second quarter 2017 earnings conference call › ~ › media › files › t › tenneco-ir ›...
TRANSCRIPT
NYSE: TENJuly 28, 2017
Second Quarter 2017 Earnings Conference Call
Agenda
Second Quarter Highlights Brian KesselerChief Executive Officer
Segment Results and Financial Overview
Ken TrammellChief Financial Officer
Outlook and Strategic Priorities Brian KesselerChief Executive Officer
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
Second Quarter Highlights
3
• We delivered record second quarter revenue, outpacing industry production by 6 percentage points
– Double digit growth in commercial truck and off-highway revenues, with growth in all regions
– New LV platforms and increased volume on existing platforms in North America and Europe
• Benefiting from our strong position on North America light trucks
• Delivered record Q2 adjusted earnings – EBIT, net income and earnings per share
• Returns to shareholders – Repurchased 784,000 shares for $44M and paid $13M in dividends
Built to Outperform – diversified business profile
Tenneco Revenue
4
Q2 TOTAL REVENUE $2.3B
Outpacing industry production by 6 percentage points
OE Light Vehicle + 5%*
• Outpacing flat global LV production• NA LV revenue strongly levered to
light truck segment**
CommercialTruck + 26%*
• Outpacing global production of +4%• CT volumes up in all regions• India ramp-up of Bharat Stage IV
commercial truck regulations
Off-Highway & Specialty + 8%*
• Volumes up in Europe and Japan• North America volumes about flat,
an improvement from Q1
Aftermarket ~ flat*• Globally flat• North America and Europe sales in
line with overall markets
VALUE-ADD REVENUE UP 6%*
Ride Performance + 6%*
Clean Air + 6%*
* In constant currency **Light truck segment includes pickups, SUVs, CUVs and work vans (IHS definition)
OE Light Vehicle73%
Aftermarket14%
OH 7%
CT 6%
TOTALREVENUE
Q2 YTD+ 6%* + 7%*
Total revenue breakoutRecord
• YoY comparison includes negative currency impact of $8M; excluding the impact of currency, VA adjusted EBIT margin was 10.4%*
• EBIT driven by strong light vehicle volumes and higher commercial truck and off-highway revenues
• Sequential improvement in NA CA performance this quarter– Expect NA CA to return to normalized margins in Q3/Q4
• Timing of steel economics recoveries and other offsets in RP NA, RP Europe & SA, and CA AP– Expect impacted segments to return to normal margin ranges in Q4/Q1’18
• Other segment expenses improved $10M
Tenneco Earnings
Q2 ADJUSTED EBIT $179M, UP 1% Includes -$8M YoY currency comparison * Constant currency
5
ADJUSTED EPS $1.90, UP 9%• Favorable Q2 tax rate of 26% vs. 28% last year• 4.1 million shares repurchased over L12M
(Q2’17 repurchased 0.8M shares)
VA Adj.EBIT %
Q2 YTD10.1% 9.3%
Year-to-date, VA adjusted EBIT margin 9.6%*, up 10 bps YoY
YoY -40 bps -20 bps
VA Adj.EBIT %
Q2 YTD10.4%* 9.6%*
YoY -10 bps +10 bps
Record
Record
Ride Performance by Segment
6
North America + 3%* Revenue $330M
LV + 6%*
• Outpacing NA industry production down 3%
• New program launches for Ford, Jeep and VW
CTOH +9%* • Outpacing NA CT prod. +1%
AM ~ flat* • In line with market
OE Light
Vehicle55%
Aftermarket37%
OH 1%CT 7%
Europe and South America + 5%* Revenue $264M
LV + 5%*• Outpacing production – Europe
down 3%, South America +16%on strong Brazil export market
CTOH + 26%*• Europe CT growth with Daimler,
