Acquisitions and Divestitures

6 Months Ended

Jun. 30, 2019

ring the six months ended June 30, 2019, the Company made measurement period adjustments based on further evaluation of available information to facts and circumstances that existed as of the acquisition date.

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



	Initial Allocation		Adjustments			Revised Allocation
Cash, cash equivalents and restricted cash	$	277	$	—		$	277
Customer notes and accounts receivable	1,258		—			1,258
Other receivables	62		—			62
Inventories	1,551		(5		)	1,546
Prepayments and other current assets	198		1			199
Property, plant and equipment	1,711		(28		)	1,683
Long-term receivables	48		—			48
Goodwill	825		(40		)	785
Intangibles	1,530		71			1,601
Investments in nonconsolidated affiliates	528		(15		)	513
Deferred income taxes	166		—			166
Other assets	55		(6		)	49
Total assets acquired	$	8,209	$	(22	)	$	8,187

Short-term debt, including current maturities of long-term debt	$	130	$	—		$	130
Accounts payable	957		—			957
Accrued compensation and employee benefits	231		—			231
Accrued income taxes	49		—			49
Accrued expenses and other current liabilities	522		(8		)	514
Long-term debt	1,315		—			1,315
Deferred income taxes	56		—			56
Pension and postretirement benefits	879		—			879
Deferred credits and other liabilities	124		(5		)	119
Total liabilities assumed	4,263		(13		)	4,250
Redeemable noncontrolling interests	96		(8		)	88
Noncontrolling interests	143		(1		)	142
Net assets and noncontrolling interests acquired	$	3,707	$	—		$	3,707

The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of property, plant and equipment; intangible assets; unconsolidated affiliates; deferred income tax assets and liabilities; redeemable noncontrolling interests; and noncontrolling interests.

Goodwill of $412 million was allocated to the Powertrain segment, $318 million was allocated to the Motorparts segment, and $55 million was allocated to the Ride Performance segment. The goodwill consists of the Company's expected future economic benefits that will arise from expected future product sales and synergies from combining Federal-Mogul with its existing portfolio of products. None of the goodwill is deductible for tax purposes.

Other intangible assets acquired include the following:



	Estimated Fair Value		Weighted-Average Useful Lives
Definite-lived intangible assets:
Customer platforms and relationships	$	978	10 years
Technology rights	68		10 years
Packaged kits know-how	54		10 years
Catalogs	40		10 years
Licensing agreements	64		4.5 years
Land use rights	30		42.8 years
Total definite-lived intangible assets	1,234		10.5 years

Indefinite-lived intangible assets:
Trade names and trademarks	367
Total	$	1,601

The Company recorded a $152 million step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation. The Company recognized $3 million and $44 million as a non-cash charge to cost of goods sold during the three and six months ended June 30, 2019 related to the amortization of this step-up, as the acquired inventory was sold. The Company recognized $105 million as a non-cash charge to cost of goods sold during the year ended December 31, 2018 and expects to recognize the remaining amortization of the inventory step-up during 2019.

In addition, the Company acquired $83 million in redeemable noncontrolling interests related to a subsidiary from the Federal-Mogul Acquisition. The Company initiated the process to make a tender offer for the shares it does not own due to the change in control in accordance with local regulations triggered by the acquisition. It is probable these shares will become redeemable during 2019 under the tender offer at a price that is representative of fair value and as a result, the noncontrolling interest is presented in the temporary equity section of the Company’s condensed consolidated balance sheets. The carrying amount for this redeemable noncontrolling interest represents its current redemption value at June 30, 2019.

The Company's condensed consolidated statements of income (loss) for the six months ended June 30, 2019 included net sales and operating revenues of $3,762 million and net income of $17 million associated with the operating results of Federal-Mogul.

Pro Forma Results

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019			2018
Net sales and operating revenues	$	4,504	$	4,618	$	8,988		$	9,298
Earnings (loss) before income taxes and noncontrolling interests	$	171	$	232	$	201		$	458
Net income (loss) attributable to Tenneco Inc.	$	43	$	78	$	(27	)	$	171
Basic earnings (loss) per share of common stock	$	0.54	$	0.97	$	(0.33	)	$	2.13
Diluted earnings (loss) per share of common stock	$	0.54	$	0.96	$	(0.33	)	$	2.12

These pro forma amounts have been calculated after applying the Company's accounting policies and the results presented above primarily reflect: (i) depreciation adjustments relating to fair value adjustments to property, plant, and equipment; (ii) amortization adjustments relating to fair value estimates of intangible assets; (iii) incremental interest expense, net on assumed indebtedness, the new credit facility, debt issuance costs, and fair value adjustments to debt; and (iv) cost of goods sold

adjustments relating to fair value adjustments to inventory. Pro forma adjustments described above have been tax affected using the Company's effective rate during the respective periods.

Assets Held for Sale

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

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



	June 30, 2019		December 31, 2018
Assets
Inventories	$	3	$	33
Other current assets	—		5
Long-lived assets	1		23
Total assets held for sale	$	4	$	61
Liabilities
Accounts payable	$	2	$	21
Accrued liabilities	—		7
Other liabilities	1		11
Total liabilities held for sale	$	3	$	39