Baird 2018 Global Industrial Conference - NYSE: TEN - Tenneco Inc.
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Baird 2018 Global Industrial Conference Chicago, IL NYSE: TEN November 8, 2018
Safe Harbor
Forward-Looking Statements
This communication contains forward-looking statements. These forward-looking statements include, but are not limited to, (i) all statements, other than statements of
historical fact, included in this communication that address activities, events or developments that we expect or anticipate will or may occur in the future or that depend
on future events and (ii) statements about our future business plans and strategy and other statements that describe Tenneco’s outlook, objectives, plans, intentions or
goals, and any discussion of future operating or financial performance. These forward-looking statements are included in various sections of this communication and the
words “may,” “will,” “believe,” “should,” “could,” “plan,” “expect,” “anticipate,” “estimate,” and similar expressions (and variations thereof) are intended to identify forward-
looking statements. Forward-looking statements included in this communication concern, among other things, benefits of the Federal-Mogul acquisition; the combined
company’s plans, objectives and expectations; future financial and operating results; and other statements that are not historical facts. Forward-looking statements are
subject to a number of risks and uncertainties that could cause actual results to materially differ from those described in the forward-looking statements, including the
outcome of any legal proceeding that may be instituted against Tenneco and others following the announcement of the transaction; the possibility that the combined
company may not complete the spin-off of the Aftermarket & Ride Performance business from the Powertrain Technology business (or achieve some or all of the
anticipated benefits of such a spin-off); the possibility that the transaction may have an adverse impact on existing arrangements with Tenneco, including those related to
transition, manufacturing and supply services and tax matters; the ability to retain and hire key personnel and maintain relationships with customers, suppliers or other
business partners; the risk that the benefits of the transaction, including synergies, may not be fully realized or may take longer to realize than expected; the risk that the
transaction may not advance the combined company’s business strategy; the risk that the combined company may experience difficulty integrating or separating all
employees or operations; the potential diversion of Tenneco management’s attention resulting from the transaction; as well as the risk factors and cautionary statements
included in Tenneco’s periodic and current reports (Forms 10-K, 10-Q and 8-K) filed from time to time with the SEC. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements as a prediction of actual results. Unless otherwise indicated, the forward-looking statements in this release are
made as of the date of this communication, and, except as required by law, Tenneco does not undertake any obligation, and disclaims any obligation, to publicly disclose
revisions or updates to any forward-looking statements.
In addition, please see Tenneco’s financial results press release for factors that could cause Tenneco’s future performance to vary from the expectations expressed or
implied by the forward-looking statements herein.
2
Transformation in the Auto Space
Autonomous Driving Mobility Aftermarket Electrification/Hybridization Emissions Regulations
Tenneco is well-positioned to benefit from industry trends
3
Proven Track Record of Growth
(Tenneco only)
Since 2000, Tenneco has delivered: Tenneco Revenue (billion)
Industry Production◆ (million)
6%
• Value-add (VA) Revenue* growth outpacing LV industry production CAGR
• Margin expansion of over 300 bps
• Double-digit annual adjusted EPS growth $7.1B 6%
CAGR
$6.3B 2%
VA Revenue ($ billions) CAGR
3%
Adjusted EBIT† as a CAGR
% of VA Revenue
$4.7B
$3.8B 9.1% 9.1%
$3.1B
• Over past 10+ years, TEN outpaced industry
production by 2x
6.6% • Expect 3x outperformance through 2020
6.4%
6.0%
Leading ROIC† Performance
Total Revenue $ 3.5 $ 4.4 $ 5.9 $ 8.2 $ 9.3 5-year average 22.8%
Substrate Sales $ 0.4 $ 0.6 $ 1.2 $ 1.9 $ 2.2
◆ Source IHS Automotive January 2018 global light vehicles
Built to outperform – revenue growth and investment returns
* Value-add (VA) Revenue is total revenue less substrate sales. See slide 37 for further explanation. † See reconciliations to U.S. GAAP at end of presentation. 4
Transaction Unlocks Significant Value
acquired
Acquisition closed October 1, 2018; separation expected to be complete late 2019
This acquisition builds on Tenneco’s long-term strategy:
• Positions us to realign and then separate Tenneco’s and
Federal-Mogul’s lines of business, allowing them to be
managed according to their unique value propositions
• Enhances our ability to serve customers in both lines
• Opens up new opportunities to drive growth with products that
are complementary to Tenneco’s current product offering
• Building upon the strength, depth and industry experience of
the combined teams
• Significant synergies will drive shareholder value
Focused strategic objectives – moving faster and further to unlock value
5
Creating Two Focused Companies
Transformational acquisition of Federal-Mogul complete; plan to separate into two focused,
industry-leading, publicly traded companies
• Expect annual run-rate earnings synergies of at least $200M and one time working capital synergies of at least $250M
expected within 24 months after closing
Realignment and separation to unlock significant shareholder value
1. The Clean Air Aftermarket business is intended to be allocated to the Ride Performance business
6
Aftermarket & Ride Performance Company
One of the largest global multi-line, multi-brand aftermarket suppliers, with
an outstanding strategic position to capture Asia Pacific aftermarket growth
with a broad range of products. Strong systems capabilities will capitalize on
OE market trends in mobility, electrification/autonomous driving.
