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TRANSCRIPT
Earnings Conference CallFebruary 9, 2016
FOURTH QUARTER AND FULL YEAR 2015
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Agenda
• Highlights and Strategic Overview Gregg SherrillChairman & CEO
• Segment Results Brian KesselerChief Operating Officer
• Financial Overview Ken Trammell
Chief Financial Officer
• Outlook Gregg Sherrill
• Questions and Answers
Safe Harbor Statement / Non-GAAP Results:Please see the safe harbor statement and the tables that reconcile GAAP results with non-GAAP results at the end of this presentation and in Tenneco’s financial results press release, which is incorporated herein by reference.
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Fourth Quarter Overview
4Q‘15 4Q‘14 B/(W) % Change
Total Revenue 2,031 2,004 27 1%
Value-add Revenue 1,549 1,548 1 0%
Adjusted SGA&E † (% of Sales) 7.6% 7.3% -0.3% -4%
Adjusted EBIT † 148 136 12 9%
Adjusted EBIT † (% of VA Revenue) 9.6% 8.8% 0.8% 9%
Adjusted EBITDA *† 197 188 9 5%
Adjusted Net Income † 80 65 15 23%
Adjusted EPS ($) † 1.39 1.05 0.34 32%
Cash Flow From Operations 329 252 77 31%
Net Debt / Adjusted LTM EBITDA*† 1.2x 1.1x -0.1x -9%
* Including noncontrolling interests. † Adjusted for restructuring activities, pension/postretirement charges, costs related to refinancing and tax adjustments.
$ Millions, except as noted
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2015 Overview
2015 2014 B/(W) % Change
Total Revenue 8,209 8,420 (211) -3%
Value-add Revenue 6,293 6,486 (193) -3%
Adjusted SGA&E † (% of Sales) 7.6% 7.7% 0.1% 1%
Adjusted EBIT † 586 577 9 2%
Adjusted EBIT † (% of VA Revenue) 9.3% 8.9% 0.4% 4%
Adjusted EBITDA *† 785 784 1 0%
Adjusted Net Income † 293 288 5 2%
Adjusted EPS ($) † 4.87 4.65 0.22 5%
Cash Flow From Operations 517 341 176 52%
Net Debt / Adjusted EBITDA*† 1.2x 1.1x -0.1x -9%
* Including noncontrolling interests. † Adjusted for restructuring activities, bad debt charge, pension/postretirement medical charges, costs related to refinancing and tax adjustments.
$ Millions, except as noted
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• Results demonstrate the effectiveness of our strategies and the progress we are making on realizing our vision for Tenneco
– Generating profitable growth
– Continuously improving operations
– Investing to achieve long-term success
• We delivered a strong fourth quarter
– Revenue up 8%, excluding currency
• Outpacing light vehicle and commercial truck and off-highway industry production
• Stronger than market aftermarket sales growth in major regions
– Record high EBIT, net income and EPS, with adjusted EPS up 32%
– Eleventh consecutive quarter of margin improvement
– Outstanding cash performance with cash flow from operations up 31%
Quarter Highlights
6
• Total revenue $2.031B, up 1%
• Excluding a 7% currency headwind, fourth quarter total revenue up 8% to $2.173B
– OE light vehicle up 11%, led by Europe, China and North America, more than double LV production of 4%
– OE commercial truck & off-highway outpaced industry production with unit demand down 16% YOY. Total revenue up 1%; value-add revenue up 3%, demonstrating strong incremental content growth
