Edgar Filing: TENNECO INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



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

For the fiscal year ended December 31, 2018



¨	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, IL (Address of principal executive offices)		60045 (Zip Code)

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

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



Title of each class		Name of each Exchange on which registered
Class A Voting Common Stock, par value $.01 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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



Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨
		Emerging growth company ¨

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2018, computed by reference to the price at which the registrant's common stock was last sold on the New York Stock Exchange on June 30, 2018, was approximately $2.2 billion.

The number of shares of Class A Voting Common Stock, par value $0.01 per share: 57,126,127 shares outstanding as of March 11, 2019. The number of shares of Class B Non-Voting Common Stock, par value $0.01 per share: 23,793,669 shares outstanding as of March 11, 2019.

Documents Incorporated by Reference:



Document		Part of the Form 10-K into which incorporated
Portions of Tenneco Inc.’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 15, 2019		Part III

Table of Contents

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

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, our prospects and business strategies. These forward-looking statements are included in various sections of this report. The words “may,” “will,” “believe,” “should,” “could,” “plan,” “expect,” “anticipate,” “estimate,” and similar expressions (and variations thereof), identify these forward-looking statements. Although we believe 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 consumer demand, prices and our ability to have our products included on top selling vehicles, including any shifts in consumer preferences away from historically higher margin products for our customers and us, to other lower margin vehicles, for which we may or may not have supply arrangements, and the cyclical nature of the global vehicle industry, including the performance of the global aftermarket sector and the impact of vehicle parts' longer product lives;


•	changes in consumer demand for our OE 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 and/or regulatory or legal changes affecting internal combustion engines and/or aftermarket products;

•

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


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


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


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


•	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;


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


•	our working capital requirements;


•	our ability to successfully execute cash management and other cost reduction plans, and to realize the anticipated benefits from these plans;


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


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


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


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


•	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;


•	developments relating to our intellectual property, including our ability to changes in technology;


•	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;

Table of Contents


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


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


•	the evolution towards autonomous vehicles and car and ride sharing;


•	customer acceptance of new products;


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


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


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


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


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


•	changes by the Financial Accounting Standards Board 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 or increased costs or loss of revenues relating to products subject to changing regulation;


•	potential volatility in our effective tax rate;


•	disasters, such as fires, earthquakes and flooding, and any resultant disruptions in the supply or production of goods or services to us or by us, in demand by our customers or in the operation of our system, disaster recovery capabilities or business continuity capabilities;


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


•	pension obligations and other postretirement benefits;


•	our hedging activities to address commodity price fluctuations; and


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

In addition, important factors related to the acquisition of Federal-Mogul LLC ("Federal-Mogul") and the planned separation of our company into a powertrain technology company and an aftermarket and ride performance company that could cause actual results to differ materially from the expectations reflected in the forward-looking statements, including:


•	the risk that the benefits of the acquisition of Federal-Mogul, including synergies, may not be fully realized or may take longer to realize than expected;


•	the risk that the acquisition of Federal-Mogul may not advance our business strategy;


•	the risk that we may experience difficulty integrating or separating employees or operations;


•	the risk that the transaction may have an adverse impact on existing arrangements with us, including those related to transition, manufacturing and supply services and tax matters, our ability to retain and hire key personnel or our ability to maintain relationships with customers, suppliers or other business partners;


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


•	the risk that the combined company and each separate company following the spin-off will underperform relative to our expectations;


•	the ongoing transaction costs and risk that we may incur greater costs following the spin-off; and


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

The risks included here are not exhaustive. Refer to “Part I, Item 1A — Risk Factors” of this report 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

Table of Contents

factors, nor to assess the impact such risk factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Unless otherwise indicated in this report, the forward-looking statements in this report are made as of the date of this report, and, except as required by law, the Company does not undertake any obligation, and disclaims any obligation, to publicly disclose revisions or updates to any forward-looking statements.

Table of Contents

TABLE OF CONTENTS

FORM 10-K



PART I
Item 1.	Business	6
	Tenneco Inc.	6
	Description of Our Business	7
Item 1A.	Risk Factors	21
Item 1B.	Unresolved Staff Comments	34
Item 2.	Properties	35
Item 3.	Legal Proceedings	36
Item 4.	Mine Safety Disclosures	38
Item 4.1.	Executive Officers of the Registrant	39

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	41
Item 6.	Selected Financial Data	43
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 8.	Financial Statements and Supplementary Data	75
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	161
Item 9A.	Controls and Procedures	161
Item 9B.	Other Information	161

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	162
Item 11.	Executive Compensation	162
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	162
Item 13.	Certain Relationships and Related Transactions, and Director Independence	163
Item 14.	Principal Accountant Fees and Services	163

PART IV
Item 15.	Exhibits, Financial Statement Schedules	164
Item 16.	Form 10-K Summary	172

Table of Contents

PART I

ITEM 1.BUSINESS.

TENNECO INC.

General

Our company, Tenneco Inc., designs, manufactures and sells innovative products and services for light vehicle, commercial truck, off-highway, industrial and aftermarket customers. We serve both original equipment manufacturers (“OEM”) and replacement markets worldwide. We are one of the world’s leading manufacturers of clean air, powertrain and ride performance products and systems for light vehicle, commercial truck, off-highway, industrial and aftermarket customers. As used herein, the term “Tenneco,” “we,” “us,” “our,” or the “Company” refers to Tenneco Inc. and its consolidated subsidiaries.

We were incorporated in Delaware in 1996. In 2005, we changed our name from Tenneco Automotive Inc. to Tenneco Inc. The name Tenneco better represents the expanding number of markets we serve through our commercial truck and off-highway businesses. Our Class A Voting Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “TEN.”

On October 1, 2018, we completed the acquisition of Federal-Mogul LLC ("Federal-Mogul"), a global supplier of technology and innovation in vehicle and industrial products for fuel economy, emissions reductions, and safety systems. Federal-Mogul serves the world’s foremost OEM and servicers (“OES”, and together with OEM, “OE”) of automotive, light, medium and heavy-duty commercial vehicles, off road, agricultural, marine, rail, aerospace, power generation and industrial equipment, as well as the worldwide aftermarket. We expect to separate our businesses to form two new independent, publicly traded companies, an Aftermarket and Ride Performance company and a new Powertrain Technology company, in the second half of 2019. See Note 3—Acquisitions and Divestitures to our consolidated financial statements in Item 8 — “Financial Statements and Supplementary Data" for additional information.

As a result of the Acquisition, the number of our reportable segments increased from three to five segments, consisting of the following: our historical Clean Air, Ride Performance and Aftermarket segments and the newly acquired Powertrain and Motorparts segments.

On January 10, 2019, we closed on our acquisition of Öhlins Racing A.B. (“Öhlins”), a Sweden-based company. Öhlins offers suspension systems and components to automotive, and motorsport industries.

Our Internet address is http://www.tenneco.com. We make our proxy statements, annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as filed with or furnished to the Securities and Exchange Commission (SEC), available free of charge on our Internet website as soon as reasonably practicable after submission to the SEC. Securities ownership reports on Forms 3, 4 and 5 are also available free of charge on our website as soon as reasonably practicable after submission to the SEC. The contents of our website are not, however, a part of this report.

Available Information

Our Audit Committee, Compensation Committee and Nominating and Governance Committee Charters, Corporate Governance Principles, Stock Ownership Guidelines, Audit Committee policy regarding accounting complaints, Code of Ethical Conduct for Financial Managers, Code of Conduct, Policy and Procedures for Transactions with Related Persons, Equity Award Policy, Clawback Policy, Insider Trading Policy, policy for communicating with the Board of Directors, and Audit Committee policy regarding the pre-approval of audit, non-audit, tax and other services are available free of charge on our website at www.tenneco.com. In addition, we will make a copy of any of these documents available to any person, without charge, upon written request to Tenneco Inc., 500 North Field Drive, Lake Forest, Illinois 60045, Attn: General Counsel. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K and applicable NYSE rules regarding amendments to, or waivers of, our Code of Ethical Conduct for Financial Managers and Code of Conduct by posting this information on our website at www.tenneco.com.

Table of Contents

DESCRIPTION OF OUR BUSINESS

We design, manufacture and sell innovative products and services for light vehicle, commercial truck, off-highway, industrial and aftermarket customers, and generated revenues of $11.8 billion in 2018. We serve both original equipment (OE) manufacturers and replacement markets worldwide. Our portfolio of the industry’s most well-respected enduring brands include Monroe®, Champion®, Öhlins®, MOOG®, Walker®, Fel-Pro®, Wagner®, Ferodo®, Rancho®, Thrush®, National®, and Sealed Power®, among others. We seek to leverage our OE product engineering and development capability, manufacturing know-how, and expertise in managing a broad and deep range of replacement parts to service the aftermarket. We effectively manage the life cycle of a broad range of products to a diverse customer base.

As a parts supplier, we produce individual component parts for vehicles as well as groups of components that are combined as modules or systems within vehicles. These parts, modules, and systems are sold globally to the world's leading light vehicle and commercial truck manufacturers as well as aftermarket customers, including independent warehouse distributors, distributors, engine rebuilders, retail parts stores, mass merchants, and service chains.

On October 1, 2018, we closed the acquisition of Federal-Mogul, (the "Acquisition") pursuant to the Membership Interest Purchase Agreement, dated as of April 10, 2018, by and among us, Federal-Mogul, American Entertainment Properties Corp. (“AEP”) and Icahn Enterprises L.P. (“IEP”). We agreed to use our reasonable best efforts to pursue the separation of the combined company’s aftermarket and ride performance business and its powertrain technology business into two new independent, publicly traded companies in a spin-off transaction that is expected to be treated as a tax-free reorganization for U.S. federal income tax purposes. We expect the spin-off to be completed in the second half of 2019.

Our Industry

The parts industry for vehicles and engines is generally separated into two categories, both of which we operate within:(1) “original equipment” or “OE” parts that are sold in large quantities directly for use by manufacturers of light vehicles and commercial vehicles and (2) “aftermarket” or replacement parts that are sold in varying quantities to wholesalers, retailers and installers. Light vehicles are comprised of passenger cars and light trucks, which include sport-utility vehicles (SUVs), crossover vehicles (CUVs), pick-up trucks, vans and multi-purpose passenger vehicles. Commercial vehicles include commercial trucks and off-highway equipment.

Global OE Industry

Products for the global OE industry are sold directly to OE manufacturers that use these parts, which include components, systems, subsystems, and modules, in the manufacture of new light and commercial vehicles. Demand for component parts in the OE market is generally a function of the number of new vehicles/engines produced, which is driven by macroeconomic conditions and other factors such as fuel prices, consumer confidence, employment trends, regulatory requirements, and trade agreements. Although OE demand is tied to planned vehicle production, parts suppliers also have the opportunity to grow revenues by increasing their product content per vehicle. Companies, like us, with a global presence, leading technology and innovation, and advanced product, engineering, manufacturing, and customer support capabilities are best positioned to take advantage of these opportunities.

Key Industry Trends Affecting the Global OE Industry

Global Light Vehicle Production

Global light vehicle production is expected to grow by approximately 2% annually from 2018 to 2025, reaching nearly 109 million units by 2025, according to leading forecasting company IHS Markit. In 2018, global light vehicle production declined 1% versus the previous year, including a 1% decline in North America, 1% decline in Europe and 4% decline in China, with increases of 3% in South America and 6% in India. Global light vehicle production increased 2% in 2017 and 5% in 2016.

Table of Contents

Intelligent Suspension, Autonomous Driving and Mobility

There are a number of trends that are driving “Auto 2.0,” defined as the transformation of cars into hybrid systems, electric and fully autonomous vehicles, the business model shift from individual car ownership to ride-sharing, and multi-model forms of mobility. For instance, higher levels of autonomy will drive increased passenger expectations for a comfortable ride, which, in turn, will create additional content opportunities per vehicle and heighten demand for advanced suspension products, including full-corner/around-the-wheel intelligent suspension systems.

Advanced suspension technology is expected to grow with adoption led by global OE manufacturers. Increased connectivity also presents additional prospects for active suspension systems, predictive vehicle diagnostics, and system-based integration within the vehicle as well as broader vehicle to everything (“V2X”) communications. The addition of Öhlins to the portfolio is expected to accelerate the development of advanced OE intelligent suspension solutions, while also fast-tracking time to market. This acquisition is yet another example of our strategy to leverage key technologies that will better position us to take advantage of secular trends. It will also enhance our portfolio in broader mobility markets through the addition of Öhlins’ range of premium OE and aftermarket automotive and motorsports performance products.

Maturing powertrain technology, including the increased adoption of hybrid and fully electric powertrains, will create further opportunities for increased ride performance and noise, vibration and harshness (“NVH”) capabilities, as consumers look for smoother, quieter and more efficient rides. Our capability in both the suspension and NVH performance materials categories provide the opportunity to maximize driving comfort and ride performance for motorists worldwide.

Shared mobility describes a range of transportation options that involve the shared use of a vehicle, motorcycle, scooter, bicycle or other travel mode; it provides users with short-term access to a transportation mode on an as-needed basis. Shared mobility may reduce vehicle volumes in established markets, but it also provides an opportunity for us to develop higher-mileage, durable solutions to meet the needs of new mobility fleets. Additionally, ride comfort and durability will become increasingly important differentiators as consumers increasingly take advantage of the sharing economy.

Focus on Fuel Economy, Reduced Emissions and Alternative Energy Sources

Increased fuel economy and decreased vehicle emissions are of great importance to OE suppliers, as customers, consumers and legislators continue to demand more efficient and cleaner operating vehicles. Increasingly stringent fuel economy standards and environmental regulations are driving OE customers to focus on new technologies including downsized, higher-output and turbocharged gasoline and diesel engines, and hybrid electric and pure electric powertrains, such as fuel cell and battery powered cars. We continue to expand our investment around the world, in regions such as North America, Europe, China, India, and Japan to capitalize on the growing demand for environmentally friendly solutions for light vehicle, commercial truck and off-highway applications driven by environmental regulations in these regions.

The products that our clean air segment provides reduce the tailpipe emissions of criteria pollutants. In addition, regulations have been adopted to regulate greenhouse gas emissions of carbon dioxide. Reducing CO2 emissions requires improving fuel economy; as a result improved combustion efficiency and reduction of vehicle mass have become priorities. As a leading supplier of clean air systems with strong technical capabilities, we believe we are well positioned to benefit from the more rigorous environmental standards being adopted around the world.

The demand for smaller but more powerful engines requires more technology per engine to withstand the higher output requirements, which we estimate will result in an increase in content per engine for our powertrain business. With a global manufacturing presence, we believe we are well-positioned to meet expectations of our global customers. For the foreseeable future, it is expected that gasoline and diesel engines will remain the dominant powertrain for cars (including hybrids), heavy-duty, and industrial applications. We are equally capable of providing components for both gasoline and diesel engines.

Increasing Technologically Sophisticated Content

As end users and consumers continue to demand vehicles with improved performance, safety and functionality at competitive prices, the components and systems in these vehicles are becoming technologically more advanced and sophisticated. Mechanical functions are being replaced with electronics; and mechanical and electronic devices are being integrated into single systems. More stringent emission and other regulatory standards are increasing the complexity of the systems as well.

To remain competitive as a parts and systems supplier, we invest in engineering, research and development. We also fund and sponsor university and other independent research to advance development efforts. By investing in technology, we have been able to expand our product offerings and penetrate new markets.

Table of Contents

Enhanced Vehicle Safety and Handling

To serve the needs of their customers and meet government mandates, OE manufacturers are seeking parts suppliers that invest in new technologies, capabilities and products that advance vehicle safety and handling, such as roll-over protection systems, intelligent suspension, and safer, more durable materials. Those suppliers, such as us, that are able to offer such innovative products and technologies have a distinct competitive advantage. We offer adjustable and adaptive damping as well as semi-active suspension systems designed to improve vehicle stability, handling and control.

We also are a global leader in the development of leading friction formulas that improve vehicle stopping distances and performance. As the commercial truck customers migrate to air disc brake systems, we remain at the forefront of providing the brake friction necessary for these new systems.

Many of our aftermarket products directly affect vehicle performance. Product quality, reliability, and consistency are paramount to our end-customers, the majority of whom are professional service technicians. Our engineering prowess and product capabilities from chassis to braking allow us to provide a complete around-the-wheel offering. Additionally, we have a number of braking products including disc pads for passenger cars, motorcycles and commercial vehicles; drum brake shoes and CV drum brake lining; and brake accessories including rotors, drums, hydraulics, hardware and brake fluid.

Sourcing by OE Manufacturers

As OE manufacturers expand their reach, many are looking for suppliers with a global footprint and the capability to supply them with full system integration and solutions, rather than individual standalone products.

Because of these trends, OE manufacturers are increasingly seeking suppliers capable of supporting vehicle platforms on a global basis. They want suppliers like us with design, production, engineering and logistics capabilities that can be accessed not just in North America and Europe but also in emerging markets such as India and China. OE manufacturers have standardized on global platforms, designing basic mechanical structures suitable for a number of similar vehicle models and are able to accommodate different features across regions. This standardization will drive growth in production of light vehicles designed on global platforms. Accordingly, global platforms, identified as platforms produced in more than one region, are expected to grow.

As OE manufacturers look to simplify and streamline design, they are also increasingly selecting suppliers like us that provide fully-engineered, integrated systems and solutions. OE manufacturers have steadily outsourced more of the design and manufacturing of vehicle parts and systems to simplify the assembly process, lower costs and reduce development times. Furthermore, they have demanded from their parts suppliers fully integrated, functional modules and systems made possible with the development of advanced electronics in addition to innovative, individual vehicle components and parts that may not readily interface together.