Revenue by Geography* Revenue by Product Revenue by Customer
PRO FORMA Volkswagen 7%
APAC 12% Motorparts (OE)
2017 REVENUE AAP / Carquest 6%
15%
$6.4B NAPA / Alliance 6%
Motorparts (AM)
North 37% Ford 5%
America
51% Other O’Reilly 5%
EMEA 56%
37% Ride Performance (OE) General Motors 5%
28%
Pep Boys / Auto Plus 3%
The Group 3%
Daimler 2%
Clean Air (AM) Ride Performance (AM) FCA 2%
5% 15%
Leading positions in established
markets – Americas & EMEA 57% aftermarket Very diversified customer base
* EMEA includes Tenneco South America and APAC includes Federal-Mogul South America 7
Aftermarket & Ride Performance
Aftermarket – Well Positioned to Win in All Markets
Products Position
• Shocks and struts Well-positioned to win in China
• Suspension systems
#1 Globally
• Steering, hubs #1 North America
• Combined strong “house of brands” expected to
• Driveline #3 EMEA capture growth in China
• Brake pads, shoes, linings
#1 North America
‒ Shared investments in salesforce & distribution
• Rotors and drums
‒ Combined brand power & OE pedigree
• Gaskets
• Seals
#1 Globally ‒ Product line & coverage
• Underhood service ‒ Wear and tear products (e.g. brake pads, wipers) can
• Ignition
#3 Globally provide earlier entry into market
• Brake pads, shoes, linings #2 EMEA
Global Vehicles in Operation
Unprecedented growth expected over next 15
• Emission control products #1 NA & EMEA years led by China
• Suspension links, bushings,
mounts, exhaust isolators #1 South America
• Shocks and struts
Trends in Americas and EMEA 1950 1960 1970 1980 1990 2000 2010 2020 2025 2030
• Vehicles in operation continue to grow and age
• Vehicle miles traveled increasing in Americas China forecast to be largest AM market by 2025
• Growing demand for advanced suspension products Source: OCIA, Frost & Sullivan
8
Aftermarket & Ride Performance
Complete “Around the Wheel” Offering
Comprehensive ride performance product portfolio
Upper control arm
Strut top mount
Ball joint
Leader in shocks, Strut assembly Leader in steering,
struts and suspension and
NVH/elastomers Inner and outer tie rods Hub assembly braking
Focused on Focused on
Suspension, Chassis and
including the Braking
Dampers
intelligent suspension (not shown)
portfolio Brake pads
Bushings
Linkages Lower control arm Brake rotors
Improved system level capability to capture intelligent suspension growth trends
Note: AM brands represented here; however, OE offerings are typically branded "Tenneco" or “Federal-Mogul" for respective components
Source: Company websites 9
Powertrain Technology Company
Full Exhaust
Systems
Pistons Bearings
Catalytic Converters
Ignition Valves
One of the largest pure play powertrain suppliers globally positioned
Electronic Valve
to capture content growth due to tightening fuel economy and criteria
pollutant regulations, light vehicle hybridization trends and
Gasoline System Sealing /
commercial truck and off-highway expansion opportunities Particulate Filters Protection Heat Shields
Revenue by Geography* Revenue by End Market Revenue by Customer
PRO FORMA 2017 CTOH
APAC 15% General Motors 15%
REVENUE $10.7B 20%
VA REVENUE $8.5B North Industrial
America 9% Other VW 10%
39%
41%
Light Vehicle
76% Ford 10%
EMEA
39% Cummins 2%
Jaguar 2% FCA 8%
BMW 2% Daimler 6%
Renault Nissan Caterpillar
3% 3%
Leading positions in all geographies ~25% non-light vehicle Well represented across
all global OEMs
* EMEA includes Tenneco South America and APAC includes Federal-Mogul South America 10Powertrain Technology
Complementary Portfolio Brings Unique Competitive Position
Delivering an optimized trade-off between fuel economy and emission control from the cylinder to the tailpipe
MA N AGES: NOx MA N AGES:
• Friction / performance • Conversion efficiency
• Combustion temperature CO PM • Thermal management
• Ignition timing • Precious metal loading
Greenhouse Gases / Criteria Pollutants
Fuel Economy FULL SYSTEM
EMISSION
CONTROL
Regulation Driven
F-M Engine Components Tenneco Hot End Components
System capabilities enable better powertrain efficiency at a lower total system cost
11Powertrain Technology –
Significant Ongoing Light Vehicle Opportunity
Global light vehicle sales volume (M)
120 115 116 118 • ICEs are a significant portion
112 114
105
109 110 111
8% 9% 11% 13% BEV of vehicles moving forward
4% 6% 7%
102
99
100 94
97 1% 14% 15%
• Powertrain technology
90 91 5% 18% 19%
1%
3%
21% 23%
26% HEV
components support
80 hybridization; increased
complexity and content vs.
