Korea)	33.6	%	33.6	%
Montagewerk Abgastechnik Emden GmbH (Germany)	50.0	%	50.0	%

The Company's investments in its nonconsolidated affiliates at September 30, 2019 and December 31, 2018 was:



	September 30, 2019		December 31, 2018
Investments in nonconsolidated affiliates	$	505	$	544

The following table represents the activity from the Company's investments in its nonconsolidated affiliates for the three and nine months ended September 30, 2019 and 2018:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Equity in earnings (losses) of nonconsolidated affiliates, net of tax	$	1	$	—	$	34	$	—
Cash dividends received from nonconsolidated affiliates	$	18	$	—	$	45	$	—

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)



	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, 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

See Note 18, Related Party Transactions, for additional information on balances and transactions with equity method investments.

8. Derivatives and Hedging Activities

Market Risks

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Derivative Instruments

The following table summarizes by position the notional amounts for foreign currency forward contracts as of September 30, 2019 (all of which mature in 2019):



	Notional Amount
Long positions	$	(47	)
Short positions	$	47

Hedging Instruments

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 as of September 30, 2019:



		Carrying Value
	Balance sheet classification	September 30, 2019		December 31, 2018
Commodity price hedge contracts designated as cash flow hedges	Accrued expenses and other current liabilities	$	1	$	2
Foreign currency borrowings designated as net investment hedges	Long-term debt	$	839	$	863



	Amount of gain (loss) recognized in accumulated OCI or OCL (effective portion):
	Three Months Ended September 30,			Nine Months Ended September 30,
	2019			2019
Commodity price hedge contracts designated as cash flow hedges	$	(1	)	$	—
Foreign currency borrowings designated as net investment hedges	$	38		$	45

The Company estimates less than $1 million included in accumulated OCI or OCL as of September 30, 2019 will be reclassified into earnings within the following 12 months.

9. Fair Value of Financial Instruments



Level 1	—	Quoted prices in active markets for identical assets or liabilities.

Level 2	—	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3	—	Unobservable inputs based on our own assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis



		September 30, 2019						December 31, 2018
	Fair value hierarchy	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Derivative instruments:
Equity swap agreement	Level 2	$	(1	)	$	(1	)	$	4		$	4
Commodity contracts	Level 2	$	(1	)	$	(1	)	$	(2	)	$	(2	)

Cash-Settled Share Swap Transactions — The Company's stock price is used as an observable input in determining the fair value of the equity swap.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Financial Instruments Not Carried at Fair Value

Estimated fair values of the Company's outstanding debt were:



		September 30, 2019				December 31, 2018
	Fair value hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including current maturities):
Term loans and senior notes	Level 2	$	5,169	$	4,963	$	5,307	$	5,218

Assets and Liabilities Not Carried at Fair Value

The carrying value of cash and cash equivalents, restricted cash, short and long-term receivables, accounts payable, and short-term debt approximates fair value.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

10. Debt and Other Financing Arrangements

Long-Term Debt

A summary of our long-term debt obligations at September 30, 2019 and December 31, 2018 is set forth in the following table:



	September 30, 2019				December 31, 2018
	Principal		Carrying Amount ⁽¹⁾		Principal		Carrying Amount ⁽¹⁾
Credit Facilities
Revolver Borrowings
Due 2023	$	229	$	229	$	—	$	—
Term Loans
LIBOR plus 1.75% Term Loan A due 2019 through 2023	1,636		1,628		1,700		1,691
LIBOR plus 3.00% Term Loan B due 2019 through 2025⁽²⁾	1,687		1,624		1,700		1,629
Senior Unsecured Notes
$225 million of 5.375% Senior Notes due 2024	225		222		225		222
$500 million of 5.000% Senior Notes due 2026	500		494		500		493
Senior Secured Notes
€415 million 4.875% Euro Fixed Rate Notes due 2022	452		467		476		496
€300 million of Euribor plus 4.875% Euro Floating Rate Notes due 2024	327		331		344		349
€350 million of 5.000% Euro Fixed Rate Notes due 2024	381		403		401		427
Other debt, primarily foreign instruments	81		78		108		106
			5,476				5,413
Less - maturities classified as current			68				73
Total long-term debt			$	5,408			$	5,340


~~(13)~~ ⁽¹⁾	~~Segment Information~~Carrying amount is net of unamortized debt issuance costs and debt discounts or premiums. Total unamortized debt issuance costs were $80 million and $90 million as of September 30, 2019 and December 31, 2018. Total unamortized debt (premium) discount, net was $(38) million and $(49) million as of September 30, 2019 and December 31, 2018.


⁽²⁾	As of December 31, 2018, the rate on Term Loan B was LIBOR plus 2.75%.

Term Loans

Senior Notes

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Credit Facilities

The Company had availability on its credit facilities as of September 30, 2019 as follows:



	Credit Facilities as of September 30, 2019
	Term	Available^(b)
		(in billions)
Tenneco Inc. revolving credit facility ^(a)	2023	$	1.3
Tenneco Inc. Term Loan A	2023	—
Tenneco Inc. Term Loan B	2025	—
Subsidiaries’ credit agreements	2020 - 2028	0.1
		$	1.4


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


^(b)	Letters of credit reduce the available borrowings under the revolving credit facility, as of September 30, 2019 the revolving credit facility had $20 million in letters of credit outstanding.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Amortization of debt issuance fees	$	5	$	1	$	14	$	3

As of September 30, 2019, the Company was in compliance with all of its financial covenants.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Accounts Receivable Securitization and Factoring



	September 30, 2019		December 31, 2018
Borrowings on securitization programs	$	3	$	6

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

The amounts outstanding for these factoring and drafting arrangements as of September 30, 2019 and December 31, 2018 are as follows:



	September 30, 2019		December 31, 2018
	(in billions)
Accounts receivable outstanding and derecognized	$	1.1	$	1.0

The deferred purchase price receivable as of September 30, 2019 and December 31, 2018 is as follows:



	September 30, 2019		December 31, 2018
Deferred purchase price receivable	$	47	$	154

Proceeds from the factoring of accounts receivable qualifying as sales are as follows:



	Three months ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in billions)
Proceeds from factoring qualifying as sales	$	1.1	$	0.6	$	3.6	$	2.1

Financing charges associated with the factoring of receivables are as follows:



	Three months ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Financing charges on sale of receivables^(a)	$	9	$	3	$	23	$	8
^(a)Amount is included in "Interest expense" in the condensed consolidated statements of income (loss).

11. Pension Plans, Postretirement and Other Employee Benefits

Components of net periodic benefit cost (credit) for the three months ended September 30, 2019 and 2018 are as follows:



	Three Months Ended September 30
	Pension												Other Postretirement Benefits
	2019						2018						Other Postretirement Benefits
	US			Non-U.S.			US			Non-U.S.			2019			2018
Service cost	$	1		$	6		$	1		$	3		$	—		$	—
Interest cost	13			6			3			3			3			2
Expected return on plan assets	(17		)	(5		)	(4		)	(5		)	—			—
Net amortization:
Actuarial loss	1			1			1			2			1			2
Prior service cost (credit)	—			1			—			—			(2		)	—
Net pension and postretirement costs (credits)	$	(2	)	$	9		$	1		$	3		$	2		$	4

Components of net periodic benefit cost (credit) for the nine months ended September 30, 2019 and 2018 are as follows:



	Nine Months Ended September 30
	Pension												Other Postretirement Benefits
	2019						2018						Other Postretirement Benefits
	US			Non-U.S.			US			Non-U.S.			2019			2018
Service cost	$	2		$	18		$	1		$	8		$	—		$	—
Interest cost	40			18			8			9			10			5
Expected return on plan assets	(51		)	(14		)	(11		)	(15		)	—			—
Net amortization:
Actuarial loss	3			4			3			6			3			6
Prior service cost (credit)	—			1			—			—			(6		)	(1		)
Net pension and postretirement costs (credits)	$	(6	)	$	27		$	1		$	8		$	7		$	10

12. Income Taxes

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

For the three months ended September 30, 2019, the Company recorded income tax benefit of $9 million on income from continuing operations before income taxes of $69 million. This compares to income tax expense of $22 million on income from continuing operations before income taxes of $88 million in the three months ended September 30, 2018.