Global Aftermarket Industry

Products for the global aftermarket are sold directly to a wide range of distributors, retail parts stores, and mass merchants that distribute these products to professional service providers, “do-it-yourself” consumers, and in some cases, directly to service chains. Demand for aftermarket products historically has been driven by four primary factors: (i) the number of vehicles in operation (“VIO”); (ii) the average age of VIO; (iii) vehicle usage trends; and (iv) component failure and wear rates. These factors, while applicable in all regions, vary depending on the composition of VIO and other factors.

Key trends affecting the Global Aftermarket Industry

Growth in the Number of VIO in both Mature and Emerging Markets

The global number of VIO is expected to grow, with the number of VIO in emerging markets such as China expected to increase substantially. The number of VIO in mature markets, such as North America and Europe, is also expected to grow, though at a lesser pace than the emerging markets. We have strong aftermarket positions in North America, Europe and South America and a growing aftermarket position in Asia. We expect there to be aftermarket growth opportunities in emerging markets such as China and India where the VIO are expected to increase and are investing to position ourselves as a leading aftermarket supplier in these regions. We are leveraging our market-leading capabilities from mature markets and investing to develop the right distributor base, drive brand recognition, increase product coverage, build the supply chain and promote our experience as an OE-quality supplier.

Increase in the Average Age of Vehicles in Operation

The average age of VIO in North America and Europe has increased significantly this century, and is expected to increase further. Increases in the average age of VIO will drive the need for maintenance and repair work, thereby increasing the overall demand for aftermarket replacement parts in North America and Europe. The average age of VIO in China is expected to increase, which we believe will lead to continuing significant growth in the China aftermarket.

Table of Contents

Extended Product Life of Automotive Parts

The average useful life of automotive parts, both OE and replacement, has steadily increased in recent years due to technological innovations including longer-lasting materials. As a result, there are more vehicles on the road than ever before. Aftermarket suppliers are focused on reducing costs and providing product differentiation through advanced technology and recognized brand names. With our long history of technological innovation, iconic brands and operational efficiency, we believe we are well-positioned to leverage our products and technology.

Managing Complexity

We operate in a highly fragmented and dynamic industry and are among the few large aftermarket-focused suppliers globally. The increasing global vehicle population, brand and vehicle complexity, and need for rapid new part introduction, as well as new distribution channels (including online) continue to drive significant SKU proliferation and business complexity. Our recent investments in our supply chain and information technology capabilities are designed to manage this complexity, which we believe will be an important competitive differentiator.

Channel Consolidation

In the more mature markets of North America and Europe, there has been increasing consolidation in the aftermarket distribution channel with larger aftermarket distributors and retailers gaining market share. These distributors generally require larger, more capable suppliers that have the ability to provide world-class product expertise, category management capabilities, brand management and supply chain support, as well as a competitive manufacturing and sourcing network. We have undertaken many initiatives to support the value of our branded products to end-market consumers and diversify our revenue base.

Growth of Online Capabilities

Reaching consumers directly through online capabilities, including e-commerce, is expected to have an increasing effect on the global aftermarket industry and how aftermarket products are marketed and sold. The establishment of a robust online presence will be critical for suppliers regardless of whether they intend to participate directly in e-commerce. We invested heavily in online initiatives to improve our capabilities and connectivity to our end-customers, including a new online order management system, customer relationship management tools, global brand websites, and data analytics capabilities. We will continue to invest in these competencies. Additionally, consumers increasingly are utilizing online research prior to making buying or repair decisions. We will continue to expand our online presence in order to connect with our customers and more effectively communicate the value of our premium aftermarket brands.

Increase in Lower Cost, Private Label Brands

In many of our markets, there has been an increase in private label or store brands sold by retailers and distributors at a lower price point than premium brands of the same products. However, in many cases, retailers or wholesale distributors creating private label brands still rely on established suppliers, like us, to design and manufacture their private label products and, in some cases, utilize co-branding to support their private label offerings.

We have some of the strongest and most recognized brands in the automotive aftermarket. In addition, we expect to continue to invest in product innovation, marketing and brand support that differentiate our premium branded products for their quality while also supporting lower priced, mid- grade offerings. Additionally, we expect to continue to drive productivity and cost reduction efforts and enhance our already strong global sourcing capabilities to remain competitive in each product tier.

Resilience during Economic Downturn

Aftermarket products are largely stable, non-discretionary and less susceptible to cyclicality as customers often have no choice but to replace automotive parts that are worn. During the 2008 economic downturn, the number of consumers with the ability to purchase new vehicles declined and led to increased demand for aftermarket parts in order to keep older vehicles road-worthy. The resilience of the automotive aftermarket industry is exhibited by the fact that the U.S. light vehicle aftermarket has grown every year for the last 20 years, except for 2009 when industry sales declined by approximately 1.4% according to Automotive Aftermarket Suppliers Association (AASA).

Customers

We strive to develop long-standing business relationships with our customers around the world. We work collaboratively with our OE customers in all stages of production, including design, development, component sourcing, quality assurance, manufacturing and delivery. For both OE and aftermarket customers, we provide timely delivery of quality products at competitive prices and deliver customer service. With our diverse product mix and numerous facilities in major markets worldwide, we believe we are well positioned to meet customer needs.

Table of Contents

Our OE customers consist of automotive and commercial manufacturers as well as agricultural, off-highway, marine, railroad, aerospace, high performance, and power generation and industrial application manufacturers. We have well-established relationships with substantially all major American, European, and Asian automotive OE manufacturers.

The following customers accounted for 10% or more of our net sales in any of the last three years.



Customer	2018		2017		2016
General Motors Company	12	%	14	%	17	%
Ford Motor Company	12	%	13	%	13	%

Our aftermarket customers include independent warehouse distributors that redistribute products to local parts suppliers, distributors, engine rebuilders, retail parts stores, mass merchants and service chains. The breadth of our product lines, the strength of our leading marketing expertise, a sizable sales force, and supply chain and logistics capabilities are central to our success in the aftermarket. We have a large and diverse aftermarket customer base.

Competition

We operate in highly competitive markets. Customer loyalty is a key element of competition in these markets and is developed through long-standing relationships, customer service, high quality value-added products and timely delivery. Product pricing and services provided are other important competitive factors.

As a supplier of OE and aftermarket parts, we compete with the vehicle manufacturers, some of which are also customers of ours, and numerous independent suppliers. We believe we are meeting these competitive challenges by developing leading technologies, efficiently integrating and expanding our manufacturing and distribution operations, widening our product coverage within our core businesses, restructuring our operations and transferring production to best cost countries, and utilizing our worldwide technical centers to develop and provide value-added solutions to our customers.

Seasonality

Our businesses are somewhat seasonal. OE production is historically higher in the first half of the year compared to the second half. It typically decreases in the third quarter due to OE plant shutdowns for model changeovers and European holidays, and softens further in the fourth quarter due to reduced production during the end-of-year holiday season in North America and Europe. Shut-down periods in the rest of the world generally vary by country. Our aftermarket operations experience relatively higher demand during the spring as vehicle owners prepare for the summer driving season. While seasonality does impact our business, actual results may vary from the above trends due to global and local economic dynamics as well as industry-specific platform launches and other production-related events. Aftermarket sales tend not to be as adversely affected during periods of economic downturn, as consumers forgo new vehicle purchases and keep their vehicles longer, thereby increasing demand for repair and maintenance services.

The aftermarket is affected by changes in economic conditions, volatility in fuel prices, and expanding focus on environmental and energy conservation.

Order Fulfillment

For OE customers, we generally receive long-term production contracts for specific products supplied for particular vehicles. These supply relationships typically extend over the life of the related vehicle, subject to interim design and technical specification revisions, and do not require the customer to purchase a minimum quantity. In addition to customary commercial terms and conditions, long-term production contracts generally provide for annual price reductions based upon expected productivity improvements and other factors. Customers typically retain the right to terminate long-term production contracts, but we generally cannot terminate long-term production contracts. OE order fulfillment is typically manufactured in response to customer purchase order releases, and we ship directly from a manufacturing location to the customer for use in vehicle production and assembly. Accordingly, our manufacturing locations turn finished goods inventory relatively quickly, producing from on-hand raw materials and work-in-process inventory within relatively short manufacturing cycles. Significant risks to us include a change in vehicle or engine production, lower than expected vehicle or engine production by one or more of our OE customers, or termination of the business based upon perceived or actual shortfalls in delivery, quality or value.

For our global aftermarket customers, we generally establish product line arrangements that encompass substantially all parts offered within a particular product line. In some cases, we will enter into agreements with terms ranging from one to three years that cover one or more product lines with fixed prices. Pricing is market responsive and subject to adjustment based upon competitive pressures, material costs, and other commercial factors. Global aftermarket order fulfillment is largely performed from finished goods inventory stocked in our worldwide distribution network. Inventory stocking levels in our distribution centers are established based upon historical and anticipated future customer demand.

Although customer programs typically extend to future periods, and although there is an expectation we will supply certain levels of OE production over such periods, we believe outstanding purchase orders and product line arrangements do not constitute firm

Table of Contents

orders. Firm orders are limited to specific and authorized customer purchase order releases placed with our manufacturing and distribution centers for actual production and order fulfillment. Firm orders are typically fulfilled as promptly as possible from the conversion of available raw materials and work-in-process inventory for OE orders, and from current on-hand finished goods inventory for aftermarket orders.

Clean Air Segment

We operate 64 clean air manufacturing facilities worldwide, of which 17 facilities are located in North and South America, 20 in Europe and 27 in Asia Pacific. We operate 16 of the manufacturing facilities in Asia Pacific through joint ventures in which we hold a controlling interest. We operate five clean air engineering and technical facilities worldwide and share three other such facilities with our ride performance operations. Of the five clean air engineering and technical facilities, one is located in North America, two in Europe, and two in Asia Pacific. In addition, one joint venture in which we hold a noncontrolling interest operates one manufacturing facility in Europe.

Through the recent acquisition of Federal-Mogul Powertrain, combined with our Clean Air emissions expertise, we are focused on delivering an optimized trade-off between fuel economy and emission control from the cylinder to the tailpipe. Specifically, Clean Air products and systems are designed to help global OE manufacturers in light vehicle, commercial truck and off-highway markets to meet global emissions regulations anywhere in the world. With significant investment in core sciences and technical capabilities, including combustion and thermal management, materials science and thermoelectrical energy, we are able to provide advance emissions solutions that solve unique technical challenges.

Our technologies are broken into four key product areas:


•	Emissions Control Products — includes Dosing Systems, Advanced Mixers, Selective Catalytic Reduction, Gasoline and Diesel Particulate Filters and Catalytic Converters;


•	Lightweighting and Thermal Management — includes Rankine Cycle Power Pack, Thermo-electric Generators, Thermoacoustic Converters, Heat Exchangers, Lightweight Aftertreatment Systems and Fabricated Manifolds;


•	Acoustic Products — includes Muffler and Resonator Tuning Devices. Active Noise Cancellation, Signature Sound, Smart Sound and Electronic and Passive Valves; and


•	Noise, Vibration and Harshness — includes Exhaust System Isolators, Lightweight Hanger Solutions and Modular Exhaust Dampers.

Our engineering capabilities include advanced predictive design tools, advanced prototyping processes and state-of-the-art testing equipment. These technological capabilities make us a “full system” integrator and supplier to the OE manufacturers, supplying optimized emission control systems from the manifold to the tailpipe, while delivering emission regulatory compliance and acoustic noise control. Our technology includes the use of urea injectors, electronic controls and software for use in selective catalytic reduction (SCR) and other exhaust after-treatment systems. We also offer a complete suite of alternative full system NOx aftertreatment technologies, including the Hydrocarbon Lean NOx Catalyst (HC-LNC) technology.

Vehicle emission control products and systems play a critical role in safely conveying noxious exhaust gases away from the passenger compartment and reducing the level of pollutants and engine exhaust noise emitted to acceptable levels. Precise engineering of the exhaust system - which extends from the manifold that connects an engine’s exhaust ports to an exhaust pipe, to the catalytic converter that eliminates pollutants from the exhaust, and to the muffler that modulates noise emissions - leads to a pleasantly tuned engine sound, reduced pollutants and optimized engine performance.

Table of Contents

We design, manufacture and distribute a variety of clean air products and systems. The following table sets forth a description of the largest product lines sold by our Clean Air segment:



Product	Description
Catalytic converters and diesel oxidation catalysts	Devices consisting of a substrate coated with precious metals enclosed in a steel casing used to reduce harmful gaseous emissions such as carbon monoxide.
Diesel particulate filters (DPFs)	Devices to capture and regenerate particulate matter emitted from diesel engines.
Burner systems	Devices which actively combust fuel and air inside the exhaust system to create extra heat for DPF regeneration, or to improve the efficiency of SCR systems.
Lean NOx traps	Devices which reduce nitrogen oxide (NOx) emissions from diesel powertrains using capture and store technology.
Hydrocarbon vaporizers and injectors	Devices to add fuel to a diesel exhaust system in order to regenerate particulate filters or Lean NOx traps.
SCR systems	Devices which reduce NOx emissions from diesel powertrains using urea mixers and injected reductants such as Verband der Automobil industrie e.V.'s AdBlue® or Diesel Exhaust Fluid (DEF).
SCR-coated diesel particulate filters (SDPF) systems	Lightweight and compact devices combining the SCR catalyst and the particulate filter onto the same substrate for reducing NOx and particulate matter emissions.
Urea dosing systems	Systems comprised of a urea injector, pump, and control unit, among other parts, that dose liquid urea onto SCR catalysts.
Four-way catalysts	Devices that combine a three-way catalyst and a particulate filter onto a single device by having the catalyst coating of a converter directly applied onto a particulate filter.
Alternative NOx reduction technologies	Devices which reduce NOx emissions from diesel powertrains, by using, for example, alternative reductants such as diesel fuel, E85 (85% ethanol, 15% gasoline), or solid forms of ammonia.
Mufflers and resonators	Devices to provide noise elimination and acoustic tuning.
Fabricated exhaust manifolds	Components that collect gases from individual cylinders of a vehicle’s engine and direct them into a single exhaust pipe. Fabricated manifolds can form the core of an emissions module that includes an integrated catalytic converter (maniverter) and/or turbocharger.
Pipes	Utilized to connect various parts of both the hot and cold ends of an exhaust system.
Hydroformed assemblies	Forms in various geometric shapes, such as Y-pipes or T-pipes, which provide optimization in both design and installation as compared to conventional pipes.
Elastomeric hangers and isolators	Used for system installation and elimination of noise and vibration, and for the improvement of useful life.
Aftertreatment control units	Computerized electronic devices that utilize embedded software to regulate the performance of active aftertreatment systems, including the control of sensors, injectors, vaporizers, pumps, heaters, valves, actuators, wiring harnesses, relays and other mechatronic components.

For the catalytic converters, SCR systems and other substrate-based devices we sell, we need to procure substrates coated with precious metals or in the case of catalytic converter systems only, purchase the complete systems. We obtain these components and systems from third parties, often at the OE manufacturer's direction, or directly from OE vehicle and engine manufacturers. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on our sales of these products.

Powertrain Segment

We operate 85 manufacturing sites in 19 countries, serving a large number of major automotive, heavy-duty, marine and industrial customer worldwide. Powertrain has also invested globally in nonconsolidated affiliates that have multiple manufacturing sites, mainly in Turkey and China.

Powertrain offers its customers a diverse array of market-leading products for OE applications, including pistons, piston rings, piston pins, cylinder liners, valvetrain products, valve seats and guides, ignition products, dynamic seals, bonded piston seals, combustion and exhaust gaskets, static gaskets and seals, rigid heat shields, engine bearings, industrial bearings, bushings and washers, systems protection sleeves, acoustic shielding and flexible heat shields.

Table of Contents

We design, manufacture and distribute a variety of powertrain products and systems. The following table sets forth a description of the largest product lines sold by our Powertrain segment:



Product	Description
Pistons	Pistons convert the energy created by the combustion event into mechanical energy to drive a car; Pistons can be made from aluminum or steel, both casted and forged; Highly efficient engines impose high demands on pistons in terms of rigidity and temperature resistance.
Piston rings	Piston rings are mounted on the piston to seal the combustion chamber while the piston is moving up and down; Modern rings need to resist high temperature and very abrasive environments without significant wear; Rings are critical for low oil consumptions.
Cylinder liners	Cylinder liners, or sleeves, are specially engineered where surfaces formed within the engine block, working in tandem with the piston and ring, as the chamber in which the thermal energy of the combustion process is converted into mechanical energy.
Valve seats and guides	Valve seats and guides are produced from powdered metal based on sophisticated metal-ceramic structures to meet extreme requirements for hardness.
Bearings	Bearings provide the low-friction environment for rotating components like crankshafts and camshafts; Modern bearings are able to deal with very low viscosity oil even in highly repetitive motions like in stop/start-conditions.
Spark plugs	Modern spark plugs for engines fueled by gasoline or natural gas have to ignite fuel even at very high combustion pressure and with very clean fuel-air mixture - combined with extended life expectation well over 100,000 miles for turbo-charged engines.
Valvetrain products	Valvetrain products include mainly engine valves but also retainers, rotators, cotters, and tappets for use in both diesel and gas engines; the most demanding applications require sodium-filled hollow valves for fast heat dissipation.
System protection	System protection products include protection sleeves for wire harness and for oil and water tubes as well as acoustic and EMI/RFI shielding, heat and abrasion protection, and safety/ crash protection for cables and tubes for engines and cars.
Seals and gaskets	Cylinder-head gaskets and other hot and cold gaskets are sealing engines and engine components; dynamic and static seals protecting rotating engine and transmission components against oil and gas leakages. Such seals and gaskets are made from high-alloyed steel as well as from sophisticated rubber and polymers.