Paccar, Scania and Volvo Truck • South America CT trending up
AM ~ flat* • Europe slightly down• South America up 11%
* In constant currency
Asia Pacific + 21%* Revenue $104M
LV + 25%*
• Outpacing China production down 1%, India +8%
• New launches including JLR and SGM
AM ~ flat* • In line with market
Q2 RP TOTAL REVENUE $698M TOTALREVENUE
Q2 YTD+ 6%* + 6%*
Total revenue breakout
Clean Air by Segment
7
North America + 6%* VA Revenue $528M
LV + 8%*• Outpacing NA production down 3%• Volumes up on light truck programs
with GM and Ford
CTOH ~ flat* • Commercial truck revenues in line with production
• Off-highway ~ flat, an improvement from weak YoY Q1 volumes
OE Light Vehicle81%
AM5%
OH 9%
CT 5%
Europe and South America + 6%* VA Revenue $344M
LV + 3%*• Outpacing production – Europe down
3%, South America +16%• Higher volumes on existing platforms
CTOH + 21%* • South America CT trending up• Europe CT growth
• Positive Europe off-hwy volumes• Incremental business with Deutz
* In constant currency
Asia Pacific + 4%* VA Revenue $206M
LV - 2%* • In line with China production -1%
CTOH + 48%*• Strong CT volume growth in China• Ramp-up of Bharat Stage IV
regulations across India
• Increased off-highway volumes with Kubota in Japan
Q2 CA VA REVENUE $1,078M VALUE-ADD
REVENUE
Q2 YTD+ 6%* + 8%*
Total revenue breakout
$ Millions Clean Air Ride Performance
Q2 2017 Q2 2017North
AmericaEurope
& SAAsia
Pacific Total North America
Europe& SA
AsiaPacific Total
Total Revenue $802 $546 $271 $1,619 $330 $264 $104 $698
Value-add revenue $528 $344 $206 $1,078 $330 $264 $104 $698
Adjusted EBIT $58 $33 $35 $126 $47 $8 $17 $72
Adjusted EBIT as a % of value-add revenue 11.0% 9.6% 17.0% 11.7% 14.2% 3.0% 16.3% 10.3%
Q2 2016 Q2 2016North
AmericaEurope& SA
AsiaPacific Total North
AmericaEurope& SA
AsiaPacific Total
Total Revenue $ 771 $ 517 $ 264 $ 1,552 $ 323 $ 250 $ 87 $ 660
Value-add revenue $ 498 $ 330 $ 205 $ 1,033 $ 323 $ 250 $ 87 $ 660
Adjusted EBIT $ 66 $ 29 $ 37 $ 132 $ 49 $ 13 $ 13 $ 75
Adjusted EBIT as a % of value-add revenue 13.3% 8.8% 18.0% 12.8% 15.2% 5.2% 14.9% 11.4%
Results by Product Line and Segment
8
Takeaways:• NA CA results improved sequentially, continue to expect margins to return to normalized levels in Q3/Q4• RP NA, RP E&SA and CA AP Q2 results impacted by timing of steel economics recoveries and other offsets,
expect to return to normalized levels in Q4/Q1’18Please see the tables that reconcile GAAP results with non-GAAP results in Tenneco’s financial results press release. See slide 10 on prior period revisions.
Financial Overview – Q2
Q2‘17 Q2‘16 B/(W) % Change
Total Revenue 2,317 2,212 105 5%
Value-add Revenue Δ 1,776 1,693 83 5%
Adjusted EBIT † 179 178 1 1%
Adjusted EBIT † (% of VA Revenue) 10.1% 10.5% -40 bps
Adjusted EBITDA *† 233 230 3 1%
Adjusted Net Income † 102 100 2 2%
Adjusted EPS ($) † $1.90 $1.75 $0.15 9%
Cash Flow From Operations 119 132 (13) -10%
Net Debt / Adjusted LTM EBITDA*† 1.5x 1.3x -0.2x
Δ Value-add Revenue is total revenue less substrate sales.* Including noncontrolling interests. † Adjusted for restructuring activities, antitrust settlement accrual, warranty settlement, gain on sale of unconsolidated JV, costs related to refinancing and net tax
adjustments. Please see the tables that reconcile GAAP results with non-GAAP results in Tenneco’s financial results press release.