The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. If recent operational improvements continue in our foreign subsidiaries, the Company believes it is reasonably possible sufficient positive evidence may be available to release all, or a portion, of its valuation allowance in the next twelve months in certain jurisdictions. This may result in a one-time tax benefit of up to $4 million, primarily related to China and France.

13. Commitments and Contingencies

Environmental Matters

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The Company maintains the aggregated estimated share of environmental remediation costs for all these sites on a discounted basis in the condensed consolidated balance sheets as follows:



	September 30, 2019		December 31, 2018
Accrued expenses and other current liabilities	$	8	$	12
Deferred credits and other liabilities	29		28
	$	37	$	40

For those locations where the liability was discounted, the weighted average discount rate used was 1.3% and 2.9% at September 30, 2019 and December 31, 2018.

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



	2019		2020		2021		2022		2023		2024 and thereafter
Expected payments	$	5	$	5	$	3	$	3	$	2	$	17

Asset Retirement Obligations

The Company maintains ARO liabilities in the condensed consolidated balance sheets as follows:



	September 30, 2019		December 31, 2018
Accrued expenses and other current liabilities	$	3	$	3
Deferred credits and other liabilities	12		12
	$	15	$	15

Antitrust Investigations and Litigation

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

On November 5, 2014, the DOJ granted conditional leniency to the Company, its subsidiaries, and its 50% affiliates as of such

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The Company and certain of its competitors are also currently defendants in civil putative class action litigation and are subject to similar claims filed by other plaintiffs, in the United States and Canada. More related lawsuits may be filed, including in other jurisdictions. Plaintiffs in these cases generally allege that defendants have engaged in anticompetitive conduct, in violation of federal and state laws, relating to the sale of automotive exhaust systems or components thereof. Plaintiffs seek to recover, on behalf of themselves and various purported classes of purchasers, injunctive relief, damages and attorneys’ fees. However, as explained above, because the DOJ granted conditional leniency to the 2014 Tenneco Entities, the Company's civil liability in U.S. follow-on actions with respect to these entities is limited to single damages and the Company will not be jointly and severally liable with the other defendants, provided that the Company has satisfied its obligations under the DOJ leniency agreement and approval is granted by the presiding court. Typically, exposure for follow-on actions in Canada is less than the exposure for U.S. follow-on actions.

Additionally, in February 2018, the Company settled civil putative class action litigation in the United States brought by classes of direct purchasers, end-payors and auto dealers. No other classes of plaintiffs have brought claims against the Company in the United States. Based upon those earlier developments, including settlement discussions, the Company established a reserve of $132 million in its second quarter 2017 financial results for settlement costs that were probable, reasonably estimable, and expected to be necessary to resolve its antitrust matters globally, which primarily involves the resolution of civil suits and related claims. Of the $132 million reserve that was established, $79 million was paid through September 30, 2019. In connection with the resolution of certain claims, $9 million was released from the reserve in the third quarter of 2019 and the Company expects to pay $30 million in the first quarter of 2020 from amounts that were included in the reserve. The reserve of $44 million as of September 30, 2019 is recorded in accrued expenses and other current liabilities in the Company's condensed consolidated balance sheets. While the Company, including its Federal-Mogul subsidiaries, continues to cooperate with certain competition agencies investigating possible violations of antitrust laws relating to products supplied by the Company, and the Company may be subject to other civil lawsuits and/or related claims, no amount of this reserve is attributable to matters with the DOJ or the EC, and no such amount is expected based on current information.

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

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Other Legal Proceedings, Claims and Investigations

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)

Below is a table that shows the activity in the warranty accrual accounts:



	2019			2018
Balance as of December 31 of the prior year	$	45		$	26
Accruals related to product warranties	5			6
Reductions for payments made	(2		)	(3		)
Foreign currency	—			—
Balance as of March 31	48			29
Accruals related to product warranties	16			2
Reductions for payments made	(11		)	(2		)
Foreign currency	—			—
Balance as of June 30	53			29
Accruals related to product warranties	2			5
Reductions for payments made	(2		)	(6		)
Foreign currency	(1		)	—
Balance as of September 30	$	52		$	28

14. Leases

The Company has operating and finance leases for real estate and equipment. Generally, the leases have remaining terms ofone month to ten years. Leases with an initial term of 12 months or less which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

In addition, some leases include options to terminate the lease. The Company generally negotiates these termination clauses in anticipation of any changes in market conditions; however, because a termination option requires approval from management, the Company assumes the majority of its termination options will not be exercised when determining the lease term.

The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. Accordingly, all costs associated with a lease contract are accounted for as lease cost. Lease expense is recorded in operating expenses in the results of operations.

Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable portion of lease payments is not included in the computation of the right of use assets or lease liabilities. Rather, variable payments, other than those dependent upon a market index or rate, are expensed when the obligation for those payments is incurred and are included in "Cost of sales" and "Selling, general, and administrative" within the condensed consolidated statements of income (loss).

The Company does not include significant restrictions or covenants in its lease agreements, and residual value guarantees are generally not included within its operating leases.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The components of lease expense were as follows:



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease expense	$	33		$	97
Finance lease expense
Amortization of right-of-use assets	1			1
Short-term lease expense	3			7
Variable lease expense	5			25
Sublease income	(1		)	(1		)
Total lease expense	$	41		$	129

Other information related to leases was as follows:



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	43	$	125

Supplemental balance sheet information related to leases was as follows:



	September 30, 2019
Operating leases
Operating lease right-of-use assets ^(a)	$	342

Other current liabilities ^(b)	$	101
Other long-term liabilities ^(c)	237
Total operating lease liabilities	$	338

Finance leases
Property, plant and equipment, gross	$	2
Accumulated depreciation	1
Total finance lease right-of-use assets	$	1

Other current liabilities ^(b)	$	1
Other long-term liabilities ^(c)	1
Total finance lease liabilities	$	2

(a) Included in "Other assets" in the condensed consolidated balance sheets.
(b) Included in "Accrued expenses and other current liabilities" in the condensed consolidated balance sheets.
(c) Included in "Deferred credits and other liabilities" in the condensed consolidated balance sheets.



	September 30, 2019
	Weighted average remaining lease term	Weighted average discount rate
Operating leases	4.78 years	4.26	%
Finance leases	2.82 years	4.33	%

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Maturities of lease liabilities under non-cancellable leases as of September 30, 2019 were as follows:



Year ending December 31	Operating leases			Finance leases
2019 (excluding the nine months ended September 30, 2019)	$	33		$	1
2020	104			1
2021	80			—
2022	56			—
2023	39			—
Thereafter	60			—
Total future undiscounted lease payments	372			2
Less imputed interest	(34		)	—
Total reported lease liability	$	338		$	2

Future minimum operating lease payments at December 31, 2018 are as follows:



2019	$	120
2020	100
2021	86
2022	68
2023	56
Beyond 2023	53
	$	483

15. Share-Based Compensation

Share-Based Compensation Expense

The total share-based compensation expense was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cash-settled share-based compensation expense (benefit)	$	—	$	—	$	—	$	(3	)
Share-settled share-based compensation expense (benefit)	7		4		20		11
	$	7	$	4	$	20	$	8

Cash-Settled Awards

Prior to 2018, the Company ~~revised~~has granted restricted stock units ("RSUs") and long-term performance units ("LTPUs") to certain key employees that are payable in cash. These awards are classified as liabilities and are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement with compensation expense being recognized in proportion to the completed requisite period up until date of settlement. At September 30, 2019, the LTPUs outstanding included a three-year grant for 2017-2019 payable in the first quarter of 2020.