Ride Performance Segment

We operate 25 ride performance manufacturing facilities worldwide, of which 10 facilities are located in North and South America, seven in Europe and South Africa, and eight in Asia Pacific. We operate two of the facilities through joint ventures in which we hold a controlling interest, one in Europe and another one in Asia. We operate seven engineering and technical facilities worldwide and share three other such facilities with our clean air operations. Of the seven ride performance engineering and technical facilities, two are located in North America, three in Europe and South America, and two in Asia Pacific.

Within each of our ride performance manufacturing facilities, operations are organized by product (e.g., shocks, struts and vibration control products) and include computer numerically controlled and conventional machine centers; tube milling and drawn-over-mandrel manufacturing equipment; metal inert gas and resistance welding; powdered metal pressing and sintering; chrome plating; stamping; and assembly/test capabilities. Our manufacturing systems incorporate cell-based designs, allowing work-in-process to move through the operation with greater speed and flexibility.

In designing our shock absorbers and struts, we use advanced engineering and test capabilities to provide product reliability, endurance and performance. Our engineering capabilities feature advanced computer-aided design equipment and testing facilities. Our dedication to innovative solutions has led to such technological advances as:


•	Adaptive damping systems — adapt to the vehicle’s motion to better control undesirable vehicle motions;


•	Electronically adjustable suspensions — change suspension performance based on a variety of inputs such as steering, braking, vehicle height, and velocity; and


•	Air leveling systems — manually or automatically adjust the height of the vehicle.

Superior ride control is governed by a vehicle’s suspension system, including shock absorbers and struts. Shock absorbers and struts maintain the vertical loads placed on vehicle tires, helping keep the tires in contact with the road. Vehicle steering, braking, acceleration and safety depend on maintaining contact between the tires and the road. Worn shocks and struts can allow excessive transfer of the vehicle’s weight - from side to side, known as “roll;” from front to rear, called “pitch;” or up and down, “bounce.” Because shock absorbers and struts are designed to control the vertical loads placed on tires, they provide resistance to excessive roll, pitch and bounce.

Table of Contents

We design, manufacture and distribute a variety of ride performance products and systems. The following table sets forth a description of the largest product lines sold by our Ride Performance segment:



Product	Description
Shock absorbers and struts	A broad range of mechanical shock absorbers and related components for light- and heavy-duty vehicles, including twin-tube and monotube shock absorbers and a complete line of struts and strut assemblies for light vehicles. Shock absorbers and struts maintain the vertical loads placed on vehicle tires, helping keep tires in contact with the road.
Monroe® intelligent suspension portfolio	An extensive product portfolio of advanced electronically controlled ride performance technology, which improve ride quality and vehicle handling: Kinetic ® suspension technology - A suite of roll-control and nearly equal wheel-loading systems ranging from simple mechanical systems to complex hydraulic systems featuring proprietary and patented technology. We have won the PACE Award for our Kinetic ® suspension technology; Dual-mode suspension - An adaptive suspension solution used for small- and medium-sized vehicles that provides drivers a choice of two suspension modes such as comfort and sport; DRiV— A digital electronic adaptive suspension system that adapts to road surfaces and vehicle control data through sensors, valves and intelligence located within the damper. CVSAe Continuously Variable 1 valve semi active suspension systems — Shock absorbers and suspension systems that electronically adjust a vehicle’s performance based on certain inputs such as steering, braking and other chassis control data CVSA2/Kinetic — Continuously Variable 2 valve semi active damping systems with hydraulic roll control (Kinetic H2) or hydraulic roll and pitch control (Kinetic X2).
NVH performance materials	Highly-engineered elastomer performance materials designed to reduce noise, vibration and harshness. Generally, rubber-to-metal bushings and mountings to reduce vibration between metal parts of a vehicle. Offerings include a broad range of suspension arms, rods and links for light- and heavy-duty vehicles.

On January 10, 2019, we closed on our acquisition of Öhlins Racing A.B. (“Öhlins”), a Sweden-based company. Öhlins offers suspension systems and components to automotive and motorsport industries.

Aftermarket Segment

We operate five Aftermarket production facilities worldwide, two in North America, one in Europe, and two in Asia Pacific. We share engineering testing facilities with our clean air and ride performance operations. In addition, we operate 22 distribution centers worldwide, four in North America, one in South America, 14 in Europe, and three in Asia Pacific. Eight of these are third party logistics providers.

The following table sets forth a description of the largest product categories sold by our Aftermarket segment:



Product	Description	Select Brands
Ride control	Ride Control parts include a broad range of mechanical shock absorbers and related components as well as struts and strut assemblies. Shock absorbers and struts maintain the vertical loads placed on vehicle tires, helping keep the tires in contact with the road.	Monroe®, Monroe® Reflex® Monroe® Adventure^™, Rancho®, Quick-Strut®, Gas-Matic®, Sensa-Trac®, Quick-Strut® andGas-Magnum®
NVH performance materials	Highly-engineered elastomer performance materials designed to reduce noise, vibration and harshness. Generally, rubber-to-metal bushings and mountings to reduce vibration between metal parts of a vehicle. Offerings include a broad range of suspension arms, rods and links for light- and heavy-duty vehicles.	Clevite® Elastomers and Axios^TM
Emission control	Mufflers provide noise elimination and acoustic tuning. Pipes that connect various parts of the hot and cold exhaust system and catalytic converters. In addition, specialty exhaust products for heavy-duty and high performance vehicle applications.	Walker®, Walker® Perfection, Quiet-Flow®, Tru-Fit®, Thush®, Fonos ^TM Mega-Flow® and DynoMax®

Motorparts Segment

We operate 31 manufacturing sites in 14 countries, 36 distribution centers and warehouses in 10 countries, 11 engineering and technical centers in 6 countries, and 11 technical service centers in two countries.

Table of Contents

We engineer, manufacture, source, and distribute a broad portfolio of products in the global vehicle aftermarket while also servicing the OE/OES markets with products including braking, wipers, and a limited range of chassis components. Motorparts' products are designed to enhance safety, durability, and vehicle performance, while providing ease of installation. Motorparts' products are utilized in vehicle braking systems and also include a wide variety of chassis, engine, sealing, wiper, filter, lighting, and other general maintenance applications. Motorparts uses market analytics, supply chain expertise, brand and product line management, innovative technology, manufacturing, sourcing, and distribution capabilities to satisfy its customers' requirements. On March 1, 2019, we completed the sale of substantially all of the global OE and aftermarket wipers business.

The following table sets forth a description of the largest product categories sold by our Motorparts segment:



Product	Description	Select Brands
Chassis	Chassis parts include ball joints, tie rod ends, sway bar links, hub assemblies, anti-friction bearings and universal joints, strut assemblies, idler arms, pitman arms, and control arms. These components affect vehicle steering and vehicle ride quality.	MOOG®, QuickSteer® and National®
Braking	Braking products include disc pads for passenger cars, motorcycles and commercial vehicles; drum brake shoes and CV drum brake lining; and brake accessories including rotors, drums, hydraulics, hardware and brake fluid. These products provide stopping ability, a safety feature on all vehicles.	Wagner®, Ferodo®, Jurid®, Beck Arnley® and Abex®
Sealing and Engine	Gaskets and seals create a barrier between two surfaces to contain fluids, pressure, and gases while keeping out dust and other contaminants. There are numerous areas of application including engine covers, oil pans, intake manifolds, shaft seals, transmission covers, and differential covers.	Fel-Pro®, Payen®, Goetze® and National®
Maintenance and Other	Filtration - Filtration parts include oil, air, cabin, fuel, and other filters for both light and commercial vehicles. These components prevent harmful contaminants contained in liquids and gases from passing through vehicle components and potentially leading to premature wear or failure. Lighting - Lighting products include forward lighting capsules, miniature light bulbs, LED lighting and sealed beams for virtually every application on cars, trucks, commercial vehicles and other off-road vehicles. Lighting improves driver visibility and safety. Ignition - Ignition products include spark plugs, glow plugs, ignition coils, wires, harnesses, and accessories for automotive, commercial, lawn and garden, marine, and industrial applications.	Interfil®, Champion® and Beru®

Sales, Marketing and Distribution

We have separate and distinct sales and marketing efforts for our OE and aftermarket customers.

For OE sales, our sales and marketing team is an integrated group of sales professionals, including skilled engineers and program managers, who are organized globally by customer business unit and product type (e.g., Ride Performance, Clean Air, and Powertrain). Our sales and marketing teams are focused on meeting and exceeding our customer's needs by delivering engineered products and services on time; maximizing profit for our investors while financing continued growth and product development; and developing a common system approach to create a superior customer experience. Our teams provide the appropriate mix of operational and technical expertise needed to interface successfully with the OE manufacturers. Our business capture process involves targeting select programs and working closely with the OE manufacturer platform engineering and purchasing teams. Bidding on OE automotive platforms typically encompasses many months of engineering and business development activity. Throughout the process, our sales team, program managers and product engineers assist the OE customer in defining the project’s technical and business requirements. A normal part of the process includes our engineering and sales personnel working on customers’ integrated product teams, creating a statement of requirements, and assisting our customers with full system or component design and development concepts that deliver expectations and create value for OE manufacturer customers. Given that the Clean Air, Ride Performance and Powertrain operations typically involve long-term production contracts awarded on a platform-by-platform basis, our strategy is to leverage our engineering expertise and strong customer relationships to target and win new business and increase operating margins.

Table of Contents

For aftermarket sales and marketing, our sales force is generally organized by region and customer and covers multiple product lines. We sell aftermarket products through five primary channels of distribution: (1) traditional three-step distribution system of full-line warehouse distributors, jobbers and service providers; (2) two-step distribution system of warehouse distributors that distribute directly to the service providers; (3) direct sales to retailers; (4) direct sales to service provider chains and (5) direct sales through online channels. Our aftermarket sales and marketing representatives cover all levels of the distribution channel, stimulating interest in our products and helping our products move through the distribution system. Also, to generate demand for our products, we run print, online and outdoor advertisements and training conducted by our field sales force along with E-training courses. In addition, we maintain detailed web sites for certain of our brands.

Business Strategy

We are a leading diversified, global supplier of innovative products and services to light vehicle, commercial truck, off-highway, industrial and aftermarket customers. Our strategy focuses on addressing the evolving needs of our OE and aftermarket customers around the world to drive growth.

The key components of our business strategy are described below:

Continue to optimize our operations by aggressively pursuing cost competitiveness in all business segments and continuing to drive productivity in existing operations

As we continue to expand our distribution and service capabilities globally, we seek to continue optimizing our performance through enhanced efficiencies in order to meet the world-class delivery performance our customers increasingly require. We have made investments in our global distribution network, through our new multi-product distribution centers, and through the implementation of automated picking technology and a more efficient replenishment system with the objective of improving inventory visibility and availability and lowering costs.

We will continue to focus on operational excellence by optimizing our manufacturing footprint, further developing our engineering capabilities, managing the complexities of our global supply chain to realize purchasing economies of scale while satisfying diverse and global requirements, and supporting our businesses with robust information technology systems. We will make investments in our operations and infrastructure as required to achieve our strategic goals.

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

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

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

Further execute on attaining synergies from the acquisition of Federal-Mogul

We completed the acquisition of Federal-Mogul on October 1, 2018. While we have undertaken significant integration subsequent to closing the Federal-Mogul acquisition, we continue to seek to optimize the combined operations. This optimization should present additional opportunities for cost reduction, increased profitability and cash flow.

Assess focused acquisition and investment opportunities that provide product line expansion, technological advancements, geographic positioning, penetration of emerging markets and market share growth

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

We intend to continue to explore strategic alliances, joint ventures, acquisitions and other transactions that complement, expand or enhance our existing products, technology, systems development efforts, customer base and/or global presence. We will align with companies that have proven products, proprietary technology, advanced research capabilities, broad geographic reach, and/or strong market positions to further strengthen our product leadership, technology position, global reach and customer relationships.

Table of Contents

Adapt cost structure to economic realities

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

Original Equipment Specific Strategies

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

The key components of our OE strategy are described below:

Maintain technological leadership to drive further growth from secular market trends

In order to maintain our strong market positions, we are focused on meeting changing performance requirements and keeping up with new OE trends such as mobility, electrification and autonomous driving. Aligning product lines and technical capabilities creates an ideal foundation to meet changing performance requirements for comfort and safety and again ultimately reinventing the ride of the future. In addition, our suite of solutions represents an opportunity to drive greater partnership with OE manufacturers, capturing growth with higher value content per vehicle.

OE manufacturers are responding to changing end customer trends and preferences alongside their own challenging cost structures by reducing design and production complexities and investing in advanced technologies that enable vehicle electrification and autonomy. We anticipate that OE suppliers with high technology capabilities in vehicle system integration will be able to enable a more seamless transition to next-generation electric vehicles and become preferred suppliers to OE manufacturers.

Penetrate adjacent market segments

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

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

Our revenues generated by commercial truck, off-highway and industrial customers were 16% of our total revenues in 2018 and 12% in 2017.

Aftermarket Specific Strategies

We expect the demand for replacement parts to increase steadily as a result of the anticipated significant increase in VIO through 2040, the increase in the average age of VIO and the increase in the average miles driven per year. The characteristics of aftermarket sales and distribution are defined regionally, which require regionally focused strategies to address the key success factors of our customers.

The key components of our aftermarket strategy are described below:

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

Our aftermarket business houses multiple leading brands with strong product offerings. We will build upon our brand strengths and grow our global aftermarket business by leveraging our broad product coverage and extensive distribution network. We intend to capitalize on aftermarket trends and expand in established markets (North America, Europe, Australia) as well as high-growth regions (China, South America, India, Southeast and Northeast Asia). Important focus areas are enhancing our presence in high-growth markets; leveraging our portfolio and strong presence in suspension to expand our business globally; and diversifying outside of chassis with our sealing, electronic and underhood products, as well as other components.

Table of Contents

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

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

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

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

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

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

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

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

Environmental Matters

For additional information regarding environmental matters, see Item 3, “Legal Proceedings,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Environmental Matters” and Note 15—Commitments and Contingencies of the consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data."

Employees

As of December 31, 2018, we had approximately 81,000 employees of whom approximately 48% were covered by collective bargaining agreements. With the exception of two facilities in the U.S., most of our unionized manufacturing facilities have their own contracts with their own expiration dates and, as a result, no contract expiration date affects more than one facility.

Other

We purchase various raw materials and component parts for use in our manufacturing processes, including ferrous and non-ferrous metals, non-metallic raw materials, stampings, castings and forgings. We also purchase parts manufactured by other manufacturers for sale in the aftermarket. The principal raw material that we use is steel. We obtain steel from a number of sources pursuant to various contractual and other arrangements. We believe that an adequate supply of steel can presently be obtained from a number of different domestic and foreign suppliers. We address price increases by evaluating alternative materials and processes, reviewing material substitution opportunities, increasing component sourcing and parts assembly in best

Table of Contents

cost countries, strategically pursuing regional and global purchasing strategies for specific commodities, and aggressively negotiating with our customers to allow us to recover these higher costs from them.

We hold a number of domestic and foreign patents and trademarks relating to our products and businesses. Through our acquisition of Federal-Mogul, we acquired in excess of 6,900 patents and more than 6,700 active trademark registrations and applications worldwide. We manufacture and distribute our aftermarket products under a number of brand names that are well-recognized in the marketplace and some of are registered trademarks. We also market certain of our clean air products to OE manufacturers under the names Solid SCR^™ and XNOx^®. The patents, trademarks and other intellectual property owned by or licensed to us are important in the manufacturing, marketing and distribution of our products. However, we do not materially rely on any single patent, nor will the expiration of any single patent materially affect our business. Our current patents expire over various periods into the year 2040. We are actively introducing and patenting new technology to replace formerly patented technology before the expiration of the existing patents. In the aggregate, our worldwide patent portfolio is materially important to our business because it enables us to achieve technological differentiation from our competitors.

Table of Contents

ITEM 1A.RISK FACTORS.

Future deterioration or prolonged difficulty in economic conditions could have a material adverse impact on our business, financial position and liquidity.

We are a global company and, as such, our businesses are affected by economic conditions in the various geographic regions in which we do business. Economic difficulties generally lead to tightening of credit and liquidity. These conditions often lead to low consumer confidence, which in turn results in delayed and reduced purchases of durable goods such as automobiles and other vehicles. As a result, during difficult economic times our OE customers can significantly reduce their production schedules. For example, light vehicle production declined significantly during the economic crisis in 2008 and 2009 in North America and Europe. More recently, light vehicle and commercial vehicle production has declined significantly in South America in 2015 and 2016 and persistent challenges in the Chinese economy in 2018 and continuing into 2019 may result in lower-than-anticipated growth in both light and commercial vehicles in the region. Additionally, production of off-highway equipment with our content on them have been weak in certain product applications, such as agricultural and construction equipment in North America and Europe. Any deterioration or prolonged difficulty in economic conditions in any region in which we do business could have a material adverse effect on our business, financial position and liquidity.

In addition, economic difficulties often lead to disruptions in the financial markets, which may adversely impact the availability and cost of credit which could materially and negatively affect our company. Future disruptions in the capital and credit markets could adversely affect our customers’ and our ability to access the liquidity that is necessary to fund operations on terms that are acceptable to us or at all.

In addition, financial or other difficulties at any of our major customers could have a material adverse impact on us, including as a result of lost revenues, significant write downs of accounts receivable, significant impairment charges or additional restructuring beyond our current global plans. Severe financial or other difficulties at any of our major suppliers could have a material adverse effect on us if we are unable to obtain on a timely basis on similar economic terms the quantity and quality of components we require to produce our products.

