FOURTH QUARTER AND FULL YEAR Earnings Conference Call February 9, 2016

Transcription

1 FOURTH QUARTER AND FULL YEAR 2015 Earnings Conference Call February 9, 2016

2 Agenda Highlights and Strategic Overview Segment Results Financial Overview Outlook Gregg Sherrill Chairman & CEO Brian Kesseler Chief Operating Officer Ken Trammell Chief Financial Officer 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. 2

3 Fourth Quarter Overview $ Millions, except as noted 4Q 15 4Q 14 B/(W) % Change Total Revenue 2,031 2, % Value-add Revenue 1,549 1, % Adjusted SGA&E (% of Sales) 7.6% 7.3% -0.3% -4% Adjusted EBIT % Adjusted EBIT (% of VA Revenue) 9.6% 8.8% 0.8% 9% Adjusted EBITDA * % Adjusted Net Income % Adjusted EPS ($) % Cash Flow From Operations % 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. 3

4 2015 Overview $ Millions, except as noted 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 % Adjusted EBIT (% of VA Revenue) 9.3% 8.9% 0.4% 4% Adjusted EBITDA * % Adjusted Net Income % Adjusted EPS ($) % Cash Flow From Operations % 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. 4

5 Quarter Highlights 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% 5

6 4Q Revenue 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 4Q 2015 Total Revenue Aftermarket 14% OE CTOH 11% OE Light Vehicle 75% Excluding substrates and currency, revenue up 8% Clean Air up 9% and Ride Performance up 5% 6

7 2015 Highlights and Key Growth Drivers 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 7

8 Global Emissions Regulations Driving Growth LV - Light Vehicles CTrk - Commercial Trucks Off-Hwy - Off-Highway Vehicles * Phased in ** Estimated date *** Possible harmonization with Stage 5 U.S. & CANADA EUROPE CHINA JAPAN SOUTH AMERICA / 2020 US Off-Hwy Tier 4i* EU Off-Hwy Stage 3B* EU CO 2 / GHG 120g PM # LV NOx reductions LV CA CTrk Retrofit* Major Cities NS 5 LV* Brazil: Euro-5 CTrk RICE Stationary US revised NAAQS EU Sound regulation Euro-6 CTrk NS IV CTrk* JP-13 CTrk Chile: Euro-5 LV RUSSIA Euro-4 LV / CTrk INDIA GLOBAL TREATY BS-4 LV / CTrk (13 Cities) BS-IIIA Off-Hwy US Off-Hwy Tier 4f* Marine Tier 4* CA Off-Hwy Large Fleets* US Utility MACT Euro-6b LV EU Off-Hwy Stage 4* Off-Hwy Stage 3A* CA LEV III* Locomotive Tier 4 Off-Hwy Tier 4B Brazil: Off-Hwy Stage 3A (construction) Euro-5 LV / CTrk BS-4 LV / CTrk (50 Cities) NSPS Stationary NOx* CA Off-Hwy Medium Fleets* China 5 LV (Eastern Provinces)** Beijing V CTrk* JP-16 CTrk* Off-Hwy BS- IIIB** Marine Annex VI Tier III NOx US Fed Tier 3 LV* Euro-6c LV RDE LV*,** Beijing 6 LV ** NS V CTrk*,** Beijing VI CTrk** Off-Hwy Stage 3B** Brazil: Off-Hwy Stage 3A (farming) BS-4 LV / CTrk US Fed Tier 3 Light Truck * China NS 5 LV Brazil: Euro-6 CTrk** Marine Annex VI Tier III SOx CA CTrk NOx** EPA Tier 5 Off-Hwy** CA Off-Hwy Small Fleets* EU LV WLTP*,** EU Off-Hwy Stage 5** China NS 6 LV*,** NS VI CTrk*,** Off-Hwy Stage 4*,** Locomotive** Brazil: Off-Hwy Stage 3B** BS-5 LV/CTrk** Off-Hwy BS-IV* 8

9 2015 Revenue 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 2015 Total Revenue Aftermarket 15% OE CTOH 12% OE Light Vehicle 73% Clean Air up 5% and Ride Performance up 4% 9

10 EBIT 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 10

11 Capital Allocation Priorities to Drive Shareholder Value 1. Fund organic growth Working Capital (Receivables + Inventory - Payables) as a % of Revenue 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 TEN averaged 5.3% over the past 8 years Capital Expenditures as a % of Revenue TEN averaged 3.3% over the past 8 years 11

12 Clean Air Division $ Millions 4Q 2015 North America Europe SA & India Asia Pacific Total Total Revenue $ 701 $ 454 $ 294 $ 1,449 Less: Substrate sales 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% North America 4Q 2014 Europe SA & India Asia Pacific Total Total Revenue $ 662 $ 461 $ 272 $ 1,395 Less: Substrate sales 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% 12

