TEN-2014.3.31-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________ 
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2014
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12387
TENNECO INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
76-0515284
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
500 North Field Drive, Lake Forest, Illinois
 
60045
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (847) 482-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ      No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  þ
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨      No  þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Common Stock, par value $0.01 per share: 60,881,474 shares outstanding as of May 2, 2014.

Table of Contents

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

2

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

3

•
our ability to introduce new products and technologies that satisfy customers' needs in a timely fashion;
•
our ability to realize our business strategy of improving operating performance;
•
our ability to successfully integrate any acquisitions that we complete and effectively manage our joint ventures and other third-party relationships;
•
changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies;
•
changes in accounting estimates and assumptions, including changes based on additional information;
•
any changes by the International Organization for Standardization (ISO) or other such committees in their certification protocols for processes and products, which may have the effect of delaying or hindering our ability to bring new products to market;
•
the impact of the extensive, increasing and changing laws and regulations to which we are subject, including environmental laws and regulations, which may result in our incurrence of environmental liabilities in excess of the amount reserved;
•
the potential impairment in the carrying value of our long-lived assets and goodwill or our deferred tax assets;
•
potential volatility in our effective tax rate;
•
natural disasters, such as the 2011 earthquake in Japan and flooding in Thailand, and any resultant disruptions in the supply or production of goods or services to us or by us or in demand by our customers;
•
acts of war and/or terrorism, as well as actions taken or to be taken by the United States and other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where we operate; and
•
the timing and occurrence (or non-occurrence) of other transactions, events and circumstances which may be beyond our control.
The risks included here are not exhaustive. Refer to “Part I, Item 1A — Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2013 and "Part II, Item 1A — Risk Factors” of this Form 10-Q for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the impact such risk factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.


4
Table of Contents

PART I.
FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Tenneco Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Tenneco Inc. and consolidated subsidiaries as of March 31, 2014, and the related condensed consolidated statements of income, comprehensive income, and cash flows and changes in shareholders' equity for the three month periods ended March 31, 2014 and 2013. These interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ equity for the year then ended (not presented herein), and in our report dated February 27, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2013, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
 
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 6, 2014
 
The “Report of Independent Registered Public Accounting Firm” included above is not a “report” or “part of a Registration Statement” prepared or certified by an independent accountant within the meaning of Sections 7 and 11 of the Securities Act of 1933, and the accountants’ Section 11 liability does not extend to such report.


5
Table of Contents

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
 
 
 
Three Months Ended March 31, 2014
 
Three Months Ended March 31, 2013
 
(Millions Except Share and Per Share Amounts)
Revenues
 
 
 
   Net sales and operating revenues
$
2,094

 
$
1,903

 
 
 
 
Costs and expenses
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
1,754

 
1,604

Engineering, research, and development
42

 
35

Selling, general, and administrative
132

 
119

Depreciation and amortization of other intangibles
51

 
50

 
1,979

 
1,808

Other expense
 
 
 
Loss on sale of receivables
(1
)
 
(1
)
Other
(1
)
 
(1
)
 
(2
)
 
(2
)
Earnings before interest expense, income taxes, and noncontrolling interests
113

 
93

Interest expense (net of interest capitalized of $1 million for both three months ended March 31, 2014 and 2013, respectively)
19

 
20

Earnings before income taxes and noncontrolling interests
94

 
73

Income tax expense
40

 
12

Net income
54

 
61

Less: Net income attributable to noncontrolling interests
8

 
7

Net income attributable to Tenneco Inc.
$
46

 
$
54

Earnings per share
 
 
 
Weighted average shares of common stock outstanding —
 
 
 
Basic
60,549,778

 
60,288,997

Diluted
61,503,302

 
61,481,835

Basic earnings per share of common stock
$
0.76

 
$
0.90

Diluted earnings per share of common stock
$
0.75

 
$
0.88

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


6

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
For the Three Months Ended March 31, 2014
 
Tenneco Inc.
 
Noncontrolling Interests
 
Total
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income
(Loss)
 
(Millions)
Net Income
 
 
$
46

 
 
 
$
8

 
 
 
$
54

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
$
(61
)
 
 
 
$
5

 
 
 
$
(56
)
 
 
Translation of foreign currency statements
(6
)
 
(6
)
 
(2
)
 
(2
)
 
(8
)
 
(8
)
Balance March 31
(67
)
 
 
 
3

 
 
 
(64
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
(299
)
 
 
 
—

 
 
 
(299
)
 
 
Additional Liability for Pension and Postretirement Benefits, net of tax
3

 
3

 
 
 
 
 
3

 
3

Balance March 31
(296
)
 
 
 
—

 
 
 
(296
)
 
 
Balance March 31
$
(363
)
 
 
 
$
3

 
 
 
$
(360
)
 
 
Other Comprehensive Loss
 
 
(3
)
 
 
 
(2
)
 
 
 
(5
)
Comprehensive Income
 
 
$
43

 
 
 
$
6

 
 
 
$
49

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

7

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
For the Three Months Ended March 31, 2013
 
Tenneco Inc.
 
Noncontrolling Interests
 
Total
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income
(Loss)
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Comprehensive
Income (Loss)
 
(Millions)
Net Income
 
 
$
54

 
 
 
$
7

 
 
 
$
61

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
Cumulative Translation Adjustment
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
$
(24
)
 
 
 
$
5

 
 
 
$
(19
)
 
 
Translation of foreign currency statements
(26
)
 
(26
)
 
—

 
—

 
(26
)
 
(26
)
Balance March 31
(50
)
 
 
 
5

 
 
 
(45
)
 
 
Additional Liability for Pension and Postretirement Benefits
 
 
 
 
 
 
 
 
 
 
 
Balance January 1
(384
)
 
 
 
—

 
 
 
(384
)
 
 
Additional Liability for Pension and Postretirement Benefits, net of tax
4

 
4

 
 
 
 
 
4

 
4

Balance March 31
(380
)
 
 
 
—

 
 
 
(380
)
 
 
Balance March 31
$
(430
)
 
 
 
$
5

 
 
 
$
(425
)
 
 
Other Comprehensive Loss
 
 
(22
)
 
 
 
—

 
 
 
(22
)
Comprehensive Income
 
 
$
32

 
 
 
$
7

 
 
 
$
39

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


8

TENNECO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2014
 
December 31,
2013
 
(Millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
267

 
$
275

Restricted cash
6

 
5

Receivables —
 
 
 
Customer notes and accounts, net
1,265

 
1,041

Other
23

 
19

Inventories —
 
 
 
Finished goods
295

 
267

Work in process
233

 
202

Raw materials
151

 
130

Materials and supplies
58

 
57

Deferred income taxes
71

 
71

Prepayments and other
259

 
223

Total current assets
2,628

 
2,290

Other assets:
 
 
 
Long-term receivables, net
14

 
14

Goodwill
69

 
69

Intangibles, net
29

 
30

Deferred income taxes
117

 
125

Other
128

 
127

 
357

 
365

Plant, property, and equipment, at cost
3,545

 
3,498

Less — Accumulated depreciation and amortization
(2,351
)
 
(2,323
)
 
1,194

 
1,175

Total Assets
$
4,179

 
$
3,830

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt (including current maturities of long-term debt)
$
106

 
$
83

Trade payables
1,430

 
1,359

Accrued taxes
44

 
40

Accrued interest
14

 
10

Accrued liabilities
265

 
252

Other
95

 
94

Total current liabilities
1,954

 
1,838

Long-term debt
1,209

 
1,019

Deferred income taxes
29

 
28

Postretirement benefits
235

 
249

Deferred credits and other liabilities
194

 
204

Commitments and contingencies
 
 
 