– Aftermarket up 3%, driven by strong sales in Europe, South America and North America
• Excluding substrates and currency, revenue up 8%
– Clean Air up 9% and Ride Performance up 5%
4Q Revenue
4Q 2015 Total Revenue
OE Light Vehicle75%
Aftermarket14%
OE CTOH 11%
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• We delivered excellent results in 2015
– Revenue increased 5%, ex. currency, outpacing aggregate industry production of 1%
– Delivered strong earnings growth with our highest ever EBIT
– Both product lines improved VA Adjusted EBIT margins YOY, and in total, we improved margins for the sixth year in a row
– Outstanding cash performance with cash from operations up 52%
• Capitalizing on structural growth drivers to deliver profitable growth that outpaces global industry production
– Emissions regulations which require new content to meet more stringent requirements
– Increased demand for MONROE® Intelligent Suspension technologies that differentiate vehicles
– Growing global car parc, which we serve with industry-leading aftermarket brands
• Underpinning our growth is the balance we have across product lines, end-markets, regions and customers
2015 Highlights and Key Growth Drivers
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2011 2012 2013 2014 2015 2016 2017 2018 2019 / 2020
U.S. &
CANADA
US Off-HwyTier 4i*
CA CTrkRetrofit*
RICE Stationary
US revised NAAQS
US Off-Hwy Tier 4f*
Marine Tier 4*
CA Off-Hwy Large Fleets*
US Utility MACT
CA LEV III*
Locomotive Tier 4
NSPS Stationary NOx*
CA Off-Hwy Medium Fleets*
US Fed Tier 3 LV*
US Fed Tier 3Light Truck *
CA CTrk NOx**
EPA Tier 5 Off-Hwy**
CA Off-Hwy Small Fleets*
EUROPE EU Off-Hwy Stage 3B*
EU CO2 / GHG 120g
PM # LV
EU Sound regulation
Euro-6 CTrk
Euro-6b LV
EU Off-HwyStage 4*
Euro-6c LV
RDE LV*,**
EU LV WLTP*,**
EU Off-Hwy Stage 5**
CHINA Major CitiesNS 5 LV*
NS IV CTrk* Off-HwyStage 3A*
China 5 LV (Eastern Provinces)**
Beijing V CTrk*
Beijing 6 LV **
NS V CTrk*,**
Beijing VI CTrk**
Off-Hwy Stage 3B**
China NS 5 LV
China NS 6 LV*,**
NS VI CTrk*,**
Off-Hwy Stage 4*,**
Locomotive**
JAPAN NOx reductionsLV
JP-13 CTrk Off-HwyTier 4B
JP-16 CTrk*
SOUTH
AMERICA
Brazil:Euro-5 CTrk
Chile:Euro-5 LV
Brazil: Off-Hwy Stage 3A(construction)
Brazil: Off-HwyStage 3A (farming)
Brazil:Euro-6 CTrk**
Brazil: Off-Hwy Stage 3B**
RUSSIA Euro-4 LV /CTrk
Euro-5 LV / CTrk
INDIA BS-4 LV / CTrk(13 Cities)
BS-IIIA Off-Hwy
BS-4 LV / CTrk(50 Cities)
Off-Hwy BS- IIIB**
BS-4 LV / CTrk BS-5 LV/CTrk**
Off-Hwy BS-IV*
GLOBAL
TREATY
Marine Annex VI Tier III NOx
Marine Annex VI Tier III SOx
LV - Light Vehicles CTrk - Commercial Trucks Off-Hwy - Off-Highway Vehicles * Phased in ** Estimated date *** Possible harmonization with Stage 5
Global Emissions Regulations Driving Growth
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• Total revenue $8.209B, down 3%
• Excluding an 8% currency headwind, constant $ revenue up 5% to $8.847B
– OE LV up 6%, outpacing LV production growth of 1%
– OE CTOH revenue outpaced industry production on strong incremental content growth• Unit demand down 23% YOY
• Total revenue down 3%; value-add revenue down 1%
– Aftermarket up 6%, driven by strength in North and South America
– Clean Air up 5% and Ride Performance up 4%
2015 Revenue