13 Clean Air Division 4Q Revenue 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 13

14 Commercial Truck, Off-Highway and Other Revenue Details $ Millions, Unaudited 2015 Q1 Q2 Q3 Q4 FY Value-add Value-Add Value-add Value-add Value-add Clean Air Division North America $ 86 $ 55 $ 87 $ 56 $ 81 $ 54 $ 76 $ 50 $ 330 $ 215 Europe, South America & India Asia Pacific Total Clean Air Division $ 190 $ 118 $ 188 $ 116 $ 177 $ 113 $ 175 $ 111 $ 730 $ 458 Clean Air Division 2014 Q1 Q2 Q3 Q4 FY Value-add Value-Add Value-add Value-add North America $ 87 $ 52 $ 98 $ 57 $ 89 $ 52 $ 81 $ 48 $ 355 $ 209 Europe, South America & India Asia Pacific Total Clean Air Division $ 209 $ 128 $ 232 $ 140 $ 200 $ 119 $ 179 $ 107 $ 820 $ 494 Value-add 14

15 Clean Air Division 4Q EBIT 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 15

16 Ride Performance Division $ Millions 4Q 2015 North America Europe SA & India Asia Pacific 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% Total North America Europe SA & India 4Q 2014 Asia Pacific 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% Total 16

17 Ride Performance Division 4Q Revenue 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 17

18 Ride Performance Division 4Q EBIT 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 18

19 Fourth Quarter Adjustments 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 At current exchange rates, that target converts to $55M Pension non-cash charges of $4M, or 5-cents per diluted share for another 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 19

20 Tax Expense 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 20

21 Debt and Cash Position $ Millions December 31, Total Debt (1) $ 1,210 $ 1,115 Cash Balances Net Debt $ 922 $ 830 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 , 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. 21

22 Cash Flow 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 DSO excl. factoring Working Capital Metrics (L3M): 4Q 15 4Q 14 B(W) (2) DOH DPO 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

23 Pension Liability Reduction 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% 23

24 Track Record of Solid Execution, Profitable Growth and Value Creation Tenneco Total Revenue Outgrowth Industry Production* Averaging mid-teen incrementals on adjusted value-add EBIT margin since 2010 * Value add Revenue is total revenue less substrate sales. See slide 35 for further explanation. At 2014 constant currency 24

25 First Quarter & FY 2016 Outlook 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 light vehicle production forecast, Power Systems Research (PSR) Jan 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 IHS Automotive light vehicle production forecast, Power Systems Research (PSR) Jan commercial truck & bus forecast and PSR off-highway engine production in U.S. and Europe ) 25

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 light vehicle production forecast, Power Systems Research (PSR) Jan commercial truck & bus forecast and PSR off-highway engine production in U.S. and Europe. 26

27 Delivering Growth Exceeding Industry 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 27

28 Revenue Outlook at Constant Currency Tenneco Total Revenue Outgrowth Aggregate Industry Production** Expect 2016 total revenue growth of 5% Aggregate Industry Production** Includes: Light Vehicle Production Commercial Truck and Off-highway Production 3% 3% 4% 3% 3% 4% -1% 1% 3% Revenue growth outpacing market Expect accelerated growth in 2017 and 2018 as new light vehicle regulations start to phase-in 2016 Currency Sensitivity Impact vs Euro RMB Real $1.10 $0.159 $0.300 (2.5%) $1.05 $0.152 $0.250 (5%) $1.00 $0.144 $0.200 **IHS Automotive December 2015 light vehicle production forecast in the 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. 28

29 Takeaways 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 29

30 Appendix: Pension and OPEB $ Millions Pension Q E Defined Benefit Expense $21 $26 $15* $4 $15 $15* Defined Benefit Contributions $48 $57 $46 $13 $25 $42 OPEB Q E Expense $6 $3 $3 $3 $8 $9 Cash Payments $10 $8 $8 $2 $9 $9 * Does not include settlement or curtailment amounts 30

31 Appendix: Debt Compliance as of December 31, 2015 Leverage ratio Result: 1.32 Test: maintain below 3.50 Interest coverage ratio Result: 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

32 Tenneco s Revenue Projections Tenneco s revenue projections are as of January 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, 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. 32

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. 33

34 Working Capital as a Percentage of Sales Reconciliation of Non-GAAP Results $ Millions, Unaudited Receivables $ 1,112 $ 1,088 $ 1,060 $ 986 $ 980 $ 826 $ 596 $ 574 Inventory Less: Payables 1,376 1,372 1,359 1,186 1,171 1, 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. 34

35 Adjusted EBIT as a Percentage of Value-Add Revenue Reconciliation of Non-GAAP Results $ Millions 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, ,492 1, 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 Pullman recoveries (5) Asset impairment charge Goodwill impairment Bad debt charge Pension/post retirement charges (7) Environmental reserves New aftermarket customer changeover costs Reserve for receivables from former affiliate 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% 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. 35