60 87% ICE
93% 92% 89% 85%
HEV or • Increasing CO2 and criteria
95% 94% 83%
40
97% 96% 79% 76% 73% 70% 66% 61% ICE1
ICE in pollutant emissions
2030 regulations provide organic
20
growth opportunities
• Content per vehicle increases
0 in both cylinder and
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
aftertreatment systems
1. Includes mild hybrid electric vehicle
Note: ICE = internal combustion engine, HEV = hybrid electric vehicle, BEV = battery electric vehicle
Source: BCG estimates
ICE and hybrids expected to be 85%+ of vehicle sales through 2030
12Powertrain Technology –
Significant Commercial Truck and Off-Highway Opportunity
Americas EMEA Asia Pacific
2030 CTOH Production: 1.3 million 2030 CTOH Production: 1.8 million 2030 CTOH Production: 6.6 million
Regulated Diesel 2018: 57% Regulated Diesel 2018: 62% Regulated Diesel 2018: 15%
Regulated Diesel 2030: 93% Regulated Diesel 2030: 94% Regulated Diesel 2030: 89%
Europe 757 1,180 239
504 Japan/Korea
1,026 China
537
1,578 1,399
North America
460
India
1,530
2030 Units (thousands) 133
129
Commercial Truck South America
Off-Highway Engines
CTOH regulated diesel volume may increase by nearly 6 million units by 2030, driven mainly by APAC
Source: PSR April 2018 & Tenneco forecasts, Fuel type = Diesel, NG/LPG, excluding emissions compliance = None 13Significant Synergy Potential
At Least $200M1 Earnings Synergies Expected Within 24 Months
($ in millions)
• Separate, dedicated integration
management team in place
Aftermarket & Sales and • Complementary product portfolio
Supply Chain G&A and Engineering
Ride Performance Go-To Market
reduces level of integration
$115 $35 $50 $30 complexity
‒ 80% - 85% of employees
Estimated costs to achieve of ~$80 million unaffected by integration
‒ No revenue synergies included
‒ No manufacturing synergies
included (footprint/process)
Powertrain • Reduction from three to two
Supply Chain Sales, G&A and Engineering corporate structures generates
Technology
$85 $40 $45 majority of G&A savings
• Expect 75% synergy run rate within
Estimated costs to achieve of ~$70 million one year of close
In addition, one time working capital synergies expected of at least $250M
1. Net of estimated public company costs.
14Key Transaction Progress –
Acquisition Closed on October 1, 2018
Antitrust clearance received from all Communicated net leverage expectation of
jurisdictions future companies at separation
• Expect Aftermarket & Ride Performance company (SpinCo)
On September 12, 2018, shareholders net leverage (net debt/adjusted EBITDA) around 3.0x at
approved all proposals necessary to complete separation – future net leverage goal of 1.5x to 2.0x
the acquisition of Federal-Mogul • Expect Powertrain Technology company (RemainCo) net
leverage around 2.3x at separation – future net leverage
CEOs named to lead two future independent goal of 1.0x to 1.5x
companies
• Brian Kesseler – CEO, Aftermarket and Ride Performance Completed syndication of new credit facility
Company
• Revolver $1.5B (see pricing grid)
• Roger Wood – CEO, Powertrain Technology Company
• Term Loan A $1.7B (see pricing grid)
• Term Loan B $1.7B (L + 275 @ 99.0 OID)
Powertrain Technology is the RemainCo
and will retain the Tenneco name Revolving Credit Facility
Net Leverage*
= 1.50x and =2.50x L+175
Separation into two publicly traded companies expected to be complete late 2019
*Net leverage as defined in credit agreement 15Substantial Value Creation Opportunity
(EV / 2018E
EBITDA)*
Reducing
16.0x
multiple gap Aftermarket & Powertrain
Ride Performance Technology
generates Comparables Comparables
12.0x
value creation
9.9x
opportunity
8.0x 7.0x
4.4x
4.0x
0.0x
Tiger Auto Aftermarket Powertrain Systems
Suppliers Suppliers
*FactSet and Company Filings as of April 6, 2018.
Separation provides investors with distinct investment opportunities
Note: Multiples shown represent medians of respective comp sets. Auto Aftermarket Suppliers includes MPAA, DORM and SMP. Powertrain Systems Suppliers includes BWA, CMI and DLPH.