Share-Settled Awards

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

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

The following table reflects the status for all nonvested restricted shares, share-settled RSUs, and PSUs as of September 30, 2019 and December 31, 2018:



	Restricted Stock				Share-Settled RSUs				PSUs
	Shares		Weighted Avg. Grant Date Fair Value		Units		Weighted Avg. Grant Date Fair Value		Units		Weighted Avg. Grant Date Fair Value
Nonvested balance at beginning of period	178,550		$	55.46	440,403		$	47.99	227,049		$	49.18
Granted	36,603		34.06		867,137		34.21		634,511		24.77
Vested	(172,667	)	50.18		(90,040	)	54.60		—		—
Forfeited	(6,619	)	55.64		(71,705	)	40.71		(54,455	)	43.02
Nonvested balance at end of period	35,867		$	63.27	1,145,795		$	37.99	807,105		$	34.15

As of September 30, 2019, approximately $47 million of total unrecognized compensation costs is expected to be recognized on the share-settled awards over a weighted-average period of approximately 2 years.

16. Shareholders' Equity

Common Stock Outstanding

The Company has authorized 175,000,000 shares and 135,000,000 shares ($0.01 par value) of Class A Common Stock at September 30, 2019 and 2018. The Company has authorized 25,000,000 shares ($0.01 par value) of Class B Common Stock at September 30, 2019.

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



	Class A Common Stock				Class B Common Stock
	Nine Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019
Shares issued at beginning of period	71,675,379		66,033,509		23,793,669
Issuance (repurchased) pursuant to benefit plans	98,716		(18,553	)	—
Restricted stock forfeited and withheld for taxes	(62,919	)	(8,062	)	—
Stock options exercised	8,438		16,199		—
Shares issued at end of period	71,719,614		66,023,093		23,793,669

Treasury stock	14,592,888		14,592,888		—
Total shares outstanding	57,126,726		51,430,205		23,793,669

Preferred Stock

The Company had 50,000,000 shares of preferred stock ($0.01 par value) authorized at both September 30, 2019 and 2018. No shares of preferred stock were issued or outstanding at those dates.

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

Accumulated Other Comprehensive Income (Loss)

The following represents the Company's changes in accumulated other comprehensive income (loss) by component, net of tax for the three and nine months ended September 30, 2019 and 2018:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Foreign currency translation adjustments and other
Balance at beginning of period	$	(383	)	$	(336	)	$	(395	)	$	(263	)
Other comprehensive income (loss) before reclassifications adjustments	(77		)	(28		)	(66		)	(103		)
Reclassification from other comprehensive income (loss)	—			—			—			—
Other comprehensive income (loss)	(77		)	(28		)	(66		)	(103		)
Income tax provision (benefit)	2			—			3			2
Balance at end of period	$	(458	)	$	(364	)	$	(458	)	$	(364	)

Pensions and other postretirement benefits
Balance at beginning of period	$	(298	)	$	(268	)	$	(297	)	$	(275	)
Other comprehensive income (loss) before reclassifications	—			—			—			—
Reclassification from other comprehensive income (loss)	2			5			5			14
Other comprehensive income (loss)	2			5			5			14
Income tax provision (benefit)	1			(1		)	(3		)	(3		)
Balance at end of period	$	(295	)	$	(264	)	$	(295	)	$	(264	)

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

Other comprehensive income (loss) attributable to noncontrolling interests	$	(22	)	$	(3	)	$	(17	)	$	(2	)

17. Segment Information

The Company intends to separate its businesses to form two independent companies, DRiV and New Tenneco. As such, the Company began to manage and report its DRiV businesses through 2 new operating segments, in the first quarter of 2019, as compared to the 3 operating segments it had previously reported. The DRiV operating segments consist of Motorparts and Ride Performance. The new Motorparts operating segment consists of the ~~following three segments: Clean Air,~~previously reported Aftermarket operating segment as well as the aftermarket portion of the previously reported Motorparts operating segment. The Ride Performance ~~and Aftermarket. The new reportable segments, which are also~~operating segment consists of the previously reported Ride Performance operating segment as well as the OE Braking business that was included in the previously reported Motorparts operating segment. As such, prior period operating segment results have been conformed to reflect the Company's current operating segments. The future New Tenneco consists of 2 existing operating segments, ~~align with how the Chief Operating Decision Maker allocates resources~~Powertrain and ~~assesses performance against the Company’s key growth strategies.~~Clean Air. Costs related to other business activities, primarily corporate headquarter functions, are disclosed separately from the ~~three~~4 operating segments as ~~"Other.~~"Corporate." ~~We evaluate~~

Management uses EBITDA including noncontrolling interests as the key performance measure of segment ~~performance based primarily on~~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. Products are transferred between segments~~interests should not be considered a substitute for results prepared in accordance with US GAAP and ~~geographic areas on a basis intended~~should not be considered an alternative to ~~reflect~~net income, which is the most directly comparable financial measure to EBITDA including noncontrolling interests that is in accordance with US GAAP. EBITDA including noncontrolling interests, as ~~nearly as possible~~determined and measured by the ~~“market value” of the products. Prior period segment information has been retrospectively revised~~Company, should not be compared to reflect our current segmentation. These changes also resulted in changes to the Company's reporting units. The Company allocated goodwill to its new reporting units in the first quarter of 2018, using a relative fair value approach, assessed potential goodwill impairment for all reporting units immediately before and immediately after the reallocation, and determined that no impairment existed.similarly titled measures reported by other companies.

The following table summarizes certain of the Company's segment information:

Segments
Clean Air Ride Performance Aftermarket Total Other Reclass & Elims Total
(Millions)
At September 30, 2018 and for the Three Months Ended September 30, 2018
Revenues from external customers $ 1,602
$ 461
$ 309
$ 2,372
$ —
$ —
$ 2,372
Intersegment revenues 14
16
12
42
—
(42 ) —
EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests 104
(5 ) 45
144
(40 ) —
104
Total assets 3,008
1,079
885
4,972
—
56
5,028
At September 30, 2017 and for the Three Months Ended September 30, 2017
Revenues from external customers $ 1,495
$ 457
$ 322
$ 2,274
$ —
$ —
$ 2,274
Intersegment revenues 11
18
8
37
—
(37 ) —
EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests 100
7
50
157
(23 ) —
134
Total assets 2,912
1,100
864
4,876
—
59
4,935
At September 30, 2018 and for the Nine Months Ended September 30, 2018
Revenues from external customers $ 5,052
$ 1,480
$ 951
$ 7,483
$ —
$ —
$ 7,483
Intersegment revenues 42
45
35
122
—
(122 ) —
EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests 328
8
130
466
(132 ) —
334
Total assets 3,008
1,079
885
4,972
—
56
5,028
At September 30, 2017 and for the Nine Months Ended September 30, 2017
Revenues from external customers $ 4,589
$ 1,327
$ 967
$ 6,883
$ —
$ —
$ 6,883
Intersegment revenues 53
46
29
128
—
(128 ) —
EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests 300
52
146
498
(216 ) —
282
Total assets 2,912
1,100
864
4,876
—
59
4,935



	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total		Corporate		Reclass & Elims			Total
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	)	$	—
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	)	$	—



	Reportable Segments
	Clean Air		Powertrain		Ride Performance		Motorparts		Total		Corporate		Reclass & Elims			Total
For the Three Months Ended September 30, 2018
Revenues from external customers	$	1,602	$	—	$	461	$	308	$	2,371	$	—	$	—		$	2,371
Intersegment revenues	$	—	$	—	$	5	$	—	$	5	$	—	$	(5	)	$	—
For the Nine Months Ended September 30, 2018
Revenues from external customers	$	5,052	$	—	$	1,480	$	953	$	7,485	$	—	$	—		$	7,485
Intersegment revenues	$	—	$	—	$	16	$	—	$	16	$	—	$	(16	)	$	—