Total liabilities
3,621

 
3,338

Redeemable noncontrolling interests
25

 
20

Tenneco Inc. Shareholders’ equity:
 
 
 
Common stock
1

 
1

Premium on common stock and other capital surplus
3,029

 
3,014

Accumulated other comprehensive loss
(363
)
 
(360
)
Retained earnings (accumulated deficit)
(1,875
)
 
(1,921
)
 
792

 
734

Less — Shares held as treasury stock, at cost
301

 
301

Total Tenneco Inc. shareholders’ equity
491

 
433

Noncontrolling interests
42

 
39

Total equity
533

 
472

Total liabilities, redeemable noncontrolling interests and equity
$
4,179

 
$
3,830

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

9
Table of Contents

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
Three Months Ended March 31, 2014
 
Three Months Ended March 31, 2013
 
(Millions)
 
 
 
 
Net income
$
54

 
$
61

Adjustments to reconcile net income to cash provided by operating activities —
 
 
 
Depreciation and amortization of other intangibles
51

 
50

Deferred income taxes
2

 
(5
)
Stock-based compensation
5

 
5

Loss on sale of assets
1

 
—

Changes in components of working capital —
 
 
 
(Increase) decrease in receivables
(234
)
 
(176
)
(Increase) decrease in inventories
(81
)
 
(40
)
(Increase) decrease in prepayments and other current assets
(38
)
 
(49
)
Increase (decrease) in payables
87

 
77

Increase (decrease) in accrued taxes
5

 
(5
)
Increase (decrease) in accrued interest
4

 
4

Increase (decrease) in other current liabilities
13

 
(8
)
Changes in long-term assets
1

 
—

Changes in long-term liabilities
(13
)
 
(10
)
Other
3

 
4

Net cash provided by operating activities
(140
)
 
(92
)
Investing Activities
 
 
 
Proceeds from the sale of assets
—

 
2

Cash payments for plant, property, and equipment
(83
)
 
(70
)
Cash payments for software related intangible assets
(7
)
 
(6
)
Changes in restricted cash
(1
)
 
(9
)
Net cash (used) by investing activities
(91
)
 
(83
)
Financing Activities
 
 
 
Issuance (repurchase) of common shares
(2
)
 
1

Tax benefit from stock-based compensation
12

 
—

Retirement of long-term debt
(3
)
 
(5
)
Increase (decrease) in bank overdrafts
4

 
(9
)
Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt and short-term borrowings secured by accounts receivable
197

 
191

Net increase in short-term borrowings secured by accounts receivable
20

 
—

Capital contribution from noncontrolling interest partner
1

 
—

Net cash provided (used) by financing activities
229

 
178

Effect of foreign exchange rate changes on cash and cash equivalents
(6
)
 
7

Increase (decrease) in cash and cash equivalents
(8
)
 
10

Cash and cash equivalents, January 1
275

 
223

Cash and cash equivalents, March 31 (Note)
$
267

 
$
233

Supplemental Cash Flow Information
 
 
 
Cash paid during the period for interest
$
14

 
$
16

Cash paid during the period for income taxes (net of refunds)
21

 
25

Non-cash Investing and Financing Activities
 
 
 
Period end balance of trade payables for plant, property, and equipment
$
40

 
$
31


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

10

TENNECO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
Three Months Ended March 31,
 
2014
 
2013
 
Shares
 
Amount
 
Shares
 
Amount
 
(Millions Except Share Amounts)
Tenneco Inc. Shareholders:
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
Balance January 1
63,714,728

 
$
1

 
62,789,382

 
$
1

Issued pursuant to benefit plans
82,743

 
—

 
160,827

 
—

Stock options exercised
25,595

 
—

 
97,622

 
—

Balance March 31
63,823,066

 
1

 
63,047,831

 
1

Premium on Common Stock and Other Capital Surplus
 
 
 
 
 
 
 
Balance January 1
 
 
3,014

 
 
 
3,031

Premium on common stock issued pursuant to benefit plans
 
 
15

 
 
 
6

Balance March 31
 
 
3,029

 
 
 
3,037

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance January 1
 
 
(360
)
 
 
 
(408
)
Other comprehensive income (loss)
 
 
(3
)
 
 
 
(22
)
Balance March 31
 
 
(363
)
 
 
 
(430
)
Retained Earnings (Accumulated Deficit)
 
 
 
 
 
 
 
Balance January 1
 
 
(1,921
)
 
 
 
(2,104
)
Net income attributable to Tenneco Inc.
 
 
46

 
 
 
54

Balance March 31
 
 
(1,875
)
 
 
 
(2,050
)
Less — Common Stock Held as Treasury Stock, at Cost
 
 
 
 
 
 
 
Balance January 1
2,844,692

 
301

 
2,294,692

 
274

Purchase of common stock through stock repurchase program
—

 
—

 
—

 
—

Balance March 31
2,844,692

 
301

 
2,294,692

 
274

Total Tenneco Inc. shareholders’ equity
 
 
$
491

 
 
 
$
284

Noncontrolling Interests:
 
 
 
 
 
 
 
Balance January 1
 
 
$
39

 
 
 
$
45

Net income
 
 
4

 
 
 
5

Other comprehensive income (loss)
 
 
(1
)
 
 
 
—

Balance March 31
 
 
$
42

 
 
 
$
50

Total equity
 
 
$
533

 
 
 
$
334

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


11
Table of Contents

TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1)
Consolidation and Presentation
As you read the accompanying financial statements you should also read our Annual Report on Form 10-K for the year ended December 31, 2013.
In our opinion, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly Tenneco Inc.’s results of operations, comprehensive income, financial position, cash flows, and changes in shareholders’ equity for the periods indicated. We have prepared the unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (U.S. GAAP) for annual financial statements.
Our condensed consolidated financial statements include all majority-owned subsidiaries. We carry investments in 20 percent to 50 percent owned companies in which the Company does not have a controlling interest, as equity method investments, at cost plus equity in undistributed earnings since the date of acquisition and cumulative translation adjustments. We have eliminated all intercompany transactions. We have evaluated all significant subsequent events for any impact on these financial statements through the date they were issued.
(2)
Financial Instruments
The carrying and estimated fair values of our financial instruments by class at March 31, 2014 and December 31, 2013 were as follows:
 
March 31, 2014
 
December 31, 2013
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
(Millions)
Long-term debt (including current maturities)
$
1,211

 
$
1,275

 
$
1,021

 
$
1,089

Instruments with off-balance sheet risk:
 
 
 
 
 
 
 
Foreign exchange forward contracts:
 
 
 
 
 
 
 