Moreover, severe financial or operating difficulties at any light vehicle or commercial vehicle manufacturer or other supplier could have a significant disruptive effect on the entire industry, leading to supply chain disruptions and labor unrest, among other things. These disruptions could force original equipment manufacturers and, in turn, other suppliers, including us, to shut down production at plants. While the issues that our customers and suppliers face during economic difficulties may be primarily financial in nature, other difficulties, such as an inability to meet increased demand as conditions recover, could also result in supply chain and other disruptions.

Factors that reduce demand for our products or reduce prices could materially and adversely impact our financial condition and results of operations.

Demand for and pricing of our products are subject to economic conditions and other factors present in the various domestic and international markets where our products are sold. Demand for our OE products is subject to the level of consumer demand for new vehicles that are equipped with our parts. The level of new light vehicle, commercial truck and off-highway vehicle purchases is cyclical, affected by such factors as general economic conditions, interest rates and availability of credit, consumer confidence, patterns of consumer spending, industrial construction levels, fuel costs, government incentives and vehicle replacement cycles. Consumer preferences and government regulations also impact the demand for new light vehicle purchases equipped with our products. For example, if consumers increasingly prefer electric vehicles, demand for the vehicles equipped with our clean air products would decrease.

Demand for our aftermarket, or replacement, products varies based upon such factors as general economic conditions; the level of new vehicle purchases, which initially displaces demand for aftermarket products; the severity of winter weather, which increases the demand for certain aftermarket products; the number of vehicles in operation; and other factors, including the average useful life of parts and number of miles driven.

The highly cyclical nature of the automotive and commercial vehicle industry presents a risk that is outside our control and that cannot be accurately predicted. Decreases in demand for automobiles and commercial vehicles and vehicle parts generally, or in the demand for our products in particular, could materially and adversely impact our financial condition and results of operations.

In addition, we believe that increasingly stringent environmental standards for emissions have presented and will continue to present an important opportunity for us to grow our clean air product line. We cannot assure you, however, that environmental standards for emissions will continue to become more stringent or that the adoption of any new standards will not be delayed beyond our expectations.

Table of Contents

We are dependent on certain large customers for future revenue. The loss of all or a substantial portion of our revenues from any of these customers or the loss of market share by these customers could have a material adverse impact on us.

We depend on major vehicle manufacturers for a substantial portion of our revenues. For example, during the fiscal year ended December 31, 2018, General Motors and Ford accounted for 12% and 12% of our net sales, respectively. Following the Federal-Mogul acquisition, we are increasingly dependent on certain major aftermarket customers for our revenues. The loss of all or a substantial portion of our revenues from any of our large-volume customers could have a material adverse effect on our financial condition and results of operations by reducing cash flows and our ability to spread costs over a larger revenue base. We may experience decreased revenues from these customers for a variety of reasons, including but not limited to: (i) in the case of our OE customers, loss of awarded platforms, reduced demand for our customers’ products, and work stoppages or other disruptions impacting OE production, and (ii) in the case of our aftermarket customers, reduced or delayed consumer requirements and competition from other brands or lower-cost alternatives. Further, our aftermarket customers are generally able to change suppliers more quickly than OE customers, which exacerbates these risks with respect to our aftermarket business. For all of our customers, we face the risk of their failure to pay us for a variety of reasons, including their respective financial conditions.

In addition, our customers compete intensively against each other. The loss of market share by any of our major customers could have a material adverse effect on our business unless we are able to achieve increased sales to other major customers.

We are subject to, and could be further subject to, government investigations or actions by other third parties.

We are subject to a variety of laws and regulations that govern our business both in the United States and internationally, including antitrust laws, violations of which can involve civil or criminal sanctions. Responding to governmental investigations or other actions may be both time-consuming and disruptive to our operations and could divert the attention of our management and key personnel from our business operations.

For example, antitrust authorities in various jurisdictions are investigating possible violations of antitrust laws by multiple automotive parts suppliers, including Tenneco. In addition, Tenneco and certain of its competitors are currently subject to civil putative class action lawsuits in the United States, which allege anti-competitive conduct related to the activities subject to these investigations. More related lawsuits may be filed, including in other jurisdictions.

While we have established a reserve that we believe is adequate to resolve Tenneco’s antitrust matters globally, we cannot, however, assure you that the reserve will not change materially from time to time or that the costs, charges and liabilities associated with these matters will not exceed any amounts reserved for them in our consolidated financial statements.

We may be unable to realize sales represented by our awarded business, which could materially and adversely impact our financial condition and results of operations.

The realization of future sales from awarded business is inherently subject to a number of important risks and uncertainties, including the number of vehicles that our OE customers will actually produce, the timing of that production and the mix of options that our OE customers and consumers may choose. For example, light vehicle production declined significantly during the economic crisis in 2008 and 2009 in North America and Europe. More recently, light vehicle and commercial truck production has declined significantly in South America in 2015 and 2016 and persistent challenges in the Chinese economy in 2018 and going into 2019 may result in lower-than-anticipated growth in both light and commercial vehicles in the region. In addition to the risks inherent in the cyclicality of vehicle production, our customers generally have the right to replace us with another supplier at any time for a variety of reasons and have demanded price decreases over the life of awarded business. Accordingly, we cannot assure you that we will in fact realize any or all of the future sales represented by our awarded business. Any failure to realize these sales could have a material adverse effect on our financial condition, results of operations, and liquidity.

In many cases, we must commit substantial resources in preparation for production under awarded OE business well in advance of the customer’s production start date. In certain instances, the terms of our OE customer arrangements permit us to recover these pre-production costs if the customer cancels the business through no fault of our company. Although we have been successful in recovering these costs under appropriate circumstances in the past, we can give no assurance that our results of operations will not be materially impacted in the future if we are unable to recover these types of pre-production costs in the event of an OE customer’s cancellation of awarded business.

Table of Contents

Our level of debt, which increased in amount and percentage of floating rate debt as a result of the Acquisition, makes us more sensitive to the effects of economic downturns; and provisions in our debt agreements could constrain our ability to react to changes in the economy or our industry.

Our leverage increased as a result of the Acquisition. As of December 31, 2018, we had approximately $3.3 billion of indebtedness outstanding under our new senior credit facility, $2.0 billion of outstanding notes and approximately $100 million of other debt. In addition, as a result of the Acquisition we have increased exposure to interest rate fluctuations because our percentage of floating rate debt increased.

Our level of debt makes us more vulnerable to changes in our results of operations because a significant portion of our cash flow from operations is dedicated to servicing our debt and is not available for other purposes and our level of debt could impair our ability to raise additional capital if necessary. Further increases in interest rates will increase the amount of cash required for debt service. Under the terms of our existing senior secured credit facility, the indentures governing our notes and the agreements governing our other indebtedness, we are able to incur significant additional indebtedness in the future. The more we become leveraged, the more we, and in turn our security holders, become exposed to many of the risks described herein.

Our ability to make payments on our indebtedness depends on our ability to generate cash in the future. If we do not generate sufficient cash flow to meet our debt service, capital investment and working capital requirements, we may need to reduce or cease our repurchase of shares or payments of dividends, seek additional financing or sell assets. If we require such financing and are unable to obtain it, we could be forced to sell assets under unfavorable circumstances and we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations.

In addition, our senior credit facility and our other debt agreements contain covenants that limit our flexibility in planning for or reacting to changes in our business and our industry, including limitations on our ability to:


•	declare dividends or redeem or repurchase capital stock;


•	prepay, redeem or purchase other debt;


•	incur liens;


•	make loans, guarantees, acquisitions and investments;


•	incur additional indebtedness;


•	amend or otherwise alter debt and other material agreements;


•	engage in mergers, acquisitions or asset sales; and


•	engage in transactions with affiliates.

Our failure to comply with the covenants contained in our debt instruments, including as a result of events beyond our control, could result in an event of default, which could materially and adversely affect our operating results and our financial condition.

Our senior credit facility and other agreements governing financings we enter into from time to time require us to maintain certain financial ratios. Our senior credit facility and our other financing instruments require us to comply with various operational and other covenants. If there were an event of default under any of our financing instruments that was not cured or waived, the holders of the defaulted financing could cause all amounts outstanding with respect to that financing to be due and payable immediately (which, in turn, could also result in an event of default under one or more of our other financing arrangements). If such event occurs, the lenders under our senior credit facility could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets and we could lose access to our factoring and supply chain financing programs. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding financing instruments, either upon maturity or if accelerated, upon an event of default, or that we would be able to refinance or restructure the payments on those financing instruments. This would have a material adverse impact on our liquidity, financial position and results of operations, and on our ability to effect our share repurchase and dividend programs. For example, as a result of the economic downturn in 2008 and 2009, we needed to amend our senior credit agreement to revise the financial ratios we were required to maintain. Even though we were able to obtain that amendment, we cannot assure you that we would be able to obtain an amendment on commercially reasonable terms, or at all, if required in the future.

Our working capital requirements may negatively affect our liquidity and capital resources.

Our working capital requirements can vary significantly, depending in part on the level, variability and timing of our customers’ worldwide vehicle production and the payment terms with our customers and suppliers. If our working capital needs exceed our cash flows from operations, we would look to our cash balances and availability for borrowings under our borrowing

Table of Contents

arrangements to satisfy those needs, as well as potential sources of additional capital, which may not be available on satisfactory terms and in adequate amounts, if at all.

We may be unable to realize the expected benefits of our initiatives to improve operating performance and generate cost savings and improvements.

We regularly implement strategic and other initiatives designed to improve our operating performance. Our inability to implement these initiatives in accordance with our plans or our failure to achieve the goals of these initiatives could have a material adverse effect on our business. We rely on these initiatives to offset pricing pressures from our suppliers and our customers, as described above, as well as to manage the impacts of production cuts. Our implementation of announced initiatives is from time to time subject to legal challenge in certain non-U.S. jurisdictions (where applicable employment laws differ from those in the United States). Furthermore, the terms of our senior credit facility and the indentures governing our notes may restrict the types of initiatives we undertake. In the past we have been successful in obtaining the consent of our senior lenders where appropriate in connection with our initiatives. We cannot assure you, however, that we will be able to pursue, successfully implement or realize the expected benefits of any initiative or that we will be able to sustain improvements made to date.

Exchange rate fluctuations could cause a decline in our financial condition and results of operations.

As a result of our international operations, we are subject to increased risk because we generate a significant portion of our net sales and incur a significant portion of our expenses in currencies other than the U.S. dollar. For example, where we have a greater portion of costs than revenues generated in a foreign currency, we are subject to risk if the foreign currency in which our costs are paid appreciates against the currency in which we generate revenue because the appreciation effectively increases our cost in that country.

The financial condition and results of operations of some of our operating entities are reported in foreign currencies and then translated into U.S. dollars at the applicable exchange rate for inclusion in our consolidated financial statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on our reported revenues and operating profit while depreciation of the U.S. dollar against these foreign currencies will generally have a positive effect on reported revenues and operating profit.

We do not generally seek to mitigate the impact of currency through the use of derivative financial instruments. To the extent we are unable to match revenues received in foreign currencies with costs paid in the same currency, exchange rate fluctuations in that currency could have a material adverse effect on our business.

The hourly workforce in the industry in which we participate is highly unionized and our business could be adversely affected by labor disruptions.

A portion of our hourly workforce in North America and the majority of our hourly workforce in other regions are unionized. Although we consider our current relations with our employees to be satisfactory, if major work disruptions were to occur, our business could be adversely affected by, for instance, a loss of revenues, increased costs or reduced profitability. We have not experienced a material labor disruption in our recent history, but there can be no assurance that we will not experience a material labor disruption at one of our facilities in the future in the course of renegotiation of our labor arrangements or otherwise.

In addition, substantially all of the hourly employees of General Motors, Ford and Fiat Chrysler Automobiles in North America and many of their other suppliers are represented by the United Automobile, Aerospace and Agricultural Implement Workers of America under collective bargaining agreements. Vehicle manufacturers, their suppliers and their respective employees in other countries are also subject to labor agreements. A work stoppage or strike at one of our production facilities, at those of a customer, or impacting a supplier of ours or any of our customers, could have an adverse impact on us by disrupting demand for our products and/or our ability to manufacture our products.

From time to time we experience significant increases and fluctuations in raw materials pricing and increases in certain lead times; and future changes in the prices of raw materials or utility services, or future increases in lead times, could have a material adverse impact on us.

Significant increases in the cost of certain raw materials used in our products, mainly steel, oil and rubber, or the cost of utility services required to produce our products, to the extent they are not timely reflected in the price we charge our customers or are otherwise mitigated, could materially and adversely impact our results. For example, in March 2018, the current U.S. administration imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports and throughout 2018, and announced additional tariffs on goods imported from China specifically, as well as certain other countries. In addition, during 2017, carbon steel prices as well as raw material prices (such as ferrochrome, iron ore, scrap and coking coal) to produce carbon steel remained at high levels after the sharp increases in 2016. In addition, both the European Union as well as the

Table of Contents

United States continue to impose a variety of anti-dumping duties on carbon steel as well as stainless steel. This not only results in higher domestic pricing but limits opportunities in terms of off shore buying. Carbon steel prices in North America increased further in the fourth quarter of 2017 in the run-up to the mandated "232 Section Investigations" against the import deadline of mid January 2018.

We attempt to mitigate price increases by evaluating alternative materials and processes, reviewing material substitution opportunities, increasing component sourcing and parts assembly in best cost countries, and strategically pursuing regional and global purchasing strategies for specific commodities. We also aggressively negotiate to recover these higher costs from our customers, and in some cases, such as with respect to steel surcharges, we have the contractual right to recover some or all of these higher costs from certain of our customers. However, if we are successful in recovering these higher costs, we may not receive that recovery in the same period that the costs were incurred and the benefit of the recovery may not be evenly distributed throughout the year.

We also continue to pursue productivity initiatives and other opportunities to reduce costs through restructuring activities. During periods of economic recovery, the cost of raw materials and utility services generally rise. Accordingly, we cannot ensure that we will not face further increased prices in the future or, if we do, whether our actions will be effective in containing them.

By entering into new product lines and employing new technologies, our ability to produce certain of these products may be constrained due to longer lead times for our facilities, as well as those of our suppliers. We attempt to mitigate the negative effects of these longer lead times by improving the accuracy of our long term planning; however, we cannot provide any certainty that we will always be successful in avoiding disruptions to our delivery schedules.

We may incur costs related to product warranties, environmental and regulatory matters, legal proceedings and other claims, which could have a material adverse impact on our financial condition and results of operations.

From time to time, we receive product warranty claims from our customers, pursuant to which we may be required to bear costs of repair or replacement of certain of our products. Vehicle manufacturers require their outside suppliers to guarantee or warrant their products and to be responsible for the operation of these component products in new vehicles sold to consumers. Warranty claims may range from individual customer claims to full recalls of all products in the field. We cannot assure you that costs associated with providing product warranties will not be material, or that those costs will not exceed any amounts reserved in our consolidated financial statements. For a description of our accounting policies regarding warranty reserves, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” included in Item 7.

Our global operations subject us to extensive governmental regulations worldwide. Foreign, federal, state and local laws and regulations may change from time to time and our compliance with new or amended laws and regulations in the future may materially increase our costs and could adversely affect our results of operations and competitive position. For example, we are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. Soil and groundwater remediation activities are being conducted at certain of our current and former real properties. We record liabilities for these activities when environmental assessments indicate that the remedial efforts are probable and the costs can be reasonably estimated. On this basis, we have established reserves that we believe are adequate for the remediation activities at our current and former real properties for which we could be held responsible. Although we believe our estimates of remediation costs are reasonable and are based on the latest available information, the cleanup costs are estimates and are subject to revision as more information becomes available about the extent of remediation required. In future periods, we could incur cash costs or charges to earnings if we are required to undertake remediation efforts as the result of ongoing analysis of the environmental status of our properties. In addition, violations of the laws and regulations we are subject to could result in civil and criminal fines, penalties and sanctions against us, our officers or our employees, as well as prohibitions on the conduct of our business, and could also materially affect our reputation, business and results of operations.

We also from time to time are involved in a variety of legal proceedings, claims or investigations. These matters typically are incidental to the conduct of our business. Some of these matters involve allegations of damages against us relating to environmental liabilities, intellectual property matters, personal injury claims, taxes, employment matters or commercial or contractual disputes or allegations relating to legal compliance by us or our employees. For example, we are subject to a number of lawsuits initiated by a significant number of claimants alleging health problems as a result of exposure to asbestos. Many of these cases involve significant numbers of individual claimants. Many of these cases also involve numerous defendants, with the number of defendants in some cases exceeding 100 defendants from a variety of industries. As major asbestos manufacturers or other companies that used asbestos in their manufacturing processes continue to go out of business, we may experience an increased number of these claims.

Table of Contents

We vigorously defend ourselves in connection with all of the matters described above. We cannot, however, assure you that the costs, charges and liabilities associated with these matters will not be material, or that those costs, charges and liabilities will not exceed any amounts reserved for them in our consolidated financial statements. In future periods, we could be subject to cash costs or charges to earnings if any of these matters are resolved unfavorably to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Environmental and Legal Contingencies” included in Item 7.

Developments relating to our intellectual property could materially impact our business.

We and others in our industry hold a number of patents and other intellectual property rights, including licenses, which are critical to our respective businesses and competitive positions. Notwithstanding our intellectual property portfolio, our competitors may develop similar or superior proprietary technologies. Further, as we expand into regions where the protection of intellectual property rights is less robust, the risk of others replicating our proprietary technologies increases, which could result in a deterioration of our competitive position. On occasion, we may assert claims against third parties who are taking actions that we believe are infringing on our intellectual property rights. Similarly, third parties may assert claims against us and our customers and distributors alleging our products infringe upon third party intellectual property rights. These claims, regardless of their merit or resolution, are frequently costly to prosecute, defend or settle and divert the efforts and attention of our management and employees. Claims of this sort also could harm our relationships with our customers and might deter future customers from doing business with us. If any such claim were to result in an adverse outcome, we could be required to take actions which may include: expending significant resources to develop or license non-infringing products; paying substantial damages to third parties, including to customers to compensate them for their discontinued use or replacing infringing technology with non-infringing technology; or cessation of the manufacture, use or sale of the infringing products. Any of the foregoing results could have a material adverse effect on our business, financial condition, results of operations or our competitive position.