Segment EBITDA including noncontrolling interests and the reconciliation to net income (loss) is as follows:

~~Table of Contents~~



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
EBITDA including noncontrolling interests by Segments:
Clean Air	$	169		$	144		$	452		$	443
Powertrain	90			—			303			—
Ride Performance	20			14			1			58
Motorparts	113			53			268			153
Corporate	(79		)	(39		)	(256		)	(129		)
Total EBITDA including noncontrolling interests	313			172			768			525
Depreciation and amortization	(165		)	(60		)	(503		)	(180		)
Earnings (loss) before interest expense, income taxes, and noncontrolling interests	148			112			265			345
Interest expense	(79		)	(24		)	(242		)	(69		)
Income tax (expense) benefit	9			(22		)	(5		)	(73		)
Net income (loss)	$	78		$	66		$	18		$	203

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

~~(14)~~Disaggregated Revenue

Revenue from contracts with customers is disaggregated by customer type and geography, as it depicts the nature and amount of the Company’s revenue that is aligned with the Company's key growth strategies. In the following tables, revenue is disaggregated accordingly:



	Reportable Segments
By Customer Type	Clean Air		Powertrain		Ride Performance		Motorparts		Total
Three Months Ended September 30, 2019
OE - Substrate	$	775	$	—	$	—	$	—	$	775
OE - Value add	997		1,082		671		—		2,750
Aftermarket	—		—		—		794		794
Total	$	1,772	$	1,082	$	671	$	794	$	4,319
Nine Months Ended September 30, 2019
OE - Substrate	$	2,258	$	—	$	—	$	—	$	2,258
OE - Value add	3,120		3,390		2,113		—		8,623
Aftermarket	—		—		—		2,426		2,426
Total	$	5,378	$	3,390	$	2,113	$	2,426	$	13,307



	Reportable Segments
By Customer Type	Clean Air		Powertrain		Ride Performance		Motorparts		Total
Three Months Ended September 30, 2018
OE - Substrate	$	596	$	—	$	—	$	—	$	596
OE - Value add	1,006		—		461		—		1,467
Aftermarket	—		—		—		308		308
Total	$	1,602	$	—	$	461	$	308	$	2,371
Nine Months Ended September 30, 2018
OE - Substrate	$	1,869	$	—	$	—	$	—	$	1,869
OE - Value add	3,183		—		1,480		—		4,663
Aftermarket	—		—		—		953		$	953
Total	$	5,052	$	—	$	1,480	$	953	$	7,485



	Reportable Segments
By Geography	Clean Air		Powertrain		Ride Performance		Motorparts		Total
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, 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)



	Reportable Segments
By Geography	Clean Air		Powertrain		Ride Performance		Motorparts		Total
Three Months Ended September 30, 2018
North America	$	735	$	—	$	180	$	196	$	1,111
Europe, Middle East and Africa	559		—		177		97		833
Rest of world	308		—		104		15		427
Total	$	1,602	$	—	$	461	$	308	$	2,371
Nine Months Ended September 30, 2018
North America	$	2,248	$	—	$	545	$	594	$	3,387
Europe, Middle East and Africa	1,839		—		614		310		2,763
Rest of world	965		—		321		49		1,335
Total	$	5,052	$	—	$	1,480	$	953	$	7,485

18. Related Party Transactions

Amounts presented as Icahn Automotive Group LLC represent the Company's activity with Auto Plus and Pep Boys. See Note 7, Investment in Nonconsolidated Affiliates, for further information for companies within the tables below that represent equity method investments.

The following tables are summaries of the net sales, purchases, and royalty and other income from related parties for the three and nine months ended September 30, 2019:



	Three Months Ended September 30, 2019
	Net Sales		Purchases		Royalty and Other Income
Icahn Automotive Group LLC	$	48	$	—	$	1
PSC Metals, Inc.	$	—	$	—	$	—
Anqing TP Goetze Piston Ring Company Limited	$	1	$	14	$	—
Anqing TP Powder Metallurgy Company Limited	$	1	$	2	$	—
Dongsuh Federal-Mogul Industrial Co., Ltd.	$	1	$	3	$	—
Federal-Mogul Powertrain Otomotiv A.S.	$	10	$	51	$	1
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti.	$	—	$	1	$	—
Federal-Mogul Izmit Piston ve Pim Uretim Tesisleri A.S.	$	1	$	5	$	—
Federal-Mogul TP Liners, Inc.	$	4	$	—	$	—
Frenos Hidraulicos Autos	$	—	$	—	$	—
Montagewerk Abgastechnik Emden GmbH	$	2	$	—	$	—

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)



	Nine Months Ended September 30, 2019
	Net Sales		Purchases		Royalty and Other Income
Icahn Automotive Group LLC	$	138	$	—	$	3
PSC Metals, Inc.	$	1	$	—	$	—
Anqing TP Goetze Piston Ring Company Limited	$	1	$	43	$	1
Anqing TP Powder Metallurgy Company Limited	$	2	$	5	$	—
Dongsuh Federal-Mogul Industrial Co., Ltd.	$	4	$	10	$	—
Federal-Mogul Powertrain Otomotiv A.S.	$	52	$	155	$	3
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti.	$	—	$	6	$	—
Federal-Mogul Izmit Piston ve Pim Uretim Tesisleri A.S.	$	3	$	13	$	—
Federal-Mogul TP Liners, Inc.	$	12	$	—	$	1
Frenos Hidraulicos Autos	$	1	$	—	$	—
Montagewerk Abgastechnik Emden GmbH	$	4	$	—	$	—

The following table is a summary of amounts due to and from the Company's related parties as of September 30, 2019 and December 31, 2018:



	September 30, 2019				December 31, 2018
	Receivables		Payables and accruals		Receivables		Payables and accruals
Icahn Automotive Group LLC	$	63	$	1	$	60	$	12
Anqing TP Goetze Piston Ring Company Limited	$	2	$	21	$	1	$	22
Anqing TP Powder Metallurgy Company Limited	$	—	$	1	$	1	$	1
Dongsuh Federal-Mogul Industrial Co., Ltd.	$	1	$	2	$	1	$	2
Federal-Mogul Powertrain Otomotiv A.S.	$	3	$	29	$	9	$	16
Federal-Mogul TP Liner Europe Otomotiv Ltd. Sti.	$	—	$	1	$	—	$	1
Federal-Mogul Izmit Piston ve Pim Uretim Tesisleri A.S.	$	—	$	2	$	—	$	—
Federal-Mogul TP Liners, Inc.	$	2	$	7	$	2	$	7
Farloc Argentina SAIC	$	1	$	—	$	—	$	—
Montagewerk Abgastechnik Emden GmbH	$	1	$	—	$	—	$	—

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Unaudited)

19. Supplemental Guarantor Condensed Consolidating Financial Statements

Basis of Presentation

~~As of September 30, 2018, substantially~~Substantially all of ~~our~~the Company's existing and future material domestic 100% owned subsidiaries (which are referred to as the ~~Guarantor Subsidiaries)~~"Guarantor Subsidiaries") fully and unconditionally guarantee ~~our~~its senior notes ~~due in 2024 and 2026~~ on a joint and several basis. However, a subsidiary’s guarantee may be released in certain customary circumstances such as a sale of the subsidiary or all or substantially all of its assets in accordance with the indenture applicable to the notes. The Guarantor Subsidiaries are combined in the presentation below.

These consolidating financial statements are presented on the equity method. Under this method, ~~our~~the Company's investments are recorded at cost and adjusted for ~~our~~its ownership share of a subsidiary’s cumulative results of operations, capital contributions and distributions, and other equity changes. ~~You should read the~~The condensed consolidating financial information of the Guarantor Subsidiaries should be read in ~~connection~~conjunction with ~~our~~the Company's condensed consolidated financial statements and related notes of which this note is an integral part.

The accompanying supplemental guarantor consolidating financial statements have been updated to reflect the revision as described in Note 2, Summary of Significant Accounting Policies.