$ Millions, except as noted
9
Q2’17 constant currency: 10.4%
Adjustments
• Antitrust settlement accrual of $132M pre-tax, or $1.60 per diluted share; $45M cash paid to date in Q3
• Restructuring and related expense of $17M pre-tax, or 30-cents per diluted share for cost improvement initiatives and closure of Australian plant
• Warranty settlement of $7M pre-tax, or 8-cents per diluted share
• Gain on sale of unconsolidated JV in Europe of $5M pre-tax, or 8-cents per diluted share
• Debt refinancing charge of $1M pre-tax, or 2-cents per diluted share
• Net tax adjustments of $1M, or 1-cent per diluted share
10
Prior period revisions – Prior period financial results revised for certain immaterial supplier cost reduction payments that we determined should have been recognized in future periods
Tax Expense
Continued optimization of business structure resulting in lower global effective tax rate
Reported tax benefit of $7M, includes tax (benefit)/expense of:• $(47)M on antitrust settlement accrual• $(1)M on restructuring• $(2)M on warranty settlement• $1M on gain on sale of unconsolidated JV• $1M net tax adjustments
Before those Q2 items, adjusted tax expense is $41M• Effective tax rate of 26% in the quarter; year-to-date 27%
Q2 cash tax payments were $28M
Updated 2017 tax expectations• Expect full year effective tax rate between 27% and 28% (prior 29% - 31%)• Expect cash taxes in the range of $110M to $120M (prior $125M to $140M)
11
Revolver $1.2B
Term loan A $0.3B
Due 2019
12
Senior Credit FacilityAmended and Restated – May 2017
$30
$900
$23$0
$300
$600
$900
$1,200
$1,500
$1,800
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
$300
$217
$225
$500
Old facility
New facility
$25 $35$20 $40
$1,420
$225
$500
$0
$300
$600
$900
$1,200
$1,500
$1,800
$2,100
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
$180
$270$10
Undrawn RC Drawn RC $Existing TLA 5.375% Notes due 2024 5.000% Notes due 2026
Undrawn RC Drawn RC $400 TLA 5.375% Notes due 2024 5.000% Notes due 2026
($ Millions, Unaudited)
Revolver $1.6B
Term loan A $0.4B
Due 2022
Takeaways:• Expanding liquidity by $500M• Extending maturity to 2022• Enhancing financial flexibility
Debt and Cash Position
• Interest expense of $19M in the quarter, compared to $18M last year
• Expect 2017 annual interest expense of approximately $72M
$ Millions June 30,
2017 2016
Total Debt $ 1,597 $ 1,360
Cash Balances 335 314
Net Debt $ 1,262 $ 1,046
13
Cash Flow
• Cash generated from operations of $119M, down $13M vs. last year
– Driven by increased use of cash for components of working capital
• Capital expenditures of $91M in the quarter– For full year 2017, we still expect capital expenditures of between $360M and
$390M
• Repurchased 784,000 shares in Q2 for $44M – Since we announced the buyback at the beginning of 2015, we have
repurchased 9.4 million shares for $498M, representing 15% of shares outstanding at that time.
– Remaining authorization of $340M which we expect to complete out of free cash flow through December 2019
• Paid $13M in dividends (Q2 $0.25/share)
14
Mid-Year Highlights
15
2017 year-to-date:• Revenue up 7%, constant currency, while light vehicle production
up 3% YoY in the first half of 2017– Revenue growth outpacing industry production growth by 4
percentage points
• VA adjusted EBIT margin 9.3%; excluding the impact of currency, H1’17 margin of 9.6% is up 10 bps YoY
• Adjusted net income $183M, up 10%
• Adjusted EPS $3.39, up 16%
• Cash flow from operations $110M, up 7%
• Returns to shareholders– $60M share repurchases– $26M dividends paid
Industry Production – YoY% Change
Major Regions Q2’17 Q3’17 FY’17
North America -3% -6% -2%
Europe -3% 4% 3%
South America 16% 21% 14%
China -1% -1% 0%
India 8% 2% 6%
Global Industry Production 0% 2% 1%
Source: IHS Automotive July 2017 global light vehicle production forecast and Tenneco estimates. 16
2017 full year global production forecast of 1%; consistent with previous outlook
Q3 Revenue Outlook – Expect Q3 revenue growth of 7%, assuming constant currency, outpacing light vehicle industry production by 5 percentage points (Light vehicle industry production forecasted to grow 2%*)
• Better than industry performance will be driven by higher light vehicle revenue on higher new and existing programs
• Strong double-digit growth in both commercial truck and off-highway revenues in all regions
• Expect steady YOY contribution from the global aftermarket
• Anticipate minimal currency impact in Q3 based on Q2 quarter end exchange rates
Raising Full Year Revenue Outlook – We now expect full year revenue growth to outpace light vehicle industry production by 5 percentage points for total revenue growth of 6%, assuming constant currency and LV production growth of 1%*
Margin Outlook – Expect H2’17 margins in line with H2’16• Q3 lower and Q4 higher than last year
