TENNECO INC. -- letterhead
May 6, 2008
VIA EDGAR
Mr. Michael Fay
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549-7010
RE: TENNECO INC.
FORM 10-K: FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
FILE DATE: FEBRUARY 29, 2008
FILE NO. 001-12387
Dear Mr. Fay:
We are writing in response to your letter dated April 23, 2008, setting
forth the comments of the staff of the Division of Corporation Finance (the
"Staff") on the Form 10-K for the fiscal year ended December 31, 2007 of Tenneco
Inc. (the "Company") filed with the Securities and Exchange Commission on
February 29, 2008. We have carefully considered the Staff's comments and our
responses are set forth below. To facilitate the Staff's review, we have keyed
our responses to the headings and numbered comments used in the Staff's comment
letter, which we have reproduced in italicized text.
Form 10-K: For the fiscal year ended December 31, 2007
Selected Financial Data, page 33
1. Please change the title of your non-GAAP measure from EBITDA as the measure
includes an adjustment for minority interest. For guidance, refer to
question and answer 14 of the Frequently Asked Questions Regarding the Use
of Non-GAAP Financial Measures ("FAQ"), available on our website at
http://www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm.
We will change the title of our non-GAAP EBITDA measure to "EBITDA
including minority interest."
2. The answer to question 8 of the FAQ identifies disclosure that may be
necessary when a non-GAAP performance measure excludes a recurring charge.
(The answer to question 15 of the FAQ discusses the applicability of answer
8 to EBITDA.) Since your non-GAAP performance measure excludes a number of
recurring charges, please consider expanding your disclosure consistent
with the answer to question 8. We note your disclosure, but it seems to be
overly broad and generic. Please provide us any revised disclosure that you
intend to include in future filings.
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In future disclosures that include this measure, we will revise the
disclosure about our use of EBITDA including minority interest as follows
"EBITDA including minority interest is a non-GAAP measure defined as
net income before extraordinary items, cumulative effect of changes in
accounting principle, interest expense, income taxes, depreciation and
amortization and minority interest. We use EBITDA including minority
interest, together with GAAP measures, to evaluate and compare our
operating performance on a consistent basis between time periods and
with other companies that compete in our markets but which may have
different capital structures and tax positions, which can have an
impact on the comparability of interest expense, minority interest and
tax expense. We also believe that using this measure allows us to
understand and compare operating performance both with and without
depreciation expense, which can vary based on several factors. We
believe EBITDA including minority interest is useful to our investors
and other parties for these same reasons.
EBITDA including minority interest should not be used as a substitute
for net income or for net cash provided by operating activities
prepared in accordance with GAAP. It should also be noted that EBITDA
including minority interest may not be comparable to similarly titled
measures used by other companies and, furthermore, that it excludes
expenditures for debt financing, taxes and future capital requirements
that are essential to our ongoing business operations. For these
reasons, EBITDA including minority interest is of value to management
and investors only as a supplement to, and not in lieu of, GAAP
results."
Management's Discussion and Analysis, page 35
Cash flows for 2007 and 2006, page 49
Operating Activities, page 50
3. Please (i) explain to us why one of your European subsidiaries and several of
your Chinese subsidiaries receive negotiable financial instruments from certain
of their OE customers in satisfaction of accounts receivable, (ii) quantify for
us the amount of negotiable financial instruments that were held by your
European and Chinese subsidiaries as of December 31, 2007, (iii) explain to us
any risks inherent in receiving negotiable financial instruments, and (iv)
consider where appropriate, expanding your disclosure to address the information
presented in your response.
The negotiable financial instruments received by one of our European
subsidiaries and some of our Chinese subsidiaries are checks drawn by our OE
customers and guaranteed by their banks that are payable at a future date. The
use of these instruments for payment follows local commercial practice.
Negotiable financial instruments received from OE customers in China and not
redeemed totaled $8 million and $9 million at December 31, 2007 and 2006,
respectively. No negotiable financial instruments were held by our European
subsidiary at December 31, 2007 and 2006. Because negotiable financial
instruments are financial obligations of our customers and are guaranteed by our
customers' banks, we believe they represent a lower financial risk than the
outstanding accounts receivable that they satisfy which are not guaranteed by a
bank.
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We will expand the disclosure starting with our Form 10-Q for the quarter ended
March 31, 2008 to include this additional information as shown below (expanded
language is underscored).