1617
Key Terms of the Acquisition
• Purchase price of $5.4 billion; represents Enterprise Value / 2017 Adjusted EBITDA of 7.2x
Transaction Terms (5.4x1 including earnings and working capital synergies)
• Consideration funded with a combination of cash and Tenneco equity
• Cash portion of transaction financed through new senior credit facility
• Expected pro forma Net Debt / Adjusted EBITDA of approximately 3x at closing
Financing
• Targeting net leverage profile of ~2.5x by the end of 2019 through profitable growth and debt
reduction funded by cash flow
Icahn Enterprises, LP (“ Seller” ) received:
Ownership ‒ 5.65M Class A Voting Shares, representing 9.9% of Class A shares outstanding
‒ 23.79M Class B Non-Voting Shares, together representing 36.4% of total shares outstanding
• Seller will have one board member from close to separation and on Powertrain Technology after
the separation
Other ‒ Seller's Board representation will not transfer to the Aftermarket Ride Performance business on
separation
• As part of the transaction, the Seller will enter into a customary lock-up and standstill agreement
Timeline • Acquisition closed on October 1, 2018
1. Calculation: Purchase price less working capital synergies ($250M) / Federal-Mogul EBITDA plus earnings synergies ($200M) 18Federal-Mogul Overview
Federal-Mogul Revenue by Segment
Motorparts
Motorparts
2017 42%
• Over 20 strong market-leading brands in the
Revenue: $7.8B global vehicle aftermarket
EBITDA: $753M • Sells and distributes a broad portfolio of
Powertrain aftermarket products globally
58%
• Strong market position in OE braking
• Operates 33 manufacturing sites in 15 countries
and 33 distribution centers in 12 countries
Revenue by Geography* Revenue by End Market
APAC
15%
Industrial 10% Powertrain
CTOH 11% • One of the world’s leading powertrain
component and assembly providers
North
America
• Market leading positions across product
44% Light Vehicle categories
Aftermarket 49%
EMEA 30% • Operates 87 manufacturing sites in 19 countries
41%
Federal-Mogul is a leading global supplier to OEMs and the aftermarket
* APAC includes Federal-Mogul South America
19Tenneco Pro Forma Financial Overview
Tenneco Pro Forma Financial Overview
Total Value-add Adjusted Earnings EBITDA
Pro Forma FY 2017 Revenue ($B) Revenue ($B) EBITDA ($M) Synergies ($M)(2)(3) (w/ synergies) ($M)
Ride Performance (Plus CA AM)(1) $3.1 $3.1 $335 10.8% - -
F-M Motorparts 3.3 3.3 260 7.9% - -
Aftermarket & Ride Performance Company $6.4 $6.4 $595 $115 $710
Value-add EBITDA margin (w/ synergies) 9.3% (11.1%)
Clean Air (Less CA AM)(1) $6.2 $4.0 $533 13.3% - -
F-M Powertrain 4.5 4.5 493 11.0% - -
Powertrain Technology Company $10.7 $8.5 $1,025 $85 $1,110
Value-add EBITDA margin (w/ synergies) 12.1% (13.1%)
Pro Forma Tenneco $17.1 $14.9 $1,620 $200 $1,820
1. The Clean Air Aftermarket business is intended to be allocated to the Ride Performance business.
2. Represents annual run rate synergies expected to be achieved within 24 months.
3. Additional one time working capital synergies of at least $250M expected.
20Unique Strategic Combination
Aftermarket & Ride Performance Company Powertrain Technology Company
RIDE PERFORMANCE CLEAN AIR
One of the world’s leading multi-line One of the largest global pure play
aftermarket and OE suppliers powertrain suppliers
• Premier aftermarket brands, broad product coverage • Portfolio of engine-to-tailpipe products and system
and strong distribution solutions
• Strong portfolio of OE braking and advanced • Excellent position to capture content growth from:
suspension technologies and capabilities 1. Demand for improved engine performance
2. Tightening fuel economy and criteria pollutant
• Outstanding strategic position to regulations
1. Improve go-to-market capabilities in Americas & EMEA 3. Light vehicle hybridization trends
2. Capture Asia Pacific aftermarket growth with a broad 4. Commercial truck and off-highway expansion
range of products opportunities
3. Capitalize on new OE trends in mobility and • Well positioned to further build out the product
electrification / autonomous driving portfolio in an evolving powertrain market
Creates two strong businesses with scale and strategic and financial flexibility to drive long-term value creation
21Strong Balance Sheet
• Debt financing in place
Pro Forma Capitalization
• Robust liquidity over $2 billion
($ in millions)
Tenneco
12/31/2017
Transaction
Adjustments
Pro Forma
12/31/2017
• Cash flow generation enables rapid deleveraging
• Appropriate capital structure for each company will be
Cash & Equivalents $318 $460 $778
Undrawn Revolver 1,356 144 1,500
determined prior to separation
Liquidity $1,674 $604 $2,278
Revolving Credit Facility 244 (244) - Maturity Schedule