Asset derivative contracts
1

 
1

 
—

 
—

Asset and Liability Instruments — The fair value of cash and cash equivalents, short and long-term receivables, accounts payable, and short-term debt was considered to be the same as or was not determined to be materially different from the carrying amount.
Long-term Debt — The fair value of our public fixed rate senior notes is based on quoted market prices (level 1). The fair value of our private borrowings under our senior credit facility and other long-term debt instruments is based on the market value of debt with similar maturities, interest rates and risk characteristics (level 2). The fair value of our level 1 debt, as classified in the fair value hierarchy, was $789 million and $790 million at March 31, 2014 and December 31, 2013, respectively. We have classified $477 million and $287 million as level 2 in the fair value hierarchy at March 31, 2014 and December 31, 2013, respectively, since we utilize valuation inputs that are observable both directly and indirectly. We classified the remaining $9 million and $10 million, consisting of foreign subsidiary debt, as level 3 in the fair value hierarchy at March 31, 2014 and December 31, 2013, respectively.
Foreign Exchange Forward Contracts — We use derivative financial instruments, principally foreign currency forward purchase and sales contracts with terms of less than one year, to hedge our exposure to changes in foreign currency exchange rates. Our primary exposure to changes in foreign currency rates results from intercompany loans made between affiliates to minimize the need for borrowings from third parties. Additionally, we enter into foreign currency forward purchase and sale contracts to mitigate our exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. We manage counter-party credit risk by entering into derivative financial instruments with major financial institutions that can be expected to fully perform under the terms of such agreements. We do not enter into derivative financial instruments for speculative purposes. The fair value of our foreign currency forward contracts is based on an internally developed model which incorporates observable inputs including quoted spot rates, forward exchange rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics. We record the change in fair value of these foreign exchange forward contracts as part of currency gains (losses) within cost of sales in the condensed consolidated statements of income. The fair value of foreign exchange forward contracts are recorded in prepayments and other current assets or other current liabilities in the condensed consolidated balance sheet. The fair value of our foreign exchange forward contracts, presented on a gross basis at March 31, 2014 and December 31, 2013, respectively, was as follows:

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

 
Fair Value of Derivative Instruments
 
March 31, 2014
 
December 31, 2013
 
Asset
Derivatives
 
Liability
Derivatives
 
Total
 
Asset
Derivatives
 
Liability
Derivatives
 
Total
 
(Millions)
Foreign exchange forward contracts

$1

 

$—

 

$1

 
$
—

 

$—

 

$—


The fair value of our recurring financial assets at March 31, 2014 and December 31, 2013, respectively, are as follows:
 
March 31, 2014
 
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
 
(Millions)
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
n/a
 
$
1

 
n/a
 
n/a
 
$
—

 
n/a

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.
 
The following table summarizes by major currency the notional amounts for foreign currency forward purchase and sale contracts as of March 31, 2014 (all of which mature in 2014):
 
 
Notional Amount
in Foreign Currency
 
 
(Millions)
Australian dollars
—Purchase
2

British pounds
—Purchase
31

 
—Sell
(5
)
Canadian dollars
—Purchase
12

 
—Sell
(2
)
European euro
—Purchase
8

 
—Sell
(15
)
South African rand
—Purchase
222

Japanese yen
—Purchase
196

 
—Sell
(461
)
Polish zloty
—Purchase
21

U.S. dollars
—Purchase
16

 
—Sell
(84
)
Guarantees —We have from time to time issued guarantees for the performance of obligations by some of our subsidiaries, and some of our subsidiaries have guaranteed our debt. All of our existing and future material domestic wholly-owned subsidiaries fully and unconditionally guarantee our senior credit facility and our senior notes on a joint and several basis. The arrangement for the senior credit facility is also secured by first-priority liens on substantially all our domestic assets and pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries. No assets or capital stock of our direct or indirect subsidiaries secure our senior notes. For additional information, refer to Note 13 of our condensed consolidated financial statements, where we present the Supplemental Guarantor Condensed Consolidating Financial Statements.
We have two performance guarantee agreements in the U.K. between Tenneco Management Europe Limited (“TMEL”) and the two Walker Group Retirement Plans, the Walker Group Employee Benefit Plan and the Walker Group Executive Retirement Benefit Plan (the “Walker Plans”), whereby TMEL will guarantee the payment of all current and future pension

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

contributions in event of a payment default by the sponsoring or participating employers of the Walker Plans. As a result of our decision to enter into these performance guarantee agreements, the levy due to the U.K. Pension Protection Fund was reduced. The Walker Plans are comprised of employees from Tenneco Walker (U.K.) Limited and our Futaba-Tenneco U.K. joint venture. Employer contributions are funded by both Tenneco Walker (U.K.) Limited, as the sponsoring employer and Futaba-Tenneco U.K., as a participating employer. The performance guarantee agreements are expected to remain in effect until all pension obligations for the Walker Plans’ sponsoring and participating employers have been satisfied. The maximum amount payable for these pension performance guarantees is approximately $32 million as of March 31, 2014 which is determined by taking 105 percent of the liability of the Walker Plans calculated under section 179 of the U.K. Pension Act of 2004 offset by plan assets. We did not record an additional liability for this performance guarantee since Tenneco Walker (U.K.) Limited, as the sponsoring employer of the Walker Plans, already recognizes 100 percent of the pension obligation calculated based on U.S. GAAP, for all of the Walker Plans’ participating employers on its balance sheet, which was $9 million and $10 million at March 31, 2014 and December 31, 2013, respectively. At March 31, 2014, all pension contributions under the Walker Plans were current for all of the Walker Plans’ sponsoring and participating employers.
In June 2011, we entered into an indemnity agreement between TMEL and Futaba Industrial Co. Ltd. which requires Futaba to indemnify TMEL for any cost, loss or liability which TMEL may incur under the performance guarantee agreements relating to the Futaba-Tenneco U.K. joint venture. The maximum amount reimbursable by Futaba to TMEL under this indemnity agreement is equal to the amount incurred by TMEL under the performance guarantee agreements multiplied by Futaba’s shareholder ownership percentage of the Futaba-Tenneco U.K. joint venture. At March 31, 2014, the maximum amount reimbursable by Futaba to TMEL is approximately $6 million.
We have issued guarantees through letters of credit in connection with some obligations of our affiliates. As of March 31, 2014, we have guaranteed $38 million in letters of credit to support some of our subsidiaries’ insurance arrangements, foreign employee benefit programs, environmental remediation activities and cash management and capital requirements.
Negotiable Financial Instruments — One of our European subsidiaries receives payment from one of its customers whereby the accounts receivable are satisfied through the delivery of negotiable financial instruments. We may collect these financial instruments before their maturity date by either selling them at a discount or using them to satisfy accounts receivable that have previously been sold to a European bank. Any of these financial instruments which are not sold are classified as other current assets. The amount of these financial instruments that was collected before their maturity date and sold at a discount totaled $6 million and $5 million at March 31, 2014 and December 31, 2013, respectively. No negotiable financial instruments were held by our European subsidiary as of March 31, 2014 or December 31, 2013.
In certain instances, several of our Chinese subsidiaries receive payments from customers and satisfy vendor payments through the receipt and delivery of negotiable financial instruments. Financial instruments issued to satisfy vendor payables and not redeemed totaled $21 million and $13 million at March 31, 2014 and December 31, 2013, respectively, and were classified as notes payable. Financial instruments received from customers and not redeemed totaled $20 million and $12 million at March 31, 2014 and December 31, 2013, respectively. We classify financial instruments received from our customers as other current assets if issued by a financial institution of our customers or as customer notes and accounts, net if issued by our customer. We classified $20 million and $12 million in other current assets at March 31, 2014 and December 31, 2013, respectively. Some of our Chinese subsidiaries that issue their own negotiable financial instruments to pay vendors are required to maintain a cash balance if they exceed certain credit limits with the financial institution that guarantees those financial instruments. A restricted cash balance was required at those Chinese subsidiaries at March 31, 2014 for less than $1 million and was not required at December 31, 2013.
The negotiable financial instruments received by one of our European subsidiaries and some of our Chinese subsidiaries are checks drawn by our customers and guaranteed by their banks that are payable at a future date. The use of these instruments for payment follows local commercial practice. Because negotiable financial instruments are financial obligations of our customers and are guaranteed by our customers’ banks, we believe they represent a lower financial risk than the outstanding accounts receivable that they satisfy which are not guaranteed by a bank.
Supply Chain Financing — Near the end of the second quarter of 2013 certain of our suppliers in the U.S. extended their payment terms to Tenneco. The liquidity benefit to Tenneco from the extended payment terms totaled $11 million at March 31, 2014. These suppliers also began participating in a supply chain financing program under which they securitize their accounts receivables from Tenneco with two financial institutions. The financial institutions participate in the supply chain financing program on an uncommitted basis and can cease purchasing receivables from Tenneco's suppliers at any time. If the financial institutions did not continue to purchase receivables from Tenneco's suppliers under this program, the participating vendors could reduce their payment terms to Tenneco which in turn would cause our borrowings under our revolving credit facility to increase.