We are increasingly dependent on information technology, and if we are unable to protect against service interruptions or security breaches, our business could be adversely affected.

Our operations rely on a number of information technologies to manage, store, and support business activities. Some of these technologies are managed by third-party service providers and are not under our direct control. We have put in place a number of systems, processes, and practices designed to protect against the failure of our systems, as well as the misappropriation, exposure or corruption of the information stored thereon. Unintentional service disruptions or intentional actions such as intellectual property theft, cyber-attacks, unauthorized access or malicious software, may lead to such misappropriation, exposure or corruption if our, or our service providers’, protective measures prove to be inadequate. Further, these events may cause operational impediments or otherwise adversely affect our product sales, financial condition and/or results of operations. We could also encounter violations of applicable law or reputational damage from the disclosure of confidential information belonging to us or our employees, customers or suppliers. In addition, the disclosure of non-public information could lead to the loss of our intellectual property and/or diminished competitive advantages. Should any of the foregoing events occur, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. In addition, evolving and expanding compliance and operational requirements under the privacy laws of the jurisdictions in which we operate, such as the EU General Data Protection Regulation, or GDPR, which took effect in May 2018, impose significant costs that are likely to increase over time.

We may have difficulty competing favorably in the highly competitive light vehicle and commercial vehicle supplier industry.

The light vehicle and commercial vehicle supplier automotive parts industry is highly competitive. Although the overall number of competitors has decreased due to ongoing industry consolidation, we face significant competition within each of our major product areas, including from new competitors entering the markets which we serve. The principal competitive factors include price, quality, service, product performance, design and engineering capabilities, new product innovation, global presence and timely delivery. As a result, many suppliers have established or are establishing themselves in emerging, low-cost markets to reduce their costs of production and be more conveniently located for customers. Although we are also pursuing a best-cost country production strategy and otherwise continue to seek process improvements to reduce costs, we cannot assure you that we will be able to continue to compete favorably in this competitive market or that increased competition will not have a material adverse effect on our business by reducing our ability to increase or maintain sales or profit margins.

In addition, our competitors may foresee the course of market development more accurately than we do, develop products that are superior to ours, adapt more quickly than we do to new technologies or evolving customer requirements or develop or introduce new products or solutions before we do, particularly in respect of potential transformative technologies such as autonomous driving solutions. As a result, our products may not be able to compete successfully with their products. These trends may adversely affect our sales as well as the profit margins on our products. Failure to innovate and to develop or acquire new and compelling products that capitalize on new technologies could have a material adverse impact on our results of operations.

Table of Contents

Furthermore, due to the cost focus of our major OE customers, we have been, and expect to continue to be, requested to reduce prices as part of our initial business quotations and over the life of OE vehicle platforms we have been awarded. We cannot be certain that we will be able to generate cost savings and operational improvements in the future that are sufficient to offset price reductions requested by existing OE customers and necessary to win additional business. OE customers also direct us into suppliers for component purchases not allowing us to leverage our own supply base and realize cost reductions on this directed spend.

The decreasing number of customers and suppliers in our industry could make it more difficult for us to compete favorably.

Our financial condition and results of operations could be adversely affected because the customer base for our parts and services is decreasing in both the OE market and aftermarket. As a result, we are competing for business from fewer customers. Furthermore, consolidation among suppliers have resulted in fewer, larger suppliers who benefit from purchasing and distribution economies of scale. If we cannot achieve cost savings and operational improvements sufficient to allow us to compete favorably in the future with these larger companies, our financial condition and results of operations could be adversely affected due to a reduction of, or inability to increase, sales.

Our aftermarket sales may be negatively impacted by increasing competition from lower cost, private-label products.

Distribution channels in the aftermarket have continued to consolidate and, as a result, our sales to large retail customers represent a significant portion of our aftermarket business. Private-label aftermarket products, which are typically manufactured at a lower cost, often containing little or no premium technology, and are branded with a store or other private-label brand, are increasingly available to these large retail customers. Our aftermarket business is facing increasing competition from these lower cost, private-label products and there is growing pressure to expand our entry-level product lines so that retailers may offer a greater range of price points to their consumer customers. We cannot assure you that we will be able to maintain or increase our aftermarket sales to these large retail customers or that increased competition from these lower cost, private-label aftermarket products will not have an adverse impact on our aftermarket business.

If the reputation of one or more of our leading brands is harmed, aftermarket sales may be negatively impacted.

Our aftermarket sales are dependent on the reputation and success of our brands, including Monroe®, Champion®, Öhlins®, MOOG®, Walker®, Fel-Pro®, Wagner®, Ferodo®, Rancho®, Thrush®, National®, Sealed Power® and others. Product liability claims or recalls could result in negative publicity that could harm the reputation of our brands. If one or more of our leading brands suffers damage to its reputation due to real or perceived quality or safety issues, our financial results could be adversely affected.

Improvements in automotive parts are adversely affecting aftermarket demand for some of our products.

The average useful life of automotive parts has steadily increased in recent years due to innovations in products and technologies. The longer product lives allow vehicle owners to replace parts of their vehicles less often. As a result, a portion of sales in the aftermarket has been displaced. In addition, advancements in technology may lead to enhancements in aftermarket product performance that render our product obsolete. This has adversely impacted, and could continue to adversely impact, our aftermarket sales. Also, any additional increases in the average useful lives of automotive parts or other enhancements in aftermarket performance would further adversely affect the demand for our aftermarket products.

If we do not respond appropriately, the evolution towards autonomous vehicles and car and ride sharing could adversely affect our business.

The light vehicle industry is increasingly focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially viable, fully automated driving experience. There has also been an increase in consumer preferences for car and ride sharing, as opposed to automobile ownership, which may result in a long-term reduction in the number of vehicles per capita. These evolving areas have also attracted increased competition from entrants outside the traditional light vehicle industry. Failure to innovate and to develop or acquire new and compelling products that capitalize upon new technologies in response to OE and consumer preferences could have a material adverse impact on our results of operations.

Table of Contents

We may not be able to respond quickly enough to changes in technology and to develop our intellectual property into commercially viable products.

Changes in competitive technologies may render certain of our products obsolete or less attractive. Our ability to anticipate changes in technology and to successfully develop and introduce new and enhanced products on a timely basis are significant factors in our ability to remain competitive and to maintain or increase our revenues.

We cannot provide assurance that certain of our products will not become obsolete or that we will be able to achieve the technological advances that may be necessary for us to remain competitive and maintain or increase our revenues in the future. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development or production, and failure of products to operate properly. If we are unable to react to changes in the marketplace, including the potential introduction of technologies such as autonomous driving solutions, our financial performance could be adversely affected.

Any acquisitions we make could disrupt our business and seriously harm our financial condition.

We may, from time to time, consider acquisitions of complementary companies, products or technologies. Acquisitions involve numerous risks, including difficulties in the assimilation of the acquired businesses, the diversion of our management’s attention from other business concerns and potential adverse effects on existing business relationships with customers and suppliers. In addition, any acquisitions could involve the incurrence of substantial additional indebtedness. We cannot assure you that we will be able to successfully integrate any acquisitions that we pursue or that such acquisitions, and the potential related synergies, will perform as planned or prove to be beneficial to our operations and cash flow, or deliver any anticipated strategic benefits. Any such failure could seriously harm our business, financial condition and results of operations.

Certain of our operations are conducted through joint ventures, which have unique risks.

Certain of our operations are conducted through joint ventures. Our joint ventures are governed by mutually established agreements that we entered into with our partners, and, as such, we do not unilaterally control the joint ventures. There is a risk that our partners' objectives for the joint ventures may not be aligned with ours, leading to potential disagreements over management of the joint ventures. At some of our joint ventures, our joint venture partner is also affiliated with the largest customer of the joint venture, which may create a conflict between the interests of our partner and the joint venture. Also, our ability to sell our interest in a joint venture may be subject to contractual and other limitations.

Additional risks associated with joint ventures include our partners failing to satisfy contractual obligations, conflicts arising between us and any of our partners, a change in the ownership of any of our partners and our limited ability to control compliance with applicable rules and regulations. Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows.

We are subject to risks related to operating a multi-national company.

We have manufacturing and distribution facilities in many regions across six continents. For the fiscal year ended December 31, 2018, a significant portion of our net sales were derived from operations outside North America. Current events including tax reform proposals and the possibility of renegotiated trade deals and international tax law treaties, create a level of uncertainty, and potentially increased complexity, for multi-national companies. These uncertainties could have a material adverse effect on our business and our results of operations and financial condition. In addition, international operations are subject to various risks which could have a material adverse effect on those operations or our business as a whole, including:


•	currency exchange rate fluctuations;


•	exposure to local economic conditions and labor issues;


•	exposure to local political conditions, including the risk of seizure of assets by a foreign government;


•	exposure to local social conditions, including corruption and any acts of war, terrorism or similar events;


•	exposure to local public health issues and the resultant impact on economic and political conditions;


•	inflation in certain countries;


•	limitations on the repatriation of cash, including imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries;


•	retaliatory tariffs and restrictions limiting free movement of goods and an unfavorable trade environment, including as a result of political conditions and changes in the laws in the United States and elsewhere and as described in more details below;


•	the impact of uncertainties surrounding the implementation of Brexit; and


•	requirements for manufacturers to use locally produced goods.

Table of Contents

Entering new markets poses new competitive threats and commercial risks.

As we have expanded into markets beyond light vehicles, we expect to diversify our product sales by leveraging technologies being developed for the light vehicle segment. Such diversification requires investments and resources which may not be available as needed. We cannot guarantee that we will be successful in leveraging our capabilities into new markets and thus, in meeting the needs of these new customers and competing favorably in these new markets. Further, a significant portion of our growth potential is dependent on our ability to increase sales to commercial truck and off-highway vehicle customers. While we believe that we can achieve our growth targets with the production contracts that have been or will be awarded to us, our future prospects will be negatively affected if those customers underlying these contracts experience reduced demand for their products, or financial difficulties.

We have recorded a significant amount of long lived assets, goodwill, and other intangible assets, which may become impaired in the future and negatively affect our operating results.

We have recorded a significant amount of long lived assets, goodwill, and other identifiable intangibles assets, including customer relationships, trademarks and brand names, and developed technologies due to the acquisition of Federal-Mogul. Long lived assets, goodwill, and other identifiable intangible assets were approximately $4,078 million as of December 31, 2018, or 30% of our total assets. Under generally accepted accounting principles in the United States, long-lived assets, excluding goodwill and indefinite lived intangible assets, are required to be evaluated for impairment whenever adverse events or changes in circumstances indicate a possible impairment. If business conditions or other factors cause profitability and cash flows to decline, we may be required to record non-cash impairment charges. Goodwill and indefinite lived intangible assets must be evaluated for impairment annually or more frequently if events indicate it is warranted. Impairment of goodwill and other identifiable intangible assets may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products sold by our business, and a variety of other factors. The amount of any quantified impairment must be expensed immediately and subjects us to financial statement risk in the event that long lived assets, goodwill or other identifiable intangible assets become impaired.

The value of our deferred tax assets may not be realized, which could materially and adversely affect our operating results.

As of December 31, 2018, we had approximately $379 million in net deferred tax assets. These deferred tax assets include net operating loss carryovers and tax credits that can be used to offset taxable income in future periods and reduce income taxes payable in those future periods. Each quarter, we determine the probability of the realization of deferred tax assets, using significant judgments and estimates with respect to, among other things, historical operating results and expectations of future earnings and tax planning strategies. If we determine in the future that there is not sufficient positive evidence to support the valuation of these assets, due to the risk factors described herein or other factors, we may be required to further adjust the valuation allowance to reduce our deferred tax assets. Such a reduction could result in material non-cash expenses in the period in which the valuation allowance is adjusted and could have a material adverse effect on our results of operations.

Our expected annual effective tax rate could be volatile and materially change as a result of changes in mix of earnings and other factors.

Our overall effective tax rate is equal to our total tax expense as a percentage of our total profit or loss before tax. However, tax expenses and benefits are determined separately for each tax paying entity or group of entities that is consolidated for tax purposes in each jurisdiction. Losses in certain jurisdictions may provide no current financial statement tax benefit. As a result, changes in the mix of profits and losses between jurisdictions, among other factors, could have a significant impact on our overall effective tax rate.

Changes in tax law or trade agreements and new or changed tariffs could have a material adverse effect on us.

Changes in U.S. political, regulatory and economic conditions and/or changes in laws and policies governing U.S. tax laws, foreign trade (including trade agreements and tariffs), manufacturing, and development and investment in the territories and countries where we and/or our customers operate could adversely affect our operating results and business.

For example, on December 22, 2017, the U.S. President signed into law new legislation that significantly revises the U.S. Internal Revenue Code. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including the reduction of the corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, a one-time transition tax on offshore earnings at reduced tax rates regardless of whether the earnings are repatriated, elimination of U.S. tax on foreign dividends (subject to certain important exceptions), new taxes on certain foreign earnings, a new minimum tax related to payments to foreign subsidiaries and affiliates, immediate deductions for certain new investments as opposed to deductions for depreciation expense over time, and the modification or repeal of many business deductions and credits.

Table of Contents

In addition, the United States, Mexico and Canada have renegotiated the North American Free Trade Agreement ("NAFTA"). The revised agreement, the US-Mexico-Canada Agreement ("USMCA"), contains new and revised provisions that alter the prior rules governing when imports and exports of autos and auto parts are eligible for duty-free treatment. Generally these new rules require a higher percentage of the overall content of the auto or autopart to originate in one of the USMCA's countries (the U.S., Mexico or Canada). The U.S. Congress must approve the USMCA provisions before they can become effective. Our manufacturing facilities in the U.S., Mexico and Canada are dependent on duty-free trade within the USMCA region. We have significant movement of goods within NAFTA region, and the imposition of customs duties on imports could negatively impact our financial performance.

Moreover, in March 2018, the U.S. government imposed a 25% ad valorem tariff on certain steel imports and a 10% ad valorem tariff on certain aluminum imports. There was a short exemption period from the steel and aluminum tariffs for Canada, Mexico and the European Union, which ended on June 1, 2018. As a result of the tariffs, countries such as, Canada, China and Mexico have implemented retaliatory actions with respect to U.S. imports into their countries, which could adversely affect our business, financial condition or results of operations.

In addition, on three separate occasions in 2018, the U.S. government imposed additional tariffs on products from China. Specifically, on July 6, 2018, an additional 25% ad valorem tariff was imposed on certain imports from China. On August 23, 2018, an additional group of Chinese imports were assessed an additional 25% ad valorem tariff, and finally on September 24, 2018, a third group of Chinese imports were assessed an additional 10% ad valorem tariff (set to increase to 25% on March 2, 2019, if no resolution is reached with China by that date). The Administration has signaled that additional Chinese products may be targeted with additional tariffs. China has retaliated with tariffs on certain U.S. imports.

The imposition of the steel and aluminum tariffs, or any future imposition of tariffs or duties, is expected to have a pervasive impact on the metals market in which we operate and could result in a decrease in imports and higher prices for those imports which are sold into the U.S. When we buy metals internationally, we may be unable to pass through the higher costs to our customers, which could adversely impact our financial condition and operating results. In addition, a decrease in imports could cause a disruption or shortage in the availability of the raw materials that we buy, which could limit our ability to meet customer demand or purchase material at competitive prices. This could cause the Company to lose sales, incur additional costs, or suffer harm to our reputation, all of which may adversely affect operating results.

Further, in May 2018, the U.S. government announced that it is considering potential additional tariffs to be imposed on imported automobiles and automotive parts. Certain aspects of our business depend on the importation of automotive parts from outside of the U.S. If these or other similar tariffs are imposed, our business and results of operations could be materially adversely affected.

The Company's pension obligations and other postretirement benefits assumed as a result of the Acquisition could adversely affect the Company’s operating margins and cash flows.

Following completion of the Acquisition, pension and other postretirement benefit obligations have increased. The automotive industry, like other industries, continues to be affected by the rising cost of providing pension and other postretirement benefits. In addition, the Company sponsors certain defined benefit plans worldwide that are underfunded and will require cash payments. If the performance of the assets in the pension plans does not meet the Company’s expectations, or other actuarial assumptions are modified, the Company’s required contributions may be higher than it expects.

The Company’s hedging activities to address commodity price fluctuations may not be successful in offsetting future increases in those costs or may reduce or eliminate the benefits of any decreases in those costs.

In order to mitigate short-term variation in operating results due to the aforementioned commodity price fluctuations, the Company hedged a portion of near-term exposure to certain raw materials used in production processes, primarily copper, nickel, tin, zinc, high-grade aluminum and aluminum alloy. The results of this hedging practice could be positive, neutral or negative in any period depending on price changes in the hedged exposures.

Our hedging activities are not designed to mitigate long-term commodity price fluctuations and, therefore, will not protect from long-term commodity price increases. Our future hedging positions may not correlate to actual raw materials costs, which would accelerate the recognition in our operating results of unrealized gains and losses on hedging positions.

If we cannot attract, retain, and motivate employees, we may be unable to compete effectively, and lose the ability to improve and expand our businesses.

Our success and ability to grow depend, in part, on our ability to hire, retain, and motivate sufficient numbers of talented people with the increasingly diverse skills needed to serve clients and expand our business in many locations around the world. We face intense competition for highly qualified, specialized technical, managerial and other personnel. Recruiting, training, retention, and benefit costs place significant demands on our resources. The inability to attract qualified employees in sufficient numbers to meet particular demands or the loss of key management employees or a significant number of our employees could have an adverse effect on us.