2015 Total Revenue
OE Light Vehicle73%
Aftermarket15%
OE CTOH12%
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• FY 2015
– Adjusted EBIT up 2% to $586M, excluding $64M YOY negative currency impact, adjusted EBIT up 13%
• Light vehicle and aftermarket revenue growth
• Commercial truck and off-highway content growth
• Continuously driving greater cost efficiencies and a lower cost structure
– FY 2015 VA adjusted EBIT margin increased 40 bps to 9.3%, marking our sixth consecutive year of margin improvement
• 4Q 2015
– Adjusted EBIT grew 9% to $148M, excluding $15M YOY negative currency impact, adjusted EBIT up 20%
– 4Q’15 VA adjusted EBIT margin increased 80 bps to 9.6%, eleventh consecutive quarter of improved margins
EBIT
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1. Fund organic growth
2. Restructuring activities to improve cost competitiveness
3. Balance sheet strength consistent with target leverage ratio of 1X
4. Strategic opportunities– Core sciences foundation, technology, customer,
geographic and aftermarket growth opportunities
5. Capital returns to shareholders– Share repurchases out of free cash flow after all other
investing & strategic needs are satisfied
– Total repurchases authorized of $550 million; $213 million completed through December 31, 2015
– Repurchased 6.2 million shares or 11% of shares outstanding since 2011
Capital Allocation Priorities to Drive Shareholder Value
Working Capital(Receivables + Inventory - Payables) as a % of Revenue
Capital Expendituresas a % of Revenue
TEN averaged 5.3% over the past 8 years
TEN averaged 3.3% over the past 8 years
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Clean Air Division
$ Millions 4Q 2015
North America
EuropeSA & India
AsiaPacific Total
Total Revenue $ 701 $ 454 $ 294 $ 1,449
Less: Substrate sales 247 164 71 482
Value-add revenue $ 454 $ 290 $ 223 $ 967
Adjusted EBIT $ 65 $ 18 $ 36 $ 119
Adjusted EBIT as a % of revenue 9.3% 4.0% 12.2% 8.2%
Adjusted EBIT as a % of value-add revenue 14.3% 6.2% 16.1% 12.3%
4Q 2014
North America
EuropeSA & India
AsiaPacific Total
Total Revenue $ 662 $ 461 $ 272 $ 1,395
Less: Substrate sales 235 158 63 456
Value-add revenue $ 427 $ 303 $ 209 $ 939
Adjusted EBIT $ 52 $ 19 $ 32 $ 103
Adjusted EBIT as a % of revenue 7.9% 4.1% 11.8% 7.4%
Adjusted EBIT as a % of value-add revenue 12.2% 6.3% 15.3% 11.0%
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• Clean Air VA revenue of $967M, up 3%; ex-fx of $-61M up 9%
– NA VA revenue $454M, up 6%; excluding currency of $-2M up 7%:• LV revenue growth of 7% on stronger volumes including ramp-up on the F-150 platform and higher
volumes on GM and Ram pickups and the Chevy Malibu
• Commercial truck & off-highway revenue up 4% on new Ford medium duty truck business and additional content with CAT and Deere programs, despite a 37% decline in unit demand
• Strong aftermarket revenue growth of 5%
– ESI VA revenue $290M, down 4%; excluding currency of $-48M up 12%:• LV revenue growth of 14% on strong production volumes including launches with Jaguar and continued
ramp-up on new platforms with VW, BMW and Land Rover as well as higher revenues in India. These drivers more than offset continuing weak industry production in South America.