Distributions

There are no significant restrictions on the ability of the Guarantor Subsidiaries to make ~~distributions to us.~~distributions.

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

STATEMENT OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, 2018
Guarantor
Subsidiaries Nonguarantor
Subsidiaries Tenneco Inc.
(Parent
Company) Reclass &
Elims Consolidated
(Millions)
Revenues
Net sales and operating revenues —
External $ 990
$ 1,382
$ —
$ —
$ 2,372
Affiliated companies 145
152
—
(297 ) —
1,135
1,534
—
(297 ) 2,372
Costs and expenses
Cost of sales (exclusive of depreciation and amortization shown below) 962
1,349
—
(297 ) 2,014
Engineering, research, and development 20
19
—
—
39
Selling, general, and administrative 67
74
—
—
141
Depreciation and amortization of other intangibles 30
35
—
—
65
1,079
1,477
—
(297 ) 2,259
Other expense (income)
Loss on sale of receivables 1
2
—
—
3
Other expense (income) 10
(10 ) —
6
6
11
(8 ) —
6
9
Earnings before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies 45
65
—
(6 ) 104
Interest expense —
External (net of interest capitalized) 9
2
10
—
21
Affiliated companies (net of interest income) (4 ) —
4
—
—
Earnings (loss) before income taxes, noncontrolling interests, and equity in net income from affiliated companies 40
63
(14 ) (6 ) 83
Income tax expense 10
10
—
—
20
Equity in net income from affiliated companies 38
—
68
(106 ) —
Net income 68
53
54
(112 ) 63
Less: Net income attributable to noncontrolling interests —
9
—
—
9
Net income attributable to Tenneco Inc. $ 68
$ 44
$ 54
$ (112 ) $ 54
Comprehensive income attributable to Tenneco Inc. $ 68
$ 44
$ 30
$ (112 ) $ 30



	Three Months Ended September 30, 2019
	Guarantor Subsidiaries			Nonguarantor Subsidiaries			Tenneco Inc. (Parent Company)			Reclass & Elims			Consolidated
Revenues
Net sales and operating revenues:
External	$	1,603		$	2,716		$	—		$	—		$	4,319
Affiliated companies	241			279			—			(520		)	—
	1,844			2,995			—			(520		)	4,319
Costs and expenses
Cost of sales	1,558			2,615			—			(520		)	3,653
Selling, general, and administrative	172			76			1			—			249
Depreciation and amortization	54			110			1			—			165
Engineering, research, and development	33			45			—			—			78
Restructuring charges, asset impairments, and other	13			30			—			—			43
Goodwill impairment charge	9			—			—			—			9
	1,839			2,876			2			(520		)	4,197
Other expense (income)
Non-service postretirement benefit costs	—			2			—			—			2
Equity in (income) losses of nonconsolidated affiliates, net of tax	(1		)	—			—			—			(1		)
Other (income) expense, net	(33		)	6			—			—			(27		)
	(34		)	8			—			—			(26		)
Earnings (loss) before interest expense, income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies	39			111			(2		)	—			148
Interest expense:
External, net of interest capitalized	25			—			54			—			79
Affiliated companies, net of interest income	(6		)	(13		)	19			—			—
Earnings (loss) before income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies	20			124			(75		)	—			69
Income tax expense (benefit)	5			(3		)	(11		)	—			(9		)
Equity in net income (loss) from affiliated companies	124			—			134			(258		)	—
Net income (loss)	139			127			70			(258		)	78
Less: Net income (loss) attributable to noncontrolling interests	—			8			—			—			8
Net income (loss) attributable to Tenneco Inc.	$	139		$	119		$	70		$	(258	)	$	70
Comprehensive income (loss) attributable to Tenneco Inc.	$	135		$	5		$	(2	)	$	(140	)	$	(2	)

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)

STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended September 30, 2017
Guarantor
Subsidiaries Nonguarantor
Subsidiaries Tenneco Inc.
(Parent
Company) Reclass &
Elims Consolidated
(Millions)
Revenues
Net sales and operating revenues —
External $ 917
$ 1,357
$ —
$ —
$ 2,274
Affiliated companies 128
143
—
(271 ) —
1,045
1,500
—
(271 ) 2,274
Costs and expenses
Cost of sales (exclusive of depreciation and amortization shown below) 887
1,295
—
(271 ) 1,911
Engineering, research, and development 17
23
—
—
40
Selling, general, and administrative 50
77
—
—
127
Depreciation and amortization of other intangibles 23
35
—
—
58
977
1,430
—
(271 ) 2,136
Other expense (income)
Loss on sale of receivables 1
1
—
—
2
Other expense (income) 12
(10 ) —
—
2
13
(9 ) —
—
4
Earnings before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies 55
79
—
—
134
Interest expense —
External (net of interest capitalized) 7
2
10
—
19
Affiliated companies (net of interest income) (5 ) 3
2
—
—
Earnings (loss) before income taxes, noncontrolling interests, and equity in net income from affiliated companies 53
74
(12 ) —
115
Income tax (benefit) expense
(5 ) 21
—
—
16
Equity in net income from affiliated companies 31
—
95
(126 ) —
Net income 89
53
83
(126 ) 99
Less: Net income attributable to noncontrolling interests —
16
—
—
16
Net income attributable to Tenneco Inc. $ 89
$ 37
$ 83
$ (126 ) $ 83
Comprehensive income attributable to Tenneco Inc. $ 89
$ 31
$ 114
$ (120 ) $ 114

(LOSS)



	Three Months Ended September 30, 2018
	Guarantor Subsidiaries			Nonguarantor Subsidiaries		Tenneco Inc. (Parent Company)			Reclass & Elims			Consolidated
Revenues
Net sales and operating revenues:
External	$	990		$	1,381	$	—		$	—		$	2,371
Affiliated companies	145			152		—			(297		)	—
	1,135			1,533		—			(297		)	2,371
Costs and expenses
Cost of sales	960			1,339		—			(297		)	2,002
Selling, general, and administrative	113			25		—			—			138
Depreciation and amortization	24			36		—			—			60
Engineering, research, and development	20			19		—			—			39
Restructuring charges, asset impairments, and other	2			14		—			—			16
	1,119			1,433		—			(297		)	2,255
Other expense (income)
Non-service postretirement benefit costs	3			1		—			—			4
Other (income) expense, net	(35		)	29		—			6			—
	(32		)	30		—			6			4
Earnings (loss) before interest expense, income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies	48			70		—			(6		)	112
Interest expense:
External, net of interest capitalized	10			4		10			—			24
Affiliated companies, net of interest income	(5		)	—		5			—			—
Earnings (loss) before income taxes, noncontrolling interests and equity in net income (loss) from affiliated companies	43			66		(15		)	(6		)	88
Income tax (benefit) expense	12			10		—			—			22
Equity in net income (loss) from affiliated companies	37			—		72			(109		)	—
Net income (loss)	68			56		57			(115		)	66
Less: Net income (loss) attributable to noncontrolling interests	—			9		—			—			9
Net income (loss) attributable to Tenneco Inc.	$	68		$	47	$	57		$	(115	)	$	57
Comprehensive income (loss) attributable to Tenneco Inc.	$	68		$	47	$	33		$	(115	)	$	33

~~Table of Contents~~

TENNECO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(Continued)

(Unaudited)



~~Delaware~~Title of each class	Trading Symbol	~~76-0515284~~Name of each exchange on which registered
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~ Class A Voting Common Stock, par value $0.01 per share	TEN	~~(I.R.S. Employer~~ ~~Identification No.)~~

~~500 North Field Drive, Lake Forest, Illinois~~		~~60045~~
~~(Address of principal executive offices)~~		~~(Zip Code)~~New York Stock Exchange



Large accelerated filerþ	☑	Accelerated filer¨	☐
Non-accelerated filer¨	☐	Smaller reporting company ¨	☐
		Emerging growth company¨	☐