Table of Contents

Risks Relating to the Acquisition and Planned Spin-off

We may fail to realize all of the anticipated benefits of the Acquisition or those benefits may take longer to realize than expected. We and, following the planned Spin-off, each separate company may also encounter significant difficulties in integrating the business of Federal-Mogul.

The success of the transaction will depend, in part, on our ability (and the ability of each separate company following the planned Spin-off) (defined below) to realize the anticipated benefits of the Acquisition and planned Spin-off (the “Transaction”) and on our (and each separate company’s) ability to integrate Federal-Mogul’s business in an effective and efficient manner, which is a complex, costly and time-consuming process. The integration process may disrupt business and, if we are unable to successfully integrate Federal-Mogul’s business, we (and each separate company) could fail to realize the anticipated benefits of the Transaction. The failure to meet the challenges involved in the integration process and realize the anticipated benefits of the Transaction could cause an interruption of, or a loss of momentum in, our operations and could have a material adverse effect on our (and each separate company’s) business, financial condition and results of operations.

In addition, the integration of Federal-Mogul may result in material unanticipated challenges, expenses, liabilities, competitive responses and loss of customers and other business relationships. Additional integration challenges include:


•	diversion of management’s attention to integration matters;


•	difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the Transaction;


•	difficulties in the integration of operations and systems;


•	difficulties in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures;


•	difficulties in the assimilation of employees;


•	difficulties in managing the expanded operations of a significantly larger and more complex company;


•	challenges in attracting and retaining key personnel;


•	the impact of potential liabilities the Company may be inheriting from Federal-Mogul; and


•	coordinating a geographically dispersed organization.

Many of these factors are outside of our control and could result in increased costs, decreases in the amount of anticipated revenues and diversion of management’s time and energy, each of which could adversely affect our (and each separate company’s) business, financial condition and results of operations.

In addition, even if the integration of Federal-Mogul’s business is successful, we (and each separate company) may not realize all of the anticipated benefits of the Transaction, including the synergies, cost savings, or sales or growth opportunities. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration process. All of these factors could cause reductions in earnings per share, decrease or delay the expected accretive effect of the transaction and negatively impact the price of shares of our Common Stock (or each separate company’s stock). As a result, it cannot be assured that the Transaction will result in the realization of the anticipated benefits and potential synergies.

Our current stockholders may have reduced ownership and voting interests following the exercise of certain rights under the Purchase Agreement and exercise less influence over management.

We have granted certain registration rights to AEP for the resale of the shares issued in connection with the Acquisition. These registration rights would facilitate the resale of such shares into the public market, and any such resale would increase the number of shares of our Class A Common Stock available for public trading. Sales of a substantial number of shares of our Class A Common Stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our Class A Common Stock.

If AEP transfers any shares of its Class B Common Stock to a third-party, the shares of Class B Common Stock so transferred will automatically convert in shares of Class A Common Stock and as a result, our current stockholders will experience a proportionate reduction in voting power.

The market price of our Class A Common Stock may be affected by factors different from those affecting the shares of our Common Stock prior to the completion of the Acquisition.

Our historical business differs from that of Federal-Mogul. Accordingly, our results of operations and the market price of our Common Stock following the completion of the Acquisition may be affected by factors that differ from those that previously affected the independent results of operations of each of Tenneco and Federal-Mogul and the market price of our existing common stock prior to the completion of the Acquisition.

Table of Contents

The planned Spin-Off following the transaction is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

We intend to separate the combined company’s businesses to create two new independent, publicly traded companies in a planned Spin-Off transaction. The planned Spin‑Off is intended to be treated as a tax-free reorganization for U.S. federal income tax purposes. There can be no assurance that the planned Spin-Off will be completed at all or that the planned Spin-Off will be tax-free for U.S. federal income purposes. We expect that the process of completing the planned Spin-Off will be time consuming and involve significant costs and expenses, which may be significantly higher than what we currently anticipate and may not yield a benefit if the planned Spin-Off is not completed. We may encounter unforeseen impediments to the completion of the planned Spin-Off that render it impossible or impracticable.

If the planned Spin-Off is not completed, our business, financial condition and results of operations may be materially adversely affected and the market price of our Common Stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the planned Spin-Off will be completed. If the completion of the planned Spin-Off is delayed, including by the receipt of an acquisition proposal, our business, financial condition and results of operations may be materially adversely affected.

The tendency of the planned Spin-Off and impact of the Transaction could adversely affect our business, financial results and operations.

The announcement and tendency of the planned Spin-Off could cause disruptions and create uncertainty surrounding our business and affect our relationships with our customers, suppliers and employees.

As a result of the Transaction, some customers, suppliers or strategic partners may terminate their business relationship with us. Potential customers, suppliers or strategic partners may delay entering into, or decide not to enter into, a business relationship with us because of the Transaction. If customer or supplier relationships or strategic alliances are adversely affected by the Transaction, our (and each separate company’s after the planned Spin-Off) business, financial condition and results of operations following the Acquisition or planned Spin-Off could be adversely affected.

We are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. Our success after and in implementing the Transaction depends in part upon the ability to retain key management personnel and other key employees. Current and prospective employees of the Company may experience uncertainty about their roles with the combined company following the Acquisition or either separate company following the planned Spin-Off, or concerns regarding operations following the Transaction, any of which may have an adverse effect on the ability to attract or retain key management and other key personnel. Accordingly, no assurance can be given that we (or each separate company after the planned Spin-Off) will be able to attract or retain key management personnel and other key employees following the Transaction to the extent that we have previously been able to attract or retain such employees.

In addition, we have diverted, and will continue to divert, significant management resources to complete the Transaction, which could adversely impact our ability to manage existing operations or pursue alternative strategic transactions, which could adversely affect our business, financial condition and results of operations.

The planned Spin-Off may not achieve some or all of the anticipated benefits.

We may not realize some or all of the anticipated strategic, financial, operational or other benefits from the planned Spin-Off. As new independent, publicly traded companies, the two companies will be smaller, less diversified companies with a narrower business focus. As a result, the two companies may be more vulnerable to changing market conditions, which could result in increased volatility in their cash flows, working capital and financing requirements and could have a material adverse effect on the respective business, financial condition and results of operations of each company. Further, there can be no assurance that the combined value of the common stock of the two companies will be equal to or greater than what the value of our common stock would have been had the planned Spin-Off not occurred.

The combined company prior to the planned Spin-Off and, if the planned Spin-Off is completed, each separate company following the Spin-Off may underperform relative to our expectations.

Following completion of the Transaction, the combined company or each separate company may not be able to maintain the growth rate, levels of revenue, earnings or operating efficiency that we and Federal-Mogul have achieved or might achieve separately. The failure to do so could have a material adverse effect on our business, financial condition and results of operations or, following the planned Spin-Off, the business, financial condition and results of operations of each separate company.

We have incurred, and will continue to incur, significant transaction costs in connection with the Transaction that could adversely affect our results of operations.

Table of Contents

We have incurred, and will continue to incur, significant costs in connection with integrating the business and operations of Federal-Mogul with our business and operations and effectuating the planned Spin-Off. We may also incur additional unanticipated costs in the separation processes. These could adversely affect our business, financial condition and results of operations, or the business, financial condition and results of operations of each company following the planned Spin-Off, in the period in which such expenses are recorded, or the cash flows, in the period in which any related costs are actually paid.

Furthermore, we and each company following the planned Spin-Off may incur material restructuring charges in connection with integration activities or the planned Spin-Off, which may adversely affect operating results for the period in which such expenses are recorded, or cash flows in the period in which any related costs are actually paid.

We may incur greater costs following the planned Spin-Off, which could decrease our profitability.

Our businesses are operating in conjunction with one another, allowing us in certain circumstances to take advantage of the combined businesses’ size and purchasing power in procuring certain goods and services. After the planned Spin-Off, we may be unable to obtain goods and services at prices or on terms as favorable to us as those we obtained prior to the planned Spin-Off. Our businesses also benefit from certain shared functions and services. Following the planned spin-off, we will retain some of these functions and services, and the entity to be spun off (“DRiV Incorporated” or "DRiV^TM") will retain some of these functions and services. As to those functions and services DRiV retains, DRiV will provide certain of them to us on a short-term transitional basis after the planned Spin-Off, and we will be required to establish the necessary infrastructure and systems to provide these functions and services on an ongoing basis. As to those functions and services we retain, we will provide DRiV certain transition services on a short-term transitional basis after the planned Spin-Off. We may not be able to replace the services provided by DRiV in a timely manner or on terms and conditions as favorable as those we receive from DRiV, and it may cost us more to provide services to DRiV than DRiV pays us for those services. If functions previously performed by DRiV, or services provided by us to DRiV, cost us more than the amounts reflected in our historical financial statements, our profitability could decrease.

We could incur substantial additional costs and experience temporary business interruptions to transition information technology infrastructure in connection with the planned Spin-Off.

We may incur temporary interruptions in business operations if we and DRiV cannot transition effectively from the existing transactional and operational systems and data centers retained by the other, or from the transition services that support these functions. We may not be successful in implementing new systems and transitioning data, and we may incur substantially higher costs for implementation than currently anticipated. Our failure to avoid operational interruptions as we implement any necessary new systems, our failure to implement any new systems and replace services successfully, or the insufficiency of our business continuity and disaster recovery capabilities in the event of a disruption of our information technology services, could disrupt our business and have a material adverse effect on our profitability. In addition, if we are unable to replicate or transition certain systems, our ability to comply with regulatory requirements could be impaired.

DRiV may not satisfy its obligations under various agreements that have been or will be executed as part of the planned Spin-Off.

In connection with the planned spin-off, we and DRiV will enter various agreements that govern the allocation of assets and liabilities between the two company and other matters. Included among these agreements will be a Separation and Distribution Agreement, Employee Matters Agreement, Transition Services Agreement, Tax Matters Agreement, Intellectual Property Matters Agreement and certain other agreements. Certain of these agreements will provide for the performance of services by each company for the benefit of the other for a period of time after the planned Spin-Off. We will rely on DRiV to satisfy its performance and payment obligations under these agreements. If DRiV is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses.

There could be significant liability if the planned Spin-Off is determined to be a taxable transaction.

A condition to the planned spin-off is our receipt of an opinion from certain tax advisors with respect to certain U.S. federal income tax consequences of the DRiV spin-off, each of which is in substance and form satisfactory to us. The opinion is expected to conclude that the planned spin-off of 100% of the outstanding DRiV shares to our stockholders and certain related transactions will qualify as tax-free to us and our stockholders under Sections 355 and 368 of the Internal Revenue Code, except to the extent of any cash received in lieu of fractional shares of DRiV’s common stock. Any such opinion is not binding on the U.S. Internal Revenue Service (“IRS”). Accordingly, the IRS may reach conclusions with respect to the DRiV that are different from the conclusions reached in the opinion. The opinion will rely on certain facts, assumptions, representations and undertakings from us and DRiV regarding the past and future conduct of the companies’ respective businesses and other matters, which, if incomplete, incorrect or not satisfied, could alter the conclusions of the party giving such opinion or ruling.

If the planned Spin-Off ultimately is determined to be taxable, the Spin-Off could be treated as a taxable dividend to our stockholders for U.S. federal income tax purposes, and our stockholders could incur significant U.S. federal income tax liabilities. In addition, we would recognize a taxable gain to the extent that the fair market value of DRiV common stock

Table of Contents

exceeds our tax basis in such stock on the date of the planned Spin-Off. The Tax Matters Agreement we will enter into with DRiV will address which company is responsible for any taxes imposed as a result of the planned Spin-Off.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

None.

Table of Contents

ITEM 2.PROPERTIES.

We lease our principal executive offices, which are located at 500 North Field Drive, Lake Forest, Illinois, 60045.



	Reportable Segments
	Clean Air	Ride Performance	Aftermarket	Powertrain	Motorparts	Total
Manufacturing plants:
North America	15	7	2	23	10	57
Europe	20	7	1	33	13	74
South America	2	3	—	5	3	13
Asia Pacific	27	8	2	24	5	66
	64	25	5	85	31	210
Engineering and technical facilities	5	7	—	14	11	37
Shared engineering and technical facilities⁽¹⁾	—	3	—	—	—	3
Distribution centers and warehouses	—	—	22	—	36	58
Total as of December 31, 2018	69	35	27	99	78	308

Lease	38	9	23	25	45	140
Own	31	26	4	74	33	168
Total	69	35	27	99	78	308

(1) Clean Air shares three engineering and technical facilities with Ride Performance.

The above-described manufacturing locations are located in Argentina, Australia, Belgium, Brazil, Canada, China, Czech Republic, Denmark, France, Germany, Hungary, India, Italy, Japan, Mexico, Morocco, Philippines, Poland, Portugal, Russia, Romania, Spain, South Africa, South Korea, Sweden, Thailand, Turkey, the United Kingdom, the United States and Vietnam.

We hold 35 of the above-described international manufacturing facilities through joint ventures in which we own controlling interest. In addition, five joint ventures in which we hold a noncontrolling interest operate eight manufacturing facilities in Europe, Asia and North America, which are not included in the table above.

We also have warehouses and distribution facilities at our manufacturing sites and a few off-site locations, substantially all of which we lease, and a network of 11 technical support centers that provide some of the most comprehensive training programs in the industry that educate our partners and customers with emerging vehicle technologies and vehicle repair operational skills.

We believe that substantially all of our plants and equipment are, in general, well maintained and in good operating condition. They are considered adequate for present needs and, as supplemented by planned construction, are expected to remain adequate for the near future.

We also believe that we generally have satisfactory title to the properties owned and used in our respective businesses. In the United States, substantially all of our owned real property is pledged to secure our obligations under our senior credit facility.

Table of Contents

ITEM 3.LEGAL PROCEEDINGS.

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 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 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 subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. We have been notified by the U.S. Environmental Protection Agency, other national environmental agencies, and various provincial and state agencies that we 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 us under CERCLA and some of the other laws pertaining to these sites, our share of the total waste sent to these sites generally has been small. We believe our exposure for liability at these sites is limited.

On a global basis, we have also identified certain other present and former properties at which we 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. We are actively seeking to resolve these actual and potential statutory, regulatory, and contractual obligations.

We expense or capitalize, as appropriate, expenditures for ongoing compliance with environmental regulations. As of December 31, 2018, we have the obligation to remediate or contribute towards the remediation of certain sites, including the sites discussed above at which we may be a PRP. Our aggregated estimated share of environmental remediation costs for all these sites on a discounted basis was approximately $40 million as of December 31, 2018, of which $12 million is recorded in accrued expenses and other current liabilities and $28 million is recorded in deferred credits and other liabilities in our consolidated balance sheets. For those locations where the liability was discounted, the weighted average discount rate used was 2.9%. The undiscounted value of the estimated remediation costs was $46 million as of December 31, 2018. Our expected payments of environmental remediation costs for non-indemnified locations are estimated to be approximately $10 million in 2019, $6 million in 2020, $3 million in both 2021 and 2022, $2 million in 2023 and $16 million in aggregate thereafter.

In addition to amounts described above, we estimate that we will make expenditures for property, plant and equipment for environmental matters of approximately $14 million in 2019 and $7 million in 2020.

Based on information known to us from site investigations and the professional judgment of consultants, 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, 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 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 amounts in excess of our share of remediation costs. The financial strength of other PRPs 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 PRP, or as a liable party at the other locations referenced herein, will be material to our annual consolidated financial position, results of operations, or liquidity.

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, we also received a related subpoena from the U.S. Department of Justice (“DOJ”).

Table of Contents

On November 5, 2014, the DOJ granted conditional leniency to Tenneco, its subsidiaries and its 50% affiliates as of such date ("2014 Tenneco Entities") pursuant to an agreement we entered into under the Antitrust Division's Corporate Leniency Policy. This agreement provides important benefits to the 2014 Tenneco Entities in exchange for our self-reporting of matters to the DOJ and our continuing full cooperation with the DOJ's resulting investigation. For example, the DOJ will not bring any criminal antitrust prosecution against the 2014 Tenneco Entities, nor seek any criminal fines or penalties, in connection with the matters we 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 us satisfying the DOJ and any court presiding over such follow-on civil litigation.

On April 27, 2017, we 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 us 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 us and our subsidiaries, including Federal-Mogul. We have cooperated and continue to cooperate fully with all of these antitrust investigations, and have taken other actions to minimize our 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, our civil liability in United States follow-on actions with respect to these entities is limited to single damages and we will not be jointly and severally liable with the other defendants, provided that we have satisfied our obligations under the DOJ leniency agreement and approval is granted by the presiding court. 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, we settled an administrative action brought by Brazil's competition authority for an amount that was not material. In December 2018, we 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, we 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 us in the United States. Based upon earlier developments, including settlement discussions, we established a reserve of $132 million in our second quarter 2017 financial results for settlement costs that were probable, reasonably estimable, and expected to be necessary to resolve our 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 December 31, 2018 resulting in a remaining reserve of $53 million as of December 31, 2018, which is recorded in accrued expenses and other current liabilities in our 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 reserve for antitrust matters is based upon all currently available information and an assessment of the probability of events for those matters where we can make a reasonable estimate of the costs to resolve such outstanding matters. Our estimate involves significant judgment, given the number, variety and potential outcomes of actual and potential claims, the uncertainty of future rulings and approvals by a court or other authority, the behavior or incentives of adverse parties or regulatory authorities, and other factors outside of our control. As a result, our reserve may change from time to time, and actual costs may vary. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, we do not expect that any such change in the reserve will have a material adverse impact on our annual consolidated financial position, results of operations or liquidity.