• Commercial truck & off-highway revenue up 7% primarily driven by the ramp-up on Stage 4 products and higher commercial truck volumes in Europe that more than offset the 46% decline in South America commercial truck production
– Asia Pacific VA revenue $223M, up 7%; ex. currency of $-11M up 12%:• LV revenue up 10% primarily due to stronger LV volumes in China on Daimler, VW and GM platforms
• Commercial truck & off-highway revenue increased 50% driven by continued ramp-up of Kubota off-highway programs in Japan and higher YOY installation rates for systems on commercial trucks in China, more than offset a 30% decline in China production
Clean Air Division – 4Q Revenue
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Commercial Truck, Off-Highway and Other Revenue Details
2014
Q1 Q2 Q3 Q4 FY
RevenuesValue-add Revenues
RevenuesValue-Add Revenues
RevenuesValue-add Revenues
RevenuesValue-add Revenues
RevenuesValue-add Revenues
Clean Air Division
North America $ 87 $ 52 $ 98 $ 57 $ 89 $ 52 $ 81 $ 48 $ 355 $ 209
Europe, South America & India 88 53 96 58 88 54 75 45 347 210
Asia Pacific 34 23 38 25 23 13 23 14 118 75
Total Clean Air Division $ 209 $ 128 $ 232 $ 140 $ 200 $ 119 $ 179 $ 107 $ 820 $ 494
$ Millions, Unaudited2015
Q1 Q2 Q3 Q4 FY
RevenuesValue-add Revenues
RevenuesValue-Add Revenues
RevenuesValue-add Revenues
RevenuesValue-add Revenues
RevenuesValue-add Revenues
Clean Air Division
North America $ 86 $ 55 $ 87 $ 56 $ 81 $ 54 $ 76 $ 50 $ 330 $ 215
Europe, South America & India 73 44 75 44 65 39 68 41 281 168
Asia Pacific 31 19 26 16 31 20 31 20 119 75
Total Clean Air Division $ 190 $ 118 $ 188 $ 116 $ 177 $ 113 $ 175 $ 111 $ 730 $ 458
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• Total Clean Air adjusted EBIT up 16% to $119M, including $10M in negative currency comparison
– NA adjusted EBIT of $65M, up 25%
– ESI adjusted EBIT of $18M, down 5%
– Asia Pac adjusted EBIT of $36M, up 13%
• Clean Air VA adjusted EBIT margin of 12.3%, up 130 bps driven by:
– Higher light vehicle volumes in North America, Europe and China
– CTOH content growth in North America, Europe and Japan
– Strong aftermarket revenue growth in North America
– Manufacturing improvements
Clean Air Division – 4Q EBIT
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Ride Performance Division
$ Millions 4Q 2015
North America
EuropeSA & India
AsiaPacific Total
Total Revenue $ 292 $ 226 $ 64 $ 582
Less: Substrate sales - - - -
Value-add revenue $ 292 $ 226 $ 64 $ 582
Adjusted EBIT $ 30 $ 9 $ 12 $ 51
Adjusted EBIT as a % of value-add revenue 10.3% 4.0% 18.8% 8.8%
4Q 2014
North America
EuropeSA & India
AsiaPacific Total
Total Revenue $ 310 $ 237 $ 62 $ 609
Less: Substrate sales - - - -
Value-add revenue $ 310 $ 237 $ 62 $ 609
Adjusted EBIT $ 30 $ 13 $ 11 $ 54
Adjusted EBIT as a % of value-add revenue 9.7% 5.5% 17.7% 8.9%
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• Ride Performance revenue of $582M, down 4%; excluding currency of $-55M up 5%
– NA revenue $292M, down 6%; ex. currency of $-7M down 4%, mainly due to lower volumes on commercial truck platforms
– ESI revenue $226M, down 5%; ex. currency of $-43M up 14%:
• LV revenue growth outpacing industry production in Europe on new platforms with Jaguar Land Rover and Daimler and continued ramp-up on programs
with MONROE® Intelligent Suspension technologies with VW, Volvo, Renault and BMW
• Higher aftermarket revenue in Europe and South America
– Asia Pacific revenue $64M, up 3%; ex. currency of $-5M up 11%, on higher light vehicle volumes in China including programs with VW and Ford
Ride Performance Division – 4Q Revenue
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• Total Ride Performance adjusted EBIT of $51M, down 6%, excluding $5M in negative currency comparison, up 4%
– NA adjusted EBIT of $30M, flat
– ESI adjusted EBIT of $9M, down $4M
– Asia Pac adjusted EBIT of $12M, up $1M
• Ride Performance adjusted EBIT margin of 8.8%, essentially even with last year
– Benefits from higher aftermarket sales in Europe and South America and strong light vehicle volumes in China and Europe
– Offset by significant weakness in the South America
– Incurred planned costs related to four simultaneous 4Q launches on MONROE® Intelligent Suspension programs in Europe and early spending on four upcoming 2016 launches
Ride Performance Division – 4Q EBIT
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• Restructuring and related expense of $16M pre-tax, or 26-cents per diluted share; $13M Ride Performance, $3M Clean Air