Outlook – Q3 and Full Year
* Source: IHS Automotive July 2017 global light vehicle production and Tenneco estimates. See slide 26 for our revenue assumptions. 17
Built to Outperform – Diversified Profile
18
Diversified business profile helps manage cyclicality
✔ Product lines Clean Air and Ride Performance
✔ End-market applications Light vehicle, commercial truck, off-highway and aftermarket
✔ Customers623 OE and AM customers
✔ Platforms435 OE platforms; enabling aftermarket growth
✔ Global footprint 91 manufacturing facilities, 15 engineering centers
Over past 10 years, TEN outpaced industry production
by 2x
19
Shareholder value creation – 5 year average Return on Invested Capital† (ROIC) 22.6%2016 ROIC 24.5%
Proven Track Record of Growth
• Since 2006, Tenneco has delivered:– Annual revenue growth double LV industry production– Margin expansion of 360 bps– Annual adjusted EPS growth of 18%
* Source IHS Automotive January 2017 global light vehicles** CAGR
* Value-add Revenue is total revenue less substrate sales. See slide 27 for further explanation. † See reconciliations to U.S. GAAP at end of presentation.
Balance Sheet Strength
20
Returns to Shareholders• Initiated quarterly dividend in 2017 for sustainable
returns, signaling our confidence in our long-term revenue and earnings growth
• Since 2011, repurchased 11.4 million shares for $581M, or 19% of shares outstanding
Reconciliations to U.S. GAAP at end of presentation. * Including noncontrolling interests.
Disciplined Capital Allocation Strategy
1. Fund organic growth• Working capital investment ~ 5.5% of
revenue• Capital expenditure range of 3.5% to 4.0%
of revenue
2. Improve cost competitiveness
3. Balance sheet strength consistent with target leverage ratio of 1x
4. Strategic opportunities• Technology• Customer
5. Capital returns to shareholders
Shareholder value creation – deploying capital to accelerate growth and shareholder returns
4.4x
3.0x
1.9x1.2x
2000 2005 2010 2015/2016
Leverage Ratio(Net Debt/Adjusted EBITDA*)
Accelerating Core Growth
21
1. Global Aftermarket• Best in Class Core Competencies – #1 position in Americas & EMEA• Leveraging competencies and investing in China – maturing to largest vehicle
aftermarket in the world*• Mobility models drive replacement rates
2. Monroe® Intelligent Suspension• Enabled by trends in autonomous driving, electrification and connectivity• Growing installation rate and content per vehicle• Increasing need for engineered NVH solutions
3. Clean Air Commercial Truck & Off-Highway• More powertrains moving into regulation than regulated today* – APAC driven• Higher content per powertrain – proven technology solutions• Anticipated market recovery in Americas & EMEA
4. APAC Light Vehicle Production• 70% of global production growth thru 2030*• Highly competitive technical, manufacturing and supply chain footprint
Multiple and diverse long-term growth drivers* Source: IHS Automotive forecasts, PSR forecasts and/or Tenneco estimates
Tenneco Priorities
22Tenneco is a compelling investment
Current Revenue Long-term Revenue
Aftermarket
Ride Performance (OE)
Clean Air (OE)
• Continue outpacing industry production by 3% to 5+%• Drive margin expansion and improve cash flow performance• Shift investments to become more light vehicle powertrain agnostic as mix evolves
– Invest in Ride Performance technologies aligned with market trends– Increase Aftermarket revenue in portfolio mix
• Build financial strength and maximize flexibilityAftermarket
Ride Performance (OE)
Clean Air (OE)
Source: IHS database; Power Systems Research, Tenneco analysis
2016
Q2
Revenues Value-Add Revenues
Clean Air Division
North America $ 86 $ 58
Europe & South America 79 48
Asia Pacific 36 23
Total Clean Air Division $ 201 $ 129
$ Millions, Unaudited
Appendix: Clean Air – Commercial Truck,Off-Highway and Other Revenue Details
23
2017
Q2Revenues Value-Add
Revenues
Clean Air Division
North America $ 88 $ 58
Europe & South America 89 57
Asia Pacific 54 33
Total Clean Air Division $ 231 $ 148
Appendix:Mid-Year Review
H1‘17 H1‘16 B/(W) % Change
Total Revenue 4,609 4,348 261 6%
Value-add Revenue Δ 3,521 3,319 202 6%
Adjusted EBIT † 328 316 12 4%
Adjusted EBIT † (% of VA Revenue) 9.3% 9.5% -20 bps
Adjusted EBITDA *† 433 419 14 3%
Adjusted Net Income † 183 167 16 10%
Adjusted EPS ($) † $3.39 $2.92 $0.47 16%
Cash Flow From Operations 110 103 7 7%
Δ Value-add Revenue is total revenue less substrate sales.* Including noncontrolling interests. † Adjusted for restructuring activities, antitrust settlement accrual, warranty settlement, gain on sale of unconsolidated JV, pension charges/stock vesting, costs related to refinancing and net tax adjustments. Please see the tables that reconcile GAAP results with non-GAAP results in Tenneco’s financial results press release.