		Page
Part I — Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
	~~Tenneco Inc. and Consolidated Subsidiaries —~~
	~~Report of Independent Registered Public Accounting Firm~~	5
	~~Condensed Consolidated Statements of Income~~	6
	Condensed Consolidated Statements of Income (Loss)	6
	Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Condensed Consolidated Balance Sheets	118
	Condensed Consolidated Statements of Cash Flows	129
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	1310
	Notes to Condensed Consolidated Financial Statements	1412
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5360
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7581
Item 4.	Controls and Procedures	7682

Part II — Other Information
Item 1.	Legal Proceedings	7783
Item 1A.	Risk Factors	7783
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8284
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	*
Item 5.	Other Information	*
Item 6.	Exhibits	8385



	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	389		$	697
Restricted cash	6			5
Receivables:
Customer notes and accounts, net	2,645			2,487
Other	108			85
Inventories	2,137			2,245
Prepayments and other current assets	603			590
Total current assets	5,888			6,109
Property, plant and equipment, net	3,491			3,501
Long-term receivables, net	10			10
Goodwill	802			869
Intangibles, net	1,578			1,519
Investments in nonconsolidated affiliates	505			544
Deferred income taxes	570			467
Other assets	539			213
Total assets	$	13,383		$	13,232
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt, including current maturities of long-term debt	$	161		$	153
Accounts payable	2,651			2,759
Accrued compensation and employee benefits	378			343
Accrued income taxes	57			64
Accrued expenses and other current liabilities	1,042			1,001
Total current liabilities	4,289			4,320
Long-term debt	5,408			5,340
Deferred income taxes	104			88
Pension and postretirement benefits	1,088			1,167
Deferred credits and other liabilities	518			263
Commitments and contingencies (Note 13)
Total liabilities	11,407			11,178
Redeemable noncontrolling interests	139			138
Tenneco Inc. shareholders’ equity:
Preferred stock — $0.01 par value; none issued	—			—
Class A voting stock — $0.01 par value; shares issued: September 30, 2019 — 71,719,614 and December 31, 2018 — 71,675,379	1			1
Class B non-voting convertible stock — $0.01 par value; shares issued: September 30, 2019 — 23,793,669 and December 31, 2018 — 23,793,669	—			—
Additional paid-in capital	4,377			4,360
Accumulated other comprehensive loss	(752		)	(692		)
Accumulated deficit	(1,054		)	(1,013		)
	2,572			2,656
Shares held as treasury stock — at cost: September 30, 2019 and December 31, 2018 — 14,592,888 shares	(930		)	(930		)
Total Tenneco Inc. shareholders’ equity	1,642			1,726
Noncontrolling interests	195			190
Total equity	1,837			1,916
Total liabilities, redeemable noncontrolling interests and equity	$	13,383		$	13,232



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



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



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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(Millions Except Share and Per Share Amounts)
Revenues
Net sales and operating revenues	$	2,372	$	2,274	$	7,483	$	6,883

Costs and expenses
Cost of sales (exclusive of depreciation and amortization shown below)	2,014		1,911		6,371		5,789
Engineering, research, and development	39		40		122		115
Selling, general, and administrative	141		127		450		520
Depreciation and amortization of other intangibles	65		58		183		165
	2,259		2,136		7,126		6,589
Other expense
Loss on sale of receivables	3		2		8		4
Other expense, net	6		2		15		8
	9		4		23		12
Earnings before interest expense, income taxes, and noncontrolling interests	104		134		334		282
Interest expense	21		19		61		54
Earnings before income taxes and noncontrolling interests	83		115		273		228
Income tax expense	20		16		72		41
Net income	63		99		201		187
Less: Net income attributable to noncontrolling interests	9		16		39		48
Net income attributable to Tenneco Inc.	$	54	$	83	$	162	$	139
Earnings per share
Weighted average shares of common stock outstanding —
Basic	51,272,618		52,508,078		51,247,664		53,265,149
Diluted	51,401,829		52,687,656		51,395,927		53,501,864
Basic earnings per share of common stock	$	1.05	$	1.57	$	3.17	$	2.61
Diluted earnings per share of common stock	$	1.05	$	1.57	$	3.16	$	2.60
Cash dividends declared per share	$	0.25	$	0.25	$	0.75	$	0.75



	Three Months Ended September 30, 2017
	Tenneco Inc.					Noncontrolling Interests					Total
	Accumulated Other Comprehensive Income (Loss)			Comprehensive Income		Accumulated Other Comprehensive Income (Loss)			Comprehensive Income		Accumulated Other Comprehensive Income (Loss)			Comprehensive Income
	(Millions)
Net Income				$	83				$	16				$	99
Accumulated Other Comprehensive Income (Loss)
Cumulative Translation Adjustment
Balance July 1	$	(285	)			$	(2	)			$	(287	)
Translation of foreign currency statements	28			28		1			1		29			29
Balance September 30	(257		)			(1		)			(258		)
Additional Liability for Pension and Postretirement Benefits
Balance July 1	(316		)			—					(316		)
Additional liability for pension and postretirement benefits, net of tax	3			3		—			—		3			3
Balance September 30	(313		)			—					(313		)
Balance September 30	$	(570	)			$	(1	)			$	(571	)
Other Comprehensive Income				31					1					32
Comprehensive Income				$	114				$	17				$	131



	Nine Months Ended September 30, 2017
	Tenneco Inc.					Noncontrolling Interests					Total
	Accumulated Other Comprehensive Income (Loss)			Comprehensive Income		Accumulated Other Comprehensive Income (Loss)			Comprehensive Income		Accumulated Other Comprehensive Income (Loss)			Comprehensive Income
	(Millions)
Net Income				$	139				$	48				$	187
Accumulated Other Comprehensive Income (Loss)
Cumulative Translation Adjustment
Balance January 1	$	(338	)			$	(5	)			$	(343	)
Translation of foreign currency statements	81			81		4			4		85			85
Balance September 30	(257		)			(1		)			(258		)
Additional Liability for Pension and Postretirement Benefits
Balance January 1	(327		)			—					(327		)
Additional liability for pension and postretirement benefits, net of tax	14			14		—			—		14			14
Balance September 30	(313		)			—					(313		)
Balance September 30	$	(570	)			$	(1	)			$	(571	)
Other Comprehensive Income				95					4					99
Comprehensive Income				$	234				$	52				$	286



	September 30, 2018			December 31, 2017
	(Millions)
ASSETS
Current assets:
Cash and cash equivalents	$	202		$	315
Restricted cash	1			3
Receivables —
Customer notes and accounts, net	1,389			1,294
Other	19			27
Inventories —
Finished goods	372			349
Work in process	307			268
Raw materials	197			178
Materials and supplies	80			74
Prepayments and other	369			291
Total current assets	2,936			2,799
Other assets:
Long-term receivables, net	12			9
Goodwill	47			49
Intangibles, net	20			22
Deferred income taxes	227			204
Other	154			144
	460			428
Plant, property, and equipment, at cost	4,068			4,008
Less — Accumulated depreciation and amortization	(2,436		)	(2,393		)
	1,632			1,615
Total assets	$	5,028		$	4,842
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt (including current maturities of long-term debt)	$	240		$	83
Accounts payable	1,769			1,705
Accrued taxes	38			45
Accrued interest	10			14
Accrued liabilities	299			287
Other	136			132
Total current liabilities	2,492			2,266
Long-term debt	1,304			1,358
Deferred income taxes	11			11
Pension and postretirement benefits	258			268
Deferred credits and other liabilities	160			155
Commitments and contingencies (Note 8)	—			—
Total liabilities	4,225			4,058
Redeemable noncontrolling interests	28			42
Tenneco Inc. shareholders’ equity:
Common stock	1			1
Premium on common stock and other capital surplus	3,121			3,112
Accumulated other comprehensive loss	(632		)	(541		)
Accumulated deficit	(823		)	(946		)
	1,667			1,626
Less — Shares held as treasury stock, at cost	930			930
Total Tenneco Inc. shareholders’ equity	737			696
Noncontrolling interests	38			46
Total equity	775			742
Total liabilities, redeemable noncontrolling interests and equity	$	5,028		$	4,842