– $4M related to exiting the Marzocchi operations• 2015 revenue $26M
• Operating loss of $(5)M
– $12M ongoing cost improvement initiatives, including $10M related to the European cost reduction initiative
– European cost reduction initiative update• 4Q’15 savings run rate of $10M
• Expect to reach our targeted savings run rate during 2016. At current exchange rates, that target converts to $55M
• Pension non-cash charges of $4M, or 5-cents per diluted share foranother voluntary program to buyout former employees vested in our pension plans
• Net tax benefit of $6M, or 9-cents per diluted share, for tax adjustments to prior year estimates
Fourth Quarter Adjustments
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• Tax expense of $27M– Includes tax expense of $1M each on restructuring and pension charges
and a tax benefit of $6M for adjustments to prior year estimates
– Before those 4Q items, adjusted tax expense is $35M
• Effective tax rate of 27% in the quarter
• Full year effective tax rate of 33%
– 4Q cash tax payments were $26M and full year 2015 cash tax payments were $105M
• 2016 tax expectations– Effective tax rate before adjustments of between 31% to 32%
• Structural changes completed to reduce our ongoing tax rate
– Cash taxes between $140M and $160M
Tax Expense
21
• 4Q15 interest expense of $18M, a $15M improvement from last year, mainly due to our December 2014 refinancing
– 2015 full year interest expense of $67M
• For 2016, expect annual interest expense of about $75M
• Net debt / Adjusted LTM EBITDA* ratio was 1.2x at year end compared to 1.1x last year
* Including noncontrolling interests(1) In April 2015, the FASB issued Accounting Standard Update 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be
presented in the balance sheet as a direct deduction from the associated debt liability. Tenneco adopted this standard for the first quarter of 2015 and applied retrospectively. The balance for unamortized debt issuance costs was $12 million and $14 million at December 31, 2015 and December 31, 2014, respectively.
Debt and Cash Position
$ MillionsDecember 31,
2015 2014
Total Debt(1) $ 1,210 $ 1,115
Cash Balances 288 285
Net Debt $ 922 $ 830
22
• Full year cash generated from operations was $517M, up 52%– Strong working capital management, lower interest and tax payments and higher earnings
• Capital expenditures of $78M in the quarter and $295M in 2015 primarily to support new programs in Europe, North America and China
– For 2016, expect capital expenditures between $300M and $330M
• Repurchased 1.1 million shares in 4Q for $55M and for the full year we repurchased a total of 4.2 million shares for $213M
– Remaining authorization of $337M which we expect to complete by the end of 2017
Cash Flow
4Q’15 4Q’14 B(W)
DSO excl. factoring
57 55 (2)
DOH 36 37 1
DPO 73 73 -
Working Capital Metrics (L3M):• Cash flow from operations of $329M in the quarter, up 31%
– Higher earnings
– Lower interest and tax payments
– Strong working capital management, including lower inventory days-on-hand and customer tooling collections
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• During 2016 we expect to launch another voluntary program offering to buy out active employees and retirees who have earned benefits in the U.S. pension plan that was frozen in 2006
– Expect to complete by end of 2016
– Cash payments made from pension assets
• Contribution of around $23M to $27M in 4Q, included in estimate on slide 30
– Non-cash charge of around $85M to $90M in 4Q, based on an estimated participation level of 50%
– U.S. pension liability would be reduced by about 50%
Pension Liability Reduction
24
Track Record of Solid Execution, Profitable Growth and Value Creation
Averaging mid-teen incrementals on adjusted value-add EBIT margin since 2010
Tenneco Total Revenue Outgrowth
Industry Production*
* Value –add Revenue is total revenue less substrate sales. See slide 35 for further explanation. ∆ At 2014 constant currency
25
• In the first quarter, we expect total revenue growth of 5%, excluding currency headwind of approximately 2%, based on current exchange rates
– Outpacing 1Q forecasted aggregate industry production growth of 2% (based on IHS Automotive Jan. 2016 light vehicle production forecast, Power Systems Research (PSR) Jan. 2016 commercial truck & bus forecast and PSR off-highway engine production in U.S. and Europe.)