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

Restricted Cash - Two of our Australian subsidiaries arranged for $5 million in guarantees to be issued by a financial institution to support some of our subsidiaries' property lease arrangements and workers compensation programs. These guarantees were supported by a cash deposit with the financial institution which has been classified as restricted cash on the Tenneco Inc. consolidated balance sheet at March 31, 2014.
Some of our Chinese subsidiaries are required to maintain a cash balance if they exceed certain credit limits with the financial institution that guarantees the negotiable financial instruments issued by Tenneco to pay vendors. At the end of the first quarter of 2014, one of our Chinese subsidiaries exceeded their credit limits and was required to maintain a cash balance. The cash balance required was less than $1 million which has been classified as restricted cash on the Tenneco Inc. consolidated balance sheet at March 31, 2014.
(3)
Long-Term Debt and Financing Arrangements
Our financing arrangements are primarily provided by a committed senior secured financing arrangement with a syndicate of banks and other financial institutions. The arrangement is secured by substantially all our domestic assets and pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries, as well as guarantees by our material domestic subsidiaries.
On March 22, 2012, we completed an amendment and restatement of our senior credit facility by increasing the amount and extending the maturity date of our revolving credit facility and adding a new $250 million Tranche A Term Facility. As of March 31, 2014, the senior credit facility provides us with a total revolving credit facility size of $850 million and had a $225 million balance outstanding under the Tranche A Term Facility, both of which will mature on March 22, 2017. Funds may be borrowed, repaid and re-borrowed under the revolving credit facility without premium or penalty. The revolving credit facility is reflected as debt on our balance sheet only if we borrow money under this facility or if we use the facility to make payments for letters of credit. Outstanding letters of credit reduce our availability to enter into revolving loans under the facility. We are required to make quarterly principal payments under the Tranche A Term Facility of $6.3 million beginning June 30, 2014 through March 31, 2015, $9.4 million beginning June 30, 2015 through March 31, 2016, $12.5 million beginning June 30, 2016 through December 31, 2016 and a final payment of $125 million is due on March 22, 2017. We have excluded the required payments, within the next twelve months, under the Tranche A Term Facility totaling $25 million from current liabilities as of March 31, 2014, because we have the intent and ability to refinance the obligations on a long-term basis by using our revolving credit facility.
The financial ratios required under the amended and restated senior credit facility, and the actual ratios we achieved for the first quarter of 2014, are as follows:
 
Quarter Ended
 
March 31, 2014
 
Required

Actual
Leverage Ratio (maximum)
3.50


1.63

Interest Coverage Ratio (minimum)
2.75


10.39

The senior credit facility includes a maximum leverage ratio covenant of 3.50 and a minimum interest coverage ratio of 2.75 through March 22, 2017.
At March 31, 2014, of the $850 million available under the revolving credit facility, we had unused borrowing capacity of $562 million with $251 million in outstanding borrowings and $37 million in outstanding letters of credit. As of March 31, 2014, our outstanding debt also included $225 million related to our Tranche A Term Facility which is subject to quarterly principal payments as described above through March 22, 2017, $225 million of 7.75 percent senior notes due August 15, 2018, $500 million of 6.875 percent senior notes due December 15, 2020, and $114 million of other debt.
(4)
Income Taxes
For interim tax reporting we estimate our annual effective tax rate and apply it to our year to date ordinary income. Jurisdictions with a projected loss for the year or an actual year-to-date loss where no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a particular quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

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

We reported income tax expense of $40 million and $12 million in the three month periods ended March 31, 2014 and 2013, respectively. The tax expense recorded in the first three months of 2013 included a net tax benefit of $13 million for tax adjustments primarily related to recognizing a U.S. tax benefit for foreign taxes and changes to prior year estimates. U.S. tax benefit for foreign taxes is driven by our ability to claim a U.S. foreign tax credit beginning in 2013. The U.S. foreign tax credit law provides for a credit against U.S. taxes otherwise payable for foreign taxes paid with regard to dividends, interest and royalties paid to us in the U.S.
In 2012, we reversed the tax valuation allowance against our net deferred tax assets in the U.S. based on operating improvements we had made, the outlook for light and commercial vehicle production in the U.S. and the positive impact this should have on our U.S. operations. We now have a federal net operating loss ("NOL") at March 31, 2014 of $5 million, which expires in 2030. The state NOLs expire in various tax years through 2032.
Valuation allowances are established in certain foreign jurisdictions for deferred tax assets based on a “more likely than not” standard. The ability to realize deferred tax assets depends on our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. We have considered the following possible sources of taxable income when assessing the realization of our deferred tax assets:
•
Future reversals of existing taxable temporary differences;
•
Taxable income or loss, based on recent results, exclusive of reversing temporary differences and carryforwards;
•
Tax-planning strategies; and
•
Taxable income in prior carryback years if carryback is permitted under the relevant tax law.
 
The valuation allowances recorded against deferred tax assets will impact our provision for income taxes until the valuation allowances are released. Our provision for income taxes will include no tax benefit for losses incurred and no tax expense with respect to income generated in these jurisdictions until the respective valuation allowance is eliminated.
(5)
Accounts Receivable Securitization
We securitize some of our accounts receivable on a limited recourse basis in North America and Europe. As servicer under these accounts receivable securitization programs, we are responsible for performing all accounts receivable administration functions for these securitized financial assets including collections and processing of customer invoice adjustments. In North America, 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 March 2014, the North American program was amended and extended to March 20, 2015. The first priority facility continues to provide financing of up to $110 million and the second priority facility, which is subordinated to the first priority facility, continues to provide up to an additional $40 million of financing. Both facilities monetize accounts receivable generated in the U.S. and Canada that meet certain eligibility requirements, and the second priority facility also monetizes certain accounts receivable generated in the U.S. and Canada that would otherwise be ineligible under the first priority securitization facility. The amount of outstanding third-party investments in our securitized accounts receivable under the North American program was $30 million at March 31, 2014 and $10 million at December 31, 2013.
Each facility contains customary covenants for financings of this type, including restrictions related to liens, payments, mergers or consolidations and amendments to the agreements underlying the receivables pool. Further, each facility may be terminated upon the occurrence of customary events (with customary grace periods, if applicable), including breaches of covenants, failure to maintain certain financial ratios, inaccuracies of representations and warranties, bankruptcy and insolvency events, certain changes in the rate of default or delinquency of the receivables, a change of control and the entry or other enforcement of material judgments. In addition, each facility contains cross-default provisions, where the facility could be terminated in the event of non-payment of other material indebtedness when due and any other event which permits the acceleration of the maturity of material indebtedness.
We also securitize receivables in our European operations with regional banks in Europe under various separate facilities. The commitments for these arrangements are generally for one year, but some may be canceled with notice 90 days prior to renewal. In some instances, the arrangement provides for cancellation by the applicable financial institution at any time upon 15 days, or less, notification. The amount of outstanding third-party investments in our securitized accounts receivable in Europe was $175 million and $134 million at March 31, 2014 and December 31, 2013, respectively.
If we were not able to securitize receivables under either the North American or European securitization programs, our borrowings under our revolving credit agreement might increase. These accounts receivable securitization programs provide us with access to cash at costs that are generally favorable to alternative sources of financing, and allow us to reduce borrowings under our revolving credit agreement.