Term Loan A 390 610
1,310 1,000
1,700
Term Loan B - 1,700
2,400 1,700
2,400 $mm
Tenneco Notes 725 - 725
2,400
Federal-Mogul Notes - 1,278 1,278
2,000
Other Debt 95 160 255
Less: Unamortized Debt Issuance Costs (13) (98) (111) $1,598
1,600
Total Debt $1,441 $4,106 $5,547
$1,250
Net Debt $1,123 $3,646 $4,769 1,200 $1,022
Adj. EBITDA (before synergies) $868 $753 $1,620
800 $685
Net Leverage 1.3x - 2.9x $500
Net Leverage (after run rate synergies) - - 2.6x
400
$102 $102 $145
Pro Forma Shares Outstanding
0
Class A Shares Outstanding 51.4 5.7 57.1 2019 2020 2021 2022 2023 2024 2025 2026
Class B Shares Outstanding - 23.8 23.8
TLA TLB
Total Shares Outstanding(1) 51.4 29.4 80.9 Notes due 2022 (FM) Floating Notes due 2024 (FM)
Notes due 2024 (FM) Notes due 2024 (TEN)
1. Represents undiluted shares outstanding; pro forma ownership not adjusted for Tenneco’s Funding Adjustment Right. Notes due 2026 (TEN)
22Transformational Step –
Compelling Strategic Rationale
AM & RP PT
Strategically positions each company
Increases scale and broadens portfolio for respective markets
Enhances capabilities to capture growth with focused investments
Significant synergy potential in both new companies
Provides investors with distinct investment opportunities
Extends
Extendsexisting
existingstrategy
strategy and
and accelerates long-termvalue
accelerates long-term valuecreation
creation
23Stronger Together – Expanded Aftermarket
and Ride Performance Product Offering
Tenneco Ride Performance Federal-Mogul Motorparts
1 3
3 1 2
1 2 4
1 5
6
Chassis Brake pads
2 1 3 & Rotors
Suspension Systems 2 3
1 3 1 2 4
3 1 2
Engine (Pistons, Sealing &
2 2 Bearings, Valves) Gaskets
Elastomers
5 6
1 3
Exhaust Systems 1 2 Ignition Underhood
Not shown: wipers Service
Key Brands Legend Key Brands
Tenneco Ride Performance
Federal-Mogul Motorparts
Extensive portfolio of leading global and regional aftermarket brands
24Aftermarket & Ride Performance – Scale
Top Global AM Supplier Benefits of Scale
Aftermarket 2017 Revenues, Global ($B)
6
~6 • Broad product portfolio enables differentiated
5.6
customer and channel support
• Cross-category sales incentives with retailers and
4 3.7
Includes services, diagnostics, etc.
3.6
warehouse distributors
2.3 • Scale to support investments in digital and China,
1.8
2
1.5
1.3
and focused AM branding/marketing capabilities
Batteries only
1.2 1.1 1.0 1.0 0.9
• Rationalization of distribution networks for
0 improved service at lower cost
Tiger
SMP
Federal-Mogul
Bosch (est.)
SKF
Dorman
ZF
Valvoline
JCI
Mahler
KYB
AM/Ride Performance
Delphi Tech.
Tenneco
• Best practice sharing in go-to-market,
manufacturing and distribution
Leading global multi-line aftermarket supplier with a broad product portfolio
Source: Company estimates
25Aftermarket & Ride Performance
...Providing a Platform to Capture Growth in AV Trends and Ride Differentiation
The future of mobility is being re‐engineered
Physical
Vehicle Systems Infrastructure
Chassis Roads and Highways
T
Interior Vehicle to
O Control Systems Infrastructure
T
M Energy
O
O
D
R
A
R
Y Vision and
O Sensing Connected
W Road Detection 5G
Sensor Fusion Vehicle to Vehicle
ADAS System Cybersecurity
AR/VR Over the air
Intelligent Suspension: Reinventing the Ride of the Future
26Aftermarket & Ride Performance
Intelligent Suspension
• Expect advanced suspension to grow from 2% to more than 15% of LV production by 2025,
representing >40% of available market in 2025
• 25% revenue CAGR opportunity for advanced suspension growth through 2025
• Autonomous trend drives additional opportunities
Content per Vehicle
More than
A C T I VE S U S P E N SI ON 6x
RIDE PERFORMANCE
Average
S E M I -A C T I VE S U S P E N S I ON 4x
CO N VE N T I O N A L S U S P E N S I ON $50-$60
A segment F segment
Increasing demand for advanced suspension technologies to differentiate ride
Source: IHS database and Tenneco analysis 27Stronger Together –
Expanded Powertrain Product Offering
Tenneco Clean Air Federal-Mogul Powertrain
1
1 2 4 2 3
5
6 1 2 3
Catalytic Converters Full Exhaust Systems 1
3 5
6
3 4 7 Bearings Ignition Valves
Gasoline
4
Particulate Filters Electronic Valve 4 5 6
Diesel Particulate Filters
6 2 Sealing /
Pistons System
6 Protection Heat Shields
7 5
Selective Catalytic Diesel Oxidation
Reduction Catalyst
Key Trends
Key Trends Legend • CO2 / Fuel economy regulations
Tenneco Clean Air • Engine performance – downsized,
• Tightening emissions regulations
Federal-Mogul Powertrain higher output engines
• Electrification / Hybridization
• Strong OEM investments in ICE
• Strong OEM investments in powertrain
ICE powertrain
One of the largest pure powertrain suppliers with engine to tailpipe solutions,