• Reiterating our full year 2016 expectation of 5% total revenue growth, excluding currency
– Currency sensitivities are on slide 28
– Outpacing forecasted aggregate industry production growth of 3% in 2016(full year guidance given on Jan. 13, 2016 using Dec. 2015 IHS Automotive light vehicle production forecast, Power Systems Research (PSR) Jan. 2016 commercial truck & bus forecast and PSR off-highway engine production in U.S. and Europe )
First Quarter & FY 2016 Outlook
26
Industry Production – YoY% Change
Major Regions 4Q’15 FY’15 1Q’16 FY’16
North America 2% 3% 5% 4%
Europe 4% 3% 2% 2%
South America -30% -22% -22% -8%
India 8% 7% 6% 9%
China 12% 3% 4% 5%
Aggregate Industry Production 3% 1% 2% 3%
Source: IHS Automotive Jan. 2016 light vehicle production forecast, Power Systems Research (PSR) Jan. 2016 commercial truck & bus forecast and PSR off-highway engine production in U.S. and Europe.
27
Delivering Growth ExceedingIndustry Production in 2016
• Light Vehicle Revenue Drivers
– Incremental Clean Air revenue from 2015 new launches with Daimler, Jaguar Land Rover, Porsche, GM and Nissan, and from new platform launches in 2016, including with Jaguar Land Rover, GM, VW and Ford
– Incremental revenue from MONROE® Intelligent Suspension programs with four new launches in 2016 and the benefit from the continued ramp up on programs launched in 2015, including the Volvo XC90 and Ford Focus RS
• Commercial Truck and Off-Highway Revenue Drivers
– Benefit from mid-year 2015 launches for Kubota off-highway equipment and Ford medium-duty commercial trucks in North America
– Remaining content additions for 2015 off-highway Tier 4f and Stage 4 regulations in North America and Europe
– Increasing market share with commercial truck customers in China
– Initial launches with India commercial truck customers as BS IV begins in 50 cities
28
2016-2018 Revenue Outlookat Constant Currency
• Expect 2016 total revenue growth of 5%
• Expect accelerated growth in 2017 and 2018 as new light vehicle regulations start to phase-in
Revenue growth outpacing market
2016 Currency Sensitivity
**IHS Automotive December 2015 light vehicle production forecast inthe regions where Tenneco operates, Power Systems Research(PSR), January 2016 forecast global commercial truck and buses,PSR off-highway engine production in North America and Europe,and Tenneco estimates.
See slide 32 for further key assumptions related to our revenue projections.
Impactvs. 2015 Euro RMB Real
– $1.10 $0.159 $0.300
(2.5%) $1.05 $0.152 $0.250
(5%) $1.00 $0.144 $0.200
Aggregate IndustryProduction**
3% 3% 4%
Includes:
Light Vehicle Production
3% 3% 4%
Commercial Truck and Off-highway Production
-1% 1% 3%
Tenneco Total Revenue Outgrowth
Aggregate Industry Production**
29
• We delivered excellent results in 2015
• Carrying that momentum into 2016
– Revenue growth outpacing industry production
– Continuing margin improvement
– Ongoing tax rate reduced by structural changes
– Accelerating our net income and earnings per share growth
• Further growth acceleration in 2017 and 2018
• Great confidence in Tenneco’s future success
Takeaways
30
Appendix:
Pension and OPEB
Pension 2012 2013 2014 4Q’15 2015 2016E
Defined Benefit Expense $21 $26 $15* $4 $15 $15*
Defined Benefit Contributions
$48 $57 $46 $13 $25 $42
OPEB 2012 2013 2014 4Q’15 2015 2016E
Expense $6 $3 $3 $3 $8 $9
Cash Payments $10 $8 $8 $2 $9 $9
$ Millions
* Does not include settlement or curtailment amounts
31
• Leverage ratio– Result: 1.32
– Test: maintain below 3.50
• Interest coverage ratio– Result: 13.99
– Test: maintain above 2.75
• EBITDA cushion of $497M against tightest covenant ratio
• Current performance would meet our tightest covenant ratios through the expiration of the senior credit facility in 2019
Appendix:
Debt Compliance as of December 31, 2015
32
Tenneco’s revenue projections are as of January 2016. Revenue assumptions are based on projected customer production
schedules, IHS Automotive December 2015 forecasts and Power Systems Research January 2016 forecasts.