Table of Contents

Other Legal Proceedings, Claims and Investigations

For many years we have been and continue to be subject to lawsuits initiated by claimants alleging health problems as a result of exposure to asbestos. Our current docket of active and inactive cases is less than 500 cases 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 our 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 our subsidiaries by railroad workers alleging exposure to asbestos products in railroad cars. We believe, based on scientific and other evidence, it is unlikely that U.S. claimants were exposed to asbestos by our former products and that, in any event, they would not be at increased risk of asbestos-related disease based on their work with these products. Further, many of these cases involve numerous defendants, with the number in some cases exceeding 100 defendants from a variety of industries. Additionally, in many cases the plaintiffs either do not specify any, or specify the jurisdictional minimum, dollar amount for damages.

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, 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 annual consolidated financial position, results of operations or liquidity.

In connection with Federal-Mogul’s emergence from bankruptcy in 2008, trusts were funded and established to assume liability for and resolve Federal-Mogul’s legacy asbestos liabilities in the United States and United Kingdom. Accordingly, those legacy liabilities in the United States and United Kingdom have had no ongoing impact on Federal-Mogul, Tenneco or their operations.

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

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 annual 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 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 adjustments to the reserve. The reserve is included in both "accrued expenses and other current liabilities" and "deferred credits and other liabilities" in the consolidated balance sheets.

ITEM 4.MINE SAFETY DISCLOSURES.

Not applicable.

Table of Contents

ITEM 4.1.EXECUTIVE OFFICERS OF THE REGISTRANT.

The following provides information concerning the persons who serve as our executive officers as of March 15, 2019.



Name and Age		Offices Held

Brian J. Kesseler (52)		Co-Chief Executive Officer
Roger J. Wood (56)		Co-Chief Executive Officer
Bradley S. Norton (55)		Executive Vice President and President Original Equipment
Peng (Patrick) Guo (53)		Executive Vice President and President Clean Air
Rainer Jueckstock (59)		Executive Vice President and President Powertrain
Jason M. Hollar (45)		Executive Vice President Finance and Chief Financial Officer
Kaled Awada (44)		Senior Vice President and Chief Human Resources Officer
Gregg A. Bolt (59)		Senior Vice President Integration Office
Ben P. Patel (51)		Senior Vice President and Chief Technology Officer
Brandon B. Smith (38)		Senior Vice President, General Counsel and Corporate Secretary
John S. Patouhas (52)		Vice President and Chief Accounting Officer

Brian J. Kesseler — Mr. Kesseler became Co-Chief Executive Officer in October 2018. He was previously Chief Executive Officer from May 2017 to September 2018. He served as Chief Operating Officer from January 2015 to May 2017. Prior to joining Tenneco, he spent more than 20 years working for Johnson Controls Inc., most recently serving as President of the Johnson Controls Power Solutions business. In 2013, he was elected a corporate officer, and was a member of the Johnson Controls executive operating team. Mr. Kesseler also served as the sponsor of Johnson Controls’ Manufacturing Operations Council. Mr. Kesseler joined JCI in 1994 and during his tenure held leadership positions in all of the company’s business units, including serving as Vice President and General Manager, Service-North America, Systems and Services Europe, and Unitary Products Group, for the Building Efficiency business. He began his career with the Ford Motor Company in 1989 and worked in North America Assembly Operations for five years, specializing in manufacturing management. Mr. Kesseler became a director of our company in October 2016.

Roger J. Wood — Mr. Wood became Co-Chief Executive Officer in October 2018. Mr. Wood retired in 2015 as Dana Holding Corporation’s (now known as Dana Incorporated) President and Chief Executive Officer, a position he held since 2011, when he joined Dana. Prior to joining Dana Holding Corporation, Mr. Wood served as Executive Vice President and Group President for the Engine Group at BorgWarner. In his 26-year career at BorgWarner, Mr. Wood served in various leadership roles with global operation responsibilities. He is a member of the board of directors of Brunswick Corporation and Executive Director of Fallbrook Technologies. Mr. Wood has been a director of our company since 2016.

Bradley S. Norton — Mr. Norton joined Tenneco as Executive Vice President in October 2018. Prior to joining Tenneco, Mr. Norton was Co-Chairman of the Board and Co-Chief Executive Officer of Federal-Mogul Holdings LLC from March 2017 to September 2018, and Chief Executive Officer, Federal-Mogul Motorparts from July 2014 to March 2017. He was also elected to the Board of Managers of Federal-Mogul LLC in March 2017. Prior to that appointment, Mr. Norton was Senior Vice President, Chassis & Service, Federal-Mogul Motorparts beginning in July 2014.

Peng (Patrick) Guo — Mr. Guo was named Executive Vice President and President Clean Air in March 2017. Previously, Mr. Guo was Executive Vice President, Asia Pacific since December 2016, and was Senior Vice President and General Manager, Asia Pacific from October 2014 until December 2016. Mr. Guo served as Vice President and Managing Director, China from 2007 until October 2014. From 1996 to 2003, Mr. Guo served as General Manager, Asia Aftermarket Operations while based in Beijing, China. He left Tenneco in October 2003 to become president of the AGC Automotive China Operations for the Asahi Glass Company. He returned to Tenneco in July 2007. Before joining Tenneco, Mr. Guo was an engineer at the Ford Motor Company, which included assignments in manufacturing, quality and product design.

Rainer Jueckstock — Mr. Jueckstock joined Tenneco as Executive Vice President and President Powertrain in October 2018. Prior to joining Tenneco, Mr. Jueckstock was Co-Chairman of the Board and Co-Chief Executive Officer of Federal-Mogul LLC from 2014 to 2018, and Chief Executive Officer, Federal-Mogul Powertrain from 2012 to 2018. Prior to his Co-Chairman and Co-Chief Executive Officer positions, Mr. Jueckstock was Senior Vice President, Powertrain Energy from 2005 to 2012, a member of the Strategy Board from 2005 to 2012 and an officer of Federal-Mogul Corporation from 2005 to 2012. He is a director of Plexus Corp.

Table of Contents

Jason M. Hollar — Mr. Hollar became Executive Vice President and Chief Financial Officer in July 2018. He joined Tenneco as Senior Vice President Finance and served from June 2017 to June 2018. Prior to joining Tenneco, Mr. Hollar was Chief Financial Officer of Sears Holdings Corporation beginning in October 2016 and has served as Senior Vice President, Finance of Sears since October 2014. Previously, he was with Delphi Automotive PLC, serving from December 2013 to September 2014 as Vice President and Corporate Controller and from April 2011 to November 2013 as CFO, Powertrain Systems and Delphi Europe, Middle East and Africa.

Kaled Awada — Mr. Awada joined Tenneco as Senior Vice President and Chief Human Resources Officer in September 2018. Prior to joining Tenneco, Mr. Awada held Human Resources leadership positions of increasing responsibility at Aptiv PLC for three years, most recently Global Vice President, Human Resources, for the company's electrical distribution systems business. He previously held global Human Resources roles with Eaton Corporation, Textron Fastening Systems, and Faurecia Exhaust Systems.

Gregg A. Bolt — Mr. Bolt has been the Senior Vice President Integration Office since September 2018. He served as Senior Vice President Global Human Resources and Administration from February 2013 to August 2018. Prior to joining Tenneco, Mr. Bolt worked for Quad/Graphics, Inc. as Executive Vice President, Human Resources and Administration from March 2009 to January 2013. Previously, he was with Johnson Controls Inc. for more than 10 years, serving most recently as Vice President, Human Resources for JCI’s Building Efficiency division.

Ben P. Patel — Dr. Patel has been the Senior Vice President and Chief Technology officer since October 2018; he served as the Vice President and Chief Technology Officer since March 2017. He served as Vice President, Global Research and Development, Clean Air from March 2012 to March 2017 and Vice President, Technology Development, Emission Control from January 2011 to February 2012. Prior to joining Tenneco in 2011, Dr. Patel worked at GE Global Research Center from July 1998 to December 2007, where he held the position of senior scientist. From January 2008 to December 2010 he served as technology portfolio manager for GE Technology Ventures, a division of General Electric's corporate trading and licensing group. He is a director of Lincoln Electric Holdings, Inc.

Brandon B. Smith — Mr. Smith has served as our Senior Vice President, General Counsel and Corporate Secretary since February 2018 and is responsible for managing our worldwide legal affairs including corporate governance and compliance. Previously, he served as our Vice President, Deputy General Counsel and Assistant Secretary since November 2014 and Interim General Counsel since October 2017. Mr. Smith also served as our Assistant General Counsel from April 2011 to November 2014 and as our Senior Corporate Counsel from November 2010 until April 2011. Mr. Smith joined Tenneco in July 2008 as Corporate Counsel. Prior to joining Tenneco, Mr. Smith was a corporate attorney with Kirkland & Ellis LLP, representing both public and private enterprises on a wide variety of corporate engagements.

John S. Patouhas — Mr. Patouhas has served as our Vice President and Chief Accounting Officer since February 2019. Mr. Patouhas served since 2015 as Vice President and Chief Accounting Officer of Federal-Mogul (a subsidiary of Tenneco since October 2018). From 2011 to 2015, Mr. Patouhas was Vice President and Corporate Controller at Altair Engineering, a product design and development, engineering software and cloud computing software provider. He has over 20 years’ experience in financial reporting and corporate accounting at a variety of companies, and began his career as an auditor with Deloitte. Mr. Patouhas is a CPA and CGMA, and has an MBA from Wayne State University.

Table of Contents

PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our outstanding shares of Class A Common Stock, par value $0.01 per share, are listed on the New York Stock Exchange under the symbol "TEN". On February 1, 2017, we announced the reinstatement of a quarterly dividend program under which we expect to pay a quarterly dividend of $0.25 per share on our common stock, representing a planned annual dividend of $1.00 per share. The Company did not pay any dividends in fiscal year 2016. While we currently expect to pay comparable quarterly cash dividends in the near future, our dividend program and the payment of future cash dividends are subject to continued capital availability, the judgment of our Board of Directors and our continued compliance with the provisions pertaining to the payment of dividends under our debt agreements. Once the contemplated separation of our businesses through a spin-off occurs, each independent company will determine its own dividend policy.

For additional information concerning our payment of dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7.

As of March 11, 2019, there were approximately 10,100 holders of record of our class A common stock, including brokers and other nominees and two holders of record of our class B common stock.

Purchase of equity securities by the issuer and affiliated purchasers

The following table provides information relating to our purchase of shares of our class A common stock in the fourth quarter of 2018. These purchases include shares withheld upon vesting of restricted stock for minimum tax withholding obligations. We generally intend to continue to satisfy statutory minimum tax withholding obligations in connection with the vesting of outstanding restricted stock through the withholding of shares.



Period	Total Number of Shares Purchased (1)	Average Price Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Value of Shares That May Yet be Purchased Under These Plans or Programs (Millions)
October 2018	328	$	35.37	—	$	231
November 2018	—	$	—	—	$	231
December 2018	—	$	—	—	$	231
Total	328	$	35.37	—	$	231


(1)	Shares withheld upon vesting of restricted stock in the fourth quarter of 2018.

During 2015, our Board of Directors approved a share repurchase program, authorizing us to repurchase up to $550 million of our then outstanding common stock over a three-year period ("2015 Program"). We purchased 4,182,613 shares in 2016 through open market purchases, which were funded through cash from operations, at a total cost of $225 million, at an average price of $53.89 per share. These repurchased shares are held as part of our treasury stock.

In February 2017, our Board of Directors authorized the repurchase of up to $400 million of our then outstanding common stock over the next three years ("2017 Program"), this included $112 million that remained authorized under the 2015 Program. We generally acquire the shares through open market or privately negotiated transactions, and have historically utilized cash from operations. The repurchase program does not obligate us to repurchase shares within any specific time or situations.

No new share repurchase programs were authorized by our Board of Directors in 2018 and we did not repurchase any shares under the 2017 Program in 2018. Since we announced the repurchase program in January 2015, we have repurchased 11.3 million shares for $607 million through December 31, 2018.

Recent Sales of Unregistered Securities

None.

Table of Contents

Share Performance

The following graph shows a five year comparison of the cumulative total stockholder return on Tenneco’s common stock as compared to the cumulative total return of two other indexes: a custom composite index (“Peer Group”) and the Standard & Poor’s 500 Composite Stock Price Index. The companies included in the Peer Group are: American Axle & Manufacturing Co., BorgWarner Inc., Cummins Inc., Johnson Controls International Plc, Lear Corp., Magna International Inc., and Meritor, Inc. These comparisons assume an initial investment of $100 and the reinvestment of dividends.

*$100 invested on 12/31/13 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.



	As of December 31,
	2013		2014		2015		2016		2017		2018
Tenneco Inc.	$	100.00	$	100.07	$	81.16	$	110.43	$	105.25	$	50.40
S&P 500	100.00		113.69		115.26		129.05		157.22		150.33
Peer Group	100.00		112.87		86.23		108.46		128.12		99.21

The graph and other information furnished in the section titled “Share Performance” under this Part II, Item 5 of this Form 10-K shall not be deemed to be “soliciting” material or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA.

The following data should be read in conjunction with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Operations” and our consolidated financial statements in Item 8 — “Financial Statements and Supplementary Data.” These items include discussions of factors affecting comparability of the information shown below, including the completion of the Acquisition of Federal-Mogul on October 1, 2018 as discussed in Item 8 — Note 3, Acquisitions and Divestitures.

The amounts below reflect the revisions as discussed in Item 8 — Note 2, Summary of Significant Accounting Policies.



	Year Ended December 31
	2018		2017		2016		2015		2014
	(Millions Except Share and Per Share Amounts)
Statements of Income Data:
Net sales and operating revenues	$	11,763	$	9,274	$	8,597	$	8,180	$	8,382
Earnings (loss) before interest expense, income taxes, and noncontrolling interests ^(a)	$	306	$	408	$	479	$	503	$	469
Net income	$	111	$	265	$	415	$	291	$	261
Net income attributable to Tenneco Inc.	$	55	$	198	$	347	$	237	$	219

Basic earnings per share of common stock	$	0.93	$	3.75	$	6.20	$	3.98	$	3.61
Diluted earnings per share of common stock	$	0.93	$	3.73	$	6.15	$	3.94	$	3.55
Cash dividends declared	$	1.00	$	1.00	$	—	$	—	$	—

Balance Sheet Data (at year end):
Total assets	$	13,232	$	4,796	$	4,312	$	3,937	$	3,964
Short-term debt	$	153	$	103	$	117	$	103	$	99
Long-term debt	$	5,340	$	1,358	$	1,294	$	1,124	$	1,055
Redeemable noncontrolling interests	$	138	$	42	$	40	$	41	$	34
Total equity	$	1,916	$	682	$	573	$	425	$	497

(a)Includes restructuring and asset impairments for each year as follows:



	Year Ended December 31
	2018		2017		2016		2015		2014
	(Millions)
Restructuring and asset impairments, net	$	112	$	47	$	30	$	63	$	49

Table of Contents


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis in conjunction with the consolidated financial statements and related notes included in Item 8. — "Financial Statements and Supplementary Data." All references to "Tenneco," "we," "us," "our" and "the Company" refer to Tenneco Inc. and its consolidated subsidiaries. Notes referenced in this discussion and analysis refer to the notes to consolidated financial statements that are found in Item 8.—"Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements."

The consolidated financial statements for the years ended December 31, 2017 and 2016 have been revised to correct for prior period errors as discussed in Item 8 — Note 2, Summary of Significant Accounting Policies. Accordingly, this Management's Discussion and Analysis of Financial Condition and Results of Operations reflect the effects of the revisions.

OVERVIEW

Our Company

We are one of the world’s leading manufacturers of clean air, powertrain and ride performance products and systems for light vehicle, commercial truck, off-highway, industrial and aftermarket customers. Both original equipment (OE) vehicle designers and manufacturers and the repair and replacement markets, or aftermarket, are served globally through leading brands, including Monroe®, Champion®, Öhlins®, MOOG®, Walker®, Fel-Pro®, Wagner®, Ferodo®, Rancho®, Thrush®, National®, and Sealed Power®, among others. As of December 31, 2018, we operated 210 manufacturing facilities worldwide and employed approximately 81,000 people to service our customers’ demands.

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

For 2018, light vehicle production was slightly down compared to 2017 in some of the geographic regions in which we operate. Light vehicle production was down 1% in both North America and Europe, and down 4% in China. Light vehicle production was up 6% in India and 3% in South America.

Federal-Mogul Acquisition

On October 1, 2018, we closed the acquisition of Federal-Mogul LLC ("Federal-Mogul"), (the "Acquisition" or the “Federal-Mogul Acquisition”) pursuant to the Membership Interest Purchase Agreement, dated as of April 10, 2018 (the “Purchase Agreement”), by and among us, Federal-Mogul, American Entertainment Properties Corp. (“AEP”) and Icahn Enterprises L.P. (“IEP”). Total consideration was approximately $3.7 billion. See Note 3, Acquisitions and Divestitures to our consolidated financial statements for additional information.

As a result of the Federal-Mogul Acquisition, the number of our reportable segments increased from three to five segments, consisting of: our historical Clean Air, Ride Performance, and Aftermarket segments and the newly acquired Powertrain and Motorparts segments. Segment information for periods prior to the Federal-Mogul Acquisition do not include amounts for the Federal-Mogul operations.

Our reportable segments, which are also our operating segments, align with how the Chief Operating Decision Maker allocates resources and assesses performance against our key growth strategies. We evaluate segment performance based primarily on earnings before interest expense, income taxes, noncontrolling interests, depreciation and amortization (EBITDA including noncontrolling interests).