$ Millions, except as noted
24
H1’17 constant currency: 9.6%
Appendix:Pension and OPEB
Pension 2014 2015 2016 Q2’17 2017E
Defined Benefit Expense* $15 $15 $11 $4 $14
Defined Benefit Contributions $46 $25 $38 $5 $32
OPEB 2014 2015 2016 Q2’17 2017E
Expense $3 $8 $10 $3 $10
Cash Payments $8 $9 $9 $4 $10
* Does not include settlement or curtailment amounts25
$ Millions
Appendix:Tenneco’s Revenue Projections
Tenneco’s revenue outlook for 2017 is as of July 2017. Revenue assumptions are based on projected customer production schedules, IHS Automotive July 2017 forecasts, Power Systems Research July 2017 forecasts and Tenneco estimates.
Tenneco’s revenue outlook for 2018 and 2019 is as of January 2017. Revenue assumptions are based on projected customer production schedules, IHS Automotive December 2016 forecasts, Power Systems Research January 2017 forecasts and Tenneco estimates.
In addition to the information set forth on this slide and slide 17, 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, 2016. 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.
26
Adjusted EBIT as a Percentage of Value-Add Revenue – Reconciliation of Non-GAAP Results
27
(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 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006Ride Performance revenue $ 2,530 $ 2,486 $ 2,609 $ 2,520 $ 2,437 $ 2,444 $ 2,112 $ 1,730 $ 1,938 $ 1,853 $ 1,706
Clean Air revenue $ 6,069 $ 5,723 $ 5,811 $ 5,444 $ 4,926 $ 4,761 $ 3,825 $ 2,919 $ 3,978 $ 4,331 $ 2,976
Total revenue $ 8,599 $ 8,209 $ 8,420 $ 7,964 $ 7,363 $ 7,205 $ 5,937 $ 4,649 $ 5,916 $ 6,184 $ 4,682
Less: Substrate sales 2,028 1,916 1,934 1,835 1,660 1,678 1,284 966 1,492 1,673 927
Value-add revenues (1) $ 6,571 $ 6,293 $ 6,486 $ 6,129 $ 5,703 $ 5,527 $ 4,653 $ 3,683 $ 4,424 $ 4,511 $ 3,755
EBIT $ 521 $ 514 $ 487 $ 422 $ 428 $ 379 $ 281 $ 92 $ (3) $ 252 $ 196
Adjustments (reflect non-GAAP (2) measures)
Restructuring and related expenses 36 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 72 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) $ 629 $ 581 $ 572 $ 500 $ 443 $ 398 $ 306 $ 118 $ 158 $ 282 $ 225
Adjusted EBIT as a % of value-add revenue (4) 9.6% 9.2% 8.8% 8.2% 7.8% 7.2% 6.6% 3.2% 3.6% 6.3% 6.0%
Adjusted Earnings Per Share –Reconciliation of Non-GAAP Results
28
2016 2006
Earnings Per Share $ 6.37 $ 1.05
Adjustments (reflect non-GAAP measures):
Restructuring and related expenses 0.57 0.39
Pension / post retirement charges 0.83 (0.10)
New aftermarket customer changeover costs - 0.08
Reserve for receivables from former affiliate - 0.04
Costs related to refinancing 0.27 -
Net tax adjustments (1.96) (0.31)
Adjusted Earnings Per Share $ 6.08 $ 1.15
EBITDA*–Reconciliation of Non-GAAP Results
29
EBITDA* represents earnings before interest expense, income taxes, noncontrolling interests and depreciation and amortization. EBITDA* is not a calculation based upon generally accepted accounting principles. The amounts included in the EBITDA* calculation, however, are derived from amounts included in the historical statements of income. In addition, EBITDA* should not be considered as an alternative to net income or operating income as an indicator of the company’s operating performance, or as an alternative to operating cash flows as a measure of liquidity. Tenneco has presented EBITDA* because it regularly reviews EBITDA* as a measure of the company’s performance. In addition, Tenneco believes that its security holders utilize and analyze its EBITDA* for similar purposes. Tenneco also believes EBITDA* assists investors in comparing a company’s performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA* measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation.