In addition to the information set forth on this slide and slide 28, Tenneco’s revenue projections are based on the type of
information set forth under “Outlook” in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” as set forth in Tenneco’s Annual Report on Form 10-K for the year ended December 31, 2014. Please see that
disclosure for further information. Key additional assumptions and limitations described in that disclosure include:
• Revenue projections are based on original equipment manufacturers’ programs that have been formally awarded to the
company; programs where the company is highly confident that it will be awarded business based on informal customer
indications consistent with past practices; and Tenneco’s status as supplier for the existing program and its relationship
with the customer.
• Revenue projections are based on the anticipated pricing of each program over its life.
• Revenue projections assume a fixed foreign currency value. This value is used to translate foreign business to the
U.S. dollar.
• Revenue projections are subject to increase or decrease due to changes in customer requirements, customer and
consumer preferences, the number of vehicles actually produced by our customers, and pricing.
Tenneco’s Revenue Projections
33
Adjusted SGA&E as a Percentage of Sales –Reconciliation of Non-GAAP Results
$ Millions, Unaudited
Q4 15 Q4 14 FY 15 FY 14
SGA&E $ 164 $ 183 $ 637 $ 688
Adjustments (reflect non-GAAP(1) measures)
Restructuring and related expenses (6) (12) (12) (16)
Bad debt charge - - - (2)
Pension / Postretirement charges (4) (25) (4) (25)
Adjusted SGA&E (non-GAAP financial measures) (2) $ 154 $ 146 $ 621 $ 645
Adjusted SGA&E (% of Sales) 7.6% 7.3% 7.6% 7.7%
1) Generally Accepted Accounting Principles
2) Tenneco presents the above reconciliation of GAAP to non-GAAP financial measures primarily to reflect the results in a manner that allows a better understanding of the results of operational activities separate from the financial impact of decisions made for the long-term benefit of the company and other items impacting comparability between the periods. Adjustments similar to the ones reflected above have been recorded in earlier periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. Using only the non-GAAP financial measures to analyze earnings would have material limitations because its calculation is based on the subjective determinations of management regarding the nature and classification of events and circumstances that investors may find material. Management compensates for these limitations by utilizing both GAAP and non-GAAP financial measures reflected above to understand and analyze the results of the business. The company believes investors find the non-GAAP information helpful in understanding the ongoing performance of operations separate from items that may have a disproportionate positive or negative impact on the company’s financial results in any particular period.
34
Working Capital as a Percentage of Sales –Reconciliation of Non-GAAP Results
$ Millions, Unaudited
2015 2014 2013 2012 2011 2010 2009 2008
Receivables $ 1,112 $ 1,088 $ 1,060 $ 986 $ 980 $ 826 $ 596 $ 574
Inventory 682 688 656 687 592 547 428 513
Less: Payables 1,376 1,372 1,359 1,186 1,171 1,048 766 790
Working Capital $ 418 $ 404 $ 357 $ 467 $ 401 $ 325 $ 258 $ 297
Revenue $ 8,209 $ 8,420 $ 7,964 $ 7,363 $ 7,205 $ 5,937 $ 4,649 $ 5,916
Percentage of Revenue 5.1% 4.8% 4.5% 6.3% 5.6% 5.5% 5.5% 5.0%
Tenneco presents the above reconciliation for purposes of computing working capital as a percentage of revenue. We include total receivables, inventory and payables in the calculation as these are the components of working capital that we have the most direct control over and because they are most closely related to the cash flow performance of our operations.