addressing both greenhouse gas and criteria pollutant emissions
28Stronger Together – Enhanced Commercial Truck
and Off Highway Product Offering
Tenneco Clean Air Federal-Mogul Powertrain
1 2
1 2 3
Catalytic Converters Hydrocarbon
Manifold Dosing
3 Bearings Valves Steel
4 pistons
Gasoline Diesel Particulate
Particulate Filters 2 1 2 4 5
Filters
3 4 5
5 6 3 4 1 Systems Sealing /
Selective Catalytic Mixers 6 Protection Heat Shields
5
Reduction (SCR)
Systems
Key Trends
Key Trends • Tightening emissions regulations,
• Tightening emissions regulations, especially diesel NOx emissions
Legend
especially in India and China • Technology: alternative fuels,
Tenneco Clean Air
• More newly regulated powertrains dual fuel, friction reduction
through 2025 than regulated today Federal-Mogul Powertrain • CTOH industry consolidation
• CTOH industry consolidation • Global engine programs
• Global engine programs
Enhanced capabilities to provide products and systems solutions for the CTOH markets
29Controlled Power Technologies (CPT) Increases
Electrification and Hybridization Systems Capability
Sample Products Description Application
Provides inroads into
the hybrid market and CPT SpeedStart Substitute for standard alternator or starter motor in some Light vehicle
powertrain efficiency applications
technology that will enable Relevant for hybrid and start/stop vehicles
new growth opportunities Recuperates kinetic energy lost during deceleration
for PT Tech in the future Additional CPT variant– Speedtorq– offers torque profiling
COBRA • Stands for Controlled Boosting for Rapid Response Application • Industrial
• Type of water cooled electric supercharger
Recently secured a $100M • Capable of increasing air supply to internal combustion engines
OE contract launching in • Additional Cobra variant– FC– designed for fuel cell vehicles
2021 for development and
series production of TIGERS • Stands for Turbo-generator Gas Energy Recovery System • Commercial
advanced starter
• Converts exhaust gas energy into electrical energy • Light Vehicle
generator systems
• Key component in Clean Air’s Rankine systems and heat • Heavy duty
exchangers designed for CTOH markets
Source: Federal-Mogul
30Tightening Emissions Regulations
Regulatory-driven growth accelerates through the next decade
• Commercial Truck
– 2020-21 / 2023 – China VIa/VIb** Growth of Powertrains Under Regulation
– 2020 – India BS VI (skipping BS V)
– 2023-2027 – CARB & EPA Low NOx** (millions) 2016 2020 2025 CAGR
• Off-Highway CT: Euro VI (equivalent) 1.1 2.2 3.2 13%
– 2019 – EU Stage V Regulated Off-Hwy 1.1 2.1 4.3 16%
– 2020 – China 4R (equiv. EU Stage 3B + DPF) Total 2.2 4.3 7.5 15%
– 2020/2024 – India BS IV/India BS V
• Light Vehicle
Source: PSR production forecast and Tenneco estimates
– 2017-2025 – US Tier 3
– 2017-2021 – Euro 6c/6d Real Driving Emissions
– 2020/2023 – China 6a /6b**
– 2020 – India BS 6 (skipping BS 5)
CTOH market expands with increasing number of vehicles under regulation
** Tenneco estimates 31Clean Air – Hybrid Growth
Continuing Growth in Electrified Powertrains
Increasing space scarcity in hybrids drives higher engineering
System Design Average Value-Add Content
complexity and tougher packaging requirements EU6 Hybrid*
CPV expected to increase 30%-40% by 2025
Time Driver Example Gasoline System Design
$155 - $165
$135 - $145
2015 $110 - $120
Nomination
2015 2020 2025
GPF
Euro 6c
• 2017: 17 hybrid programs in production
Incremental
CPV • 2018: 11 hybrid program launches
$35 - $45
GPF + Resonator
Performance Secured Hybrid Program Wins
• Pre-2016 28 programs
• 2016 16 programs
Incremental • 2017 20 programs
High Voltage
Hybridization Li-Ion CPV
10% - 15% • YTD Q3 2018 9 programs
Battery
Program wins in hybrid electrified powertrains drive future Clean Air growth
* Market weighted average
32Diversified Business Profile
As a % of 2017 Revenue Product Applications
(VA Revenue)
CTOH
11%
Other GM
16.6% 13.9% Aftermarket
18%
2017
Chang'an 0.9% Clean Air
Geely 1.2% LV
49%
O'Reilly 1.2%
Ride
BMW 1.4% Performance
Ford LV
Beijing Automotive 1.5%
13.2% 22%
Advance 1.8% More than 600
NAPA/Alliance 2.0% customers Regions
John Deere 2.0%
(Total Revenue) (VA Revenue)
PSA 2.1% VW Group Rest of
AP
Caterpillar 7.9% 5%
2.6% China
Renault/ 15%
Nissan
3.4% Daimler
Toyota North
3.4%
FAW
6.3% 2017 America
46%
Tata
4.3% SAIC FCA
4.3% 5.0% Europe
5.0% 30%
South America
4%
Diversified business profile enables long-term growth
33Diversified Profile – Robust Platform Mix
As a % of Total 2017 Revenue
34Financial Results Disclaimer
Use of Non-GAAP Financial Information
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”)
included in this presentation, the company has provided information regarding certain non-GAAP financial measures.