* Including noncontrolling interests.
2016 2015 2010 2005 2000
Net income (loss) attributable to Tenneco Inc. $ 359 $245 $ 39 $ 56 $ (41)
Net income attributable to noncontrolling interests 68 54 24 2 2
Income tax expense (benefit) 2 148 69 26 (27)
Interest expense (net of interest capitalized) 92 67 149 133 188
EBIT, earnings before interest expense, income taxes & noncontrolling interests (GAAP measure) 521 514 281 217 122
Depreciation & amortization of other intangibles 212 203 216 177 151
EBITDA* $ 733 $717 $ 497 $ 394 $ 273
$ Millions, Unaudited
Adjusted EBITDA*–Reconciliation of Non-GAAP Results
30
2016 2015 2010 2005 2000EBITDA* Adjustments (reflect non-GAAP(1) measures): $ 733 $717 $ 497 $ 394 $ 273
Restructuring & related expenses 32 59 14 12 61Pension/post retirement charges 72 4 6 - -
New aftermarket customer changeover costs - - - 10 -Other non-operational items - - - - 4
Adjusted EBITDA* (non-GAAP financial measure)(2) $ 837 $780 $ 517 $ 416 $ 338
(1) Generally Accepted Accounting Principles(2) Tenneco presents the above reconciliation of non-GAAP results in order to reflect the results for full years 2000, 2005, 2010, 2015 and 2016 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. 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 measure 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.
* Including noncontrolling interests.
$ Millions, Unaudited
Net Debt /Adjusted EBITDA*–Reconciliation of Non-GAAP Results
31
2016 2015 2010 2005 2000
Total debt $ 1,384 $1,210 $ 1,223 $ 1,383 $ 1,527
Total cash 349 288 233 141 35
Debt net of cash balances 1,035 922 990 1,242 1,492
Adjusted EBITDA* $ 837 $ 780 $ 517 $ 416 $ 338
Ratio of net debt to adjusted EBITDA* 1.2x 1.2x 1.9x 3.0x 4.4x
Note: We present debt net of cash balances because management believes it is a useful measure of our credit position and progress toward reducing leverage. The calculation is limited in that we may not always be able to use cash to repay debt on a dollar-for-dollar basis.
* Including noncontrolling interests.
$ Millions, Unaudited
2011Dec 31
2012Dec 31
2013Dec 31
2014Dec 31
2015Dec 31
2016Dec 31
Short-term Debt $66 $113 $83 $60 $86 $90
Long-term Debt 1,138 1,052 1,006 1,055 1,124 1,294
Redeemable Noncontrolling Interests 12 15 20 35 42 41
Tenneco Inc. Shareholders' Equity - 246 431 494 427 579
Noncontrolling Interests 43 45 39 39 39 47
Invested Capital $1,259 $1,471 $1,579 $1,683 $1,718 $2,051
Average Invested Capital $1,365 $1,525 $1,631 $1,701 $1,885
Adjusted EBIT 443 500 572 581 629
Effective Tax Rate 34.8% 35.7% 33.6% 32.9% 26.7%
Tax effected Adjusted EBIT 289 321 380 390 461 Return on Invested Capital (ROIC)(3)
(non-GAAP(1) financial measure)(2) 21.1% 21.1% 23.3% 22.9% 24.5%
5 year Average Invested Capital $1,627
5 years Average tax effected Adjusted EBIT 368
5 year Average ROIC 22.6%
Return on Invested Capital –Reconciliation of Non-GAAP Results
32
(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.
$ Millions, Unaudited