35
Adjusted EBIT as a Percentage of Value-Add Revenue – Reconciliation of Non-GAAP Results
1) Tenneco presents the above reconciliation of revenues in order to reflect value-add revenues separately from substrate sales, which include precious metals pricing, which may be volatile. Substrate sales occur when, at the direction of its OE customers, Tenneco purchases catalytic converters or components thereof from suppliers, uses them in its manufacturing processes and sells them as part of the completed system. While Tenneco original equipment customers assume the risk of this volatility, it impacts reported revenue. Excluding substrate sales removes this impact. Tenneco uses this information to analyze the trend in revenues before this factor. Tenneco believes investors find this information useful in understanding period to period comparisons in the company’s revenues.
2) Generally Accepted Accounting Principles
3) Tenneco presents the above reconciliation of GAAP to non-GAAP earnings measures primarily to reflect the results in a manner that allows a better understanding of the results of operational activities separate from the financial impact of decisions made for the long-term benefit of the company and other items impacting comparability between the periods. Adjustments similar to the ones reflected above have been recorded in earlier periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. Using only the non-GAAP earnings measures to analyze earnings would have material limitations because its calculation is based on the subjective determinations of management regarding the nature and classification of events and circumstances that investors may find material. Management compensates for these limitations by utilizing both GAAP and non-GAAP earnings measures reflected above to understand and analyze the results of the business. The company believes investors find the non-GAAP information helpful in understanding the ongoing performance of operations separate from items that may have a disproportionate positive or negative impact on the company’s financial results in any particular period.
4) Tenneco presents adjusted EBIT as a percentage of value-add revenue to assist investors in evaluating our company’s operational performance without the impact of substrate sales.
$ Millions 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Ride Performance revenue $ 2,486 $ 2,609 $ 2,520 $ 2,437 $ 2,444 $ 2,112 $ 1,730 $ 1,938 $ 1,853 $ 1,706
Clean Air revenue $ 5,723 $ 5,811 $ 5,444 $ 4,926 $ 4,761 $ 3,825 $ 2,919 $ 3,978 $ 4,331 $ 2,976
Total revenue $ 8,209 $ 8,420 $ 7,964 $ 7,363 $ 7,205 $ 5,937 $ 4,649 $ 5,916 $ 6,184 $ 4,682
Less: Substrate sales 1,916 1,934 1,835 1,660 1,678 1,284 966 1,492 1,673 927
Value-add revenues (1) $ 6,293 $ 6,486 $ 6,129 $ 5,703 $ 5,527 $ 4,653 $ 3,683 $ 4,424 $ 4,511 $ 3,755
EBIT $ 519 $ 492 $ 424 $ 428 $ 379 $ 281 $ 92 $ (3) $ 252 $ 196
Adjustments (reflect non-GAAP (2) measures)
Restructuring and related expenses 63 49 78 13 8 19 21 40 25 27
Pullman recoveries - - - (5) - - - - - -
Asset impairment charge - - - 7 - - - - - -
Goodwill impairment - - - - 11 - - 114 - -
Bad debt charge - 4 - - - - - - - -
Pension/post retirement charges 4 32 - - - 6 - - - (7)
Environmental reserves - - - - - - 5 - - -
New aftermarket customer changeover costs - - - - - - - 7 5 6
Reserve for receivables from former affiliate - - - - - - - - - 3
Adjusted EBIT (non-GAAP Financial Measures)(3) $ 586 $ 577 $ 502 $ 443 $ 398 $ 306 $ 118 $ 158 $ 282 $ 225
Adjusted EBIT as a % of value-add revenue(4) 9.3% 8.9% 8.2% 7.8% 7.2% 6.6% 3.2% 3.6% 6.3% 6.0%