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

In our North American 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 North American securitization program as a secured borrowing. In our European programs, we transfer accounts receivables in their entirety to the acquiring entities and satisfy all of the conditions established under Accounting Standards Codification (ASC) Topic 860, “Transfers and Servicing,” to report the transfer of financial assets in their entirety as a sale. The proceeds received in exchange for the transfer of accounts receivable under our European securitization programs approximates the fair value of such receivables. We recognized less than $1 million interest expense in each of the three month periods ended March 31, 2014 and 2013 relating to our North American securitization program. In addition, we recognized a loss of $1 million in each of the three month periods ended March 31, 2014 and 2013 on the sale of trade accounts receivable in our European accounts receivable securitization programs, representing the discount from book values at which these receivables were sold to our banks. The discount rate varies based on funding costs incurred by our banks, which averaged approximately three percent during both the first three months of 2014 and 2013, respectively.
(6)
Restructuring and Other Charges
Over the past several years, we have adopted plans to restructure portions of our operations. These plans were approved by our Board of Directors and were designed to reduce operational and administrative overhead costs throughout the business. In 2013, we incurred $78 million in restructuring and related costs, primarily related to European cost reduction efforts including non-cash asset write downs of $3 million, our exit from the distribution of aftermarket exhaust products and ending production of leaf springs in Australia, headcount reductions in various regions and the net impact of freezing our defined benefits plans in the United Kingdom, of which $70 million was recorded in cost of sales and $6 million was recorded in SG&A, $1 million in engineering expense and $1 million in other expense. In the first quarter of 2014, we incurred $10 million in restructuring and related costs, primarily related to European cost reduction efforts including non-cash asset write downs of $1 million, all of which was recorded in cost of sales. During the first quarter of 2013, we incurred $4 million in restructuring and related costs, primarily related to European cost reduction efforts and the costs to exit the distribution of aftermarket exhaust products in Australia, of which $3 million was recorded in cost of sales and $1 million was recorded in SG&A.
Amounts related to activities that are part of our restructuring reserves are as follows:
 
December 31,
2013
Restructuring
Reserve
 
2014
Expenses
 
2014
Cash
Payments
 
March 31, 2014
Restructuring
Reserve
 
(Millions)
Employee Severance, Termination Benefits and Other Related Costs

$44

 
9

 
(5
)
 

$48

Under the terms of our amended and restated senior credit agreement that took effect on March 22, 2012, we are allowed to exclude $80 million of cash charges and expenses, before taxes, related to cost reduction initiatives incurred after March 22, 2012 from the calculation of the financial covenant ratios required under our senior credit facility. As of December 31, 2013, we had excluded all allowable charges relating to restructuring initiatives against the $80 million available under the terms of the senior credit facility.
On January 31, 2013, we announced our intent to reduce structural costs in Europe. This initiative includes the non-cash charges of $4 million we incurred in 2012 in connection with the announced closing of the Vittaryd facility in Sweden and a $7 million charge recorded in the fourth quarter of 2012 related to the impairment of certain assets in the European ride performance business. In August 2013, we completed the closure of the Vittaryd facility. As part of our European structural cost reduction initiative, on September 5, 2013 we announced our intent to close our ride performance plant in Gijon, Spain and reduce the workforce at our ride performance plant in Sint-Truiden, Belgium. The actions were subject to consultation with the relevant employee representatives. We concluded the consultation period with employee representatives at Gijon without having reached agreement and on December 17, 2013 notified the Gijon employees' works council that the Company was proceeding with the plant closure. Employee terminations at Gijon were completed by the end of 2013. During the first quarter of 2014, the employees' works council filed suit challenging the decision to close the Gijon plant and local High Court of Justice of Asturias ruled in favor of the employees' works council. On February 25, 2014, we announced the intention of the Company to appeal that decision to the Supreme Court of Spain in Madrid, and at the same time we are working closely with local and European government officials to reach a solution that will address the challenge to our restructuring plan by the Gijon plant's employees' works council. Negotiations with employee representatives at Sint-Truiden are continuing. We recorded $60 million in 2013 and $2 million in the first quarter of 2014 related to these actions at Gijon and Sint-Truiden. In the first quarter of 2014, we announced and finalized the closure of the clean air just-in-time plant in Iwuy, France, due to reduced demand for the plant's products. The actions were subject to the required consultation process with the relevant employee representatives.

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

 
(7)
Environmental Matters, Legal Proceedings and Product Warranties
We are involved in environmental remediation matters, legal proceedings, claims, investigations and warranty obligations. These matters are typically incidental to the conduct of our business and create the potential for contingent losses. We accrue for potential contingent losses when our review of available facts indicates that it is probable a loss has been incurred and the amount of the loss is reasonably estimable. Each quarter we assess our loss contingencies based upon currently available facts, existing technology, presently enacted laws and regulations and taking into consideration the likely effects of inflation and other societal and economic factors and record adjustments to these reserves as required. As an example, we consider all available evidence, including prior experience in remediation of contaminated sites, other companies’ cleanup experiences and data released by the United States Environmental Protection Agency or other organizations when we evaluate our environmental remediation contingencies. All of our loss contingency estimates are subject to revision in future periods based on actual costs or new information. With respect to our environmental liabilities, where future cash flows are fixed or reliably determinable, we have discounted those liabilities. We evaluate recoveries separately from the liability and, when they are assured, recoveries are recorded and reported separately from the associated liability in our consolidated financial statements.
Environmental Matters
We are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. We expense or capitalize, as appropriate, expenditures for ongoing compliance with environmental regulations that relate to current operations. We expense costs related to an existing condition caused by past operations that do not contribute to current or future revenue generation. As of March 31, 2014, we have the obligation to remediate or contribute towards the remediation of certain sites, including one Federal Superfund site. At March 31, 2014, our aggregated estimated share of environmental remediation costs for all these sites on a discounted basis was approximately $15 million, of which $3 million is recorded in other current liabilities and $12 million is recorded in deferred credits and other liabilities in our condensed consolidated balance sheet. For those locations where the liability was discounted, the weighted average discount rate used was 2.50 percent. The undiscounted value of the estimated remediation costs was $19 million. Our expected payments of environmental remediation costs are estimated to be approximately $3 million in 2014, $1 million in 2015, $1 million each year beginning 2016 through 2018 and $12 million in aggregate thereafter.
Based on information known to us, we have established reserves that we believe are adequate for these costs. Although we believe these estimates of remediation costs are reasonable and are based on the latest available information, the costs are estimates and are subject to revision as more information becomes available about the extent of remediation required. At some sites, we expect that other parties will contribute to the remediation costs. In addition, certain environmental statutes provide that our liability could be joint and several, meaning that we could be required to pay in excess of our share of remediation costs. Our understanding of the financial strength of other potentially responsible parties at these sites has been considered, where appropriate, in our determination of our estimated liability. We do not believe that any potential costs associated with our current status as a potentially responsible party in the Federal Superfund site, or as a liable party at the other locations referenced herein, will be material to our consolidated financial position, results of operations, or liquidity.
Antitrust Investigations
On March 25, 2014, representatives of the European Commission were at Tenneco GmbH's Edenkoben, Germany administrative facility to gather information in connection with an ongoing global antitrust investigation concerning multiple automotive suppliers. On March 25, 2014, we also received a related subpoena from the U.S. Department of Justice. We have cooperated and continue to cooperate fully with these antitrust investigations, and take other actions to minimize our potential exposure. Antitrust law investigations and related matters often continue for several years and can result in significant penalties and liability. At this point, we cannot estimate the ultimate impact on our company from investigations into our antitrust compliance and related matters in light of the uncertainties and many variables involved, and there can be no assurance that the ultimate resolution of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.
Other Legal Proceedings, Claims and Investigations
We are also from time to time involved in other legal proceedings, claims or investigations. Some of these matters involve allegations of damages against us relating to environmental liabilities (including toxic tort, property damage and remediation), intellectual property matters (including patent, trademark and copyright infringement, and licensing disputes), personal injury claims (including injuries due to product failure, design or warning issues, and other product liability related