	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 as of 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 as of 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 as of 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		)
Derivatives											—			—			—			—
Defined benefit plans											3			3			—			3
Comprehensive income (loss)														(2		)	(7		)	(9		)
Acquisition and other	—		—			—		—			—			—			(3		)	(3		)
Stock-based compensation, net	—		—			6		—			—			6			—			6
Purchase accounting measurement period adjustment	—		—			—		—			—			—			(1		)	(1		)
Balance as of September 30, 2019	$	1	$	(930	)	$	4,377	$	(1,054	)	$	(752	)	$	1,642		$	195		$	1,837



	Three Months Ended September 30, 2018
	As Reported		Reclasses			As Reclassified		Revisions			As Revised
Condensed consolidated statement of income (loss)
Revenues
Net sales and operating revenues	$	2,372	$	—		$	2,372	$	(1	)	$	2,371
Costs and expenses
Cost of sales	2,014		(12		)	2,002		—			2,002
Selling, general, and administrative	141		(4		)	137		1			138
Depreciation and amortization	65		—			65		(5		)	60
Engineering, research, and development	39		—			39		—			39
Restructuring charges, asset impairments, and other	—		16			16		—			16
	2,259		—			2,259		(4		)	2,255
Other expense (income)
Loss on sale of receivables	3		(3		)	—		—			—
Non-service pension and other postretirement benefit costs (credits)	—		4			4		—			4
Other expense (income), net	6		(4		)	2		(2		)	—
	9		(3		)	6		(2		)	4
Earnings (loss) before interest expense, income taxes, and noncontrolling interests	104		3			107		5			112
Interest expense	21		3			24		—			24
Earnings (loss) before income taxes and noncontrolling interests	83		—			83		5			88
Income tax expense (benefit)	20		—			20		2			22
Net income (loss)	63		—			63		3			66
Less: Net income (loss) attributable to noncontrolling interests	9		—			9		—			9
Net income (loss) attributable to Tenneco Inc.	$	54	$	—		$	54	$	3		$	57
Earnings (loss) per share
Basic earnings (loss) per share of common stock	$	1.05	$	—		$	1.05	$	0.06		$	1.11
Diluted earnings (loss) per share of common stock	$	1.05	$	—		$	1.05	$	0.06		$	1.11



	September 30, 2018				December 31, 2017
	Net Carrying Amount		Fair Value		Net Carrying Amount		Fair Value
	(Millions)
Long-term debt (including current maturities)	$	1,308	$	1,252	$	1,361	$	1,398
Equity swap agreement and foreign currency forward contracts:
Asset derivative contracts (a)	5		5		4		4


~~(1)~~	~~Consolidation and Presentation~~



		~~Notional Amount~~ ~~in Foreign Currency~~
		~~(Millions)~~
~~Canadian dollars~~	~~—Sell~~	(2	)
~~Chinese yuan~~	~~—Purchase~~	4
~~U.S. dollars~~	~~—Purchase~~	1



	Quarter Ended
	September 30, 2018		June 30, 2018		March 31, 2018
	Required	Actual	Required	Actual	Required	Actual
Leverage Ratio (maximum)	3.50	2.05	3.50	1.79	3.50	2.09
Interest Coverage Ratio (minimum)	2.75	10.05	2.75	10.84	2.75	9.87



	December 31, 2017 Restructuring Reserve		2018 Expenses		2018 Cash Payments			Impact of Exchange Rates			September 30, 2018 Restructuring Reserve
	(Millions)
Employee severance, termination benefits and other related costs	$	25	$	55	$	(47	)	$	(1	)	$	32



	Nine Months Ended September 30, 2018
	Shares Under Option		Weighted Avg. Exercise Prices		Weighted Avg. Remaining Life in Years	Aggregate Intrinsic Value
						(Millions)
Outstanding Stock Options
Outstanding, January 1, 2018	318,016		$	43.60	2.6	$	5
Exercised	(4,607	)	26.78			—
Outstanding, March 31, 2018	313,409		43.84		2.1	4
Forfeited	(2,368	)	54.34			—
Outstanding, June 30, 2018	311,041		43.76		1.8	2
Exercised	(11,420	)	29.93			—
Outstanding, September 30, 2018	299,621		$	44.29	2.4	$	1



	Restricted Shares				Share-Settled RSUs				PSUs
	Shares		Weighted Avg. Grant Date Fair Value		Shares		Weighted Avg. Grant Date Fair Value		Shares		Weighted Avg. Grant Date Fair Value
Nonvested balance at January 1, 2018	410,251		$	49.95	—		$	—	—		$	—
Granted	17,440		55.05		253,257		55.02		214,348		50.75
Vested	(168,409	)	47.08		—		—		—		—
Forfeited	(5,108	)	48.68		(1,362	)	55.04		—		—
Nonvested balance at March 31, 2018	254,174		52.23		251,895		55.02		214,348		50.75
Granted	1,573		47.97		16,995		47.17		25,957		35.64
Vested	(60,434	)	49.89		(192	)	55.04		—		—
Forfeited	(2,482	)	57.15		(8,001	)	55.04		(4,051	)	50.75
Nonvested balance at June 30, 2018	192,831		53.14		260,697		54.51		236,254		49.28
Granted	—		—		14,903		42.22		8,623		32.24
Vested	(6,443	)	53.31		—		—		—		—
Forfeited	(1,210	)	62.79		(6,408	)	55.04		(5,882	)	50.75
Nonvested balance at September 30, 2018	185,178		$	53.07	269,192		$	57.51	238,995		$	48.68



	Three Months Ended September 30,
	Pension												Postretirement
	2018						2017						2018			2017
	U.S.			Foreign			U.S.			Foreign			U.S.			U.S.
	(Millions)
Service cost — benefits earned during the period	$	1		$	3		$	1		$	3		$	—		$	—
Interest cost (a)	3			3			2			4			2			1
Expected return on plan assets (a)	(4		)	(5		)	(4		)	(4		)	—			—
Net amortization:
Actuarial loss (a)	1			2			1			1			2			2
Prior service cost (a)	—			—			—			1			—			—
Net pension and postretirement costs	$	1		$	3		$	—		$	5		$	4		$	3

	Nine Months Ended September 30,
	Pension												Postretirement
	2018						2017						2018			2017
	U.S.			Foreign			U.S.			Foreign			U.S.			US
	(Millions)
Service cost — benefits earned during the period	$	1		$	8		$	1		$	7		$	—		$	—
Interest cost (a)	8			9			7			10			5			4
Expected return on plan assets (a)	(11		)	(15		)	(11		)	(19		)	—			—
Settlement loss (a)	—			—			6			—			—			—
Net amortization:
Actuarial loss (a)	3			6			4			6			6			5
Prior service cost (credit) (a)	—			—			—			1			(1		)	(1		)
Net pension and postretirement costs	$	1		$	8		$	7		$	5		$	10		$	8



	Segments
	Clean Air		Ride Performance			Aftermarket		Total		Other			Reclass & Elims			Total
	(Millions)
At September 30, 2018 and for the Three Months Ended September 30, 2018
Revenues from external customers	$	1,602	$	461		$	309	$	2,372	$	—		$	—		$	2,372
Intersegment revenues	14		16			12		42		—			(42		)	—
EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests	104		(5		)	45		144		(40		)	—			104
Total assets	3,008		1,079			885		4,972		—			56			5,028
At September 30, 2017 and for the Three Months Ended September 30, 2017
Revenues from external customers	$	1,495	$	457		$	322	$	2,274	$	—		$	—		$	2,274
Intersegment revenues	11		18			8		37		—			(37		)	—
EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests	100		7			50		157		(23		)	—			134
Total assets	2,912		1,100			864		4,876		—			59			4,935
At September 30, 2018 and for the Nine Months Ended September 30, 2018
Revenues from external customers	$	5,052	$	1,480		$	951	$	7,483	$	—		$	—		$	7,483
Intersegment revenues	42		45			35		122		—			(122		)	—
EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests	328		8			130		466		(132		)	—			334
Total assets	3,008		1,079			885		4,972		—			56			5,028
At September 30, 2017 and for the Nine Months Ended September 30, 2017
Revenues from external customers	$	4,589	$	1,327		$	967	$	6,883	$	—		$	—		$	6,883
Intersegment revenues	53		46			29		128		—			(128		)	—
EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests	300		52			146		498		(216		)	—			282
Total assets	2,912		1,100			864		4,876		—			59			4,935