"One of our European subsidiaries receives payment from one of its OE
customers whereby the accounts receivable are satisfied through the
delivery of negotiable financial instruments. We may collect these
financial instruments before their maturity date by either selling them
at a discount or using them to satisfy accounts receivable that have
previously been sold to a European bank. Any of these financial
instruments which are not sold are classified as other current assets
as they do not meet our definition of cash equivalents. The amount of
these financial instruments that was collected before their maturity
date totaled $5 million as of March 31, 2008, compared with $27 million
at the same date in 2007. No negotiable financial instruments were held
by our European subsidiary as of March 31, 2008 or March 31, 2007.
In certain instances several of our Chinese subsidiaries receive
payment from OE customers and satisfy vendor payments through the
receipt and delivery of negotiable financial instruments. Financial
instruments used to satisfy vendor payables and not redeemed totaled
$18 million and $11 million at March 31, 2008 and 2007, respectively,
and were classified as notes payable. Financial instruments received
from OE customers and not redeemed totaled $15 million and $5 million
at March 31, 2008 and 2007, respectively, and were classified as other
current assets. One of our Chinese subsidiaries that issues its own
negotiable financial instruments to pay its vendors is required to
maintain a cash balance at a financial institution that guarantees
those financial instruments. No financial instruments were outstanding
at that Chinese subsidiary as of March 31, 2008. As of March 31, 2007
the required cash balance was approximately $1 million and was
classified as cash and cash equivalents.
The negotiable financial instruments received by one of our European
subsidiaries and some of our Chinese subsidiaries are checks drawn by
our OE customers and guaranteed by their banks that are payable at a
future date. The use of these instruments for payment follows local
commercial practice. Because negotiable financial instruments are
financial obligations of our customers and are guaranteed by our
customers' banks, we believe they represent a lower financial risk than
the outstanding accounts receivable that they satisfy which are not
guaranteed by a bank."
Investing Activities, page 50
4. Please quantify for us and briefly describe the significant components of the
$170 million in plant, property, and equipment you acquired during 2007.
As discussed with Mr. Patrick Kuhn on May 2, cash payments for plant, property
and equipment (PP&E) were $177 million in 2007. Without adjusting for changes in
the balance of accounts payable relating to acquisitions of PP&E, the amount of
PP&E acquired was $170 million in 2006 and $198 million in 2007. The major
components of the $198 million of PP&E we acquired in 2007 are summarized below
(in $ millions).
Machinery and equipment $145
Investments in tooling 24
Investment in land and buildings, including leasehold improvements 23
Other capital investments 6
----
Total $198
Notes to the Consolidated Financial Statements, page 77
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Note 7: Income Taxes, page 95
5. Please identify for us and disclose in MD&A the factors that caused the
difference between the U.S. loss before income taxes and the foreign income
before income taxes, as illustrated in the first table to note 7 of your
consolidated financial statements.
The difference between U.S. losses before income taxes and foreign
income before income taxes results primarily from our capital structure. Because
most of our debt is in the U.S., nearly all of our interest expense is incurred
in the U.S. and in recent years has more than offset our domestic earnings
before interest and income taxes. In 2007, interest expense was $162 million in
the U.S. and $2 million outside the U.S. Interest expense in the U.S. was $134
million and $126 million in 2006 and 2005, respectively. Interest expense
outside the U.S. was $2 million and $7 million in 2006 and 2005, respectively.
We will disclose the domestic and foreign components of interest
expense in the section entitled "Interest Expense, Net of Interest Capitalized"
of MD&A starting with our Form 10-Q report in the first quarter of 2008. We will
also discuss in our future Form 10-K reports the effect of the high level of
interest expense on our U.S. income before income taxes in the Critical
Accounting Policies section of MD&A where we discuss income taxes.
* * * * *
The Company acknowledges that:
- The Company is responsible for the adequacy and accuracy of
the disclosure in the filing;
- Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Securities and Exchange
Commission from taking any action with respect to the filing;
and
- The Company may not assert Staff comments as a defense in any
proceeding initiated by the Securities and Exchange Commission
or any person under the federal securities laws of the United
States.
Please contact the undersigned at (847) 482-5332 if you have any
questions or require additional information.
Sincerely,
/s/ Kenneth R. Trammell
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