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

matters), taxes, employment matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures. Additionally, some of these matters involve allegations relating to legal compliance. For example, one of our Argentine subsidiaries is currently defending against a criminal complaint alleging the failure to comply with laws requiring the proceeds of export transactions to be collected, reported and/or converted to local currency within specified time periods. As another example, in the U.S. we are subject to an audit in 11 states with respect to the payment of unclaimed property to those states, spanning a period as far back as over 30 years. While we vigorously defend ourselves against all of these legal proceedings, claims and investigations and take other actions to minimize our potential exposure, in future periods, we could be subject to cash costs or charges to earnings if any of these matters are resolved on unfavorable terms. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including our assessment of the merits of the particular claim, except as described above under "Antitrust Investigations," we do not expect the legal proceedings, claims or investigations currently pending against us will have any material adverse impact on our consolidated financial position, results of operations or liquidity.
In addition, we are subject to lawsuits initiated by a significant number of claimants alleging health problems as a result of exposure to asbestos. In the early 2000's we were named in nearly 20,000 complaints, most of which were filed in Mississippi state court and the vast majority of which made no allegations of exposure to asbestos from our product categories. Most of these claims have been dismissed and our current docket of active and inactive cases is less than 500 cases nationwide. A small number of claims have been asserted by railroad workers alleging exposure to asbestos products in railroad cars manufactured by The Pullman Company, one of our subsidiaries. The substantial majority of the remaining claims are related to alleged exposure to asbestos in our automotive products. Only a small percentage of the claimants allege that they were automobile mechanics and a significant number appear to involve workers in other industries or otherwise do not include sufficient information to determine whether there is any basis for a claim against us. We believe, based on scientific and other evidence, it is unlikely that mechanics were exposed to asbestos by our former products and that, in any event, they would not be at increased risk of asbestos-related disease based on their work with these products. Further, many of these cases involve numerous defendants, with the number in some cases exceeding 100 defendants from a variety of industries. Additionally, the plaintiffs either do not specify any, or specify the jurisdictional minimum, dollar amount for damages. As major asbestos manufacturers and/or users continue to go out of business or file for bankruptcy, we may experience an increased number of these claims. We vigorously defend ourselves against these claims as part of our ordinary course of business. In future periods, we could be subject to cash costs or charges to earnings if any of these matters are resolved unfavorably to us. To date, with respect to claims that have proceeded sufficiently through the judicial process, we have regularly achieved favorable resolutions. Accordingly, we presently believe that these asbestos-related claims will not have a material adverse impact on our future consolidated financial position, results of operations or liquidity.
Warranty Matters
We provide warranties on some of our products. The warranty terms vary but range from one year up to limited lifetime warranties on some of our premium aftermarket products. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified on OE products. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. We actively study trends of our warranty claims and take action to improve product quality and minimize warranty claims. We believe that the warranty reserve is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. The reserve is included in both current and long-term liabilities on the balance sheet.
Below is a table that shows the activity in the warranty accrual accounts:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Millions)
Beginning Balance January 1,
$
24

 
$
23

Accruals related to product warranties
5

 
2

Reductions for payments made
(5
)
 
(4
)
Ending Balance March 31,
$
24

 
$
21


(8)
Earnings Per Share
Earnings per share of common stock outstanding were computed as follows:

19
Table of Contents

 
Three Months Ended March 31, 2014
 
Three Months Ended March 31, 2013
 
(Millions Except Share and Per Share Amounts)
Basic earnings per share —
 
 
 
Net income attributable to Tenneco Inc.
$
46

 
$
54

Weighted Average shares of common stock outstanding
60,549,778

 
60,288,997

Earnings per share of common stock
$
0.76

 
$
0.90

Diluted earnings per share —
 
 
 
Net income attributable to Tenneco Inc.
$
46

 
$
54

Weighted Average shares of common stock outstanding
60,549,778

 
60,288,997

Effect of dilutive securities:
 
 
 
Restricted stock
160,341

 
138,594

Stock options
793,183

 
1,054,244

Weighted Average shares of common stock outstanding including dilutive securities
61,503,302

 
61,481,835

Earnings per share of common stock
$
0.75

 
$
0.88


Options to purchase 782 and 831,243 shares of common stock were outstanding as of March 31, 2014 and 2013, respectively, but not included in the computation of diluted earnings per share respectively, because the options were anti-dilutive.
(9)
Common Stock
Equity Plans — We have granted a variety of awards, including common stock, restricted stock, restricted stock units, performance units, stock appreciation rights (“SARs”), and stock options to our directors, officers, and employees.

Accounting Methods — We have recorded $2 million in compensation expense in each of the three month periods ended March 31, 2014 and 2013 related to nonqualified stock options as part of our selling, general and administrative expense. This resulted in a decrease of $0.04 in both basic and diluted earnings per share for the three month period ended March 31, 2014 and a decrease of $0.04 and $0.03 in basic and diluted earnings per share, respectively, for the three month period ended March 31, 2013.
For employees eligible to retire at the grant date, we immediately expense stock options and restricted stock. If employees become eligible to retire during the vesting period, we immediately recognize any remaining expense associated with their stock options and restricted stock.
As of March 31, 2014, there was approximately $9 million of unrecognized compensation costs related to our stock option awards that we expect to recognize over a weighted average period of 1.6 years.
Compensation expense for restricted stock, restricted stock units, long-term performance units and SARs was $8 million and $5 million for the three months ended March 31, 2014 and 2013, respectively, and was recorded in selling, general, and administrative expense in our condensed consolidated statements of income.
Cash received from stock option exercises for the quarter ended March 31, 2014 was less than $1 million and was $2 million for the quarter ended March 31, 2013.
Stock options exercised in the quarter ended March 31, 2013 would have generated a tax benefit of $1 million, however in 2013 we did not begin to record this tax benefit until the third quarter 2013 when we began utilizing our federal and state NOLs. In the first quarter of 2014, we recorded a tax benefit of $12 million, all of which was related to the historic tax benefit on stock options from 2011 through 2013.
Assumptions — We calculated the fair values of stock option awards using the Black-Scholes option pricing model with the weighted average assumptions listed below. The fair value of share-based awards is determined at the time the awards are granted which is generally in January of each year, and requires judgment in estimating employee and market behavior.

