Basis of Presentation

9 Months Ended

Sep. 30, 2022

2. Basis of Presentation

Basis of Presentation — Interim Financial Statements

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. These statements include all adjustments (consisting of normal recurring adjustments) management believes are necessary to fairly state the results of operations, comprehensive income, financial position, changes in shareholders’ equity, and cash flows. The Company’s management believes the disclosures are adequate to make the information presented not misleading when read in conjunction with the audited consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on February 24, 2022 (the “2021 Form 10-K”). Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

At September 30, 2022, the Company is in compliance with all its financial covenants under its credit agreement. In connection with the Merger, the Company announced the satisfaction or waiver of all regulatory closing conditions on October 28, 2022, which is described in more detail in Note 1, “Description of Business”. In anticipation of closing the Merger, the Company chose not to amend and extend its credit facility (which matures September 30, 2023), as the expected proceeds from the financing to consummate the Merger will satisfy these obligations prior to becoming due under the credit facility.

In connection with the execution of the Merger Agreement and pursuant to a debt commitment letter dated February 22, 2022 (the “Debt Commitment Letter”), a consortium of financial institutions has committed to provide Buyer, severally but not jointly, upon the terms and subject to the conditions set forth in the Debt Commitment Letter, the debt commitment amount in the aggregate up to $6.0 billion in debt financing.

Notwithstanding the aforementioned, there can be no assurance that the Merger will be consummated on the contemplated timeline or at all. In the event the Merger is not consummated, the Company intends to amend and extend its credit agreement. If the Company is unable to agree to amend and extend its credit agreement with its lenders before maturity of the debt, which occurs within twelve months of the issuance date of these condensed consolidated financial statements, the Company will not be able to repay the entirety of the outstanding debt. The Company has a history of successfully amending its credit agreements, as recently as May 5, 2020, when it was last amended to increase the maximum leverage ratio and decrease the minimum interest coverage ratio after considering the effects of COVID-19. The Company also has a history of positive operating cash flows, as was the case in each of the last three annual reporting periods.

Risks and Uncertainties

There are many uncertainties related to the COVID-19 global pandemic (including the implementation of government lockdowns in China), the semiconductor shortage, the Russia and Ukraine conflict, other supply chain challenges, and the effects of inflation, commodity cost increases and rising interest rates on the overall macroeconomic environment that could negatively affect the Company’s results of operations, financial position, and cash flows. The Company does not have significant operations in Russia or Ukraine compared to its global operations, but its operations in these regions have been disrupted due to the conflict. Sales from the Company’s Russian subsidiaries and sales into Russia and Ukraine from its global subsidiaries were less than 1% of its consolidated “Net sales and operating revenue” for the year ended December 31, 2021.

Redeemable noncontrolling interests

The Company has noncontrolling interests with redemption features. These redemption features could require the Company to make an offer to purchase the noncontrolling interests in the event of a change in control of Tenneco Inc. or certain of its subsidiaries.

At September 30, 2022 and December 31, 2021, the Company held redeemable noncontrolling interests of $37 million and $50 million which were not currently redeemable or probable of becoming redeemable. The redemption of these redeemable noncontrolling interests is not solely within the Company’s control, therefore, they are presented in the temporary equity section of the Company’s condensed consolidated balance sheets. The Company does not believe it is probable the redemption features related to these noncontrolling interest securities will be triggered, as a change in control event is generally not probable until it occurs. As such, these noncontrolling interests have not been remeasured to redemption value.

In addition, at December 31, 2021, the Company held a redeemable noncontrolling interest of $41 million, which became redeemable during the six months ended June 30, 2022 following the third anniversary of the Öhlins acquisition on January 10, 2019. This redeemable noncontrolling interest represented a 9.5% ownership interest in Öhlins Intressenter AB (the “KÖ Interest”) retained by K Öhlin Holding AB (“Köhlin”). This noncontrolling interest was also presented in the temporary equity section of the Company’s condensed consolidated balance sheets and had been remeasured to its redemption value. The Company immediately recognized changes to redemption value as a component of “Net income (loss) attributable to noncontrolling interests” in the condensed consolidated statements of income (loss). During the second quarter of 2022, the Company received a notice from Köhlin of its intention to redeem all of the KÖ Interest. It was redeemed for $53 million and paid in June 2022.

The following is a rollforward of activities in the Company’s redeemable noncontrolling interests:


	Nine Months Ended September 30,
	2022		2021
Balance at beginning of period	$	91	$	78
Net income (loss) attributable to redeemable noncontrolling interests	9		15
Other comprehensive (loss) income	(12)		(3)


Redemption value measurement adjustments	16		21
Noncontrolling interest redemption	(53)		—

Dividends declared to noncontrolling interests	(14)		—
Balance at end of period	$	37	$	111

Earnings (loss) per share

Basic earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average shares outstanding during the period. Diluted earnings (loss) per share reflects the weighted average effect of all potentially dilutive securities from the date of issuance. Actual weighted average shares outstanding used in calculating earnings (loss) per share were as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
Weighted average shares of common stock outstanding	83,697,158	82,310,645	83,484,392	82,171,755
Effect of dilutive securities:
RSUs and PSUs	—	1,792,961	—	1,303,981
Weighted average shares of common stock outstanding including dilutive securities	83,697,158	84,103,606	83,484,392	83,475,736

Weighted average number of antidilutive stock-based awards excluded from the calculation of diluted earnings per share	3,956,186	1,562,928	3,994,043	1,849,872

Assets Held for Sale and Divestitures

At September 30, 2022 and December 31, 2021, the Company had $13 million and $22 million of assets held for sale, which primarily consists of land and buildings, and non-core machinery and equipment across multiple segments that are expected to be sold in the next twelve months, as well as $8 million and $9 million in related environmental and asset retirement obligation liabilities. The Company recognized $2 million of impairment charges on assets held for sale during the nine months ended September 30, 2022.

In the first quarter of 2022, the Company closed on the sale of a non-core business and recognized a loss on the sale of $2 million during the nine months ended September 30, 2022. The Company received $1 million and $2 million of cash proceeds during the three and nine months ended September 30, 2022. The remaining receivable is expected to be collected in the fourth quarter of 2022.

The assets and liabilities held for sale are recorded in “Prepayments and other current assets” and “Accrued expenses and other current liabilities” in the consolidated balance sheets at September 30, 2022 and December 31, 2021.