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



	Balance at December 31, 2017			Adjustments due to ASU 2014-09			Adjustments due to ASU 2016-16 (a)			Balance at January 1, 2018
	(Millions)
Consolidated Balance Sheet
Assets
Inventory	$	869		$	(5	)	$	—		$	864
Prepayments and other (including contract assets)	291			6			—			297
Equity
Accumulated deficit	(946		)	1			(2		)	(947		)



	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	Total Revenues		Substrate Sales		Value-add Revenues		Total Revenues		Substrate Sales		Value-add Revenues
	(Millions)						(Millions)
Clean Air	$	1,602	$	596	$	1,006	$	5,052	$	1,869	$	3,183
Ride Performance	461		—		461		1,480		—		1,480
Aftermarket	309		—		309		951		—		951
Total Tenneco Inc.	$	2,372	$	596	$	1,776	$	7,483	$	1,869	$	5,614



	September 30, 2018
	As Reported			Balances Without Adoption of ASC Topic 606			Effect of Change Higher/(Lower)
				(Millions)
Consolidated Balance Sheet
Assets
Inventory	$	956		$	963		$	(7	)
Prepayments and other (including contract assets)	369			349			20
Liabilities
Accrued liabilities	299			287			12
Equity
Accumulated deficit	(823		)	(824		)	1



Quarter ended September 30, 2017	$	1,911
Volume and mix	149
Material	(2		)
Currency exchange rates	(58		)
Restructuring and other charges	4
Manufacturing and other costs	10
Quarter ended September 30, 2018	$	2,014


•	an increase in engineering, research and development of $130 million primarily due to the Acquisitions;



	Three Months Ended September 30,					Increase / (Decrease)					Nine Months Ended September 30,					Increase / (Decrease)
	2019			2018		$ Change			% Change ⁽¹⁾		2019			2018		$ Change			% Change ⁽¹⁾
	(millions, except percent, share, and per share amounts)
Revenues
Net sales and operating revenues	$	4,319		$	2,371	$	1,948		82	%	$	13,307		$	7,485	$	5,822		78	%
Costs and expenses
Cost of sales	3,653			2,002		1,651			82	%	11,310			6,329		4,981			79	%
Selling, general, and administrative	249			138		111			80	%	853			443		410			93	%
Depreciation and amortization	165			60		105			175	%	503			180		323			179	%
Engineering, research, and development	78			39		39			100	%	248			118		130			110	%
Restructuring charges, asset impairments, and other	43			16		27			169	%	128			57		71			125	%
Goodwill impairment charge	9			—		9			n/m		69			—		69			n/m
	4,197			2,255		1,942			86	%	13,111			7,127		5,984			84	%
Other expense (income)
Non-service pension and other postretirement benefit costs (credits)	2			4		(2		)	(50	)%	8			10		(2		)	(20	)%
Equity in (earnings) losses of nonconsolidated affiliates, net of tax	(1		)	—		(1		)	n/m		(34		)	—		(34		)	n/m
Other expense (income), net	(27		)	—		(27		)	n/m		(43		)	3		(46		)	n/m
	(26		)	4		(30		)	n/m		(69		)	13		(82		)	n/m
Earnings (loss) before interest expense, income taxes, and noncontrolling interests	148			112		36			32	%	265			345		(80		)	(23	)%
Interest expense	79			24		55			229	%	242			69		173			251	%
Earnings (loss) before income taxes and noncontrolling interests	69			88		(19		)	(22	)%	23			276		(253		)	(92	)%
Income tax expense (benefit)	(9		)	22		(31		)	(141	)%	5			73		(68		)	(93	)%
Net income (loss)	78			66		12			18	%	18			203		(185		)	(91	)%
Less: Net income (loss) attributable to noncontrolling interests	8			9		(1		)	(11	)%	39			39		—			—	%
Net income (loss) attributable to Tenneco Inc.	$	70		$	57	$	13		23	%	$	(21	)	$	164	$	(185	)	(113	)%
Earnings (loss) per share
Basic earnings (loss) per share:
Earnings (loss) per share	$	0.87		$	1.11						$	(0.25	)	$	3.20
Weighted average shares outstanding	80,916,676			51,272,618							80,903,967			51,247,664
Diluted earnings (loss) per share:
Earnings (loss) per share	$	0.87		$	1.11						$	(0.25	)	$	3.20
Weighted average shares outstanding	80,916,676			51,401,829							80,903,967			51,395,927



	Segment Revenue
	New Tenneco									DRiV
	Clean Air					Powertrain				Ride Performance					Motorparts					Total Revenues
Three months ended September 30,	2019			2018		2019		2018		2019			2018		2019			2018		2019			2018
Revenues	$	1,772		$	1,602	$	1,082	$	—	$	671		$	461	$	794		$	308	$	4,319		$	2,371

Value-add revenues	997			1,006		1,082		—		671			461		794			308		3,544			1,775
Currency effect on value-add revenue	(20		)	—		—		—		(14		)	—		(7		)	—		(41		)	—
Value-add revenue excluding currency	$	1,017		$	1,006	$	1,082	$	—	$	685		$	461	$	801		$	308	$	3,585		$	1,775

Substrate sales	$	775		$	596	$	—	$	—	$	—		$	—	$	—		$	—	$	775		$	596
Effect of Acquisitions	$	—		$	—	$	1,082	$	—	$	219		$	—	$	499		$	—	$	1,800		$	—



	Three Months Ended September 30, 2018 Versus Three Months Ended September 30, 2017 Dollar and Percent Increase (Decrease)
	Revenues			Percent		Value-add Revenues excluding Currency		Percent
	(Millions Except Percent Amounts)

Clean Air	$	107		7	%	$	55	6	%
Ride Performance	4			1	%	22		5	%
Aftermarket	(13		)	(4	)%	3		1	%
Total Tenneco Inc.	$	98		4	%	$	80	5	%



	Nine Months Ended September 30, 2018 Versus Nine Months Ended September 30, 2017 Dollar and Percent Increase (Decrease)
	Revenues			Percent		Value-add Revenues excluding Currency			Percent
	(Millions Except Percent Amounts)

Clean Air	$	463		10	%	$	139		5	%
Ride Performance	153			12	%	133			10	%
Aftermarket	(16		)	(2	)%	(2		)	—	%
Total Tenneco Inc.	$	600		9	%	$	270		5	%



	Three Months Ended September 30,						Change
	2018			2017			Change
	(Millions)

Clean Air	$	104		$	100		$	4
Ride Performance	(5		)	7			(12		)
Aftermarket	45			50			(5		)
Other	(40		)	(23		)	(17		)
Total Tenneco Inc.	$	104		$	134		$	(30	)


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



	September 30, 2018		December 31, 2017		% Change
	(Millions)
Short-term debt and maturities classified as current	$	240	$	83	189	%
Long-term debt	1,304		1,358		(4	)
Total debt	1,544		1,441		7
Total redeemable noncontrolling interests	28		42		(33	)
Total other noncontrolling interests	38		46		(17	)
Tenneco Inc. shareholders’ equity	737		696		6
Total equity	775		742		4
Total capitalization	$	2,347	$	2,225	5	%