These measures include Earnings Before Interest Expense, Income Taxes, Noncontrolling Interests and Depreciation and
Amortization (“EBITDA*”), Net Debt, Value-Add Revenue, Adjusted EBITDA*, Adjusted Earnings Before Interest Expense,
Income Taxes and Noncontrolling Interests (“Adjusted EBIT”), Adjusted Earnings Per Share, and Return on Invested Capital.
Reconciliations of these non-GAAP financial measures to the comparable GAAP measure are included in this presentation.
* Including noncontrolling interests.
35Tenneco Projections
Tenneco’s revenue outlook for 2018 is as of January 2018. Revenue assumptions are based on projected customer production schedules, IHS Automotive January
2018 forecasts, Power Systems Research January 2018 forecasts and Tenneco estimates.
Tenneco’s revenue outlook for 2020 is as of January 2018. Revenue assumptions are based on projected customer production schedules, IHS Automotive January
2018 forecasts, Power Systems Research January 2018 forecasts and Tenneco estimates.
In addition to the information set forth on slide 4, 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, 2017. 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.
• Except as otherwise indicated, 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.
Certain elements of the restructuring and related expenses, legal settlements and other unusual charges we incur from time to time cannot be forecasted
accurately. In this respect, we are not able to forecast EBIT (and the related margins) on a forward-looking basis without unreasonable efforts on account of these
factors and the difficulty in predicting GAAP revenues (for purposes of a margin calculation) due to variability in production rates and volatility of precious metal
pricing in the substrates that we pass through to our customers.
Tenneco’s revenue projection constitutes a forward-looking statement. We also refer you to the cautionary language regarding our forward-looking statements set
forth in the Safe Harbor statement on slide 2.
36Adjusted EBIT as a Percentage of Value-add Revenue –
Reconciliation of Non-GAAP Results
$ Millions
2017 2015 2010 2006 2005 2000
Value-add revenue (1) $ 7,087 $ 6,293 $ 4,653 $ 3,755 $ 3,759 $ 3,127
Clean Air substrate sales $ 2,187 $ 1,888 $ 1,284 $ 927 $ 681 $ 401
Total revenue $ 9,274 $ 8,181 $ 5,937 $ 4,682 $ 4,440 $ 3,528
EBIT $ 417 $ 508 $ 281 $ 196 $ 217 $ 122
Adjustments (reflect non-GAAP (2) measures)
Restructuring and related expenses 72 63 19 27 12 61
Pension / post retirement charges 13 4 6 (7) - -
New aftermarket customer changeover costs - - - 6 10 -
Goodwill impairment 11 - - - - -
Reserve for receivables from former affiliate - - - 3 - -
Antitrust settlement accrual 132 - - - - -
Warranty settlement 7 - - - - -
Gain on sale of unconsolidated JV (5) - - - - -
Other non-operational items - - - - - 4
Adjusted EBIT (non-GAAP Financial Measures) (3) $ 647 $ 575 $ 306 $ 225 $ 239 $ 187
Adjusted EBIT as a % of value-add revenue (4) 9.1% 9.1% 6.6% 6.0% 6.4% 6.0%
(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.
37Adjusted Earnings Per Share –
Reconciliation of Non-GAAP Results
$ Millions 2017 2000
Earnings Per Share $ 3.91 $ (1.18)
Adjustments (reflect non-GAAP measures):
Restructuring and related expenses 1.12 1.21
Antitrust settlement accrual 1.61 -
Goodwill impairment 0.20 -
Warranty settlement 0.09 -
Gain on sale of unconsolidated JV (0.08) -
Pension / post retirement charges 0.17 -
Costs related to refinancing 0.02 -
Tax adjustments from US tax reform 0.28 -
Net tax adjustments (0.43) -
Other non-operational items - 0.07
Adjusted Earnings Per Share (1) $ 6.89 $ 0.10
(1) 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.