Table of Contents

Financial Executive Summary

•

We reported total revenue for 2018 of $11,763 million, up 27% from $9,274 million in 2017. The Federal-Mogul acquisition increased revenues by approximately $1,886 million, or 20%, in 2018. The remaining increase in our revenues of $603 million, or 7%, was driven by the growth in Clean Air and Ride Performance segments. Excluding the impact of currency and substrate sales, organic revenue was up $292 million, or 4%, from $7,087 million to $7,379 million, which was driven primarily by stronger light vehicle volumes, higher commercial truck, off-highway and other vehicle revenues and new platforms.

•

Earnings before interest expense, income taxes, and noncontrolling interests (EBIT) was $306 million for 2018, a decrease of $102 million, when compared to $408 million in 2017. Excluding the Federal-Mogul acquisition, EBIT decreased compared to 2017, as higher light vehicle volumes, increased commercial truck, off-highway and other vehicle revenues and new platforms were more than offset by unfavorable mix, price reductions, higher depreciation and amortization expenses, higher restructuring and related expenses, costs related to the Acquisition and expected spin, loss on extinguishment of debt, a litigation settlement charge, and continued investments in growth for new programs. EBIT in 2017 also included a $132 million antitrust settlement accrual, a $11 million goodwill impairment charge and $13 million in charges related to pension derisking and the acceleration of restricted stock vesting. See “Segment Results of Operations” for further information on EBIT including noncontrolling interests.

Table of Contents

RESULTS OF OPERATIONS

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Consolidated Results of Operations

The following table presents our consolidated results of operations and reflects the revisions as discussed in Item 8 — Note 2, Summary of Significant Accounting Policies:



	Year Ended December 31						Increase / (Decrease)
	2018			2017			$ Change			% Change ⁽¹⁾
	(Millions Except Percent, Share and Per Share Amounts)
Revenues
Net sales and operating revenues	$	11,763		$	9,274		$	2,489		27	%
Costs and expenses
Cost of sales (exclusive of depreciation and amortization)	10,071			7,812			2,259			29	%
Selling, general, and administrative	794			638			156			24	%
Depreciation and amortization	345			226			119			53	%
Engineering, research, and development	204			158			46			29	%
Goodwill impairment charge	3			11			(8		)	(73	)%
	11,417			8,845			2,572			29	%
Other expense (income)
Loss on sale of receivables	16			5			11			220	%
Non-service pension and postretirement benefit costs	20			16			4			25	%
Loss on extinguishment of debt	10			1			9			n/m
Equity in (earnings) losses of nonconsolidated affiliates, net of tax	(18		)	1			(19		)	n/m
Other expense (income), net	12			(2		)	14			n/m
	40			21			19			90	%
Earnings before interest expense, income taxes, and noncontrolling interests	306			408			(102		)	(25	)%
Interest expense	132			72			60			83	%
Earnings before income taxes and noncontrolling interests	174			336			(162		)	(48	)%
Income tax expense (benefit)	63			71			(8		)	(11	)%
Net income	111			265			(154		)	(58	)%
Less: Net income attributable to noncontrolling interests	56			67			(11		)	(16	)%
Net income attributable to Tenneco Inc.	$	55		$	198		$	(143	)	(72	)%
Earnings per share
Weighted average shares of common stock outstanding —
Basic	58,625,087			52,796,184			5,828,903			11	%
Diluted	58,758,732			53,026,911			5,731,821			11	%
Basic earnings per share of common stock	$	0.93		$	3.75		$	(2.82	)	(75	)%
Diluted earnings per share of common stock	$	0.93		$	3.73		$	(2.80	)	(75	)%
Cash dividends declared per share	$	1.00		$	1.00		$	—		—	%
Percent of revenues
Cost of sales	86		%	84		%	2		%
Selling, general, and administrative	7		%	7		%	—		%
EBIT	3		%	4		%	(1		)%
Net income attributable to Tenneco Inc.	—		%	2		%	(2		)%

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

Table of Contents

Revenues

Total revenue for 2018 was $11,763 million, up 27% from $9,274 million in 2017. The Federal-Mogul Acquisition increased revenues by approximately $1,886 million, or 20%, in 2018. Excluding the Acquisition, organic revenues increased $603 million, or 7%, driven by the growth in Clean Air and Ride Performance segments. Excluding the impact of currency and substrate sales, organic revenue was up $292 million, or 4%, from $7,087 million to $7,379 million, which was driven primarily by stronger light vehicle volumes, higher commercial truck, off-highway and other vehicle revenues and new platforms. The following table lists the primary drivers behind the change in revenues ($ millions).



Year ended December 31, 2017	$	9,274
Federal-Mogul Acquisition	1,886
Drivers in the change of organic revenues:
Volume and mix	597
Currency exchange rates	12
Others	(6		)
Year ended December 31, 2018	$	11,763

Cost of sales

Cost of sales for 2018 was $10,071 million, or 86% of sales, compared to $7,812 million, or 84% of sales in 2017. Excluding the Acquisition, organic cost of sales for 2018 was $8,434 million or 85% of organic sales. The following table lists the primary drivers behind the change in cost of sales ($ millions).



Year ended December 31, 2017	$	7,812
Federal-Mogul Acquisition	1,637
Drivers in the change of organic cost of sales:
Volume and mix	556
Material	13
Currency exchange rates	6
Restructuring and cost to achieve synergies	28
Other costs	19
Year ended December 31, 2018	$	10,071

The impact of the Federal-Mogul Acquisition increased the cost of sales by $1,637 million in 2018. The remaining increase in our organic cost of sales was mainly due to the year-over-year increase in volume, higher material costs, higher restructuring and costs to achieve synergies, higher manufacturing and impact of currency. Also refer to section below "Restructuring charges."

Selling, general and administrative (SG&A)

SG&A was up $156 million in 2018, at $794 million, compared to $638 million in 2017. The increase was due primarily to the impact of the Federal-Mogul Acquisition. Excluding the Acquisition, included in 2018 was $92 million of Acquisition and expected spin costs, $25 million of costs to achieve synergies, $18 million of cost reduction initiatives and $10 million of litigation settlement, while 2017 included a $132 million antitrust settlement accrual and $22 million of cost reduction initiatives. Also refer to section below "Restructuring charges."

Depreciation and amortization

Depreciation and amortization expense was $345 million and $226 million for 2018 and 2017, respectively. The increase was due primarily to the impact of the Federal-Mogul Acquisition.

Engineering, research, and development

Engineering, research, and development expense was $204 million and $158 million in 2018 and 2017, respectively. The increase was due primarily to the impact of the Federal-Mogul Acquisition. Also refer to section below "Restructuring charges."

Goodwill impairment charge

As a result of our goodwill impairment assessment in the fourth quarter of 2018, we determined the fair value of the North America Ride Performance reporting unit was lower than its carrying value. Accordingly, we recorded a full goodwill impairment charge of $3 million in the fourth quarter of 2018. This compared to an $11 million goodwill impairment charge in the fourth quarter of 2017, which related to our Europe and South America Aftermarket and Ride Performance reporting units.

Table of Contents

Non-service pension and postretirement benefit costs

Non-service pension and postretirement benefit costs was up $4 million in 2018 at $20 million compared to $16 million at 2017.

Loss on extinguishment of debt

Loss on extinguishment of debt was $10 million in 2018 related to the repayment of our revolver and term loan A and the new refinancing in connection with the Federal-Mogul Acquisition. This compared to a $1 million charge recognized in 2017.

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

Equity in earnings (losses) of nonconsolidated affiliates, net of tax was up $19 million in 2018, at $18 million, compared to a loss of $1 million in 2017. The increase was due to the impact of Federal-Mogul Acquisition.

Interest expense, net of interest capitalized

Interest expense in 2018 was $132 million (substantially all in our U.S. operations) net of interest capitalized of $5 million, and $72 million (substantially all in our U.S. operations) net of interest capitalized of $8 million in 2017. The $60 million increase was primarily due to higher interest expense pertaining to the five-year $1,700 million term loan A facility and the seven-year

$1,700 million term loan B facility that were entered into in connection with the Acquisition and the interest expense on Federal-Mogul debt obligations assumed in the Acquisition, partially offset by the lower interest expense as a result of the retirement of the Company's term loan A and revolver borrowings on October 1, 2018 related to the Acquisition.

For more detailed explanations on our debt structure and senior credit facility refer to “Liquidity and Capital Resources -Capitalization” later in this Management’s Discussion and Analysis.

Income Taxes

Income tax expense was $63 million on earnings before income taxes and noncontrolling interests of $174 million in 2018 as compared to income tax expense of $71 million on earnings before income taxes and noncontrolling interests of $336 million in 2017. The tax expense recorded in 2018 included tax benefits 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 2017 includes a net provisional tax expense of $43 million for one-time transition tax on deemed repatriation of previously deferred foreign earnings under the Tax Cuts and Jobs Act ("TCJA") as discussed below. The Company remeasured U.S. deferred taxes from an applicable federal rate of 35% to the new statutory rate of 21% at which they are expected to be utilized, recording a $51 million provisional expense. The tax expense recorded in 2017 included a net tax benefit of $74 million relating to recognizing a U.S. tax benefit for foreign taxes.

Net Income

Net income was $111 million for 2018, as compared to $265 million for 2017, a decrease of $154 million, as result of the aforementioned items.

Earnings before Interest Expense, Income Taxes, Noncontrolling Interests and Depreciation and Amortization (“EBITDA including noncontrolling interests”)

EBITDA including noncontrolling interests was $651 million for 2018, an increase of $17 million, when compared to

$634 million in 2017, as a result of the aforementioned items. See “Segment Results of Operations” for further information on EBITDA including noncontrolling interests.

Table of Contents

Restructuring Charges

The classification of our restructuring charges, including costs to achieve synergies and other restructuring actions, in the consolidated statements of income is as follows:



	Year Ended December 31
	2018		2017
	(Millions)
Cost of sales	$	66	$	41
Engineering, research, and development	4		—
Selling, general, and administrative	40		6
Other expense	2		—
	$	112	$	47

See to Item 8 — Note 4, Restructuring Charges and Asset Impairments, Net for further information of restructuring initiatives.

Table of Contents

Segment Results of Operations

Overview of Net Sales and Operating Revenues

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

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

We present these substrate sales separately in the following table because we believe investors utilize this information to understand the impact of this portion of our revenues on our overall business and because it removes the impact of potentially volatile precious metals pricing from our revenues. While our OE customers generally assume the risk of precious metals pricing volatility, it impacts our reported revenues.

Finally, we present these reconciliations of revenues in order to reflect value-add revenues without the effect of changes in foreign currency rates. We have not reflected any currency impact in the base period of the comparisons for measuring the effects of currency in the subsequent year.

The tables below reflects our segment revenues for 2018 and 2017:



	Year Ended December 31, 2018											Year Ended December 31, 2017
	Revenues		Substrate Sales		Value-add Revenues		Currency Impact on Value-add Revenues			Value-add Revenues excluding Currency		Revenues		Substrate Sales		Value-add Revenues
	(Millions)											(Millions)
Clean Air	$	6,707	$	2,500	$	4,207	$	31		$	4,176	$	6,216	$	2,187	$	4,029
Ride Performance	1,949		—		1,949		(4		)	1,953		1,807		—		1,807
Aftermarket	1,221		—		1,221		(29		)	1,250		1,251		—		1,251
Powertrain	1,112		—		1,112		—			1,112		—		—		—
Motorparts	774		—		774		—			774		—		—		—
Total Tenneco Inc.	$	11,763	$	2,500	$	9,263	$	(2	)	$	9,265	$	9,274	$	2,187	$	7,087



	Year Ended December 31, 2018 Versus Year Ended December 31, 2017 Dollar and Percent Increase (Decrease)
	Revenues			Percent		Value-add Revenues excluding Currency			Percent
	(Millions Except Percent Amounts)
Clean Air	$	491		8	%	$	147		4	%
Ride Performance	142			8	%	146			8	%
Aftermarket	(30		)	(2	)%	(1		)	—	%
Powertrain	1,112			n/m		1,112			n/m
Motorparts	774			n/m		774			n/m
Total Tenneco Inc.	$	2,489		27	%	$	2,178		31	%

Table of Contents

Light Vehicle Industry Production by Region for Years Ended December 31, 2018 and 2017 (According to IHS Markit, February 2019)



	Year Ended December 31
	2018	2017	Increase (Decrease)		% Increase (Decrease)
	(Number of Vehicles in Thousands)
North America	16,952	17,064	(112	)	(1	)%
Europe	21,971	22,216	(245	)	(1	)%
South America	3,394	3,291	103		3	%
China	26,608	27,726	(1,118	)	(4	)%
India	4,720	4,459	261		6	%

Segment Revenue

Clean Air revenue was up $491 million to $6,707 million in 2018 compared to $6,216 million in 2017. Higher volumes drove a $486 million increase due to higher light vehicle revenues, higher commercial truck, off-highway and other vehicle sales, as well as new platforms, partially offset by price reductions and the negative impact of the end of OE customer production in Australia. Currency had a $45 million favorable impact on Clean Air revenues.

Ride Performance revenue was up $142 million to $1,949 million in 2018 compared to $1,807 million in 2017. Higher volumes drove a $138 million increase due to increased light vehicle and commercial truck, off-highway and other vehicle sales and new platforms. Currency had a $4 million unfavorable impact on Ride Performance revenues.

Aftermarket revenue was down $30 million to $1,221 million in 2018 compared to $1,251 million in 2017 due to lower volumes and unfavorable mix, partially offset by favorable pricing. Currency had a $29 million unfavorable impact on Aftermarket revenues.

As a result of the Federal-Mogul Acquisition, Powertrain revenue was $1,112 million and Motorparts revenue was $774 million in 2018.

Table of Contents

Earnings before Interest Expense, Income Taxes, Noncontrolling Interests and Depreciation and Amortization (“EBITDA including noncontrolling interests”)

The following table presents the reconciliation from net income attributable to Tenneco Inc. to EBITDA including noncontrolling interests by segment:



	Year Ended December 31									2018 EBITDA including noncontrolling interest as a % of Revenues		2017 EBITDA including noncontrolling interest as a % of Revenues
	2018			2017			2018 vs 2017 Change
	(Millions)
EBITDA including noncontrolling interests by Segments:
Clean Air	$	597		$	562		$	35		9	%	9	%
Ride Performance	66			124			(58		)	3	%	7	%
Aftermarket	169			193			(24		)	14	%	15	%
Powertrain	92			—			92			8	%
Motorparts	(39		)	—			(39		)	(5	)%
Other	(234		)	(245		)	11
Total EBITDA including noncontrolling interests	651			634			$	17		6	%	7	%
Depreciation and amortization	(345		)	(226		)
Earnings before interest expense, income taxes, and noncontrolling interests	306			408
Less: Interest expense	132			72
Less: Income tax expense (benefit)	63			71
Net income	111			265
Net Income attributable to noncontrolling interests	56			67
Net income attributable to Tenneco Inc.	$	55		$	198

Revenue by Segments:
Clean Air	$	6,707		$	6,216
Ride Performance	1,949			1,807
Aftermarket	1,221			1,251
Powertrain	1,112			—
Motorparts	774			—
Total	$	11,763		$	9,274

Other data
EBITDA including noncontrolling interests (1)	$	651		$	634		17			6	%	7	%

(1) As a result of the Federal-Mogul Acquisition, we changed our key performance measure. We now use EBITDA including noncontrolling interests as the key performance measure in our financial and operational decision making processes, for internal reporting, and for planning and forecasting purposes to effectively allocate resources. EBITDA including noncontrolling interests is defined as earnings before interest expense, income taxes, noncontrolling interests, and depreciation and amortization. Prior period results have been retrospectively recast to reflect the change in our key performance measure. This non-GAAP measure is accompanied by a reconciliation to the comparable US GAAP measure, net income, in the table above. EBITDA including noncontrolling interests should not be considered a substitute for results prepared in accordance with US GAAP and should not be considered an alternative to net income. EBITDA including noncontrolling interests, as determined and measured by us, should not be compared to similarly titled measures reported by other companies.

Table of Contents

The EBITDA including noncontrolling interests results shown in the preceding table include the following items, certain of which are discussed below under “Adjustments,” which may have an effect on the comparability of EBITDA including noncontrolling interests results between periods:



	Reportable Segments
	Clean Air		Ride Performance		Aftermarket		Powertrain			Motorparts		Total		Other			Total
	(Millions)
Year Ended December 31, 2018
Adjustments:
Costs to achieve synergies ⁽¹⁾:
Restructuring related to synergy initiatives	$	3	$	5	$	9	$	—		$	31	$	48	$	7		$	55
Other cost to achieve synergies	—		1		1		—			—		2		5			7
Total costs to achieve synergies	3		6		10		—			31		50		12			62

Restructuring and related expenses:
Other restructuring charges	11		43		7		(2		)	—		59		(2		)	57
Asset impairments	—		3		—		—			—		3		2			5
Total restructuring and related expenses	11		46		7		(2		)	—		62		—			62

Cost reduction initiatives ⁽²⁾	—		10		—		—			—		10		8			18
Warranty charge ⁽³⁾	—		5		—		—			—		5		—			5
Litigation settlement accrual	—		9		—		—			—		9		1			10
Acquisition and expected spin costs ⁽⁴⁾	—		—		—		—			—		—		96			96
Loss on extinguishment of debt ⁽⁵⁾	—		—		—		—			—		—		10			10
Environmental charge ⁽⁶⁾	—		—		—		—			—		—		4			4
Anti-dumping duty charge ⁽⁷⁾	—		—		—		—			16		16		—			16
Pension charges ⁽⁸⁾	—		3		—		—			—		3		—			3
Purchase accounting adjustments ⁽⁹⁾	—		—		—		44			62		106		—			106
Goodwill impairment charge ⁽¹⁰⁾	—		3		—		—			—		3		—			3
Total adjustments	$	14	$	82	$	17	$	42		$	109	$	264	$	131