20
Table of Contents
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
(Unaudited)

 
Three Months Ended March 31,
 
2014
 
2013
Stock Options Granted
 
 
 
Weighted average grant date fair value, per share
$
26.46

 
$
19.84

Weighted average assumptions used:
 
 
 
Expected volatility
52.8
%
 
66.4
%
Expected lives
5.0

 
4.9

Risk-free interest rates
1.7
%
 
0.7
%
Dividend yields
—
%
 
—
%
 
Expected volatility is calculated based on current implied volatility and historical realized volatility for the Company.
Expected lives of options are based upon the historical and expected time to post-vesting forfeiture and exercise. We believe this method is the best estimate of the future exercise patterns currently available.
The risk-free interest rates are based upon the Constant Maturity Rates provided by the U.S. Treasury. For our valuations, we used the continuous rate with a term equal to the expected life of the options.
Stock Options — The following table reflects the status and activity for all options to purchase common stock for the period indicated:
 
Three Months Ended March 31, 2014
 
Shares
Under
Option
 
Weighted Avg.
Exercise
Prices
 
Weighted Avg.
Remaining
Life in Years
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
(Millions)
Outstanding Stock Options
 
 
 
 
 
 
 
Outstanding, January 1, 2014
1,983,573

 
$
22.93

 
4.5
 
$
62

Granted
192,624

 
56.23

 
 
 
 
Canceled
(31,299
)
 
19.78

 
 
 
 
Forfeited
(300
)
 
22.77

 
 
 
 
Exercised
(25,595
)
 
14.72

 
 
 
1

Outstanding, March 31, 2014
2,119,003

 
$
26.10

 
4.6
 
$
67

The weighted average grant-date fair value of options granted during the three months ended March 31, 2014 and 2013 was $26.46 and $19.84, respectively. The total fair value of shares vested was $6 million and $5 million for the periods ended March 31, 2014 and 2013, respectively.

Restricted Stock — The following table reflects the status for all nonvested restricted shares for the period indicated:
 
Three Months Ended March 31, 2014
 
Shares
 
Weighted Avg.
Grant Date
Fair Value
Nonvested Restricted Shares
 
 
 
Nonvested balance at January 1, 2014
368,268

 
$
34.90

Granted
131,561

 
54.90

Vested
(186,112
)
 
36.57

Forfeited
—

 
—

Nonvested balance at March 31, 2014
313,717

 
$
42.30

The fair value of restricted stock grants is equal to the average of the high and low trading price of our stock on the date of grant. As of March 31, 2014, approximately $10 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 2.2 years. The total fair value of restricted shares vested was $7 million and $5 million at March 31, 2014 and 2013, respectively.

21
Table of Contents
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
(Unaudited)

In January 2014, our Board of Directors approved a share repurchase program, authorizing our company to repurchase up to 400,000 shares of our outstanding common stock over a 12 month period. This share repurchase program is intended to offset dilution from shares of restricted stock and stock options issued in 2014 to employees. We did not purchase any shares through this program in the three month period ended March 31, 2014.
These repurchased shares are held as part of our treasury stock which was at 2,844,692 shares at both March 31, 2014 and December 31, 2013.
Long-Term Performance Units, Restricted Stock Units and SARs — Long-term performance units, restricted stock units and SARs are paid in cash and recognized as a liability based upon their fair value. As of March 31, 2014, $26 million of total unrecognized compensation costs is expected to be recognized over a weighted-average period of approximately 2.1 years.

(10)
Pension Plans, Postretirement and Other Employee Benefits
Net periodic pension costs and postretirement benefit costs consist of the following components:
 
Three Months Ended March 31,
 
Pension
 
Postretirement
 
2014
 
2013
 
2014
 
2013
 
US
 
Foreign
 
US
 
Foreign
 
US
 
US
 
(Millions)
Service cost — benefits earned during the period
$
—

 
$
2

 
$
—

 
$
2

 
$
—

 
$
—

Interest cost
5

 
5

 
5

 
4

 
1

 
1

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

 
—

Net amortization:
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
2

 
2

 
2

 
3

 
1

 
1

Prior service cost (credit)
—

 
—

 
—

 
—

 
(2
)
 
(1
)
Net pension and postretirement costs
$
1

 
$
3

 
$
2

 
$
4

 
$
—

 
$
1

For the three months ended March 31, 2014, we made pension contributions of $7 million and $4 million for our domestic and foreign pension plans, respectively. Based on current actuarial estimates, we believe we will be required to contribute approximately $36 million for the remainder of 2014. Pension contributions beyond 2014 will be required, but those amounts will vary based upon many factors including, for example, the performance of our pension fund investments during 2014.
We made postretirement contributions of approximately $2 million during the first three months of 2014. Based on current actuarial estimates, we believe we will be required to contribute approximately $6 million for the remainder of 2014.
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 periods ended March 31, 2014 and 2013 include the following components:

22
Table of Contents
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
(Unaudited)

 
Three Months Ended March 31,
 
2014
 
2013
 
Before-Tax
Amount
 
Tax
Benefit
 
Net-of-Tax
Amount
 
Before-
Tax
Amount
 
Tax
Benefit
 
Net-of-Tax
Amount
 
(Millions)
Defined benefit pension and postretirement plans:
 
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost included in net periodic pension and postretirement cost
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
—

 
$
(1
)
Amortization of actuarial loss included in net periodic pension and postretirement cost
4

 
(1
)
 
3

 
6

 
(1
)
 
5

Other comprehensive income – pension benefits
$
4

 
$
(1
)
 
$
3

 
$
5

 
$
(1
)
 
$
4


(11)
New Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued an amendment to provide explicit guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. The objective of the amendment is to eliminate the diversity in practice in the presentation of unrecognized tax benefits in those instances. This amendment is effective for reporting periods beginning after December 15, 2013. We adopted this amendment on January 1, 2014. This amendment did not have a material impact on our consolidated financial statements.
In April 2013, the FASB issued an amendment to clarify when an entity should apply the liquidation basis of accounting and to provide principles for the measurement of assets and liabilities under the liquidation basis of accounting, as well as any required disclosures. The amendment applies to all entities that issue financial statements that are presented in conformity with U.S. GAAP except investment companies that are regulated under the Investment Company Act of 1940. This amendment is effective for reporting periods beginning after December 15, 2013. This amendment did not have any impact on our consolidated financial statements.
In February 2013, the FASB issued an amendment to resolve the diversity in practice about whether Subtopic 810-10, Consolidation-Overall, or Subtopic 830-30, Foreign Currency Matters-Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part of all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real state or conveyance of oil and gas mineral rights) within a foreign entity. In addition, the amendments resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. This amendment is effective for reporting periods beginning after December 15, 2013. This amendment did not have any impact on our consolidated financial statements.
In February 2013, the FASB issued an amendment to the accounting guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement amount its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this amendment also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. This amendment is effective for reporting periods beginning after December 15, 2013. This amendment did not have any impact on our consolidated financial statements.
In February 2013, the FASB issued an amendment to the accounting guidance to improve the transparency of reporting amounts reclassified out of other comprehensive income. Other comprehensive income (loss) includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. This amendment does not change the current requirements for reporting net income or other comprehensive income in the financial statements. All of the information that this amendment requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. This new amendment requires presentation either on the face of the statement where net income is presented or in the notes, the effects of significant amounts reclassified out of accumulated other comprehensive income, and that the reclassified amounts be cross-referenced to the other disclosures

23
Table of Contents
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
(Unaudited)

required under U.S. GAAP. This amendment was effective for reporting periods beginning after December 15, 2012. This amendment did not have a material impact on our condensed consolidated financial statements.
(12)
Segment Information
In connection with the organizational changes announced on February 14, 2013 that aligned our businesses along product lines, effective with the first quarter of 2013, our three prior geographic reportable segments have each been split into two product segments. Beginning with 2013, we are managed and organized along our two major product lines (clean air and ride performance) and three geographic areas (North America; Europe, South America and India; and Asia Pacific), resulting in six operating segments (North America Clean Air, North America Ride Performance, Europe, South America and India Clean Air, Europe, South America and India Ride Performance, Asia Pacific Clean Air and Asia Pacific Ride Performance). Within each geographical area, each operating segment manufactures and distributes either clean air or ride performance products primarily for the original equipment and aftermarket industries. Each of the six operating segments constitutes a reportable segment. Costs related to other business activities, primarily corporate headquarter functions, are disclosed separately from the six operating segments as "Other." We evaluate segment performance based primarily on earnings before interest expense, income taxes, and noncontrolling interests. Products are transferred between segments and geographic areas on a basis intended to reflect as nearly as possible the “market value” of the products. Prior period segment information has been revised to reflect our new reporting segments.