38Return on Invested Capital –
Reconciliation of Non-GAAP Results
$ Millions, Unaudited 2012 2013 2014 2015 2016 2017
Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31
Short-term Debt $ 113 $ 83 $ 60 $ 86 $ 90 $ 83
Long-term Debt 1,052 1,006 1,055 1,124 1,294 1,358
Redeemable Noncontrolling Interests 15 20 34 41 40 42
Tenneco Inc. Shareholders' Equity 246 432 495 425 573 686
Noncontrolling Interests 45 39 40 39 47 46
Invested Capital $ 1,471 $ 1,580 $ 1,684 $ 1,715 $ 2,044 $ 2,215
Average Invested Capital $ 1,526 $ 1,632 $ 1,700 $ 1,880 $ 2,130
EBIT $ 422 $ 489 $ 508 $ 516 $ 417
Adjustments (reflect non-GAAP (1) measures)(2)
Restructuring and related expenses 78 49 63 36 72
Antitrust settlement accrual - - - - 132
Goodwill impairment - - - - 11
Warranty settlement - - - - 7
Gain on sale of unconsolidated JV - - - - (5)
Bad debt charge - 4 - - -
Pension / post retirement charges / Stock vesting - 32 4 72 13
Adjusted EBIT (non-GAAP financial measure)(2) 500 574 575 624 647
Effective Tax Rate 35.7% 33.7% 32.9% 26.6% 24.5%
Tax effected Adjusted EBIT $ 321 $ 381 $ 386 $ 458 $ 488
Return on Invested Capital (ROIC)(3)
21.1% 23.3% 22.7% 24.4% 22.9%
(non-GAAP financial measure)(2)
5 year Average Invested Capital $ 1,785
5 years Average tax effected Adjusted EBIT 407
5 year Average ROIC 22.8%
(1) Generally accepted Accounting Principles
(2) Tenneco presents the above reconciliation of non-GAAP results in order to allow a better understanding of our performance.
(3) We consider Return on Invested Capital (ROIC) to be a meaningful indicator of our operating performance, and we evaluate ROIC because it measures how effectively we use the capital we invest in our operations. Tenneco defines ROIC as tax effected
Adjusted EBIT divided by Average Invested Capital, which is the beginning and ending balances of debt, equity and noncontrolling interests. See the tabular calculation above. 39Adjusted EBITDA –
Reconciliation of Non-GAAP Results
$ Millions Year Ended December 31, 2017
Tenneco Federal Mogul Pro Forma
Net Income $274 $361 $635
Interest Expense 73 148 221
Income Tax Expense / (Benefit) 70 (190) (120)
Depreciation and Amorization 224 398 622
EBITDA $641 $717 $1,357
(1)
Adjustments (reflect non-GAAP measures)
Restructuring and related expenses 69 37 106
Pension and post retirement charges 13 - 13
Goodwill and intangible asset impairment 11 11 22
Antitrust settlement accrual 132 - 132
Warranty settlement 7 - 7
Gain on sale of unconsolidated JV (5) - (5)
Loss on debt extinguishment - 4 4
Gain on sale of assets - (7) (7)
Gain from termination of customer contract - (6) (6)
Warranty release - (4) (4)
Release of deferred purchase price payment - (3) (3)
EBITDA contribution of pending asset sales - (2) (2)
Other - 6 6
Adjusted EBITDA (non-GAAP Financial Measure)(2) $868 $753 $1,620
1. Generally Accepted Accounting Principles.
2. 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.
40Reallocation of Clean Air Aftermarket –
Reconciliation of Non-GAAP Results
Year Ended December 31, 2017
$ Millions Clean Air Ride Performance Other Total
Total Revenue $ 6,517 $ 2,757 - $ 9,274
Less: Clean Air Substrates (2,187) - - (2,187)
Reported Value Add Revenue $ 4,330 $ 2,757 - $ 7,087
Less: Reallocation of Clean Air AM (302) 302 - -
Value Add Revenue (post Reallocation of Clean Air AM) $ 4,028 $ 3,059 - $ 7,087
Adjusted EBIT $ 478 $ 255 ($86) $ 647
Plus: D&A 147 77 - 224
Less: Restructuring adjustments included in Other segment - - (3) (3)
Adjusted EBITDA $ 625 $ 332 ($89) $ 868
Less: Allocation of Other segment (54) (35) 89 -
Less: Reallocation of Clean Air AM (38) 38 - -
Adjusted EBITDA (post Reallocation of Clean Air AM)
$ 533 $ 335 - $ 868
(non-GAAP Financial Measure)1
(1) 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.
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