The following table summarizes certain Tenneco Inc. segment information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clean Air Division
 
Ride Performance Division
 
 
 
 
 
 
 
North
America
 
Europe, South America & India
 
Asia
Pacific
 
North
America
 
Europe, South America & India
 
Asia
Pacific
 
Other
 
Reclass & Elims
 
Total
 
(Millions)
At March 31, 2014 and for the Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
$
698

 
$
506

 
$
240

 
$
335

 
$
263

 
$
52

 
$
—

 
$
—

 
$
2,094

Intersegment revenues
7

 
29

 
—

 
3

 
10

 
9

 
—

 
(58
)
 
—

EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests
56

 
9

 
20

 
30

 
16

 
7

 
(25
)
 
—

 
113

Total assets
1,197

 
908

 
563

 
701

 
557

 
219

 
—

 
34

 
4,179

At March 31, 2013 and for the Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
646

 
467

 
183

 
307

 
252

 
48

 
—

 
—

 
1,903

Intersegment revenues
1

 
31

 
—

 
2

 
12

 
7

 
—

 
(53
)
 
—

EBIT, Earnings (loss) before interest expense, income taxes, and noncontrolling interests
49

 
11

 
15

 
25

 
10

 
4

 
(21
)
 
—

 
93

Total assets
1,144

 
833

 
469

 
645

 
557

 
207

 
—

 
23

 
3,878



24
Table of Contents
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
(Unaudited)

(13)
Supplemental Guarantor Condensed Consolidating Financial Statements
Basis of Presentation
Substantially all of our existing and future material domestic 100% owned subsidiaries (which are referred to as the Guarantor Subsidiaries) fully and unconditionally guarantee our senior notes due in 2018 and 2020 on a joint and several basis. However, a subsidiary’s guarantee may be released in certain customary circumstances such as a sale of the subsidiary or all or substantially all of its assets in accordance with the indenture applicable to the notes. The Guarantor Subsidiaries are combined in the presentation below.
These consolidating financial statements are presented on the equity method. Under this method, our investments are recorded at cost and adjusted for our ownership share of a subsidiary’s cumulative results of operations, capital contributions and distributions, and other equity changes. You should read the condensed consolidating financial information of the Guarantor Subsidiaries in connection with our condensed consolidated financial statements and related notes of which this note is an integral part.
Distributions
There are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions to us.


25
Table of Contents
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
(Unaudited)

STATEMENT OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended March 31, 2014
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
Revenues
 
 
 
 
 
 
 
 
 
Net sales and operating revenues —
 
 
 
 
 
 
 
 
 
External
$
920

 
$
1,174

 
$
—

 
$
—

 
$
2,094

Affiliated companies
103

 
148

 
—

 
(251
)
 
—

 
1,023

 
1,322

 
—

 
(251
)
 
2,094

Costs and expenses
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
802

 
1,203

 
—

 
(251
)
 
1,754

Engineering, research, and development
22

 
20

 
—

 
—

 
42

Selling, general, and administrative
51

 
79

 
2

 
—

 
132

Depreciation and amortization of other intangibles
21

 
30

 
—

 
—

 
51

 
896

 
1,332

 
2

 
(251
)
 
1,979

Other income (expense)
 
 
 
 
 
 
 
 
 
Loss on sale of receivables
—

 
(1
)
 
—

 
—

 
(1
)
Other income (loss)
(2
)
 
1

 
—

 
—

 
(1
)
 
(2
)
 
—

 
—

 
—

 
(2
)
Earnings (loss) before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
125

 
(10
)
 
(2
)
 
—

 
113

Interest expense —
 
 
 
 
 
 
 
 
 
External (net of interest capitalized)
—

 
—

 
19

 
—

 
19

Affiliated companies (net of interest income)
16

 
(16
)
 
—

 
—

 
—

Earnings (loss) before income taxes, noncontrolling interests, and equity in net income from affiliated companies
109

 
6

 
(21
)
 
—

 
94

Income tax expense
30

 
10

 


 


 
40

Equity in net income (loss) from affiliated companies
(15
)
 
—

 
67

 
(52
)
 
—

Net Income (loss)
64

 
(4
)
 
46

 
(52
)
 
54

Less: Net income attributable to noncontrolling interests
—

 
8

 
—

 
—

 
8

Net income (loss) attributable to Tenneco Inc.
$
64

 
$
(12
)
 
$
46

 
$
(52
)
 
$
46

Comprehensive income (loss) attributable to Tenneco Inc.
$
65

 
$
(16
)
 
$
46

 
$
(52
)
 
$
43


 

26
Table of Contents
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
(Unaudited)

STATEMENT OF COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended March 31, 2013
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
Revenues
 
 
 
 
 
 
 
 
 
Net sales and operating revenues —
 
 
 
 
 
 
 
 
 
External
$
852

 
$
1,051

 
$
—

 
$
—

 
$
1,903

Affiliated companies
79

 
150

 
—

 
(229
)
 
—

 
931

 
1,201

 
—

 
(229
)
 
1,903

Costs and expenses
 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown below)
742

 
1,091

 
—

 
(229
)
 
1,604

Engineering, research, and development
15

 
20

 
—

 
—

 
35

Selling, general, and administrative
53

 
64

 
2

 
—

 
119

Depreciation and amortization of other intangibles
19

 
31

 
—

 
—

 
50

 
829

 
1,206

 
2

 
(229
)
 
1,808

Other income (expense)
 
 
 
 
 
 
 
 
 
Loss on sale of receivables
—

 
(1
)
 
—

 
—

 
(1
)
Other income (expense)
(1
)
 
—

 
—

 
—

 
(1
)
 
(1
)
 
(1
)
 
—

 
—

 
(2
)
Earnings before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
101

 
(6
)
 
(2
)
 
—

 
93

Interest expense —
 
 
 
 
 
 
 
 
 
External (net of interest capitalized)
—

 
1

 
19

 
—

 
20

Affiliated companies (net of interest income)
18

 
(19
)
 
1

 
—

 
—

Earnings (loss) before income taxes, noncontrolling interests, and equity in net income from affiliated companies
83

 
12

 
(22
)
 
—

 
73

Income tax expense
6

 
6

 
—

 
—

 
12

Equity in net income (loss) from affiliated companies
(5
)
 
—

 
76

 
(71
)
 
—

Net income (loss)
72

 
6

 
54

 
(71
)
 
61

Less: Net income attributable to noncontrolling interests
—

 
7

 
—

 
—

 
7

Net income (loss) attributable to Tenneco Inc.
$
72

 
$
(1
)
 
$
54

 
$
(71
)
 
$
54

Comprehensive income (loss) attributable to Tenneco Inc.
$
67

 
$
(18
)
 
$
54

 
$
(71
)
 
$
32






 

27
Table of Contents
TENNECO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
(Unaudited)

BALANCE SHEET
 
March 31, 2014
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Tenneco Inc.
(Parent
Company)
 
Reclass &
Elims
 
Consolidated
 
(Millions)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2

 
$
265

 
$
—

 
$
—

 
$
267

Restricted cash
—

 
6

 
—

 
—

 
6

Receivables, net
593

 
1,464

 
16

 
(785
)
 
1,288

Inventories
314

 
423

 
—

 
—

 
737

Deferred income taxes
88

 
—

 
7

 
(24
)
 
71

Prepayments and other
41

 
217